SEBI Eases Minimum Public Shareholding Norms Amid Virus Outbreak

The market regulator directed bourses and depositories to not take any penal action against listed entities that fail to meet minimum public shareholding requirements, in a move aimed at easing such compliance rules amid the disruptions caused by the coronavirus pandemic.

“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 Oct. 10, 2017 circular,” the Securities and Exchange Board of India said in a statement. The norms are “relaxed for listed entities for whom the deadline to comply with minimum public shareholding requirement falls between the period from March 1, 2020 to Aug. 31, 2020”.

SEBI's October 2017 circular mandates monitoring minimum public shareholding in listed entities. Stock exchanges are empowered to levy penalty on promoters and inform depositories to freeze their shareholding in listed entities that fail to meet the prescribed threshold. Under SEBI norms, listed entities are required to have at least 25 percent public shareholding.

The regulator today advised stock exchanges to not take any penal action 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March 1, 2020 till date for non-compliance of minimum public shareholding requirement by such listed entities may be withdrawn.”

The relaxation comes into effect immediately.

This is line with the overall regulatory and policy framework that is evolving on account of the lockdown imposed due to the Covid-19 outbreak so as not to penalise anyone for the duration of the lockdown and some buffer period, Ajay Shaw, partner at DSK Legal, told BloombergQuint. These measures will help to avoid numerous litigations among stock exchanges and companies, he said.

Sumit Agrawal, founder, Regstreet Law Advisors, said the move was not an exemption but a relaxation by way of extension of deadline for compliance due to the Covid-19. The relaxation will help ease pressure on promoter families and financial institutions to undertake fire-sale at heavily discounted prices in the current market conditions, he said.

Khaitan & Co's Tomu Francis agreed. “SEBI has acted proactively in doing away with penal action by stock exchanges against listed entities in terms of its 2017 circular for non-compliance with minimum public shareholding requirements, including freezing of promoter holding,” he said.

This must come as a major relief for non-compliant companies and their promoters who were unable to reduce their holding to less than 75 percent using the modes prescribed by SEBI, he said.