Minimum public shareholding
Also written MPS
The minimum share of a listed company that must be held by the public — 25% under Rule 19A of the SCRR, a continuous listing requirement rather than a condition met only at listing.
In plain language
A listed share is supposed to be a share the public can actually buy and sell. If promoters hold 95% of a company, the "market" in its shares is a few thousand shares changing hands between a handful of people, and the price means very little.
Minimum public shareholding (MPS) is the rule that keeps a real public float. The Securities Contracts (Regulation) Rules, 1957 set it at 25%, and — the point the workbook stresses — it is a continuous listing requirement: a company must stay at or above it for as long as it is listed, not merely clear it on the day of listing.
How it works
The rule. Rules 19(2)(b) and 19A of the SCRR stipulate minimum public shareholding. The 25% requirement in Rule 19A operates as a continuous listing requirement for listed companies.
How non-compliance is dealt with — the Polson Ltd matter (Chapter 5, Case 5.3).
| Date | Event |
|---|---|
| — | MPS mandate applicable since 2010 |
| June 2013 | SEBI interim order against 105 listed companies not complying with MPS under Rules 19(2)(b) and 19A; Polson among them |
| June 2016 | Order confirming the interim directions against the company and its director/promoter; Polson still in breach of Rule 19A |
| November 2017 | Polson informs SEBI it has complied by selling 11,200 equity shares held by promoters through the offer for sale mechanism |
| January 2018 | BSE confirms compliance with the 25% requirement under Rule 19A |
| — | SEBI revokes the interim directions, noting the company had delayed compliance by four years without justification |
| May 2018 | Show cause notice: why penalty should not be imposed under Section 23E of the SCRA |
| June 2018 | Settlement application, without admitting or denying the findings |
| — | Settlement amount of Rs 6.80 lakh approved on the recommendation of the High-Powered Committee, and remitted |
The penalty provision. Section 23E of the SCRA: a company (or a person managing a collective investment scheme, mutual fund, REIT, InvIT or AIF) that fails to comply with listing or delisting conditions or grounds is liable to a penalty of not less than Rs 5 lakh, which may extend to Rs 25 crore.
The settlement route. Section 23JA of the SCRA allows a written application to SEBI to settle proceedings; SEBI considers the nature, gravity and impact of the default. No appeal lies against a settlement order, and settlement amounts, excluding disgorgement and legal costs, are credited to the Consolidated Fund of India.
The formula
Public shareholding % = Shares held by the public ÷ Total issued shares × 100
Shares promoters must sell (or public must receive) to restore MPS
= (25% × Total shares) − Shares currently held by the public
A worked example
Illustrative figures. Sahyadri Textiles Ltd has 20,00,000 equity shares. Its promoters hold 15,30,000 (76.5%); the public holds 4,70,000 (23.5%).
Required public holding = 25% × 20,00,000 = 5,00,000 shares
Shortfall = 5,00,000 − 4,70,000 = 30,000 shares
Like Polson, the promoters can sell 30,000 shares through the offer for sale mechanism. At a market price of Rs 140, that is a sale of Rs 42 lakh — after which the public holds exactly 25%.
What delay costs. Suppose the company does nothing for four years, as Polson did.
| Route | Exposure |
|---|---|
| Adjudication under Section 23E | Penalty not less than Rs 5 lakh, up to Rs 25 crore |
| Settlement under Section 23JA | An amount SEBI agrees to after weighing nature, gravity and impact — Rs 6.80 lakh in Polson's case; no appeal against the order |
| Meanwhile | Interim directions against the company, directors and promoters, which in Polson's case stayed in force until compliance was confirmed |
The sale needed to cure the breach — Rs 42 lakh of shares, most of which the promoters convert to cash — costs far less than the years of directions, the show cause notice and the settlement.
Why NISM asks about it
Chapter 5 (Securities Contracts (Regulation) Act, 1956 and Securities Contracts (Regulation) Rules, 1957), 4% of the paper, presents MPS through the Polson Ltd settlement order and sets out Sections 23E and 23JA.
