Presently, foreign investments in India are governed by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”), the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (“Reporting Regulations”) (in respect of the payment and reporting requirements for foreign investments) and the consolidated foreign direct investment policy circular of 2020 (“FDI Policy”). The reporting requirement for transfer of equity instruments between persons resident in India and persons resident outside India is to be undertaken by way of form FC-TRS. This article deals with the conflicting provisions under the NDI Rules and the FDI Policy in respect of the filing of form FCTRS.


Prior to the notification of the NDI Rules and the Reporting Regulations, the legal framework in respect of foreign investments was provided under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 (“TISPRO 2017”) and prior to TISPRO 2017, the relevant legal framework for foreign investments was the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (“TISPRO”).

Previously, Regulation 10A(b)(i) read with paragraph 10 of Schedule 1 of TISPRO provided that “in case of transfer of shares or convertible debentures or warrants of an Indian company by way of sale from a person resident in India to a person resident outside India or vice versa, the transferor / transferee, resident in India, shall submit to the AD bank a report in the Form FC-TRS, as specified by the Reserve Bank from time to time, within 60 days from the date of receipt or payment of the amount of consideration.” Further, the then prevailing consolidated foreign direct investment policy circular 2016 provided for similar language in this regard. However, paragraph 6.2 of the consolidated foreign direct investment policy circular 2016 stated that “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. (“Transfer Recordal Provisions”).” The Transfer Recordal Provisions were inserted by the Reserve Bank of India (“RBI”) vide A.P. (DIR Series) Circular No. 16 dated October 4, 2004.

Accordingly, based on the reading of the provisions under TISPRO and the Transfer Recordal Provisions, in case of a negotiated transaction, form FC-TRS was supposed to be filed within 60 days of receiving the consideration amount and the company could record the transfer only once form FC-TRS was approved by the authorised AD bank.

In case of a private company, the articles of association restrict the free transferability of shares and in this regard, the restrictions, inter alia, require the share transfer to be approved by the board of directors of the company. Therefore, practically, in case of resident to non resident share transfers of private companies, this meant that the transfer of shares would legally be effective only once form FCTRS was filed and approved, post which the board of directors could approve / record the share transfer. However, commercially, the parties want the share transfer to be completed on the same date on which the remittance of the consideration is effected. Hence, two possible options were available: i) form FC-TRS was filed immediately on the same date as the remittance date (as opposed to the 50th day since the timeline under law was 60 days) so that the share transfer could be effected at the earliest once the AD bank approved the form; or ii) the company (by way of its board) approves the transaction subject to the filing of Form FC-TRS and its approval from the AD bank. Once the form was filed and approved, the company would pass another resolution to record the same. Option ii) was commonly followed by parties.

However, when TISPRO 2017 was notified, Regulation 13 (4) of TISPRO provided that “the form FCTRS shall be filed with the Authorised Dealer bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier”.  This provision has been retained under Regulation 4(3) of the extant Reporting Regulations. This appears to mean that filing of FC-TRS is now a post facto requirement and can be filed even once the ‘transfer’ is effected (which technically means that the board of the private company can pass the resolution recording the transfer without any qualifications, post which Form FC-TRS can be filed).

Whilst paragraph 4(h) of Annexure 2 of the FDI Policy reflects the same language, that is, for filing of form FCTRS to be undertaken from the date of transfer or receipt of consideration, paragraph 6.2 of Section 1 of the FDI Policy retains the Transfer Recordal Provisions. The implication of the Transfer Recordal Provisions under the extant FDI Policy is that it contradicts the aforementioned change in the Reporting Regulations, since the Transfer Recordal Provisions permit the company to record the share transfer only once form FC-TRS is filed.

The FDI Policy states that in case of any conflict between the provisions of the policy and the NDI Rules, the latter will prevail. However, the conflicting provisions mentioned above are set out under the Reporting Regulations (as opposed to the NDI Rules). Further, pursuant to the notification of TISPRO 2017, whilst the FDI Policy reflects the change in the law in respect of filing form FCTRS within 60 days from date of transfer or receipt of consideration, it has yet retained the Transfer Recordal Provision – accordingly, either the retention of such provision is intentional or is an oversight.

An alternative explanation (especially after reading the compounding orders on delayed filing of form FCTRS) may also be that the regulator understands ‘transfer’ under Regulation 4(3) of the Reporting Regulations to mean the exchange of shares between parties and not strictly as understood to mean under company law (that is, requiring the board of a private company to also record the transaction for the transfer to be validly completed). In respect of a compounding order, in the matter of Rivigo Services Private Limited, the RBI has compounded recordal of share transfer by a company prior to the receipt of an acknowledged copy of form FCTRS –the recordal of the share transfers by the company was post the notification of TISPRO 2017 and still compounding was sought.

In light of the ambiguity / inconsistency in the provisions under the Reporting Regulations with the FDI Policy, the practice followed by companies vary. Whilst a number of companies are treating form FC-TRS as a post filing requirement in accordance with the new provisions, certain companies still prefer to record the transfer of shares subject to the filing of form FCTRS along with the authorised dealer bank’s acknowledgement.

It would be interesting to see if the next consolidated foreign direct policy circular addresses and clarifies this point.

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