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This article is written by Abdullah Mustaqueem pursuing Certificate Course in Advance Corporate Taxation from LawSikho.


The Government of India introduced a new Companies (Amendment) Bill, 2020 which made significant changes to the existing Companies Act, 2013. It included provisions relating to the listing of Indian securities on stock exchanges overseas. The proposed amendment determined the classes of public companies that can be listed overseas, types of securities that can be listed, and the stock exchanges where the listing is to be allowed. The said amendment greatly expanded the capital raising avenues to the Indian companies. This article describes in detail the implications of this amendment along with Expert Committee analysis and its recommendations.   

What is offshore listing?

“Offshore listing” is one of the tools introduced by various stock exchanges around the world to raise capital. It increases the avenues of raising funds by the MNCs and also reduces the risk of a particular stock market. Although offshore listing as a technical term has not been defined in any statute an explanation can be derived by its usage and applicability. 

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There are various routes through which securities may be listed in foreign exchanges. For Instance in the USA, a company can list its shares through “direct listing”, public offering, or inviting Americans to subscribe to its shares. But the route which is to be adopted by the company depends on the circumstances.

After the said amendment the Indian companies are now allowed to list their shares overseas. This not only allows them to raise capital overseas but also gives them the choice of jurisdictions from which capital may be raised. It also offers an increase in the visibility of shares and greater access to potential investors. Not only has the visibility of Indian companies increased but after this amendment now the Indian companies can diversify their risk through accepting investment from foreign jurisdictions

The status quo

As per the current system of investing, if a foreign company wants to list its securities it can only do so via Indian Depository Receipts (IDRs) and if an Indian company wants to do the same it can float American Depository Receipts (ADRs) or Global Depository Receipts (GDRs). The idea behind the current system was to facilitate the Indian market by increasing its capacity of raising capital by allowing foreign investors to invest in the Indian domestic market. At the same time, it allowed Indian investors to invest in foreign securities listed in other jurisdictions. This mechanism was undertaken to increase the global presence of Indian companies to infuse capital by inducing foreign investors.

As per Sec 2(44) of the Companies Act, 2013 (“the Act”) GDR means and includes “any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside India and authorized by a company making an issue of such depository receipts”, while IDRs are defined by section 2(48) as “an instrument in the form of a depository receipt created by a domestic depository in India and authorized by a company incorporated outside India making an issue of such depository receipts.”

The Companies (Reg. of Foreign Companies) Rules, 2014, the SEBI Regulations, 2009, and other regulations as per the RBI (collectively called “Acts”) govern the criteria related to the listing of foreign entities in the Indian stock exchange. According to which under the current regime a foreign enterprise cannot list its securities in the Indian stock exchange it can only raise capital by using the above-mentioned monetary instruments which are created by the domestic depository against the underlying equity of the issuing company. The compliance requirements are very strict to regulate the domain with which fundraising is permitted and only the company which fulfills the criteria under the said Acts can only issue IDRs.

In addition to the criteria set out under the Acts if a foreign company undertakes to issue IDRs it shall comply with the following conditions too:

  1. The company should already be listed in the jurisdiction in which it is incorporated.
  2. It must have a track record of fulfilling all the compliance concerning the securities market in which it is already listed.
  3. It must not be under any prohibition of issuing securities by any regulatory body.

After the introduction of LODR (Listing Obligation and Disclosure Requirements) Regulations, SEBI amended the Regulation 98 of ICDR Regulations, after which clause (g) was inserted in the said regulation, according to which in addition to the conditions mentioned above the entity has to comply with “the issuing company shall ensure that the underlying equity shares against which IDRs are issued have been or will be listed in its home country before listing of IDRs in the stock exchange(s).”

Due to the large complexity in compliances, most of the companies have not adopted the IDR mechanism and are rather more inclined towards the GDR route. As the existing law debars the unlisted foreign companies from floating IDRs unless the entity is listed in its exchange and in the same way Indian companies seeking to list their securities in jurisdictions abroad are restricted. The treatment of repatriation and taxation is also not clear which has further enhanced the vagueness.

While the above restrictions apply to equity listing of companies on the Indian or foreign exchange, as the case may be, it is pertinent to note that Indian entities are permitted to list their debt securities on international exchanges, in the form known as ‘Masala Bonds’. 

