The Securities and Exchange Board of India (SEBI) vide its press
release dated 30th November 2015 has relaxed the delisting norms
for small companies. The norms aimed at protecting the interests of
investors in securities and to promote the development of and to
regulate the securities market simplifies the procedure of small
companies whose securities have been infrequently traded in the
last one year. It would help in clearing out the increasing
illiquid stocks from the market and improve market efficiency.
Delisting refers to the removal of a listed security from the
exchange on which it trades. Delisting curbs the securities of the
delisted company from being traded on the stock exchange. Stock is
removed from an exchange because the company for which the stock is
Voluntarily gets itself removed from the stock exchange by
making an application to the stock exchange; or Is Involuntarily
removed for not being in compliance with the listing agreements
Delisting Regulations provide for simplified procedure of
delisting for small companies and exempt them from the requirements
of Chapter IV of the Delisting Regulations subject to certain
conditions Where a company has paid up capital upto one crore rupee
and its equity shares were not traded in any recognized stock
exchange in the one year immediately preceding the date of
decision, such equity shares may be delisted from all the
recognized stock exchanges where they are listed, without following
the procedure in Chapter IV.
SEBI has approved the proposal received from investor
association that condition of no trading for preceding one year may
be relaxed and the small companies, whose trading of equity shares
during the twelve calendar months is less than 10% of the total
number of shares of such company, would also be eligible for
simplified procedure of delisting.
There are a large number of companies that are defunct or are
not being traded or have fall under the infrequently traded
category. In case of such companies it is beneficial for them to be
delisted and the company can pay off their shareholders on the
basis of certain criterion like return on net worth, EPS etc, which
may be much lesser than the intrinsic value of the share. Although
the shareholder may receive a lesser amount than the actual worth
of the security, he can still get his blocked funds released and
invest them in other liquid securities.
Keeping the interest of the investors paramount, the Board has
stated that the exit price shall not be less than the floor price
determined for the purpose of Reverse Book Building for not
frequently traded securities in terms of Delisting Regulations read
with SEBI Takeover Regulations.
There is an unending debate on the advantages and disadvantages
of delisting. The obvious disadvantage is reduction in the lack of
issuers. It also impacts the investors who had invested in the
company on the basis of the promise that the securities would be
listed on a stock exchange. On the delisting of securities, his
shares would no longer be marketable and he would be forced to
accept whatever price is available which would be much lesser than
the actual value.
But one aspect accepted by all is that in case of companies
whose shares are illiquid or infrequently traded, the best solution
is to get the company delisted so that the investor can be relieved
of the burden of carrying dead stock. The primary objective of
listing of securities is to improve their liquidity. The lack of
required liquidity makes the securities unattractive thereby
defeating the purpose of listing itself.
Therefore, delisting is effective solution as it washes out the
market from companies with low liquidity. Although the market is
left with fewer issuers dealing in large trade volumes, the
liquidity in the market is ensured and the investors of the
delisting companies are ensured of a price as close to the market
price by ensuring compliance with the delisting regulations.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Hon'ble High Court of Bombay has held that where a Scheme of Amalgamation is executed between two companies registered in two different states [...], then the said two orders are two independent instruments.
The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
The Supreme Court in Central Bureau of Investigation, Bank Securities and Fraud Cell and Others v. Ramesh Gelli and Others has held officers of private banks to be public servants under Prevention of Corruption Act, 1988.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).