Recently, the stock exchanges froze the promoters’ shares in Patanjali Foods (erstwhile Ruchi Soya) after the company failed to comply with the minimum public holding norms.
So, what happens when exchanges freeze the promoters’ shareholding in a company? S Ravi, former BSE chairman and founder and managing partner of Ravi Rajan & Co, explains: “When an exchange freezes a promoter's shareholding for non-compliance, it means that the promoter's shares are temporarily suspended from trading on that particular exchange.”
He further says that the consequences of such a freeze depend on the specific circumstances and regulations involved, but it can have significant implications for the promoter and affected shares. The promoter may be required to take corrective actions or provide additional information to the exchange to restore trading of their shares, he says.
For shareholders, a freeze can result in limited liquidity and potential losses if they are unable to sell their shares on the affected exchange.
“Overall, it is a serious matter that can have significant consequences for all parties involved and this is a matter that can only be resolved by compliance,” says the former BSE chairman.
Patanjali Foods has managed to achieve 19.18% public shareholding, but it is still away from the minimum 25% public shareholding threshold.
Patanjali Foods has said that the action by stock exchanges will not have any impact on its financial position as it continues its ‘journey of registering a robust business and financial performance’.
“Our promoters’ equity shares are already under lock-in as per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 till April 2023 (one year from date of listing i.e. April 08, 2023) and therefore, we do not perceive any impact of this action by the Stock Exchanges. Further, it should be noted that our promoters’ equity shares are not pledged,” the company said in an exchange filing.
However, Shriram Subramanian, founder of proxy advisory firm InGovern, feels that freezing of promoters’ shareholding is not a good enough deterrence for failure to comply with Sebi rules. He thinks large monetary fines should be levied for non-compliance.
Patanjali Foods (erstwhile Ruchi Soya) was acquired by Yoga guru Ramdev’s Patanjali Ayurved in 2019 through a corporate insolvency resolution process under the Insolvency and Bankruptcy Code. As per IBC laws, if public shareholding in a listed company falls below 25%, as a result of a resolution plan under IBC, the company must bring the public shareholding to 25% within a period of three years from the date of such a fall.
Patanjali Food is now looking to restore the minimum public shareholding to 25% in a few months.