Under compulsory delisting provisions, recognized stock exchange may, by order, compel delisting of any equity shares of a company on any ground prescribed in the rules made under section 21A of the Securities Contracts (Regulation) Act, 1956. Few of such identified reasons are as under:
· If the trading of the company has been suspended for over 6 months.
· If the shares are traded infrequently for the last 3 years.
· If the company has incurred losses for three consecutive years and has a negative worth.
· The company director(s) or promoter(s) have been convicted for not less than 3 years due to failure in complying with regulations of the Depositories Act, SEBI Act, and the company has incurred a loss of not less than Rupees 1 crore.
Decision for such compulsorily delisting any security of a company is taken by panel of experts after considering the various parameters given in the regulations.
Procedurally, stock exchange(s) sends notice for inviting representation by the aggrieved persons who supports such delisting. Further, exit price gets determined based on valuation report obtained from an independent valuer appointed by the concerned stock exchange. Unlike in case of voluntary delisting, here, there is also no requirement of going through the reverse book building process. Further, company which is proposed to be compulsorily delisted, its whole-time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such delisting.
There are certain powers which are given to the stock exchange under the Schedule III: The recognized stock exchange can file prosecutions under relevant provisions of the Securities Contracts (Regulation) Act, 1956 or any other law for the time being in force against identifiable promoters and directors of the company for the alleged non-compliances. The recognized stock exchange can also file a petition for winding up the company under section 433 of the Companies Act, 1956 (1 of 1956) or make a request to the Registrar of Companies to strike off the name of the company from the register under section 560 of the said Act.
Following is the list of companies which recently got compulsorily delisted during FY 2020-21:
Name of Companies compulsorily delisted | |
Pochiraju Industries Limited | Zylog Systems Limited |
Shree Ganesh Forgings Limited | Autoriders Finance Ltd |
Vijay Shanthi Builders Limited | Girdharilal Sugar and Allied Industries Ltd |
Bilpower Limited | Delta Leasing & Finance Ltd |
Divine Multimedia (India) Ltd | First Winner Industries Limited |
Usually, regulators intervention is to insulate irregular price movement in stock of such companies which are listed but are not compliant. Accordingly, compulsory delisting reduces fraud at the macro level where small retail investors doesn’t get trapped.
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