SEBI to hold public consultations to frame rules for promoter re-classification

The Securities and Exchange Board of India (SEBI) has decided to hold a public consultation for framing rules to allow re-classification of promoters at listed firms looking to become public shareholders. The new norms can have a significant impact on the way some merger and acquisition deals are structured, as also in cases involving corporate restructuring that take place due to disputes among members of business families or after settlements between rival corporates.

With the Government looking to implement many legislative and administrative recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) in days to come as reported by the Kerala Law Review earlier, it has asked regulators including SEBI to begin adoption of governance-enhancing and non-legislative suggestions made by this panel on a proactive basis. Consequently, the Securities and Exchange Board of India (SEBI) has decided to frame all its major policy decisions after a public consultation process, as suggested by the FSLRC.

While SEBI has been framing most of its key regulations after a public consultation over the draft norms, it would now onwards follow this procedure for all policy matters having any significant implications for various market participants. As part of the new procedure, SEBI would make necessary amendments to its existing regulations governing re-classification of promoters after finalising a policy in this regard pursuant to a public consultation process.

A discussion paper containing draft regulations for reclassification of promoter as public shareholders, which have been finalised after detailed deliberations by SEBI's Primary Markets Advisory Committee, would be soon put in public domain for comments from all stakeholders. The paper would also elucidate the various scenarios and conditions under which a promoter or promoter group can be re-classified as a public shareholder. At present, the regulatory framework does not prescribe any specific criteria for such re-classification, which SEBI feels is required to lend objectivity to the process of reclassification of promoters of listed companies as public shareholders under various circumstances.