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TMI Blog2025 (3) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order dated 21.08.2024 passed by the Ld.National Company Law Tribunal, Mumbai as also against rejection of objections filed by the appellants to the Scheme of Arrangement proposed between ICICI Bank Ltd and ICICI Securities Ltd. 2. The learned senior counsel for the appellant argued though the threshold limit for minimum number of shares for filing objection was not met with, but in view of Ankit Mittal Vs Ankit Pratisthan Ltd and Others 2019 SCC Online NCLAT 847 and in view of Miheer H Mafatlal Vs Mafatlal Industries Ltd (1997) 1 SCC 579, it has been held that irrespective of the fact the objector or the appellant may not be holding the requisite number of shares to raise the objection per sub-section (4) of Section 230 of Companies Act, 2013 yet the Tribunal is required to look into, before approving the scheme, whether the scheme in question is prejudicial to the public interest; whether the scheme has been passed after following due procedure as prescribed and contemplated under the applicable law; and whether is fair, conscionable and not opposed to public policy. 3. It was argued here the Ld. NCLT while approving the scheme has toed in favour of Regulation 37 of SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority but this requirement was never met with and as a result of voting of promoter shareholders would show voting in favour was only 71.89% and thus did not meet the criteria as laid down under Section 230(6) of the Companies Act, 2013 and accordingly to give an exemption to a Subsidiary company, not in same line of business under Regulations 37, was wholly illegal. 6. It was argued the entire voting process in the Shareholders Meeting has been vitiated on account of illegal methods adopted by ICICI Bank and ICICI Securities to influence and mislead voters wherein employees of ICICI Bank, who were not registered as Investment Advisors by SEBI were influencing and coercing investors on how to vote. The learned senior counsel pointed out to letters dated 6.6.2024 of SEBI wherein it had explicitly stated in point 5 that the outreach programme undertaken by the Bank was inappropriate. Lastly it was argued the valuation methodology and the basis adopted by the Valuers to arrive at a fair value of the shares of ICICI Securities Ltd was baseless and manipulated. The very basis of the valuation and underlying figures were never provided to the shareholders and the public shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a class of creditors or shareholders otherwise equally circumscribed by the class no separate meeting of such sub-class of the main class of members or creditors is required to be convened. 9. It was argued it was the duty of the Ld. NCLT to protect the investors of the company and admittedly in the present case there were two kind of shareholders viz the promoter shareholders and non-promoter shareholders and the treatment given to both of them in the scheme of arrangement was wholly different. Whereas the promoters would get the shares in the transferee company but shares of the non-promoter shareholders were getting extinguished. He further referred to various observations made in the letters of SEBI to show even voting was not done in accordance with law and the shareholders were bullied to vote in favour of the scheme by exercising inducement and coercion. Reference was made to the two letters written by SEBI of dated 06.06.2024 to ICICI Bank as well as ICICI Securities Ltd wherein the SEBI had cautioned both of them saying some of the officials of the Bank had gone beyond the outreach programme by making repeated calls, asking for screenshots of voting etc and also by infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were going to be extinguished and hence per sub-section (6) of Section 230 of Companies Act, 2013 above, they also ought to have passed the Resolution with 3/4th majority but such resolution got only 71% vote of public shareholders which per se was illegal and against the spirit of sub-section (6) of Section 230 of the Companies Act, 2013. It was argued per Section 230(6) each class ought to have voted by more than 75% but whereas in the present case non-promoter shareholders voted only 71% in favour of the scheme, hence the scheme was not fair, reasonable and was against the interest of non-promotor shareholders. It was argued the contention viz. the promoters and non-promoters were separate class was rather agreed to by the Ld. NCLT in its impugned order at para 5.2.5 as under:- "5.2.5 We have considered the submissions of the Counsel. Undisputedly, the scheme contemplates that the Promoter Shareholder of ISEC shall remain invested therein making ISEC 100% subsidiary of ICICI and the Public Shareholders of ISEC shall receive shares of ICICI in consideration of cancellation of their shares in ISEC. We find that there is dissimilarity in the treatment of Public Shareholders and P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue and (b) eliminate the volatility attributable to ICICI Securities' shares and financial performance due to the inherently cyclical nature of a broking business; c. The structure proposed under the Scheme is a widely adopted structure in various jurisdictions across the world and has actively been adopted by most peers of ICICI Bank in India. Banks such as HDFC Bank, State Bank of India, Kotak Mahindra Bank, Axis Bank, amongst others, have also structured their broking businesses as wholly owned subsidiaries of their banking businesses; d. Unlike other promoter held companies, while ICICI Bank is the promoter company of ICICI Securities, ICICI Bank itself does not have any named promoter and its shareholding is widely dispersed and held across various institutional and non-institutional shareholders;" 15. The next thing we need to find is if there are separate classes of shareholders as alleged in the present appeal. The Appellants sought to contend that, notwithstanding the specific stipulation contained in Regulation 37(2)(d) regarding manner of voting on the Scheme, a separate class meeting of public shareholders ought to have been convened. The Appellants have sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e determined and meetings were called, the same ought to have been challenged within 45 days, extendable on the outside for further 45 days on cause being shown for the same. Admittedly, no such challenge was ever mounted. It is settled law what the law prohibits to be done directly that cannot be done indirectly. Therefore, by this circuitous route, it was not open for the Appellants to, under the garb of a challenge to the order approving the Scheme, assail the First Motion Order whereafter, they fully participated in the meetings without any caveats or reservation. 