SEBI Redefines Public Sector Undertakings (PSUs) Delisting
Taxmann’s Advisory & Research Team [Corporate Laws]
CS Rachit Sharma
CS Isha Bathla
SEBI Redefines
Sector Undertakings (PSUs) Delisting
CS Rachit Sharma
CS Isha Bathla
1. Introduction
The SEBI has notified a landmark regulatory amendment, the SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2025, through Notification No. SEBI/LAD-NRO/ GN/2025/257, dated September 1, 2025. The new framework inserts Regulation 38B relating to ‘Delisting of Equity Shares of Public Sector Undertakings’ that have minimal public shareholding. The regulations alter the delisting process for PSUs, shifting from a market-driven reverse book-building mechanism to a fixed price, valuation-based approach.
The most significant change in the amended regulation is the introduction of a new floor price calculation that relies on a joint valuation report from two independent valuers, rather than a market-based metric like the Volume Weighted Average Market Price (VWAMP). This new fixed price must be at least 15% higher than the determined floor price. The regulations also streamline the post-delisting process by establishing a clear, long-term procedure for handling unclaimed funds, transferring them to the designated stock exchange for a seven-year period before they are moved to the Investor Education and Protection Fund (IEPF) or SEBI’s Investor Protection and Education Fund (IPEF). This regulatory step aims to overcome the financial and procedural challenges that have hindered India’s disinvestment and asset monetisation, while also ensuring that minority shareholders receive a fair and predictable exit.
2. Background and Rationale
SEBI observed that certain PSUs suffer from thin public float and/or weak financials. While some of them remain profitable, their long-term prospects may be limited due to factors such as outdated product lines or government decisions to sell off their assets, including individual units.
Despite these challenges, the fact that their shares are held mainly by the Government provides a sense of security to investors, often pushing market prices higher than what the companies’ book values may justify.
In the event of delisting, these PSUs, being frequently traded, would have to follow the 60-day volume-weighted average market price as the benchmark for determining the floor price. This, in turn, could lead to an inflated floor price and require a significantly higher budgetary outlay from the Government to complete the delisting exercise.
The shortcomings of the erstwhile framework are evident from major divestment cases.
Example
The Government’s plan to sell Bharat Petroleum Corp. Ltd (BPCL) had to be scrapped after bidders withdrew due to global energy market conditions and weak prospects for Indian refiners. BPCL’s falling market value made it harder to secure a good price, showing how unpredictable and vulnerable this model can be.
Similarly, the Government’s attempt to sell its remaining stake in Hindustan Zinc (HZL) faced legal and governance hurdles. The Supreme Court blocked the sale, questioning the rush to offload valuable shares. Allegations of governance lapses, including a disputed brand fee transfer without shareholder approval, added to the challenges. These issues highlight the risks and unpredictability of the old divestment model, which the new rules aim to overcome.
Therefore, in order to overcome these challenges in the delisting of PSUs, SEBI vide Consultation Paper dated May 6, 2025, proposed separate voluntary delisting norms for PSUs with 90% or more promoter holding. Accordingly, SEBI vide Notification dated September 1, 2025, has notified the Delisting of Equity Shares (Amendment) Regulations, 2025, introducing special provisions for the delisting of PSUs.
3. Meaning of Delisting
As per Regulation 2(j) of SEBI (Delisting of Equity Shares) Regulations, 2021, “delisting” means permanent removal of equity shares of the company from the trading platform of a recognised stock exchange, either by way of voluntary or compulsory method.
4. Special Provisions for Delisting of Public Sector Undertakings
SEBI has notified the SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2025. A new regulation 38B relating to ‘Delisting of Equity Shares of Public Sector Undertakings’ has been inserted. The special provisions for delisting of PSUs are as follows –
4.1. Applicability of provisions for delisting of PSUs:
The provisions of these regulations shall apply to the delisting of equity shares of PSUs (other than banks, NBFCs and Insurance Companies)1
4.2. Delisting of equity shares of PSUs from all recognised stock exchanges:
The equity shares of PSUs may be delisted from all the recognised stock exchanges where they are listed, subject to the following conditions-
(a) Aggregate shareholding of acquirer along with PSUs:
The aggregate shareholding of the acquirer, along with other PSUs, must be equal to or exceed 90% of the total issued shares of that class2
Example
Suppose, in India, Metals PSU Ltd., the Government holds 88% of the total issued equity share capital, while another PSU, State Engineering PSU Ltd., holds 4% of the total issued equity share capital. The combined shareholding of 92% makes the company eligible for delisting.
