Listing of Indian Public Companies on Foreign Stock Exchanges

The Ministry of Corporate Affairs (MCA) through its notification dated January 24, 2024, notified the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 (LEAP Rules, 2024). Simultaneously, the Department of Economic Affairs, Ministry of Finance has also amended the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules, 2019) and notified the ‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme’ (Scheme) through its notification of same date (NDI Rules, 2024) (collectively referred as Regulatory Framework).

 

The Regulatory Framework enables (Indian) public companies to issue and list their equity shares on permitted stock exchanges – namely, India International Exchange and NSE International Exchange (International Exchange), in permissible jurisdictions – namely, International Financial Services Centre (IFSC) in India (GIFT City). It may be noted that the Securities and Exchange Board of India (SEBI) is in process of issuing the operational guidelines for (Indian) listed companies.

 

Some of the key features of the Regulatory Framework are as follows:

■      Eligibility: Only (Indian) public companies – listed or unlisted, and their existing shareholders, are eligible to issue/ offer equity shares and list them on International Exchange.

 

■      Ineligibility: As per the LEAP Rules, 2024, the following companies are not eligible to issue its equity shares for listing on International Exchange:

• • an unlisted public company having partly paid-up shares;
  • a company incorporated under section 8 (not for profit company) or section 406 (Nidhi company) of the Companies Act, 2013 (CA 2013);
  • a company limited by guarantee and having share capital;
  • a company having any outstanding deposits accepted from the public as per chapter V of CA 2013 and rules made thereunder;
  • a company having a negative net worth;
  • a company which has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holder or any other secured creditor. However, the company which has made good the default and a period of two years had since lapsed, is eligible to list its equity shares;
  • a company which has either made an application or is subject to a proceeding against it, for winding-up under CA 2013 or for resolution or winding-up under the Insolvency and Bankruptcy Code, 2016;
  • a company which has defaulted in filing its annual return under section 92 or financial statement under section 137 of CA 2013 within the specified period.

 

■      Conditions: In order to be eligible to issue/ offer equity shares and list them on International Exchange, following conditions are required to be complied with:

• • By an (Indian) public company: It must ensure that (i) neither the company nor any of its promoters, promoter group or directors or selling shareholders are debarred from accessing the capital market; (ii) none of the promoters or directors of the company is a promoter or director of any other (Indian) company which is debarred from accessing the capital market; (iii) neither the company nor any of its promoters or directors is a wilful defaulter; (iv) the company is not under inspection or investigation under the provisions of CA 2013; (v) none of its promoters or directors is a fugitive economic offender.

• • By existing shareholders of the (Indian) public company: It must be ensured that (i) the (Indian) public company or the holder offering equity shares are not debarred from accessing the capital market; (ii) none of the promoters or directors of the (Indian) public company is a promoter or director of any other (Indian) company, listed or otherwise, which is debarred from accessing the capital market; (iii) the (Indian) public company or the holder offering equity shares is not a wilful defaulter; (iv) the (Indian) public company is not under inspection or investigation under the provisions of CA 2013; (v) none of the promoters or directors of the (Indian) public company or the holder offering equity shares is a fugitive economic offender.

 

In addition to the above, it must be ensured that such issue or offer of equity shares is in dematerialized form and rank pari-passu with equity shares listed on recognized stock exchange in India and is subject to prohibited activities as well as in compliance with the applicable sectoral caps, permissible limits on foreign holding, government approvals (if any) and other applicable conditionalities, as may be prescribed under the NDI Rules, 2019.

 

■      Voting Rights: The voting rights on equity shares listed on International Exchange must be exercised either directly by the permissible holder or through their custodian pursuant to voting instruction from such permissible holder only. The term ‘Permissible Holder’ is defined in the Scheme to mean a non-resident person, holding equity shares of the Company which are listed on International Exchange, including its beneficial owner. In case permissible holder is a citizen/ entity from land bordering countries, prior government approval is necessary.

 

■      Pricing: The Scheme sets out following guidelines for pricing of equity shares issued/ offered:

• • By a company (or its existing shareholders) listed on recognized stock exchange in India: The price should not be less than the price applicable to a corresponding mode of issuance of such equity shares to domestic investors under the applicable laws.

• • By an unlisted (Indian) public company for initial listing on the International Exchange: The price of issue or transfer of equity shares should be determined by a book- building process as permitted by the International Exchange but should not be less than the fair market value under applicable rules or regulations under the Foreign Exchange Management Act, 1999. Any subsequent issuance or transfer of shares would be based on applicable pricing norms of the International Exchange and the permissible jurisdiction.

 

■      Filing: The unlisted public company is required to file the prospectus (in e-Form LEAP 1) within a period of 7 (seven) days after the same has been finalized and filed in the permitted stock exchange.