BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 37 of 2011
Date of Decision : 4.11.2011

1. V.T. Somasundaram
   No.25, Vasantha Avenue,
   MRC Nagar, R A Puram,
   Chennai – 600 028.
2. M/s. Trichy Distilleries and Chemicals Limited
   “Mahalakshmi Mansion”, First Floor,
   No.14, First Main Road,
   Gandhi Nagar, Adyar,
   Chennai – 600 020. …… Appellants Versus
3. Madras Stock Exchange Limited
   “Exchange Building”, Post Box No.183,
   No.30, Second Line Beach,
   Chennai – 600 001.
4. Securities and Exchange Board of India
   Plot No.C4-A, ‘G’ Block,
   Bandra Kurla Complex,
   Bandra (East), Mumbai – 400 051. …… Respondents Mr. Somasekhar Sundaresan, Advocate wi th Mr. Paras Parekh, Advocate for the
   Appellants.
   Mr. A.K. Sriram, Advocate for Respondent no.1.
   Dr. Poornima Advani, Advocate with Ms. Aparna Kalluri, Mr. Ajay Khaire and
   Ms. Amrita Joshi, Advocates for Respondent no.2.
   CORAM : Justice N. K. Sodhi, Presiding Officer
   S.S.N. Moorthy, Member
   Per : Justice N. K. Sodhi, Presiding Officer
   Whether ninety per cent of the public sh areholders in number or shareholders
   holding ninety per cent of the public shareholding in valu e 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 (Del isting 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 pert ains to the delisting of equity shares of

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M/s. Trichy Distilleries and Chemicals Limited, the second appellant herein (for short the
company). Shri V.T. Somasundaram, the firs t appellant is one of the promoters of the
company. The appeal is directed agai nst the communication dated December 27, 2010
issued by the Madras Stock Exchange Ltd. (f or 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 we nt 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 beco me 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 sharehol ders 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 delisti ng which, in turn, would provi de 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 tradi ng 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. The regulations deal with compulsory delisting of equity sh ares by a recognized
   stock exchange and also with voluntary de listing on application of a company. Special
   provisions are contained in Chapter VII of th e regulations which deal with delisting of
   small companies. Regulation 27 is a part of this chapter and the re levant parts thereof
   which concern us are reproduced hereunder for facility of reference:
   “Special Provisions in case of small companies.
4. (1) Where a company has paid up capital upto one crore rupees and its
   equity shares were not traded in any recognized stock exchange in the one
   year immediately preceding the date of decision, such equity shares may
   be delisted from all the recognised stock exchanges where they are listed,
   without following the procedure in Chapter IV.

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(2) Where a company has three hundred or fewer public shareholders and
where the paid up value of the shares held by such public shareholders in
such company is not more than one cr ore rupees, its equity shares may be
delisted from all the recognised stoc k exchanges where they are listed,
without following the procedure in Chapter IV.
(3) A delisting of equity shares may be made under subregulation (1) or
sub-regulation (2) only if, in addition to fulfillment of the requirements of
regulation 8, the following conditions are fulfilled:-

(a) …………….
(b) …………….
(c) the promoter writes individually to all public shareholders in
the company informing them of his intention to get the equity
shares delisted, indicating the exit price together with the
justification therefor and seeking their consent for the proposal for
delisting;
(d) at least ninety per cent. of su ch public shareholders give their
positive consent in writing to the proposal for delisting, and have
consented either to sell their equ ity shares at the price offered by
the promoter or to remain holders of the equity shares even if they
are delisted;
(e) ………..
(f) ………..”
Two types of companies qualify for delisting under Regulation 27, namely:
(i) listed companies that have a paid up capital upto rupees one crore
and no trading in the shares has taken place for one year preceding
the date of decision to delist.
(ii) listed companies whose paid up capital held by all the public
shareholders put together is ru pees one crore or less and such
shareholders are three hundred or less in number.
For the purposes of this appeal , public shareholders mean th e holders of equity shares
other than the promoters. The company before us has a paid up capital of 1.2 crore with 12 lakh shares of 10 each. Of these, the promoter shareholding represents a paid
up share capital of 69,67,500 being 58.06 per cent of the total capital of the company and the paid up capital held by public shareholders is 50,32,500 representing
41.94 per cent. It is, thus, clear that the pa id up value of shares held by the public
shareholders is less than ` 1 crore. It is not in dispute that the total number of public
shareholders of the company is 196. In vi ew of this factual pos ition the company for
delisting would attract the provisions of regulation 27(2) reproduced above. Delisting of
equity shares under regulation 27(2) could be done only after fulfilling the requirements
of regulation 8 of the regulati ons which falls in chapter I II. Under regulation 8, the
company is required to obtain the approval of its shareholders by way of a special

