DEPOSITORY RECEIPTS SCHEME, 2014 - F. NO. 9/1/2013-ECB - Indian Law

NOTIFICATION DATED 21-10-2014 The Central Government hereby notifies the following scheme for facilitating issue of depository receipts outside India, namely : 1. Preliminary 1. This Scheme may be called the Depository Receipts Scheme, 2014. 2. The provisions of this Scheme shall be implemented by the respective authorities, namely, the Reserve Bank of India, the Securities and Exchange Board of India, Ministry of Corporate Affairs and Ministry of Finance. 2. Definitions 1. In this Scheme, unless the context otherwise requires : (a) 'depository receipt' means a foreign currency denominated instrument, whether listed on an international exchange or not, issued by a foreign depository in a permissible jurisdiction on the back of permissible securities issued or transferred to that foreign depository and deposited with a domestic custodian and includes 'global depository receipt' as defined in Section 2(44) of the Companies Act, 2013 ; (b) 'domestic custodian' means a custodian of securities, an Indian depository, a depository participant, or a bank and having permission from SEBI to provide services as custodian under this Scheme; (c) 'foreign depository' means a person which: i. is not prohibited from acquiring permissible securities; ii. is regulated in a permissible jurisdiction; and iii. has legal capacity to issue depository receipts in the permissible jurisdiction; (d) 'ICDR' means the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.(e) 'Indian depository' means a depository under the Depositories Act, 1996; (f) 'International exchange' means a platform for trading of depository receipts, which: i. is in a permissible jurisdiction; ii. is accessible to the public for trading; and iii. provides pre-trade and post-trade transparency to the public; (g) 'permissible jurisdiction' means a foreign jurisdiction: i. which is a member of the Financial Action Task Force on Money Laundering; and ii. the regulator of the securities market in that jurisdiction is a member of the International Organisation of Securities Commissions; Explanation: The list of permissible jurisdictions as on the date of notification is at Schedule 1. (h)'permissible securities' mean 'securities' as defined under section 2(h) of the Securities Contracts (Regulation) Act, 1956 and include similar instruments issued by private companies which: i. may be acquired by a person resident outside India under the Foreign Exchange Management Act, 1999 ; and ii. is in dematerialised form. (i) 'right to issue voting instruction' means the right of a depository receipt holder to direct the foreign depository to vote in a particular manner on its behalf in respect of permissible securities. (j)'SEBI' means the Securities and Exchange Board of India. (k) 'unsponsored depository receipts' mean depository receipts issued without specific approval of the issuer of the underlying permissible securities. 2. Words and expressions used and not defined in this Scheme but defined in the Securities Contracts (Regulation) Act, 1956 or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 or the Companies Act, 2013 or the Reserve Bank of India Act, 1934 or the Foreign Exchange Management Act, 1999 or Prevention of Money Laundering Act, 2002 and rules and regulations made thereunder shall have the meanings respectively assigned to them, as the case may be, in those Acts. 3. Eligibility 1. The following persons are eligible to issue or transfer permissible securities to a foreign depository for the purpose of issue of depository receipts: (a) any Indian company, listed or unlisted, private or public; (b) any other issuer of permissible securities; (c) any person holding permissible securities; which has not been specifically prohibited from accessing the capital market or dealing in securities. 2. Unsponsored depository receipts on the back of listed permissible securities can be issued only if such depository receipts: (a)give the holder the right to issue voting instruction; and (b)are listed on an international exchange. 4. Issue 1. A foreign depository may issue depository receipts by way of a public offering or private placement or in any other manner prevalent in a permissible jurisdiction. 2. An issuer may issue permissible securities to a foreign depository for the purpose of issue of depository receipts by any mode permissible for issue of such permissible securities to investors. 3. The holders of permissible securities may transfer permissible securities to a foreign depository for the purpose of the issue of depository receipts, with or without the approval of issuer of such permissible securities, through transactions on a recognized stock exchange, bilateral transactions or by tendering through a public platform. 5. Limits 1. The aggregate of permissible securities which may be issued or transferred to foreign depositories for issue of depository receipts, along with permissible securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such permissible securities under the Foreign Exchange Management Act, 1999. Explanation: For example, foreign investment in a company is ordinarily permissible up to x%. However, it can be increased up to y% with the approval of the company in the general body meeting. If no such approval has been granted, the permissible securities on which depository receipts may be issued, whether sponsored or unsponsored, cannot exceed x%. 