Robust Statutory Mechanism To Protect Investors: Delhi High Court Disposes PIL Over Delisting Securities Of ‘Vanishing’ Companies

The Delhi High Court has observed that there is a transparent legal mechanism in place to deal with the process of delisting of securities, including a remedy to an investor aggrieved by such delisting, under the Securities Contract (Regulations) Act, 1956.

“Not only this, even in case of compulsory delisting, which is a disciplinary mechanism, an aggrieved investor may file an Appeal before the SAT against the decision of the recognized stock exchange delisting the securities under Section 21A(2) of the SCRA,” a division bench of Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela said.

While disposing of a PIL concerning the issue of delisting of securities without ensuring protection to investors and seeking an appropriate mechanism for taking action against those who dupe such investors, the court observed that statutory provisions provide a robust mechanism to safeguard interest of investors, and that by no stretch of imagination can it be said that the interest of investors is not protected in law.

The plea was moved by Atul Agarwal in 2012 seeking directions on Securities and Exchange Board of India (SEBI) to direct Bombay Stock Exchange to make more stringent and effective alternative penal provisions against promoters and management of the errant listed companies.

Aggarwal contended that large number of companies have been suspended from continued listing by BSE and that many of them have been de-listed without ensuring any protection to investors. He prayed that appropriate mechanism should be in place to take action against those persons who are duping the investors.

Disposing of the PIL, the bench took note of the reply filed by SEBI on the action taken by it against the vanishing companies and observed that the interest of the investors is certainly protected under the statutory provisions.

Referring to Sections 11 and 11B of the SEBI Act, the court noted that SEBI is empowered to take measures in the interest of investors, which may include regulating the business in the stock exchange and registering and regulating the working of stock brokers.

It further said that the SCRA confers ample power to any recognized stock exchange for providing conditions for listing of securities on the stock exchange. It added that Sections 21, 21A, 23 and 30 of the SCRA provide for delisting of the securities and the mechanism to protect the interest of investors.

The aggrieved investor can certainly prefer an appeal before the Securities Appellate Tribunal (SAT) in case he is aggrieved in the matter of delisting of the security under Section 21A (2) of the SCRA, the court said.

Referring to Rule 19 of the Securities Contracts (Regulation) Rules, 1957, the court said, “The aforesaid statutory provision of law provides a requirement with respect to the delisting of securities on recognized stock exchange. It empowers the stock exchange to suspend or withdraw admission to the dealings in the securities of a company for breach of or non-compliance of any of the conditions of admission to dealings or any other reason, to be recorded in writing. It also provides for a remedy to the aggrieved company or body corporate to prefer an appeal before the SAT.”

SEBI, in its affidavit, had stated that Agarwal was wrong in contending that the regulatory body failed to take any action against the promoters and management of the errant listed companies for compliance of the listing agreement.

SEBI stated that the Government of India has set up a Co-ordination and Monitoring Committee which had arrived at a certain criteria for identifying a company as a vanishing company. It also said that the Union Government has also set up certain regional task forces for undertaking verification of compliance of criteria at the operational level.

The bench thus concluded, “The statutory provisions governing the field make it very clear that a transparent mechanism of delisting the securities, adequate participation and/ or representation of public shareholders in the process of delisting is in place, and a remedy is also available to aggrieved investor in the matter of delisting.”

Case Title: Atul Agarwal vs UOI & Ors.

Citation: 2023 LiveLaw (Del) 424

Dated: 19.05.2023

Counsel for the Petitioner: Mr. Nikhil Tyagi, Mr. Rakesh Kumar Khare, Advocates

Counsel for the Respondents: Mr. Ravi Prakash, CGSC with Mr.Farman Ali, Ms. Usha Jamval, Advocates for R-1 Ms. Manisha Agrawal Narain, CGSC with Mr. Sandeep Singh Somaria, Ms. Rakshita Goyal, Advocates for UOI Mr. Neeraj Malhotra, Senior Advocate with Mr. Ashish Aggarwal, Mr. Nimish Kumar, Mr. Satyajit Yadav, Advocates for R-2/SEBI Ms. Surekha Raman, Mr. Vijay Valasan, Ms. Unnimaya S, Advocates for R-3/BSE

Click Here To Read/Download Order