The Securities Exchange Board of India has introduced a stronger mechanism to check non-compliance of listing conditions, wherein the exchanges will have the ultimate power to freeze promoter's shareholding and can even delist the shares of companies which default.
The rule is introduced to mainly maintain the consistency and to adopt a uniform approach in the matter pertaining to imposing fines for non-compliance with certain provisions of the listing regulations.
Under the new framework introduced by the market regulator, the exchanges will have the power to freeze the entire shareholding of the promoter and the promoter's group in non-compliant listed entity also holding in other securities, SEBI mentioned this in a circular.
Apart from this, the exchange will also be empowered to impose fines on such non-compliant company, move the stocks of such firms to restricted trading category and even suspend the trading in the shares of such entities.
In case, if the entity fails to follow the requirements or pay the imposed fine within a period of six months from the date of suspension, then the exchange will need to initiate the process of compulsory delisting.
The set new rules will come into force with effect from compliance periods ending on or after September 30, 2018.
The basis for suspension from listing include failure to comply with the Board composition including the appointment of women director and failure to constitute audit committee for two consecutive quarters; failure to submit information on the reconciliation of shares and capital audit report for two consecutive quarters.
According to the new rules, SEBI has asked stock exchanges to impose penalties ranging from Rs 1,000- Rs 5,000 per day on violation of certain clauses of the listing agreement like non-submission or delay in the submission of documents relating to the company's financial and shareholding details, failure to appoint a Women Director on the Board.
The exchanges can also levy a fine of Rs 10,000 per instance for the delay in furnishing prior intimation about the company's board meetings and any delay in non-disclosure of record date or dividend declaration.
Such fines will continue to accrue till the time of the rectification of the non-compliance to the satisfaction of the concerned recognized stock exchange or till the scrip of the listed entity is suspended from trading for non-compliance with the provisions of Listing Regulations.
Such accrual will be irrespective of any other disciplinary or enforcement action initiated by stock exchanges or SEBI.
Further, if a non-complaint entity is listed on more than one exchanges, the concerned bourses need to take uniform action in consultation with each other.
The board of directors needs to be informed about the non-compliance and their comments need be made public so that investors can make informed decisions.
The exchanges would have to disclose on their websites the action taken against the listed entities for non-compliance of the listing conditions, including the details of respective including the details of respective requirement, amount of fine, the period of suspension, freezing of shares, among others.