This article is written by Naincy Mishra. This article discusses the concept of securities, security market, legal framework related to securities and the concept and whole procedure of listing and delisting of securities alongwith important judicial pronouncements. 

This article has been published by Shashwat Kaushik.

Introduction

In the present global economy, the security market has stood out as an important element, which serves the aspirations of investors as well as the capital needs of the corporations and the governments. This market includes a wide array of financial instruments such as stocks, bonds, derivatives, units of mutual funds, etc. Along with providing a mechanism for efficient capital allocation, the security market facilitates economic growth as well as innovation in a country.

India has emerged as one of the fastest growing economies in the world and this is often associated, among other things, with the growing importance of the security market in the country. The issuance of securities by corporate entities in India is as early as the introduction of joint-stock enterprises by the British Government. While there was emergence of many industries of tea, cotton and jute textiles, etc. in the 18th and 19th centuries, several companies were set up as joint-stock enterprises where the liability was limited by shares. These shares were purchased and traded by the urban businessmen which helped the financing of the companies. However, most of the companies were still more dependent upon the joint-stock British banks in India and other borrowings from abroad. Thus, it can be said that the British enterprises and British Government have helped the inception of securities markets in India. So far as the Government securities are concerned, it was only in the late 19th century that the British Government issued a few treasury bills and Government securities in rupees which then led to the development of the Government securities market in India.

One of the essential features of the security market ecosystem is the listing and delisting of the securities. ‘Listing’ may be defined as the admission of securities for trading on a stock exchange, so that it is available for the general public for trading. Listing is helpful for companies that seek access to public capital markets. It indicates credibility and invites participation from a wide pool of investors. On the other hand, ‘delisting’ involves the removal of securities from the stock exchange. Delisting can occur voluntarily or involuntarily. While delisting might indicate issues such as non-compliance with the regulatory standards or a shift in the corporate strategy, it also impacts investor perception as well as the market dynamics.

This article discusses the concept of securities, the security market and its types, the legal framework related to securities and the concept and whole procedure of listing and delisting of securities along with important judicial pronouncements. 

What is security market

Every company or business needs funds for its growth. One of the ways to raise funds is by issuing and trading in securities. Generally, a ‘security market’ can be understood as a place where the investors (public) trade (buy and sell) the financial instruments. These financial instruments, commonly known as ‘securities’, include stocks, bonds, options, futures, units of mutual funds, etc. 

The security market is a part of the capital market. It plays an important role in the economy by facilitating the flow of capital from investors to entities requiring funding. These entities include corporations, governments, or other institutions. This capital flow supports these entities in financing their operations, expansion, and projects, contributing to larger economic growth and development.

Security markets can be divided into two interdependent segments:-

Primary market

A primary market is where new securities are issued and sold for the first time. It is also known as the ‘Initial Public Offers’ or the IPOs. Corporations, governments, and other entities sell securities directly to investors in order to raise funds (capital). The transactions of the primary market thus provide the initial capital to the issuers. 

There are several types of issues made in the primary market:-

1. Public Issue – This means the issuance of securities to the general public and anyone can subscribe to them. Eg, Initial Public Offer (IPO), Follow on Public Offer (FPO).
2. Preferential Issue – This involves the issuance of securities to recognized investors like promoters, employees, strategic investors, etc.
3. Rights Issue – When the existing shareholders of a company are given the right to subscribe to the newly issued shares in relation to their existing shareholding.
4. Bonus Issue – When the company issues additional shares to its existing shareholders, in ratio of their existing shareholding, without any additional cost.

Secondary market

Once the securities are issued in the primary market, they get listed on the stock exchanges and can be bought and sold (traded) among the investors from the stock exchanges in the secondary market. This trading does not involve the issuing entities directly. The secondary market provides liquidity, which means that investors can readily buy or sell securities without significantly affecting their price.

Significance of security market in India

In a developing country like India, the security market has a profound significance, touching various aspects of the economy and society. India’s security market has evolved substantially over the years, becoming an important component of the country’s financial system. 

Below mentioned are some key points highlighting the importance of the security market in India:-

Mobilisation of savings

One of the most important benefits of the security market is its role in mobilising savings from individuals and institutions, channelling them into productive investments, in accordance with the Harrod Domar model (more savings lead to more investments). This mobilisation of savings supports economic growth as well as development by providing capital or funds to businesses for expansion, innovation, and infrastructure development.

Capital formation

By facilitating the issuance of new securities, the security market aids in capital formation. This process enables the financing of long-term projects and investments in various sectors, including manufacturing, technology, and infrastructure and thus, contributes to larger economic development.

Investment opportunities for individuals

The security market offers a platform for individuals to invest in a diversified portfolio of financial instruments, such as stocks, bonds, and mutual funds. This enables individual investors to earn returns on their investments, contributing to wealth creation as well as financial security for themselves.

Corporate governance and transparency

The Indian regulatory framework which governs the security market of the country mandates disclosure and transparency from the companies listed on the stock exchanges. This requirement helps in maintaining high standards of corporate governance, protecting investor interests, and enhancing the confidence of domestic as well as international investors.

Price discovery

The security market acts as a mechanism for the efficient discovery of prices through the market forces of demand and supply. The process of price discovery is important for the efficient allocation of resources and reflects the market’s perception of the values of different securities.

Liquidity

The secondary market offers liquidity, which allows investors to buy and sell securities with ease. This enables investors to convert their investments into cash quickly without significantly affecting the price of the securities.

Economic indicators

The performance of the security market is often seen as an indicator of the health of the economy. Movements in stock indices like the BSE Sensex and NSE Nifty can reflect investor sentiment and provide insights into the prevailing economic trends.

Global integration

The Indian security market has become increasingly integrated with the global financial markets which allows more foreign investments. This integration has helped bring in capital, expertise, and global best practices, further enhancing the market’s efficiency as well as resilience.

What are securities

Simply defined, securities are the financial instruments such as stock, bond, option, etc. that indicate an ownership position in a publicly-traded corporation. Essentially, they are tradable assets that carry value and can be bought and sold in financial markets. These instruments are a way and medium for entities to raise capital and for investors to potentially earn returns on their investments.

Section 2(h) of the Securities Contracts Regulations Act (“SCRA 1956”) defines the term ‘securities’. It provides that the “securities” include:

• shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
• Derivative (this includes forwards, options, future contracts, etc.);
• units or any other instrument issued to the investors who are part of any collective investment scheme or mutual fund scheme (for example, Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), Alternative Investment Funds (AIFs), etc.);
• security receipt as defined in Section 2 (zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2000 also known as the SARFAESI Act, 2002;
• any certificate or instrument (irrespective of its name with which it is called), issued to the investors by an issuer which is a special purpose distinct entity having any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of the investors in such debt or receivable;
• government securities;
• any other instruments as may be declared by the Central Government to be securities; and
• rights or interest in securities.

