The Committee on Delisting of Shares was formed by the Securities and Exchange Board of India (SEBI) under the leadership of Pratip Kar, SEBI’s executive director, to address growing concerns surrounding the delisting of shares, particularly of multinational companies (MNCs), from Indian stock exchanges. The formation of this committee followed increased scrutiny from the Ministry of Finance and discussions within the Parliamentary Standing Committee on Finance regarding the impact of delisting on market liquidity, investor protection, and the noncompliance of MNCs with compulsory equity-dilution norms under the foreign direct investment policy. The committee was tasked with reviewing the existing delisting framework and recommending measures to safeguard investor interests. Members included Sameer Biswas (Regional Director, Western Region, Department of Company Affairs); Sucheta Dalal (Member, Board of Trustees, Consumer Education and Research Centre); A. N. Joshi (Executive Director, The Stock Exchange); R. M. Joshi (Executive Director, SEBI); Kamala K. (Executive Director, Bangalore Stock Exchange); P. Krishnamurthy (Representative, Confederation of Indian Industry); Vipul Modi (Secretary, Investors Grievance Forum); Ravi Narain (Managing Director, National Stock Exchange); T. R. Ramaswami (CEO, Association of Merchant Bankers of India); D. N. Raval (Executive Director, SEBI); A. C. Singhvi (Representative, Federation of Indian Chambers of Commerce and Industry); C. D. Paik (Regional Director, Western Region, Department of Company Affairs); R. Vasudevan (Director of Inspection and Investigation, Department of Company Affairs); and Manoj Vaish (Dy. Executive Director, The Stock Exchange).
The committee’s findings revealed that as of March 31, 2002, there were 9,644 companies listed on Indian stock exchanges, with 5,782 of them traded on the Bombay Stock Exchange. A significant number of these companies were also listed on the National Stock Exchange, indicating that regional non-electronic stock exchanges were losing relevance in the era of electronic trading. The committee observed that delisting, particularly of MNCs, often occurred under depressed market conditions, leading to inadequate compensation for minority shareholders who were forced to sell their shares at unfavorable prices. The existing exit-price mechanism, based on a 26-week average of share prices, was deemed insufficient, especially in a declining market. The committee recommended introducing a book-building process to determine a more transparent and fairer exit price, with the final price reflecting the maximum number of shares offered by shareholders.
In addition to proposing a new exit-price mechanism, the committee recommended establishing a Central Listing Authority under SEBI to standardize the listing and delisting processes across all stock exchanges. This authority would be responsible for scrutinizing listing applications, ensuring uniform due diligence, and addressing discrepancies in the current regulatory framework. The committee also advocated empowering stock exchanges to delist companies that failed to comply with the listing agreement for a minimum of six months, while introducing an arbitration mechanism to provide monetary compensation to affected investors. Furthermore, the committee recommended harmonizing the minimum level of non-promoter shareholding required for continuous listing to either 25 or 10 percent, depending on specific exemptions, to ensure a level playing field for all companies. These recommendations aimed to balance the need for a free market with adequate protections for investors, ensuring that delisting processes are conducted fairly and transparently.
The committee’s recommendations led to the adoption of reverse book building as the preferred mechanism for exit-price determination. In reverse book building, shareholders indicate the price at which they are willing to sell their shares, and the final exit price is determined based on the maximum number of shares tendered at a particular price, ensuring a more transparent and market-driven process. This mechanism replaced the earlier system, which often failed to provide fair value to minority shareholders, particularly during periods of declining market conditions. Additionally, the committee’s proposals resulted in the establishment of the Central Listing Authority to standardize listing and delisting processes and empowered stock exchanges to delist noncompliant companies. These changes were incorporated into the SEBI Delisting Guidelines and later formalized into regulations. These aimed at addressing the challenges posed by delisting to market liquidity and investor protection.
