BackBSE struggles to comply with Sebi order to delist suspended firms
More than half of 509 delisting notices bounce back, suggesting that promoters of these firms are untraceable
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Mumbai: BSE Ltd, which runs Asia’s oldest stock exchange, is struggling to comply with a diktat by the market regulator to delist companies that have been suspended for more than seven years.
More than half the 509 letters sent by BSE to suspended companies have bounced back, suggesting that their promoters may no longer be traceable, two persons familiar with the matter said on condition of anonymity.
The exchange has written to the Securities and Exchange Board of India (Sebi) seeking guidance on how to tackle the companies that have not responded to delisting notices and whose whereabouts cannot be tracked, these persons said.
“Around 270 of the said communications have returned undelivered, partially due to change in address of company, untraceable promoter and erroneous addresses given to exchanges at the time of listing," one of the two persons said. “The exchange has sought feedback from Sebi on how to deal with companies that have not responded to the delisting notices."
On 25 May, Sebi chief U.K. Sinha said the regulator will ask firms that have been suspended from trading for seven years to delist from the exchanges by giving an exit option to investors.
The exit option will be provided by setting a fair value for the shares. This fair value will be determined by a third-party valuer. There are about 1,200 such entities, Sinha said. A spokesperson for BSE confirmed that some letters sent to suspended companies had been returned.
“The exchange has sent out letters to companies on the addresses available on exchange records. Further letters were also sent out on addresses available in the ministry of corporate affairs’ (MCA) records. However, it seems that some of the companies have changed their registered office addresses without intimating the same to the exchange/MCA. On account of the same, some communications have been returned undelivered," the spokesperson said in an e-mailed response.
An e-mail sent to a Sebi spokesperson on Tuesday did not elicit a response.
As on 1 June, the BSE had 5,700 listed firms on its platform, out of which 1,021 companies had been suspended for seven years or more.
The number of listed companies on the National Stock Exchange of India (NSE) is lower at 1,900, with about 200 of these suspended due non-compliance with listing regulations.
V. Narasimhan, chief regulatory officer at NSE, said: “NSE has sent notices. In a few cases where we could not reach, we are trying to contact through alternative modes of communications. After ascertaining all these, cases will be referred to delisting committee."
According to the second person quoted above, Sebi may ask BSE to treat these companies as so-called vanishing companies.
“Sebi may ask BSE to treat them as vanishing companies and forcefully delist them, after the exchange has made all attempts (as per Sebi regulations) to reach out to them," the person said.
According to MCA norms, a vanishing company is one which fails to file returns with the exchange or MCA for a period of two years, if it does not maintain its office at the address available with the exchange and the MCA and if none of its directors is traceable.
“One of the factors to determine a company as a vanishing company is that it cannot be traced to its registered address. That is precisely the case here. Sebi and exchanges should deal with these companies as vanishing companies and opt for compulsory delisting," said R.S. Loona, a partner at Dhaval Vussonji Alliance.
“To my mind Sebi should have started this clean-up drive much earlier," he added.
Under Sebi’s delisting regulations, the exchange is required to publish an advertisement in a national daily about the proposed delisting. After 15 days of the public notice, the exchange is required to start the delisting process.
“Next week BSE will publish the advertisements proposing to delist companies that have failed to respond to the notices," said the second person cited above.
Under the current rules, the decision to forcefully delist a suspended firm is taken by a committee comprising an exchange official, a registrar of companies official and a representative of an investors’ association. Before going ahead with a compulsory delisting of the suspended companies, Sebi will ensure the stocks are moved to the dissemination board so investors can receive their dues by connecting with parties to buy or sell their shares.
A dissemination board is a facility hosted by exchanges for bilateral settlement in stocks that are no longer listed.
Exchanges would also need to appoint independent valuers to determine a fair value at which the investors would be provided an exit opportunity.
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