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Introduction

As per SEBI (Delisting of Equity Shares) Regulations, 2009, delisting of security means the removal of listed security from the stock exchange platform and thus no longer be traded on the bourse (stock market). This usually takes place when a company ceases operations, declares bankruptcy, merges, does not meet listing requirements, or seeks to become private. Also, due to heavy legal compliance load and cost related to it, the companies resort to the delisting of shares.

Applicability

The SEBI (Delisting of Equity Shares) Regulations, 2009 contains the provisions applicable to the delisting of equity shares in India. The provisions of these regulations shall apply to the delisting of equity shares from all or any of the recognized stock exchanges where such shares are listed but these shall not apply to any delisting made pursuance to a scheme sanctioned by the National Company Law Tribunal (NCLT) under IBC, 2016, if such revival scheme –

1. Lays down the specific procedure to complete delisting; or
2. Provides the exit option to the existing public shareholders at a specified rate.

Delisting is not permissible in certain circumstances

A stock exchange shall not permit delisting in following circumstances:

1. Pursuant to buyback of equity shares by the company; or
2. Pursuant to a preferential allotment made by the company; or
3. Unless a period of three years has been elapsed since the listing of that class of equity shares on any recognized stock exchange; or
4. If the instrument issued by the company which are convertible into the same class of equity shares that are sought to be delisted are outstanding.

Types of Delisting

As per the delisting regulations, 2009, delisting can be of two types:

1. Voluntary delisting
2. Compulsory delisting

Voluntary Delisting (Regulation 5 – Regulation 21)

Voluntary delisting means delisting of equity share of a company voluntarily on the application of the company. Subject to the provisions of the regulations, a company may delist its equity shares from all the recognized stock exchange where they are listed but after providing the exit opportunity to the public shareholders if that stock exchange has nationwide trading terminals like NSE and BSE. If equity shares of a company remain listed on any recognized stock exchange but delist from other stock exchange like Calcutta stock exchange than there is no requirement of giving exit opportunity.

Procedure for delisting where no exit opportunity is required

As per regulation 7, the following steps must be followed:

1. Approval of the board of directors of the company in its meeting
2. Company shall give a public notice in three newspapers i.e. Hindi, English and regional where the stock exchange is located.
3. Make an application to the concerned stock exchange for delisting of its equity shares;
4. The facts of delisting shall be disclosed in the first annual report after delisting.

Procedure for delisting where exit opportunity is required

1. Promoters shall appoint a SEBI registered merchant banker.
2. Obtain prior approval of the board of directors of the company in its meeting.
3. Obtain prior approval of shareholders of the company by special resolution postal ballot.
4. File application to the concerned stock exchange to obtain in-principle approval for delisting.
5. Merchant banker drafts the public announcement and letter of offer.
6. Promoters shall open escrow account and promoter shall deposit the 100% amount on the basis of estimates or on the basis of the floor price (Floor price means the price which should not be less than the fair value of the share).
7. After the in-principle approval, the public announcement will be issued in the newspapers for reverse book building.
8. On the specified date list of members will be decided to whom the letter of offer will be sent.
9. Promoters shall dispatch the letter to all the public shareholders.
10. Now the reverse book building will be open for the maximum for 7 working days.
11. After the date of closing of offer, the final price shall be decided by the promoters in consultation of a merchant banker.
12. All the bids at or below the final price are successful and above that price will be unsuccessful.
13. Promoters have the option to accept or refuse such final price.
14. Now the promoters shall open a special account immediately with a SEBI registered banker to issue and transfer the entire amount of escrow account and also the additional amount which is necessary to payoff.
15. All the shareholders whose equity shares are verified to be genuine shall be paid the final price stated in the public announcement.
16. The promoters have to make the final application to the stock exchange within 1 year from the passing of the special resolution in step 3 above.

Note: We have covered the detailed process of Voluntary Delisting with an exit opportunity under a separate article. Click here to read the process in detail.

Compulsory Delisting (Regulation 22- regulation 24)

A stock exchange may by order, delist  equity shares of any company on following grounds explained under section 21A of the Securities Contact Regulations Act, 1956:

1. Non-payment of listing fees.
2. Non-compliance with listing requirements and listing agreement.
3. Reduction in the number of public holders of securities.
4. Non-redressed of investor’s complaints despite repeated reminders.
5. Unfair trading practices at the behest of the promoters/ management

Consequences of Compulsory Delisting (Regulation 22 – Regulation 24)

Where a company has been compulsorily delisted under this regulation, the company, its whole-time directors, its promoters and the companies promoted by them shall not:

1. Directly or indirectly access the security market, and
2. Seek listing for any equity shares for a period of 10 years from the date of such delisting

Procedure for Compulsory Delisting

 Following are the steps which shall be followed for compulsory delisting:

1. Stock exchange creates a penal of 5 members after identifying the defaulter company.
2. The panel gives 2 newspaper notices about the proposed decision of defaulter company.
3. A reasonable opportunity of being heard will be given to the company and during this, any shareholder can file the objection to the stock exchange.
4. The panel will consider the representations received from the company and from the persons.
5. The panel will pass the final order for delisting.
6. The panel gives 2 newspaper notices after passing the final order.
7. The promoter shall pay the fair value of shares to public shareholders.
8. The fair value of shares shall be decided by an independent valuer who can be a Chartered Accountant or a Merchant Banker.