SEBI issues Delisting Regulations, 2009

SEBI on 10th June, 2009 has notified the SEBI (Delisting of Equity Shares) Regulations, 2009. 

What is delisting of securities?

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.

History of delisting regulations in India

Every company that issues shares to the public is required to have its shares listed on a recognised stock exchange. Initially The Controller of Capital Issues (CCI) fixed the price of shares issued by any company. In 1992 the CCI guidelines were abolished and SEBI was constituted. SEBI opened up the market to the Issuers and regulated the issue process by providing for full safeguards and transparency through disclosure of all relevant information by the issuers so that the investor can make an informed decision.  Companies issuing shares became free to fix the premium provided adequate disclosure is made in the offer documents. This resulted in many IPOs and a huge number of companies got listed on stock exchanges. Later it became necessary for many companies to delist their shares due to reasons like hitting the delisting limits. This resulted in the appointment of a Committee by SEBI and finally the SEBI (Delisting of Securities) Guidelines, 2003. SEBI (Delisting of Securities) Guidelines, 2003 provided an exit mechanism, whereby the exit price for voluntary delisting of securities is determined by the promoter of the concerned company which desires to get delisted, in accordance to book building process. SEBI on 10th June, 2009 has notified the SEBI (Delisting of Equity Shares) Regulations, 2009.

SEBI (Delisting of Equity Shares) Regulations, 2009

Kinds of delisting 

 (1) Voluntary delisting means delisting of equity shares of a company voluntarily on application of the company under Chapter III of these regulations. 
(2) Compulsory delisting means the delisting of equity shares of a company by a recognised stock exchange under Chapter V of these regulations. It states that a recognised stock exchange may, by order, delist any equity shares of a company on any ground prescribed in the rules made under section 21A of the Securities Contracts (Regulation) Act, 1956. This is a penalizing measure at the behest of the stock exchange for not making submissions/complies with various requirements set out in the Listing agreement within the time frames prescribed.

Voluntary Delisting 

Delisting of securities is not permitted in certain circumstances which are explained in Regulation 4. It states that a company cannot delist pursuant to a buy back of equity shares by the company; pursuant to a preferential allotment etc. It is also clarified that a company cannot delist its convertible securities.

Two types of voluntary delisting

Delisting where no exit opportunity is required. These are cases where even after the delisting from any one or more recognised stock exchanges, the equity shares would remain listed on any recognised stock exchange which has nationwide trading terminals. In this scenario exit opportunity should not be given to all the public shareholders with Chapter IV. Procedure to be followed is mentioned in regulation 7. 
Delisting where exit opportunity is required. This can happen in two cases, Firstly in cases where the company delists its equity shares from all recognised stock exchanges and secondly in cases after the proposed delisting, the equity shares would not remain listed on any recognised stock exchange having nation wide trading terminals. In these scenarios exit opportunity should be given to all the public shareholders with Chapter IV. . Procedure to be followed is mentioned in regulation 8. 

The procedure for providing exit opportunity is detailed in Chapter IV of the Regulations. It includes public announcement, opening of an escrow account, dispatching letter of offer, price determination through book building process etc. There is also a prescribed minimum number of equity shares to be acquired while providing this exit opportunity.  

Compulsory Delisting

This is a penalizing measure at the behest of a recognised stock exchange for not making submissions/complies with various requirements set out in the Listing agreement within the time frames prescribed. Procedure for the same is detailed in Chapter V of the Regulations. This is different from voluntary delisting in many ways. For example, the stock exchange should appoint an independent valuer or valuers for determining the fair value of the delisted equity shares. Then the promoter of the company should acquire delisted equity shares from the public shareholders by paying them the value determined by the valuer, subject to their option of retaining their shares.

Special provisions for small companies and delisting by operation of Law

Company having paid up capital up to one crore rupees and its equity shares were not traded in any recognised stock exchange in the one year immediately preceding the date of decision, such equity shares may be delisted from all the recognised stock exchanges where they are listed, without following the procedure in Chapter IV. Provisions are also provided for delisting in case of winding up, derecognition of companies.

Copy of the Regulations is available here.