Regulation 31A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 governs Reclassification from “promoter/promoter group” to “public” in a listed company. Promoter or Any person related to promoter can request for reclassification subject to various conditions.
Eligibility of Promoter:
The promoter(s) seeking re-classification and persons related to the promoter(s) seeking re-classification:
shall not together, hold more than ten percent of the total voting rights in the listed entity;
“together” includes promoter and persons who fall under sub-clauses (ii), (iii) and (iv) of clause (pp) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 i.e.
“promoter group” includes:
i) the promoter;
ii) an immediate relative of the promoter (i.e. any spouse of that person, or any parent, brother, sister or child of the person or of the spouse); and
iii) in case promoter is a body corporate:
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- a subsidiary or holding company of such body corporate;
- any body corporate in which the promoter holds twenty per cent. or more of the equity share capital; and/or any body corporate which holds twenty per cent. or more of the equity share capital of the promoter
iv) in case the promoter is an individual:
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- any body corporate in which twenty per or more of the equity share capital is held by the promoter or an immediate relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of their relative is a member;
- any body corporate in which a body corporate as provided in (A) above holds twenty per cent. or more, of the equity share capital; and
- any Hindu Undivided Family or firm in which the aggregate share of the promoter and their relatives is equal to or more than twenty per cent. of the total capital;
v) all persons whose shareholding is aggregated under the heading “shareholding of the promoter group”
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- shall not exercise control over the affairs of the listed entity directly or indirectly;
- shall not have any special rights with respect to the listed entity through formal or informal arrangements including through any shareholder agreements;
- shall not be represented on the board of directors (including not having a nominee director) of the listed entity;
- Shall not act as a key managerial person personnel in the listed entity;
- Shall not be a ‘wilful defaulter’ as per the Reserve Bank of India Guidelines;
- Shall not be a fugitive economic offender.
Eligibility of Company:
The listed entity shall:
- be compliant with the requirement for minimum public shareholding as required under regulation 38 of these regulations;
- not have trading in its shares suspended by the stock exchanges;
- not have any outstanding dues to the Board, the stock exchanges or the depositories.
Process of Reclassification:
| Sr. No. | Particulars | Key Points | Timeline | Exchange filing if any |
| 1 | Request for reclassification | 1) the promoter(s) seeking reclassification shall make a request for reclassification to the listed entity along with a rationale for the request and a description as to how the conditions specified in eligibility clause as mentioned above are satisfied;
“Rationale” includes how he/she do not have control over the company, why he should not be considered as promoter along with his/her confirmation that he satisfy all the eligibility criteria |
As initiated | Within 24 hours of receipt of such request |
| 2 | Review of the request by Board | the board of directors of the listed entity shall analyze such request which is compliant with the conditions specified in eligibility clause as mentioned above and provide their views | in the immediate next board meeting or within two months from the date of receipt of the request from its promoter(s), whichever is earlier | If not done in Board meeting: Within 24 hours of receipt of such request
In case of board meeting: within 30 minutes of closure of the meeting |
| 3 | Application to Stock Exchange | the listed entity shall submit an application seeking no-objection of the recognized stock exchange for such reclassification request along with the views of the board of directors | within five days of consideration of the request by the board of directors | Immediately but not later than 24 hours of submission of application |
| 4 | No objection from Stock exchange | the recognized stock exchange shall decide on such application/s | within a period of thirty days, excluding the time taken, if any, by the listed entity to respond to queries of stock exchanges | Immediately but not later than 24 hours of receipt of No objection or Rejection
(no disclosure required on every queries) |
| 5 | Assessment of shareholders’ approval requirement | Shareholder’s approval is not required in following cases:
|
– | – |
| 6 | Shareholder’s Approval | In all the cases except as mentioned above, the listed entity shall place the reclassification request before the shareholders in a general meeting for approval, along with the views of the board of directors on the request and the no-objection letter received from the recognized stock exchanges by an ordinary resolution in which the promoter(s) seeking reclassification and the persons related to him/her/it shall not vote to approve such reclassification request | within sixty days of receipt of no-objection letter from the recognized stock exchange | within two working days of conclusion of its General Meeting |
| 7 | In case of change in facts | the listed entity shall seek approval of the recognized stock exchange for effecting reclassification if there are changes in the facts and circumstances of the case after receipt of no-objection from the recognized stock exchanges | Immediately | Immediately |
Conditions to be followed post reclassification:
The promoter(s) seeking re-classification, subsequent to re-classification as public, shall comply with the following conditions:
- he/she shall continue to comply with conditions mentioned at sub-clauses 1), 2) & 3) of “eligibility of promoter” as specified above at all times from the date of such reclassification failing which, he/she shall automatically be reclassified as promoter/ persons belonging to promoter group, as applicable;
- he/she shall comply with conditions mentioned at sub-clauses 4) and 5) of “eligibility of promoter” as specified above for a period of not less than three years from the date of such re-classification failing which, he/she shall automatically be reclassified as promoter/ persons belonging to promoter group, as applicable.
