The Finance Ministry has amended the Securities Contracts (Regulation) Rules, 1957 to give more time to reach the 25 per cent minimum public shareholding level.
“In the Securities Contracts (Regulation) Rules, 1957, in rule 19A, in sub-rule (1), in the proviso, for the words “two years” the words “three years” shall be substituted,” a gazette notification dated July 31 said, while adding that the notification came into effect from the date of publication. It means public listed companies will get time up to 2023 to reach the minimum public shareholding level of 25 per cent.
The existing rule for continuous listing requirement says, every listed company (other than public sector company), shall maintain public shareholding of at least 25 per cent. The Proviso to this rule says that every listed public sector company which has public shareholding below 25 per cent on the commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2018, shall increase its public shareholding to at least 25 per cent, within a period of two years from the date of such commencement, in the manner specified by the Securities and Exchange Board of India (SEBI). Now, the two-year period has been extended to three years.
Every promoter or promoter company is required to bring down its holding to 75 per cent within three years from the date of listing. Afterwards, it is required to maintain this level and get time if promoter holding goes above 75 per cent.
Public means persons other than – (i) the promoter and promoter group, and (ii) subsidiaries and associates of the company. Public shareholders could be individuals or financial institutions, and they normally buy shares through a public offer or the secondary market. In order to bring more transparency in to the working of listed companies, the concept of minimum public shareholding has been introduced. As on date, the limit is 25 per cent, although the Union Budget of FY 2019-20 had proposed raising this to 35 per cent. However, the market regulator is yet to take a call on the implementation of the proposal.
More time for maintaining minimum public shareholding is the second major relief on the compliance front given to listed companies during the Covid-19 pandemic. Earlier on May 14, SEBI had relaxed the applicability of action against not maintaining the shareholding norm. According to the regulator, after taking into consideration requests received from listed entities and industry bodies as well as considering the prevailing business and market conditions, it has been decided to grant relaxation from the applicability of the October 10, 2017 circular.
This means the stipulation mentioned in the circular has been relaxed for listed entities for which the deadline to comply with minimum public shareholding requirements falls between March 1, 2020 and August 31, 2020. “Recognised stock exchanges are advised not to take any penal action as envisaged in the October 10, 2017 circular against such entities in case of non-compliance during the said period. Penal actions, if any, initiated by stock exchanges from March 1, 2020 till date for non-compliance of MPS (minimum public shareholding) requirements by such listed entities may be withdrawn. This Circular shall come into force with immediate effect,” the regulator had said.
As per the norms, exchanges can impose a fine of up to ₹10,000 on companies for each day of non-compliance with the MPS requirements. Besides, exchanges can intimate depositories to freeze the entire shareholding of the promoter and promoter group.