Analysis of the New SEBI Delisting Guidelines:

SEBI, by its publication dated 10th June 2009 in the Official Gazette, brought into effect the much
awaited Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009.

MAJOR HIGHLIGHTS OF SECURITIES AND EXCHANGE BOARD OF INDIA (DELISTING OF EQUITY

SHARES) REGULATIONS, 2009:

1. Public shareholders have been defined as the holders of equity shares other than the a)
Promoters, and b) holders of depository receipts issued overseas against underlying shares.
2. Non applicability: These Regulations shall not be applicable to sick companies and whose
reconstruction/ revival scheme provides for the delisting and an exit option to the public
shareholders be given.
3. Non permissibility of delisting: The companies cannot delist their securities from the
Exchanges pursuant to buyback and preferential allotment. Any instruments pending
conversion into equity shares can not be delisted.
4. The fact of delisting shall be disclosed in the First Annual Report of the Company prepared
after the delisting.
5. No shareholders approval, in case the company continues to remain listed at any of the
exchanges having Nationwide trading terminal i.e. BSE and/ or NSE or any other Exchange
specified in this behalf.
6. The Stock Exchanges have also been held liable for speedy and timely disposal of
applications. The exchanges have to dispose off the application seeking delisting/ inprincipal
approval within 30 working days from the date of receipt of application complete in all
respect.
7. In Principle Approval: In cases where an Exit Opportunity is required to be given to the
Public Shareholders (i.e. where the company is seeking delisting from the all the exchanges
or in a case, where after delisting the company will not remain listed at the exchanges
having nationwide trading terminal), the Company will have to now take the in principal
approval from the concerned Exchange(s).
8. Specified Date: The concept of Specified Date has been introduced, which shall not be later
than 30 working days from the date of the Public Announcement.
9. Validity of the Special Resolution: The special resolution passed for the delisting giving exit
option to the shareholders will be valid for a period of 1 year within which the final
application will be required to be made to the exchange for delisting.
10. Special Resolution by way of Postal Ballot: The shareholders approval should be sought
from the shareholders via postal ballot in case the exit opportunity be given to the
shareholders. The votes cast by the public shareholders in favour of the delisting proposal
should be atleast 2 times of numbers cast against it.
11. Offer Document & Offer Period: The Opening Date of the Offer should not be later than 55
working days from the Public Announcement. The Offer should remain open for a minimum
period of 3 working days and a maximum of 5 working days.
12. Offer price to be determine:

Regulation 15 : Offer Price

(1) The offer price shall be determined through book building in the manner specified in
Schedule II, after fixation of floor price under sub-regulation (2) and disclosure of the
same in the public announcement and the letter of offer.

(2) The floor price shall not be less than, -

(a) where the equity shares are frequently traded in all the recognised stock
exchanges where they are listed, the average of the weekly high and low of the
closing prices of the equity shares of the company during the twenty six weeks or
two weeks preceding the date on which the recognised stock exchanges were
notified of the board meeting in which the delisting proposal was considered,
whichever is higher, as quoted on the recognised stock exchange where the
equity shares of the company are most frequently traded;

(b) where the equity shares of the company are infrequently traded in all the
recognised stock exchanges where they are listed, the floor price determined in
accordance with the provisions of sub-regulation (3); or,

(c) where the equity shares are frequently traded in some recognised stock
exchanges and infrequently traded in some other recognised stock exchanges
where they are listed, the highest of the prices arrived at in accordance with
clauses (a) and (b) above.

Explanation: For the purposes of this sub-regulation, equity shares shall be deemed to be
infrequently traded, if on the recognised stock exchange, the annualised trading turnover in such
shares during the preceding six calendar months prior to month in which the recognised stock
exchanges were notified of the board meeting in which the delisting proposal was considered, is
less than five per cent. (by number of equity shares) of the total listed equity shares of that class
and the term ‘frequently traded’ shall be construed accordingly.

(3) For the purposes of clause (b) of sub-regulation (2), the floor price shall be
determined by the promoter and the merchant banker taking into account the
following factors:

(a) the highest price paid by the promoter for acquisitions, if any, of equity shares of
the class sought to be delisted, including by way of allotment in a public or rights
issue or preferential allotment, during the twenty six weeks period prior to the
date on which the recognised stock exchanges were notified of the board
meeting in which the delisting proposal was considered and after that date upto
the date of the public announcement; and,

(b) other parameters including return on net worth, book value of the shares of the
company, earning per share, price earning multiple vis-à-vis the industry
average.

