2014 (12) TMI 1437 - SC - Indian Laws

Declination to grant the benefit of delisting of respondent No. 4 - requirement to maintain 10 per cent benchmark for the public shareholding to remain as a listed company - HELD THAT - Rule 19(2)(b) provides that at least 10% of each class or kind of securities must be offered to public for subscription through advertisement in newspaper during the time specified and the applications received pursuant to such offer should be allotted as per the conditions postulated. The proviso engrafts states that in case the company does not fulfil the conditions it shall offer at least 25% of each of the securities to the public for subscription though advertisement in newspaper etc. within the time stipulated. The opening words of sub-rule (2) of Rule 19 read apart from complying with such other terms and conditions as may be laid down by a recognized stock exchange. an applicant company shall satisfy the stock exchange - on harmoniously interpreting the listing requirement i.e. the agreement with BSE with Rule 19(2) along with 2003 Guidelines it is apparent and limpid that the condition for continuous listing would not have been followed by Hella India if the public shareholding had fallen below 20%. Thus it has to be held that offer of delisting would be successful and would not fail if the public shareholding falls below 20%. The 10% limit would not apply in view of Rule 19(2) as the said Rule recognizes the terms and conditions laid down by recognized stock exchange and stipulates that the same must be satisfied for the company to claim continuous listing. Conclusion - The specific terms of a listing agreement with a stock exchange can set a higher benchmark for public shareholding than general guidelines and such terms must be adhered to for continuous listing. Hella India was required to maintain a 20% public shareholding for continuous listing and the delisting process was valid under this condition. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether Hella India was required to maintain a 10% benchmark for public shareholding to remain as a listed company.
• Whether the delisting of Hella India's securities was justified under the applicable legal framework and guidelines.
• The interpretation of the Securities Contracts (Regulation) Act, 1956, and the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003, in relation to the delisting process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Public Shareholding Benchmark Requirement

Relevant legal framework and precedents: The case involves the interpretation of Rule 19(2)(b) of the Securities Contracts (Regulation) Act, 1956, and the SEBI guidelines, particularly Clause 40A of the Circular and the 2003 Delisting Guidelines.

Court's interpretation and reasoning: The Court analyzed whether Hella India was required to maintain a public shareholding benchmark of 10% or 20%. It considered the agreement between Hella India and BSE, which set the benchmark at 20%.

Key evidence and findings: The Court found that the agreement with BSE required Hella India to maintain a 20% public shareholding for continuous listing.

Application of law to facts: The Court harmonized the listing agreement with Rule 19(2) and the 2003 Guidelines, concluding that the 20% benchmark was applicable.

Treatment of competing arguments: The appellants argued for a 10% benchmark based on Clause 40A(ii), while the respondents contended that the 20% benchmark applied due to the agreement with BSE.

Conclusions: The Court concluded that Hella India was required to maintain a 20% public shareholding, and the delisting process was valid under this condition.

Issue 2: Justification for Delisting

Relevant legal framework and precedents: The Delisting Guidelines of 2003 and the specific conditions laid out in the listing agreement with BSE were central to this issue.

Court's interpretation and reasoning: The Court examined the guidelines and the agreement to determine if the delisting was justified.

Key evidence and findings: The public shareholding had fallen to 18.63%, below the 20% required by the agreement.

Application of law to facts: The Court applied the guidelines and the agreement terms, concluding that the delisting was justified as the public shareholding fell below the required level.

Treatment of competing arguments: The appellants argued that the delisting should be based on a 10% threshold, while the respondents maintained that the 20% threshold was applicable.

Conclusions: The Court upheld the delisting decision, affirming that it was consistent with the applicable legal framework.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The 10% limit would not apply in view of Rule 19(2) as the said Rule recognizes the terms and conditions laid down by recognized stock exchange and stipulates that the same must be satisfied for the company to claim continuous listing."

Core principles established: The Court established that the specific terms of a listing agreement with a stock exchange can set a higher benchmark for public shareholding than general guidelines, and such terms must be adhered to for continuous listing.

Final determinations on each issue: The appeal was dismissed, affirming that Hella India was required to maintain a 20% public shareholding for continuous listing, and the delisting process was valid under this condition.