The issuance and listing of equity capital of Indian companies is governed under the Companies Act, 2013 (Companies Act) and the regulations issued by the Indian securities market regulator, the Securities and Exchange Board of India (SEBI). The Companies Act and SEBI regulations allow Indian public companies to directly list their equity shares on a stock exchange recognized in India.
In October 2023, the Ministry of Corporate Affairs (MCA) brought in effect an enabling provision under the Companies Act to enable certain classes of Indian public companies to directly list their equity shares on permitted international exchanges as notified by the MCA. In furtherance of this, MCA has recently issued the Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 (MCA Rules) detailing out the conditions and procedural aspects for issuance of equity shares on international exchanges. As this would entail incoming foreign capital in the country, the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) have also been amended to provide an overarching framework for issuance / listing of equity capital by domestic public companies on international exchanges. We have provided an overview of the MCA Rules and the amended NDI Rules.
1. What are the changes introduced?
Under the erstwhile law, an Indian public company could not directly list its equity share capital on an international exchange.
Now, Indian public companies can directly list their equity shares on permitted international stock exchanges by issuing equity shares or offering shares of existing shareholders. As of now, the International Financial Services Centre in India (IFSC) – India International Exchange and NSE International (collectively referred as International Exchanges) have been notified as the permitted international stock exchanges.
2. Which public companies are eligible to list equity shares on International Exchanges?
The public companies which meet the below criteria are eligible to list their equity shares on International Exchanges:
(a) in case of an unlisted public company, the company should not have any partly paid up shares;
(b) the company, its promoters, promoter group, directors or selling shareholders should not be debarred from accessing the capital market under Indian laws;
(c) the promoters or directors of the company should not be a promoter or director of any other Indian company which is debarred from accessing the capital market under Indian laws;
(d) the company or any of its promoters or directors should not be a wilful defaulter as per Indian laws;
(e) the company should not be under inspection or investigation under the Companies Act; and
(f) the promoters or directors of the company should not be a fugitive economic offender as per the Fugitive Economic Offenders Act, 2018.
3. Which companies are not permitted to list equity shares on International Exchanges?
(a) a company formed for charitable purposes under section 8 of Companies Act;
(b) a company declared as Nidhi company under section 406 of Companies Act;
(c) a company limited by guarantee and also having share capital;
(d) a company having outstanding deposits accepted from the public;
(e) a company having a negative net worth;
(f) a company which has defaulted in payment of dues to any bank / public financial institution / non-convertible debenture holder or any other secured creditor. However, a company is eligible if the default has been made good and a period of 2 years has lapsed since the date of making good the default;
(g) a company against which an application or proceeding for insolvency or winding-up has been initiated or is pending; and
(h) a company which has defaulted in filing of an annual return or financial statement under the Companies Act.
4.Who can trade on International Exchanges?
The following persons or entities can purchase, sell or be the beneficial owner of equity shares of an Indian company listed on International Exchanges:
(a) Persons or entities which are not residents of India can purchase, sell or become a beneficial owner of equity shares; and
(b) A citizen of a country or an entity incorporated in a country, which shares land border with India can purchase or become a beneficial owner of equity shares with the prior approval of Indian government.
5. Who cannot trade on International Exchanges?
The following persons or entities cannot purchase, sell or be the beneficial owner of equity shares of an Indian company listed on International Exchanges:
(a) Persons or entities which are residents of India;
(b) Persons or entities which are debarred from accessing the capital market under Indian laws;
(c) Persons or entities which are wilful defaulters; and
(d) Persons or entities which are a fugitive economic offender.
6.Other conditions with respect to Indian public companies listed on an International Exchange
(a) Voting rights: The holders of equity shares can exercise their voting rights directly or through their custodian. The company must ensure that the voting rights are exercised only by the relevant shareholders or their custodians after receiving instructions from the relevant shareholders.
(b) Pricing: In case of companies already listed on a domestic stock exchange, the price of equity shares issued or offered on an International Exchange should not be less than the price applicable to domestic investors under applicable Indian laws.
In case of companies seeking initial listing of equity shares on an International Exchange, the price will be determined by a book building process as permitted by the International Exchange. It should be noted the price must not be less than the fair market value determined in accordance with Indian foreign exchange laws.
(c) FDI Limits and entry routes: The total foreign direct investment (FDI) in the company must not exceed the sectoral limits and must comply with the entry routes provided under Indian foreign exchange laws.
(d) Agreements with depositories: The Indian company will be required to enter into formal arrangements with Indian and foreign depository which includes Central Securities Depositories and International Central Securities Depositories.
(e) Compliance with existing laws: The Indian public company is required to comply with all existing laws applicable to public listed or unlisted companies.
In addition to the amended NDI Rules and MCA Rules, SEBI is in the process of making additional rules for Indian companies listed on domestic stock exchanges which wish to get listed on International Exchanges.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
