Government Approves Direct Overseas Listing of Indian Companies’ Shares
A opening bell hangs at the Nasdaq Swedish Stock Exchange. Photographer: Mikael Sjoberg/Bloomberg

Government Approves Direct Overseas Listing of Indian Companies’ Shares

The Union Cabinet has approved direct overseas listing of shares of Indian companies, enabling them to raise capital from around the world.

An enabling provision will be added for listed and unlisted public companies through amendments in the Companies Act, 2013, said Corporate Affairs Secretary Injeti Srinivas.

The tax treatment involved will be covered in the enabling provision, Srinivas told reporters in Delhi today, in a manner similar to the listing of global and American depository receipts.

The measure will fetch better valuations for Indian companies, a government official told BloombergQuint on the condition of anonymity. Details about the eligibility criteria for companies and names of foreign jurisdictions for the companies will be notified in the rules, the official said.

The Reserve Bank of India, Securities and Exchange Board of India, Department of Economic Affairs and Ministry of Corporate Affairs will together work out the rules for the listing, the official said.

Indian companies, at present, access foreign equity markets only through the American depository receipts and global depository receipts. Further, only listed Indian companies can list overseas.

In June 2018, the market regulator set up an expert panel to examine the direct listing of equity shares of companies incorporated in India on foreign stock exchanges and of companies incorporated outside India on exchanges in the nation. The panel had suggested permitting the listing of companies on specified stock exchanges in permissible jurisdictions like a member of Financial Action Task Force or any other jurisdiction notified by the central government in consultation with Securities and Exchange Board of India.

The exercise will need extensive deliberations between the Reserve Bank of India, SEBI and the government to come up with guidelines for the same, Vyapak Desai, a partner at Nishith Desai Associates, told BloombergQuint. “Such a proposal will need close coordination between Indian and foreign regulators to access information of those investing in the company’s shares.”

Indian exchange control laws don’t permit free convertibility of capital, and there are certain regulatory restrictions in relation to capital account transactions, Vaibhav Kakkar, a partner at Luthra & Luthra, told BloombergQuint. “The RBI’s position and views on capital convertibility would be highly crucial.”

Also read: Cabinet Approves Merger Of 10 Public Sector Banks Into Four

Decriminalising Companies Act

The Cabinet has approved 72 changes to the Companies Act, 2013, aimed at decriminalising the legislation, Finance Minister Nirmala Sitharaman told reporters today. That will necessitate amendments to 65 of its sections, she said.

Out of the 66 compoundable offences in the Act, 23 will get recategorised and will be dealt with an in-house framework, Sitharaman said.

“The move towards in-house resolution would cut litigation and boost investor confidence,” Deepak Sood, secretary general of industry body Assocham, said in an emailed statement.

Seven compoundable offences in the Companies Act will be omitted, and punishment for 11 compoundable offences will be limited only to a fine by removing the provision for imprisonment, Sitharaman said.

The amendments will be made to reduce quantum of penalties for six defaults decriminalised earlier, the government said in a statement.

“The proposed amendments certainly further provide ease of living for law-abiding corporates and de-clog the criminal justice system in the country…it establishes the trust factor in business and industry that is essential for a healthy ecosystem,” said Chandrajit Banerjee, director general of Confederation of Indian Industry.

The amendments are largely based on the recommendations of Companies Law Committee set up in Sep. 2019, according to the government statement. The amendments are expected to “significantly” enhance the confidence of Indian corporates and accord highest respect to honest wealth creators in the country, it said.

Other Changes

The Companies (Amendment) Bill, 2020, will also allow payment of adequate remuneration to non-executive directors, including independent directors, in case a company makes losses to retain talent. This would now be aligned with provisions for remuneration to executive directors.

Since non-executive directors devote their time and experience to give critical advice to the company, they should be appropriately compensated for the same even in the case of inadequate profits or losses as is permissible for executive directors, the Companies Law Committee had suggested.

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