Quantum Mutual Fund & Ors vs Icici Securities Limited & Anr

1st Floor, 224, Nariman Point Mumbai 400021 Respondents For Appellant : Mr. Viraj Parekh, Mr. Samarth Chowdhary, Advocates. For 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. with COMPANY APPEAL (AT) No.334 of 2024 (Arising out of order dated 21.08.2024 in IA No.96/2024 in CP(CAA)/71/MB/2024 passed by the National Company Law Tribunal, Mumbai Bench at Mumbai) In the matter of: 1. Quantum Mutual Fund 1st Floor, Appejay House, 3, Dinshaw Vachha Road, Backbay Reclamation, Churchgate, Mumbai 400020 Maharashtra, India.

2. Quantum Trustee Company Pvt Ltd 1st Floor, appejay House, 3, Dinshaw Vachha Road, Backbay Reclamation, Churchgate, Mumbai 400020 Maharashtra, India.

3. Quantum Asset Management Company Pvt Ltd 1st Floor, appejay House, 3, Dinshaw Vachha Road, Backbay Reclamation, Churchgate, Mumbai 400020 Maharashtra, India. Appellant Versus 1. ICICI Securities Limited, ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400025 3

2. ICICI Bank Ltd, ICICI Bank tower, Near Chakli circle, Old Padra Road, Vadodara 390007 Gujarat India

3. Securities Exchange Board of India Mittal Court B & C Wing 1st Floor, 224, Nariman Point Mumbai 400021 Respondents For Appellant : Mr. Viraj Parekh, Mr. Samarth Chowdhary, Advocates. For 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 the requisite number of shares to raise the

objection per sub-section (4) of Section 230 of Companies Act, 2013 yet the 4

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 SEBI (Delisting of Equity Shares) Regulations,

2021, which it ought not to have done. It is submitted the Scheme treats the

shareholders viz. promoters and public shareholders separately as against the

law. It is submitted Section 230(6) of the Companies Act, 2013 notes where

at a meeting held in pursuance of sub-section (1), majority of person

representing three-fourths in value of the creditors, or class of creditors or

members or class of members, as the case may be, voting in person of such

compromise or arrangement, is sanctioned by the Tribunal by an order, the

same shall be binding on the company, all the creditors, or class of creditors

or members or class of members, as the case may be, or, in case of a company

being wound up, on the liquidator appointed under this Act or under the

Insolvency and Bankruptcy Code, 2016 as the case may be, and the

contributories of company.

4. It was submitted consent of 3/4th majority of the shareholders ought to

be obtained while approving a Scheme but if one looks at scrutiniser report

at Page 373 of the Paper book one would find on the voting of public

shareholders, the percentage of votes casted in favour of the Resolution were

71.89% and whereas against it were 28.11%. Thus the argument was such a 5

procedure ought not to have been adopted as the holding company and

subsidiary company were not in the same line of business as admittedly the

holding company is a Bank and whereas the subsidiary company deals in

securities.

5. It was thus argued though the scheme purports to be under Regulation

37 of the SEBI (Delisting of Equity Shares) Regulations, 2021, but it failed to

conform with the essential requirement contained therein viz. the companies

should be in the same line of business. It was argued as per RBI circular

dated 6th July, 2021, which lays down the Standard Operating Procedure 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 6

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 holding the

shares were acquired at a throw away prices.

7. It was also argued any regulation, much less Regulation 37 (supra)

cannot override an Act as has been held in Council of Architecture Vs Mukesh

Goyal and others (2020) 16 Supreme Court Cases 446.

8. The learned senior counsel then referred to M/s Miheer H Mafatlal Vs

Mafatlal Industries Ltd (1997) 1 Supreme Court Cases 579 to press his

argument that even if the threshold is not met yet the Court/Tribunal cannot

ignore the contentions raised by the objector qua the scheme being not fair,

reasonable and opposed to public policy etc. It was argued the separate

meeting of public shareholders was never held. He pointed out to the

following paras of M/s Miheer H Mafatlal (supra) as follows:-

39..........The Appellant is admittedly an equity shareholder. Therefore, he would fall within the same class of equity shareholders whose meeting was convened by the orders of the Company Court. However it is vehemently contended by learned counsel for the appellant that because of the family arrangement of 1979 on which he relies he was a special class of minority equity 7

shareholder who had separate rights against the director of the company and whose special interest because of the pending litigation between him and the director Shri Arvind Mafatlal was likely to be adversely affected by the Scheme, therefore, a separate meeting had to be convened as he represented a class within the class of equity shareholders. It is difficult to agree with this contention.

