Transfer of Shares from Resident to Non Resident or vice-a-versa | Procedure | FEMA | Companies Act

Share transfer or transfer of shares is a simple process with which the owner of the share, transfers the rights and liabilities of the share to another person for a consideration or by way of gift. Though the securities or other interest of any member in a public company shall be freely transferable, such transfer mandatory involves the Compliance of Companies Act, 2013 , the Indian Stamp Act and the Foreign Exchange Management Act, 1999 on share transfer depends upon the residential status of the Parties involved. 

In this article we will discuss the procedure for transfer of shares between Resident to Non Resident or vice-a-versa.

Pricing guidelines

Transferred by Resident to a Non-Resident

Price of shares transferred by way of sale by resident to a non-resident where the shares of an Indian company are:-

• In case of Listed Company- negotiated price for shares of companies listed on a recognized stock exchange in India which shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines, as applicable, provided the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares. The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant.

• In case of Non-Listed Company- negotiated price for shares of companies which are not listed on a recognized stock exchange in India which shall not be less than the fair value to be determined by a SEBI registered Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow (DCF) method.

Transferred by Non-Resident to a Resident

Price of shares transferred by way of sale by non-resident to a resident where the shares of an Indian company shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident.

Reporting Requirement under FEMA

1. The actual inflows and outflows on account of such transfer of shares shall be reported by the AD branch in the R-returns in the normal course.
2. Reporting of transfer of shares between residents and non-residents and vice- versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the AD Category-I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given time frame would be on the transferor / transferee, resident in India.
3. The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a KYC check by the remittance receiving AD Category-I bank at the time of receipt of funds. In case, the remittance receiving AD Category-I bank is different from the AD Category-I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category-I bank carrying out the transaction along with the Form FC-TRS.
4. The AD bank should scrutinise the transactions and on being satisfied about the transactions should certify the form FC-TRS as being in order.
5. When the transfer is on private arrangement basis, on settlement of the transactions, the transferee/his duly appointed agent should approach

• The investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD branch that the remittances have been received by the transferor/payment has been made by the transferee.
• On receipt of the certificate from the AD, the company may record the transfer in its books.

6. On receipt of statements from the AD bank , the Reserve Bank may call for such additional details or give such directions as required from the transferor/transferee or their agents, if need be.

Documents to be attached while filing Form FC-TRS

1. Consent letters signed by the transferor and the transferee, or their duly appointed agent, indicating the details of transfer.
2. Where the consent letter is signed by an agent, the power of attorney authorizing the agent to purchase/sell shares by the transferor / transferee.
3. Share purchase agreement.
4. The shareholding pattern of the investee company before and after transfer of shares showing equity participation of residents and non-residents category-wise.
5. If the transferor is an NRI, the copies of RBI approvals evidencing the shares held by them on repatriation/non-repatriation basis. The sale proceeds shall be credited to non-resident (external) rupee account / non-resident ordinary rupee account, as applicable.
6. Valuation certificate.
7. Undertaking from the transferee to the effect that the pricing guidelines have been adhered to.
8. No objection/ tax clearance certificate from the Income Tax Authority/ Chartered Account.
9. FIRC/Outward remittance certificate and KYC to be attached at the specified attachment.
10. Additional documents in respect of sale of shares by a person resident outside India
11. Board Resolution of Investee Company to approve and acknowledge the securities transfer.
12. Securities Transfer Deed in Form SH-4

Requirement under the Companies Act 2013 for Transfer of Shares

1. When the transaction is settled, the transferee/his duly appointed agent should approach the investee company to record the transfer in their books along with the certificate in the Form FC-TRS from the AD Bank.
2. Execution of securities transfer form (“STF”) i.e. SH-4 will need to be executed by transferor and transferee and submitted to company within two months of its execution.
3. Stamp duty @ 0.25% on the value of the shares (i.e. consideration or the fair value, whichever is higher) will need to be paid in Indian rupees.
4. The company may record the transfer in its books/registers by delivering the share certificates of all securities transferred within a period of one month from the date of receipt by the company of the instrument of transfer.

Late Submission Fees prescribed by RBI for Delay Reporting of FC-TRS

The amount involved in reporting (in Rs.)	Late Submission Fee (LSF) as % of the amount involved *	The maximum amount of LSF applicable
Up to 10 million	0.05 percent	Rs.1 million or 300% of the amount involved, whichever is lower
More than 10 million	0.15 percent	Rs.10 million or 300% of the amount involved, whichever is lower

*The % of LSF will be doubled every twelve months. The floor (minimum applicable amount) for LSF will be Rs. 100

Penalty under Companies Act for Non Compliance of Procedure of Transfer of Shares

Section 56 of the Companies Act 2013 states that if a Company makes any default in the provisions of transfer of Shares than the

• company shall be punishable with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 5,00,000/- and
• every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/-.

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