final delisting

CHAPTER NO.

TITLE PAGE NO.

1 INTRODUCTION 02

2 LISTING FINANCE 05

3 REGULATIONS OF DELISTING 07

4 SCHEDULES 22

5 COMPARISON BETWEEN OLD & NEW REGULATIONS

26

6 HOW TO DELIST? 30

7 PROCESS 31

8 DELISTING OF SHARES 33

9 RELATED NEWS 48

10 LISTING AND DELISTING OF COMPANIES 51

11 QUESTION & ANSWERS 54

12 CONCLUSION 57

13 BIBILOGRAPHY 58

INDEX

K.E.S. SHROFF COLLEGE

CHAPTER-1

INTRODUCTION

History

Brief History: From Guidelines to Regulations:

In the earlier days, the public issues of shares and their pricing was looked after by the Controller of Capital Issues (CCI). Ever since the abolition of CCI in the year 1992, the same is being looked after by Securities and Exchange Board of India (SEBI).

The purpose of establishing SEBI and the SEBI Act, 1992 was to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.

Eversince then, it has been the continuous endeavour of SEBI for prescribe procedures, formulate strategies and formulate laws. In one of such attempts, SEBI in the year 2002 constituted a committee on delisting of shares to inter-alia examine and review the conditions for delisting of securities of companies listed on recognized stock exchanges and suggest norms and procedures in connection therewith. The Report of the Committee was considered and accepted by SEBI Board. Pursuant to the same, SEBI vide Circular SMD/Policy/CIR – 7/ 2003 dated February 17, 2003 issued the SEBI (Delisting of Securities) Guidelines, 2003.

The salient features of the said Guidelines were:

1. Public Shareholders to be given an exit option if the company or its promoters propose to delist its securities from all the stock exchanges on which they were listed. However, no exit opportunity was required to be given in case the company continues to remain listed at stock exchanges having Nationwide trading terminals.

2. Price discovery by Reverse Book Building process.3. Eligibility to participate in the book building process was available only to demat

shareholders.4. Option available to the promoters to accept or reject the price determined by the book

building process.5. The exit option to remain open for a period of 6 months after the closure of the offer.

The said Guidelines, although, to a great extent covered the issues involved in Delisting of Securities. However, there were certain areas over which hue and cry was made from various quarters. Various representations and views, from intermediaries, stock exchanges, shareholders’ associations, chambers of commerce etc were given to the Regulators on the operational issues and procedural complications in the guidelines. Based on such representations, it was proposed to look into and suggest changes in the guidelines.


In the month of April 2004, the initial changes proposing more systemic clarity were put up for public comments. Comments were received from various quarters and opinions were received on crucial provisions.

On the basis of the same, SEBI, in December 2006, circulated the Concept Paper on the proposed SEBI (Delisting of Securities) Regulations, 2006, asking for public comments on the proposed Regulations.

SEBI received various comments, opinions and suggestions on the subject. And finally, by its publication dated 10th June 2009 in the Official Gazette, SEBI notified the much awaited SECURITIES AND EXCHANGE BOARD OF INDIA (DELISTING OF EQUITY SHARES) REGULATIONS, 2009.

Meaning of Delisting

Delisting refers to the practice of moving in the stock of a company from a stock exchange so that investors can no longer trade shares of the stock on that exchange. This typically occurs when a company goes out of business, declares bankruptcy, no longer satisfies the listing rules of stock exchange, or has become a private company after a merger or acquisition, or wants to reduce regulatory reporting complexities and overhead, or if the stock volumes on the exchange from which it wishes to delist are not significant. Delisting does not necessarily mean a change in company's core strategy.[1] In the United States, securities which have been delisted from a major exchange for reasons other than going private or liquidating may be traded on over-the-counter markets like the OTC Bulletin Board or the Pink Sheets.

Definition of 'Delisting'

1. The removal of a listed security from the exchange on which it trades. Stock is removed from an exchange because the company for which the stock is issued, whether voluntarily or involuntarily, is not in compliance with the listing requirements of the exchange.

In order for a stock to be traded on an exchange, the company that issues the stock must meet the listing requirements set out by the exchange. Listing requirements include minimum share prices, certain financial ratios, minimum sales levels, and so on. If listing requirements are not met by a company, the exchange that lists the company's stock will probably issue a warning of non-compliance to the company. If the company's failure to meet listing requirements continues, the exchange may delist the company's stock.


Listing means admission of a Company’s securities to the trading platform of a Stock Exchange, so as to provide marketability and liquidity to the security holders.

LISTING = STOCK

EXCHANGES+ COMPANY

“Delisting” is totally the reverse of listing. To delist means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be tradeable at that stock exchange.

DELISTING = STOCK

EXCHANGES- COMPANY

"Delisting" i.e. the said removal from a Stock Exchange, may be Voluntary (i.e. at the will of the Company) or Compulsory (i.e. out of a penal action by the Stock Exchanges, for the reason of any violations/ lapses).


CHAPTER-2

LISTING FINANCE

In corporate finance, a listing refers to the company's shares being on the list (or board) of stock that are officially traded on a stock exchange. Normally the issuing company is the one that applies for a listing but in some countries the exchange can list a company, for instance because its stock is already being actively traded via informal channels. Initial listing requirements usually include a history of a few years of financial statements (not required for "alternative" markets targeting young firms); a sufficient size of the amount being placed among the general public (the free float), both in absolute terms and as a percentage of the total outstanding stock; an approved prospectus, usually including opinions from independent assessors, and so on. Stocks whose market value and/or turnover fall below critical levels can get officially delisted; delisting is often the result of a merger or takeover, or the firm going private.

New Delisting Regulation - Issues unresolved

The new Delisting Regulations have plugged in many of the unplugged areas of the Delisting Guidelines. But still, there are certain grey areas/ clauses which create a doubt and are not clear in their text. Some of these have been discussed here:

1. As per Sub cl 2 of Regulation 3, delisting made pursuant to a scheme sanctioned by BIFR or NCLT have been exempt from the Regulations. However, no clarification has been provided in regard to delisting pursuant to a Restructuring Scheme u/s 391/ 394 of the Companies Act.

2. As per Sub cl 4 of Regulation 4, promoters shall not employ the funds of the Company to finance an Exit Opportunity. Here the question that arises is that the funds of the Public Issue are received by the Company and not by the promoters, and not now if the Company is proposing to get delisted, the funds should also be paid by the Company, so why promoters?

3. As per Sub clause 4 of Regulation 8, the Exchanges while considering an application seeking in-principle approval for delisting, may require the Company to satisfy it as to:(d) the compliance with any condition of the listing agreement with that recognised stock exchange having a material bearing on the interests of its equity shareholders;

By reading the above provision, its not clear as to what conditions will have a material bearing on the interests of the shareholders. In fact, its suggested that SEBI should itself specify the particular conditions of Listing Agreement need to be complied with. Otherwise, the Companies will still be left to the whims and fancies of the respective exchanges.


4. As per Sub cl 4 of Regulation 8, the Exchanges while considering an application seeking in-principle approval for delisting, may require the Company to satisfy it as to:(e) any litigation or action pending against the company pertaining to its activities in the securities market or any other matter having a material bearing on the interests of its equityshareholders;

By reading the above provision, its not clear as to what kind of litigations/ actions are being talked about? Further, will the Exchanges wait for the clearance of the litigation or the pending action? Or will the Exchanges accept an Undertaking from the Companies/ their Promoters to abide by the decision of the Authority before which the litigation or action is pending?

5. As per Sub cl 3 of Regulation 14, any holder of depository receipts issued on the basis of underlying shares held by a custodian and any such custodian shall not be entitled to participate in the offer. Sub cl 4 provides an exception to the above by mentioning that:(4) Nothing contained in sub-regulation (3) shall affect the right of any holder of depository receipts to participate in the book building process under sub-regulation (1) if the holder of depository receipts exchanges such depository receipts with shares of the classthatareproposedtobedelisted. By reading both the above clauses, it is clear that if the Depository Receipt holder converts his receipts into equity shares, he can participate in the bid. But the stage of conversion is not clear, whether before or after the Specified Date; and the time of intimation of the conversion to the Company is also not mentioned.

6. In case of Compulsory Delisting of Companies by the Stock Exchanges, although it has been specifically provided in Reg 23 that an Independent valuer shall be appointed by the Exchange & the promoters shall be acquiring shares from public shareholders by paying them the determined fair value. But no where, the Control Mechanism for the same has been prescribed. Who will keep a check on whether the promoters of such compulsorily delisted companies have actually paid the said value to the shareholders or not. Further, strict penalties should be imposed on the defaulting promoters.

7. Regulation 24 prescribe the Consequences of Compulsory Delisting as under: Where a company has been compulsorily delisted under this Chapter, the company, its whole time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for aperiodoftenyearsfromthedateofsuchdelisting. The prescribed consequences are too severe in the sense that the promoters and even Directors cannot access the securities market or seek listing for a period of 10 years. Even the status of Nominee or Independent Directors has not been clarified.

8. Even the provisions with regard to relisting of the delisted companies has also not been clarified.


CHAPTER-3

REGULATIONS OF DELISTING

REGULATIONS OF DELISTING OF SHARES BY SECURITIES AND EXCHANGE BOARD OF INDIA (DELISTING OF EQUITY SHARES) REGULATIONS, 2009

The Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board

CHAPTER I

Short title and commencement.

1. (1) These regulations may be called the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations,2009.

(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions.

2. (1) In these regulations, unless the context otherwise requires-

(i) ‘Act’ means the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(ii) ‘Board’ means the Securities and Exchange Board of India established under section 3 of the Act;

(iii)‘company’ means a company within the meaning of section 3 of the Companies Act, 1956 (1 of 1956) and includes a body corporate or corporation established under a central Act, state Act or provincial Act for the time being in force, whose equity shares are listed on a recognised stock exchange;

(iv)‘compulsory delisting’ means delisting of equity shares of a company by a recognised stock exchange under Chapter V of these regulations;

(v) ‘public shareholders’ means the holders of equity shares, other than the following:

(a) promoters;

(b) holders of depository receipts issued overseas against equity shares held with a custodian and such custodian;

(vi)‘Recognised stock exchange’ means any stock exchange which has been granted recognition under section 4 of the Securities Contracts (Regulation) Act, 1956;

(vii) ‘Schedule’ means a Schedule appended to these regulations;


(viii) ‘voluntary delisting’ means delisting of equity shares of a company voluntarily on application of the company under Chapter III of these regulations;

(ix)‘working days’ means the working days of the Board.

(2) The words ‘control’, ‘person acting in concert’, ‘promoter’ and ‘public shareholding’ shall have the meanings respectively assigned to them under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 as amended from time to time.

