Mumbai, Jan 28: The issue of Indian Depository Receipts (IDRs) by foreign companies may get mired in confusion. The issue: whether the issuer foreign company without any operational base in India will be eligible to issue IDRs. The concept of "Indian Depository Receipts" has been proposed through the Companies Act (Amendment) BIll, 1997.Although IDRs, as defined under Clause 28(f) of the bill categorically states that such instruments can be issued by a foreign company, such companies have been defined under clause 29 to include only overseas outfits "which have established a place of business in India."
In the amendment bill, the concept of IDR has been described in clause 28(f) as "a receipt, evidencing and underlying foreign security, issued in India by a foreign company which has entered into an agreement with the issuer and depository, custodian and depository or underwriters and depository, in accordance with the terms of prospectus or letter of offer, as may be prescribed."
Experts say while theobvious intent of the law is to allow companies incorporated outside India, irrespective of whether it is operating within the country or not, to come out with IDRs, the confusion has cropped up due to the lack of consonance between clause 29 and clause 43, which relates to the offer of IDRs.
Clause 43 empowers the centre to make rules applicable to the IDR offer "by a company incorporated, or to be incorporated outside India, whether the company has or has not been established or, will or will not establish any place of business in India."
With the definition of IDRs as spelt out in clause 28(f), however, certain anomalies may arise, says a document of the Institute of Chartered Accountants of India, the statutory authority of auditors.
The document states, "As per the definition of the IDRs, such receipts can be issued only by a foreign company. Foreign companies are discussed in clause 29, which clearly states that these are companies which have a place of business in India. If one reads clause 43(which relates to offer of Indian depository receipts), the intent of law is clear that IDRs can be issued by a company incorporated outside India, whether the company has or not established any place of business in India. Thus, clause 28(f) does not appear to be in consonance with clause 43, which implies that IDRs can also be issued by companies without a place of business in India."
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
