SEBI Circular /HO/CFD/PoD2/P/CIR/2023/18 dated February 03, 2023
1. SEBI, vide circular No. SEBI/HO/CFD/CMD/CIR/P/43/2018 dated February 22, 2018 on the captioned subject, had permitted different methods that may be used by listed entities to achieve compliance with the minimum public shareholding (MPS) requirements mandated under-
- Rule 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957 (“SCRR”) read with;
- Regulation 38 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”).
2. In view of facilitating the listed entities to achieve MPS compliance, few of the existing methods have been reviewed and rationalized and two additional methods have been introduced.
3. The Stock Exchange(s) shall monitor the methods adopted by listed entities to increase their public holding and comply with MPS requirements in terms of this circular. Non-compliance, if any, observed by the Stock Exchange(s) with respect to the method(s) and/ or conditions prescribed herein, shall be reported to SEBI on a quarterly basis.
4. This Circular is issued in exercise of the powers conferred under sections 11 and 11A of the Securities and Exchange Board of India Act, 1992 read with regulations 38 and 101(2) of the LODR Regulations and shall supersede the circular No. SEBI/HO/CFD/CMD/CIR/P/43/2018 dated February 22, 2018.
5. SEBI has mandated the listed entities to keep the minimum public shareholding according to Rule 19(2)(b) of SCRR that every listed entity shall make a minimum offer and allotment to the public in terms of an offer document-
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Rules under SCRR |
Listing % | Post Issue Capital |
| 19(2)(b)(i) | At least 25% of each class or kind of equity shares or debenture convertible into equity shares issued by the company | If the post-issue capital of the company calculated at offer price is less than or equal to 1600 crore rupees. |
| 19(2)(b)(ii) | At least such percentage of each class or kind of equity shares or debentures convertible into equity shares issued by the company equivalent to the value of 400 crore rupees. | If the post-issue capital of the company calculated at offer price is more than 1,600 crore rupees but less than or equal to 4,000 crore rupees; |
| 19(2)(b)(iii) | At least 10% of each class or kind of equity shares or debentures convertible into equity shares issued by the company. | If the post-issue capital of the company calculated at offer price is above 4,000 crore rupees but less than or equal to 1,00,000 crore rupees |
| 19(2)(b)(iv) | At least such % of each class or kind of equity shares or debentures convertible into equity shares issued by the company equivalent to the value of 5,000 crore rupees and at least 5% of each such class or kind of equity shares or debenture convertible into equity shares issued by the company. | If the post-issue capital of the company calculated at offer price is above 1,00,000 crore rupees: |
Subsequently, Rule 19A (2) of SCRR-
Where the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall in the manner specified by the SEBI,
Provided that every listed public sector company whose public shareholding falls below 25% at any time after the commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2018, shall increase its public shareholding to at least 25%, within a period of 2 years from such fall, in the manner specified by the Securities and Exchange Board of India.
6. Accordingly, a listed entity shall adopt any of the following methods in order to achieve compliance with the MPS requirements mandated under rules 19 (2) (b) and 19A of the SCRR read with regulation 38 of the LODR Regulations.
The following methods issued by SEBI under this circular are discussed with the help of some examples for a better understanding of the concepts:
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Sl. No. |
Methods | Specific conditions, applicable, if any |
| 1. | Public Issue | |
| Issuance of shares to public through prospectus. | Not Applicable | |
| 2. | Offer for Sale to public through prospectus | |
| Offer for sale of shares held by promoter(s) / promoter group to public through prospectus. | Not Applicable | |
| 3. | Offer for sale of shares held by promoter(s) / promoter group through the Stock Exchange mechanism | |
| Offer for sale of shares held by promoter(s) / promoter group through the Stock Exchange mechanism i.e., the secondary market, in terms of circular reference No. SEBI/HO/ MRD/MRD-PoD-3/P/CIR/ 2023/10 dated January 10, 2023. | Not Applicable | |
| 4. | Rights Issue | |
| Rights issue to public shareholders | Promoter(s) / promoter group shareholders shall forgo their entitlement to equity shares that may arise from such issue. | |
| Illustration 01:
XYZ Ltd. is proposing to issue 1,00,000 Right Equity Shares to its public shareholders. Mr. X, being a promoter of the Company is entitled for 5,000 Right Equity Shares in such proposed rights issue. ——————————— As per the condition, Mr. X has to forgo or waive off his entitlement of 5,000 Right shares for achieving MPS. |
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| 5. | Bonus Issue | |
| Bonus Issue to public shareholders | Promoter(s) / promoter group shareholders shall forgo their entitlement to equity shares that may arise from such issue. | |
| Illustration 01 shall be applicable in the same manner for Bonus Issue in this method. | ||
| 6. | Allotment of Equity shares under QIP | |
| Allotment of equity shares under Qualified Institutions Placement in terms of Chapter VI of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018. | Not Applicable | |
| 7. | Sale of the shares by the promoters through Open Market | |
| Sale of shares held by promoter(s) / promoter group in the open market in any one of the following ways, subject to compliance with the conditions specified:
i. (i) Promoter(s) / Promoter group can sell up to 2% of the total paid-up equity share capital of the listed entity, subject to 5 times of the average monthly trading volume of the shares of the listed entity, every financial year till the due date for MPS compliance as per the SCRR (or) (ii) Promoter(s) / Promoter group can sell up to a maximum of 5% of the paid-up capital of the listed entity during a financial year subject to the condition that the public holding in the listed entity shall become 25% after completion of such sale. Further, the sale can be a single tranche or in multiple tranches not exceeding a period of 12 months and the amount of shares to be sold shall not exceed the trading volume of the shares of the listed entity during the preceding 12 months from the date of announcement. |
Promoter(s) / Promoter group can use either the mechanism specified at Sl. No. 7(i) or 7(ii) to comply with MPS requirements, but not both.
