Background

Under Section 41, a company may issue Depository Receipts in any foreign country after passing a special resolution in its general meeting, and in such manner and subject to such conditions as may be prescribed. Global Depository Receipts represent an instrument issued overseas, backed by underlying equity shares of an Indian company. A listed company may issue Depository Receipts.

Conditions for Issue of GDRs

As prescribed under Rule 4 of the Companies (Issue of Global Depository Receipts) Rules, 2014, the following conditions must be complied with:

1. Board Approval

The Board of Directors shall pass a resolution authorizing the issue of depository receipts
(Rule 4(1)).

     2. Shareholders’ Approval

Prior approval of shareholders must be obtained through a special resolution passed at a general meeting (Rule 4(2)).

Proviso:

A special resolution passed under Section 62 for the issue of shares underlying the depository receipts shall be deemed to be a special resolution for the purposes of Section 41.

    3. Appointment of Depository and Custodian

The depository receipts shall be issued by an overseas depository bank appointed by the company, and the underlying shares shall be kept in the custody of a domestic custodian bank (Rule 4(3)).

    4. Regulatory Compliance

The company shall ensure compliance with all applicable provisions of the Scheme and the rules, regulations, or guidelines issued by the Reserve Bank of India, both before and after the issue of depository receipts (Rule 4(4)).

    5. Monitoring of Compliances

The company shall appoint a merchant banker or a practising chartered accountant / cost accountant / company secretary to oversee compliances related to the issue of depository receipts. The compliance report obtained shall be placed before the Board of Directors or a duly authorised Board committee immediately after completion of the issue formalities (Rule 4(5)).

Proviso:
Such Board committee shall include at least one independent director, where the company is required to appoint independent directors.

Penalties & Punishments

Section 450 – company and every officer of the company in default or such other person shall be liable to a penalty of Rs. 10,000, and in case of continuing default, with a further penalty of Rs. 1000 for per day of default, subject to a max Rs. 2 lakh in case of a company and Rs. 50000 in case of an officer who is in default or any other person.