PROMOTERS HOLDING OF NON-COMPLIANT LISTED COMPANIES ABOUT TO FREEZE
On 5th June 2015, SEBI has issued a Circular directing issuers/RTA to
1. Update Distinctive Number (UDN) information in respect of all physical share capital and overall DN range for dematerialized share capital for all listed companies.
2. Take all necessary steps to update the DN database. If there is mismatch in the DN information with the data provided / updated by the Stock Exchanges in the DN database, the Issuer/RTA shall take steps to match the records and update the same latest by December 31, 2015.
The aforesaid circular also stipulated that failure by the Issuers/RTAs to ensure reconciliation of the records in terms of the said circular shall attract appropriate actions under the extant laws. Even after repeated reminders from Depositories, certain companies failed to update records as per the Circular.
SEBI vide its circular dated 1st August, 2019 introduced the penal actions w.e.f 5th June 2019 as follows:
- Freeze all the securities of the promoters & Directors and shall not affect pledge, sell, transfer in any manner
- Freeze all corporate benefits like Dividend, Bonus, etc.
The above shall remain freeze till the compliance of circular dated 5th June 2015.
However, any securities remains unaffected by the penal actions in case of abeyance of any legal proceedings.
The list of the companies to be published on 5th June 2019.
The foremost duty to comply with the aforementioned guidelines lies on Directors and Compliance Officer of the company, however, SEBI intent to penalize the promoters by freezing their accounts for trading of particular company shares under non-compliance of update of DN. SEBI may take further penal actions including suspension of trading which may again cause loss to the common investors.
Hence, it is highly recommended to the investors to not to hold the securities of non-compliant entities.
Author Bio
How does a shareholder (non-promoter) of listed companies know that the companies have not complied with the SEBI requirements?
Where does one find the list of such non-compliant companies?
What steps should a non-promoter shareholder in a non-compliant company take to safe-guard his shareholding from becoming illiquid?
I request the author to comment on these queries. Thanks.