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Informist, Tuesday, Dec. 3, 2024

 

NEW DELHI – The Bombay High Court has rejected a petition challenging the Securities and Exchange Board of India's regulation that provided for delisting of equity shares of a listed company pursuant to a resolution plan approved under the Insolvency and Bankruptcy Code. The petitioner Harsh Mehta had said that the challenged regulation allowed delisting without complying with any of the restrictions and safeguards otherwise provided in the delisting regulations of listed companies.

 

"The above premise is incorrect because sufficient safeguards are also provided under the IBC (Insolvency and Bankruptcy Code, 2016) to protect the interest of the shareholders and investors by at least attempting to maximise the corporate debtor's assets and resolve issues of insolvency or bankruptcy of a corporate debtor expeditiously," said the court. Thus, considering that the Insolvency and Bankruptcy Code was a complete code "containing a non-obstante clause", a delisting of equity shares pursuant to the approval of a plan under insolvency law would be governed by the provisions of the latter and the regulations made thereunder. "Therefore, if the SEBI felt that governing such delisting under the Delisting Regulations might not be appropriate, there is no question of SEBI acting ultra vires," said the court.

 

The high court has also rejected Mehta's plea challenging the National Company Law Tribunal's order to approve the resolution plan for the delisting of shares of Reliance Capital Ltd. and National Stock Exchange and BSE circulars regarding the same.

 

"Since there is no conflict between the parent statute (SEBI Act, 1992) and the impugned regulations, the charge of violating Article 14 (of the Constitution) or manifest arbitrariness cannot be upheld," said the high court. The high court said that the challenged regulation can hardly be criticised as lacking any determining principle or logical consistency. The regulation cannot be styled as capricious, irrational or excessively disproportionate, the court added.

 

"Still, now that we have found no infirmity in the impugned regulations, the challenge to NCLT's impugned order dated Feb. 27, 2024 fails and is liable to be rejected," said the court. On Feb. 27, the tribunal had approved IndusInd International Holdings Ltd.'s resolution plan for the debt-ridden Reliance Capital.

 

Mehta, who had acquired 6,700 shares of Reliance Capital, had challenged the validity of Regulation 3(2) (b)(i) of the SEBI (Delisting of Equity Shares) Regulations, 2021 as being ultra-vires to SEBI Act, 1992. The challenged regulation, far from protecting the interests of the investors, seriously prejudices the interests of investors like the petitioner, said Mehta. Accordingly, the challenge regulation, which is a subordinate legislation and does not conform to the objects and provisions of the SEBI Act, which is the parent Act, is consequently ultra-vires and must be struck down, Mehta said.  End

 

Reported by Surya Tripathi

Edited by Ashish Shirke

 

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