New Delhi, Dec 18, (Representative) The Supreme Court has ruled that debt-to-equity converted shares cannot be listed on the stock market without obtaining in-principle approval from the company’s shareholders. A bench comprising Justice Pankaj Mithal and Justice Sandeep Mehta was hearing an appeal filed by Jyoti Ltd. challenging the Securities Appellate Tribunal’s (SAT) decision, which rejected its application for listing debt-to-equity converted shares on the Bombay Stock Exchange (BSE). The rejection was based on Jyoti Ltd.’s failure to secure shareholder approval before the allotment and the absence of BSE’s approval for listing. The Court clarified that such approval, as mandated under Section 62(1)(c) of the Companies Act, 2013, is a prerequisite for allotting shares to any person. Additionally, the Court emphasized that shareholder approval alone is insufficient for listing; approval from the recognized stock exchange, as per Regulation 28 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, is also required.Jyoti Ltd. sought to list 59,63,636 equity shares issued to an Asset Reconstruction Company (ARC) after converting part of its outstanding debt of Rs. 32.80 crore into equity under Section 9(1) of the SARFAESI Act, 2002. The appellant argued that shareholder approval was unnecessary since the conversion was initiated by the ARC under the SARFAESI Act, which allows creditors to convert debt into equity. Jyoti Ltd. further claimed that shares issued under this process should automatically qualify for listing, irrespective of BSE’s approval. The BSE opposed this claim, contending that the absence of shareholder approval under Section 62(1)(c) of the Companies Act and non-compliance with SEBI’s Regulation 28 precluded the listing of the shares.The Supreme Court affirmed the SAT’s order, stating that Shareholder Approval is Mandatory.
The Court observed that the allotment of shares resulted from a resolution passed by Jyoti Ltd.’s Board of Directors on May 2, 2018, which approved the conversion of debt into equity and the subsequent allotment of shares. The Court ruled that this process was initiated by the company itself, not solely by the ARC. As such, the provisions of Section 62(1)(c) of the Companies Act applied, requiring shareholder approval for the allotment and listing of shares. “The proposal to increase the subscribed capital of the company by converting part of the debt into equity shares was initiated by the appellant company itself. Accordingly, as contemplated by Section 62(1)(c) of the Companies Act, 2013, shareholder approval is mandatory before the shares can be listed on the stock exchange,” the Court held.The Court concurred with the SAT’s finding that listing shares requires approval from the recognized stock exchange under Regulation 28 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. “Approval from the BSE is necessary, and the Securities Appellate Tribunal’s finding on this matter is neither perverse nor erroneous,” the bench stated. The Court noted that Jyoti Ltd. had failed to secure in-principle approval from its shareholders before issuing shares to the ARC. Without this approval, the shares were not eligible for listing.Dismissing the appeal, the Court held: “No error or illegality has been committed either by the BSE or the Securities Appellate Tribunal in refusing to accept the appellant company’s request for listing the shares. Section 62(1)(c) of the Companies Act mandates a special resolution of the shareholders, which is lacking in this case.” Advocate on Record (AoR) Lakshmeesh S. Kamath, and Advocates Ms Samriti Ahuja and Ms Aditi Prakash appeared for the Appellants.Senior Advocate Pratap Venugopal, and Advocates Ms. Surekha Raman, Amarjit Singh Bedi, Shreyash Kumar, Yashwant Sanjenbam, Imilikaba Jamir, and M/S. K J John And Co, and AoR Rahul Gupta, appeared for the Respondents.