A public company proposing to list its shares on the stock exchanges in India is required to comply with various listing norms. One such mandate is achieving the minimum public shareholding (MPS) under Securities Contract (Regulation) Rules, 1957 (SCRR) which provides that at least 25% of the share capital and voting rights of a listed company should lie with public shareholders. Further, Regulation 19A of SCRR provides that a listed company should ensure that the MPS norms are continuously complied with throughout the life of the company. Clause 2 of Regulation 19A provides that if such number falls below the prescribed threshold, then the company has to bring back the same to 25% within a period of 12 months.

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 requires every listed company undergoing a scheme of arrangement under Sections 66 or 230-234 of the Companies Act, 2013, to obtain a no-objection from SEBI on the draft scheme before approaching the National Companies Law Tribunal for an approval. In this regard, a circular was issued earlier this year by SEBI on March 10, 2017, detailing the procedure to be complied with by companies governed under the abovementioned provisions. The March 10 circular required that every company proposing to undergo a scheme of arrangement is required to ensure that the at least 25% of the post-scheme shareholding of company is held by the public shareholders.

In a recent circular on September 21, 2017, SEBI has relaxed this requirement for such companies that have a valuation of more than Rs.1600 crore under the valuation report. A proviso has been added to the said rule whereby such companies are now required to ensure that at least 10% of their post-issue share capital in number and Rs. 400 crores in value should be issued to the public shareholders. Further, the companies are also required to furnish an undertaking providing that they will reduce the promoter / promoter group shareholding to 75% or lesser within a period of one year.

A similar exemption is already present in SCRR in the form of Clause 2 to Rule 19A. However, it was seen that in a number of cases, SEBI had issued adverse observations on the draft schemes which were devised in a manner that led to breach of MPS norms. Due to this, a number of schemes for arrangement could not be undertaken in the absence of receipt of a no-objection letter from SEBI. Although it is unclear as to how the number 1600 crores has been reached at; however, at least for now the circular will reduce some barriers for the companies proposing to undertake a scheme of arrangement.