19. The Appellants' reliance upon the judgment to contend the company decided at its peril the classes in respect of whom a meeting is to be called is also equally misplaced and misconceived. Notably, in State Bank of India v Alstom Power Boilers Ltd. [(2003) 5 Bom CR 421), the Appellants are relying upon for its argument, the question whether the objecting shareholders constituted a separate class was expressly kept open when the order regarding convening meeting of class of shareholders was passed whereas in the present case, no such issue was even raised at the time of passing of the first Motion Order dated 14.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing company should be in the "same line of business". The expression "same line of business" has not been defined in the Delisting Regulations. In exercise of its delegated power, the SEBI has issued a SEBI Circular SEBI/ HO/ CFD/ DIL1/ CIR/ P/ 2021/ 0585 dated 6 July 2021 which provides a standard operating procedure for identifying the "same line of business" and provides inter alia that for companies to be in the same line of business the principal economic activities should fall under the same 3-digit Code prescribed by the National Industrial Classification Code, 2008 (NIC). Under the NIC; ICICI Bank and ICICI Securities have the same alphabetical code i.e. 'K' which relates to financial and insurance activities and hence are in similar lines of business. However, the Companies have different three-digit NIC Codes i.e., 661 (Monetary intermediation) for ICICI Bank and 641 (Activities auxiliary to financial service activities, except insurance and pension funding) for ICICI Securities. Given the extant regulatory restrictions applicable to ICICI Bank, it is not possible for ICICI Bank to have the same 3-digit NIC Code as ICICI Securities. In view of this, on 18 May 2023, ICICI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in Section 230 of the Act specifically requiring a separate meeting of public shareholders of a company. Section 230(1) refers to a scheme between a company and its members or class of members. Correspondingly, Section 230(3) refers to power of the Ld. NCLT to convene a meeting of members or a class thereof, as the case may be. At any rate, there is no specific provision in the Act specifically requiring a meeting of public shareholders in listed companies. Indeed, Section 230 only requires a meeting to be held between the members and the company or such classes of members and the company, where the scheme of arrangement is between the company and a specific class of members. In the present case, the scheme is a uniform scheme for all equity shareholders, namely a uniform scheme of delisting; the delisting in the present case being feasible only through the vehicle of a wholly owned subsidiary and not through an amalgamation in view of the extant regulatory regime applicable to ICICI Bank. In this regard, it may be relevant to note Para 21 (iv) of the judgment of Division Bench of Bombay High Court in Alstom DB where it has been held: The private interest of one or a group of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the voting threshold for schemes proposed by listed companies has been prescribed by SEBI in its Master Circular on Scheme of Arrangement by Listed Entities. The Scheme Circular inter alia prescribes listed companies for certain schemes involving the promoter group should obtain consent by simple majority i.e., 51% of public shareholders, in addition to the regular requirement of 3/4th majority i.e., 75% of all shareholders under Section 230 of the Act. Further in case of a delisting scheme under Regulation 37, SEBI has prescribed an additional safeguard in the form of requirement of 2/3rd majority i.e., 66% which is greater than the requirement of simple majority in the Scheme Circular to ensure protection of public shareholders. The same is to ensure the voting threshold is consistent with the threshold stipulated under Regulation 11 of the Delisting Regulations for delisting through exit mechanism. This further ensures the threshold for delisting is the same whether in case of a delisting under Regulation 11 or Regulation 37. Regulation 11 of the Delisting Regulations stipulates a delisting can be carried out if all shareholders approve the delisting proposal by 75% and within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh a scheme or otherwise), unlisted shares are either cancelled or acquired by an acquirer as the public shareholders cannot be compelled to hold unlisted shares which have no marketability. 29. To conclude, we are of the view the Ld. NCLT had correctly appreciated the provisions of Section 230 and Regulation 37 of the Delisting Regulations and has applied the said provisions harmoniously to the facts and circumstances at hand. The Ld. NCLT's finding viz no separate meeting of public shareholders is required in the circumstances, is in consonance with the object and purpose of Regulation 37 and in no way conflicting to the provisions of Section 230 of the Act. If the Appellants' submission regarding a separate meeting is accepted, then every scheme under Regulation 37 will need to be approved by meeting of separate class of shareholders (promoters and public) thereby rendering the provisions of Regulation 37(2)(d) completely otiose, as has also been observed by the Ld. NCLT in its impugned order. 30. Arguments were raised by the appellants upon Letters of SEBI. However, in such letters SEBI has nowhere stated the voting would stand invalidated on account of an Outreach Initiative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ICICI Bank. In this regard, SEBI board memorandum dated 20 September 2020 is referred to, the relevant extract of which is as below: "i. One of the commentators has suggested that there should be a framework for dissenting shareholders. Analysis: Under the present proposal, the shares of the listed subsidiary and the shares of the listed holding company that the public shareholders would get pursuant to the scheme of arrangement, are frequently traded on the stock exchange. Thus, dissenting shareholders have an exit opportunity available to them either by selling the shares of subsidiary on the stock exchange, or later by selling the shares of the listed holding company allotted to them pursuant to the scheme of arrangement. Therefore, a separate additional framework for exit to dissenting shareholders is not necessary." 33. Now coming to challenge qua valuation and swap ratio, we find the joint valuation report has been prepared by 2 (two) independent registered valuers who adopted a comprehensive methodology by applying a combination of internationally recognized and commonly used methods. The valuation was supported by fairness opinions issued by two SEBI registered merc ..... 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