Transfer of Shares between Non-Residents

23 June 2022 • Apoorwa & Manju


Transfer of Shares between Non-Residents

23 June 2022 • Apoorwa & Manju

A non-resident individual or entity, holding an investment in an Indian entity by way of equity instruments on repatriation basis may choose to divest its holding by transferring its shares to another person. A transfer of equity instrument can be effectuated by way of sale or by way of gift. In this note, we shall specifically discuss about the important aspects w.r.t transfer of Equity shares by way of sale, from a non-resident to another non-resident, individual or entity, under the provisions of Companies Act, 2013, and the relevant FEMA Regulations.

Compliances under the FEMA Regulations

The governing law for aforesaid transfer of shares of an Indian Company is enshrined under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘hereinafter to be termed as NDI Rules 2019’) read with the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (‘hereinafter to be termed as NDI Reporting Regulation). Notably, in this respect, the provisions of the Companies Act 2013 and the relevant rules made thereunder should also to be taken care of.

A transaction pertaining to transfer of shares of an Indian Company by a person resident outside India shall fall under the following two categories of investment routes:

    • Automatic Route or
    • Government Route.

In a nutshell, following are the prominent checkpoints to analyse the compliances governing the transfer of shares of an Indian Entity between Non Residents:

    • Examine whether government approval (refer ‘A’) is required under the NDI Rules 2019; investment in most of the sectors are under Automatic Route.
    • If the answer to the aforementioned question is “yes,” foreign investment received under this route shall be dealt in accordance with the conditions stipulated by the Government prior according its approval.
    • If the said investment does not require government approval, the share transfer shall be governed as per the provisions of the Companies Act, 2013 and no reporting and pricing guidelines under the NDI Reporting Regulation shall be applicable.

A. Government approval is required in following cases:

    • Where, the Indian Entity is engaged in a sector which requires Government approval as prescribed under Schedule I to the NDI Rules, 2019;
    • Where, in case of, investment under Schedule I of NDI Rules, by an entity belonging to a country, which shares land border with India; or
    • Where, the beneficial owner of an investment into India is situated in or is a citizen of a country, which shares land border with India; or
    • Where, in case of, any subsequent change in beneficial ownership arising out of the transfer of ownership of any existing or future investment in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction or purview of aforesaid clauses.

Compliances under the provisions of Companies Act, 2013

Within the purview of the framework of the Companies Act 2013 (‘the Act’), transaction pertaining to transfer of shares of an Indian Company, shall be subjected to section 56 of the Act read with the Companies (Share Capital and Debenture) Rules, 2014.

To summarise the requirements involved in a share transfer under the ambit of the Act, we have reproduced herein, the following flow of events and the documentation required:

Flow of events – Shares held in Physical form

    • Execution of a duly stamped, dated and signed share transfer deed in the prescribed Form SH-4 along with the original share certificate or if no such certificate is in existence, along with the letter of allotment of securities and such other prescribed attachments relating to the transfer of shares;
    • The stamping of Form SH-4 shall be as per the applicable stamp duty as prescribed, in the state where the registered office of the Company is situated;
    • Delivery of aforementioned requisite documents to the company within a period of sixty days from the date of execution of the Form SH-4, along with the certificate relating to the securities,
    • Scrutiny of the submitted documents and its approval in the Board Meeting;
    • Issuance of duly endorsed share certificates to the transferee within a period of one month from the date of receipt of the instrument of transfer;
    • Updation of statutory registers of the Company and registration of the name of the transferee in the Register of Members.

Flow of events – Shares held in Dematerialised form

The transfer of shares held in dematerialised form is quite similar to transfer of shares in physical form. The major difference is that at the time of settlement, instead of delivery/receipt of shares in the physical form, the same is affected through account transfers.

The same can be accomplished by getting in touch with your stock broker.


    • Form SH-4 (Share transfer form) signed by the transferor and transferee;
    • Board resolution approving the transfer of shares by the Board of Directors of the Investee Company;
    • Duly endorsed Share certificates in the name of the transferee;
    • *Valuation report confirming the price involved in the share transfer to be issued by a Chartered Accountant;
    • *Share Purchase Agreement.

*The procurement or execution of a valuation report or share purchase agreement is not required by law, and the parties are free to decide whether to execute such documents based on the specifics of particular transaction.


Within the ambit of provisions under the Companies Act 2013, no separate reporting by filing any e-form is required to be made to the Registrar of Companies (ROC) as the same is reported while filing Annual Return of the Company (e-form MGT-7) providing details of the shares transferred during the financial year.


Notably, where shares are transferred from a Non Resident to another Non Resident, the profit arising out of sale or transfer of shares are neither accrued nor earned in India, therefore the same is left out of the ambit of provisions of the Income Tax Act, 1961 and hence shall be regulated as the legal framework prevalent in the laws of the home country of the parties involved.

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