Regulation 12 - Pledge of shares of company incorporated in India - Foreign Exchange Management (Transfer or Issue Of Security By A Person Resident Outside India) Regulations, 2000

These rules have been superseded vide New Regulations New Regulations of 2017 1 [12 Pledge of shares of company incorporated in India- (i) Any person being a promoter of a company registered in India (borrowing company), which has raised external commercial borrowing, may pledge the shares of the borrowing company or that of its associate resident companies for the purpose of securing the external commercial borrowing (ECB) raised by the borrowing company: Provided that no person shall pledge any such share unless no-objection has been obtained from a bank which is an authorised dealer. (ii) A bank which is an authorised dealer may grant 'no objection' for pledge of shares under clause (i) after satisfying itself of the following: (a) the underlying ECB is strictly in compliance with the extant ECB guidelines, (b) the loan agreement has been signed by the lender and the borrower, (c) there exists a security clause in the Loan Agreement requiring the borrower to create charge on financial securities, and (d) the borrower has obtained Loan Registration Number (LRN) from the Reserve Bank (Amendment) Rules, 2009. Provided, that the 'no objection' may be granted by a bank which is an authorised dealer subject to the following conditions. Namely:- (a) the period of such pledge shall be co-terminus with the maturity of the underlying external commercial borrowing: (b) in case of invocation of pledge, transfer shall be in accordance with the extent FDI policy and directions issued Reserve Bank; (c) the Statutory Auditor has certified that the borrowing company will utilize/has utilised the proceeds of the external commercial borrowing for the permitted end-uses only.] 2 [(iii) Any person being a non-resident investor of a company registered in India (resident investee company) may pledge the shares or convertible debentures of that company to a bank in India to secure the credit facilities being extended to that company for bona fide purposes, subject to the AD bank satisfying itself of the compliance of the conditions stipulated by the Reserve Bank, from time to time, in this regard (iv) Any person being a non-resident investor of a company registered in India (resident investee company) may pledge the shares or convertible debentures of that company to an overseas bank to secure the credit facilities being extended to the non-resident investor or non-resident promoter of the resident investee company or its overseas group company subject to the AD bank satisfying itself of the compliance of the conditions stipulated by the Reserve Bank from time to time in this regard. ] 3 [(v) Any person being a non-resident investor of a company registered in India and listed on a recognised stock exchange/s in India (resident investee company), may pledge the shares of that company, in favour of a Non-Banking Financial Company in India, to secure the credit facilities being extended to that resident investee company for bonafide business purposes, subject to the AD bank satisfying itself of the compliance of the conditions stipulated by the Reserve Bank, from time to time, in this regard.] 4 [(vi) Any person who is a non-resident and holds units of an Investment Vehicle in accordance with these Regulations, may pledge such units to secure credit facilities being extended to the non-resident investor.] ************ Notes: Inserted vide notification no. 202/2009 RB dated 10-11-2009 w.e.f. 11-7-2008 Inserted vide Notification No. FEMA. 242/2012-RB Dated 19-10-2012 Inserted vide Notification No. FEMA.305/2014-RB , Dated May 22, 2014 Inserted vide Not. 355/2015-RB - Dated 16-11-2015