The Chandratre Committee deserves to be complimented for the objective approach adopted by it to a vexed problem of delisting of securities which hitherto was not given the consideration that it merited. Some of the recommendations made by the committee, however, need to be improved upon basically from the point of investor interest.The proposal of the committee to amend Section 23(2) of the Securities Contracts (Regulation) Act, 1956 (SC(R) Act) to enhance the fine amount from Rs 1,000 to Rs 10,000 with a proviso for a further fine of Rs 1,000 for every day in case of a continuing default for breaches of section 21 of the said act, which requires the person applying for listing on a recognised stock exchange to comply with the conditions of the listing agreement with the stock exchange, is no doubt welcome. The committee should have, however, also considered the question of empowering the governing boards of stock exchanges to fine the companies for violations of the provisions contained sin the listingagreement -- a demand persistently made by stock exchanges during the last three decades. While a stock exchange can fine a listed company. In order to remove any arbitrariness in the matter, a provision for an appeal to the SEBI in cases where the quantum of fine exceeds say two or three times the annual listing fee payable by the company to the stock exchange (which is related to the paid-up capital of the company) can be made. This is bound to be far more effective than the provision contained in section 23(2) of the SC(R) Act as it is easily administrable while getting conviction from a court of law is invariably a long drawn out process. The panel has rightly recommended that there should be some minimum basic listing norms to be applicable to all the recognised stock exchanges with a limited freedom to them to lay down additional norms to suit their requirements. The minimum basic listing norms should be incorporated in the securities contracts (regulation) rules, 1957 (SC(R)) itself and not be merely apart of the bye-laws of stock exchanges as suggested by the panel. The additional norms for listing that any stock exchange many like to prescribe can, no doubt, be part of the bye-laws of the stock exchange concerned.
The most significant recommendation of the committee but done in the most casual manner relates to dispensation of mandatory listing of securities on the regional stock exchanges. The committee is of the opinion that the concept of regional stock exchange is slowly losing significance in view of modern technological innovations being resorted to by the stock exchanges, especially the major ones, due to which all the stock exchanges in the country are getting connected with each other, to the benefit of the members and the investors. It is not correct to say that the major stock exchanges are getting connected to each other. The National Stock Exchange is not connected to any other stock exchange. Even the connectivity of BOLT of Bombay Stock Exchange with the other stock exchanges of thecountry is yet to make any significant headway. It is only the smaller stock exchanges that have come together to form an Inter-Connected Market System (ICMS) on the lines of the National Stock Market System in the United States and the ICMS provides for all the federating stock exchanges to continue with their regional trading segments while evolving a national segment for trading in securities. The regional stock exchange will, therefore, continue to play a significant role in the securities market of the country. As T Prem Kumar, the dissenting member of the committee, points out, while the advantages of continuing the present practice are significant, there are no advantages worth mentioning for discontinuing the practice of listing on regional stock exchanges. The advantages include generation of greater awareness about the company in and around the region it is located through quotations of prices of the share of the company continuously appearing in local newspapers, automatic publicity for the companyand its products, increased liquidity arising out of arbitrage opportunities between the regional stock exchange and other stock exchanges where trading in the shares of the company take place, reducing congestion in metropolitan cities, etc.
With regard to the question of compulsory delisting on which the Chandratre Committee has dealt at great length, stock exchanges must continue to enjoy the freedom of delisting the securities of any company for breaches of the provisions contained in the listing agreement and the various norms that may be evolved in this behalf should be incorporated in the listing agreement itself, with the contents of the listing agreement being embodied in the SC(R) Rules, as recommended by the Committee. The freedom to delist may, however, be used as a last resort.
(To be concluded)
(The author is the former executive director of Bombay Stock Exchange)
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