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Source-This post on Delisting of shares is based on the article “Why is a Reliance Capital Ltd investor challenging its resolution plan?” published in “The Indian Express” on 6th May 2024.
Why in the News?
Recently, an investor in Reliance Capital Ltd (RCL), which is undergoing insolvency proceedings, has challenged specific regulations related to SEBI’s norms for delisting shares.
SEBI’s norms for the delisting of shares provides exemption in cases where the delisting is done as per the Insolvency and Bankruptcy Code (IBC)-approved resolution plan. The petitioner has argued that this exemption in delisting of shares, fails to protect the interest of investors.
About Delisting of shares
1. Delisting of shares: It refers to the removal of a publicly traded company’s stock from a stock exchange.
2. A company can choose to delist its shares voluntarily or Involuntary.
a) A company can choose to delist its shares voluntarily, if it wants to go private or merge with another company.
b) A company can choose to delist its shares involuntarily, if it fails to meet the exchange’s listing requirements or violates the exchange’s rules.
3. If a company intends to delist its securities, it must purchase back 90% of the total issued shares. The company is typically required to notify its shareholders and the exchange before proceeding with the delisting.
Why the SEBI’s Delisting of shares norms have been challenged
Exemption has been provided under SEBI’s Delisting Regulations, which allow delisting post the approval of resolution plan.
However, such an exemption leads to overnight zero value of equity shares in case of a company that undergoes delisting. This results in failure of protecting the interest of public shareholders.
Read More: Securities and Exchange Board of India (SEBI)
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