The government has officially declared Oct. 30 as the effective date for the implementation of Section 5 of the Companies (Amendment) Act, 2020. This provision would allow public companies to issue a particular class of securities, to list them on permitted stock exchanges in foreign jurisdictions.
According to Manan Lahoty, partner at IndusLaw, the idea of allowing unlisted Indian companies to list overseas came with the amendment made to the Companies Act in 2020, but detailed rules and corresponding alignment of other laws were expected.
This action comes after the statement by the Finance Minister Nirmala Sitharaman in September, allowing Indian companies to engage in a direct "foreign listing" in International Financial Services Centres, specifically in GIFT City.
This will hopefully pave the way for Indian companies to list on other overseas exchanges, according to Abhimanyu Bhattacharya, partner at Khaitan & Co.
There are several advantages to companies who want to directly list overseas, which include attracting a larger and diverse pool of capital, improving corporate governance as well as benefit of dollar-denominated trades, which enables investors to save hedging and currency conversion costs, he said.
Now, due to the rigorous standards of major international exchanges, companies will have to adhere to top-tier corporate governance, instilling further investor trust, said Sonam Chandwani, partner at KS Legal and Associates.
What Are The Changes?
Section 5, which has been implemented, makes changes to Section 23 of the Companies Act, 2013. It adds new sub-sections to Section 23.
It states that certain types of public companies are allowed to issue certain types of shares or bonds. They can do this so that their shares or bonds can be listed on stock exchanges in other countries that are allowed by the law.
The central government will have the power to remove certain rules for specific types of public companies. This should also help the government's plan to reverse-flip holding structures of Indian companies as well, according to Khaitan & Co.'s Bhattacharya.
Currently, notifications are expected from the Ministry of Corporate Affairs on the type of securities that will be allowed for issuance by public companies in approved foreign jurisdictions, experts said.
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