Scope of ‘securities’ under Section 2(h) of SCRA, 1956

The definition of ‘securities’ in the SCRA 1956 is an inclusive definition which means that it extends to other financial instruments as and when recognised by the SEBI or the judiciary. Here are some important case laws pertaining to the scope of the term ‘securities’.

Bhagwati Developers Private Limited v. Peerless General Finance & Investment Company Limited (2013)

In this case, the dispute was related to the legality of a securities transaction under the SCRA 1956. The core issue for determination by the court was whether the transaction constituted a ‘spot delivery contract’ as per the SCRA 1956 and whether shares of an unlisted public company fall under the ambit of ‘securities’ as defined by the SCRA 1956.

In this case, the appellant Bhagwati Developers had advanced a loan to Tuhin for purchasing shares of Peerless, which was an unlisted public company. The transaction was later contested, and the appellants argued that it was a case of a spot delivery contract and the shares, being unlisted, did not qualify as ‘securities’ under the SCRA 1956. The Company Law Board found that the transaction did not meet the criteria of a spot delivery contract as part of the consideration was passed much after the supposed sale of shares, and the SCRA 1956 applies to shares of a public limited company, whether listed or unlisted, due to their free transferability.

However, in the final judgement given by the Apex Court of India, it was held that the shares of an unlisted public company are also covered under the SCRA 1956, and the definition of securities also includes shares that are freely transferable, irrespective of whether they are listed or not. The court highlighted that the ‘marketability’ of shares, which is defined as the capability of being bought and sold in the market, can be equated with free transferability, thereby making the SCRA 1956 applicable to securities of even an unlisted public company.

Naresh K. Aggarwala and Co. v. Canbank Financial Services Limited (2010)

In this case, business transactions between the parties were in dispute, specifically concerning the contracts for the purchase and sale of shares. This also included a contested cancellation of a contract and some discrepancies in the share prices and delivery. The Supreme Court had to determine the validity of these contracts, proper accounting of the transactions, and whether the contractual obligations were met. The Supreme Court in this case interpreted the definition of “securities” under Section 2(h) of the SCRA 1956 and held that the SCRA 1956 does not create a distinction between listed and unlisted securities. 

Sahara v. SEBI (2012)

In the case of Sahara India Real Estate Corp.Ltd.& Ors vs Securities & Exchange Board Of India & Anr (2012), Sahara group companies were accused by SEBI of violating public issue norms by raising over $3 billion from 30 million investors without proper regulatory approval. The Supreme Court ruled that the issuance of Optionally Fully Convertible Debentures (OFCDs) by Sahara was a public issue, which required SEBI registration and compliance. Accordingly, Sahara was ordered to refund the money to the investors along with interests. This was a landmark judgement which emphasised the importance of regulatory compliance as well as investor protection in financial transactions. So far as the question of OFCD being a security under Section 2(h) was concerned, it was held that the definition of “securities” under SCRA 1956 is inclusive and covers all “marketable securities”, whether they are listed or not.

Laws governing securities

Some primary laws of India related to the security market are as follows. 

Securities Contracts Regulations Act, 1956

The Securities Contract (Regulation) Act (SCRA) 1956 was enacted with two primary objectives which are – the regulation of the securities market in India and the protection of the investors. The underlying purposes of the SCRA 1956 are to:-

• prevent undesirable transactions in securities by regulating the business of dealing in them, 
• provide for certain requirements to be fulfilled for listing on stock exchanges, and 
• prescribe rules for the control and regulation of the stock exchanges. 

Some key features of the SCRA 1956 include:-

1. Definition of the term ‘securities’: The definition of “securities” in Section 2(h) has evolved over time by the judicial pronouncements. 
2. The regulation of Stock Exchanges: The Act requires stock exchanges to obtain recognition from the government as per Section 4. Further, under Section 5, the Act also provides the conditions under which the Central Government can withdraw the recognition given to the stock exchange. Furthermore, under Section 7, every recognised stock exchange needs to provide its annual report containing prescribed particulars before the Central Government. 
3. Contracts in Securities: It specifies the conditions under which securities contracts are valid and enforceable. Section 9 of the Act provides that every recognised stock exchange has the power to make bye-laws for controlling and regulation of the contracts, however, prior approval of the SEBI is necessary for the same. It is crucial to note that the SEBI also has the power to make/ amend the bye-laws of any recognised stock exchange as per Section 10.

The Central Government has the power to declare as ‘illegal’ (Section 13) or ‘void’ (Section 14) any contract that is entered into between the members of a recognised stock exchange(s) in any state/ States/ area or through or with such members. 

Further, to prevent undesirable speculation in particular securities in any State or area, the Central Government under Section 16 can declare that any person in the State or area shall not enter into any contract for sale or purchase of any such particular security. 

4. Listing of Securities: The Act outlines requirements for the securities to be listed on recognized stock exchanges under Section 21.
5. Licensing of Dealers and Brokers: Under Section 17, the Act mandates the licensing of dealers and brokers in the securities market.
6. Penalties and Adjudication: It provides for penalties for violations along with an adjudication process for resolving disputes. The penalties have been given from Section 23 to Section 23H. 

Securities and Exchange Board of India Act, 1992

The SEBI Act, 1992, was brought in to provide for establishment of the Securities and Exchange Board of India (“SEBI”) with the primary objective of protecting investor interests in the securities market, promoting the development of as well as regulating the securities market in India. 

Chapter IV of this Act provides for the powers and functions of the Act. Section 14 enumerates the functions of the SEBI, which include – regulating the stock exchanges, mutual funds, and market intermediaries, enforcing the company listing agreements, and prohibiting fraudulent and unfair trade practices in the securities markets. The Act empowers SEBI with quasi-legislative, quasi-judicial, and quasi-executive functions, also enabling it to draft regulations, conduct investigations and enforcement actions, and pass rulings.

Depositories Act, 1996

With the transition of scripless securities to their dematerialised form, it was essential to enact a law to regulate the same by providing for the different factors involved in the process. Thus, the Depositories Act of 1996 was enacted in India to serve this purpose. The Act provides for the establishment of depositories in order to facilitate the dematerialization of securities in the financial market. This act formally allowed for securities to be held and transferred in electronic form and this significantly helped in improving the efficiency of the securities market by reducing the time for transfer of securities, eliminating the risks associated with physical certificates, and enhancing transparency in dealings. The Act governs the functioning of depositories, participants, issuers, and beneficial owners through the registration and regulation of depositories.

