Sebi aims to shield public shareholders in suspended companies

Suspension of listed companies closes exit route, hence hurts minority shareholders more than promoters

In a bid to safeguard minority shareholders, Sebi has directed stock exchanges to take action against promoters of non-complaint companies before suspending their share trading.

Sebi said suspension of listed companies closes the exit route and hence hurts minority shareholders more than the promoters.

“It is now decided that the exchange in case of non compliant companies would resort to several other measures such as imposition of fines, freezing of shares of the promoter and promoter group, transferring the trading in the shares of the company to separate category, etc., before suspending the shares of the company,” Sebi said in a press release.

Sebi today prescribed a standard practice--Standard Operating Procedure (SOP) -- for stock exchanges to deal with non-complaint companies.

Stock exchanges suspend trading in companies that fail to comply with the listing agreement, that includes making proper disclosures, financial result announcement, among other things.

Currently, there are over 1,000 companies whose shares have been suspended by bourses for non compliance. Investor protection groups have even filed public interest litigations (PILs) against stock exchanges and Sebi stating that investor wealth is being locked up due to suspension of trading in companies.

Sebi has prescribed fines on a daily basis on companies for non-compliance or shifting scrips trade-to-trade category. Sebi has also said continuation of non-compliance should result in freezing of promoter holding. The regulator has also asked exchanges to provide for an 'exit window' to public shareholders in non-complaint companies.