SEBI Guidelines

In these Guidelines, unless the context otherwise requires:

• "Act" means the Securities and Exchange Board of India Act, 1992.
• "Authority" means the Central Listing Authority established under the SEBI (Central Listing Authority) Regulations, 2003.
• "Board" means the Securities and Exchange Board of India established under section 3 of the Act.
• "Compulsory delisting" means delisting of the securities of a company by an exchange.
• "Delisting exchange" means the exchange from which the securities of the company are proposed to be delisted in accordance with these Guidelines.
• "Exchange" means any stock exchange granted recognition under section 4 of the Securities Contracts (Regulation) Act, 1956.
• "Promoter" means a promoter as defined in clause (h) of sub-regulation (1) of Regulation 2 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, and includes a person desirous of getting the securities of the company delisted under these Guidelines.
• "Public shareholding" means shareholding in a company held by persons other than the promoter, the acquirer, or persons acting in concert with him as defined in regulation 2(1)(j) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
• "Schedule" means a schedule appended to these Guidelines.
• "Voluntary delisting" means delisting of securities of a body corporate voluntarily by a promoter, an acquirer, or any person other than the stock exchange.

Words and expressions not defined in these Guidelines shall have the same meaning assigned to them under the Act, the Securities Contracts (Regulation) Act, 1956, or the Companies Act, 1956, or any statutory modification or re-enactment thereof, as the case may be.

These guidelines shall apply to the delisting of securities of companies, and specifically to:

• Voluntary delisting sought by the promoters of a company.
• Any acquisition of shares of the company, or scheme or arrangement, consequent to which the public shareholding falls below the minimum limit specified in the listing conditions or listing agreement that may result in delisting of securities.
• Promoters of companies who voluntarily seek to delist their securities from all or some of the stock exchanges.
• Cases where a person in control of the management seeks to consolidate holdings in a manner that would result in public shareholding falling below the specified limit.
• Companies that may be compulsorily delisted by the stock exchanges.

Provided that the company shall not be permitted to use the buy-back provision to delist its securities.

A company may delist from the stock exchange where its securities are listed, provided that the securities have been listed for a minimum period of three years on any stock exchange.

Provided further that an exit opportunity has been given to investors, for which an exit price shall be determined in accordance with the book building process described in clauses 7 to 10, 13 and 14 of these guidelines.

An exit opportunity need not be given where securities continue to be listed on a stock exchange having nationwide trading terminals. For these purposes, a stock exchange having nationwide trading terminals means the Stock Exchange, Mumbai, the National Stock Exchange, and any other stock exchange specified by the Board.

Any promoter or acquirer desirous of delisting securities under these guidelines shall:

• Obtain the prior approval of shareholders by a special resolution passed at a general meeting.
• Make a public announcement in the manner provided in these Guidelines.
• Make an application to the delisting exchange in the specified form, annexing a copy of the special resolution.
• Comply with such additional conditions as may be specified by the stock exchanges from which securities are to be delisted.

Before making an application for delisting, the promoters or acquirers of the company shall make a public announcement.

The public announcement shall contain, inter alia, the information specified in Schedule I.

Before making the public announcement, the promoter shall appoint a merchant banker registered with the Board who is not an associate of the promoter.

Any promoter of a company that desires to delist shall determine an exit price in accordance with the book building process described in Schedule II.

The offer price shall have a floor price, being the average of 26 weeks' traded price quoted on the stock exchange where the shares are most frequently traded, preceding 26 weeks from the date of the public announcement, and without any ceiling of maximum price.

In the case of infrequently traded securities, the offer price shall be as per regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations, and infrequently traded securities shall be determined in the manner explained under that regulation.

• The stock exchanges shall provide infrastructure for displaying the price at trading member terminals, so investors can access the price on screen and bring transparency to the delisting process.
• In the event of securities being delisted, the acquirer shall allow a further period of six months for remaining shareholders to tender securities at the same price.
• The stock exchanges shall monitor the possibility of price manipulation and keep securities under special watch once a delisting announcement has been made.
• To ascertain the genuineness of physical securities tendered and avoid bad delivery, the Registrar and Transfer Agent shall co-operate with the Clearing House or Clearing Corporation to determine the quality of papers upfront.
• If the quantity eligible for acquisition at the final price does not result in public shareholding falling below the required level for continuous listing, the company shall remain listed.
• The paid-up share capital shall not be extinguished as in the case of buy-back of securities.
• In the case of partly paid-up securities, the price determined by the book building process shall apply to the extent the call has been made and paid.
• The amount of consideration for tendered and accepted securities shall be settled in cash.

The promoter may not accept the securities at the offer price determined by the book building process.

Where the promoter decides not to accept the offer price so determined, he shall not make an application to the exchange for delisting, and shall ensure that public shareholding is brought up to the minimum limits specified under the listing conditions within six months of that decision.

