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Abhijit Rane (Querist)
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06 November 2012
what is the minimum public holding in listed company?

what is the effect if the required shares during issue is not purchased by the public?

how can company rectify the shareholding if it is less than the required public holding in the company.?

Regards,

Abhijit

Ajay Mishra

Ajay Mishra (Expert)
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06 November 2012 Hi

The Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957 deal with the maintaining minimum public shareholding of 25%. The Ministry of Finance has notified the Securities Contracts (Regulation) (Amendment) Rules, 2010 on June 04, 2010 by which a new Rule 19A has been inserted which says that every Listed company other than public sector company shall maintain public shareholding of at least 25%. To raise the public shareholding to the required level a new clause 40A has been included in Equity Listing Agreement.

Abhijit Rane

Abhijit Rane (Querist)
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06 November 2012 Thanks Ajay,

here in our case the promoters hold 90% of the paid up. we want to issue more shares and dilute the shareholding of the promoters. so that the public holding is minimum 25%. what is the other option if the required shares offred to public are not purchased by them?

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Ajay Mishra

Ajay Mishra (Expert)
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06 November 2012 Hi

To raise the public shareholding to the required level a new clause 40A has been included in Equity Listing Agreement. Under this clause the Securities and Exchange Board of India (the SEBI) has prescribed the different method which promoter/promoters can use to raise the public shareholding, out of these methods, one is sale of shares held by promoters through the secondary market. This article tries to give basic awareness on sale of shares by promoter through stock exchanges.

RULES AND REGULATIONS
There are following Act, Rules and Regulations deal with sale of shares held by promoters through the secondary market:
(i) Section 11 (1) of Securities and Exchange Board of India Act, 1992.
(ii) Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957
(iii) Clause 40A of Equity Listing Agreement
(iv) Circulars issued by the Securities and Exchange Board of India on time to time.

Section 11 (1) of the Securities and Exchange Board of India Act, 1992

Section 11(1) of the Securities and Exchange Board of India Act, 1992 deal with duty of the Board to protect the interest of investor in securities and to promote the development of and to regulate the securities market.

Rule 19(2) of the Securities Contracts (Regulation) Rules, 1957

The main point of Rule (19(2) of the Securities Contracts (Regulation) Rules, 1957 are given below:
- At least 25% of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allot to public in terms of an offer document;
- At least 10% of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allot to public in terms of an offer document if the post issue capital of the company calculated at offer price is more than Rs. 4000 crores;
- A company may increase its public shareholding by less than 5% in a year if such increase brings its public shareholding to the level of 25% in that year.

Rule 19A of the Securities Contracts (Regulation) Rules, 1957
(1) Every listed company (other than public sector company) shall maintain public shareholding of at least twenty five per cent.
Provided that any listed company which has public shareholding below twenty five per cent. on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, shall increase its public shareholding to at least twenty five per cent, with in a period of three years from the date of such commencement, in the manner specified by the Securities and Exchange Board of India.
Explanation: For the purpose of this sub rule, a company whose securities has been listed pursuant to an offer and allotment made to the public in terms of sub-clause (ii) of clause (b) of sub-rule (2) of rule 19, shall maintain minimum 25%, public shareholding from the date on which the public shareholding in the company reaches the level of 25% in terms of said sub clause.
Provided further that the company may increase its public shareholding by less than five per cent. in a year if such increase brings its public shareholding to the level of twenty five per cent. in that year.
(2) Where the public shareholding in a listed company falls below twenty five per cent. at any time, such company shall bring the public shareholding to twenty five per cent. within a maximum period of twelve months from the date of such fall in the manner specified by the Securities and Exchange Board of India.
Clause 40A of Listing Agreement – Minimum Level of Public Shareholding
(i) The issuer company agrees to comply with the requirements specified in Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957.
(ii) Where the issuer company is required to achieve the minimum level of public shareholding specified in Rule 19(2)(b) and/or Rule 19A of the Securities Contracts (Regulation) Rules, 1957, it shall adopt any of the following methods to raise the public shareholding to the required level:-
(a) issuance of shares to public through prospectus; or
(b) offer for sale of shares held by promoters to public through prospectus; or
(c) sale of shares held by promoters through the secondary market in terms of SEBI circular CIR/MRD/DP/18/2012 dated July 18, 2012; or
(d) Institutional Placement Programme (IPP) in terms of Chapter VIIIA of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,