Regulatory Architecture for Direct Listing in GIFT IFSC: Companies Act, FEMA, IFSCA and Stock Exchange Framework Explained
Direct listing in GIFT IFSC is not governed by a single law or regulation. It operates through an interconnected framework comprising the Companies Act, foreign-exchange regulations, the Direct Listing Scheme, IFSCA regulations, securities-contract rules and stock-exchange procedures.
Each regulatory instrument addresses a different aspect of the listing process. Company law establishes the authority of an Indian company to list overseas, FEMA governs foreign investment and eligible investors, IFSCA regulates the listing and disclosure process, while the recognised stock exchange manages admission, trading and price discovery.
The proposed 2026 framework for direct listing without public offer seeks to operationalise Regulation 40 of the IFSCA (Listing) Regulations, 2024. Since the framework is presently contained in a consultation paper, its requirements may be modified before the final circular is issued.
Understanding the Two Direct Listing Routes
The expression “direct listing” may cover two distinct structures.
The first involves issuance of equity shares by an eligible Indian public company to permissible investors, followed by listing on a permitted international exchange. This route may involve fresh capital raising and is principally governed by the Companies Act, FEMA (Non-Debt Instruments) Rules and the Direct Listing Scheme, 2024.
The second route involves listing existing specified securities without undertaking a public offer. Under this structure, the issuer does not conduct a conventional IPO, book building or public allocation. The principal objective is to obtain listed status, facilitate price discovery and provide liquidity to existing shareholders.
The proposed 2026 circular specifically addresses the second route under Regulation 40 of the IFSCA Listing Regulations.
Regulatory Architecture for Direct Listing in GIFT IFSC
The regulatory framework operates through the following layers:
| Regulatory instrument | Principal relevance |
|---|---|
| Companies Act, 2013 and related rules | Permits prescribed classes of Indian public companies to list equity shares on permitted international exchanges |
| FEMA (Non-Debt Instruments) Rules, 2019—Schedule XI | Governs eligible investors, pricing, sectoral caps, foreign ownership and reporting |
| Direct Listing Scheme, 2024 | Enables eligible Indian public companies to access designated international exchanges |
| IFSCA (Listing) Regulations, 2024 | Governs listing, disclosures, intermediaries and continuing obligations in IFSC |
| Regulation 40 | Enables listing of specified securities without public offer |
| Proposed 2026 circular | Prescribes eligibility, approval, filing, valuation, public shareholding and listing procedures |
| SCRR Rules 19 and 19A | Governs public-offer requirements and continuous minimum public shareholding |
| Stock-exchange rules | Governs admission, price discovery, trading, settlement and operational procedures |
These instruments must be read together. Approval under the IFSCA framework does not remove the issuer’s obligations under company law, FEMA, sector-specific regulations or the Securities Contracts (Regulation) Rules.
Companies Act, 2013: Corporate Authority for International Listing
The Companies Act, 2013 and related rules provide the corporate-law foundation for direct listing by Indian companies. They permit prescribed classes of Indian public companies to issue and list equity shares on permitted international exchanges.
Before initiating the listing process, the issuer must confirm that it falls within the eligible class of companies and that its constitutional documents permit the proposed transaction.
Depending on the structure, the company may need to undertake:
- board and shareholder approvals;
- amendment of its memorandum or articles of association;
- compliance with share-capital provisions;
- review of superior-right shares and convertible instruments;
- verification of beneficial ownership; and
- maintenance of prescribed statutory records.
Accordingly, listing eligibility must first be established at the corporate level before an application is made to an IFSC stock exchange.
FEMA and Schedule XI: Foreign Investment and Investor Eligibility
The FEMA (Non-Debt Instruments) Rules, 2019 govern the cross-border investment component of direct listing by Indian companies. Schedule XI provides the relevant framework for issuance and listing of equity shares on permitted international exchanges.
FEMA compliance may involve examination of:
- eligible non-resident investors;
- prohibited or restricted investors;
- sectoral caps and investment limits;
- automatic or government approval routes;
- pricing requirements;
- beneficial-ownership restrictions;
- issue and transfer of shares;
- repatriation of sale proceeds; and
- regulatory reporting.
This layer is particularly important because stock-exchange admission does not override foreign-investment restrictions. A company may satisfy the IFSCA listing criteria but remain unable to proceed where its proposed investor base, sectoral exposure or beneficial ownership is inconsistent with FEMA requirements.
An early-stage review of the shareholding structure is therefore essential for Indian issuers.
Direct Listing Scheme, 2024
The Direct Listing Scheme, 2024 provides the policy gateway through which eligible Indian public companies may access international capital markets.
The Scheme connects the authority available under the Companies Act with the foreign-investment framework under FEMA. It identifies the permissible company category, designated exchanges and eligible investor framework for international listing.
For Indian companies, the Scheme should therefore be read alongside the Companies Act and Schedule XI of the FEMA Non-Debt Instruments Rules.
However, the Scheme and the proposed IFSCA circular serve different purposes. The Direct Listing Scheme establishes the broader legal route for Indian public companies, while the proposed circular operationalises the specific mechanism for listing securities in GIFT IFSC without undertaking a public offer.