To overcome the shortcomings of the existing GDR route the government has also introduced “Masala Bonds” which are issued by Indian companies outside India to raise money in rupee denominations. Both private and government entities can issue these bonds, Investors keen to invest in India can do so through these bonds. Provided that a resident of any country who is not a member of the FATF shall not be eligible for investing in the same. As per the Reserve Bank of India, the maturity period of bonds is 5 years for bonds equivalent to 50 million dollars in an F.Y. They can be converted at the market rate on the date of settlement of transactions.

Implications of offshore listing

Given the recent reforms regarding the offshore listing of Indian companies, the Securities Exchange Board of India (SEBI) stated that “Considering the evolution and internationalization of the capital markets, it would be worthwhile to consider facilitating companies incorporated in India to directly list their equity share capital abroad and vice versa.

Although the LPG reforms were introduced back in 1990, which led to the opening of the Indian market for foreign companies and led to a change in the overall structure of the Indian economy. But the avenue of listing of Indian Securities offshore in foreign jurisdictions remains closed, which has been opened after the Union Cabinet amended the Companies Act, 2013(“the Act”). Through which Section 23 of the Act was amended which would allow offshore listing of Indian securities abroad. As per the expectations if this venture pans out well it would equip the Indian companies with an opportunity to tap the offshore capital markets. At the same time listing foreign securities in India without floating INR-backed instruments or being subject to other restrictions would make the Indian securities market more competitive.  

The Securities Exchange Board of India: Expert Committee analysis

The Expert Committee of SEBI has provided some useful guidance on the said amendment and what effect it would have on the existing regime of the Companies Act some of which are discussed briefly below:

1. Listing of Indian securities across which jurisdictions

One of the major concerns about the listing of Indian securities in foreign jurisdictions is their misuse in activities such as round-tripping of funds, the Expert Committee recommends that only such jurisdictions should be selected where there is a robust mechanism to curb such practices. Mechanisms such as “Masala Bonds” will be very beneficial and such jurisdictions should be identified which are members of International organizations which have standards for securities regulations and are against such illicit practices. These may be members of FATF, Signatory states of Vienna Convention, IMF, OECD, United Nations on the office of Drugs and Crime, etc. SEBI should come up with detailed criteria as to the selection of Jurisdiction.

2. Changes in the existing regime of foreign exchanges 

After examining the recent amendments of the Foreign Exchange Management Rules, 2019 the Expert Committee recommends that the sectoral restriction on foreign investment should be continued and it also recommends introducing some other methods of checks and balances for companies that fall under the “government route”. An Important measure that has to be undertaken is to keep a close eye on the Foreign Investments made in Indian companies listed in other jurisdictions.  

3. Increase in cost of compliance due to different accounting standards

As per the new regime now the Indian companies can also list themselves across various other jurisdictions. This has one important implication of meeting up with the compliance standards of the jurisdictions in which they are listed, it includes the accounting standards which vary across different jurisdictions so an Indian company has to comply with the accounting standards of India as well as of the foreign jurisdictions with which the said company is listed.

4. Provisions related to listing under the Companies Act, 2013

As we are aware of the provisions involved in India as per the Companies Act, 2013. This not only reduces the efficiency of operations but also increases the cost of compliances, So the Expert Committee has recommended exempting the companies which are listed in foreign jurisdictions.

5. Treatment of capital gains tax 

Tax levied on the profits earned through a transfer of shares of Indian Companies between the non-residents may be taxed in India, as per the definition under Section 9 of the Income-tax Act, 1961(Income deemed to accrue or arise in India), Due to which Indian shares lose their competitive advantage when listed in foreign jurisdictions. Because of the concern above the trading in depository receipts issued abroad has been exempted from being taxed. The Expert Committee has further suggested consulting the revenue department to extend similar exemptions to the trading of Indian securities listed in foreign jurisdictions. 

Key recommendations

After the amendment in Section 23 of the Companies Act, 2013, the road of listing Indian securities is clear. But as they say with every opportunity there are a ton of challenges as well the same is with the present situation, So keeping in view of the same the Expert Committee of SEBI has suggested some recommendations which would be helpful both in a legal and practical sense which are stated as below:

1. Equal pedestal for shares and shareholders  

Companies looking forward to listing their securities in foreign jurisdictions must ensure that the shares are fungible and the rights which are available to the investors across the globe should be the same. Irrespective of the jurisdictions where they are listed, therefore the trading of shares made across jurisdictions shall be made interchangeable with each other. The company should either follow the laws applicable to the shares globally or make such a mechanism that divides the shares into several categories to make the process seamless. Since there will be a listing of securities across various jurisdictions it is likely that many of the shareholders would not be able to vote as and when called, So there is a need to make a robust e-voting system that should be well synchronized across all the jurisdictions.  

