Delisting of BSE and NSE companies in India

The Securities and Exchange Board of India (SEBI) has informed that Section 21A of the Securities Contracts (Regulation) Act, 1956 read with rule 21 of the Securities Contracts (Regulation) Rules, 1957 and Chapter V of the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 (‘Delisting Regulations’) grants powers to the recognised stock exchanges to compulsorily delist the equity shares of listed companies on any of the grounds prescribed therein including those companies whose trading has remained suspended for more than six months.

The equity shares of 1021 companies on the Bombay Stock Exchange (BSE) and 132 companies on the National Stock Exchange (NSE) have been suspended from trading for a period of more than seven years.

Based on the abovementioned provisions, the exchanges have initiated the process of delisting those companies which have been under suspension for a long duration and hence, have not been compliant with the listing requirements. Accordingly, a public notice dated 25th August, 2016 was issued by BSE communicating the delisting of 194 companies with effect from 17th August, 2016. Further, NSE issued a public notice dated 14th August, 2016 communicating the delisting of 14 companies with effect from 31st August, 2016. Subsequently, NSE issued public notices dated 27th August, 2016 and 5th November, 2016 respectively regarding the delisting of 20 companies with effect from 12th September, 2016 and 14 companies with effect from 22nd November, 2016.

SEBI has informed that the rights of public shareholders in case of compulsory delisting have been specified under Regulation 23 of the Delisting Regulations. It states that the promoters of the compulsorily delisted company shall acquire shares from the public shareholders by paying them the fair value determined by the independent valuer, subject to their option of retaining their shares. In addition, in order to ensure effective enforcement of exit option to the public shareholders SEBI vide Circular dated 7th September, 2016 directed that in case of such companies whose fair value is positive, the said company and the Depositories shall not effect transfer, by way of sale, pledge, etc., of any of the equity shares. Further, corporate benefits such as dividend, rights, bonus shares, split, etc. shall be frozen for all the equity shares held by the promoters/ promoter group till the promoters of such company provide an exit option to the public shareholders in compliance with the Delisting Regulations, as certified by the concerned recognized stock exchange. The promoters and whole-time directors of the compulsorily delisted company shall also not be eligible to become directors of any listed company till the exit option as stated above is provided.