I
ndian securities market of market. It results in loss of in- current regulatory framework.
late has shown a growing vestment opportunities for the The term “listing” means the
trend of de-listing of sev- public, and also reduces the admission of the securities
eral companies’ securities from wealth of the securities market. of a company to the trading
the stock exchanges. The rea- Consequently, primary capital privileges on a stock exchange
sons include the Indian pub- market is affected by such ac- or more stock exchanges with
lic limited companies turning tivities. Minority sharehold- the principal objectives of pro-
themselves into private limited ers’ perception is that though viding a ready marketability,
companies, and multinational they are reluctant to accept the sustaining liquidity and free
companies (MNCs) convert- minimum price that is offered negotiability to securities, en-
ing their Indian joint ventures to them, they are ultimately suring proper supervision and
into 100 per cent subsidiaries. compelled to sell their shares control of dealings therein;
The statistics show that the at the said price, because they and safeguarding the inter-
number of such companies has run the risk of holding an il- ests of shareholders and of the
gradually increased in the last liquid investment. The way general investing public. Ac-
few years. More than 30 com- by which de-listing is made at cording to Section 73 of the
panies with MNC parent have present is thus to be reviewed Companies Act, 1956, com-
been de-listed since 1998 and in favour of both the investors panies seeking to offer shares
the trend is likely to continue as well the market. In fact, the or debentures to the public for
in future. Though MNCs jus- investors are deprived of the subscription by the issue of a
tify their action in terms of opportunity to invest in good prospectus are compulsorily
required to make an applica-
The article focuses on reasons behind de-listing of securi- tion to one or more recognised
ties and attempts to highlight the distinction between book stock exchange for permission
building and reverse book building mechanism. It also ex- for dealing in the shares or
plores as to how the de-listing process through ‘reverse book debentures so offered in such
building’ works. stock exchanges. For the pur-
pose of listing, a company is
Siddhartha
Sankar Saha faster transfer of technology, companies because of de-list- required to enter into a listing
The author is a Lec-
easy access of capital, cen- ing. agreement with the stock ex-
turer, Department of tralised decision making, etc., As such, the Securities change. Rule 19 of The Secu-
Accounting & Finance,
St. Xavier’s College,
such process does not give and Exchange Board of India rities Contracts (Regulation)
Kolkata, West Bengal. any benefit to the investors (SEBI) has recognised “reverse Rules, 1957 [SCR Rules] pre-
He can be reached at
ssnk_saha@rediffmail. and other stakeholders. The book building” as an impor- scribes some of the contents
com. growing trend in the de-list- tant mechanism in case of de- of the Listing Agreement and
ing of companies, in particu- listing of securities for arriving the standard format of the list-
lar by the MNCs has caused at the exit price. In fact, SEBI ing agreement is contained in
some degree of uneasiness and notified de-listing guidelines bylaws of the stock exchanges.
it is seen that the market par- in February 2003. While “listing” has been
ticipants and investors are not defined in and is governed by
being adequately compensated Conceptual issues on various statutory provisions,
for the permanent withdrawal ‘listing’ and ‘de-listing’ of regulations like the Securi-
of a good investment oppor- securities ties Contracts (Regulation)
tunity. It is being argued that Let us examine the current Act, 1956 [SCR Act], SCR
permanent de-listing of shares provisions in regard to “listing” Rules and the Companies Act,
create narrow liquid stock and “de-listing” of securities 1956, the main legislations
market which in turn affects and the definition of the terms governing offering, listing
depth and liquidity of the “listing” and “de-listing” in the and trading of securities and
Figure-1.1
De-listing process through reverse book building
Lamiya Lokhandwala
(xi) The
acquirer shall
make the req-
uisite funds
available
with the Ex-
change/clear-
ing Corpora-
tion on the
final settle-
ment day
(which shall
be three days
from the end
of the book
build period).
The trading
members shall
correspond-
ingly make
the shares
available. On
the settle-
ment day the
funds and se-
curities shall
be paid out in
a process akin
to secondary