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  • Swayam Mundhra, Siddhanth Singhi

The Conundrum of Delisting: ICICI Securities Case

[Swayam and Siddhanth are students at Gujarat National Law University.]

Delisting process has always been a tough and cumbersome process where the shareholders and promoters of a particular company face the dilemma of fixing a price for delisting. The unsuccessful attempts of Vedanta and Linde India to delist from the market had shown how uncertain the process of delisting is. The recent quandary of ICICI Securities is no exception to this.

In March 2024, ICICI Securities (ISEC) announced that they have received assent from their public shareholders for its delisting to become a wholly owned subsidiary of ICICI Bank. 72% of public shareholders of ISEC approved this scheme of arrangement, where a total of 83% public institutional investors voted in approval of the said scheme. Also, 32.2% of non-institutional investors had approved it. ISEC secured votes more than required threshold, as prescribed in Regulation 11 of Securities and Exchange Board of India (Delisting of Equity Shares) Regulations 2021.

However, the situation got more complicated when the minority retail shareholders, led by one Manu Rishi Gupta, filed a class action suit under Section 245 of the Companies Act 2013, alleging that the scheme of arrangement between ICICI Bank and ISEC is marred with irregularities and mismanagement. The minority shareholders have contended that the votes of the retail shareholders for the proposed scheme were obtained through fraudulent means, and the ICICI Bank coaxed and goaded them to vote in favour of the proposal.

The authors first discuss the ISEC delisting case, focusing on the voting issue, after which they talk about the allegation of inappropriate valuation. The authors have analyzed these two issues while emphasizing the legal procedure and precedents. Also, the authors explain the complexities regarding coerced voting and how the courts have interpreted it till now while shedding light on inappropriate valuation. Lastly, the authors provide suggestions that may guide the overcoming of these ambiguities in the future.

Vote Meddling by ICICI Bank

The minority shareholders have contended that the ICICI Bank coerced the retail shareholders into voting in their interest, i.e., approving the arrangement. They have argued that many ICICI Bank employees had persistently contacted them to vote for them.

A landmark English case, Re: Alabama, New Orleans, Texas and Pacific Junction Railways Company, laid down the test to determine the sanctioning of a scheme which was three-fold, (a) compliance with the statutory provisions; (b) fair representation and bona fide majority where no coercion was done on minority; and (c) arrangement being one that will be approved by a reasonable person. In the landmark case of Re Anglo-Continental Supply Co. Ltd, Justice Astbury reiterated the observations in Re: Alabama case.

In the present case of ISEC delisting, the second test, which is that the majority cannot coerce or unduly influence the minority into promoting the majority's interests, can be applied to the case of ICICI because minority shareholders allege that they were persistently contacted to vote in favour of the scheme. However, if we look at it from a nuanced perspective, the ICICI Bank was encouraging the shareholders to vote for the scheme to make them aware that they need to vote for that scheme. It is also pertinent to note that the shareholders who filed the petition bought the shares after the scheme of arrangement was approved in 2023. 

It is evident from these landmark judgements that the majority shareholders shall act in the interest and bona fide of the company, and the investors or the shareholders shall approve that act. In the present case, the scheme of arrangement was approved in June 2023 within the company itself, and the shareholders who are against the said scheme bought shares after this passage of approval. Also, it is necessary to note that institutional investors like Norges Bank Investment Management did approve of and even several of the retail shareholders voted for the same.

The allegation by the minority shareholders that they were being coerced into does not seem so convincing because the shareholders who invest are supposed to be rational and have enough knowledge regarding the investment. A similar stance was also put to question by the NCLT Principal Bench Delhi, when the counsel for the minority shareholders argued that they were coerced into voting. The Tribunal questioned that “shareholders are supposed to be knowledgeable on what shares to invest in. Even my gardener is selling and buying shares in the morning. How can you say shareholders are misguided?”. It can be said that it is pretty challenging to coerce the shareholders just by contacting them remotely and even when the voting is done virtually, i.e., e-voting. Also, if we go by the definition of “coercion” as given under Section 15 of Indian Contract Act 1872, it necessitates that there should be presence of force or threat to constitute coercion.

