Contents
Definition
Delisting is the permanent removal of a company's equity shares from trading on a recognised stock exchange. In India, delisting is governed by SEBI (Delisting of Equity Shares) Regulations 2021, which replaced the 2009 framework. Delisting can be voluntary (promoter-initiated, typically to take the company private) or compulsory (exchange-imposed for regulatory violations or sustained non-compliance with SEBI LODR norms). After delisting, shares cannot be traded on any exchange — shareholders must exit via the delisting offer or are left holding illiquid shares.
Mechanics & Timeline
Voluntary Delisting (standard route):
- Board approval + special resolution of shareholders (75% majority with no objection from majority of public shareholders).
- Floor price calculation: Higher of SEBI formula price (VWAP-based) and acquirer's offered price. SEBI formula: average of weekly high–low over 26 weeks.
- Reverse Book-Building (RBB): Public shareholders tender shares over 5 days at or above floor price. The "discovered price" = the price at which the acquirer can acquire shares to cross the 90% threshold. Acquirer can accept or reject the discovered price.
- If accepted: all remaining public shareholders can exit at the discovered price for 1 year after delisting.
- Minimum threshold: Acquirer must reach 90% of total shares to successfully delist.
SEBI 2021 Amendment — Fixed Price Route: Companies with public shareholding ≤ 25% (and meeting other criteria) may use a fixed price route (no RBB required) at a premium to the SEBI floor price.
Tax Treatment
- Tendering shares in delisting offer: Treated as a transfer under Section 2(47) — capital gains apply. STCG (20% u/s 111A) or LTCG (12.5% u/s 112A) depending on holding period, with STT applicable on the exit price.
- Compulsory delisting — shares retained: No tax event until shares are eventually sold in OTC/off-market transfer. OTC transfers are taxed as short-term or long-term capital gains depending on actual holding period; no STT benefit since STT is not paid on OTC transactions (full rate applicable without Section 111A/112A benefit).
- NRIs: TDS deducted at source by acquirer/escrow at applicable rates before disbursement of delisting proceeds.
Investor Protection
- Floor price guarantee: SEBI-mandated floor price ensures shareholders are not forced to accept below-market exit prices.
- Reverse book-building: Gives public shareholders collective bargaining power to "discover" an exit price above the floor — as opposed to a fixed unilateral offer.
- Post-delisting exit window: Even shareholders who did not tender during RBB can exit at the discovered price for 1 year via the acquirer — preventing permanent trapping.
- Minimum 90% threshold: Protects minority shareholders by ensuring the promoter cannot delist without near-complete public shareholder participation.
- NCLT oversight for compulsory delisting: Compulsory delisting by exchanges triggers a show-cause process with SEBI adjudication; company gets opportunity to rectify non-compliance before final delisting order.
Worked Example
Vedanta Limited Delisting Attempt — 2020:
- Promoter (Vedanta Resources / Anil Agarwal group) announced intent to delist in May 2020.
- SEBI floor price: ₹87.25 per share.
- Reverse book-building: Public shareholders discovered a price of ₹320 per share — 3.6× the floor price.
- Promoter decision: Rejected the discovered price (₹320) as too high — delisting failed.
- Outcome: Vedanta remained listed; promoter had to pay RBB escrow costs without completing the delisting. This case established the market's understanding that RBB can produce prices far above the statutory floor when shareholders have pricing leverage.
See Also
Primary Source
SEBI Delisting of Equity Shares Regulations 2021 — sebi.gov.in
MintByte is registered with SEBI as an Investment Adviser (ARN-314872) and APMI (APRN-01658). This glossary entry is for educational purposes only and does not constitute investment advice. Delisting events involve material uncertainty; investors should evaluate all disclosed terms carefully.