The listed entity shall, at least one trading day prior to every such proposed sale, announce the following details to the stock exchange(s) where its shares are listed: a) the intention of the promoter(s) /promoter group to sell and the purpose of sale; b) the details of promoter (s)/promoter group, who propose to divest their shareholding; c)total number of shares and percentage of shareholding in the listed entity that is proposed to be divested; and d)the period within which the entire divestment process will be completed. The listed entity shall also give an undertaking to the recognized stock exchange(s) obtained from the persons belonging to the promoter and promoter group that they shall not buy any shares in the open market on the dates on which the shares are being sold by promoter(s)/promoter group as stated above. The listed entity, its promoter(s) and promoter group shall ensure compliance with all applicable legal provisions including that of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. |
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| Illustration 02:
(a) In the case of method 7 (i): 1. Mr. X, promoter of XYZ Ltd (Public sector Enterprise) wants to sell some part of his shareholding to increase the MPS, which fell below 25% of the total shareholding. 2. Authorised paid up share capital of the Company= 2,00,000 shares of Rs. 10/- each. 3. Total paid-up equity share capital of Company= 1,00,000 shares of Rs. 10/- each. 4. Average Monthly Trading Volume= 300 shares —————————————–
Illustration 03: (b) In the case of method 7 (ii): 1. Mr. X, promoter of XYZ Ltd (Public sector Enterprise) wants to sell some part of his shareholding to increase the MPS, which fell below 25% of the total shareholding. 2. Authorised paid up share capital of the Company= 2,00,000 shares of Rs. 10/- each. 3. Total paid-up equity share capital of Company= 1,00,000 shares of Rs. 10/- each. 4. Amount of Average Trading Volume of preceding 12 months from the date of announcement = Rs. 30,000/-
—————————————- Note: The listed entity can adopt any one method of either 7(i) or 7(ii) at a time and shall also ensure the Compliance of other conditions mentioned above. |
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| 8. | Allotment pursuant to ESOP | |
| Increase in public holding pursuant to exercise of options and allotment of shares under an employee stock option (ESOP) scheme, subject to a maximum of 2% of the paid-up equity share capital of the listed entity. | The ESOP scheme shall be in compliance with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 and the promoter(s) / promoter group shall not be allotted any shares. | |
| Illustration 04:
1. Total paid-up equity share capital of Company= 1,00,000 shares of Rs. 10/- each. 2. XYZ Ltd. is proposing to allot the shares under an employee stock option (ESOP) scheme. 3. Mr. X, promoter, and director of XYZ Ltd and he is also entitled to the allotment of shares under ESOP. ————————–
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| 9. | Transfer of shares held by the promoter(s) / promoter group to an Exchange Traded Fund (ETF) | |
| Transfer of shares held by the promoter(s) / promoter group to an Exchange Traded Fund (ETF) managed by a SEBI-registered mutual fund, subject to a maximum of 5% of the paid-up equity share capital of the listed entity. | The listed entity shall, at least one trading day prior to such proposed transfer, announce the following details to the stock exchange(s) where its shares are listed:
i. the intention of the promoter(s) /promoter group to transfer shares and the purpose of such transfer, ii. the details of promoter(s)/ promoter group who propose to transfer their shares in the listed entity, iii. total number of shares and percentage of shareholding proposed to be transferred; and iv. Details of the ETF to which shares are proposed to be transferred by the promoter/ promoter group. The listed entity shall also give an undertaking to the recognized stock exchange(s) obtained from the persons belonging to the promoter and promoter group that they shall not subscribe to the units of such ETF to which shares have been transferred by promoter(s) / promoter group entities for the purpose of MPS compliance. |
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| Illustration 05:
Promoters of XYZ Ltd. are willing to increase the MPS of the Company by transferring their shares to an Exchange Traded Fund managed (ETF) by a SEBI-registered mutual fund. ———————————— They are eligible for transferring the shares of a maximum of 5% of the paid-up equity share capital of the Company subject to a condition that they shall not subscribe to the units of such ETF to which shares have been transferred by the promoter(s) / promoter group entities for the purpose of MPS compliance. Further, shall also give an undertaking to the recognized stock exchange(s) obtained from the persons belonging to the promoter and promoter group in this regard along with the compliance of the above-mentioned conditions. |
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| 10. | Any other method | |
| Any other method as may be approved by the Board on a case to case basis. | The listed entity shall approach the Board with an application containing relevant details to obtain prior permission.
The Board would endeavor to communicate its decision within 30 days from the date of receipt of the proposal or the date of receipt of additional information as sought from the listed entity. |
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