The various players in this regard can be understood through the following definitions:-

• Depositories: These are the institutions which hold the securities in electronic form, thereby facilitating the transactions in the securities market. Eg. In India, there are two depositories – National Securities Depositories Ltd (NSDL) and Central Securities Depositories Ltd (CDSL). The Act defines “depository” under Section 2(1)(e) as a company formed and registered under the Companies Act, 1956 and having a certificate of registration under Section 12 (1A) of the SEBI Act, 1992. 
• Depository Participant: It is a depository agent which provides services to the investors according to the depository’s rules and regulations (similar to a brokerage firm). Thus, it acts as a link between the depository and the investor. Eg. Sharekhan, Motilal Oswal and Angel Broking, etc. Section 2(1)(g) defines a “participant” as a person registered as such under Section 12 (1A) of the SEBI Act, 1992.
• Issuer: Any entity (company, government body, or any institution) which offers securities to the public for sale in order to raise funds is called an Issuer. Section 2(1)(f) defines this term under the Act. 
• Beneficial Owner: Although the securities are registered in the name of the depository, the beneficial owner is the real owner of securities held in the depository and he has all the rights and benefits of the ownership. Section 2(1)(a) defines “beneficial owner” as a person whose name is recorded as such with a depository. 
• Registered Transfer Agent (RTA): Simply defined, an RTA is an agent of the issuer company who is responsible for maintaining the records of holders of securities, transferring securities, and distributing dividends or interests. Thus, the RTA acts as a link between the issuer company and the depository. 

Governing bodies

Securities and Exchange Board of India (SEBI)

In India, the chief regulator of securities market is the SEBI which was set up in 1988 and given statutory powers on January 30, 1992, by way of the SEBI Act, 1992. The primary functions of SEBI are – to protect the investors’ interests in securities, promote the development of the securities market, and regulate business in stock exchanges or any other securities markets in India.

Section 14 of the SEBI Act provides the main responsibilities of SEBI which include:

• Regulation of the stock exchanges and securities firms to ensure their proper functioning;
• Registration and regulation of the working of market intermediaries eg. brokers, sub-brokers, share transfer agents, trustees, merchant bankers, underwriters, portfolio managers, etc. who are related with securities markets;
• Registration and regulation of working of collective investment schemes;
• Prohibition of fraudulent and unfair trade practices in the securities markets;
• Promotion of investor education and training of intermediaries in the securities markets;
• Prohibition of insider trading in securities; and
• Regulation of substantial acquisition of shares and takeover of companies.

SEBI is often regarded as the guardian of the securities markets, as it ensures that the markets operate in a manner that protects the interests of the investors and maintains the integrity and stability of the financial market. Other than SEBI, the Reserve Bank of India and the Ministry of Corporate Affairs are other regulatory bodies of financial market in India.

Reserve Bank of India (RBI)

The Reserve Bank of India was set up in 1935 as per the Reserve Bank of India (RBI) Act, 1934. RBI acts as India’s central banking institution as well as the regulator of the entire banking system in India including commercial banks, cooperative banks, and non-banking financial companies (NBFCs). It regulates the country’s monetary policy, foreign exchange and the issuance and supply of the Indian rupee.

Ministry of Corporate Affairs (MCA)

The MCA is responsible for regulating corporate affairs in India through the Companies Act, 2013, and other associated Acts, Bills, and Rules. It oversees corporate governance, corporate compliance, and the administration of the Companies Act.

Listing of securities

The ‘listing of securities’ can be defined as the formal admission of the securities of a company on the trading platform of a stock exchange, so that they are available for the general public for trading purposes. Listing of the securities on a stock exchange indicates that the securities have met the exchange’s requirements and standards for listing. These requirements may include minimum capitalization, a specific level of profitability, adherence to the norms of corporate governance, and compliance with financial reporting standards.

Advantages of listing of securities

Access to Capital

Listed securities enable the concerned companies to raise their capital from the public through the issuance of shares or bonds or any other type of securities. This capital can thereby be used for expansion, debt repayment, or other corporate purposes of the company.

Liquidity

Listing provides immediate liquidity to a company’s shares. This makes it easier for the investors to buy and sell the securities and can ultimately lead to a broader shareholder base.

Visibility and credibility

When the securities of a company are listed on a stock exchange, it improves the company’s visibility and credibility with the investors, customers, suppliers and other stakeholders of the company. Additionally, it can also attract media attention and coverage of the market analyst.

Valuation

The public trading of the shares helps in establishing a better market valuation for a company. This valuation can be important for mergers, acquisitions, or for raising additional capital.

Employee Incentives

Listed companies can offer stock options or shares as part of the employee compensation packages, which can also help attract and retain talent in the company.

Governing framework

Section 21 of SCRA 1956 provides that when any person makes an application for the securities to be listed in any Recognised Stock Exchange (“RSE”), such person is required to confirm to the conditions of the listing agreement with that stock exchange. Further, Regulation 19 of the Securities Contracts (Regulation) Rules, 1957 (SCR Rules) provides the requisites relating to the listing of securities on a RSE. 

Application to Stock Exchange

Rule 19(1) of the SCR Rules, 1957 provides that any public company (as defined under the Companies Act, 1956), which wants to get its securities listed on an RSE has to make an application to the stock exchange for that purpose along with the following documents and contents:-

• The company’s Memorandum of Association (MOA) and Articles of Association (AOA) along with a copy of the trust deed in case of a debenture issue. 
• Copies of all the prospectuses or statements related thereto that are issued by the company at any time before the application. 
• Copies of offers for sale and ads which have offered any securities for subscription or sale during the preceding five years.
• Copies of audited accounts and balance sheets for the preceding five years, or, for any such shorter period for which the accounts have been formed, in the case of new companies.
• A statement which shows—
  • dividends and cash bonuses, that have been paid in the preceding ten years (or such shorter period since the existence of the company, whether as a private or public company), 
  • dividends or interest in arrears, if any. 
• Certified copies of agreements / other documents that are related to any arrangements with or between:—
  • vendors and/or promoters, 
  • underwriters and sub-underwriters, 
  • brokers and sub-brokers. 
• Certified copies of the agreements entered into with—
  • managing agents, secretaries, treasurers, 
  • selling agents, 
  • managing directors and technical directors, 
  • general manager, sales manager, manager or secretary. 
• Certified copy of all the letters, reports, balance sheets, valuation contracts, court orders or other documents, any part of which is referred to in any prospectus/ offer for sale/ circular which has offered securities for a subscription or sale, in last five years. 
• A statement which contains the dates, parties involved, brief description of the terms and subject matter – of all material contracts, agreements (including the ones related to technical advice and collaboration), concessions, etc. (apart from the ones in the ordinary course of the company’s business). 
• A brief history of the company since its incorporation including the details of its activities relating to any reorganisation/ reconstruction/ amalgamation, changes in its capital structure and debenture borrowings. 
• Details of the issued shares and debentures—
  • for consideration other than cash, in part or in whole, 
  • at a discount/ premium, or 
  • in pursuance of an option. 
• A statement which contains details of any commission, discount or other special terms including an option for issuance of any kind of securities granted to any person. 
• Certified copies of—
  • acknowledgement card for filing offer document with the SEBI; and
  • agreements with the Industrial Finance Corporation, Industrial Credit and Investment Corporation and other similar bodies. 
• Particulars of forfeited shares. 
• A list of the highest ten holders of each class/ kind of company’s securities as on the date of application along with details as to number of shares/ debentures held by each such holder along with their addresses. 
• Details of shares/ debentures for which permission to deal has been applied. However, it has been provided that an RSE may by its bye-laws or for any particular case call for further particulars/ documents as and when it deems fit. 

