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Company law
Topic: SEBI(Delisting of equity shares)
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regulations, 2009

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 Page |2

Contents
INTRODUCTION ....................................................................................................................................... 3
SECURITIES EXCHANGE BOARD OF INDIA (SEBI) ..................................................................................... 3
SEBI (DELISTING OF EQUITY SHARES) REGULATION ACT, 2009 .............................................................. 4
CHAPTER I- PRELIMNARY ........................................................................................................................ 5
CHAPTER II- DELISTING OF EQUITY SHARES............................................................................................ 5
CHAPTER III- VOLUNTARY DELISTING ..................................................................................................... 6
CHAPTER IV- EXIT OPPORTUNITY ............................................................................................................ 7
CHAPTER v- COMPULSORY DELISTING .................................................................................................... 9
CHAPTER VI- POWERS OF THE BOARD .................................................................................................. 10
CHAPTER VII- SPECIAL PROVISIONS FOR SMALL COMPANIES AND DELISTING BY OPERARIN OF LAW.
.............................................................................................................................................................. 10
CHAPTER VIII- MISCELLANEOUS............................................................................................................ 11
CONCLUSION......................................................................................................................................... 11
 Page |3

INTRODUCTION
The project introduces SEBI. This was formed as the watch dog of the securities market.
Now it has the function was implementing regulations with the interest of protecting the
investors.

Regulation of delisting of shares is an Act 2009 was introduced with the best interest of
protecting the investors. Delisting of shares is the removal of equity shares from the
recognised stock exchange. This is done in two ways one is voluntarily and other is
compulsory delisting. An elaboration of the delisting process and procedures are highlighted
in the Act.

SECURITIES EXCHANGE BOARD OF INDIA (SEBI)

With the growth in the dealings of stock markets, lot of malpractices also started in stock
markets such as price rigging, ‘unofficial premium on new issue, and delay in delivery of
shares, violation of rules and regulations of stock exchange and listing requirements. Due to
these malpractices the customers started losing confidence and faith in the stock exchange. So
government of India decided to set up an agency or regulatory body known as Securities
Exchange Board of India (SEBI).

Securities and Exchange Board of India (SEBI) was set up in 1988 to regulate the functions
of securities market. SEBI promotes orderly and healthy development in the stock market but
initially SEBI was not able to exercise complete control over the stock market transactions. It
was left as a watch dog to observe the activities but was found ineffective in regulating and
controlling them. As a result in May 1992, SEBI was granted legal status. SEBI is a body
corporate having a separate legal existence and perpetual succession.

SEBI was set up with the main purpose of keeping a check on malpractices and protect the
interest of investors. It was set up to meet the needs of three groups.

1. Issuers:

For issuers it provides a market place in which they can raise finance fairly and easily.

2. Investors:

For investors it provides protection and supply of accurate and correct information.

3. Intermediaries:

For intermediaries it provides a competitive professional market.

The overall objectives of SEBI are to protect the interest of investors and to promote the
development of stock exchange and to regulate the activities of stock market. The objectives
of SEBI are to regulate the activities of stock exchange. Stock exchange is the market in
which securities are bought and sold. There are many companies in India which are registered
in stock exchanges, the stock exchanges in India include Bombay stock exchange, national
 Page |4

stock exchange ect. Another objective of SEBI is to protect the rights of investors and
ensuring safety to their investment. SEBI was a watch dog when it was introduced in India
now it has the legal power to enact laws and regulations which helps in the management of
the companies in India. SEBI was made to prevent fraudulent and malpractices by having
balance between self regulation of business and its statutory regulations. And finally to
regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc.

The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three
important functions. These are:

A. Protective function
B. Development function
C. Regulatory function

Regulatory functions are introduced by SEBI to regulate the business in stock exchange. To
regulate the activities of stock exchange following functions are performed:

(i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries
such as merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview and private
placement has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer
agents, trustees, merchant bankers and all those who are associated with stock exchange in
any manner.

