nkr listing and delisting

7/28/2019 NKR Listing and Delisting

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AN ASSIGNMENT ON

LISTING & DELISTING OF SECURITIES TO A

STOCK EXCHANGE IN INDIA

SUBMITTED IN THE PARTIAL FULFILMENT OF COURSE REQUIREMENT OF

SECURITIES LAW

Submitted to:

Mr. Amit Kashyap

Asst. Professor of Law

Gujarat National Law University

Submitted by:

Navindra Kumar RaiReg No. 12LM12

LL.M. II Semester (NEL)Batch: 20122014


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ACKNOWLEDGMENT

I am highly indebted and would like to thank Mr. Amit Kashyap (Assistant Professor of law,

GNLU) for his active and valuable guidance, and helping me throughout in researching for this

topic. I would also like to extend my deep sense of gratitude towards my friends for their active

help and support.

Last but not the least I would like to thank almighty and my parents for their blessing and never

ending support. It is hereby my privilege to acknowledge all those who have assisted me in

completion of my research.

Thanking all

Navindra Kumar Rai

LL.M. II Semester (NEL)

Reg No. 12LM12


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CONTENTS

1. INTRODUCTION....1 2. LISTING....2

3. DELISTING..6

4. CONCLUSION13


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CHAPTER 1

INTRODUCTION

This assignment deals with the legal aspect, i.e. Laws, rules, regulations and by-laws, of listing

and delisting of securities in Stock Exchanges by Public Limited Companies in India.

The Securities and Exchange Board of India is the regulator for the securities market in India. It

was established on 12 April 1992 through the SEBI Act, 1992. It regulates the stock exchanges,

amongst which major three are, BSE, formerly known as Bombay Stock Exchange Ltd.,

Established in 1875, is Asias first Stock Exchange and one of Indias leading exchange groups.

Over the past 137 years, BSE has facilitated the growth of the Indian corporate sector by

providing it an efficient capital-raising platform. Other are NSE and recently formed MCX Stock

Exchange Ltd. There are various other local state level stock exchange recognized by Law in

India.

The second chapter of this assignment deals with listing of securities and the Act, regulations,

guidelines related thereto. It also deals in details with the documents and compliances which are

essential for a company before getting it enlisted in the Stock exchange. It further contains

relevant provisions of The Companies Act, SEBI Guidelines as well as stock exchange

guidelines.

Similarly, the third chapter talks about the provisions regarding the delisting of securities, their

types, the method deployed as prescribed in Act, The SEBI (Delisting of Securities) Guidelines-

2003 & 2009 and other regulations relating therto.

Finally in the last chapter the researcher tries to conclude by looking into the present day

scenario, its implications, possible loopholes and recommendation with regards to all the above.


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CHAPTER 2

Listing

Listing means admittance of securities to transactions on a recognized stock exchange. The

securities can be of whichever public limited company, Central Government or StateGovernment, Quasi-governmental & other financial institutions or corporations, municipalities,

etc.

The objectives of listing are mainly to:

offer liquidity to securities; marshal savings for economic expansion;

shield interest of shareholders by ensuring complete disclosures.

A company, eager to list its securities on the Stock Exchange shall be obligated to file an

application in the prescribed form with the Stock Exchange before issue of Prospectus by the

company where the securities are allotted by way of a prospectus or before issue ofOffer for Sale

where the securities are allotted by way of an offer for sale.

Delisting of securities means perpetual removal of securities of listed company from the stock

exchange where it was registered. As a result of this the company would no longer be traded at

that stock exchange.

Rules and guidelines for listing of securities:

Securities Contract (Regulation) Act, 1956.S. 21. of the Act deals with the listing of the public companies.

Securities Contract (Regulation) Rules 1957.2.1 Requirements and Documents

S. 19 of the Act deals with the requirements and documents to be submitted with respect to the

listing of securities on a recognized stock exchange and i.e.

A. Memorandum and articles of association and, in case of a debenture issue, a copy of thetrust deed.

B. Copies of all prospectuses or statements in lieu of prospectuses issued by the company atany time.


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C. Copies of offers for sale and circulars or advertisements offering any securities forsubscription or sale during the last five years.

D. Copies of balance sheets and audited accounts for the last five years, or in the case ofnew companies, for such shorter period for which accounts have been made up.

E. A statement showing-i. Dividends and cash bonuses, if any, paid during the last ten years (or such shorter

period as the company has been in existence, whether as a private or public

company).

ii. Dividends or interest in arrears, if any.

F. Certified copies of agreements or other documents relating to arrangements with orbetween:-

i. Vendors and/or promoters,ii. Underwriters and sub-underwriters,iii. Brokers and sub-brokers.

