3.1 The form of letter of application to be submitted to a recognised Stock Exchange by a company desirous of getting its securities listed thereon, requires the company to send (or undertake to send), inter alia, the ‘Listing Agreement Forms’. In the recitals of the Listing Agreement Forms, it is stated thus :
"It is a requirement of the Exchange that there must be filed with the application an agreement in terms hereinafter appearing to qualify for the admission and continuance of the said securities upon the list of the Exchange.".
3.2 The expression ‘Listing Agreement’ contains the word ‘agreement’ and in terms of the Indian Contract Act, an agreement has to have at least two parties, the promisor and the promisee. A Listing Agreement is, however, executed only by one party to it, namely the company desirous of getting its securities listed. It is never signed on behalf of the other party, namely the company. Reasons for this are not known; perhaps the word ‘agreement’ has been used in a loose sense and not in its legal connotation (although this ‘agreement’ is expected to have enforceability in a court of law). The Committee was given to understand by the BSE that the Courts have upheld the validity of the Listing Agreement in its present form. The title of the Listing Agreement Form does contemplate two parties to it. But all its contents are nothing but the things enumerated therein that the company agrees to do or undertakes to be done.
3.3 The Committee noted that there is no standard or model Listing Agreement form prescribed under law and, although the SCR Rules enumerate, in Rule 19 thereof, certain contents of the Listing Agreement and Bye-laws of the Stock Exchanges contain a standard format of the Listing Agreement. The Stock Exchanges are free to devise their own form. Though, by and large, there is uniformity in the Listing Agreements of all recognised Stock Exchanges, there have been instances of disparities and divergent practices.
3.4 The Committee has also considered the fact that in relation to certain matters the Listing Agreement deviates from and provides for something within the outer limit of the relevant provision of the Companies Act. For example, as against the time limit of two months as provided by section 113 of the Act for the registration of transfer of shares, the Listing Agreement provides for the time limit of one month in this regard. There are a few other matters of this nature. Although the intention behind this is salutary, the Committee feels that the law should be suitably amended to provide that in respect of certain specified matters the Listing Agreement may contain in the interests of the investors, a provision different from what is provided in the law but within the outer limit thereof.
The Committee, therefore, recommends that:
- The concept of ‘Listing Agreement’ be done away with and the contents thereof be prescribed as part of the SCR Rules under the heading ‘Conditions for Listing and Continued Listing’, consisting of two parts:
Part A - Minimum conditions common for all the Stock Exchanges; and
Part B - Additional conditions optional for the Stock Exchanges which may vary from Stock Exchange to Stock Exchange,
and the Stock Exchanges be given freedom to modify Part B to suit their requirements subject to the prior approval of SEBI.
2. The Companies Act be suitably amended to provide that in respect of certain specified matters the Listing Agreement may contain in the interests of the investors, a provision different from what is provided in the law but within the outer limit thereof.
3.5 Till January 25, 1995, the SCR Act did not contain any provision regarding the Listing Agreement. By the Securities Laws (Amendment) Ordinance, 1995, which was subsequently replaced by the Securities Laws (Amendment) Act, 1995, section 21 of the SCR Act was substituted, which now provides that 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. The object of this provision, as stated in the Statement of Objects and Reasons appended to the Securities Laws (Amendment) Bill, 1995, is to "make violation of the Listing Agreement as an offence". This offence is punishable under section 23(2) of the SCR Act with fine upto one
thousand rupees, after it is tried by a criminal court, and the accused is convicted. Where an offence is committed by a company, the company as well as the persons specified in section 24, shall be deemed to be guilty of the offence, and be punishable, if convicted of the offence.
3.6 The objective of the Listing Agreement is to safeguard investors’ interests and ensure transparency in the conduct of the listed companies. The Committee is of the view that the Listing Agreement needs to be enforced vigorously and the errant companies dealt with severely, so that it would create a deterrent for others. This calls for two-fold reforms. Firstly, to enhance the quantum of punishment under the SCR Act. Secondly, to strengthen the enforcement machinery.
The Committee recommends that :
- Section 23(2) of SCR Act be amended to enhance the fine from one thousand rupees to ten thousand rupees and to provide for a further fine of one thousand rupees for every day in the case of a continuing default.
- Section 29A of SCR Act be amended to make an enabling provision for delegation of powers of the Central Government under that Act to the recognised Stock Exchanges, and in pursuance of such provision, the power to institute prosecution against the listed companies and its directors/officers for breach of any of the conditions of the Listing Agreement under sections 23(2) and 24 be delegated to the Stock Exchanges. Alternatively, either section 26 of SCR Act be amended in this regard or a new provision be inserted in that Act to give effect to the above recommendation.
- The Stock Exchanges should strengthen their machinery for stricter enforcement of the Listing Agreement and institution of prosecution against the erring companies and their directors/officers.
3.7 Although all the recognised Stock Exchanges in the country are governed by the two main legislations, namely, SCR Act and SEBI Act, the Listing Agreements, as noted earlier, are not uniform and differ from Stock Exchange to Stock Exchange in certain respects, giving rise to conflicting interpretations regarding compliances and enforcement as also varying practices and procedures followed by different Stock Exchanges. This results into an anomalous situation in that if a company’s securities are listed on more Stock Exchanges than one, it is required to comply with the Listing Agreement in varying ways. The Committee has been informed that the Listing
Agreement is amended by the concerned Stock Exchange and intimated to the SEBI as well as the listed companies. Sometimes the Listing Agreement is amended by the Stock Exchanges in pursuance of the advice given by the SEBI. The Committee is of the view that there is a need to rationalise the procedure for amending the Listing Agreement.
The Committee recommends that :
- In order to bring about uniformity and avoid confusion, a specific provision be made with regard to the procedure for amendments to the Listing Agreement and the authority to notify the amendments.
- If, as recommended hereinabove, the Listing Agreement is incorporated in the SCR Rules, a provision be made in the Rules providing for the procedure for amendments to the Listing Agreement.
- SEBI be given exclusive power in this regard with the stipulation that before amending the Listing Agreement, SEBI will consult the Stock Exchanges.