Informist, Wednesday, Sep 18, 2024

--ICICI Sec: Another shrholder filed appeal in NCLAT in delisting case

--CONTEXT: NCLT on Aug 21 OK ICICI Sec-ICICI Bk scheme of arrangement

By Rajesh Gajra

MUMBAI – Quantum Mutual Fund has filed an appeal in the National Company Law Appellate Tribunal against National Company Law Tribunal's Aug 21 order rejecting an intervention application filed by it and an individual minority shareholder in the ICICI Securities delisting case, a source told Informist.

On Aug 21, NCLT Mumbai ruled in favour of the brokerage's petition before it seeking approval of the scheme of arrangement between ICICI Bank and ICICI Securities under which the latter is seeking delisting from the stock exchanges. In a separate ruling on the same day, NCLT rejected the objections to the scheme by Quantum Mutual Fund and individual minority shareholder Manu Gupta.

In a filing with the stock exchanges today, ICICI Securities said that it received a notice on Tue that "another shareholder holding 2,86,922 shares of the company" who had filed objection with NCLT against the scheme of arrangement "has e-filed an appeal before the NCLAT against the order of the NCLT."

Earlier today, Ajit Dayal, founder of Quantum Advisors, said in a statement that Quantum Mutual Fund will continue to pursue legal actions against the scheme of arrangement between ICICI Securities and ICICI Bank involving delisting of the brokerage. Quantum Mutual Fund's two schemes, Quantum Long Term Equity Value Fund and Quantum ELSS Tax Saver Fund, together hold 286,922 shares of ICICI Securities as of end of August. Quantum Advisors is sponsor company of Quantum Asset Management Co.

The NCLT, Ahmedabad, has reserved its order on ICICI Bank's petition before it seeking an approval of the same scheme of arrangement. The bank's headquarters are in Ahmedabad and so it had approached the Ahmedabad bench while the brokerage being in Mumbai, it had petitioned the NCLT bench in Mumbai.

NCLT had observed in its Aug 21 order that the regulators BSE, National Stock Exchange, and Securities and Exchange Board of India had not raised any objection to the voting process in the shareholders meeting held in March in which the resolution was passed. According to Dayal, this was an invitation to the exchanges and SEBI "to step in to the ring" and clarify whether the voting process was vitiated or not, and if it was, it should lead to setting aside the successful passing of the resolution. Dayal said that if the stock exchanges and regulator conclude that the voting process was vitiated, it fails NCLT's requirement of fair voting for the scheme to be approved. 

Quantum Mutual Fund voted against the scheme of arrangement in ICICI Securities' shareholders meeting on Mar 27, but the resolution got the requisite majority and was passed. Prior to the meeting, ICICI Bank reached out to shareholders of ICICI Securities through multiple calls and messages to vote in favour of the delisting scheme. Several shareholders complained to SEBI about not only the coercive tactics by the bank's officials but also the breach of rules since the bank accessed their phone and address details that were known only to ICICI Securities.

Following shareholder complaints, SEBI initiated an enquiry and on Jun 6, it issued a warning letter to ICICI Bank. Being a promoter of ICICI Securities holding a little over 74% stake, the bank was an interested party in the matter, SEBI said in its warning letter. By calling shareholders of ICICI Securities and providing its perspective on the proposed transaction, it was not giving any balanced factual position and was instead violating the principle of avoiding any conflict of interest.

Dayal said in today's statement that this Jun 6 action by SEBI needed clarification if the voting process got vitiated for ICICI Securities because of the bank's heightened outreach program or not.

As per the scheme of arrangement, ICICI Bank is to issue 67 new shares of the bank to every public shareholder of ICICI Securities for every 100 shares held by them in the latter. Thereafter, the brokerage firm's entire public shareholding was to be cancelled, making ICICI Bank as its sole, 100%, shareholder.

ICICI Securities had last year sought and received an exemption from the reverse book building requirement in SEBI's delisting regulations. It sought exemption under a special clause that allowed for it only if the two companies in the scheme were listed and also in the same line of business. In reverse book building, minority public shareholders of a company seeking delisting get to determine the exit price as per a formula laid down in the regulations.

The scheme of arrangement between the bank and the brokerage, according to Dayal, "is a breakdown of every known norm of corporate governance." The Quantum Advisors founder questioned on what criteria did SEBI grant an exemption from the reverse book building mechanism. He said as per a Reserve Bank of India master circular on para banking activities dated Jul 1, 2014, banking and broking are not the same line of business.

Dayal also said the swap ratio in the scheme of arrangement was arrived at from "unknown and undisclosed assumptions of the accounting firms that did the valuation exercise – an accounting process, potentially devoid of a market reality." Dayal said that the saga of mis-governance will be resolved only if SEBI made clear statements to the judiciary on the rights of minority shareholders.  End

Edited by Deepshikha Bhardwaj

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