(3) Words and expressions not defined in these regulations (Regulation) Act

CHAPTER II

DELISTING OF EQUITY SHARES

Applicability.

3. (1) These regulations shall apply to delisting of equity shares of a company from all or any of the recognised stock exchanges where such shares are listed.

(2) Nothing in these regulations shall apply to any delisting made pursuant to a scheme sanctioned by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 or by the National Company Law Tribunal under section 424D of the Companies Act, 1956, if such scheme –

(a) lays down any specific procedure to complete the delisting; or

(b) provides an exit option to the existing public shareholders at a specified rate. Delisting not permissible in certain circumstances and conditions for delisting.

4. (1) No company shall apply for and no recognised stock exchange shall permit delisting of equity shares of a company,

(a) pursuant to a buy back of equity shares by the company;

or

(b) pursuant to a preferential allotment made by the company;

or

(c) unless a period of three years has elapsed since the listing of that class of equity shares on any recognised stock exchange; or

(d) if any instruments issued by the company, which are 4 convertible into the same class of equity shares that are sought to be delisted, are outstanding.


(2) For the removal of doubts, it is clarified that no company shall apply for and no recognised stock exchange shall permit delisting of convertible securities.

(3) Nothing contained in clauses (c) and (d) of sub-regulation (1) shall apply to a delisting of equity shares falling under clause

(a) of regulation 6.

(4) No promoter shall directly or indirectly employ the funds of the company to finance an exit opportunity provided under Chapter IV or an acquisition of shares made pursuant to subregulation (3) of regulation 23.

(5) No promoter or other person shall –

(a) employ any device, scheme or artifice to defraud any shareholder or other person; or

(b) engage in any transaction or practice that operates as a fraud or deceit upon any shareholder or other person; or

(c) engage in any act or practice that is fraudulent, deceptive or manipulative –in connection with any delisting sought or permitted or exit opportunity given or other acquisition of shares made under these regulations.

CHAPTER III

VOLUNTARY DELISTING

Delisting from all recognized stock exchanges.

5. Subject to the provisions of these regulations, a company may delist its equity shares from all the recognised stock exchanges where they are listed or from the only recognised stock exchange where they are listed:

Provided that all public shareholders holding equity shares of the class which are sought to be delisted are given an exit opportunity 5 in accordance with Chapter IV. Delisting from only some of the recognised stock exchanges.

6. A company may delist its equity shares from one or more recognised stock exchanges where they are listed and continue their listing on one or more other recognised stock exchanges, subject to the provisions of these regulations and subject to the following -

(a) if after the proposed delisting from any one or more recognised stock exchanges, the equity shares would remain listed on any recognised stock exchange which has nationwide trading terminals, no exit opportunity needs to be given to the public shareholders; and,

(b) if after the proposed delisting, the equity shares would not remain listed on any recognised stock exchange having nation wide trading terminals, exit opportunity shall be given to all the public shareholders holding the equity shares sought to be delisted in accordance with.


Chapter IV.

Explanation: For the purposes of this regulation, ‘recognised stock exchange having nation wide trading terminals’ means the Bombay Stock Exchange Limited, the National Stock Exchange of India Limited or any other recognised stock exchange which may be specified by the Board in this regard. Procedure fordelisting where no exit opportunity is required.

7. (1) In a case falling under clause (a) of regulation 6 –

(a) the proposed delisting shall be approved by a resolution of the board of directors of the company in its meeting;

(b) the company shall give a public notice of the proposed delisting in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognised stock exchanges are located;

(c) the company shall make an application to the concerned 6 recognised stock exchange for delisting its equity shares; and

(d) the fact of delisting shall be disclosed in the first annual report of the company prepared after the delisting.

(2) The public notice made under clause (b) of sub-regulation (1) shall mention the names of the recognised stock exchanges from which the equity shares of the company are intended to be delisted, the reasons for such delisting and the fact of continuation of listing of equity shares on recognised stock exchange having nation wide trading terminals.

(3) An application for delisting made under clause (c) of subregulation (1) shall be disposed of by the recognised stock exchange within a period not exceeding thirty working days from the date of receipt of such application complete in all respects. Conditions and procedure for delisting where exit opportunity is required.

8. (1) Any company desirous of delisting its equity shares under the provisions of Chapter III shall, except in a case falling under clause (a) of regulation 6, -

(a) obtain the prior approval of the board of directors of the company in its meeting;

(b) obtain the prior approval of shareholders of the company by special resolution passed through postal ballot, after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to such resolution: Provided that the special resolution shall be acted upon if and only if the votes cast by public shareholders in favour of the proposal amount to at least two times the number of votes cast by public shareholders against it.

(c) make an application to the concerned recognised stock exchange for in-principle approval of the proposed delisting in the form specified by the recognised stock exchange; and 7


(d) within one year of passing the special resolution, make the final application to the concerned recognised stock exchange in the form specified by the recognised stock exchange: Provided that in pursuance of special resolution as referred to in clause (b), passed before the commencement of these regulations, final application shall be made within a period of one year from the date of passing of special resolution or six months from the commencement of these regulations, whichever is later.

(2) An application seeking in-principle approval for delisting under clause (c) of sub-regulation (1) shall be accompanied by an audit report as required under regulation 55A of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 in respect of the equity shares sought to be delisted, covering a period of six months prior to the date of the application.

(3) An application seeking in-principle approval for delisting shall be disposed of by the recognised stock exchange within a period not exceeding thirty working days from the date of receipt of such application complete in all respects.

(4) While considering an application seeking in-principle approval for delisting, the recognised stock exchange shall not unfairly withhold such application, but may require the company to satisfy it as to -

(a) compliance with clause (b) of sub-regulation (1);

(b) the resolution of investor grievances by the company;

(c) payment of listing fees to that recognised stock exchange;

(d) the compliance with any condition of the listing agreement with that recognised stock exchange having a material bearing on the interests of its equity 8 shareholders;

(e) any litigation or action pending against the company pertaining to its activities in the securities market orany other matter having a material bearing on the interests of its equity shareholders;

(f) any other relevant matter as the recognised stock exchange may deem fit to verify.

(5) A final application for delisting made under clause (d) of subregulation (1) shall be accompanied with such proof of having given the exit opportunity in accordance with the provisions of Chapter IV, as the recognised stock exchange may require.


CHAPTER IV

EXIT OPPORTUNITY

Applicability of Chapter IV.

9. The provisions of this Chapter shall apply to any delisting sought to be made under regulation 5 or under clause (b) of regulation 6. Public announcement.

10. (1) The promoters of the company shall upon receipt of inprinciple approval for delisting from the recognised stockexchange, make a public announcement in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognised stock exchange is located.

(2) The public announcement shall contain all material information including the information specified in Schedule I and shall not contain any false or misleading statement.

(3) The public announcement shall also specify a date, being a day not later than thirty working days from the date of the 9 public announcement, which shall be the ‘specified date’ for determining the names of shareholders to whom the letter of offer shall be sent.

(4) Before making the public announcement, the promoter shall appoint a merchant banker registered with the Board and such other intermediaries as are considered necessary.

(5) It shall be the responsibility of the promoter and the merchant banker to ensure compliance with the provisions of this Chapter.

(6) No promoter shall appoint any person as a merchant banker under sub-regulation (4) if such a person is an associate of the promoter. Escrow account.

11. (1) Before making the public announcement under regulation 10, the promoter shall open an escrow account and deposit therein the total estimated amount of consideration calculated on the basis of floor price and number of equity shares outstanding with public shareholders.

(2) On determination of final price and making of public announcement under regulation 18 accepting the final price, the promoter shall forthwith deposit in the escrow account such additional sum as may be sufficient to make up the entire sum due and payable as consideration in respect of equity shares outstanding with public shareholders.

(3) The escrow account shall consist of either cash deposited with a scheduled commercial bank, or a bank guarantee in favour of the merchant banker, or a combination of both.

(4) Where the escrow account consists of deposit with a scheduled commercial bank, the promoter shall, while opening the account, empower the merchant banker to instruct the bank to issue banker’s cheques or demand drafts for the amount lying to the credit of the escrow account, for the purposes mentioned in these regulations, and the amount 10 in such deposit, if any, remaining after full payment of consideration for equity shares tendered in the offer and those tendered under sub-regulation (1) of regulation 21 shall be released to the promoter.


(5) Where the escrow account consists of a bank guarantee, such bank guarantee shall be valid till payments are made in respect of all shares tendered under sub-regulation (1) of regulation 21.Letter of offer.

12. (1) The promoter shall despatch the letter of offer to the public shareholders of equity shares, not later than forty five working days from the date of the public announcement, so as to reach them at least five working days before the opening of the bidding period.

(2) The letter of offer shall be sent to all public shareholders holding equity shares of the class sought to be delisted whose names appear on the register of the company or depository as on the date specified in the public announcement under sub-regulation (3) of regulation 10.

(3) The letter of offer shall contain all the disclosures made in the public announcement and such other disclosures as may be necessary for the shareholders to take an informed decision.

(4) The letter of offer shall be accompanied with a bidding form for use of public shareholders and a form to be used by them for tendering shares under sub regulation (1) of regulation 21. Bidding period.

13. (1) The date of opening of the offer shall not be later than fifty five working days from the date of the public announcement.

(2) The offer shall remain open for a minimum period of three working days and a maximum period of five working days, during which the public shareholders may tender their bids. 11 Right of shareholders to participate in the book building process.

14. (1) All public shareholders of the equity shares which are sought to be delisted shall be entitled to participate in the book building process in the manner specified in Schedule II.

(2) A promoter or a person acting in concert with any of the promoters shall not make a bid in the offer and the merchant banker shall take necessary steps to ensure compliance with this sub-regulation.

(3) Any holder of depository receipts issued on the basis of underlying shares held by a custodian and any such custodian shall not be entitled to participate in the offer.

(4) Nothing contained in sub-regulation (3) shall affect the right of any holder of depository receipts to participate in the book building process under sub-regulation (1) if the holder of depository receipts exchanges such depository receipts with shares of the class that are proposed to be delisted.


Offer price

15. (1) The offer price shall be determined through book building in the manner specified in Schedule II, after fixation of floor price under sub regulation (2) and disclosure of the same in the public announcement and the letter of offer.

(2) The floor price shall not be less than, -

(a) where the equity shares are frequently traded in all the recognised stock exchanges where they are listed, the average of the weekly high and low of the closing prices of the equity shares of the company during the twenty six weeks or two weeks preceding the date on which the recognised stock exchanges were notified of the board meeting in which the delisting proposal was considered, whichever is higher, as quoted on the recognised stock exchange where the equity shares of the company are most frequently traded;

(b) where the equity shares of the company are infrequently traded in all the recognised stock exchanges where they 12 are listed, the floor price determined in accordance with the provisions of sub-regulation (3); or,

(c) where the equity shares are frequently traded in some recognised stock exchanges and infrequently traded in some other recognised stock exchanges where they are listed, the highest of the prices arrived at in accordance with clauses (a) and (b) above.

