Buyback from foreign investor

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Prakash (Querist)
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31 August 2013 Friends, One of my client is into a joint venture with a French company. They have formed a private limited company with 50:50 shareholding in 2010 and the shares were allotted to the foreign partner in compliance with RBI and ROC. Due to Europe slow down the joint venture is called off. Now we need to purchase the shares from the foreign partner by transferring the fund from India. Please advise the procedures to be complied with RBI and ROC. Appreciated for your valuable advise.

CA Kintal Shah

CA Kintal Shah (Expert)
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15 September 2013 this need close examination by expert as there are many things that need to be checked.

better take the advice of CA/ FEMA expert.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 In the scenario where your client needs to purchase shares from a foreign partner in a joint venture company, several compliance procedures with RBI (Reserve Bank of India) and ROC (Registrar of Companies) need to be followed. Here’s a step-by-step outline of the procedures typically involved:

### RBI Compliance

1. **Valuation of Shares**: The shares to be purchased must be valued as per the guidelines provided by RBI. Generally, the valuation should be done by a registered valuer.

2. **Approval for Transfer**:
- **Automatic Route**: If the shares are being sold at a price that is within the fair market value, you may be eligible to proceed under the automatic route. This means you don’t need prior approval from RBI.
- **Government Approval Route**: If the transaction falls outside the parameters of the automatic route (for example, if the shares are being sold at a price higher than the fair market value), prior approval from RBI will be required. You will need to submit an application to RBI through a designated AD Category-I bank (Authorized Dealer).

3. **Documentation**: Prepare the necessary documents, which typically include:
- Share Purchase Agreement (SPA)
- Valuation report
- Board resolution of both buyer and seller companies approving the transaction
- KYC documents of both buyer and seller companies
- Any other documents required by RBI or AD Category-I bank

4. **Reporting**: After completion of the share transfer, file the necessary forms with the AD Category-I bank for reporting purposes. These forms vary based on whether the transaction was under the automatic route or required RBI approval.

### ROC Compliance

1. **Board Resolution**: Obtain a board resolution from the joint venture company’s board of directors approving the purchase of shares from the foreign partner.

2. **Share Transfer**: Prepare a share transfer deed and get it executed by both the seller (foreign partner) and buyer (your client). Ensure the deed is duly stamped as per the Stamp Act requirements.

3. **Filing with ROC**: File the share transfer deed along with the necessary forms with the ROC within prescribed timelines (usually within 30 days of execution). The forms typically include:
- Form SH-4: For filing share transfer within the company
- Form MGT-14: For filing board resolutions and agreements

4. **Payment of Stamp Duty**: Pay stamp duty on the share transfer deed as per the Stamp Act of the respective state where the joint venture company is registered.

### Additional Considerations

- **Tax Implications**: Consider the tax implications of the share transfer both in India and in the foreign partner’s jurisdiction.
- **Legal Advice**: It’s advisable to seek legal advice to ensure compliance with all applicable laws and regulations.

By following these procedures diligently, your client can ensure compliance with both RBI and ROC requirements for purchasing shares from the foreign partner in the joint venture company. Always stay updated with the latest regulations and seek assistance from professionals when necessary to facilitate a smooth transaction.

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