Meaning of Delisting of Securities: Delisting connotes removal of the securities of listed companies from the official list of stock exchang...

Meaning of Delisting of Securities:

Delisting connotes removal of the securities of listed companies from the official list of stock exchanges. A recognized stock exchange may delist securities if:
  1. The listed company:
    • Has incurred losses/its net worth has been reduced to less than its paid-up capital,
    • Has failed to comply with the requirements of the listing agreement or provisions of any law,
    • Fails to redress investor grievances.
  2. The securities of the listed company have not been continuously traded.
  3. The listed company/its promoters/directors indulge in insider trading/unfair trade practices in securities.
  4. The promoters/its directors/persons in management indulge in malpractices including malpractices in dematerialization of securities in excess of issued securities or delivery of securities which are not listed or for which trading permission has not been given.
  5. The addresses of promoters/directors of a company are not known/are false of the company changes its registered office in contravention of the provisions of the Companies Act.
  6. Trading in securities of the company has remained suspended for more than 6 months.
  7. Shareholding of the company held by the public has come below the limit specified in the listing agreement under SCR Act.
The SEBI may specify any other grounds in which the securities of a company can be delisted.

No delisting of securities would be allowed by the stock exchange unless the company obtains prior approval of the holders of such securities by a special resolution and after giving an exit opportunity to the shareholders at a fair price and complying specified by the SEBI/stock exchange with the approval of the SEBI.

A listed company/an aggrieved investor may file an appeal before the SAT against the decision of the stock exchange within 15 days.

If the stock exchange refuses to list the securities of any company, it must furnish the reason for refusal. The company may:
  1. Within 15 days of furnishing of reasons for refusal, or
  2. Where the stock exchange has omitted/failed to dispose-off within the time specified in Section 73(1-A) of the Companies Act its application for permission for dealings of its securities, within 15 days from the date of expiry of the specified time/within such extended period not exceeding one month allowed by the Securities Appellate Tribunal (SAT) may appeal to the SAT.

Routes of Delisting:

There are different routes of delisting, which can be categorized as routes of voluntary delisting and routes of compulsory delisting. A brief description of each of them is given below:
  1. Voluntary Delisting:

    In this type of delisting, the company may seek delisting of its shares from all the recognized stock exchanges where they are listed. To do so, the company has to obtain a special resolution from the shareholders of the company.

    To pass the special resolution, atleast 75 % of the shareholders who are present at the general meeting must vote in favour of the resolution. Further, the shareholders have to be provided an exit route by the promoters or those who are in control of the management.

    Causes of voluntary Delisting:

    Companies seek voluntary delisting for various reasons. Some of them are as follows:

    • Since the National Stock Exchanges of India Ltd (NSE) and Bombay Stock Exchanges (BSE) offer nationwide trading facilities with a geographical spread of online trading terminals, companies may feel it is an unnecessary burden to maintain the listing of their securities on regional stock exchanges. Hence they go in for delisting of their securities from regional stock exchanges.
    • Some companies may become private in order to do away with public scrutiny. They do this by resorting to acquisition of shares in the open market or by exercising the buy-back option. So a company might gradually reduce the floating the stock through open market acquisition or through buy-back and then go in for delisting.
    In such a situation, even if the offer price is not a fair price, the shareholders have to tender their shares. Otherwise, they could end-up with shares without liquidity in case the securities are delisted. Therefore, the residual shareholders are left with no option upon a proposal of delisting of securities.
  2. Compulsory Delisting:

  3. In this type of delisting, the stock exchanges themselves can, under certain circumstances, compulsorily delist the securities of a listed company subject to certain procedures:

    • If a company fails to pay the listing fee or does not comply with the rules of the stock exchanges/SEBI guidelines, or unfair trading practices are followed by the promoters/management, the stock exchange may resort to compulsory delisting. In such case, there is no exit route for shareholders. However, the stock exchange may allow trading in such securities under a permitted category for period of one year after listing. If the actions of the management or promoters of the company have caused compulsory delisting, they would be liable to compensate the shareholders by acquiring the shares from them at a fair value.
    • Mergers and amalgamations and schemes of arrangements under court directives may also result in delisting. The management of the re-structured company may seek delisting of shares in order to convert the company into a closely held company. According to the SEBI Substantial Acquisitions of Shares and Takeovers Regulations, 1997, if the public shareholding slides to 10 % or less of the voting capital of a company consequent on substantial acquisition of shares, or if the public offer is in respect of a company where the public shareholding is already less than 10 %, the acquirer who has made the republic offer has an option to buy the outstanding shares from the remaining shareholders at the same offer price.
    • By operation of law on account of directives under the Bureau for Industrial and Financial Re-construction (BIFR), companies, particularly sick companies, can be delisted.
Author Bio:
This Article has been written by Brijesh Dave(MBA Finance). He has vast experience to write articles especially for Banking & Finance, Business & Economics and Stock Market niche. Here, he described very well about Meaning, Causes and Routes of Delisting of Securities. Contact Brijesh on Yahoo Mail and Facebook Here.



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