# Global Depository Receipt (GDR) - Section 41

## Concept of GDR

A Global Depository Receipt (GDR) is a general name for a depository receipt where a certificate issued by a depository bank, which purchases shares of foreign companies, creates a security on a local exchange backed by those shares.

## Statutory Definition [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 authorized by a company making an issue of such depository receipts.

## Authority to Issue (Section 41)

A company may issue depository receipts in any foreign country after passing a special resolution in its general meeting and subject to conditions prescribed in the Companies (Issue of Global Depository Receipts) Rules, 2014 (as further amended in 2020).

## Manner and Form of Depository Receipts

Modes of issue: Public offering, private placement, or any other manner prevalent in the concerned jurisdiction
Trading: May be listed or traded on listing/trading platforms in the concerned jurisdiction
Underlying shares: May be issued against new shares OR sponsored against shares held by shareholders (subject to Central Government / RBI conditions)
Allotment: Underlying shares are allotted in the name of the overseas depository bank, and against such shares the overseas depository bank issues the depository receipts

## Voting Right

### Before Conversion

Until the conversion of depository receipts:

GDR holder is NOT a member of the company
The overseas depository is entitled to vote on behalf of the holders
Voting follows the agreement entered between the depository, the holders, and the company

### After Conversion

On conversion of GDRs into underlying shares (following Scheme procedure and Act provisions), the holder becomes a member of the company
Entitled to vote as a member thereafter

Worked example

### Example 1

Example 1: Infosys Ltd. wishes to raise capital from US investors. It passes a special resolution and issues GDRs through an overseas depository bank, with underlying shares allotted in the name of the depository bank. US investors holding GDRs trade them on a US exchange.

### Example 2

Example 2: A GDR holder in London wants to vote on a resolution at an Indian company's AGM. He has not converted GDRs to underlying shares. Result - he CANNOT vote directly; the overseas depository votes on his behalf per the depository agreement.

### Example 3

Example 3: A holder converts his GDRs into the underlying equity shares of the Indian company. He is recorded as a member of the company and can now vote directly at general meetings.

⚠️ Common exam mistakes

Believing an ordinary resolution suffices for GDR issue - a SPECIAL resolution is required under Section 41.
Assuming GDR holders are members with voting rights from the date of GDR issue - they become members only ON CONVERSION.
Forgetting that underlying shares are issued in the name of the OVERSEAS DEPOSITORY BANK, not the GDR holders.
Confusing GDR with ADR or IDR - GDR refers specifically to instruments issued by a foreign depository outside India.

Bare-Act text Sections 2(44) and 41 · The Companies Act, 2013; Companies (Issue of Global Depository Receipts) Rules, 2014 · click to expand

Section 2(44): 'Global Depository Receipt' means any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside India and authorized by a company making an issue of such depository receipts. 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 Receipt (Section 41)

Worked example

⚠️ Common exam mistakes