Explanation: For the purposes of this sub-regulation, equity shares shall be deemed to be infrequently traded, if on the recognised stock exchange, the annualised trading turnover in such shares during the preceding six calendar months prior to month in which the recognised stock exchanges were notified of the board meeting in which the delisting proposal was considered, is less than five per cent. (by number of equity shares) of the total listed equity shares of that class and the term ‘frequently traded’ shall be construed accordingly.

(3) For the purposes of clause (b) of sub-regulation (2), the floor price shall be determined by the promoter and the merchant banker taking into account the following factors:

(a) the highest price paid by the promoter for acquisitions, if any, of equity shares of the class sought to be delisted, including by way of allotment in a public or rights issue or preferential allotment, during the twenty six weeks period prior to the date on which the recognised stock exchanges were notified of the board meeting in which the delisting proposal was considered and after that date upto the date of the public announcement; and,

(b) other parameters including return on net worth, book value of the shares of the company, earning per share, price earning multiple vis-à-vis the industry average.

Right of the promoter not to

16. (1) The promoter shall not be bound to accept the equity shares at the offer price determined by the book building process. 13 accept the offer price.

(2) Where the promoter decides not to accept the offer price so

determined,-


(a) the promoter shall not acquire any equity shares tendered pursuant to the offer and the equity shares deposited or pledged by a shareholder pursuant to paragraphs 7 or 9 of Schedule II shall be returned or released to him within ten working days of closure of the bidding period;

(b) the company shall not make the final application to the exchange for delisting of the equity shares;

(c) the promoter may close the escrow account opened under regulation 11; and,

(d) in a case where the public shareholding at the opening of the bidding period was less than the minimum level of public shareholding required under the listing agreement, the promoter shall ensure that the public shareholding shall be brought up to such minimum level within a period of six months from the date of closure of the bidding through any of the ways mentioned in subregulation (3).

(3) For the purposes of clause (d) of sub-regulation (2), the public shareholding may be increased by any of the following ways:

(a) by issue of new shares by the company in compliance with the provisions of the Companies Act, 1956 and the Guidelines or Regulations of the Board relating to issue of securities and disclosures;

(b) by the promoter making an offer for sale of his holdings in compliance with the provisions of the Companies Act, 1956 and the Guidelines or Regulations of the Board relating to issue of securities and disclosures; or,

(c) by the promoter making sale of his holdings through the secondary market in a transparent manner. 14 Minimum number of equity shares to be acquired.

17. An offer made under chapter III shall be deemed to be successful if post offer, the shareholding of the promoter (along with the persons acting in concert) taken together with the shares accepted through eligible bids at the final price determined as per Schedule II, reaches the higher of –

(a) ninety per cent. of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas; or

(b) the aggregate percentage of pre offer promoter\ shareholding (along with persons acting in concert with him) and fifty per cent. of the offer size. Procedure after

closure of offer.

18. Within eight working days of closure of the offer, the promoter and the merchant banker shall make a public announcement in the same newspapers in which the public announcement under sub-regulation (1) of regulation 10 was made regarding:-

(i) the success of the offer in terms of regulation 17 alongwith the final price accepted by the acquirer; or

(ii) the failure of the offer in terms of regulation 19; or


(iii) rejection under regulation 16 of the final price discovered under Schedule II, by the promoters.

Failure of offer.

19. (1) Where the offer is rejected under regulation 16 or is not successful as per regulation 17, the offer shall be deemed to have failed and no equity shares shall be acquired pursuant to such offer.

(2) Where the offer fails –

(a) the equity shares deposited or pledged by a shareholder under paragraphs 7 or 9 of Schedule II shall be returned or released to him within ten working days from the end of the bidding period;

(b) no final application shall be made to the exchange 15 for delisting of the equity shares; and

(c) the escrow account opened under regulation 11 shall be closed. Payment of

Consideration and return of equity shares.

20. (1) The promoter shall immediately on ascertaining success of the offer, open a special account with a banker to an issue registered with the Board and transfer thereto, the entire amount due and payable as consideration in respect of equity shares tendered in the offer, from the escrow account.

(2) All the shareholders whose equity shares are verified to be genuine shall be paid the final price stated in the public announcement within ten working days from the closure of the offer.

(3) The equity shares deposited or pledged by a shareholder pursuant to paragraphs 7 or 9 of Schedule II shall be returned or released to him, within ten working days from the closure of the offer, in cases where the bids pertaining thereto have not been accepted.

Right of remaining shareholders to tender equity shares.

21. (1) Where, pursuant to acceptance of equity shares tendered in terms of these regulations, the equity shares are delisted, any remaining public shareholder holding such equity shares may tender his shares to the promoter upto a period of at least one year from the date of delisting and, in such a case, the promoter shall accept the shares tendered at the same final price at which the earlier acceptance of shares was made.

(2) The payment of consideration for shares accepted under sub-regulation (1) shall be made out of the balance amount lying in the escrow account.

(3) The amount in the escrow account or the bank guarantee shall not be released to the promoter unless all payments are 16 made in respect of shares tendered under sub-regulation (1).


CHAPTER V

COMPULSORY DELISTING

Compulsory delisting by a stock exchange.

22. (1) A recognised stock exchange may, by order, delist any equity shares of a company on any ground prescribed in the rules made under section 21A of the Securities Contracts (Regulation) Act, 1956 (42 of 1956): Provided that no order shall be made under this subregulation unless the company concerned has been given a reasonable opportunity of being heard.

(2) The decision regarding compulsory delisting shall be taken by a panel to be constituted by the recognised stock exchange consisting of –

(a) two directors of the recognised stock exchange (one of whom shall be a public representative);

(b) one representative of the investors;

(c) one representative of the Ministry of Corporate Affairs or Registrar of Companies; and

(d) the Executive Director or Secretary of the recognized stock exchange.

(3) Before making an order under sub-regulation (1), the recognised stock exchange shall give a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognised stock exchange is located, of the proposed delisting, giving a time period of not less than fifteen working days from the notice, within which representations may be made to the recognised stock exchange by any person who may be aggrieved by the proposed delisting and shall also display such notice on its trading systems and 17 website.

(4) The recognised stock exchange shall while passing any order under sub-regulation (1), consider the representations, if any, made by the company as also any representations received in response to the notice given under subregulation (3) and shall comply with the criteria specified in Schedule III.

(5) The provisions of Chapter IV shall not be applicable to a compulsory delisting made by a recognised stock exchange under this Chapter.

(6) Where the recognised stock exchange passes an order under sub-regulation (1), it shall, -

(a) forthwith publish a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located, of the fact of such delisting, disclosing therein the name and address of the company, the fair value of the delisted equity shares determined under sub-regulation (1) of regulation 23 and the names and addresses of the promoters of the company who would be liable under sub-regulation (3) of regulation 23; and


(b) inform all other stock exchanges where the equity shares of the company are listed, about such delisting and the surrounding circumstances. Rights of public shareholders in

Case of a compulsory delisting.

23. (1)Where equity shares of a company are delisted by a recognised stock exchange under this Chapter, the recognized stock exchange shall appoint an independent valuer or valuers who shall determine the fair value of the delisted equity shares.

(2)The recognised stock exchange shall form a panel of expert valuers from whom the valuer or valuers shall be appointed for purposes of sub-regulation (1). 18

(3)The promoter of the company shall acquire delisted equity shares from the public shareholders by paying them the value determined by the valuer, subject to their option of retaining their shares.

Explanation: For the purposes of sub-regulation (1), -

(a) ‘valuer’ means a chartered accountant within the meaning of clause (b) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949), who has undergone peer review as specified by the Institute of Chartered Accountants of India constituted under that Act, or a merchant banker appointed to determine the value of the delisted equity shares;

(b) value of the delisted equity shares shall be determined by the valuer having regard to the factors mentioned in regulation 15.

Consequences of compulsory delisting.

24. Where a company has been compulsorily delisted under this Chapter, the company, its whole time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such delisting.


CHAPTER VI

POWERS OF THE BOARD

Power of the Board to issue clarifications.

25. In order to remove any difficulties in the application or interpretation of these regulations, the Board may issue clarifications and guidelines in the form of circulars. Directions by the Board.

26. Without prejudice to provisions of the Act and those of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Board may in case of any violation of these regulations and in the interests of the investors and the securities market give such 19 directions as it deems fit:\ Provided that the Board shall, either before or after passing such orders, give an opportunity of hearing to the concerned person.

CHAPTER VII

SPECIAL PROVISIONS FOR SMALL COMPANIES AND DELISTING BY OPERATION OF LAW

Special provisions in case of small companies.

27. (1) Where a company has paid up capital upto one crore rupees and its equity shares were not traded in any recognized stock exchange in the one year immediately preceding the date of decision, such equity shares may be delisted from all the recognised stock exchanges where they are listed, without following the procedure in Chapter IV.

(2) Where a company has three hundred or fewer public shareholders and where the paid up value of the shares held by such public shareholders in such company is not more than one crore rupees, its equity shares may be delisted from all the recognised stock exchanges where they are listed, without following the procedure in Chapter IV.

(3) A delisting of equity shares may be made under sub- regulation (1) or sub-regulation (2) only if, in addition to fulfillment of the requirements of regulation 8, the following conditions are fulfilled:-

(a) the promoter appoints a merchant banker and decides an exit price in consultation with him;

(b) the exit price offered to the public shareholders shall not be less than the price arrived at in consultation with the merchant banker;

(c) the promoter writes individually to all public shareholders in the company informing them of his intention to get the equity shares delisted, indicating the exit price together with the 20 justification therefor and seeking their consent for the proposal for delisting;

(d) at least ninety per cent. of such public shareholders give their positive consent in writing to the proposal for delisting, and have consented either to sell their equity shares at the price offered by the promoter or to remain holders of the equity shares even if they are delisted;


(e) the promoter completes the process of inviting the positive consent and finalisation of the proposal for delisting of equity shares within seventy five working days of the first communication made under clause (c);

(f) the promoter makes payment of consideration in cash within fifteen working days from the date of expiry of seventy five working days stipulated in clause (e).

(4) The communication made to the public shareholders under clause (c) of sub-regulation (3) shall contain justification for the offer price with particular reference to the applicable parameters mentioned in regulation 15 and specifically mention that consent for the proposal would include consent for dispensing with the exit price discovery through book building method.

(5) The concerned recognised stock exchange may delist such equity shares upon satisfying itself of compliance with this regulation. Delisting in case of winding up, derecognition,etc.

