Debt-to-equity conversion still requires shareholder approval and in-principle listing approval under company and securities law.

Conversion of debt into equity under SARFAESI does not, by itself, override company-law and securities-law requirements for issuing and listing the resulting shares. Section 9 of SARFAESI permits conversion of a debt portion into shares, but the borrower company must still comply with Section 62 of the Companies Act, 2013 for further issue of share capital. Section 35 did not displace that requirement because no inconsistency with the Companies Act was shown, and Section 37 makes SARFAESI supplementary rather than exclusionary. Regulation 28 of the SEBI LODR Regulations also continued to apply, requiring in-principle approval before issuance; the scheme-of-arrangement exemption was inapplicable.

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Issues: Whether conversion of debt into equity under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 dispensed with shareholder approval under Section 62 of the Companies Act, 2013 and in-principle approval under Regulation 28 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Analysis: Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 permits an asset reconstruction company to convert a portion of debt into shares, but the actual issuance of shares by the borrower company still has to be carried out in accordance with the Companies Act. Section 62 of the Companies Act, 2013 governs further issue of share capital and requires compliance with the prescribed shareholder-based process. Section 35 does not assist because no inconsistency was shown between the SARFAESI provisions and Section 62, and Section 37 makes the SARFAESI Act supplementary, not exclusionary, in relation to the Companies Act and the SEBI Act. Regulation 28 independently required in-principle approval before issuance of securities, and the exemption for a scheme of arrangement was not applicable.

Conclusion: The conversion of debt into equity did not bypass the requirements of Section 62 of the Companies Act, 2013 or Regulation 28 of the SEBI LODR Regulations, 2015, and the rejection of the listing request was upheld.

Ratio Decidendi: A statutory power to convert debt into shares does not, by itself, dispense with compliance with the company-law and securities-law procedures governing issuance and listing of those shares unless a clear inconsistency or express exemption is shown.

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