• Notification Date: 07-11-2023
• Notification No: N/A

MCA allows Direct Listing of Public Companies on Foreign Stock Exchanges

In what could be termed as a move to help Indian companies go global, the Ministry of Corporate Affairs (MCA) recently released a notification permitting certain classes of public companies to directly list on foreign stock exchanges. 

The amendments to certain 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". 

Furthermore, the central government will clarify which classes of public companies will be permitted to be listed on foreign exchanges. The subsequent provision states, "The Central Government may, by notification, exempt any class or classes of public companies referred to in sub-section (3) from any of the provisions of this Chapter, Chapter IV, section 89, section 90, or section 127, and a copy of every such notification shall, as soon as may be after it is issued, be laid before both Houses of Parliament.” 

Following the development, certain classes of Indian public companies can now issue securities for the purpose of listing on foreign stock exchanges, and the MCA is expected to issue rules and regulations to give effect to this notification. 

"The notification, which was issued on October 30, 2023, has given effect to the provisions permitting the listing of Indian public companies abroad,’’ said Nitesh Mehta, Partner, M&A Tax, BDO India. "As a next step, the government will need to release a further notification specifying the foreign jurisdictions where such listings will be permitted and outline any additional rules or conditions in this regard," he further noted. 

Currently, Indian companies can list on foreign exchanges through the GDR (Global Depository Receipt) route. However, this will eliminate the need for GDRs, which help companies raise capital in foreign markets. 

Abhimanyu Bhattacharya, partner at Khaitan & Co, noted that this move is advantageous for Indian companies wishing to directly list overseas, and will help attract a larger and diverse pool of capital. "This should also help the government’s plan to reverse flip holding structures of Indian companies as well,” Bhattacharya explained. Reverse flipping is the process whereby a company’s corporate headquarters are moved from outside of India to locations within the country. 

Noting that this move comes at a time when Indian companies are expanding their international footprint, Sameer Jain, managing partner at PSL Advocates and Solicitors said, "Eliminating the need for GDRs, this notification allows Indian stocks to be listed directly foreign exchanges. The modalities will be clarified upon issuance of notifications.’’ 

Follow-up rules is key 

When a new law is introduced or when amendments are made to existing laws, the government must bring out rules to operationalise them. Laws cannot be implemented without their corresponding rules. For instance, the Companies Act, 2013, is operationalised per the Companies Rules, 2014. 

Speaking of this aspect, Hardeep Sachdeva, senior partner, AZB & Partners, said: "We will have several legal challenges vis-a-vis Indian securities regulations and the securities regulations of the foreign jurisdiction, where Indian companies will seek listing, and therefore follow-up rules and implementation will determine the real success of this notification.” 

"The rigorous standards of major international exchanges ensure that the companies listed there adhere to top-tier corporate governance, instilling further trust among investors," said Sonam Chandwani, managing partner KS Legal & Associates. Chandwani added that the move also bolsters India's corporate profile on an international scale.