Final delisting

K.E.S. SHROFF COLLEGE Page 1
INDEX
CHAPTER
NO.
TITLE PAGE NO.
1 INTRODUCTION 02
2 LISTING FINANCE 05
3 REGULATIONS OF DELISTING 07
4 SCHEDULES 22
5 COMPARISON BETWEEN OLD & NEW
REGULATIONS
26
6 HOW TO DELIST? 30
7 PROCESS 31
8 DELISTING OF SHARES 33
9 RELATED NEWS 48
10 LISTING AND DELISTING OF COMPANIES 51
11 QUESTION & ANSWERS 54
12 CONCLUSION 57
13 BIBILOGRAPHY 58

CHAPTER-1
INTRODUCTION
History
Brief History: From Guidelines to Regulations:
In the earlier days, the public issues of shares and their pricing was looked after by the Controller
of Capital Issues (CCI). Ever since the abolition of CCI in the year 1992, the same is being
looked after by Securities and Exchange Board of India (SEBI).
The purpose of establishing SEBI and the SEBI Act, 1992 was to protect the interests of the
investors in securities and to promote the development of, and to regulate, the securities market
and for matters connected therewith or incidental thereto.
Eversince then, it has been the continuous endeavour of SEBI for prescribe procedures,
formulate strategies and formulate laws. In one of such attempts, SEBI in the year 2002
constituted a committee on delisting of shares to inter-alia examine and review the conditions for
delisting of securities of companies listed on recognized stock exchanges and suggest norms and
procedures in connection therewith. The Report of the Committee was considered and accepted
by SEBI Board. Pursuant to the same, SEBI vide Circular SMD/Policy/CIR – 7/ 2003 dated
February 17, 2003 issued the SEBI (Delisting of Securities) Guidelines, 2003.
The salient features of the said Guidelines were:
1. Public Shareholders to be given an exit option if the company or its promoters propose to
delist its securities from all the stock exchanges on which they were listed. However, no
exit opportunity was required to be given in case the company continues to remain listed
at stock exchanges having Nationwide trading terminals.
2. Price discovery by Reverse Book Building process.
3. Eligibility to participate in the book building process was available only to demat
shareholders.
4. Option available to the promoters to accept or reject the price determined by the book
building process.
5. The exit option to remain open for a period of 6 months after the closure of the offer.
The said Guidelines, although, to a great extent covered the issues involved in Delisting of
Securities. However, there were certain areas over which hue and cry was made from various
quarters. Various representations and views, from intermediaries, stock exchanges, shareholders‘
associations, chambers of commerce etc were given to the Regulators on the operational issues
and procedural complications in the guidelines. Based on such representations, it was proposed
to look into and suggest changes in the guidelines.

In the month of April 2004, the initial changes proposing more systemic clarity were put up for
public comments. Comments were received from various quarters and opinions were received on
crucial provisions.
On the basis of the same, SEBI, in December 2006, circulated the Concept Paper on the
proposed SEBI (Delisting of Securities) Regulations, 2006, asking for public comments on the
proposed Regulations.
SEBI received various comments, opinions and suggestions on the subject. And finally, by its
publication dated 10th June 2009 in the Official Gazette, SEBI notified the much awaited
SECURITIES AND EXCHANGE BOARD OF INDIA (DELISTING OF EQUITY SHARES)
REGULATIONS, 2009.
Meaning of Delisting
Delisting refers to the practice of moving in the stock of a company from a stock exchange so
that investors can no longer trade shares of the stock on that exchange. This typically occurs
when a company goes out of business, declares bankruptcy, no longer satisfies the listing rules of
stock exchange, or has become a private company after a merger or acquisition, or wants to
reduce regulatory reporting complexities and overhead, or if the stock volumes on the exchange
from which it wishes to delist are not significant. Delisting does not necessarily mean a change
in company's core strategy.[1]
In the United States, securities which have been delisted from a
major exchange for reasons other than going private or liquidating may be traded on over-the-
counter markets like the OTC Bulletin Board or the Pink Sheets.
Definition of 'Delisting'
1. The removal of a listed security from the exchange on which it trades. Stock is removed
from an exchange because the company for which the stock is issued, whether
voluntarily or involuntarily, is not in compliance with the listing requirements of the
exchange.
In order for a stock to be traded on an exchange, the company that issues the stock must meet the
listing requirements set out by the exchange. Listing requirements include minimum share prices,
certain financial ratios, minimum sales levels, and so on. If listing requirements are not met by a
company, the exchange that lists the company's stock will probably issue a warning of non-
compliance to the company. If the company's failure to meet listing requirements continues, the
exchange may delist the company's stock.

Listing means admission of a Company‘s securities to the trading platform of a Stock Exchange,
so as to provide marketability and liquidity to the security holders.
LISTING =
STOCK
EXCHANGES
+ COMPANY
―Delisting‖ is totally the reverse of listing. To delist means permanent removal of securities of a
listed company from a stock exchange. As a consequence of delisting, the securities of that
company would no longer be tradeable at that stock exchange.
DELISTING =
STOCK
EXCHANGES
- COMPANY
"Delisting" i.e. the said removal from a Stock Exchange, may be Voluntary (i.e. at the will of the
Company) or Compulsory (i.e. out of a penal action by the Stock Exchanges, for the reason of
any violations/ lapses).

CHAPTER-2
LISTING FINANCE
In corporate finance, a listing refers to the company's shares being on the list (or board)
of stock that are officially traded on a stock exchange. Normally the issuing company is the one
that applies for a listing but in some countries the exchange can list a company, for instance
because its stock is already being actively traded via informal channels. Initial listing
requirements usually include a history of a few years of financial statements (not required for
"alternative" markets targeting young firms); a sufficient size of the amount being placed among
the general public (the free float), both in absolute terms and as a percentage of the total
outstanding stock; an approved prospectus, usually including opinions from independent
assessors, and so on. Stocks whose market value and/or turnover fall below critical levels can get
officially delisted; delisting is often the result of a merger or takeover, or the firm going private.
New Delisting Regulation - Issues unresolved
The new Delisting Regulations have plugged in many of the unplugged areas of the Delisting
Guidelines. But still, there are certain grey areas/ clauses which create a doubt and are not clear
in their text. Some of these have been discussed here:
1. As per Sub cl 2 of Regulation 3, delisting made pursuant to a scheme sanctioned by BIFR
or NCLT have been exempt from the Regulations. However, no clarification has been
provided in regard to delisting pursuant to a Restructuring Scheme u/s 391/ 394 of the
Companies Act.
2. As per Sub cl 4 of Regulation 4, promoters shall not employ the funds of the Company to
finance an Exit Opportunity. Here the question that arises is that the funds of the Public
Issue are received by the Company and not by the promoters, and not now if the
Company is proposing to get delisted, the funds should also be paid by the Company, so
why promoters?
3. As per Sub clause 4 of Regulation 8, the Exchanges while considering an application
seeking in-principle approval for delisting, may require the Company to satisfy it as to:
(d) the compliance with any condition of the listing agreement with that recognised stock
exchange having a material bearing on the interests of its equity shareholders;
By reading the above provision, its not clear as to what conditions will have a material
bearing on the interests of the shareholders. In fact, its suggested that SEBI should itself
specify the particular conditions of Listing Agreement need to be complied with.
Otherwise, the Companies will still be left to the whims and fancies of the respective
exchanges.

4. As per Sub cl 4 of Regulation 8, the Exchanges while considering an application seeking
in-principle approval for delisting, may require the Company to satisfy it as to:
(e) any litigation or action pending against the company pertaining to its activities in the
securities market or any other matter having a material bearing on the interests of its
equityshareholders;
By reading the above provision, its not clear as to what kind of litigations/ actions are
being talked about? Further, will the Exchanges wait for the clearance of the litigation or
the pending action? Or will the Exchanges accept an Undertaking from the Companies/
their Promoters to abide by the decision of the Authority before which the litigation or
action is pending?
5. As per Sub cl 3 of Regulation 14, any holder of depository receipts issued on the basis of
underlying shares held by a custodian and any such custodian shall not be entitled to
participate in the offer. Sub cl 4 provides an exception to the above by mentioning that:
(4) Nothing contained in sub-regulation (3) shall affect the right of any holder of
depository receipts to participate in the book building process under sub-regulation (1) if
the holder of depository receipts exchanges such depository receipts with shares of the
classthatareproposedtobedelisted. By reading both the above clauses, it is clear that if the
Depository Receipt holder converts his receipts into equity shares, he can participate in
the bid. But the stage of conversion is not clear, whether before or after the Specified
Date; and the time of intimation of the conversion to the Company is also not mentioned.
6. In case of Compulsory Delisting of Companies by the Stock Exchanges, although it has
been specifically provided in Reg 23 that an Independent valuer shall be appointed by the
Exchange & the promoters shall be acquiring shares from public shareholders by paying
them the determined fair value. But no where, the Control Mechanism for the same has
been prescribed. Who will keep a check on whether the promoters of such compulsorily
delisted companies have actually paid the said value to the shareholders or not. Further,
strict penalties should be imposed on the defaulting promoters.
7. Regulation 24 prescribe the Consequences of Compulsory Delisting as under: Where a
company has been compulsorily delisted under this Chapter, the company, its whole time
directors, its promoters and the companies which are promoted by any of them shall not
directly or indirectly access the securities market or seek listing for any equity shares for
aperiodoftenyearsfromthedateofsuchdelisting.
The prescribed consequences are too severe in the sense that the promoters and even
Directors cannot access the securities market or seek listing for a period of 10 years. Even
the status of Nominee or Independent Directors has not been clarified.
8. Even the provisions with regard to relisting of the delisted companies has also not been
clarified.

