In terms of Section 29(1)(b) of FERA 1973, no person resident outside India, whether an individual or a firm/company (other than a banking company) incorporated outside India, can acquire shares of any company carrying on trading, commercial or industrial activity in India without permission of Reserve Bank. Permission of Reserve Bank is also required for transfer or issue of any security (which includes shares, debentures, bonds, etc.) to a person resident outside India in terms of Sections 19(1)(b) or 19(1)(d) of the Act. While granting permission for transfer or issue of shares to a non-resident investor under Section 19(1)(b) or 19(1)(d), permission under Section 29(1)(b) for purchase of shares by him is granted simultaneously and hence it is not generally necessary for non-resident investors to apply separately for permission to purchase shares in Indian companies in such cases.

NOTES:
A.Issue and transfer of Indian rupee shares and securities to any person resident in Nepal requires permission of Reserve Bank.

B.Section 19(1)(b) of the Act also prohibits creation or transfer of any interest in a security in favour of a non-resident. This prohibition also precludes pledging of any security to or in favour of a non-resident (e.g. as collateral or prime security for credit facilities abroad) or utilising them for forming a trust or settlement of which a non-resident is the beneficiary .

C.Reserve Bank has granted general permission

(i) to persons of Indian nationality/origin(NRIs) to subscribe to the Memorandum and Articles of Association and to take up shares of an Indian company for its incorporation and

(ii) to an Indian company to issue shares to NRIs subject to certain conditions. The scope of the general permission has been explained in paragraph 10C.4