Delisting norms defective, needed changes: U K Sinha

Sebi has recently allowed delisting if buyers hold more than 90% of total share capital and if min 25% of public shareholders tender their shares

Securities and Exchange Board of India (Sebi) Chairman UK Sinha on Saturday said the market regulator’s current delisting norms were defective and needed corrections to ensure more shareholders benefit from the exercise.

Sebi had recently allowed de-listing to be considered successful if the buyers’ holding is more than 90 per cent of the company’s total share capital and if at least 25 per cent of the public shareholders tender their shares. “There have been instances where only two shareholders have been able to tender the shareholding. I think it is a fraud. If you have hundreds of thousands of shareholders and if only two of them come together and the shares get delisted, it is definitely against the interests of a majority of the shareholders,” Sinha said at a function organised by the Bombay Stock Exchange in New Delhi.

“It was a defect in our regulation and we strongly believe it needs to be corrected,” he added. As per fresh Sebi guidelines, the board of a company must now approve the proposal for delisting of shares only after satisfying itself that delisting is in the interest of shareholders and that the company is in compliance with applicable securities laws. Sinha said the Sebi Board had taken a decision to modify delisting guidelines in its November 19 board meeting and that the new regulations would be out in a couple of months.“There were two types of irregularities, which we have tried to control. One irregularity was on the side of certain smart investors who were cornering the shares prior to or immediately after the announcement and they were able to dictate the price,” said Sinha.

The second irregularity was regarding Sebi’s price fixation mechanism. “It was, if I can say so, defective, and that is what we have corrected now, because any price at which maximum number of shares were tendered, that became the reverse book bidding price. So now we have completely changed that process,” he said.

Sinha also spoke about a multi-pronged approach to curb illegal chit funds and fly-by-night ponzi schemes that duped investors. He said various efforts are being made at the state, Centre and regulatory levels to battle the menace. After the amendments in the Sebi Act, it now has powers to regulate illegal collective investment schemes, where the amount involved is more than Rs 100 crore. “I am sure if the provision was there earlier, we would not have had such incidents (of chit fund scams).”

“The very fact that the government had to go for three rounds of ordinances indicate that there was something lacking in the law,” he said. “There was complete lack of clarity about the role of various agencies, the state and Central governments. It was very difficult to fix the responsibility on which agency will be looking into those cases. That was the real problem,” Sinha said.

He said to deal with investor complaints, coordination committees were formed in all the states in the country that would exchange information on several issues that would help Sebi to regulate the markets in a better way. Such committees are being headed by the chief secretaries of the respective states and have representatives from the Reserve Bank of India and Sebi.

Sinha said the committees will not only enable Sebi to exchange information with various state agencies but also help the regulator to enforce both the investor protection act at the state level and the amendment to the Sebi Act.
SINHASPEAK

• Method of fixing prices for delisting companies was defective
• Might notify delisting norms in few months
• Focus on investor services has risen in last 3 years
• Says working with states and Centre to curb chit fund menace
• State-level panels formed to exchange complaint data
• Post amendments to the Sebi Act, regulator better equipped to deal with ponzi schemes