In a recent informal guidance issued to Goldcrest Corporation Limited (“GCL”) under the SEBI (Informal Guidance) Scheme, 2003, the Securities and Exchange Board of India (“SEBI”) has stated that when a company is compulsorily delisted, consequences under regulation 24 of the SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations”) would continue to apply to a new entity formed pursuant to a demerger of a listed company which is promoted by a person who was also one of the promoters of the compulsorily delisted company.
Following is a summary of the informal guidance issued by SEBI.
Facts
Bhor Industries Limited (“BIL”) is a company that was earlier listed on the National Stock Exchange of India Limited (“NSE”) and BSE Limited (“BSE”). The equity shares of BIL were delisted from the respective stock exchanges under the compulsory delisting route specified under the Delisting Regulations. Accordingly, as per regulation 24 of the Delisting Regulations, BIL, its whole time directors, its promoters and the companies which are promoted by any one of them were prohibited from accessing the securities market or seeking listing for any equity shares for a period of 10 (ten) years from the date of such delisting.
BIL was a jointly promoted entity by 3 (three) family groups and Mr. Tushar Tanna as a director of BIL represented the interest of one of the family groups. Mr. Tushar Tanna was also a promoter of GLC.
GCL which is a listed entity, is exploring the divestiture of whole or part of its real estate assets to potential buyers either by way of:
Sale of entire business of GCL by way of transfer of shareholding and management control of existing promoter and promoter group of GCL to a proposed buyer (“Scenario 1”); or
Sale of part of business of GCL by way of a demerger through a National Company Law Tribunal (“NCLT”) scheme (“Scenario 2”).
Guidance Sought
GCL sought guidance on the following issues:
SEBI’s guidance
SEBI referred to regulation 24 of the Delisting Regulations and stated that regulation 24 of the Delisting Regulations clearly provides that where a company is compulsorily delisted, the company, its whole time directors, its promoters and the companies which are promoted by any of them shall not, directly and indirectly, access the securities market or seek listing for any equity shares for a period of 10 (ten) years from the date of such delisting.
SEBI stated that as BIL was compulsorily delisted from the stock exchanges, consequences of regulation 24 of the Delisting Regulations shall be applicable to it, its whole time directors, its promoters and the companies which are promoted by any of them.
With respect to the issue under Scenario 1, SEBI stated that in terms of regulation 24 of the Delisting Regulations, the transaction contemplated under Scenario 1 would not absolve Mr. Tushar Tanna from the intended compliance of regulation 24 of the Delisting Regulations and the restriction would continue on him till expiration of 10 (ten) years from the date of delisting of BIL.
However, with regard to GCL, pursuant to the transaction contemplated under Scenario 1, since Mr. Tushar Tanna would no longer be associated with GCL as a promoter or as a shareholder or in management, hence, the restriction under regulation 24 of the Delisting Regulations would not continue on GCL as it would then be functioning under a new management/ shareholders.
With respect to the issue under Scenario 2, SEBI stated that as it is understood that upon demerger, the newly formed company would have mirror shareholding pattern as that of GCL, hence the restriction under regulation 24 of the Delisting Regulations would be applicable on the newly formed entity as well.
This update has been contributed by Adity Chaudhury (Partner) and Ashish Patel (Associate).
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