CHANGES TO REGULATION 31A – RECLASSIFICATION OF PROMOTERS – SEBI BOARD MEETING OUTCOME – Eshwars
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CHANGES TO REGULATION 31A – RECLASSIFICATION OF PROMOTERS – SEBI BOARD MEETING OUTCOME

Authored by Aishwarya Lakshmi V.M

In our earlier article on the consultation paper circulated by SEBI for re-classification of promoters, we had outlined the changes that SEBI had proposed in it. At its action-packed Board Meeting held on 25th March 2021, the mater relating to this was tabled, and SEBI has approved certain amendments based on the said consultation paper, to Regulation 31A of SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015.

We update the changes that have been approved and also mark those that were proposed in the consultation paper, for which no changes have been made by SEBI.

S. No. Relevant Requirement Existing Proposed Rationale for proposing the change Change Approved or not
1 Condition pertaining to minimum threshold of voting rights – by promoters seeking reclassification and those related to promoters seeking reclassification. 10% 15% Persons who may have been promoters but are no longer in day-to-day control having shareholding of less than 15% may “opt-out” from being classified as “promoters”, without having to reduce their shareholding. No decision taken on this proposal that was part of the consultation paper.
2 Minimum time period between board meeting and general meeting 3 Months 1 Month The minimum time gap of three months is too long increasing the total time taken in the process. Change proposed in the consultation paper has been approved.
3 Reclassification pursuant to an order / direction of Government or regulator Applicable to Resolution Plan under S.31 of the IBC, 2016. Expanding the scope to order / direction of Government / regulator Since it’s a natural consequence to undergo reclassification pursuant to an order / direction of Government or regulator the proposed limit eases the process. Change proposed in the consultation paper has been approved.
4 Reclassification of existing promoter pursuant to open offer under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2015 [SAST Regulations] No existing provision 1.

The intent of the existing promoter(s) to re-classify is disclosed in the letter of offer

 

 

2. Reclassification if the promoter is non-traceable or non-cooperative and the Company has taken efforts to contact the promoter.

1. The requirement of promoter making an application for reclassification is a mere procedural formality since the fact is disclosed in the Letter of Offer and the information is already present in the public domain.

 

2. The non-traceability and non-cooperation of promoters results in the continued classification of the concerned as promoter despite losing actual control of the company.

The first proposal in the consultation paper relating to re-classification when the intent of the existing promoter is disclosed in the letter of offer, has been approved, if (a) the outgoing promoter is not in control; and (b) if he is not represented on the board.

 

No decision has been taken relating to the other suggestion that was proposed, relating re-classification in case of non-traceability of promoter.

5 Time period to place the reclassification request before the board of directors No existing provision Within one month of receiving the request from the promoter / promoter group. There are cases where the request is not placed before the Board thus ceasing the process in its initial phase itself. No decision taken on this proposal that was part of the consultation paper.
6 Disclosure of Names of Promote Group Entities in the shareholding pattern. No existing provision All entities falling under promoter / promoter group shall be disclosed even in case of “NIL” Shareholding.

 

 

 

Listed entities to obtain quarterly declaration from their promoters specifying the names of entities / persons that form part of the ‘promoter group’.

Though Regulation 31 clearly prescribes the disclosure of ‘all entities’ there are cases where listed companies have not been disclosing names of persons in the promoter / promoter group with “Nil” Shareholding. No decision taken on this proposal that was part of the consultation paper.

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