Salient features of the revised norms of securities and exchange board of india (sebi consultant)
Salient features of the revised norms of SEBI (Securities and Exchange
Board of India)
Salient features of the revised norms of SEBI (Securities and Exchange
Board of India) are as follows:
The requirements of the circular relating to the merger and
amalgamation can be divided in to 2 parts:
Requirements before the scheme is submitted for sanction of the High
Requirement after the scheme is sanctioned by the High Court
REQUIREMENTS BEFORE THE SCHEME IS SUBMITTED TO THE HIGH
COURT FOR ITS SANCTION:
Obligation of Listed companies/Stock exchange
1. Listed companies desirous of undertaking the scheme of arrangement
under chapter V of the Companies Act shall file draft scheme with the
stock exchange along with the following documents.
I. Valuation report from the Independent Charted accountant
II. Report from the audit committee recommending the scheme
III. Fairness of opinion by independent merchant banker
IV. Pre & post amalgamation shareholding pattern
V. Audited financial results of last 3 years
VI. Compliance with clause 49 of listing agreement
VII. Complaints report in prescribe manner
And shall choose one of the Stock Exchanges as the designated stock
exchange for the purpose of coordinating with SEBI. Designated Stock
Exchange shall forward the same to SEBI within 3 working days.
2. Listed Companies shall place before its Audit Committee the valuation
report obtained from the independent charted accountant and Audit
Committee shall give a report recommending the scheme.
3. The stock exchanges shall process the draft scheme and shall forward
objection and no objection letter to SEBI within 30 days of the receipt of
the draft scheme from the listed Company or within 7 days of the receipt
of the satisfactory reply on any clarification sought by Stock Exchanges
from Company or Independent charted Accountant.
4. The stock Exchanges shall issue the observation letter to the listed
company within 7 days of the receipt of the comments from the SEBI on
5. The listed company shall disclose the draft scheme and the documents
as stated in point 1 on its website within 24 hour of filling the same with
6. The stock exchanges shall also disclose on their websites aforesaid
draft scheme and documents immediately on the receipt of the same.
7. Listed companies shall ensure that approval of the shareholders by way
of special resolution for the scheme is obtained by postal ballot and e-
voting and the scheme shall also provide that SR shall not be acted upon
if it is not supported by minority shareholders by a majority of 2/3rd or
8. Condition to be satisfied by listed entity for claiming exemption from
strict enforcement of rule 19 (2) (b) of securities contract regulation
rules, listing of securities without making initial public offer:
i. Equity shares proposed to be allotted to by unlisted entity to the
shareholders of listed entity shall be allotted pursuant to the scheme of
arrangement sanctioned by the high court under section 391-394 of
companies act, 1956.
ii. At least 25% of post scheme aid up share capital of the transferee
company shall be held by the public shareholders of transferor entity.
iii. Transferee entity shall not issue any shares which are not covered
under the scheme.
iv. There shall be no outstanding warrants/instrument entitle the holder
thereof to take shares in the transferee company at any future date, if
there exist any such instrument, the minimum shareholding as discussed
above shall be calculated on expanded share capital assuming full
conversion of the said instrument.
v. Shares transferred in lieu of locked in shares shall be under lock-in for
Processing of the draft scheme by SEBI
SEBI shall process the draft scheme forwarded to it by stock exchanges
and may sought clarification from any person relevant in this regard. SEBI
shall make endeavors to provide its comments on the draft scheme to the
stock exchanges within 30 days of the latter of following:
Date of receipt of satisfactory reply to the clarification sought by SEBI, if
1. Date of receipt of fairness of opinion from independent charted
accountant sought by SEBI, if any.
2. Date of receipt of no objection/objection from the stock exchange.
Manner of Approval of scheme by Shareholders
Listed companies shall ensure that the approval of the shareholders by
way of special resolution for sanction of scheme is obtained through
postal ballot and e-voting. Besides the scheme also provide that special
resolution shall be acted upon if it is supported by 2/3rd or more of the
total minority shareholders.
Redressal of Complaints Pertaining to the Scheme
1. All the listed complaints received by the SEBI pertaining to the draft
scheme shall be forwarded to the designated stock exchange for
necessary action and resolution by listed Company.
2. Listed Company shall, within 7 days of the expiry of 21 days from the
date of filling draft scheme with the stock exchanges, submit a complaint
report to the stock exchanges prior to obtaining observation letter,
containing prescribed particulars and shall send the said complaint report
to the shareholders along with the notice sent to the shareholders for
seeking their approval for proposed scheme of Compromises and
3. The stock exchange shall forward the Complaint Report to the SEBI
before the issuance of comments by SEBI.
REQUIREMENTS AFTER THE SCHEME IS SANCTIONED BY THE HIGH
1. After the scheme is sanctioned by the Hon’ble high court the listed
Company shall Submitted the following Documents with the stock
I. Copy of the order of high court approving the scheme.
II. Result of the voting by shareholders approving the scheme.
III. Statement explaining the changes, if any and the reason thereof.
IV. Status of the compliance with the observation letter.
V. Application seeking the exemption from the strict enforcement of Rule
19 (2) (b) of securities Contracts (Regulation) Rules.
VI. Complaint Report.
2. The Designated stock exchange shall forward its recommendations to
the SEBI on the aforesaid document and SEBI shall make all reasonable
efforts to give its comments/approval within 30 days thereafter.
3. An unlisted issuer may make an application to the board through stock
exchange claiming exemption from the strict enforcement of rule 19 (2)
(b) of securities contract regulation rules if it satisfies the following
I. Observation letter has been issued by stock exchanges
II. Listing of the equity shares is in terms schemes sanctioned by the High
III. Shares have been allotted by the unlisted issuer to the shareholders
listed entity and share certificate has been dispatched or the names of
allottees have been entered in the records of depositories.
4. The formalities for commencing trading shall be completed within 45
days of the order of the High court and transferee company shall give an
advertisement containing the prescribed information about the transferee
company in 1 English, 1 Hindi newspaper having nationwide circulation
and in 1 regional language newspaper having wide circulation at a place
where registered office of transferee entity is situated.
Though the Amalgamation and Merger has never been an easy proposition
for the Companies or body corporate whether listed or unlisted, however
the laws governing the mergers and amalgamation contain some room for
malafides and there were many occasions where the scheme of merger
and amalgamation used as a device for furtherance of the ulterior
motives of the promoter or promoter groups. SEBI has tried to close the
doors to such rooms by amending the requirements related to the
mergers and amalgamations which are calculated to bring the greater
discipline in the administration of mergers and amalgamation. SEBI has
fixed more nuts and bolts in order to check the real motives behind the
proposed scheme and if it is tainted with the element of dishonesty it
would be stuck down at the initial stage, hence tried to provide certain
amount of protection to the minority shareholders. Hopefully it will
achieve the intended results.