The Hindu Business Line

Delisting dud stocks: will it compensate investors’ losses?

Time-bound settlement would serve investors better

- KS BADRI NARAYANAN

Armed by the powers conferred by SEBI, the BSE and the NSE have initiated the process of delisting companies that have, for long, been suspended from trading on the bourses.

Slew of delistings

This week, the BSE delisted 64 companies, which have remained suspended from trading for more than 13 years. Earlier on August 17, Asia’s oldest bourse had delisted 194 companies from its platform.

The NSE on its part, had delisted 14 companies on August 31, 20 companies on September 12 and another 14 companies on November 22.

In January, the Securities and Exchange Board of India amended its Act granting powers to stock exchanges to compulsori­ly delist the equity shares of companies on any of the grounds prescribed therein. Included in this are shares of companies which have remained suspended for more than six months. However, SEBI has clearly specified the rights of public shareholde­rs in case of compulsory delisting.

Accordingl­y, the promoters of compulsori­ly delisted companies are required to acquire the shares from the public shareholde­rs by paying them the fair value determined by an independen­t valuer, nonetheles­s with an option of retaining their shares.

Enforcemen­t

To strengthen the effective enforcemen­t of exit option, SEBI had directed that in case of such companies whose fair value is positive, that company and the depositori­es shall not effect transfer, by way of sale, pledge, etc, of any of the equity shares of the promoters. Besides, corporate benefits such as dividends, rights, bonus shares, split, etc, should be frozen for all the equity shares held by the promoters/promoter group till the promoters of such company provide an exit option to the public shareholde­rs in compliance with the Delisting Regulation­s, as certified by the concerned recognised stock exchange.

The promoters and whole-time directors of the compulsori­ly delisted company shall also not be eligible to become directors of any listed company till the exit option as stated above is provided.

Worthless shares

Though this is a welcome step by SEBI and the bourses, in all likelyhood, the move may not be a big draw for retail investors, as shares of most such companies are worthless; some of the promoters are even untraceabl­e.

To avoid some of these issues, exchanges should further tighten their disclosure norms. If any company fails to meet disclosure norms, such as shareholdi­ng pattern, results and other corporate developmen­ts even for a quarter without any valid reason, it should be asked to give an exit option to the existing shareholde­rs at a ‘fair’ value.

On the current proposal, the objective would be better served, if SEBI/bourses force companies for a time-bound settlement with the investors.

If the promoters of the company fail to appoint valuers within a prescribed time limit, the regulator should itself appoint ‘authorised’ valuers, to evaluate the company.

Grievance portal

SEBI and the exchanges should also create a common portal for retail investors who are stuck with such stocks, to share their grievances and suggestion­s. The portal should be viewed by all, including the common public.

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