Revamping of SEBI Regulations: A move towards ensuring lucidity in the Regime

NEW DELISTING NORMS: A Boost for Promoters as well as

Retail Investors

SEBI’s Delisting Arena:

SEBI (Delisting of Equity Shares) Regulations, 2009

(Notified on June 10, 2009)

What is Delisting ?

• “Delisting” is totally the reverse of listing. To delist 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 tradeable at that stock exchange.

• "Delisting" i.e. the said removal from a Stock Exchange, may be Voluntary (i.e. at the

will of the Company) or Compulsory (i.e. out of a penal action by the Stock Exchanges,

for the reason of any violations/ lapses).

DELISTINGSTOCK

EXCHANGESCOMPANY

Brief History: The Evolution of

Delisting Regulations

o In 1979, vide circular No. F6/9/SE/78 dated June 28, 1979 issued by the Ministry

of Finance, delisting of companies was permitted subject to certain criteria being

satisfied by the concerned company.

o SEBI vide circular dated April 29, 1998 laid down a framework for voluntary or

compulsory delisting of securities from the Stock Exchanges.

o Subsequently, SEBI came out with SEBI (Delisting of Securities) Guidelines,

2003.

o Thereafter, SEBI (Delisting of Equity Shares) Regulations, 2009 ("the said

Regulations") was notified on June 10, 2009.

Reasons for Delisting

For

Smaller & undervalued

Companies

Other Companies

maintaining a listing status

entails various costs which

may no longer be justifiable.

maintaining a listing status involves

various ongoing costs relating to

financial reporting requirements, ad-

hoc disclosures, investor relations and

the increased demands on

management to develop a good

relationship with analysts and

investors.

How to Delist??

Why there is a need to review

Delisting Regulations??

Minority shareholders holding significant stake exercise disproportionate

powers in determining exit price;

Parking of shares with friendly investors/Tacit understanding between

market participants;

Destabilization of process by putting unreasonable bids.

Issues highlighted:

Price discovery mechanism

Lack of sufficient demand/ Enhancing participation in RBB

Shortening of process

Threshold Limit

Delisting of small companies

Indicative Timelines to complete the delisting process

Main Highlights of New Delisting

Norms vis-à-vis Extant Norms

As per extant Regulations, the Delisting

Offer be considered successful only when

the post offer holding of the Promoter

reaches the higher of the following:When

Delisting

Offer be

considered

successful?

90% of the

total issued

shares of

that class

Pre-Offer

Promoter

Holding + 50%

of the Offer

Size.

Rationale To address the concern of informal arrangements

or parking with friendly investors

Main Highlights of New Delisting Norms

vis-à-vis Extant Norms Contd…

Extant Delisting

Norms

Proposed

Delisting Norms

Final Price= Price at which maximum

number of shares are tendered by the

Public Shareholders

Final Price= Price at which

shareholding of the Promoter plus

shares tendered by the public

shareholders reaches the threshold

limit of 90%

Determination of Final Exit PriceExit price determined through Reverse Book Building (RBB) to be the highest price at

which the promoter touches the threshold of 90% instead of the price at which the

maximum number of shares are tendered:

Bid price (Rs.) No. of

investors

Demand

(no. of shares)

Cumulative Demand

(no. of shares)

550 5 2,50,000 2,50,000

565 8 4,00,000 6,50,000

575 10 2,00,000 8,50,000

585 4 4,00,000 12,50,000

595 6 1,20,000 13,70,000

600 5 1,30,000 15,00,000

605 3 2,10,000 17,10,000

620 1 5,00,000 25,00,000

Exit price

as per the

proposal

Exit price as

per the

existing

framework

Rationale- To ensure that a single investor does not dictate the price for delisting

Promoter shareholding = 75,00,000 shares

Public shareholding = 25,00,000 shares

Min Tendering = 15,00,000 shares 90% threshold limit for successful Delisting

Determination of Exit Price and

Exiting No.

Acquirer to reach 90% of the total shareholding for successful delisting

instead of (90% of total or promoter shareholding plus 50% of

remaining offer size, whichever is higher) as existing;

Rationale- Promoter shareholding has been capped at max of 75% and the

requirement of acquiring 50% of the offer size would be redundant

Extant Delisting

Norms

Proposed

Delisting Norms

No Restriction Prescribed

No person belonging to the Promoter

Group have sold shares during six

months preceding the date of Board

Meeting where Delisting Proposal is

approved.

