NCLAT insists on ICICI Securities, rejecting shareholder challenge

The companies’ appeals courts on Monday upheld ICICI Securities Ltd’s stand out from the stock exchange, rejecting the challenge of shareholders’ quantum mutual funds and individual investors.

“All appeals were dismissed,” said the Delhi judge of the National Corporate Legal Appeals Tribunal (NCLAT), while announcing its verdict.

Quantum Mutual Fund has approached NCLAT in September to oppose ICICI Securities’ recommendations on the grounds of its impact on minority shareholders. Previously, the National Corporate Tribunal (NCLT) Ahmedabad Seat had approved the recommendation, rejecting the fund’s objection.

ICICI Securities announced plans to merge with shareholders of parent company ICICI Bank Ltd. in June 2023 and approved the plan in March 2024, with 72% of minority shareholders voting for its favor.

As part of the bias, ICICI Securities will become a wholly-owned subsidiary of ICICI Bank. Under the proposed stock trading arrangement, shareholders shall receive 67 ICICI Bank shares for every 100 ICICI shares.

However, shareholders Quantum Mutual Fund and Manu Rishi Gupta oppose NCLT’s separate petition, believing that swaps would harm minority shareholders’ interests.

Gupta and Quantum Mutual Fund own 0.002% and 0.08% of the paid equity capital of ICICI Securities, respectively.

ICICI Securities challenged its application and pointed out that the petitioner had no legal status in this matter. Article 230(4) of the Company Act provides that any objection to a company’s decision can only be made by investors holding no less than 10% of the equity.

NCLT maintained ICICI Securities’ recommendation in August 2024, prompting Gupta and Quantum Mutual Fund to challenge NCLAT’s decision.

Shareholders’ concerns

As ICICI Securities’ share price was slightly higher than its initial public offering (IPO) price at the time of announcement, I was concerned about the actual valuation of the stock ₹520. (Around noon on Monday, ICICI Securities stocks ₹804.15. )

Shareholders highlighted the issue of undervaluation and questioned the fairness of stock trading ratios, especially given the stock’s potential.

During the NCLAT hearing, Quantum Mutual Fund accused the Securities and Exchange Commission of India (SEBI) and financial brokerage firms of “wearing gloves”. ICICI Securities has challenged the allegations after it formed a party in the case.

The senior legal counsel for minority shareholders cited SEBI’s letter to tell NCLAT that the market regulator has granted ICICI bank exemption to provide flexibility in Article 37 of SEBI Delisting Arigation Alughite.

According to the letter, SEBI allows ICICI Bank to recommend its financial brokerage department even if listed holding companies and listed subsidiaries are not in the provisions of Article 37.

Minority shareholders also cite a situation in which market regulators have issued warnings to ICICI Bank for its recommendations for ICICI securities to investors.

They added that according to SEBI, ICICI Bank has proposed that the outreach activity is simply to raise awareness of the program and maximize shareholder participation. However, based on inspections of investor complaints, regulators have observed that some bank officials have exceeded their responsibilities by repeatedly calling and requesting a screenshot of the vote.

However, NCLAT rejected all claims and maintained bias.