The Securities and Exchange Board of India (Sebi) on Tuesday proposed a three-phase process for re-classification of promoters as public shareholders. In the first stage, the concerned promoter shareholder or the company will have to file an application to the stock exchange requesting re-classification. In the next stage, the request will go to the board of directors of the company. The board will then provide its recommendation, which will be placed before the shareholders. In the third and final stage, the proposal will be put before the shareholders in a general meeting and approved through an ordinary resolution. The concerned promoter will not be permitted to vote on such resolution. Also, there has to be a cooling off period between date of board meeting and the shareholder’s meeting considering the request of the promoter.
“Such stages will also ensure that there are enough checks and balances in place to ensure that the interests of all stakeholders are safeguarded,” Sebi said in a consultation paper, based on the recommendations made by the Kotak Committee and the primary market advisory committee (PMAC) on the matter.
The issue of re-classification had assumed significance at the time of implementation of minimum public shareholding (MPS) norms. In order to comply with the 25 per cent MPS rule, some entities were seen re-classifying themselves as ordinary shareholders just to comply with the regulations.
Sebi has also set eligibility criteria for such re-classification to ensure that the outgoing promoters don’t “exercise control over the listed entity, directly or indirectly and cease to be promoters in spirit.”
Some of the conditions include, the promoter group shall not hold more than 10 per cent of the total voting power in the listed entity; exercise control over the affairs of the listed entity directly or indirectly; have any special rights or represented on the board.
Sebi has proposed to bar non-complaint entities or wilful defaulters from being eligible for re-classification. Further, the regulator has said reclassification will be allowed only in case of entities that are compliant with minimum public shareholding norm.
In case of companies “professionally managed” companies, Sebi has said they may be termed as “listed entities having no promoter”
“It may be specified that a listed entity shall be considered as ‘the listed entities with no promoter’ if due to re-classification or otherwise, the entity does not have any promoter,” Sebi said.
Further, the authority to allow re-classification of any shareholder will continue to lie with stock exchanges, Sebi has proposed.
Meanwhile, if a public shareholder seeks to re-classify itself as a promoter, it shall be required to make an open offer, the regulator has proposed. The regulator has proposed to provide relaxation to listed entities where insolvency proceedings have been initiated.
The market regulator has invited public comments on the proposal till August 16, following which it will finalise the rules.