Listing of Securities under SCRA 1956

Topic 4 — Sections 21 & 22: Conditions, Procedure, LODR & Delisting | SEBI Law Officer Notes

Listing of securities on a recognised stock exchange is the gateway to the public capital market. Section 21 governs the conditions of listing; Section 22 provides for appeal against refusal to list. The listing agreement — now replaced by the SEBI (LODR) Regulations, 2015 — creates a statutory contract between the issuer and the exchange, imposing continuous disclosure and governance obligations. Understanding the listing framework is essential for SEBI Law Officer, Company Secretary and Judiciary exams.

1. Section 21 — Conditions for Listing

Section 21: Where securities are listed on the application of any person in any recognised stock exchange, such person shall comply with the conditions of the listing agreement with that stock exchange.

Four critical points from Section 21:

<w:r><w:rPr><w:b/><w:bCs/><w:color w:val="323E4F"/><w:sz w:val="21"/><w:szCs w:val="21"/></w:rPr><w:t xml:space="preserve">'On the application of any person': </w:t></w:r><w:r><w:rPr><w:color w:val="323E4F"/><w:sz w:val="21"/><w:szCs w:val="21"/></w:rPr><w:t xml:space="preserve">Listing is initiated voluntarily by the issuer. It is not imposed by law (though public companies making IPOs are required to seek listing under Companies Act).</w:t></w:r>
<w:r><w:rPr><w:b/><w:bCs/><w:color w:val="323E4F"/><w:sz w:val="21"/><w:szCs w:val="21"/></w:rPr><w:t xml:space="preserve">'Listing agreement': </w:t></w:r><w:r><w:rPr><w:color w:val="323E4F"/><w:sz w:val="21"/><w:szCs w:val="21"/></w:rPr><w:t xml:space="preserve">The issuer must enter a formal listing agreement with the exchange. This is a STATUTORY CONTRACT — its force derives from Section 21, not merely from the law of contract.</w:t></w:r>
<w:r><w:rPr><w:b/><w:bCs/><w:color w:val="323E4F"/><w:sz w:val="21"/><w:szCs w:val="21"/></w:rPr><w:t xml:space="preserve">Continuous compliance: </w:t></w:r><w:r><w:rPr><w:color w:val="323E4F"/><w:sz w:val="21"/><w:szCs w:val="21"/></w:rPr><w:t xml:space="preserve">The listing conditions are not one-time — they must be complied with continuously throughout the period of listing.</w:t></w:r>
<w:r><w:rPr><w:b/><w:bCs/><w:color w:val="323E4F"/><w:sz w:val="21"/><w:szCs w:val="21"/></w:rPr><w:t xml:space="preserve">Non-compliance: </w:t></w:r><w:r><w:rPr><w:color w:val="323E4F"/><w:sz w:val="21"/><w:szCs w:val="21"/></w:rPr><w:t xml:space="preserve">Persistent non-compliance is the ground for compulsory delisting under Section 21A.</w:t></w:r>

2. SEBI (LODR) Regulations, 2015 — The Current Framework

The traditional 'listing agreement' was replaced comprehensively by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR). LODR standardises obligations for all listed entities — companies, REITs, InvITs, etc. Key obligations under LODR:

Obligation	Key Requirement under LODR
Board Composition	Minimum % independent directors; separation of CMD & MD; audit committee mandatory.
Financial Disclosures	Quarterly/annual financial results within prescribed timelines (45/60 days).
Material Events	Disclosure of 'material events' within 24 hours of occurrence.
Related Party Transactions	Board + shareholder approval; disclosure in annual report.
Corporate Governance Report	Annual report must contain detailed CG report; CEO/CFO certification.
Website Disclosures	Mandatory information on company's website — financial results, shareholding, etc.
Trading Window Compliance	Closure during UPSI periods; pre-clearance mechanism for insiders.

3. Section 22 — Right of Appeal Against Refusal of Listing

Section 22: Where a recognised stock exchange refuses to list the securities of any company, the company may appeal to the Securities Appellate Tribunal [SAT] against such refusal.

⚠️ Important Change of Forum

Section 22 originally provided appeal to the CENTRAL GOVERNMENT. Post-establishment of SAT under the SEBI Act, appeals under Section 22 now lie to the SECURITIES APPELLATE TRIBUNAL (SAT). This change of forum is a frequently tested exam point — do not write 'Central Government' in your answer.

The right of appeal ensures that a stock exchange cannot arbitrarily refuse listing. SAT can examine whether the refusal was justified under the listing conditions and may direct the exchange to admit the securities to listing if the refusal was unjustified.