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resolution passed through postal ballot. It is the requirement of regulation 8(1)(b) that the
votes cast by “public shareholders” in favour of the proposal to de list should be atleast
two times the votes cast agains t such proposal. The company carried out this exercise
through postal ballot. The result of the postal ballot is as under:
No.of
Postal
Ballot
Forms

No. of
Shares
Vote%
Total Postal Ballot Forms received : 51 423960
Less: invalid Postal Ballot Forms : 1 100
Net Valid Postal Ballot Forms : 50 423860
Postal Ballot Forms with assent for the Resolution : 48 423850 99.9976%
Postal Ballot Forms with dissent for the Resolution : 2 10 0.0024%
It is clear from the aforesaid results that th e votes cast in favour of the resolution are
more than ninety nine per cent of the tota l valid votes and the votes cast against the
resolution are less than one pe r cent of the total valid vote s polled and consequently the
special resolution in terms of regulation 8(1)(b) had been passed with the requisite
majority. Thereafter, the comp any sought in-principle approval of MSE as per its letter
dated May 3, 2010 under regulation 8. MSE gave its in-principle approval for delisting
as per its letter of May 18, 2010. It is pertinent to mention that MSE did not, at this stage,
raise any controversy about whether the votes of the public shareholders should be
counted on the basis of the value of share capital held by them or on the basis of the
number of public shareholders. Regulation 27(3)(c) which deals with delisting of small
companies requires that one of the promoters of the company should write individually to
all public shareholders informing them of its intention to get the shares delisted and seek
their consent for the proposal to delist. Clau se (d) of regulation 27( 3) further requires
that “at least ninety per cent of such public shareholders” are required to give their
positive consent for the proposal to delist and may consent either to sell their shares at the
price offered or continue to ho ld their shares in the delisted company. Accordingly, the
company sent to each public shareholder a letter dated March 18, 2010 offering to
purchase their shares at ` 367 per share and sought their consent for delisting. It is not in
dispute before us that the publ ic shareholders tendered thei r shares and some of them
agreed to the proposal to delist but decided to hold on to their shares. As on the date of
the letter, there were 196 public shareholders of the company holding 5,03,250 shares out

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of which the promoters acquired 3,51,005 sh ares held by 123 shareholders. Two
shareholders holding 1,20,200 shares consented for delisting but decided to hold on to
their shares. It is, thus, clear that 125 public shareholders holding 4,71,205 shares had
given their positive consent. Two sharehol ders holding 14000 shares have since given
their consent. The promoters of the compa ny had also confirmed that they would keep
the exit option available to the public sharehol ders for a further period of one year from
the date of final delisting. It is, thus, clear that there are in all 204 shareholders of the
company 8 of whom are promoters. When we exclude them, the total public shareholders
are 196 in number. Out of the public shar eholders, 125 have given their positive consent
for delisting. Two shareholders holding 14000 shares constituting 1.17 per cent of the
total paid up capital of the company are yet to give their consent/shares to the promoters.
These could be excluded. The remaini ng 69 shareholders holding 18,045 shares
constituting 1.5 per cent of the total share capital of the company and 3.58 per cent of
public shareholding have not given their consen t either way. In other words, they have
not given their positive consent. In brief, the factual position boils down to this. There
are in all 196 public shareholders who hold 5,03,250 shares. Out of these, only
125 shareholders holding 4,71,205 shares have given their positive consent. The
remaining 71 shareholders holding 32,045 shares have not given their consent. Has the
requirement of regulation 27(3)(d) been met is the question.

