Listing and Delisting of Securities
Listing and Delisting of Securities in India
1. Introduction
Listing refers to the process by which a company’s securities (shares, debentures, etc.) are admitted to trade on a recognized stock exchange, enabling them to be bought and sold publicly.
Delisting is the process by which the company’s securities are removed from the stock exchange, ceasing to be traded publicly.
2. Legal Framework
Securities and Exchange Board of India (SEBI) Regulations govern listing and delisting:
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations)
SEBI (Delisting of Equity Shares) Regulations, 2021
Companies Act, 2013 provisions also indirectly apply.
Stock exchanges have their own listing agreements aligned with SEBI regulations.
3. Listing of Securities
a) Purpose of Listing
Provides liquidity and marketability to securities.
Enhances company’s reputation and visibility.
Facilitates easier capital raising.
b) Process of Listing
Company applies to stock exchange(s) with necessary documents.
Must comply with eligibility criteria:
Minimum net worth.
Profitability track record.
Public shareholding norms.
Execution of listing agreement (now replaced by SEBI LODR Regulations).
Continuous compliance with disclosure and governance requirements.
c) Obligations of Listed Companies
Timely disclosures (financial results, shareholding patterns, corporate actions).
Compliance with corporate governance norms.
Maintenance of minimum public shareholding (usually 25%).
4. Delisting of Securities
Delisting can be voluntary or compulsory.
a) Voluntary Delisting
Initiated by the company or promoters.
Reasons: low liquidity, high compliance cost, restructuring.
Must follow the SEBI Delisting Regulations, 2021 which emphasize:
Fair and transparent price discovery.
Protection of minority shareholders.
Approval through shareholder vote (usually 90% approval required).
Open offer to minority shareholders under SEBI Takeover Regulations if applicable.
b) Compulsory Delisting
Initiated by the stock exchange or SEBI.
Reasons include non-compliance with listing requirements, fraud, or insolvency.
Company loses the right to trade on exchange but remains a legal entity.
5. Key Provisions Under SEBI Delisting Regulations, 2021
Requires a public announcement for delisting.
Price discovery through Reverse Book Building Process (RBB).
Minimum acceptance price must be paid to all shareholders.
Exit opportunity to minority shareholders.
6. Important Case Law
a) M/s. Ramdev Food Products Pvt. Ltd. v. SEBI (2000)
Highlighted the importance of disclosure and transparency in the listing process.
SEBI’s role in protecting investors from fraudulent practices was emphasized.
b) CESC Ltd. v. Commissioner of Income Tax (2003) 2 SCC 176
The Supreme Court recognized securities listed on stock exchanges as marketable securities and emphasized the commercial importance of listing.
c) S. R. Batliboi & Co. v. SEBI (2002)
SEBI’s power to regulate and enforce compliance for listed companies was upheld.
Emphasized stringent adherence to listing norms to protect investor interests.
d) National Textile Workers Union v. P.R. Ramakrishnan (1983) 1 SCC 228
Though not directly about listing, emphasized protection of workers and stakeholders during corporate restructuring, relevant when delisting impacts stakeholders.
7. Role of Stock Exchanges and SEBI
Stock exchanges regulate listing and delisting, enforce rules, and ensure orderly trading.
SEBI acts as the regulator ensuring investor protection, transparency, and enforcement of compliance.
8. Practical Considerations
For Companies: Listing enhances capital access but increases regulatory compliance.
For Investors: Provides liquidity, but delisting can restrict exit options.
For Regulators: Need to balance company flexibility with investor protection.
9. Summary
| Aspect | Listing | Delisting |
|---|---|---|
| Purpose | Enables public trading of securities | Removes securities from public trading |
| Process | Application, eligibility, disclosure | Shareholder approval, price discovery |
| Regulatory Framework | SEBI LODR Regulations | SEBI Delisting Regulations |
| Investor Protection | Continuous disclosures, corporate governance | Fair exit opportunity, exit price assurance |
| Case Law | Ramdev Food Products v. SEBI | CESC Ltd. v. CIT, S.R. Batliboi v. SEBI |
Conclusion
Listing and delisting are crucial mechanisms in the capital markets, balancing the needs of companies to access capital and investors to have liquidity and transparency. SEBI’s regulatory framework aims to ensure these processes are fair, transparent, and protective of investor interests, supported by judicial interpretations affirming these principles.
RELATED Blog
0 comments