Open Access Research Article
DELISTING OF COMPANIES: A CRITICAL STUDY OF INDIAN REGULATIONS
Published Paper
Article Details
AUTHORED
BY - YASH KATARIA
ABSTRACT
Listing and delisting of securities are
commercial calls, based on business considerations. The market conditions,
structure and functioning of companies, among others, greatly influences the
decision whether or not to trade (or continue to trade) in public. ‘Delisting’
implies permanent removal of securities from stock exchange(s). As a result of
delisting, the public can no longer trade in the securities of the delisted
company. In turn, the delisted company becomes a closely held company. The
company may continue to remain a public limited company but it is no longer
listed on any of the stock exchange(s).
The Securities and Exchange Board of India
(‘SEBI’) recently announced its plan to revisit the SEBI (Delisting of Equity
Shares) Regulations, 2021 (‘Delisting Regulations’) to simplify the procedure
for determination of the exit of a listed company from stock exchanges. The
Securities and Exchange Board of India (“SEBI”) through a consultation paper
(“Consultation Paper”) proposed significant changes to enhance the delisting
process. The Consultation Paper is based on policy suggestions from a Primary
Market Advisory Committee (“PMAC”) subgroup led by Mr. Keki Mistry to balance
stakeholders. This paper will analyse the current delisting regulations as well
as the recent policy recommendations and provide suggestions for a better
suited regime according to the Indian economy and market.
REVIEW OF
LITERATURE
In many nations, there is currently a dearth
of research on the delisting phenomenon. Since operations targeted at the
abandonment of the regulated market are receiving more attention, we thought it
was appropriate to conduct a systematic review of the literature in order to
determine the knowledge objective that the most authoritative doctrine in the
various scientific papers is pursuing. Despite being more significant in the
firm's life than the decision to become public, Constant Djama, Isabelle
Martinez, et al. (2012) felt that the decision to delist has received less
attention in the corporate finance literature. It is made clear what
constitutes voluntary and involuntary delisting. Strategies to prevent
delisting and incentives for voluntary delisting are presented. Karishma
Khadiwala et.al,(2015) in their project report, a Study on Trends in
Delisting of Shares in India and its reasons, find that Delisting has become a
phenomenon of paramount importance globally and due to dramatic market shifts
in recent years, many public companies are facing delisting from NASDAQ and the
NYSE.
Martinez and Serve (2011) state that the choice to delist is taken
when the expenses of listing outweigh the advantages of remaining open to the
public, which could happen in any of the following situations: Either (i) the benefits fall below the point where
the advantages of being public outweigh the disadvantages, or (ii) the costs
rise above the point where the disadvantages outweigh the advantages. According
to Bharath and Dittmar (2010), theories about the advantages and disadvantages
of being public may be applied to examine the reasons behind a company's
decision to delist as they are trade-off-type theories.. Thus, according to
these theories, the decision to go private will depend on the market timing. Tiziano
Onesti, Mauro Romano and et.al (2014), they studied the effects of
delisting on the dynamics and value creation of delisted companies represents a
very promising research opportunity for international research scholars. The
authors find that traditional classification of delisting viz. voluntary
delisting and involuntary delisting considered for research may result in to
conceptual fallacy and therefore there is a need to relook this traditional
classification for future research purpose.
Scholars tend to focus their attention on
specific sorts of delisting, therefore the delisting of corporations is not a
single topic of research in the international literature. The majority of the
research that has been done thus far points to delisting as the outcome of a
going-private event, or a set of transactions that transform a publicly traded
company into a private one.
In the article, Reverse Book Building
Process under the New Delisting Regulations by Hemant Srivastava and Rashi
Tolani, the authors have traced the evolution and critically analyze the
Reverse Book Building Mechanism as per the new Delisting Regulations of 2021
which is required to determine the discovered price of the purchase of shares
to successfully delist the company. We have also looked at the article Delisting
Regulations in India and the Position of Minority Shareholders by Prof.
Harpreet Kaur in which the author has argued that the fixed price mechanism
for the delisting process puts the minority shareholders at a disadvantage and
it is important to understand the purpose of the Reverse book building process
before making amendments to this process.
