2025 (1) TMI 155 - SC - Companies Law

Rejection of application of the appellant for the listing of shares - appellant had not taken the approval of the shareholders for the allotment of the shares to the Asset Reconstruction Private Limited - HELD THAT - The conversion of the debt into additional shares had taken place with the agreement of the appellant company and RARE, and it is on the basis of such an agreement between the parties that a resolution was passed on 02.05.2018 by the Board of Directors of the appellant company accepting the proposal to convert the debt into shares and to allot them in favor of RARE, thus, resulting in increase of the equity capital of the appellant company. Even the application for listing of the aforesaid additional shares was made by the appellant company to the BSE meaning thereby that the proposal for increasing the subscribed capital of the company by converting part of the debt into equity shares, as aforesaid, was initiated by the appellant company itself and not actually by RARE. Therefore, the proposal was that of the company only. Accordingly, as contemplated by Section 62(1)(c) of the Companies Act, 2013, the approval of the shareholders would be mandatory before the shares are accepted for listing on the BSE. For want of approval of the BSE, the Securities Appellate Tribunal has returned a clear finding that the approval of the BSE is necessary in view of Regulation 28 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and there are no different opinion on it rather the said finding is accepted which is not perverse in any manner. In view of the aforesaid facts and circumstances, it is opined that no error or illegality has been committed either by the BSE or the Securities Appellate Tribunal in refusing to accept the request of the appellant company for the listing of the shares at the Stock Exchange inasmuch as Section 62 of the Companies Act stands duly attracted and in the light of sub-clause (c) of sub-section (1) of Section 62 of the Companies Act, special resolution of the shareholders is necessary which is lacking in the instant case. Conclusion - When a company proposes to increase its subscribed capital, shareholder approval is mandatory under Section 62(1)(c) of the Companies Act, 2013. This statutory appeal under Section 22 F of Securities Contracts (Regulation) Act, 1956 is devoid of merit and is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the court in this judgment are:

Whether the appellant company required shareholder approval under Section 62(1)(c) of the Companies Act, 2013, for the conversion of debt into equity shares and their subsequent listing on the Bombay Stock Exchange (BSE).
Whether the appellant company needed prior approval from the BSE, as per Regulation 28 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, before listing the shares.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Shareholder Approval Requirement

Relevant Legal Framework and Precedents: The court considered Section 9(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 (SARFAESI Act), which allows the conversion of debt into equity, and Section 62(1)(c) of the Companies Act, 2013, which mandates shareholder approval for increasing subscribed capital.
Court's Interpretation and Reasoning: The court interpreted that although SARFAESI Act permits conversion of debt into equity, such conversion is subject to the requirements of the Companies Act, specifically the need for shareholder approval when the company itself proposes to increase its subscribed capital.
Key Evidence and Findings: The appellant company had agreed with RARE to convert part of its debt into equity shares and had passed a Board resolution to this effect. However, this action was not endorsed by a resolution from the shareholders.
Application of Law to Facts: The court found that since the appellant company initiated the proposal to convert debt into equity, it was necessary to obtain shareholder approval as per Section 62(1)(c) of the Companies Act.
Treatment of Competing Arguments: The appellant argued that shareholder approval was not necessary since the proposal was initiated by RARE. The court rejected this argument, stating that the company itself had applied for listing, indicating that the proposal was indeed initiated by the company.
Conclusions: The court concluded that the lack of shareholder approval rendered the application for listing non-compliant with the Companies Act.

Issue 2: BSE Approval Requirement

Relevant Legal Framework and Precedents: Regulation 28 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, was considered, which requires prior approval from the stock exchange for listing additional shares.
Court's Interpretation and Reasoning: The court agreed with the Securities Appellate Tribunal's finding that BSE approval was necessary and that the appellant had failed to obtain it.
Key Evidence and Findings: The Securities Appellate Tribunal had clearly found that the appellant did not have the necessary BSE approval.
Application of Law to Facts: The court applied the regulation to the facts, finding that the lack of BSE approval was a valid ground for rejecting the listing application.
Treatment of Competing Arguments: The appellant did not present a compelling argument against the necessity of BSE approval, and the court found no reason to deviate from the Tribunal's finding.
Conclusions: The court upheld the Tribunal's decision that BSE approval was a prerequisite for listing the shares.

3. SIGNIFICANT HOLDINGS

The court held that "the proposal for increasing the subscribed capital of the company by converting part of the debt into equity shares, as aforesaid, was initiated by the appellant company itself and not actually by RARE."
The core principle established is that when a company proposes to increase its subscribed capital, shareholder approval is mandatory under Section 62(1)(c) of the Companies Act, 2013.
Final determination on each issue: The court dismissed the appeal, affirming that both shareholder approval and BSE approval were necessary for the listing of the shares, neither of which was obtained by the appellant.

In conclusion, the statutory appeal was found to be devoid of merit and was dismissed, with the court reinforcing the necessity of compliance with both the Companies Act and SEBI regulations for listing additional shares.

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