4. 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 shar es) of the total share capital of the
   company were in the process of giving cons ent 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.
5. We have heard the learned counsel for the parties who have taken us through the
   provisions of the regulations and the records of the case. What is c ontended by
   Mr. Somasekhar Sundaresan, Advocate on behalf of the appellants is that since the

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shareholders holding more than ninety per cent of the public shareholding had given their
positive consent, the requirements of regulation 27(3)(d) were complied with and MSE
was not justified in declining to delist the equity shares of the company.
Dr. Poornima Advani, learned couns el appearing for the Board argued that ninety
per cent of the total number of public shareh olders irrespective of the percentage of
shares held by them ought to have given their positive consent which has not happened in
the present case. She pointed out that ther e are in all 196 public shareholders out of
which only 125 have given their consent and th is does not constitute ninety per cent of
the total number of public shareholders . She sought to justify the impugned
communication on this basis. The learned counsel appearing for MSE only stated that the
first respondent (MSE) had acted in accordance with the regulations while declining to
delist the equity shares of the company.

6. Having given our thoughtful consideration to the rival contenti ons of the parties
   we are inclined to agree with the learned counsel for the appellants. The learned counsel
   for the Board laid great stress on the words “such pub lic shareholders” as used in
   clause (d) of regulation 27(3) of the regulatio ns and urged that it refers to all public
   shareholders to whom the promoter of th e company had individually written about the
   intention to get the equity shares delisted. The argument is that the word ‘such’ refers to
   all the individuals referred to in clause (c) of regulation 27(3) and, therefore, the
   requirement of clause (d) would be met only if ninety per cent of the total number of
   public shareholders give their positive consent to the proposal for delisting. She pointed
   out that in the instant case the total public shareholders were 196 out of which 176 ought
   to have given their positive consent and sin ce this did not happen and only 125 of them
   gave their positive consent, the company is non compliant with regulation 27(3)(d). The
   argument, at first flush sounds plausible but when examined in depth, cannot be accepted.
   The requirement of clause (d) is to obtain consent of ninety per cent of such public
   shareholders, that is, ninety per cent of such persons who hol d shares and are not part of
   the promoter group. The word ‘such’ can onl y have reference to the shareholders who
   hold shares and are classified as public shareholders and to whom letter would have been
   written under regulation 27(3) (c) of the regulations. Th is is not a case where the
   regulations contain an enumeration of sp ecific words followed by general terms which

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have to be read in the same context and, therefore, the principle of ejusdem generis would
not apply. Normally, when the words of a st atute are clear, plain or unambiguous which
are susceptible to only one meaning, the courts are bound to give effect to that meaning.
However, to decide whether certain words are clear and unambiguous, they must be
studied in their context. If the plain m eaning rule leads to absurdity or strange
consequences not intended by the framers of the statute then such a construction should
be avoided. In that event, a purposive inte rpretation which advances the object of the
provision under consideration should be reso rted to. In the present case, if the
interpretation as sought to be given by the respondents is adopted it would lead to chaotic
results as discussed hereunder.