Satisfy the Stock Exchange

Moreover, Rule 19(2) of the SCR Rules, 1957 provides that the applicant company has to satisfy the stock exchange that-

• Its AOAs, among other things, contains that—
  • the company will use a common form of transfer, 
  • the fully paid shares of the company shall be free from all lien; and the partly paid shares, if the company’s lien exists, shall be restricted to the money called / payable at a fixed time with respect to such shares, 
  • any amount paid up in advance of calls in respect of any share may carry interest but holder of the share shall not participate in any dividend that is subsequently declared in respect thereof, 
  • there shall not be any forfeiture of unclaimed dividends before the claim becomes barred by the law, 
  • no person shall be given option or right to call shares except with the company’s sanction in the general meeting. 
• Further, it has to be ensured that-
  • Minimum 25% of each class/ kind of company’s equity shares or debentures was offered and allotted to the public in terms of an offer document; or
  • Minimum 10% of each class/ kind of equity shares or debentures was offered and allotted to the public in terms of an offer document if the post-issue capital of the company is more than Rs 4000 Cr (calculated at offer price). 

However, this requirement will not be applicable to a company whose draft offer document is pending with the SEBI on or before the SCR (Amendment) Rules, 2010 came into being, if it confirms to the conditions prescribed in Rule 19(2)(b) of the SCR Rules, 1957 existing prior to the commencement date.

• A notwithstanding clause contained in this provision states that a public sector company has to offer and allot a minimum 10% of each class/ kind of equity shares or debentures to the public in terms of an offer document.

Undertakings

Rule 19(3) of the SCR Rules, 1957 provides that as a prerequisite, every company making an application for listing has to undertake among other things— 

• That –
  • letters of allotment will be issued simultaneously and if it is impossible to do so, a notice will be published in the press to be appeared in the morning after the letters of allotment have been posted, 
  • letters of right will be issued simultaneously, 
  • letters of allotment, acceptance or rights will be numbered serially, printed on good quality paper and examined and signed by a responsible officer of the company and when possible, the letters shall contain the individual numbers of the securities to which they relate, 
  • letters of allotment and renounceable letters of right will contain a proviso for splitting and if asked by the stock exchange, the renunciation form will be printed on the back or attached to such letters, 
  • letters of allotment and letters of right shall state the manner in which the next payment of interest or dividend on the securities will be calculated, 
• the company will as per the requirement, issue receipts for all the securities deposited with it, whether for registration, sub-division, exchange or any other purpose; and will not levy any fees for any of those purposes; 
• the company will issue certificates related to consolidation and renewal in denominations of the market trading unit to split certificates, letters of allotment or that of right, and transfer, renewal, consolidation and split receipts into smaller units, to split call notices, issue their duplicates and will not require any discharge on call receipts while accepting the discharge of stock exchange members on split, consolidation and renewal receipts as good and enough without requesting for the discharge of the registered holders; 
• in case the documents are lodged (submitted) for consolidation/ sub-division/ renewal through the clearing house of stock exchange:
  • the company will accept discharge of any official of stock exchange clearing house on the company’s split/ consolidation/ renewal receipts as good and enough discharge without requesting for the discharge of the registered holders, and 
  • the company will verify, when it is not able to issue certificates or receipts of split/  consolidation/ renewal just after the submission, whether on the relative transfers the signatures of registered holders are in order; 
• when the necessary documents are produced by shareholders or members of stock exchange, the company will make an endorsement that the power of attorney (POA)/  probate/ letters of administration/ death certificate/ certificate of the Controller of Estate Duty (COED)/ any similar document has been duly exhibited and registered by the company; 
• the company will issue certificates with respect to shares or debentures submitted for transfer within 1 month of the date of submission and will also issue balance certificates simultaneously in the same time period where the transfer is being supplemented by a larger certificate; 
• the company will suggest the stock exchange regarding the date of meeting of the board on which there will be consideration of declaration/ recommendation of a dividend/ issue of right or bonus share;
• the company will suggest or declare all dividends and/or cash bonuses at least 5 days prior to the onset of closure of its transfer books or the record date fixed for it and will also recommend in writing to the stock exchange of all dividends and/or cash bonuses suggested or declared just after the company’s board meeting is held to finalise the same; 
• the company will notify stock exchange about any material change in the general character or nature of the business of the company or any change related to—
  • the company’s directorate by death, resignation, removal or any other way, 
  • the managing director, managing agents/ secretaries, treasurers, 
  • the auditors appointed to audit the company’s books and accounts; 
• the company will forward copies of statutory as well as annual reports and the audited accounts as and when they are issued, including the directors’ reports, to the stock exchange; 
• the company will forward to stock exchange the copies of all other notices and circulars sent to the company’s shareholders on their immediate issuance (including the proceedings of the company’s ordinary as well as extraordinary general meetings) and will also file certified copies of resolutions of the company with the stock exchange as and when the resolutions become effective; 
• before intimating the shareholders, the company will notify the stock exchange when new securities are issued whether by way of right, privilege bonus or any other way and also about the manner in which the securities are proposed to be offered or alloted; 
• the company will notify stock exchange when any forfeited securities are re-issued or the securities held in reserve for future issue are issued; 
• the company will notify the stock exchange about any other alteration in the company’s capital including the calls; 
• the company will close the transfer books only for declaration of dividend or issue of right or bonus shares or for any other purposes to which the stock exchange may agree and will notify the stock exchange in advance as it prescribes from time to time, stating the dates of closure of its transfer books (or, where the transfer books will not be closed, the date fixed for taking a record of its shareholders or debenture holders) and specifying the purpose(s) for which the transfer will be closed (or the record is to be taken); and in the case of a right or bonus issue, the company will so close the transfer books or fix a record date only after the competent authority sanctions it, subject to which the issue is proposed to be made have been duly obtained unless the exchange agrees otherwise; 
• the company will forward to the stock exchange an annual return after each annual general meeting of minimum ten principal holders of each class of company’s security along with the number of shares or debentures held by those holders and their addresses; 
• the company will grant the right of renunciation in all cases of issue of rights, privileges and benefits to the shareholders and to permit them a reasonable time (at least four weeks) within which they will record, exercise, or renounce such rights, privileges and benefits. Moreover, where required, the company will issue coupons or fractional certificates or provide for payment of tan equivalent value except where the company or the stock exchange agrees otherwise; 
• the company will immediately notify the stock exchange of—
  • any action which will lead to redemption, cancellation or retirement wholly or partly of the securities listed on the exchange, 
  • any intention to draw any such securities, and to convey regarding the date of drawing as well as the period of closing of transfer books for the drawing, 
  • the outstanding amount of securities after any such drawing of securities take place; 
• the company will notify stock exchange of any other information that might be important so that the shareholders can appraise the company’s position and any establishment of a false market in the company’s shares can be effectively avoided; 
• if the listing is granted, the same shall conform to the rules and bye-laws in force of the stock exchange from time to time and the company will also follow the further listing requirements within a reasonable time, as may be promulgated by the stock exchange as general conditions in case of new listings. 

