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Introduction
A listed entity on the stock exchange can access the capital market and raise investments from a wide range of investors. Access to public money is very empowering and can exponentially boost the turnover and overall revenue of a company irrespective of its sector. However, as it is rightly said, "with great power comes great responsibility", and hence listed entities are obligated to maintain a high degree of compliance, accountability and corporate governance to ensure the welfare of its investors. If the listed entity does not comply with the listing agreements / SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR regulations), the stock exchanges compulsorily delist such entities. Compulsory delisting has wide repercussions, including freezing of promoter accounts. In recent times, there have been more than 50 cumulative instances of compulsory delisting of listed entities as can be seen from National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) websites for the last two calendar years 2024-2025. In this write-up, we discuss the issues surrounding the re-listing of compulsorily delisted companies.
Relevant Regulations and Framework
Compulsory delisting orders by the Stock Exchanges are passed under Regulation 32 of Chapter V of the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021 (Delisting Regulations), read with Section 21A of the Securities Contracts (Regulation) Act, 1956 (SCRA), the Securities Contracts (Regulation) Rules, 1957 (SCRR) and the rules and bye-laws of the stock exchange. While Rule 21 of the SCRR enlists the exact criterion for effectuating the compulsory delisting, Regulation 32 of the Delisting Regulations provides a legal requirement for a reasoned order and the prescription for composition of delisting committee. Section 21A of the SCRA mandates an opportunity for a hearing before a compulsory delisting order can be passed, and it further specifies the remedies available to a listed company or an aggrieved investor following such an order. While the rules and bye-laws fall back on the regulations and rules stated hereinabove, all the aforementioned provisions provide for the regulatory framework surrounding the compulsory delisting by stock exchanges.
Common Reasons of Delisting
The most common cause for delisting of companies as observed over a period of time is suspension of trading owing to non-payment of requisite fees (Annual listing fees etc.) and/or non-monetary non-compliances with listing agreements / SEBI LODR Regulations (non-filing of shareholding patterns for two consecutive quarters etc.). It is observed that several companies have remained nonchalant after its suspension of trading. Recent delisting orders show that the suspension of trading period has varied widely, ranging from 1 year up to 13 years. . These companies have made remedial efforts only upon receiving notices / show cause notices relating to compulsory delisting. Though financial hardship and abnormal trading in the scrip of the company are also some of the legal grounds for delisting, it is seldom noted that companies have been delisted on account of financial hardship or trading abnormality on the scrip.
Consequences of Delisting
Compulsory delisting carries severe consequences: the delisted company's whole-time directors, compliance personnel, promoters, and any companies they promote are barred from the securities market for a period of 10 years. This ban includes accessing the market, seeking the listing of equity shares, or acting as a market intermediary. Such persons are also prohibited from taking any directorial roles on the board of any listed company.1 While there are significant re-payment obligations on the promoters towards the shareholders, in recent times, what has emerged as the biggest demerit of delisting is the loss of a body corporate, which can access the secondary market. In today's day and age, listing a company through usual initial public offering (IPO) route has become significantly regulated and considerably expensive. However, a listed entity, howsoever dormant in its operations, is the most preferred choice for business houses looking to get listed on stock exchanges. The cost of raising capital through capital market in ordinary course has raised significantly in last decade. Stringent regulatory regime, increased participation by the market intermediaries are a few causes which can be attributed to increased cost of capital raising. This has resulted in an increased demands for listed and dormant companies. Market participants have devised methods to reduce capital raising costs and attaining listed status.
Listing Strategies
A common strategy used by a number of market participants is reverse merger. A reverse merger is a corporate strategy in which a private company acquires a majority stake in a publicly traded company (often an inactive company with minimal operations), allowing the private company to become publicly listed without going through the traditional and more complex process of an IPO. Though such an acquisition is not prohibited in law, such transactions warrant careful regulatory and reputational compliance. While, reverse merge transactions are viable options for various industries, some market participants have been using inactive listed entities in reverse merger transactions as an alternative to the regular IPO route for listing on stock exchanges. The stock exchanges have been making rigorous efforts to weed out the inactive / non-compliant companies through delisting orders. However, the recent trends demonstrate that delisting orders have been set aside on mere assurances of 'being compliant hereinafter'. This equitable approach appears to an adoption for the welfare of the investors; however, how far will this approach serve the interest of the intended investors is very uncertain.
Common Pitfalls
Some dormant companies have legally procured recognition under section 455 of the Companies Act, 2013. The stated objectives of these companies encompass holding assets, intellectual property or future business plans. It has been observed that some of the entities have been using the listed dummy companies for circumventing the regulatory legal framework and reducing their cost of capital raising.