G. Certified copies of agreements with-i. Managing agents and secretaries and treasurers,ii. Selling agents,iii. Managing directors and technical directors,iv. General manager, sales manager, manager or secretary.

H. Certified copy of every letter, report, balance sheet, valuation contract, court order orother document, part of which is reproduced or referred to in any prospectus, offer for

sale, circular or advertisement offering securities for subscription or sale, during the last

five years.

I. A statement containing particulars of the dates of, and parties to all material contracts,agreements (including agreements for technical advice and collaboration), concessions

and similar other documents (except those entered into in the ordinary course of

business carried on or intended to be carried on by the company) together with a brief

description of the terms, subject-matter and general nature of the documents.

J. A brief history of the company since its incorporation giving details of its activitiesincluding any reorganization, reconstruction or amalgamation, changes in its capital


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structure (authorized, issued and subscribed) and debenture borrowings, if any.

K. Particulars of shares and debentures issued (i) for consideration other than cash,whether in whole or part, (ii) at a premium or discount, or (iii) in pursuance of an option.

L. A statement containing particulars of any commission, brokerage, discount or otherspecial terms including an option for the issue of any kind of the securities granted to any

person.

M. Certified copies of letters of consent of the Controller of Capital IssuesN. Particulars of shares forfeited.O.A list of highest ten holders of each class or kind of securities of the company as on the

date of application along with particulars as to the number of shares or debentures held

by and the address of each such holder.

P. Particulars of shares or debentures for which permission to deal is applied for.

2.2 Companies Act, 1956.

As per S. 73 of the companies Act, 1956, a company seeking listing of its securities on a stock

exchange is required to submit a Letter of application to all the stock exchanges where it

proposes to have its securities listed before filing the prospectus with the registrar of companies.

2.3 SEBI Guidelines.

A company is required to complete the allotment of securities offered to the publicwithin 30 days of the date of closure of the subscription list and approach the designated

stock exchange for approval of the basis of allotment.

Issuer company to complete the formalities for trading at all the stock exchanges wherethe securities are to be listed within 7 working days of finalization of the basis of

allotment.

Companies making public/rights issues are required to deposit 1 % of the issue amountwith the designated stock exchange before the issue price.


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2.4 Stock Exchange guidelines.

In addition to all these rules, regulation and compliance every stock exchange have a set of

guidelines of its own for the companies to be listed on them. For example they may provide for

the minimum issue size and market capitalization of the company

A company has to enter into a listing agreement before being given permission to be listed on

the exchange. Under this agreement the company undertakes amongst other things, to provide

facilities for prompt transfer, registration, sub-division and consolidation of securities: to give

proper notice of closure of transfer books and record dates, to forward 6 copies of unabridged

Annual reports, balance sheets and profit & loss accounts, to file shareholding patters and

financial results on quarterly basis and to intimate promptly to the exchange the happenings

which are likely to materially affect the financial performance of the company and its stock price

and to comply with the conditions of Corporate governance.

The companies are also required to pay to the exchange some listing fee as prescribed by the

exchange every financial year.

A company not complying with these requirements may face some disciplinary action, including

suspension/ delisting of their securities.

In case the exchange does not give permission to the company for listing of securities, the

company cannot proceed with the allotment of shares. However the company may file an appeal

before SEBI under S. 22 of SCRA, 1956.

A company delisted by a stock exchange and seeking relisting at the same exchange is required to

make a fresh public offer and comply with the extant guidelines of the exchange.


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CHAPTER 3

Delisting

As stated above delisting of securities means removal of the securities of a listed company from

the stock exchange. It may happen either when the company does not comply with the

guidelines of the stock exchange, or that the company has not witnessed trading for years, or that

it voluntary wants to get delisted or in case of merger or acquisition of a company with/by some

other company.

3.1 Types of delisting

So, broadly it can be classified under two head:

1. Compulsory delisting.2. Voluntary delisting.

Compulsory delisting refers to permanent removal of securities of a listed company from a stock

exchange as a penalizing measure at the behest of the stock exchange for not making

submissions/comply with various requirements set out in the Listing agreement within the time

frames prescribed. In voluntary delisting, a listed company decides on its own to permanently

remove its securities from a stock exchange. This happens mainly due to merger oramalgamation of one company with the other or due to the non-performance of the shares on

the particular exchange in the market.

A stock exchange may compulsorily delist the shares of a listed company under certain

circumstances like:

non-compliance with the Listing Agreement. for a minimum period of six months. failure to maintain the minimum trading level of shares on the exchange. promoters' Directors' track record especially with regard to insider trading, manipulation

of share prices, unfair market practices (e.g. returning of share transfer documents under

objection on frivolous grounds with a view to creating scarcity of floating stock, in the

market causing unjust aberrations in the share prices, auctions, close-out, etc.

(Depending upon the trading position of directors or the firms).

