In WP (C) 1759 of 2012- DEL HC- ‘Interest of investors is protected under statutory law’: Delhi High Court disposes of PIL seeking robust mechanism to protect investors against vanishing companies
Chief Justice Satish Chandra Sharma & Justice Tushar Rao Gedela [19-05-2023]

Read Order: Atul Agarwal v Union of India

Simran Singh

New Delhi, May 22, 2023- In a Public Interest Litigation pertaining to the issue of delisting of securities without protecting the investors and praying for appropriate action against those who dupe such investors, the Delhi High Court while disposing of the matter was of the view that statutory provisions appropriately provide for a robust mechanism to safeguard the interests of investors, and that “by no stretch of imagination can it be said that the interest of investors is not protected in law”.

A Bench of Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela stated 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 (‘Act of 1956’) “Not only this, even in case of compulsory delisting, which is a disciplinary mechanism, an aggrieved investor may file an Appeal before the Securities Appellate Tribunal (‘SAT’) against the decision of the recognised stock exchange delisting the securities under Section 21A(2) of the Act of 1956.”

In the matter at hand, the petitioner had sought directing the Securities and Exchange Board of India (‘SEBI’) to direct Bombay Stock Exchange (‘BSE’) to make more stringent and effective alternative penal provisions against promoters and management of the errant listed companies. It was contended that a large number of companies had been suspended from continued listing by and that many of them had been de-listed without ensuring any protection to investors. It was pleaded that an appropriate mechanism be put in place to take action against those who were duping the investors.

SEBI vehemently opposed the contention of the petitioner that the regulatory body had failed to take any action against the promoters and management of the errant listed companies or compliance of the listing agreement and stated that that action had already been taken against the vanishing companies. It was submitted that the Centre had set up a co-ordination and monitoring Committee which had arrived at a certain criteria for identifying a company as a vanishing company. The Union had also set up certain regional task forces for undertaking verification of compliance of criteria at the operational level.

In view of the above, the Bench observed that the interest of the investors was certainly protected under the statutory provisions of the Act of 1956 and Securities and Exchange Board of India Act, 1992 (‘SEBI Act’). It was noted that SEBI was empowered to take measures in the interest of investors, which included regulating the business in the stock exchange and registering and regulating the working of stock brokers.

The Court stated that the Act of 1956 conferred ample amount of power to any recognised stock exchange for providing conditions for listing of securities. Section 21, 21A, 23 and 30 of the Act of 1956 provided for delisting of the securities and the mechanism to protect the interest of investors. It was further pointed out that the aggrieved investor could also file an appeal before SAT in case of delisting of the security under Section 21A(2) of the Act of 1956.

The Bench navigated through Rule 19 of the Securities Contract (Regulation) Rules, 1957 (‘Rules of 1957’) and stated that it provides for a requirement with respect to the delisting of securities on recognised stock exchange which 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.

The Bench in conclusion stated that the statutory provisions governing the field made it very clear that a transparent mechanism of delisting the securities, adequate participation and/ or representation of public shareholders in the process of delisting was in place, and remedies were also available to the aggrieved investor in the matter of delisting.