For these purposes, public shareholding may be increased by:

• Issue of new shares by the company in compliance with the Companies Act, 1956 and the SEBI (Disclosure and Investor Protection) Guidelines, 2000.
• The promoter making an offer for sale of his holdings in compliance with the same.
• The promoter selling his holdings through the secondary market in a transparent manner.

If the promoter is unable to raise public shareholding within six months, he shall offer for sale to the public such portion of his holdings as would bring public shareholding to the minimum specified level, at the price determined by the Central Listing Authority.

On determination of the final price pursuant to book building, the promoter or acquirer shall, within two working days:

• Make a public announcement in the newspapers of the final price discovered, and whether or not the promoter or acquirer has accepted it.
• Communicate to the exchange or exchanges from which delisting is sought the final price discovered, and whether the promoter has accepted it.

Where a company listed on any stock exchange other than one having nationwide trading terminals seeks delisting, an exit offer shall be made to shareholders in accordance with these guidelines.

There shall be no compulsion for an existing company to remain listed on any stock exchange merely because it is a regional stock exchange.

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

The payment of consideration for delisting of securities shall be paid in cash by the promoter or acquirer.

A company may delist one or all of its classes of securities subject to the provisions of this clause.

• If the equity shares of a company are delisted, the fixed income securities may continue to remain listed on the stock exchange.
• A company that has a convertible instrument outstanding shall not be permitted to delist its equity shares until the exercise of the conversion options.

• The stock exchanges may delist companies that have been suspended for a minimum period of six months for non-compliance with the Listing Agreement.
• The stock exchanges may also delist companies as per the norms provided in Schedule III.
• The stock exchange shall give adequate and wide public notice through newspapers, including one English national daily of wide circulation, and through display on the notice board, website, or trading systems of the exchange.
• The stock exchange shall give a show-cause notice to a company, or adopt the procedure provided under Part B of Schedule III.
• The exchange shall provide a period of 15 days within which representation may be made by any person aggrieved by the proposed delisting.
• The stock exchange may, after consideration of representations received, delist the securities of such companies.
• Where the stock exchange delists the securities of a company, it shall ensure adequate and wide public notice of the delisting through newspapers and on the notice boards or trading systems of the exchange, and shall disclose in all such notices the fair value of such securities determined in accordance with the Explanation to clause 16.1.
• The stock exchange shall display the name of such a company on its website.

Where the securities of the company are delisted by an exchange, the promoter of the company shall be liable to compensate the security-holders by paying them the fair value of the securities held by them and acquiring their securities, subject to their option to remain security-holders with the company.

Explanation: for the purposes of this sub-clause, the fair value of securities shall be determined by persons appointed by the stock exchange out of a panel of experts selected by the stock exchange, having regard to the factors mentioned in regulation 20 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

In the case of a rights issue, allotment to promoters or persons in control of the management shall be allowed even if they subscribe to the unsubscribed portion, which may result in public shareholding falling below the permissible minimum level.

Provided that adequate disclosures have been made in the offer document to that effect, and further that they agree to buy out the remaining holders at the rights issue price, or make an offer for sale to bring public shareholding to the level specified in the listing conditions or listing agreement.

Where a rights issue is not fully subscribed, which may result in public shareholding falling below the permissible minimum, the promoters shall be required to delist by providing an exit opportunity in the manner specified above, or make an offer for sale of their holdings so that public shareholding is raised to the minimum level within three months.

Reinstatement of delisted securities should be permitted by the stock exchanges with a cooling period of two years. Relisting should be allowed only after two years of delisting, based on the respective norms and criteria for listing at the time of application, and the application will initially be scrutinised by the Central Listing Authority.

See Guideline 7.2. The public announcement shall contain:

• The floor price and how it was reached.
• The dates of opening and closing of the bidding.
• The name of the exchange or exchanges from which the securities are sought to be delisted.
• The names and addresses of the trading members, bidding terminals, and centres through which bids can be placed.
• A description of the methodology to be adopted for determination of the acceptable price.
• The period for which the offer shall be valid.
• The necessity and object of the delisting.
• A full and complete disclosure of all material facts.
• The proposed timetable from opening of the offer until settlement of transfers.
• Details of the escrow account and the amount deposited therein.
• Listing details and stock market data — high, low, and average market prices during the preceding three years; monthly high and low prices for the six months preceding the announcement; and the volume of securities traded in each of those six months.
• Present capital structure and shareholding pattern.
• The likely post-delisting capital structure.
• The aggregate shareholding of the promoter group, of the directors of the promoters where the promoter is a company, and of persons in control of the company.
• The name of the compliance officer of the company.
• Signature and date of the promoter.

See Guideline 8.1.

