Regulation 38: Minimum Public Shareholding

Regulation 38 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Twenty-five per cent of a listed company must be held by the public. It is a short requirement with long consequences, because falling below it does not merely attract a fine — it can freeze the promoter's own shareholding and voting rights until the position is corrected.

A listed entity must maintain minimum public shareholding of 25%, as required by the Securities Contracts (Regulation) Rules. Where it falls short, SEBI prescribes the methods available to restore it — offer for sale, institutional placement, rights or bonus with the promoter forgoing entitlement, and others — within a stated period. Non-compliance attracts exchange fines, and can lead to freezing of the promoter and promoter group's holdings and voting rights, and to the securities being moved out of the normal trading segment.

The requirement

The obligation comes from Rule 19(2)(b) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957, and Regulation 38 requires the listed entity to comply with it on a continuing basis.

Public shareholding means holdings other than those of the promoter and promoter group, and other than shares held by custodians against depository receipts, employee benefit trusts and certain other categories. The shareholding pattern filed each quarter is the document that demonstrates it. Shareholding pattern →

Who is outside the requirement: entities listed on the institutional trading platform without making a public issue, and certain other categories that SEBI specifies. A company on the SME Exchange operates under its own framework and should read its position from the SME requirements rather than assuming the main board rule applies unchanged.

How a shortfall happens

Rarely by design. The usual routes:

A preferential allotment to the promoter that lifts promoter holding past 75%.

A buy-back or capital reduction that reduces the public float proportionately more than the promoter's.

A conversion of instruments held by the promoter — warrants, convertible debentures — taking effect all at once.

An open offer under the takeover code in which acceptance takes the acquirer above 75%. This one is anticipated: the acquirer is expected to bring the holding back within the limit within the prescribed period. SEBI takeover code →

A scheme of arrangement in which shares are issued to promoter entities.

Each of these is foreseeable at the planning stage, which is where the MPS test belongs — not in the quarter after.

The permitted methods

SEBI specifies the routes by which a shortfall may be made good. The ones used in practice:

Two constraints run across all of them. The route chosen must be one SEBI has permitted for this purpose — a private sale to a friendly party does not count as creating public float if the buyer is a person acting in concert with the promoter. And the disclosure and takeover code implications of each route have to be worked through, because a promoter selling down triggers its own filings.

The consequences of a shortfall

Exchange fines. The stock exchanges levy fines under a standard operating procedure, computed per day of continuing non-compliance, and the fine is disclosed publicly along with the name of the entity.

Freezing of promoter holdings. Where the shortfall continues, the exchanges may freeze the entire shareholding of the promoter and promoter group — the shares cannot be transferred — and may freeze the voting rights attached to them. This is the sanction that changes behaviour, because it strikes at the promoter rather than the company.

Moving the scrip. Continued non-compliance can lead to the securities being transferred out of the normal trading segment into a restricted or trade-for-trade segment, which damages liquidity and, through it, the value of every holder's shares.

Further action. The exchanges may also report the entity to SEBI for action against the entity, its promoters and its directors.

The sequence matters: the fine is an irritant, the freeze is a serious constraint, and the segment change harms the public shareholders the rule exists to protect. That last point is why regulators prefer to see a company use one of the permitted methods early rather than let the position run.

Key takeaways

• 25% public shareholding, on a continuing basis, sourced from the SCRR.
• The quarterly shareholding pattern is the evidence.
• Shortfalls are foreseeable — test MPS at the planning stage of any capital action.
• Only SEBI's specified methods count for restoring the float.
• Promoter forgoing entitlement in a rights or bonus issue is the least disruptive route.
• Fines accrue per day, and are published.
• Promoter holdings and voting rights can be frozen.
• The scrip can be moved out of the normal segment, which harms public holders.

Read next

• Regulation 31: Filing the Shareholding Pattern
• Regulation 31A: Reclassifying a Promoter as Public
• SEBI Takeover Code — SAST Regulations
• Share Buyback Rules — SEBI Regulations

Disclaimer: Positions stated as on 5 September 2026. The permitted methods and the enforcement standard operating procedure are set by SEBI and the exchanges and are revised periodically — verify the current position on sebi.gov.in before relying on any of this.