SAT Order on Small Companies Delisting
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In a remarkable and well reasoned judgement, Hon’ble Securities Appellate Tribunal (SAT), vide its Order dated 4th November, 2011 in the matter of M/s. Trichy Distilleries and Chemicals Limited, deliberated upon the issue with reference to Delisting of Small Companies, as defined under the Delisting Regulations, 2009 (the Regulations). It considered the matter as to, “whether ninety percent of the public shareholders in number or shareholders holding ninety percent of the public shareholding in value irrespective of their numbers should consent to the proposal to delist a small company under Regulation 27(3)(d) of Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009”.

To recapitulate, as per the provisions of Reg 27 of Delisting Regulations, following two types of Companies fall within the category of Small Companies:

  1. A Company with a paid up capital up to Rs 1 Cr and its equity shares have not been traded in any recognized stock exchange in the one year immediately preceding the date of decision; or
  2. A Company with 300 or fewer public shareholders and the paid up value of the shares held by such public shareholders in such company is not more than Rs 1 Cr.

Further as per the Regulations, these small companies can apply for voluntary delisting, without following the Reverse Book Building Process, provided at least 90% of such public shareholders give their positive consent in writing to the proposal for delisting under the Small Companies route [Reg 27(3)(d)].

In the above mentioned case, it has been decided that provisions of Regulation 27(3)(d) of SEBI (Delisting of Equity Shares) Regulations, 2009 should  be interpreted to mean that a company would become eligible for delisting if the public shareholders holding ninety per cent or more of the public shareholding in value give their positive consent to delisting.

The above judgment would provide a breather to the companies that were falling within the ambit of Small Companies, but were not in a position to garner consent of 90% of the public shareholders in numbers and thus, were not able to avail the relaxation provided under the Delisting Regulations to such Small Companies.

With regard to this issue of obtaining the consent of 90% of the shareholders, Hon’ble SAT has remarkably held that, if the stand that, 90% of the shareholders in number must agree and give their positive consent rather than 90% of the public shareholders in value is accepted, it would lead to absurd results and run counter not only to the scheme of the corporate law but also to the very scheme of the regulations. It further went on to hold that when the Companies Act recognizes the principle of “one share, one vote” it would be contrary to the scheme of the law and public policy to interpret Regulation 27(3)(d) of the Regulations otherwise.

Hon’ble SAT also asserted that the special provisions for ‘Small Companies Delisting’ were brought in the Regulations only with a view to provide an exit route to the public shareholders who otherwise could not exit by trading in the market.

The interpretation, as placed by Hon’ble SAT would surely provide an exit opportunity to the stranded public shareholders of companies that are listed on the Stock Exchanges that are not providing them with any trading platform, along with providing a sigh of relieve for such Small companies.

DISCLAIMER: This paper is a copyright of The entire contents of this paper have been developed on the basis of the analysis given in the SAT Order and our understanding thereof. The author and the company expressly disclaim all and any liability to any person who has read this paper, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this paper.
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