NCLAT Upholds Scheme of Arrangement: No Separate Class Meetings Required for Public Shareholders in Delisting under Regulation 37 - 2025-03-11

Laws, Courts & Judgments.

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NCLAT Greenlights ICICI Bank-ICICI Securities Scheme: Rejects Call for Separate Public Shareholder Meeting

New Delhi, March 10, 2025 - The National Company Law Appellate Tribunal (NCLAT) has upheld the approval of a Scheme of Arrangement between ICICI Bank Ltd and ICICI Securities Ltd, dismissing appeals filed by Quantum Mutual Fund. A bench comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) ruled in favor of the scheme, affirming the order passed by the National Company Law Tribunal ( NCLT ), Mumbai Bench. The NCLAT rejected the appellant's contention that separate meetings for public shareholders were mandatory for such schemes under Section 230 of the Companies Act, 2013 and Regulation 37 of SEBI (Delisting of Equity Shares) Regulations, 2021.

Background of the Case

Quantum Mutual Fund, holding a minority stake in ICICI Securities, had challenged the NCLT 's order approving the Scheme of Arrangement, which aimed to delist ICICI Securities and make it a wholly-owned subsidiary of ICICI Bank. Quantum argued that the scheme was prejudicial to public interest, procedurally flawed, and undervalued ICICI Securities' shares. They specifically contended that the scheme violated Section 230(6) of the Companies Act by not holding separate meetings for public shareholders, as their interests were distinct from promoter shareholders.

Appellant's Arguments: Separate Class Meetings and Procedural Lapses

Represented by Senior Counsel, the appellants argued that despite not meeting the threshold for filing objections under Section 230(4), the Tribunal was obligated to examine the scheme's fairness and public interest. They asserted that Regulation 37 of SEBI regulations, relied upon by NCLT , should not have been the sole basis for approval. A key argument was that promoters and public shareholders constituted distinct classes, requiring separate meetings and a 75% majority vote from each class under Section 230(6). Quantum further alleged that ICICI Bank and ICICI Securities had improperly influenced voting, citing SEBI letters cautioning them about outreach programs. Finally, they challenged the valuation methodology and the fairness of the share swap ratio offered to public shareholders.

Respondents' Counterarguments: Regulatory Compliance and Homogeneous Shareholder Class

ICICI Bank and ICICI Securities, represented by Senior Counsel, argued that the scheme was fully compliant with Regulation 37 of SEBI Delisting Regulations. They highlighted that SEBI had granted a relaxation regarding the ‘same line of business’ requirement, a procedural aspect under Regulation 37, acknowledging the regulatory constraints on ICICI Bank. They contended that Section 230 and Regulation 37 were harmonious and did not mandate separate meetings for public shareholders in delisting schemes. The respondents emphasized that equity shareholders constituted a single, homogeneous class for the purpose of Section 230, and Regulation 37 merely introduced additional safeguards for public shareholders within this class, such as the 66% approval threshold from public shareholders' votes. They also defended the valuation process and refuted allegations of voter coercion, citing SEBI’s clarification that no evidence of misleading voters was found.

NCLAT's Rationale: Upholding Regulatory Framework and Shareholder Democracy

The NCLAT concurred with the NCLT , stating that Regulation 37 was a valid framework for delisting schemes and did not conflict with Section 230 of the Companies Act. The Tribunal emphasized that Rule 5(a) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 vests the jurisdiction to determine shareholder classes with the NCLT , and this determination, unchallenged in the first motion order, had attained finality.

The judgment underscored that equity shareholders form a single class, and SEBI's Regulation 37 introduces an additional safeguard for public shareholders within this class, requiring a 66% majority vote from them, but not mandating separate class meetings. The NCLAT noted:

> "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."

Addressing the outreach program, the NCLAT relied on SEBI's clarification that despite finding the outreach "inappropriate," there was no evidence of voter coercion or invalidation of votes.

Regarding valuation, the NCLAT cited precedents like G.L. Sultania & Anr. v. Securities and Exchange Board of India and Miheer H. Mafatlal v. Mafatlal Industries Ltd. , reiterating that valuation was a matter for experts and not for courts to interfere with lightly.

Finally, the NCLAT upheld the NCLT 's view that Quantum Mutual Fund lacked the requisite shareholding to object to the scheme under Section 230(4), emphasizing the legislative intent to prevent frivolous objections from minority shareholders.

Decision and Implications

The NCLAT dismissed both appeals, effectively clearing the path for the Scheme of Arrangement between ICICI Bank and ICICI Securities. The judgment reinforces the validity of delisting schemes under Regulation 37, even with SEBI relaxations for procedural aspects like the ‘same line of business’ requirement. It clarifies that separate class meetings for public shareholders are not mandatory in such schemes, provided the additional safeguards of Regulation 37, including the 66% public shareholder approval threshold, are met. The ruling also underscores judicial deference to expert regulatory bodies like SEBI and valuation experts in complex financial matters, while also highlighting the importance of shareholder democracy and preventing minority shareholders from unduly derailing schemes approved by a significant majority. ```