The company has become sick and unable to meet current debt obligations or toadequately finance operations, or has not paid interest on debentures for the last 2-3

years, or has become defunct, or there are no employees, or liquidator appointed, etc


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Where the securities of the company are delisted by an exchange under this method, the

promoter of the company shall be liable 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-holders with the company. 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.

Voluntary Delistingis done by the companies upon request to any stock exchange other than the

regional stock exchange, 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.

An exit price mechanism called the book-building method is used by the delisted companies toderive to the price at which the share will be brought into and that which will be paid to the

shareholders. However, an exit opportunity need not be given in cases where securities continue

to be listed in a stock exchange having nationwide trading terminals.

Under the existing SEBI takeover code, an acquirer is required to make an offer to buy securities

at the same offer price. However, here the exit price is based on the average of the preceding 26-

week high and low prices.

The acquirer is required to allow a further period of 6 months for any of the remaining

shareholders to tender securities at the same price. The stock exchange monitors the possibility

of any price manipulation and keeps under special watch the securities for which announcement

for delisting has been made.

This mechanism however is not seen as beneficial in depressed Indian market conditions as the

price arrived through this principle may not adequately compensate the shareholder for the

permanent loss of investment opportunity, especially in a company whose shares are regarded as

value investment.


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3.2 The SEBI (Delisting of Securities) Guidelines- 2003

The prescribed procedure under this regulating Act framing the guidelines and the procedure for

delisting of securities is:

1. The decision on delisting should be taken by shareholders though a special resolution incase of voluntary delisting & though a panel to be constituted by the exchange

comprising the following in case of compulsory delisting:

Two directors/ officers of the exchange (one director to be a publicrepresentative).

One representative of the investors. One representative from the Central government (Department of Company

Affairs) / regional director/ Registrar of Companies.

Executive Director/ secretary of the Exchange.2. Due notice of delisting and intimation to the company as well as other Stock Exchanges

where the companys securities are listed to be given.

3. Notice of termination of the Listing Agreement to be given.4. Making an application to the exchange in the form specified, annexing a copy of the

special resolution passed by the shareholders in case of voluntary delisting.

5. Public announcement to be made in this regard with all due information.

3.3 The SEBI (Delisting of Securities) Guidelines- 2009

The Securities and Exchange Board of India (SEBI) has notified the SEBI (Delisting of Equity

Shares) Regulations, 2009, Regulations, thereby superseding the old SEBI (Delisting of

Securities) Guidelines 2003.

These Regulations provide three different set of provisions for delisting of equity shares under

different circumstances.

Voluntary delisting means delisting of equity shares of a company voluntarily onapplication of the company under these regulations. The main delisting provision

pertains to the voluntary delisting sought by the promoters of a company from the only

recognized stock exchange giving exit opportunity to all public shareholders


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Compulsory delisting means delisting of equity shares of a company by a recognizedstock exchange on any ground prescribed in the rules made under section 21A of the

Securities Contracts (Regulation) Act, 1956

Special provision for delisting of small companies Not frequently traded or with smallnumber of shareholders

Public shareholders mean 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;

3.4 Applicability

A.Apply to delisting of equity shares of a company from all or any of the recognized stockexchanges where such shares are listed.

B. Does not apply to any delisting made pursuant to a scheme sanctioned by the Board forIndustrial and Financial Reconstruction under the SICA or by the NCLT under section

424D of the Companies Act, 1956, if such scheme specify procedure to complete the

delisting; or provides an exit option to the existing public shareholders at a specified

rate.

C. Delisting not Permitted under certain circumstances: A company cannot apply fordelisting of its equity shares pursuant to

Buy back of its equity shares, or preferential allotment made by the company; or unless a period of three years has elapsed since the listing of that class of equity

shares on any recognised stock exchange; or

if any instruments issued by the company, which areconvertible into the sameclass of equity shares that are sought to be delisted, are outstanding.

D. No delisting of Convertible securities

E. Exit opportunity not required if after the proposed delisting from a recognized stockexchange the equity shares would remain listed on any recognised stock exchange which


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has nationwide trading terminals, hence no exit opportunity needs to be given to the

public shareholders.

F. No promoter shall directly or indirectly employ the funds of the company to finance anexit opportunity or an acquisition of shares made by Promoters pursuant to sub

regulation (3) of regulation 23

G. No fraud, deception or manipulation with respect to delisting by promoter or any otherperson.

3.5 Voluntary Delisting under 2009 guidelines

1. Obtain the prior approval of the board of directors2. Prior approval of shareholders of the company by special resolution passed through

postal ballot.

3. Make an application to the concerned recognised SE for in-principle approval & shall beaccompanied by an audit report, in respect of the equity shares sought to be delisted,

covering a period of six months prior to the date of the application.

