Investing in the stock market carries its share of surprises. One of the most unsettling events for shareholders is when a listed company suddenly disappears from the exchange. If you have ever wondered what happens when a company gets delisted, you are not alone. Thousands of investors in India face this situation each year, and the consequences can range from minor inconvenience to significant financial loss.
Delisting refers to the permanent removal of a company's shares from a recognised stock exchange such as BSE or NSE. Once delisted, the shares can no longer be traded on that exchange, which immediately affects liquidity, price discovery, and investor confidence. Understanding the delisting of shares process India is essential for anyone holding shares in publicly traded companies or managing compliance for listed entities.
This guide walks you through the reasons behind delisting, the regulatory framework under SEBI, the step-by-step process, and what investors can do to protect their interests.
Understanding Delisting: Voluntary vs. Compulsory
Not every delisting event is a cause for alarm. In India, the Securities and Exchange Board of India (SEBI) classifies delisting into two broad categories, each carrying distinct implications for shareholders, promoters, and the broader market.
Voluntary Delisting
A company may choose to delist its shares from the stock exchange on its own accord. This typically happens when the promoters wish to take the company private, consolidate ownership, or reduce the regulatory burden that comes with being listed. The promoter must offer shareholders a fair exit price determined through a reverse book-building process. SEBI's Delisting Regulations, 2021 govern this entire procedure and mandate that the exit price must reflect the true value of the company's shares.
For instance, when Vedanta Limited attempted to delist in 2020, the process attracted significant attention due to the gap between the promoter's offer price and the discovered price through reverse book building. Such events highlight the importance of understanding the delisting of shares process India before making investment decisions.
Compulsory Delisting
When a company fails to meet the listing obligations set by SEBI and the stock exchange, it faces compulsory delisting. Common triggers include persistent non-compliance with financial reporting requirements, failure to maintain minimum public shareholding, suspension of trading for extended periods, or winding up of the company under the Insolvency and Bankruptcy Code (IBC). In such cases, the exchange initiates the removal without the company's consent, leaving shareholders with limited options.
The Delisting of Shares Process in India: Step by Step
The regulatory framework for delisting in India is governed primarily by the SEBI (Delisting of Equity Shares) Regulations, 2021. Here is how the process unfolds for voluntary delisting.
The promoter or acquirer first passes a board resolution proposing the delisting and appoints a merchant banker. A special resolution must then be approved by shareholders through postal ballot or at a general meeting. At least two-thirds of public shareholders (excluding the promoter group) need to vote in favour for the proposal to proceed.
After obtaining SEBI's in-principle approval, the company opens the reverse book-building window. Public shareholders tender their shares and specify the price at which they are willing to exit. The discovered price is the price at which the maximum number of shares are tendered. If the promoter accepts this price and acquires at least 90% of the total shares, the delisting is deemed successful.
Shareholders who did not tender during the initial window get an additional opportunity to exit at the same discovered price for a period of one year from the date of delisting. Companies planning to list on a stock exchange can explore public company registration to understand the compliance framework better.
Impact on Shareholders: What Changes After Delisting
When a company gets delisted, the most immediate effect is the loss of an organised market for trading the shares. You can no longer buy or sell through BSE, NSE, or any recognised exchange. This creates a liquidity crisis for retail investors who may find it nearly impossible to find buyers for their holdings.
Your ownership rights, however, remain intact. You continue to be a shareholder of the company and are entitled to dividends, bonus shares, and voting rights as before. The company does not cease to exist simply because its shares are no longer traded publicly. It transitions into an unlisted entity, and the shares can technically be transferred through off-market transactions.
The challenge lies in valuation. Without a market-determined price, establishing the fair value of your shares becomes difficult. For capital gains tax purposes, you may need to rely on the fair market value as determined by a registered valuer. If you hold shares in a company that has been compulsorily delisted, the situation is even more complicated because there is no exit offer from the promoter.
Tax Implications of Holding Delisted Shares
Taxation on delisted shares depends on how and when you dispose of them. If you sell your shares through an exit offer during the delisting process, the gains are treated as capital gains. Long-term capital gains (LTCG) apply if the shares were held for more than 12 months before listing, and the applicable tax rate is 10% on gains exceeding Rs. 1 lakh (as per the current provisions).