RESEARCH
QUESTIONS
- Whether the current delisting mechanism for
shares in India effective, and what are the identified gaps in their
implementation and regulation?
- What are the recent trends and reasons
for the failure of delisting of companies?
RESEARCH
OBJECTIVES
- To understand and analyse the current
delisting law and regulations.
- To identify the reasons for delisting of
companies
- To study the progression of delisted
companies
Corporate India has been feeling
robust and optimistic for a number of years, with ambitions to float companies
on local stock exchanges. However, the recent recession in the economy and the
COVID-19 pandemic have caused stock valuations to drop to all-time lows (with a
significant discount to their historical highs). The optimism that
characterised the past few months has subsided, and promoters of publicly
traded companies are becoming more pragmatic and considering the possibility of
delisting their stocks and going private. This covers foreign owners of
businesses listed on Indian bourses as well as Indian promoters.[1]
The permanent withdrawal of a listed
company's equities from a stock exchange is referred to as
"delisting" of shares. The company's stocks won't be traded on that
stock market after they are delisted. This procedure is overseen by SEBI and is
subject to numerous regulations that provide specific guidelines.[2]
Listing of the companies in the stock
exchanges provides an opportunity for the companies to freely market and
transfer their shares to the public. A company might want to get listed because
of various reasons like greater shareholder’s base, low cost of capital
production, increase in prestige, high liquidity in shares trading, etc. There
are more than 9000 companies that are listed in different stock exchanges in
India, out of which a great portion of companies serves no purpose from being
listed as there is a lack of active trading taking place in such companies. For
such companies, the benefits derived from being listed in the stock exchange
underweights the cost of listing, the heavy compliance requirements of SEBI as
well as the disciplinary actions and penalties which are attracted in cases of
non-compliance. Therefore, to meet the economic viability of the company as
well as to provide an attractive and easy exit opportunity for the shareholders
the delisting regulations streamline the appropriate process under the law.
Delisting of a Company is different
from Delisting of shares. When a company delist shares from one stock exchange
but continues trading in one or more other stock exchanges, then, it is termed
as Delisting of shares. Delisting of a Company means Company gets delisted from
all stock exchanges and shareholders forego their precious right of trading in
secondary market. Delisting of a Company can be either voluntary or
involuntary. Involuntary delisting of a Company happens on account of non
payment of delisting fees and non compliance with stock exchange regulations.
This is also called as forced exit from trading of shares of a company from
stock exchanges. Voluntary delisting happens on account of reasons such as
onerous cost of compliances for listing, low trade volume of shares, market
value of shares not reflecting its true value.
TYPES
OF DELISTING
There are essentially two types of
delisting – voluntary and involuntary. In a financial context, both types of
delisting will impact shareholders.
Involuntary delisting means the
forced removal of a listed company’s shares from the stock exchange.
Involuntary delisting happens for several reasons such as when there is a
violation of the regulations, late or wrongful reporting, the failure to meet
the minimum financial expectations, etc. Monetary standards refer to the
ability to maintain the share price, financial ratios, and sales volumes at a
requisite minimum. When a company fails to meet the listing requirements, the
respective exchange issues a warning of non-compliance to the company. If the
issue remains unaddressed beyond specified timelines, the stock is delisted by
the listing exchange. [3]
Companies not benefiting from being
listed on the stock exchange and paying a significant amount to trade publicly
choose voluntary delisting. This type of delisting also occurs when there is a
change in the entire structure of the company. Another reason could be an
amalgamation, merging with another company or avoiding hindrance in the company
operations. It is achieved by permanently removing securities from the stock
exchange and making them unavailable for trading. In such cases, the company is
liable to pay all the shareholders in exchange for all their shares.
Then, how does the investor get their
money back after delisting? Once delisted, you can’t sell those shares on NSE
or BSE. Although, the ownership of the shares remains intact. And therefore,
you are eligible to sell the share outside the exchange.
HISTORICAL
PERSPECTIVE
With operations dating back to 1875,
the Indian stock market is among the oldest in Asia, but until the late 1980s,
it was mostly excluded from the process of global integration. International
financial integration has grown in the nation as a result of globalisation,
economic integration, and liberalisation. The stock markets have grown
explosively in the last century due to the fast economic growth.
