Reserve Bank of India (RBI) vide A.P. (DIR Series) Circular No.
94 January 16, 2014 has reviewed its circular on Conversion of
External Commercial Borrowing and Lumpsum Fee/Royalty into Equity.
The circular provides that an Indian company can issue equity
shares against External Commercial Borrowings (ECB) subject to
conditions and pricing guidelines as prescribed by the Reserve Bank
from time to time regarding value of equity shares to be
With respect to the issue relating to how the rupee amount
against which equity shares are to be issued shall be arrived at,
RBI has clarified that where the liability sought to be converted
by the company is denominated in foreign currency as in case of
ECB, import of capital goods, etc. it will be in order to apply the
exchange rate prevailing on the date of the agreement between the
parties concerned for such conversion.
Moreover, RBI will have no objection if the borrower company
wishes to issue equity shares for a rupee amount less than that
arrived at as mentioned above by a mutual agreement with the ECB
The circular provides that the fair value of the equity shares
to be issued shall be worked out with reference to the date of
Further, it has been clarified that the above mentioned
principle of calculation of INR equivalent shall apply mutatis
mutandis, to all cases where any payables/ liability by an Indian
company such as, lump sum fees/ royalties, etc. are permitted to be
converted to equity shares or other securities to be issued to a
non-resident subject to the conditions stipulated under the
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
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