Former Securities Appellate Tribunal chief and Chairman of SEBI's Takeover Regulations Advisory Committee, Mr C Achuthan passed away on Monday. He has made significant contributions to capital market jurisprudence in India.
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Readers must be aware that under regulation 13(1) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations), any person holding more than 5% shares or voting rights of a listed company is required to make an initial disclosure of his holding in terms of PIT Regulations. Under regulation 13(3), such a person is also required to make continuous disclosures about number of shares or voting rights held and any change therein from the last disclosure, if such change exceeds 2% of total shareholding or voting rights in the company. This disclosure is required to be made within two working days of receipt of intimation of allotment of shares or acquisition or sale of shares or voting rights, as the case may be.
Clause 35 of the Equity Listing Agreement, listed companies are inter alia required to make disclosures about the shareholding of promoter and promoter group of such company, on quarterly basis within 21 days from the end of each quarter. The Takeover Code also states that promoter or every person having control over a company is required to disclose the number and percentage of shares or voting rights held by such person(s), within 21 days of financial year ending on 31st March as well as the record date.
Issue
As explained above, under the past regulatory framework, the information about shareholding of promoter and promoter group comes in public domain at the end of each financial year and at the end of each quarter. There was no mechanism in place which ensured that the promoter and persons who are part of promoter group immediately disclosed to the market as and when a change (beyond certain threshold) occurs in their shareholding pattern unless such promoter/ person held more than 5% of the shares of the company (in such a case he would be liable to disclose under 13(1) of the PIT Regulations). Thus any person who is promoter and does not hold more than 5% of the shares of a company was not required to inform immediately any change in his shareholding even when such change is beyond the thresholds specified in PIT Regulations. Thus 'in a given case if shareholding of promoter and promoter group has been disclosed at the end of a quarter at say 40%, and promoter and promoter group is consisting of 10 persons so that none of them is holding more than 5% of the shares then information about any change in the shareholding of the promoter and promoter group comes in public domain within 21 days of the end of the relevant quarter. In such a case all the promoters and persons who are part of promoter group can exit from a company within a quarter without any information to the market regarding such change till the next quarterly filing'.
Amendment
By issuing the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2011, SEBI has made it mandatory for a promoter or member of promoter group to disclose all changes in their shareholding or voting rights from the immediate previous disclosure made under the PIT Regulations or the Equity Listing Agreement if such change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower. This disclosure has to be made within 2 working days of the receipts of intimation of allotment of shares, or the acquisition or sale of shares or voting rights, as the case may be. Also any person who is a promoter or part of promoter group of a listed company should disclose the number of shares or voting rights held by such person, within two working days of becoming such promoter or person belonging to promoter group.
A copy of the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2011 is available here.
A copy of the SEBI Board minutes in this regard is available here.
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