CHAPTER-3
REGULATIONS OF DELISTING
REGULATIONS OF DELISTING OF SHARES BY SECURITIES AND
EXCHANGE BOARD OF INDIA (DELISTING OF EQUITY SHARES)
REGULATIONS, 2009
The Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board
CHAPTER I
Short title and commencement.
1. (1) These regulations may be called the Securities and Exchange Board of India (Delisting
of Equity Shares) Regulations,2009.
(2) They shall come into force on the date of their publication in the Official Gazette.
Definitions.
2. (1) In these regulations, unless the context otherwise requires-
(i) ‗Act‘ means the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(ii) ‗Board‘ means the Securities and Exchange Board of India established under section 3 of the
Act;
(iii)‗company‘ means a company within the meaning of section 3 of the Companies Act, 1956 (1
of 1956) and includes a body corporate or corporation established under a central Act, state Act
or provincial Act for the time being in force, whose equity shares are listed on a recognised stock
exchange;
(iv)‗compulsory delisting‘ means delisting of equity shares of a company by a recognised stock
exchange under Chapter V of these regulations;
(v) ‗public shareholders‘ means the holders of equity shares, other than the following:
(a) promoters;
(b) holders of depository receipts issued overseas against equity shares held with a custodian and
such custodian;
(vi)‗Recognised stock exchange‘ means any stock exchange which has been granted recognition
under section 4 of the Securities Contracts (Regulation) Act, 1956;
(vii) ‗Schedule‘ means a Schedule appended to these regulations;

(viii) ‗voluntary delisting‘ means delisting of equity shares of a company voluntarily on
application of the company under Chapter III of these regulations;
(ix)‗working days‘ means the working days of the Board.
(2) The words ‗control‘, ‗person acting in concert‘, ‗promoter‘ and ‗public shareholding‘ shall
have the meanings respectively assigned to them under the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 as amended from
time to time.
(3) Words and expressions not defined in these regulations (Regulation) Act
CHAPTER II
DELISTING OF EQUITY SHARES
Applicability.
3. (1) These regulations shall apply to delisting of equity shares of a company from all or any of
the recognised stock exchanges where such shares are listed.
(2) Nothing in these regulations shall apply to any delisting made pursuant to a scheme
sanctioned by the Board for Industrial and Financial Reconstruction under the Sick Industrial
Companies (Special Provisions) Act, 1985 or by the National Company Law Tribunal under
section 424D of the Companies Act, 1956, if such scheme –
(a) lays down any specific procedure to complete the delisting; or
(b) provides an exit option to the existing public shareholders at a specified rate. Delisting not
permissible in certain circumstances and conditions for delisting.
4. (1) No company shall apply for and no recognised stock exchange shall permit delisting of
equity shares of a company,
(a) pursuant to a buy back of equity shares by the company;
or
(b) pursuant to a preferential allotment made by the company;
or
(c) unless a period of three years has elapsed since the listing of that class of equity shares on any
recognised stock exchange; or
(d) if any instruments issued by the company, which are 4 convertible into the same class of
equity shares that are sought to be delisted, are outstanding.

(2) For the removal of doubts, it is clarified that no company shall apply for and no recognised
stock exchange shall permit delisting of convertible securities.
(3) Nothing contained in clauses (c) and (d) of sub-regulation (1) shall apply to a delisting of
equity shares falling under clause
(a) of regulation 6.
(4) No promoter shall directly or indirectly employ the funds of the company to finance an exit
opportunity provided under Chapter IV or an acquisition of shares made pursuant to
subregulation (3) of regulation 23.
(5) No promoter or other person shall –
(a) employ any device, scheme or artifice to defraud any shareholder or other person; or
(b) engage in any transaction or practice that operates as a fraud or deceit upon any shareholder
or other person; or
(c) engage in any act or practice that is fraudulent, deceptive or manipulative –in connection with
any delisting sought or permitted or exit opportunity given or other acquisition of shares made
under these regulations.
CHAPTER III
VOLUNTARY DELISTING
Delisting from all recognized stock exchanges.
5. Subject to the provisions of these regulations, a company may delist its equity shares from all
the recognised stock exchanges where they are listed or from the only recognised stock exchange
where they are listed:
Provided that all public shareholders holding equity shares of the class which are sought to be
delisted are given an exit opportunity 5 in accordance with Chapter IV. Delisting from only some
of the recognised stock exchanges.
6. A company may delist its equity shares from one or more recognised stock exchanges where
they are listed and continue their listing on one or more other recognised stock exchanges,
subject to the provisions of these regulations and subject to the following -
(a) if after the proposed delisting from any one or more recognised stock exchanges, the equity
shares would remain listed on any recognised stock exchange which has nationwide trading
terminals, no exit opportunity needs to be given to the public shareholders; and,
(b) if after the proposed delisting, the equity shares would not remain listed on any recognised
stock exchange having nation wide trading terminals, exit opportunity shall be given to all the
public shareholders holding the equity shares sought to be delisted in accordance with.

Chapter IV.
Explanation: For the purposes of this regulation, ‗recognised stock exchange having nation wide
trading terminals‘ means the Bombay Stock Exchange Limited, the National Stock Exchange of
India Limited or any other recognised stock exchange which may be specified by the Board in
this regard. Procedure fordelisting where no exit opportunity is required.
7. (1) In a case falling under clause (a) of regulation 6 –
(a) the proposed delisting shall be approved by a resolution of the board of directors of the
company in its meeting;
(b) the company shall give a public notice of the proposed delisting in at least one English
national daily with wide circulation, one Hindi national daily with wide circulation and one
regional language newspaper of the region where the concerned recognised stock exchanges are
located;
(c) the company shall make an application to the concerned 6 recognised stock exchange for
delisting its equity shares; and
(d) the fact of delisting shall be disclosed in the first annual report of the company prepared after
the delisting.
(2) The public notice made under clause (b) of sub-regulation (1) shall mention the names of the
recognised stock exchanges from which the equity shares of the company are intended to be
delisted, the reasons for such delisting and the fact of continuation of listing of equity shares on
recognised stock exchange having nation wide trading terminals.
(3) An application for delisting made under clause (c) of subregulation (1) shall be disposed of
by the recognised stock exchange within a period not exceeding thirty working days from the
date of receipt of such application complete in all respects. Conditions and procedure for
delisting where exit opportunity is required.
8. (1) Any company desirous of delisting its equity shares under the provisions of Chapter III
shall, except in a case falling under clause (a) of regulation 6, -
(a) obtain the prior approval of the board of directors of the company in its meeting;
(b) obtain the prior approval of shareholders of the company by special resolution passed through
postal ballot, after disclosure of all material facts in the explanatory statement sent to the
shareholders in relation to such resolution: Provided that the special resolution shall be acted
upon if and only if the votes cast by public shareholders in favour of the proposal amount to at
least two times the number of votes cast by public shareholders against it.
(c) make an application to the concerned recognised stock exchange for in-principle approval of
the proposed delisting in the form specified by the recognised stock exchange; and 7

(d) within one year of passing the special resolution, make the final application to the concerned
recognised stock exchange in the form specified by the recognised stock exchange: Provided that
in pursuance of special resolution as referred to in clause (b), passed before the commencement
of these regulations, final application shall be made within a period of one year from the date of
passing of special resolution or six months from the commencement of these regulations,
whichever is later.
(2) An application seeking in-principle approval for delisting under clause (c) of sub-regulation
(1) shall be accompanied by an audit report as required under regulation 55A of the Securities
and Exchange Board of India (Depositories and Participants) Regulations, 1996 in respect of the
equity shares sought to be delisted, covering a period of six months prior to the date of the
application.
(3) An application seeking in-principle approval for delisting shall be disposed of by the
recognised stock exchange within a period not exceeding thirty working days from the date of
receipt of such application complete in all respects.
(4) While considering an application seeking in-principle approval for delisting, the recognised
stock exchange shall not unfairly withhold such application, but may require the company to
satisfy it as to -
(a) compliance with clause (b) of sub-regulation (1);
(b) the resolution of investor grievances by the company;
(c) payment of listing fees to that recognised stock exchange;
(d) the compliance with any condition of the listing agreement with that recognised stock
exchange having a material bearing on the interests of its equity 8 shareholders;
(e) any litigation or action pending against the company pertaining to its activities in the
securities market orany other matter having a material bearing on the interests of its equity
shareholders;
(f) any other relevant matter as the recognised stock exchange may deem fit to verify.
(5) A final application for delisting made under clause (d) of subregulation (1) shall be
accompanied with such proof of having given the exit opportunity in accordance with the
provisions of Chapter IV, as the recognised stock exchange may require.

CHAPTER IV
EXIT OPPORTUNITY
Applicability of Chapter IV.
9. The provisions of this Chapter shall apply to any delisting sought to be made under regulation
5 or under clause (b) of regulation 6. Public announcement.
10. (1) The promoters of the company shall upon receipt of inprinciple approval for delisting
from the recognised stockexchange, make a public announcement in at least one English national
daily with wide circulation, one Hindi national daily with wide circulation and one regional
language newspaper of the region where the concerned recognised stock exchange is located.
(2) The public announcement shall contain all material information including the information
specified in Schedule I and shall not contain any false or misleading statement.
(3) The public announcement shall also specify a date, being a day not later than thirty working
days from the date of the 9 public announcement, which shall be the ‗specified date‘ for
determining the names of shareholders to whom the letter of offer shall be sent.
(4) Before making the public announcement, the promoter shall appoint a merchant banker
registered with the Board and such other intermediaries as are considered necessary.
(5) It shall be the responsibility of the promoter and the merchant banker to ensure compliance
with the provisions of this Chapter.
(6) No promoter shall appoint any person as a merchant banker under sub-regulation (4) if such a
person is an associate of the promoter. Escrow account.
11. (1) Before making the public announcement under regulation 10, the promoter shall open an
escrow account and deposit therein the total estimated amount of consideration calculated on the
basis of floor price and number of equity shares outstanding with public shareholders.
(2) On determination of final price and making of public announcement under regulation 18
accepting the final price, the promoter shall forthwith deposit in the escrow account such
additional sum as may be sufficient to make up the entire sum due and payable as consideration
in respect of equity shares outstanding with public shareholders.
(3) The escrow account shall consist of either cash deposited with a scheduled commercial bank,
or a bank guarantee in favour of the merchant banker, or a combination of both.
(4) Where the escrow account consists of deposit with a scheduled commercial bank, the
promoter shall, while opening the account, empower the merchant banker to instruct the bank to
issue banker‘s cheques or demand drafts for the amount lying to the credit of the escrow account,
for the purposes mentioned in these regulations, and the amount 10 in such deposit, if any,
remaining after full payment of consideration for equity shares tendered in the offer and those
tendered under sub-regulation (1) of regulation 21 shall be released to the promoter.

