SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2009 - AN OVERVIEW

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

Many public limited companies listed their shares in the recognized stock exchanges. There are also provisions for delisting of shares from any one or from all stock exchanges where such shares are listed. Listing is of two types - one is voluntary delisting and the other is compulsory delisting. Voluntary delisting means delisting of equity shares of a company voluntarily on application of the company. Compulsory delisting means delisting of equity shares of a company by a recognized stock exchange. In exercise of the powers conferred by Section 31 read with Section 21 of the Securities Contracts (Regulation) act, 1956, section 30, section 11(1) and section 11(2) of Securities and Exchange Board of India Act, 1992 the board made the regulations to regulate delisting of equity shares called as 'The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009.

These regulations contain 8 chapters and three schedules dealing the following:

> Chapter I - Preliminary - Regulations 1 and 2;

> Chapter II - Delisting of Equity Shares - Regulations 3 and 4;

> Chapter III - Voluntary Delisting - Regulations 5 to 8;

> Chapter IV - Exit Opportunity - Regulations 9 to 21;

> Chapter V - Compulsory Delisting - Regulations 22 to 24;

> Chapter VI - Powers of the Board - Regulations 25 and 26;

> Chapter VII - Special provisions for small companies and delisting by operation of law;

> Chapter VIII - Miscellaneous - Regulations 29 to 31.

> Schedule I - Contents of the Public Document;

> Schedule II - Book building process;

> Schedule III - Criteria for compulsory delisting.

DELISTING - APPLICABILITY & ELIGIBILITY:

The provisions of these regulations shall apply to delisting of equity shares of a company from all or any of the recognized stock exchanges where such shares are listed but these shall not apply to any delisting made pursuance to a scheme sanctioned by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 or by the National Company Law Board under Sec.424D of the Companies Act (now by High Court since the said provision has not come into force) if such scheme-

> Lays down any specific procedure to complete the delisting; or

> Provides an exit option to the existing public shareholders at a specified rate.

Delisting is not permissible in the following circumstances:

> Pursuant to a buy back of equity shares by the company; or

> Pursuant to a preferential allotment made by the company; or

> Unless a period of three years has elapsed since the listing of that class of equity shares on any recognized stock exchange; or

> If any instruments issued by the company, which are convertible into the same class of equity shares that are sought to be delisted, are outstanding.

VOLUNTARY DELISTING:

A company may delist its equity shares from all the recognized stock exchanges where they are listed or from one or more recognized stock exchanges where they are listed and continue their listing on other recognized stock exchanges where they are list subject to the following conditions:

> If after the proposed delisting from any one or more recognized stock exchanges, the equity shares would remain listed on any recognized stock exchange which has nationwide trading terminals, no exit opportunity needs to be given to the public shareholders; and

> If after the proposed delisting, the equity shares would not remain listed on any recognized stock exchange having nation wide trading terminals, exit opportunity shall be given to all the public share holders holding the equity shares sought to be delisted in accordance with Chapter IV.

Procedure for delisting where no exit opportunity is required:

The following procedure is to be adopted in this regard:

> The proposed delisting shall be approved by a resolution of the Board of Directors of the company in the meeting;

> The company shall give a notice of the proposed delisting in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchanges are located. The notice shall mention the names of the recognized stock exchanges from which the equity shares of the company are intended to be delisted, the reasons for such delisting and the fact of continuation of listing of equity shares on recognized stock exchange having nation wide trading terminals;

> The company shall make an application to the concerned recognized stock exchange for delisting its equity shares. This application shall be disposed of by the recognized stock exchange within a period not exceeding thirty working days from the date of receipt of such application complete in all respects;

> The fact of delisting shall be disclosed in the first annual report of the company prepared after the delisting.

Procedure for delisting where exist opportunity is required:

The following procedure is to be followed in this regard:

> Obtain the prior approval of the Board of directors of the company it its meeting;

> Obtain the prior approval of shareholders of the company by special resolution passed through postal ballot, after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to such resolution. The special resolution shall be acted upon if and only if the votes cast by public shareholders in favor of the proposal amount to at least two times the number of votes cast by public shareholders against it;

> Make an application to the concerned recognized stock exchange for the principle approval of the proposed delisting in the form specified by the recognized stock exchange. Such application shall be accompanied by an audit report as required under Regulation 55A of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 in respect of the equity shares sought to be delisted, covering a period of six months prior to the date of the application; and

> Within one year of passing the special resolution, make the final application to the concerned recognized stock exchange in the form specified by the recognized stock exchange. If special resolution is passed before the commencement of these regulations final application shall be made within a period of one year from the date of passing of special resolution or six months from the commencement of these regulations, whichever is later. The final application shall be accompanied with such proof of having given the exit opportunity as the recognized stock exchange may require;

> An application seeking in principal approval for delisting shall be disposed of by the recognized stock exchange within a period not exceeding thirty working days from the date of receipt of such application complete in all respects;

> While considering the above said application, the recognized stock exchange shall not unfairly withhold such application, but may require the company to satisfy it as to-

> Compliance of obtaining prior approval of the shareholders of the company;

> The resolution of investor grievances by the company;

> Payment of listing fees to that recognized stock exchange;

> The compliance with any condition of the listing agreement with that recognized stock exchange having a material bearing on the interests of its equity shareholders;

> Any litigation or action pending against the company pertaining to its activities in the securities market or any other matter having a material bearing on the interests of its equity share holders;

> Any other relevant matter as the recognized stock exchange may deem fit to verify.

