Overseas Equity Direct Listing Scheme

By Akshat Pande, on February 1, 2024

POSTED IN Corporate and Commercial,

On January  24, 2024, the Ministry of Corporate Affairs (MCA), through new rules[1] (“Company Listing Rules”) permitted listing of shares of Indian companies on overseas stock exchanges. Simultaneously, the Finance Ministry[2] brought forth amendments to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“FDI Rules”), introducing the ‘Direct Listing of Equity Shares of Indian Companies on International Exchanges Scheme’ (“FDI Amendment”). The Company Listing Rules and the FDI Amendment, together, provides rules and regulations regarding the issuance of equity shares for listing on approved stock exchanges in permissible jurisdictions (“Scheme”).

Highlights of the Scheme

• Applicability: The provisions of the Scheme shall be applicable to following companies:

(a) Unlisted public companies; and

(b) Listed public companies, subject to regulations framed or directions issued in this regard by the Securities and Exchange Board of India (SEBI) or International Financial Services Centres Authority.

• Permitted International Exchange: The Scheme recognises international exchanges as permitted stock exchanges in permissible jurisdictions. Currently, International Financial Services Centres in India is recognised as permissible jurisdiction. Additionally, India International Exchange, and NSE International Exchange are recognised as permissible stock exchanges. Going forward, the Central Government shall specify permissible jurisdiction.

• Permissible Holders: The Scheme provides the definition of a permissible holder, i.e. person(s) allowed to subscribe to, hold, sell and purchase equity shares of an Indian company listed on the permitted international exchange.

A permissible holder (including the beneficial owner of such equity shares) shall be a non-resident person. Therefore, resident individuals cannot subscribe to public issues on international exchanges by Indian companies, which is a major drawback of the Company Listing Rules. Also, residents will not be able to offer for sale, trade or hold any interest in such shares.

Further, in the event, holder is a citizen of a country which shares land border with India, or an entity incorporated in such a country which shares land border with India, or an entity whose beneficial owner is from such a country which shares land border with India then such holder shall hold equity shares of such public Indian company only with the approval of the Central Government.

• Investment by permissible holders: A permissible holder may purchase or sell equity shares of a public Indian company which is listed or to be listed on an international exchange under rules and regulations provided in the Scheme.

• Eligibility norms

The Scheme has meticulously outlined the eligibility criteria of a company governing the issuance or undertaking an offer for sale of equity shares on permissible stock exchange on a permissible jurisdiction.

a) A company shall not be eligible for issuing or offering for sale, equity shares for listing if such company:

• has partly paid shares;
• has been registered as not for profit or nidhi company;
• is a company limited by guarantee and also having share capital;
• has any outstanding deposits accepted from public;
• has a negative net worth;
• has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holder or any other secured creditor unless made good and 2 (two) years have lapsed since making that default good;
• has made any application for winding-up under the Act or for resolution or winding-up; or
• has defaulted in filing its annual returns and annual financial statements.

b) Fresh issue by public Indian company: In addition to the above criteria, a public Indian company shall be eligible to issue equity shares if:

• none of its promoters, promoter group, directors, or selling shareholders are debarred from accessing the capital market by the appropriate regulator;
• none of the promoters or directors is a promoter or director of any other Indian company which is debarred from accessing the capital market by the appropriate regulator;
• neither such public Indian company nor any its promoters or directors is declared a wilful defaulter or a fugitive economic offender; or
• such public Indian company is not under investigation or inspection.

c) Offer of equity shares by existing holders of the public Indian company: Existing holders of the public Indian company shall be eligible to offer shares if:

• the public Indian company or the holder offering equity shares 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, listed or otherwise, which is debarred from accessing the capital market by the appropriate regulator;
• the public Indian company or the holder offering equity shares is not a wilful defaulter;
• the public Indian company is not under investigation or inspection under the provisions of the Act; or
• none of the promoters or directors of the public Indian company or the holder offering equity shares is a fugitive economic offender.

d) For Listed and Unlisted Companies: Issuance of equity shares on international exchanges by a listed Indian company or a public unlisted Indian company shall be subject to specific norms notified by the Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA), respectively.

Issuance and Listing Mechanism

• A public Indian company may issue equity shares or offer equity shares of existing shareholders, subject to the following conditions:

– such issue or offer of equity shares of existing shareholders shall be permitted and such shares shall be listed on any of the specified permitted stock exchange in the permissible jurisdiction;

– such issue or offer of equity shares of existing shareholders shall be subject to sectoral caps and prohibited activities as provided in FDI Rules;

– such issue or offer of equity shares of existing shareholders shall be in dematerialised form and rank pari passu with equity shares listed on a recognised stock – exchange in India; and

– the mode of payment for remittance of proceeds of issue shall be as specified by the Reserve Bank of India (RBI).

• Pricing Mechanism: The Scheme also outlines the pricing formulae for issuance of equity shares in the international exchange. In case equity shares are issued by a listed company or offered by the existing shareholders of equity shares listed on a recognised stock exchange in India, the issuance price of equity shares shall not be lower than the price applicable to a corresponding mode of issuance to domestic investors. In case of initial listing of equity shares by a public unlisted Indian company on the international exchange, the issuance price will be determined by a book-building process and shall not be less than the fair market value under applicable rules or regulations under the Foreign Exchange Management Act, 1992.Any subsequent issuance or transfer of shares for the purpose of listing additional shares post initial listing shall be based on applicable pricing norms of the international exchange and the permissible jurisdiction.

• Compliance Requirements: As per the Scheme, an unlisted public company shall have to file the prospectus in e-Form LEAP-1, along with the requisite fees within a period of 7 (seven) days from finalisation and filing of the prospectus with the permitted exchange.Further, every company, after successfully listing its equity shares in permitted exchange, will have to adhere to the Indian Accounting Standards as per the Companies (Indian Accounting Standards) Rules, 2015 in preparation of their financial statements, in addition to any other applicable accounting standards.

[1] Notification no. G.S.R. 61(E), notified the Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024

[2] Notification no. S.O. 332(E),

Assisted by:

• Avneesh Bahuguna (Associate)
• Aayush Kumar (Intern)