Sebi to freeze pro­moter hold­ings if firms vi­o­late share­hold­ing norms

Mint Asia ST - - News - B Y J AY SHREE P. U PADHYAY

The

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.

ANIRUDDHA CHOWDHURY/MINT

Share­hold­ing pat­tern: Min­i­mum pub­lic share­hold­ing norms re­quire a listed firm to have at least 25% pub­lic share­hold­ing.

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