Simultaneously, improving the stock market has contributed significantly to the
expansion of the global economy. A well-run stock market plays a major role in
the modern market economy. In a nation such as India, where countless
individuals participate in main and secondary markets, safeguarding the
interests of investors becomes an essential responsibility of regulators across
all platforms.[4]
Previously, the Controller of Capital
Issues (CCI) was in charge of share pricing and public offerings. The
Securities and Exchange Board of India (SEBI) has been handling the matter
since the CCI was abolished in 1992. Protecting the interests of securities
investors, fostering the growth of the securities market, regulating it, and
handling issues related or incidental to it were the main goals of SEBI and the
SEBI Act, 1992. Since then, SEBI has made it a constant mission to create
policies, procedures, and legislation. As part of one of these attempts, SEBI
established a committee on share delisting in 2002. The committee's duties
included reviewing and examining the requirements for delisting securities of
businesses listed on recognised stock exchanges as well as proposing guidelines
and protocols related to the process. The SEBI Board reviewed and approved the
committee's report. In accordance with this, SEBI published the SEBI (Delisting
of Securities) Guidelines, 2003 via Circular SMD/Policy/CIR-7/2003, dated
February 17, 2003.[5]The
salient features of the said Guidelines were
·
If
the firm or its promoters decide to remove its securities from all stock
exchanges where they were listed, the public shareholders will be granted the
opportunity to withdraw from the company. On the other hand, if the company
continued to be listed on stock exchanges with national trading terminals, no
exit opportunity needed to be provided.
·
The
exit option, which will stay available for six months following the offer's
closing.
·
Price
determination using the Reverse Book Building method.
·
The
promoters have the choice to accept or reject the price that the book building
process determines.
·
Only
dematerialized stockholders were able to take part in the book building
process.
However, the aforementioned Guidelines addressed
the matters related to securities delisting to a large extent. Still, there
were several issues that drew criticism from a variety of sources. The
regulators received a variety of statements and opinions regarding the operational
concerns and procedural complexities in the rules from intermediaries, stock
exchanges, shareholders' groups, chambers of commerce, and other organisations.
It was suggested to investigate and make recommendations for revisions to the
guidelines in light of such representations. The first set of adjustments that
suggested greater systemic clarity were made available for public feedback in
April 2004. Opinions were received on important provisions and comments were
received from a variety of sources. Based on this, SEBI requested public
feedback on the proposed Regulations when it released the Concept Paper for the
SEBI (Delisting of Securities) Regulations, 2006 in December of 2006. On the
topic, SEBI received a variety of remarks, viewpoints, and recommendations.
Finally, SEBI announced the much-awaited Securities and Exchange Board of India
(Delisting of Equity Shares) Regulations, 2009 by publishing them in the
Official Gazette on June 10, 2009.
CURRENT
FRAMEWORK
On June 11, 2021, the Securities and
Exchange Board of India put forth the SEBI (Delisting of Equity Shares)
Regulations, 2021. These regulations were enacted to supersede the erstwhile
delisting regulation which was named SEBI (Delisting of Equity Shares)
Regulation, 2009 for the reason of making the process of delisting more
transparent, efficient, invertor friendly, robust, and time-bound in nature.
‘Delisting’ is defined under
Regulation 2(j) of SEBI (Delisting of Equity Shares) Regulations, 2021, it
means “permanent removal of equity shares of the company from the trading
platform of a recognised stock exchange, either by way of voluntary or
compulsory method” whereas Regulation 2 (bb) defines ‘Voluntary Delisting’
which means “the delisting of equity shares of a company voluntarily on an
application made by it under Chapter III of these regulations.”
The promoters of a company may decide
to delist for a variety of reasons, including the cost of complying with
disclosure and compliance standards, the expense of keeping the company's shares
listed, or the fact that the benefits of being listed are no longer material. The
acquirer/promoter is required under the SEBI (Delisting of Equity Shares)
Regulations, 2021 ("Delisting Regulations") to give its public
shareholders an exit offer. At the moment, this is decided through the RBB
process. Following the acquirer/promoter's announcement of a floor price, the
public shareholders then offer their shares for sale through the stock exchange
mechanism during a bidding period, at the price at which they would be prepared
to sell their shares. The delisting offer is unsuccessful if the
promoter/acquirer's post-offer shareholding, together with shares tendered by
public shareholders, does not equal 90% of the outstanding shares of the firm.
