SEBI Relaxation from Minimum Public Shareholding requirements
During the continuance of Covid-19 pandemic, the regulatory authorities are providing relaxation in the various compliances under different laws to ease the corporates. On the same lines, Securities and Exchange Board of India (SEBI) has issued a circular dated May 14, 2020 1 vide which it has granted relaxation to the effect that no penal action be taken by Stock Exchange against the listed entities who could not meet the requirements of Minimum Public Shareholding (MPS) during the period March 1, 2020 to August 31, 2020.
Regulation 38 of the Listing regulations requires a listed entity to comply with the minimum public shareholding requirements as specified in rule 19(2) and rule 19A of the Securities Contracts (Regulation) Rules, 1957. However, this provision does not apply to entities listed on institutional trading platform without making a public issue.
The term ‘Public Shareholding’ is defined in rule 2(e) of the Securities Contracts (regulation) rules, 1957 as equity shares of the company held by public including shares underlying the depository receipts if the holder of such depository receipts has the right to issue voting instruction and such depository receipts are listed on an international exchange in accordance with the Depository Receipts Scheme, 2014.
Listed companies are required to ensure that public shareholding is not less than twenty five per cent. This is called Minimum Public Shareholding clause. SEBI circular dated 30 November, 2015 2 had specified the manner of achieving minimum level of public shareholding as specified in Securities Contract (Regulations) Rules, 1957.
SEBI has prescribed some penal actions for non-compliance with minimum public shareholding by listed entities as per its circular CFD/CMD/CIR/P/2017/115 dated 10 October, 2017.3 Such penal actions include monetary penalties, freezing promoters shareholding, promoter of defaulting company cannot hold position of director in other listed company and there can be delisting also of defaulting company.
After taking into consideration request received from listed entities and industry bodies as well as considering the prevailing business and market conditions, SEBI vide its circular no. CFD/CMD/1/CIR/P/2020/81 dated 14 May, 2020 has granted relaxation from the applicability of 10 October 2017 circular on the listed entities which are required to comply the minimum public shareholding between 1st March 2020 to 31st August 2020. Recognised stock exchanges are advised not to take any penal action as envisaged in October 2017 circular against such entities in case of non- compliance during the said period. This Circular also states that penal actions, if any, initiated by stock exchange during the period from March 1, 2020 till date for non-compliance of minimum public shareholding requirements by such listed entities may be withdrawn.
By Pankaj Sharma, ACS and Ajay K. Ratra, FCS