The Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations 2015 was notified on 2nd September 2015 and will come into force from 1st December 2015. However, Regulation 31A of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 came into force on 2nd September 2015 on publication of these regulations along with sub – regulation (4) of Regulation 23. Regulation 31A deals with Disclosure of Class of shareholders and Conditions for Reclassification.
All entities falling under promoter and promoter group shall be disclosed separately in the shareholding pattern appearing on the website of all stock exchanges having nationwide trading terminals where the specified securities of the entity are listed, in accordance with the formats specified by SEBI. [Regulation 31A(1)]
This requires two disclosures; one for promoters and another for promoter group.
Modification of Status
The stock exchange, specified in sub-regulation (1), shall allow modification or reclassification of the status of the shareholders, only upon receipt of a request from the concerned listed entity or the concerned shareholders along with all relevant evidence and on being satisfied with the compliance of conditions mentioned in this regulation. [Regulation 31A(2)]
Such request may be moved either by listed company or by concern shareholders. Request requires relevant evidence evidencing reason for modification or reclassification of status. Listed entity may not modify such status its own.
In case of entities listed on more than one stock exchange, the concerned stock exchanges shall jointly decide on the application of the entity/ shareholders, as specified in sub-regulation(2). [Regulation 31A(3)]
In case of transmission/succession/inheritance, the inheritor shall be classified as promoter. [Regulation 31A(4)]
This regulation seems to apply in case of transmission or succession or inheritance of shareholdings of a promoter. Application of this Regulation needs clarification in case of transmission or succession or inheritance of shareholdings of a promoters group.
Reclassification after Open Offer
When a new promoter replaces the previous promoter subsequent to an open offer or in any other manner, re-classification may be permitted subject to approval of shareholders in the general meeting and compliance of the following conditions:
(a) Such promoter along with the promoter group and the Persons Acting in Concert shall not hold more than ten per cent of the paid-up equity capital of the entity.
(b) Such promoter shall not continue to have any special rights through formal or informal arrangements. All shareholdings agreements granting special rights to such entities shall be terminated.
(c) Such promoters and their relatives shall not act as key managerial person for a period of more than three years from the date of shareholders’ approval. [Regulation 31A(5)]
New promoter may be reclassified as not promoter only on compliance of these three conditions. These conditions include a condition not to act as key managerial person.
The resolution of the said shareholders’ meeting must specifically grant approval for such promoter to act as key managerial person. [Proviso to Regulation 31A(5)]
No Identifiable Promoter
Where an entity becomes professionally managed and does not have any identifiable promoter the existing promoters may be re-classified as public shareholders subject to approval of the shareholders in a general meeting. [Regulation 31A(6)]
There are two preconditions; first professionally managed listed entity, and second no identifiable promoters. Only on fulfilment of these two preconditions, shareholders in general meeting may give approval to such re – classification as public shareholdings.
Professionally Managed Entity
For the purposes of this sub-regulation an entity may be considered as professionally managed, if
- No person or group along with persons acting in concert taken together shall hold more than one per cent paid-up equity capital of the entity including any holding of convertibles/outstanding warrants/ Depository Receipts. Any mutual fund, bank, insurance company, financial institution, foreign portfolio investor may individually hold up to ten per cent paid-up equity capital of the entity including any holding of convertibles/outstanding warrants/Depository Receipts.
- The promoters seeking reclassification and their relatives may act as key managerial personnel in the entity only subject to shareholders’ approval and for a period not exceeding three years from the date of shareholders’ approval.
- The promoter seeking reclassification along with his promoter group entities and the persons acting in concert shall not have any special right through formal or informal arrangements. All shareholdings agreements granting special rights to such outgoing entities shall be terminated. [Explanation to Regulation 31A(6)]
To be a professionally managed entity, no person or group shall hold more than one percent of paid – up equity, person seeking re – classification may not be key managerial person for certain period, and all shareholders agreement granting any special rights to promoter seeking re – classification shall be terminated.
Re – classification in professionally managed entity
Without prejudice to sub-regulations (5) and (6), re-classification of promoter as public shareholders shall be subject to the following conditions:
- Such promoter shall not, directly or indirectly, exercise control, over the affairs of the entity.
- Increase in the level of public shareholding pursuant to re-classification of promoter shall not be counted towards achieving compliance with minimum public shareholding requirement under rule 19A of the Securities Contracts (Regulation) Rules, 1957, and the provisions of these regulations.
- The event of re-classification shall be disclosed to the stock exchanges as a material event in accordance with the provisions of these regulations.
- Board may relax any condition for re-classification in specific cases, if it is satisfied about non-exercise of control by the outgoing promoter or its persons acting in concert. [Regulation 31A(7)
Public Shareholder Reclassification as Promoter
If any public shareholder seeks to re-classify itself as promoter, it shall be required to make an open offer in accordance with the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. [Regulation 31A(8)]
In such case such public shareholder may replace existing promoter.