(iv) SEBI registers and regulates the working of mutual funds etc.

(v) SEBI regulates takeover of the companies.

SEBI (DELISTING OF EQUITY SHARES) REGULATION ACT, 2009

The act deals with delisting of equity shares of the company from recognised stock
exchanges. Recognised stock exchanges include Bombay stock exchange (BSE), National
stock exchange (NSE). Listings of shares mean the admission of a Company’s securities to
the trading platform of a Stock Exchange, so as to provide marketability and liquidity to the
security holders. Delisting is totally the reverse of listing. To delist means permanently
removing the securities of a listed company from a stock exchange. As a consequence of
delisting, the securities of that company would no longer be tradable at that stock exchange.

This regulation was passed in the year 2009 which contains provisions which states the rules
and procedures of delisting of equity shares of companies from recognised stock exchanges.
The act contains eight chapters stating various titles that deal with delisting.
 Page |5

CHAPTER I- PRELIMNARY
This chapter deals with various definitions which are required to read this regulation. The
various definitions includes Act1, Board2, Company3, compulsory delisting4, voluntary
delisting5, recognised stock exchanges6 and public share holders who are people other than
promoters and holders of depository receipts issued overseas against equity shares and is a
custodian .

CHAPTER II- DELISTING OF EQUITY SHARES

It defines delisting of equity shares in India. This chapter states that SEBI regulates delisting
of shares. According to section 3(1) company can delist shares from all recognised stock
exchanges where it is listed. But there are exceptions to delisting of shares in accordance with
this Act that is highlighted in section 3(2). The companies who has delisting schemes
specified by the Board for industrial and financial reconstruction7 under sick industrial
companies (special provisions) Act, 19858 or by National company law tribunal9 under
section 424D of companies Act of 195610. These schemes lay down specific procedures for
delisting and provides an exist option to the existing shareholders at a specified rate.

Delisting of companies are not permitted in the following situation

1. The listed share of company and the company buy backs those shares. These
shares cannot be listed in the recognised stock exchange. These shares will be
delisted. Buy back of shares is the repurchase of outstanding shares (repurchase)
by a company in order to reduce the number of shares on the market. Companies
will buy back shares either to increase the value of shares still available (reducing
supply), or to eliminate any threats by shareholders who may be looking for a
controlling stake.
2. When there is a preferential allotment by the company. Preferential Allotment is
the process by which allotment of securities/shares is done on a preferential basis
to a select group of investors. Definition: Preferential Allotment is the process by

1
Section 2(1)(i) act- securities and exchange board of India Act 1992
2
Section 2(1)(ii) board- SEBI
3
Section 3 of companies Act 1956
4
Chapter V of the act
5
Chapter III of the Act
6
They include BSE, NSE, regional stock exchanges
7
The Board for Industrial and Financial Reconstruction (BIFR) is an agency of the government of India, part of
the Department of Financial Services of the Ministry of Finance. Its objective is to determine sickness of
industrial companies and to assist in reviving those that may be viable and shutting down the others
8
The Sick Industrial Companies (Special Provisions) Act (SICA) of 1985 was enacted in India to determine the
extent of sickness in industrial units, expedite the revival of potentially viable companies and close unviable
units to release investment locked up in them for productive use elsewhere. SICA defined a sick industrial unit
as one that had existed for at least five years and had incurred accumulated losses equal to or exceeding its
entire net worth at the end of any financial year.
9
National Company Law Tribunal (NCLT) is a proposed quasi-judicial body in India that will govern the
companies in India. It will be established under the Companies Act, 2013 and is a successor body of the
Company Law Board
10
Preparation and sanction of schemes
 Page |6

which allotment of securities/shares is done on a preferential basis to a select

group of investors. When the shares are allotted in a preferential order these shares
cannot be delisted.
3. Delisting of shares can only be done to those shares that have lapsed 3 years since
the listing.
4. Instruments convertible into same class of equity shares that are sought to be
delisted, are outstanding. Convertible securities A convertible security is a
security that can be converted into another security
5. No delisting of convertible securities.