Mandatory application in certain cases

Rule 19(4) of the SCR Rules, 1957 states that the application for listing purposes shall be mandatory in respect of the following cases: 

• all new issues of any class/ kind of the company’s securities which are to be offered to the public;
• all further issues of any class/ kind of the company’s securities if those securities are already listed on an RSE.

Breach or non-compliance of these conditions

Further, Rule 19(5) provides that in case of a breach of or non-compliance with any conditions related to dealings in the securities of a company or a body corporate or for any other reason, the RSE has the power to suspend or withdraw admission to such dealings of the entity. While doing so, it is important to record the reasons in writing and to ensure that such action is justified in its opinion. 

However, as a matter of natural justice, the concerned company or body corporate must be given a reasonable opportunity by a written notice stating the reasons, in order to show cause against the proposed action before any such action is taken by the stock exchange. 

Appeal

It is further given that where an RSE has withdrawn the admission to dealings in any security, or in cases where the suspension of the admission to dealings has been continued for a time period more than three months, the concerned company or the body corporate has the option to prefer an appeal to the Securities Appellate Tribunal (SAT) constituted under Section 15K of the Securities and Exchange Board of India Act, 1992, and in that case, the procedure laid down under the Securities Contracts (Regulation) (Appeal to Securities Appellate Tribunal) Rules, 2000 will be applicable to such appeal. The SAT may vary or set aside the decision of the stock exchange, however, after giving the stock exchange an opportunity to be heard. The orders of SAT are then carried out by the stock exchange.

Waiver of strict enforcement of these requirements

Rule 19(7) provides for the power of SEBI wherein it may waive or relax the strict enforcement of any or all of the requirements with respect to listing prescribed by the rules, at its own discretion or on the recommendation of an RSE. 

Continuous Listing Requirement

It is important to note that other than the basic requirements of listing, there are continuous listing requirements. Rule 19A provides for these requirements, wherein-

• Every listed company, excluding the public sector company, is required to maintain a minimum public shareholding of 25%. 

However, it has been provided that any listed company which has a public shareholding of less than the required 25%, on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, has to increase its public shareholding to a minimum of 25% within a period of three years from the date of such commencement, in the manner as specified by the SEBI. 

• In case where the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to the required 25% within a maximum period of one year from the date of such fall in the manner as specified by the SEBI.
• A non-obstante clause in this provision says that every listed public sector company is required to maintain a public shareholding of a minimum 10%. 

It is provided that a listed public sector company- 

• which has a public shareholding below 10% on the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 has to increase it to a minimum of 10%, in the manner as specified by the SEBI, within three years from the date of such commencement; 
• Where the public shareholding reduces below 10% after the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010, the company is required to increase the public shareholding to minimum 10%, in the manner specified by the SEBI, within one year from the date of such reduction.

Right of appeal with public companies when the stock exchanges have refused to list their securities 

Section 22 of the SCRA 1956 provides that where an RSE, which is acting owing to any power conferred on it as per its bye-laws, refuses to list the securities of any public company (or collective investment scheme), such company (or scheme, as the case may be) has the power to be provided with the reasons behind the refusal, and it may— 

• within 15 days from the date of receiving the reasons for the refusal, or 
• in case the stock exchange has omitted/ failed to dispose of the application related to the listing on stock exchange within the time specified in Section 73 (1) of the Companies Act, 1956 (“specified time”), within 15 days from date of expiry of the specified time or within such additional period (not more than 1 month), as the Central Government may allow when a sufficient cause is shown, 

appeal to the Central Government against the refusal, omission or failure by the stock exchange. Thereafter, the Central Government gives the stock exchange an opportunity of being heard and it may— 

1. vary or set aside such decision, or 
2. grant or refuse the permission where the stock exchange has omitted/ failed to dispose of the application within the specified time, 

and if the decision of the RSE is set aside or permission has been granted, the stock exchange is bound to act according to the orders of the Central Government.

Right of appeal to Securities Appellate Tribunal (SAT) when the stock exchanges have refused to list their securities

Section 22A of SCRA 1956 provides that where an RSE, which is acting owing to any power conferred on it as per its bye-laws, refuses to list the securities of any public company, has the power to be provided with the reasons behind the refusal, and it may,— 

• within 15 days from the date of receiving the reasons for the refusal, or 
• in case the stock exchange has omitted/ failed to dispose of the application related to the listing on stock exchange within the time specified in Section 73(1A) of the Companies Act, 1956, (“specified time”), within 15 days from date of expiry of the specified time or within such additional period (not more than 1 month), as the Securities Appellate Tribunal (SAT) may allow when a sufficient cause is shown, 

appeal to the SAT which has the jurisdiction in the said matter against the refusal, omission or failure by the stock exchange. Thereafter, the SAT gives the stock exchange an opportunity of being heard and it may— 

i. vary or set aside such decision; or 

ii. grant or refuse the permission where the stock exchange has omitted/ failed to dispose of the application within the specified time, 

and if the decision of the RSE is set aside or permission has been granted, the stock exchange is bound to act according to the orders of the SAT. 

It has been given that every appeal under this provision has to be in the prescribed form and  accompanied with the prescribed fee. Moreover, a copy of every order of the SAT has to be sent to the Board as well as to the parties related with the matter of appeal. Importantly, under this provision, the SAT has been obligated to make endeavours to expeditiously dispose of every appeal filed before it finally within a maximum time of 6 months since the date of receipt.

Appeal to Supreme Court

Section 22F further provides recourse to the persons aggrieved by any decision or order of the SAT. It states that such an aggrieved person may file an appeal to the Supreme Court within a period of sixty days from the date of communication of the decision or order of the SAT to him on any question of law arising out of such order. It has been provided that a further extension of a maximum 60 days can be allowed by the Supreme Court if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said prescribed period.

Delisting of securities

Regulation 2(j) of the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021 (2021 Regulations) defines “delisting” as the permanent removal of the equity shares of the company from the trading platform of an RSE, either by way of voluntary or compulsory method. Thus, delisting of securities refers to the removal of the shares or other securities of a company from a stock exchange, so that they are no longer available for trading on that exchange. 

Delisting can be either voluntary or involuntary:-

Voluntary delisting

In voluntary delisting, a company on its own may choose to delist its securities from a stock exchange. The reason could be a desire to go private, where the company’s shares are bought back and ownership is consolidated among a smaller group of investors; or because the company finds the costs and regulatory requirements of being publicly listed burdensome, or it may plan to consolidate its listings to fewer exchanges.

Involuntary or compulsory delisting

In involuntary or compulsory delisting, an exchange may forcibly delist a company’s securities due to non-compliance with the listing requirements eg. minimum market capitalization, shareholder equity thresholds, or failure to submit timely financial reports. Other reasons might include bankruptcy, merger or acquisition, or failure to meet the standards of corporate governance.

