The legal basis
Four sets of rules apply together:
- Companies Act, 2013, section 23(3). Inserted by section 5 of the Companies (Amendment) Act, 2020 and in force from 30 October 2023, it allows prescribed classes of public companies to issue prescribed classes of securities for listing on permitted stock exchanges in permissible foreign jurisdictions.
- The Direct Listing Scheme. The "Direct Listing of Equity Shares of Companies Incorporated in India on International Exchanges Scheme" is Schedule XI to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. It was inserted by the 2024 amendment rules, effective 24 January 2024.
- MCA rules. The Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 set the company-law conditions.
- IFSCA rules. The IFSCA (Listing) Regulations, 2024 govern the offer and listing on the exchange. Regulation 6 requires a public Indian company to meet the eligibility criteria of Schedule XI and the MCA rules as well.
What is in force, and what is not
- Unlisted public companies: operational. They may issue and list equity shares on India INX or NSE IX under the Scheme, the MCA rules and the Listing Regulations.
- Public companies already listed in India: not yet operational when the scheme was launched. The Central Government's FAQs of 24 January 2024 say SEBI was preparing the operational guidelines. Confirm the current SEBI position before planning on this route.
- Private companies: not eligible. A private company would first need to become a public company.
Who is eligible
Under paragraph 3 of the Scheme, the company, its promoters, promoter group, directors and selling shareholders must not be debarred from the capital market. No promoter or director may be a promoter or director of a debarred company. The company, its promoters and directors must not be wilful defaulters. The company must not be under inspection or investigation under the Companies Act, and no promoter or director may be a fugitive economic offender.
Rule 5 of the MCA rules excludes a company that:
- is a section 8 company or a Nidhi;
- is limited by guarantee and also has share capital;
- has outstanding public deposits;
- has a negative net worth;
- has defaulted on dues to a bank, public financial institution, debenture holder or other secured creditor, unless the default was made good at least two years ago;
- has applied for, or faces pending proceedings for, winding up or insolvency resolution; or
- has defaulted in filing its annual return or financial statements.
Companies in sectors where foreign direct investment is prohibited cannot use the Scheme. Sectoral caps apply, and the listed shares count toward foreign holding.
Who can hold the shares
Only a "permissible holder", meaning a person not resident in India, may invest in, trade or hold the listed shares. Non-resident Indians may. Residents, including Indian mutual funds, may not. Investors from countries sharing a land border with India need prior Government approval, with beneficial ownership tested under rule 9(1) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005. Existing shareholders may sell through an offer for sale. A domestic listing is not required, but it is not prohibited.
The steps
- Confirm eligibility under the Scheme, the MCA rules and the Listing Regulations, including sector rules and the shareholder base.
- Obtain board and shareholder approvals, and amend the constitution where needed.
- Check the IPO criteria in regulation 9 of the Listing Regulations. The issuer needs operating revenue of at least USD 20 million, or pre-tax profit of at least USD 1 million, in the last financial year or on average over three years, or a post-issue market capitalisation of at least USD 25 million.
- Prepare the offer document. The shares must be in dematerialised form and denominated in a specified foreign currency. As an Indian-incorporated issuer, the company must meet the minimum public offer and shareholding norms of the Securities Contracts (Regulation) Rules, 1957 (regulation 20(1)). The offer stays open for one to ten working days.
- File the prospectus with the MCA registry in e-Form LEAP-1 within seven days after it is finalised and filed with the exchange.
- Complete the FEMA reporting and keep complying with the Companies Act, FEMA and the other Indian laws, as well as the exchange's continuing obligations.
Before proceeding
The detailed conditions turn on the company's constitution, its shareholding and the exchange chosen. We review each before an issuer commits to a timetable. Two points need particular care. First, any resident shareholders cannot take or trade the listed shares. Second, the tax treatment of investors should be confirmed under the Income-tax Act, 2025, not taken from older summaries (see Tax for non-resident investors).