ICICI Securities In Trouble As Shareholders File a Lawsuit With NCLT

ICICI Securities Ltd, a subsidiary of ICICI Bank operates in the broking business (both retail and institutional), distributes financial products and offers banking services alongside advisory services. There have been reports of its delisting from the stock exchange and merger with ICICI Bank, its parent company.

Lawsuit against ICICI Securities  

Just weeks after gaining shareholder consent to delist from the stock exchange and merge with the parent company – ICICI Bank, ICICI Securities faced backlash from minority shareholders. Institutional investors showed 83.8% support, while non-institutional investors had a 67.8% opposition. Overall, 72% of public shareholders favoured the delisting plan. According to the scheme, shareholders of ICICI Securities would receive 67 shares of ICICI Bank for every 100 equity shares held. Moneycontrol reported that more than 100 shareholders, headed by investor Manu Rishi Guptha, have initiated a class action lawsuit against ICICI Securities over the delisting proposal, which has been submitted to the National Company Law Tribunal(NCLT).

Performance

In the fourth quarter, ICICI Securities recorded a significant surge in net profit, doubling its previous figure to Rs.536 crore. Consolidated revenue from operations also saw a substantial increase, reaching Rs.1,543 crore. However, during the January-March quarter, the company experienced a rise in its debt-to-equity ratio, climbing to 4.25 from 3.26 in the corresponding quarter of FY2023. Conversely, the debt service coverage ratio declined to 0.18% by March 31, 2024, down from 0.21% in the same period of the previous year. 

Illegality 

Minority shareholders argued that the current valuation is based on a report from June 29, 2023, and fails to consider the bullish market trend during that period and the improved performance of ICICI Securities. They have also voiced their disagreement with the proposed share swap ratio for delisting. They further asserted that according to Section 245 of the Companies Act 2013, such legal action can be initiated if there is a perception that the management or operation of the company is detrimental to its own interests or the interests of its members or depositors. Minority shareholders have also accused ICICI Securities of employing illegal methods to secure votes in their favour. They claim to have received calls purportedly from ICICI Bank, on behalf of ICICI Securities, urging them to support the merger scheme.

Quantum MF 

Quantum Mutual Fund, holding approximately 0.09% stake in ICICI Securities through its Quantum Long Term Equity Fund and Quantum ELSS Tax Saver Fund, raised several concerns regarding the valuation and the procedural framework. Quantum MF urged both ICICI Bank and ICICI Securities to address their inquiries within five days and abstain from proceeding with the merger scheme until their concerns were addressed.

Conclusion: ICICI Securities’ delisting plan, faced opposition from retail investors and minority shareholders, sparking a class action lawsuit. Concerns about overvaluation, voting tactics, and procedural transparency have been raised by the minority investors and by Quantum Mutual Fund as well. Now, ICICI Securities needs to address the concerns raised and work towards resolving the issues through legal proceedings or negotiations. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.