12th

March
2023

LAW ON CORPORATE FINANCE [2BUL843]

SUBMISSION OF INTRODUCTION

BREAKING THE BARRIERS: A CRITICAL ANALYSIS OF FEASIBILITY OF INDIA START-UPS AND

PUBLIC UNLISTED COMPANIES ISSUING SECURITIES AND DEPOSITORY RECEIPTS DIRECTLY
ON FOREIGN EXCHANGE

SUBMITTED BY: SAMRIDHI SHRIMALI [19BAL045]

SUBMITTED TO: MR. DEVANG CHHATRAPATI

Contents
I. Abstract ............................................................................................................................... 1
II. Statement of Problem ...................................................................................................... 1
III. Research Hypothesis: ...................................................................................................... 2
IV. Research Objectives ........................................................................................................ 2
V. Research Questions ......................................................................................................... 2
VI. Research Methodology ................................................................................................... 3
VII. Literature Review............................................................................................................ 3
VIII. Tentative Chaptalization .................................................................................................. 5
IX. Bibliography ................................................................................................................... 5
 I. Abstract

BREAKING THE BARRIERS: A CRITICAL ANALYSIS OF FEASIBILITY OF INDIA START-UPS AND

PUBLIC UNLISTED COMPANIES ISSUING SECURITIES AND DEPOSITORY RECEIPTS DIRECTLY
ON FOREIGN EXCHANGE

The paper discusses the viability of issuing securities and depositary receipts directly on
foreign courses for startups and public unlisted companies in India. It explains that a firm
incorporated in India cannot be directly listed on an overseas exchange due to the current
legal framework, but the government is considering amending the Companies Act to allow
unlisted Indian companies to trade on foreign exchanges directly. The Bill was introduced with
adjustments such as decriminalization and a lower compliance burden. The proposed
amendment is enabling in nature. It has now been delegated to the Government to determine
the various kinds of public corporations that may list overseas, the classes of securities that
may be listed, and the jurisdictions and stock exchanges where listing may take place. Thus,
author through this article critically analyses the issues with the recent amendments along with
recommendations and a way forward.

II. Statement of Problem

The problem that this paper addresses is that, prior to the Companies (Amendment) Bill, 2020,
Indian firms could only list on overseas stock exchanges through depository receipts, and
companies formed outside of India were unable to list their equity shares on Indian exchanges
directly. The Bill introduced provisions that allow Indian unlisted public companies to list
securities directly on overseas stock markets, among other amendments to the Companies Act,
2013. Now, this amendment is in tandem with the issues that need to be revamped before the
enactment to ensure regulatory coherence in order for an India enterprise to consider an abroad
listing. In other words, the article highlights the lack of regulations for issuing securities and
depositary receipts directly on foreign courses for start-ups and public unlisted companies in
India

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III. Research Hypothesis:

The research hypothesis for this paper is that direct listing will widen Indian companies to a
diverse investor base, thereby increasing its demand and subsequently increasing the market
price of such equity shares. Such a move can be a game changer for the Indian economy, by
providing greater access to capital and exposure to global investors. The Financial sector in
India could benefit from issuing securities and depository receipts directly on foreign
exchanges, which could lead to increased investment, access to newer markets, and enhanced
credibility. The study will examine the feasibility of this proposition by analysing the current
regulatory framework, market conditions, and investor preferences as well as critically
analysing the upcoming amendments in the company law.

IV. Research Objectives:

The objectives of this research are as follows:

1. To examine whether or not it would be beneficial for Indian companies to list on foreign
stock exchanges.

2. To explicate the legal and regulatory framework the issuing securities and depository
receipts directly on foreign exchanges, especially for startups and public unlisted
companies and identify any potential barriers or challenges that may arise.

3. To develop recommendations and guidelines considering issuing securities and

depository receipts directly on foreign exchanges.
4. To explore strategies for complying with regulatory requirements, managing investor
relations, and mitigating risks associated with cross-border transactions.

V. Research Questions
The paper answers the following 5 research questions:

1. What are the benefits of overseas direct listing for Indian companies?

2. What are the challenges associated with overseas direct listing for Indian companies?

3. What are the listing requirements of foreign stock exchanges?

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 4. What are the regulatory requirements for Indian companies listing overseas?

5. What is the impact of overseas listing on the valuation of Indian companies?

VI. Research Methodology:

The research methodology for this study will analyse the viability of issuing securities and
depositary receipts directly on foreign courses for startups and public unlisted companies in
India. The study will be based on secondary data sources, including academic journals, news
articles, and company reports. The data will be analysed using content analysis and thematic
analysis to identify the key themes and patterns that emerge from the data.

VII. Literature Review

1. Tanya Desai, Direct Listing Indian Companies on Foreign Exchanges and Vice-Versa:
A New Era for Fundraising.1

This article India's Securities Exchange Board (SEBI) is considering allowing unlisted
Indian companies to list their equity share capital on foreign exchanges, and vice versa,
in a move that would be welcomed by companies seeking to raise funds. Currently,
foreign companies can only list on Indian exchanges by issuing Indian Depository
Receipts, while Indian companies can issue American or Global Depository Receipts.
Direct listing is not permissible, with fund-raising currently only permitted through
compliant IDRs and GDRs. If the proposal is approved, it could lead to a more
competitive securities market, although regulatory and tax reforms will need to be
facilitated before implementation.
Limitation: This article does suggest implication however, fails to address the
shortcomings and the possible addendum required in order to make the proposal viable.

