Delisting Regulations in India and the Position of Minority Shareholders

Abstract

The Securities and Exchange Board of India (‘SEBI’) recently announced its plan to revisit the SEBI (Delisting of Equity Shares) Regulations, 2021 (‘Delisting Regulations’) to simplify the procedure for determination of the exit of a listed company from stock exchanges. SEBI has established a committee under Keki Mistry to assess the possibility of replacing the existing system of reverse book building with the fixed price method. The idea behind this change is to curb the malpractice of hoarding shares of the company, prior to the delisting announcement, which is then used to manipulate the exit price. SEBI intends to remedy this situation by mandating a fixed price method of price determination which, if it fails, can be replaced with the reverse book-building procedure by the promoter/acquirer. However, it has failed to specify the rationale for this adoption of reverse book building as a second-stage option.

I argue that this change would go against SEBI’s mandate of protecting the interest of investors, especially minority shareholders, who are in a vulnerable position in India due to the concentrated shareholding system. The existing provisions of the Delisting Regulations enable minority shareholders, in a limited way, to effectively challenge the delisting initiated by the promoter/acquirer. In such a situation, the proposed shift to fixed price method may severely curtail their ability to oppose the proposed delisting.