In order to strengthen the delisting process, the Securities and Exchange Board of India (“SEBI”) released a consultation paper dated November 20, 2020 (“Consultation Paper”) thereby proposing a comprehensive review of the SEBI (Delisting of Equity Shares) Regulations, 2009 (hereinafter referred to as the “Erstwhile Regulations”) towards (i) enhancing the disclosures to help investors take informed investment decisions; (ii) refining the delisting process; (iii) rationalizing the existing timelines for completing the delisting in a time bound manner; (iv) streamlining the Erstwhile Regulations to make it robust, efficient, transparent and investor friendly; (v) plugging-in gaps in the Erstwhile Regulations; and (vi) updating references to the Companies Act, 2013, as amended and other securities laws.
The New Delisting Regulatory Framework
Subsequent to receiving market feedback on the proposals under the Consultation Paper, SEBI on June 10, 2021 notified the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021(hereinafter referred to as the “Regulations”) repealing the Erstwhile Regulations and putting in place a revised regulatory framework governing the delisting process in India. The following tabulation reflects the manner and extent to which key suggestions proposed under the Consultation Paper have been addressed and incorporated under the Regulations:
|Reference||Position under the Erstwhile Regulations||Issues & Concerns||Proposal under the Consultation Paper||Position under the Regulations|
|Part A: Enhancing Disclosures|
|1.||Promoter’s/Acquirer’s intention to voluntarily delist the company and its disclosures||The promoter/acquirer’s proposal to voluntarily delist the company, is disclosed to the recognized stock exchanges by the company’s board of directors
|The obligation to disclose the intention to voluntarily delist the company to public is not cast on the promoter/acquirer.
The aforesaid information is not disseminated to the public on an immediate basis, thus leaving the scope for information asymmetry.
Under the applicable takeover regulations, the day acquirer acquires or agrees to acquire becomes the trigger date and the public announcement is required to be made on the same day. However, under the Erstwhile Regulations, the words “promoters” and “acquirer” were used interchangeably. It was considered appropriate to align these provisions.
|The promoter/acquirer shall make the Initial Public Announcement (“IPA”) of their intention to voluntarily delist the company to all stock exchanges on which the company is delisted on the same day, when their said intention is intimated to the company.
The IPA shall be made by the acquirer/promoter through the manager to the delisting offer.
The IPA shall, inter-alia, contain the information with respect to the reasons of delisting and compliance with applicable regulations.
|Regulation 8 provides for “Initial Public Announcement” and casts an obligation on the acquirers to make an IPA re: voluntary delisting of shares. A copy of the IPA is to be sent to the company at its registered office not later than one (1) working day from the date of the IPA.
The IPA shall contain information including the (i) reasons for delisting; and (ii) an undertaking with respect to compliance with regulations (2) and (5) of Regulation 4.
|2.||Approval of Board of Directors||Delisting proposal to be approved by the board of directors of the company
|Timeline for obtaining board of directors’ approval is not specified.
The board of directors neither disclose the merchant banker’s due diligence report nor the audit report.
|Upon receipt of the delisting proposal, the company shall convene a meeting within twenty-one (21) working days from the date of receipt of the delisting proposal to consider and approve the delisting proposal.
The board of directors while communicating their decision of granting the approval of delisting shall also disclose to stock exchanges the merchant banker’s due diligence report and the audit report.
|The company to obtain the approval of the board of directors in respect of the proposal of the acquirer to delist the equity shares of the company, not later than twenty-one (21) days from the date of the IPA. [Regulation 10(1)]
While communicating the decision of the board of directors on the delisting proposal, the company shall submit to the stock exchanges on which the equity shares of the company are listed, the due diligence report of the company secretary in terms of sub-regulation (3) and the audit report in terms of sub-regulation (2) of Regulation 12. [Regulation 10(5)]
|3.||Refining the role of board of directors/independent directors||The board of directors while approving the proposal for delisting certify, inter-alia, that the delisting is in the interest of the shareholders.
|The board of directors only certify that the delisting is in the interest of shareholders, without providing any justification.