Consequences of delisting

Reduced Liquidity

After delisting, the securities typically trade on less regulated platforms, resulting in lower trading volumes and reduced liquidity, which makes it harder for the investors to buy or sell the securities.

Impact on Investors

Delisting of the securities can negatively impact the investors by reducing the visibility and potentially the value of their investments.

Access to Capital

Delisting might limit the concerned company’s ability to raise funds through the public market.

Governance framework

Section 21A of SCRA 1956 states that an RSE has the power to delist the securities, after recording the reasons therefore, based on the ground(s) prescribed under this Act. However, it has been provided that a reasonable opportunity will be given to the concerned company to be heard before its securities are delisted. 

The provision also states that any listed company or an aggrieved investor has the option to file an appeal before the SAT against the decision of the RSE which has delisted the securities, within a period of fifteen days from the date of the decision of the RSE delisting the securities. It states that the provisions of sections 22B to 22E of the SCRA shall be applicable to such appeals. It also provides for an additional period of a maximum of one month to be allowed by the SAT in case of a company wishing to file an appeal if the SAT is satisfied that such company was prevented by sufficient cause from filing the appeal within the said prescribed period.

Conditions for delisting 

Regulation 4 of the SEBI (Delisting of Equity Shares) Regulations, 2021 provides certain conditions which must be fulfilled in order to allow delisting of the equity shares of a company-

• a period of 3 years must have been passed since listing of that class of equity shares on any RSE; 
• none of the instruments issued by the company, convertible into same class of equity share(s) sought to be delisted, must be outstanding; 
• in pursuance of buyback of equity shares by the company, including the ones relating to division or consolidation of all or part of the company’s overall equity share capital, at least 6 months must have been elapsed since the date of completion of the concerned buyback; 
• in pursuance of making of a preferential allotment by the company, at least 6 months must have been passed since the date of such allotment. However, this particular rule is inapplicable to delisting of equity shares when it is made by new acquirer(s) through an offer under Regulation 5A of the Takeover Regulations or by new promoter(s) in pursuance of re-classification according to the SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015. 

Voluntary delisting

CHAPTER III of the SEBI (Delisting of Equity Shares) Regulations, 2021 lays down the provisions pertaining to the voluntary delisting. 

Rule 21(3) of SCR Rules, 1957 provides that pursuant to the request of any company, an RSE may delist any securities listed thereon in accordance with the regulations made under the Act by SEBI. However, such delisting is subject to the following conditions:— 

• the securities of the company have been listed for a minimum period of 3 years on the RSE; 
• the delisting of such securities has been approved by two-thirds of the public shareholders of the company; and 
• the company, promoter and/or the director of the company purchase the outstanding securities from those holders who wish to sell them at a price determined in accordance with regulations made by SEBI under the Act. For this condition, it has been provided that SEBI may dispense with this condition if the securities remain listed at least on the National Stock Exchange of India Limited (NSEIL) or the Bombay Stock Exchange Limited (BSEL).

In voluntary delisting, there are two different procedures for delisting:-

1. Where the exit opportunity is not required
2. Where the exit opportunity is required

Where exit opportunity not required

In this, a company may delist its equity shares from one or more of the RSEs on which it is listed without providing an exit opportunity to the public shareholders, if after the proposed delisting, the equity shares remain listed on any RSE that has nationwide trading terminals.

Procedure for delisting 

Regulation 6 of the SEBI (Delisting of Equity Shares) Regulations, 2021 provides the procedure for the delisting of equity shares of a company which desires to do so where the exit opportunity is not required. It states that in that case, the company has to – 

• obtain the prior approval of its Board of Directors (BOD); 
• make an application to the relevant RSE(s) for delisting the equity shares; 
• issue a public notice of the proposed delisting from the relevant stock exchange(s) in at least two national newspapers, one English and one Hindi, in their all-India editions and one vernacular newspaper of the region where the RSE(s) is located. It must also be ensured that the public notice issued mentions the name(s) of the RSE(s) from which the company’s equity shares are intended to be delisted, the reasons for the delisting and the fact that the listing of equity shares will be continued on the RSE(s) which have nationwide trading terminals; 
• Ensure disclosure about the delisting in its first annual report after the delisting. 

It is important to note that any such complete application, made for the delisting of shares, must be disposed of by the RSE within a maximum period of 30 working days from the date of receipt of such application. 

Where exit opportunity required

The concept of ‘exit opportunity’ can be understood with the help of its after effects. When an acquirer provides an exit opportunity to all the public shareholders who hold the equity shares that are sought to be delisted, then the equity shares of the concerned company may be delisted from all the RSEs that are having nationwide trading terminals on which they are listed. This takes place in conformity with the provisions of Chapter IV of the 2021 regulations and as per the procedure mentioned in Part-B of this Chapter. 

Procedure for delisting as per Part B of Chapter III

Initial public announcement 

Regulation 8 provides for the initial public announcement. As per this provision, when the acquirer(s) makes a decision as to delist the company’s equity shares voluntarily, it is the duty of the acquirer(s) to make an initial public announcement on the same date to all the stock exchanges on which the company’s shares are listed and thereafter, the stock exchanges will circulate it in the public. It is important to note that such an announcement must contain all the specified information, including:— 

(a) the reasons for the delisting; 

(b) an undertaking with effect to abidance by the sub-regulations of this provision.

It must not contain any misleading information or omit any relevant information. Further, it is given that a copy of the initial public announcement must be sent to the registered office of the company within 1 working day from the date of such an announcement. 

Appointment of the Manager to the offer 

Regulation 9 states that before making an initial public announcement (IPA), it is the duty of the acquirer to appoint a merchant banker (who is registered with the SEBI as ‘Manager to the offer’.) The Manager to the Offer is a person who shall undertake the IPA as well as the subsequent activities as mandated under these regulations. However, it is important to note that the person who is appointed as Manager must not be an associate of the acquirer. 

Approval by the Board of Directors 

Regulation 10 provides further steps after making the initial public announcement. It states that the company is then required to obtain the approval of its Board of Directors (BOD) in respect of the proposal of the acquirer to delist the equity shares of the company, within a period of 21 days from the date of the initial public announcement. However, before considering the proposal of delisting, the BOD of the company has to appoint a Peer Review Company Secretary (CS) and provide the following information to such Company Secretary for carrying out due diligence- 

• the details of buying, selling and dealing in the equity shares of the company by the acquirer or its related entities during the period of two years prior to the date of the board meeting held to consider the proposal for delisting, including the details of the top twenty-five shareholders, for the said period; 
• the details of off-market transactions of all the shareholders mentioned in clause (a) for 2 years; 
• any additional information, including the information mentioned in the preceding two clauses for a longer period of time, sought by the Company Secretary (CS) if he is of the opinion that the information provided under those clauses is insufficient for providing the required certification. 

