AN OVERVIEW OF THE RULES PERTAINING TO DIRECT LISTING OF EQUITY SHARES BY INDIAN PUBLIC COMPANIES ON INTERNATIONAL EXCHANGES

CORPORATE LAW UPDATE

24th February 2024

Issue No. 19/2023-2024

AN OVERVIEW OF THE RULES PERTAINING TO DIRECT LISTING OF EQUITY SHARES BY INDIAN PUBLIC COMPANIES ON INTERNATIONAL EXCHANGES

The Ministry of Corporate Affairs (MCA) has vide notification dated 24th January 2024, notified the Companies (Listing of equity shares in permissible jurisdictions) Rules 2024 (“LEAP Rules”) and amended the Foreign Exchange Management (Non-debt instruments) Rules 2019 (“NDI Rules”), thereby allowing Indian public companies to list their equity shares on international stock exchanges operating in GIFT-IFSC.

BACKGROUND:

A SEBI report dated 4th December 2018 had proposed to amend the laws regarding the listing of equity shares of Indian companies on foreign stock exchanges. The Companies (Amendment) Bill, 2020, introduced specific provisions allowing certain class of public companies to list on prescribed stock exchanges in prescribed foreign jurisdiction. Further the IFSCA (Issuance and Listing of Securities) Regulations 2021, provided the regulatory framework for listing of Indian and foreign companies.

In the year 2023, the Union Finance Minister made an announcement to permit direct listing of unlisted and listed Indian companies on the stock exchanges in IFSC. Later in the same year, the MCA notified section 5 of the Companies (Amendment) Act 2020, allowing certain class of Indian public companies to list their securities on permitted stock exchanges albeit a detailed framework was yet to be implemented. A working group was also constituted under the chairmanship of Shri Praveen Trivedi, Executive Director, IFSCA, and other members comprising from the Ministry of Corporate Affairs, Department of Economic Affairs, Securities and Exchange Board of India and market participants. The working group submitted its report wherein it made several recommendations to numerous framework and regulations.

The MCA and Ministry of Finance have now vide notification dated 24th January 2024 notified the LEAP Rules and paved the way for Indian public companies to list their equity shares on permissible foreign stock exchanges in GIFT-IFSC. Further, the Ministry of Finance introduced Chapter X and Schedule XI by amendment to the NDI Rules, thereby permitting Indian public companies to list equity shares on International stock exchanges in GIFT-IFSC. Although, SEBI is still in the process of issuing the operational guidelines for the same.

While the Chapter X of the NDI Rules permits investment by a permissible holder subject to conditions specified in Schedule XI. Schedule XI inter-alia provides the permissible mode of issuance, eligibility conditions for a permissible holder and Indian companies, obligations of the companies and requirements relating to voting rights and pricing, whereas, the LEAP Rules prescribe the eligibility norms for unlisted public companies and procedural aspects such as form for filing the prospectus, complying with Indian Accounting Standards post listing etc.

APPLICABILITY:

Only Indian listed or unlisted public companies are permitted to list their equity shares on international exchanges. The permissible jurisdiction for listing on international exchanges is GIFT-IFSC and the permissible International exchanges are India International Exchange and NSE International Exchange.

KEY AMENDMENTS:

  • Eligibility: The Indian companies eligible are the unlisted public companies as well as listed public companies. Private companies are not eligible to list their equity shares.
  • A public company shall be eligible if-
    • The public Indian company, any of its promoters, promoter group, directors or selling shareholders are not debarred from accessing the capital market by the appropriate regulator;
    • None of the promoters or directors of the public Indian company is a promoter or director of any other Indian company which is debarred from accessing the capital market by the appropriate regulator;
    • The public Indian company or any of its promoters or directors is not a wilful defaulter;
    • The public Indian company is not under inspection or investigation under the provisions of the Companies Act, 2013;
    • None of its promoters or directors is a fugitive economic offender. 
  • The following public companies are not eligible for listing their equity shares:
    1. Is registered under section 8 or declared as Nidhi under section 406 of the Companies Act 2013;
    2. Is a company limited by guarantee and has a share capital;
    3. Has any outstanding deposits accepted from the public as per Chapter V of the Companies Act 2013;
    4. Has a negative net worth;
    5. Has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holder or any other secured creditor (Note: This shall not apply if the company had made good the default and a period of two years had lapsed since the date of making good the default).
    6. Has made any application for winding-up under the Companies Act or for resolution or winding-up under the Insolvency and Bankruptcy Code, 2016 and in case any proceedings against the company for winding-up under the Companies Act or for resolution or winding-up under the Insolvency and Bankruptcy Code, 2016 is pending;
    7. Has defaulted in filing of an annual return under section 92 or financial statement under section 137 of the Companies Act 2013 within the specified period.
  • Permissible Jurisdiction: GIFT-IFSC
  • Permissible International Exchange: India International Exchange & NSE International Exchange
  • Permissible Securities: Equity Shares
  • Issue and Listing on International Exchange: The equity shares of shall be in dematerialized form, ranking pari-passu with existing equity shares on recognized stock exchange in India.
  • Pricing
    1. For a listed public company, the issue price shall not be less than the
      price applicable to a corresponding mode of issuance of equity shares listed on recognized stock exchange in India under the applicable laws.
    2. Whereas for unlisted public company, the issue price or transfer of equity shares shall be determined by a book-building process as permitted by the said
      International Exchange and shall not be less than the fair market value under applicable rules or regulations under the Foreign Exchange Management Act, 1999

    CONCLUSION:

    The said rules have opened avenues for domestic public companies in India to list their equity shares on international exchanges in GIFT-IFSC and facilitated access to global markets for raising funds. This move is anticipated to enhance the valuation of Indian companies to align with global standards, stimulate foreign investment inflows, unlock significant growth prospects, and diversify the investor pool. Particularly advantageous for Indian firms eyeing global expansion, as it offers opportunities to broaden their presence in international markets.

     

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