ICICI Securities Delisting: SEBI Issues Stern Warning to ICICI Bank over Its Shady Shareholder Outreach
Moneylife Digital Team 06 June 2024
Acting on several complaints by shareholders of ICICI Securities, some of whom received calls from ICICI Bank seeking favourable votes for the delisting scheme, market regulator, Securities and Exchange Board of India (SEBI) has issued an administrative warning over the outreach efforts.
 
In an exchange filing on 6 June 2024, ICICI Bank cited SEBI's observation, which stated, "The heightened outreach program on the last day of voting citing holidays/weekend appears inappropriate."
 
According to SEBI's letter, the Bank's outreach programme, intended to explain the delisting scheme and maximise shareholder participation, went beyond its remit. Investor complaints revealed that some officials made repeated calls and even sought screenshots of voting.
 
One call recording disclosed that a shareholder was told opting for the scheme would be beneficial, a clear breach of the outreach programme's scope. SEBI noted that as a promoter and interested party, ICICI Bank providing its perspective on the transaction could not be considered a balanced factual position, indicating a clear conflict of interest.
 
ICICI Bank had previously stated that 83.8% of public institutional shareholders and 32% of non-institutional shareholders voted in favour of ICICI Securities' delisting.
 
SEBI warned ICICI Bank to improve its compliance standards, failing which further action may be initiated. Bank has been advised to place the actions taken before its next board meeting and forward a brief on the discussions to SEBI within 10 days.
 
Allegations of Shareholder Coercion and Privacy Breaches
 
According to multiple shareholders, ICICI Bank employees reached out to small shareholders of ICICI Securities during the delisting vote which concluded on Tuesday. Five shareholders reported receiving calls and, in one case, a home visit from ICICI Bank branch employees, persuading them not only to vote but to vote in favour of delisting.
 
The callers sometimes even asked for proof of voting in the form of screenshots of the e-voting confirmation message, raising concerns about potential coercion and undue influence.
Sreenivas K, a 47-year-old engineer from Hyderabad, said he received a call from an ICICI Bank employee asking him to vote in favour of the resolution, despite having already voted against the proposal.
 
Apurba Das, a shareholder of ICICI Securities and a customer and shareholder of ICICI Bank, reported that his relationship manager had been following up with him for several days, implicitly nudging him towards voting in favor of the delisting. Mr Das said they even asked for screenshots as proof of voting after he had voted.
 
Tarun Balotia, a 31-year-old software engineer from Bengaluru, received a visit at his registered address in New Delhi from an ICICI Bank employee inquiring about his vote and requesting a screenshot of the e-voting confirmation.
 
A person familiar with the development suggested that at many banks, relationship managers handle customers' entire relationship, including securities held in demat accounts, which could explain why bank employees contacted retail investors.
 
As of 31 December 2013, ICICI Bank held a 74.77% stake in ICICI Securities, while retail shareholders held 5.86%, with the remaining stake held by mutual funds, foreign portfolio investors, and the Life Insurance Corporation of India (LIC).
 
Ajit Dayal, the founder of Quantum Mutual Fund, which holds a 0.09% stake in ICICI Securities, stated that ICICI Bank is pushing for the delisting and merger because the current valuations are more attractive to the Bank's than to ICICI Securities' shareholders. He expressed surprise that even proxy advisory firms recommended investors vote for the delisting, as they are supposed to remain neutral and prioritize investor interests.
 
Experts highlighted two primary concerns: the potential breach of data privacy when shareholder information is shared and the solicitation of votes. Shriram Subramanian, the founder and managing director of InGovern Research Services, stated that if shareholder information was shared with ICICI Bank employees for vote solicitation, it raises concerns about data privacy and corporate governance.
 
Sachin Chaudhary, a Delhi-based engineer and shareholder of ICICI Securities, said he received calls from someone identifying themselves as an ICICI Bank branch manager, who attempted to convince him to vote in favour of the delisting, despite Mr Chaudhary's opposition. Mr Chaudhary expressed surprise that his contact details were accessible to an ICICI Bank employee, as he had never dealt with the Bank as a customer or shareholder and was not even a customer of ICICI Securities.
 
The Delisting Saga and Legal Challenges
 
In June 2023, the boards of ICICI Bank and ICICI Securities approved the delisting of ICICI Securities' equity shares. Investors were proposed to receive 67 shares of ICICI Bank for every 100 shares of ICICI Securities they owned.
 
While influential proxy advisory firms like IiAS, InGovern, and Stakeholders Empowerment Services (SES) greenlighted the resolution, some retail investors remained unhappy with the swap ratio.
 
Reserve Bank of India (RBI) gave nod to delist ICICI Securities on 9 November, 2023, to make it ICICI Bank's wholly-owned subsidiary, subject to certain conditions.
 
Investors spell their in a post-earnings analyst conference call on 16 January 2024, where shareholders expressed concerns about the swap ratio and argued for the company to remain listed. Despite this, ICICI Bank received approval of the national company law tribunal (NCLT) for the shareholders' voting process on 18 January 2024.
 
In March 2024, over 100 shareholders of ICICI Securities, led by Manu Rishi Gupta, initiated a class-action lawsuit against the company's delisting and its merger plan with ICICI Bank. The lawsuit claimed that ICICI Securities had disclosed confidential shareholder information to ICICI Bank, compromising the privacy and independence of investors.  Manu Rishi Gupta, a minority shareholder and SEBI registered PMS provider also voiced his concerned with his tweet on social media platform X 
 
 
On 28 March 2024, ICICI Securities received shareholders' approval to delist, with 71.9% of the shareholder votes cast in favor of the proposal to merge with ICICI Bank, despite resistance from some retail shareholders.
 
Around 16 domestic mutual funds voted in favour of ICICI Bank's proposal to delist its broking arm. However, seven mutual fund houses opposed the plan.
 
Mutual fund houses such as Kotak, Mahindra Manulife, Samco, Quantum, ITI, LIC, and Baroda BNP voted against the delisting proposal. However, asset management companies like UTI, Axis, Aditya Birla, HDFC, ICICI Prudential, Nippon, Mirae Asset, DSP, SBI, Sundaram, Bandhan, NJ, among others voted in favour of the delisting proposal.
 
However, on 10 April 2024, Quantum Mutual Fund, a minority shareholder, objected to the merger scheme, stating that it was 'flawed and riddled with irregularities' and would adversely affect minority shareholders.
 
The ICICI Securities delisting saga faced another setback when NCLT postponed the case until July amid concerns from minority shareholders regarding the potential breach of shareholders' privacy and manipulation of the voting process.
 
The delisting proposal has sparked broader debates surrounding corporate governance, shareholder rights, and potential conflicts of interest between parent companies and their subsidiaries. The outcome of the ongoing legal proceedings and regulatory investigations will likely shape future practices and set precedents for similar transactions.
 
Comments
s5rwav
2 weeks ago
In the Interest of Small Retail Investors and to Curb Rampant Corporate Crimes, the Incumbent Board of Directors of ICICI Bank Limited Must Face Criminal Prosecution by the Board of Directors of SEBI at the earliest.
parimalshah1
2 weeks ago
Why only warning? Strict action should have been taken and delisting permission denied. As usual just warn and it is business as usual. Why is it that ICICI bank is often in news for wrong reasons?
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