Exemptions for such application for reclassification:
If reclassification of promoter(s) is as per the resolution plan approved under section 31 of the Insolvency Code or pursuant to an order of a Regulator under any law subject to the condition that –
- such promoter(s) shall not remain in control of the listed entity;
- disclosure of the resolution plan or order of the Regulator within twenty-four hours along with an intimation that such promoter(s) would cease to be part of the promoter / promoter group of the listed entity.
Text of Resolutions that can be used:
Format of Board Resolution
The Company had received a request letter dated ___________, from Mr. A seeking reclassification of his/her status from “Promoter” to “Public” shareholder category. The Company had duly intimated the Stock Exchange regarding the said request.
The Board was requested to consider the said request and, if found appropriate, approve the reclassification in accordance with the provisions of Regulation 31A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and authorize filing of the necessary application with the Stock Exchange.
Further, the board was informed that since the shareholding of Mr. A is less than 1% of the paid-up share capital of the Company, approval of shareholders is not required for the proposed reclassification.(Mention only if applicable)
The Board reviewed the request of Mr. A and noted that the promoter is no longer involved in management, has no control or special rights, and meets all conditions under Regulation 31A. Accordingly, the Board approved the reclassification and passed the following resolution:
“RESOLVED THAT pursuant to Regulation 31A and other applicable provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the request received from Mr. A, holding _____ equity shares (less than 1% of the total paid-up share capital-mention only if shareholder approval not required) of the Company, for reclassification of his/her status from Promoter / Promoter Group to Public category be and is hereby approved, subject to the approval of the Stock Exchanges where the equity shares of the Company are listed and subject to the approval of shareholders upon approval from stock exchange (mention only if shareholder approval required).”
RESOLVED FURTHER THAT Mr. A has confirmed that all the conditions specified in sub clause (i) to (vii) of clause (b) of sub-regulation (3) of Regulation 31A of SEBI (LODR) Regulations, 2015 have been complied with and also confirmed that at all times from the date of such reclassification, shall continue to comply with conditions mentioned in Regulation 31A of SEBI (LODR) Regulations, 2015 post reclassification from “Promoter Group” to “Public”.
RESOLVED FURTHER THAT any one director or Key managerial personnel of the Company be and is hereby authorized to make necessary applications to the Stock Exchanges (BSE Limited and NSE Limited-as per the applicability), submit the documents and information as may be required, and to do all such acts, deeds, and things as may be necessary to give effect to this resolution.
Format of shareholders resolution (Ordinary)
“RESOLVED THAT pursuant to the provisions of Regulation 31A of SEBI (LODR) Regulations, 2015 and subject to approval of other statutory authorities, as may be required from time to time (including any statutory modification(s) or re-enactment thereof, for the time being in force) and No-Objection Certificate (NOC) received from Bombay Stock Exchange (BSE) and National Stock exchange (NSE) the (“designated stock exchanges”) (As per applicability) dated _____________, consent of the members be and is hereby accorded to reclassify Mr. A holding ___________ equity shares (___% of the total shareholding of the Company) from “Promoter Group” category to “Public” category.
RESOLVED FURTHER THAT Mr. A has confirmed that all the conditions specified in sub clause (i) to (vii) of clause (b) of sub-regulation (3) of Regulation 31A of SEBI (LODR) Regulations, 2015 have been complied with and also confirmed that at all times from the date of such reclassification, shall continue to comply with conditions mentioned in Regulation 31A of SEBI (LODR) Regulations, 2015 post reclassification from “Promoter Group” to “Public”.
RESOLVED FURTHER THAT any one director or Key managerial personnel of the Company be and is hereby authorized to make necessary applications to the Stock Exchanges (BSE Limited and NSE Limited-as per the applicability), submit the documents and information as may be required, and to do all such acts, deeds, and things as may be necessary to give effect to this resolution.
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Checklist for Reclassification:
https://www.bseindia.com/downloads1/Reclassification_of_Promoter_Checklist.pdf
https://www.nseindia.com/static/companies-listing/compliance-information-checklist
**This document is for educational purposes only and does not constitute legal advice.
Author : CS Nehal Rathore , Co Partner at M/s Ronak Jhuthawat & Co, Practicing Company secretary Call: +91 98874 22212 | Email: compliancerjac@gmail.com
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