India: Capital Markets Hotline

Access To Global Capital Markets Made Easier!
  • New Depository Receipts Scheme notified, made applicable from December 15, 2014;
  • Depository Receipts may be issued on the back of all securities as defined under the Securities Contract Regulation Act, 1956;
  • Issuance of unsponsored Depository Receipts allowed;
  • New Depository Receipts Scheme largely based on the recommendations made by the Sahoo Committee. At our webinar conducted recently, M.S. Sahoo (chairman of the Sahoo Committee) and our panel of experts have discussed the various legal, tax, and commercial implications of the Depository Receipts Scheme. To view the event material, please click here.


Depository Receipts (DRs) in India were governed by the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 ("1993 Scheme") as amended from time to time. On October 21, 2014, the Ministry of Finance ("MoF") notified ("Notification"), the Depository Receipts Scheme, 2014 ("New Scheme") by virtue of which issuance of DRs has been taken out of the 1993 Scheme and is now regulated by the New Scheme. The New Scheme has come into effect from December 15, 2014.

The New Scheme is based on the recommendations of the Sahoo Committee, which under the chairmanship of Mr. M.S. Sahoo undertook a comprehensive review of the 1993 Scheme and proposed significant deregulation and rationalisation of the manner in which Indian companies could tap global capital markets.

Framework Of The New Scheme

Broadly, the Scheme has been introduced with the intention to provide the Indian firms, domestic investors and foreign investors freedom to access financial markets within the prevalent foreign investment regime in India. Therefore, the provisions of the New Scheme are aimed at bringing the DR route at par with any other foreign investment. Following are the key provisions introduced under the New Scheme:

  1. Requirement for approval for issuance of DR

    As per the 1993 Scheme, for issuance of DRs, prior approval of the Ministry of Finance (MoF) was required. The New Scheme has done away with this requirement. However, the issue and transfer of permissible securities to a person resident outside India to form the underlying for DRs would still require approvals, if any, under the Foreign Exchange Management Act, 1999 ("FEMA").
  2. Eligibility Criteria

    1. For Issuer of Underlying Securities
      Under the New Scheme, any Indian company, listed or unlisted, private or public or any other issuer or person holding permissible securities is eligible to issue or transfer permissible securities to a foreign depository for the purpose of issuance of DRs. Except for persons barred from accessing international capital markets, no restrictions as such have been set out under the New Scheme as regards Indian issuer of securities.
    2. For Issuer of DRs
      As per the New Scheme, a regulated entity having the legal capacity to issue DRs i.e. a person which is not prohibited from acquiring permissible securities; is regulated in a permissible jurisdiction; and has the legal capacity to issue depository receipts in the permissible jurisdiction, may issue DRs. As per the 1993 Scheme, only a bank authorized by the issuer of underlying securities could issue DRs.
    3. For Custodian of DRs
      As per the New Scheme, any regulated entity having legal capacity for underlying securities can act as the custodian. A domestic custodian has been defined to include a custodian of securities, an Indian depository, a depository participant, or a bank and having permission from SEBI to provide services as custodian. Under the 1993 Scheme, only a banking institution could be a domestic custodian of DRs.
    1. Kinds of issue of DRs

      Under the New Scheme, both the category i.e. sponsored and unsponsored DRs can be issued on the back of permissible securities. Unsponsored DRs can be issued on the back of listed permissible securities only if two conditions are fulfilled viz., (i) DRs give the holder the right to issue voting instructions and (ii) the DRs are listed on an international exchange. International exchange as per the New Scheme has been defined to mean a platform for trading of depository receipts in a permissible jurisdiction is accessible to the public for trading and provides pre-trade and post-trade transparency to the public.
    2. Permissible Securities

      As per the 1993 Scheme, DRs could be issued only on the back of equity shares of Indian companies and were not required to be in dematerialized form. Further, the 1993 Scheme suggested that DRs could be issued on the back of foreign currency convertible bonds ("FCCBs") as well. As per the New Scheme, DRs can be issued on the back of any permissible securities ("Permissible Securities"). Permissible Securities has been defined to include securities as defined in the Securities Contracts (Regulation) Act, 1956 ("SCRA") whether issued by a company, mutual fund, government or any other issuer and similar instruments issued by private companies. All permissible securities are required to be in dematerialized form before they can be used as underlying for a DR issue.
    3. Jurisdictions for Issue of DRs

      As per the 1993 Scheme, a listed company could issue DRs in any jurisdiction across the world for listed companies and unlisted companies could issue DRs in either FATF or IOSCO compliant jurisdictions. As per the New Scheme, a company, whether listed or unlisted, can issue shares for issue of DRs only in permissible jurisdictions ("Permissible Jurisdictions"). As per the New Scheme, a Permissible Jurisdiction would be a foreign jurisdiction that satisfies twin requirements i.e. the foreign jurisdiction is a member of the FATF and the securities regulator of that jurisdiction is a member of IOSCO. The New Scheme provides a list of 34 permissible jurisdictions as on date of the Notification.
    4. Pricing

