Background: Regulation 38 of SEBI (LODR): Minimum Public Shareholding (MPS)
Regulation 38 under Chapter IV (Obligation of Listed Entity which has listed its specified securities) of securities and Exchange board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, is as under
All listed companies have to comply with Minimum Public Shareholding norms, as laid down in Rule 19(2) and 19A of SCRR, in the manner specified by SEBI from time to time.
In rule 19, in sub-rule (2), in clause (b), before sub-clause (i), the following shall be inserted, namely:- “The minimum offer and allotment to public in terms of an offer document shall be-; (iii) in rule 19A, after sub-rule (3), the following new sub-rule shall be inserted, namely:-
“(4) Where the public shareholding in a listed company falls below twenty-five per cent in consequence to the Securities Contracts (Regulation) (Amendment) Rules, 2015, such company shall increase its public shareholding to at least twenty-five per cent. in the manner specified by the Securities and Exchange Board of India within a period of three years, as the case may be, from the date of notification of:
(a) the Depository Receipts Scheme, 2014 in cases where the public shareholding falls below twenty five per cent as a result of such scheme;
(b) the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 in cases where the public shareholding falls below twenty-five percent., as a result such regulations.”
The Securities and Exchange Board of India has directed stock exchanges to crack the whip on companies that do not comply with the minimum public shareholding requirements vide Circular No. CFD/CMD/CIR/P/2017/115 dated 10th October, 2017. The regulator has asked exchanges to impose a fine on non-compliant companies, freeze promoter shares and bar promoters from being promoters in other listed companies till they do not comply is explained in detailed as follows:
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|Freeze of Shareholding Depository Account.||
|Resulting in Disqualification||
IF DEFAULTS CONTINUE FOR MORE THAN ONE YEAR
|Freeze of all securities Depository Account.||
|Resulting in Disqualification||
1. Fines as applicable shall be imposed prospectively from the date of circular.
2. Fines so received shall be credited to “Investor Protection Fund” of the concerned stock exchange.
3. Appropriate actions will be initiated, if there is default in payment of fines
4. Circular not applicable to those companies, where SEBI has already passed order in relation to non-compliance with MPS requirements.
RESPONSIBILITIES ON SHOULDER OF RECOGNIZED STOCK EXCHANGE
1. Name of non-compliant entities; amount of fine imposed; freezing of shares held and other actions taken
2. Status of compliance (whether complied or not)
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(Author-CS Anjali Gorsia, Company Secretary In Practice from Nagpur (Maharashtra) and can be contacted at firstname.lastname@example.org)