But if it hits 90%, the discovered price is calculated, and the delisting is
successful if the acquirer accepts it. The acquirer may make a counteroffer
that is equal to or greater than the company's book value if the found price is
rejected. The post-counter-offer shareholding must reach 90% of the total
issued shares in order for the counter-offer to be successful.
CHAPTER
II – CRITICAL ANALYSIS OF THE DELISTING REGIME: A NEED FOR AMENDMENT?
Following extensive consideration,
the Securities and Exchange Board of India (SEBI) revised the 2009 SEBI
Delisting Regulations with the SEBI Delisting Regulations in 2021. The present
delisting process is primarily divided into two phases: (i) the
exisitng promoters' voluntarily delisting under the SEBI Delisting Regulations,
and (ii) non-promoters' or third-party acquirers' voluntary delisting under
Regulation 5A of the SEBI Takeover Regulations.
It is noteworthy that the new rules
have been warmly received because they have offered a number of beneficial
measures to facilitate and expedite the delisting process. In the future, it
will be very beneficial to make changes such as requiring a company to form an
independent directors committee to rationalise recommendations for delisting
proposals, setting deadlines for completing various steps in the delisting
process, offering an appropriate method of calculating book value when
calculating the counter-offer, etc. to make the delisting process more
effective and quick.
The Delisting Regulations provide for
certain procedural safeguards to protect the interests of shareholders,
especially the minority shareholders. These include the appointment of a peer
review company secretary, who is required to certify that the proposed
delisting is not the outcome of any fraudulent or deceptive scheme. Moreover,
even the board of directors of the company is required to certify that the
proposed delisting is in the best interest of the company, and that the
delisting is in compliance with the applicable laws. Apart from this, the
public shareholder votes required to approve the proposed delisting should be
at least twice the number of votes cast against it by them. While this
numerical threshold aims to prevent minority shareholders from being
strong-armed into accepting the proposed delisting, the mandate of voting only
through postal-ballots or e-voting, coupled with the limited participation of
shareholders in such mechanisms of voting, hampers the communication of
minority shareholders’ interests in delisting resolutions.[6]
REVERSE
BOOK BUILDING PROCESS
According to the SEBI Delisting
Regulations, the reverse book building ("RBB") process—basically, a
bidding process—is used to determine the price at which a business can stand
delisted. In the reverse book bidding (RBB) procedure, the price at which
shares tendered through qualifying offers bring the acquirer's total
shareholding to 90% of the company's issued capital is known as the discovered
delisting price. Delisting is accomplished if the acquirer pays all public
shareholders whose bids are accepted in the RBB by accepting the
discovered price.[7]
Since the inception of Delisting
Regulations in 2003, SEBI has been clear about the benefits of the reverse
book-building procedure over the fixed price method, as the former ensures
transparency in price-determination and protects investors from losses arising
due to market fluctuations. This transparency and protection were further
strengthened with the introduction of a detailed price discovery mechanism
based on three types of prices— the floor price (minimum price offered), the
indicative price (minimum price with a premium offered by the
promoter/acquirer), and the discovered price (the price determined through
bids). The discovered price can be higher or lower than, or equal to the indicative
price. If the discovered price is higher than the indicative price, then the
acquirer/promoter has the option to reject the same and propose a counteroffer,
which shall not be less than the book value of the company, as certified by the
manager to the offer. Such a detailed system based on the inter-relationships
of three different prices is unique to India.[8]
Moreover, for a delisting to be
successful, the acquirer/promoter is required to receive a cumulative of 90% of
the total issued shares of the company. Minority shareholders usually use the
detailed price mechanism and the 90% threshold to block the delisting proposal.
They acquire a sufficient number of shares to ensure that the 90% benchmark is
not achieved and, by making an egregiously high bid than the indicative price
or by not accepting the counteroffer (if received), they restrict the proposed
delisting.[9]
This strategy was successfully employed in 2020 in the case of the delisting
proposal of Vedanta Resources Ltd.
