Regulation 31A permits a promoter or promoter group member to be reclassified as a public shareholder, subject to several conditions.
Six of them concern the applicant’s own position: no control, no special rights, no board representation, no key managerial role, not a wilful defaulter, not a fugitive economic offender.
The seventh requires that the applicant and persons related to the applicant do not together hold more than 10% of the voting rights. The related set is determined by relationship and by 20% holdings in other entities, not by involvement.
The result is that several categories of shareholder cannot be reclassified even where every other condition is satisfied. These include a married daughter, a former spouse, a legatee under a will, a sibling with no connection to the business, an outgoing promoter who has transferred control, and a founder who has diluted and stepped back from management.
Where a family separation is genuine and the applicant’s own related holding falls below 10%, reclassification has been permitted.
The carousel sets out the aggregation rule, ten cases where declassification is foreclosed, and where it may still work.