XYZ ltd. is a public listed company. Mr. B is one of the director-promoter of the company. Mr. A is the son of Mr. B's sister. Mr. B's sister was one of the promoter of the company and on her death, the shares were transmitted to Mr. A.
Mr. A is categorised under ‘Promoter/ promoter group’ in the shareholding pattern (Cl. 35). He is not covered under the definition of ‘relative’ under the companies act. The code of conduct of XYZ ltd. is applicable to (i) directors (ii) their relatives (as under Co's Act) (iii) persons included in ‘Promoter/ promoter group’ in the shareholding pattern (Cl. 35).
Time and again, Mr. A has violated insider trading. His case was brought before the board and heavy penalty was levied. The company wants to take strict action against him and has thought of the following way outs:
Solution 1: If the director- promoter buys outs entire shareholding of his sister’s son i.e. Mr. B buys out all the shares of Mr. A. Therefore, Mr. A’s shareholding in XYZ ltd.= zero. Now, subsequently, if Mr. A acquires shares in the company, will he be categorised under ‘Promoter/ promoter group’ in the shareholding pattern (Cl. 35)?
Solution 2: Mr. A continues to hold shares but refrains from categorised as’ promoter/promoter group’. Does SEBI provide any procedure for such de-categorisation?
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