IDRs: can they be instruments of choice?

Indian Depository Receipts (IDRs) allow companies incorporated outside India to raise funds from the Indian capital market. They are depository receipts that are denominated in Indian rupees and created by the domestic depository in India against the underlying equity shares of the issuing company.

IDRs, which were modelled on the concept of global depository receipts and American depository receipts, were introduced by the Companies (Amendment) Act, 2000. To facilitate the issue of IDRs by foreign companies and to permit investors to purchase, possess, transfer and redeem them, the Reserve Bank of India (RBI) made the Companies (Issue of Indian Depository Receipts) Rules, 2004 (IDR Rules), operational in July 2009.

The issue of IDRs is governed by the following: (i) the Companies Act, 1956; (ii) the IDR Rules; (iii) chapter X of the SEBI (Issue of Capital and Disclosure Requirements), Regulations 2009; and (iv) the circulars and notifications issued by the RBI in this regard.

Ragini Aiyer is a senior associate at Khaitan & Co in Mumbai. Khaitan & Co is a full-service law firm with offices in Bangalore, Kolkata, Mumbai and New Delhi.