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Author: Aryan Sinha, IV Year of B.B.A.,LL.B(Hons.) From Galgotias University.


Depository Receipt is a negotiable certificate (negotiable instrument) issued by a bank in a domestic country that represents ownership of shares in companies of other countries. It is an important method of international funds among firms from emerging economies. Depository receipt is a form of indirect listing for international firms and they are allowed to cross list in other countries through the DR program.

In 1993, Central Government notified ‘the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme’ to facilitate issuing of Foreign Currency Convertible Bonds and other Ordinary Shares in the foreign market through Depositary Receipt methods.

In 1996, depository got statutory recognition in India where "depository" means a company formed and registered under the Companies Act, 1956 & 2013 and its certificate of registration under “Section 12(1A) of the Securities and Exchange Board of India Act, 1992”. The concept of ‘depository’ was included in “Indian company law 1996” through the Companies (Amendment) Act, 2000 and again reproduced in new “Indian company law 2013” also where ‘depository’ means a depository as defined Section 2(1)(e) of the Depositories Act, 1996. So depository must be a company as per company law and also must get registration certificate from SEBI.

In 2014, the Depository Receipts Scheme has been introduced by the Ministry of Finance on 21st October 2014 and came into force on 15th December 2014. Subsequently the same has been also included by the Reserve Bank of India through the “Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) (Seventeenth Amendment) Regulations, 2014.”

As per “2014 Scheme - Depository Receipt” means a foreign currency denominated instrument, whether listed on an international exchange or not, issued by a foreign depository in a permissible jurisdiction on the back of eligible securities issued or transferred to that foreign depository and deposited with a domestic custodian and includes “‘global depository receipt’ as defined in section 2(44) of the Companies Act, 2013.” Here, 'Foreign depository' means a person which has legal capacity to issue depository receipts in the permissible jurisdiction and this 'Permissible jurisdiction' means a foreign jurisdiction which is a member of the Financial Action Task Force on Money Laundering; and the regulator of the securities market in that jurisdiction is a member of the International Organization of Securities Commissions.

Schedule I of the Scheme has given a list of 34 countries as permissible jurisdiction including Argentina, United State, Australia, United Kingdom, Austria, Turkey, Belgium, Switzerland, Brazil, Sweden, Canada, Spain, China, South Africa, Denmark, Singapore, European Commission, Russian Federation, Finland, Portugal, France, Norway, Germany, New Zealand, Greece, The Netherlands, Mexico, Hong Kong, Luxembourg, Iceland, Republic of Korea, Ireland, Italy, Japan.

The shares of a company underlying the depository receipts shall form part of the public shareholding of the company under the Securities Contract (Regulation) Rules, 1957. If the holder of such depository receipts has the right to issue voting instruction then such depository receipts are listed on an international exchange.

Any Indian company (listed or unlisted, private or public) or any other issuer of permissible securities or any person holding permissible securities which has not been specifically prohibited from accessing the capital market or dealing in securities, are eligible to issue or transfer permissible securities to a foreign depository for the purpose of issue of depository receipts.

The domestic custodian shall ensure that the relevant provisions of the Scheme related to the issue and cancellation of depository receipts is complied with maintain records in respect of, and report to, Indian depositories all transactions in the nature of issue and cancellation of depository receipts for the purpose of monitoring limits under the “FEMA, 1999” and provide the information and data as may be called upon by SEBI, the RBI, Ministry of Finance, Ministry of Corporate Affairs and any other authority of law, and file with SEBI a copy of the document, by whether name called, which sets the terms of issue of depository receipts issued on the back of securities, as defined under “section 2(h) of the Securities Contracts (Regulation) Act, 1956 in a permissible jurisdiction”.

Legislative Framework of Depository Receipts

  1. Foreign Exchange Management (Transfer or issue of any foreign security) Regulations, 2000

  2. The Companies (Global Depository Receipts) Rules, 2014

  3. The Income Tax Act, 1961

  4. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009

  5. The Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipts Mechanism) Scheme, 1993

  6. Consolidated FDI Policy

  7. The Depository Receipts Scheme, 2014

FDI Policy of Depository Receipts

Depository Receipts are traded on Stock Exchanges in the US, Singapore, Luxembourg, etc. Those are listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded anywhere or elsewhere are known as Global Depository Receipts (GDRs).

“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 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 which 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.”

“Domestic Custodian Bank means a banking company which acts as a custodian for the ordinary shares or foreign currency convertible bonds of an Indian company which are issued by it against global depository receipts or certificates.”

“Overseas Depository Bank means a bank authorized by the issuing company to issue GDR against issue of Foreign Currency Convertible Bonds or ordinary shares of the issuing company.”

Indian Depository Receipts

“Indian Depository Receipt means any instrument in the form of a depository receipt created by a domestic depository in India and authorized by a company incorporated outside India making an issue of such depository receipts”.

  • CHAPTER XA of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 deals with ‘Rights Issue of Indian Depository Receipts’.

  • Chapter VII of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 deals with ‘Obligations of Listed Entity Which Has Listed Its Indian Depository Receipts’.

  • The Security Exchange Board of India (Facilitation of Issuance of Indian Depository Receipts) (Amendment) Regulations, 2009.

  • The Ministry of Corporate Affairs issued the Companies (Registration of Foreign Companies) Rules, 2014

  • Indian Depository Receipts (IDRs) can be issued by nonresident companies in India subject to and under the terms and conditions of Companies (Issue of Depository Receipts) Rules, 2004 and subsequent amendment made thereto and the SEBI (ICDR) Regulations, 2000, as amended from time to time.

Indian legal framework for IDRs comprises

  • Sections 2(48), 234, “390, and 469” of the Companies Act, 2013;

  • Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014;

  • Chapter X of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009;

  • SEBI circulars dated August 28, 2012 and March 01, 2013.

  • Schedule 7 of the FEMA 20;

  • Part I, Section 4, Para 2 of the Master Circular on Foreign Investment in India;

  • The Income Tax Act, 1961;

American Depository Receipts

American Depository Receipt (ADR) means a security issued by a bank or a depository in United States of America (USA) against underlying rupee shares of a company incorporated in India.

The ADRs are listed on the New York Stock Exchange (NYSE) and National Association Securities Dealers Automated Quotation (NASDAQ). ADR issues offer access to US institutional as well as retail markets while GDRs comprehensive disclosure and greater transparency as compared to GDR listing. GDRs can be converted to ADRs by surrendering the existing GDRs and depositing the underlying equity shares with ADR depository in exchange of ADRs. The issuing company has to comply with Security Exchange Commission (SEC) requirements to materialize the exchange offer process. However the company does not get any fund by this conversion of GDRs to ADRs.


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