Sebi proposes three-phase process for re-classification of promoters

The Sebi on Tuesday proposed a three-phase process for re-classification of promoters as public shareholders. In the first stage, the concerned promoter shareholder or the company will have to file an application to the stock exchange requesting re-classification. In the next stage, the request will go to the board of directors. 

The board will then provide its recommendation, which will be placed before the shareholders. 

In the third and final stage, the proposal will be put before the shareholders in a general meeting and approved through an ordinary resolution. The concerned promoter will not be permitted to vote on such resolution. Also, there has to be a cooling off period between the date of board meeting and shareholder meeting.

“Such stages will also ensure that there are enough checks and balances in place to ensure that interests of all stakeholders are safeguarded,” Sebi said in a consultation paper, based on the recommendations made by the Kotak Committee and the primary market advisory committee (PMAC) on the matter.

The issue of re-classification had assumed significance at the time of implementation of minimum public shareholding (MPS) norms. In order to comply with the 25 per cent MPS rule, some entities were seen re-classifying themselves as ordinary shareholders just to comply with the regulations.

Sebi has also set eligibility criteria for such reclassification to ensure that outgoing promoters do not “exercise control over the listed entity, directly or indirectly, and cease to be promoters in spirit.”

According to the market regulator, the promoter group should not hold more than 10 per cent of the total voting power in the listed entity, should not exercise control over the affairs of the listed entity directly or indirectly and should not have any special rights.

Sebi has proposed to bar non-compliant entities or wilful defaulters from being eligible for re-classification. Further, the regulator has said reclassification will be allowed only in case of entities that are compliant with minimum public shareholding norms.

In case of companies that are “professionally managed”, Sebi has said they may be termed as “listed entities having no promoter”.

The market regulator has invited public comments on the proposal till August 16, following which it will finalise the rules.