2. Applicability of multiple listing laws

Securities listed in India shall be bound by laws enforced by SEBI as well as laws of other jurisdictions across which it is listed. There should be harmony between the Indian laws and laws applicable in other jurisdictions. Situations might arise where there is conflict in the applicability of laws. In such a case a proper mechanism should be developed keeping in view the nature of such disputes.

3. Strengthening extraterritorial jurisdiction of SEBI  

It is obvious that when securities are listed in other jurisdictions then there is a fair chance of manipulation in terms of the price of the shares. This makes it necessary to have a robust mechanism to enforce SEBI guidelines across the jurisdictions where Indian securities are listed. In the past, there have been several cases of wrongdoings that have made it necessary to take such precautions to avoid any manipulations in the future. Even the Hon’ble SC held that SEBI has extraterritorial jurisdiction, as the GDRs traded are floated and regulated by the Indian stock exchange.

4. Revamping the existing securities market

As the Indian securities will be listed across various jurisdictions there is a need to alter the existing structure of the Indian securities market. Expansion of Indian securities market to accommodate trading of securities across multiple jurisdictions. The processes involved in the day-to-day functioning of the stock exchanges should be made seamless and at the same time complying with all the legal obligations, So there is a need to create links between central depositories of such jurisdictions and SEBI. Likewise, the United States of America and Canada have a common link in the form of participant accounts with one another to ensure a seamless flow of shares. There should be made a “master” Register maintained in India by the registrars, Who shall also coordinate with sub registrars in other jurisdictions. With the increase in cross-border trade, the Indian stock brokers should also aim at increasing their global presence and set up their operations in other jurisdictions where the said Indian securities are listed. 

Case laws on tax considerations of offshore listing

Vodafone International Holding vs Union of India

In this case, the Apex Court in this judgement pronounced “Sale of CGP share by HTIL to Vodafone or VIH does not amount to transfer of capital assets within the meaning of Section 2 (14) of the Income Tax Act and thereby all the rights and entitlements that flow from shareholder agreement, etc. that form an integral part of the share of CGP do not attract capital gains tax”.
The order of High Court of the demand of nearly Rs.12, 000 crores by way of capital gains tax would amount to imposing capital punishment for capital investment and it lacks the authority of law and therefore is quashed”.

Hon’ble Supreme Court pronounced a landmark judgment in Vodafone International Holding v UOI and made its view clear in respect of transaction between two non-residents and the tax imposition on them in India. The apex court recognized:

  • The principles of tax planning.
  • Business entities or individuals may arrange the affairs of their business so as to reduce their tax liability in absence of any statutory stipulation prohibiting the same.
  • Multinational companies often establish corporate structures and all these structures should be established for business and commercial purposes only.
  • The corporate veil may be lifted in case facts and circumstances reveal that the transaction or corporate structure is sham and intended to evade taxes.
  • The transactions should be looked at in a holistic manner and not in a dissecting manner and the presence of corporate structures in tax neutral/investor-friendly nations should not lead to the conclusion that these are meant to avoid taxes.

In the end, it can be said that this judgment has helped in removing uncertainties with respect to the imposition of taxes and recognized the principle the if the motive of the transaction is to avoid tax does not necessarily lead to the assumption of evasion of taxes and the Supreme Court has endorsed the view of legitimate tax planning.


India is again bringing a huge reform in the economic sector on the similar lines of LPG reforms of 1990 that led to the opening of the Indian economy for foreign companies and now this would open the Indian stock exchange for foreign investors. India is eyeing to become an important financial center to increase its importance at the global level, and after adopting this step of listing of Indian securities it would have huge implications be it financial, political, and social. But that needs to be properly checked before rolling out of such a plan that would involve a close observation on the buying and selling of securities, exchange of currency, complying with bylaws across the globe that govern such transactions, political aspirations, and social exchange that would happen from the trade. All of this should be done keeping in view the interest of our country as that is our prime concern. This step would again provide the necessary push that is needed after the pandemic but all of this should be done keeping in view the legal obligations and there should be robust mechanisms to curb the illicit practices.  


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