On 9 July 2024, a significant corporate drama unfolded at the Mumbai bench of the national company law tribunal (NCLT) as ICICI Securities, an affiliate of ICICI Bank, India's second-largest private-sector lender, found itself defending its proposed delisting against objections raised by minority shareholders. This case has brought to the forefront critical issues surrounding corporate governance, shareholder rights and the intricacies of India's delisting regulations.
ICICI Securities' legal team argued that the objections raised by minority shareholders were in "complete derogation of the principle of shareholder democracy." The company's primary contention was that the applicants, namely, Quantum Mutual Fund and individual investor Manu Rishi Guptha, lacked the necessary standing to file objections. This argument was rooted in the provisions of the Companies Act, specifically Section 230(4), which stipulates that objections to a scheme of arrangement can only be made by entities holding at least 10% equity or 5% of the total outstanding debt, based on the latest audited financial statement.
The numbers seemed to favour ICICI Securities' position. The delisting proposal had received overwhelming support, with 93.82% of the company's equity shareholders and 71.89% of public shareholders voting in favour. In contrast, Quantum Mutual Fund and Manu Rishi Guptha held a mere 0.08% and 0.002% of the paid-up equity share capital, respectively. However, despite their small shareholding, these minority investors raised several substantial concerns that have since become the crux of this legal battle.
However, in the 15 July 2024 hearing of this case, one of the primary issues brought forth by the objectors was the lack of transparency regarding an exemption ICICI Bank obtained from the Securities and Exchange Board of India (SEBI). This exemption, granted under regulation 37(1) of the delisting regulations, allows for the delisting of a subsidiary by a listed holding company if both entities are in the 'same line of business.' The shareholders argued vehemently that ICICI Bank had failed to disclose the grounds and justifications for seeking this exemption, a crucial piece of information that they claimed was necessary for public shareholders to make an informed decision.
This contention opened up a broader debate about whether ICICI Bank and ICICI Securities could indeed be considered to be in the 'same line of business." The objectors highlighted significant differences between the two entities: ICICI Bank operates as a commercial bank offering banking and financial services, while ICICI Securities functions as a stock broking and investment advisory firm. They argued that the core business operations, customer bases and regulatory frameworks governing these two entities were fundamentally different. The shareholders further pointed out that both companies were separately listed entities with independent boards, management and regulatory oversight, challenging the basis on which the SEBI exemption was granted.
Another major point of contention was ICICI Bank's alleged non-compliance with stock exchange disclosure requirements. The objectors claimed that the Bank had failed to provide adequate details about the valuation methods, rationale, and assumptions used to arrive at the share exchange ratio, despite explicit directives from the stock exchanges to do so. This alleged lack of disclosure, they argued, deprived public shareholders of crucial information needed to evaluate the fairness of the delisting proposal.
The interpretation of voting requirements under the Companies Act also came under scrutiny. The objectors put forth an argument that public shareholders should be considered a separate class under Section 230 of the Act. According to this interpretation, the delisting scheme would require approval from 75% of this specific class of shareholders. They contended that by combining the votes of public and non-public shareholders, ICICI Bank had not met the required threshold for the public shareholder class, even though the overall voting result showed 71% in favour.
Adding to the list of grievances, the shareholders criticised ICICI Bank for bypassing the typical reverse book-building process used in delistings to determine the exit price. Instead, the Bank relied on a valuation report to set the share exchange ratio, a method the objectors deemed lacking in fairness and transparency.
Allegations of improper influence on the shareholder voting process further complicated the matter. The objectors claimed that ICICI Bank representatives had unduly influenced public shareholders to vote in a particular manner, raising questions about the integrity of the voting process.
Recognising the need for a more comprehensive discussion, the tribunal has scheduled the next hearing for 16 July 2024. This additional time will allow for a more in-depth examination of the remaining arguments and counterarguments from both parties.
As the case continues to unfold, it maintains its position as a focal point of interest for the corporate world, legal circles and regulatory bodies. The upcoming hearing on 16th July is eagerly anticipated, as it may provide further insights into the NCLT's perspective on the various issues raised.
The ultimate decision in this case still holds the potential to set significant precedents regarding the interpretation of 'same line of business' in holding-subsidiary relationships, the extent of disclosures required in delisting processes and the rights of minority shareholders in corporate restructuring scenarios.
As stakeholders await the next hearing, the case continues to underscore the complex interplay between corporate strategies, regulatory compliance and shareholder rights in India's evolving corporate landscape. The NCLT's final ruling, when it comes, could have far-reaching implications for future delisting processes and minority shareholder protections in the country.
