UNLOCKING GLOBAL OPPORTUNITIES: INDIA'S REGULATORY REFORMS FOR INTERNATIONAL LISTING

Introduction

In a significant stride towards bolstering India's capital market and fostering global investor participation, the Ministry of Corporate Affairs (MCA) has rolled out pioneering guidelines through the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024. These rules extend the privilege for both unlisted and listed public companies to issue securities for listing on international stock exchanges in permissible foreign jurisdictions.

Coupled with the recent amendment to the Foreign Exchange Management Act (FEMA), these regulatory reforms present fresh avenues for foreign investors to actively trade equity shares of Indian companies listed or intending to list on international exchanges.

The primary objectives behind these regulatory overhauls are twofold: first, to fortify market confidence and encourage greater global participation in India's capital market; and second, to galvanize economic growth while upholding stringent compliance standards and regulatory oversight.

This article undertakes a comprehensive analysis of the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 in Part A, and delves into the provisions of the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024 in Part B. Through this examination, we aim to elucidate the intricacies of these regulatory frameworks and their implications for the Indian financial landscape.

Part-A: MCA Guidelines for Listing Equity Shares in Permissible Jurisdictions

1.1 Applicability of the Norms

The Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024, extend to unlisted public companies and listed public companies intending to issue securities for listing on permitted stock exchanges in permissible jurisdictions. This move opens doors for companies seeking global visibility and access to international investors.

1.2 Criteria for Eligibility

To ensure the integrity of the listing process, certain eligibility criteria have been outlined. Under the Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024, certain types of companies are ineligible to issue securities. These include:

- Companies registered under section 8 or declared as Nidhi under section 406 of the Act

- Companies limited by guarantee with share capital

- Companies with outstanding deposits accepted from the public

- Companies with a negative net worth

- Companies that have defaulted in payment to creditors, subject to certain conditions

- Companies undergoing winding-up proceedings or resolution processes under the Act or IBC, 2016

- Companies that have defaulted in filing annual returns or financial statements within the specified period

However, unlisted public companies not falling under these categories and having no partly paid-up shares may issue equity shares for listing on stock exchanges in permissible jurisdictions, provided they comply with conditions specified under FEM (Non-Debt Instrument), Amendment Rules, 2024.

1.3 Reporting Requirement

Unlisted public companies venturing into international listing must adhere to reporting requirements, submitting their prospectus using e-Form LEAP-1 within 7 days after finalizing and filing it with the authorized international stock exchange. This form must be electronically filed in the MCA21 Registry for record-keeping purposes. This ensures transparency and regulatory oversight throughout the listing process.

 

Part-B: FEMA Amendment Unleashing Direct Listing Potential

 

2.1 Introduction of New Definitions

The FEMA amendment introduces key definitions such as "International Exchange" and "Listed Indian Company," providing clarity on the scope of permissible listings. The specified international exchanges, including IFSC and NSE International Exchange, emerge as crucial platforms for global trading.

 

2.2 Permissible Holders' Access to Indian Equities

Under the amended norms, permissible holders gain direct access to Indian equities listed on international exchanges, fostering global participation in India's capital market. This move is poised to attract foreign investment and diversify the investor base.

 

2.3 Eligibility Criteria for Direct Listing

Eligibility criteria for issuing equity shares on international exchanges are meticulously outlined to ensure regulatory compliance and market integrity.

For existing holders of public Indian companies to offer shares, they must adhere to the following conditions:

- Neither the public Indian company nor the offering holder is barred from accessing the capital market by the regulator.

- Promoters or directors of the public Indian company cannot be associated with any other Indian company, listed or not, barred from capital market access.

- The company or offering holder must not be a wilful defaulter.

- The public Indian company must not be under inspection or investigation per the Companies Act, 2013.

- Promoters or directors associated with the company or offering holder must not be fugitive economic offenders.

 

2.4 Compliance Framework

To navigate the complexities of equity share issuance, companies must comply with a comprehensive framework encompassing various laws and regulations governing capital markets. Collaboration with Indian and foreign depositories is encouraged, alongside adherence to foreign ownership limits to maintain regulatory alignment.

 

2.5 Direct Exercise of Voting Rights

Ensuring transparency in corporate governance, public Indian companies listed on international exchanges must facilitate the direct exercise of voting rights by permissible holders or their custodians. This enhances investor engagement and accountability in decision-making processes.

 

2.6 Equitable Pricing Principles

Fair valuation practices are upheld through equitable pricing principles, preventing undervaluation and ensuring parity between domestic and international investors. The introduction of book-building processes and adherence to fair market value regulations bolster investor confidence and market integrity.

 

2.7 Empowering Foreign Investors

The regulatory reforms empower foreign investors to engage more actively in Indian capital markets, fostering greater investment flow and market liquidity. Public Indian companies, especially those in emerging sectors, stand to benefit significantly from increased access to global capital.