Even though the Companies Act or the Articles of Association do not provide for such a class within the class of equity shareholders, in a given contingency it may be contended by a group of shareholders that because of their separate and conflicting interests vis-a-vis other equity shareholders with whom they formed a 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 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 8

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 informing that opting for the

scheme would be beneficial. It was clearly beyond an outreach programme

and asking for screenshot from the shareholders was clearly inappropriate

and hence the ICICI Bank Ltd was warned to be careful in future and to

improve their compliance standards to avoid recurrence of such instances

failing which action could be initiated in accordance with SEBI Act, 1992 and

the Rules and Regulations framed thereunder. Further ICICI Securities Ltd

was warned for sharing the data of its shareholders with ICICI Bank to

facilitate outreach programme undertaken by the Bank with the proposed

objection of maximising participation of shareholders in the voting process

which efforts was also deprecated by the SEBI stating interalia that ICICI

Securities Ltd had failed to maintain personal data of its shareholders.

10. Qua the above letters dated 06.06.2024 of SEBI the impugned order

noted as follows:-

"5.5.3 We find that the Companies had explained the purpose of outreach program undertaken by it, and BSE did not find any objectionable ground to order holding of the meeting dated 27.03.2024 again to take the vote on the scheme. The contents of warning letter of SEBI demonstrate that SEBI was concerned with the sharing of information of shareholders to ICICI Bank, which otherwise is not permissible under the Companies Act, 2013, however, it had no observation to the effect that the public shareholders were misled or coaxed to cast vote. There is no evidence on record from any shareholder that he was coaxed to vote in favour of the scheme only. The Regulators BSE, NSE and SEBI have not raised any objection in relation to voting process before us. The Independent Chairman of the meeting 9

appointed by this Tribunal, Justice Akil Qureshi (Retd) has also not pointed out any error or deficiency in the voting process. Accordingly, 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 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 Promoter Shareholders in the scheme of arrangement of ISEC, however, this dissimilarity in the interest of Public Shareholders 10

and Promoter Shareholders has been specifically dealt in the Regulation 37 of Delisting Regulation resulting into additional requirement of approval of schemes falling therein by 2/3rd votes of public shareholders. In this context, we shall proceed to examine whether the scheme in question ought to have been approved by 70% of such shareholders and not by 2/3rd of such shareholders as contemplated in Regulation 37 of the Delisting Regulations and canvassed by the ISECL and ICBL."

12. Learned senior counsel for the appellant further argued if one peruse

the report of M/s Dolakia, Company Secretary viz. the Scrutiniser, it referred

to only one consolidated meeting of shareholders who had voted in favour of

the arrangement to an extent of 93.82% and non-promoters to an extent of

71.89%. It was the submission of the learned senior counsel for the appellant

there was no separate meeting of non-promoter shareholders and the report

relied upon break up of only one consolidated meeting of the shareholders,

hence does not pass the test of sub-section (6) of Section 230 of the

Companies Act, 2013. It was argued there was a falacy in the impugned order

where despite observing the promoters and non-promoters make separate

classes yet were treated as an homogeneous class.

13. Heard.

14. To understand the issues raised, we must first understand the rationale

of the Scheme, which admittedly is as under:-

"Rationale and benefits of the Scheme a. The Companies share significant business synergies, and a merger would benefit the Companies, their customers as well as shareholders by capitalizing on such synergies and by enabling the Companies to provide a comprehensive suite of services to their customers as well 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 11

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 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 to contend a separate meeting of public shareholders would have been

required under provisions of the Act and hence there is a conflict between

provisions of the Act and Regulation 37 of the Delisting Regulations.

16. Now Rule 5(a) of the Companies (Compromises, Arrangements and

Amalgamations) Rules, 2016 prescribes as under:

5. Directions at hearing of the application. --Upon hearing the application under sub-section (1) of Section 230 of the Act, the Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions as it may think necessary in respect of the following matters--

(a) determining the class or classes of creditors or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement; or 12

dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-section (9) of Section 230;

17. In terms of Rule 5, the jurisdiction for determining the class of members

in respect of whom a meeting is to be called with regard to a Scheme is in the

exclusive domain of the Ld. NCLT. If anybody was aggrieved by any such

determination of classes by the Ld. NCLT, the same was to be challenged by

such aggrieved person in accordance with law. In the present case, the Ld.

NCLT, after due application of mind, had determined the classes in respect of

which meeting was to be called, in its order dated 14 February 2024. The Ld.

NCLT, while making that determination applied its mind to the aspect of both

Section 230 of the Act as also Regulation 37 of the Delisting Regulations and

thereafter passed a detailed order in terms of both Section 230 and Regulation

37. The said Order made it clear a meeting was to conducted of all the equity

shareholders, under and in terms of Section 230, and Regulation 37 and that

a separate account 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 13

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 14.02.2024 , let alone any such contention being kept open.

