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What are the legal provisions for gifting a share of Indian business to an NRI s

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I own a private limited company in India. My son has recently started a company in Singapore. I am keen to gift my stake in the Indian company to my son, who is now an NRI. What are the legal provisions for the same? 

—Name withheld on request

 

As you are an Indian citizen, the gift by you to your NRI son will be governed by the provisions of the Foreign Exchange Management Act (Fema), 1999 and the regulations, circulars and policies thereunder. As per Fema, gift of shares by a resident Indian citizen to a person resident outside India (including an NRI) is subject to prior written approval of the Reserve Bank of India (RBI). There are prescribed documents which are required to be submitted to the RBI at the time of filing of the application before RBI. There are certain other conditions which are required to be adhered to for the purpose of such application. Two of the critical conditions are 

(i) The gift should not be for more than 5% of the paid-up capital of the Indian company; 

(ii) The value of the shares cannot be more than $50,000 or  an equivalent amount in rupee during the financial year in which the gift is proposed to be made.

We recommend you consult an advisor in person to understand the entire legal framework applicable to such gifts, and thereafter evaluate whether its legally feasible to undertake such a transaction.

 

I stay in tenanted premises (commonly known as pagdi) in Mumbai. I would like to make a will, whereby, post my demise, I would like this property to be transferred to my son who is living abroad. Is that possible?

—Name withheld on request

 

Section 7 of the Maharashtra Rent Control Act, 1999 (the Rent Control Act) provides that 

(i) Any member of the tenant’s family residing with him at the time of his death and in the absence of such member, (ii) Any heir of the deceased tenant as may be decided in default of agreement by the court can step in, in the shoes of the deceased tenant. It is clear that the other family members or third parties have been excluded from such protection.

The Bombay High Court has dealt with the issue whether the tenancy can be bequeathed under a Will. After considering various propositions of law, the Court laid down the principle of law that the restriction against the assignment or transfer shall also apply to testamentary bequest and hence no such transfer should be allowed. In view of the aforesaid, it is clear that no tenant can dispose off the tenancy rights by Will. Hence in the present scenario it will not be advisable for you to bequeath the tenancy rights to your son.

In any case, it is advisable to seek legal experts‘ opinion, in respect of any specific factual matrix.

Hemang Parekh is partner and Mitali Naik is associate partner, at DSK Legal

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