COMPULSORY DELISTING:

A recognized stock exchange may, by order, delist any equity shares of a company on any ground prescribed in the rules made under Section 21A of the Securities Contracts (Regulation) Act, 1956. No order shall be made unless the company concerned has been given a reasonable opportunity of being heard.

The above said decision shall be taken by a panel constituted by the recognized stock exchange consisting of-

> Two directors of the recognized stock exchange (one of whom shall be a public representative);

> One representative of the investors;

> One representative of the Ministry of Corporate Affairs or Registrar of Companies; and

> The Executive Director or Secretary of the recognized stock exchange

Before making an order the recognized stock exchange shall give a notice in one English national daily with the circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located, of the proposed delisting giving a time period of not less than fifteen working days from the notice within which representations may be to the recognized stock exchange by any person who may be aggrieved by the proposed delisting and shall also display such notice on its trading systems and website.

The recognized stock exchange shall while passing any order consider the representations, if any, made by the company as also any representations received in response to the notice and shall comply with the criteria specified in Schedule III as follows:

> The recognized stock exchange shall take all reasonable steps to trace the promoters of a company whose equity shares are proposed to be delisted with a view to ensuring compliance;

> The recognized stock exchange shall consider the nature and extent of the alleged non compliance of the company and the number and percentage of shareholders who may be affected by such non compliance;

> The recognized stock exchange shall take reasonable efforts to verify the status of compliance of the company with the office of the concerned Registrar of Companies;

> The names of the companies whose equity shares are proposed to be delisted and their promoters shall be displayed in a separate section on the website of the recognized stock exchange for a brief period of time. If delisted, the names shall be shifted to another separate section on the website;

> The recognized stock exchange shall in appropriate cases file prosecutions under relevant provisions of the Securities Contracts (Regulation) Act, 1956 or any other law for the time being in force against identifiable promoters and directors of the company for the alleged non compliances;

> The recognized stock exchange shall in appropriate cases file a petition for winding up the company under Sec. 433 of the Companies Act, 1956 or make a request to the Registrar of Companies to strike off the name of the company from the register under Sec. 560 of the said Act.

The provisions of Exit opportunity are not applicable in case of compulsory delisting.

Where the recognized stock exchange passes an order it shall-

> Forthwith publish a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located, of the fact of such delisting, disclosing therein the name and address of the company, the fair value of the delisted equity shares determined and the names and addresses of the promoters of the company;

> Inform all other stock exchanges where the equity shares of the company are listed about such delisting and the surrounding circumstances.

Valuation of equity shares:

The recognized stock exchange shall determine the fair value of the delisted equity shares. It shall form a panel of expert valuers from whom the valuer or valuers shall be appointed. The valuer may be a Chartered Accountant or a merchant banker. The promoter of the company shall acquire delisted equity shares from the public share holders by paying them the value determined by the valuer subject their option of retaining their shares.

Consequences of compulsory delisting:

Where a company has been compulsorily delisted the company, its whole time directors, the promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such listing.

LISTING OF DELISTED SHARES:

No application for listing shall be made in respect of any equity shares-

> Which have been voluntarily delisted for a period of five years from delisting;

> Which have been compulsory delisted for a period ten years from delisting.

> An application for listing of delisted equity shares may be made where a recommendation in this regard has been made by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) act,1985;

> While considering an application for listing of any equity shares which had been delisted the recognized stock exchange shall have due regard to facts and circumstances under which the delisting was made'

> An application for listing made in respect of delisted equity shares shall be deemed to be an application for fresh listing of such equity shares and shall be subject to the provisions of law relating to listing of equity shares of unlisted companies.

SPECIAL PROVISIONS FOR SMALL COMPANIES:

Where a company has paid up capital up to one crore rupees and its equity shares were not traded in any recognized stock exchange in the year immediately preceding the date of decision, such equity shares may be delisted from all the recognized stock exchanges.

Where a company has three hundred or few public shareholders and where the paid up value of the shares held by such public shareholders in such company is not more than one crore rupees, its equity shares may be delisted from all the recognized stock exchanges where they are listed.

Such delisting is subject to the following conditions:

> The promoter appoints a merchant banker and decides an exit price in consultation with him;

> The exist price shall not be less than price arrived at in consultation with the merchant banker;

> The promoter writes individually to all the public shareholders in the company informing them of his intention to get the equity shares delisted, indicating the exit price together with the justification therefor and seeking their consent for the proposal for delisting;

> At least ninety per cent of such public shareholders give their positive consent in writing to the proposal and have consented either to sell their equity shares at the price offered by the promoter or to remain holders of the equity shares even if they are delisted;

> The promoter completes the process of inviting the positive consent and finalization of the proposal for delisting of equity shares within seventy five working days of the first communications made;

> The promoter makes payment of consideration in cash within fifteen working days from the date of expiry of seventy five working days

The concerned recognized stock exchange may delist such equity shares upon satisfying itself of compliance with this regulation.