THE
OTHER SIDE OF THE ARGUMENT
The
interests of a larger group of minority/public shareholders are impacted by the
disproportionate power exercised by the minority/public shareholders holding
significant stakes in establishing the exit price. The delisting offers bidding
data of certain corporations reveal that certain investors have impacted the
offer's result by placing greater bids (about 106% over the floor price). In
these kinds of deals, promoters have declined the price even after reaching the
90% criterion. impacting the interests of a greater group of minority and
public shareholders.
Certain
bids are made at a price significantly greater than the floor price established
in accordance with the aforementioned Regulations. These bids are typically
made by certain investors who bought the company just before it was delisted in
an attempt to profit excessively from the transaction. Such bids negatively
impact the interests of other minority and public shareholders who have taken
on the risk of investing with a longer time horizon and are denied a fair exit,
hence destabilising the delisting process.[10]
Because
they have trouble understanding the RBB process, regular investors don't
participate as much. They typically bid at large premiums since they are
unaware of the price sensitivity of the bidding and end up making the price
unfeasible for the acquirer. Additionally, shareholders who tender their shares
during the delisting process are not eligible for a reduction in capital gains
tax because their activities are regarded similarly to off-market transactions.
These elements lead to non-participation in the delisting procedure.[11]
There
have been numerous instances of delistings that fail because of high premium
pricing. In the Brady and Morris Engineering Company case, for example, the price
ascertained by the RBB procedure showed a significant 1128.70% premium above
the floor price. Comparably, Linde India saw demand for a 517% premium in 2019
while Vedanta saw demand for a 267% premium in 2020. 53% of firms who
voluntarily delisted under the RBB procedure were delisted at premiums, with a
median value of 125%, according to a report by SEBI that analyses data from
2015 to 2018.
OTHER ASPECTS
Since the floor price usually doesn’t
reflect the true value of the company and is often much lower than the price at which the shareholders
are willing to sell their shares, the Indicative Value also fails to serve any
substantive purpose. In reality, the discovered price computed after the RBB is
always much higher than the indicative price of the offer.
The right of the counter-offer of the
promotor is also restrictive and hence, cannot be made on a price that is lower
than the present book value of the concerned listed company. It is a known fact
that the price at Book Value is not always consistent and accurate in
reflecting the actual representation of the valuation of the company because of
which it might not prove to be profitable for both the parties and eventually
result in the failure of the delisting offer.
KEKI
MISTRY COMMITTEE SUGGESTIONS
The Securities and Exchange Board of
India (‘SEBI’) recently announced its plan to revisit the SEBI (Delisting of
Equity Shares) Regulations, 2021 (‘Delisting Regulations’) to simplify the
procedure for determination of the exit of a listed company from stock
exchanges. SEBI has established a committee under Keki Mistry to assess the
possibility of replacing the existing system of reverse book building with the
fixed price method. The idea behind this change is to curb the malpractice of
hoarding shares of the company, prior to the delisting announcement, which is
then used to manipulate the exit price. SEBI intends to remedy this situation
by mandating a fixed price method of price determination which, if it fails,
can be replaced with the reverse book-building procedure by the
promoter/acquirer.[12]
ANALYSIS
OF THE PROPOSAL
In light of the use of the reverse
book building process, as a defence strategy, I believe that a shift to the
fixed price method may leave the minority shareholders completely defenceless,
at the mercy of the price decided by the company’s board. Be it a
promoter-initiated delisting or an acquisition-driven one, the board led by the
majority shareholders of the company (considering the controlled-shareholding
pattern of India) possibly in collusion with the promoter/acquirer, would
single-handedly decide the exit price of the shares without any inputs from the
minority shareholders. In such a situation, minority shareholders would be left
with the meagre protection accorded by the general directorial obligations of
reasonable care and good faith in their dealings, and SEBI’s mandate for the
boards to treat the varied interests of all groups of shareholders fairly. Due
to the absence of a specific duty of loyalty to the minority shareholders in
cases of delisting, the efficacy of these general principles in protecting the
interests of minority shareholders would remain uncertain.
