India: Indian Securities Regulator Approves Listing Of Stock Exchanges And Grant Of Exit Options For Dissenting Shareholders

Last Updated: 8 December 2015
Article by Agram Legal Consultants

The Securities Exchange Board of India ("SEBI") in its board meeting held on November 30, 2015 ("Board Meeting") took some pertinent decisions which amongst others related to listing of stock exchanges, public issuance of convertible securities, delisting of small companies and exit opportunities to dissenting shareholders. Summarised below are the important decisions taken by SEBI during the Board Meeting:

1. Based on representation received on listing of stock exchanges, SEBI approved the listing of stock exchanges by placing certain safeguards and procedures with respect to shareholding norms and fit and proper criteria in order to ensure compliance with the ownership and governance norms, under the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 ("SECC Regulations"), which are as follows:

i. Stock Exchanges shall be classified as infrastructure company under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009;

ii. The measures proposed to be in compliance with SECC Regulations, shall mutatis mutandis, apply on the listing of Depository;

iii. Public shareholding has to be maintained at 51% (fifty-one percent). Shareholding of trading members/ associates/ agents will not be permitted to exceed 49% (forty-nine percent) and approval of the listed stock exchange will be required when their holding reaches 45% (forty-five percent);

iv. Every shareholder will be required to maintain a "fit and proper" status and timely declarations and disclosures are to be made at the time of initial public offering/offer for sale and post listing;

v. Monitoring of shareholding at thresholds of 2% (two percent), 5% (five percent) or 15% (fifteen percent) through depository mechanism;

2. Initiate the public consultation process for disclosure requirements, for issuing and listing of green bonds, which are in accordance with the principles recommended by the International Capital Market Association. Further, green bonds will be subject to the same listing and disclosure provisions applicable to corporate bonds, under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008;

3. Initiate the public consultation process for the introduction of primary market debt offering through private placement on an "electronic book". The "electronic book" may be created by Electronic Book Providers ("EBP") and entities such as stock exchanges, depositories and merchant bankers with net worth above `1,000,000,000 (Indian Rupees One billion) may apply to SEBI to be classified as EBPs. The electronic platform would improve efficiency and transparency of the price discovery mechanism vis-à-vis the extant over-the-telephone market and also reduce cost and time for such issuances;

4. Amendment to the SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 2011 allowing exemption from making an open offer, due to passive acquisition/increase in voting rights as a result of an expiry of a call notice period and forfeiture of partly paid-up shares;

5. Listed entities that have issued securities to more than 49 (forty nine) persons but less than 200 (two hundred) persons in a financial year may avoid penal action, if they had provided investors with an exit option to surrender their allotted/subscribed securities and also to receive a refund for the same, at a price which is not less than the amount of subscription money paid, along with 15% (fifteen percent) per annum interest. However, the investors may choose to stay invested in case they feel it is beneficial to them. Such exit may be provided by the company or the promoters or any person arranged by the company or promoters. An independent practicing chartered accountants / practicing company secretaries / practicing cost accountants will have to certify the refund made by the company, following the exercise of the option by the investors.

6. Top 500 (five hundred) listed entities, based on market capitalization as on March 31st of every year, will be required to prepare a Business Responsibility Report along with their annual reports, which can be accessed through the website link provided in their annual reports;

7. Initiate the public consultation process, for providing exit options to dissenting shareholders, in the event that objects or terms of contract referred to in a prospectus have been varied under the Companies Act, 2013 and to initiate revival measures for public issuance of convertible securities, by listed entities;

8. Exemption available to small companies from certain compliances under SEBI (Delisting of Equity Shares) Regulations, 2009, subject to certain conditions, including that their shares have not been traded for the preceding 1 (one) year is to be relaxed, such that small companies will be permitted to avail the exemption, where less than 10% (ten percent) equity shares of such a company have not been traded during 12 (twelve) calendar months.

The decisions made at the Board Meeting have been made after careful deliberations and it will initiate public consultation on various proposals to have proposer representation from industry players and investors. The decisions made at the Board Meeting endeavor to fill in gaps in applicable laws and facilitate the carrying of business in India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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