In contrast, in National Textiles PSU Ltd., the Government holds 80% of the total issued equity share capital, and another PSU, Central Infrastructure PSU Ltd., holds 5% of the total issued equity share capital. Their combined shareholding of 85% falls short of the 90% threshold, making the company ineligible for delisting until additional shares are acquired.
1 Regulation 38B(1) of SEBI (Delisting of Equity Shares) Regulations, 2021
2 Clause (a) of Regulation 38B(2) of SEBI (Delisting of Equity Shares) Regulations, 2021
(b) Shareholder approval for delisting of PSUs:
The shareholders of the PSU approve the delisting through a special resolution passed via postal ballot or e-voting. The explanatory statement accompanying the notice of such resolution contains all material facts related to the delisting. This aims to safeguard shareholder rights by ensuring informed decision-making, transparency and wider participation in the approval process3
(c) Delisting to be undertaken through a fixed price process:
The delisting of equity shares of PSUs should be undertaken through the fixed-price process4. This ensures clarity, eliminates uncertainty associated with price discovery, and provides shareholders with a predetermined exit value upfront.
(d) Determination of the floor price of equity shares proposed to be delisted:
The floor price of the equity shares proposed to be delisted must not be less than the highest of the following –
• volume-weighted average price paid or payable for acquisitions by the acquirer along with persons acting in concert, during the 52 weeks immediately preceding the reference date;
• the highest price paid or payable for any acquisition by the acquirer, along with persons acting in concert, during the 26 weeks immediately preceding the reference date;
• the price determined under a joint valuation report obtained from two independent registered valuers, taking into account valuation parameters such as book value, adjusted book value, income approach and any other customary valuation metrics for the valuation of shares of companies in the same industry5
Example
Consider Indian Metals PSU Ltd., which is proposed to be delisted. The 52-week volume-weighted average price of its shares works out to Rs. 115 per share, while the highest price paid by the acquirer in the last 26 weeks is Rs. 120 per share. At the same time, the price determined under a joint valuation report obtained from two independent registered valuers comes out at Rs. 100 per share. In this case, the floor price would be fixed at the highest of the three benchmarks, i.e. Rs 120 per share
(e) Delisting
price must be at least 15% above the floor price:
The delisting price must be at least 15% higher than the floor price6. This ensures that shareholders receive a fair premium over the base valuation rather than only the floor price.
3 Clause (b) of Regulation 38B(2) of SEBI (Delisting of Equity Shares) Regulations, 2021
4 Clause (c) of Regulation 38B(2) of SEBI (Delisting of Equity Shares) Regulations, 2021
5 Clause (d) of Regulation 38B(2) of SEBI (Delisting of Equity Shares) Regulations, 2021
6 Clause (e) of Regulation 38B(2) of SEBI (Delisting of Equity Shares) Regulations, 2021
The term’ floor price’ means the minimum price offered by the acquirer while making the proposal for the voluntary delisting of the equity shares of the company7 .
Example
Suppose the floor price of National Textiles PSU Ltd. has been determined at Rs. 120 per share. As per the regulations, the delisting price must be at least 15% higher than the floor price. Accordingly, the minimum delisting price would be Rs. 138 per share (Rs. 120 + 15% of 120). Prior to these regulations, shareholders were entitled only to the floor price of Rs. 120 per share.
4.1. Voluntary strike-off of PSUs whose shares have been delisted:
Where a PSU whose shares have been delisted, undertakes voluntary strike-off under the applicable laws and the strike-off takes place after one year from the date of delisting but within 30 days of the expiry of one year, then the strike-off must be subject to fulfilment of certain conditions –
(a) Amt. due to shareholders who have not tendered shares in the delisting to be transferred to the account of the designated stock exchange:
The amount due to the remaining public shareholders who have not tendered their shares in the delisting process must be transferred to the specified account maintained by the designated stock exchange. The stock exchange will hold this amount for a period of 7 years. During this period, investors may claim the amount payable to them directly from the stock exchange8.
