The Reserve Bank of India (RBI), as part of its efforts to liberalize policies for foreign direct investment, promote the ease of doing business and improve the growth of startups, has amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (TISPRO Regulations), through the Foreign Exchange Management (TISPRO) (Seventh Amendment) Regulations, 2016. The amendment deals with the payment of deferred consideration and the escrow mechanism for share transfers involving non-residents.
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The amendment has inserted regulation 10A, which essentially provides that in case of a transfer of shares between a resident buyer and non-resident seller or vice versa, the buyer (whether resident or non-resident) can pay 25% of the total consideration on a deferred basis within 18 months from the date of the agreement for the transfer of shares. An escrow arrangement may be made between the buyer and seller for such an amount, if they so agree.
In the event that the total consideration is paid by the buyer to the seller, the seller may furnish an indemnity for an amount of not more than 25% of the total consideration for a period not exceeding 18 months from the date of payment of such total consideration.
However, this is subject to the total consideration which is finally paid for the shares being compliant with the applicable pricing guidelines as may be specified under the TISPRO Regulations.
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