Securities And Exchange Board Of India vs Khoday India Limited
2025 Latest Caselaw 10504 Kant

position as they may not be able to get the best price for

exiting from the respondent-Company. The result would be a

forced exit with an unfair price, which would be a compelled

acceptance on the part of the public shareholders.

10. Further, the respondent-Company is trying to

circumvent the De-listing Regulations through the proposed

scheme. Chapter IV of LODR Regulations provides for

obligations of listed entity which has listed its specified

securities. Regulation 42 deals with fixing of 'record date'.

The appellant, Bombay Stock Exchange, sought for setting

aside the order dated 07.02.2020 passed by the learned

Company Judge and to allow the Company Application in

Co.P No.132/2014.

11. Brief facts of the appellant's (SEBI) case in OSA

No.28/2015 are as follows:-

M/s. Khoday India Limited (respondent) had filed Co.P

No.132/2014 under Sections 101-104 of the Companies Act

seeking confirmation of the reduction of share capital before

the Company Court. The Company Court, after securing

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publication of filing of the petition and after inviting

objections, had allowed the petition by order dated

07.08.2014. However, it is to be noted that SEBI was not

made a party in the said petition. Subsequently, the SEBI

filed C.A. No.1415/2014 along with other applications and

sought for its impleadment as the respondent in the

aforesaid petition and to recall the order dated 07.08.2014

passed by the Company Court. This Court while taking note

of the said applications, though had kept the said

applications pending, by the order dated 08.01.2015,

ordered that the final order dated 07.08.2014 be kept in

abeyance. In the mean-while, M/s. Khoday India Limited

filed an appeal being aggrieved by order dated 08.01.2015 in

OSA No.7/2015 before this Court and in turn, this Court

remitted the matter to the learned Company Judge for

consideration of applications of SEBI. Ultimately, the

Company Court rejected C.A.No.1415/2014 and other

connected applications. Being aggrieved by the impugned

order, the SEBI has preferred the appeal in OSA No.28/2015.

12. The SEBI has taken contention that the respondent

was not in a position to comply with the requirements for

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voluntarily de-listing on account of non-compliance with MPS

requirement. Accordingly, the respondent vide letter dated

13.02.2013, requested SEBI to grant it exemption from the

applicability of De-listing Regulations in reply to the letter

dated 22.12.2012 issued by SEBI, advising the respondent to

comply with the MPS requirement.

13. The SEBI passed the order dated 04.06.2013

against 105 companies including the respondent and held

that the respondent had failed to comply with the MPS

requirement of 25% as on 03.06.2013 and imposed various

restrictions on the promoters/promoter group shareholding

in the said companies including freezing their voting rights

and corporate benefits. On 11.06.2013, the respondent

requested SEBI to pursue the salient features of the scheme

and to desist from initiating action against it. In the mean-

while, the SEBI by its order dated 30.08.2013, informed the

BSE of its objections to the respondent's proposed scheme

and informed that the scheme of arrangement did not

appear to be in the interest of investors/public shareholders

and expressed concerns that the shareholders would be

forced to exit without their consent and the price to be paid

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to public shareholders through share reduction of capital

would not be fair, since there was no price discovery

mechanism put in place. This would lead to public

shareholders being put in a disadvantageous position. Hence,

on 06.09.2013, the BSE conveyed to the respondent its

objection to the proposed scheme and expressed its inability

to grant its 'No Objection Certificate' to the proposed scheme

of reduction of share capital filed by the respondent.

14. In spite of objections raised by the appellants-BSE

and SEBI, the respondent issued notice to all its shareholders

on 20.11.2013 for the proposed scheme and facilitated voting

on the Special Resolution. The respondent through its Annual

General Body Meeting of its Members held on 30.12.2013

passed a special resolution for reduction of paid-up Equity

Share Capital of the respondent. Consequent to the resolution

passed, the respondent filed CoP.No.132/2014 before this

Court for reduction of share Capital on or around 07.08.2014.