13. Promoters/ PAC not allowed to participation in bidding: Promoters/ PAC/ GDR/ ADR/
Receipt Holders can not participate in the delisting bid. If Depository Receipt holders wish to
participate then they have to first convert them into Equity shares.
14. Promoters’ option of not accepting the Offer Price: Under the Regulations, the Promoters
are not bound to accept the Offer Price, as may be determined by the Book Building Process.
If the Promoters do not accept the price arising out of bidding, then the promoter will be
responsible to comply with the clause 40A of the Listing agreement within 6 months of
closing of bidding process.
15. Successful Exit Offer: Under the Regulations, to get delisted, post offer, the Promoter
holding should reach the higher of the following:
o 90% of total issued shares of that class; or
o (pre offer promoter holding +50% of the Offer Size), otherwise the offer shall be
deemed to have failed.
16. Validity period of the Exit Price: Under the Regulations, the final exit price to remain open
for a period of 1 year from the date of delisting, for the remaining shareholders who have
not exercised the option at the time the offer is open.
17. Valuation under the Compulsory Delisting: Under the Regulations, the Exchanges are
required to constitute a Panel for taking decisions regarding the compulsory delisting and
also to appoint an Independent Valuer for determining the fair value of such compulsorily
delisted shares, at which the promoters of the company have to accept the shares of the
public shareholders.
18. Repercussions of Compulsory Delisting: The promoters, the whole time directors, and the
companies which are promoted by any of them shall not directly or indirectly access the
securities market or seek listing for 10 years.
19. Special Exemptions for Small Companies: Small companies having a paid up capital of upto
Rs. 1 crore or having less than equal to 300 shareholders and holding not more than Rs.1
crore, they need not to follow Reverse book building process.
20. Cooling period for Relisting:
o In case of voluntary delisting or Small Companies & Delisting by Operation of Law
(except Regulation 27): 5 years; and
o In case of Compulsory Delisting: 10 years

Regulation 27: Special Provisions in case of Small Companies

(1) Where a company has paid up capital upto one crore rupees and its equity shares were
not traded in any recognized stock exchange in the one year immediately preceding the date
of decision, such equity shares may be delisted from all the recognised stock exchanges
where they are listed, without following the procedure in Chapter IV.

(2) Where a company has three hundred or fewer public shareholders and where the paid
up value of the shares held by such public shareholders in such company is not more than
one crore rupees, its equity shares may be delisted from all the recognised stock exchanges
where they are listed, without following the procedure in Chapter IV.

(3) A delisting of equity shares may be made under subregulation (1) or sub-regulation (2)
only if, in addition to fulfillment of the requirements of regulation 8, the following conditions
are fulfilled:-

(a) the promoter appoints a merchant banker and decides an exit price in consultation with
him;
 (b) the exit price offered to the public shareholders shall not be less than the price arrived at
in consultation with the merchant banker;

(c) the promoter writes individually to all public shareholders in the company informing
them of his intention to get the equity shares delisted, indicating the exit price together with
the justification therefor and seeking their consent for the proposal for delisting;

(d) at least ninety per cent. of such public shareholders give their positive consent in writing
to the proposal for delisting, and have consented either to sell their equity shares at the
price offered by the promoter or to remain holders of the equity shares even if they are
delisted;

(e) the promoter completes the process of inviting the positive consent and finalisation of
the proposal for delisting of equity shares within seventy five working days of the first
communication made under clause (c);

(f) the promoter makes payment of consideration in cash within fifteen working days from
the date of expiry of seventy five working days stipulated in clause (e).

(4) The communication made to the public shareholders under clause (c) of sub-regulation
(3) shall contain justification for the offer price with particular reference to the applicable
parameters mentioned in regulation 15 and specifically mention that consent for the
proposal would include consent for dispensing with the exit price discovery through book
building method.

(5) The concerned recognised stock exchange may delist such equity shares upon satisfying
itself of compliance with this regulation.

