A. INTRODUCTION
For a while now, Indian companies with dreams bigger than their borders have faced constraints in accessing global capital. While options like American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) offers access to foreign investors, they are often complex and expensive. Further, issuing securities to non-residents allows direct capital injection but it comes with stringent regulatory hurdles and reporting requirements. Even borrowing from overseas sources, though provides leverage, can expose companies to currency fluctuations and foreign debt burdens. But now, a game-changer shatters these limitations: the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024, aptly known as the LEAP Rules.
The game-changing moment didn’t just happen out of nowhere. It’s a culmination of strategic legislative and regulatory actions:
i. In 2020, the Companies (Amendment) Act, 2020 introduced a crucial provision into Section 23 of the Companies Act, 2013, enabling “public companies to issue securities for direct listing on permitted stock exchanges in permissible foreign jurisdiction or such other jurisdictions”.
ii. The Ministry of Corporate Affairs (MCA) took the baton, notifying the LEAP Rules in January 2024, providing a clear framework for companies to tap into global capital markets.
iii. Recognizing the cross-border implications, the Ministry of Finance (MoF) aligned its regulations, notifying the FEMA (Non-Debt Instruments) Amendment Rules, 2024, to facilitate seamless overseas listing.
iv. Further, SEBI is also in the process of issuing the operational guidelines for listed public Indian companies.
With this robust foundation, the LEAP Rules open a gateway to a transformed landscape. They empower public Indian companies to list their equity shares on “permitted stock exchanges in permissible jurisdictions” hereinafter referred to as International Exchange.
| Permissible Jurisdiction | Permitted Stock Exchange |
| International Financial Services Centre in India (IFSC) | India International Exchange |
| NSE International Exchange |
B. UNVEILING THE LEGISLATIONS
The issuance of equity shares for the purpose of listing on International Exchange is governed by number of legislations, namely: –
1. LEAP Rules provides for the eligibility criteria for unlisted public companies, list of ineligible companies, procedural aspects, filing of prospectus, and complying with Indian Accounting Standards post listing.
2. Further, the NDI Rules provides for the issue and listing conditions, requirements for permissible holder, eligibility criteria for the public Indian company, obligations of the public Indian companies and requirements for voting rights and pricing.
3. Moreover, the IFSC (Issuance and Listing of Securities) Regulations, 2021 (ILS Regulations) provides comprehensive provisions governing the issuance and listing of securities on IFSC exchange.
C. ELIGIBILITY AND INELIGIBILITY CRITERIA
1. Type of Companies Eligible for Listing on International Exchange
Under the Direct Listing Scheme of NDI Rules, only public Indian companies, listed or unlisted, are allowed to issue and list their shares on an international exchange. As of now, the framework allows unlisted public Indian companies to list their shares on an international exchange.
2. Eligibility Criteria for Listing on International Exchange
As per Para 3 of the Direct Listing Scheme of NDI Rules a public Indian company shall be eligible to issue equity shares on International Exchange, if-
(a) 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,
(b) none of the promoters or directors of the public Indian company is a promoter or director of any other Indian company which is debarred from accessing the capital market by the appropriate regulator,
(c) the public Indian company or any of its promoters or directors is not a wilful defaulter,
(d) the public Indian company is not under inspection or investigation under the provisions of the Companies Act, 2013,
(e) none of its promoters or directors is a fugitive economic offender.
Furthermore, in the case of an offer for sale by an existing shareholder of the public Indian company, the above eligibility criteria shall be assessed from the perspective of the existing holder offering the equity shares, ensuring compliance with Para 3 of the Direct Listing Scheme.
Additional eligibility conditions may be specified by the India International Exchange and NSE International Exchange in IFSC under their regulations.
3. Companies Not Eligible for Listing on International Exchange
3.1. As per LEAP Rules following companies are not eligible for issuing equity shares for listing on International Exchange, if it –
(a) is a company having partly paid-up shares,
(b) is a section 8 company or a Nidhi company,
(c) is a company limited by guarantee and also having share capital,
(d) is a company having outstanding public deposits,
(e) is a company with negative net worth,
(f) has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holder or any other secured creditor,
provided that this clause shall not apply if the company had made good the default and a period of 2 (two) years had lapsed since the date of making good the default,
(g) has made any application for winding-up under the Act or for resolution or winding-up under the Insolvency and Bankruptcy Code, 2016 (the Code) and in case any proceedings against the company for winding-up under the Act or for resolution or winding-up under the Code is pending,
(h) is a company in default of filing of an annual return or financial statement.
