In this blog post, Siddheshwari Ranawat, a student at University of Petroleum and Energy Studies and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the process of delisting of securities.

DESCRIBE THE PROCESS OF DELISTING OF EQUITY SHARES

• There are certain regulatory framework related to delisting of shares like SEBI (Delisting of Equity Shares Regulations, 2009) SCRA which stands for securities contract regulation act, 1956, the listing agreement also the companies Act, 2013 and the previous legislation also the SEBI Substantial acquisition of shares and takeover) regulation, 1997. Firstly let us understand what is delisting of shares, we can say that to understand the meaning of delisting, one has to understand the meaning of listing of shares. 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. While on the other hand delisting is the total opposite of listing, it means that a permanent removal of securities of a listed company from stock exchange. As a result of the delisting the company will no longer be able to trade its securities in the market through the platform of stock exchange.
• Let’s first understand the transformation of guidelines to regulations related to the delisting of securities. SEBI delisting guidelines, 1998 which later turned into the SEBI delisting Guidelines, 2003 with certain amendments and then the final SEBI delisting of equity shares regulations, 2009. So before understanding the process of delisting we shall look into the salient features of the regulations which we have. Public shareholders have been defined  as the holders of equity shares other than the

1. a) Promoters and
2. b) Holders of depository receipts issued overseas against underlying shares.

This provision on the other hand is not applicable to sick companies.

The companies cannot delist their securities from the Exchanges pursuant to buyback and preferential allotment. There is no shareholders approval, in case the company continues to remain listed at any of the exchanges having nationwide trading terminal i.e. BSE or NSE or any other Exchange specified in this behalf. The concept of Specified Date has been introduced, which shall not be later than 30 working days from the date of the Public Announcement. The special resolution passed for the delisting giving exit option to the shareholders will be valid for a period of 1 year within which the final application will be required to be made to the exchange for delisting. There has to be a special Resolution by way of Postal Ballot. These were certain rules given under the regulation act.

Now moving on to the topic of delisting of shares there are mainly two types of delisting:

1. Compulsory delisting
2. Voluntary delisting

Firstly let’s look into the compulsory delisting of securities. 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. There has to be a decision by panel of experts after considering the various parameters given in the regulations.

A Public notice is to be given by the exchange for inviting the representation by the aggrieved persons. There has to be determination of exit price by the independent valuer appointed by the concerned stock exchange. There is also no requirement of going through the reverse book building process. Where a company has been compulsorily delisted, the company itself, with 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, this is provision which is to be followed.

There are certain powers which are given to the stock exchange under the Schedule III: The recognized 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 recognized 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.

Further we shall discuss the other kind of delisting which is voluntary delisting of securities. There are three categories under which we can understand this delisting:

Firstly Voluntary delisting from all the exchanges secondly, voluntary delisting from few exchanges except but remains listed on at least on stock exchange which has a nationwide terminal and thirdly voluntary delisting by small companies.

Discussing about the first instance where 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)). There are certain highlights under the regulations which are to be considered during the delisting of securities. Like a special resolution has to be passed by postal ballot which will 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.

The company shall obtain in principle approval from the concerned stock exchange for the proposed delisting of its equity shares. The process could go like the promoter has to appoint a merchant banker. Then a Public announcement is to be made by the promoters. After that an invitation of bids from the public shareholders through letter of offer for determination of final price which the reverse book building method. Then the final offer price shall be determined as the price at which the maximum number of equity shares is tendered by the public shareholders. 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 respectively. The post offer promoters shareholding should reach to either 90% of total paid up capital or minimum 50% of the public shareholding tendered through offer whichever of them is high. While there is no condition related to the final price which is to be accepted by the promoters. Remaining  public  shareholder  may  tender  their  shares  to  the  promoter  up to  a  period  of  one year from the date of delisting.

While on the second instance where 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)). There is no need to pass Special resolution by members in this case. The company has to give a public notice of the proposed delisting and the company shall disclose the fact of the delisting in the first annual report after delisting. While under the third instance of small companies the definition could be that a company having paid-up capital of up to one Crore rupees and its equity shares were not traded on any exchange in the one year immediately preceding the date of decision of delisting which is (Regulation 27 (1)). A company having up to 300 public shareholders and the paid-up value of the shares held by such shareholders is up to one Crore rupees (Regulation 27 (2)). While the provisions remain a little same as the previous ones we shall look into them. The special resolution can be passed through postal ballot and 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. Also the promoters shall determine the exit price in consultation with the Merchant Banker. And the company shall obtain in principle approval from the concerned stock exchange for the proposed delisting of its equity shares. The shareholders are given an option to remain as shareholders even after delisting of the small company.

There are certain points related to relisting of securities: there is a period called as a Cooling period in which the company that has voluntarily delisted its securities can relist its securities only after a period of 5 years. The company that has been compulsory delisted by the exchange can relist its securities only after a period of 10 years. There are also certain points related to the relisting of sick companies. In case of Delisted companies who were sick in the past, can be given opportunity of listing through restructuring scheme passed by BIFR. The sick companies are exempted from the provision of cooling period.

So in conclusion, these were the provisions related to the delisting of securities. The criteria to remain listed on a stock exchange differs like for instance if the security’s price closes below $1 for 30 consecutive trading days then the New York Stock exchange would start the delisting process for that company. While criteria like the price and annual listing fees along with market capitalization, shareholders equity and revenue are also considered. So the process differs on the regional and national based stock exchanges but the provisions mentioned above remain the same.