28. (1) In case of winding up proceedings of a company whose equity shares are listed on a recognised stock exchange, the rights, if any, of the shareholders of such company shall be in accordance with the laws applicable to those proceedings.

(2) Where the Board withdraws recognition granted to a stock 21 exchange or refuses renewal of recognition to it, the Board may, in the interest of investors pass appropriate order in respect of the status of equity shares of the companies listed on that exchange.

CHAPTER VIII

MISCELLANEOUS

Recognised stock exchanges to monitor compliance.

29. The respective recognised stock exchanges shall comply with and monitor compliance with the provisions of these regulations and shall report to the Board any instance of non-compliance which comes to their notice.

Listing of delisted equity shares.

30. (1) No application for listing shall be made in respect of any equity shares,

(a) which have been delisted under Chapter III or under Chapter VII (except regulation 27), for a period of five years from the delisting;

(b) which have been delisted under Chapter V, for a period of ten years from the delisting.

(2) Notwithstanding anything contained in sub-regulation (1), an application for listing of delisted equity shares may be made where a recommendation in this regard has been made by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985.


(3) While considering an application for listing of any equity shares which had been delisted the recognised stock exchange shall have due regard to facts and circumstances under which delisting was made.

(4) An application for listing made in respect of delisted equity shares shall be deemed to be an application for 22 fresh listing of such equity shares and shall be subject to provisions of law relating to listing of equity shares of unlisted companies.

Transitional provisions.

31. (1) Anything done or omitted to be done or any right, privilege, obligation or liability acquired or accrued or incurred under Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003 prior to the commencement of these regulations shall be governed by said guidelines.

(2) Any application for delisting made by any company or any promoter or acquirer who wanted to delist securities of the company, prior to commencement of these regulations and pending with any recognised stock exchange as on the date of such commencement shall be proceeded with under the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003.

(3) The remaining procedures in respect of an exit opportunity already completed or an exit opportunity initiated but not completed under the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003 prior to commencement of these regulations, shall be completed and the application for delisting made pursuant thereto shall be dealt under the said guidelines.23


CHAPTER-4

SCHEDULES

SCHEDULE I

CONTENTS OF THE PUBLIC ANNOUNCEMENT

1. The floor price and the offer price and how they were arrived at.

2. The dates of opening and closing of the offer.

3. The name of the exchange from which the equity shares are sought to be delisted.

4. The manner in which the offer can be accepted by the shareholders.

5. Disclosure regarding the minimum acceptance condition for success of the offer.

6. The names of the merchant banker and other intermediaries together with the helpline number for the shareholders.

7. The specified date fixed as per sub-regulation (3) of regulation 10.

8. The object of the proposed delisting.

9. The proposed time table from opening of the offer till the payment of consideration or return of equity shares.

10. Details of the escrow account and the amount deposited therein.

11. Listing details and stock market data:

(a) high, low and average market prices of the equity shares of the company during the preceding three years;

(b) monthly high and low prices for the six months preceding the date of the public announcement; and,

(c) the volume of equity shares traded in each month during the six months preceding the date of public announcement.

12. Present capital structure and shareholding pattern.

13. The likely post-delisting shareholding pattern.

14. The aggregate shareholding of the promoter together with persons acting in concert and of the directors of the promoter where the promoter is a company and of persons who are in control of the company.


15. A statement, certified to be true by the board of directors of the company, disclosing material deviation, if any, in utilisation of proceeds of issues of securities made during the five years immediately preceding the date of public announcement, from the stated object of the issue. 24

16. A statement by the board of directors of the company confirming that all material information which is required to be disclosed under the provisions of continuous listing requirement have been disclosed to the stock exchanges.

17. Name of compliance officer of the company.

18. It should be signed and dated by the promoter. Where the promoter is a company, the public announcement shall be dated and signed on behalf of the board of directors of the company by its manager or secretary, if any, and by not less than two directors of the company, one of whom shall be a managing director where there is one.

SCHEDULE II

THE BOOK BUILDING PROCESS

1. The book building process shall be made through an electronically linked transparent facility and the promoter shall enter into an agreement with a stock exchange for the purpose.

2. The public announcement and letter of offer shall be filed without delay with the stock exchange mentioned in paragraph 1 and such stock exchange shall forthwith post the same in its website.

3. The minimum number of bidding centres shall be:

(a) the four metropolitan centres situated at Mumbai, Delhi, Kolkata and Chennai;

(b) such cities in the region in which the registered office of the company is situated, as are specified by the stock exchange mentioned in paragraph 1.

4. There shall be at least one electronically linked computer terminal at all bidding centres.

5. The shareholders may withdraw or revise their bids upwards not later than one day before the closure of the bidding period. Downward revision of bids shall not be permitted.

6. The promoter shall appoint ‘trading members’ at the bidding centres, whom the public shareholders may approach for placing bids on the on-line electronic system.

7. The shareholders holding dematerialised shares desirous of availing the exit opportunity may deposit the equity shares in respect of which bids are made, with the special depositories account opened by the merchant banker for the purpose prior to placement of orders or, alternately, may mark a pledge for the same to the merchant banker in favour of the said account.

8. The merchant banker shall ensure that the equity shares in the said special depositories account are not transferred to the account of the promoter unless the bids in respect thereof are accepted and payments made.


9. The holders of physical equity shares may send their bidding form together with the share certificate and transfer deed to the trading member appointed for the purpose, who shall immediately after entering their bids on the system send them to the company or the share transfer agent for confirming their genuineness. The company or the share transfer agent shall deliver the certificates which are found to be genuine to the merchant banker, who shall not make it over to promoter unless the bids in respect thereof are accepted and payment made. The bids in respect of the certificates which are found to be not genuine shall be deleted from the system.

10. The verification of physical certificates shall be completed in time for making the public announcement under regulation 18.

11. The bids placed in the system shall have an audit trail which includes stock broker identification details, time stamp and unique order number.

12. The final offer price shall be determined as the price at which the maximum number of equity shares is tendered by the public shareholders. If the final price is accepted, then, the promoter shall accept all shares tendered where the corresponding bids placed are at the final price or at a price which is lesser than the final price. The promoter may, if he deems fit, fix a higher final price.


SCHEDULE III

CRITERIA FOR COMPULSORY DELISTING

1. The recognised stock exchange shall take all reasonable steps to trace the

promoters of a company whose equity shares are proposed to be delisted, with a view to ensuring compliance with sub-regulation (3) of regulation 23.

2. The recognised stock exchange shall consider the nature and extent of the alleged non-compliance of the company and the number and percentage of shareholders who may be affected by such non-compliance.

3. The recognised stock exchange shall take reasonable efforts to verify the status of compliance of the company with the office of the concerned Registrar of Companies.

4. The names of the companies whose equity shares are proposed to be delisted and their promoters shall be displayed in a separate section on the website of the recognised stock exchange for a brief period of time. If delisted, the names shall be shifted to another separate section on the website.

5. The recognised stock exchange shall in appropriate cases file prosecutions under relevant provisions of the Securities Contracts (Regulation) Act, 1956 or any other law for the time being in force against identifiable promoters and directors of the company for the alleged non-compliances.

6. The recognised stock exchange shall in appropriate cases file a petition for winding up the company under section 433 of the Companies Act, 1956 (1 of 1956) or make a request to the Registrar of Companies to strike off the name of the company from the register under section 560 of the said Act.


CHAPTER-5

COMPARISON BETWEEN OLD & NEW REGULATIONS

S.No Particulars Securities And Exchange Board of India (Delisting of Securities) Guidelines, 2003

Securities And Exchange Board of India (Delisting Of Equity Shares) Regulations, 2009.

1. Coverage All kind of Securities are covered Only Equity Shares are Covered

2. Definitions-Exchange

There is a concept of the Delisting Exchange and Exchange

Both the earlier definitions merged and a definition of Recognized Stock exchange is inserted.

3. Definitions-Public Shareholding

The Public shareholding is the shareholding in a company of the persons other than the Promoters, Persons Acting in concert with the Promoter

The public shareholding is the shareholding in a company of the persons other than the Promoters, Persons Acting in concert with the Promoter , holders of Depositors receipts and the custodian thereof

4. Definitions-Working Days

Working Days are not defined. Working days are defined as the working days of the SEBI.

5. Applicability Widely defined Not widely defined.

6. Inapplicability Not mentioned exclusively and separately.

Separate section is made. The exemption is available to the companies which have been declared sick & their reconstruction scheme provides the delisting including the provisions of the exit option to the shareholders.

7. Non-Permissibility

Delisting only through Buy Back of securities is not permitted

Along with Buy Back, delisting through preferential allotment is also not permitted.

8. Voluntary delisting

The procedure and provisions of both kind of Delisting a) Without

The procedures for both kind of Delisting a) Without Exit


Exit option and b) With exit option merged and no separate sections were there.

option and b) With exit option are defined and provided in an identifiable manner.

9. Delisting Without Exit Route. i.e. not from the exchanges having nationwide trading terminal

Special resolution to be passed through the shareholders is compulsory.

Now the requirement of special resolution for the delisting without Exit route is deleted. Only public announcement and the disclosure in the first annual report after delisting will suffice the requirement.

No time limit was prescribed for the exchanges for disposal of the Delisting application filed by the companies.

A 30 days time period after the receipt of Application complete in all respect, given to the exchanges for disposing of the application of delisting.

10. Delisting with Exit Route i.e. even from the exchanges having nationwide trading terminal

Shareholders approval for the Delisting can be taken even in the Extra Ordinary General Meeting. The resolution is Special resolution simply to be passed in the Extra Ordinary General Meeting.

Shareholders approval is required compulsorily through postal ballot. The special resolution shall be deemed to be passed only if the votes cast by the public shareholders in favour of the proposal amount to at least two times the votes cast against it.

Before starting the process of Delisting there is no requirement of taking In principal approval from the stock exchange.

Before starting the Delisting Procedure, In principal approval is required from the Stock exchange from where the securities are to be delisted.

There is no validity of special resolution passed by the members in the Extra Ordinary General Meeting.

The resolution is valid upto 1 year, within which the final application is to be made to the stock exchange for the Delisting of securities after completion of the Reverse Book Building Process.

No specific guidelines were given to the stock exchanges,

The Checkpoints have been provided in the Regulations


which they have to considered while approving the application of delisting.

which the Stock exchange has to considered while approving the application of delisting.

11. Specified Date No concept of specified date, on which the list of eligible public shareholders can be determined to whom the Letter of Offer will be sent for Delisting.

The concept of Specified date introduced, which is 30 days from the date of the Public Announcement, on which the shareholders list be freezed to whom the letter of offer will be sent for the Delisting.

