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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 ..... 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. The Companies Act, prescribes only two classes of shareholders, i.e., preference and equity shareholders. Ordinarily, the courts does not favor a further sub-classification in the case of shareholders per Alstom(Supra). Thus the contention viz. the SEBI Regulation 37 itself recognizes the public shareholders constitute a separate class is wholly misconceived. As stated above, for the purposes of Section 230, class is a uniform class, being one of equity shareholders. SEBI in exercise of its exclusive jurisdiction over matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Advocates For the Respondents : Mr. Arun Kathpalia, Sr. Advocate with Mr. Siddharth Ranade, Mr. Shankh Sengupta, Mr. Aubert Sebastian, Mr. P. Jain, Mr. Arnav Doshi, Mr. Ribhu Garg, Mr. Pushkar Deo, Ms. Ananya Bajpai, Advocates for R-1. Mr. Krishnendu Datta, Sr. Advocate with Mr. Siddharth Ranade, Mr. Shankh Sengupta, Mr. Aubert Sebastian, Mr. P. Jain, Mr. Arnav Doshi, Mr. Ribhu Garg, Mr. Pushkar Deo, Ms. Ananya Bajpai , Advocates for R - 2 JUDGEMENT JUSTICE YOGESH KHANNA , MEMBER ( JUDICIAL ) These appeals have been filed against an 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocedure for listed subsidiary company desirous of getting delisted through a Scheme of Arrangement explicitly states, a bank and a broking firm are not in the same line of business, therefore, the present scheme was not under Regulation 37 (supra) and no proof was provided of any exemption or otherwise. It was argued the Scheme required a separate class meeting of the public shareholders of ICICI Securities Ltd under Section 230(6) of the Companies Act, 2013 and public shareholders were required to vote in favour of the Scheme within 3/4th 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 SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wider class, a separate meeting of such separately interested shareholders should have been convened. But such is not the case of the appellant. It is not his case that his interest as an equity shareholder in respondent-company is in any way conflicting with the general interest of the equity shareholder in respondent-company is in any way conflicting with the general interest of the equity shareholders as a class. ....It is, therefore, obvious that unless a separate and different type of Scheme of Compromise is offered to a sub- class of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, we are of considered view that mere outreach program conducted by ICICI Bank cannot lead to the conclusion that the shareholders have casted their vote under duress or influence and voting process is vitiated." 11. It was thus argued as per sub-section (6) of Section 230 of Companies Act, 2013, the promoters and public shareholders ought to have been treated as a separate class and they ought not to have been mixed in the common meeting. It was argued the 'non-promoter public shareholders' was a separate class because its shares 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 vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as reduce overall costs. Owing to the regulatory framework prohibiting ICICI Bank from undertaking equity broking business departmentally, a merger was not favoured and a scheme for delisting under Regulation 37 was opted for, in order to consolidate the two businesses thereby mandating ICICI Securities to become ICICI Bank's wholly owned subsidiary; b. The Scheme benefits all the public shareholders of ICICI Securities since they would now be able to (a) gain access to a much larger and diversified business with greater stability in revenue 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 Securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were to be maintained in terms of Regulation 37; the Scheme in question being one of delisting 18. Further the first motion order which determined the classes for which the meeting was to be held was accepted by all and challenged by none, not even by the Appellants before this Court. The order thus attained finality and it was not open to being assailed at this stage and in this manner. The Companies Act prescribe strict timelines and, if any party had any grievance against the First Motion Order dated 14.02.2024, by which the classes were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echanism for a company's right to delist its equity shares. Regulation 37(1) recognises and facilitates this right by making available the option of delisting through a scheme of arrangement for those companies. Regulation 37(2) provides for safeguards to protect public shareholders in the course of this exercise. The present Scheme is a scheme of delisting exactly as contemplated under and in terms of Regulation 37. 21. Admittedly one of the procedural requirements under Regulation 37(1) is the listed subsidiary company and its listed holding 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 alpha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se safeguards prescribed in Regulation 37(2) has been fully complied with in the present case. The limited relaxation granted by SEBI of a procedural requirement does not impact these safeguards in any manner, and in fact, the relaxation is subject to compliance of these safeguards. A table setting out such compliance was also provided to all the shareholders in the explanatory statement; as annexed at Pg. No. 199 of Appeal No. 334 of 2024. 23. We find there is no conflict between Section 230 of the Act and Regulation 37. There is no provision 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 compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme, as contemplated under the provisions of Regulation 37 of the Delisting Regulations. The provisions of Regulation 37 thus ought to be given full effect along with the provisions of the Act especially when there is nothing inconsistent between the two statutes. 25. Now let us consider the rationale for threshold of 66% amongst public shareholders in Regulation 37 of Delisting Regulations. Admittedly the voting threshold under the Act for a scheme of arrangement is 3/4th majority in value of the equity shareholders. In addition to this, 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 requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, it cannot be suggested the market regulator lost sight of the fact the process would be undertaken within the statutory framework of Section 230. The public shareholders thus do not constitute a separate class as no separate scheme is being offered to the public shareholders. 28. The cancellation of shares is not a treatment accorded to the public shareholders voluntarily by ICICI Securities Ltd. It is only a consequence that follows a delisting and is a specific stipulation under Regulation 37(2)(a). In any delisting (whether through 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme. There is no requirement of providing any separate exit option to such shareholders under the Scheme. This is because holding company itself would always be a listed company whose shares are frequently traded. In other words, the public shareholders, at all times, have the ability and right to exit by selling their shares i.e., at the present stage when they currently own listed shares of the subsidiary company i.e. ICICI Securities and also after the Scheme is implemented when they will be issued listed shares of the holding company i.e. 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 shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requisite majority of shareholders. Accordingly, the threshold in proviso to Section 230(4) was introduced to prohibit objectors like the appellants from stalling the Scheme. 36. Hence, as has been correctly held by Ld. NCLT, the Appellants are not entitled to object to the Scheme and not entitled to maintain an appeal as an 'aggrieved person'. Consequently, in view of proviso to Section 230(4) too, the present appeal is also not maintainable at the instance of the appellants. Notably, the Scheme has been approved by 93.82% of equity shareholders and 71.89% of public shareholders. The Appellants who hold merely 0.08% shareholding are depriving the majority shareholders of the benefits of the Scheme by filing frivolous objections and derailing its implementation. This militates the very principle of shareholder democracy. 37. In conclusion, we are of the view that, firstly, the application is not maintainable under proviso of Section 230(4) of the Companies Act, 2013 as the Appellants do not have the requisite shareholding, and secondly, even on merits, as discussed above, both the appeals fail. We do not find any reason to interfere in the order of Ld. NCLT and hence both the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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