[Opinion] LEAP to Listing | India Permits Direct Listing of Shares Overseas Through IFSC MCA & MOF Notify Rules for the Same

Vinita Nair & Prapti Kanakia – [2024] 158 taxmann.com 618 (Article)

Indian companies were permitted to raise funds from overseas either pursuant to issue of depository receipts listed overseas or having the non-residents subscribe to issuances made in India or by way of borrowing overseas. As an initiative to provide an avenue to access global capital markets, GoI had announced the decision to ease raising of foreign funds in order to boost foreign investment inflows, unlock growth opportunities and offer flexibility to Indian companies to raise funds. Consequently, an enabling provision for direct listing of prescribed class of securities on permitted stock exchanges in permissible foreign jurisdictions was inserted vide Companies (Amendment) Act, 2020 in Section 23 of Companies Act, 2013 (‘CA, 2013’), that deals with permissible modes of issue of securities, vide notification dated September 28, 2020 and made effective from October 30, 2023. Thereafter, the Ministry of Corporate Affairs (‘MCA’) notified Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 (‘LEAP Rules’) effective from January 24, 2024. As listing of shares abroad will result in raising funds from persons resident outside India, Ministry of Finance (‘MoF’) notified  FEMA (Non-Debt Instruments) Amendment Rules, 2024 amending FEMA (Non-Debt Instruments) Rules, 2019 (‘NDI Rules’) with effect from January 24, 2024. SEBI is also expected to roll out the operational guidelines for listed companies to list their equity shares on permitted stock exchanges.

Additionally, FAQs on direct listing scheme (FAQs) have also been rolled out on January 24, 2024. Further, two of the key recommendations of the working group report on  Direct Listing of Listed Indian Companies on IFSC Exchanges submitted in December 2023 was to notify the rules under Section 23 (3) and (4) of CA, 2013 and notify necessary amendments in NDI Rules to permit cross-jurisdiction issuance and trading of equity shares of Indian companies on IFSC exchanges.

Presently, both the LEAP Rules as well as NDI Rules have notified International Financial Services Centre in India (‘Gift City’) as the permissible jurisdiction and India International Exchange and NSE International Exchange as the permissible stock exchange. International Financial Services Centres Authority (‘IFSCA’) had issued the  IFSCA (Issuance and Listing of Securities) Regulations, 2021 effective July 19, 2021 (‘IFSC Regulations’) however, in the absence of enabling provision under CA, 2013 and NDI Rules, Indian companies were unable to undertake listing of securities abroad.

In this article we provide an overview of the regulatory regime and deal with the procedural aspect.

Regulatory Regime for listing securities in IFSC

Chapter X of the NDI Rules permits investment by a permissible holder subject to conditions specified in Schedule XI. Schedule XI inter-alia provides the permissible mode of issuance, eligibility conditions for a permissible holder and Indian companies, obligations of the companies and requirements relating to voting rights and pricing.

LEAP Rules prescribe the eligibility norms for unlisted public companies and procedural aspects in relation to timeline and form for filing the prospectus, complying with Indian Accounting Standards post listing etc.

The IFSC Regulations provides the general conditions w.r.t the principles and eligibility criteria for issuer, specific eligibility criteria for IPO, procedural requirements in case of an entity freshly listing on IFSC exchange (Chapters I, II, III, IV) and also norms for secondary listing of specified securities (Chapter V). Chapter VI deals with listing of special purpose acquisition companies (SPAC).

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