Main Highlights of New Delisting Norms

vis-à-vis Extant Norms Contd…

Main Highlights of New Delisting Norms

vis-à-vis Extant Norms Contd…

Extant

Delisting

Norms

Proposed

Delisting

Norms

Delisting Process generally takes

approximately in 117 working

days

Delisting Process proposed to be

completed approximately in 76

working days

SEBI might

waive off

the

requirement

of seeking

in-principle

Extant Delisting

Norms

Proposed

Delisting Norms

Company having paid up capital not

exceeding Rs. 1 Cr. and having no

trading in its scrips immediately

preceding 1 year from the the date of

decision of delisting;

Or

Company having upto 300 public

shareholders and the paid up value of

shares held by them is upto Rs. 1 Cr.

Company having paid up capital not

exceeding Rs. 10 Cr. and Net worth not

exceeding Rs. 25 Cr. as on the last day of

previous financial year.

+

No trading during last 1 year

+

Securities are not suspended from Stock

Exchange

Main Highlights of New Delisting Norms

vis-à-vis Extant Norms Contd…

Main Highlights of New Delisting Norms

vis-à-vis Extant Norms Contd…

Extant Delisting

Norms

Proposed

Delisting Norms

No Exemption from compliance with the

provisions is allowed.

SEBI may relax the strict enforcement of

any requirement of the provisions of

Delisting Regulations.

PROPOSED CHANGE IN DELISTING & TAKEOVER

CODE: New Jigs for the Acquirers

SEBI’s Decisions opened new avenues

for Acquirers

Option to the Acquirer to delist the shares directly through Delisting

Regulations pursuant to triggering Takeover Regulations.

Acquirer whose shareholding increases beyond maximum permissible non-

public shareholding pursuant to takeover open offer, is not eligible to make a

voluntary delisting offer as per Delisting Regulations unless a period of 12 months is elapsed.

On the specific

demand of industry

Subject to a

stipulation Incase delisting attempts fails,

Acquirer would be required to

complete mandatory open offer

under Takeover Regulations along

with payment of interest @ 10%

p.a. for the delayed open offer.

Concerns with the promulgamation of New Provisions

A Company having Share Capital exceeding Rs. 10 Cr. And Net-worth exceeding Rs. 25 Cr. wherein

Promoter Shareholding is 75% and out of 25% of Non-Promoter Shareholding, 19% would be held by

one Foreign Investor and rest by 5 public shareholders.

Case Study……

How the Company would opt for delisting??

Because

Neither it falls under the ambit of Small Company nor it

is eligible for the RBB process as per the new norms.

Case Study……

A Company having Promoter Shareholding of 64% and out of 36% of Non-Promoter Shareholding,

30% stake is held by 2 foreign investors and rest 6% by General Public. Since, shares of the

Company are infrequently traded and 2 foreign investors do not want to tender shares in the

Delisting Offer and are willing to be a part of PAC, only for the purpose of Delisting??

Whether the said foreign investors can be considered as PAC only

for the purpose of Delisting Offer??

SEBI’s Decision pertaining to tendering of shares

in Delisting/Buyback/Takeover offers

A welcome move that allows use of Stock Exchange Platform for

tendering shares in Delisting/Buyback/Takeover offers have ultimately

resulted in removing tax hurdles resulting in a “win-win” situation for

stakeholders.

Present Scenario

in Buyback,

Takeover &

Delisting Offers

Proposed

Scenario

Considered as off market transaction

and liable to hefty Capital Gain Tax in

the hands of investors.

Considered as secondary market

transaction and now liable only to STT

i.e. Investors are not liable to pay

Capital Gain Tax.

This was a long drawn demand from the Investors community

that tendering of shares under these offers should not attract

Capital Gains (CG) Tax, but the Securities Transaction Tax

(STT)

Tax Burden

NEW PROPOSED REGULATIONS: AIMED TO CRACK

WHIPS ON WILFUL DEFAULTERS

What is Insider Trading?

Insider trading is dealing in securities of a listed company by

any person who has knowledge of material inside information

which is not available to general public.

It is breach of a fiduciary duty or other relationship of trust,

and confidence.

It is a crime if made to get wrongful gain or avoid losses

Insider Trading: Genesis

Insider Trading is one of the most prevailing form of Securities Market Offence

worldwide. The genesis Insider Trading is human GREED!

It is really difficult for persons with privileged information which could help him to

gain substantial profit or allow avoidance of loss to control the temptation of using

these privileged information

But possession of privileged information put the person in a fiduciary position

and misusing this position is a Breach of Trust and Fraudulent act

When a company get listed - its promoters, directors and other key employees as well

as other persons who have more information than general investors become the

trustee of Investors’ interest and are in fiduciary duty to not to use them for their

personal benefit. Thus, Insider Trading is a Crime

Insider Trading: Genesis

Contd…

INSIDER TRADING is the misuse of privileged position & breach of trust and

hence can disturb whole structure of Securities Market. It can also be a big menace

for small investors as they can loose their hard earned money in the hands of corporate

insiders, hence its effective prevention is very significant.

