Ministry of Corporate Affairs have unlocked a global opportunity for Unlisted Public Company and Listed public Company to get their equity shares listed on international stock exchange in permissible foreign jurisdiction. MCA has introduced the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 to permit Indian companies to get their equity shares listed on international stock exchange.
To legally align Company Law provisions with FEMA, the Government has also amended provisions of FEM (Non-debt Instruments) Rules, 2019 wherein a new Rule 34, Investment by permissible holder, has been introduced. Amended rules permit a permissible holder to purchase or sell equity shares of a public Indian company which is listed or to be listed on an International Exchange under the Direct Listing of Equity Shares of Companies Incorporated in India on the International Exchanges Scheme.
This article contains a detailed analysis of provisions recently notified by MCA on the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024.
1. Amendment in Companies Act, 2013 and Inserting of new rules
- Initially provisions of listing of equity shares of a public company on international stock exchange was incorporated in Section 23 of Companies Act, 2023 vide Companies (Amendment) Act, 2020. Notification dated 28th September, 2020.
- Such an amendment was made effective from 30th October, 2023.
- Now, the Ministry of Corporate Affairs (‘MCA’) notified Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 (‘LEAP Rules’) effective from January 24, 2024.
2. Applicability of provisions of LEAP Rules
As per Rule 3 of The COmpanies (Listing of equity shares in permissible jurisdiction) Rules, 2024, provisions of LEAP rules applies to following companies which issue their securities for the purpose of listing on permitted stock exchange in permitted jurisdiction:
- Unlisted Public Company
- Listed Public Company [so far as they are following regulations framed or directions issued in this regard by the SEBI or Authority)]
For the purpose of LEAP Rules:
- Permitted Stock Exchange is India International Exchange, NSE International Exchange; and
- Permissible Jurisdiction is International Financial Services Centre in India
3. Companies not eligible for Listing on Permitted Stock Exchange
As per Rule 5 of LEAP Rules, following companies are not eligible for issuing equity shares for listing on International stock exchange:
- A Company registered under Section 8 of Companies Act or a declared as Nidhi Company under section 406 of Companies Act;
- A Company limited by guarantee and also having share capital;
- Company having any outstanding deposits accepted from public;
- Company having negative net worth;
- Company defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holder or any other secured creditor. However, provisions of this clause shall not apply if the company has made good such default and a period of 2 years have been lapsed since the date of making good the default;
- A Company which has made application for winding up under Insolvency and Bankruptcy code, 2016;
- A Company which has defaulted in filing of an annual return under Section 92 or Financial statement under section 137 of companies Act.
4. Mode of Listing
- As per Rule 4 of LEAP Rules, an unlisted public company, which is not prohibited from listing on above mentioned criteria, not having partly paid-up share capital may issue equity shares for listing on a permitted stock exchange.
- Listing can be done through:
- Fresh Issue of Equity shares, i.e., new shares are issued by the unlisted Public Company; or
- Offer for sale, i.e., equity shares are offered by existing shareholders for listing on a permitted stock exchange.
- Offer for sale method is opted when the company does not want to infuse new funds in the company. However, shares of existing shareholders are offered for listing.
5. Conditions of listing on Permitted Stock Exchange
- Listing of equity shares on permitted stock exchanges in permissible jurisdiction by an unlisted public company which also intends to get its equity shares listed with SEBI shall also be in compliance with such conditions as may be specified by the Securities and Exchange Board of India.
- The unlisted public company shall file the prospectus in e-Form LEAP-1 along with the fees within a period of 7 days after the same has been finalised and filed in the permitted exchange.
- After the listing of the equity shares of a company on any of the stock exchanges in a permissible jurisdiction, the company shall comply with Indian Accounting Standards as specified under Companies Act in preparation of their financial statements, in addition to any other accounting standard, which they may be required to comply for the preparation of the financial statements filed before the securities regulator concerned, or with the stock exchange concerned, as the case may be.