DELISTING OF SECURITIES- UNDER ITS STOCK EXCHANGE

Advertisements

This article is written by Sushant Kumar of M.S. Law College, Motihari, an Intern under Legal Vidhiya.

Abstract:

Delisting of securities respondents to remove that particular security for dealing on the stock exchange. Delisting word getting the list of securities has been permanently cancelled. Any unlisted company that removes a share from tahe stock market is called delisting. It can be both either compulsory or may be voluntary. Delisting did not work suddenly overnight. Delisting is an action by the stock market to the company. When a company received a notification for knowledge of your delisting from the stock exchange. When a company stop working to follow requirements, it will receive a warning notification. If a company does not agree with the law, the stock exchange will also remove from the list. It has called delisting. The SEBI guidelines and the listing agreement would not apply to the company. The securities of the company that have been delisted would no longer be tradable on the stock exchange. “Delisting” means understanding to said removed from a Stock Exchange, which may be Voluntary or Compulsory. Delisting of securities, withdrawal of securities by the company from the Stock Exchange where they were listed and handled in. When the company no longer wants to provide a trading opportunity for any specified securities on the Stock Exchange where they were listed, it may delist such securities. According to SEBI, “delisting” securities refers to removing registered business securities completely from a stock market. The securities of the company would no longer be traded at that stock exchange. Delisting may be offered voluntarily by a company voluntary delisting or the concerned Stock Exchange may also direct for delisting of specified securities compulsory delisting. This is also a continuous listing requirement under Rule 19A. The promoters of the company’s shares are from the public shareholders, which are trying to be delisted.

Keywords: Voluntary delisting, Compulsory delisting, Shareholder, Corporate, Government process.

Introduction:

 Delisting of securities; under its stock exchange after consideration of the representation received from the company. A company that wants to list its interests on the Exchange must submit an application to the Exchange in the prescribed format before it issues a prospectus for securities issued through that method or before the company issues an “Offer for Sale” for securities issued through that method. A company’s securities are permanently removed from the stock market where they were registered when delisted. The company would no longer be traded on that stock market as a result of this. The discontent of the public and the following points. The recognized stock exchange should be passing an order: Nature and extent of the alleged opposition of the company and the number and percentage of shareholders who may be affected by such opposition. The status of the agreement of the company with the office of the concerned Registrar of Companies. The grant stock exchange should be familiar with other stock exchanges where the company shares are listed about the delisting order. Two types of delisting: –

1: – Voluntary delisting: In voluntary delisting, a company decides on its own to remove its securities of a company is removed from the stock exchange. The equity share would not be listed on any authorized stock exchange with nationwide trade ending with the proposed delisting. All publicly traded shareholders who own shares in the company should be allowed to sell so they can search for delisted securities. The first step of delisting is to seek the shareholder’s approval. The delisting share should be approved by a 2:1 majority of shareholders and the voting process by postal ballot. The process of voluntary delisting is distinct. A corporation must first speak with its customers before deciding it no longer wishes to conduct business publicly. The board of directors must approve a resolution before it can be presented to shareholders.

2: – Compulsory delisting: In compulsory delisting, the securities a company remove from a stock exchange as a measure are not complying with various requirements set out in the listing agreement within the setting advice. A recognized stock exchange may have the order and delist any equity shares of a company. On any justification specified in the regulations created in compliance with section 21A of the Securities Contracts (Regulation) Act of 1956.

Call a meeting of the Company’s Board of Directors after issuing a notice, preferably in writing, to all the directors of the Company in following with the provisions of Sec. 286 of the Companies Act, 1956. Pass a resolution on the following proposal for delisting the shares of the Company. Call for General Meeting to obtain the approval of the members by way of a special resolution and fixed the date, time, place, and agenda to order the same. The agenda can be included in the Annual General Meeting.

Delisting by stock exchange: – Some facts and important notifications on delisting orders by the Stock Exchange. The company will publish a notice in a paper. Where the stock exchange is located. The stock exchange Informs all of where the company equity shares are listed and informs about their delisting and the circumstances.
 Noncompliance with the Listing Agreement is a minimum period of six months. Failure to maintain the minimum trading level of shares on the exchange. Promoters’ Directors’ track record especially trading, wrong share prices, and unfair market. Where the securities of the company are delisted by an exchange under this method.  The company promoter should be responsible for compensating the company’s security holders and paying them the fair value of the securities held by them. In this case, there is no provision for the shareholder’s exit that the stock exchanges would allow trading in the securities under the minimum period of one year after delisting. Companies may be requested to get voluntarily delisted from any stock exchange. The company always follows the delisting guidelines. In this case, the companies are required to obtain prior approval of the holders of the securities sought to be delisted, by a special resolution at a General Meeting of the company. The shareholders with an exit opportunity by the promoters. All stock exchanges allow for the delisting of companies. However, no exit opportunity is necessary if assets are still listed in a stock exchange with countrywide trading terminals. An acquirer is obligated to make an offer to purchase securities under the SEBI takeover code currently in effect.

