Raft of exemptions for government companies covers Sebi, MCA, CCI

The rules surrounding MPS requirements have differed for PSUs compared to their private sector counterparts

Regulatory exemptions for government companies have been granted by multiple authorities. The Securities and Exchange Board of India (Sebi) has provided a raft of exemptions to listed public sector entities. There have also been exemptions from the Ministry of Corporate Affairs (MCA) and the Competition Commission of India (CCI).

The market regulator Sebi granted a three-year extension to Life Insurance Corporation (LIC) of India to meet minimum public shareholding norms, according to an announcement on Wednesday.

The rules surrounding minimum public shareholding (MPS) requirements have differed for public sector undertakings (PSUs) compared to their private sector counterparts.

In 2010, when the Securities Contracts (Regulation) Rules (SCRR) were amended, the 25 per cent MPS rule was uniform for both.

However, the deadline for listed companies with private sector promoters was set for June 3, 2010 — three years after the first SCRR amendment. Meanwhile, the initial deadline for PSUs fell in August 2013, three years after the second amendment of the SCRR.

Immediately after the expiry of the first deadline, Sebi announced strictures against over 100 companies where the promoters had failed to bring down their stake below 75 per cent. On the other hand, there was no penal action against PSUs whose promoter is the Government of India (President of India).

On the contrary, SCRR was further amended by the government, granting itself time until August 2017 and once again technically extending the MPS deadline until August 2020.

While private sector companies were given only three years, PSUs were provided a 10-year window to align with the 25 per cent MPS rule.

However, even today there are over 20 listed PSUs where public float is less than 25 per cent.

Additionally, PSUs often receive special dispensation from various securities rules. For instance, Sebi allowed the government to dilute just 3.5 per cent in the LIC initial public offering (IPO) as opposed to the minimum 5.4 per cent required. Interestingly, all companies were required to dilute at least 10 per cent at the time of IPO. However, the rule around initial dilution was relaxed for mega IPOs ahead of the LIC IPO. Despite that, LIC was given a special dispensation to dilute less than what was required under the relaxed norms.

There is no clarity regarding the timeline for the government to achieve a 25 per cent free float in LIC.

Often, the government receives special dispensation from making an open offer in the case of capital infusion in public sector banks. Nor is it required to bring down its stake below 75 per cent within a stipulated time period after the open offer, as is required for other companies.

Another case where rules have been relaxed would be IDBI Bank, which is classified as a private sector bank but is majority-owned by the Government of India (45.48 per cent) and LIC (49.24 per cent) as of March 31, 2024.

Additionally, the applicability of rules is often lax when it comes to allowing cross-holdings in PSUs. For instance, Oil and Natural Gas Corporation’s purchase of the government's stake in Hindustan Petroleum Corporation was allowed without triggering an open offer.

MCA has also previously granted several exemptions to government companies.

For example, companies are required to hold their annual general meeting at their registered office or in a place within the same city, town, or village in which the company is located. This does not apply in the same way for government companies. Government companies can also hold their meetings in other places that can be approved by the central government.

Companies are required to offer beneficial ownership disclosures regarding their shareholding and are subject to investigation provisions related to beneficial ownership. These do not apply to government companies.

Government companies involved in defence production are exempt from certain disclosures in financial statements.

There is a bar on directors getting loans from their companies. Government companies can give loans subject to government approval. Restrictions on related-party transactions do not apply to government companies.

Separately, CCI has granted exemptions to oil companies coming together as long as they are central public sector entities.