Therefore, in view of- (i) Rule 5(a) which make the determination of classes

the exclusive domain of the NCLT; (ii) the strict timelines prescribed for

challenging the order whereunder meetings were called; (iii) the full

participation of the Appellants in the meetings; and (iv) SEBI itself in

Regulation 37 prescribing the manner of reckoning the voting for the purposes

of a delisting scheme, the Appellants are not entitled to challenge the

convening of meeting of equity shareholders at this stage.

20. Further Sh Arun Kathpalia, learned senior counsel for the respondent

argues : a. the subject matter of listing and delisting of securities falls 14

exclusively within the domain of SEBI, being the securities market regulator.

The SEBI Act is a standalone legislation on the subject matter of protection of

the interests of investors and SEBI's powers thereunder are not fettered by

any other law including the Act (Sahara India Real Estate Corporation Limited

and Others v. Securities and Exchange Board of India (2013) 1 SCC 1; Para

309). Regulation 37 was specifically introduced by SEBI to facilitate delisting

through a scheme of arrangement keeping in mind, inter alia, the following

two key considerations (Paras 2 and 3 of SEBI Consultation Paper dated 16

March 2020 and Para 2.3 of the SEBI Board Memorandum dated 29

September 2020): i. To enable listed holding companies that have listed

subsidiaries with similar/same lines of business to achieve intended

synergies by making such subsidiary a wholly owned subsidiary of the said

holding company; ii. Keeping in mind that a full merger may not be favourable

for certain listed holding and listed subsidiary companies owing to industry

specific constraints such as license conditions; and b. Regulation 37

introduces a facilitative mechanism 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, 15

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 Bank applied to SEBI seeking a limited

relaxation from strict enforcement of the requirement in the procedural SEBI

(SOP) regarding the 3-digit NIC Code on the ground the requirement is

procedural and non- compliance with the same is beyond their control. The

Relaxation was sought in terms of Regulations 42(1)(a) and 42(1)(c) of the

Delisting Regulations. Regulation 42 of the Delisting Regulations set out

SEBI's power to relax strict enforcement of any provisions of the Delisting

Regulations in the interest of investors and for development of the securities

market, if SEBI is satisfied a) the requirement is procedural in nature; and b)

the non-compliance was caused due to factors beyond the control of the

acquirer.

16

22. Vide letter dated 20 June 2023, SEBI had granted the relaxation in

exercise of its powers under Regulation 42(1)(a) and (c) subject to compliance

with provisions of Regulation 37(2) of the Delisting Regulations. SEBI's

decision to grant such Relaxation is within the exclusive regulatory domain of

SEBI as an expert regulator. The correctness of such decision is not justiciable

in these proceedings and also not relevant for the purposes of the considering

the Scheme and deciding the present appeals. It is not in dispute such

relaxation has been granted by SEBI in exercise of its powers under

Regulation 42(1) of the Delisting Regulations. Pertinently, it may be noted all

the necessary safeguards such as that of issuance of shares of the holding

company to the public shareholders of the subsidiary upon the delisting;

minimum price protection for calculation of swap ratio to arrive at the number

of shares of holding company to be issued to public shareholders and

achieving 2/3rd majority amongst public shareholders which are meant to

protect public shareholders are all contained in Regulation 37(2). Each of

these 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 17 230(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 members or creditors vis a vis the directors of the company or the persons in the management of the company are alien for the purpose of classification. As held by the Apex Court in Mihir Mafatlal's case, the member or members or creditor or creditors claiming right against one or more directors of the company cannot claim that he or they constitute a separate class only by reason of having a separate private right or interest.

24. 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 18

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 matters

of listing and delisting imposes an additional safeguard in such schemes. In

doing so, SEBI inherently recognizes while the class for which the meeting

has to be called in such schemes of delisting under Regulation 37 is a single

homogeneous class; separate accounts need to be maintained as an

additional safeguard for the purpose of protecting interests of public

shareholders. In view of this, there is absolutely no conflict between the

provisions of the Act and Regulation 37 of the Delisting Regulations. The Act

requires a meeting of equity shareholders in which approval by 3/4th majority

is to be obtained and Regulation 37 introduces an additional safeguard which

requires in such meeting the public shareholders vote approving the Scheme

ought to be at least by 2/3rd majority i.e., 66% of the votes cast by public

shareholders. Thus we find the Scheme is a delisting 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 19

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 such approval, the number

of public shareholders who vote in favor of the delisting proposal should be at

least twice the number of public shareholders who have voted against i.e.

2/3rd majority viz. 66% in favor of delisting.

