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TMI Blog2014 (12) TMI 1437X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... are. The quantity of share accepted by the said respondent together with the holding of the promoters came to 81.37 per cent of the total equity share capital of Hella India, as a consequence of which, the level of public share holding in Hella India was brought down to 18.63 per cent, which was less than 20 per cent. 4. As the facts would further unfold, after accepting the shares at the price aforesaid, respondent No. 1 through the merchant banker, viz., UTI Securities approached the BSE by a letter dated 15.02.2006 for completing the settlement of transactions and permission was sought to release the advertisements regarding the final price as discovered by the reverse book building process. On receipt of the aforesaid request from respondent No. 1, BSE, declined to proceed with the merchant banker by a communication dated 15.02.2006, which reads as follows:- "you are requested to note that the threshold limit for delisting on the Exchange would be triggered only if the acquirers holding together with promoters holding exceed 90%. It is observed from the electronic book, which was kept open for the period from February 7, 2006 to February 10, 2006, that the quantity offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of BSE." 7. Aggrieved by the aforesaid adjudication and order, as has been indicated earlier, the present appeal has been preferred. It is also to be noted that the present appellants were not before the SAT. The present appeal was admitted after grant of permission to file the same. 8. The singular question that we are required to address is whether the company, i.e., Hella India, was required to maintain 10 per cent benchmark for the public shareholding to remain as a listed company. During the pendency of this appeal, an agreement between respondent No. 4 herein, Hella India, and BSE has been brought on record. Be it clarified, Hella India was not a party before SAT. It was the 1st respondent who preferred the appeal before SAT. On a perusal of the agreement between respondent No. 4 and the BSE, it is graphically clear that the benchmark had been determined fixed at 20 per cent. It is not in dispute that the public shareholding has reduced to 18.63 per cent, which is less than 20 per cent. 9. It is submitted by Mr. A.J. Bhambhani, learned senior counsel appearing for the appellants, that even if the condition incorporated in the agreement is accepted, delisting could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the issue size to the qualified institutional buyers as specified by the Securities and Exchange Board of India: Provided that if a company does not fulfil the conditions, it shall offer at least 25 per cent of each class or kind of securities to the public for subscription through advertisement in newspapers for a period not less than two days and that applications received in pursuance of such offer were allotted." 12. At this stage, we may also refer to the 2003 Guidelines framed by SEBI. Clause 4 of the 2003 Guidelines provides that the guidelines shall be applicable to delisting of securities of companies. Clause 8 deals with exit price for voluntary delisting of securities. Keeping in view the immense emphasis being placed by both sides on various conditions of the said Clause, we think it appropriate to reproduce the same. It reads as under: "8. EXIT PRICE FOR VOLUNTARY DELISTING OF SECURITIES 8.1 Any promoter of a company which desires to delist from the stock exchange shall determine an exit price for delisting of securities in accordance with the book building process described in Schedule II of these guidelines. 8.2 The offer price shall have a floor price, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as pr the new guidelines the benchmark has to be 10 per cent. For the aforesaid purpose, he has highlighted Clause 40A of the Circular, i.e., conditions for continued listing. 15. Mr. Shyam Divan, learned senior counsel appearing for the respondent nos.1 and 4 and Mr. Arvind Datar, learned senior counsel appearing for SEBI, would contend that Clause 40A has to be read in conjunction with the delisting guidelines. That apart, it is contended by them that Clause 40A(i) and Clause 40A(ii) govern two different situations, and hence, the order of delisting cannot be found fault with. 16. To appreciate the rival submissions raised at the Bar, we have carefully scrutinised Clause 40A of the Circular. Be it stated, the clauses by virtue of the Circular have stood incorporated in the existing agreement. Clause 40A(i), as the language would suggest, provides that the listing company accepts the conditions to maintain a continuous basis the minimum level of non-promoter holding at the level of public shareholding as required at the time of listing. It clearly conveys the meaning that if there is a benchmark in the agreement, the same has to be maintained. Mr. Bhambhani would emphasise on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other terms and conditions as may be laid down by a recognized stock exchange. an applicant company shall satisfy the stock exchange. These words have their own importance. It is clear that sub-rule (2) gives primacy to the terms and conditions as may be laid down by the recognized stock exchange and the company in question must satisfy the condition imposed by the stock exchange in that regard. As we find, in the instant case, as per the agreement between the company "Hella India" and BSE, the level of public shareholding fixed for continuous listing was 20%. The said limit of 20% is a higher limit. On failure of "Hella India" to maintain the level of 20%, the condition for continuous listing would be violated and breached. Public holding of 10% would not have satisfied the requirement of Rule 19(2). Therefore, when we harmoniously interpret 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 fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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