Delisting of securities

DELISTING OF SECURITIES:

| DHIRAJ A. RAMCHANDANI |

elisting denotes removal of the listing of the securities of a listed company from the Stock Exchange. Delisting differs from suspension or withdrawal of admission to dealing of listed securities, which is for a limited period.

Broadly, delisting of securities may be of two types: -

• Voluntary delisting: In case of voluntary delisting, a listed company seeks of its own volition for the delisting of its securities.
• Compulsory delisting:  In case of compulsory delisting, the stock exchange itself delists the securities of such company.

Causes of Delisting :

For compulsory delisting, the major causes may be: -

• Non-payment of listing fees.
• Non-compliance with listing requirements.
• Non-compliance with the provisions of the listing agreement.
• Absence of trading or negligible trading.
• Non-redressal of investors’ complaints despite repeated reminders.
• Unfair trading practices at the behest of the promoters / management.
• Other malpractices 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.

For voluntary delisting, the major causes may be: -

• A listed company finds the listing fees payable to the Stock Exchange burdensome and disproportionate to the benefits accruing to the company and / or its security holders.
• The number of public shareholders of the listed securities is reduced to so low a level (due to private placement issue or otherwise) that it does not justify the securities to continue to be listed.
• 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.
• Negligible trading or total absence of trading for a considerable long period of time.
• The company has either suspended its business or is under closure or has become sick industrial company.
• Small capital base or failure to comply with the requirement of increasing the capital, not justifying listing to be continued.
• Mergers, amalgamations, takeovers, etc.

PROCEDURE FOR VOLUNTARY DELISTING FROM ALL STOCK EXCHANGES:

• Any promoter or acquirer desirous of delisting securities of the company under the provisions of Delisting Guidelines, 2003 shall obtain the prior approval of shareholders of the company by a special resolution passed at its general meeting.
• The promoter shall appoint a merchant banker registered with SEBI, who is not an associate of the promoter.  Term ‘associate’ as defined by way of explanation to Regulation 2 (1) (e) of Takeover Regulation to means (a) any relative of that person within the meaning of section 6 of the Companies Act, 1956; and (b) family trust and Hindu Undivided Families.
• Any promoter of a company, who desires to delist the securities from the stock exchange, shall determine an exit price for the securities in accordance with the book building process described in Schedule II to Delisting Guidelines, 2003.
• The offer price shall have a floor price, which will be the average of 26 weeks traded price quoted on the stock exchange where the shares of the company are most frequently traded during preceding 26 weeks from the date of public announcement and without any ceiling of maximum price.
• The promoters or the acquirers of the company shall make a public announcement, in news papers containing, inter alia, information specified in Schedule I to the Delisting Guidelines, 2003 (Clause 7.1 & 7.2). Delisting Guidelines, 2003 are silent on the area of circulation & the language of newspapers. As a good Corporate Practice, it is suggested that public announcement shall be made in a English newspaper having national circulation and in a local language newspaper having circulation in the area where registered office of the company is situated.
• If the quantity eligible for acquiring securities at the final price offered does not result in public shareholding falling below required level of public shareholding for continuous listing, the company shall remain listed.
• The paid-up share capital shall not be extinguished as in the case of buyback of securities.
• On determination of the final price pursuant to the book building, the promoter or acquirer shall within a period of two working days from such determination: (a) make a public announcement in the newspapers of the final price as discovered by the book building process and whether or not the promoter or acquirer has accepted the price; and, (b) communicate to, exchange or exchanges from which delisting is sought to be made, the final price discovered and whether the promoter has accepted the price.
• As a good Corporate Practice it is suggested that public announcement for final price shall be made in the same newspapers, in which public announcement was earlier made for Delisting of securities.
• Where the promoter decides not to accept the offer price so determined :-

Ø            He shall not make any application to the exchange for delisting of the securities; and

Ø            The promoter shall ensure that the public shareholding is brought up to the minimum limits specified under the listing conditions within a period of 6 months from the date of such decision, by any of the modes specified below.

Ø            The public shareholding may be increased by:

a.            Issue of new shares by the company in compliance with the provisions of the Companies Act, 1956 and the SEBI (DIP) Guidelines, 2000;

b.           The promoter making an offer for sale of his holdings in    compliance with the provisions of the Companies Act, 1956  and SEBI (DIP) Guidelines, 2000;

c.            The promoter-making sale of his holdings through secondary market in a transparent manner.

Ø            In the event of the promoter not being able to raise the public shareholding in accordance with (iii) above, within six months, he shall offer for sale to public such portion of his holdings as would be increase the public shareholding to the minimum limit specified in the Listing Agreement or the listing conditions at the price determined by Central Listing Authority.

Ø            Make an application to the stock exchange (delisting exchange) from where it is proposed to delist shares. Such an application shall be in the form specified by the exchange, annexing therewith a copy of special resolution passed at general meeting.

Ø            Comply with such other additional conditions as may be specified by the concerned stock exchanges from where securities are to be delisted.

Ø            In the event of securities being delisted, the acquirer shall allow a further period of 6 months for any of the remaining shareholders to tender securities at the same price.

Notes: -

R                        Where the offer for delisting results in acceptance of a fewer number of shares than the total shares outstanding and as a consequence the public shareholding does not fall below the minimum limit specified by the listing conditions or the listing agreement, the offer shall be considered to have failed and no securities shall be acquired pursuant to such offer.

R                        The stock exchange(s) shall provide the infrastructure facility for display of the price at the terminals of the trading members to enable the investors to access the price on the screen to bring transparency to the delisting process. The stock exchanges shall monitor the possibility of price manipulation and keep under special watch the securities for which announcement for delisting has been made.

R                        To ascertain the genuineness of physical securities if tendered and to avoid bad delivery, Registrar and Share Transfer Agent shall co-operate with the Clearing House / Clearing Corporation to determine the quality of the papers upfront.

R                        As a good corporate governance practice, entire procedure of voluntary delisting should be completed within 1 year of passing of special resolution. Also, the price at which right issue is made should not be taken into account while determining the floor price.