Promoters' children cannot be reclassified as public shareholder: SEBI 

Promoters' children cannot be recategorised as public shareholder even if they are married and living separate lives and do not have any involvement in the management of the company, markets regulator SEBI  said.

The clarifications have been given as part of an informal guidance sought by Mirza International regarding reclassification of promoters shareholding.

Mirza International's promoter and managing director Rashid Ahmad Mirza sought guidance on whether the married daughters, who hold more than 10 per cent voting rights in the listed firm, but lead separate lives and are not involved in the company's affairs, can be reclassified from promoter group to the public category.

Following this, SEBI has said by virtue of definition of promoter group under ICDR (Issue of Capital and Disclosure Requirement), the daughters of the promoters are immediate relative and are  part of the promoters group irrespective of the fact that they are married and living separate lives or that they do not have any involvement in the management of the company.

The regulator, further, said in case of gift of shares held by the promoter or person belonging to the promoter group, immediately on such event, the recipient of such shares shall be classified as promoter or person belonging to the promoter group under the LODR (Listing Obligations and Disclosure Requirement) norms.

Mirza, who held 11.27 percent stake in the company as of December 2019, desires to gift some of his shares to two of his married daughters, who are living independent lives and do not have any part in affairs of the company.

At present, the daughters do not hold any shares in the company so their names do not form part of the promoter group category.

Subsequent to the share transfer, daughters' names would be included in the promoter group category. Although, they desire their names be moved from promoter to public category.

"As stated by the applicant company, the married daughters would hold more than 10 percent of the total voting rights of the listed company after the gift of shares by  the promoter/MD. Therefore, by virtue of ...SEBI LODR Regulations 2015, daughters are not eligible to seek reclassification from the promoter group to public," SEBI  said in the interpretive letter made public on Wednesday.

The regulator has also said that the  promoter or persons related to the promoter (s) seeking reclassification shall not together hold more than 10 per cent of the total voting rights in the listed entity.

Noting this position is based on the information furnished, SEBI said, "different facts or conditions might lead to a different interpretation".

"This letter does not express a decision of the board on the question referred," the regulator added.