26. This rationale is clearly borne out from the board memorandum dated

29 September 2020 issued by SEBI whereby it proposed the alternate mode

of delisting as currently provided under Regulation 37 of the Delisting

Regulations. In the memorandum, the board also took note of the fact, as

regards a listed subsidiary, there may be situations where the promoter /

promoter group may be having a major holding in the listed subsidiary and if

the voting were to be capped at majority or minority, it may defeat the purpose

of voting. It was also noted the requirement of two times voting was also in

line with the Delisting Regulations which required any entity desirous of 20

delisting could delist only if votes cast by public shareholders in favor of the

proposal amount to at least twice the number of votes cast by public

shareholders against it. Thus SEBI after careful consideration of all the

aforesaid factors stipulated the requirement of a vote of 66% of public

shareholders in Regulation 37(2)(d). There are also other safeguards in

Regulation 37(2) which protect public shareholders, in particular - the public

shareholders receive listed equity shares of the listed holding company

thereby ensuring continued marketability of their security and price for the

purposes of swap ratio calculation being at least equal to 60-day (Volume

Weighted Average Price (VWAP) of the shares concerned.

27. Notably, while introducing Regulation 37, SEBI was well aware that

regulation 37 is to be implemented by way of a scheme of arrangement under

Section 230 of the Act and was mindful of the provisions under Section 230.

Accordingly, 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. 21

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 nor has SEBI referred to any

circumstance which had invalidated the votes cast by the shareholders of

ICICI Securities. As alleged the Outreach was allegedly initiated in view of

the systematic campaign started by some of the minority shareholders

including, one of the Appellants. However, we find the SEBI Letter, when it

refers to the Outreach Initiative being inappropriate, can only be said to have

taken exception to the mode of carrying out the outreach and not the outreach

per se, nor even the objective of such outreach. Most notably, as regards

impact of the outreach on the voting, SEBI in its written submissions dated

26 November 2024 filed before this Tribunal has categorically noted-

"SEBI did not find any evidence of influence or solicitation or misleading of voters by ICICI Bank during its examination. Therefore, the conclusion 22

by the petitioner that the letter dated June 06, 2024 was issued with respect to the alleged coercion of the concerned shareholders of ICICI Securities and therefore the voting process was illegal and fraudulent is baseless."

31. The aforesaid clarification by SEBI makes it abundantly clear SEBI

found no illegality whatsoever in the voting process and the Appellant's

contention in this regard is totally unsubstantiated and baseless.

32. Now in regard to differential treatment we find the promoter

shareholder in case of scheme under the Regulation 37 is the holding

company itself. Regulation 37 contemplates such holding company becomes

a 100% shareholder of the subsidiary company upon the delisting becoming

effective i.e., the subsidiary should become a wholly owned subsidiary of the

holding company, hence, there is no occasion or necessity of providing any

exit option. As regards the public shareholders, they receive listed shares of

the holding company upon implementation of the Scheme. 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.

23 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 merchant

bankers. We find the valuation of ICICI Securities is in accordance with the

minimum requirement prescribed under Regulation 37(2)(j) of the Delisting

Regulations i.e., per share valuation of the listed subsidiary shall be at least

equal to 60-day Volume Weighted Average Price (VWAP)

34. It is settled law the courts should not enquire into the issue of valuation

of shares as the same is a question of fact based on technical and complex

considerations and should be left to the experts in the field of accountancy,

as has been held in G.L. Sultania & Anr. v. Securities and Exchange Board of

India (2007) 5 SCC 133 and Miheer H. Mafatlal v. Mafatlal Industries Ltd.

(1997) 1 SCC 579).. Hence objections to this regard are all rejected.

35. Lastly after examining the Scheme we also need to find the entitlement

of appellants to object the Scheme. The Appellants i.e., Quantum Mutual

Fund (Quantum) does not meet the minimum threshold of 10% shareholding 24

required to be entitled to object to a scheme, prescribed under the proviso to

Section 230(4) of the Act. As on 20 March 2024 (being the cut-off date under

the Scheme), and Quantum held 2,86,992 shares of ICICI Securities shares

i.e., 0.08% shareholding. Now, section 230(4) of the Act is a mandatory

provision, and the usage of the word 'shall' followed by the word 'only' in the

proviso to Section 230(4) reflects the legislative intent to mandatorily exclude

all such person who do not meet the threshold prescribed. Notably, the

erstwhile Companies Act, 1956 did not provide for a threshold for objecting to

a scheme. Subsequently, the Report of the Expert Committee on Company

Law dated 31 May 2005 observed that shareholders holding miniscule

shareholding raised frivolous objections with the objective of stalling the

implementation of a scheme which was otherwise approved by the 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. 25

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 appeals viz. Company

Appeal (AT) No.333 of 2024 and Company Appeal (AT) No.334 of 2024 are

dismissed herewith. All pending application(s) if any, are closed. No order as

to costs.

(Justice Yogesh Khanna) Member (Judicial)

(Mr. Ajai Das Mehrotra) Member (Technical) Dated:10 -03-2025 bm