IFSCA Listing Regulations and Regulation 40
The IFSCA (Listing) Regulations, 2024 form the primary securities-law framework for listing on recognised exchanges in GIFT IFSC.
The regulations govern the issue and listing of specified securities, debt securities, depository receipts and other permitted financial products. They also prescribe requirements relating to investment bankers, disclosures, financial statements and continuing obligations.
Regulation 40 provides that an issuer may list its specified securities on a recognised stock exchange without making a public offer in the manner specified by IFSCA.
However, Regulation 40 is only an enabling provision. It does not independently prescribe the eligibility criteria, filing process, valuation requirements or public-shareholding conditions.
The proposed 2026 circular seeks to fill this gap by establishing the operational framework for direct listing without public offer.
In-Principle Approval from Recognised Stock Exchange
An issuer proposing a direct listing must apply to a recognised stock exchange for in-principle approval. Where applications are submitted to more than one exchange, the issuer must designate one of them as the designated stock exchange.
Under the proposed framework, the exchange must grant or reject the application within 15 days from the receipt of complete information.
The exchange is expected to examine matters such as:
- issuer eligibility;
- capital structure and shareholding;
- financial performance;
- litigation and regulatory actions;
- corporate approvals;
- pending government approvals; and
- compliance readiness.
The proposed circular also provides a procedural safeguard: the exchange cannot reject the application without first allowing the issuer to make written submissions on the proposed grounds for rejection.
Information Document: The Core Disclosure Instrument
Although no public offer is made, the issuer must prepare an Information Document containing all material information required for an informed investment decision.
The Information Document is proposed to include:
- document summary and risk factors;
- capital structure;
- business and industry description;
- organisational structure and management;
- key managerial personnel and remuneration;
- shareholders’ agreements and material contracts;
- dividend policy;
- financial statements;
- material related-party transactions;
- litigation and regulatory actions;
- pending approvals; and
- details of major group entities.
The document must be filed through one or more investment bankers registered with IFSCA. The investment banker must conduct due diligence and submit a certificate confirming the adequacy and accuracy of disclosures.
Filing with IFSCA does not amount to approval or endorsement of the issuer. Responsibility for the correctness and completeness of the Information Document continues to rest with the issuer and investment banker.
Financial Information Requirements
The proposed framework requires audited financial information for at least the previous three financial years.
Where the issuer has existed for less than three years, audited information must be provided for its period of existence. Where it has existed for less than one year, the available financial information must still be audited.
Part-period financial information may be limited reviewed, but the financial information included in the Information Document cannot be older than six months.
Financial statements may be prepared under IFRS, US GAAP, Ind AS or applicable home-jurisdiction accounting standards. However, where an issuer uses another home-jurisdiction framework, reconciliation with IFRS would be required.
This may require issuers to undertake accounting-policy alignment, consolidation, audit closure and IFRS reconciliation well before formal filing.
Public Shareholding and SCRR Requirements
The proposed framework distinguishes between the public-offer requirement under Rule 19(2)(b) and the continuous public-shareholding requirement under Rule 19A of the Securities Contracts (Regulation) Rules, 1957.
Since the route does not involve a public offer or offer document, the consultation paper takes the position that Rule 19(2)(b) should not apply.
However, minimum public shareholding remains mandatory. Indian issuers must comply with Rule 19A, while foreign issuers must maintain at least 10% public shareholding on a continuous basis.
This raises practical issues concerning:
- creation of public float before listing;
- classification of public shareholders;
- promoter and group holdings;
- treatment of employees and ESOP holders;
- shareholder concentration; and
- restrictions under existing shareholder agreements.
Merely satisfying the percentage requirement may not ensure adequate trading liquidity where the public float is held by only a few investors.
Pricing and Independent Valuation
The proposed framework requires the listing base price to be supported by an independent valuation report.
The valuation report must be no older than three months from the filing of the Information Document and must rely on audited financial statements that are not older than three months from the valuation-report date.
An eligible valuer may include an IFSCA-registered service provider, an IBBI-registered valuer or an equivalent registered professional in the issuer’s home jurisdiction.
Depending on the issuer’s business and financial profile, the valuation may use discounted cash flow, comparable-company multiples, precedent transactions, asset-based valuation or a sum-of-the-parts approach.
The valuation establishes only the reference or base price. The actual opening market price will be determined through the stock exchange’s special pre-open price-discovery session.
Special Pre-Open Session and Stock Exchange Rules
The recognised stock exchange will prescribe the operational mechanism for price discovery on the first day of listing.
The exchange rules are expected to cover order entry, equilibrium-price calculation, permissible trading ranges, treatment of unmatched orders, volatility controls, commencement of normal trading and settlement.
The issuer may also appoint one or more market makers to improve secondary-market liquidity, although market making is proposed to remain optional.
Conclusion
Direct listing in GIFT IFSC operates through an integrated framework of company law, FEMA, the Direct Listing Scheme, IFSCA regulations, SCRR and stock-exchange procedures. Companies considering this route must evaluate corporate eligibility, foreign-investment compliance, financial reporting, public shareholding, valuation and exchange readiness as part of a coordinated transaction strategy.
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