SEBI Order on Public Shareholding Norms

The deadline for
compliance by non-government entities of the public shareholding norms went by on
June 3, 2013. Immediately thereafter, SEBI yesterday issued an order
against 108 companies that have failed to comply with these norms. SEBI’s press
release summarizing its order is available here.
A couple of
points are noteworthy. The first relates to the rapidity with which SEBI has
acted. This is consistent with its strict stance of not delaying the date of compliance
and also its intention to enforce this rule very strictly. It is almost as if
SEBI had been preparing for this eventuality where some companies would be non-compliant.
The second, and more important, aspect of the order (which is interim in
nature) is that it seeks to proceed against the promoters and controlling
shareholders. The orders passed against them include freezing their corporate rights
(such as voting and other corporate benefits such as dividends, rights
entitlements, etc.), prohibitions on the promoters from buying and selling
shares in those companies and also restraining the promoters from holding any
further positions on the board. By proceeding against the promoters rather than
the company itself, SEBI has sought to impose greater pressure to ensure
compliance. As we had earlier
noted
, proceeding against the company would adversely affect the minority
shareholders and ought not to be pursued.

This saga is likely to
continue as some of the companies/promoters may very well appeal against the
order of SEBI considering the severity of the consequences visited upon them.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

3 comments

  • Sir Does the SEBI Act/SCRA Act give the SEBI the powers to issue such sweeping awards against the company? Do you think this order will hold up in appeal?

  • SEBI Act confers such powers on SEBI. For example, the power to issue directions under section 11B of the SEBI Act is of widest possible amplitude.

  • Why SEBI passed order under 11B. Is there any immediate action required like this. Order is passed against all the directors/promoters, but sent to Company. Further, Independent Directors, Nominee Directors who put the same matter before the management but management failed to take action, are unnecessarily suffering from this order. SEBI without considering the efforts taken by the Companies passed an common order against all non-compliant companies. All knows about bad market conditions and appetite of current market. it is not easy to off load a huge chunk of shares. This order rather proved to be against the development of capital market as many companies voluntarily opted for delisting.

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