FC-TRS Form: Does It Need To Be Filed Even On Transfer Of Only Registered Ownership?

Setting the Context

In today’s interconnected global economy, the importance of transparency and compliance in financial transactions cannot be overstated. FC-TRS form is an essential instrument for monitoring and regulating foreign currency transactions, ensuring the integrity of financial systems, and promoting a secure economic environment. As such, the submission of this form is a crucial aspect of compliance. The FAQs on FC-TRS published by the RBI clearly state that FC-TRS is to be filed “for transfer of capital instruments by way of sale.

The FC-TRS form represents the principles of accountability and regulatory oversight at its foundation. It enables regulatory authorities, such as the Reserve Bank of India (“RBI”), to effectively monitor the passage of funds into and out of the country by mandating the reporting of foreign currency transactions. This vital data enables policymakers to make informed decisions, thereby preserving the economy’s stability and foreign exchange reserves.

In addition, the FC-TRS form is crucial in combating illicit activities and financial misdeeds. The detailed reporting requirements enable authorities to identify and investigate suspicious transactions, thereby protecting the integrity of the financial system and potential hazards to national security. Moreover, the timely submission of the FC-TRS form demonstrates a commitment to compliance and good corporate governance. Individuals and organisations that meticulously disclose their foreign currency transactions demonstrate openness, accountability, and compliance with regulatory frameworks. This not only enhances their reputation, but also inspires confidence in their business partners, investors, and other stakeholders, nurturing a climate of trust and honesty.

In light of the enormous significance that FC-TRS form holds in the current financial environment, it is important to dig deeper into the concept. An interesting question which arises in this context is whether a FC-TRS form needs to be filed where a Non Resident Indian (“NRI”) transfers ‘registered’ ownership of certain shares to a resident Indian, without transferring ‘beneficial’ ownership of those shares? The author aims to answer the said query in this article, by taking an interesting approach involving the traditional concepts of property, ownership and related rights.

Navigating through the Idea

The concept of beneficial ownership and registered ownership finds place in Sections 59 and 89 of Companies Act, 2013. Upon reading these provisions, it can be inferred that there can be different beneficial and registered owners. Furthermore, Section 187 allows a company to hold any shares in its subsidiary company in the name of any nominee/nominees of the company, to ensure that the number of members of subsidiary company is not reduced below the statutory limit (which is 2 for private companies). This section is a prime example showing how certain companies transfer registered ownership to ensure fulfilment of statutory obligations, thereby indicating the importance to address the question.

With regard to the proposition at hand, it is pertinent to note that transfer (of capital instruments) is imperative for filing of FC-TRS.

In order to reach to a satisfactory solution for the query, it is imperative to place reliance on the judgement of the Bombay High Court in E.D. Sassoon And Co. Ltd. v. K.A. Patch. Although the judgement was pronounced in 1922, nonetheless, it has stood the test of time and directly discusses several important points, thereby entailing a discussion on registered and beneficial ownership.

The court, in this case, observed that the registered holder is a constructive trustee for the beneficiary. Further, registered owner must, pertaining shares, act as the beneficial owner desires. The court also noted that “equity treats the beneficial owner as the real owner and compels the registered owner to act as the agent of the beneficiary.” Furthermore, it was noted that “as between the company and the trustee (registered owner), the trustee is the shareholder; but as between the trustee and the beneficiary (beneficial owner), it is the beneficiary who is the shareholder.”

These excerpts clearly show that the interest and the rights relating to the property (including shares) rest with the beneficial owner, and not the registered owner.

As stated earlier, for filing the FC-TRS form, transfer must take place. It is imperative to note that, logically, “one can transfer only what one owns,” or “transfer (through sale) takes place by change of ownership.” As per Salmond (on Jurisprudence), concept of ownership revolves around owning of a right. Ownership connotes any relation between a person and any right vested in that person. “Every right is owned; and nothing can be owned except a right.” Thus, to transfer a property one needs to be owner of a property, and for owning a property, one needs to own the rights to that property. Alternatively, transfer takes place when there is a change in the owner of the property (or who has interests in the property).

To summarize, as per the E.D. Sassoon case, registered holder only acts as a trustee to beneficial holder, and it is the beneficial holder whose interests lie in the said property (including shares). Further, registered holder has to act as per the desire of beneficial holder. These findings imply that there are no rights vested with the registered holder, and all the rights/interests are there with the beneficial holder. Therefore, registered holder (technically) is not the owner of the shares as he has little or no rights.

Thus, from the above, following inferences are made:

  • For filing the FC-TRS form, transfer needs to take place;
  • Transfer is of ownership or title;
  • Registered holder is not the owner of shares as he has little or no rights.

Applying these observations to answer the moot query, it can be seen that there is only transfer of registered ownership of shares by NRI to a resident Indian. Now, in the said situation, there is no transfer taking place in real sense i.e., no ownership of the shares (rights/interests pertaining the shares) takes place. Consequently, since no transfer is taking place (which creates rights/interests in the favour of registered owner), FC-TRS is not needed to be filed.

(This article has been authored by Jahnavi Srivastava and Samarth Agarwal, 4th Year B.A. LL.B (Hons.) students at National Law University, Jodhpur.)

CITE AS: Jahnavi Srivastava and Samarth Agarwal, “FC-TRS Form: Does it need to be filed even on transfer of only registered ownership?” (The Contemporary Law Forum, 28 June 2023) <https://tclf.in/2023/06/29/fc-trs-form-does-it-need-to-be-filed-even-on-transfer-of-only-registered-ownership/> date of access.

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.