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Listed entities get 3 years to meet criteria of minimum 25% public shareholding

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Listed entities get 3 years to meet criteria of minimum 25% public shareholdingIn order to provide more time to the listed entities to meet criteria of minimum public shareholding (MPS) of 25%, the Centre Government has made changes in the Securities Contracts (Regulation) Rules, 1957 in rule 19A, in sub-rule (1), where the words “two years” substituted by words “three years”. Therefore, listed entities get one more year to comply with the rules of MPS, benefitting more than three dozen PSUs (public sector undertakings) who have been unable to meet this requirement amid COVID-19.

  • Eligibility for this relaxation: The rules were relaxed for listed entities for whom the deadline to comply with MPS requirements falls between the period from March 1, 2020 to August 31, 2020. 
  • Stock exchanges will not take any penal action against entities in case of non-compliance during the above mentioned period.

Key Points:

-If any penal actions initiated by stock exchanges from March 1, 2020 till date for non-compliance of MPS requirements by listed entities may be withdrawn.

-As per the current rules, exchanges can slap a fine of up to Rs 10,000 on companies for each day of non-compliance with MPS requirements and can also intimate depositories to freeze the entire shareholding of the promoter and promoter group.

Reason behind this move:

There are two reasons for this relaxation:

i.The earlier notification of 2018 giving these entities a timeframe of two years to meet the requirement will expire this month. 

  • Means, once a company is listed, its promoters are required to bring down their shareholding down to 75% within the stipulated minimum shareholding period so as to meet minimum public float of 25%.

ii.Also, the listed entities are facing difficulties in meeting the rule due to the current Covid-19 pandemic.

Recent Related News:

In July 2020, the Central Board of Direct Taxes (CBDT) and Securities and Exchange Board of India (SEBI) signed a Memorandum of Understanding (MOU) for the data exchange between the two organizations on a regular basis.

About Securities and Exchange Board of India (SEBI):
Chairman– Ajay Tyagi
Headquarter– Mumbai, Maharashtra