The importance of policing insider trading has assumed international significance

as regulators attempt to boost the confidence of investors

Prevention of Insider trading is necessary to create a Level Playing Field for

Investors in Capital Market

Effective measures to prevent Insider Trading would create trust & confidence

among the Investor Communities and help to develop securities market

Main Highlights of SEBI’s decisions to

amend Insider Trading Regulations

o Review of the 22 year old Insider Trading Regulations: The said Regulations were promulgated

in 1992 and over the years, the capital markets scenario has changed a lot, so this overhauling is a

welcome move;

o Proposed to introduce provisions on Prohibition on derivative trading by directors and KMPs

on securities of the Company in line with the Companies Act, 2013;

o Proposal to introduce concept of third-party connected persons with the intent to curb

malpractices.

Who Is

an

INSIDER ?????

INSIDER TRADING –Sec 195 of Companies Act,

2013

Any act

Subscribing, buying,

selling, dealing

Agreeing to subscribe, buy, sell or

deal

of

OR

OR

In any securities by any

Director KMP Any other officer of the companyOR

Either as principal or agent, if such

ORDirector KMP Any other officer of the companyOR

Is reasonably expected to have access to any non-public price sensitive information in

respect of securities of Company

An act of counseling about procuring or communicating directly or indirectly any non

public price sensitive information in respect of securities of Company

OR

INSIDER – As per SEBI (Prohibition of Insider

Trading) Regulations, 1992

connected with the company

OR

deemed to have been connected with the company

AND

Is reasonably expected to have access to

UNPUBLISHED PRICE SENSITIVE INFORMATION

Has Received Has Had Access

UNPUBLISHED PRICE SENSITIVE INFORMATION

OR

TO

OR(ii)

is wasOR

Any Person

Who

(i) contractual

employees and

intermediaries

including

Consultants

Now Includes

Who Is

Considered as

Connected

Person??

may reasonably to have an access to

Unpublished Price Sensitive Information

is a director under section 2(13) of the Companies Act, 1956,

or

deemed to be a director of that company under section 307(10) of the Act

Any Person

Who

Whether TEMPORARY or PERMANENT

Professional

relationship

Business

relationship an officer an employee

OR occupies the position Involving

or or

AND

CONNECTED PERSON – As per SEBI (Prohibition of

Insider Trading) Regulations, 1992

now

Immediate relatives

Main Highlights Related to Connected Person

Now, in the case of connected persons, onus of proof has been shifted from the

Regulator to such connected person that they were not in possession of

Unpublished Price Sensitive Information. That is to say, now, it will be for such

persons to prove that while doing the trade, they were not in possession of any

unpublished price sensitive information.

This is in line with the judgment passed in one of the Insider

Trading Case being decided in US wherein Driver was guilty of

using Price Sensitive Information.

What Is Price Sensitive

Information ?????

PRICE SENSITIVE INFORMATION- AS PER

CLAUSE 36 LISTING AGREEMENT

Change in the general character or nature of business.

Disruption of operations due to natural calamity.

Commencement of Commercial Production/ Commercial Operations.

Litigations/ dispute with a material Impact.

Revisions in Ratings.

PRICE SENSITIVE INFORMATION- AS PER

CLAUSE 36 LISTING AGREEMENT

Any other information having bearing on the operation/ performance of the

Company as well as price sensitive information which includes but not restricted

to:

oChange in market lot / sub-division ;

oVoluntary delisting by the company ;

oForfeiture of shares;

oAlteration in terms of any securities ;

oInformation regarding securities issued abroad ;

oCancellation of dividend/ rights/ bonus etc.

Deemed Price Sensitive Information as per

Stock Exchange Directives

Periodical financial results of the company;

Intended declaration of dividend;

Issue of securities or buy back of securities;

Major expansion plan OR Execution of new projects;

Amalgamations, merger, takeovers;

Disposal of whole or substantial part of the undertaking;

Changes in policies, plans or operations

UNPUBLISHED –As per SEBI(Prohibition

of Insider Trading) Regulations, 1992

Information which is not published by the

company or its agents and is not specific in

nature.

Explanation

Speculative reports in print or electronic media

shall not be considered as published

information.