1
Tanya Desai, Direct Listing of Indian Companies on Foreign Exchanges and Vice Versa: A New Era for
Fundraising (INDIACORPLAW, June 28, 2018), https://indiacorplaw.in/2018/06/direct-listing-indian-
companies-foreign-exchanges-vice-versa-new-era-fundraising.html

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 2. Shweta Ojha, Direct Overseas Listing India: Regulatory Hurdles in Liberalised
Regime.2
The article elucidates the key regulatory and practical hinderance that may arise during
the implementation of provisions related to Indian companies planning to list on
overseas stock exchanges. It will also suggest potential solutions to these challenges.
Limitations: However, does not cover the issues associated with listing securities of
foreign-incorporated companies.

3. Varun Singh & Simran Sabharwal, Overseas Direct Listing: Propitious step for Indian
Companies. 3

This piece succinctly summarises the concepts of direct and indirect listing in tandem
with the interplay of DGR and ADR. This article presents an argument that the direct
listing will provide Indian Companies with an increased pool of investors, higher
valuations for their securities, and concluded with urging the government to create
regulatory measures viz-a-viz direct listing.
Limitations The article fails to provide any innovative solution to the obstacles faces
by the Indian Companies in foreign listing.

4. Gerald Manoharan, Overseas Direct Listing of Indian Companies.4

This article offers several benefits for the amendment and shed light upon the freedom
to raise funds through direct listing and mandates regulatory intervention only when
necessary, thereby enhancing the ease of doing business in India. The amended Act
permits the issuance of securities in permissible foreign territories, which offers
multiple advantages for startups and streamlines business processes.

2
Shweta Ojha, Direct Overseas Listing India: Regulatory Hurdles in Liberalised Regime (THE RMLNLU LAW
REVIEW BLOG, May 10, 2021), https://rmlnlulawreview.com/direct-overseas-listing-india-regulatory-hurdles-
in-liberalised-regime/
3
Varun Singh & Simran Sabharwal, Overseas Direct Listing: Propitious step for Indian Companies (NLUJ LAW
REVIEW BLOG, December 25, 2020), http://www.nlujlawreview.in/overseas-direct-listing-propitious-step-for-
indian-companies/
4
Gerald Manoharan, Overseas Direct Listing of Indian Companies (J. SAGAR ASSOCIATES, December 2,
2020), https://www.jsalaw.com/start-up/overseas-direct-listing-of-indian-companies/

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 Limitations: This article does not encapsulate the practical critical implications that
would arise alongside any recommendations that are required or any particular
regulations that ought to be added in the amendment.

5. S&R Associates, SEBI Framework for Issuance of Depository Receipts.5

The article analyses the tracing development in law for issuance of Depository Receipts,
by the virtue of the new DR Scheme, It explains that the New Scheme’s rules aim to
bring the DR route up to the level of any other foreign investment. It allowed unlisted
Indian firms to issue DRs without first obtaining an Indian listing.

VIII. Tentative Chaptalization

CHAPTER ONE: Introduction

CHAPTER TWO: A Bone or a Bane: Direct Listing of Securities in Foreign Market
CHAPTER THREE: Development Issuance of Depository Receipts
CHAPTER FOUR: Evolution in Listing of Equity Shares Directly on Foreign Bourses
CHAPTER FIVE: Loophole in the Implementation and Lack of Regulations
CHAPTER SIX: Recommendations
CHAPTER SEVEN: Conclusion and Way forward

IX. Bibliography

[1] SEBI, Report of the Expert Committee for Listing of Equity Shares of Companies
Incorporated in India on Foreign Stock Exchanges and of Companies Incorporated
Outside India on Indian Stock Exchanges (SEBI, December 4, 2018)
[2] Nikunj Ohri, Need tax parity for Indian, foreign investors in listing abroad: Experts
(BUSINESS STANDARD, November 24, 2021)
[3] Dhruv Singhal & Sonakshi Arora, Lessons from ReNew Power overseas listing
through SPAC (India Corporate Law - Cyril Amarchand Mangaldas Blog)
[4] Harshit Rakheja, Overseas Listing, IPOs Become Easier For Indian Startups (INC42
STAFF, February 22, 2021).

5
S&R Associates, SEBI Framework For Issuance Of Depository Receipts (MONDAQ, December 19, 2019),
https://www.mondaq.com/india/shareholders/876696/sebi-framework-for-issuance-of-depository-receipts

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[5] Romita Majmudar, Indian Startups Seek Direct Overseas Listing Rights (INC42
STAFF, August 6, 2021), https://inc42.com/buzz/indian-startups-seek-direct-
overseas-listing-rights/.
[6] Louise Gullifer and Jennifer Payne Corporate Finance Law: Principles and Policy,
2020R. Jain and Bhargava B, Guide on Foreign Collaboration, India Investment
Publication, New Delhi.
[7] Eilis Ferranand Look Chan Ho, Principles of Corporate Finance 2014
[8] R. Jain and Bhargava B, Guide on Foreign Collaboration, India Investment
Publication, New Delhi.
[9] Richard A. Brealey, Stewart C. Myers, Franklin Allen and PitabasMohanty, Principles
of Corporate Finance.

*End*

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