3.2. The eligibility criteria for listing on international exchange are explicitly defined in Para 3 of the Direct Listing Scheme of NDI Rules (already discussed above). Consequently, public Indian companies and their existing shareholders not conforming to those specified criteria are deemed ineligible to issue equity shares for listing on International Exchange.
Whether Private Companies are Eligible for Listing on International Exchange?
Private companies are not eligible under the Direct Listing Scheme of NDI Rules, as section 2(68) of the Companies Act, 2013, prohibits private companies to make any invitation to the public to subscribe any of its securities.
D. UNDERSTANDING THE REGULATORY FRAMEWORKS
1. For Unlisted Public Indian Companies
i. Para 3(1) and (3) of Direct Listing Scheme of NDI Rules,
ii. Provisions of LEAP Rules.
iii. Provisions of ILS Regulations.
2. For Listed Public Indian Companies
i. Para 3(1) and (2) of Direct Listing Scheme of NDI Rules,
ii. Provisions of LEAP Rules so far as they are in accordance with regulations framed or directions issued in this regard by the SEBI or International Financial Services Centres Authority.
iii. Conditions and other requirements as issued by SEBI from time to time.
It is to be noted that SEBI is in the process of issuing the operational guidelines for listed public Indian companies.
iv. Provisions of ILS Regulations.
E. PERMISSIBLE HOLDER GUIDELINES
1. Eligibility for Investment and Trading
Only the “permissible holder” is eligible to invest, trade or hold equity shares of Indian companies listed on International Exchange.
Provided that, such a holder who is a citizen of a country which shares 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 public Indian company only with the approval of the Central Government.
Further, for the purpose of interpretation of this clause, permissible holder is not a person resident in India.
2. Can public companies falling under sectors prohibited for FDI issue or offer equity shares under the Direct Listing Scheme?
No, as per Para 1 of Direct Listing Scheme of NDI Rules, issue of equity shares of public Indian company or offer for sale by existing shareholders of public Indian company shall be subject to prohibited activities and sectoral cap as prescribed in Para 2 and 3 of Schedule 1 of NDI Rules.
F. COMPLIANCE AND OBLIGATIONS
1. Obligations of a Public Indian Company
(a) The public Indian company shall ensure compliance with the applicable provisions of NDI Rules, Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the Depositories Act, 1996, the Foreign Exchange Management Act, 1999, the Prevention of Money-laundering Act, 2002, the Companies Act, 2013 and the rules and regulations made thereunder.
For this purpose, the said public Indian company may also enter into necessary arrangements with Indian Depository and Foreign Depository.
(b) The public Indian company shall ensure that the aggregate of equity shares which may be issued or offered in a permissible jurisdiction, along with equity shares already held in India by persons resident outside India, shall not exceed the limit on foreign holding under the Schedule I to these rules.
2. Voting Rights Requirements
The public Indian companies having their equity shares listed on 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.
3. Pricing Compliance
As per NDI Rules, the pricing of the equity shares shall be in a manner as enumerated below:
(a) Where equity shares are issued by a listed company or offered by the existing shareholders of equity shares listed on Recognised Stock Exchange in India, the shares shall be issued at a price, not less than the price applicable to a corresponding mode of issuance to domestic investors.
(b) In case of initial listing of equity shares by a public unlisted Indian company on the International Exchange, the price of issue or transfer of equity shares shall be determined by a book- building process.
4. Compliances under LEAP Rules
(a) 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 any recognised stock exchange shall also be in compliance with such conditions as may be specified by the Securities and Exchange Board of India.
(b) The concerned unlisted public company shall file the prospectus in e-Form LEAP-1 within seven days after the same has been finalised and filed in the permitted stock exchange.
(c) After the listing of the equity shares of a company on any of the stock exchanges in a permissible jurisdiction, such company shall comply with Indian Accounting Standards in addition to any other accounting standard applicable to it.
G. CONCLUSION
In conclusion, India’s Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024, mark a pivotal moment in the global aspirations of Indian companies. The LEAP Rules offer a streamlined pathway, dismantling barriers that hindered international listings. Empowered by a robust legislative foundation, these rules unlock new opportunities for Indian businesses to access global capital markets. With a clear framework, eligibility criteria, and compliance guidelines, the LEAP Rules not only facilitate international listings but also uphold the integrity of the Indian corporate landscape. As companies embark on this transformative journey, the global stage awaits, offering unprecedented possibilities for growth, investment, and cross-border collaboration.
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