India: India Update – 2020 In Review

CORPORATE & COMMERCIAL

• Direct overseas listing by Indian companies
• 10 takeaways from Companies (Amendment) Act,2020
• Takeover of unlisted companies
• The Competition (Amendment) Bill, 2020
• Regulatory framework for non-personal data proposed
• Key enhancements of Consumer Protection Act, 2019 read with Consumer Protection Rules, 2020 and E-commerce Rules, 2020

Direct overseas listing by Indian companies

To improve ease of doing business, Ministry of Finance, Government of India (MoF) announced that Indian companies would now be allowed to list their shares directly in foreign stock exchanges. While consequent amendments and clarifications in legal and regulatory regime are awaited, the move would now allow Indian companies access to multiple jurisdictions for raising capital, with differing costs and listing conditions. At present, direct listing of shares of Indian companies on foreign bourses is not permitted and possible options to raise capital options were restricted to American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) which were increasingly becoming less popular with the Indian corporates. Government of India and Securities and Exchange Board of India (SEBI) have been exploring options so that Indian corporates could access a larger pool of foreign capital.

The policy shift towards direct listing of shares abroad stems from report of a Committee constituted by SEBI in 2018 for listing of equity shares of companies incorporated in India on foreign stock exchanges and of companies incorporated outside India on Indian stock exchanges (Committee Report), which had recommended permissible jurisdictions for listing of equity shares of an Indian company based on following principles:

• Countries which are a member of Board of International Organization of Securities Commissions (IOSCO) and whose securities market regulator is either a signatory to the IOSCO's multilateral memorandum of understanding or is a signatory to a bilateral memorandum of understanding with SEBI for information sharing arrangements.
• Countries which are members of the Financial Action Task Force (FATF).
• Countries not identified in the public statement of the FATF as:
• • A jurisdiction having strategic anti-money laundering or combating the financing of terrorism deficiencies to which countermeasures apply
  • A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies
  • Any other jurisdiction notified by Central Government in consultation with SEBI and/or other regulatory authorities, following an overall review and evaluation of such jurisdiction's capital markets regulations

The criteria for listing in permissible jurisdictions are akin to those of the listing of rupee denominated bonds (commonly referred as 'Masala Bonds') in foreign exchanges which were introduced in past by Reserve Bank of India. An initial list of 10 jurisdictions were identified as permissible jurisdictions in Committee Report which included United States, China, Japan, South Korea, United Kingdom, Hong Kong, France, Germany, Canada and Switzerland.

While this is a welcome move, actual implementation of the policy would require amendment to several regulations including Foreign Exchange Management (Non-debt Instruments) Rules, 2019; Companies Act, 2013 including rules thereunder; and SEBI regulations related to listing and disclosures, in addition amendment in taxation laws.

10 takeaways from Companies (Amendment) Act, 2020

Continuing with Government of India's recent spate of reforms meant to bolster economic activity and investment in the country, the Companies Amendment Bill, 2020 was introduced to amend the Companies Act, 2013 (Act) with the intent of improving the ease of doing business in India, de-criminalizing various minor offences and regulating producer companies, amongst other aspects. This Bill received the President's assent and was notified in the official gazette as the Companies (Amendment) Act, 2020 (Amendment) on September 28, 2020.

Key changes

• De-criminalization of minor offences: By way of the Amendment, imprisonment as a consequence of contravention of certain provisions of the Act has been done away with for over 46 offences under the Act, in addition to reducing, modifying and omitting the fines/penalties for these offences. By way of example, imprisonment has been removed as a punishment for contravention of provisions in relation to buyback of securities, disclosure of interest by directors, financial statements and Boards' report, formation of companies with charitable objects, disqualification of directors and constitution of audit, stakeholder relationship and nomination and remuneration committee. Similarly, penalties and fines have been omitted/modified/reduced for contravention of provisions in relation to filing of annual return with Registrar, variation of shareholder rights, transfer of securities, alteration of share capital and reduction of share capital, among others.
• Definition of listed companies: Prior to the Amendment, a company with 'any of its securities listed on a recognized stock exchange' was qualified as a listed company and resulted in such companies having to comply with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) in addition to compliances under the Act. The Amendment, however, empowers the Central Government to exempt certain class of companies and securities (which are yet to be prescribed) from being considered as a listed company, in consultation with the SEBI. This exclusion of certain class of securities will ease the burden on companies from rigorous compliance and procedural requirements under the LODR and the Act.
• Foreign listing: Pursuant to the addition of a new sub-section to Section 23 of the Act, certain classes of public companies incorporated in India, as may be prescribed by the Central Government, are permitted to issue securities for listing on stock exchanges in permissible foreign jurisdiction, without requiring compulsory listing in India. The Central Government is also empowered to exempt such class pf public companies from complying with certain provisions of the Act, namely, provisions relating to private placement and public offer of securities, beneficial ownership, share capital and debentures or punishment for failure to distribute dividend, by way of issuing a notification, which has to be placed before both Houses of Parliament.
• Periodic financial results: Section 129A of the Amendment empowers the Central Government to require a certain class of unlisted public companies (which is yet to be prescribed) to prepare periodic financial results. Such periodic financial results are in addition to preparation of annual financial results prescribed under the Act and would need to be approved by the Board of Directors and audited (or subjected to a limited review) by the statutory auditors, in addition to filing periodic financial results with the Registrar. This requirement appears to have been introduced in alignment with similar provisions prescribed for listed companies under the LODR. Given that certain class of public companies will be permitted to list their securities in foreign jurisdictions, without listing on Indian stock exchanges, it is no surprise that the Amendment imposes an additional requirement on unlisted public companies to prepare periodic financial results thereby allowing the Central Government or the Ministry of Corporate Affairs (MCA) to keep a close watch on the functioning of such companies on a periodic basis and not just on an annual basis as per existing provisions of the Act.
• Reduced timelines for rights issue: Previously, as per the provisions of the Act, in case of a rights issue by a company, the offer period was required to remain open for a period of at least 15 days with an exemption granted to private companies for reduction in offer period subject to approval of 90% of its shareholders. The Amendment seeks to reduce the existing timeline of 15 days and empowers the Central Government to prescribe a timeframe of less than 15 days for the rights issue offer period. This will allow companies a quicker access to funds, without requiring the approval of majority shareholders.
• Declaration of Beneficial Ownership: As per the previous norms under the Act, persons holding beneficial interest in the shares of a company are required to submit declarations to this effect and the company is required to file returns with the Registrar intimating such beneficial ownership. The Amendment empowers the Central Government to exempt, unconditionally or subject to conditions, certain classes of person(s) from the aforesaid requirements if it is considered necessary to grant such exemption in the public interest.

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