On January 24, 2024, Ministry of Finance amended the existing Foreign Exchange Management (Non-debt Instruments) Rules, 2019 to enable the direct listing of equity shares by certain public Indian companies. In this regard, Ministry of Corporate also introduced Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 (Direct Listing Rules, 2024) for implementation of section 23(3) of the Companies Act, 2013.
B. About the new Laws
As per newly introduced laws, a public Indian company, may issue equity shares (including by way of offer for sale) for the purposes of listing on International Exchanges (i.e., India International Exchange and NSE International Exchange) situated in International Financial Service Centre in India.
A public Indian company shall issue such equity shares in accordance with ‘Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme’ (Scheme) and shall ensure compliance with extant laws relating to issuance of equity shares, including requirements prescribed in the Securities Contracts (Regulation) Act,1956, the Securities and Exchange Board of India Act, 1992, the Depositories Act, 1996, the Foreign Exchange Management Act,1999, the Prevention of Money-laundering Act, 2002 and the Companies Act, 2013, as applicable.
Only a permissible holder is allowed to purchase or sell the equity shares of a public Indian company which is listed or to be listed on an International Exchange. A permissible holder is a person other than a person resident in India, who holds equity shares of the public Indian company which are listed on an International Exchange, including its beneficial owner. A permissible holder may purchase or sell equity shares of an Indian company listed on International Exchanges subject to limit specified for foreign portfolio investment.
The Scheme also provides eligibility criteria for a public Indian company, viz. promoters or directors of public Indian company should not be wilful defaulters or debarred from accessing the capital market by the appropriate regulator, so that only sound companies can list their equity shares on International Exchanges.
As per Direct Listing Rules, 2024, certain public Indian companies, viz. section 8 company, Nidhi company, company limited by guarantee, company having negative net worth, are expressly prohibited to issue equity shares on such International Exchanges.
The procedural requirements under the new law include filling of e-Form LEAP-1 to the Registrar of Companies within seven days after the prospectus has been finalised and filed in the permitted exchange. Equity shares to be issued by the public Indian company on an International Exchange shall be in dematerialised form and rank pari passu with its existing equity shares. Public Indian company shall ensure that the voting rights on such equity shares shall be exercised directly by the permissible holder or through their custodian pursuant to voting instruction only from such permissible holder. After listing, the public Indian company is also required to comply with the Indian Accounting Standards in preparation of their financial statements.