Introduction

The SEBI board in its meeting on November 19, 2014, had approved the amendments but subsequently there were requests for changes. Changes were hence introduced through “SEBI (Delisting of Equity Shares)(Amendment) Regulations, 2015 introduced by way of Notification no. LAD-NRO/GN/2014-15/27/541 dated 24th March, 2015. These changes are aimed at making the existing regulatory framework on delisting more effective.

Addition in definitions

• Definition of “Promoter Group” has been added. “Promoter group” shall have the same meaning as assigned to it under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Hence, for the Delisting Regulations, “promoter group” will include
  • The promoter
  • Any immediate relative of the promoter
  • If promoter is a body corporate:
    • Subsidiary or holding company of such body corporate
    • Any body corporate in which a group of individuals or companies or combinations thereof which hold 20% of more of equity share capital in that body corporate also holds 20% or more of equity share capital of issuer
  • If promoter is an individual:
    • Any body corporate in which 10% or more of the equity share capital is held by the promoter or his/ her immediate relative or a firm or HUF in which the promoter or any one or more of his immediate relatives is a member
    • Any body corporate in which the body corporate as provided above holds 10% or more of the equity share capital
    • Any HUF or firm in which the aggregate shareholding of the promoter and his immediate relatives is 10% or more
  • All shareholders whose shareholding is aggregated for the purpose of disclosing in the prospectus under the heading “shareholding of the promoter group”

However a financial institution, scheduled bank, foreign portfolio investor and mutual fund shall not be deemed to be promoter group merely because they hold 10% or more of the equity share capital. But such financial institution, scheduled bank, foreign portfolio investor and mutual fund shall be treated as promoter group for the subsidiaries or companies promoted by them or for mutual funds sponsored by them.

• The term “acquirer” shall have the same meaning as assigned to it under SEBI (Substantial Acquisition of Shares and takeovers) Regulations, 2011. Hence, for these regulations, “acquirer” shall mean any person, who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in, or control over a target company.

Addition in circumstances in which delisting is not permissible and conditions for delisting

• When delisting is not permissible – As per the amendments, delisting would be disallowed if any entity belonging to the promoter or the promoter group has sold shares six months prior to the date of the board meeting where the delisting proposal was approved.
• Conditions for delisting – No entity belonging to the acquirer, promoter and promoter group of the company shall sell shares of the company during the period from the date of the board meeting in which the delisting proposal was approved till the completion of the delisting process

Addition in the procedure for delisting

• The Company’s Board of Directors of the company shall approve the delisting only after they
  • make a disclosure, to the recognized stock exchanges on which the equity shares of the company are listed, that the promoters/acquirers have proposed to delist the company;
  • appoint a merchant banker to carry out due-diligence and make a disclosure to this effect to the recognized stock exchanges on which the equity shares of the company are listed;
  • obtain details of market trading and off-market transaction of the top 25 shareholders of the company in 2 years prior to the date of the board meeting in which the proposal of delisting is considered. They shall furnish such information to merchant bankers for carrying out due-diligence.
• The merchant banker shall carry out the due-diligence and submit a report to the Board of Directors of the company, certifying that
  • the trading carried out by the entities belonging to acquirer or promoter or promoter group or their related entities is in compliance with the applicable provisions of SEBI
  • entities belonging to acquirer or promoter or promoter group or their related entities have not carried out, any transaction to facilitate the success of the delisting offer which
    • Employs any device or scheme to defraud any shareholder or any other person;
    • operates as a fraud or deceit on any shareholder or any other person; or
    • results in any act or practice that is fraudulent, deceptive or manipulative.
  • The Company’s Board of Directors shall, keeping in mind the above report of the merchant banker, certify the following:
    • All the applicable provisions of SEBI have been complied to;
    • None of the acquirer or promoter or promoter group or their related entities, in connection with any delisting sought or permitted or exit opportunity given or any acquisition of shares under the Delisting regulations, have,
      • Employed any device or scheme to defraud any shareholder or any other person;
      • Engaged in any transaction that operated as a fraud or deceit on any shareholder or any other person; or
      • Engaged in any act or practice that is fraudulent, deceptive or manipulative;
    • The delisting is in interest of the shareholders.

Changes in the procedure for delisting affecting time-line for completion of delisting

• SEBI has brought down the timeline for delisting of companies from 137 days to 76 days.
• The time period given to stock exchanges for granting in-principle approval for delisting has been reduced from thirty days to five working days.
• Now the promoters or acquirers shall have to make a public announcement of delisting, in newspapers, within one working day from the date of receipt of in-principle approval from the recognized stock exchange. Earlier no such time-line was defined.
• The letter of offer which was earlier to be dispatched to the public shareholders within 45 days from date of public announcement, will now be dispatched within 2 days from such public announcement.
• The date of opening of the offer, which was earlier required to be within 55 days from the date of public announcement, will now need to be within 7 days from the date of public announcement.
• The period for which the offer can remain open, which was earlier between 3 to 5 days, has now been fixed at 5 days.
• The public announcement of success or failure of the offer, which was earlier to be done within 8 working days, will now have to be done within 5 days from the date of closure of the offer.

Amendments related to Offer price

• The floor price, which was earlier determined as per the provisions of Regulation 15(2) of these Delisting Regulations, shall now be determined as per Regulation 8 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
• The price at which the shareholding of the promoter, after including the shareholding of the public who have tendered their shares, reaches the threshold limit of 90 per cent, would be the offer price.

When would the offer of delisting be considered successful

• Delisting would be considered successful only if
  • the acquirer acquires 90 per cent of the total share capital of the company, and
  • at least 25 per cent of the public shareholders holding demat shares have participated in the reverse book building process.
• However, the 25 per cent rule would not apply if the acquirer and the merchant banker are able to demonstrate that they have contacted all the public shareholders about the offer in the prescribed manner
• In case the delisting offer has been made in terms of regulation 5A of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the threshold limit of 90% for successful delisting offer shall be calculated taking into account post offer shareholding of the acquirer taken together with
  • the existing shareholding,
  • shares to be acquired which attracted the obligation to make an open offer and
  • shares accepted through eligible bids.
• The acquirers have the option to delist the shares of the target company directly after an open offer has triggered. Failure to delist would, however, require the acquirer to complete the mandatory open offer process under the takeover regulations.

Exemption from following the procedures in certain cases

• The Board may grant relaxations from strict enforcements of these regulations if it is satisfied that such exemption is in interests of investors in securities and the securities market.
  • For getting such exemption, the promoter or the acquirer or the company shall file an application with the Board giving details for seeking such exemption and the grounds on which the exemption has been sought.
  • The promoter or the acquirer would have to pay a non-refundable fee of Rs 50,000 to SEBI along with an application
• A company may delist its shares without following the procedure given in Chapter IV of these regulations (regarding public announcement, Escrow account, Letter of offer, Bidding period, Book Building process, Offer Price, Minimum shares to be acquired, etc.), if fulfills all the conditions given below:
  • Paid-up capital of the company <= Rs.10 crore;
  • Net worth of the company <= Rs.25 crore;
  • The shares of the company have not been traded during the past one year; and,
  • the company has not been suspended by any of the recognised stock exchanges having nation-wide trading terminals for any non-compliance in the preceding one year.
• The other conditions which were earlier prescribed for exemption from procedures of Chapter IV for delisting, like for companies with paid-up capital of less than Rs 1 crore and no trading for one year have been or companies with 300 or fewer public shareholders and paid-up share capital of less than Rs 1 crore, have been omitted.