 

Conclusion

India's regulatory reforms signal a progressive stance towards integrating with global capital markets while maintaining robust regulatory oversight. By aligning with international standards and fostering transparency, these reforms aim to attract foreign investment, stimulate economic growth, and propel India's emergence as a global investment destination. The meticulous structuring of regulatory frameworks ensures market integrity, investor protection, and sustainable growth, laying the foundation for a vibrant and inclusive capital market ecosystem.

 

Parameters	Key Provisions of Rules
Companies eligible for listing	- Unlisted public companies - Listed public companies (in accordance with SEBI regulations and IFSCA)
Permissible securities for listing	Equity shares
Mode of issuance and listing	- New issue or offer for sale by existing shareholders - Issue and listing of equity shares must be in dematerialized form ranking pari passu with existing equity shares
Permissible jurisdiction for listing	GIFT-IFSC
Permissible international exchanges	- India International Exchange - NSE International Exchange
Permissible holders or investors	- Persons not resident in India under FEMA - Individuals and entities from jurisdictions sharing a land border with India may invest in equity shares traded on such exchanges subject to prior government approval
Restrictions on listing of equity shares	The following public companies are not eligible to list their equity shares: - -Section 8/nidhi company registered under the Companies Act, 2013 - Company limited by guarantee and also having a share capital - Company having negative net worth - Company having outstanding deposits accepted from the public as per chapter V of the Companies Act, 2013 and rules made thereunder - Company that is ineligible according to conditions prescribed under rule 3 of the FEMA Direct Listing Scheme and rule 5 of the Companies Overseas Listing Rules that prescribe criteria for eligibility as well as restrictions for the issuance of equity shares by Indian public companies
Foreign investment limits	Foreign holdings must not exceed the limits prescribed under schedule I to the FEMA Non-Debt Rules 2019
Pricing	- Listed public company: Issue price must not be less than the price applicable to a corresponding mode of issuance of such equity shares to domestic investors under the applicable laws - Unlisted public company: Issue price for the initial listing of equity shares must not be less than the fair market value under the FEMA Non-Debt Rules 2019. Price on a subsequent issuance and transfer of equity shares for the purpose of additional listing must be in accordance with the applicable pricing norms of the international exchange and the permissible jurisdiction
Regulator	- IFSCA - MCA - SEBI (for companies listed in India)
Applicable regulations	- FEMA Direct Listing Scheme and applicable provisions of FEMA Non-Debt Rules 2019 - Companies Overseas Listing Rules and applicable provisions under Companies Act, 2013 - Securities Contracts (Regulation) Act, 1956 - Specific operational guidelines to be issued by the SEBI for the overseas listing of listed companies - Depositories Act, 1996 - Foreign Exchange Management Act, 1999 - Prevention of Money-Laundering Act, 2002 - International Financial Services Centres Authority Act, 2019 including the IFSCA ILS Regulations

 

Frequently Asked Questions (FAQs) on Companies Overseas Listing Rules and FEMA Direct Listing Scheme

Q: Are private companies eligible to list their equity shares on permissible international exchanges?

A: No, private companies under the Companies Act, 2013, are not eligible to list their equity shares on permissible international exchanges.

 

Q: Are public companies from sectors prohibited for foreign direct investment allowed to list their equity shares on permissible international exchanges?

A: No, public companies falling under sectors prohibited for foreign direct investment are not allowed to list their equity shares on permissible international exchanges.

 

Q: Who are regarded as permissible holders eligible to trade in equity shares listed on permissible international exchanges?

A: Nonresident Indians are regarded as permissible holders and are permitted to buy or sell equity shares of Indian companies listed on permissible international exchanges. However, Indian residents are not considered permissible holders and hence are not permitted to trade in such equity shares.

 

Q: Is it mandatory for an unlisted public company intending to list on permissible international exchanges to also list on domestic exchanges in India?

A: No, it is not mandatory for an unlisted public company intending to list on permissible international exchanges to also list on domestic exchanges in India.

 

Q: What are the potential benefits for companies participating in the Companies Overseas Listing Rules and FEMA Direct Listing Scheme?

A: Participating in the Companies Overseas Listing Rules and FEMA Direct Listing Scheme offers several benefits:

- Elimination of foreign currency risks for investors, as transactions are conducted in foreign currency.

- Extended trading hours exceeding 20 hours per day on international stock exchanges in GIFT-IFSC.

-  Tax incentives and benefits under the Income Tax Act, 1961, offered by GIFT-IFSC.

- Exemption from capital gains tax arising on the transfer of equity shares of Indian companies in GIFT-IFSC.

"Unlock the Potential of Legal Expertise with LegalMantra.net - Your Trusted Legal Consultancy Partner”

Article Compiled by:-

Mayank Garg

+91 9582627751

(LegalMantra.net Team)

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.

Print