CHAPTER III- VOLUNTARY DELISTING

Voluntary delisting is the delisting of shares from recognised stock exchanges as per chapter
III of the SEBI regulation on delisting of shares.

Voluntary delisting can be done in two ways; one is by way by applying exit provisions11 and
second without applying the exit provisions. Section 6 states that the companies can delist
from one or more stock exchanges and continue in other stock exchanges subject to:

a) After delisting from one stock exchange and remain listed in any stock exchange that
has nationwide trading terminals. Here there is no need to apply exit opportunity
provisions.
b) Delisted from listed stock exchanges and remain not delisted in nationwide stock
exchanges. Here the provisions of exit opportunity should be applied.

Section 7 of the chapter states that in case of failing to acting according to section 6(a) i.e.
delist from stock exchange but remain listed in a nationwide stock exchange the following
provision shall be applied. Section 7 deals with the procedure for delisting without using the
exit opportunity. The delisting shall be approved by a resolution of the board. The company
shall give a public notice of the proposed delisting in one English national daily with wide
circulation, one Hindi daily and one regional daily of that region from where the delisting is
happening. The announcement should contain details of the stock exchange from where the
company is delisting from. An application should be send to that concerned stock exchange
within 30 days of public announcement. The fact that the company has been delisted should
be given in the first annual report after the delisting has happened with the details of from the
company has delisted.

Section 8 deals with the delisting process with using the exit opportunity this happens in the
case of section 6(b) of this chapter. There should be an approval from the board of directors
with regard to the delisting of shares from the recognised stock exchange. There should be
passing of special resolution12 during the meeting of shareholders regarding the delisting of
shares in favour with two times the number of votes cast by public shareholders. Then the

11
Chapter VI of the SEBI regulations on delisting of shares.
12
Section 114 of companies Act 2013 and section 189 of companies Act of 1956. Which defines ordinary and
special resolutions.
 Page |7

application to the recognised stock exchange in a prescribed from specified by the stock
exchange. The application should be done with the audit report prepared 6 months prior to the
date of the application. A final application should be made within a year of passing the
special resolution

CHAPTER IV- EXIT OPPORTUNITY

Exit opportunity has stated above means a mechanism or a process of delisting of shares
applied by the companies. This chapter is applied for voluntary delisting of shares states in
chapter III of the act. Section 10 of the act deals with public announcement of delisting which
includes the method of public announcement which are- announcement through recognised
news papers, national, Hindi, and regional. The announcement shall contain all the
information regarding the delisting and the details of the stock exchange also. The details
should include the date and day of delisting with a specific date for determining the names of
shareholders to whom the letter of offer should be send to. The promoter should appoint a
merchant banker who is not associated with him and who is registered with the SEBI who
takes up the responsibility to see that the delisting happens according to compliance with the
provisions of the chapter.

According to section 11 of the chapter the promoter should open an escrow account13 which
is established for depositing money estimated for consideration. The amount is estimated on
the basis of floor pricing of the shares and number of equity shares outstanding with the
public. The amount in the escrow account is the amount payable to equity shares outstanding
with public shareholders. The deposit to the account can be either cash deposit or bank
guarantee14 in favour of the bank or a combination of both. The account is opened on the
merchant banker’s bank. Through him the bank shall issue demand draft or cheques to the
company for payments to be made in accordance to delisting. The bank guarantee will be
valid till payments are made in respect of all shares.

A letter of offer should be made within 45 Days as the letter should reach 5 days before the
bidding period to the shareholders and should contain all disclosures made in public
announcement. This is stated in section 12 of the act.

Bidding period15 date opens from 55 days from announcement and the offer opens for
minimum 3 days and maximum 5 days during tender. This is the time during which the
shareholders can bid for the shares16.