Certification by the Company Secretary

After obtaining the information from the company’s BOD, the CS carries out the due diligence (DD). Importantly, ‘due diligence’ or DD is an extensive process wherein the CS delves into different facets akin to the company such as its operations, functioning, audits as well as any potential risks. Thereafter, the CS submits a report to the BOD certifying that the buying, selling and dealing in the company’s equity shares that are undertaken by the acquirer or any of its related entities and the top 25 shareholders – is in accordance with the relevant provisions of the securities laws. 

While considering the proposal for delisting, the company’s Board of Directors shall certify that— 

• the company is in conformance with the relevant provisions of the securities laws; 
• the acquirer and its related entities are also in conformance with the applicable provisions of the securities laws in terms of the report of CS including the compliance with regulation 4(5) of these regulations (where the acquirer is prohibited from certain actions related to any delisting of equity shares); 
• in their opinion, the concerned delisting is in the interest of the company’s shareholders. 

Moreover, it has been provided that when the company communicates the BOD’s decision with respect to the proposed delisting, it is also required to submit the due diligence (DD) report of the CS as well as the audit report as mentioned in these regulations, to the RSEs on which the company’s equity shares are listed. Further, when the company conveys this to the stock exchanges, the same is disseminated to the public.

Approval by shareholders 

Regulation 11 of the SEBI (Delisting of Equity Shares) Regulations, 2021 provides that after the approval of the BOD and the certification by the Company Secretary, it is mandatory for the company to obtain the shareholders’ approval through a special resolution within a period of 45 days from the date the BOD have its approval. It is important to ensure that such special resolution is passed by way of postal ballot and/or e-voting in accordance with the relevant provisions of the Companies Act, 2013 and its related rules. In lieu of this, the company shall disclose all the material facts in the explanatory statement sent to the shareholders with respect to such a resolution. Moreover, it is noteworthy that in order to act upon the special resolution, the public shareholders have to cast votes in favour of the proposal and the same must be at least twice the votes cast by the public shareholders against the said resolution. 

In-principle approval by the stock exchange 

Regulation 12 provides that the company is required to make an application in specified form and manner to the relevant RSE in order to obtain an in-principle approval in respect of the proposed delisting, within 15 working days from the date on which the special resolution has been passed or any other regulatory or statutory approval was received, whichever is later. It must be ensured that the said application is accompanied with an audit report as specified  under Regulation 76 of the SEBI (Depositories and Participants) Regulations, 2018 with respect to the equity shares that are sought to be delisted, covering a period of 6 months before the application date. 

As a matter of fairness and justice, it has been given that the RSE shall not unfairly withhold any such application, however, any concerned company may be required by the RSE to satisfy or inform it with respect to – 

• abidance with the preceding regulations 10 and 11 of these regulations; 
• the company’s resolution of the investor grievances; 
• payment of the listing fees due to the RSE; 
• compliance with any provision of the timely updated SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, that has a material bearing on the interests of its equity shareholders; 
• any litigation/ action that is pending against the concerned company with respect to its activities in the securities market or any other matter having a material bearing on the interests of its equity shareholders; 
• any other relevant matter as the RSE may deem fit. 

Compulsory delisting

Chapter V of the SEBI (Delisting of Equity Shares) Regulations, 2021 lays down the provisions relating to compulsory delisting by a stock exchange. 

Regulation 32(1) states that an RSE has the power to delist the equity shares of a company on any ground prescribed in the rules (discussed in the next paragraph) made under the SCRA, 1956. However, it has been provided that the order for delisting must be a reasoned order and the concerned companies will be given a reasonable opportunity to be heard before an order is issued under this sub-regulation.

In accordance with this provision, Rule 21 of the SCR Rules, 1957 provides the grounds on which an RSE may delist any securities listed. However, the ground must not be prejudicial to any other action that may otherwise be taken under the SCRA 1956 or under any other law for time being in force. The said grounds are as hereunder:-

• the company has suffered losses in the past 3 consecutive years and net worth of the company is in negative; 
• trading in company’s securities has continued to be suspended for more than 6 months; 
• the company’s securities have continued to be infrequently traded during the past 3 years; 
• the company or any of its promoters or directors has been convicted for failure to abide by any provisions of the SCRA 1956 or SEBI Act, 1992 or Depositories Act, 1996 or any rules, regulations, agreements under any of these acts and for the same, has been awarded a penalty of at least Rs. 1 Crore or an imprisonment of more than 3 years; 
• the company’s addresses of the company or address of any of its promoters or directors are unknown/ false addresses have been provided/ the company has changed its registered office in violation of provisions of the Companies Act, 1956; or
• public shareholding of the company has come below the minimum level applicable to the company as per the listing agreement under the SCRA 1956 and the company has failed to raise the public holding to the mandatory level within the time specified by the RSE.

Regulation 32(2) further provides that the decision with respect to the compulsory delisting shall be taken by a panel to be constituted by the RSE which shall consist of –

1. two directors of the RSE one of whom is required to be a public representative; 
2. one representative of an investor association that has been recognised by the Board;
3. one representative of the Ministry of Corporate Affairs (MCA) or Registrar of Companies (ROC); and
4. the Executive Director or Secretary of the RSE.

Regulation 32 (3) provides that before passing an order under Regulation 32 (1), it is the duty of the RSE to give notice of the proposed delisting in at least:-

• one English national newspaper having a wide circulation, 
• one Hindi national newspaper having wide circulation in its all India editions, and 
• one vernacular newspaper belonging to the region where the relevant RSE is located. 

Moreover, the said notice must give a time period of a minimum period of 15 working days from its date of being published, to make representations to the RSE by any person who is/may be aggrieved by the said proposed delisting. Furthermore, it must also be ensured that the notice is displayed on its trading systems as well as website. 

The provision also provides that when the RSE passes any order, it shall consider the representations that are made by the company along with any representation that is received in response to the notice given under Regulation 32 (3). While doing so, the RSE must comply with the guidelines that have been given in Schedule III of these regulations. 

Regulation 32(5) further states that where the RSE passes an order under Regulation 32(1), it is required to-

1. immediately publish a notice about such delisting in one English national newspaper having a wide circulation, one Hindi national newspaper having wide circulation in its all India editions, and one vernacular newspaper belonging to the region where the relevant RSE is located. It is also provided that the said notice must disclose the company’s name and address, the fair value of the delisted equity shares ascertained under Regulation 33(1) of these regulations as well as the names and addresses of the company’s promoters who would be liable under Regulation 33(4) of these regulations; 
2. convey about such delisting to all other stock exchanges where the equity shares of the concerned company are listed; and 
3. upload a copy of its order on its website. 

Sub-regulation (6) provides that the provisions of Chapter IV of these regulations will be inapplicable to a compulsory delisting that is made by an RSE under this Chapter.