      The New Scheme does not prescribe any specific pricing norms for issuance of DRs. The only restriction imposed under the New Scheme is that Permissible Securities shall not be issued to a foreign depository at a price less than the price applicable to a corresponding mode of issue of such securities to domestic investors under applicable laws. In accordance with FEMA, pricing of ADR/GDR issues shall be done as per guidelines issued by the Reserve Bank of India ("RBI").For the purpose of issue of depository receipts for listed companies, the minimum pricing norms as applicable under the SEBI Guidelines shall be complied with.
    5. End Use Restrictions

      Partial end – use restrictions were specifically imposed on utilization of funds raised from issuance of DRs, these funds being prohibited from being deployed or invested in real estate and stock market. The New Scheme does not provide for any end-use restrictions on the deployment of proceeds from issuance of DRs. Although, there are no restrictions on deployment of proceeds from issue of DR, restrictions as applicable under FEMA shall still be applicable.
    6. Public Shareholding and Voting Rights

      As per the New Scheme, the voting rights should be exercised by the foreign depository in respect of underlying securities; the depository may take instructions from DR holders. If the DR holders have the right to instruct the depository to vote on their behalf, they would have the same obligations as if it is the holder of the underlying equity shares under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011("Takeover Code"). Also, shares of a company underlying the DRs shall form part of 'public shareholding' (i) if the holder of the securities has the right to issue voting instructions and (ii) such DRs are listed on an international stock exchange. The New Scheme has attempted to bring this provision in line with the Takeover Code which includes all depository receipts carrying an entitlement to exercise voting rights in the target company within the definition of 'shares' for the purpose of the Takeover Code. Therefore, this would enable the DRs with voting rights to count for public shareholding as well as have obligations under the Takeover Code.
    7. Market Abuse

      Sahoo Committee was conscious of the risk that DR Route may expose the Indian securities market to potential market abuse and money laundering. No explicit provision as the authority which is to be approached in case of market abuse was provided under the 1993 Scheme. To put an oversight mechanism, New Scheme categorically provides that use of DRs or market of DRs which has potential to cause or has caused abuse of securities market in India shall be dealt with by SEBI.

    Lack of Tax Clarity

    As regards, tax treatment, presently under the Income Tax Act, 1961 ("IT Act"), a non-resident to non-resident transfer of DRs is exempt from capital gains tax, whilst a non-resident to resident transfer of DRs is subject to capital gains tax at a 10% rate (exclusive of surcharge and education cess).

    However, DRs, as envisaged under the IT Act at present, do not include DRs issued on the back of securities other than ordinary shares. The provisions of the IT Act would need to be amended to also include DRs issued on the back of other Permissible Securities for the above benefits to be carried forward.

    Further, at present, there is no specific exemption from capital gains tax contained in the IT Act for conversion of a DR. The Sahoo Committee had recommended conversion of DRs into Permissible Securities and vice versa should not be considered as taxable events in India since DRs since the underlying securities should be treated as the same asset. We await amendments in the next budget adding an exemption similar to the exemption provided to conversion of compulsorily convertible debentures.

    Also, clarity would also be needed as regards the computation of holding period for capital gains tax as to whether the period for which the foreign investor holds the DRs should also be taken into account for calculating the capital gains tax arising out of sale of the underlying securities by the foreign investor in the domestic market.

    One of the other recommendations of the Sahoo Committee was that tax treatment for tendering shares by shareholders of a listed company for issue of DRs should be aligned with that of sale of shares on a stock exchange. As of now, this recommendation has not been incorporated in the IT Act either.

    We await amendments in relation to taxation of transactions in relation to DRs in the next budget.


    A green flag for unsponsored DRs would mean that present investors in Indian companies can initiate DR programmes without the co-operation of the company. Existent investors will now have a viable exit option along with access to an alternate foreign capital markets. For instance, this will allow private equity and venture capital funds to cash out in case the Indian company delays or resists going public.

    The New Scheme has also attempted to plug loopholes in the 1993 Scheme thereby providing filip to the foreign investment regime in India, although some concerns continue to remain unaddressed.

    Treating DR Route like any other foreign investment route, Sahoo Committee had recommended that DRs be allowed to be issued on the back of all kinds of securities such as bonds, debentures, government securities, units of mutual fund, ETFs, derivative products and on a range of securities. However, for DRs to be issued on the back of debt, such as non-convertible bonds issues by an Indian company, the depository will need to be qualified as an Foreign Portfolio Investor, for instance besides other challenges. The exchange control regime needs to be amended to allow DRs to go beyond the FDI regime.

    However, as detailed above, until there is clarity on the tax treatment of issuance and conversion/transfer of DRs and the Indian tax policy is made compatible with global standards, the New Scheme may not be able to achieve much.

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.

Sriram Govind
In association with
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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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