A mere statement may not be of value to the shareholders, unless supplemented by explanation/rationale justifying that the delisting is in the interest of shareholders.
On the lines of Takeover Regulations, reasoned recommendations of independent directors could also be made in voluntary delisting for the benefit of public shareholders to take informed investment decisions.
Voting pattern of the board of directors who voted in favour or against such resolution should be disclosed.
|Committee of independent directors in line with Takeover Code may be required to provide their reasoned recommendations on the proposal for delisting.
Voting pattern of the committee of the independent directors shall also be disclosed, while giving reasoned recommendations on the proposal of delisting.
Expenses relating to seeking expert opinion by the committee of independent directors can be borne by the company.
|Upon receipt of detailed public announcement, the board of directors of the company shall constitute a committee of independent directors to provide reasoned recommendations on the delisting offer. [Regulation 28(1)]
The Committee of independent directors, while providing reasoned recommendations on the delisting proposal, shall disclose the voting pattern of the meeting in which the said proposal was discussed.
The committee of independent directors may seek external professional advice at the expense of the company. [Regulation 28(2)]
|Part B: Refining Process|
|4.||Shareholder’s approval by Special Resolution||A company desirous of delisting its equity shares to obtain prior approval of shareholders of the company though postal ballot.
|Rule 22 of Companies (Management and Administration) Rules, 2014 provides timeline of thirty (30) days from the date of dispatch of the notice of postal ballot. However, in case of e-voting a minimum timeline of three (3) days is required to be given.
E-voting is an efficient method for shareholders to participate in the decision making process and reduces the time taken significantly.
|The shareholder’s approval through special resolution may be obtained either through postal ballot or through e-voting as per the provisions of the
Companies Act, 2013 and the rules made thereunder.
|The special resolution shall be passed through postal ballot and / or e-voting as per the applicable provisions of the Companies Act, 2013 (18 of 2013) and the rules made thereunder. [Regulation 11(2)]|
|5.||Indicative Price||[No specific provision]||In some delisting offers, it was observed that acquirer(s)/ promoter(s) also mentioned indicative price, over and above the floor price, which shows promoter inclination to pay more. However, delisting regulations do not contain any provision to enable this.||Promoter(s) / Acquirer(s) may be allowed to specify an indicative price which shall not be less than the floor price calculated in terms of Regulation 8 of Takeover Regulations.||The acquirer shall have the option to provide an indicative price in respect of the delisting offer, which shall be higher than the floor price calculated in terms of Regulation 8 of Takeover Regulations. [Regulation 20(4)]|
|6.||Escrow Account||The Acquirer/promoter required to open an escrow account before making the public announcement and deposit an amount equivalent to total consideration calculated at the floor price.
|There can be significant gap between making the delisting proposal to the company and obtaining the in-principal approval
from the stock exchange.
In order to demonstrate seriousness and preparedness in the delisting offer and ensuring financial capability of the acquirer/promoter, it is warranted that some portion of the total consideration may be deposited in an interest bearing escrow account after obtaining the approval from the Board of the directors of the company.
The modalities of the escrow account are not outlined in the delisting regulations. Thus, to bring in clarity it would be appropriate to provide the conditions relating to the operation of the escrow account.
|Promoter(s)/acquirer(s) shall open an escrow account within seven (7)
working days of the shareholder’s approval and deposit therein an amount equivalent to twenty-five (25%) of the total consideration, calculated on the basis of the floor price/ indicative price.
The remaining amount may be deposited as per the existing provisions contained in the regulations.
The promoter /acquirer shall enter into tripartite agreement between the Manager to the offer and the bank for the purpose of opening the escrow account and shall empower the Manager to the offer to operate the account as per the requirement of the delisting regulations.
