Govt. Permits Investment By ‘Permissible Holders’ in the Equity of Indian Public Cos. Listed on International Exchanges

Notification No. S.O. 332(E), Dated: 24.01.2023

The Ministry of Finance vide. Notification No. S.O. 332(E) dated 24.01.2024 has notified the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024. A new Rule 34 in chapter X has been inserted which permits the Investment by permissible holders in Equity Shares of Public Companies Incorporated in India and Listed on International Exchanges. As per the amended norms, a public Indian company may issue equity shares or offer equity shares of existing shareholders on a Specified International Exchange[ The list of List of International Exchanges are a) IFSC in India-India International Exchange, b) NSE International Exchange..] subject to certain conditions. Further, amended norms allow the permissible holder to purchase or sell equity shares of an Indian company listed on an international exchange subject to the limit specified for foreign portfolio investment.

The eligibility criteria for the direct Listing of Equity Shares of Companies Incorporated in India on the International Exchanges Scheme and for the purchase and sale of equity shares by the permissible holders has also been specified. The amended provisions are discussed hereunder:

1. Insertion of two new definitions; International Exchange and Permissible Jurisdiction defined

An amendment has been made in rule 2 whereby two new definitions have been inserted. The following definitions have been added:

(a) “International Exchange” shall mean permitted stock exchange in permissible jurisdictions which are listed at Schedule XI annexed to these rules.

The annexure specifies the International Financial Services Centre in India-India International Exchange and NSE International Exchange as International Exchange

(b) “Permissible Jurisdiction” means such jurisdiction as notified by the Central Government under sub-clause (f) of sub-rule (3) of rule 9 of Prevention of Money-laundering (Maintenance of Records) Rules, 2005.

2. Definition of Indian company amended to include Cos. listed on an International Exchange

Under the extant norms, the listed Indian Company was defined as an Indian company which has any of its equity instruments or debt instruments listed on a recognised stock exchange in India and the expression “unlisted Indian company” shall be construed accordingly.

As per the amended definition, listed Indian Company means an Indian company which has any of its equity instruments or debt instruments listed on a recognised stock and on an International Exchange in India and the expression “unlisted Indian company” shall be construed accordingly.

As the Govt. has allowed the listing on the International Exchange therefore the definition of listed Indian Company has been amended accordingly.

3. Conditions for issue and listing on International Exchanges

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

(a) such issue or offer of equity shares of existing shareholders shall be permitted and such shares shall be listed on any of the specified International Exchange.

(b) such issue or offer of equity shares of existing shareholders shall be subject to prohibited activities, and sectoral caps prescribed in Schedule I to these rules

(c) such equity shares to be issued by the public Indian company or offered by its existing shareholders on an International Exchange shall be in dematerialised form and rank pari passu with equity shares listed on a recognised stock exchange in India

(d) Prior Government approval, wherever applicable, shall be obtained.

4. Conditions for buying/selling of equity shares of an Indian listed Company by a Permissible holder on International Exchange

4.1. Who is a Permissible Holder?

Permissible holder means a holder of equity shares of the Company which are listed on the International Exchange, including its beneficial owner. Further, the permissible holder is not a person resident in India.

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

4.2. Permissible Holder to comply with the Foreign Portfolio Investment (FPI) norms

A permissible holder may purchase or sell equity shares of an Indian company listed on an international exchange subject to the limit specified for foreign portfolio investment under the NDI rules.

5. Eligibility criteria for issue/purchase and sell of equity shares on international exchange

As per the newly notified norms a public Indian company may issue equity shares on International Exchange or the existing shareholders may offer equity shares in such exchange.

However, there are certain eligibility norms to be complied with such as the public Indian company, any of its promoters, promoter group or directors or selling shareholders are not debarred from accessing the capital market by the appropriate regulator or they are not a wilful defaulter, the public Indian company is not under inspection or investigation under the provisions of the Companies Act, 2013 etc.

6. Voting rights and the pricing norms

The public Indian companies having their equity shares listed on the International Exchange 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.

Further, the shares shall be issued at a price, not less than the price applicable to a corresponding mode of issuance of such equity shares to domestic investors under the applicable laws.

In case of the initial listing of an Indian company on an International Exchange, the equity shares’ price must be determined via a book-building process. The issue or transfer price should not fall below the fair market value as per FEMA rules or regulations.

7. Miscellaneous Provisions

(a) Public Indian Company to comply with the applicable Indian laws such as SEBI, SCRA, FEMA, etc.

(b) Public Indian Company to ensure foreign holding limits are not breached

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