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February 2014

A. P. (DIR Series) Circular No. 94 dated 16th January, 2014

By Gaurang Gandhi, Chartered Accountant
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Conversion of External Commercial Borrowing and Lumpsum Fee/Royalty into Equity

Presently, an Indian company can issue equity shares against its liability in respect of External Commercial Borrowings (ECB), import of capital goods, lump sum fees/royalties, etc.

This circular clarifies that the rate of exchange prevailing on the date of the agreement between the parties concerned has to be applied at the time of conversion of foreign currency liability in respect of External Commercial Borrowings (ECB), import of capital goods, lump sum fees/royalties, etc. into Indian rupees, for the purpose of issue of equity shares/other securities, as the case may be, against the same. However, the Indian company is free to issue equity shares for a rupee amount less than that arrived at based on the rate of exchange prevailing on the date of the agreement by a mutual agreement with the lender/supplier.

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