Scheme of Arrangement under the Companies Act, 1956
– Revised requirements for the Stock Exchanges and Listed Companies
CIRCULAR, CIR/CFD/DIL/5/2013,
dated February 4, 2013
To
The
Stock Exchanges
1.
Vide Circular No. SEBI/CFD/SCRR/01/2009/03/09, dated September 03, 2009
(“Circular”) certain requirements were prescribed for seeking exemption under
sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957
(“SCRR, 1957”) from strict enforcement of clause (b) to sub-rule (2) of rule 19
by listed companies.
2.
The existing Clause 24(f) of the Listing Agreement mandates that a listed
company shall file any scheme/petition, proposed to be filed before any Court
or Tribunal under sections 391, 394 and 101 of the Companies Act, 1956, with
the stock exchange, for approval, at least a month before it is presented to
the Court or Tribunal.
3.
In terms of the above mentioned Circular, pursuant to a scheme of
reconstruction or amalgamation being sanctioned by the Hon’ble High Court under
sections 391-394 or 101 of the Companies Act, 1956 (“Scheme”), the listed
companies desirous of getting their equity shares listed after
merger/de-merger/amalgamation etc. were required to seek an exemption from
Securities and Exchange Board of India (“SEBI”) from the requirements of Rule
19(2)(b) of SCRR, 1957. In terms of Rule 19(7) of SCRR, 1957, SEBI has been
granting exemption to such listed companies from time to time, on a case to
case basis.
4.
However, in the recent past, SEBI has received applications, seeking exemption,
from certain entities containing, inter alia, (a) inadequate
disclosures, (b) convoluted schemes of arrangement, (c) exaggerated valuations,
etc. SEBI is of the view that granting listing permission or exemption from the
requirements of Rule 19(2)(b) of SCRR, 1957 based on such applications may not
be in the interest of minority shareholders. At the same time, if listing
permission or such an exemption is delayed or denied, it would add to the
uncertainty and would deprive shareholders of an exit opportunity.
5.
In order to avoid such situations, the existing requirements are being revised.
The salient features of the revised requirements, include the following:
I.
Requirements before the Scheme is submitted for sanction by the Hon’ble High
Court
A. Obligations of Listed
Companies
The obligations of a listed
company, inter alia, include:
5.1. Listed companies desirous of
undertaking a Scheme of Arrangement under Chapter V of the Companies Act, 1956,
(Amalgamation/ Merger/ Reconstruction/ Reduction Of Capital, etc.) shall file
the Draft Scheme with the stock exchanges in terms of Clause 24(f) of the
Listing Agreement. Listed companies shall also submit the documents mentioned
in Para 2 of Part A of Annexure I to this Circular to the stock exchanges along
with the Draft Scheme.
5.2. Such listed companies shall
place before its Audit Committee the Valuation Report obtained from an
Independent Chartered Accountant. The Audit Committee shall furnish a report
recommending the Draft Scheme, taking into consideration, inter alia,
the aforementioned valuation report.
5.3. Listed companies shall
choose one of the stock exchanges having nation-wide trading terminals as the
designated stock exchange for the purpose of coordinating with SEBI.
5.4. Listed companies shall be
required to:-
(a) include the Observation
Letter of the stock exchanges, referred to in Clause 5.8 below, in the notice
sent to the shareholders seeking approval of the Scheme; and
(b) bring the same to the notice
of the Hon’ble High Court at the time of seeking approval of the Scheme.
B. Obligations of The Stock
Exchanges
5.5. The designated stock
exchange, upon receipt of the Draft Scheme and the documents referred to in
Clause 5.1 above, shall forward the same to SEBI within 3 working days.
5.6. The stock exchanges shall
process the Draft Scheme (including seeking clarifications from company and/or
Opinion from Independent Chartered Accountant.) and forward their
“Objection/No-Objection” letter on the Draft Scheme to SEBI.
5.7. The stock exchanges shall
forward their “Objection/No-Objection” letter on the Draft Scheme to SEBI
within 30 days from the date of application or within 7 days of date of receipt
of satisfactory reply on clarifications from the company and/or opinion from
independent chartered accountant, if any sought by stock exchanges, as
applicable.
5.8. The stock exchanges, upon
receipt of comments from SEBI, as referred to in Clause 5.10 below, shall issue
Observation Letter to the listed company after suitably incorporating the
comments received from SEBI. Stock exchanges shall provide ‘Observation Letter’
to listed company within 7 days of receipt of comments from SEBI on the Draft
Scheme.
C. Processing of the Draft Scheme
by SEBI
5.9. Upon receipt of
“Objection/No-Objection” letter from the stock exchanges, SEBI shall provide
its comments on the Draft Scheme to the stock exchanges. While processing the
Draft Scheme, SEBI may seek clarifications from any person relevant in this
regard including the listed company or the stock exchanges and may also seek an
opinion from an Independent Chartered Accountant.
