Erring promoters could face further action after replies: SEBI

Manisha Jha Mumbai | Updated on November 21, 2017

U.K. Sinha, Chairman, SEBI

Show-cause notice issued to public float norm violators

SEBI Chairman U.K. Sinha said the market regulator would consider further action on a case-to-case basis against companies which were non-compliant with its minimum public shareholding rule.

Two days ago, SEBI came out with an action plan against erring promoters of 105 companies that had failed to comply with the minimum public shareholding norm of 25 per cent by the June 3 deadline.

Market experts say that such reference to case-by-case approach is valid only for the various punishments envisaged under para 18 of its interim order on action against non-complying promoters as they fall under the category of defaults which have already occurred. The various punishments include levying monetary penalty under adjudication proceedings, initiating criminal proceedings by way of prosecution proceedings, moving the scrip to trade-to-trade segment and excluding the scrip from F&O.

Continuing defaults

A former SEBI official said: “For the other category of defaults called continuing defaults which are included in the main part of the order, SEBI has no further role to evaluate as punishments linked to those would continue concurrently till such time the companies comply with the 25 per cent minimum public shareholding float.

“SEBI cannot relax them even on case-to-case basis.”

These continuing defaults include direct freezing of voting rights and corporate benefits such as dividend, rights, bonus shares, with respect to excess of proportionate promoter shareholding, prohibiting the promoters and directors from buying, selling or dealing in securities of their companies or becoming directors in any other listed company.

The regulator has given companies a period of 21 days to file their replies in response to its show-cause notice. Referring to the latest order, Sinha said: “We had a requirement that promoters must have less than 75 per cent shareholding in a company. In spite of three years of time being given, while a large number of corporates followed our guideline, over 100 of them for some reason or the other could not do that. Very reluctantly, SEBI had to take action against them two days ago.”

Stating that higher public shareholding and faith in diversified ownership and governance is important, he said, “we believe if these things are implemented and followed, it will generate a lot of trust in the market.”

On the pending compliance from several public sector enterprises to meet their minimum public shareholding of 10 per cent by their deadline of August 9, Sinha said: “I have been assured by the Government that they will follow the deadline.”

Currently, there are over 10 PSUs which do not meet these requirements. The SEBI chief further stated that the next two big areas of focus for the regulator in the near future would be corporate governance and investor education.


Published on June 06, 2013

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