India: Government Of India Relaxes Norms For Foreign Acquirers In Public M&As

Last Updated: 13 September 2013
Article by Ruchi Biyani, Sahil Shah and Nishchal Joshipura

The Reserve Bank of India ("RBI") in continuance with its measures of liberalization of policies governing foreign direct investment ("FDI") in India has, through its circular no. 38 dated September 6, 2013 ("Circular"), relaxed the restriction on non-resident investors in terms of acquisition of shares on the floor of stock exchange. In a commendable move which indicates regulatory sensitivity to boost FDI flows in the country, the Circular now permits a non-resident investor in control (including a non-resident Indian) to acquire shares of a listed Indian company on the floor of stock exchange through a registered broker under the FDI route.


Following are the different regimes for foreign investment into India:

  1. Foreign Direct Investment regime allows a non-resident investor to invest in securities of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by Person Resident Outside India) Regulations, 2000 ("TISPRO") ("FDI Regime");
  2. Foreign Institutional Investors ("FII") regime allows a non-resident investor registered with Securities and Exchange Board of India ("SEBI") to invest in listed securities of Indian companies under Schedule 2 of TISPRO and in accordance with SEBI (Foreign institutional investors) Regulations, 1999 ("FII Regime");
  3. Non-Resident Indian ("NRI") regime allows NRIs to invest in securities of Indian companies on repatriation and non-repatriation basis under Schedules 3 and 4 of TISPRO respectively ("NRI Regime");
  4. Foreign Venture Capital Investment regime allows a non-resident investor registered with SEBI to invest in securities of an Indian company under Schedule 6 of TISPRO and in accordance with SEBI (Foreign Venture Capital Investor) Regulations, 2000; and
  5. Qualified Foreign Investor ("QFI") regime allows a non-resident investor to invest in listed securities of Indian companies under Schedule 8 of TISPRO ("QFI Regime").

Further, prior to the Circular, only FIIs, NRIs and QFIs were permitted to acquire shares of listed Indian company on the floor of stock exchange under the FII Regime, NRI Regime and QFI Regime respectively. A non-resident investor was not permitted to acquire shares of a listed company on the floor of stock exchange under the FDI Regime without prior approval of Foreign Investment Promotion Board ("FIPB"). Due to this restriction, acquisition of shares under the creeping acquisition route1 under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code") was becoming increasingly difficult and the non-resident promoters of listed Indian companies were unable to consolidate their shareholding in such listed company.

It is essential to note that in case of transfer of shares of listed Indian company on the floor of stock exchange, the transferor is subjected to capital gains tax at the rate of 15% in case of short term capital gains2 or shall be tax exempt if the gains are long term capital gains3 provided the securities transaction tax has been paid on the transaction. This advantage is not available in case of transfers off the floor of stock exchange; thereby, placing a non-resident investor under FDI Regime in a dis-advantageous position as compared to FIIs, QFIs and NRIs.

Amendment and Conditions

The acquisition of shares under the FDI Regime by a non-resident investor on a recognised stock exchange would be allowed subject to fulfillment of the following conditions:

Acquisition of shares by non-resident investor who is already in control.The non-resident investor intending to acquire shares of the listed Indian company on the floor of stock exchange under FDI Regime shall be in control of listed Indian company in terms of the Takeover Code.4

The relaxation will be a great relief to offshore promoters or strategic investors who are in control of listed Indian companies and intend to increase their stake in the listed company through acquisition of shares on the floor of stock exchange. However, first time acquisition of shares and control through on-market transaction under FDI Regime is still not permitted and will be subject to prior approval of FIPB.

Amount of consideration. The amount of consideration for acquisition of shares by non-resident for on-market transactions may be paid either by way of (i) inward remittance through normal banking channels or (ii) debit to the non-resident (external) rupee or foreign currency (non-resident) account; by debit to non-interest bearing Escrow account (in Indian Rupees) maintained in India in case of NRIs.

Additionally, in situations where the non-resident investor who is in control of the listed Indian company and is entitled to receive dividend declared by such listed company, consideration amount for acquisition of shares on the floor of stock exchange may also be paid out of the dividend amount credited to specially designated non –interest bearing rupee account.

Pricing. Acquisition of shares on the floor of stock exchange shall be at market price of the shares of the listed Indian company quoted on the stock exchange or limitation on pricing as applicable in case of block5 or bulk deals6. However, the Circular states that pricing for subsequent transfer of shares to a non-resident shareholder shall have to be in accordance with pricing norms as applicable.

The above pricing restriction implies that subsequent to acquisition of shares by a non-resident shareholder, any transfer to another non-resident shareholder under the FDI Regime shall be subject to pricing norms as applicable in case of transfer of shares of listed Indian company7. This is shift from the current position where no pricing guidelines are applicable for any transfer of shares between two non-resident shareholders under the FDI Regime. A possible reason for the aforesaid pricing restriction could be to ensure that the acquisition of shares on the floor of stock exchange and subsequent transfer to non-resident shareholder is not done with a view to avoid pricing norms applicable in case of transfer of shares of listed Indian company off the floor of stock exchange.

Other conditions to apply. All restrictions in terms of sectoral cap, entry route, reporting requirement, documentation under the extant FDI policy and Foreign Exchange Management Act, 1999 and regulations shall continue to be applicable for the above acquisition of shares by non-resident investor on the floor of stock exchange.


Considering the current state of capital markets in India owing to various micro as well as macro-economic factors, this relaxation will help augur foreign investments in India. The relaxation is one of the many steps taken by the Government to boost foreign capital flows into India. The liberalization brought about by the Circular will indeed provide lot of comfort to non-resident promoters to increase their stake in their Indian subsidiary especially when share price of many Indian companies are lower than their valuation.


  1. Regulation 3(2) of the Takeover Code provides that an acquirer who already holds 25% or more shares or voting rights but less than maximum permissible non-public shareholding of the target company, can either by themselves or through persons acting in concert with them, acquire further upto 5% shares of voting rights in the financial year ending 31st March.
  2. Gains arising from transfer of shares held for a period of 12 months or less are short term capital gains.
  3. Gains arising from transfer of shares held fo r a period of more than 12 months are long term capital gains .
  4. Takeover Code defines "control" to include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner:
  5. A 'block deal' is a deal undertaken in a separate trading window provided in order to facilitate trades which involve a minimum quantity of 500,000 shares or a transaction value of a minimum of INR 50 million in a single transaction. This trading window is available for the first 35 minutes of trading on trading day, and the orders may be placed within a range of +/- 1% from the then existing market price/previous day's closing price as the case may be.
  6. A 'bulk deal' constitutes a single/multiple transaction(s) in a single trading day which results in purchase/selling of more than 0.5% of the total listed equity shares of a company on the stock exchange by a single client.
  7. In case of transfer of shares of an Indian company which are listed on a recognized stock exchange in India, the price at which the transfer to non-resident, shall not be less than the price at which preferential allotment of shares can be made under the SEBI guidelines, as applicable, provided the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ruchi Biyani
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions