ICICI Securities’ Delisting (Part 2): No Fair Value Exit — Allowed by SEBI, Upheld in Appeal

The delisting process of ICICI Securities marks a milestone in Indian capital markets, being the first instance of a company utilizing Regulation 37 of SEBI (Delisting of Equity Shares) Regulations, 2021 (Delisting Regulations). The case has sparked widespread debate due to its implications for minority shareholder rights, valuation fairness, and SEBI’s stance on exemption from strict requirements under the provision.

To recap, ICICI Bank proposed to delist its subsidiary ICICI Securities using Reg 37 (Annexure 1) of Delisting Regulations – a court-driven process that allows for fair market valuation via Reverse Book Building (RBB) to be bypassed. Quantum Mutual Fund with a 0.08% shareholding and an individual with 0.002% cried foul, opposing the scheme’s fairness to public shareholders since only public shares in ICICI Securities were being canceled, and not those held by ICICI Bank. The scheme, however, was approved by 93.82% of equity shareholders and 71.89% of public shareholders.

View our earlier paper ICICI Securities Delisting: What really are the issues? for the background of the case. A brief timeline of the case is laid out in Annexure 2.

On March 10, NCLAT upheld the scheme, dismissing objections raised by shareholders. This article analyzes the key lessons for stakeholders in light of the March 10^th order.

The Controversial SEBI Exemption

As a quick recap, if ICICI Bank went under the conventional delisting route, it would’ve had to follow the RBB process, which could’ve resulted in significantly higher valuations (The current swap ratio¹ values ICICI Securities at a 30% - 77% discount to its other listed peers based on consensus earnings forecast for fiscal year ending March 2024, as per Quantum MF² ).

One way to avoid fair market valuation (RBB etc) under Delisting Regulations was to go under Reg 37. This allows for a valuation basis 60-days volume weighted average price but only if holdingsubsidiary companies are in the “same line of business”

Not only did SEBI grant an exemption where it wasn’t technically³ required to, it also took an interpretative call when considering the exemption itself. In fact, SEBI’s power to exempt⁴ arises only if SEBI believes the exemption is “in the interest of investors or for the development of the securities market”.

Going by the voting results that show⁵ that 67.8% of public retail shareholders voted against the resolution, one may argue that delisting under Reg 37 was not in the interest of investors/public shareholders.

Be that as it may, public shareholders were keen to understand the reasons basis which the regulator granted the exemption. One shareholder in fact tried to access the letter under the Right to Information Act, but SEBI refused, citing fiduciary capacity – a view that was upheld by the Securities Appellate Tribunal⁶ . NCLAT also sided with SEBI, reasoning that the regulator’s own refusal to share the letter showed it did not consider the disclosure necessary.

ICICI Securities-Style Delisting: 66% vs 75% Shareholder Approval — Can Public Shareholders Be a Separate Class?

To contextualize,

• Section 230, Companies Act, 2013 requires approval from 75% members or members of a class (in value).
• SEBI’s Master Circular on Schemes of Arrangement requires that public shareholder votes, by number, in favor are more than the votes against for the scheme to be approved.
• Regulation 37, Delisting Regulations requires approval from 66% of public shareholders.

Let’s first deal with the issue of 75% members or members of a class approving the scheme under Section 230 of the Companies Act.

Minority shareholders in the ICICI Securities case argued that public shareholders should be treated as a separate “class” under Section 230, since only their shares were being canceled under the scheme. Let alone objecting shareholders like Quantum, even if public shareholders were treated as separate class, the 75% approval threshold would not have been met – basis voting results, only 71.89% threshold was reached⁷ .

The question then to ask is - can public shareholders even be seen as a separate class of members, and who can make that determination?

The company law tribunal can under Section 230(1)⁸ , which allows it to “...order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs”.

Case laws lay down fairly clear principles to determine how courts should determine a “class” of members or creditors in a scheme. In determining a class, homogeneity or commonality of risks and interests should be deterministic.