12. Bidding period Only minimum time mentioned during which the bidding Period remain open which is 3 days

The bidding period will now be 3 days to 5 days and should start within 55th day of the public announcement.

13. Ineligibility of the shareholders to participate in the Delisting offer.

No ineligibility with regard to the public shareholding given.

Now the Receipts holders / ADR / GDR holders are restricted to participate in the Delisting offer. If they wishes to participate then they have to first convert their shares into underlying Equity shares.

14. Price determination

Previously the price was calculated from the date of public announcement

Now the price is calculated from the date when the company informed the exchange the date of the board meeting in which the delisting proposal was considered.

15. Minimum number of shares for Delisting from the stock exchange

The company will be delisted if the public shareholding falls below the minimum limit specified by the listing conditions of listing agreement.

The company will be deemed to be delisted on reaching the level higher of the following:- a) Ninety percent of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas. Or., b) The aggregate percentage of pre offer promoter shareholding along with person acting in


concert and fifty percent of the offer size.

16. Final price announcement

Previously the Final announcement to be made in two days declaring the final price and the status of the Delisting i.e whether the price is accepted or not.

Now the Final announcement to be made in eight working days declaring the final price and the status of the Delisting i.e whether the price is accepted or not.

17. Right of remaining shareholders

The shareholders who could not participate in the Delisting offer can offer their shares to the promoters during a period of 6 months after the Delisting.

The shareholders who could not participate in the Delisting offer can offer their shares to the promoters during a period of 1 year after the Delisting.

18. Consequence of the Compulsory Delisting

Only company was restricted for a period of 2 years for Relisting at the stock exchange

The company, its promoters, and directors are barred for a period of 10 years for relisting at the stock exchange.

19. Small Companies

No special provisions are there for the small companies. They have to follow the same provisions as the Large and big companies have to.

Special provisions under the separate section be given for the small companies and winding up companies. They need not to follow the Reverse Book Building process.

20. Delisting through right Issue

If pursuant to Right issue the Promoters holding is increased by more than the permissible limit, the promoter shall be required to delist the company or reduce their holding within a period of 3 months.

The section is altogether deleted.

21. Reinstatement of securities

The companies cannot be relisted at the exchange for a period of 2 years from the period of delisting.

The companies delisted voluntarily cannot be relisted for a period 5 years and the companies compulsorily delisted cannot be relisted for a period of 10 years from the date of delisting


CHAPTER-6

HOW TO DELIST?


Process Flowchart

CHAPTER-7

PROCESS


A recognized stock exchange may, by order, delist any equity shares of a company on any ground prescribed in the rules made under section 21A of the Securities Contracts (Regulation) Act, 1956 .

Constitution of Panel (Regulation 22 (2))

The decision regarding compulsory delisting shall be taken by a panel to be constituted by the recognized stock exchange consisting of -

a. Two directors of the recognized stock exchange (one of whom shall be a public representative);

b. One representative of the investors;c. One representative of the Ministry of Corporate Affairs or Registrar of Companies; andd. The Executive Director or Secretary of the recognized stock exchange.

Public notice before delisting order (Regulation 22 (3))

Before making a delisting order the recognized stock exchange shall give a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located and shall also display such notice on its trading systems and website.

Time period of making representation (Regulation 22 (3))

Time period of not less than fifteen working days from the notice, be given to any person who may be aggrieved by the proposed delisting within which he can made representations to the recognized stock exchange which has issued a notice for the delisting.

Delisting Order by the Recognised Stock Exchange (Regulation 22 (4))

The recognized stock exchange passes an order under sub-regulation (1) after considering the representations, if any made by the company and any aggrieved person in response to the notice and after considering the following points:-

1. Nature and extent of the alleged non-compliance of the company and the number and percentage of shareholders who may be affected by such non-compliance.

2. The status of compliance of the company with the office of the concerned Registrar of Companies.

Public notice after Delisting Order (Regulation 22 (6))

Where the recognized stock exchange passes the delisting order, it shall, -

(a) Forthwith publish a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located.


(b) Inform all other stock exchanges where the equity shares of the company are listed, about such delisting and the surrounding circumstances.

Disclosures to be made in the notice

Facts of such delisting, The name and address of the company, The fair value of the equity shares determined under sub-regulation (1) of regulation 23

and The names and addresses of the promoters of the company who would be liable under

sub-regulation (3) of regulation 23.

EXIT Price Determination by an Independent Valuer (Regulation 23 (1))

The recognized stock exchange shall form a panel of expert valuers from whom the valuer or valuers shall be appointed .

The promoter of the delisted company shall acquire equity shares from the public shareholders by paying them the value determined by the valuer, subject to their option of retaining their shares.

Important points:-

1. No open offer is required to be given by the Delisted company in the case of compulsory delisting made by a recognized stock exchange.

2. Where a company has been compulsorily delisted the company, its whole time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such delisting.

Special Powers to the recognized stock Exchanges (SCHEDULE III)

The recognised stock exchange can file prosecutions under relevant provisions of the Securities Contracts (Regulation) Act, 1956 or any other law for the time being in force against identifiable promoters and directors of the company for the alleged non-compliances.

The recognised stock exchange can also file a petition for winding up the company under section 433 of the Companies Act, 1956 (1 of 1956) or make a request to the Registrar of Companies to strike off the name of the company from the register under section 560 of the said Act.

CHAPTER-8


DELISTING OF SHARES

Delisting of shares is also referred to as Reverse Book Building. The Reverse Book Building is a mechanism provided for capturing the sell orders on online basis from the share holders through respective Book Running Lead Managers (BRLMs) which can be used by companies intending to delist their shares through buy back process.

In the Reverse Book Building scenario, the Acquirer/Company offers to buy back shares from the share holders. The Reverse Book Building is basically a process used for efficient price discovery. During the period for which the Reverse Book Building is open, offers are collected from the share holders at various prices, which are above or equal to the floor price. The buy back price is determined after the offer closing date.

The Securities and Exchange Board of India had issued the SEBI (Delisting of Securities) Guidelines 2003' for delisting of shares from stock exchanges. The guidelines provide the overall framework for voluntary delisting by a promoter.

The Company /acquirer needs to appoint designated BRLMs for accepting offers from the share holders. The company/acquirer intending to delist its shares through Book Building process is identified by way of a symbol assigned to it by a BRLM. Orders for the offer shall be placed by the shareholders only through the designated trading members, duly approved by the Exchange.

The designated trading members shall ensure that the security /share holders deposit the securities offered with the trading members prior to placement of an order. The offer shall be open for 'n' number of days. The BRLM shall intimate the final acceptance price and provide the valid accepted order file to the National Securities Clearing Corporation Limited.

The process is used by the companies to reduce their floating capital so as to enable them to get delisted from the stock exchanges. Listing on stock exchanges entails a number of compliances. In order to avoid such compliances, many companies are opting to get delisted. Moreover, the process can also be used in case of acquisition process of another company by the acquirer.

SEBI guidelines are applicable to delisting of securities of companies. These guidelines apply to the following:Voluntary delisting being sought by the promoters of a company - Companies which may be compulsorily delisted by the stock exchanges. If a person in control of the management is seeking to consolidate his holding in a company, he would do so in a manner which would result in the public shareholding or in the listing agreement that may have the effect of company being delisted.

Promoters of the companies who voluntarily seek to delist their securities from all or some of the stock exchanges - Any acquisition of shares of the company (either by a promoter or by any other person) or scheme or arrangement, by whatever name referred to, 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 The Stock Exchange provides online reverse


book building for promoters /acquirers through its trading networks which span various cities and towns across India.

The shareholders get the amount discovered through the reverse book building process. The shareholders who choose to hold back the shares may suffer because there is no liquidity for the stock. However, they are entitled to all the shareholder benefits - voting, dividends, bonus etc. as may be applicable.

Delisting Boon Or Bane


In a country like India, wherein lakhs and lakhs of people invest in Primary as well as Secondary Markets, protection of the interests of these investors becomes an inherent job for the Regulators, at all forums.

With the same intent in mind, the Securities and Exchange Board of India Act was enacted in the year 1992. The Act established a Board, called Securities and Exchange Board of India (SEBI), to protect the interests of investors in securities and to promote the development of and to regulate the securities market. It acts as a regulator for the development of securities market in the country.

At present, appx. 9,000 Companies are listed on various Exchanges in India, out of which only appx. 3,500 are being actively traded. Trading being taking place only at BSE/ NSE. Others are either not being traded or have become illiquid. The question that arises is what should such investors do, whose investments become illiquid and who had invested in a particular company on the basis of the faith and trust in the system and also on the basis of the contents in the prospectus which mentions that the security would be listed on stock exchanges. Once he subscribes to the issue, he takes an irreversible decision, as the promises in the prospectus are irreversible. And if the securities of such a company get delisted, his investment will no longer be marketable and tradeable. And then, on top of it, these companies have themselves delisted either themselves or the Exchanges delist them for non compliances or not meeting the criterion. In such circumstances, the shareholders are left in lurch with no option but to tender their shares at whatever price, which may be much lesser than the actual value of the Company. As a corollary to this, the fundamental question that arises is: is delisting of securities a boon or a bane for the shareholders? The same has been attempted to be answered in the coming paragraphs. Eversince the promulgation of SEBI Delisting Guidelines 2003, many a companies have got themselves voluntarily delisted. They have paid their shareholders according to the higher of the average of the weekly closing highs and lows for 26 weeks or 2 weeks.

Recently, a SEBI Committee conducted a study on 29 companies, which have been or are in the process of being delisted from the BSE, and it came to light that in 14 out of the studied 29 companies, the 52-week average was greater than the 26 weeks average. That is to say, the securities had a much better potential if they would have remained listed on the Exchange and the shareholders would have taken an exit in the ordinary course of trading in the Secondary Market.

In cases like above, the shareholders of such companies although are able to get back the market price of their shares (if it’s a frequently traded scrip), but there is always an apprehension that they could have got a better price if they exited through the Secondary Market.

On the other hand, there is another set of Companies, which are defunct or are not being traded or fall under the infrequently traded category at any of the Exchanges. These Companies, by getting delisted, pay off their shareholders on the basis of certain criterion like return on networth, EPS etc, which may be much lesser than the intrinsic value of the share.

In cases like above, from the shareholders’ point of view, although might be receiving a lesser value than the actual worth, but he stands to benefit in the sense that his blocked funds get


released, which now he can utilise in other scrips. Also, he is relieved of the tension of carrying the dead stock on his head.

There is yet another set of companies, that came out with Public Issues, utilised the shareholders’ funds, stopped making compliances with the Exchanges, the Exchanges suspended them, and as per the Guidelines, finally compulsorily delisted them. In fact, there is a long list of such companies which have been delisted by the Stock Exchanges.