Once a company becomes unlisted, any subsequent sale of shares will be treated under the unlisted securities tax regime. Here, LTCG applies only if the shares are held for more than 24 months, and the tax rate is 20% with indexation benefit. Short-term gains are taxed at your applicable slab rate. Filing accurate income tax returns becomes especially important in such scenarios to avoid scrutiny from tax authorities.
Rights and Remedies Available to Investors
Investors are not left entirely without recourse when a company gets delisted. SEBI has laid down specific safeguards to protect public shareholders during the delisting process.
In voluntary delisting, the reverse book-building mechanism ensures that shareholders get a fair exit price. If you miss the initial tender window, you can still sell your shares to the promoter at the discovered price for up to one year after delisting. For compulsory delisting, SEBI requires that the promoter provide an exit opportunity to remaining shareholders at a fair value determined by an independent valuer.
You may also approach the National Company Law Tribunal (NCLT) if you believe the delisting process was unfair or if the promoter has not honoured the exit offer. Additionally, complaints can be filed with SEBI's SCORES platform, which tracks and resolves investor grievances against listed and recently delisted companies.
What Companies Must Consider Before Delisting
For promoters and compliance officers, the decision to delist is not taken lightly. The process involves substantial financial outlay for acquiring public shares, compliance with SEBI timelines, and reputational considerations. A failed delisting attempt, where the discovered price is too high or the 90% threshold is not met, can lead to wasted costs and regulatory scrutiny.
Companies must also weigh the operational implications. A delisted entity loses the ability to raise capital through public offerings, and its visibility among institutional investors diminishes significantly. However, the reduced compliance burden and greater operational flexibility can be attractive for promoters looking to restructure or pivot their business.
If your company is exploring incorporation or restructuring, understanding the fundamentals of business registration and regulatory compliance can help you make informed decisions about the listing or delisting route.
Voluntary vs. Compulsory Delisting: Key Differences
| Parameter | Voluntary Delisting | Compulsory Delisting |
| Initiated By | Promoter or acquirer | Stock exchange or SEBI |
| Reason | Going private, reducing compliance | Non-compliance, insolvency |
| Exit Offer | Reverse book building at fair price | Fair value by independent valuer |
| Shareholder Approval | Required (two-thirds of public shareholders) | Not required |
| Impact on Investors | Fair exit opportunity available | Limited exit options, higher risk |
| Relisting Possibility | Company may relist after 5 years | May relist after meeting compliance |
Recent Trends in Delisting in India
The Indian market has witnessed a notable increase in voluntary delisting activity over the past few years. Several multinational corporations have chosen to take their Indian subsidiaries private, citing global restructuring, simplified governance, and the desire for greater operational control. At the same time, SEBI has tightened norms around compulsory delisting by introducing stricter disclosure requirements and enhanced penalties for non-compliant companies.
The introduction of the SEBI (Delisting of Equity Shares) Regulations, 2021 brought significant changes, including a fixed price mechanism for frequently traded shares and clearer timelines for completing the delisting process. These reforms aim to protect minority shareholders while providing a more predictable framework for promoters. Companies managing ongoing compliance, including GST return filing and annual filings, should stay updated on these regulatory developments.
How to Protect Yourself as an Investor
Staying informed is your strongest defence. Monitor SEBI circulars, stock exchange announcements, and the company's compliance track record regularly. If a company you have invested in has been placed under surveillance or trading suspension, treat it as an early warning sign.
Diversify your portfolio to reduce the concentration risk associated with any single stock. Pay close attention to corporate governance practices, board composition, and financial reporting timelines. Companies that consistently delay filings or fail to hold annual general meetings are often on the path to compulsory delisting.
If you receive an exit offer during a voluntary delisting, evaluate it carefully. Compare the offered price against the company's intrinsic value, historical price trends, and the discovered price through the reverse book-building process. Consulting a qualified chartered accountant or financial advisor before tendering your shares is always a prudent step.
Conclusion
Understanding what happens when a company gets delisted empowers you to make better investment decisions and respond swiftly when the situation arises. Whether it is a voluntary move by the promoter or a compulsory action by the exchange, the consequences are real and demand your attention.
The delisting of shares process India follows a structured regulatory path under SEBI, designed to protect minority shareholders while allowing companies the flexibility to restructure. Stay vigilant, monitor compliance indicators, and always exercise your exit rights within the stipulated timelines.
For expert guidance on company registration, tax compliance, and regulatory filings, reach out to the professionals at Patron Accounting. Whether you are starting a new venture or navigating complex corporate changes, our team of chartered accountants and company secretaries is here to support you at every step.
