## Global Depository Receipts (GDR) — Section 41

### What is a GDR?

A GDR is a depository receipt issued by an overseas depository bank that purchases shares of an Indian company. The overseas bank deposits those Indian shares and, against them, creates and lists a security (the GDR) on its home country's stock exchange. The GDR is backed by Indian company shares but trades in the foreign market in foreign currency.

This lets foreign investors get economic exposure to an Indian company without directly buying Indian shares or grappling with Indian capital-account procedures.

### Issuing a GDR — pre-requisite

The Indian company must:

Pass a Special Resolution (SR), AND
Comply with other prescribed conditions (under the Companies (Issue of Global Depository Receipts) Rules, 2014, and FEMA regulations).

### Manner and form

GDRs may be issued by public offer, private placement, or any other manner prevalent in the foreign jurisdiction, and may be listed or traded in that jurisdiction.
GDRs may be created against fresh shares OR be sponsored against existing shares held by Indian shareholders (subject to CG/RBI conditions).
The underlying shares are allotted in the name of the overseas depository bank, and the bank issues the GDRs against those shares.

### Listing the securities abroad — Section 23

Notified public companies may list notified securities on permitted stock exchanges in foreign jurisdictions (or other prescribed jurisdictions). This is the broader enabling provision under which GDR / direct foreign listing operates.

### Voting rights

Stage	Who holds the voting right
Before conversion of GDR into underlying shares	The overseas depository bank votes on behalf of GDR holders, as per the deposit agreement between them
After conversion of GDR into shares	The erstwhile GDR holder becomes a member of the Indian company and can vote directly

### Practical illustration

Infosys issues new shares which are held by Deutsche Bank, London (overseas depository bank). Against these underlying shares, Deutsche Bank, London issues GDRs that trade on the London Stock Exchange. A UK pension fund can simply buy these GDRs in pounds sterling on LSE — it never directly holds Indian shares.

Worked example

### Example 1

Example (sponsored GDR): Reliance Ltd's existing shareholders contribute their shares to a sponsored GDR programme. Citibank New York becomes the legal holder of those shares; against them, it issues GDRs that trade on NYSE. Until any GDR holder converts back into Reliance shares, Citibank casts the votes attached to those shares per its agreement with the GDR holders.

### Example 2

Example (voting): A GDR holder who never converts to underlying shares cannot turn up at Reliance's AGM. He is not a member. Only on conversion of the GDR into shares does he become entitled to vote himself.

⚠️ Common exam mistakes

Thinking a GDR holder is automatically a member of the Indian company — membership comes only after conversion.
Believing only fresh shares can underlie a GDR — sponsored GDRs against EXISTING shares are also permitted.
Forgetting that SR plus prescribed conditions (not just a Board Resolution) are needed.

Bare-Act text Section 41 · Companies Act, 2013 · click to expand

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 (GDR) [Section 41 read with Section 23]

Worked example

⚠️ Common exam mistakes