SEBI Delisting Regulation 3(2)(b)(i) upheld as valid exemption for IBC resolution plan delistings

The Bombay HC upheld the validity of SEBI Delisting Regulation 3(2)(b)(i), which exempts delisting under IBC resolution plans from standard delisting regulations. The court ruled that since IBC is a complete code with non-obstante clause, delisting pursuant to IBC-approved resolution plans is governed by IBC provisions rather than SEBI regulations. The regulation was not ultra-vires as SEBI appropriately recognized IBC's overriding effect. The court emphasized harmonious construction between statutes and noted that economic legislation requires experimentation latitude. The challenge to NCLT's order approving the resolution plan for delisting of shares was rejected.

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Issues Involved:
1. Validity of Regulation 3(2)(b)(i) of the SEBI (Delisting of Equity Shares) Regulations, 2021 as ultra-vires to the SEBI Act, 1992.
2. Legality of the National Company Law Tribunal's (NCLT) order approving the Resolution Plan for delisting shares.
3. Compliance with investor protection provisions under the SEBI Act.
4. Applicability of the Insolvency and Bankruptcy Code (IBC) over SEBI Regulations.

Detailed Analysis:

1. Validity of Regulation 3(2)(b)(i) of the SEBI (Delisting of Equity Shares) Regulations, 2021:

The Petitioner challenged the validity of Regulation 3(2)(b)(i), arguing that it is ultra-vires the SEBI Act, 1992. The Petitioner contended that the SEBI Act's primary objective is to protect investors' interests, and the Impugned Regulation undermines this by allowing delisting without the procedural safeguards typically required under the Delisting Regulations. The court analyzed the powers conferred upon SEBI by the Securities Contracts (Regulation) Act, 1956 (SCRA) and the SEBI Act, 1992, concluding that the Delisting Regulations, including the Impugned Regulation, fall within the scope of SEBI's regulatory powers. The court emphasized that SEBI's role includes regulating the securities market, and the Impugned Regulation aligns with the legislative framework that allows for delisting under a resolution plan approved by the IBC.

2. Legality of the NCLT's Order Approving the Resolution Plan:

The Petitioner also challenged the NCLT's order dated 27 February 2024, which approved the Resolution Plan for delisting the shares of Reliance Capital Limited (RCL). The court noted that the Petitioner failed to appeal this order to the National Company Law Appellate Tribunal (NCLAT), thus weakening the challenge. Furthermore, the court found that the NCLT's order, which assigned a nil value to equity shareholders and directed delisting, was consistent with the provisions of the IBC, which takes precedence over other laws due to its non-obstante clause.

3. Compliance with Investor Protection Provisions under the SEBI Act:

The Petitioner argued that the Impugned Regulation violates the SEBI Act's investor protection mandate by exempting delisting under the IBC from the Delisting Regulations. The court found that while investor protection is a critical objective of the SEBI Act, it is not the sole purpose. The court highlighted that the IBC provides its safeguards and procedures to protect stakeholders' interests, including attempting to maximize asset value and resolve insolvency issues expeditiously. The court concluded that the Impugned Regulation does not contravene the SEBI Act's objectives.

4. Applicability of the Insolvency and Bankruptcy Code (IBC) over SEBI Regulations:

The court emphasized that the IBC is a comprehensive code with an overriding effect on other laws, including the SEBI Act, due to its non-obstante clause. The court noted that the IBC aims to rehabilitate companies rather than liquidate them and prioritizes financial creditors' interests. The court found that the Impugned Regulation appropriately recognizes the IBC's primacy in cases of corporate insolvency and delisting pursuant to a resolution plan approved under Section 31 of the IBC. The court concluded that SEBI acted within its powers in framing the Impugned Regulation, which harmonizes the SEBI Act and the IBC.

Conclusion:

The court dismissed the Petition, upholding the validity of the Impugned Regulation and the NCLT's order. The court found no merit in the Petitioner's arguments, emphasizing the legislative intent and the comprehensive nature of the IBC in addressing corporate insolvency and delisting issues. The court discharged the Rule without costs.

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