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Deferred payment of consideration in share transfer transaction is now allowed

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In a welcome move, as per Notification No.FEMA.368/2016-RB dated 20-May-2016 the Reserve Bank of India has now allowed payment of consideration in of share transfer/purchase transaction between resident buyer and a non-resident seller or vice-versa on deferred basis. Deferred consideration shall not be more than 25% of total consideration and need to be paid within a period not exceeding 18 months from the date of share transfer agreement. Transferor and transferee may enter into escrow arrangement for such deferred consideration. 

In Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000, after Regulation 10, the following shall be inserted, namely:-

“10A.In case of transfer of shares between a resident buyer and a non-resident seller or vice-versa, not more than twenty five per cent of the total consideration can be paid by the buyer on a deferred basis within a period not exceeding eighteen months from the date of the transfer agreement. For this purpose, if so agreed between the buyer and the seller, an escrow arrangement may be made between the buyer and the seller for an amount not more than twenty five per cent of the total consideration for a period not exceeding eighteen months from the date of the transfer agreement or if the total consideration is paid by the buyer to the seller, the seller may furnish an indemnity for an amount not more than twenty five per cent of the total consideration for a period not exceeding eighteen months from the date of the payment of the full consideration.

Provided the total consideration finally paid for the shares must be compliant with the applicable pricing guidelines.

Readers can read and download said notification here.

By Dhanesh RALE, Partner, Abhay Nevagi & Associates 

Disclaimer:

This document provides general information and guidance as on date of preparation and does not express views or expert opinions of the author. Contents of this document should neither be regarded as comprehensive nor sufficient for making any decisions. No one should act on the basis of information provided in this document without obtaining proper expert professional advice. The author disclaim any responsibility and hereby accept no liability for consequences of any person acting or omitting or refraining to act on the basis of any information contained herein in this document.

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