The BSE’s proposed move to compulsorily delist companies that have violated their listing agreements with the stock exchange may not be a straight-forward process. Trading has been suspended in these stocks — about a thousand — for over seven years, but they continue to be listed on the platform in the absence of a clear-cut exit policy. However, compulsory delisting has probably never been attempted in India before and comes with a lot of complexities.

Recently, Ashish Chauhan, MD and CEO of BSE said, that if these companies continue to be listed, it gives them the illusion “of being compliant, when they are not. If companies decide not to comply for 7-10 years, why should they continue to be listed? Without an exit framework in place, it will create a situation where there are too many companies that are not compliant. We need to start implementing this exit policy.”

From a legal standpoint, stock exchanges are already empowered under the SEBI Delisting Regulations and the Securities Contracts (Regulation) Act. Tejesh Chitlangi, Partner, IC Legal, said, “Since a unilateral decision on the part of the stock exchange to compel a company to delist may end up hurting investor interest, as a matter of prudent practice, exchanges usually impose penalties and resort to trading suspension as measures of first resort.”

The listing agreement essentially has to do with disclosures and corporate governance norms. The BSE has already suspended trading in 1,450 companies as penalty for violations, according to information on its website. Sudhir Bassi, Executive Director, Khaitan and Co, said by delisting the exchange is just trying to remove deadwood.

Long drawn out process

But the process is bound to be complicated. To protect the interests of public shareholders in these companies, he said, the exchange has to appoint an independent assessor to value the shares. The promoter has to buy out these shares at the decided price. “Even then,” he says, “forcible delisting will be a long drawn out process and is likely to be stuck in litigation for a long time.”

Prakash Shah, Secretary of Mumbai-based Investor Education and Welfare Association, said, “Exchanges have to implement online surveillance better and should start having a cut-off point at least now.”

Additionally, when a company is forcibly delisted, the promoters and whole-time directors of the company are barred from accessing the capital markets directly or indirectly for 10 years.

For the BSE, this process is part of presenting itself as a well-regulated, internally-robust exchange. Chauhan says the exchange has written to SEBI and is awaiting a response.Arun Kejriwal, Founder, KRIS Research, says “It’s never too late. A 140-year old institution also realising that change is necessary is a welcome sign.”

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