From the shareholders’ point of view, this is the gravest situation. Here, the shareholders of the Companies are left in a lurch, without getting any money back for their investments in such companies. Although, as per the Delisting Guidelines, there was a provision for payment of fair value to the public shareholders, but no control mechanism has ever been deployed to keep a check on such payments. But from the Regulators’ (the Exchanges, SEBI etc.) point of view, such delistings are important because this cleans up the system and relieves them of the dead woodstock.

On a comparision of all the above situations, we will realise all the situations have their pros and cons. If a situation is beneficial for one, the other stands to lose. In certain situations, delisting becomes imperative to relieve the system of the unwanted trash companies. Thus, a complete ban on delisting is not possible. A judicious mix of listings and delistings has to be there in the system, to make it run smoothly.

Although the law makers have also kept the same in mind while framing the delisting laws. In the earlier Guidelines of 2003, Cl. 16(1) prescribed the rights of the shareholders in case of compulsory delisting, by being paid a fair value of the shares, but in none of the cases of Compulsory Delisting, has it been tried to check whether the same was paid to the public shareholders or not.

Similarly, under the new Regulations also, Chapter V deals completely with Compulsory Delisting of equity shares by the Exchanges, prescribing therein the procedure as well as the rights of shareholders in a compulsory delisting.

Reg. 23, dealing with the rights of shareholders in a compulsory delisting, reads as under:

1. Where equity shares of a company are delisted by a recognised stock exchange under this Chapter, the recognised stock exchange shall appoint an independent valuer or valuers who shall determine the fair value of the delisted equity shares.

2. The recognised stock exchange shall form a panel of expert valuers from whom the valuer or valuers shall be appointed for purposes of sub-regulation (1).

3. The promoter of the company shall acquire delisted equity shares from the public shareholders by paying them the value determined by the valuer, subject to their option of retaining their shares.

Thus, one can very well assimilate that SEBI has all the intents of protecting the interests of the public shareholders, but it is for the respective Stock Exchanges to check the compliance of the same.


Reg. 24 of the Regulations, dealing with the consequences of compulsory delisting, reads as under:

Where a company has been compulsorily delisted under this Chapter, the company, its whole time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such delisting.

Although the Regulation prescribes strict consequences for the compulsorily delisted company, its promoters and directors. Nowhere, does it mention the penalties/ consequences in case of defaulting promoters in making the payment of the fixed fair value to the public shareholders.

Thus, while allowing Delistings, more so Compulsory Delistings, the Regulators should be very cautious of the procedures followed, opportunities provided to the public shareholders and its overall impact on the investor confidence as a whole. To sum up, while allowing delistings, a complete check and control mechanism needs to be implemented for the same.

DELISTING NOT PERMISSIBLE IN CERTAIN CIRCUMSTANCES AND

CONDITIONS:

1. Neither the companies may apply nor may the recognised stock exchanges permit delisting of

equity shares

(a) pursuant to a buy back of equity shares by the company; or

(b) pursuant to a preferential allotment made by the company; or

(c) unless a period of three years has elapsed since the listing of that class of equity shares on any

recognized stock exchange; or

(d) if there are outstanding convertible (in the same class of equity) instruments .

2. No promoter shall directly or indirectly employ the funds of the company to finance an exit

opportunity (under Chapter IV) or an acquisition of shares made pursuant to subregulation(3) of

regulation 23.

3. No promoter or other person shall –

(a) defraud any shareholder or other person with any device, scheme or artiface; or


(b) fraud or deceit upon any shareholder or other person with any transaction or practice; or

(c) engage in any fraudulent, deceptive or manipulative act or practice in connection to delisting

sought or permitted or exit opportunity given or other acquisition of sharesmade under these

regulations.

VOLUNTARY DELISTING :-

Voluntary delisting from all the exchanges

Voluntary delisting from few exchanges but remains listed on at least one stock

exchange having nationwide terminals(recognized stock exchange)

Voluntary Delisting From All The Exchanges

If after the proposed delisting, the equity shares would not remain listed on any recognized stock

exchange having nationwide trading terminals, Exit Opportunity shall be given to all the public

shareholders holding the equity shares sought to be delisted. (Regulation 6 (b))

Obtain a prior approval from the board of directors of the company in its meeting

Obtain the prior approval of shareholders of the company by special resolution passed through postal ballot, provided the special resolution shall be acted upon if and only if the votes cast by public shareholders in favor of the proposal amount to at least two times the number of votes cast by public shareholders against it.


DelistingCompulsory Delisting

Voluntary delistingVoluntary delisting from all the exchanges.

Exit opportunityVoluntary delisting from few exchanges but

remains listed on at least one stock exchange having nation wide terminalsNo exit opportunity

Make an application to the concerned recognized stock exchange for the proposed delisting. Application seeking in-principle approval shall be accompanied by audit report and shall be in compliance with the regulation. Also, application shall be disposed of by the recognised stock exchange within a period not exceeding thirty working days from the date of receipt of such application complete in all respects.

Within one year of passing the special resolution, company shall make the final application to the concerned recognised stock exchange in the form specified by the recognised stock exchange

Voluntary Delisting From Few Exchanges But Remain Listed At One Stock Exchange

Having Nation Wide Trading Terminal

If after the proposed delisting from any one or more recognized stock exchanges, the equity

shares would remain listed on any recognized stock exchange which has nationwide trading

terminals, No Exit Opportunity needs to be given to the public shareholders. (Section 6 (a))

No need to pass Special resolution by members.

The company has to give a public notice of the proposed delisting.

The company shall disclose the fact of the delisting in the first annual report after

delisting.

EXIT OPPORTUNITY

1) Public Announcement

On receiving the approval for delisting from the recognized stock exchange, company

need to make a public announcement in at least one English national daily with wide

circulation, one Hindi national daily with wide circulation and one regional language

newspaper of the region where the concerned recognised stock exchange is located

The public announcement shall contain all material information and shall also specify a

date , being a day not later than thirty days from the date of public announcement, which


Public Announcement

(PA)

Escrow Account

Letter of Offer(Within 45 workingdays of

PA)

Bidding(within 55 working days of PA)

Offer Price(Book Building)

Closure of Offer

Consideration

shall be date for determining the names of shareholder to whom letter of offer shall be

sent

Before public announcement, a merchant banker need to appointed to ensure compliance

with the provision

2) Escrow Account

Before making the public announcement, the promoter shall open an Escrow account

and deposit the estimated amount of consideration.

Promoters must empower the merchant banker to instruct the bank to issue banker’s

cheques or demand drafts for the amount lying to the credit of the escrow account.

3) Letter of Offer

4) Bidding Period

The date of opening of the offer shall not be later than fifty five working days from the

date of the public announcement.

The offer shall remain open for a minimum period of three working days and a maximum

period of five working days.

5) Rights of Shareholders to participate in Book Building process

All public shareholders of the equity shares which are sought to be delisted shall be

entitled to participate in the book building process.

Promoter are not allowed to bid and merchant banker need to ensure compliance with this

sub regulation

Any holder of depository receipts issued on the basis of underlying shares held by a

custodian and any such custodian shall not be entitled to participate in the offer.

6) Offer Price

The offer price is determined through book building process after fixing the floor

price.

The floor price shall not be less than:

a. For Frequently Traded stock: the average of the weekly high and low of the

closing prices of the equity shares of the company during the twenty six weeks or

two weeks preceding the date on which the recognised stock exchanges were

notified of the board meeting in which the delisting proposal was considered,

whichever is higher.


b. For Infrequently Traded Stock: The share price is determined by the promoter and

merchant banker taking into account factors like the highest price paid by

promoter for acquisition, parameters like return on net worth, earning per share

etc.

7) Right of the Promoter

The promoter shall not be bound to accept the equity share at the price specified in the book

building process.

8) Minimum Number of Equity share to be acquired:

Shares of Promoters taken together with the shares accepted through eligible bids at the final

price reaches the higher of:

Ninety percent of the total issued shares of that class excluding the shares which are held

by a custodian and against which depository receipts have been issued overseas.

The aggregate percentage of pre offer promoter shareholding and fifty per cent. of the

offer size

9) Procedure after closure of offer

Within Eight working days of closure of offer, the promoter and merchant banker shall make

public announcement in the same newspaper about the success( along with the price) or

failure of the offer(along with the reason).

10) Payment of Consideration and return of Equity shares:

Ascertain the success of the offer, promoter need to open a new account with a banker

and the entire amount due and consideration need to transferred from Escrow account

All the shareholders whose equity shares are verified to be genuine shall be paid the

final price stated in the public announcement within ten working days from the

closure of the offer.

COMPULSORY DELISTING:


This means delisting of equity shares of a company by a recognised stock exchange may, by

order delist any equity shares of a company on any ground prescribed in the rules under section

21A of the Securities Contracts (Regulations) Act, 1956 (42 of 1956). The decision regarding the

compulsory delisting is taken by a panel constituted by the stock exchange which consists of 2

directors of the recognised stock exchange (one being a public representative), one representative

of the investors, one representative of the Ministry of corporate affairs or ROC, and the

executive director or the secretary of the recognised stock exchange.

Before making an order the stock exchange shall give a notice in one English national daily with

large circulation and one with the regional daily where the stock exchange is located for the

proposed delisting disclosing therein the name and address of the company, the fair value of the

listed equity shares determined and the names of the company promoters who would be liable for

the same and also a time period of not less than 15 working days from the notice within which

the representatives may be made to the stock exchange by any person who may be aggrieved by

the proposal and shall display the notice in its trading systems or website. They would also

inform all the stock exchanges where the equity shares of the company are listed, about such

delisting and the circumstances.

The stock exchange shall consider the representations if any, made by the company and also

representations received in response to the notice given and should comply with the Schedule III.

The stock exchange shall appoint an individual valuer or valuers who shall determine the fair

value of the delisted equity shares. The promoters would acquire the delisted shares equity shares

from the public shareholders by paying the value which is determined the valuer/valuers subject

to their option of retaining them. The Valuer is usually a chartered accountant who had

undergone peer review as specified the Institute of chartered accountants of India constituted

under the act, or a merchant banker.

SCHEDULE III


1. The recognised stock exchange shall take all reasonable steps to trace the promoters of a

company whose equity shares are proposed to be delisted, with a view to ensuring compliance

with sub-regulation (3) of regulation 23.

2. The recognised stock exchange shall consider the nature and extent of the alleged non-

compliance of the company and the number and percentage of shareholders who may be affected

by such non-compliance.

3. The recognised stock exchange shall take reasonable efforts to verify the status of compliance

of the company with the office of the concerned Registrar of Companies.

4. The names of the companies whose equity shares are proposed to be delisted and their

promoters shall be displayed in a separate section on the website of the recognised stock

exchange for a brief period of time. If delisted, the names shall be shifted to another separate

section on the website.