The shareholders should participate in book building process17. The promoters and his
associates conduct the bid and the merchant banker moderates the bid. The custodian of the

13
An escrow account is a temporary pass through account held by a third party during the process of a
transaction between two parties.
14
A Bank guarantee is a promise from a bank that the liabilities of a debtor will be met in the event that you
fail to fulfil your contractual obligations.
15
Number of days or weeks up to the bid date that are available to a prospective bidder to prepare and lodge
a bid.
16
Section 13 of the act
 Page |8

depository securities cannot take part in the bid as he is not a shareholder. But he can be part
of the book building if the holder of the depository receipts exchanges the depository receipts
with shares of the class that are proposed to be delisted18.

Floor price is the price of the shares which is determined through book building. The floor
prices are of the following19-

a) Price of equity shares are frequently traded in all the recognized stock exchange, the
price is the average of weekly high and low of closing price of shares.
b) Where equity shares of the company are infrequently traded in all recognized stock
exchanges the floor price is determined by the promoters and merchant bankers20
taking in account
i. Higher price paid by the promoter for acquisition of equity shares of the class
sought to be delisted.
ii. Including by way of allotment in a public or rights issue or preferential
allotment with the period between 6 weeks period prior to the date on which
recognized stock exchange were notified in the board meeting of delisting and
up to the public announcement.
iii. The return on net worth, book value of shares of the company, earning per
share, price earning multiple visa vis the industry average.

c) Where the equity shares are frequently traded in some other recognised stock
exchanges. The highest price arrived at in accordance with the above two clauses

The promoter shall not accept the equity shares at the offer price. The promoter shall close
the escrow account which was opened to pay the shareholders. The promoter shall bring up
the minimum level of bidding public shareholding21. The promoter can increase the minimum
level of bidding public shareholding by (a) issue of new shares and (b) promoter making sale
of his own holdings22. Within 8 working days of closure of offer the promoter and the
merchant banker shall make a public announcement with accordance to section 18.

Section 19 deals with failure of offer and what should be done in this situation. The equity
shares deposited or pledged shall be returned or released. No final application shall be made
to the exchange and the escrow account should also be closed.

17
Book building is a process of generating, capturing, and recording investor demand for shares during an
initial public offering (IPO), or other securities during their issuance process, in order to support efficient price
discovery.
18
Section 14 of the act
19
Section 15 of the act
20
Section 15(3) of the act
21
Section 16(2)(d) of the act
22
Section 16(3) of the act
 Page |9

The promoter should open a special account in bank after ascertaining the success of the offer
and transfer the entire amount due and payable from the escrow account 23. After delisting the
shareholder may tender his shares to the promoter up to the period of at least a year24.

CHAPTER V- COMPULSORY DELISTING

Compulsory delisting means delisting of equity shares by order by the recognised stock
exchange on any grounds prescribed in the rules made under section 21A of the securities
contract (regulation) Act 195625. No order shall be made unless reasonable opportunity is
given to company to be heard. The decision regarding compulsory delisting is taken by an
expert panel which consist of 2 directors of recognised stock exchange in which one is public
representative. Then one representative of investors, one representative of the ministry of
corporate affairs or the registrar, and the executive director or secretary of the recognised
stock exchange. The notice of the compulsory delisting should be published in the national
daily, Hindu daily and the regional daily of the region where the company and the stock
exchange is situated. A period of 15 days of notice should be open for any aggrieved party to
make representation against the delisting of the stock. The fact of the delisting along with
details of the company should be published and also this information should be given to other
stock exchanges where this company has been listed.

Independent valuer or valuers should be appointed who shall determine the face value of the
delisted equity shares. The valuers or valuer is appointed by an expert panel. The valuers are
chartered accountants defined under section 2(b) of the chartered accountant Act or a
merchant banker.

The companies that have been delisted by this provision can have no access to the securities
market or seek listing for a period of 10 years. This is stated in section 24 of this chapter.
These are the consequences of compulsory delisting of equity shares.

Difference between compulsory delisting and voluntary delisting

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

stock exchange as a penalizing measure at the behest of the stock exchange for not making
submissions/comply with various requirements set out in the Listing agreement within the
time frames prescribed. In voluntary delisting, a listed company decides on its own to
permanently remove its securities from a stock exchange26.

