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Can non-promoter held equity warrants be transferred after completion of its lock-in period but prior to conversion into equity shares?

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informal guidance

SEBI has recently issued an informal guidance on the question on transferability of equity warrants. The factual matrix on which the informal guidance was issued briefly is that a company on preferential basis had issued equity warrants to persons other than the promoters which were convertible into equity shares. Further, such warrants were not listed on any exchange and would not be listed upon completion one year from the date of allotment. However, the warrant holder has the right to convert the same into equity shares any time within eighteen months from the date of allotment.

The Chapter V of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 deals with Preferential Issues and within the same, Part V deals with Lock-In and restrictions on Transferability. Regulation 167(2) provides that warrants which are not listed on stock exchanges, such securities shall be locked in for a period of one year from the date of allotment and 168(2) provides that specified securities allotted on a preferential basis shall not be transferable by the allottees till the trading approval is granted for such securities by all the recognised stock exchanges.

Hence, the question which arose was since the warrants would not be listed on a recognised stock exchange on completion of one year would the same be transferable after completion of its one year lock-in period.

Answering in the negative SEBI held that warrants cannot be transferred until trading approval was received from the stock exchanges on which the equity shares of the company were listed.

Readers may want to read about the situation which this would give rise to since warrants are securities under the Securities Contracts (Regulation) Act, 1956 and transferability is a necessary ingredient of being a โ€˜securityโ€™ hence why would warrants which are not sought to be listed have to get approval from stock exchange before they can be transferred?

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com

A copy of theย SEBI Informal Guidance is enclosed below and can also be accessed at:ย SEBI Informal Guidance – Paramount Communications

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