Rights of public shareholders in case of compulsory delisting 

Regulation 33 of the 2021 Regulations lays down the rights of the public shareholders in the case of compulsory delisting of the shares of a company. Regulation 33(1) states that where the equity shares of a company are delisted by an RSE under Chapter V of these regulations, the RSE shall appoint an independent valuer(s) who shall determine the fair value of the delisted equity shares. 

Further, a panel of expert valuers shall also be formed by the RSE, from which, the above-mentioned valuer(s) shall be appointed. The value of the delisted equity shares of the company shall be ascertained by the valuer(s) by giving due regard to the factors that are mentioned in Regulation 20(2) of these regulations. 

As per sub-regulation (4) of Regulation 33, the promoter(s) of the company are required to acquire the delisted equity shares from the public shareholders by paying them the value ascertained by the valuer, within a period of 3 months from the date on which the shares were delisted from the RSE. However, it is important to note that the public shareholders will have the option to retain their shares otherwise. 

Liability of the Promoters

Regulation 33 (5) pertains to the liability of the promoter to pay interest at the rate of 10% per year to all the shareholders, who offer their shares under the compulsory delisting offer, if the price payable in terms of sub-regulation (3) is not paid to all the shareholders within the time specified under sub-regulation (4). Nevertheless, it is provided that in case the delay caused was not due to any act or omission of the acquirer or if the delay was caused due to any circumstances that was beyond the acquirer’s control, then a waiver from the payment of such interest may be granted by the Board.

Consequences of compulsory delisting 

Regulation 34 (1) provides that where a company has been compulsorily delisted under this Chapter, the company, its promoters, whole-time directors, all the person(s) who are responsible to ensure compliance with the securities laws, and the companies which are promoted by any of these, shall be barred from directly or indirectly accessing the securities market or seeking to list any equity shares or from acting under the role of any intermediary in the securities market for a period of 10 years from the date on which the delisting took place. 

Regulation 34 (2) states that in the case of a company having positive fair value – 

1. such company and the depositories shall not affect the transfer, by way of sale, pledge, etc., of any equity share that is held by the promoters/promoter group. Moreover, all the corporate benefits like dividends, rights, bonus shares, splits, etc. shall be frozen for all the equity shares held by the promoters/ promoter group, till the time an exit option is provided by the company’s promoters to the public shareholders in accordance with Regulation 33(4) of these regulations, as certified by the relevant RSE; 
2. the promoters, whole-time directors and person(s) who are responsible for ensuring compliance with the securities laws of the compulsorily delisted company will also be ineligible to become directors of any listed company till the time an exit option is provided. 

Lastly, it shall be the duty of the stock exchange(s) to monitor compliance with the provisions of this Chapter and to take suitable action in case of their non-compliance.  

Conclusion

In conclusion, the processes of listing and delisting securities are crucial for maintaining the integrity and efficiency of the stock market. Listing provides companies with access to capital and visibility, while delisting ensures that only compliant and financially stable companies remain accessible to investors. These mechanisms safeguard the investor interests and also contribute to a fair, transparent, and better market environment, which is necessary for economic growth as well as investor confidence in the financial system. Some reforms could be suggested in order to further strengthen these processes, such as enhancing transparency in the delisting criteria, implementing stricter compliance mandates for the listed companies, introducing better measures for the protection of the investors, streamlining the process of listing for the SMEs (small and medium enterprises) and startups, etc. Lastly, in a technology-driven world, implementing some technology-driven solutions for real-time monitoring and compliance can also contribute to increasing market efficiency as well as investor confidence.

Frequently Asked Questions (FAQs)

What are securities?

Generally, securities can be understood as the tradable financial instruments that carry some value and can be bought and sold in the financial markets. These instruments may indicate an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), etc. However, as per law, the definition of ‘securities’ has been given under Section 2(h) of the Securities Contracts (Regulation) Act of 1956. With judicial pronouncements, the definition given in Section 2(h) has evolved over the passage of time.  

Which laws govern the security market in India?

In India, the security market is governed by some major laws such as the Securities Contract (Regulation) Act (SCRA) 1956, the Securities and Exchange Board of India (SEBI) Act 1992, the Depositories Act 1996 along with some general provisions under the Companies Act 2013. 

The Securities Contract (Regulation) Act (SCRA) 1956 was enacted with two primary objectives which are – the regulation of the securities market in India and the protection of the investors. The main underlying purposes of the SCRA 1956 are to – prevent undesirable transactions in securities by regulating the business of dealing therein; providing for certain requirements to be fulfilled for listing on stock exchanges; and prescribing rules for the control and regulation of the stock exchanges.

The SEBI Act, 1992, was enacted to provide for the establishment of the Securities and Exchange Board of India (“SEBI”) with the primary objective of protecting investor interests in the securities market, promoting the development of as well as regulating the securities market in India. Some major functions of the SEBI under the Act include – regulating the stock exchanges, mutual funds, and market intermediaries, enforcing the company listing agreements, and prohibiting fraudulent and unfair trade practices in the securities markets, etc.

The Depositories Act 1996 provides for the establishment of depositories in order to facilitate the dematerialization of securities in the financial market. This act formally allowed for securities to be held and transferred in electronic form and this significantly helped in improving the efficiency of the securities market by reducing the time for transfer of securities, eliminating the risks associated with physical certificates, and enhancing transparency in dealings.

What is listing?

The ‘listing of securities’ can be defined as the formal admission of the securities of a company to the trading platform of a stock exchange, so that they are available for the general public for trading purposes. 

Is listing required for every public limited company in India?

No, it is not mandatory for a company to get itself listed on the stock exchange. However, every such company must consider doing it as there are many advantages of listing such as improved access to capital, greater access to liquidity, enhancement of the company’s visibility and credibility with the investors, customers, suppliers and other stakeholders, etc.

What is delisting?

The ‘delisting of securities’ refers to the removal of the shares or other securities of a company from a stock exchange, so that they are no longer available for trading on that exchange. It can be done in two ways – either by voluntary or compulsory methods.

Is there any penalty for not-abidance with the listing or delisting procedures given in the law?

Yes. The Securities Contract (Regulation) Act (SCRA) 1956 provides under Section 23A that if any person fails to furnish any information, document, returns, report, etc. to a recognised stock exchange (RSE) or to maintain books of account or records, etc. as per the requirements within the specified time under the law, such person shall be liable to a penalty of Rs. 1 lakh for each day during which such failure continues or Rs 1 crore, whichever is less. 

References

• https://www.sebi.gov.in/sebi_data/commondocs/ch4_p.pdf
• https://commercestudyguide.com/wp-content/uploads/2017/10/listing-and-scra1956.pdf
• http://epgp.inflibnet.ac.in/epgpdata/uploads/epgp_content/law/04._corporate_law/08._listing_and_delisting_of_securities_and_their_implications/et/5671_et_08_et.pdf
• https://chandigarh.gov.in/sites/default/files/up2023/booklet23-sebi0302.pdf
• https://pxvlaw.wordpress.com/2013/09/03/scra-applicable-to-public-unlisted-companies-bhagwati-v-peerless/#_ftn7