Strategic Management and Corporate Finance · Foreign Funding - Instruments, Laws and Procedures

Depository Receipts: ADRs and GDRs for CS Professional

Updated 11 October 2026 · Fact-checked

A depository receipt is a negotiable instrument issued abroad by a foreign depository against shares of an Indian company held by a domestic custodian. An ADR is issued in the USA. A GDR is issued in one or more foreign markets. The Indian company needs a special resolution under Section 41 of the Companies Act, 2013.

Understand Depository Receipts: ADRs and GDRs

An Indian company that wants foreign money does not always want to list its shares abroad. Foreign investors also may not want to deal in rupees or follow Indian settlement rules. The depository receipt (DR) solves both problems.

Here is how it works. The company issues ordinary shares to a domestic custodian bank in India. A foreign depository holds the rights over those shares and issues receipts abroad against them. Each receipt represents a fixed number of underlying shares. Investors buy and trade the receipts in foreign currency on a foreign market.

An American Depository Receipt (ADR) is issued to investors in the USA and trades in US markets, in US dollars. A Global Depository Receipt (GDR) is issued in one or more foreign countries, often listed on exchanges such as Luxembourg or London, and is usually in dollars or euros. So the difference is mainly the place of issue and the market it serves.

The holder of a DR is not directly a shareholder on the company's register. The depository is the registered holder. The depository exercises voting rights as per the deposit agreement, and dividends are paid in rupees to the custodian, converted and passed to the holder in foreign currency. The DR can be converted back into the underlying shares, subject to the rules in force.

For the exam, link three things: the Companies Act, 2013 (Section 41 for DRs issued abroad; Section 390 for Indian Depository Receipts, which are the reverse case), the Depository Receipts Scheme, 2014 framed under FEMA and Companies Act powers, and the practical steps of issue. Advantages are access to foreign capital, a wider investor base and no immediate dilution of Indian listing mechanics. Disadvantages are cost, compliance burden, exchange rate risk and possible dilution of control.

Key rules to remember

Section 41: authority to issue: Special resolution in general meeting + issue in a foreign country + prescribed manner and conditions; A company may issue depository receipts in any foreign country after passing a special resolution, subject to the prescribed conditions.
Structure of a DR: Underlying shares → domestic custodian → foreign depository → DRs to foreign investors; One DR represents a fixed number of underlying shares, called the DR ratio.
Value of one DR: Value of one DR = Share price in ₹ × Shares per DR ÷ Exchange rate (₹ per unit of foreign currency); Use it to compare the DR price with the local share price. Ignore costs and taxes unless the question gives them.
ADR versus GDR: ADR = issued in the USA; GDR = issued in one or more foreign markets; Both are negotiable instruments denominated in foreign currency against Indian shares.
Section 390 (contrast): Indian Depository Receipt (IDR) = receipt issued in India by a company incorporated outside India; Rules are made by the Central Government. Do not confuse with ADR or GDR.
Section 234(2) link: Foreign company merging with an Indian company or vice versa: prior RBI approval; consideration may be cash, DRs or both; Shows DRs can also be used as merger consideration.

How to solve Depository Receipts: ADRs and GDRs questions

Use this order for any theory or case question on ADRs and GDRs. It keeps your answer in the provision, analysis, conclusion format.

1Identify what is asked: meaning, difference, procedure, advantages and disadvantages, or a case on whether an issue is valid.
2Define the instrument in one line: a negotiable instrument issued abroad by a foreign depository against shares held by a domestic custodian.
3State the legal basis: special resolution under Section 41 of the Companies Act, 2013, and issue in the manner and on the conditions prescribed, including the Depository Receipts Scheme, 2014.
4Apply the facts: check whether the special resolution was passed, whether the issue is abroad, and who the custodian and depository are.
5If a number is asked, find the DR ratio, convert the share price into the foreign currency using the given exchange rate, and show each step.
6Add practical points: deposit agreement, custodian, listing abroad, FEMA reporting, and exchange rate risk.
7Conclude clearly in one sentence on validity, difference or the advice you give.

Quickest way: Four-line answer frame

When to use it: Use it for short notes and 5-mark questions when time is short.

Line 1: define it and name the parties: company, custodian, depository, investor.
Line 2: say ADR means USA and GDR means other foreign markets.
Line 3: give the legal anchor, a special resolution under Section 41.
Line 4: give two advantages and two disadvantages.

