Disclosure requirements for encumbrance of shares by promoters of listed companies

In case a promoter requires funds for either personal use or for the benefit of the listed entity, and decides to encumber the shares of that listed company held by him/her, then he/she has to make few disclosures to every stock exchange where the shares of the target company are listed and the listed company at its registered office.

I. General Disclosure by the promoter of listed companies

In terms of Regulation 31 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘SAST’ or ‘Takeover Regulations’), the promoter of every target company shall disclose:

1. details of shares in such target company encumbered by him or by persons acting in concert (PAC) with him

2. details of any invocation of such encumbrance or release of such encumbrance of shares.

Provided that the aforesaid disclosure requirement shall not be applicable where such encumbrance is undertaken in a depository.

The abovementioned disclosure shall be made within seven working days from the creation or invocation or release of encumbrance, as the case may be to,—

a)  every stock exchange where the shares of the target company are listed; and

b)  the target company at its registered office.

Format for such disclosure is specified by SEBI vide its circular no. CIR/CFD/POLICYCELL/3/2015 dated 05.08.2015.

II. Additional disclosure of reasons for encumbrance by the promoter of listed companies

With effect from 01.10.2019, in terms of SEBI Circular no. SEBI/HO/CFD/DCR1/CIR/P/2019/90 dated 07.08.2019,  the promoter of every listed company shall specifically disclose detailed reasons for encumbrance if the combined encumbrance by the promoter along with PACs with him equals or exceeds:

a)  50% of their shareholding in the company; or

b)  20% of the total share capital of the company,

within two working days from the creation of such encumbrance. Such disclosures will be warranted on every occasion, when the extent of encumbrance (having already breached the above threshold limits) increases further from the prevailing levels.

The abovementioned disclosure shall be made to —

a)  every stock exchange where the shares of the company are listed; and

b)  the listed company

The listed companies shall disclose the contents of this disclosure on their websites within two working days of receipt of such disclosure.

Please note that this disclosure by the promoter shall be in addition to the disclosure as specified in Regulation 31 of SEBI (SAST) Regulations, 2011 if the above threshold is breached.

III. Annual Declaration by the promoter of listed companies

The promoter of every target company shall declare on a yearly basis that he/she, along with persons acting in concert, has not made any encumbrance, directly or indirectly, other than those already disclosed during the financial year.

The abovementioned declaration shall be made within seven working days from the end of each financial year to –

a)  every stock exchange where the shares of the target company are listed; and

b)  the audit committee of the target company.

In case of system driven disclosure opted by the listed company

With the intent of ease of doing business, SEBI in consultation with the market infrastructure institutions decided to automate the process of filing of disclosures as prescribed under Regulations 29 and 31 of SAST at stock exchange(s) level for the companies which are listed on nationwide stock exchanges. Thus, with effect from 01.07.2022, in terms of SEBI Circular no. SEBI/HO/CFD/DCR-3/P/CIR/2022/27 dated 07.03.2022, transactions undertaken in the depository system under Regulation 29 and 31 of Takeover Regulations do not require manual filing except for the following transactions where disclosure shall continue to be filed:-

• Triggering of disclosure requirement due to acquisition or disposal of the shares, as the case may be, by the acquirer together with PACs.
• Triggering of disclosure requirement in case the shares are held in physical form by the acquirer and/or PACs.
• Listed companies who have not provided PAN of promoter(s) including member(s) of the promoter group to the designated depository or companies which have not appointed any depository as their designated depository.

Notwithstanding the above, Promoters are required to file disclosures on reasons for encumbered shares manually to the stock exchanges as specified by SEBI Circular dated 05.08.2015 and 07.08.2019 respectively.