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The Companies (Issue of Global Depository Receipts) Rules, 2014 prescribes the procedure and conditions for the issue of global depository receipts.
Brief History of the Rules
The Companies (Issue of Global Depository Receipts) Rules, 2014 have been created by the Central Government with the powers granted under Section 41 read with Section 469 of the Companies Act, 2013. The Rules were first notified by Notification No. GSR 252(E) F No. 1/21/13-CL-V dated 31/03/2014.
Act means the Companies Act, 2013.
Section means a section of the Companies Act, 2013.
Scheme means the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 or any modification or re- enactment of it.
2. Procedures Under the Rules
- If a company is eligible under the Scheme and the relevant provisions of the Foreign Exchange Management Rules and Regulations then the company may issue depository receipts.
- The Board of Directors of the company intending to issue depository receipts have to pass a resolution authorising the company to do it.
- The company also has to take prior approval of the shareholders by a special resolution for the issue of depository receipts.
- The depository receipts have to be issued by an overseas depository bank appointed by the company and the underlying shares have to be kept in the custody of a domestic custodian bank.
- The company has to ensure that all the applicable provisions of the Scheme and the rules, regulations or guidelines issued by the Reserve Bank of India are complied with, before and after the issue of depository receipts.
- The company has to appoint a merchant banker or a practicing chartered accountant or a practicing cost accountant or a practicing company secretary to oversee all the compliances relating to the issue of depository receipts and the compliance report taken from such merchant banker or practicing chartered accountant or practicing cost accountant or practicing company secretary has to be placed at the meeting of the Board of Directors of the company or of the committee of the Board of Directors authorised by the Board in this regard to be held immediately after closure of all formalities of the issue of depository receipts.
- The depository receipts can be issued by way of public offering or private placement or in any other matter prevalent abroad and may be listed or traded in an overseas listing or trading platform.
- The depository receipts may be issued against issue of new shares or may be sponsored against shares held by shareholders of the company in accordance with such conditions as the Central Government or Reserve Bank of India may prescribe or specify from time to time.
- The underlying shares have to be allotted in the name of the overseas depository bank and against such shares, the depository receipts shall be issued by the overseas depository bank abroad.
- A holder of depository receipts may become a member of the company and is entitled to vote on conversion of the depository receipts into underlying shares after following the procedure provided in the Scheme and the provisions of the Companies Act, 2013.
- Until the conversion of depository receipts, the overseas depository is entitled to vote on behalf of the holders of depository receipts in accordance with the provisions of the agreement entered into between the depository, holders of depository receipts and the company in this regard.
- The proceeds of issues of depository receipts has to either be remitted to a bank account in India or deposited in an Indian bank operating abroad or any foreign bank which is a Scheduled Bank under the Reserve Bank of India Act, 1934 having operations in India with an agreement that the foreign bank having operations in India shall take responsibility for furnishing all the information which may be required and in the event of sponsored issue of depository receipts, the proceeds of the sale has to be credited to the respective bank accounts of the shareholders.
- The offer document, by whatever name called and if prepared for the issue of depository receipts should not be treated as a prospectus or an offer document and also will not apply to a depository receipts offer document.
- Up till the redemption of depository receipts, the name of the overseas depository bank has to be entered in the Register of Members of the company.
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