As per SEBI’s Board Meeting Decision, it is proposed to link the

unpublished Price Sensitive Information with listing agreement thereby

widening the ambit of price sensitive information i.e. unpublished would not

be considered from Co.’s point of view only but from the securities point of

view as well. For eg: Pledge of Shares by Promoters

Taking into account investors’ interest in the securities market and

to facilitate legitimate business transactions, advance disclosure of

UPSI at least 2 days prior to trading has been made mandatory

Now by aligning

what would

tantamount to UPSI

with the Listing

Agreement, the arena

of UPSI has been

made inclusive.

CHINESE WALL

• "Chinese Wall" policy demarcates “inside areas” from

"public areas".

• Those areas having access to confidential information,

considered “inside areas” and areas which deal with

sales / marketing / investment considered "public areas".

• The employees in the inside area shall not communicate

any PSI to anyone in public area.

• In exceptional circumstances employees from the public

areas may be brought "over the wall" and given

confidential information on the basis of "need to know"

criteria, under intimation to the CO

Introduction of NEED TO KNOW

CONCEPT

Clear Prohibition on Communication of UPSI except for legitimate purposes,

performance of duties or discharge of legal obligations

To strengthen the concept of CHINESE WALL, the new concept of “NEED

TO KNOW” is proposed to be included in the proposed Regulations on Insider

Trading

TRADING WINDOW

• Company shall specify a trading period, to be

called "Trading Window", for trading in the

company’s securities.

• The trading window shall be closed during the time

the Price Sensitive information is un-published.

• When the trading window is closed, the D/ E shall

not trade in the company's securities in such

period.

• The trading window shall be opened 24 hours after

the Price Sensitive Information is made public.

PRE CLEARANCE OF TRADES

• All D/O/E of the Co and their dependents as defined by the

company who intend to deal in the securities beyond a limit

should pre-clear the transactions.

• An application to the Compliance officer indicating

• The estimated number of securities that the D/O/E and their

dependants intends to deal in,

• Other details as may be required by any rule made by

the company in this behalf.

As per SEBI’s Board Meeting Decision, to facilitate bonafide

transactions, requirement to formulate trading plans has been

casted on the insiders who are in the possession Price Sensitive

Information through out the year.

Mandatory requirement to formulate pre-

scheduled Trading Plans

Insiders who general possess UPSI all round the year and who trade in the securities,

are required to formulate pre scheduled trading plans, to be duly disclosed to the

Stock Exchanges and have to be strictly adhered to. This will be allowed for genuine and

bona fide transactions.

This is in line with the safeguards introduced by US for

insiders….

SEBI’s Decision pertaining to

Disclosures to be made

Taking into consideration the interest of shareholders at large and to remove the

recurrence of disclosures with the sole intent to align Insider Trading Regulations

with the Takeover Regulations, disclosure of any change of 2% for persons holding

more than 5% shares or voting rights are proposed to be dispensed with.

G Jayaraman Vs. SEBI [2014] 120CLA78(SAT)

• Mr. G jayaraman (Appellant) was the CO and Mr. B. Ramalinga Raju is theChairman of Satyam (“the company”).

• Insider trading transaction:- Mr. B. Ramalinga Raju called appellant to hisresidence and informed that as Chairman of Satyam he was contemplating acquisitionof two companies viz. Maytas Properties Limited and Maytas Infra Limited (UPSI).Thus Appellant as Compliance Officer of concerned Company being privy tounpublished price sensitive information, ought to have kept trading window closed.However, Appellant had failed to close trading window during above period.

The Hon’ble SAT held that

- Compliance Officer was mandatorily obliged under Model Code to keep trading

window closed when in possession of price sensitive information specified in para

3.2.3 of Mode Code.

- Once it is found that person occupying high ranking position has failed to comply

with regulations, then he is liable for penalty. Hence penalty of 5 Lac imposed by

SEBI is justified

Reliance Petroinvestments Ltd. SEBI [2014]

• Facts: Share price of Indian Petrochemicals Corporation Ltd (IPCL) had more or lessmoved in sync with the sensex movement as observed on March 5, 2007 the scripdeclined by 8.13% at BSE when the sensex declined by 3.79%.

• Further the price of the scrip declined even after the announcement of the interimdividend by IPCL. However, in a divergence from the index, the scrip witnessedsubstantial price gain on March 8, 2007 and March 9, 2007 subsequent to theannouncement of amalgamation of IPCL with Reliance Industries Ltd, which is personacting in concert with RPIL.

