This article is written by Abhishek Dubey, pursuing a diploma in merger and acquisition from Lawsikho.

Introduction

The listing of securities is done through an agreement which is known as a listing agreement. It is an agreement done between the issuing company and stock exchange. The listing agreement is of great importance. It provides the terms and conditions which the company has to follow. The listed agreement has to be executed under the company’s common seal.

The Companies Act, 2013 makes it mandatory for the companies intending to offer share or debenture to list securities on a stock exchange. The listing rules and regulation have been designed to safeguard the interest of the investor and to control the conduct of listed securities. Securities Exchange Board of India Regulation, 2015 and amended in 2020 provides the details about all the recognised stock exchanges where such shares are listed.

Delisting means removing the share from the stock exchange. It is of two types: one is voluntary where the company pays its investor and then gives the option to exit and the other type of delisting is compulsory. Compulsory delisting is when the stock exchange forces a company to remove the shares from the stock exchanges for not following the rules of stock exchanges.

As per Regulation 4 of the Securities and Exchange Board of India  (Delisting of equity shares), 2009 there are certain circumstances where delisting is not permissible:

• Pursuant to buyback of shares.
• When preferential allotment is made by the company.
• Unless 3 years have passed from the date of listing of equity shares when companies want to delist convertible securities.
• When the promoter or promoter group wants to exit.
• When any entity belonging to the promoter or promoters group was sold in six months.

 General Procedure for Delisting

• The company shall appoint merchant bankers, book-running managers etc.
• Before making a public announcement, the acquirer or promoter shall open an escrow account and deposit the total amount of consideration on the basis of a floor price and the number of equity shares outstanding with the public shareholder.
• The escrow account shall consist of either cash deposited with a schedule of a commercial bank or bank guarantee deposit in favour of a merchant banker or both.
• The promoter or acquirers shall, within one working day from the date of receipt of principal approval for delisting from the stock exchange make a public announcement which contains all relevant or material fact information in one English newspaper, one Hindi newspaper and in one regional paper in the concerned area where the recognised stock exchange is located.
• The public announcement should specify the date on which the letter of offer has to be sent and the name of shareholders.
• Before making the public announcement, the promoter or acquirer shall appoint merchant bankers registered with SEBI to ensure compliance with these regulations.
• The associate promoter or acquirer cannot be the merchant banker.
• The acquirer or promoter shall dispatch the letter of offer to the public shareholders no later than two working days from the date of public announcement.
• The letter of offer shall be sent to public shareholders whose name appears in the register of companies as on the date specified in the public announcement.
• The letter of offer should contain the material facts so that shareholders can make accurate decisions.
• The date of the opening offer should not be later than 7 working days from the date of public announcement.
• The offer shall open for a period of working 5 days.
• The acquirer or promoter shall not make a bid in the offer.
• All equity shareholders belonging to public shareholders should participate in the book-building process.
• The offer price shall be determined through the book building after the fixation of a floor price and shall disclose the same in the public announcement and open offer.
• The floor price should be determined according to regulation 8 of SEBI takeover code regulation 2011.
• The date of opening the offer shall not be later than 7 working days from the date of public announcement.
• The company shall not make the application to exchange for delisting.
• The acquirer or promoter may close the escrow account.
• An offer is deemed to be successful only if the post-offer promoter shareholding accepts that offer in bidding at the final price and, 20 per cent of public shareholding has participated in the book-building process.

Types of Delisting

1.  Voluntary delisting

Securities Exchange Board of India gives an option to a company to be delisted itself,  either from all recognised stock exchanges or any one of them. No exit opportunity is to be given in case of delisting from one or more recognised stock exchanges. The equity share will remain listed in the nationwide terminals stock exchange such as Bombay Stock Exchange and National Stock Exchange.

The procedure of voluntary delisting in case no exit opportunity as per Regulation 7 of SEBI Delisting of Equity Shares, 2009 is available

• It shall be approved by the Board of Directors in a meeting.
• The company shall give notice in one English newspaper, Hindi newspapers and one regional paper.
• The company shall make an application to one of the recognised exchanges.
• The public notice shall contain the name of the stock exchange from which it is going to exit and also public notice should contain the reason for being delisted and any other fact of delisting.
• An application shall be disposed of from the stock exchange within 30 days from the date of receipt of application.   

Exit option has to be given in a case where the company is going to be delisted from all recognised stock exchanges including the one having nationwide terminals. The procedure for the same as per regulation 8 of the SEBI delisting of equity shares 2009 is:

• The company who wants to exit must take prior approval from the  director in the meeting as specified in the SEBI delisting of equity shares 2009:
• Approval of shareholders is necessary by special resolution through the postal ballot and also disclosing the material facts and the reason for delisting.
• Making an application in one of the recognised stock exchanges for the principal in approval.
• After passing of the special resolution by the shareholders within one years final application by the board of directors has to be made to the stock exchanges for delisting.

  While considering an application for the delisting the stock exchange shall verify that:

• That the approval of the shareholders has been obtained.
• The resolution of the investor grievances has been made by the company.
• Payment of listing fees has been made by the company from whichever stock listing has been made.
• Any other application as deemed to be fit by the stock exchange may be verified.

The final application needs to be made that the exit opportunity is given as specified in accordance with the SEBI regulations.

2. Compulsory Delisting (Regulation 22 of the SEBI Delisting of Equity Shares, 2009)

A recognised stock exchange may by order, delist the equity shares of the company for any ground mentioned in the Securities Contract Regulation Act, 1956. A recognised stock exchange may delist the securities after recording the reason on any ground specified in this Act.

Securities of companies cannot be delisted unless the important persons such as shareholders, creditors have been given the opportunity of being heard. A listed company investor may file an appeal within 15 working days of decisions of the recognised stock exchange.

Procedure and steps for compulsory delisting

• The decision of compulsory delisting will be taken by the recognised stock exchange in the panel constituted by the stock exchange. the panel will consist of the representative or director appointed by the investor and also one director of the ministry of corporate affairs, secretary of the recognised stock exchanges.
• Public notice of the decision is to be given in one English national newspaper, one Hindi newspaper, and one in the regional newspaper where the stock exchange is located.
• An aggrieved investor may file an appeal within 15 days from the decision of stock exchange.
• Delisting order has to be made by a recognised stock exchange.
• A public notice has to be given in English, Hindi and regional newspapers where the stock exchange is located and the same has to be put on the website of companies.
• When a company is being delisted, the stock exchange should appoint an Independent Valuer to decide the value of the share. 
• The stock exchange should form a panel to decide the independent valuer.

Consequences of compulsory delisting as per regulation 24 SEBI Delisting of Equity Shares, 2009:

Where a company has been delisted as specified in the regulation 22 of the delisting of the equity share i.e. compulsory delisting. The promoter, Board of Directors of companies shall not directly or indirectly access the securities market and also cannot seek a listing of securities for a period of 10 years.