Minimum public float: an analysis of amendments

Listed companies are required to maintain a minimum “public float” or issue to the public as prescribed by rule 19(2)(b) of the Securities Contract Regulation Rules, 1957 (SCRR). This rule was recently amended to raise the minimum public shareholding of all listed companies from 10% to 25% of the post-issue paid up capital.

The public shareholding refers to shareholding of persons who are unrelated to those in control of a company (the promoters). The rationale for amending the rule seems to be that greater public participation in listed companies would reduce instances of corporate mischief and increase accountability. However, the amendment and consequent changes to the listing agreement have given rise to significant challenges in its implementation. This article discusses the specific challenges and suggests corrective action.

The amendment

A proviso in the amendment allows companies with a post-issue share capital of ₹40 billion (US$887.8 million) or more to dilute less than 25% but more than 10% of the post-issue paid up capital. Such companies must increase their public float to 25% within three years from the date of the issue. Further, all existing listed companies with less than 25% public float are required to increase the same to at least 25% within three years of the amendment.

Subhayu Sen is an Associate at Khaitan & Co in Mumbai. Khaitan & Co is a full-service law firm with offices in Bangalore, Kolkata, Mumbai and New Delhi.