In that light, it appears only reasonable that public shareholders (whose shares are being cancelled) are disassociated with or treated separately than promoter group (whose shares are not getting cancelled). In other words, treated as a separate class. Courts should have, in our view, exercised discretion to classify them as a separate class, which they failed to do.

How did the tribunal court look at the Reg. 37’s interaction with shareholder approvals under Companies Act?

Interestingly, the tribunal acknowledged the difference in treatment between public shareholders and the promoter group. In fact, it concluded that Reg 37 was designed precisely for such scenarios and hence prescribes a different threshold of 66% of public shareholder approvals. SEBI’s framework ensures specialized investor protections under Reg 37 and obviates the need for the court to watch out for the interests of the public shareholders.

The question then is – should company courts (NCLT and NCLAT) have looked out for the public shareholders independent of SEBI framework? We analyse.

Can Minority Shareholders With <10% Shareholding Oppose Schemes At All?

Yes, but only in exceptional cases. The company court rejected the ability of less than 10% shareholders to object under Section 230(4)⁹ , but maintained that objections from such shareholders may be entertained if the scheme is “prejudicial to public interest (not the applicant’s interest), due procedure under law has not been followed or if it is not fair, conscionable and not opposed to public policy”.

The thresholds are therefore quite high.

With 93.82% of equity shareholders and 71.89% of public shareholders approving the scheme, allowing Quantum with its minuscule shareholding could be seen as a departure from principles of shareholder democracy. More recently, in the case of Jatinder Singh Ahuja v Tata Steel¹⁰, NCLAT reaffirmed that mere dissatisfaction with a swap ratio or valuation method does not justify intervention unless a scheme is manifestly unconscionable, fraudulent, misleading, or grossly unfair to minority shareholders, undermining their legitimate expectations and rights.

Unlike a case of oppression under Section 241 where the court has the power to waive the 10% threshold, no such waiver provision exists under the scheme of Section 230.

So, have sub-10% shareholders ever been allowed to object to a scheme in the past?

Yes. In Ankit Mittal¹¹, NCLAT set aside a scheme where the demerger classification of the scheme was flawed, minority shareholders’ treatment was unclear, and the valuation methodology lacked transparency (no detailed computation, share exchange ratio was arbitrary- amounting to “guesswork”, NCLAT held).

In essence, while the legal bar remains high, the door is not entirely shut. It opens only when the objection exposes a scheme that is structurally flawed, lacks transparency, or bypasses statutory protections – not merely when a minority shareholder feels shortchanged.

Conclusion

The ICICI Securities delisting case has set a significant precedent for delisting transactions via a court-driven scheme of arrangement under Regulation 37. By upholding SEBI’s lower 2/3rd voting threshold for public shareholders and clarifying that Regulation 37 can’t be rendered otiose, the ruling reinforces the flexibility and efficiency of the scheme route.

SEBI seemed to have relied on the spirit of the law (in granting the exemption) and the company courts relied on the letter of the law (in not qualifying public shareholders as a separate class). But the result was that the public shareholders were left high and dry. Their shout for an audience was ignored on the grounds that they held less than the statutory minimum (10% shareholding) to object, even though the NCLT has allowed objections from such shareholders on similar (or arguably similar) grounds before.

Had the SEBI followed the law technically, ICICI may have paid a lot more. Had the NCLAT treated them as a separate “class” (a fair ask in our view), the outcome would’ve been very different. Of course, then ICICI Securities would have probably taken long years to delist.

Exemptions aside, ICICI Securities, in our minds, is another case where a round-about way was used to achieve something that could be done in a straightforward manner – underscoring the need for a more definitive, balanced and less onerous delisting regime. Refer to our papers on Delisting here.

Annexure 1

June 2023: ICICI Bank announced plans to delist ICICI Securities; merge it as a wholly-owned subsidiary. Board approved the proposal on June 29.

March 2024: Shareholders approved delisting - 93.82% of equity shareholders and 71.89% of public shareholders voted in favor.

August 2024: NCLT Mumbai approved the scheme, dismissing objections from Quantum MF [0.08% shareholding] and Manu Rishi Gupta [0.002% shareholding].

