This article is written by Sukeshi Singh, pursuing a Diploma in Mergers and Acquisitions, Institutional Finance and Investment Laws (PE and VC Transactions) from LawSikho.
Table of Contents
Introduction
The term delisting of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange. 
Types of delisting
- ‘Compulsory delisting’ means delisting of the securities of a company by an exchange.
- ‘Voluntary delisting’ means delisting of securities of a body corporate voluntarily by a promoter or an acquirer or any other person other than the stock exchange(s).
Causes of voluntary delisting
- Listing fees payable to the stock exchanges is burdensome and disproportionate to the benefits accruing to the company or its stockholders;
- Negligible trading or total absence of trading for a considerable long period of time;
- The company has either suspended its business or is under closure or has become a sick industrial company;
- Mergers, amalgamations, takeovers, etc.
Conditions for voluntary delisting
No company shall apply for delisting in the following cases:
- Pursuant to buyback of equity shares of a company;
- Pursuant to the preferential allotment made by a company;
- If the company has not been listed for a minimum period of 3 (three) years on any stock exchange;
- If any instrument issued by the company, which is convertible into the same class of equity shares that are sought to be delisted, are outstanding.
- If any entity belonging to the promoter/ promoter group has sold equity shares of the company during a period of 6 (six) months prior to a board meeting in which the delisting proposal was approved.
- Unless an exit opportunity has been given to the public shareholders for the purpose of which an exit price has been determined in accordance with the “book building process”. However, an exit opportunity need not be given in cases where securities continue to be listed in a stock exchange having nationwide trading terminals.
Process of voluntary delisting
With a view to making the delisting process robust, efficient, and investor-friendly, the Securities and Exchange Board of India (“SEBI”) issued the SEBI (Delisting of Equity Shares), 2021 on June 11, 2021 (“Delisting Regulations, 2021”). The process along with the timeline is as follows:
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Sl. No. |
Delisting Process |
Tentative Timeline |
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Manager to the Offer: Appointment of a merchant banker as the manager to the offer. |
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2. 
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Initial Public Announcement (“IPA”): The acquirer/ promoter shall make an IPA to the stock exchange regarding the intention to delist and the same shall be disseminated to the public by the stock exchange. A copy of the announcement shall be sent to the company at its registered office. The initial public announcement shall contain the reason for the delisting of the company. |
Within 1 (one) working day from the date of the IPA. |
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3. |
Board Resolution: The board of directors shall, before approving the delisting proposal by the acquirer/ promoter, appoint a ‘Peer Review Company Secretary’ who shall carry out the due diligence of the company. The said company secretary shall submit a report certifying that the buying, selling, and dealing in the equity shares of the company carried out by the acquirer/ promoter or their related entities or the top 25 (twenty-five) shareholders is in compliance with the applicable provisions of securities laws. |
Within 21 (twenty-one) days from the date of the IPA. |
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4. |
Special Resolution: The company shall obtain approval of the shareholders through a special resolution, passed by postal ballot or e-voting, by a two-thirds majority of the public shareholders of the company. |
Within 45 (forty-five) days of obtaining approval from the board of directors. |
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5. |
In-principal Approval of the Stock Exchange: The company shall make an application to the recognized stock exchange for in-principle approval for delisting, in the form specified by the relevant stock exchange. The application shall be accompanied by an audit report and due diligence report prepared by the company secretary, as provided above. |
The application to the stock exchange shall be within 15 (fifteen) days from the date of passing of the special resolution. The stock exchange shall dispose of the application within 15 (fifteen) days of receipt of such application. |
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6. |
Escrow Account: The acquirer/ promoter shall open an interest-bearing escrow account with a scheduled commercial bank and deposit therein an amount equivalent to 25% (twenty-five percent) of the total consideration, calculated on the basis of the number of equity shares outstanding with the public shareholders multiplied with the floor price or indicative price ( the price offered by the acquirer/ promoter, which is higher than the floor price). For the purposes of opening an escrow account, the acquirer/ promoter shall enter into a tripartite agreement with the bank and the manager to the offer. |