• Insider trading Transaction: RPIL (“Noticee”) traded in the scrip of IPCL while in thepossession of UPSI prior to the declaration of dividend and amalgamation of IPCL withReliance Industries Limited. RPIL received a dividend appox Rs. 127.98 Lakhs andnotional profit of approx Rs. 382.64 Lakhs

• SEBI’s Decision:

SEBI impose a penalty of RS. 11 Cr on Reliance Petroinvestments Ltd. for the violationof Regulation 3 of PIT Regulations.

Rajiv B. Gandhi, Sandhya R. Gandhi & Amishi B.

Gandhi Vs. SEBI [2008] 84 SCL 192(SAT)

• Facts: Rajiv B. Gandhi (Gandhi) appellant No. 1 is the Company Secretary andChief Financial Officer of Wockhardt Limited (for short the company). SandhyaGandhi appellant No. 2 is his wife and Amishi Gandhi (appellant No. 3) is his sister.

• Insider trading transaction:- The appellants had sold 3600 shares on 21.1.1999(before the board meeting held on April 22, 1999 at 11.30 a.m called for demerger) and22.1.1999 (in the first half hour before the market could react to the news) on the basisof unpublished price sensitive information.

AO held them Insiders & imposed a fine of Rs 5 L each.

The Hon’ble SAT held that– The words “on the basis of” are significant and mean that the trades executed should

be motivated by the information in possession of the insider– Facts necessary to establish the contrary being especially within the knowledge of the

insider, the burden of proving those facts is upon him.– SAT upheld AO’s order.

Conversion of Listing Agreements into Regulations-

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2014

(LODR)

Ambit of Listed Companies as per Companies Act, 2013

A company which has any of its securities listed on any recognized

stock exchange.

Meaning thereby

The company even if having its debentures/preference share listed

on any recognized stock exchange is now deemed to be considered

as the Listed Company.

SEBI with the objective of ensuring better enforceability and at the same time

compiling all the mandates of varied SEBI Regulations governing Equity as well as

Debt segments of capital market under the ambit of a single document, has

approved the proposal of conversion of Listing Agreement into Regulations to be

known as SEBI (Listing Obligations and Disclosure Requirements) Regulations.

Why there is a need to introduce

LODR??

Securities proposed to be covered

under LODR??

o Specified Securities (including equity and convertibles)- Listed on Main

Board & SME Platform

o Non-Convertible Debt Securities

o Non-Convertible Redeemable Preference Shares

o Indian Depository Receipts

o Securitised Debt Instruments

o Units issued by Mutual Funds Scheme

Main Highlights of LODR

o Mandatory filing on Stock Exchanges through electronic platform;

o Mandatory appointment of Company Secretary as compliance officer except for units of Mutual

Funds listed on Stock Exchanges;

o Introduction of concept of filing Information Memorandum on an annual basis;

o Incorporating in the proposed Regulations, mandate to register in SCORES for redressal of investor

grievances;

o Applicability of equity segment provisions on the entities who have only debt securities listed. For

eg: Filing of Form B as required to be filed along with Annual Report on an annual basis

o Necessity to execute shortened version of Listing Agreement within 6 months of notification of

these regulations.

Settlement of Administrative and Civil

Proceedings

Extant

procedure

Formal SCN

Suo motto, Consent

applications

OR

This was

resulting in

delay in

conclusion

of

proceeding

s and

resultant

wastage of

resources

PROPOSED PROCESS OF SETTLEMENT OF

ADMINISTRATIVE AND CIVIL PROCEEDINGS

Solution

Proposed

by SEBI

(Well’s

Notice)

In minor violations, before the issuance of the SCN,

an intimation be sent to the Noticee, informing him

of the impending enforcement action.

Thus, enabling them to seek settlement of proceedings

or make voluntary submissions even prior to the SCN

The name "Wells notice" is derived from the Wells Committee of the

SEC, on the name of its Chairperson, John A. Wells

o Re-classification of Promoters to Public

The issue was first highlighted when SEBI disallowed a proposal by Gillette India.

IN APRIL 2013, SEBI rejected Gillette’s proposal of reclassifying a promoter as a non-

promoter.

The shareholding structure of the Company was:

Other Valuable Decisions

Indian Promoters 47.7%

Foreign Promoters 41.05%

Public Shareholding 11.25

88.75%

Less than the

MPS norms

The company intended to comply with Cl 40A under the

head ‘other means’.

Effective Regulation can make a massive

contribution to achieving our shared goals of

improving Competitiveness, Jobs & Growth..

-John Hutton

Thank You

Pavan Kumar Vijay

Corporate Professionals Capital Private LimitedD-28, South Extension –I, New Delhi-110 049

Ph: +91.11.40622200; Fax: +91.11.40622201; E: pkvijay@indiacp.com