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Sebi to relax norms for re-classification process

By Samie Modak
November 24, 2020 15:45 IST
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Maximum promoter holding to be eligible for reclassification to be raised from 10% to 15%; waiting time to be brought down to one month from three.

Promoters of listed companies that wish to re-classify themselves as ordinary shareholders may find it easy to do so.

The Securities and Exchange Board of India (Sebi) on Monday proposed to relax and streamline existing re-classification process.

To begin with, the market regulator has said the eligibly threshold can be relaxed from 10 per cent to 15 per cent.


Currently, only promoters that hold less than 10 per cent in a company can initiate the process of re-classifying themselves are public shareholders.

“…the persons who may have been promoters but are no longer in day-to-day control having shareholding of less than 15 per cent may “opt-out” from being classified as “promoters”, without having to reduce their share-holding,” Sebi has said.

Also, the time gap between the shareholders’ reclassification request and board meeting to consider the same is proposed to be brought down from three months to just one month.

This would help shorten the reclassification process.

Sebi has also proposed that the reclassification criteria could be relaxed if it is being done following a government or a regulatory body’s order.

Currently, such exemption is given only in case of IBC (Insolvency and Bankruptcy Code) cases.

Further, the regulator has also proposed to ease the norms if the re-classification in pursuant to an open offer.

However, Sebi has said the intent of the existing promoters to re-classify has to be disclosed in the letter of offer.

Sebi said cases where the erstwhile promoters are not traceable or are not co-operative can be re-classified into ordinary shareholders.

However, listed entity has to demonstrate that efforts have taken to contact the promoters and also ensure that the promoters are no longer in control.

Meanwhile, Sebi has proposed to tighten the disclosure requirements.

It has said the names of entities that fall under the promoter group category need to be disclosed in the shareholding data even if they don’t hold any shares.

Sebi has invited public feedback on the various proposals till December 24.

Several entities had approached Sebi citing difficulties in the current framework.

The regulator has been providing relaxations from some of the existing requirement on a case to case basis.

Sebi has said new proposals will help reduce the number of exemptions provided on a case to case basis.

Under the current provisions, the board of directors of the listed entity has to analyse the request of promoter reclassification and place it before the shareholders in a general meeting for approval along with the views of the board.

The resolution then needs to be voted upon with promoter seeking reclassification and entities related to promoters abstaining from voting.

Photograph: Shailesh Andrade/Reuters

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Samie Modak in Mumbai
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