SEBI Framework for Issue of Depository Receipts

Blog   wpadmin   January 8, 2021

Executive Summary:

      • Applicable to only Companies incorporated in India and listed on a recognized stock exchange can issue depository receipts in compliance with applicable laws.
      • Companies or their directors, promoters should not be debarred from accessing capital markets.
      • Prior permission for listing is required from SEBI and stock exchange.


A Depositary Receipt(DR) is a negotiable instrument issued by a bank to represent shares in a foreign public company, which allows investors to trade in the global markets. In short, DR means a foreign currency denominated instrument, listed on an international exchange, issued by a foreign depository in a permissible jurisdiction on the back of permissible securities issued or transferred to a domestic custodian and includes ‘global depository receipt’. It enables a listed company to raise further capital from international markets. Also, the individual investors get an opportunity to invest in foreign markets. DRs offer an effective option for companies seeking to tap global capital markets and expand their equity base outside their home market.

The issue of DR involves a lengthy process and many market players such as brokers, custodian banks, foreign stock exchanges, depositories. The issuer has to approach a broker at the place where the DRs are to be listed, who will purchase the shares of the issuer through its foreign branch situated in the country of the issuer and get the same delivered to a custodian bank. Once the delivery of shares is confirmed, DRs in lieu of the shares can be issued by the depository bank located at the place where DRs are to be listed.

SEBI regulates the issue of DRs and has provided framework to be followed by issuers before the issue of depository receipts. Any Company incorporated in India and listed on a Recognized Stock Exchange in India (‘Listed Company’) can issue Permissible Securities or their holders can transfer Permissible Securities, to issue DRs subject to the fulfillment of the obligations and conditions laid down by the regulator.

Eligibility Criteria and Obligations of Issuer of DRs:

Listed Company shall be eligible to issue permissible securities for the issue DR only if:

  • (a) the Listed Company and any of its promoters, promoter group or directors or selling shareholders are not debarred from accessing the capital market by SEBI;
  • (b) any of the promoters or directors of the listed company are promoters or directors of a company debarred from accessing capital markets by SEBI:
  • (c) the listed company or any of its promoters or directors is not a willful defaulter;
  • (d) any of its promoters or directors is not a fugitive economic offender.

Depository Receipt can be issued only through permissible securities. Permissible Securities’ are equity shares and debt securities, which are in dematerialized form and rank paripassu with the securities issued and listed on a Recognized Stock Exchange. For the transfer of permissible securities, the Listed Company may also enter into arrangement(s) with, Indian Depository, Domestic Custodian and existing Permissible Securities holder(s).DRs can be issued only in the jurisdictions permitted by the Central Government. SEBI recognizes permissible holder and beneficial owner as a person not resident in India and a person not a NRI. Listing of DRs on specified International Exchange needs to meet the highest applicable level / standards for such listing by foreign issuers.

The listed company issuing DRs have to ensure compliance with all the laws relating to issuance of DRs, frameworks provided, the Companies Act, 2013, the Foreign Exchange Management Act, 1999 (‘FEMA’), Prevention of Money-Laundering Act, 2002, and any other requirements specified by the authorities. Further, the aggregate of Permissible Securities issued or transferred for the purpose of issue of DRs, along with Permissible Securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such Permissible Securities under the applicable FEMA regulations and shall be such minimum public shareholding requirement, after excluding the Permissible Securities held by the depository for the purpose of issue of DRs. Prior to the transfer of securities and issue of DRs, the issuer has to seek approval of theStock exchange both domestic and International(i.e. where the DRs are to be listed).Listed Company has to file with SEBI and the Recognized Stock Exchange(s), through an intermediary, a copy of the initial document for initial issue of DRs issued on the back of Permissible Securities and the Recognized Stock Exchange shall issue approval after considering all the comments given by SEBI. The final document of such initial issue is required to be filed with Recognized Stock Exchange(s) and SEBI.

All the public disclosures made by the Listed Company on International Exchange(s) where the DRs are listed or of the International Exchange(s), should also be filed with the Recognized Stock Exchange within twenty four hours of such filing. The agreement entered between the holder of DRs, the Listed Company and the Depository shall provide for voting rights on Permissible Securities, to be exercised by the DR holder through the Foreign Depository pursuant to voting instruction only from such DR holder. Further, the price of issue or transfer of Permissible Securities, for the purpose of issue of DRs by Foreign Depository, should not be less than the price for the public offer/preferential allotment/ qualified institutions placement to domestic investors under the applicable laws.

Apart from the listed company issuing DR, the intermediaries also have obligations under the framework. Indian Depositories, have to ensure that aggregate holding of DR holders along with their holding, through offshore derivative instruments and holding as a Foreign Portfolio Investor belonging to same investor group does not exceed the limit on foreign holding under the FEMA and SEBI Regulations. Domestic Custodian needs to maintain records and report to the Indian depositories all transactions in the nature of issue and cancellation of depository receipts, for the purpose of monitoring required permissible limits of securities. SEBI has laid down these guidelines for monitoring issue of DRs and combat any incidents of money laundering and non-compliance can attract penalties.


Depository Receiptsare popular means to tap the global equity markets, expand global presence and raise foreign currency funds for business without much compliances. Hence the entire process of depository receiptsmakes it convenient for investors to invest in foreign securities.

Legal Team

Proind Business Solutions Private Limited
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