Robust Mechanism for Investor Protection Unnecessary, Affirms Delhi High Court

The Delhi High Court, in a recent ruling on a Public Interest Litigation concerning the delisting of securities without adequate safeguards for investors, declared that existing statutory provisions sufficiently protect the interests of investors. The court emphasized that the legal framework provides a transparent and comprehensive mechanism to address delisting procedures and offers remedies to aggrieved investors.

The Division Bench, comprising Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela, underscored the presence of a strong legal framework under the Securities Contract (Regulations) Act, 1956, which empowers stock exchanges to suspend or withdraw admission to dealings in securities of companies for various reasons, including non-compliance with admission conditions. Additionally, the Bench highlighted the availability of an appeals process before the Securities Appellate Tribunal (SAT) for companies or bodies corporate that contest delisting decisions.

The case originated from a plea filed by a petitioner seeking action against those who deceive investors by delisting securities without adequate protection. The petitioner requested the Securities and Exchange Board of India (SEBI) to enforce more stringent penal provisions against the promoters and management of errant listed companies. SEBI argued that a coordination and monitoring committee had already been established to identify vanishing companies, thereby opposing the petitioner’s demands.

After considering the arguments, the Bench concluded that the statutory provisions of the 1956 Act and the Securities and Exchange Board of India Act, 1992, adequately safeguard the interests of investors. The court acknowledged SEBI’s authority to adopt measures in the interest of investors, including regulating stock exchange activities and overseeing stockbrokers.

The Bench further highlighted Section 21A(2) of the 1956 Act, which grants the aggrieved investor the right to appeal before SAT in cases of delisting. It also referred to Rule 19 of the Securities Contract (Regulation) Rules, 1957, which empowers stock exchanges to suspend or withdraw admission to dealings in securities due to non-compliance or other reasons, to be recorded in writing.

Consequently, the Delhi High Court affirmed that the statutory provisions governing the delisting process demonstrated a transparent mechanism, ensuring adequate participation and representation of public shareholders. The court concluded that the remedies available to aggrieved investors substantiated the effectiveness of the existing framework.

The judgment is expected to bring clarity and confidence to the regulatory environment surrounding delisting procedures and provide assurance to investors in the Indian securities market.

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