In case of failure of the delisting offer, ninety-nine percent (99%) amount lying in escrow account shall be released within one (1) working day of public announcement of the failure of the voluntary delisting and the remaining one percent (1%) shall be released post returning the shares/revoking the
lien as per the timelines and ensuring the compliance thereof by the merchant banker.
|The acquirer shall open an interest bearing escrow account with a Scheduled Commercial Bank, not later than seven working days from the date of obtaining the shareholders’ approval, and deposit therein an amount equivalent to twenty five percent of the total consideration, calculated on the basis of the number of equity shares outstanding with the public shareholders multiplied with the floor price or the indicative price, if any given by the acquirer in terms of sub-regulation (4) of regulation 20 of these regulations, whichever is higher.
The acquirer shall enter into a tripartite agreement with the Manager to the offer and the Bank for the purpose of opening the escrow account and shall authorize the Manager to the offer to operate such account as per the provisions of these regulations.
In case of failure of the delisting offer, ninety nine percent (99%) of the amount lying in the escrow account shall be released to the acquirer within one (1) working day from the date of public announcement of such failure.
The remaining one percent (1%) amount lying in the escrow account shall be released post return of the shares to the public shareholders or confirmation of revocation of lien marked on their shares by the Manager to the offer as per the timelines provided in the regulations.
|7.||Reverse Book Building||The delisting offer remains open for a period of five (5) working days, during which the public shareholders may tender their bids.
|No regulation mandating the disclosures regarding the fate of the reverse book building process (i.e. meeting the target of 90% shareholding) in a specified timeframe.
During the tendering process, the display bids of the stock exchange reverse book building window, inter-alia, shows the unconfirmed bids which gives a false indication.
|The outcome of Reverse Book Building in terms of success or failure shall be announced within two (2) hours of the closure of the tendering period.
Unconfirmed bids/order shall not be displayed in the stock exchange reverse book building window.
|The Manager to the offer shall ensure that the outcome of the reverse book building process is announced within two hours of the closure of the bidding period.
The acquirer shall facilitate tendering of shares by the shareholders and settlement of the same, through the stock exchange mechanism as specified by the Board.
|Part C: Rationalizing Timelines|
|8.||Timeline for filing applications for in-principle approval and final approval by the company||Conditions and Procedures to be followed for delisting where exit opportunity is required
|No specific timeline provided: (i) with regard to filing of application to the concerned stock exchanges for in-principle approval; and (ii) between making payments to shareholders and making the final application to stock exchanges.||A timeline of fifteen (15) working days from the passing of special resolution be stipulated for the company to file application for in-principle approval by stock exchanges
A timeline of five (5) working days from the date of making payment to the shareholders be stipulated for the company to make the final application to the stock exchanges.
|The company shall make an application to the relevant recognised stock exchange for in-principle approval of the proposed delisting of its equity shares in the Form specified by the recognised stock exchange from time to time, not later than fifteen (15) working days from the date of passing of the special resolution or receipt of any other statutory or regulatory approval, whichever is later.
Within five (5) working days from the date of making the payment to the public shareholders, the acquirer shall make the final application for delisting to the relevant recognised stock exchange(s) in the Form specified by such stock exchange(s) from time to time.
|9.||Timeline provided for issuance of in-principle approval by stock exchanges||An application seeking in-principle approval for delisting shall be disposed of by the recognised stock exchange within a period not exceeding five (5) working days from the date of receipt of such application complete in all respects.
|Sufficient time has not been provided to the stock exchanges for processing the delisting application as exchanges may be required to analyse the surveillance alerts, if any, and/or any significant changes in shareholding pattern prior to the delisting proposal being approved by the company.||Time period for granting in-principle approval by stock exchanges may be extended from five (5) working days to fifteen (15) working days.||Such application seeking in-principle approval for the delisting of the equity shares shall be disposed of by the recognised stock exchange within a period not exceeding, fifteen working days from the date of receipt of such application that is complete in all respects.
|10.||Tendering of Shares||Shareholders holding
desirous of availing the exit opportunity may either deposit the equity shares in respect of which bids are made, with the special depositories account opened by the merchant banker for the purpose prior to placement of orders or, alternately, may mark a pledge/ lien for the same to the merchant banker in favour of the said account.