2. The depository receipts may be converted to underlying permissible securities and vice versa, subject to the limit in sub-paragraph 1. 6. Pricing The permissible securities shall not be issued to a foreign depository for the purpose of issuing depository receipts at a price less than the price applicable to a corresponding mode of issue of such securities to domestic investors under the applicable laws. Explanation 1: A company listed or proposed to be listed on a recognized stock exchange shall not issue equity shares on preferential allotment to a foreign depository for the purpose of issue of depository receipts at a price less than the price applicable to preferential allotment of equity shares of the same class to investors under the ICDR. Explanation 2: Likewise, where a listed company makes a qualified institutional placement of permissible securities to a foreign depository for the purpose of issue of depository receipts, the minimum pricing norms for such placement as applicable under the ICDR shall be complied with. 7. Rights and duties 1. The foreign depository shall be entitled to exercise voting rights, if any, associated with the permissible securities, whether pursuant to voting instruction from the holder of depository receipts or otherwise. 2. The shares of a company underlying the depository receipts shall form part of the public shareholding of the company under the Securities Contracts (Regulation) Rules, 1957, if: (a) the holder of such depository receipts has the right to issue voting instruction; and (b) such depository receipts are listed on an international exchange. 3. In the cases not covered under sub-paragraph 2, shares of the company underlying depository receipts shall not be included in the total shareholding and in the public shareholding for the purpose of computing the public shareholding of the company. 4. A holder of depository receipts issued on the back of equity shares of a company shall have the same obligations as if it is the holder of the underlying equity shares if it has the right to issue voting instruction. 8. Obligations 1. The domestic custodian shall: (a)ensure that the relevant provisions of the Scheme related to the issue and cancellation of depository receipts is complied with; (b)maintain records in respect of, and report to, Indian depositories all transactions in the nature of issue and cancellation of depository receipts for the purpose of monitoring limits under the Foreign Exchange Management Act, 1999 ; (c)provide the information and data as may be called upon by SEBI, the Reserve Bank of India, Ministry of Finance, Ministry of Corporate Affairs and any other authority of law; and (d)file with SEBI a copy of the document, by whatever name called, which sets the terms of issue of depository receipts issued on the back of securities, as defined under section 2(h) of the Securities Contracts (Regulation) Act, 1956, in a permissible jurisdiction. Explanation: This obligation under sub-paragraph 1d is in respect of securities, and not permissible securities. 2. Indian depositories shall coordinate among themselves and disseminate: a. the outstanding permissible securities against which the depository receipts are outstanding; and, b. the limit up to which permissible securities can be converted to depository receipts. 3. A person issuing or transferring permissible securities to a foreign depository for the purpose of issue of depository receipts shall comply with relevant provisions of the Indian law, including the Scheme, related to the issue and cancellation of depository receipts. 9. Approval 1. Any approval necessary for issue or transfer of permissible securities to a person resident outside India shall apply to the issue or transfer of such permissible securities to a foreign depository for the purpose of issue of depository receipts. 2. Subject to sub-paragraph 1, the issue of depository receipts shall not require any approval from any government agency if the issuance is in accordance with the Scheme. Explanation: If the issue of permissible securities underlying the depository receipts does not require approval under the Foreign Exchange Management Act, 1999 , no approval will be required for issue of such depository receipts. 10. Market Abuse 1. It is clarified that any use, intended or otherwise, of depository receipts or market of depository receipts in a manner, which has potential to cause or has caused abuse of the securities market in India, is market abuse and shall be dealt with accordingly. 2. For the purpose of this paragraph, 'market abuse' means any activity prohibited under Chapter VA of the Securities and Exchange Board of India Act, 1992. 11.Repeal and Savings 1. The Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 shall be repealed except to the extent relating to foreign currency convertible bonds. 2. Notwithstanding such repeal,anything done or any action taken under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme , 1993, shall be deemed to have been done or taken under the corresponding provisions of this Scheme. Schedule 1 : Permissible Jurisdictions 1. Argentina 2. Australia 3. Austria 4. Belgium 5. Brazil 6. Canada 7. China 8. Denmark 9. European Commission 10. Finland 11. France 12. Germany 13. Greece 14. Hong Kong, China 15. Iceland 16. Ireland 17. Italy 18. Japan 19. Republic of Korea 20. Luxembourg 21. Mexico 22. The Netherlands 23. New Zealand 24. Norway 25. Portugal 26. Russian Federation 27. Singapore 28. South Africa 29. Spain 30. Sweden 31. Switzerland 32. Turkey 33. United Kingdom 34. United State