On 24.07.2014, SEBI passed the final order against the

respondent confirming its interim order dated 04.06.2013 with

regard to non-compliance of MPS requirements prescribed in

SCRR. In view of SEBI's order dated 24.07.2014 and the order

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dated 07.08.2014 by this Court, the respondent filed an appeal

No.326/2014 before the Securities Appellate Tribunal on

30.09.2014. In the mean-while, this Court by order dated

07.08.2014 allowed the Company Petition and sanctioned the

scheme for reduction of share capital. Pursuant to the order

dated 07.08.2014 passed in Company Petition by this Court,

the SEBI also filed Intervening Applications in

C.A.Nos.1415/2014, 1416/2014, 1467/2014 and 1468/2014

and sought to be impleaded in the proceedings.

15. Aggrieved by the order of dismissal of Company

applications, SEBI filed OSA No.28/2015 in

CoP.No.132/2014.

16. Subsequently, the respondent sought withdrawal of

Appeal No.326/2014, which was pending before the

Securities Appellate Tribunal on 07.07.2016 with liberty to

make representations before SEBI, which came to be allowed

by the Securities Appellate Tribunal. Thereafter, the

respondent filed representations dated 26.07.2016 and

16.11.2016 before SEBI, however, the SEBI by its order

dated 08.05.2017 dismissed the representations by holding

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that the respondent had violated the Delisting Regulations

and the MPS requirement and confirmed the Interim order

dated 04.06.2013 and Confirmatory Order dated

24.07.2014.

17. In the mean-while, the respondent challenged the

Interim order dated 04.06.2013 and Confirmatory Order

dated 24.07.2014 passed by SEBI before the Securities

Appellate Tribunal and the Appellate Tribunal by order dated

04.09.2019 allowed the appeal and quashed the Interim

order dated 04.06.2013 and Confirmatory Order dated

24.07.2014 passed by SEBI. In the order dated 04.09.2019,

the Appellate Tribunal issued directions requiring the

respondent to comply with Part B of Annexure 1 to the

Circular dated 04.02.2013 issued by SEBI, failing which, the

SEBI would be at liberty to initiate proceedings against the

respondent.

18. The said order dated 04.09.2019 passed by the

Appellate Tribunal was challenged by SEBI before the

Hon'ble Supreme Court in Civil Appeal Diary No.243/2020.

The Hon'ble Supreme Court vide order dated 27.01.2020

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directed that the proceedings to be continued without

prejudice to the rights of SEBI. Subsequently, C.A.

No.289/2016 in CoP.No.132/2014 was filed by M/s. Khoday

India Limited to fix the 'Record Date' and by the impugned

order dated 07.02.2020, the BSE was directed to confirm the

'Record Date' to be fixed afresh by the BSE and to

subsequently issue necessary instructions to NSDL and CDSL

in that regard.

19. It is contention of the learned counsel for the

appellant that the impugned order passed by the Company

Court is wholly perverse, arbitrary and void in law and

suffers from jurisdictional error in terms of provisions of

Securities and Exchange Board of India Act, 1992 and

Securities Contracts (Regulation) Act, 1956.

20. We have heard learned Senior counsel for the

appellants and learned Senior counsel for the respondent in

both appeals.

21. Learned counsel Sri M.G. Nanjappa alongwith

Sri N.K. Dilip for the appellant in OSA No.3/2020 and learned

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Senior counsel Sri R.V.S. Naik, representing Sri Nitin Prasad

and Sri Vidur Nair, on behalf of the appellant in OSA

No.28/2015 vehemently contended that, the respondent filed

Co.P No.132/2014 for sanction of scheme of reduction of

share capital to circumvent the minimum public share

holding and the requirements of the De-listing Regulations.

