ICICI Securities’ minority shareholder alleges Sebi colluded with broking firm on delisting

Quantum Mutual Fund, a minority shareholder of ICICI Securities, told the National Company Law Appellate Tribunal (NCLAT) on Monday that the Securities and Exchange Board of India (Sebi) was ‘hand in glove’ with the financial broking firm in connection with the company’s delisting. ICICI Securities contested the allegations after the market regulator was made a party in the case.

A bench led by Justices Yogesh Khanna and Ajai Das Mehrotra was hearing an appeal filed by minority shareholders Quantum Mutual Fund, which holds 0.08% of the company’s paid-up equity share capital, and Manu Rishi Guptha, who holds 0.002%. The two have challenged an order by the Mumbai bench of the National Company Law Tribunal (NCLT) last Thursday that approved the company’s delisting plan and dismissed the shareholders’ objections.

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Citing a Sebi letter dated 23 June, the senior counsel for the minority shareholder told the NCLAT that Sebi had granted ICICI Bank an exemption to give it certain flexibility on Regulation 37 of Sebi’s Delisting Regulations. The letter, issued at the request of ICICI Bank, allowed it to delist its financial broking arm even though the listed holding company and listed subsidiary were not in the same line of business, as required under Regulation 37.

Arun Kathpalia, a senior lawyer representing ICICI Securities, contested the allegations, saying the Sebi letter could not be challenged before the National Company Law Tribunal (NCLT) or the NCLAT.  “There are serious charges being made against the market regulator,” Kathpalia said.

The NCLAT will hear the case again on Tuesday, when ICICI Securities will continue with its arguments.

Lawyer cites investor outreach

The senior counsel for Quantum also cited an instance in which the markets regulator had issued a warning to ICICI Bank about its outreach to investors regarding the delisting of ICICI Securities.

He added that according to the Sebi, the bank had submitted that the outreach was only meant to raise awareness about the scheme and maximise shareholders' participation. But later, based on an inspection of the investors’ complaints, the regulator observed that some bank officials had exceeded their remit by making repeated calls and asking for screenshots of votes.

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ICICI Securities had announced its plan to delist from its parent company in June 2023. The board of ICICI Bank approved the plan on 29 June 2023, and shareholders approved it in March 2024, with 72% of minority shareholders voting in favour of it. 

The delisting plan involved ICICI Securities becoming a wholly owned subsidiary of ICICI Bank, and shareholders were to receive 67 shares of ICICI Bank for every 100 shares of ICICI Securities they held.

However, shareholders including Manu Rishi Guptha and Quantum Mutual Fund opposed the proposed delisting in two different petitions, claiming the swap would hurt minority shareholders. They approached the NCLT seeking relief.

ICICI Securities contested the petitions, saying that the applicants had no standing in the matter as they did not own at least 10% of the company’s equity or 5% of its outstanding debt, as required for such an objection under the Companies Act.

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As the proposal advanced, the shareholders highlighted concerns about the depressed valuation and share-swap ratio of ICICI Securities. They also questioned the fairness of the deal, given the stock's low price relative to its potential. Discussions on the stock's actual value were sparked by the fact that, at the time of the announcement, the price of ICICI Securities stock was slightly above the initial public offering (IPO) issue price of ₹520.