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What are the SEBI Regulations Relating to the Delisting of Securities?

Delisting of Securities

The term ‘Delisting’ denotes and means removal of the listing of the securities of a listed company from the Stock Exchange platform. Delisting of securities is different from suspension or withdrawal of listed securities, which is for a limited period.

The Company has an option to Delist any or all class of its securities. Further, there is no restriction as to the class of securities. However, a Company is not permitted to delist its securities through Buy-back option/process.

What types of Delisting of Securities are there?

Broadly, delisting of securities may be of two types: Voluntary and compulsory

  1. Voluntary delisting, it is delisting of securities of a company undertaken voluntarily by a promoter or an acquirer i.e. a listed Company opts delisting of securities on its own motion.
  2. compulsory delisting, it is when a listed Company is compelled by the Stock Exchange to delist its securities

Causes of Voluntary Delisting

  1. When a listed Company finds the listing fees payable to the stock exchanges burdensome and disproportionate to the benefits accruing to the company or its stockholders.
  2. When there is a regional imbalance of the shareholders either due to shifting of the company’s registered office and/or location of a manufacturing unit or for any other reason as a matter.
  3. Negligible trading or total absence of trading for a considerable long period of time.
  4. The company has either suspended its business or is under closure or has become a sick industrial company.
  5. The small capital base or failure to comply with the requirement of increasing the capital, not justifying listing to be continued.
  6. Mergers, Amalgamations, Takeovers, etc.

Causes of Compulsory Delisting

  1. Non-payment of listing fees by the company to Stock Exchanges
  2. Noncompliance with listing requirements and listing agreement by the company
  3. Nonredressal of investor’s complaints despite repeated reminders to the company
  4. When a company resorts to unfair trading practices at the behest of its promoters/ management etc.
  5. When the company does any malpractice such as fake, or duplicate share certificates deliberately issued to defraud the shareholders.
  6. In the case when no information about the Company / or its Promoters / Directors known to the public.
  7. Reduction in the number of public holders of securities.

In case of voluntary delisting of securities, the procedure to be followed from the Stock Exchanges is as follow in a nutshell:

  1. BOARD APPROVAL: The company, has to pass a necessary board resolution proposing for delisting of the securities.
  2. INTIMATION TO STOCK EXCHANGES: after holding the Board Meeting, a certified copy of the Board Resolution proposing the delisting of the securities is to be submitted to the required Stock Exchange.
  3. Members APPROVAL: The Company must obtain members’ approval for delisting of securities.
  4. FILING OF FORMS WITH THE REGISTRAR OF COMPANIES: The company is supposed to file Form No. 23 of the Companies (Central Government`s) General Rules & Forms, 1956 with concerned Registrar of Companies.
  5. PUBLICATION OF NOTICE IN NEWSPAPERS: The Company shall have to publish a notice in newspapers (one in leading English and one in the local newspaper) for proposed delisting of the securities.
  6. EXIT OPPORTUNITY TO SHAREHOLDERS OF THE REGION: The holders of the securities should be given an exit opportunity before delisting of securities.
  7. PURCHASE PRICE: The price at which the shares are to be purchased shall not be less than the weighted average traded price in the preceding six months at any of the Stock Exchanges.
  8. SUBMISSION OF LIST OF SHAREHOLDERS TO STOCK EXCHANGE: The company shall submit a duly certified complete list of its shareholders, where the concerned Stock Exchange is located and from which the company is seeking delisting of shares.
  9. RECORD DATE: The Company shall fix a Record Date to ascertain/confirm the shareholders to whom the offer letters are to be dispatched and the same shall be intimated to the Stock Exchange also.
  10. OFFER TO BUY SHARES: In this case, the Company shall send a circular/letter of offer to each and every shareholder from which the securities are planned to be delisted.
  11. AUDITOR/RTA’S CERTIFICATE: The Company shall obtain a certificate from the Auditors/Share Transfer Agent to the effect that the Circular/Letter of Offer has been dispatched to all the shareholders.
  12. MINIMUM PERIOD FOR OFFER TO BUY: The offer to buy back the securities shall be kept open for a minimum period of 30 days as similar to that of SEBI (SAST) Regulations, 1997.
  13. MANNER OF PAYMENT FOR SHARES BOUGHT BACK: The considerable amount of the scheme as calculated is parked in a separate Escrow Account before the opening of the offer.
  14. TIME LIMIT FOR PAYMENT OF SHARES BOUGHT BACK: All the formalities shall be over within 30 days from the date of the closure of the offer.
  15. AUDITOR’S CERTIFICATES REGARDING PAYMENT etc.: Company has to furnish a certificate from its Statutory Auditors certifying that the consideration amount has been paid to the shareholders and all transfers have been affected.
  16. CLEARANCE OF INVESTOR COMPLAINTS OF THE REGION: The Company proposing to delist the securities should ensure that all the complaints received from the region are attended to.
  17. PAYMENT OF LISTING FEE ARREARS: The Company plans to delist its securities from a particular Stock Exchange shall pay the Annual Listing fee till the date of delisting.
  18. APPLICATION FOR DELISTING: When all the aforesaid requirements/formalities are completed fully, the company shall submit its application to the Stock Exchange for delisting of shares.
  19. MENTION IN THE DIRECTORS’ REPORT: The Company shall disclose the fact of delisted securities together with a statement of reasons and justification therefor in the Director’s Report and sends a copy of the same to be sent to the Stock Exchange immediately.

Also Read:
SEBI Registered Investment Advisors vs Stock Broker vs Dealers
Portfolio Manager to Obtain Prior Approval of SEBI in Case of Change in Control

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