Direct Listing Of Equity Shares Of Indian Companies On International Exchange Of GIFT IFSC Permitted

The IFSCA has been established on April 27, 2020 under the International Financial Services Centres Authority Act, 2019 and is headquartered at GIFT City, Gandhinagar in Gujarat.

Background of National Stock Exchange (“NSE”) International Stock Exchange

The NSE completely owns NSE IFSC Limited (NSE IFSC), which applied to SEBI for in-principle clearance to build an international exchange in Gujarat International Finance Tech City (“GIFT”), also known as the International Financial Service Centre.

India’s first international financial services hub will be located in GIFT city, a special economic zone.

It is anticipated that this new exchange will attract capital to India and expand the financial sector. Exchanges that operate within the GIFT IFSC will have the ability to provide securities trading in currencies other than the Indian rupee. Trading in equity shares of companies incorporated outside of India, depository receipts, debt securities of eligible issuers, currency, index, interest rate, and non-agricultural commodity derivatives, as well as all categories of exchange-traded products available for trading in stock exchanges in jurisdictions that are compliant with FATF and IOSCO, will be allowed subject to SEBI approval.

Additionally, NSE IFSC Limited would be allowed to extend trading days beyond what Indian stock exchanges are currently allowed to do.

NSE IFSC obtained Certificate of incorporation dated November 29, 2016 issued by the Registrar of Companies, Gujarat situated at Ahmedabad.

Background of International Financial Services Centres Authority (“IFSCA”) The IFSCA has been established on April 27, 2020 under the International Financial Services Centres Authority Act, 2019. It is headquartered at GIFT City, Gandhinagar in Gujarat.

The International Financial Services Centre (“IFSC”) in India uses the IFSCA as a single, unified authority for the creation and supervision of financial institutions, financial services, and financial products. The first international financial services centre in India is now the GIFT IFSC. The RBI, SEBI, PFRDA, and IRDAI were the domestic financial authorities that oversaw IFSC business prior to the creation of IFSCA.

A world-class regulatory environment and ease of doing business in IFSCs are the goals of the IFSCA, which was established as a single regulator with a comprehensive vision due to the dynamic nature of business in IFSCs, which demands a high degree of inter-regulatory coordination within the financial sector. The IFSCA’s primary goals are to forge strong international ties, concentrate on the requirements of the Indian economy, and act as an international financial hub for the region and the world economy at large.

Permissible Foreign Jurisdiction

The Government of India officially declared on October 30, 2020 as the effective date for the implementation of sub section 3 and 4 of Section 23 of Chapter III Part-1 Prospectus and Allotment of Securities by way of Companies (Amendment) Act, 2020 through which Public Companies would be able to issue particular class of securities, to list them on permitted stock exchanges in the Permissible Foreign Jurisdiction.

This will allow the Companies to engage in a direct foreign listing in International FinancialServices Centre, specifically in GIFT City.

Introduction

MCA Notification dated 24 January, 2024, introduced the new rules under Companies Act, 2013 which may be called The Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024, specify eligibility criteria, excluding companies with negative net worth, defaults on repayment to certain creditors and e-form filing along with the associated fees.

Following Indian companies can issue securities in the Permissible Foreign Jurisdiction

a. unlisted public companies; and

b. listed public companies, provided that they comply with the guidelines established or directives made in this regard by the Authority or the Securities and Exchange Board of India, which issues its securities in order for them to be listed on authorised stock exchanges in authorised jurisdictions.

Eligibility Requirements

1. Equity shares may be issued by an unlisted public companies that complies with rule 5 and does not have any partially paid-up shares in order to list on a stock exchange in a jurisdiction that is acceptable.

2. The existing shareholders of the unlisted public companies mentioned in sub-rule (1) must likewise abide by the Scheme’s conditions.

3. Within seven days of the prospectus being finished and submitted in the authorised exchange, the unlisted public company must file it in e-Form LEAP-1 along with associated fees and the same has been finalised and filed in the permitted exchanges.

4. Following the listing of a company’s equity shares on any stock exchange in a jurisdiction that is permitted, the company must prepare its financial statements in accordance with Indian Accounting Standards.

Companies which are ineligible

A company shall not be eligible for issuing its equity shares for listing in accordance with these rules, in case:-

1. If a company has been registered under section 8 of the Companies Act, 2013 (“Act”) or declared as Nidhi under section 406 of the Act;

2. Is a business with share capital and limited by guarantee;

3. Has received any overdue deposits from the general public in accordance with the guidelines established under Chapter V of the Act;

4. has a negative “net worth”;

5. has failed to pay any bank, state financial institution, holder of a non-convertible debenture, or other secured creditor of their obligations:

With the caveat that this clause will not apply if the corporation has made good on the default and two years have passed since the date of doing so;

6. has filed any applications for resolution or winding up under the Act or the Insolvency and Bankruptcy Code, 2016; additionally, if there are any pending proceedings against the company for resolution or winding up under the Act or the Insolvency and Bankruptcy Code, 2016; and

7. has defaulted in filing of an annual return under section 92 or financial statement under section 137 of the Act within the specified period.

Conclusion

This anticipated outcome of this new initiative is poised to elevate the valuation of Indian companies, catalyse growth, broaden the investor spectrum and entice foreign investments. It enables Indian companies to raise capital in Indian rupees domestically and in foreign currency internationally, specifically at the International Financial Services Centre. This strategic maneuver is especially beneficial for Indian companies harbouring global aspirations and expansion plans.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.