V.T. SOMASUNDARAM Vs. MADRAS STOCK EXCHANGE LIMITED

JUDGEMENT

(1.) WHETHER ninety per cent of the public shareholders in number or shareholders holding ninety per cent 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 the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 (hereinafter referred to as the regulations) is the sole question that arises for our consideration in this appeal filed under section 23L of the Securities Contracts (Regulation) Act, 1956. The dispute herein pertains to the delisting of equity shares of M/s. Trichy Distilleries and Chemicals Limited, the second appellant herein (for short the company). Shri V.T. Somasundaram, the first appellant is one of the promoters of the company. The appeal is directed against the communication dated December 27, 2010 issued by the Madras Stock Exchange Ltd. (for short MSE) by which it has refused to delist the equity shares of the company. During the course of the proceedings the Securities and Exchange Board of India (for short the Board) was impleaded as the second respondent in the appeal.

(2.) WE may briefly state why the company went in for delisting. The company is a public limited company whose shares are listed on MSE and these are not listed in any other stock exchange. With the advent of the National Stock Exchange of India Limited, regional stock exchanges like MSE have become defunct. The shares of companies which were exclusively listed on MSE cannot be traded and consequently there is no exit opportunity for the public shareholders of such companies. In short, the sine qua non of listing, namely, a trading platform for shareholders to transact in shares of a listed company is non existent on MSE. Equally, in the absence of any price discovery in the shares of such companies, it is impossible for any company which is listed on the defunct MSE to raise money or engage in securities transactions. The regulations provide for a simplified procedure for delisting which, in turn, would provide an exit route to the public shareholders. Since the shareholders of the company have remained stuck for the last few years as there has been no trading on the platform of MSE, the promoters decided to offer an exit opportunity to the public shareholders by getting the equity shares of the company delisted.

(3.) ON December 22, 2010, the company informed MSE that consent had been received from 125 out of 196 public shareholders either by sale of their shares or by consenting to the proposal for delisting. MSE was also informed that 2 public shareholders holding 1.17 per cent (14000 shares) of the total share capital of the company were in the process of giving consent and the balance 69 public shareholders who held 1.5 per cent (18045 shares) of the total share capital had not given their positive consent. On receipt of this letter, MSE by the impugned communication declined to delist the equity shares of the company on the ground that "it is mandatory to obtain the consent from 90% of the public shareholders i.e. 176". Hence this appeal.