7. The argument on behalf of the Board that ninety per cent of the shareholders in
   number must agree and give their positive co nsent rather than ninety per cent of the
   public shareholders in value, if accepted, would lead to absurd results and run counter not
   only to the scheme of the corporate law but al so to the very scheme of the regulations.
   The regulations are special provisions that operate against the backdrop of the Companies
   Act, 1956 which is the basic law governing the functioning of companies in India. One
   of the basic features of the Companies Act is that it provides a democratic set up in a
   company by which each share in the share cap ital of that company carries one vote.
   Reference in this regard can be made to se ction 87 of the Companies Act which provides
   that every member of a company limited by sh ares and holding any equity share capital
   therein shall have a right to vote in respec t of such capital on every resolution placed
   before such company and his voting right on a poll shall be in proportion to his share of
   the paid up equity capital of that company. Regulation 2(3) of the regulations recognises
   the basis of the regulations deriving their m eaning, inter alia, from the Companies Act.
   When the Companies Act recognises the principl e of “one share, one vote” it would be
   contrary to the scheme of the law and public policy to interpret regulation 27(3)(d) of the
   regulations otherwise. Th e interpretation canvassed by th e learned counsel for the
   respondents could lead to various absurdities which could not be intended by the framers
   of the regulations. We may now illustrate how such an absurdity could arise. If a small
   listed company, of the kind we are dealing with, has a paid up capital of ` 1 crore with a
   total of 100 shareholders of which promoter shareholders are 20 in number and hold

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share capital worth 50 lacs, the remaining 80 public shar eholders in number would be holding the balance 50 lacs of the capital. If out of the 80 publ ic shareholders, 20
public shareholders were to hold 45 per cent out of the 50 per cent public shareholding
and vote in favour of the delisting proposal, then according to the respondents, although
such shareholders would represent ninety per cent of the votes of the public shareholders,
the company would not qualify for delisting under Regulation 27(3)(d) of the regulations.
It would mean that shareholders holding a mere 10 per cent of the public shareholding in
terms of the voting capital would be able to hold up the delisting on the premise that they
are 60 in number as compared to the 20 pub lic shareholders holding 90 per cent of the
public shareholding and who support the delisting. In this very example, if the 60
shareholders holding 5 per cent of the comp any’s capital and representing only 10 per
cent of the public shareholding vote in favour of the delisting, then according to the
respondents, the company would qualify for delisting under Regulation 27(3)(d) despite
the public shareholders holding ninety percen t of the public share holding being opposed
to the delisting. This would mean, a miniscule percentage of the shareholding can force a
delisting although majority as vast as ninety per cent may be opposed to the delisting. As
a matter of fact, the interpretation sought to be placed by the respondents on the
provisions of Regulation 27(3)(d) could lead to yet another situation which could be
more absurd. A public shareholder who hol ds only 100 shares could distribute his
holding across 100 persons to bloat up the to tal number of public shareholders and
thereby hold the rest of the majority public shareholders to ransom. Such an approach
would be wholly undesirable apart from bei ng untenable. An interpretation leading to
such results cannot be countenanced and the same could not have been intended by the
framers of the regulations. Absurdities of the kind noticed above would not arise if the
provisions of regulation 27(3)(d) are interpreted to mean th at a company would become
eligible for delisting if the public shareholders, irresp ective of their numbers, holding
ninety per cent or more of the public shareholding give their positive consent to delisting.
In the present case, as will be seen from the discussion in the earlier part of the order,
shareholders holding more than ninety pe r cent of the public shareholding had given
positive consent to the proposal for delisting and this, in our view satisfies the

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requirements of clause (d) of regulation 27(3) of the regulations. The appellants are,
therefore, entitled to get the equity shares of the company delisted.

8. Before concluding, we may mention th at prior to the promulgation of the
   regulations, the Securities and Exchange Bo ard of India (Delisting of Securities)
   Guidelines, 2003 were in force which did no t have any special provisions for small
   companies. The special provisions were brough t in the regulations only with a view to
   provide an exit route to the public shareholders who otherwise could not exit by trading
   in the market. The interpretation that we ha ve placed on clause (d) of regulation 27(3)
   would advance the object of the framers of the regulations and would provide an exit
   opportunity to the stranded public sharehol ders on account of MSE not providing them
   with a trading platform.
   In the result, the appeal is allowe d and the impugned communication declining
   delisting of securities set as ide. The appellants shall now approach MSE which shall
   allow delisting of the equity shares of the company after complying with the procedural
   requirements, if any. There is no order as to costs.
   Sd/-
   Justice N.K.Sodhi
   Presiding Officer Sd/- S.S.N. Moorthy Member 4.11.2011
   Prepared and compared by
   RHN

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