Within 7 (seven) working days of obtaining the shareholders’ approval. |
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7. |
Detailed Public Announcement (“DPA”): A DPA by the company has to be made in one English national newspaper with wide circulation, one Hindi national newspaper with wide circulation in their all-India editions, and one vernacular newspaper of the region where the relevant recognized stock exchange is located. The detailed public announcement shall contain all material information as specified in the delisting regulation and the names of the shareholders to whom the letter of offer is to be sent. Please note, before making the DPA, the acquirer/ promoter shall deposit in the escrow account, the remaining consideration amount, being 75% (seventy-five percent) calculated on the basis of the number of equity shares outstanding with the public shareholders multiplied with the floor price or indicative price. |
Within 1 (one) working day from the receipt of in-principle approval by the stock exchange. |
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8. |
Letter of Offer: The acquirer/ promoter shall dispatch a letter of offer to all the public shareholders. A copy of the letter of offer shall be made available on the website of the company. |
Within 2 (two) working days from the date of the DPA. |
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9. |
Bidding Mechanism: The outcome of the reverse book building process shall be announced within 2 (two) hours of the closure of the bidding period, by the manager to the offer. |
The bidding period shall commence within 7 (seven) working days from the date of the DPA and shall remain open for 5 (five) working days. |
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10. |
Public Announcement: A public announcement shall be made in the same newspapers in which the DPA was made regarding the success or failure of the reverse book building process along with the discovered price accepted by the acquirer/ promoter, in case of success of the process. Please note, in case the discovered price is not accepted by the acquirer/ promoter, a counter-offer may be made by the acquirer/ promoter to the public shareholders. |
Within 2 (two) working days from the closure of the bidding period. Within 2 (two) working days from the closure of the bidding period. |
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11. |
Deposit of Additional sum in Escrow: Upon determination of the discovered price and making a public announcement in this regard, the acquirer/ promoter, if required, shall deposit such additional sum as may be sufficient, for payment of consideration to the public shareholders. |
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12. |
The minimum number of equity shares to be acquired: A delisting process shall be deemed successful if the post-offer shareholding of the acquirer/ promoter, along with the shares tendered/offered by public shareholders accepted as eligible bids at the discovered price or the counter-offer price, as the case may be, reaches 90% (ninety percent) of the total issued shares. |
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13. |
Payment upon the success of the offer: (i) if the discovered price is equal to the floor price of indicative price; (ii) if the discovered price is higher than floor price or indicative price; |
Secondary market settlement mechanism. Payment to be made within 5 (five) working days from the date of the public announcement of success of the delisting offer. |
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14. |
The final application to the stock exchange after successful delisting: The final application shall be made by the company in the form specified by the stock exchange from time to time. Upon disposal of the application, the equity shares of the company shall be permanently delisted from the stock exchange. |
The application shall be made within 5 (five) working days from the date of making the payment to the public shareholders. The application shall be disposed of by the stock exchange within 15 (fifteen) days of receipt. |
Conclusion
If the exit price is not acceptable to the acquirer/promoter, they may either reject the offer or make a counteroffer to the shareholders. In the event, the counteroffer is also not accepted, the delisting fails. In case of failure of the delisting process, 99% (ninety-nine percent) of the amount lying in the escrow account shall be released to the acquirer/promoter within 1 (one) working day from the date of the public announcement of such failure and the remaining 1% (one percent) amount lying in the escrow account shall be released post return of the shares to the public shareholders or confirmation of revocation of lien marked on their shares by the manager to the offer. The escrow account opened by the acquirer/promoter for the purposes of the delisting shall also be closed and the amount will be released. Also, the company shall continue to be listed on the exchanges. It is pertinent to note that a company that is successful in delisting its equity shares is not permitted to apply for listing its equity shares for a period of five years from such delisting.
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