SEBI and exchanges work on screening around 270 inactive firms for delisting

SEBI and stock exchanges are working on a proposal to screen around 270 inactive listed firms for possible delisting. The parameters for identifying the firms remain under discussion, and the proposal has not set final criteria or a timetable. Exchanges would first prepare a preliminary list and verify the firms’ registered offices and business operations before issuing notices.

Around 270 firms enter proposed delisting screening

Stock exchanges are considering about 250 firms listed on one exchange and approximately 20 firms listed on another for the proposed screening. These firms could face delisting proceedings if they meet the eventual criteria and do not satisfy the subsequent process.

SEBI and the stock exchanges are seeking to identify listed firms with limited or no meaningful business operations. The exchanges are still discussing the parameters rather than applying a finalised set of criteria.

Market capitalisation below ₹10 crore is among the proposed filters

Market capitalisation below ₹10 crore is one possible identification parameter being examined by the stock exchanges. The other proposed filters include profitability over the years, net worth, shareholding and significant movements in share prices over a short period.

Inactive firms raise concerns over market misuse

SEBI and the exchanges are addressing the possible use of inactive listed firms in pump-and-dump schemes, reverse mergers and transactions intended to create artificial long-term capital gains or book losses for tax purposes.

SEBI chairman Tuhin Kanta Pandey said the regulator was working on a proposal concerning inactive listed companies. He indicated that allowing firms with little or no meaningful business activity to remain listed could go against the interests of public shareholders.

Rule 21 lists grounds and hearing rights for delisting

Rule 21 of Securities Contracts (Regulation) Rules, 1957 as amended provides conditions under which a Stock Exchange recognized by it may delist stocks. Three years of losses with negative net worth, trading ceases for more than six months, and only occasional trading in the three years under consideration are some of the conditions.

They also cover cases where the addresses of a company, its promoters or directors are unknown or false, and where a company fails to restore the prescribed public shareholding. A company must receive a reasonable opportunity to be heard before delisting.

Promoters and directors may have to buy shares in compulsory delisting

Under the specified compulsory-delisting provisions, the company, its promoters and directors are jointly and severally liable to purchase outstanding shares from investors who wish to sell.

The purchase price is determined as a fair price under SEBI regulations. The provision is generally applied where the company has a fair market value that can be determined.

Physical verification and notices would precede proceedings

Once the preliminary list is prepared, exchanges would visit the firms’ registered offices and business locations to establish whether they have genuine operations. The exchanges would also check firms that cannot be traced at their registered addresses against the other screening parameters.

Such firms could receive notices asking why they should remain listed. A firm that does not provide a satisfactory explanation or establish genuine business operations could then face proceedings under the Securities Contracts (Regulation) Rules.

SEBI and the stock exchanges have not stated a timetable for preparing the preliminary list, conducting the physical verification or issuing the notices.