4. Rule 19 of SCRR — Conditions for Listing

4.1 Minimum Public Shareholding — Rule 19(2)(b)

At least 25% of each class of securities must be offered to the public (minimum public float requirement). For very large companies (initial market capitalisation exceeding a prescribed threshold), the minimum is 10%. Purpose: ensure adequate floating stock for price discovery and market liquidity.

✅ Rule 19A — Continuous Minimum Public Shareholding

Post-listing, the minimum 25% public shareholding must be MAINTAINED AT ALL TIMES (Rule 19A of SCRR). Companies that fall below 25% must restore compliance within stipulated timelines. SEBI has powers to compel compliance, impose penalties, and initiate delisting proceedings.

4.2 Content of Listing Application

Certified copies of MOA & AOA of the issuer company.
Copies of all prospectuses/offer documents issued previously.
Audited balance sheets and accounts for the preceding 3 years.
Statement showing distribution of share capital — promoters, FPIs, public.
Specimen copies of share/debenture certificates.
Undertaking to comply with listing conditions continuously — this is the genesis of the listing agreement.

5. Section 21A — Compulsory Delisting

Section 21A: A recognised stock exchange may, after giving a reasonable opportunity of being heard, by order delist the securities of a company on prescribed grounds, subject to SEBI guidelines.

Grounds for compulsory delisting include:

Persistent non-compliance with LODR/listing agreement conditions.
Failure to maintain minimum 25% public shareholding.
Failure to pay annual listing fees.
Non-submission of financial results for prolonged periods.
SEBI direction for delisting in investor interest.

Type of Delisting	Key Features
Voluntary Delisting	Promoter offers to buy out public shareholders; reverse book building process; 90% acceptance threshold required; floor price mechanism protects investors.
Compulsory Delisting	Exchange/SEBI-initiated; show-cause notice; independent valuer determines fair exit price; shareholders must be given exit opportunity.

6. Benefits & Obligations of Listing — Comparison

Benefits of Listing	Obligations of Listing
Access to broad investor base; public capital	Continuous disclosure obligations (LODR)
Market-determined price discovery and valuation	Minimum public shareholding 25% (Rule 19A)
Enhanced liquidity for existing shareholders	Corporate governance: board composition, audit committee
Brand recognition, prestige, employee ESOPs	Insider trading restrictions on key management personnel
Exit route for PE/VC investors via secondary market	Quarterly and annual financial reporting
Debt instruments: rating + listing = wider investor base	Immediate disclosure of material events within 24 hours

7. Landmark Cases

📖 Sterlite Industries (India) Ltd. v. SEBI SAT Order, 2002

Facts: Challenge to a stock exchange's refusal to list securities on grounds of pending litigation and regulatory issues.

Held: SAT held that listing refusal must be based on specific, articulable grounds connected with investor protection. An exchange cannot refuse listing arbitrarily. Section 22 appeal to SAT is an effective remedy — SAT will examine the substance of the refusal.

Ratio: Listing refusal must be reasoned and specifically connected to investor protection grounds. SAT under Section 22 provides effective judicial review of listing refusals.

8. Model Examination Questions

Q1. 'Section 21 of the SCRA creates a statutory contract.' Discuss. What is the effect of a breach?

Listing Agreement as Statutory Contract

Model Answer — Section 21 of the SCRA states that where securities are listed, 'such person shall comply with the conditions of the listing agreement.' The listing agreement derives its binding force from Section 21 — it is a statutory contract, not merely a civil contract. Its terms are enforceable by the stock exchange, SEBI, and in certain circumstances, shareholders. Post-2015, the SEBI (LODR) Regulations replaced the old listing agreement but the statutory basis remains Section 21. Breach of listing conditions: (i) may attract civil penalties under Section 23C/23D/23E; (ii) can lead to trading halt; (iii) repeated breach is ground for compulsory delisting under Section 21A; (iv) SEBI can take enforcement action under SEBI Act Section 11B.

🎯 EXAM POINTERS — Topic 4: Listing of Securities

Section 21: Listing = voluntary (on 'application of any person') BUT once listed, conditions = mandatory.
Listing agreement = STATUTORY CONTRACT under Section 21 — not merely a civil contract.
Post-2015: Old listing agreement replaced by SEBI (LODR) Regulations, 2015.
Section 22: Refusal to list → APPEAL TO SAT (NOT Central Government — this has changed!).
Rule 19(2)(b) SCRR: Minimum 25% public shareholding for IPO/listing.
Rule 19A: Post-listing 25% public float must be maintained at ALL TIMES.
Section 21A: Compulsory delisting — for non-compliance; reasonable opportunity to be heard required.
SEBI Delisting Regulations 2021: Voluntary (reverse book building + 90% acceptance) vs Compulsory delisting.
Material events must be disclosed within 24 HOURS under LODR — key compliance obligation.
Sterlite Industries v. SEBI (SAT): refusal to list must be reasoned and investor-protection-based.

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