21. Relisting of sick companies: In case of Delisted companies who were sick in the past, can be
given opportunity of listing through Restructuring scheme passed by BIFR.
Comparison between Old & New Regulations

Securities And Exchange Board of Securities And Exchange Board

S.No Particulars India (Delisting of Securities) of India (Delisting Of Equity
Guidelines, 2003 Shares) Regulations, 2009.
1. Coverage All kind of Securities are covered Only Equity Shares are Covered
2. Definitions- There is a concept of the Delisting Both the earlier definitions
Exchange Exchange and Exchange merged and a definition of
Recognized Stock exchange is
inserted.
3. Definitions-Public The Public shareholding is the Along with the Promoters,
Shareholding shareholding in a company other Persons Acting in concert with
than by the Promoters, Persons the Promoter, holders of
Acting in concert with the Promoter Depositors receipts and the
custodian thereof are also
included in exclusion list.
4. Definitions- Working Days not defined. Working days defined as the
Working Days working days of the SEBI.
5. Applicability Widely defined Not widely defined.
6. Inapplicability Not mentioned exclusively and Separate section is made. The
separately. exemption is available to the
companies which have been
declared sick & their
reconstruction scheme provides
the delisting including the
provisions of the exit option to
the shareholders.
7. Non-Permissibility Delisting only through Buy Back of Along with Buy Back, delisting
securities is not permitted through preferential allotment
is also not permitted.
8. Voluntary delisting The procedure and provisions of The procedures for both kind of
both kind of Delisting a) Without Delisting a) Without Exit option
Exit option and b) With Exit option and b) With Exit option are
merged and no separate sections defined and provided in a
were there. identifiable manner.
9. Delisting Without Special resolution to be passed Now the requirement of special
Exit Route. i.e. not through the shareholders is resolution for the delisting
from the compulsory. without Exit route is deleted.
exchanges having Only public announcement and
nation wide the disclosure in the first
trading terminal annual report after delisting will
suffice the requirement.
No time limit was prescribed for the A 30 days time period after the
exchanges for disposal of the receipt of Application complete
Delisting application filed by the in all respect, given to the
 companies.
10. Delisting with Exit Shareholders approval for the
Route i.e. even Delisting can be taken even in the
from the Extra Ordinary General Meeting.
exchanges having The resolution is Special resolution
nation wide simply to be passed in the Extra
trading terminal Ordinary General Meeting.
Before starting the process of
Delisting there is no requirement of
taking In principal approval from
the stock exchange.
There is no validity of special
resolution passed by the members
in the Extra Ordinary General
Meeting.
No specific guidelines were given to
the stock exchanges, which they
have to considered while approving
the application of delisting.
11. Specified Date No concept of specified date, on
which the list of eligible public
shareholders can be determined to
whom the Letter of Offer will be
sent for Delisting.
12. Bidding period Only minimum time mentioned
during which the bidding Period
remain open which is 3 days
13. Ineligibility of the No ineligibility with regard to the
shareholders to public shareholding given.
participate in the
Delisting offer.
exchanges for disposing of the
application of delisting.
Shareholders approval is
required compulsorily through
postal ballot. The special
resolution shall be deemed to
be passed only if the votes cast
by the public shareholders
infavour of the proposal
amount to at least two times
the votes cast against it.
Before starting the Delisting
Procedure, In principal approval
is required from the Stock
exchange from where the
securities are to be delisted.
The resolution is valid upto 1
year, within which the final
application is to be made to the
stock exchange for the Delisting
of securities after completion of
the Reverse Book Building
Process.
The Checkpoints have been
provided in the Regulations
which the Stock exchange has
to considered while approving
the application of delisting.
The concept of Specified date
introduced, which is 30 days
from the date of the Public
Announcement, on which the
shareholders list be freezed to
whom the letter of offer will be
sent for the Delisting.
The bidding period will now be
3 days to 5 days and should
start within 55th day of the
public announcement.
Now the Receipts holders / ADR
/ GDR holders are restricted to
participate in the Delisting
offer. If they wishes to
participate then they have to
first convert them into
underlying Equity shares.
14. Price Previously the price was calculated Now the price is calculated
determination from the date of public from the date when the
announcement company informed the
exchange the date of the board
meeting in which the delisting
proposal was considered.
15. Minimum number The company will be delisted if the The company will be deemed to
of shares for public shareholding fall below the be delisted on reaching the
Delisting from the minimum limit specified by the level higher of the following:- a)
stock exchange listing conditions or listing Ninety percent of the total
agreement. issued shares of that class
excluding the shares which are
held by a custodian and against
which depository receipts have
been issued overseas. Or., b)
The aggregate percentage of
pre offer promoter
shareholding along with person
acting in concert and fifty
percent of the offer size.
16. Final price Previously the Final announcement Now the Final announcement
announcement to be made in two days declaring to be made in eight working
the final price and the status of the days declaring the final price
Delisting i.e whether the price is and the status of the Delisting
accepted or not. i.e whether the price is
accepted or not.
17. Right of remaining The shareholders who could not The shareholders who could
shareholders participate in the Delisting offer can not participate in the Delisting
offer their shares to the promoter s offer can offer their shares to
during a period of 6 months after the promoter s during a period
the Delisting. of 1 year after the Delisting.
18. Consequence of Only company was restricted for a The company, its promoters,
the Compulsory period of 2 years for Relisting at the and directors are barred for a
Delisting stock exchange period of 10 years for relisting
at the stock exchange.
19. Small Companies No special provisions are there for Special provisions under the
the small companies. They have to separate section be given for
follow the same provisions as the the small companies and
Large and big companies have to. winding up companies. They
need not to follow the Reverse
Book Building process.
20. Delisting through If pursuant to Right issue the The section is altogether
right Issue Promoter s holding is increased deleted.
more than the permissible limit, the
promoter shall be required to delist
the company or reduce their
holding within a period of 3
 months.
21. Reinstatement of The companies can not be relisted The companies delisted
securities at the exchange for a period of 2 voluntarily can not be relisted
years from the period of delisting. for a period 5 years and the
companies compulsorily
delisted can not be relisted for
a period of 10 years from the
date of delisting
Comparison between Voluntary and Compulsory Delisting