(5) Where the escrow account consists of a bank guarantee, such bank guarantee shall be valid
till payments are made in respect of all shares tendered under sub-regulation (1) of regulation
21.Letter of offer.
12. (1) The promoter shall despatch the letter of offer to the public shareholders of equity shares,
not later than forty five working days from the date of the public announcement, so as to reach
them at least five working days before the opening of the bidding period.
(2) The letter of offer shall be sent to all public shareholders holding equity shares of the class
sought to be delisted whose names appear on the register of the company or depository as on the
date specified in the public announcement under sub-regulation (3) of regulation 10.
(3) The letter of offer shall contain all the disclosures made in the public announcement and such
other disclosures as may be necessary for the shareholders to take an informed decision.
(4) The letter of offer shall be accompanied with a bidding form for use of public shareholders
and a form to be used by them for tendering shares under sub regulation (1) of regulation 21.
Bidding period.
13. (1) The date of opening of the offer shall not be later than fifty five working days from the
date of the public announcement.
(2) The offer shall remain open for a minimum period of three working days and a maximum
period of five working days, during which the public shareholders may tender their bids. 11
Right of shareholders to participate in the book building process.
14. (1) All public shareholders of the equity shares which are sought to be delisted shall be
entitled to participate in the book building process in the manner specified in Schedule II.
(2) A promoter or a person acting in concert with any of the promoters shall not make a bid in
the offer and the merchant banker shall take necessary steps to ensure compliance with this sub-
regulation.
(3) Any holder of depository receipts issued on the basis of underlying shares held by a
custodian and any such custodian shall not be entitled to participate in the offer.
(4) Nothing contained in sub-regulation (3) shall affect the right of any holder of depository
receipts to participate in the book building process under sub-regulation (1) if the holder of
depository receipts exchanges such depository receipts with shares of the class that are proposed
to be delisted.

Offer price
15. (1) The offer price shall be determined through book building in the manner specified in
Schedule II, after fixation of floor price under sub regulation (2) and disclosure of the same in
the public announcement and the letter of offer.
(2) The floor price shall not be less than, -
(a) where the equity shares are frequently traded in all the recognised stock exchanges where
they are listed, the average of the weekly high and low of the closing prices of the equity shares
of the company during the twenty six weeks or two weeks preceding the date on which the
recognised stock exchanges were notified of the board meeting in which the delisting proposal
was considered, whichever is higher, as quoted on the recognised stock exchange where the
equity shares of the company are most frequently traded;
(b) where the equity shares of the company are infrequently traded in all the recognised stock
exchanges where they 12 are listed, the floor price determined in accordance with the provisions
of sub-regulation (3); or,
(c) where the equity shares are frequently traded in some recognised stock exchanges and
infrequently traded in some other recognised stock exchanges where they are listed, the highest
of the prices arrived at in accordance with clauses (a) and (b) above.
Explanation: For the purposes of this sub-regulation, equity shares shall be deemed to be
infrequently traded, if on the recognised stock exchange, the annualised trading turnover in such
shares during the preceding six calendar months prior to month in which the recognised stock
exchanges were notified of the board meeting in which the delisting proposal was considered, is
less than five per cent. (by number of equity shares) of the total listed equity shares of that class
and the term ‗frequently traded‘ shall be construed accordingly.
(3) For the purposes of clause (b) of sub-regulation (2), the floor price shall be determined by the
promoter and the merchant banker taking into account the following factors:
(a) the highest price paid by the promoter for acquisitions, if any, of equity shares of the class
sought to be delisted, including by way of allotment in a public or rights issue or preferential
allotment, during the twenty six weeks period prior to the date on which the recognised stock
exchanges were notified of the board meeting in which the delisting proposal was considered and
after that date upto the date of the public announcement; and,
(b) other parameters including return on net worth, book value of the shares of the company,
earning per share, price earning multiple vis-à-vis the industry average.
Right of the promoter not to
16. (1) The promoter shall not be bound to accept the equity shares at the offer price determined
by the book building process. 13 accept the offer price.
(2) Where the promoter decides not to accept the offer price so
determined,-

(a) the promoter shall not acquire any equity shares tendered pursuant to the offer and the equity
shares deposited or pledged by a shareholder pursuant to paragraphs 7 or 9 of Schedule II shall
be returned or released to him within ten working days of closure of the bidding period;
(b) the company shall not make the final application to the exchange for delisting of the equity
shares;
(c) the promoter may close the escrow account opened under regulation 11; and,
(d) in a case where the public shareholding at the opening of the bidding period was less than the
minimum level of public shareholding required under the listing agreement, the promoter shall
ensure that the public shareholding shall be brought up to such minimum level within a period of
six months from the date of closure of the bidding through any of the ways mentioned in
subregulation (3).
(3) For the purposes of clause (d) of sub-regulation (2), the public shareholding may be increased
by any of the following ways:
(a) by issue of new shares by the company in compliance with the provisions of the Companies
Act, 1956 and the Guidelines or Regulations of the Board relating to issue of securities and
disclosures;
(b) by the promoter making an offer for sale of his holdings in compliance with the provisions of
the Companies Act, 1956 and the Guidelines or Regulations of the Board relating to issue of
securities and disclosures; or,
(c) by the promoter making sale of his holdings through the secondary market in a transparent
manner. 14 Minimum number of equity shares to be acquired.
17. An offer made under chapter III shall be deemed to be successful if post offer, the
shareholding of the promoter (along with the persons acting in concert) taken together with the
shares accepted through eligible bids at the final price determined as per Schedule II, reaches the
higher of –
(a) ninety per cent. of the total issued shares of that class excluding the shares which are held by
a custodian and against which depository receipts have been issued overseas; or
(b) the aggregate percentage of pre offer promoter shareholding (along with persons acting in
concert with him) and fifty per cent. of the offer size. Procedure after
closure of offer.
18. Within eight working days of closure of the offer, the promoter and the merchant banker
shall make a public announcement in the same newspapers in which the public announcement
under sub-regulation (1) of regulation 10 was made regarding:-
(i) the success of the offer in terms of regulation 17 alongwith the final price accepted by the
acquirer; or
(ii) the failure of the offer in terms of regulation 19; or

(iii) rejection under regulation 16 of the final price discovered under Schedule II, by the
promoters.
Failure of offer.
19. (1) Where the offer is rejected under regulation 16 or is not successful as per regulation 17,
the offer shall be deemed to have failed and no equity shares shall be acquired pursuant to such
offer.
(2) Where the offer fails –
(a) the equity shares deposited or pledged by a shareholder under paragraphs 7 or 9 of Schedule
II shall be returned or released to him within ten working days from the end of the bidding
period;
(b) no final application shall be made to the exchange 15 for delisting of the equity shares; and
(c) the escrow account opened under regulation 11 shall be closed. Payment of
Consideration and return of equity shares.
20. (1) The promoter shall immediately on ascertaining success of the offer, open a special
account with a banker to an issue registered with the Board and transfer thereto, the entire
amount due and payable as consideration in respect of equity shares tendered in the offer, from
the escrow account.
(2) All the shareholders whose equity shares are verified to be genuine shall be paid the final
price stated in the public announcement within ten working days from the closure of the offer.
(3) The equity shares deposited or pledged by a shareholder pursuant to paragraphs 7 or 9 of
Schedule II shall be returned or released to him, within ten working days from the closure of the
offer, in cases where the bids pertaining thereto have not been accepted.
Right of remaining shareholders to tender equity shares.
21. (1) Where, pursuant to acceptance of equity shares tendered in terms of these regulations,
the equity shares are delisted, any remaining public shareholder holding such equity shares may
tender his shares to the promoter upto a period of at least one year from the date of delisting and,
in such a case, the promoter shall accept the shares tendered at the same final price at which the
earlier acceptance of shares was made.
(2) The payment of consideration for shares accepted under sub-regulation (1) shall be made out
of the balance amount lying in the escrow account.
(3) The amount in the escrow account or the bank guarantee shall not be released to the promoter
unless all payments are 16 made in respect of shares tendered under sub-regulation (1).

