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SEBI plans new framework to check non-compliance of listing rules

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Markets regulator SEBI plans to put in place a stronger mechanism to check non-compliance of listing conditions, wherein exchanges will have powers to freeze promoter shareholding and even delist the shares of such defaulting companies.

The proposal would be discussed at the board meeting of the Securities and Exchange Board of India this week, senior officials said.

Under the proposed framework, exchanges would have the power to freeze the entire shareholding of the promoter and promoter group in a non-compliant listed entity also holding in other securities, they added.

It has been further proposed that if non-compliance persists, it would lead to suspension, revocation of trading and delisting of the shares of such listed entities.

The proposed framework will put in place an appropriate system for effective enforcement of continuous compliance of requirements by listed entities and their promoters.

Grounds for suspension from listing include failure to comply with the board composition, including appointment of women directors, and failure to constitute audit committees for two consecutive quarters; failure to submit information on the reconciliation of shares and capital audit report for two consecutive quarters.

The firms may be suspended for six months and subsequently, the process of compulsory delisting would be initiated.

Under the proposal, SEBI may ask stock exchanges to impose penalties ranging from Rs 1,000-5,000 per day, on violation of certain clauses of the listing agreement, like non-submission or delay in submission of documents related to the company’s financial and shareholding details, failure to appoint women director on the board.

Besides, the exchanges can levy a fine of Rs 10,000 per instance for delay in furnishing prior intimation about the company’s board meeting and delay in non-disclosure of record date or dividend declaration.

“Fines would accrue only till the date trading is suspended,” the officials said.

Further, if a non-complying entity is listed on more than one exchanges, the concerned bourses may take uniform action in consultation with each other.

The board of directors should be informed about the non-compliance and their comments should be made public so that investors can make informed decisions.

The exchanges should disclose on their websites the action taken against the listed entities for non-compliance of the listing conditions, including the details of respective requirement, amount of fine, period of suspension, freezing of shares, among others.

Every exchange may be required to review the compliance status of the listed entities within 15 days from the date of receipt of information. Also, exchanges should issue notices to the non-compliant listed entities to ensure compliance and pay fine within 15 days from the date of the notice.

If any non-compliant listed entity fails to pay the fine despite receipt of the notice, the exchange may initiate appropriate enforcement action including prosecution.

If the non-compliant listed entity then complies with the SEBI’s requirement, and pays applicable fine within three months from the date of suspension, the exchange may revoke the suspension of trading of its shares after seven days of such compliance and trading would be permitted only in ‘trade to trade’ basis for a week from revocation.

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