SEBI Grants One-Time MPS Compliance Relaxation Amid Market Volatility Until September 2026

The Securities and Exchange Board of India has announced a one-time relaxation from the applicability of penal provisions for listed entities that are unable to comply with minimum public shareholding requirements between April 1, 2026 and September 30, 2026. The decision, announced in early April 2026, comes in response to representations from industry bodies highlighting the difficulties faced by listed companies in diluting promoter holdings during a period of significant market volatility driven by geopolitical tensions in the Middle East. Any penalties already imposed by stock exchanges or depositories during this window for MPS non-compliance will be withdrawn.

Understanding the MPS Requirement

Under the Securities Contracts (Regulation) Rules, 1957, every listed company is required to maintain a minimum public shareholding of at least 25 per cent. This means that the combined holding of promoters and promoter group entities cannot exceed 75 per cent of the total paid-up equity share capital. The purpose of this requirement is to ensure adequate liquidity in the market, protect the interests of minority shareholders, and maintain the integrity of price discovery on the stock exchanges. Companies that fail to meet the MPS threshold within the prescribed time are subject to penal action, which can include fines, trading restrictions, freezing of promoter shareholding, and in extreme cases, compulsory delisting.

Why the Relaxation Was Needed

The methods available to companies for achieving MPS compliance typically involve selling promoter shares in the open market through an offer for sale, issuing new shares to the public, or conducting bonus issues that change the shareholding ratio. All of these methods depend on favourable market conditions. In a volatile or declining market, promoter sales depress the stock price further, and IPOs or secondary offerings become commercially impractical. The geopolitical tensions in the Middle East that intensified in early 2026 caused significant market volatility in Indian equity markets, making it extremely difficult for companies with MPS deadlines falling in this period to execute the necessary transactions.

SEBI recognised that penalising companies for failing to meet MPS deadlines during this period would be unjust, as the non-compliance was driven by external market conditions rather than any wilful default by the promoters. The relaxation is therefore a pragmatic acknowledgment that regulatory compliance requirements must be tempered by market realities.

Scope of the Relaxation

The relaxation applies specifically to listed entities whose due date for compliance with MPS requirements falls during the period from April 1, 2026 to September 30, 2026. During this six-month window, stock exchanges and depositories will not initiate any penal action for MPS non-compliance. Where penalties have already been imposed during this period, they will be withdrawn. It is important to note that this is a one-time relaxation tied to the specific market conditions, not a permanent amendment to the MPS framework. Companies whose MPS compliance deadlines fall outside this window are not covered and remain subject to the existing penalty framework.

SEBI has also extended the validity of observation letters issued to companies planning IPOs, recognising that the same market conditions that affect MPS compliance also affect the ability of companies to launch public offerings within the standard validity period of the SEBI observation letter.

Impact on Listed Companies and Market Participants

The immediate impact is relief for companies that were facing MPS compliance deadlines in the April to September 2026 period. Without the relaxation, these companies would have faced penalties even though the market conditions made compliance practically impossible. The withdrawal of already-imposed penalties is an additional welcome measure, as some companies may have already been penalised before SEBI's announcement. For investors, the relaxation means that promoter shareholding in some companies may remain above the 75 per cent threshold for longer than expected, which could affect liquidity and free float in those stocks.

Practical Takeaways

Listed companies with MPS compliance deadlines between April and September 2026 should document the market conditions that prevented compliance, as this may be relevant if the relaxation is later reviewed or if the company needs to demonstrate good faith. Companies that have already been penalised should approach their stock exchanges to seek withdrawal of the penalties under the SEBI circular. Despite the relaxation, companies should continue planning their MPS compliance strategy so that they are ready to execute when market conditions stabilise. Company secretaries and compliance officers should maintain internal records showing the steps the company was taking towards MPS compliance before the market disruption, as this documentation will support any regulatory engagement. The relaxation does not change the underlying obligation to meet MPS norms; it merely suspends the penalty for a defined period.