The admitted object of the scheme for the respondent is to

seek De-listing. The respondent, in fact, requested the SEBI

for exemption from the De-listing Regulations, but the SEBI

did not accede for the reason that there was no such

provision for exemption. If a Company wants to De-list, it is

mandatory to proceed as per the De-listing Regulations. By

resorting to the capital reduction route, the respondent has

sought to avoid compliance of Regulation 14(1) and 15(1)

read with Schedule II of the De-listing Regulations, i.e. for

fair price to the public share holders through book-building

process, thereby the interest of the public share holder is

severally affected, as they are being forced to exit without

their consent and without proper valuation of their shares.

The respondent-M/s. KHODAY, being duty bound under the

SEBI Act to protect the interest of the share holders, and,

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therefore, it was certainly a necessary party in the Company

Petition.

22. Learned Senior counsel further contended that, the

scheme for reduction of share capital and scheme of

arrangement was not in the interest of investors/minority share

holders. None of the share holders has objected to and their

interest are being prejudiced by not permitting further action,

pursuant to the order permitting reduction of share capital

despite their consent for such action. Therefore, learned Senior

counsel prayed to remand the matter to the Company Court.

23. In support of his contentions, learned Senior counsel

for the appellant in OSA No.3/2020 relies on the following

judgments:

i. Miheer H. Mafatlal v. Mafatlal Industries Limited, reported in (1997) 1 SCC 579;

ii. Hindustan Lever and Another v. State of Maharashtra and another reported in (2004) 9 SCC 438;

iii. Delhi Towers Limited v. G.N.C.T. of Delhi, reported in 2009 SCC Online Del 3888.

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24. Learned counsel for the appellant in OSA No.28/2015

relied upon the following decisions:-

i) N. Narayanan v. Adjudicating Officer, Securities and Exchange Board of India, reported in (2013) 12 SCC 152;

ii) Vishal Tiwari v. Union of India and others reported in (2024) 4 SCC 115.

25. Learned Senior counsel has further contended that for

non-compliance with SCRR, orders were passed by SEBI dated

04.06.2013, 24.07.2014 and 08.05.2017 requiring compliance,

which has been challenged by the applicants before the

Securities Appellate Tribunal, Mumbai in Application

No.148/2017 and the appeal filed by the respondent M/s.

Khoday was allowed on 04.09.2019. The Tribunal held that,

the scheme relating to reduction of capital under Sections 100

to 104 of the Companies Act is essentially a 'Domestic Affair',

to be decided by the majority and that process could not be

linked with the provisions of De-listing Regulations, therefore,

reduction of share capital sanctioned under Section 100 of the

Companies Act does not breach the De-listing Regulations.

26. Learned Senior counsel Sri Adithya Sondhi

representing Sri Karan Joseph a/w Sri Dushyanth Narayanan,

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for the respondent in both appeals vehemently contended that,

the respondent sought for issue of directions to BSE to confirm

'the record date' to be fixed afresh and to issue necessary

instructions to the National Securities Depositories Limited

(NSDL) and Central Depositories Services Limited (CDSL), in

that regard. The respondent-M/s Khoday approached this

Court in CoP. No.132/2014 and this Court confirmed the

reduction of share capital of M/s. Khoday. Thus, this Court

directed de-listing of equity shares listed with Bombay, Madras

and Bengaluru Stock Exchanges. Thus, share capital was

reduced by order of this Court.

27. Learned Senior counsel further contended that,

M/s. Khoday had fixed the date viz., 29.09.2014 as the "record

date" and requested the BSE to issue required letter to NSDL

and CDSL. However, BSE had taken the stand that request of

M/s. Khoday could not be considered, as they had been

instructed by SEBI to keep the proceedings in abeyance till

disposal of proceedings.

28. During the pendency of CoP. No.132/2014, this Court

by order dated 07.08.2014 kept the proceedings in abeyance.

Thus, the respondent M/s. Khoday filed OSA. No.7/2015 and

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same was remanded back to consider the application for

implementation of the order of SEBI at first instance and to

pass appropriate order on Company Application Nos.1415/2014

and 1416/2014. The learned Company Court passed the order

approving the scheme for reduction of capital. Whereas, the

Hon'ble Apex Court in Civil Appeal No.789/2020 permitted this

Court to proceed with the present case.

