No legal hassles please! Some promoters keen to be known as non-promoters

Mumbai: Promoters not involved in the day-to-day operations of companies are rushing to re-classify themselves as public shareholders mainly to skirt regulatory glare and be exempt from possible litigation on charges like insider trading and other legal responsibilities involving the company .

Boards of nearly three dozen listed companies including Sun Pharma, Alembic, Dish TV , HFCL, Lumax Auto, KNR Construction and others have either approved or considered re-classification of some of their promoters as `nonpromoters' so far this year.

Market regulator Sebi last year issued guidelines for reclassification of certain promoters into public category subject to certain conditions because such promoters do not directly or indirectly exercise control over the affairs of the company. Sebi guidelines were issues after the co-founders of Infosys, N R Narayana Murthy and S Gopalakrishnan made a request for this re-classification.

Recently Sun Pharmaceutical reclassified members of Sanghvi and Valia families. Jayant Shantilal Sanghvi, Ajay Vrundavandas Valia, Kirit Valia, Jitendra Vrundavandas Valia, Dipti Modi and Varsha Doshi as public shareholders by .

In August, Dish TV declassified Dr Subhash Chandra and his two brothers, Laxmi Narain Goel and Ashok Kumar Goel, from being promoters.

Email queries sent to Sun Pharma and others did not elicit responses till the time of going to press. A Dish TV spokesperson said the changes have been done according to the family arrangement agreed between the promoters of the group, which has been informed to stock exchanges.

With the advent of a formal process through Listing Regulations, such an opportunity exits, said experts.

“In the last few months, many promoters who were not involved in the day-to-day control of the affairs or decision making of the company directly or indirectly or not holding any special rights, have chosen to reclassify as public shareholders to mainly to be eligible for exemption from the various obligations,“ said Sandeep Parekh, founder, Finsec Law Advisor.

This trend will now intensify as market regulator last week said that shareholders' nod is not required to re-classification of promoter group members to public category . Alembic Pharma had sought an informal guidance from Sebi on whether shareholders' approval would be required or it can directly approach stock exchanges for permission under listing regulations.

“There are lot of inquiries on this front from promoters and going forward, several such entities are likely to adopt this route to reclassify into public category“ said a securities lawyer. “In many cases, such entities were classified as promoter category in the past, due to issues of legacy, compliance or practical convenience and even due to inadvertent filing in some cases“.

Before the regulations become effective, an unwritten code was prevalent that once a promoter, always a promoter as there was no formal procedure to reclassify any promoters into a public shareholder.

The procedure for reclassification requires that the promoters proposing to reclassify themselves as public shareholders applies to the company, which then informs the stock exchanges. Once the proposal is accepted by the board of the company , the approval from shareholders is required to be obtained by way of ordinary resolution.Subsequently, the company has to submit the outcome of shareholders' approval to the stock exchange in the prescribed format so as to formalise the process of reclassification of promoters to public shareholder.