Under the existing delisting
framework, minority shareholders neither have any veto rights to oppose the
proposed the delisting, nor do they have the option to approach SEBI to
challenge the delisting. In such a situation, the existing framework created by
the reverse book building procedure in conjunction with other provisions of the
Delisting Regulations, serve as an effective tool for minority shareholders to
protect their interests. While I commend SEBI’s focus on enhancing the ease of
business, it should not come at the cost of protection of minority
shareholders’ interests. Hence, it is imperative that SEBI reassess its
proposal of introducing the fixed price method, as it may have ramifications
for effective corporate governance.
SUGGESTION
India is the only nation who seems to
be following the same as a price determination mechanism in delisting. Before
the introduction of these guidelines, the system of the fixed price determined
by the promoter was followed. If we look at some of the major countries of the
world we find that, for instance, in the US, companies may delist by presenting
fixed-price exit offers to shareholders, subject to the approval of the board
of directors and the majority of minority shareholders. Similarly, voluntary
delisting through a fixed-price exit offer upon securing the consent of 90% of
the shares is allowed by Hong Kong and Singapore.[13]
To guarantee precise price
determination, for example, fixed-price delisting ought to be restricted to
shares that are actively traded and have a sizable public float. To further
protect the interests of minority shareholders, the open market price ought to
be included in the suggested counter-offer pricing formula.[14]
Given the proposed changes to the
Delisting Regulations, these conditions should now be dropped from the Takeover
Code, so that acquirors making a Combined Offer can also benefit from the more
rationalised approach mooted in the Consultation Paper. More generally, a clear
and efficient mechanism is required to enable the acquiror to buy-out the
residual minority shareholding (of up to 10%), which may remain even after the
conclusion of a successful delisting. While the Companies Act, 2013 provides
some options to implement such a squeeze-out (such as through a selective
reduction of share capital with the approval of the National Company Law
Tribunal), these options currently come with their own set of challenges,
including the risk of protracted litigation. An efficient legal framework for
squeezing-out the minority would enhance certainty for investors in control
buy-outs
REFERENCE
DATE
The Delisting Regulations provide for
a minimum acquisition price in the delisting offer i.e., the “floor price”. The
floor price is calculated as of a reference date. Currently, in terms of the
Delisting Regulations, the reference date to calculate the floor price is the “date
on which the stock exchanges are required to be notified of the board meeting
in which the delisting proposal was considered and approved.”[15]
The acquirer must notify all stock
exchanges on which the company's shares are listed of their initial public
announcement, as per Regulation 8(1) of the Delisting Regulations. The board of
directors of the firm must then accept the acquirer's delisting proposal in
accordance with Regulation 10(1) of the Delisting Regulations no later than 21
days from the date of the original public announcement. Furthermore, as per
Regulation 20(3) of the Delisting Regulations, the date on which the recognised
stock exchange(s) was required to be notified of the board meeting where the
delisting request was examined and agreed is the reference date for calculating
the floor price. Further, for a delisting offer in accordance with Regulation
37 of the Delisting Regulations, the board of directors are “required to
provide a prior intimation to the stock exchanges of the board meeting in which
the delisting proposal will be considered”, in accordance with Regulation 29 of
the Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015, as amended (“SEBI Listing Regulations”). Note
that between the date of the initial public announcement or the date of the
prior notification to the stock exchanges of the board meeting where the
delisting proposal will be considered, whichever applies, and the date on which
the stock exchanges are required to be notified of the board meeting where the
delisting proposal was considered and approved, there may be a risk of
significant and abnormal trading activity in the company's shares.
DELISTING
& M&A TRANSACTIONS
The acquirer must pay the public
shareholders the difference in price if an M&A transaction is completed
following a successful delisting at a price greater than the delisting price.
This obligation comes from the Essar Oil-Rosneft precedent and is not included
in the current regulations. Even if the sale of Essar Oil ended 1.5 years after
a successful delisting, the promoters of the company were still obligated to
pay the difference to the public shareholders. This was due to the fact that
the price at which the sale to Rosneft was finalised exceeded the amount paid
to the public shareholders as a result of the delisting. For parties
considering M&A transactions involving delisted companies, it causes
uncertainty in the market in the lack of any particular restrictions or time
limit.
