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With a view to promote the interest of varied stakeholders and to penalize the listed entities and their Promoters for various non compliances by the said listed entities, SEBI vide its Circular dated 30th September, 2013 has streamlined the process and procedure with regard to suspension of trading by the Stock Exchanges and also the process for revocation of suspensions.
In this regard, to maintain consistency and uniformity of approach by the Stock Exchanges, SEBI has introduced a two-tier mechanism for penalizing the non-compliant companies thereby directing the Stock Exchanges to put in place the system to monitor and review the compliance of respective listing conditions and impose monetary penalty for non-compliances with certain clauses of listing agreement, at the initial stage as chalked down in the above-mentioned circular, in order to give a red signal to the listed entities that if the default continues, the trading in their securities can not just be suspended, but even the Promoters voting rights on their shares can be freezed.
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The main highlights of the amendments are outlined as follows:
1. Introduction of uniform fine structure for non-compliance with certain clauses of Listing Agreement:
a. Depending upon the delay period, the fines to be imposed would be as under:
| Clause of listing agreement |
Fine payable for 1st non-compliance |
Fine Payable each subsequent and consecutive non compliance |
Clause 31:
Non-submission of the Annual Report within prescribed period. |
Delayed beyond 5 days, Rs. 1000 per day till the date of compliance. |
Rs. 2,000 per day till the date of compliance. |
Clause 35:
Non submission of the shareholding pattern within prescribed period. |
Rs. 1,000 per day till the date of compliance.
And
If non-compliance continues for more than 15 days additional fine of 0.1 % of paid up capital* of the entity or Rs.1 crore, whichever is less. |
Rs. 1,000 per day till the date of compliance.
And
If non-compliance continues for more than 15 days additional fine of 0.1 % of paid up capital* of the entity or Rs.1 crore, whichever is less. |
Clause 41:
Non submission of the financial results within prescribed period. |
Rs 5,000 per day till the date of compliance
And
If non-compliance continues for more than 15 days additional fine of 0.1 % of Paid Up capital* of the entity or Rs. 1crore, whichever is less. |
Rs 10,000 per day till the date of compliance
And
If non-compliance continues for more than 15 days additional fine of 0.1 % of Paid Up capital* of the entity or Rs. 1crore, whichever is less. |
Clause 49:
Non submission of the Corporate governance compliance report within prescribed period. |
Rs. 1,000 per day till the date of compliance. |
Rs. 1,000 per day till the date of compliance. |
*Paid up capital as on first day of the financial year in which the non compliance occurs.
b. The Stock Exchanges shall put in place a system to review the compliances on regular basis and shall create a new category “Z” for trading on trade to trade basis.
2. Introduction of Standard Operating Procedure (SOP) for suspension and revocation of suspension of trading in the scrips of such listed entities:
A. SOP for suspension of trading
- Criteria for suspension of the trading in the shares of the listed entities:
| S.No. |
Non-Compliance with certain Clauses |
Time Period of Suspension |
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(a). |
Clause 31 with respect to submission of Annual Report |
2 consecutive financial years; |
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(b). |
Clause 35 with respect to submission of shareholding pattern |
2 consecutive quarters. |
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(c). |
Clause 41 with respect to submission of financial results |
2 consecutive quarters. |
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(d). |
Clause 49 with respect to submission of Corporate Governance Compliance Report |
2 consecutive quarters. |
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(e). |
Failure to submit information on the Reconciliation of Shares and Capital Audit Report |
2 consecutive quarters. |
- Before suspension of trading the concerned stock exchange shall send written intimation to the non-compliant listed entity for complying with respective requirement/s and pay the applicable fine within 21 days of the date of the intimation.
- If the non-compliant listed entity fails to comply with aforesaid requirement/s and pay fine within the prescribed time, the exchange shall intimate the depositories to freeze entire shareholding of its promoter and promoter group. Simultaneously, the stock exchange shall give a 21 days (prior to the proposed date of suspension) public notice on its website proposing suspension of trading in the shares of the non-compliant listed entity.
- If the company complies with respective requirement/s and pays fine 5 days prior to the proposed date of suspension, the trading in its shares shall not be suspended and the concerned exchange shall intimate to the depositories to unfreeze the promoters holding, after one month from the date of compliance.
- SEBI has also made a far reaching mandate that while suspending trading in the scrips of the non-compliant entity, the said exchange shall send intimation to other recognized stock exchanges where the shares of such company are listed and upon receipt of the same, the other recognized stock exchanges shall also suspend trading in the shares of the entity.
- To give exit opportunity and to make the investors aware about the suspension of the Company,, trading in the shares may be allowed on the “Trade for Trade” basis, on the first trading day of every week for 6 months, after 15 days of suspension in the scrips and in this regard, stock exchanges are required to put in place a system to publish caution message “Trading in shares of the company is under suspension and trade to trade basis and trading shall stop completely if the company remains not compliant for six months ” on trading terminals.
B. SOP for revocation of suspension of trading:
- If the non-compliant listed entity complies with the respective requirement/s and pays applicable fine:
- within 3 months from the date of suspension, the exchange may revoke the suspension of trading of its shares.
- after 3 months from the date of suspension, the exchange may revoke the suspension of trading of its shares after a period of three more months from the date of such compliance.
- The recognised stock exchange shall, 7 days prior to revocation of suspension of trading in shares of the entity, issue public notice on its website.
- After 3 months from the date of revocation of the suspension, the recognised stock exchange shall send intimation to the depositories to unfreeze the shares of the promoter and promoter group.
- Post revocation, the trading in the scrips shall be permitted only in the “Trade for Trade†basis for a period of 3 months and before shifting the scrips to the normal trading category, the stock exchanges are required to give prior notice of 7 days.
CP Comments:
The issuance of the Suspension and Revocation mechanism would surely act as a deterrent for the erring Promoters, for whom, it will now be a question of their own voting rights and not just a harassment for the innocent public shareholders. However, there is a concern, while Suspension of Trading by one Exchange is to be followed alike by other Exchanges as well, but there is no mention of alike following for Revocation as well, in the absence of which, although a Company may complete the pending compliances at one Exchange, but would continue to remain suspended at other Exchanges.
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