The amendments to sections of the Companies Act, which came into effect on October 30, were proposed in September 2020. The amendment says, “Such class of public companies may issue such class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed”.
MCA enforces provision for foreign listing of Indian public companies
The root of such amendments lays by the Report of Committee set up by SEBI in 2018.
A well-developed, smoothly operating capital market plays an important role in contributing to the health and efficiency of an economy. In addition, there is a strong positive relationship between capital market development and economic growth. Equity listings by companies incorporated in India on foreign stock exchanges would allow them to access foreign capital at a lower cost. Similarly, equity listings of companies incorporated outside India on Indian Stock Exchanges would improve the efficient allocation of capital and diversification for investors across the Indian economy.
SEBI constituted the ‘Expert Committee for listing of equity shares of companies incorporated in India on foreign stock exchanges and of companies incorporated outside India on Indian stock exchanges’ on June 12, 2018.
SEBI in their report, :
- Examined in detail the economic case for permitting direct listing of Indian companies overseas and foreign companies on Indian stock exchanges;
- Examined various legal, operational and regulatory constraints in facilitating Indian companies to directly list their equity shares on foreign stock exchanges and foreign companies to list their equity shares on Indian stock exchanges; and
- Made recommendations for a suitable framework in which to facilitate such direct listing.
So in the nutshell we have say that, it is a very thoughtful step by Ministry of Finance.
PRIMARY POLICY ISSUES UNDER VARIOUS INDIAN REGULATIONS
For listing of equity shares of companies incorporated in India on foreign stock exchanges. The key statutes that require certain amendments and / or clarifications are the following:
- Foreign Exchange Management Act, 1999 together with regulations, press notes, circulars and notifications thereunder, including Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (“FEMA 20R”) (collectively, “FEMA”); and
ii. The Companies Act, 2013, together with the rules, circulars and notifications thereunder (the “Companies Act”).
Iii. SEBI Regulations;
For companies incorporated outside India to list their shares on Indian stock exchanges, key statutes that will be required to be amended are the following:
i. Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004;
ii. Foreign Exchange Management (Deposit) Regulations, 2016;
iii. Companies Act, 2013
iv. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018;
v. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
vi. Other related SEBI Regulations, viz. SEBI (Prohibition of Insider Trading) Regulations, 2015; SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; SEBI (Buy Back of Securities) Regulations, 2018; and SEBI (Delisting of Equity Shares) Regulations, 2009.
BENEFITS:
- Benefits to Indian Economy:
i ) Increased competitiveness for companies incorporated in India
ii ) Competitive pressures to stimulate efficiency and growth.
iii ) Boost the “India” brand globally
iv ) Improve economic relations with other countries
- Benefits to the Indian Companies:
i ) Alternate Source of Capital
ii ) Broader Investor Base;
Iii) Better valuation and other strategic benefits
- Benefits to Indian Investors:
i ) Increased diversification of portfolios.
ii ) Participation in wealth created by global companies.
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By CS Anshul Bhatt
Associate Partner in Singhania & Co. LLP