Voluntary Delisting from all the

S. No Criteria Compulsory Delisting
Exchange(s)
1. Applicable Regulations 22 to 24 Regulations 5 to 21
Regulations
2. Initiative Any Recognized Stock Any Company can voluntarily apply to the
Action Exchange make an order to concerned stock exchange(s) for delisting.
delist the equity shares of a
company.
3. Grounds Delisting order can be made The Company for cost benefit, or to comply
passed on the non- with any of the rules and regulations etc
fulfillment of the listing may seek delisting from any of the
regulations of the respective exchange.
exchange and on any other
ground prescribed in the
rules made under section
21A of SCRA, 1956.
4. Public Notice Public Notice in this case be Public notice and all announcements be
given by the Exchange given by the Promoters of the company.
5. Approvals The Panel of Experts has to The Company seeking voluntary delisting
take the decision after giving shall take the approval of the concerned
a reasonable opportunity of stock exchange(s) and also of public
being heard to all the shareholders.
persons who may be
aggrieved by the Delisting of
the company.
6. General No need of the General Shareholders Shareholders resolution to be
Meeting of meeting of the passed through Postal ballot.
the
shareholders
7. Appointment The complete process is The complete process is monitored by the
of Merchant monitored by the Panel of Merchant Bankers
Banker Experts
8. Exit Price To be calculated by the The price to be determined on the basis of
Independent valuer at which the past trading data or book values of the
the Promoter should take company by the promoter in consultation
the shares from the Public by the Merchant Banker
shareholders.
9. Reverse Book No biddings are invited from Complete process of Reverse Book Building
Building the Shareholders for is to be completed for determination of the
process determination of the Final Final Price.
Price
10. Debarred The company/ The company can not relist its securities for
from the Promoters/Directors are a period of 5 years.
securities debarred from the securities
market market for a period of 10
years
Glossary:

“Act”
The Securities and Exchange Board of India Act, 1992 (15 of 1992);

“Board”
The Securities and Exchange Board of India established under section 3 of the Act;

“Bidding period”
Shall be period in which bidding is to be accepted by the shareholders.

“Company”
A company within the meaning of section 3of the Companies Act, 1956 (1 of 1956) and includes a
body corporate or corporation established under a central Act, state Act or provincial Act for the
time being in force, whose equity shares are listed on a recognized stock exchange;

“Compulsory delisting”
Delisting of equity shares of a company by a recognized stock exchange under Chapter V of these
regulations;

“Control”
The right to appoint directly or indirectly or by virtue of agreements or in any other manner majority
of directors on the Board of the target company or to control management or policy decisions
affecting the target company.

“Custodian”
“Custodian” is appointed for

• safekeeping of physical securities or

• For participating in any clearing system, through approved depository companies, in case of
dematerialized securities.

“Escrow account”
The special purpose account in which total estimated amount of consideration is deposited.

“Exit price"
Shall be the final price at which the shareholders will tender the shares.

“Floor price”
Is the minimum price at which the biddings shall be accepted and to be mentioned in the bidding
form and should be determined on the basis of regulation 15 of SEBI (delisting of equity shares)
regulations, 2009.

