Sebi to freeze promoter holdings if firms violate shareholding norms
markets regulator will impose fines and freeze promoter shareholding, restricting promoters’ rights in decision making, if a company violates the minimum public shareholding (MPS) norms.
MPS requires a listed company to have at least 25% public shareholding.
In a circular issued on Tuesday, the markets regulator said that share depositories will freeze the entire shareholding of the promoters if a company is found to have failed to comply with the MPS norms for 15 days.
The directors of the company will also be barred from holding such positions in other companies till the non-compliant company achieves 25% public shareholding.
In addition, non-compliance with the norms will attract a monetary penalty of Rs5,000 per day.
If the non-compliance continues for more than a year then the per-day penalty will rise to Rs10,000. In addition, all the securities held by the promoter would be frozen.
“The recognized stock exchange shall intimate the depositories to freeze all the securities held in the demat account of the promoter and promoter group till the date of compliance by such entity,” Sebi said in the circular.
The stock exchanges will also need to publish the names of the non-compliant companies, the amount of fine imposed, the days of non-compliance and the action taken against the promoters.
According to data compiled by Capitaline, 1,886 companies are not compliant with MPS norms. Out of the 1,886 firms, 1,795 firms are private sector listed companies.
Considering that the Sebi circular is effective immediately, all these firms will face penalty and strictures in the next 15 days. These strictures would apply only to listed private sector firms, as state-run firms need to meet the MPS norms by March.
Sebi on 4 June 2013 had passed an order directing non-state listed companies to comply with the 25% public shareholding requirement. However, state-run companies were given a deadline of August 2017 (later extended to March 2018) to adhere to the MPS requirement.
“Issuance of strictures and mandating penalties for non compliance of MPS norms will surely act as a deterrent for the violators,” said Anjali Aggarwal, partner and head-capital market and stock exchanges services, Corporate Professionals, a law firm.
Shareholding pattern: Minimum public shareholding norms require a listed firm to have at least 25% public shareholding.