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Authored by Aishwarya Lakshmi VM

On 23rd November 2020, the Securities Exchange Board of India [SEBI] issued a consultation paper on “The reclassification of promoter/promoter group entities and disclosure of the promoter group entities in the shareholding pattern” inviting comments on the proposed amendment to the policy framework from stakeholders on or before 24th December, 2020.

Understanding Regulation 31A:

Considering the need for re-classification of promoter/promoter group entities as public and vice versa, a discussion paper of SEBI in 2018 analysed various scenarios and came up with the said concept, which was consequently codified under Regulation 31A of the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015.

As per the said Regulation 31A, a promoter/promoter group entity seeking reclassification shall make an application to the board of directors of the Listed Entity. The directors are to analyse the same and decide on placing it before the shareholders in a general meeting for their approval by an ordinary resolution. The timelines here are:

a) There shall be a gap of minimum 3 months and not exceeding 6 months between the board meeting and general meeting.

b) Post approval in the general meeting, the application to the stock exchange shall be made within 30 days.

There are also additional conditions, the violation of which will result in the applicant to be reclassified back as promoter/promoter group entity itself. These include:

i. not holding more than 10% of the total voting rights;

ii. not exercising control over the affairs of the listed entity, directly or indirectly;

iii. not having any special rights through formal / informal arrangements;

iv. not to be represented on the Board (including appointing Nominee Director);

v. not act as a KMP of the listed entity;

vi. not be a ‘Willful Defaulter’ as per RBI Guidelines;

vii. not be a fugitive economic offender.

While conditions (i) to (iii) are perpetual, (iv) and (v) are subject to a cooling-off period of 3 years from the date of reclassification.

Need for change:

Since the current regulatory framework is hard to comply with, several entities have obtained case-to-case basis relaxations. The matter was discussed by the Primary Market Advisory Committee (‘PMAC’) of SEBI in its meeting held on November 11, 2020 to reduce the number of exemptions.

Proposals and Rationale:

S. No. Relevant Requirement Existing Proposed Rationale for proposing the change
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 share-holding.
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.
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.
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.

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.
6 Disclosure of Names of Promoter 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.

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