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Tighter Norms for Promoters of Compulsorily Delisted Companies

Finsec Law Advisors

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SEBI issued a circular dated September 07, 2016, imposing further restrictions on promoters and whole-time directors of compulsorily delisted companies, pending fulfilment of exit offers to the shareholders. A recognised stock exchange may compulsorily delist the equity shares of a listed company on certain grounds, as per the Securities Contracts (Regulation) Act, 1956, the Securities Contracts (Regulation) Rules, 1957 and the SEBI (Delisting of Equity Shares) Regulations, 2009.

Currently, the Delisting Regulations prohibits a company which has been compulsorily delisted, its whole-time directors, promoter s and the companies promoted by such persons, from accessing the securities markets for a period of ten years from the date of such delisting. Further, pursuant to such compulsory delisting, the promoter has to acquire delisted equity shares from the public shareholders, subject to them having the option to retain their equity shares, by paying them a fair value, as determined by an independent valuer appointed by the concerned stock exchange.

SEBI has now imposed certain additional restrictions to ensure effective enforcement of exit option to the public shareholders. As per the circular, in case of companies whose fair value is positive, the company and the depositories are required to not effect transfer (through sale, pledge, etc.), of any equity shares held by the promoters/ promoter group till such promoters provide an exit option to the public shareholders in accordance with the Delisting Regulations. Further, during this period corporate benefits such as dividend, rights, bonus shares, split, etc. shall be frozen, for all the equity shares, held by such promoters. Furthermore, the promoters and whole-time directors of the compulsorily delisted company shall also not be eligible to become directors of any listed company till such exit option has been provided. SEBI has issued this circular with a view to strengthen the regulatory framework in the interest of investors, however it would have significant implications for promoters of compulsorily delisted companies, since they will not be allowed to sell their shares or even take dividends till they provide an exit option to the shareholders.