Listed firms may soon get powers to reclassify promoters as public shareholders if such entities lose control of the companies due to reasons like sale of pledged shares or corporate actions such as mergers and acquisitions, among other triggers.
The Securities and Exchange Board of India (SEBI) is looking into the regulatory framework for promoters, to lay down parameters based on which control can be ascertained and the obligations of shareholders decided.
The regulator has formed a committee to look into this matter and the final report of the committee is expected to be submitted soon.
“We are looking at the whole issue of regulation of promoter and promoter group and entities in control,” said Ajay Tyagi, chairman, SEBI post the regulator’s board meet on Wednesday.
“... what is more relevant and who should have the obligations which right now are (with) the promoter. There is a group which is working on that and will soon submit a report and we will take a view on that. It is an issue that we are looking into,” he added.
This assumes significance as the recent past has seen many promoters of entities such as Yes Bank, Zee Enterprises and Mindtree losing a significant chunk of their shares in the company, putting a question mark on their control though they are still labelled as promoters.
“The regulator needs to clearly state the triggers based on which a company can reclassify a promoter as a normal public shareholder,” said Shriram Subramanian, founder and MD, InGovern Research Services, a proxy advisory firm.
“Also, the action thereafter in terms of whether the board needs to be reconstituted, number of independent directors should be increased or the directorship of such entities should be put to vote needs to be laid down. This is an important issue and some of the recent developments have brought to the fore the question whether promoters should voluntarily step down or seek a reauthorisation from all shareholders,” added Mr Subramanian.
Current rules allow reclassification of a promoter entity wherein an outgoing promoter has to give up special rights as well as control over the operations of the firm and is not allowed to hold over 10% stake. However, while a promoter can seek such reclassification, the company does not have any powers to initiate the reclassification.
Yes Bank saga
Proxy advisory firm Institutional Investor Advisory Services had highlighted that the promoter shareholding — including that of Rana Kapoor — had fallen below 10% in Yes Bank and hence, their right under Articles of Association to nominate a director is no longer valid.
“Because the nominee directors are not liable to retire by rotation, they can hold on to their directorships. This needs to change... But it’s the board and shareholders who must have the final say,” IIAS had tweeted.
