New Rules for Indian Companies Listing Abroad
New Rules for Indian Companies Listing Abroad
To enhance the regulatory structure for listing equity shares, the Ministry of Corporate Affairs (MCA) has recently implemented the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024, which took effect immediately. This Rule provides guidelines for Indian public companies, both unlisted and listed, to list their equity shares on approved foreign stock exchanges. In this article, we will look into Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024.
New Rules for Indian Companies to List Shares Overseas
The Government initially determined October 30, 2023, as the implementation date for a crucial provision of the Companies (Amendment) Act, 2020, specifically section 5, which addresses the intricacies of public offerings and private placements. This amendment introduced additional clauses that enable certain public companies to list securities on recognized stock exchanges in approved foreign territories or as designated by the authorities.
Subsequently, on January 24, 2024, the Ministry of Corporate Affairs (MCA) issued notification G.S.R. 61(E), introducing the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024. These newly established regulations extend to unlisted and listed public companies that seek to issue securities for listing on sanctioned stock exchanges within approved foreign jurisdictions, including the International Financial Services Centre (IFSC).
The rules specify the India International Exchange and NSE International Exchange as permitted platforms for such listings. Moreover, the MCA has identified certain entities that are not eligible under these regulations, which include Nidhi Companies and companies limited by guarantee.
Synopsis of Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024
The Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 establish guidelines for Indian companies to list their shares internationally. These rules:
- Target both unlisted and listed Indian public companies.
- Require filing a prospectus within a specific period for transparency.
- Aim to facilitate global market access for Indian firms, attracting foreign investments.
- Mandate adherence to Indian Accounting Standards after listing.
- Exclude companies with financial or legal issues from listing.
- Impose additional conditions for companies seeking dual listings in India and abroad.
Who Can List Shares Abroad Under New Rule?
The 2024 rules for listing equity shares in approved foreign locations apply to two main types of companies:
- Unlisted Public Companies: These companies are not listed on any stock exchange in India but are public, meaning they can have many shareholders.
- Listed Public Companies: These are companies already listed on Indian stock exchanges. They must comply with the regulations or directions given by the Securities and Exchange Board of India (SEBI) or other relevant authorities to list their shares in foreign jurisdictions.
Key Points for Unlisted Public Companies Listing Abroad
- Eligibility for Overseas Listing: Unlisted public companies without partly paid-up shares can issue equity shares for listing in approved foreign jurisdictions.
- Offer for Sale: Includes the option for existing shareholders to offer their shares as part of the listing process.
- Compliance with Scheme Requirements: Companies and their existing shareholders must adhere to the specific requirements of the applicable scheme.
- Dual Listing Considerations: Companies aiming to list both in a permissible foreign jurisdiction and on a recognized Indian stock exchange must comply with SEBI’s stipulated conditions.
- Financial Reporting Standards: After listing abroad, companies must prepare their financial statements following the Indian Accounting Standards mentioned in the Companies (Indian Accounting Standards) Rules, 2015, and any other applicable accounting standards.
Form LEAP-1 – Prospectus Filing
According to Rule 4(4) of the 2023 Rules for listing equity shares in approved jurisdictions, unlisted public companies must file their prospectus electronically using e-Form LEAP-1. This filing should occur within seven days of the prospectus being finalized and submitted to the designated international stock exchange. The form will be filed with the MCA21 Registry to ensure proper documentation and compliance.
Listing on Permitted Exchanges
Companies can only list their equity shares on stock exchanges in foreign jurisdictions approved and recognized by the MCA, adhering to the guidelines specified in these rules.
Compliance with Indian Standards
After listing, companies must continue to comply with Indian Accounting Standards for financial statement preparation, ensuring consistency and reliability in financial reporting.
Restrictions: Companies ineligible to Issue Securities
Under the 2024 Rules for listing equity shares in permissible jurisdictions, certain companies are barred from issuing securities, including those that:
- Are registered as Section 8 companies (non-profit) or classified as Nidhi companies under Section 406 of the Companies Act.
- Operate as companies limited by guarantee with share capital.
- Have any public deposits that are currently outstanding
- Possess a negative net worth.
- Have failed to clear dues to banks, public financial institutions, non-convertible debenture holders, or other secured creditors. However, this restriction does not apply if the default has been rectified and two years have passed since the correction.
- Are you undergoing winding-up proceedings under the Companies Act or insolvency and bankruptcy proceedings under the IBC, 2016, or if such proceedings are pending?
- Have not complied with the annual return submission under Section 92 or the financial statement filing under Section 137 of the Companies Act within the designated timeframe.
An unlisted public company that doesn’t meet any of the above criteria and has fully paid-up shares is eligible to issue equity shares for listing on a stock exchange in an approved foreign jurisdiction provided it adheres to the conditions outlined in the FEM (Non-Debt Instrument) Amendment Rules, 2024.
Dual Listing
If a company intends to list its equity shares in a permissible foreign jurisdiction and on a recognized stock exchange in India, it must meet additional conditions stipulated by SEBI.
Conclusion
The introduction of the 2024 Rules for listing equity shares in approved foreign jurisdictions by the Ministry of Corporate Affairs (MCA) represents a pivotal advancement in allowing unlisted and listed public companies in India to list their securities on recognized stock exchanges abroad.
These guidelines delineate clear eligibility conditions, listing prerequisites and disclosure requirements, enhancing transparency and regulatory adherence in the global financial arena.
The official MCA notification pertains to Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 is attached here for reference:
LEAP-Rules-2024-20240124 (1)