The SEBI (Delisting of Securities) Guidelines-

SEBI guidelines in 2003 is the regulating Act framing the guidelines and the procedure for delisting securities. In the event of a voluntary delisting, the decision regarding its removal should be made by the investors using a special resolution and by a panel that will be formed by the exchange and consist of the following in case of compulsory delisting. In guidelines Two directors and officers of the exchange. One representative of the investors. One representative from the Central government and regional director or Registrar of Companies. Executive Director and Secretary of the Exchange. Required notice of delisting and announcement to the company as well as other Stock Exchanges where the company’s securities are listed to be given.

Notice of closing of the Listing Agreement is to be given in SEBI guidelines. A public announcement is to be made in this regard with all due information. [1] [2]

Case law (1): – chocolate maker Cadbury

 In 2003, chocolate maker Cadbury offered Rs 500 to shareholders. The company managed to buy over 90% of the share, and a minimum of 90% is required for delisting. The 8,149 few shareholders, who held 2.4% of the stock, rejected the price and filed a lawsuit. The corporation raised the offer price in September 2009 to Rs. 1,340 per share, however, the shareholders rejected this offer. In May 2010, E&Y was app by the Bombay High Court and reaches a figure of Rs 1,743 per share. Also In January 2011, Cadbury revised the offer price to Rs 1,900 per share. The shareholders demanded that the company according to the discounted cash flow method. In July 2011, E&Y valued the shares at Rs 2,014 per share, still much lower than the Rs 2,500 of the shareholders. Only 12,784 of the 7,51,120 non-controller shares cast votes against the recommendation during the meeting. Thereby indicating that a “majority of the minority” was in favour of capital reduction. That appears to have measured heavily with the court, the protester in Cadbury was not only in a small minority of non-controlling shareholders. They have discharged the burden of successfully challenging the valuation. Given these circumstances, the court approved the capital reduction for a price of Rs. 2,014.50, based on the revised E&Y report respectively. [2]

Case law (2): – Vedanta Ltd

The Reverse Book Building was launched by Vedanta Ltd. In this Process on 5th October 2020 and the floor, the price was set at INR 87.25. The Promoters of Vedanta Ltd. were obliged to obtain an offer for 134 crore shares of the firm by the delisting regulations, however, they were only able to obtain 125 crore shares. The number of digits 125 crores was less than the threshold of 90% for that reason the delisting failed. Even though the company had received proposals for over 137 crore shares in the past, it was unable to attain that number in the final roll-out, which was just 134 crores. Finding the final exit offer price is done by a method called reverse book building, or RBB Promoters originally transmit an Indicative Offer Price, which in this case was the floor price of INR 87.25, with the letter of offer. The promoters must offer the general population of shareholders the floor price, which will be established in accordance with the delisting rules and regulations. The shareholders are free to bid at the IPO price or above. The final exit price would be the price at which the Promoters can collect 90% of the equity share from the public shareholders. The Promoters can accept or reject the final exit price after being discovered. Promoters will have two working days to make a counteroffer. In the present case, Promoters could not even reach the final exit price, as delisting failed in the bidding process only. [3]

Conclusion:

Delisting can have tough suggestions on the company and the shareholders. Especially in the case of shareholders, a significant go-down investment is involved. The security that you aren’t positioning your funds and shares with an undependable company. Follow this rule and follow the quick guide to help you. You are not across the basics of choosing the right stocks. That isn’t under threat of being delisted. A company has been said to be delisted when its shares are removed from the stock exchanges. The delisting of a company can either happen voluntarily delisting or involuntarily delisting. You may know that voluntary delisting doesn’t necessarily depreciate your shares. Compulsory delisting might decrease the value of the shares. All the same, as a shareholder, you can still acknowledge them. An application for a payoff or selling shares on the market If the exit price is not acceptable to the promoter, your decision to sell the shares after careful consideration may prove profitable and won’t be holding your investment objectives… They may either reject the make a counteroffer to the shareholders If the counteroffer is also rejected, the delisting is unsuccessful. If the delisting action is unsuccessful, the promoter will get 90% of the bond account balance within one working day of the date that the failure was made public. The remaining one per cent amount lying in the bond account shall be released post-return of the shares to the public shareholders. The confirmation of repeal of claim marked on their shares by the manager to the offer. The account opened by the promoter for the delisting shall also be closed, and the amount will be released. The company should continue to be listed on the exchanges. It is suitable to note that a company that is successful in delisting. Its equity shares are not authorized to apply for listing. Its equity shares take five years from such delisting.

References –

Admin