Guidelines Revised for foreign investment in preference shares

Revised guidelines for foreign investment in Preference Shares were issued vide Press Note of April 30, 2007 in supersession of the earlier Press Note dated 31.07.1997. The implication of this revision is that foreign investment coming as fully convertible preference shares would be treated as part of share capital, while other types of preference shares, namely non-convertible, optionally convertible, shall be required to conform to ECB guidelines/ECB caps.

Government has received several representations that the revision of these guidelines has adversely affected the business plans of entities that were at an advanced stage of issuing preference shares.

Government has examined the representations and has decided that in respect of such institutions/corporate/companies which have taken verifiable and effective steps prior to April 30, 2007; exemption could be granted from the purview of the revised guidelines announced in the Press Note of 30.04.07.

To be eligible for such exemptions, the institution/corporate should have taken verifiable and effective steps. "Verifiable steps" would be actions that have foot-prints in public domain and hence verifiable with reference to these foot prints. "Effective steps" would be actions that go beyond simple intention to act and should be such that they bind the parties conclusively. Such cases would cover the following:

a) Action under section 81 (1A) of the Companies Act 1956 should have been taken prior to 30.04.07

b) Application for permission from the Government, where necessary, should have been received before 30.04.07.

Parties claiming benefit under the above exemption should complete the process of issuing the shares and receipt of money in lieu of issue of such shares by 31.07.07.

Source : Press Information Bureau

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