In the latest development of the ICICI Securities delisting controversy, an appeal has been filed with the national company law appellate tribunal (NCLAT) challenging the order passed by the Mumbai bench of the national company law tribunal (NCLT) on 21 August 2024. The appeal, filed by Manu Rishi Guptha, a minority shareholder, raises several critical issues regarding the NCLT's decision to approve the delisting of ICICI Securities. The NCLAT is expected to hear the case in the coming weeks. This appeal represents a significant escalation in the legal battle surrounding the ICICI Securities delisting.
The appeal outlines ten primary grounds for challenging the NCLT's order:
1. Violation of natural justice: The appellant, Manu Rishi Guptha, argues that the NCLT failed to uphold the principles of natural justice by not ensuring full transparency in the proceedings. A key contention is the tribunal's failure to direct ICICI Securities and ICICI Bank to produce critical documents, most notably the SEBI exemption letter dated 20 June 2023. This letter, which formed the basis for the delisting scheme, was not made available for scrutiny during the NCLT proceedings. The appellant claims this lack of access to vital information severely hampered their ability to mount an effective defense and assess the legality of the exemption granted by SEBI.
2. Misapplication of SEBI regulations: A central argument in the appeal is that the NCLT misapplied regulation 37 of SEBI's delisting regulations, 2021. This regulation allows for a simplified delisting process when a holding company and its subsidiary are in the same line of business. The appellant contends that ICICI Bank (a private sector bank) and ICICI Securities (a financial services company) operate in distinctly different sectors. By approving the delisting without ensuring this crucial condition was met, the NCLT is accused of misapplying the law, potentially giving an unfair advantage to the companies at the expense of public shareholders.
3. Ignoring SEBI's warnings: Perhaps most critically, the appeal highlights that the NCLT overlooked significant administrative warning letters issued by SEBI on 6 June 2024. These letters reportedly labeled the voting process for the delisting as "inappropriate" and raised serious concerns about electoral malpractices. SEBI had explicitly warned the companies about the misuse of shareholders' private data for coercive canvassing of votes. The appellant argues that the NCLT erroneously treated these warnings as a form of "exoneration" rather than recognising them as indicators of serious irregularities in the delisting process.
4. Electoral malpractices: The appellant, Manu Rishi Guptha, alleges that the voting process for the delisting was severely compromised. According to the appeal, ICICI Securities shared confidential details of its public shareholders with ICICI Bank which then used this data to directly contact shareholders and influence their votes in favour of the delisting. This action is claimed to be a clear violation of privacy norms and transparency principles. The appeal argues that this manipulation significantly skewed the voting results, undermining the integrity of the entire process.
5. Unfair share valuation: The appeal contends that the swap ratio used in the delisting scheme grossly undervalued ICICI Securities shares. According to the appellant, the derived value per ICICI Securities share based on the swap ratio was Rs626, whereas a more accurate valuation, considering market performance and peer comparisons, would place the share value closer to Rs1,594. The appeal criticises the NCLT for not scrutinising the valuation report submitted by PwC and EY, which allegedly used outdated figures and unfair market assumptions, resulting in a 40% discount on ICICI Securities shares. This undervaluation, the appeal argues, leads to significant losses for public shareholders. The appeal highlighted that NCLT overlooked that the delisting scheme was designed to avoid the reverse book-building process which would have ensured a fair market-driven price discovery.
6. Discrimination against non-institutional shareholders: The appellant claims that the NCLT overlooked the overwhelming disapproval of the delisting scheme by non-institutional shareholders. While institutional shareholders may have supported the scheme, the appeal argues that non-institutional public shareholders, who hold a significant portion of ICICI Securities' shares, were largely opposed to it. The NCLT is accused of favouring institutional shareholders over small public shareholders, disregarding the significant imbalance of power between these groups. This, according to the appeal, represents a failure in the NCLT's duty to protect minority shareholders, especially when they were clearly disadvantaged by the proposed scheme.
7. Misinterpretation of legal thresholds: The appeal alleges that the NCLT misinterpreted the threshold requirements under section 230(4) proviso of the Companies Act, 2013 which deals with the approval of schemes of arrangement. Furthermore, it argues that the NCLT erroneously applied this provision in a situation where the process was allegedly vitiated by fraud, suppression of material information, and procedural irregularities.
8. Failure to protect shareholder interests: The appellant argues that the NCLT failed to acknowledge the rights of shareholders under Article 300A of the Constitution of India, which protects property rights. By approving the delisting and the allegedly undervalued share swap ratio, the NCLT effectively diminished the property rights of public shareholders without providing a just and fair mechanism for them to realise the full value of their investment. The appeal contends that the NCLT's decision prioritised the interests of ICICI Bank and ICICI Securities over the fair return on investment for small shareholders. This decision essentially enables ICICI Bank to acquire ICICI Securities at a significant discount without following due process, potentially causing substantial financial loss to public shareholders.
9. Lack of regulatory input: The appeal criticises the NCLT for not proactively seeking input from key regulatory bodies - SEBI, NSE, and BSE - before rendering its decision. This is particularly concerning given SEBI's administrative warnings about irregularities in the voting process. The appellant argues that the NCLT should have issued notices or summons to these regulatory bodies to obtain their perspectives on the delisting process and associated concerns. The NCLT's presumption that SEBI's lack of proactive complaint implied a clean slate for the respondents is deemed legally unsound. The appeal suggests that the NCLT should have waited for SEBI, NSE, and BSE to address the serious irregularities identified during the voting process before approving the delisting.
10. Non-transparency: The appeal highlights the NCLT's reliance on sealed cover proceedings and oral assurances from the respondents about compliance with SEBI regulations, without actually reviewing the relevant documents. This approach is criticised as a significant impropriety for a quasi-judicial body like the NCLT. The appellant argues that the NCLT should not have given judicial approval to processes without ensuring full transparency and disclosure of all materials. The use of sealed cover proceedings and acceptance of oral assurances without proper scrutiny of documents goes against the principles of transparency and fairness in judicial proceedings, potentially compromising the interests of minority shareholders and the integrity of the delisting process.
Concurrently, the case continues in the Bombay High Court (HC) in a significant ruling on 3 September 2024, where petitioner Aruna Vinod Modi has been granted leave to amend her writ petition challenging SEBI's exemption to ICICI Securities. The amended petition is to be served within a week, with respondents given until 1 October 2024, to file replies. The next hearing in the HC is scheduled for 14 October 2024.
These parallel legal proceedings in different forums underscore the complexity of the case and its potential to set precedents in corporate governance, minority shareholder rights, and regulatory oversight in India's capital markets. The outcomes of these cases could have far-reaching implications for future delisting processes and corporate actions in India.
The ICICI Securities delisting saga has grown increasingly complex since its inception. What began as objections from minority shareholders has evolved into a multi-forum legal battle involving the NCLT, Bombay High Court, and now the NCLAT. The case has highlighted critical issues in corporate governance, shareholder rights, and regulatory oversight in India's capital markets. From initial concerns about the delisting process and valuation, the case has expanded to encompass allegations of electoral malpractices, regulatory non-compliance, and procedural irregularities. This appeal to the NCLAT marks a significant escalation, potentially setting the stage for a landmark decision that could influence future corporate actions and minority shareholder protections in India.
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