(b) Transfer of unclaimed amount to Investor Education and Protection Fund:
After the completion of a seven-year period, any unclaimed amount must be transferred to the Investor Education and Protection Fund (IEPF) established under the Companies Act, 20139
(c) Transfer of unclaimed amount to SEBI’s Investor Protection and Education Fund:
If, for any reason, the unclaimed amount cannot be transferred to the Investor Education and Protection Fund (IEPF) established under the Companies Act, 2013, then such amount must be transferred to the Investor Protection and Education Fund of the Board (SEBI)10
(d) An investor may claim the payable amount from the designated stock exchange post transfer to the IEPF or IPE:
7 Regulation 2(m) of SEBI (Delisting of Equity Shares) Regulations, 2021
8 Clause (a) of Regulation 38B(3) of SEBI (Delisting of Equity Shares) Regulations, 2021
9 Clause (b) of Regulation 38B(3) of SEBI (Delisting of Equity Shares) Regulations, 2021
10 Clause (c) of Regulation 38B(3) of SEBI (Delisting of Equity Shares) Regulations, 2021
After the transfer of the unclaimed amount to the Investor Education and Protection Fund (IEPF) or the Investor Protection and Education Fund (IPEF), as the case may be, the investor may claim the payable amount from the designated stock exchange, which, in turn, may claim reimbursement from the fund in accordance with the procedures specified by the Board11
5. Impact Analysis
The introduction of specific delisting norms for PSUs is expected to streamline the overall delisting process while balancing the interests of both the companies and their shareholders. By providing clarity on pricing, procedures and investor protection, the regulations aim to make delisting more efficient, transparent and fair. The impact can be viewed from the perspectives of shareholders and PSU compliance officers.
5.1 Impact on Shareholders
The new regulations change the game for public shareholders. Shareholders must now evaluate the offer based on the valuation report, not solely on the current market price. They should scrutinise the valuation report’s methodology and assumptions, as these are the basis for the fixed delisting price.
The mandated minimum 15% premium over the floor price ensures fair compensation during delisting, while defined procedures for claiming unpaid amounts safeguard investor interests. The transfer of unclaimed amounts to the account of the designated stock exchange and then to the Investor Education and Protection Fund provides an additional layer of security, giving shareholders confidence that their entitlements will be honoured even if they do not participate in the delisting process.
5.2 Practical takeaways for PSU Compliance Officers
The specific provisions for delisting of PSUs provide compliance officers with a structured framework, reducing procedural ambiguity and streamlining the delisting workflow. The first step is to perform a thorough eligibility check to ensure the PSU meets the mandatory 90% aggregate shareholding criteria.1 This includes the promoter and other PSUs. Once eligibility is confirmed, the immediate priority is to appoint two independent registered valuers to determine the new floor price.
This is a fundamental change, and the valuation methodology will be a key point of focus. The officer must then follow the new, streamlined fixed-price process, ensuring all procedural steps, from board approval to public announcements, are completed in accordance with the regulations.1 Finally, they must establish clear internal procedures for handling funds management, including the transfer of any unutilised amount to the designated stock exchange’s specified account, understanding the seven-year holding period for such funds.
11 Clause (d) of Regulation 38B(3) of SEBI (Delisting of Equity Shares) Regulations, 2021
6. Comparative study of the old & new norms:
A summary of the core changes is provided in the table below.
Aspect
Delisting Process
Floor Price Basis
Delisting Price
Shareholder Approval
Erstwhile Regulations (Before Sep 2025)
Reverse Book Building (RBB)
Highest of multiple parameters, including 60-day VWAMP for frequently traded shares. Adjusted book value is not applicable to PSUs.
Discovered price from RBB. The acquirer could reject or make a counteroffer.
Special resolution with votes in favour at least twice the votes against it.
New Regulations (Part-F for PSUs)
Fixed Price Process (Mandatory)
Highest of multiple parameters, including a joint valuation report from two independent valuers (VWAMP rule removed).
Fixed price at least 15% higher than the new floor price.
Special resolution via postal ballot/e-voting.
Treatment of Unclaimed Funds
7. Conclusion
Released to the acquirer after a certain period.
Transferred to the designated stock exchange for 7 years, then to IEPF/IPEF.
The introduction of specific norms for the delisting of equity shares aims to simplify the delisting process for PSUs, ensure fair pricing for shareholders and enhance investor protection mechanisms. By replacing a market-based process that is unsuited with a more predictable, valuation-driven framework, SEBI has effectively removed a major bottleneck.
The framework successfully balances the Government’s policy imperative with the need for a fair and transparent exit for minority shareholders. While the RBB process provided shareholders with a collective bargaining tool, the new regulations ensure investor protection through a mandatory 15% premium over a professionally determined valuation and a strong, long-term mechanism for claiming unclaimed
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