The Securities Contracts (Regulation) Act, 1956, was amended in 2005 to lay out a path for the creation of a delisting framework. On 15 June the government of India notified the Delisting Rules, which deal with the substantive aspects of delisting, while on 10 June, the Securities and Exchange Board of India (SEBI) announced the SEBI (Delisting of Equity Shares) Regulations, 2009, that pertain to the procedural nuances of delisting.
Under the new delisting framework, for a voluntary delisting of equity shares by the promoters of a company to be successful, the process should result in the promoters acquiring either 90% of the entire shareholding (post all acceptance) or 50% of the delisting offer size, whichever is higher.
A new qualitative threshold has also been introduced, specifying that the shareholders’ agreement should be determined by a special resolution passed by at least 75% of the shares held in the company through postal ballot, provided that the public shareholder votes in favour are at least two times the votes against.
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Further changes reflect a move towards increased transparency and efficiency:
- The promoters or the company cannot now make a preferential allotment of shares resulting in a public float below 25% (or 10% for certain companies) of the total listed shares of the company in order to delist the company.
- The definition of “promoter” has been brought in line with that in the take-over regulations.
- Delisting of equity shares of a company from one or more stock exchanges in India – provided that the company continues to remain listed on either the National Stock Exchange or Bombay Stock Exchange – has been streamlined by doing away with the need for shareholders’ approval, and by imposing a maximum deadline of 30 working days on the stock exchange concerned, to provide the approval to delist.
- Voluntary delisting has now been made subject to a two-stage approval process from the concerned stock exchanges.
- The exit offer price to be made in the case of voluntary delisting has now been brought in line with the price calculated under the takeover regulations.
- The exit offer process has been made transparent, with the procedure for voluntary delisting outlined in greater detail.
- The right of remaining shareholders to tender equity shares (pursuant to a voluntary delisting process) post-delisting has been increased from six months to one year from the date of delisting.
- Simpler norms have been provided for the voluntary delisting of small companies (that is, companies having 300 or fewer shareholders and a paid-up value of less than Rs10 million), whereby the book-building process may be avoided if 90% of the public shareholders agree to the delisting proposal.
- The cooling-off period for a delisted company has been increased from two to five years in the case of voluntary delisting, and to 10 years in the case of compulsory delisting.
- Statutory grounds for compulsory delisting have been introduced, along with detailed delisting criteria that must be followed by stock exchanges when taking decisions on compulsory delisting.
While the new delisting framework introduces abundant measures to make the process more transparent and efficient, it remains to be seen how changes such as the tougher threshold for public shareholder approval and the higher success criterion for the entire delisting process, actually play out in practice. If they prove to be time-intensive or difficult to achieve, then it will largely frustrate the intent of the new framework.
Nevertheless, the regulator appears to be moving in a positive direction, and the new framework seems to achieve the important goal of balancing the protection of public shareholders with encouragement of promoters’ interest.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
