|Issue of Partly paid-up shares and warrants under FDI Policy|
The Department of Industrial Policy & Promotion (DIPP) vide its Press Note No. 9 (2015 series) dated 15th September, 2015, has effected certain changes in the Consolidated FDI Policy, 2015 with effect from 12th May, 2015, which are detailed herein below:
The DIPP has allowed partly paid up shares and warrants as eligible capital instruments for the purpose of the FDI Policy.
The said Press Note provides that the equity shares as eligible FDI instrument shall now include equity shares that have been partly paid up and the term warrant shall include share warrants as provided under the Companies Act, 2013.In respect of the share warrants , please take note that the Companies Act 2013 doesnt allow issue of share warrants.
It is pertinent to mention here that the Reserve Bank of India in this regard had issued a circular on 14th July, 2014 (RBI/2014-15/123 A.P. (DIR Series) Circular No. 3), through which, the Bank had inter-alia provided that partly paid equity shares and warrants issued by an Indian company in accordance with the provision of the Companies Act, 2013 and the SEBI guidelines, shall be eligible instruments for the purpose of FDI and foreign portfolio investment (FPI) by Foreign Institutional Investors (FIIs)/Registered Foreign Portfolio Investors(RFPIs) subject to compliance with FDI and FPI schemes.
Now, the DIPP vide the said Press Note No. 9, has effected the said change in the Consolidated FDI Policy, 2015.
Further, a new Para has been inserted in the Consolidated FDI policy which provides that an Indian company may issue warrants and partly paid up shares to a person resident outside India (PROI) subject to terms and conditions as stipulated by the Reserve Bank of India in this behalf from time to time.
As on date, the Reserve Bank of India, in this regard, has inter-alia prescribed that the pricing of the partly paid up shares and warrants shall be determined upfront and at least 25% of the total consideration amount shall be received upfront and the balance consideration shall be received within a period of 12 months (subject to certain exception) in case of equity shares and within a period of 18 months in case of warrants.
Facility Sharing Arrangements between Group Companies
The DIPP has clarified on 15th September, 2015 that the facility sharing agreements within two group companies will not be treated as real estate business provided the arrangements are at arms length price.
Facility sharing agreements between group companies through leasing/sub-leasing arrangements for the larger interest of business will not be treated as real estate business within the provisions of the Consolidated FDI policy circular of 2015, subject to the condition that “such arrangements are at arms length price in accordance with relevant provisions of Income Tax Act 1961 and annual lease rent earned by the lessor company does not exceed 5 per cent of its total revenue.