Process of Re-Classification of Public Shareholders to Promoters or vice-versa changed

SEBI enacted the SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2018 (“Amendment Regulations”) in order to amend the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Regulations”).

There have been several changes in the Regulations, majorly in the provisions relating to re-classification of ‘public shareholders’ as ‘promoters’ or vice-versa, which are as follows:

  • Earlier, the request for reclassification was allowed to be filed either by the concerned listed entity or the concerned shareholder(s). Now, it is mandatorily to be filed by the listed entity, subsequent of which, the concerned shareholder can file its request;
  • The request by the concerned shareholder shall be approved by the board of directors as well as other shareholders of the company. There shall be a gap of three (3) months between board and shareholders’ meeting and a request of the ‘promoter’ seeking re-classification shall be approved in the general meeting by an ordinary resolution only;
  • The promoters seeking reclassification shall not (i) hold more than 10% of the total voting rights in the entity; (ii) exercise control over the affairs of the entity; (iii) have any special rights with respect to the entity; (iv) be represented on the board of directors of the entity; (v) act as a key managerial person in the entity; and (vi) be a wilful defaulter of fugitive economic offender; and
  • The listed entity whose promoter seeks re-classification as public shareholders shall be compliant with the requirement for minimum public shareholding, shall ensure that trading in its shares is not suspended by the stock exchanges and shall not have any outstanding dues to SEBI, the stock exchanges or the depositories.

Some other major changes brought by the Amendment Regulations are:

  • The definition of ‘fugitive economic offender’ has been added in the Regulations.
  • Provisions have been incorporated to enable listed entities to apply to SEBI to seek relaxation under the Regulations, against payment of non-refundable fee of Rs. 1,00,000/-.
  • Listed Companies are required to disclose in its Annual Reports status of complaints filed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013; and
  • In case of transmission of securities which are held in single name without a nominee, an affidavit from all legal heirs of the holder of those securities, to the effect of identification and claim of legal ownership to the securities is required to be filed. However, if such legal heir/claimant is named in the ‘succession certificate’ or ‘will’ or ‘letter of administration’, an affidavit from such legal heir/ claimant would suffice.