Non-operational listed companies often provide minimal or no disclosure relating to financial statements and operations. The lack of transparency about management affairs, business activities and hidden risks such as statutory actions against the company keep the interest of the investors at significant risk and vulnerability. Hence, the delisting mechanism of Stock Exchanges ought to be strengthened in line with commercial criterions which should be carved for safeguarding the interest of the investors. Presently, the criterions appear to be centrally focused on payment of outstanding fees (reinstatement fees, annual listing fees etc.) and towards filing of past compliances. The re-listing standards must be at par with a fresh listing if not more stringent.
Recent Case Studies
The regulatory framework and provisions relating to de-listing exhibit common policy sentiment relating to compulsory opportunity of hearing and passing of reasoned orders prior to delisting. However, in the past few years, it was noticed that the delisting orders were being challenged primarily on the ground of non-adherence to principles of natural justice. In the cases of Divine Multimedia2, Santowin Corporation Limited3 and Union Bearing4 despite being suspended from trading for a period over 1 year, 2 years and 1 year respectively, it was observed by the Hon'ble Securities Appellate Tribunal that, the delisting committee did not give adequate opportunity of hearing to these appellants. The Tribunal set aside the delisting orders on the grounds of non-adherence to the principles of natural justice. Similarly, in the cases of Autoriders5 and Chokhani International6 SAT was pleased to set aside the delisting orders since the delisting committee did not grant an opportunity of hearing to the companies prior to delisting.
After a host of SAT orders setting aside the delisting orders on grounds of natural justice, the delisting committees of exchanges have also started strict compliance with the principles of natural justice.
In the Entegra case7, SAT took a more equitable view on the merits, leading it to set aside the delisting order and communication. The matter was then remanded back to the delisting committee for fresh consideration. In this case, it was highlighted by the Company that due to various disputes between other entities certain non-compliances took place. Further, it was demonstrated that 8 out of 9 pending compliances were carried out by the Appellant. The Tribunal held that albeit within the 4 corners of law, a technical view, may not be appropriate in concluding the issue of delisting.
While the equitable approach of SAT has been evident in several recent and earlier rulings, in the case of BS Appliances8 a commercial and practical view was taken by SAT in rejecting the appeal and upholding the delisting order. The Tribunal found that the company could not take any meaningful efforts in either reviving its business or in even initiating a meaningful process for voluntary delisting for 13 years from the closure of business and even after 2 years from receiving show cause notice for delisting. The consequences of compulsory delisting on promoters of the company are not the right parameters for considering such issues. The Tribunal ultimately held that the consequences of non-compliance are very onerous. This has been made onerous with explicit purpose of bringing in discipline in the market for listed securities and to protect and promote the interest of investors.
The most recent ruling of SAT in the cases of Veronica Production Limited9 and Noble Polymers Limited10 has restored the listing of the companies after the delisting committee of BSE had passed reasoned delisting orders. These companies had been suspended from trading for more than 6 months on account of various non-compliances. The primary factors leading to allowing of the appeals were the assurances given by the Companies relating to undertaking of all the past compliances.
In another recent case of Betala Global, the delisting committee of BSE has passed a reasoned order citing various compliance and governance lacunas. The detailed perusal of the delisting order shows that the company had remained suspended for more than 10 years.11 However, SAT has by its interim orders, granted further time to the company to comply with pending compliances and get relisted on the exchange platform. These interim orders were solely based on the undertaking of the company to comply with pending compliances, namely payment of reinstatement fees.
In Sum
Interest of the investors and orderly development of the market are the cornerstones of Indian securities law jurisprudence. A balanced and practical approach by the stock exchange's delisting committee is essential. Prior to passing an order, the committee must consider the company's financial health, the nature of pending compliances, demonstrated intention, business and revival plans, and ensure compliance with the principles of natural justice and operational transparency. While considering the relisting of the delisted companies, the degree and seriousness of the conditions precedent to relisting must factor governance and commercial viability for sustainable market growth.
Footnotes
1 Regulation 34, Delisting Regulations
2 Divine Multi Media (India) Ltd. vs BSE Limited, Appeal No. 17 of 2019, Order dated 25th March 2019
3 Santowin Corporation Limited vs BSE Limited, Appeal No. 10 of 2019, Order dated 3rd. October, 2019
4 Union Bearing (India) Limited vs BSE Limited, Appeal No. 522 of 2019, Order dated February 12, 2021
5 Autorides Finance Ltd. vs NSE India Ltd, Appeal No. 241 of 2022, Order dated June 16, 2022
6 Chokhani International Limited vs BSE Limited, Appeal No. 348 of 2019, Order dated August 7, 2019
7 Entegra Ltd. vs NSE India Ltd. Appeal No. 482 of 2018, Order dated April 26, 2019
8 BS Appliances Ltd. & Ors. vs NSE India Ltd. Appeal No. 146 of 2018, Order dated 30th May, 2018
9 Veronica Production Limited vs BSE Limited, Appeal No. 118 of 2024, Order dated 15th January 2025
10 Noble Ploymers Limited vs BSE Limited, Appeal No. 223 of 2025, Order dated 3rd November 2025
11 BSE Order dated February 24, 2025, in the case of Betala Global Securities Limited
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