Government Notifies Delisting Rules
The Securities Laws (Amendment) Act enacted in 2005, incorporated section 21(A) in the Securities Contract Regulation Act (SCRA) to allow delisting of securities necessitating the creation of a delisting Framework. In order to provide statutory backing for the delisting framework, Rules dealing primarily with the substantive aspects and Regulations dealing primarily with the procedural aspects for delisting are also being notified simultaneously by the Government and Securities & Exchange Board of India respectively.
Delisting Rules include the following provisions:
I. Grounds for Delisting of Securities by a Recognized Stock Exchange: Delisting of securities may be done by a recognised exchange on any of the following grounds:
(a) the company has incurred losses during the preceding three consecutive years and it has negative net worth;
(b) trading in the securities of the company has remained suspended for a period of more than six months;
(c) the securities of the company have remained infrequently traded during the preceding three years;
(d) the company or any of its promoters or any of its director has been convicted for failure to comply with any of the provisions of the Act or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 (22 of 1996) or rules, regulations, agreements made thereunder, as the case may, be and awarded a penalty of not less than rupees one crore or imprisonment of not less than three years;
(e) the addresses of the company or any of its promoter or any of its directors, are not known or false addresses have been furnished or the company has changed its registered office in contravention of the provisions of the Companies Act, 1956 (1 of 1956); or
(f) shareholding of the company held by the public has come below the minimum level applicable to the company as per the listing agreement under the Act and the company has failed to raise public holding to the required level within the time specified by the recognized stock exchange
II. Grounds for Voluntary Delisting: Voluntary Delisting can be done through a request by the company to delist any securities provided (a) the securities of the company have been listed for a minimum period of three years on the Recognized Stock Exchange; (b) the delisting of such securities has been approved by the two-third of public shareholders; and (c) the company, promoter and/ or the director of the company purchase the outstanding securities from those holders who wish to sell them at a price determined in accordance with Regulations made by Securities and Exchange Board of India” under the Act..
The above grounds laid down for the Delisting Rules have to be read with the Regulations made under the Act by SEBI.
The SEBI (Delisting of Equity Shares) Regulations provide for voluntary delisting from either all recognised stock exchanges or from only some of the recognized stock exchanges. It lays down the procedure for delisting (a) where no exit opportunity is required (b) and where exit opportunity is required. It also lays down the procedure for compulsory delisting along with specifically stating the rights of public shares in such cases. The regulations also have special provisions, inter-alia, for delisting of small companies, delisting in cases of winding up of a company and de-recognition of stock exchange.
The Delisting Rules will come into force on the date of issue of notification of the Regulations issued by the Securities & Exchange Board of India in this regard under the Securities Contracts (Regulations) Act, 1956 and Securities & Exchange Board of India Act, 1992.