# Section 41 - Global Depository Receipts (GDR)

## Concept

A Global Depository Receipt (GDR) is a negotiable instrument issued by a foreign Depository Bank that represents underlying equity shares of an Indian company. GDRs allow Indian companies to raise funds from foreign markets without listing shares directly abroad.

## Steps to Issue Depository Receipts (DR)

### Step 1: Board Resolution

Pass a Board Resolution authorising the company to issue Depository Receipts.

### Step 2: Special Resolution

Pass a Special Resolution (SR) at the General Meeting (GM) of shareholders approving the issue of DRs.

### Step 3: Appoint Overseas Depository Bank (ODB)

Appoint an Overseas Depository Bank to issue the Depository Receipts to foreign investors.

### Step 4: Custody of Underlying Shares

The underlying equity shares (against which DRs are issued) shall be kept in the custody of a Domestic Custodian Bank (DCB) in India.

### Step 5: Appoint Merchant Banker

Appoint a Merchant Banker in India to manage the issue process - handling sales, marketing, pricing, and compliance.

## Additional Important Points

1. Mode of Issue: DRs may be issued either:

Publicly, OR
By way of Private Placement

2. Underlying Shares: DRs may be issued against:

New (fresh) shares issued by the company, OR
Existing shares (subject to applicable regulations).

3. Regulatory Framework: Issue is also governed by the Companies (Issue of Global Depository Receipts) Rules, 2014 and applicable FEMA/RBI/SEBI regulations.

## Key Participants - Quick Recap

Participant	Role
Indian Company	Issues underlying shares
Domestic Custodian Bank (DCB)	Holds underlying shares in India
Overseas Depository Bank (ODB)	Issues DRs to foreign investors
Merchant Banker	Manages the issue process
Foreign Investor	Holds the DR (gets dividend rights, etc.)

Worked example

### Example 1

Example 1 - Sequence: Sunrise Ltd, an Indian company, wishes to raise USD 50 million from foreign investors via GDR. Outline the procedural steps.

Solution:

1. Pass Board Resolution authorising the issue.

2. Convene General Meeting and pass Special Resolution.

3. Appoint an Overseas Depository Bank to issue GDRs abroad.

4. Deposit underlying equity shares with a Domestic Custodian Bank in India.

5. Appoint a Merchant Banker to manage the issue.

6. File necessary returns and comply with FEMA/RBI/SEBI requirements.

### Example 2

Example 2 - Custody question: Where are the actual equity shares held when a company issues GDRs?

Solution: The actual equity shares are held in the custody of the Domestic Custodian Bank (DCB) in India. The Overseas Depository Bank abroad only issues the DRs against these shares; it does not hold the underlying shares.

### Example 3

Example 3 - Authorisation: Can a company issue GDRs by passing only a Board Resolution?

Solution: No. A Special Resolution at the General Meeting is mandatory under Section 41. A Board Resolution alone is insufficient.

⚠️ Common exam mistakes

Confusing the roles of ODB and DCB - DCB holds underlying shares in India; ODB issues DRs abroad.
Thinking only Ordinary Resolution is needed - Section 41 mandates a Special Resolution.
Believing GDRs can only be issued publicly - they can also be issued via private placement.
Forgetting the need to appoint a Merchant Banker for managing the issue.
Confusing GDR (Global Depository Receipt) with ADR (American Depository Receipt - specifically US market). Section 41 covers DRs issued in any foreign country.
Missing the sequence: Board Resolution must come BEFORE the Special Resolution.

Bare-Act text Section 41 read with Companies (Issue of Global Depository Receipts) Rules, 2014 · 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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