5. The recognised stock exchange shall in appropriate cases file prosecutions under relevant

provisions of the Securities Contracts (Regulation) Act, 1956 or any other law for the time being

in force against identifiable promoters and directors of the company for the alleged non-

compliances.

6. The recognised stock exchange shall in appropriate cases file a petition for winding up the

company under section 433 of the Companies Act, 1956 (1 of 1956) or make a request to the

Registrar of Companies to strike off the name of the company from the register under section

560 of the said Act.

SPECIAL PROVISIONS FOR SMALL COMPANIES AND DELISTING BY OPERATION OF LAW


The special provisions in case of small companies state that when a company has a paid up

capital upto one crore rupees and its equity shares are not traded in any recognised stock

exchange in the one year immediately preceding the date of decision, such shares can be delisted

from the respective exchanges where they are listed. In other scenario, where a company has

three hundred of fewer public shareholders and where the paid up value of the shares held by

such public shareholders in such company is not more than one crore rupees, its equity shares

may be delisted from the stock exchanges.

The delisting of equity shares may be made under sub – regulation only if the following

conditions are fulfilled.

a) The promoter will have to appoint a merchant banker and decide an exit price in

consultation with him.

b) The exit price offered to the public shareholders should not be less than the price arrived

at in consultation with the merchant banker.

c) The promoter will have to write individually to all public shareholders in the company

informing them of his intentions to get the equity shares delisted. This should indicate the

exit price together with the justification and seeking their consent for the proposal of

delisting.

d) Atleast ninety percent of such public shareholders will have to give their positive consent

in writing to the delisting process. The consent should be either to sell their equity shares

at the price offered by the promoter or to remain holders of the equity shares even if they

are delisted.

e) The process of inviting the positive consent and finalisation of the proposal for delisting

of equity shares should be completed within seventy five working days from the first

communication made.

f) The promoted has to make payment of consideration in cash within fifteen working days

from the date of expiry of seventy five working days as stated in clause (e).

The communication made to the shareholders should specifically mention that consent for the

proposal would include consent for dispensing with the exit price discovery through the book


building method. The concerned stock exchange can then delist such equity shares upon

satisfying itself of compliance with the regulation.

In case of winding up, proceedings of a company whose equity shares are listed on a recognised

stock exchange, the rights, if any, of the shareholders of such company shall be in accordance

with the laws applicable to those proceedings. Sometimes the Board may withdraw the

recognition granted to a stock exchange or refuse the renewal of recognition. In such cases the

Board in the interest of investors will have to pass appropriate order in respect of the status of

equity shares of the companies listed on that exchange.

MISCELLANEOUS


The respective stock exchanges have to comply with and monitor compliance with the provisions

of these regulations and shall report to the Board any instance of non – compliance which comes

to their notice.

The miscellaneous section of the regulation states –

a) An application for listing of delisted equity shares may be made where a recommendation

in this regard has been made by the Board for industrial and financial reconstruction

under the Sick Industrial Companies (Special Provisions) Act, 1985.

b) While considering application for listing of any equity shares which had been delisted in

the recognised stock exchange shall have due regard to the facts and circumstances under

which the delisting was made.

c) An application for listing made in respect of delisted equity shares shall be deemed to be

an application for fresh listing of such equity shares and shall be subject to provisions of

law relating to listing of equity shares of unlisted companies.

d) Any right, privilege, obligation or liability acquired or incurred under SEBI Guidelines,

2003 shall be governed by the said guidelines.

e) Any application for delisting made by any company or any promoter or acquirer who

wanted to delist securities of the company, prior to the commencement of these

regulations and pending with any stock exchange as on date shall proceed under the SEBI

(delisting of Securities) Guidelines, 2003.

EXAMPLES OF DELISTING


Type of Delisting: Voluntary Delisting

Company: Alfa Laval India Limited

Delisting offer:

Prior to delisting the Promoters of the company held 16120281 equity shares, representing 88.77% of the paid up capital. The voluntary delisting issue was aimed at acquiring the remaining 2040202 equity shares, representing the balance 11.23% paid up capital. The proposal for delisting was approved by the Board of Directors, followed by a special resolution by the shareholders through a postal ballot. THE SHARES OF THE COMPANY WILL BE DELISTED FROM THE BSE LIMITED (“BSE”) AND THENATIONAL STOCK EXCHANGE OF INDIA LIMITED (“NSE”) WITH EFFECT FROM APRIL 19, 2012

Floor Price: Rs. 2045/- per Equity Share of Face Value of Rs. 10 /- each

Indicative Offer Price:Rs. 2850/- per equity share

Exit Price: RS. 4,000/- PER EQUITY SHARE (Reverse Book Building)

Activity Date

Specified Date for determining the names of shareholders to whom the Offer

Letters shall be sent

January 20, 2012

Dispatch of Offer Letters/ Bid Forms to Public Shareholders as on Specified Date January 27, 2012

Bid Opening Date (10.00 am) February 15, 2012

Bid Closing Date (3.00 pm) February 22, 2012

Announcement of Discovered Price/Exit Price and the Acquirer’s Acceptance/Non-

acceptance of Discovered Price /Exit Price

March 5, 2012

Final date of payment of consideration March 7,2012

Return of Offer Shares to shareholders in case of failure of Delisting Offer March 7,2012

Type of Delisting: Compulsory Delisting

Company: DSQ Software, Pentafour Products and Pyramid Saimira Theatre

Reason: Suspended due to non-compliance with provisions of the listing agreement,

Company: Pentagon Global Solutions

Reason: Suspended for non payment of listing fees.

CHAPTER-9


RELATED NEWS

Dell delisting, and share valuation concerns

The story of Dell represents the story of American enterprise. Started in a college dormitory room, and making products that the technology age devoured with passion, the company wasted no time in catapulting itself to a market capitalization of more than $100 billion.

For some time, it was also the darling of the stock market. In stark contrast, last week, Dell unveiled a buyout deal to take the company private. The $24.4-billion buyout would be financed with Michael Dell’s cash and equity, cash from Silver Lake, and a $2 billion credit line from Microsoft.

Four major investment banks — Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets — are financing the debt. The primary intention behind the go-private move appears to be to escape the harsh glare of the markets with iffy quarterly results and to focus on strategy without being hounded by analysts.

It could well be a combination of many factors, but the fact that cannot be denied is that Dell has been bleeding because of the shift in the market to smart phones and tablets and its inability to play catch-up. Further bleeding could have only hammered its stock price. While the buyout can help it avoid quarterly analysis and questions, delisting could also prevent Dell from building a war-chest for future acquisitions.

Leveraged buyouts

As in most leveraged buyouts, the price being offered — $13.50-13.75 a share — is being questioned. Southeastern Asset Management — which has some stake in Dell — hopes to make life difficult for Michael Dell. As the largest outside shareholder of the eponymous company, it says it doesn’t support the cheaply priced buyout led by the billionaire founder and will vote against the proposed deal. Southeastern values the company at $23.72 a share, greater than the $13.50-13.75 a share that Dell and his partners are offering.

The strong objection from Southeastern can be justified, considering the fact that it has lost its money in other investments and would not want a repetition. Any valuation is subject to a number of assumptions and judgment due to which differences are bound to occur. Accounting standards consider the quoted market price to be the best indicator of fair value — the Dell buyout deal meets this test, as the price offered is at a premium to the existing market price.

Accounting practices


The market price is supposed to be an encapsulation of a number of tangible and intangible factors. Dell has had its share of run-ins with the regulators on accounting practices. Till mid-2005, as per US GAAP, stock options granted to employees did not need to be recognized as an expense on the income statement, although the cost was disclosed in the notes to the financial statements. This allows a potentially large form of employee compensation to not show up as an expense.

However, this rule was changed to state that companies must begin showing stock options as an expense no later than the first reporting period beginning after June 15, 2005. Many companies — Dell among them — sought to reassure shareholders that they would suffer no dilution through the issuance of stock options, vowing to buy back as many shares as they issued through options.

In 1996, Dell came up with a strategy to deal with that. It began to speculate in options on its own stock. It bought call options allowing it to purchase shares at a fixed price several years out. And it sold put options, requiring it to purchase stock at a preset price years later if the other party wanted to sell.

When the stock was rising, the strategy worked. But after the share price fell, Dell was in trouble. Later, Dell pumped up profits by taking undisclosed payments from Intel for agreeing to use only Intel chips in its computers. When the payments stopped, Dell was left holding the baby.

SEBI rule

In India, the Securities and Exchange Board of India (SEBI) came out with a rule that listed companies need to have a minimum of 25 per cent public shareholding, tempting promoters with more than 75 per cent shareholding to either go private or dilute their shareholding. The history of delisting in India has been insipid. More than 200 listed companies have delisted, with a vast majority due to mergers and acquisitions. Valuation of shares has been the bane of many a delisting attempt.

Cadbury has met with stiff opposition to its offered price of Rs 1,340 while India Securities met with opposition as its shares were infrequently traded. Minority shareholders who have litigated against companies in the past will find additional succor in the newly minted Companies Bill that permits class-action suits by a group of minority shareholder coming together. Companies intending delisting could keep in mind the diktat “It’s all in the valuation, stupid!”


Elide Investments delisting offer at Rs 11,455/share against last traded price of Rs 2.73 (CHENNAI, FEB. 20)

Sometimes holding on to a dud investment may also pay at the bourses. Elide Investments provides one such rare opportunity for its shareholders. The promoters of the company, which last traded on September 19, 2011, at Rs 2.73 on the BSE, came out with a delisting offer at a floor price of Rs 11,455 a share.

The company has 229 retail shareholders who hold 40,200 shares, which is 20.1 per cent of its total paid-up capital share.

Currently, promoters hold 79.63 per cent (or 1.59 laky shares).

“As per the explanation to the regulation 15(2) of the Delisting Regulations, the equity shares of Elcid Investments Ltd being infrequently traded, the floor price of the equity shares was determined by us in consultation with the manager of the offer to be Rs 11,455 per equity shares (floor price),” the company informed the BSE.

The floor price was arrived at as per the valuation report dated February 20 of SSPA & Co, Chartered Accountants, Mumbai, the company further said.

The BSE classified the company under ‘Miscellaneous Commercial Services’ sector and it trades under ‘T-group’ where delivery of shares is compulsory.

The company reported a revenue of Rs 24 lakh and a net profit of Rs 18 lakh for the September quarter.

For the financial year ended March 2012, it reported a net profit of Rs 10.26 crore on a revenue of Rs 10.64 crore. Earnings per share for FY12 stood at Rs 512.80.