September 2024: The Ahmedabad bench of NCLT directed ICICI Bank to disclose SEBI’s exemption letter dated June 20, 2023, through an affidavit by October 3, 2024.

October 2024: NCLT Ahmedabad approved the scheme, dismissing objections.

October 2024: Appeals filed before NCLAT.

March 10, 2025: NCLAT dismissed the appeals challenging the delisting process, upholding NCLT’s approval.

March 24, 2025: Trading of ICICI Securities shares was suspended on BSE and NSE, finalizing the delisting process.

Annexure 2

Delisting of equity shares of a subsidiary company pursuant to a scheme of arrangement.

37. (1) Nothing contained in these regulations shall apply to the delisting of equity shares of a subsidiary company, pursuant to a scheme of arrangement by an order of a Court or Tribunal with its listed holding company, whose equity shares are frequently traded, and where the listed holding company and the subsidiary company are in the same line of business.

(2) The delisting of the equity shares of a subsidiary company in terms of sub-regulation (1) shall be permitted subject to the following:-

a) the listed holding company shall provide for the issue of its equity shares in lieu of cancellation of any equity shares in the delisting subsidiary company;

b) upon such delisting becoming effective, the subsidiary company shall become a wholly owned subsidiary of the listed holding company;

c) compliance with regulations 11, 37 and 94 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Circulars issued thereunder;

d) e-voting from shareholders of both listed companies wherein votes cast by public shareholders of the listed subsidiary in favour of the proposal are at least two times the number of votes cast against it and the votes cast by the public shareholders of the listed holding company in favour of the proposal are more than the number of votes cast by the public shareholders against it;

e) the shares of the listed holding company and the subsidiary company are listed for at least 3 years and shall not be suspended at the time of taking this route;

f) the subsidiary company has been a listed subsidiary of the listed holding company for the past three years;

g) no adverse orders have been passed by the Board in the past 3 years against the listed holding company and the listed subsidiary company;

h) no further restructuring shall be undertaken by the listed holding company for a period of 3 years from the date of the Order of the Court or Tribunal approving the scheme of arrangement;

i) the equity shares of the listed subsidiary so delisted, shall not be allowed to seek relisting for a period of three years from the date of delisting and such relisting shall be in terms of sub-regulation (3) and (4) of regulation 40 of these regulations; and,

j) the valuation of shares of the listed subsidiary per share shall not be less than sixty days volume weighted average price.

[Explanation — The reference date for computing the volume weighted average price would be the date on which the prior intimation is required to be given to the stock exchanges under regulation 29 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time.]

¹ 67 shares of ICICI Bank for every 100 shares of ICICI Securities held by existing public shareholders.
² Quantum MF calculation.
³ Criteria for “same line of business” - Principal economic activities of both companies falling under the same 3-digit code in the National Industrial Classification Code 2008. While ICICI Bank and ICICI Securities fall under the same broad heading of Financial Services Activities as per NIC Code, 2008, their 3-digit NIC Code is different.
ICICI Bank’s NIC Code, BRSR Report 2024: [641]91
ICICI Securities NIC Code, BRSR Report 2024: [661]20 and [661]90.
⁴ 42.(1) The Board may, in the interest of investors or for the development of the securities market, relax the strict enforcement of any requirement of these regulations, if the Board is satisfied that
a) the requirement is procedural in nature; or
b) any disclosure requirement is not relevant for a particular class of industry or company; or
c) the non-compliance was caused due to factors beyond the control of the acquirer.
⁵ Voting Outcome.
⁶ Appeal No.6001of 2024 by Jatinder Singh Ahuja.
⁷ Voting Outcome.
⁸ Section (230)(1) “Where a compromise or arrangement is proposed— (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company....order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs”.
⁹ Section 230(4:) “… Provided that any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent. of the shareholding…”
¹⁰ Company Appeal (AT) No. 132 of 2021.
¹¹ Company Appeal (AT) No.238 of 2018.