Prejudicial to the Interest: Inappropriate Valuation

The minority shareholders have contended that the valuation reports on which the ICICI Bank and ISEC had relied to determine the swap ratio was prejudicial to their interests. If certain shareholders of a company, are of the opinion that the company is being conducted or run in a manner prejudicial to the interest of them, they have remedies under Sections 241-245 of Companies Act 2013 to get proper relief for it.

As per Black’s Law Dictionary, “prejudice” means “damage or detriment to one’s legal right or claims”. The minority shareholders have contended that the inappropriate valuation upon which the swap ratio of 0.67 shares of ICICI Bank for every 1 share of ISEC, or for every 100 shares of ISEC, one will get only 67 shares of ICICI Bank. The Supreme Court in judgement of Surinder Singh Bindra held that an act may be termed as mismanagement when there is a material change in company’s management or control, either by the alteration in board of director’s, manager and company’s shares ownership or alteration in membership of company or in any other manner.

Quantum Asset Management Fund (QAM), one of the minority shareholders, have argued that delisting on the basis of such swap ratio will lead to loss of almost INR 1,780 crore to ISEC minority shareholders. Their main contention is that the ICICI Bank and ISEC had relied upon the valuation reports dated 29 June 2023, to determine the swap ratio in the voting dated 27 March 2024. However, these reports have not taken into account the change in market dynamics that occurred during those 9 months, as ISEC at the quarter end of December 2023 had seen a growth of 66% in its net profits and cash retail flow due to bullish market, but the share price was not changed due to the cap limit placed on it by the swap ratio.

The final share price of ISEC on the basis of swap ratio valuation was fixed at INR 722 per share. However, QAM has contended that this share price is based on inappropriate valuation as stated previously. They also contended that ISEC was valued at a discount rate of 30-77% as compared to its peers, Angel One had the least valuation among the peers, and even if we take its Price-to-Earnings multiple, then also the ISEC share price should have been at least 30% higher. This is because the share price for ISEC when compared with the lowest valued peer (Angel One), would be INR 940/share. Therefore, it makes a loss of INR 218 per share, and as there are 81.5 million minority shares, it would cause a loss of INR 1,780 crore to the ISEC minority shareholders.

This inappropriate valuation can be termed as a mismanagement by the ICICI and ISEC, if we take the judgement of Surinder Singh into consideration. Also, such mismanagement, where the valuation reports were done inappropriately, ISEC was valued much lower as compared to the peers, and ISEC incurred losses, shows a series of acts that amounts to mismanagement. In case of Needle Industries (India) Limited, the Supreme Court held that a single isolated act cannot be relied upon to prove that the law was violated or was committed with mala fide intention; rather a series of acts should indicate as such. Similar stance was reiterated in the case of Shri VS Krishnan and Others v. M/s Westfort Hi-tech Hospital Limited and Others.

Way Forward

The Securities and Exchange Board of India can clarify that minority shareholders should be allowed to voice their grievances regarding different aspects of delisting. The issue of appropriate valuation of the companies requires adequate mechanisms to ensure that the valuation is carried out correctly. The board may also consider creating a grievance redressal mechanism to address the complaints of such shareholders regarding the delisting process. Also, it is the duty of the board to bring out appropriate regulatory amendments to clear out any ambiguity because this method is being used in India for the first time, and allegations of such serious issues require appropriate solutions. 

Finally, the shareholders also need to remain aware of their rights and duties regarding such processes because it is essential for them to know the correct procedure to prevent any loss, not just of their shares but also the cost of their legal process.


The ISEC delisting case is the foremost case being filed regarding the new mechanism of delisting, i.e., the scheme of arrangement. The verdict of this case will set a precedent for those other companies that want to delist in the same manner. This case may also open Pandora's box of frivolous petitions being filed by every so-called minority shareholder in the name of saving the interests of the minority. The onus is on the tribunal to examine and deliver a verdict that balances the stakes of both the minority and the majority shareholders. 

The allegations of the minority shareholders of ISEC that the voting was obtained by coercion and fraudulent means, and that the valuation of the company was done inappropriately, raise serious concerns regarding the new method of delisting. It is a significant point of contention which needs to be pertinently discussed and examined.


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