29. In support of his contentions, the learned Senior

counsel appearing for the respondent relies on the following

judgments:

i. Securities and Exchange Board of India and Union of India v. Sterlite Industries(India) Limited, reported in (2003) 113 Comp Cas 273;

ii.Securities and Exchange Board of India vs. Sterlite Industries(India) Limited, Civil Appeal No.5438 of 2002;

iii.Elpro International Limited., In re CP No.288/2007 disposed of on 22.06.2007 reported in (2009) 149 Comp cas 646

iv.Mcx Stock Exchange Limited v. Securities and Exchange Board of India and others reported in (2012) 172 Comp cas 602;

v.Securities and Exchange Board of India, SEBI Bhavan v. Ikisan Limited and a/w. Kakinada Fertilizers Limited reported in 2015 SCC Online Bom 6358;

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vi.Reckitt Benckiser (India) limited In re reported in (2011) 167 Comp CAS 541;

vii.Tammalli Shivakumar v. Securities and Exchange Board of India reported in 2014 SCC Online AP 1550.

30. The contentions of BSE and SEBI are that the

respondent-Khoday India Limited has not maintained minimum

share holders as per the Rules. Hence, it is just and necessary

to analyse Rules 10, 19(2)(b) and 19A of Securities Contract

(Regulation) Rules, 2009, which reads as under:

"Rule 10. The [Securities and Exchange Board of India] may nominate one or more persons not exceeding three in number, as member or members of the governing body of every recognised stock exchange. Such member or members shall enjoy the same status and powers as other members of the governing body."

Rule 19 (2)(b) 31[The minimum offer and allotment to public in terms of an offer document shall be-]

(i) At least twenty five per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company, if the post issue capital of the company calculated at offer price is less than or equal to one thousand six hundred crore rupees;

(ii) at least such percentage of each class or kind of equity shares or debentures convertible into equity shares issued by the company equivalent to the value of four hundred crore rupees, if the post issue capital of the company calculated at offer price is more than one thousand six hundred crore rupees but less than or equal to four thousand crore rupees;

(iii) at least ten per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company, if the post issue capital of the

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company calculated at offer price is above four thousand crore rupees: Provided that the company referred to in sub-clause (ii) or sub-clause (iii), shall increase its public shareholding to at least twenty five per cent within a period of three years from the date of listing of the securities, in the manner specified by the Securities and Exchange Board of India: Provided further that this clause shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India on or before the commencement of the Securities Contracts (Regulation) Third Amendment Rules, 2014, if it satisfies the conditions prescribed in clause (b) of sub- rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1956 as existed prior to the date of such commencement."

Rule 19A.(1) Every listed company [other than public sector company] shall maintain public shareholding of at least twenty five per cent.: Provided that any listed company which has public shareholding below twenty five per cent, on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2014, shall increase its public shareholding to at least twenty five per cent, within a period of [four] years from the date of such commencement, in the manner specified by the Securities and Exchange Board of India. Explanation:

For the purposes of this sub-rule, a company whose securities has been listed pursuant to an offer and allotment made to public in terms of [***] clause (b) of sub-rule (2) of rule 19, shall maintain minimum twenty five per cent, public shareholding from the date on which the public shareholding in the company reaches the level of twenty five percent in terms of said sub- clause.]

(2) Where the public shareholding in a listed company falls below twenty five per cent. at any time, such company shall bring the public shareholding to twenty five per cent within a maximum period of twelve months from the date of such fall in the manner specified by the Securities and Exchange Board of India.]

(3) [***]

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(4) Where the public shareholding in a listed company falls below twenty-five per cent. in consequence to the Securities Contracts (Regulation) (Amendment) Rules, 2015, such company shall increase its public shareholding to at least twenty-five per cent. in the manner specified by the Securities and Exchange Board of India within a period of three years, as the case may be, from the date of notification of: (a) the Depository Receipts Scheme, 2014 in cases where the public shareholding falls below twenty five per cent. as a result of such scheme; (b) the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 in cases where the public shareholding falls below twenty-five per cent., as a result of such regulations."