Common mistakes in Depository Receipts: ADRs and GDRs

Saying ADR and GDR are issued in India.
Students mix them up with Indian Depository Receipts.
Fix: ADRs and GDRs are issued abroad against Indian shares. IDRs are issued in India by a foreign company under Section 390.
Saying a board resolution is enough to issue a GDR.
Students remember that many fund-raising steps need only board approval.
Fix: Section 41 requires a special resolution passed in a general meeting.
Treating the DR holder as a registered shareholder of the company.
The receipt represents shares, so it looks like direct ownership.
Fix: The depository is the registered holder of the underlying shares. The DR holder acts through the depository.
Describing ADR as a separate legal concept from GDR.
Textbooks list them separately.
Fix: Say that an ADR is a type of DR issued in the USA. The mechanism is the same.
Forgetting the DR ratio in value questions.
Students treat one DR as one share.
Fix: Always check how many underlying shares one DR represents before converting.
Quoting section numbers not given in the question or not certain.
Students try to impress with extra citations.
Fix: Cite Section 41 and Section 390 only where relevant. For other conditions, state the rule in plain words.

Worked examples

Example 1

Sundaram Textiles Ltd, an Indian listed company, wants to raise funds by issuing GDRs in Luxembourg. The board has approved the plan and the managing director says no shareholder approval is needed. Advise the company.

Show the solution

Provision: Section 41 of the Companies Act, 2013 says a company may issue depository receipts in any foreign country after passing a special resolution in its general meeting, in the prescribed manner and subject to the prescribed conditions.
Facts: The issue is abroad, in Luxembourg, so Section 41 applies. Only a board approval exists.
Analysis: A board approval is not a special resolution passed in a general meeting. The managing director's view is therefore incorrect.
Practical steps: Call a general meeting, pass a special resolution, appoint a domestic custodian and a foreign depository, sign the deposit agreement and comply with the Depository Receipts Scheme and FEMA requirements.

Answer: Shareholder approval is required. Sundaram Textiles must pass a special resolution in a general meeting before issuing GDRs, and must follow the prescribed manner and conditions.

Example 2

Shares of Kaveri Ltd trade at ₹1,200 on an Indian exchange. One ADR represents 4 shares. The exchange rate is ₹80 per US dollar. Ignoring costs, find the value of one ADR in dollars and explain who holds the underlying shares.

Show the solution

Value of 4 shares in rupees = 4 × ₹1,200 = ₹4,800.
Convert to dollars = ₹4,800 ÷ 80 = $60.
Holding: The underlying shares are held by the domestic custodian in India on behalf of the foreign depository, which issues the ADRs to US investors.
The ADR holder deals in dollars and exercises rights through the depository.

Answer: One ADR is worth $60. The underlying shares are held by the Indian custodian for the foreign depository.

Exam tips

Write the basic structure first: company, custodian, depository, investor. Examiners reward a clear flow.
Quote Section 41 and the need for a special resolution in every procedural or case answer.
In differences, use a short comparison in bullets: place of issue, market, currency and regulator. Do not overload.
Keep advantages and disadvantages balanced, with at least two points each.
If the question mentions a foreign company issuing in India, switch to IDRs under Section 390.

Practice questions from Foreign Funding - Instruments, Laws and Procedures

Depository Receipts: ADRs and GDRs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CFA Level IDepository Receipts and Foreign Listings

Depository Receipts: ADRs and GDRs: frequently asked questions

What is the difference between ADR and GDR?

An ADR is issued in the USA and trades on US markets. A GDR is issued in one or more foreign countries and can be listed on markets outside the USA. Both represent shares of an Indian company held by a domestic custodian.

Which section of the Companies Act, 2013 covers GDR issue by an Indian company?

Section 41. It allows a company, after passing a special resolution in its general meeting, to issue depository receipts in any foreign country in the prescribed manner and on prescribed conditions.

How is a GDR issued by an Indian company?

The company passes a special resolution, issues shares to a domestic custodian, and a foreign depository issues GDRs against them to foreign investors. A deposit agreement governs the arrangement, and the rules and FEMA norms must be followed.

What are the advantages and disadvantages of ADRs and GDRs?

Advantages include access to foreign capital, a wider investor base and greater visibility abroad. Disadvantages include higher cost and compliance, exchange rate risk and possible dilution of control.