“Final price”
The price determined by way of bidding, and that is to be paid to the shareholders who tender their
shares.

“Merchant banker”
Any person who is engaged in the business of issue management either by making arrangement
regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or
rendering corporate advisory service in relation to such issue management.

“In-principle approval”
An approval by the stock exchange to the company for initiating the process of delisting for giving an
exit opportunity to the public shareholders.

“Independent valuer”
'Valuer' means a chartered accountant within the meaning of clause (b) of section 2 of the Chartered
Accountants Act, 1949 (38 of 1949), who has undergone peer review as specified by the Institute of
Chartered Accountants of India constituted under that Act, or a merchant banker appointed to
determine the value of the delisted equity shares;

“Letter of offer”
A letter of offer is a document addressed to the shareholders holding equity shares containing floor
price, offer price, dates of opening and closure of offer etc.

“Person acting in concert"

Individual(s) /company(ies)/ any other legal entity(ies) who are acting together for a common
objective or for a purpose of substantial acquisition of shares or voting rights or gaining control over
the target company pursuant to an agreement or understanding whether formal or informal.

“Preferential allotment "

An issue of shares on preferential basis and/or through private placement made by a company in
pursuance of a resolution passed under sub- section (1A) of section 81 of the Companies Act, 1956
and issue of shares to the promoters and their relatives either in public issue or otherwise.

“Promoter”
(a) Any person who is in control of the target company;

(b) Any person named as promoter in any offer document of the target company or any
shareholding pattern filed by the target company with the stock exchanges pursuant to the Listing
Agreement, whichever is later;

And includes any person belonging to the promoter group as mentioned in Explanation I:

Provided that a director or officer of the target company or any other person shall not be a
promoter, if he is acting as such merely in his professional capacity.

Explanation I: For the purpose of this clause, 'promoter group' shall include:

(a) in case promoter is a body corporate –

(b) a subsidiary or holding company of that body corporate;
(c) any company in which the promoter holds 10% or more of the equity capital or which holds 10%
or more of the equity capital of the promoter;
(d) any company in which a group of individuals or companies or combinations thereof
(e) who holds 20% or more of the equity capital in that company also holds 20% or more of the
equity capital of the target company; and
(f) in case the promoter is an individual –
(i) The spouse of that person, or any parent, brother, sister or child of that person or of his spouse;
(ii) any company in which 10% or more of the share capital is held by the promoter or an immediate
relative of the promoter or a firm or HUF in which the promoter or any one or more of his
immediate relative is a member;
(iii) any company in which a company specified in (i) above, holds 10% or more, of the share capital;
and
(iv) any HUF or firm in which the aggregate share of the promoter and his immediate relatives is
equal to or more than 10% of the total.
Explanation II: Financial Institutions, Scheduled Banks, Foreign Institutional Investors (FIIs) and
Mutual Funds shall not be deemed to be a promoter or promoter group merely by virtue of their
shareholding. Provided that the Financial Institutions, Scheduled Banks and Foreign Institutional
Investors (FIIs) shall be treated as promoters or promoter group for the subsidiaries or companies
Promoted by them or mutual funds sponsored by them.”

“Public shareholders”
The holders of equity shares, other than the following:
(a) promoters;
(b) holders of depository receipts issued overseas against equity shares held with a custodian and
such custodian;

“Recognized stock exchange”

Any stock exchange which has been granted recognition under section 4 of the Securities Contracts
(Regulation) Act, 1956;

“Recognized stock exchange having nation wide trading terminals”

The Bombay Stock Exchange Limited, the National Stock Exchange of India Limited or any other
recognized stock exchange which may be specified by the Board in this regard.

“Regulations”
Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009

“Schedule”
A Schedule appended to these regulations;

“A Small company”
For the purposes of these Regulations, shall mean:
1. a company has paid up capital upto one Crore rupees and its equity shares were not traded in any
recognized stock exchange in the one year immediately preceding the date of decision.
2. a company has three hundred or fewer public shareholders and where the paid up value of the
shares held by such public shareholders in such company is not more than one crore rupees

“Specified date”
Shall be the date on which the name of the shareholders, to whom letters of offer have to be sent,
shall be determined. ‘Voluntary delisting’ Delisting of equity shares of company voluntarily on
application of the company under Chapter III of these regulations; ‘Working days’ The working days
of the Board.