The obligation to pay the difference
amount should arise within six months of the successful delisting, if an
M&A transaction is announced and the price proposed to be paid to the
sellers is higher than the price paid to the public shareholders in the
delisting. This is permissible according to SEBI's guidelines. "M&A
transactions" in this context refers to agreements where the buyer
acquires ownership. This timeframe would align with the present open offer
method of the SEBI Takeover Regulations. Currently, Regulation 5A prohibits
current promoters from joining the promoter group after the offer or even being
officially categorised as co-promoters. Consequently, it is imperative to
de-promote the current promoters. The lack of flexibility among the transacting
parties prevents them from structuring the deal to meet specific commercial
goals, which could be crucial for the transaction's success as well as the
company's ability to continue operating. For instance, the new acquirer can
demand that one of the current promoters have a crucial managerial role in the
target business for a predetermined amount of time. A typical transaction structure
utilised globally is a transition or handover period, wherein the
sellers/existing promoters assist the acquirer in better understanding the
workings of the firm, guarantee a seamless transition of management, and
minimise business disruption. Additionally, the company and all of its
stakeholders—including employees and public investors—benefit from this. Reg
31A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015, in conjunction with Regulation 5A of the Takeover Regulations, however,
prohibits the current promoters from being reclassified and from holding
important managerial positions going forward.
With the clarification that (i) the
departing promoters should have 10% or less equity stake in the company and
(ii) operational and sole control should be with the incoming/new promoter
solely, the rule should allow the current promoters to be formally designated
as "co-promoters."
CONCLUSION
The delisting of companies in India
has undergone several modifications as a result of the SEBI (Delisting of
Equity Shares) Regulations, 2021, which will ultimately make the delisting
process more efficient and time-bound. However, in accordance with this
article's point of view, the new regulations have not addressed the remedies
for the main problem of the impasse that arises when calculating the discovered
price between the acquirers and the shareholders. The Reverse Book Building
Process has resulted in a win-win situation for the shareholders as the
acquirer will buy the shares at a higher price if the company wants to delist,
and in cases where the delisting proposal fails, it has been observed that the
share price of such companies rises inorganically, which ultimately benefits
the shareholders. In the past, there have been multiple instances where the
shareholders were found to form cartels to manipulate the biddings during the
process.
A number of modifications, such as
the addition of a thorough plan for quickly purchasing the remaining shares
from stockholders after a successful delisting, can be made to the suggested
framework. In order to safeguard shareholders and provide them certainty about
their shares, this framework should enable a variety of buy-out alternatives,
including squeeze-outs.
Additionally, if the firm does an
M&A transaction, it should include a deadline for the delisted company to
pay the difference in share price. In the event that the firm engages in an
M&A transaction at a price greater than the delisted price, it is now
required under the Essar-Oil Rosneft case to pay the shareholders the
differential price. Regulators, however, do not specify a specific cooling-off
time; without one, the corporation faces uncertainty and confusion when
engaging in these kinds of transactions.
BIBLIOGRAPHY
·
Hemant
Srivastava and Rashi Tolani , Reverse Book Building Process under the New
Delisting Regulations, 2021, 4 (4) IJLMH Page 362 - 369 (2021), DOI:
https://doij.org/10.10000/IJLMH.111300
·
Delisting
And Corporate Governance: A Review And Research Agenda Byserve Stéphanie,
Martinez Isabelle And Djama Constant.
·
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[14] Sahsransh Pandey, 'SEBI Consults
on Overhauling Delisting Framework: Key Issues and Analysis' (Indian Review of
Corporate and Commercial Laws (IRCCL), 9th october)
accessed 20 April 2024
[15] SEBI |
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of Equity Shares) Regulations, 2021”, https://www.sebi.gov.in/reports-and-statistics/reports/aug-2023/consultation-paper-on
review-of-voluntary-delisting-norms-under-sebi-delisting-of-equity-shares-regulations-2021_75335.html
Article Information
DELISTING OF COMPANIES: A CRITICAL STUDY OF INDIAN REGULATIONS
Authors: YASH KATARIA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/06/27
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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