Section 41 Companies Act 2013: Global Depository Receipt (GDR) Issue Provisions

GDR Issuance, Compliance & Regulations: A Complete Guide

The Companies Act, 2013, has laid down provisions for the issue of Global Depository Receipts under Section 41 and the Companies (Issue of Global Depository Receipts) Rules, 2014.

According to Section 2(44) of the Companies Act, 2013, "Global Depository Receipt" means any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside India and authorized by a company making an issue of such depository receipts.

Section 41 provides that a company may, after passing a special resolution in its general meeting, issue depository receipts in any foreign country in such manner and subject to such conditions as may be prescribed.

1. Companies (Issue of Global Depository Receipts) Rules, 2014

Rule 3 lays down that a company may issue depository receipts provided it is eligible to do so in terms of the scheme and relevant provisions of the Foreign Exchange Management Rules and Regulations.

2. Conditions for Issue of Depository Receipts

However, the committee of the Board of Directors referred to above shall have at least one independent director in case the company is required to have independent directors.

Rule 4 lays down the following conditions to be fulfilled by a company for the issue of depository receipts:

1. Passing of Board Resolution: 

The Board of Directors of the company intending to issue depository receipts shall pass a resolution authorizing the company to do so.

2. Approval of Shareholders: 

The company shall take prior approval of its shareholders by a special resolution to be passed at a general meeting. However, a special resolution passed under section 62 of the Companies Act, 2013, for the issue of shares underlying the depository receipts, shall be deemed to be a special resolution for the purpose of section 41 of the Companies Act, 2013, as well.

3. Depository Receipts shall be issued by an overseas depository bank: 

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.

4. Compliance with all the provisions, schemes, regulations, etc. 

The company shall ensure that all the applicable provisions of the Scheme and the rules or regulations or guidelines issued by the Reserve Bank of India are complied with before and after the issue of depository receipts.

5. Compliance report to be placed at the meeting: 

The company shall appoint a merchant banker or a practicing chartered accountant or a practicing cost accountant or a practicing company secretary to oversee all the compliances relating to the issue of depository receipts, and the compliance report taken from such merchant banker or practicing chartered accountant or practicing cost accountant or practicing company secretary, as the case may be, shall be placed at the meeting of the Board of Directors of the company or of the committee of the Board of Directors authorized by the Board in this regard to be held immediately after closure of all formalities of the issue of depository receipts.

3. Manner and Form of Depository Receipts

Rule 5 deals with the manner and form of issue of depository receipts.

1. The depository receipts can be issued by way of public offering or private placement or in any other manner prevalent abroad and may be listed or traded in an overseas listing or trading platform.

2. The depository receipts may be issued against the issue of new shares or may be sponsored against shares held by shareholders of the company in accordance with such conditions as the Central Government or Reserve Bank of India may prescribe or specify from time to time.

3. The underlying shares shall be allotted in the name of the overseas depository bank, and against such shares, the depository receipts shall be issued by the overseas depository bank abroad.

4. Voting Rights of GDR Holders

Rule 6 provides the provisions for voting rights of depository receipt holders.

• A holder of depository receipts may become a member of the company and shall be entitled to vote as such only on conversion of the depository receipts into underlying shares after following the procedure provided in the Scheme and the provisions of this Act.

• Until the conversion of depository receipts, the overseas depository shall be entitled to vote on behalf of the holders of depository receipts in accordance with the provisions of the agreement entered into between the depository, holders of depository receipts and the company in this regard.

5. Proceeds of GDR Issue

Rule 7 provides that the proceeds of issues of depository receipts shall either be:

• Remitted to a bank account in India; or

• Deposited in an Indian bank operating abroad; or

• Deposited in any foreign bank (which is a Scheduled Bank under the Reserve Bank of India Act, 1934) having operations in India with an agreement that the foreign bank having operations in India shall take responsibility for furnishing all the information that may be required and in the event of a sponsored issue of Depository Receipts, the proceeds of the sale shall be credited to the respective bank account of the shareholders.

Conclusion: GDR under the Companies Act

The issue of GDR in India is governed by a well-defined legal framework combining Section 41 of the Companies Act 2013 with the Companies (Issue of Global Depository Receipts) Rules, 2014. Companies planning a GDR issue must carefully follow the prescribed GDR issuance procedure—from board and shareholder approvals to appointing an overseas depository bank and meeting ongoing GDR compliance obligations. 

Staying aligned with these Companies Act GDR provisions and applicable Global Depository Receipt rules ensures a smooth and legally sound cross-border fundraising process.