23
Section 20 of the act
24
Section 21 of the act
25
21A. Delisting of securities.-(1) A recognised stock exchange may delist the securities, after recording the
reasons therefore, from any recognised stock exchange on any of the ground or grounds as may be prescribed
under this Act
26
http://www.sebi.gov.in/faq/faqdelist.html.
 P a g e | 10

CHAPTER VI- POWERS OF THE BOARD

The board of directors issues clarifications and guidelines to the public regarding the facts of
the delisting o equity shares27. The board of directors has the right to give directions as it fits
with accordance to the interest of the investors and securities market with regard to violation
of the provisions in this regulation or the securities contract (regulation0 Act, 1956. This
should be done before passing such orders, after giving the opportunity to be heard28.

CHAPTER VII- SPECIAL PROVISIONS FOR SMALL COMPANIES AND

DELISTING BY OPERARIN OF LAW.
Small companies are defined in Section 2(85) of the companies’ act of 2013. Small
companies are defined as other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as
may be prescribed which shall not be more than five crore rupees

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees
or such higher amount as may be prescribed which shall not be more than twenty crore rupees

Provided that nothing in this Section shall apply to

(A) A holding company or a subsidiary company

(B) A company registered under Section 8

(C) A company or body corporate governed by any special Act

Section 27 states the special provision to delisting for small companies- a company which has
a paid up capital up to one crore rupees and its equity shares were not traded in any
recognised stock exchange in that one year immediately after the date of decision, such
equity shares may be delisted from all the recognised stock exchanges where they are listed.
Where a company has three hundred or fewer public shareholders and where the paid up
value of the shares held by such public shareholders in such company is not more than one
crore rupees, its equity shares may be delisted from all the recognised stock exchanges where
they are listed. Delisting of equity shares may be made with regard to the above provisions
can be done only if the provision of section 829 of the act is fulfilled.

Section 28 deals with delisting in case of winding up of the small companies- In case of
winding up proceedings of a company whose equity shares are listed on a recognised stock
exchange, the rights of the shareholders of such company shall be in accordance with the
laws applicable to those proceedings and if the Board of directors withdraws recognition
granted to a stock exchange or refuses renewal of recognition to it, the Board may, in the

27
Section 25 of the act
28
Section 26 of the act
29
Delisting of shares when exit opportunity is available
 P a g e | 11

interest of investors pass appropriate order in respect of the status of equity shares of the
companies listed on that exchange.

CHAPTER VIII- MISCELLANEOUS

Recognized stock exchange should report to board of directors any non compliance30. The
company cannot apply to listing of shares in recognized stock exchanges if delisting is done
under chapters III which deals with voluntary delisting and chapter VII which deals with
special provisions relating to delisting of shares of small companies except section 27 for a
period of 5 years31. And if the delisting is done under chapter V of the act which deals with
compulsory delisting of shares cannot apply for listing in recognized stock exchanges for a
period of 10 years. Applications for listing of delisted shares may be made by BIFR under
SIC Act32. While considering application recognized stock exchanges shall have due regard
to facts and circumstances of delisting in the first place. Delisting prior to these regulations
shall be governed by SEBI (delisting) Regulations 200333. Application of delisting should be
one by following the guidelines set forward by SEBI34.

CONCLUSION
The project mainly deals with the provisions of delisting of equity shares of a company by the
securities exchange board of India. The Act contains eight chapters under various heads and
has 31 sections. These sections are regulations which are to be followed by the company at
the time of delisting. There are provisions which state the methods of delisting which is of
two; they are compulsory delisting and the voluntary delisting of shares. The act states the
various provisions of what a company has to do at the time of delisting and the rules the
company should follow after delisting of shares and the powers and duties of the board of
directors at the time of delisting of the equity shares of the company.

30
Section 29 of the act
31
Section 30(1)
32
Section 30(2)
33
Section 31(1)
34
Section 31(2)