9.1 In its Circular No. F.6/9/SE/78 dated 28 June, 1979, the Ministry of Finance, Stock Exchange Division, Department of Economic Affairs, advised the Stock Exchanges that according to the Listing Agreement, the Stock Exchanges themselves can agree to delisting of securities. Stock Exchanges are, therefore, advised that they may themselves permit delisting of securities, if the following conditions are fulfilled :

(i) According to the audited annual accounts of the company, concerned listed company has incurred losses during the preceding three consecutive years and its net worth has been reduced to less than its paid up capital.

(ii) The securities of the company have remained infrequently traded during the preceding three years.

(iii) The securities of the company remain listed at least on the concerned regional Stock Exchange. That is to say, the concerned regional Stock Exchange will not permit delisting of securities.

If a company seeking delisting of its securities does not fulfill any of the conditions mentioned above, a reference may be made to the Government and its approval obtained before permitting the delisting.

9.2 In another Circular [No. F/14(2)/SE/85 dated 23 September, 1985], the Ministry of Finance stated that a listed company may be delisted by a recognised Stock Exchange concerned if the number of public shareholders falls below five for every rupees one lakh capital offered to the public or if the public shareholding falls below 50 per cent of the public offer. These requirements will not be applicable if the infractions are due to the holdings of public financial institutions.

9.3 The Committee was informed that in the event of a Stock Exchange receiving any request from a listed company to delist its securities, such request is turned down if the company does not satisfy the conditions stipulated in the above circulars and, in such an event, the company is directed to approach the Central Government/SEBI to seek its permission for delisting. Interestingly, the above circulars have no statutory backing, inasmuch as they have not been issued in pursuance of any provision in the statute authorising the Central Government to issue any guidelines on delisting. As rightly stated in the first of the two circulars, it is in the nature of ‘advice to the Stock Exchanges’. In view of the Committee’s recommendation that follows, it is felt that the said two circulars should be withdrawn.

9.4 The Committee extensively deliberated upon the issue of voluntary delisting of securities, that is to say, delisting in response to the request made by a listed company to delist its securities. The Committee is conscious of the fact that every delisting and especially delisting on the request of the Board of Directors of the company without taking into account wishes of the shareholders, is detrimental to the interest of the investors, and, therefore, utmost care should taken to ensure that investors’ interests are properly secured. The Committee, however, feels that there should not be an absolute fetter on voluntary delisting. In appropriate cases, where continuing the listing of securities is not warranted by the facts and circumstance of the case, delisting should be permitted, provided, of course, it is allowed to be done with proper checks and balances and according to strict rules and procedures and with the knowledge of the shareholders and protecting their interests.

9.5 Where, for example, the number of holders of securities is awfully meager or there is virtually no trading in the securities of the company for a long period of time or where the number of security-holders in a particular region has decreased to a negligible number and remained so for a long time, there is no reason why the request of the company for delisting should not be considered.

9.6 The Committee took the view that, while permitting voluntary delisting, two major measures that need to be introduced to safeguard the interests of the investors, are: first, assent of the holders of the securities which are proposed to be delisted; and second, acquisition of the securities of the dissenting security holders at a price to be determined in the prescribed manner.

The Committee, therefore, recommends that :

1. The two circulars issued by the Ministry of Finance and referred to hereinabove (see paras 9.1 and 9.2) be withdrawn and SCR Rules be amended to insert therein rules and procedures for voluntary delisting of securities on the request of the listed companies.
2. The company should obtain a specific prior approval of the holders of the securities which are sought to be delisted by a special resolution passed at a general meeting after giving due notices thereof in the manner provided in the Companies Act and also by special notice in newspapers with detailed explanation and justification for the proposed delisting.
4. The holders of securities in the region where the concerned Stock Exchange is located should be given an exit opportunity requiring the promoters or those who are in the control of the management of the company to buy, or to make arrangement for buying, the securities of such holders after fixing a record date specifically for this purpose and at a price which should not be less than the weighted average of the traded price of the security in the preceding six months at any of the Exchanges on which the securities are listed and where the highest of the volume of the securities was traded. In case there was no trading at any of the Exchanges during the preceding six months, the price for the purposes of the buying of the securities should be a fair price to be computed by the auditors of the company. (The suggested allocation of regions amongst the Stock Exchanges is set out as Annex II.)
5. In case after the proposed delisting the securities are not going to remain listed on any Recognised Stock Exchange, ‘the buy offer’ should be given to all the holders of securities of the company irrespective of their location.