REJECTION OF APPLICATION FOR LISTING OF SHARES

[DR.MARIAPPAN GOVINDARAJAN]

Section 62 of the Companies Act, 2013 (‘Act’ for short) provides for the further issue of the share capital.  Section 62 (1) (c) of the Act provides that where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to any persons, if it is authorised by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed.

Regulation 28 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Regulations’ for short) provides that the listed entity, before issuing securities, shall obtain an ‘in-principle’ approval from recognised stock exchange(s) in the following manner-

• where the securities are listed only on recognised stock exchange(s) having nationwide trading terminals, from all such stock exchange(s);
• where the securities are not listed on any recognised stock exchange having nationwide trading terminals, from all the stock exchange(s) in which the securities of the issuer are proposed to be listed;
• where the securities are listed on recognised stock exchange(s) having nationwide trading terminals as well as on the recognised stock exchange(s) not having nationwide trading terminals, from all recognised stock exchange(s) having nationwide trading terminals.

Therefore, before the further issue of share capital the company shall obtained the authorisation of the shareholders in a general meeting and also to obtain in-principle approval from the recognised stock exchange.  Otherwise, the application for listing shares with the stock exchange shall be liable to be rejected.

In JYOTI LIMITED VERSUS BSE LIMITED & ANR - 2025 (1) TMI 155 - SUPREME COURT, the appellant applied for listing of certain equity shares to the Bombay Stock Exchange (‘BSE’ for short).  The said application was rejected by BSE on the ground that the appellant has not obtain ‘in-principle’ approval from the stock exchange and also the company did not obtain the approval of the shareholders for allotment of the shares to the Asset Reconstruction Private Limited.  Appeal was filed before the Securities Appellate Tribunal.  The Securities Appellate Tribunal has returned a clear finding that the approval of the BSE is necessary in view of Regulation 28.   The appellant filed the present appeal before the Supreme Court against the said order of Securities Appellate Tribunal under Section 22F of Securities Contracts (Regulation) Act, 1956.

The appellant contended that Section 9(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 (‘SARFAESI’ for short) permits the Asset Reconstruction company to take measures such as conversion of any portion of debt into shares of the appellant and once such power is exercised, the shares have to be listed on the Stock Exchange.  The appellant proposed to increase the subscribed capital, the consent/ the resolution/approval of the shareholders is required, as mandated by Section 62(1)(c) of the Companies Act, 2013.   The appellant company had not proposed to increase the subscribed capital rather it is the Asset Reconstruction company that has done it, no such approval of the shareholders is necessary.

The Supreme Court considered the submissions of the appellant.  The Supreme Court observed that the conversion of the debt into additional shares had taken place with the agreement of the appellant company and the Asset Reconstruction Company, 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 favour  of the Asset Reconstruction Company, thus, resulting in increase of the equity capital of the appellant company.

The Supreme Court further observed that even the application for listing of the aforesaid additional shares was made by the appellant company to the BSE which amounts to  the proposal for increasing the subscribed capital of the company by converting part of the debt into equity shares was initiated by the appellant company itself and not actually by the Asset Reconstruction Company. Therefore, the Supreme Court held that the approval of the shareholders would be mandatory before the shares are accepted for listing on the BSE.

In regard to rejection of the application, the Supreme Court was of the opinion 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.

The Supreme Court that the appellant company itself was the proposer of increased share capital and not the Asset Reconstruction company.  The Supreme Court dismissed the appeal as devoid of merits.