CHAPTER V
COMPULSORY DELISTING
Compulsory delisting by a stock exchange.
22. (1) A recognised stock exchange may, by order, delist any equity shares of a company on
any ground prescribed in the rules made under section 21A of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956): Provided that no order shall be made under this
subregulation unless the company concerned has been given a reasonable opportunity of being
heard.
(2) The decision regarding compulsory delisting shall be taken by a panel to be constituted by the
recognised stock exchange consisting of –
(a) two directors of the recognised stock exchange (one of whom shall be a public
representative);
(b) one representative of the investors;
(c) one representative of the Ministry of Corporate Affairs or Registrar of Companies; and
(d) the Executive Director or Secretary of the recognized stock exchange.
(3) Before making an order under sub-regulation (1), the recognised stock exchange shall give a
notice in one English national daily with wide circulation and one regional language newspaper
of the region where the concerned recognised stock exchange is located, of the proposed
delisting, giving a time period of not less than fifteen working days from the notice, within
which representations may be made to the recognised stock exchange by any person who may be
aggrieved by the proposed delisting and shall also display such notice on its trading systems and
17 website.
(4) The recognised stock exchange shall while passing any order under sub-regulation (1),
consider the representations, if any, made by the company as also any representations received in
response to the notice given under subregulation (3) and shall comply with the criteria specified
in Schedule III.
(5) The provisions of Chapter IV shall not be applicable to a compulsory delisting made by a
recognised stock exchange under this Chapter.
(6) Where the recognised stock exchange passes an order under sub-regulation (1), it shall, -
(a) forthwith publish a notice in one English national daily with wide circulation and one
regional language newspaper of the region where the concerned recognized stock exchange is
located, of the fact of such delisting, disclosing therein the name and address of the company, the
fair value of the delisted equity shares determined under sub-regulation (1) of regulation 23 and
the names and addresses of the promoters of the company who would be liable under sub-
regulation (3) of regulation 23; and

(b) inform all other stock exchanges where the equity shares of the company are listed, about
such delisting and the surrounding circumstances. Rights of public shareholders in
Case of a compulsory delisting.
23. (1)Where equity shares of a company are delisted by a recognised stock exchange under this
Chapter, the recognized stock exchange shall appoint an independent valuer or valuers who shall
determine the fair value of the delisted equity shares.
(2)The recognised stock exchange shall form a panel of expert valuers from whom the valuer or
valuers shall be appointed for purposes of sub-regulation (1). 18
(3)The promoter of the company shall acquire delisted equity shares from the public
shareholders by paying them the value determined by the valuer, subject to their option of
retaining their shares.
Explanation: For the purposes of sub-regulation (1), -
(a) ‗valuer‘ means a chartered accountant within the meaning of clause (b) of section 2 of the
Chartered Accountants Act, 1949 (38 of 1949), who has undergone peer review as specified by
the Institute of Chartered Accountants of India constituted under that Act, or a merchant banker
appointed to determine the value of the delisted equity shares;
(b) value of the delisted equity shares shall be determined by the valuer having regard to the
factors mentioned in regulation 15.
Consequences of compulsory delisting.
24. Where a company has been compulsorily delisted under this Chapter, the company, its
whole time directors, its promoters and the companies which are promoted by any of them shall
not directly or indirectly access the securities market or seek listing for any equity shares for a
period of ten years from the date of such delisting.

CHAPTER VI
POWERS OF THE BOARD
Power of the Board to issue clarifications.
25. In order to remove any difficulties in the application or interpretation of these regulations,
the Board may issue clarifications and guidelines in the form of circulars. Directions by the
Board.
26. Without prejudice to provisions of the Act and those of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956), the Board may in case of any violation of these regulations
and in the interests of the investors and the securities market give such 19 directions as it deems
fit: Provided that the Board shall, either before or after passing such orders, give an opportunity
of hearing to the concerned person.
CHAPTER VII
SPECIAL PROVISIONS FOR SMALL COMPANIES AND DELISTING BY
OPERATION OF LAW
Special provisions in case of small companies.
27. (1) Where a company has paid up capital upto one crore rupees and its equity shares were
not traded in any recognized stock exchange in the one year immediately preceding the date of
decision, such equity shares may be delisted from all the recognised stock exchanges where they
are listed, without following the procedure in Chapter IV.
(2) Where a company has three hundred or fewer public shareholders and where the paid up
value of the shares held by such public shareholders in such company is not more than one crore
rupees, its equity shares may be delisted from all the recognised stock exchanges where they are
listed, without following the procedure in Chapter IV.
(3) A delisting of equity shares may be made under sub- regulation (1) or sub-regulation (2) only
if, in addition to fulfillment of the requirements of regulation 8, the following conditions are
fulfilled:-
(a) the promoter appoints a merchant banker and decides an exit price in consultation with him;
(b) the exit price offered to the public shareholders shall not be less than the price arrived at in
consultation with the merchant banker;
(c) the promoter writes individually to all public shareholders in the company informing them of
his intention to get the equity shares delisted, indicating the exit price together with the 20
justification therefor and seeking their consent for the proposal for delisting;
(d) at least ninety per cent. of such public shareholders give their positive consent in writing to
the proposal for delisting, and have consented either to sell their equity shares at the price offered
by the promoter or to remain holders of the equity shares even if they are delisted;

(e) the promoter completes the process of inviting the positive consent and finalisation of the
proposal for delisting of equity shares within seventy five working days of the first
communication made under clause (c);
(f) the promoter makes payment of consideration in cash within fifteen working days from the
date of expiry of seventy five working days stipulated in clause (e).
(4) The communication made to the public shareholders under clause (c) of sub-regulation (3)
shall contain justification for the offer price with particular reference to the applicable
parameters mentioned in regulation 15 and specifically mention that consent for the proposal
would include consent for dispensing with the exit price discovery through book building
method.
(5) The concerned recognised stock exchange may delist such equity shares upon satisfying itself
of compliance with this regulation. Delisting in case of winding up, derecognition,etc.
28. (1) In case of winding up proceedings of a company whose equity shares are listed on a
recognised stock exchange, the rights, if any, of the shareholders of such company shall be in
accordance with the laws applicable to those proceedings.
(2) Where the Board withdraws recognition granted to a stock 21 exchange or refuses renewal of
recognition to it, the Board may, in the interest of investors pass appropriate order in respect of
the status of equity shares of the companies listed on that exchange.
CHAPTER VIII
MISCELLANEOUS
Recognised stock exchanges to monitor compliance.
29. The respective recognised stock exchanges shall comply with and monitor compliance with
the provisions of these regulations and shall report to the Board any instance of non-compliance
which comes to their notice.
Listing of delisted equity shares.
30. (1) No application for listing shall be made in respect of any equity shares,
(a) which have been delisted under Chapter III or under Chapter VII (except regulation 27), for a
period of five years from the delisting;
(b) which have been delisted under Chapter V, for a period of ten years from the delisting.
(2) Notwithstanding anything contained in sub-regulation (1), an application for listing of
delisted equity shares may be made where a recommendation in this regard has been made by the
Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special
Provisions) Act, 1985.

(3) While considering an application for listing of any equity shares which had been delisted the
recognised stock exchange shall have due regard to facts and circumstances under which
delisting was made.
(4) An application for listing made in respect of delisted equity shares shall be deemed to be an
application for 22 fresh listing of such equity shares and shall be subject to provisions of law
relating to listing of equity shares of unlisted companies.
Transitional provisions.
31. (1) Anything done or omitted to be done or any right, privilege, obligation or liability
acquired or accrued or incurred under Securities and Exchange Board of India (Delisting of
Securities) Guidelines, 2003 prior to the commencement of these regulations shall be governed
by said guidelines.
(2) Any application for delisting made by any company or any promoter or acquirer who wanted
to delist securities of the company, prior to commencement of these regulations and pending
with any recognised stock exchange as on the date of such commencement shall be proceeded
with under the Securities and Exchange Board of India (Delisting of Securities) Guidelines,
2003.
(3) The remaining procedures in respect of an exit opportunity already completed or an exit
opportunity initiated but not completed under the Securities and Exchange Board of India
(Delisting of Securities) Guidelines, 2003 prior to commencement of these regulations, shall be
completed and the application for delisting made pursuant thereto shall be dealt under the said
guidelines.23

CHAPTER-4
SCHEDULES
SCHEDULE I
CONTENTS OF THE PUBLIC ANNOUNCEMENT
1. The floor price and the offer price and how they were arrived at.
2. The dates of opening and closing of the offer.
3. The name of the exchange from which the equity shares are sought to be delisted.
4. The manner in which the offer can be accepted by the shareholders.
5. Disclosure regarding the minimum acceptance condition for success of the offer.
6. The names of the merchant banker and other intermediaries together with the helpline number
for the shareholders.
7. The specified date fixed as per sub-regulation (3) of regulation 10.
8. The object of the proposed delisting.
9. The proposed time table from opening of the offer till the payment of consideration or return
of equity shares.
10. Details of the escrow account and the amount deposited therein.
11. Listing details and stock market data:
(a) high, low and average market prices of the equity shares of the company during the preceding
three years;
(b) monthly high and low prices for the six months preceding the date of the public
announcement; and,
(c) the volume of equity shares traded in each month during the six months preceding the date of
public announcement.
12. Present capital structure and shareholding pattern.
13. The likely post-delisting shareholding pattern.
14. The aggregate shareholding of the promoter together with persons acting in concert and of
the directors of the promoter where the promoter is a company and of persons who are in control
of the company.

