OVERSEAS DIRECT LISTING OF COMPANIES- AMENDMENT TO

COMPANIES ACT

SUBJECT
Comparative Investment Law
SUBMITTED BY
Himanshi khivsara
PRN
20010143033
INTRODUCTION

Corona virus is spreading its legs in every sector. One such sector is financial sector where
countries economic condition is getting worse. In this situation to boost economic growth and
to formulate a better condition government are initiating various power pack plan & one such
is done by allowing Indian companies to list equity shares overseas. (Companies amendment
of 2020).

“Earlier the process of listing overseas was happening through the modes of ADR and GDR
but after the amendment in section 23 (3) companies incorporated in India can directly list
their shares overseas in ‘permissible jurisdiction’ and central govt. by its virtue may add or
remove such jurisdictions”1.

It can be further added that this amendment is not a knee-jerk reaction to pandemic, infact
this idea is blooming since 2018, when SEBI setup an Expert Committee to report the
advantages and the reason for allowing overseas direct listing.

SEBI EXPERT COMMITTEE REPORT 2018 (OBJECTIVES)

Examine in detail the economic benifits in line with: Nation, Companies, Investor.

Examine various legal, operational and regulatory constraints, (Permissible Jurisdictions)

Make recommendations for a suitable framework in which to facilitate such direct listing.

The first focus of the report was the benefit which Indian incorporates will get if they are
allowed for direct listing. Below is the list of advantages:

1
Section 25, Companies Amendment Act, 2020.
 Broader investor approach
Alternative source of capital

International Expansion

Better valuation
Other strategic Benefit
Global Brand Recognition

Earlier, as the direct was not allowed the legal provisions were made in that purview.
Hence, the committee also dealt with the legal constraints which will be in need to
amend:
 Resolving Cross Border Jurisdiction
As the Indian listing will be bound by two listing procedures. So, the committee
recommended to framework in new way.
 SEBI’s Extraterritorial Jurisdiction
Overseas price-manipulation in cross-listed securities may impact prices on
domestic stock exchanges. The committee recommended to maintain perfect
balance so that it won’t result in loss for legal companies.
 Enhancing Securities Market Infrastructure
Section 88 of companies’ act talks about the maintaining of register containing the
details of securities & holders. Hence, the Committee recommended the regulation
should be amended and ‘Master register’ should be maintained including overseas
listings.
 FEMA
The laws don’t explicitly provide regulations for ‘Indian Incorporates listing
outside and foreign resident buying securities therefrom’. Therefore, the
respective amendment must take place.
 Companies Act
Chapter III (Prospectus and Allotment of Securities), amended and not be applied
on Overseas direct listing, just like Masala Bond(Circular dated Aug 3,2016)
 Tax laws
At present, Income earned by unlisted company from transferring of equity share
is taxable as considered as ‘capital asset of India’. This is burdensome and the
regimes must be amended.
 PERMISSIBLE JURISDICTION

A member of the Board of International Organization of Securities

Commissions (“IOSCO”), and has its securities market regulator either a
signatory to IOSCO’s multilateral MOU, or a signatory to a bilateral MOU
with SEBI for information Sharing arrangements;

PERMISSIBLE Is a member of the Financial Action Task Force (“FATF”);

JURISDICTION
Is not identified by FATF as in link with anti-money laudering or doing the
finacial terriorism or jurisdiction with no progress in FATF action plan for
(Jurisdictions which deficiences.
willl have treaty
obligation with
India for sharing
information &
cooperation will
only be permitted). NOTE: Central Government can also add or remove any jurisdiction via
consulting with SEBI.

UPSHOT

The report of committee was critically appreciated and the recommendations are now
implemented in amendment of companies’ act 2020. The only exclusion was in list of
permissible Jurisdiction as three jurisdictions were not seen in Amendment act permissible
list of Stock exchange.

 Honk Kong.
 China.
 Switzerland.

It is further evident as after the bill introduced companies like reliance conveyed its wish to
list JIO on NASDAQ, PhonePe, Flipkart are also preparing for listing themselves. Hence, this
amendment is steeping stone & the end result will be economic upliftment.
 BEFORE THE BILL AFTER THE BILL
1. Indian companies used ABOUT THE BILL 1directly listed on the
to list overseas only foreign stock exchange.
The government of India,
through depository on 17 March 2020, 2. This will help Indian
receipts. introduced the companies Companies get access to
2. Companies to get listed (Amendment) Bill, 2020 in multiple jurisdictions for
overseas had to have at the Lok Sabha that provide raising capital, with
least 10 % of the paid up for Indian Companies to differing costs and listing
capital be listed on Indian list securities directly on conditions.
stock exchanges, the issue overseas stock exchanges. 3. higher valuation.
size set at a minimum of The corporate affairs
Rs. 1,000 crore, and ministry and SEBI is yet
allotment made to at least to announce norms on
200 investors. the types of companies
3. Masala Bonds. that can list overseas.