SEBI’s minimum public shareholding norms have a chequered history: SC panel

The expert committee, appointed by the Supreme Court (SC) to check if there were any regulatory failure on part of SEBI with regard to the probe of Adani Group, has labelled the rules surrounding maintenance of minimum public shareholding (MMPS) in listed companies “having a chequered history” that were subject to frequent and repeated changes.

According to the committee, SEBI’s temptation to treat public sector undertakings differently has also left its imprint on the provisions.

SEBI’s MMPS rules specify the minimum float that listed companies should have. Currently, the rules suggest promoters should hold not more than 75 per cent stake in a listed company. Hindenburg had alleged Adani had circumvented SEBI’s minimum public shareholding norms by way of round tripping and using certain FPIs as front.

HOW IT ALL STARTED

When India introduced exchange controls and forced multinationals to list their subsidiaries in India in the 1970s, promoter stake was to be kept at 40 per cent. This changed when India opened up in the 1990s. Suffice it to say that the first serious reform towards the current regime took place in August 2005. SEBI introduced a policy change, which was wellintentioned, but created multiple classes of companies with varying public shareholding. However, since Rule 19(2)(b) permitted making a public offer with just 10 per cent offer to the public.

It was on June 4, 2010, that Rule 19A was introduced into the SCRR. Originally different companies had different standards to comply with, and that was eventually streamlined to every listed company having to comply with a 25 per cent minimum public holding. Time was given to companies to adhere to the new standard and there has been suspicion that many promoters of corporates would be prone to strike deals with friends and family to hold shares on their behalf. .

“Therefore, since public shareholding is about the ability of a shareholder to decide for himself to trade in the shares without reference to the promoter and without strings attached to the promoter, the vexed question is to see who can actually take decisions on what to do with the shares,” the committee said.