MCA INTRODUCES LIBERALIZED DEFINITION OF LISTED COMPANY

Ministry of Corporate affairs vide MCA Notification No. G.S.R.123(E), CG-DL-E-19022021-225287 dated February 19, 2021 issued the Companies (Specification of definitions details) Second Amendment Rules, 2021 (“Amendment Rules, 2021”) to amend the Companies (Specification of definitions details) Rules, 2014 (“Rules 2014”).

The Amendment Rules, 2021 provides for the insertion of new Rule 2A to Rules 2014, which lists down the companies which shall not be considered as listed companies under Section 2 (52) of the Companies Act, 2013 (“Act”).

1. Existing Position -

   As per Section 2 (52) of the Act (52) a ‘listed company’ is defined to mean that a company which has listed any of its securities on any recognised stock exchange. The Companies (Amendment) Act, 2020 (“2020 Amendment”) inserted a proviso to Section 2 (52) which provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities Exchange Board of India (“SEBI”), shall not be considered as listed companies.

   Prior to the 2020 Amendment, any company (including a private limited company) with any of its securities listed on a recognised stock exchange was considered as a listed company and was subjected to Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and other compliances required for the listed companies under the Act. By virtue of the 2020 Amendment the Central Government was empowered to exempt certain class of companies and securities from being considered as a listed company, in consultation with SEBI.

2. Position Post the Amendment Rules 2021

   Now, the Amendment Rules, 2021 has further liberalized the definition of listed company and inserted Rule 2A to provide for a list of companies which shall not be considered as listed companies.

   As per Rule 2A the following classes of companies shall not be considered as listed companies, namely:

   1. Public companies which have not listed their equity shares on a recognized stock exchange but have listed their:
      1. non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008; or
      2. non-convertible redeemable preference shares issued on private placement basis in terms of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or
      3. both categories of (i) and (ii) above.

   2. Private companies which have listed their non-convertible debt securities on private placement basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008;

   3. Public companies which have not listed their equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act.

The amendment would scale down the ambit of the definition of listed company and would facilitate private companies to approach the bond and debt market without being overburdened with the tighter compliances applicable to the listed companies. Further public companies which issue debt instruments which are listed but its equity shares are not listed, shall no longer be considered as a listed public company by virtue of this Amendment Rules 2021. Therefore, this amendment would encourage the public and private companies to issue listed debt instruments with lesser compliance requirements.

The amendment discussed hereinabove shall be effective from April 01, 2021. Please find the Notification at http://www.mca.gov.in/Ministry/pdf/CompaniesSpecification2ndAmndtRules_22022021.pdf.