Authored by Aishwarya Lakshmi VM
| Applicant: Mirza International Ltd. | Date of the guidance: 10.06.2020 |
Factual Background
(i) The Managing Director of the Company who individually holds 11.27% shares in the company is desirous of gifting his shares to his daughters. The daughters are married and leading a separate life, away from the father.
(ii) The daughters who are prospective recipients of the shares do not want themselves to be falling within the ‘Promoter/Promoter Group’ definition of SEBI (LODR) Regulations, 2015 since it would attract Trading Window restrictions.
Guidance sought
The daughters are seeking reclassification of their status from ‘Promoter/Promoter Group’ to ‘Public’.
Provisions Involved
Regulations 31A of SEBI (LODR) Regulations, 2015.
1. Analysis of Definition: As per the definition of ‘Promoter Group’ [Reg.2(1)(pp) of SEBI (ICDR) Regulations, 2018][i] the daughters of the promoter are immediate relatives and they already fall under the ‘Promoter Group’ irrespective of the fact they are married an leading a separate life or not.
2. Effect of Gift: As per Regulation 31A (6) of SEBI (LODR) Regulations, 2015[ii] in case of gift of shares by the Promoter, immediately on such event, the recipient of such gift shall also be classified as ‘Promoter/Person belonging to the Promoter Group’. Hence, upon gift the daughters will still be under the ambit of ‘Promoter Group’.
3. Satisfaction of the Conditions relating to Reclassification: As per Regulation 31A (3)(b)(i) of SEBI (LODR) Regulations, 2015[iii] upon reclassification the promoter who is seeking reclassification along with the persons related to such promoter shall not together hold more than 10% of the total voting rights of the company. Since, the total voting rights would be greater than 10% (i.e., 11.27 %) they cannot reclassify themselves to the ‘public’ category.
The letter of SEBI can be read at https://www.sebi.gov.in/sebi_data/commondocs/jun-2020/SEBI%20Informal%20guidance%20Mirza_p.pdf.
| As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992 |
[i] Regulation 2(1)(pp), ICDR: “Promoter Group” includes:
- i) The Promoter,
- ii) An immediate relative of the Promoter (i.e., any spouse of that person, or any parent, brother, sister or child of the person or of the spouse); and …
[ii] Regulation 31A(6), LODR: In case of transmission, succession, inheritance and gift of shares held by a promoter/ person belonging to the promoter group:
(a) Immediately on such event, the recipient of such shares shall be classified as a promoter/ person belonging to the promoter group, as applicable
[iii] Regulation 31A(3)(b)(i), LODR: The promoter(s) seeking re-classification and persons related to the promoter(s) seeking re-classification shall not:
(i) together, hold more than ten percent of the total voting rights in the listed entity;
(ii) exercise control over the affairs of the listed entity directly or indirectly…