[Schedule II – Clause 7]
In case promoter decides not to accept the offer price, the equity shares deposited or pledged by a shareholder shall be returned or released to him within ten working days of closure of the bidding period.
|Lien is an efficient process having feature of complete audit trail without actually transferring the shares to the beneficiary account. Lien is executed through the depository’s framework linking with the settlement mechanism of the clearing corporation.
This is an investor friendly process and instills security and assurance in the minds of the shareholders about the timely return of such shares in the event of failure of delisting.
|Shares in dematerialized form shall be tendered by way of making a lien if favour of special depositories account, opened for voluntary listing.
In case (a) Reverse Book Building’s threshold of ninety percent (90%) is not met; or (b) promoter decides not to accept the
discovered price, the shares tendered by way of creating lien shall be released on the same
In respect of physical shares, it is proposed that requisite documents along with share certificate shall be sent to RTA of the company before last date of tendering period. RTA shall complete the verification on the same day.
|The shareholders holding dematerialized shares, desirous of availing the exit opportunity may enter their bid by way of marking a lien in favour of the special depositories account opened by the Manager to the offer.
[Para 7 – Schedule II – Regulation 20]
In case of failure of the delisting offer, ninety nine percent of the amount lying in the escrow account shall be released to the acquirer within one working day from the date of public announcement of such failure.
The holders of physical equity shares shall ensure that the bidding form, together with the share certificate and transfer deed, is received by the share transfer agent appointed for the purpose before the last date of bidding period. The share transfer agent shall deliver the certificates, which are found to be genuine, to the Manager to the offer, who shall not hand it over to the acquirer unless the bids in respect thereof are accepted and payment in respect thereof is made.
[Para 9 – Schedule II – Regulation 20]
|11.||Payment of Consideration upon acceptance of the discovered price||In case of success of delisting offer, payment to the shareholders, who tendered shares, have to be made within ten (10) working days from the closure of the offer.
|Ten (10) days period is a fairly long period. Investors represented that due to availability of various payment options, it is possible to reduce the timeline required to make payment.
As the shares are allowed to be tendered through stock exchange mechanism, the payment upon acceptance of the final price may be made through the secondary market settlement mechanism.
|Upon acceptance of the price discovered through Reverse Book Building: (a)
if the discovered price is same as the floor price, payment with respect to dematerialized shares shall be made through the secondary market settlement mechanism, (b) if the discovered price is more than the floor price, payment with respect
shares shall be made within five (5) working days.
|(i) In case the discovered price is equal to the floor price or the indicative price as provided under regulation 20, or in case the acquirer is bound to accept the equity shares in the delisting offer in terms of sub-regulation (2) of regulation 22 of the regulations, the payment shall be made through the secondary market settlement mechanism;
(ii) In case the discovered price or the price, if any, offered by the acquirer in terms of sub-regulation (6) of regulation 20 of the regulations, is higher than the floor price or the indicative price, as the case may be, the payment shall be made within five working days from the date of the public announcement under sub-regulation (4) of regulation 17 of the regulations.
|12.||Announcement of acceptance, rejection of the discovered price or counter offer||The public announcement relating to failure or success of the delisting offer to be made within five (5) working days of the closure of the offer
The counter offer to be made within two (2) working days of the closure of the offer.
[Regulation 16 (1A)]
|The promoter(s) have five (5) days to announce the success or failure of the offer, whereas they have only two (2) days to make counter offer. There was need to streamline these provisions, such that all the three decisions (accept / reject / counter offer) are taken on a single day.||Public announcement for giving either counter offer or accepting or rejecting the
discovered price, to be made within two (2) working days of the closure of the tendering period.
In case the discovered price is not acceptable to the acquirer, a counter offer may be made by the acquirer to the public shareholders within two (2) working days of the closure of bidding period.
The procedural complexities of voluntary delisting have been made way more simple and time-bound under the Regulations which shall boost shareholder confidence. Although the delisting process in India has not seen much success as compared to the global capital markets and it is too soon to conclude whether the new regulatory regime shall revive the delisting scene in India, the changes introduced under the Regulations are timely and steps in the right direction.