SEBI Order on Minimum Public Shareholding Norms

 

On June 04, 2013, SEBI issued an interim order against 105 non compliant companies and their promoter/ promoter group and directors that failed to comply with SEBI’s requirement for a minimum 25 per cent public holding. These included 72 companies whose shares are actively traded on the stock market, while the shares of 33 other companies are currently suspended for various reasons. The order will also be applicable to those companies that have announced plans to bring down their promoter holding but have not complied with the minimum float requirement as on EOD June 03, 2013.

The following directions have been issued against the non compliant companies:

  • Freezing of voting rights and corporate benefits like dividend, rights, bonus shares, split, etc. of the promoter/ promoters group of the non-compliant companies, with respect to the excess of proportionate shareholding in respective companies, till such time these companies comply with the minimum public shareholding requirement.
  • Prohibiting the promoters/promoter group and directors of the non-compliant companies from buying, selling or otherwise dealing in the securities of their respective companies, either directly or indirectly, in any manner whatsoever, except for the purpose of complying with the minimum public shareholding requirement till such time these companies comply with the minimum public shareholding requirement.
  • Restraining the promoter/promoter group and directors of the non-compliant companies from holding any new position as a director in any listed company, till such time these companies comply with the minimum public shareholding requirement.

Sebi has also warned of further actions including levy of monetary penalties, initiation of criminal proceedings, restricting the trading activities of related stocks and other possible directions.

InGovern Opinion:

SEBI has issued the order judiciously keeping in mind the interests of minority shareholders and hence limiting penal action only to non compliant promoters for the time being. An immediate delisting or trading suspension of these companies would have been detrimental to minority shareholder interests in these companies.

However, there is no clarity on whether such companies would be able to pass any resolutions in their upcoming proxy season. Most of the companies have their annual general meeting scheduled in the month of August-September. If such companies remain non compliant with the listing provisions until then and promoters end up losing their voting rights (say upto 60%) – in such cases will be the resolution be able to go through only with a majority of the remaining votes. For e.g. a company with a public float of 10% will only be able to garner 40% voting rights for passing a resolution (assuming all minority shareholders vote in favor of the resolution) and in such a case will the resolution be deemed to have been passed.

SEBI should clarify on this issue and until then restrict any sort of corporate actions for these companies. SEBI should also specify a strict timeline for these companies to adhere to and in case of further non compliance it should initiate compulsory delisting proceedings or trading suspension against these companies.

 

The article can also be downloaded from this link: SEBI Order on Minimum Public Shareholding Norms