Expect the 25% figure, the continuous nature of the requirement, Rule 19A, and the Rs 5 lakh – Rs 25 crore range of Section 23E. The case also illustrates the offer for sale route to compliance.
Common exam traps
- 25%, and continuously. Meeting it at listing and falling below later is a breach of Rule 19A.
- Rule 19A is the continuous requirement; Rule 19(2)(b) is the other rule the Polson order cites.
- Section 23E, not 23A, is the listing-conditions penalty: Rs 5 lakh to Rs 25 crore. Section 23A (failure to furnish information) runs from Rs 1 lakh, Rs 1 lakh a day, up to Rs 1 crore.
- Settlement under Section 23JA is without admission or denial, and no appeal lies against the settlement order.
- Settlement amounts go to the Consolidated Fund of India, excluding disgorgement and legal costs.
- Workbook slip. Chapter 5's heading calls the Act the "Securities Contracts (Regulation) Act, 2018"; the Act is of 1956, as the chapter's own text says.
Check yourself
1.What minimum public shareholding does Rule 19A of the SCRR mandate, and what is its nature?
- a)25 per cent, as a continuous listing requirement
- b)10 per cent, at the time of listing only
- c)51 per cent, as a one-time condition
- d)There is no minimum
Show the answer
Answer: (a) 25 per cent, as a continuous listing requirement
BSE confirmed to SEBI in January 2018 that the company is in compliance with the public shareholding requirement of 25% mandated in Rule 19A of SCRR as a continuous listing requirement for listed companies.
Twenty-five per cent, continuously — which disposes of options B and C. It is not satisfied once at listing and then forgotten.
The Polson case shows the consequence of treating it otherwise. SEBI passed an interim order in June 2013 with respect to 105 listed companies who did not comply with minimum public shareholding (MPS) stipulated under Rule 19(2)(b) and 19A of SCRR, 1957. Polson Ltd was one of 105 companies.
And the company remained in breach for years: SEBI's June 2016 order noted that the company continued to be non-compliant with MPS requirements and thereby continued to breach Rule 19A of SCRR.
"Continued to breach" — the language of a continuing obligation.
How compliance was finally achieved: Polson in November 2017 informed SEBI that they have fulfilled MPS by selling 11,200 equity shares owned by the promoters of the company, using the "Offer for sale" mechanism.
Promoters selling down, not the company issuing more — either route increases the public float.
The consequences of the delay: SEBI noted that mandate of MPS was applicable since 2010. Company has delayed the compliance with MPS for 4 years and has not provided any justification for delayed compliance, and a show cause notice followed asking why an enquiry should not be held against it and penalty not imposed under section 23E of SCRA — the section covering failure to comply with the listing conditions or delisting conditions, at not less than five lakh rupees but which may extend to twenty-five crore rupees.
**It settled at Rs 6.80 lakhs.
Listing is one of the three areas of SCRA jurisdiction, alongside exchanges and contracts.
Where this is taught
Free preparation for NISM Series III-ARelated terms
- Securities Appellate TribunalThe statutory tribunal established under the SEBI Act that hears appeals from orders of SEBI and of its adjudicating officers, which must be filed within 45 days of receipt of the order.
- Attachment of propertyA legal order preventing a person from dealing with property or bank accounts — up to 90 days by SEBI under Section 11(4) of the SEBI Act, up to 180 days under Section 5 of the PMLA, and a recovery mode under the SCRA.
- ComplianceThe set of actions by which securities market intermediaries and issuers conform to the rules of SEBI, the exchanges, the depositories and their own boards — records, policies, reports and submissions.
- Stock exchange bye-lawsThe rules each stock exchange frames for its own trading members — admission, listing, fees, trading and settlement, members' rights, arbitration — approved by SEBI and consistent with the SCRA, SCRR and SEBI Act.