31. Rule 10 of the aforesaid Regulations contemplates

that, if Promoter group proposes to increase its holding to

100% of the share capital and proposes to reduce the share

capital to the extent of the public share holding by offering an

exit price to the public share holders, as valued by an

independent registered valuer and thereby can seek for specific

exemption from the provisions of SEBI (De-listing of equity

shares) Regulation, 2009.

32. Rule 19(2)(a) of the Securities Contracts (Regulation)

Rules, 1957 (SCRR) deals with the conditions for listing

securities on a recognized stock exchange, specifically focusing

on requirements for minimum public offer and allotment,

ensuring a certain percentage of shares are available to the

general public for trading, complementing related Rules like

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Rule 19A on minimum public shareholding. It is a key provision

under the Securities Contracts (Regulation) Act, 1956,

governed by SEBI, setting standards for public participation in

listed companies. It further mandates a minimum percentage

(often 25% or more, though exceptions exist) of a company's

capital must be offered to the public for listing. In essence,

Rule 19(2)(a) ensures fairness and liquidity in the market by

requiring companies to float a substantial portion of their

shares to the public, preventing concentration of ownership and

promoting wider investor participation.

33. Section 19A of the Securities Contracts

(Regulation) Rules, 1957 (SCRR), mandates that all listed

companies maintain a minimum public shareholding of 25%,

with specific provisions for public sector companies,

companies in Insolvency and Bankruptcy Code resolution,

and exceptions for government control or strategic

disinvestment, all aimed at ensuring sufficient public

participation in listed entities, as enforced by SEBI.

34. In the background of the contentions raised, the

fact that SEBI is a regulatory authority under the SEBI Act

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and in that light, it is required to secure compliance of all the

regulations by the listed companies cannot be in dispute. In

that backdrop, a perusal of contention of SEBI which was

considered in the decision of the Hon'ble Division Bench of

Bombay High Court in the case of SEBI v. Sterlite

Industries (India) Limited reported in 2003 Vol 113

Comp Cases 273 was that as a result of the scheme offered

to the public, there is likelihood of reduction in the public

shareholding to less than 25% amounting to violation of the

regulations of the SEBI. Despite such contention, it was held

that merely because the SEBI has been empowered to

administer the provisions of Sections 77 and 77A, it does not

give the SEBI any locus in a petition under Sections 391 or

394. Hence, in the instant cases, the SEBI is alleging non-

compliance of SCRR for which proceedings in exercise of the

power under Section 19A of the Act has already been

initiated. If in that light the said conclusion in MCX Stock

Exchange case is kept in view, there can be no doubt that

the proceedings are independent of each other. If that be

the position, irrespective of the sanction being granted by

the Company Judge to the reduction of share capital, the non

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compliance of any other regulations over which the SEBI has

the jurisdiction would be dealt with by the SEBI as a

regulatory authority.

35. The term 'Minimum Public Shareholding' means, a

regulatory requirement, like one mandated by SEBI in India,

that a minimum percentage of a listed company's shares

must be held by the public, and not the promoters. In India,

this is set at a minimum of 25% for most listed companies to

ensure market liquidity, transparency, and broader

participation. The main purpose or main goal is to ensure

better corporate governance by making a company's stock

available to a wider range of investors. The companies

typically have a specified time frame, often three years from

their listing date, to meet the MPS requirement. If the public

share holding falls below the minimum, the company is

required to bring it back upto the required level within a

specified period. If a company fails to meet the MPS norms,

it may face penalties such as fines.

36. The Hon'ble Supreme Court in the case of Vishal

Tiwari cited supra at para 67 held as follows:-

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67.1. The power of this Court to enter the regulatory domain of SEBI in framing delegated legislation is limited.

