Sebi mulls exit norms for dissenting shareholders

Move will help investors exit if they are dissatisfied with changes in concerned company's business plan after it has raised funds from public

The Securities and Exchange Board of India (Sebi) is planning to put in place new norms mandating listed companies to provide an exit option for dissenting shareholders in case of changes to the objectives for which they had raised money from investors.

The move would help the shareholders make an exit if they feel dissatisfied with any change in business plan of the company concerned after raising funds through initial public offerings (IPOs), follow-on public offers (FPOs) or any other capital-raising exercise involving public investors, a senior official said.

The regulator's proposed move follows a provision in the Companies Act, 2013 in this regard. These provisions  stipulate that such an exit option needs to be given according to regulations to be specified by Sebi.

Accordingly, Sebi has decided to put in place a suitable framework. As part of efforts to protect the interests of investors and prevent them from falling prey to dubious investment schemes, the new law provides various provisions.

One of the provision is with regard to altering the purpose of raising money from investors once such funds have been garnered by a company. Under the Companies Act, 2013, changes in memorandum of a firm -- as mentioned prior to raising funds -- can be amended only by way of a special resolution passed by the shareholders concerned.

A company which has raised money from the public through a prospectus and still has any unutilised amount out of the money so raised, cannot change its objects for which it raised the funds through prospectus unless a special resolution is passed.

Such dissenting shareholders should be given an opportunity to exit by the promoters and shareholders having control. Norms pertaining to such an exit option are now being prepared by Sebi, which has the responsibility of keeping a tab on fund-raising activities beyond a certain threshold.

In recent times, there have been many instances where investors have been duped by illicit money pooling schemes that promised high return on investments.