The takeover of Sears Canada by its U.S. parent remains on hold after Sears Holdings lost an appeal Tuesday of a regulatory decision that blocked the deal.

An Ontario court upheld an August ruling by the Ontario Securities Commission that stalled an attempt by Sears Holdings to take its Canadian subsidiary private.

Sears Holdings has offered $18 a share for the 46 per cent of Sears Canada it doesn't already own.

The OSC ruled that the American retailing giant failed to disclose information related to support agreements struck with Scotiabank, its investment banking division Scotia Capital Inc., and Royal Bank.

These side agreements gave the banks a better deal than was offered to other minority shareholders.

Together, the banks own a significant voting block of 7.6 million shares of Sears Canada stock.

Sears Canada three-month trading

The OSC ordered Sears Holdings to distribute another circular that excluded the banks from voting on the buy-out offer. 

A lawyer for Sears Holdings argued Monday that the side deals benefited small investors because Sears Holdings bumped up its offer to $18 a share from its original bid of $16.66 a share.

But a three-judge Divisional Court panel ruled Tuesday that the OSC order would stand, meaning that the banks cannot vote on the takeover offer. The court's reasons for its decision will be released later. 

Sears Holdings has been trying to buy the 46 per cent of Sears Canada it doesn't already own. The holders of a majority of that stake must approve the takeover. 

Sears Holdings had extended its $908-million bid for Sears Canada until Sept. 29, pending the court decision.

Sears Canada shares were up 18 cents to $20 in afternoon trading on the TSX, an indication that investors expect Sears Holdings will have to boost its offer to acquire the majority support it needs to take its Canadian division private.

With files from the Canadian Press