• The book building process shall be conducted through an electronically linked transparent facility.
• The number of bidding centres shall not be fewer than thirty, including all stock exchange centres, with at least one electronically linked computer terminal at each.
• The promoter shall deposit in an escrow account 100 per cent of the estimated consideration, calculated on the basis of the floor price and the number of securities to be acquired. Clause 10 of the SEBI (Buyback of Securities) Regulations, 1998 shall apply mutatis mutandis to such escrow account.
• The offer to buy shall remain open to security holders for a minimum of three days. Security holders may revise their bids before the close of bidding.
• The promoter or acquirer shall appoint trading members for placing bids on the online electronic system.
• Investors may approach trading members for placing offers on the online electronic system. The format of the offer form and its required details shall be specified.
• Security holders wishing to avail the exit opportunity shall deposit the shares offered with the trading members prior to placement of orders, or mark a pledge to the trading member. Trading members may in turn place these securities as margin with the exchanges or clearing corporations.
• Offers placed in the system shall have an audit trail in the form of confirmations giving broker ID details with time stamp and unique order number.

The final offer price shall be determined as the price at which the maximum number of shares has been offered. The acquirer shall have the choice to accept the price. If accepted, the acquirer shall be required to accept all offers up to and including the final price, but may not have to accept higher-priced offers, subject to clause 15. An illustration follows:

• If the final price is accepted, the acquirer shall accept offers up to and including the final price — that is, 240 shares at the final price of ₹130.
• At the end of the book-build period, the merchant banker shall announce in the press and to the concerned exchanges the final price and whether or not the acquirer has accepted it.
• The acquirer shall make the requisite funds available with the exchange or clearing corporation on the final settlement day, three days from the end of the book-build period. Trading members shall correspondingly make the shares available. On the settlement day, funds and securities shall be paid out in a process akin to secondary market settlement.
• The entire exercise shall be available only for dematerialised shares. For holders of physical certificates, the acquirer shall keep the offer open for 15 days from the final settlement day for shareholders to lodge certificates with the custodians specified by the merchant banker.

1. Percentage of equity capital in public hands

The floating stock in the hands of public investors, considered with reference to:

• Existing paid-up equity capital
• Market lot
• Share price — very high, medium, or low
• Market capitalisation
• SEBI Takeover Regulations — Regulation 21(3)
• Clause 40A of the Listing Agreement

2. Minimum trading level

There should be some liquidity in every trading cycle and some volume of trading for price discovery in the market. The company should appoint market makers. Criteria of no-trading may be considered.

3. Financial and business aspects

• The company should generate reasonable revenue, income, or profits, and should be operational. It must demonstrate earning power through its financial results, profits, reserves, and dividend payout for the last two to three years.
• If there is hardly any public interest in the securities of the company, it is for consideration whether its listed company status needs to be retained.
• The company should have some tangible assets. It is for consideration what value of assets the company should own in order to continue to be listed.

4. Track record of compliance with the Listing Agreement

• Submission of audited and unaudited results, annual report, and other documents required to be furnished to the exchange
• Book closure and record date with due notice
• Payment of listing fee
• Service to investors, especially timely return of shares duly transferred, timely payment of dividend, and communication of price-sensitive information
• Failure to observe good accounting practices in reporting earnings and financial position
• Publishing half-yearly audited or unaudited results
• Frequent changes in accounting year, share transfer agent, registered office, or name

5. Promoter and director track record

Particularly with regard to insider trading, manipulation of share prices, and unfair market practices — for example, returning share transfer documents under objection on frivolous grounds with a view to creating a scarcity of floating stock in the market, causing unjust aberrations in share prices, auctions, or close-outs, depending on the trading position of directors or their firms.

6. Whereabouts unknown

Where the whereabouts of the company or its promoters and directors are not available, letters sent by the exchange return undelivered, and the company fails to remain in touch with the exchange.

7. Financial distress

Where the company has become sick and is unable to meet current debt obligations or adequately finance operations, has not paid interest on debentures for the last two to three years, has become defunct, has no employees, or has a liquidator appointed.

8. Decision

On the basis of the above norms and other relevant information about the company, its promoters and directors, projects, and litigation, a profile of the company should be prepared and a decision on delisting then taken by the exchange.

The decision on delisting should be taken by a panel constituted by the exchange, comprising:

• Two directors or officers of the exchange, one of whom is to be a public representative
• One representative of the investors
• One representative from the Central Government — Department of Company Affairs, Regional Director, or Registrar of Companies
• The Executive Director or Secretary of the exchange

• Due notice of delisting and intimation to the company, as well as to other stock exchanges where the company's securities are listed, is to be given.
• Notice of termination of the Listing Agreement is to be given.
• An appeal against an order of compulsory delisting may be made to SEBI.