15. A statement, certified to be true by the board of directors of the company, disclosing material
deviation, if any, in utilisation of proceeds of issues of securities made during the five years
immediately preceding the date of public announcement, from the stated object of the issue. 24
16. A statement by the board of directors of the company confirming that all material
information which is required to be disclosed under the provisions of continuous listing
requirement have been disclosed to the stock exchanges.
17. Name of compliance officer of the company.
18. It should be signed and dated by the promoter. Where the promoter is a company, the public
announcement shall be dated and signed on behalf of the board of directors of the company by its
manager or secretary, if any, and by not less than two directors of the company, one of whom
shall be a managing director where there is one.
SCHEDULE II
THE BOOK BUILDING PROCESS
1. The book building process shall be made through an electronically linked transparent facility
and the promoter shall enter into an agreement with a stock exchange for the purpose.
2. The public announcement and letter of offer shall be filed without delay with the stock
exchange mentioned in paragraph 1 and such stock exchange shall forthwith post the same in its
website.
3. The minimum number of bidding centres shall be:
(a) the four metropolitan centres situated at Mumbai, Delhi, Kolkata and Chennai;
(b) such cities in the region in which the registered office of the company is situated, as are
specified by the stock exchange mentioned in paragraph 1.
4. There shall be at least one electronically linked computer terminal at all bidding centres.
5. The shareholders may withdraw or revise their bids upwards not later than one day before the
closure of the bidding period. Downward revision of bids shall not be permitted.
6. The promoter shall appoint ‗trading members‘ at the bidding centres, whom the public
shareholders may approach for placing bids on the on-line electronic system.
7. The shareholders holding dematerialised shares desirous of availing the exit opportunity may
deposit the equity shares in respect of which bids are made, with the special depositories account
opened by the merchant banker for the purpose prior to placement of orders or, alternately, may
mark a pledge for the same to the merchant banker in favour of the said account.
8. The merchant banker shall ensure that the equity shares in the said special depositories
account are not transferred to the account of the promoter unless the bids in respect thereof are
accepted and payments made.

9. The holders of physical equity shares may send their bidding form together with the share
certificate and transfer deed to the trading member appointed for the purpose, who shall
immediately after entering their bids on the system send them to the company or the share
transfer agent for confirming their genuineness. The company or the share transfer agent shall
deliver the certificates which are found to be genuine to the merchant banker, who shall not
make it over to promoter unless the bids in respect thereof are accepted and payment made. The
bids in respect of the certificates which are found to be not genuine shall be deleted from the
system.
10. The verification of physical certificates shall be completed in time for making the public
announcement under regulation 18.
11. The bids placed in the system shall have an audit trail which includes stock broker
identification details, time stamp and unique order number.
12. The final offer price shall be determined as the price at which the maximum number of
equity shares is tendered by the public shareholders. If the final price is accepted, then, the
promoter shall accept all shares tendered where the corresponding bids placed are at the final
price or at a price which is lesser than the final price. The promoter may, if he deems fit, fix a
higher final price.

SCHEDULE III
CRITERIA FOR COMPULSORY DELISTING
1. The recognised stock exchange shall take all reasonable steps to trace the
promoters of a company whose equity shares are proposed to be delisted, with a view to ensuring
compliance with sub-regulation (3) of regulation 23.
2. The recognised stock exchange shall consider the nature and extent of the alleged non-
compliance of the company and the number and percentage of shareholders who may be affected
by such non-compliance.
3. The recognised stock exchange shall take reasonable efforts to verify the status of compliance
of the company with the office of the concerned Registrar of Companies.
4. The names of the companies whose equity shares are proposed to be delisted and their
promoters shall be displayed in a separate section on the website of the recognised stock
exchange for a brief period of time. If delisted, the names shall be shifted to another separate
section on the website.
5. The recognised stock exchange shall in appropriate cases file prosecutions under relevant
provisions of the Securities Contracts (Regulation) Act, 1956 or any other law for the time being
in force against identifiable promoters and directors of the company for the alleged non-
compliances.
6. The recognised stock exchange shall in appropriate cases file a petition for winding up the
company under section 433 of the Companies Act, 1956 (1 of 1956) or make a request to the
Registrar of Companies to strike off the name of the company from the register under section
560 of the said Act.

CHAPTER-5
COMPARISON BETWEEN OLD & NEW REGULATIONS
S.No Particulars Securities And Exchange Board
of India (Delisting of Securities)
Guidelines, 2003
Securities And Exchange
Board of India (Delisting Of
Equity Shares) Regulations,
2009.
1. Coverage All kind of Securities are covered Only Equity Shares are
Covered
2. Definitions-
Exchange
There is a concept of the Delisting
Exchange and Exchange
Both the earlier definitions
merged and a definition of
Recognized Stock exchange is
inserted.
3. Definitions-
Public
Shareholding
The Public shareholding is the
shareholding in a company of the
persons other than the Promoters,
Persons Acting in concert with the
Promoter
The public shareholding is the
shareholding in a company of
the persons other than the
Promoters, Persons Acting in
concert with the Promoter ,
holders of Depositors receipts
and the custodian thereof
4. Definitions-
Working Days
Working Days are not defined. Working days are defined as
the working days of the SEBI.
5. Applicability Widely defined Not widely defined.
6. Inapplicability Not mentioned exclusively and
separately.
Separate section is made. The
exemption is available to the
companies which have been
declared sick & their
reconstruction scheme
provides the delisting
including the provisions of the
exit option to the
shareholders.
7. Non-
Permissibility
Delisting only through Buy Back
of securities is not permitted
Along with Buy Back,
delisting through preferential
allotment is also not
permitted.
8. Voluntary
delisting
The procedure and provisions of
both kind of Delisting a) Without
Exit option and b) With exit
option merged and no separate
sections were there.
The procedures for both kind
of Delisting a) Without Exit
option and b) With exit option
are defined and provided in an
identifiable manner.

9. Delisting
Without Exit
Route. i.e. not
from the
exchanges
having
nationwide
trading terminal
Special resolution to be passed
through the shareholders is
compulsory.
Now the requirement of
special resolution for the
delisting without Exit route is
deleted. Only public
announcement and the
disclosure in the first annual
report after delisting will
suffice the requirement.
No time limit was prescribed for
the exchanges for disposal of the
Delisting application filed by the
companies.
A 30 days time period after
the receipt of Application
complete in all respect, given
to the exchanges for disposing
of the application of delisting.
10. Delisting with
Exit Route i.e.
even from the
exchanges
having
nationwide
trading terminal
Shareholders approval for the
Delisting can be taken even in the
Extra Ordinary General Meeting.
The resolution is Special
resolution simply to be passed in
the Extra Ordinary General
Meeting.
Shareholders approval is
required compulsorily through
postal ballot. The special
resolution shall be deemed to
be passed only if the votes
cast by the public
shareholders in favour of the
proposal amount to at least
two times the votes cast
against it.
Before starting the process of
Delisting there is no requirement
of taking In principal approval
from the stock exchange.
Before starting the Delisting
Procedure, In principal
approval is required from the
Stock exchange from where
the securities are to be
delisted.
There is no validity of special
resolution passed by the members
in the Extra Ordinary General
Meeting.
The resolution is valid upto 1
year, within which the final
application is to be made to
the stock exchange for the
Delisting of securities after
completion of the Reverse
Book Building Process.
No specific guidelines were given
to the stock exchanges, which
they have to considered while
approving the application of
delisting.
The Checkpoints have been
provided in the Regulations
which the Stock exchange has
to considered while approving
the application of delisting.
11. Specified Date No concept of specified date, on
which the list of eligible public
The concept of Specified date
introduced, which is 30 days

shareholders can be determined to
whom the Letter of Offer will be
sent for Delisting.
from the date of the Public
Announcement, on which the
shareholders list be freezed to
whom the letter of offer will
be sent for the Delisting.
12. Bidding period Only minimum time mentioned
during which the bidding Period
remain open which is 3 days
The bidding period will now
be 3 days to 5 days and should
start within 55th day of the
public announcement.
13. Ineligibility of
the shareholders
to participate in
the Delisting
offer.
No ineligibility with regard to the
public shareholding given.
Now the Receipts holders /
ADR / GDR holders are
restricted to participate in the
Delisting offer. If they wishes
to participate then they have
to first convert their shares
into underlying Equity shares.
14. Price
determination
Previously the price was
calculated from the date of public
announcement
Now the price is calculated
from the date when the
company informed the
exchange the date of the board
meeting in which the delisting
proposal was considered.
15. Minimum
number of shares
for Delisting
from the stock
exchange
The company will be delisted if
the public shareholding falls
below the minimum limit
specified by the listing conditions
of listing agreement.
The company will be deemed
to be delisted on reaching the
level higher of the following:-
a) Ninety percent of the total
issued shares of that class
excluding the shares which
are held by a custodian and
against which depository
receipts have been issued
overseas. Or., b) The
aggregate percentage of pre
offer promoter shareholding
along with person acting in
concert and fifty percent of
the offer size.
16. Final price
announcement
Previously the Final
announcement to be made in two
days declaring the final price and
the status of the Delisting i.e
whether the price is accepted or
not.
Now the Final announcement
to be made in eight working
days declaring the final price
and the status of the Delisting
i.e whether the price is
accepted or not.