The court must refrain from substituting its own wisdom over the regulatory policies of SEBI. The scope of judicial review when examining a policy framed by a specialised regulator is to scrutinise whether it violates fundamental rights, any provision of the Constitution, any statutory provision or is manifestly arbitrary;

67.2. No valid grounds have been raised for this Court to direct SEBI to revoke its amendments to the FPI Regulations and the LODR Regulations which were made in exercise of its delegated legislative power. The procedure followed in arriving at the current shape of the regulations does not suffer from irregularity or illegality. The FPI Regulations and the LODR Regulations have been tightened by the amendments in question;

67.3. SEBI has completed twenty-two out of the twenty- four investigations into the allegations levelled against the Adani Group. Noting the assurance given by the Solicitor General on behalf of SEBI we direct SEBI to complete the two pending investigations expeditiously preferably within three months;

67.4. This Court has not interfered with the outcome of the investigations by SEBI. SEBI should take its investigations to their logical conclusion in accordance with law;

67.5. The facts of this case do not warrant a transfer of investigation from SEBI. In an appropriate case, this Court does have the power to transfer an investigation being carried out by the authorised agency to an SIT or CBI. Such a power is exercised in extraordinary circumstances when the competent authority portrays a glaring, wilful and deliberate inaction in carrying out the investigation. The threshold for the transfer of investigation has not been demonstrated to exist;

67.6. The reliance placed by the petitioner on the OCCPR report to suggest that SEBI was lackadaisical in conducting the investigation is rejected. A report by a third-party organisation without any attempt to verify the authenticity of its allegations cannot be regarded as conclusive proof. Further, the petitioner's reliance on the letter by the DRI is misconceived as the issue has already been settled by

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concurrent findings of DRI's Additional Director General, CESTAT and this Court;

67.7. The allegations of conflict of interest against members of the expert committee are unsubstantiated and are rejected;

67.8. The Union Government and SEBI shall constructively consider the suggestions of the expert committee in its report detailed in Part F of the judgment (see paras 51 to 66, hereinabove). These may be treated as a non- exhaustive list of recommendations and the Government of India and SEBI will peruse the report of the expert committee and take any further actions as are necessary to strengthen the regulatory framework, protect investors and ensure the orderly functioning of the securities market; and

67.9. SEBI and the investigative agencies of the Union Government shall probe into whether the loss suffered by Indian investors due to the conduct of Hindenburg Research and any other entities in taking short positions involved any infraction of the law and if so, suitable action shall be taken.

37. Since two proceedings are held to be different and

distinct, the order passed in CoP No. 132/2014 will only have

the effect of providing the approval as contemplated under

Sections 100 to 104 of the Companies Act to the extent the

procedure contemplated therein has been adhered to, but it

cannot be held as a shield by the Company to protect itself in

the proceedings already initiated or to justify the non-

compliance with the requirement of any other regulations, if it

is still required to be complied.

38. Therefore, in the instant cases, when in a circumstance

the proceedings under SEBI Act read with SCR Act for not

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achieving the minimum public share holding requirement action is

initiated and an order dated 04.06.2013 is made and a

confirmatory order dated 25.07.2014 is passed, the reduction

permitted if given effect also, the non-achievement of the public

share holding will continue and consequences, if any, will follow.

Hence, it would not preclude SEBI from proceeding further

regarding which, as indicated, an order is already made by SEBI.

39. Whereas in the instant cases, it is clear that on the basis

of the order of Securities Appellate Tribunal the question of

proceedings under Sections 100 and 104 of the Companies Act

relating to reduction of capital are held to be distinct for the

requirement adhered to SCRR. In effect, some of the

observations by Securities Appellate Tribunal remain

undisturbed except with the exception as made out by the

Hon'ble Supreme Court. Adjudicating on rival contentions may

not be appropriate at this stage in light of the fact that the

matter is still pending before the Hon'ble Supreme Court.

Therefore, the learned Company Judge passed the impugned

order directing the BSE to continue with the proceedings, the

request of the Khoday Company made to the appellant-BSE to

fix the 'record date' not having been honoured and in light of

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