Foreign Investment in Partly-paid Shares

One of our regular readers, Rajvendra Sarswat, brings to our attention a recent news report indicating a proposal for allowing foreign investors to take up partly-paid shares in Indian companies.

As Rajvendra rightly observes, “currently, if a foreign investor wishes to invest in India in installments, such as by paying half of the price for shares now, and the balance over a period of time, the same is not allowed” as there is considerable ambiguity in the FDI regulations. This problem becomes further acute in the present circumstances (triggered by the economic downturn) where available funding may not be sufficient for investors to meet the entire investment requirements up front. To that extent, the new proposal may be beneficial to foreign investors as it expands the scope for structuring the flow of their investments in installments.

However, Rajvendra also points to some issues that need to be addressed clearly in the regulations: “how and when will the balance payment be brought in, what issues may arise in case there is a dispute in payment, how will be consideration be determined say with factors like currency fluctuations etc.” These are valid concerns. In addition, what is also required is a concerted effort on the part of the Central Government (Department of Industrial Policy and Promotion) (DIPP) as well as the Reserve Bank of India (RBI) so that the policy and regulations issued by both these authorities are consistent leaving less scope for ambiguity and lacuna.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.


  • FDI Regulations are silent on the aspect of issue of partly paid shares. Nowhere is it expressly mentioned that the issue of shares under the automatic/approval route has to be “fully paid” nor is there any restriction of issue of “partly paid” shares. In such a scenario, how could we assume that the silence amounts to a restriction on issue of partly paid shares. Even queries on the DIPP bulletin board in respect of whether partly paid shares can be issued to foreign investors have been answered in the positive. I will try and search for those queries and post them here. But meanwhile i would like to know whether the basis of the view in the ET report is “mere silence of law”? Or is there any other logic to this?

  • Continued…

    Please see these queries and replies by DIPP correspondent, as posted on

    I am copying the content here.

    “Posted by Abhay Kumar on 1/28/2009 11:56:11 AM Dear Sir, Please suggest whether the permission from both, FIPB and RBI is required to be taken by the issuer (company) for the issue of partly paid-up shares to the non-residents? Thanking you in anticipation, Regards, Abhay

    Posted by DIPP Respondent on 1/29/2009 12:44:56 PM In Reply to : Re:Issue of partly paid-up shares to non-resident posted by Abhay Kumar on 1/28/2009 11:56:11 AM
    Dear sir, Where is this requirement mentioned? Regards, K.K.Sinha

    Posted by SSinha on 12/22/2008 12:45:48 PM

    Dear Sir,Will issue of partly paid shares to person resident out india in Hospitality Sector required FIPB approval. Regards

    Posted by DIPP Respondent on 12/23/2008 11:24:36 AM In Reply to : Re:Partly paid up shares posted by SSinha on 12/22/2008 12:45:48 PM

    Dear sir, Hospitality sector is under automatic route up to 100%. REgards, K.k.Sinha”

  • I found this instance (link at where FIPB has rejected a proposal from Wireless and Wireless India (WWIL), a multi system operation (MSO), asking for permission issue partly paid-up equity shares.

    No logic or reasoning has been offered for this view by FIPB, even when DIPP correspondent on the website’s bulletin board is very confidently answering that no approval is required from FIPB in case of partly paid shares.

  • Renu, thanks for your painstaking efforts in getting to the bottom of this issue. As you have said, there is nothing in the FDI regulations that expressly refer to partly paid shares, and hence the ambiguous position. However, it is my understanding that the problem arises not due to the FDI policy of the Government of India, but because the FEMA Regulations issued by RBI. When requisite filings are made with RBI after issue of shares to a foreign investor, they have to be supported by a foreign inward remittance certificate (FIRC) and RBI usually insists on the entire purchase price having been remitted into India. In case any deviation from this arrangement, that would require prior approval of the FIPB.

  • Umakanth:

    The relevant column in the FIRC column only asks for “Amount (in INR and foreign currency). Is the insistence on full amount of the issue price being mentioned in this form a norm/practice which the RBI is following in absence on anything in black and white?

  • what’s the definition of partly paid-up shares?

    what if face value is fully paid-up, but the premium is unpaid and will be payable in due course, whether the shares will still be treated as partly paid up?

    any thoughts?

    kind regards,
    Yogesh Chande

  • Yogesh, that is an interesting question. I think the answer will depend on whether we are examining the issue from a foreign investment perspective or a company law perspective . Foreign exchange regulations have a greater concern with the "price" being brought in up front, which would include the par value and premium components. The appropriation towards par and premium is largely an internal accounting matter for the company. So, if the entire par value and premium are not brought in, the share may be treated as partly paid. Although the position under company law may not be that straightforward, a case from Hong Kong ( seems to suggest that the same principles would apply under company law as well.

  • Very interesting subject, Umakanth. Another issue which this discussion opens up is, whether the FIPB is uncomfortable with issue of partly paid-up shares to foreign investors (in which scenario, the logic is understandable), or whether the FIPB is less inclined to allow issuance of partly paid-up shares to even Indian shareholders of a company which has FDI? Any thoughts?



  • Rohini, thanks for your question. The issue arises only when partly-paid shares are issued to foreign investors. In case an Indian company (even one that has FDI) decides to issue partly-paid shares to an Indian domestic investor, that would be governed by company law, and the restrictions in the FDI policy should not apply.

  • Renu, with regard to your comment dated 29 January, 2009, about FIPB not approving the proposal of Wire and Wireless, the FIPB had on its meeting held on 22 January, 2009, approved two cases relating to partly paid up shares (one was for Wire and Wireless). The press release announcing this was made on 30 January, 2009 and thats probably how you missed it.

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