17. Right of
remaining
shareholders
The shareholders who could not
participate in the Delisting offer
can offer their shares to the
promoters during a period of 6
months after the Delisting.
The shareholders who could
not participate in the Delisting
offer can offer their shares to
the promoters during a period
of 1 year after the Delisting.
18. Consequence of
the Compulsory
Delisting
Only company was restricted for a
period of 2 years for Relisting at
the stock exchange
The company, its promoters,
and directors are barred for a
period of 10 years for relisting
at the stock exchange.
19. Small
Companies
No special provisions are there for
the small companies. They have
to follow the same provisions as
the Large and big companies have
to.
Special provisions under the
separate section be given for
the small companies and
winding up companies. They
need not to follow the Reverse
Book Building process.
20. Delisting through
right Issue
If pursuant to Right issue the
Promoters holding is increased by
more than the permissible limit,
the promoter shall be required to
delist the company or reduce their
holding within a period of 3
months.
The section is altogether
deleted.
21. Reinstatement of
securities
The companies cannot be relisted
at the exchange for a period of 2
years from the period of delisting.
The companies delisted
voluntarily cannot be relisted
for a period 5 years and the
companies compulsorily
delisted cannot be relisted for
a period of 10 years from the
date of delisting

CHAPTER-6
HOW TO DELIST?
Process Flowchart

CHAPTER-7
PROCESS
A recognized stock exchange may, by order, delist any equity shares of a company on any
ground prescribed in the rules made under section 21A of the Securities Contracts (Regulation)
Act, 1956 .
Constitution of Panel (Regulation 22 (2))
The decision regarding compulsory delisting shall be taken by a panel to be constituted by the
recognized stock exchange consisting of -
a. Two directors of the recognized stock exchange (one of whom shall be a public
representative);
b. One representative of the investors;
c. One representative of the Ministry of Corporate Affairs or Registrar of Companies; and
d. The Executive Director or Secretary of the recognized stock exchange.
Public notice before delisting order (Regulation 22 (3))
Before making a delisting order the recognized stock exchange shall give a notice in one English
national daily with wide circulation and one regional language newspaper of the region where
the concerned recognized stock exchange is located and shall also display such notice on its
trading systems and website.
Time period of making representation (Regulation 22 (3))
Time period of not less than fifteen working days from the notice, be given to any person who
may be aggrieved by the proposed delisting within which he can made representations to the
recognized stock exchange which has issued a notice for the delisting.
Delisting Order by the Recognised Stock Exchange (Regulation 22 (4))
The recognized stock exchange passes an order under sub-regulation (1) after considering the
representations, if any made by the company and any aggrieved person in response to the notice
and after considering the following points:-
1. Nature and extent of the alleged non-compliance of the company and the number and
percentage of shareholders who may be affected by such non-compliance.
2. The status of compliance of the company with the office of the concerned Registrar of
Companies.
Public notice after Delisting Order (Regulation 22 (6))

Where the recognized stock exchange passes the delisting order, it shall, -
(a) Forthwith publish a notice in one English national daily with wide circulation and one
regional language newspaper of the region where the concerned recognized stock exchange is
located.
(b) Inform all other stock exchanges where the equity shares of the company are listed, about
such delisting and the surrounding circumstances.
Disclosures to be made in the notice
Facts of such delisting,
The name and address of the company,
The fair value of the equity shares determined under sub-regulation (1) of regulation 23
and
The names and addresses of the promoters of the company who would be liable under
sub-regulation (3) of regulation 23.
EXIT Price Determination by an Independent Valuer (Regulation 23 (1))
The recognized stock exchange shall form a panel of expert valuers from whom the
valuer or valuers shall be appointed .
The promoter of the delisted company shall acquire equity shares from the public
Important points:-
1. No open offer is required to be given by the Delisted company in the case of compulsory
delisting made by a recognized stock exchange.
2. Where a company has been compulsorily delisted the company, its whole time directors,
its promoters and the companies which are promoted by any of them shall not directly or
indirectly access the securities market or seek listing for any equity shares for a period of
ten years from the date of such delisting.
Special Powers to the recognized stock Exchanges (SCHEDULE III)
The recognised stock exchange can file prosecutions under relevant provisions of the
Securities Contracts (Regulation) Act, 1956 or any other law for the time being in force
against identifiable promoters and directors of the company for the alleged non-
compliances.
The recognised stock exchange can also file a petition for winding up the company
under section 433 of the Companies Act, 1956 (1 of 1956) or make a request to the
Registrar of Companies to strike off the name of the company from the register under
section 560 of the said Act.

CHAPTER-8
DELISTING OF SHARES
Delisting of shares is also referred to as Reverse Book Building. The Reverse Book Building is a
mechanism provided for capturing the sell orders on online basis from the share holders through
respective Book Running Lead Managers (BRLMs) which can be used by companies intending
to delist their shares through buy back process.
In the Reverse Book Building scenario, the Acquirer/Company offers to buy back shares from
the share holders. The Reverse Book Building is basically a process used for efficient price
discovery. During the period for which the Reverse Book Building is open, offers are collected
from the share holders at various prices, which are above or equal to the floor price. The buy
back price is determined after the offer closing date.
The Securities and Exchange Board of India had issued the SEBI (Delisting of Securities)
Guidelines 2003' for delisting of shares from stock exchanges. The guidelines provide the overall
framework for voluntary delisting by a promoter.
The Company /acquirer needs to appoint designated BRLMs for accepting offers from the share
holders. The company/acquirer intending to delist its shares through Book Building process is
identified by way of a symbol assigned to it by a BRLM. Orders for the offer shall be placed by
the shareholders only through the designated trading members, duly approved by the Exchange.
The designated trading members shall ensure that the security /share holders deposit the
securities offered with the trading members prior to placement of an order. The offer shall be
open for 'n' number of days. The BRLM shall intimate the final acceptance price and provide the
valid accepted order file to the National Securities Clearing Corporation Limited.
The process is used by the companies to reduce their floating capital so as to enable them to get
delisted from the stock exchanges. Listing on stock exchanges entails a number of compliances.
In order to avoid such compliances, many companies are opting to get delisted. Moreover, the
process can also be used in case of acquisition process of another company by the acquirer.
SEBI guidelines are applicable to delisting of securities of companies. These guidelines apply to
the following:
Voluntary delisting being sought by the promoters of a company - Companies which may be
compulsorily delisted by the stock exchanges. If a person in control of the management is
seeking to consolidate his holding in a company, he would do so in a manner which would result
in the public shareholding or in the listing agreement that may have the effect of company being
delisted.
Promoters of the companies who voluntarily seek to delist their securities from all or some of the
stock exchanges - Any acquisition of shares of the company (either by a promoter or by any

other person) or scheme or arrangement, by whatever name referred to, consequent to which the
public shareholding falls below the minimum limit specified in the listing conditions or listing
agreement that may result in delisting of securities The Stock Exchange provides online reverse
book building for promoters /acquirers through its trading networks which span various cities
and towns across India.
The shareholders get the amount discovered through the reverse book building process. The
shareholders who choose to hold back the shares may suffer because there is no liquidity for the
stock. However, they are entitled to all the shareholder benefits - voting, dividends, bonus etc. as
may be applicable.

Delisting Boon Or Bane
In a country like India, wherein lakhs and lakhs of people invest in Primary as well as Secondary
Markets, protection of the interests of these investors becomes an inherent job for the Regulators,
at all forums.
With the same intent in mind, the Securities and Exchange Board of India Act was enacted in the
year 1992. The Act established a Board, called Securities and Exchange Board of India (SEBI),
to protect the interests of investors in securities and to promote the development of and to
regulate the securities market. It acts as a regulator for the development of securities market in
the country.
At present, appx. 9,000 Companies are listed on various Exchanges in India, out of which only
appx. 3,500 are being actively traded. Trading being taking place only at BSE/ NSE. Others are
either not being traded or have become illiquid. The question that arises is what should such
investors do, whose investments become illiquid and who had invested in a particular company
on the basis of the faith and trust in the system and also on the basis of the contents in the
prospectus which mentions that the security would be listed on stock exchanges. Once he
subscribes to the issue, he takes an irreversible decision, as the promises in the prospectus are
irreversible. And if the securities of such a company get delisted, his investment will no longer
be marketable and tradeable. And then, on top of it, these companies have themselves delisted
either themselves or the Exchanges delist them for non compliances or not meeting the criterion.
In such circumstances, the shareholders are left in lurch with no option but to tender their shares
at whatever price, which may be much lesser than the actual value of the Company. As a
corollary to this, the fundamental question that arises is: is delisting of securities a boon or a bane
for the shareholders? The same has been attempted to be answered in the coming paragraphs.
Eversince the promulgation of SEBI Delisting Guidelines 2003, many a companies have got
themselves voluntarily delisted. They have paid their shareholders according to the higher of the
average of the weekly closing highs and lows for 26 weeks or 2 weeks.
Recently, a SEBI Committee conducted a study on 29 companies, which have been or are in the
process of being delisted from the BSE, and it came to light that in 14 out of the studied 29
companies, the 52-week average was greater than the 26 weeks average. That is to say, the
securities had a much better potential if they would have remained listed on the Exchange and
the shareholders would have taken an exit in the ordinary course of trading in the Secondary
Market.
In cases like above, the shareholders of such companies although are able to get back the market
price of their shares (if it‘s a frequently traded scrip), but there is always an apprehension that
they could have got a better price if they exited through the Secondary Market.
On the other hand, there is another set of Companies, which are defunct or are not being traded
or fall under the infrequently traded category at any of the Exchanges. These Companies, by
getting delisted, pay off their shareholders on the basis of certain criterion like return on
networth, EPS etc, which may be much lesser than the intrinsic value of the share.

In cases like above, from the shareholders‘ point of view, although might be receiving a lesser
value than the actual worth, but he stands to benefit in the sense that his blocked funds get
released, which now he can utilise in other scrips. Also, he is relieved of the tension of carrying
the dead stock on his head.
There is yet another set of companies, that came out with Public Issues, utilised the shareholders‘
funds, stopped making compliances with the Exchanges, the Exchanges suspended them, and as
per the Guidelines, finally compulsorily delisted them. In fact, there is a long list of such
companies which have been delisted by the Stock Exchanges.
From the shareholders‘ point of view, this is the gravest situation. Here, the shareholders of the
Companies are left in a lurch, without getting any money back for their investments in such
companies. Although, as per the Delisting Guidelines, there was a provision for payment of fair
value to the public shareholders, but no control mechanism has ever been deployed to keep a
check on such payments. But from the Regulators‘ (the Exchanges, SEBI etc.) point of view,
such delistings are important because this cleans up the system and relieves them of the dead
woodstock.
On a comparision of all the above situations, we will realise all the situations have their pros and
cons. If a situation is beneficial for one, the other stands to lose. In certain situations, delisting
becomes imperative to relieve the system of the unwanted trash companies. Thus, a complete ban
on delisting is not possible. A judicious mix of listings and delistings has to be there in the
system, to make it run smoothly.
Although the law makers have also kept the same in mind while framing the delisting laws. In
the earlier Guidelines of 2003, Cl. 16(1) prescribed the rights of the shareholders in case of
compulsory delisting, by being paid a fair value of the shares, but in none of the cases of
Compulsory Delisting, has it been tried to check whether the same was paid to the public
shareholders or not.
Similarly, under the new Regulations also, Chapter V deals completely with Compulsory
Delisting of equity shares by the Exchanges, prescribing therein the procedure as well as the
rights of shareholders in a compulsory delisting.
Reg. 23, dealing with the rights of shareholders in a compulsory delisting, reads as under:
1. Where equity shares of a company are delisted by a recognised stock exchange under this
Chapter, the recognised stock exchange shall appoint an independent valuer or valuers
who shall determine the fair value of the delisted equity shares.
2. The recognised stock exchange shall form a panel of expert valuers from whom the
valuer or valuers shall be appointed for purposes of sub-regulation (1).
3. The promoter of the company shall acquire delisted equity shares from the public

