## Global Depository Receipts [Section 41]

### 1. Meaning

A Global Depository Receipt (GDR) is a certificate issued by a depository bank that purchases shares of foreign companies and creates a security on a local exchange backed by those shares.

As per Section 2(44), GDR means any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside India and authorised by a company making an issue of such depository receipts.

### 2. Power to Issue (Section 41)

A company may issue depository receipts in any foreign country subject to:

Passing a special resolution in its general meeting; and
Such conditions as prescribed in the Companies (Issue of Global Depository Receipts) Rules, 2014 (as further amended in 2020).

### 3. Manner and Form of Depository Receipts

Issued by way of public offering or private placement or any other manner prevalent in the concerned jurisdiction.
May be listed or traded on the listing/trading platform of the concerned jurisdiction.
May be issued against:
Issue of new shares, or
Sponsored against shares already held by shareholders (per conditions prescribed by Central Government / RBI).
Underlying shares are allotted in the name of the overseas depository bank. Against these, depository receipts are issued by the overseas depository bank.

### 4. Voting Rights

#### Before conversion

The overseas depository is entitled to vote on behalf of the holders of depository receipts in accordance with the agreement between the depository, holders and the company.

#### After conversion

On conversion of the depository receipts into underlying shares (following the prescribed procedure), the holder becomes a member of the company and acquires the right to vote directly.

### 5. How a GDR Operates (Mechanism)

1. Indian company issues shares to an overseas depository bank.

2. Overseas depository bank issues GDRs to foreign investors backed by these underlying shares.

3. GDRs are traded on foreign stock exchanges like Luxembourg, London, NASDAQ.

4. GDR holders receive dividends and may, on conversion, exchange GDRs for the underlying shares to become direct shareholders.

Worked example

### Example 1

Example: Infosys Ltd. passes a special resolution authorising issue of GDRs in London Stock Exchange. The underlying equity shares are allotted to an overseas depository bank in London. The bank issues GDRs to foreign investors. Until conversion, the depository bank votes on behalf of GDR holders. When an investor converts his GDR into underlying equity shares of Infosys, he becomes a member of Infosys Ltd. and can vote directly.

⚠️ Common exam mistakes

Believing an ordinary resolution suffices — a SPECIAL resolution is mandatory.
Confusing GDRs with ADRs — GDRs are issued globally; ADRs are specific to US markets.
Thinking GDR holders are members of the issuing Indian company from inception — they become members ONLY on conversion.
Overlooking that the overseas depository (not the GDR holder) holds the voting power until conversion.

Bare-Act text Section 41 read with Section 2(44) · The Companies Act, 2013 · click to expand

Section 41: A company may, after passing a special resolution in its general meeting, issue depository receipts in any foreign country in such manner, and subject to such conditions, as may be prescribed.

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Global Depository Receipts (Section 41)

Worked example

⚠️ Common exam mistakes