CHAPTER-10

LISTING AND DELISTING OF COMPANIES

Listing of Companies denotes permission granted by a stock exchange, to a company, for trading of its particular securities (e.g. equity shares, debentures etc.) on the stock exchange. Delisting of Companies refers to the removal of a company's shares from listing on the stock exchanges, either voluntarily or involuntarily. Delisting of securities represents the removal of that particular security for dealing on the stock exchange. As a consequence of delisting of companies, the delisted securities can no longer be traded at that stock exchange. Delisting can be carried out in two ways:

Voluntary Delisting

Compulsory 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, which is decided through reverse book building method.

Compulsory delisting 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.

Delisting may also result as a consequence of Amalgamation, demerger merger, or Winding up of the Company.

Rights of Investors:

Voluntary Delisting: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.

Compulsory Delisting: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. The fair value is to be determined by the arbitrator.


Failure of delisting:

1. MMTC Ltd :Outcome of Board Meeting

The Board of Directors of the Company on February 13, 2013 has not approved the Delisting of Equity Shares of the Company from the Delhi, Chennai and Kolkatta Stock Exchange.

2. UP Hotels Ltd : Outcome of Board Meeting for Delisting

The Board of Directors of the Company in its meeting held on February 13, 2013 has approved the Delisting of the Equity Shares from BSE Limited, subject to the approvals of the shareholders through Postal Ballot and other requisite approval in accordance with SEBI (Delisting of Equity Shares) Regulations, 2009.

3. Gujarat Alkalies and Chemicals Ltd :

Voluntary Delisting from Vadodara Stock Exchange Limited.The Vadodara Stock Exchange Limited on January 11, 2013, has approved the voluntary delisting of the Equity Shares of the Company from the Exchange. The Aforesaid shares of the Company continue to be listed on the BSE Limited and National Stock Exchange Limited.


4. Patni Computer shares to delist from NSE on May 21,2012 MUMBAI:

Shares of IT firm Patni Computer Systems will stop trading on the National Stock Exchange (NSE) from May 21, pursuant to a voluntary delisting by the company. The decision for these changes were announced by the India Index Services & Products Ltd, a joint venture of NSE and Crisil, which manages the various indices at the exchange.

5. What Happens to a Shareholder When Delisting Occurs?

When a company is delisted, its stock no longer trades on one of the major stock exchanges. In a direct sense, nothing happens to a shareholder when delisting occurs. The shareholder still owns the same percentage of the company as before, and he is free to sell the shares to any willing buyer. However, in financial reality, the delisting of a company is usually a huge negative. It often occurs after a company goes bankrupt or as it approaches bankruptcy.When shares of a company are delisted from an exchange, the current shareholders continue to hold the stock but can no longer trade it. Delisting can be initiated by the company or by the exchange. How shareholders are affected depends on the type of delisting, its timing and circumstances.

Ownership When you buy a stock, you own it until you either sell it or, in some cases, the company redeems it from you. If a stock gets delisted, you don't have to hand over your ownership rights. However, those rights often become worthless. In many cases, delisting occurs due to corporate bankruptcy, which typically wipes out original shareholders in favor of newly issued stock. Even if you hold on to your delisted shares, you often won't receive any shares in the company when it emerges from bankruptcy.

Voluntary Delisting

A company may voluntarily delist its shares from an exchange if the cost of continuing listing outweighs the benefits. This usually happens when there is little investor interest in a stock: it does not trade much, and it is hard for a company to sell more shares to investors. This type of stock is usually concentrated in the hands of insiders -- owners and top managers -- and the delisting affects few retail or institutional investors. In any event, when a company announces a voluntary delisting, there is ample time for all who want to sell the stock to do so, usually to the remaining insiders.Partial Delisting

Some large international companies list their stocks on multiple exchanges to have access to investors and capital globally. At some point a company may realize that its stock trades mostly on one exchange. It may decide to delist from a particular exchange while maintaining the listing elsewhere. For example, a large European company may opt to delist from the New York Stock Exchange while maintaining the listing on European exchanges.


http://economictimes.indiatimes.com/topic/NSE

http://economictimes.indiatimes.com/topic/India

http://economictimes.indiatimes.com/patni-computer-systems-ltd/stocks/companyid-16222.cms

CHAPTER-11

QUESTION & ANSWERS

I. What is delisting of shares? Why do companies delist?

Ans) Delisting of shares from Indian stock exchanges has become a major issue for the financial regulator and the finance ministry to tackle.

Almost every shareholder/investor has faced a scenario of having shares of a company that is seeking delisting from the stock exchange. This is either when a substantial acquisition of shares by acquirer (where the public holding dips below requisite levels) takes place and an exit offer made, or through mergers/ acquisitions or compulsory delisting enforced by the stock exchange. Investors also face the bane of being stuck with shares of a company that has not witnessed trading for years. Over the past two years, at least 26 companies, mainly multinational companies have delisted themselves from the stock exchanges, while another 90 other firms propose to do the same in coming years.

II. Why are several companies delisting themselves from the bourses? Should they be allowed to do so, while keeping shareholder and investor interest paramount?

Ans) A Securities and Exchange Board of India-appointed committee has prepared a final draft report on the delisting of shares.

III. What does the committee actually recommend? How have investor rights now been protected? Which are the key issues facing shareholders of these companies? How critical is the issue of delisting of shares from stock exchanges by Indian companies?

Ans) As observed by the Sebi-appointed committee, delisting of shares has created uneasiness amongst investors. The ministry of finance has discussed this issue with Sebi and the possible negative impact on the securities markeThere are more companies today which seek delisting from stock exchanges due to various factors.

IV. In which ways in can a company delist its shares from a stock exchange? Ans) There are several methods to delist from the Indian stock exchanges. Companies may upon request get voluntarily delisted from any stock exchange other than the regional stock exchange for the company, following the delisting guidelines. In such cases, the companies are required to obtain prior approval of the holders of the securities sought to be delisted, by a special resolution at a General Meeting of the company. The shareholders will be provided with an exit opportunity by the promoters or those who are in the control of the management. Companies can get delisted from all stock exchanges following the substantial acquisition of shares. The regulation state that if the public shareholding slides to 10 per cent or less of the voting capital of the company, the acquirer making the offer, has the option to buy the outstanding shares from the remaining shareholders at the same offer price. A stock exchange may compulsorily delist the shares of a listed company under certain circumstances.


In such a case there is no provision for an exit route for the shareholders except that the stock exchanges would allow trading in the securities under the permitted category for a period of one year after delisting. In scenarios like mergers and amalgamations and under legal directions for sick companies under Bureau for Industrial and Financial Reconstruction, companies can be delisted.

V. So is delisting of shares always detrimental to shareholders? Can guidelines be created to restrict delisting of shares?

Ans) The argument presented is that large, profit making and financially sound MNCs have delisted its shares from SEs in recent years and this has caused some concern. There is a perception within the financial markets that investors have not being adequately compensated for the permanent withdrawal of a good investment opportunity. But it must be noted that companies have resorted to delisting due to depressed market conditions and subsequent acquisition of the remaining securities from the shareholders. The current FII reforms also allow foreign companies to hold 100 per cent equity in key sectors and streamline operations for all holdings. In the currently liberalised scenario it would be improper to create fresh entry and exit conditions for companies. Listing and delisting are commercial decisions and should be based on business considerations. As long as the principles of adequate corporate governance, necessary approvals of shareholders and interests of the minority shareholders supported and followed, there should be no case against delisting.An interesting fact is that a study of companies which have been delisted from the BSE shows that in 14 out of 29 companies (which have been or are in the process of being delisted from the BSE), the 52-week average was greater than the 26 weeks average. The Sebi committee had compared the averages of closing highs and lows of 52 weeks with those of averages of weekly closing highs and lows for 26 weeks from the date of offer.

VI. So what has the Sebi committee now recommended?

Ans) The committee has broadly stated that while there would be no restrictions on delisting per se, the monitoring of events leading to delisting (to safeguard investor interests) should be stringent and improved upon. The committee has discussed issues like an exit price for delisting, adopting a reverse book-building process to determine this and taking steps to ensure that there is no scrip price manipulation while the process is on.

The following recommendations have been made:

The exit price for delisting should be in accordance with the book-building process;

The offer price should have a floor price (a minimum base price) which will be the average of 26 weeks traded price and without a maximum price;


Market forces will determine the price above the base price. Stock exchanges will provide the infrastructure to ensure transparency whereby investors can see the prices on screens;

To reduce risk of price manipulation, the scrip will be under watch by the exchanges;

Comprehensive provisions should include procedures governing the entire subject of delisting of securities of companies, and should cover cases in which companies on their own seek delisting of their securities from all or some of the stock exchanges, as well as those where the stock exchanges can compulsorily delist the securities of a company.Sebi notifies delisting norms

The market regulator securities and exchange board of India (Sebi) has notified the Sebi (Delisting of Equity Shares) regulations, 2009, which would govern the normal guidelines to be followed by a company for delisting its shares from a stock exchange.According to the notified guidelines, the offer price for delisting shall be determined by calculating the average of the weekly high and low of the closing prices during the last twenty six weeks or two weeks preceding the date on which the recognized stock exchange were notified. Currently, the offer price was decided on the basis of the average of the last 26 weeks.A senior executive of a leading investment banking company said, “Given the current market situation where the share prices have again bounced back sharply, if the offer price is determined on the basis of the previous rule where the average of last 26 weeks are calculated, it would prove disadvantageous to the shareholders. So the incorporation of two weeks average price is a welcome step”.Further the open offer would be considered a success only when the shareholding of the promoter combined with the shares accepted through eligible bids crosses 90% of the total shares issued or when it reaches higher than the total of 50% of the offer size and the aggregate percentage of pre offer promoter shareholding.On closure of the open offer process, all share holders whose equity shares are verified to be genuine shall be paid the final price stated in the public announcement


CHAPTER-12

CONCLUSION

In the end, delistings can provide profitable investment opportunities or lose major money for shareholders. Everything depends on the motivations behind the privatization, the size of the company and the terms of the offer. Investors willing to invest the time and effort to find and research some opportunities may uncover some gems for their portfolios that can perform extremely well in the short term.

Initial public offerings (IPOs) have become one of the most exciting events on Wall Street after the dotcom heyday created more paper millionaires than any other time in history. Even though IPOs continue to dominate the press, many small investors are instead beginning to discover the vast opportunities available in the opposite type of transaction


http://www.investopedia.com/terms/p/papermillionaire.asp

http://www.investopedia.com/terms/i/ipo.asp

CHAPTER-13

BIBILOGRAPHY

www.wikkipedia.com

www.delistingin

www.investopedia.com

Newspapers

ECONOMIC TIMES

BUSINESSLINE


http://www.investopedia.com/

http://www.delistingin/

http://www.wikkipedia.com/

final delisting

Business