Thus, one can very well assimilate that SEBI has all the intents of protecting the interests of the
public shareholders, but it is for the respective Stock Exchanges to check the compliance of the
same.
Reg. 24 of the Regulations, dealing with the consequences of compulsory delisting, reads as
under:
Where a company has been compulsorily delisted under this Chapter, the company, its whole
time directors, its promoters and the companies which are promoted by any of them shall not
directly or indirectly access the securities market or seek listing for any equity shares for a period
of ten years from the date of such delisting.
Although the Regulation prescribes strict consequences for the compulsorily delisted company,
its promoters and directors. Nowhere, does it mention the penalties/ consequences in case of
defaulting promoters in making the payment of the fixed fair value to the public shareholders.
Thus, while allowing Delistings, more so Compulsory Delistings, the Regulators should be very
cautious of the procedures followed, opportunities provided to the public shareholders and its
overall impact on the investor confidence as a whole. To sum up, while allowing delistings, a
complete check and control mechanism needs to be implemented for the same.
DELISTING NOT PERMISSIBLE IN CERTAIN CIRCUMSTANCES AND
CONDITIONS:
1. Neither the companies may apply nor may the recognised stock exchanges permit delisting of
equity shares
(a) pursuant to a buy back of equity shares by the company; or
(b) pursuant to a preferential allotment made by the company; or
(c) unless a period of three years has elapsed since the listing of that class of equity shares on any
recognized stock exchange; or
(d) if there are outstanding convertible (in the same class of equity) instruments .
2. No promoter shall directly or indirectly employ the funds of the company to finance an exit
opportunity (under Chapter IV) or an acquisition of shares made pursuant to subregulation(3) of
regulation 23.

3. No promoter or other person shall –
(a) defraud any shareholder or other person with any device, scheme or artiface; or
(b) fraud or deceit upon any shareholder or other person with any transaction or practice; or
(c) engage in any fraudulent, deceptive or manipulative act or practice in connection to delisting
sought or permitted or exit opportunity given or other acquisition of sharesmade under these
regulations.
VOLUNTARY DELISTING:-
 Voluntary delisting from all the exchanges
 Voluntary delisting from few exchanges but remains listed on at least one stock
exchange having nationwide terminals(recognized stock exchange)
 Voluntary Delisting From All The Exchanges
If after the proposed delisting, the equity shares would not remain listed on any recognized stock
exchange having nationwide trading terminals, Exit Opportunity shall be given to all the public
shareholders holding the equity shares sought to be delisted. (Regulation 6 (b))
 Obtain a prior approval from the board of directors of the company in its meeting
 Obtain the prior approval of shareholders of the company by special resolution passed
through postal ballot, provided the special resolution shall be acted upon if and only if the
Delisting
Compulsory
Delisting
Voluntary
delisting
Voluntary
delisting from all
the exchanges.
Exit
opportunity
Voluntary
delisting from few
exchanges but
remains listed on
at least one stock
exchange having
nation wide
terminals
No exit
opportunity

votes cast by public shareholders in favor of the proposal amount to at least two times the
number of votes cast by public shareholders against it.
 Make an application to the concerned recognized stock exchange for the proposed
delisting. Application seeking in-principle approval shall be accompanied by audit report
and shall be in compliance with the regulation. Also, application shall be disposed of by
the recognised stock exchange within a period not exceeding thirty working days from
the date of receipt of such application complete in all respects.
 Within one year of passing the special resolution, company shall make the final
application to the concerned recognised stock exchange in the form specified by the
recognised stock exchange
 Voluntary Delisting From Few Exchanges But Remain Listed At One Stock Exchange
Having Nation Wide Trading Terminal
If after the proposed delisting from any one or more recognized stock exchanges, the equity
shares would remain listed on any recognized stock exchange which has nationwide trading
terminals, No Exit Opportunity needs to be given to the public shareholders. (Section 6 (a))
 No need to pass Special resolution by members.
 The company has to give a public notice of the proposed delisting.
 The company shall disclose the fact of the delisting in the first annual report after
delisting.
EXIT OPPORTUNITY
1) Public Announcement
 On receiving the approval for delisting from the recognized stock exchange, company
need to make a public announcement in at least one English national daily with wide
circulation, one Hindi national daily with wide circulation and one regional language
newspaper of the region where the concerned recognised stock exchange is located
Public
Announcement
(PA)
Escrow Account
Letter of
Offer(Within 45
workingdays of
PA)
Bidding(within 55
working days of
PA)
Offer Price(Book
Building)
Closure of Offer Consideration

 The public announcement shall contain all material information and shall also specify a
date , being a day not later than thirty days from the date of public announcement, which
shall be date for determining the names of shareholder to whom letter of offer shall be
sent
 Before public announcement, a merchant banker need to appointed to ensure compliance
with the provision
2) Escrow Account
 Before making the public announcement, the promoter shall open an Escrow account
and deposit the estimated amount of consideration.
 Promoters must empower the merchant banker to instruct the bank to issue banker‘s
cheques or demand drafts for the amount lying to the credit of the escrow account.
3) Letter of Offer
4) Bidding Period
 The date of opening of the offer shall not be later than fifty five working days from the
date of the public announcement.
 The offer shall remain open for a minimum period of three working days and a maximum
period of five working days.
5) Rights of Shareholders to participate in Book Building process
 All public shareholders of the equity shares which are sought to be delisted shall be
entitled to participate in the book building process.
 Promoter are not allowed to bid and merchant banker need to ensure compliance with this
sub regulation
 Any holder of depository receipts issued on the basis of underlying shares held by a
custodian and any such custodian shall not be entitled to participate in the offer.
6) Offer Price
 The offer price is determined through book building process after fixing the floor
price.
 The floor price shall not be less than:
a. For Frequently Traded stock: the average of the weekly high and low of the
closing prices of the equity shares of the company during the twenty six weeks or
two weeks preceding the date on which the recognised stock exchanges were

notified of the board meeting in which the delisting proposal was considered,
whichever is higher.
b. For Infrequently Traded Stock: The share price is determined by the promoter and
merchant banker taking into account factors like the highest price paid by
promoter for acquisition, parameters like return on net worth, earning per share
etc.
7) Right of the Promoter
The promoter shall not be bound to accept the equity share at the price specified in the book
building process.
8) Minimum Number of Equity share to be acquired:
Shares of Promoters taken together with the shares accepted through eligible bids at the final
price reaches the higher of:
 Ninety percent of the total issued shares of that class excluding the shares which are held
by a custodian and against which depository receipts have been issued overseas.
 The aggregate percentage of pre offer promoter shareholding and fifty per cent. of the
offer size
9) Procedure after closure of offer
Within Eight working days of closure of offer, the promoter and merchant banker shall make
public announcement in the same newspaper about the success( along with the price) or
failure of the offer(along with the reason).
10) Payment of Consideration and return of Equity shares:
 Ascertain the success of the offer, promoter need to open a new account with a banker
and the entire amount due and consideration need to transferred from Escrow account
 All the shareholders whose equity shares are verified to be genuine shall be paid the
final price stated in the public announcement within ten working days from the
closure of the offer.

COMPULSORY DELISTING:
This means delisting of equity shares of a company by a recognised stock exchange may, by
order delist any equity shares of a company on any ground prescribed in the rules under section
21A of the Securities Contracts (Regulations) Act, 1956 (42 of 1956). The decision regarding the
compulsory delisting is taken by a panel constituted by the stock exchange which consists of 2
directors of the recognised stock exchange (one being a public representative), one representative
of the investors, one representative of the Ministry of corporate affairs or ROC, and the
executive director or the secretary of the recognised stock exchange.
Before making an order the stock exchange shall give a notice in one English national daily with
large circulation and one with the regional daily where the stock exchange is located for the
proposed delisting disclosing therein the name and address of the company, the fair value of the
listed equity shares determined and the names of the company promoters who would be liable for
the same and also a time period of not less than 15 working days from the notice within which
the representatives may be made to the stock exchange by any person who may be aggrieved by
the proposal and shall display the notice in its trading systems or website. They would also
inform all the stock exchanges where the equity shares of the company are listed, about such
delisting and the circumstances.
The stock exchange shall consider the representations if any, made by the company and also
representations received in response to the notice given and should comply with the Schedule III.
The stock exchange shall appoint an individual valuer or valuers who shall determine the fair
value of the delisted equity shares. The promoters would acquire the delisted shares equity shares
from the public shareholders by paying the value which is determined the valuer/valuers subject
to their option of retaining them. The Valuer is usually a chartered accountant who had
undergone peer review as specified the Institute of chartered accountants of India constituted
under the act, or a merchant banker.

