Minimum public shareholding cannot be bypassed by a sanctioned scheme; enforcement action was upheld for non-bona fide compliance.

A sanctioned corporate scheme cannot be used to defeat the mandatory minimum public shareholding requirement under rule 19A of the Securities Contracts (Regulation) Rules, 1957. The Court found that the scheme and its implementation did not achieve lawful compliance with the public shareholding norm, and that the subsequent divestment efforts were not bona fide. On that basis, it upheld the order permitting SEBI to take enforcement action and found no ground to interfere with the challenged order.

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Issues: Whether the order permitting SEBI to take action and requiring compliance with the minimum public shareholding requirement under rule 19A could be interfered with.

Analysis: The requirement of minimum public shareholding under rule 19A of the Securities Contracts (Regulation) Rules, 1957 is directed to transparency in listed company shareholding and corporate management. The sanctioned scheme could not be used to defeat that statutory requirement, and the subsequent efforts to effect divestment were found not to be bona fide. The Court accepted that the scheme and its implementation had not achieved lawful compliance with the public shareholding norm and that no ground existed to disturb the order under challenge.

Conclusion: The challenge failed and the order granting relief to SEBI and permitting action for enforcement of minimum public shareholding was upheld.

Ratio Decidendi: A sanctioned corporate scheme cannot be used to circumvent a mandatory statutory requirement of minimum public shareholding, and lack of bona fide compliance justifies regulatory enforcement.

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