4. On receipt of in principle approval for delisting, promoters of the company to make apublic announcement in at least one English, Hindi, regional language newspaper of the

region.

5. Public announcement to specify a date(called as specified date), being a day not later thanthirty working days from the date of the public announcement for determining the

names of shareholders to whom the letter of offer shall be sent.

6. Before any public announcement the Promoter has to perform following to appoint a merchant banker & other intermediaries to ensure compliance of

provisions.

open an escrow account and deposit therein the total estimated amount ofconsideration calculated on the basis of floor price and number of equity shares

outstanding with public shareholders.

the escrow account shall consist of either cash deposited with a scheduledcommercial bank, or a bank guarantee in favour of the merchant banker, or a

combination of both.


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7. A letter of offer to be sent to all public shareholders, not later than forty five workingdays from the date of the public announcement, and to contain all disclosures along with

a bidding form.

8. The date of opening of the offer shall not be later than fifty five working days from thedate 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, during which the public

shareholders may tender their bids.

9. Offer price: All public shareholders of the equity shares which are sought to be delistedshall be entitled to participate in the book building process.

It shall be determined through book building after fixation of floor price. FloorPrice determined on basis of 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; and if the shares are infrequently traded highest price paid by the

promoter for acquisitions, during the 26 weeks or net worth, book value of the

shares of the company, earning per share

The promoter shall not be bound to accept the equity shares at the offer price.10.An offer made, 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, reaches the higher of

(a)90% 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;

(b)the aggregate percentage of pre offer promoter shareholding (along with persons

acting in concert with him) and 50% of the offer size.

11.Within one year of passing the special resolution, make the final application to theconcerned SE, shall be accompanied with such proof of having given the exit

opportunity.

12.While considering an application seeking in-principle approval, SE may require thecompany to satisfy:

(a)payment of listing fees to that recognised stock exchange

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


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3.6 Compulsory Delisting by SE under 2009 guidelines

1. Before making an order, the SE shall give a notice in one English & one regionallanguage newspaper of the region of the proposed delisting.

2. The SE appoints an independent valuer or valuers from its panel to determine the fairvalue of the delisted equity shares.

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

retaining their shares.

4. Where a company has been compulsorily delisted, the company, its whole time directors,its promoters 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.

3.7 Special Provision for small companies

Such provisions are applicable to companies:

a) Where the paid up capital is upto one crore of rupees and the shares are not traded in theone year preceding the decision to delist the shares; or

b) where the public shareholders are not more than three hundred and the paid up value ofthe shares held by such shareholders is not more than one crore of rupees.

In case the above conditions are met with, some of the provisions related with the voluntary

delisting such as approval of the Board of Directors, seeking in-principle approval of the stock

exchange, in addition to the following procedures have to be followed by the promoters for

delisting its equity shares:

A merchant banker has to determine the floor price for the buy back; Promoters have to write individually to all public shareholders proposing the buy back

and indicating the floor price and the basis for arriving at the same;

At least 90% of the public shareholders consent to sell or continue to hold equity shareseven after delisting;

Process for completing the buy back is completed within 75 days of first informing thepublic shareholders and payments are made within 15 days from the date of expiry of 75

days.


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CHAPTER 4

Conclusion

There was a time not very long ago when there was no regulating agency like SEBI. Trading was

done then also but then it was a one way route. Every company that issues shares to the public is

required to have its shares listed on a recognised stock exchange. In 1956, the Government of

India enacted a law called Securities Contracts (Regulations), 1956, which came into force with

effect from February 1957. Among other things, this law regulated operations of stock

exchanges and listing of public issues. The Controller of Capital Issues fixed the price of shares

issued by any company. Normally, the Controller used to permit a small premium that could be

charged by a company while issuing shares to the public.

However, with the changing economic scenario and with the opening up of the Indian economy,

the country witnessed huge influx of foreign capital. This resulted in growth in the number of

listing of companies on the stock exchanges. Alternatively it also lay to demand from several

India-based MNCs that they should be permitted to delist their shares. The reason remains the

non-performance of the shares on the stock exchange and in case of merger and acquisition of

one company with the other. To consider the prevailing position in respect of delisting, SEBI

appointed a committee to study the whole issue and, as a result, issued guidelines for delisting of

securities in 2003.

However, in the present scenario, if the market is studied minutely many MNC seeks to get their

shares delisted at the expense of those investor who themselves are worried seeing their hard

earned money whooping in number game. The reason being, the exits route method applied in

case of voluntary delisting. Under the present norms the exits price is decided on the basis of

price of companys shares on 26 weeks highs and lows and in this market condition these

companies are finding it profitable to buy back their shares at this price. In this scenario SEBI

should look after any such possibility of playing fraud on the investors by these big companies.