THEissue
of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository
Receipt Mechanism) Scheme, 1993 was formulated at a time when India's capital
markets were substantially closed to foreign capital and the domestic financial
system was not very well developed. The Scheme of 1993, envisages Depository
Receipts (DRs) being issued only against equity shares as underlying securities
and restricts such issuances to raising fresh capital by issuance of shares
sponsored by the issuing company only. In the last two decades, the equity
market has developed considerably with sophisticated market infrastructure
with active participation by both domestic and foreign investors as capital
controls have been eased substantially. In this period, the Indian legal
and regulatory system for financial markets has evolved with substantial
changes. These developments warranted a fresh look at the Scheme governing
the issuance of Depository Receipts (DRs).
The first such examination was done by the U.K. Sinha Working Group on Foreign Investment set up in 2010 which recommended a rationalization of capital flows management regulations. Since this Working Group did not go into details of the 1993 Scheme, ihe Ministry of Finance on September 23, 2013 constituted a Committee under the chairmanship of Mr M. S. Sahoo, Secretary, the Institute of Company Secretaries of India, to comprehensively review the current Scheme. This committee has submitted its report and has recommended a Draft of the new Scheme which is to be notified at an appropriate stage after the enabling amendments have been completed.
The key recommendations of the Committee include allowing issuance of DRs against any underlying securities - equity or debt; by any issuer - listed or unlisted. The Committee has recommended that DRs can be issued both for capital raising through new shares or against existing/ secondary shares and the issuance may be either sponsored or unsponsored. It is proposed that DRs will count as public shareholding if they have attached voting rights for holders. The draft Scheme covers Depository Receipts only and FCCBs have been left out of its ambit (they would continue to be governed by the existing scheme until further notification).
Detailed consultations were held on the report with all relevant agencies/departments and thereafter it has been decided by the Government to accept the report submitted by the Committee. The new Scheme suggested by the Committee would be notified at a later stage after the necessary tax related amendments are notified. (See
: Sahoo Committee Report)
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