Primary Market - Public Issues - Delisting of Securities
Recommendations of Pratip Kar, Committee

1. there should be no prohibition per se against delisting securities provided that the securities of company have been listed for a minimum period of 3 years on any stock exchange;

2. there should not be any selective restriction or discrimination against any class of companies for delisting. However, the regulatory framework may need to be strengthened to prevent any misuse by the companies and to ensure that investors’ interests are protected at all times;

3. any acquisition of shares or scheme or arrangement, by whatever name referred to, which may result in delisting of securities shall be in compliance with the relevant provisions under any SEBI regulation, circular or guideline and the provisions of the Listing Agreement so as to ensure protection of investors’ interest;

4. SEBI should clarify once again that no company could use the buy-back provision to delist the company;

5. there should be comprehensive provisions which should also include procedures governing the entire subject of delisting of securities of companies, and should cover cases in which companies on their own seek delisting of their securities from all or some of the stock exchanges, as well as those where the stock exchanges can compulsorily delist the securities of a company;

6. the comprehensive provisions for delisting will be applicable in cases where a person in control of the management is seeking to consolidate his holdings in a company, in a manner which would result in the company being delisted, or in cases where as a result of a takeover process, the public (non promoter holding) falls below the prescribed threshold;

7. the exit price for delisting should be in accordance with the book building process;

   1. the offer price should have a floor price which will be the average of 26 weeks traded price and without any of maximum price;

   2. market forces of demand and supply should determine the price above the floor price. The stock exchanges would provide the infrastructure facility to enable the investors to see the price on the screen to bring transparency to the delisting process;

   3. in the evens of securities being delisting, the acquirer should allow a further period of 6 months for any of the remaining shareholders to tender shares at the same price;

   4. to reduce the possibility of price manipulation, the scrips should be kept under special watch by the stock exchanges;

   5. to ascertain the genuineness of physical shares if tendered and to avoid the bad papers, R&TA should be asked to co-operate with the Clearing House / Clearing Corporation to determine the quality of the papers upfront;

   6. if the quantity eligible for acquiring shares at the final price offered does not result in public shareholding falling below 25%, the company would remain listed;

   7. the paid up share capital should not be extinguished as in the case of buyback of shares;

   8. in case of partly paid-up shares, the price determined by the book building process would be applicable to the extent the call has been made and paid. The amount of consideration for the departing shares would be settled in cash;

8. a company which is listed on any stock exchange may be allowed to delist from that stock exchange without an exit offer being made to its shareholders provided that the securities of the company are listed on BSE or NSE which have nationwide reach. As the securities of the company would continue to be listed on stock exchanges which have nation wide reach, investors’ interests would not be jeopardized and hence no additional exit route need be separately provided to them;

9. in all other cases, viz. when a company which is listed on any stock exchange or stock exchanges other than BSE or NSE seeks delisting, an exit offer must be made to the shareholders in accordance with the recommendation as mentioned at point (g);

10. the MOF circular F. NO. 14(2)/SE/85 dated September 23, 1985 should be withdrawn;

11. there should not be any compulsion for the existing companies to remain listed on any stock exchange merely because it is a regional stock exchange and companies should have the freedom to list on a stock exchange of its choice;

12. even if the shares of a company are delisted, the fixed income securities may continue to remain listed on the stock exchange. If however a company has a convertible instrument outstanding, it should not be permitted to delist its equity shares till the exercise of the conversion options;

13. stock exchanges should be empowered to delist those companies which have been suspended for a minimum period of six months for non-compliance with the Listing Agreement;

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14. as an alternative to the norms and procedure laid down in Annexure II of the existing SEBI Circular SMDRP/CIR–14/98 dated April 29, 1998 the stock exchange should give a show cause notice to these companies besides adequate and wide public notice through newspapers and on the notice boards of the stock exchanges;

15. these companies should be brought into the framework of arbitration mechanism of the stock exchanges so that the investors could have the opportunity of receiving monetary compensation;

16. the Department of Company Affairs may be requested to amend the Companies Act for allowing the stock exchanges to make an application for winding up of the company. However, such petitions against companies should be filed by the stock exchanges only on the basis of investor complaint;.

17. the requirement of continued listing be made as non-promoter holding of 25 % or 10% as per exemptions provided in Rule 19 (2) (b) of SC(R) Rules for public shareholding taking into account the exemption given under Rule 19 (2) (7) ;

18. in case of rights issue, allotment to the promoters or the persons in control of the management may be allowed even if they subscribe to unsubscribe portion which may result in the non promoter holding falling below the permissible minimum level, provided that adequate disclosures have been made in the offer document to that effect and provided further that they agree to buy out the remaining holdings at the price of right issue or offer for sale to bring the non-promoter holding at the level of 25% or 10% (as the case maybe) to remain the company listed;

19. to bring about the uniformity in the exercise of due diligence in scrutinizing listing applications, a separate agency be formed designated as the Central Listing Authority (CLA);

    1. the initial role of the CLA may be confined to scrutinizing listing agreement and reviewing the provisions of Listing Agreement from time to time;

    2. it would be up to SEBI to expand the scope of CLA to include monitoring and compliance with the Listing Agreement at later date;

    3. the CLA will be suitably empowered by SEBI;

    4. a company seeking listing of fresh securities would make an application in a prescribed format listing first to the CLA. The CLA should give its opinion within 30 days after submission of application. After receiving the approval of CLA, the company would be free to apply to any stock exchange along with the letter of approval of CLA. The stock exchange would independently decide on whether to list the security or not with reference to its listing criteria and in case it does not list the security, it shall give its reasons in writing. The stock exchange shall convey its decision within the time frame already prescribed under the applicable regulations. The decision of the stock exchange would be appeal able to the Securities Appellate Tribunal;

    5. the members of the CLA should not exceed 11 and CLA may be chosen from among the judiciary, lawyers, and people having expertise in securities market regulation, financial experts, academicians and Investor associations. 4 members of the CLA should always be drawn from the stock exchanges who would provide the CLA with expertise and experience in the area of scrutinizing applications for listing;

    6. the quorum will be of 4 members. The representative of the stock exchanges where listing may be sought by the company, would not form a part of quorum of the CLA. Of the members present at the time of granting approval to a listing application, 50% should be non-stock exchange members;

    7. SEBI would draw up a panel of names for members of the CLA;

    8. viii. the term of a member shall be for a period of 3 years unless the member has been found unfit for any reason or the member has himself expressed his desire to discontinue. No member may be given re-appointment after two terms of 3 years each;

    9. to enable the CLA to function efficiently, it should have a permanent secretariat which may be provided by the stock exchanges / SEBI who may depute personnel to the CLA to enable CLA to analyse and scrutinize applications, convene meetings etc;

    10. CLA may charge a reasonable processing fee from the company making application for listing to it;

    11. the CLA will be accountable to SEBI and shall provide a quarterly report on their activities in a specified format to SEBI;

    12. SEBI would periodically review the performance and working of CLA based on the reports and may reconstitute the CLA as and when necessary.

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21. Reinstatement of delisted securities should be permitted by the stock exchanges with a cooling period of 2 years. In other words, relisting of securities should be allowed after 2 years of delisting of the securities. It would be based on the respective norms/criteria for listing at the time of making the application for listing and the application will be initially scrutinized by the CLA;

22. SEBI should decide the appropriate manner to implement the delisting guidelines either through a circular or through a separate regulation.