Sebi issues norms to check non-compliance of listing rules

Putting in place a stronger mechanism to check non-compliance of listing conditions, Sebi today announced measures like suspension of trading, imposition of monetary penalties of up to Rs 1 crore and moving the securities to restricted trading category.

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The Securities and Exchange Board of India (Sebi) said that recognised stock exchanges would use imposition of fines as action of first resort in case of non-compliances and invoke suspension of trading in case of subsequent and consecutive defaults. Based on feed-back received from various stakeholders, Sebi has asked exchanges to impose penalties ranging from Rs 1,000 to Rs one crore depending on the violation of certain clauses of the listing agreement like non-submission or delay in submission of document related to the company's annual report, financial and shareholding details and corporate governance compliance report.

In order to ensure effective enforcement of listing conditions, Sebi has put in place an appropriate system to enforce the liabilities of listed entities and their promoters as disclosed to the concerned recognised stock exchange under the Listing Agreement. It also said that in case relevant disclosures are not made, such promoters/promoter group should not exit from the listed entity.

"It has been decided that during the process of the suspension of the trading/revocation of trading as provided in the Standard Operating Procedure (SOP), the concerned recognised stock exchange shall intimate the details of the concerned non-compliant entity and its promoter /promoter group to the depositories," Sebi said. 

"On receipt of such intimation, the depositories shall freeze or unfreeze, as the case may be, the entire shareholding of the promoter and promoter group in such entity,"  the regulator said in a circular. Sebi asked stock exchanges to put in place the system to monitor and review the compliance of respective listing conditions by companies. It further said that each exchange, where the shares of the concerned entity are listed, would enforce the compliance of respective listing conditions.

The exchanges are required to disclose on its website 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.

The bourse is required to create a new category 'Z' for trading of shares of such non-compliant listed entities wherein trades would take place in 'trade for trade' basis. Sebi said if a listed entity commits two or more consecutive defaults in compliance of the listing agreement, the exchange would move the scrip to 'Z' category apart from imposing fine.

However, it needs to give seven days prior public notice to investors before moving the share to that segment. The scrip can be moved back to the normal trading segment following compliance with listing agreement. The amount of fine realised would be credited to the Investor Protection Fund of the concerned stock exchange. The exchange would disseminate on their website the names of non-compliant listed entities that are liable to pay fine for not complying with listing agreement.

Every bourse is required to review the compliance status of the listed entities within 45 days from the end of each quarter (for norms related to non-submission of annual report and shareholding details) and within 15 days from the due date of submissions under clauses related to non submission of the financial results and report on corporate governance. 

Also stock exchanges need to issue notices to the non-compliant listed entities to ensure compliance and pay fine as per this circular 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.

Sebi said trading in the shares of the listed entities would be suspended if a company fails to sumbit its annual report and financial results for two consecutive financial years and failed to sumbit shareholding details as well as report on corporate governance compliance for two straight quarters.

Trading would also be suspended in case of failure to submit information on the reconciliation of shares and capital audit report for two consecutive quarters. If the non-compliant listed entity fails to comply with with requirements and pay fine despite receiving intimation of from the exchange within stipulated timframe, the concerned exchange would inform the depositories to freeze entire shareholding of the promoter of such entity.

Simultaneously, the exchange would give a 21 days (prior to the proposed date of suspension) public notice on its website proposing suspension of trading in the shares of the non-compliant listed entity. If the non-compliant listed entity 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.