5.10. SEBI shall endeavour to
provide its comments on the Draft Scheme to the stock exchanges within 30 days
from the later of the following:
a. date of receipt of
satisfactory reply on clarifications, if any sought from the company by SEBI; or
b. date of receipt of opinion
from Independent Chartered Accountant, if sought by SEBI; or
c. date of receipt of
“Objection/No-Objection” letter from the stock exchanges.
D. Disclosure on the Website
5.11. Immediately upon filing of
the Draft Scheme with the stock exchanges under Clause 5.1 above, the listed
company shall disclose the Draft Scheme and all the documents mentioned in
Clause 5.1 above on its website. It shall also disclose the Observation Letter
of the stock exchanges on its website within 24 hours of receiving the same.
5.12. The stock exchanges where
the specified securities are listed / proposed to be listed shall also disclose
on their websites the Draft Scheme and documents listed at Clause 5.1 above
immediately on receipt. It shall also disclose the Observation Letter on its
website immediately upon issuance.
E. Redressal of Complaints:
5.13. All complaints/comments
received by SEBI on the Draft Scheme shall be forwarded to the designated stock
exchange, for necessary action and resolution by the listed company. Listed
company shall submit to stock exchanges a ‘Complaints Report’ which shall
contain the details of complaints/comments received by it on the Draft Scheme
from various sources (complaints/comments written directly to the company or
forwarded to it by the stock exchanges) prior to obtaining Observation Letter
from stock exchanges on Draft Scheme.
5.14. Listed companies shall also
include the ‘Complaints Report’ in the notice sent to the shareholders while
seeking approval of the Scheme. The ‘Complaints Report’ shall be forwarded by
the stock exchanges to SEBI before SEBI communicates its comments on the Draft
Scheme to the stock exchanges.
5.15. ‘Complaints Report’ as
mentioned above, shall be submitted by listed companies to the stock exchanges
within 7 days of expiry of 21 days from the date of filing of Draft Scheme with
stock exchanges and hosting the Draft Scheme along with documents listed at
Clause 5.1 above on the websites of stock exchanges and the listed company. The
stock exchanges shall thereafter submit the ‘Complaints Report’ to SEBI. Such
Report shall be submitted as per the format specified at Annexure II to this
Circular.
F. Approval of Shareholders to
Scheme Through Postal Ballot And e- Voting:
5.16. Listed companies shall
ensure that the Scheme submitted with the Hon’ble High Court for sanction,
provides for obtaining shareholders’ approval through special resolution passed
through postal ballot and e-voting, after disclosure of all material facts in
the explanatory statement sent to the shareholders in relation to such
resolution. The Scheme shall also provide that the special resolution shall be acted
upon only if the votes cast by public shareholders in favor of the proposal
amount to at least two times the number of votes cast by public shareholders
against it.
II.
Requirements after the Scheme is Sanctioned by the Hon’ble High Court
(hereinafter referred to as “Approved Scheme”)
5.17. Upon sanction of the Scheme
by the Hon’ble High Court, the listed company shall submit the documents
mentioned in Para 2 of Part B of Annexure I to this Circular, to the stock
exchanges.
5.18. The designated stock
exchange shall forward its recommendations to SEBI on the documents submitted
by the listed company as referred to in Clause 5.17 above.
5.19. SEBI shall endeavour to
offer its comments/approval, wherever applicable, to the designated stock
exchange in 30 days.
6.
Validity of Observation Letter:
The
validity of the ‘Observation Letter’ of stock exchanges shall be six months
from the date of issuance, within which the Scheme shall be submitted to the
Hon’ble High Court.
7.
Applicability:
The
revised requirements shall be applicable to listed companies which, on the date
of this Circular, have not submitted the Scheme with the Hon’ble High Court. It
is clarified that the revised requirements shall also be applicable in cases
wherein the companies have submitted the Draft Scheme with the stock exchanges
under Clause 24(f) of Listing Agreement and such schemes have not yet been
submitted with the Hon'ble High Court for approval. Therefore, the companies that
have submitted the Draft Scheme with the stock exchanges and have already
received approval thereon but have not yet submitted to the Hon'ble High Court,
shall be required to resubmit the same in accordance with the requirements of
this Circular.
8.
For consideration of applications involving Schemes of Arrangement, Warrants
along with NCDs, and Issuance of Equity shares with Differential Rights, the
detailed requirements to be complied with are mentioned in Annexure I to this
Circular.
9.
Repeal and Saving:
Pursuant
to issuance of this Circular, SEBI Circular No. SEBI/CFD/SCRR/01/2009/03/09
dated September 03, 2009 stands rescinded. Notwithstanding such rescission,
anything done or any action taken or pending in respect of the said Circular
shall continue to be dealt under SEBI Circular No. SEBI/CFD/SCRR/01/2009/03/09
except as expressly provided under Clause 7 of this Circular.
10.
The stock exchanges are advised to take into account the requirements of this
Circular and to bring the same to the notice of the companies listed on their
exchange.
11.
This Circular is issued in exercise of the powers conferred under Section 11
and Section 11A of the SEBI Act, 1992 read with Rule 19(7) of SCRR, 1957.
12.
This Circular is available on SEBI website at www.sebi.gov.in under
the categories “Legal Framework” and “Issues and Listing”.
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