SCHEDULE III
1. The recognised stock exchange shall take all reasonable steps to trace the promoters of a
company whose equity shares are proposed to be delisted, with a view to ensuring compliance
with sub-regulation (3) of regulation 23.
2. The recognised stock exchange shall consider the nature and extent of the alleged non-
compliance of the company and the number and percentage of shareholders who may be affected
by such non-compliance.
3. The recognised stock exchange shall take reasonable efforts to verify the status of compliance
of the company with the office of the concerned Registrar of Companies.
4. The names of the companies whose equity shares are proposed to be delisted and their
promoters shall be displayed in a separate section on the website of the recognised stock
exchange for a brief period of time. If delisted, the names shall be shifted to another separate
section on the website.
5. The recognised stock exchange shall in appropriate cases file prosecutions under relevant
provisions of the Securities Contracts (Regulation) Act, 1956 or any other law for the time being
in force against identifiable promoters and directors of the company for the alleged non-
compliances.
6. The recognised stock exchange shall in appropriate cases file a petition for winding up the
company under section 433 of the Companies Act, 1956 (1 of 1956) or make a request to the
Registrar of Companies to strike off the name of the company from the register under section
560 of the said Act.

SPECIAL PROVISIONS FOR SMALL COMPANIES AND DELISTING BY
OPERATION OF LAW
The special provisions in case of small companies state that when a company has a paid up
capital upto one crore rupees and its equity shares are not traded in any recognised stock
exchange in the one year immediately preceding the date of decision, such shares can be delisted
from the respective exchanges where they are listed. In other scenario, where a company has
three hundred of fewer public shareholders and where the paid up value of the shares held by
such public shareholders in such company is not more than one crore rupees, its equity shares
may be delisted from the stock exchanges.
The delisting of equity shares may be made under sub – regulation only if the following
conditions are fulfilled.
a) The promoter will have to appoint a merchant banker and decide an exit price in
consultation with him.
b) The exit price offered to the public shareholders should not be less than the price arrived
at in consultation with the merchant banker.
c) The promoter will have to write individually to all public shareholders in the company
informing them of his intentions to get the equity shares delisted. This should indicate the
exit price together with the justification and seeking their consent for the proposal of
delisting.
d) Atleast ninety percent of such public shareholders will have to give their positive consent
in writing to the delisting process. The consent should be either to sell their equity shares
at the price offered by the promoter or to remain holders of the equity shares even if they
are delisted.
e) The process of inviting the positive consent and finalisation of the proposal for delisting
of equity shares should be completed within seventy five working days from the first
communication made.
f) The promoted has to make payment of consideration in cash within fifteen working days
from the date of expiry of seventy five working days as stated in clause (e).

The communication made to the shareholders should specifically mention that consent for the
proposal would include consent for dispensing with the exit price discovery through the book
building method. The concerned stock exchange can then delist such equity shares upon
satisfying itself of compliance with the regulation.
In case of winding up, proceedings of a company whose equity shares are listed on a recognised
stock exchange, the rights, if any, of the shareholders of such company shall be in accordance
with the laws applicable to those proceedings. Sometimes the Board may withdraw the
recognition granted to a stock exchange or refuse the renewal of recognition. In such cases the
Board in the interest of investors will have to pass appropriate order in respect of the status of
equity shares of the companies listed on that exchange.

MISCELLANEOUS
The respective stock exchanges have to comply with and monitor compliance with the provisions
of these regulations and shall report to the Board any instance of non – compliance which comes
to their notice.
The miscellaneous section of the regulation states –
a) An application for listing of delisted equity shares may be made where a recommendation
in this regard has been made by the Board for industrial and financial reconstruction
under the Sick Industrial Companies (Special Provisions) Act, 1985.
b) While considering application for listing of any equity shares which had been delisted in
the recognised stock exchange shall have due regard to the facts and circumstances under
which the delisting was made.
c) An application for listing made in respect of delisted equity shares shall be deemed to be
an application for fresh listing of such equity shares and shall be subject to provisions of
law relating to listing of equity shares of unlisted companies.
d) Any right, privilege, obligation or liability acquired or incurred under SEBI Guidelines,
2003 shall be governed by the said guidelines.
e) Any application for delisting made by any company or any promoter or acquirer who
wanted to delist securities of the company, prior to the commencement of these
regulations and pending with any stock exchange as on date shall proceed under the SEBI
(delisting of Securities) Guidelines, 2003.

EXAMPLES OF DELISTING
Type of Delisting: Voluntary Delisting
Company: Alfa Laval India Limited
Delisting offer:
Prior to delisting the Promoters of the company held 16120281 equity shares, representing
88.77% of the paid up capital. The voluntary delisting issue was aimed at acquiring the
remaining 2040202 equity shares, representing the balance 11.23% paid up capital. The proposal
for delisting was approved by the Board of Directors, followed by a special resolution by the
shareholders through a postal ballot. THE SHARES OF THE COMPANY WILL BE
DELISTED FROM THE BSE LIMITED (―BSE‖) AND THENATIONAL STOCK
EXCHANGE OF INDIA LIMITED (―NSE‖) WITH EFFECT FROM APRIL 19, 2012
Floor Price: Rs. 2045/- per Equity Share of Face Value of Rs. 10 /- each
Indicative Offer Price:Rs. 2850/- per equity share
Exit Price: RS. 4,000/- PER EQUITY SHARE (Reverse Book Building)
Activity Date
Specified Date for determining the names of shareholders to whom the Offer
Letters shall be sent
January 20, 2012
Dispatch of Offer Letters/ Bid Forms to Public Shareholders as on Specified Date January 27, 2012
Bid Opening Date (10.00 am) February 15, 2012
Bid Closing Date (3.00 pm) February 22, 2012
Announcement of Discovered Price/Exit Price and the Acquirer‘s Acceptance/Non-
acceptance of Discovered Price /Exit Price
March 5, 2012
Final date of payment of consideration March 7,2012
Return of Offer Shares to shareholders in case of failure of Delisting Offer March 7,2012
Type of Delisting: Compulsory Delisting
Company: DSQ Software, Pentafour Products and Pyramid Saimira Theatre
Reason: Suspended due to non-compliance with provisions of the listing agreement,
Company: Pentagon Global Solutions
Reason: Suspended for non payment of listing fees.

CHAPTER-9
RELATED NEWS
Dell delisting, and share valuation concerns
The story of Dell represents the story of American enterprise. Started in a college dormitory room,
and making products that the technology age devoured with passion, the company wasted no time in
catapulting itself to a market capitalization of more than $100 billion.
For some time, it was also the darling of the stock market. In stark contrast, last week, Dell unveiled
a buyout deal to take the company private. The $24.4-billion buyout would be financed with Michael
Dell‘s cash and equity, cash from Silver Lake, and a $2 billion credit line from Microsoft.
Four major investment banks — Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets —
are financing the debt. The primary intention behind the go-private move appears to be to escape the
harsh glare of the markets with iffy quarterly results and to focus on strategy without being hounded
by analysts.
It could well be a combination of many factors, but the fact that cannot be denied is that Dell has
been bleeding because of the shift in the market to smart phones and tablets and its inability to play
catch-up. Further bleeding could have only hammered its stock price. While the buyout can help it
avoid quarterly analysis and questions, delisting could also prevent Dell from building a war-chest
for future acquisitions.
Leveraged buyouts
As in most leveraged buyouts, the price being offered — $13.50-13.75 a share — is being
questioned. Southeastern Asset Management — which has some stake in Dell — hopes to make life
difficult for Michael Dell. As the largest outside shareholder of the eponymous company, it says it
doesn‘t support the cheaply priced buyout led by the billionaire founder and will vote against the
proposed deal. Southeastern values the company at $23.72 a share, greater than the $13.50-13.75 a
share that Dell and his partners are offering.
The strong objection from Southeastern can be justified, considering the fact that it has lost its money
in other investments and would not want a repetition. Any valuation is subject to a number of
assumptions and judgment due to which differences are bound to occur. Accounting standards
consider the quoted market price to be the best indicator of fair value — the Dell buyout deal meets
this test, as the price offered is at a premium to the existing market price.

Accounting practices
The market price is supposed to be an encapsulation of a number of tangible and intangible factors.
Dell has had its share of run-ins with the regulators on accounting practices. Till mid-2005, as per US
GAAP, stock options granted to employees did not need to be recognized as an expense on
the income statement, although the cost was disclosed in the notes to the financial statements. This
allows a potentially large form of employee compensation to not show up as an expense.
However, this rule was changed to state that companies must begin showing stock options as an
expense no later than the first reporting period beginning after June 15, 2005. Many companies —
Dell among them — sought to reassure shareholders that they would suffer no dilution through the
issuance of stock options, vowing to buy back as many shares as they issued through options.
In 1996, Dell came up with a strategy to deal with that. It began to speculate in options on its own
stock. It bought call options allowing it to purchase shares at a fixed price several years out. And it
sold put options, requiring it to purchase stock at a preset price years later if the other party wanted to
sell.
When the stock was rising, the strategy worked. But after the share price fell, Dell was in trouble.
Later, Dell pumped up profits by taking undisclosed payments from Intel for agreeing to use only
Intel chips in its computers. When the payments stopped, Dell was left holding the baby.
SEBI rule
In India, the Securities and Exchange Board of India (SEBI) came out with a rule that listed
companies need to have a minimum of 25 per cent public shareholding, tempting promoters with
more than 75 per cent shareholding to either go private or dilute their shareholding. The history of
delisting in India has been insipid. More than 200 listed companies have delisted, with a vast
majority due to mergers and acquisitions. Valuation of shares has been the bane of many a delisting
attempt.
Cadbury has met with stiff opposition to its offered price of Rs 1,340 while India Securities met with
opposition as its shares were infrequently traded. Minority shareholders who have litigated against
companies in the past will find additional succor in the newly minted Companies Bill that permits
class-action suits by a group of minority shareholder coming together. Companies intending delisting
could keep in mind the diktat ―It‘s all in the valuation, stupid!‖

Final delisting

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