The delisting committee of the Bombay Stock Exchange has proposed a five- to seven-year ban on companies and their promoters approaching the capital market in the event of compulsory delisting of shares from the stock exchanges.

According to exchange sources, the committee has taken serious note of companies whose shares are compulsorily delisted (that is, the stock exchange delists a company's shares because it has violated listing norms), leaving investors without any exit option.

According to BSE data, more than 250 companies have opted to delist from the exchanges in the last one year, and the bulk of these are companies that have been delisted by the exchanges for not fulfilling the continuous listing norms.

Exchange sources said they got the impression that some companies were violating the listing norms so that they would be compulsorily thrown out of the trading list.

According to the exchange's estimates, more than 2,000 companies are in the process of compulsory delisting. The delisting committee is working on various alternatives to amend the existing listing agreement and the suggestions will soon be submitted to the regulatory body, the Securities and Exchange Board of India.

Along with a five- to seven-year ban on promoters and the companies, the other alternatives suggested in the existing listing agreement include providing for compensation to investors in the event of compulsory delisting.

In the event of default by promoters and the company, investors should be eligible to launch arbitration proceedings against the promoters for payment of fair value. During the last couple of years, several companies, especially multinationals, have been getting their shares delisted from the stock exchanges.

While in the case of voluntary delisting of shares, the interest of the investors is protected as the regulations provide for a reverse book building process, in the case of compulsory delisting, investors have no recourse to the promoters.

Therefore, in the absence of any clause in the listing agreement, the company and the promoters cannot be forced to provide an exit option and fair value to investors.