Pursuant to the coming into force of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) on December 1, 2015, SEBI issued a circular on November 30, 2015 (“SOP Circular”) to set out a uniform structure for imposition of fines and a standard operating procedure for suspension and revocation of trading of specified securities, for noncompliance with the provisions of the Listing Regulations. As per the SOP Circular, depositories on receipt of intimation from the concerned stock exchange, of any noncompliance by a listed entity, can freeze or unfreeze, as the case may be, the entire shareholding of promoters/ promoter group of such listed companies which are non-compliant with the Listing Regulations (“Non-Compliant Companies”). Stock exchanges will be required to disclose on their website the names and the actions(s) taken against Non-Compliant Companies, along with relevant details.
To maintain consistency and uniformity of approach, the principles and procedures to be followed by the stock exchanges for taking action(s) against Non-Compliant Companies have been laid down. As a first resort, stock exchanges shall use imposition of fines in case of such non compliances and invoke suspension of trading in case of subsequent and consecutive defaults. Fines for non-compliance may range from `1,000 (Indian Rupees One thousand) to `10,000 (Indian Rupees Ten thousand) or 0.1% (point one percent) of the paid up capital, as the case may be, for each day of non-compliance of obligations under certain regulations of the Listing Regulations. Stock exchanges will have the right to initiate appropriate enforcement action, including prosecution, if Non-Compliant Companies fail to pay the fine, for noncompliance, despite the receipt of notice.
The shareholding of the promoter/ promoter group can remain frozen for up to a period of 3 (three) months from the date of revocation of a suspension. Moreover, trading in the shares of the Non-Compliant Company may be stopped completely if the entity remains non-compliant for 6 (six) months. The SOP Circular provides for the procedure for notifying the Non-Compliant Companies and criteria under which trading in the shares of the Non-Compliant Companies can be suspended. The suspension of trading in the shares of a Non-Compliant Company may be revoked in the event that the entity complies with the requirements under the Listing Regulations and pays the applicable fine(s) within 3 (months) from the date of such suspension. However, if the entity complies with the requirements and pays the applicable fine(s) beyond the period of 3 (three) months, the suspension may be revoked, while the trading in shares will be limited to a “trade for trade” basis for a period of 3 (three) months from the date of revocation.
The Listing Regulations were issued by SEBI to simplify and consolidate the procedure for listing of securities on relevant stock exchanges. The mechanisms put in place by the SOP Circular will ensure uniform approach by the stock exchanges for imposition of fines and penalties for noncompliance with the Listing Regulations, thereby requiring timely adherence of the Listing Regulations by listed entities.