LAW NOTE: PROCEDURE FOR DELISTING OF SHARES

LISTING OF SECURITIES 

Listing means formal admission of a security into a public trading system, usually referred as stock exchanges. The evidence of such formalities can be found in the listing agreements between the issuer of securities and that of the concerned stock exchange.

It provides liquidity to the issuer of security and ensures effective monitoring of conduct of issuer. It also provides marketability option for those holding the securities. The issuer who wishes to list securities has to fulfil some of the listing requirements prescribed in the relevant statues and in the listing regulations of the concerned stock exchange.

DELISTING OF SECURITIES

It is the reverse procedure of listing. It means to permanently delist the securities of a listed company from a stock exchange. After the delisting process, the securities of that particular company will no longer be traded on that particular Stock Exchange. It is also known as ‘Reverse Book-building process.’

The Delisting of securities have over gone several changes in last two decades.

  • SEBI Delisting Guidelines, 1998
  • SEBI Delisting Guidelines, 2003
  • SEBI (Delisting of Equity Shares), 2009.

Needs for delisting of securities[1]

  • Regulatory Demands.
  • Lack of trading volume in regional exchanges.
  • Administrating and cost of servicing large shareholder base.
  • Relinquishing control through sale.

TYPES OF DELISTING– The process of delisting can be categorized into two parts based upon its nature.

VOLUNTARY DELISTING– In voluntary delisting, the company or its promoters or any other persons other than stock exchange can choose to remove its securities from the stock exchange. SEBI Guidelines has prescribed its mode, procedure & manner to be adopted by the company. The final exit price is to be paid to the shareholder. It is obligatory for the promoter(s) of a Company who desires to delist from the exchange to offer an exit price to the shareholders before delisting of securities. Such price is to be determined through the ‘reverse book building’ procedure.[2]

Causes of Voluntary Delisting[3]

  • Negligible trading or total absence of trading for a considerable long period of time.
  • listing fees payable to the stock exchanges burdensome and disproportionate to the benefits accruing to the company
  • Company has either suspended its business or is under closure or has become sick industrial company.
  • Regional imbalance of the holders of the securities either due to shifting of the companies registered office and / or location of manufacturing unit, or for any other reason.
  • Small capital base or failure to comply with the requirement of increasing the capital.

COMPULSORY DELISTING It can be initiated by the stock exchanges by the companies with terms of Listing Agreement only for default whereby the trading has been suspended for more than six months or as per the norms laid down in the SEBI Guidelines. Where the securities of the company are delisted by an exchange, the promoters of the company are legally responsible to compensate the security-holders of the company by paying them the fair value of the securities held by them and acquiring their securities, subject to their option to remain security holder with the Company.[4]

Causes of Compulsory Delisting[5]

  • Non-payment of listing fees.
  • Non-compliance with listing requirements and listing agreement.
  • Non redressal of investor’s complaints despite repeated reminders.
  • Unfair trading practices at the behest of the promoters/ management
  • Other malpractice such as fake, original or duplicate share certificates deliberately issued by the management.
  • Whereabouts of the Company / or its Promoters / Directors not known.
  • Reduction in the number of public holders of securities

[1] http://taxguru.in/sebi/procedure-for-delisting-of-securities.html (Last visited: 30-03-2016)

[2] www.singhania.com/listing-and-delisting-of-companies.php (Last visited: 29-03-2016)

[3] http://taxguru.in/sebi/procedure-for-delisting-of-securities.html (Last visited: 29-03-2016)

[4] www.singhania.com/listing-and-delisting-of-companies.php (Last visited: 29-03-2016)

[5] http://taxguru.in/sebi/procedure-for-delisting-of-securities.html (Last visited: 29-03-2016)

Suraj Pattnaik, 5th Year, BBA LLB(Hons.), School of Law, KIIT University

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