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SEBI revises requirements in relation to Schemes of Arrangement under
Companies Act

6 February 2013




Background
Rule 19(2)(b) of the Securities Contract (Regulation)
Rules, 1957 (SCRR) requires that a public company
seeking listing of its shares shall offer and allot to
public at least 25 percent of the post-issue capital to
public.

Rule 19(7) of SCRR empowers the Securities and
Exchange Board of India (SEBI) to allow relaxation
from compliance with any of the requirement under
Rule 19 of the SCRR.

SEBI had issued Circular
1
(erstwhile Circular)
prescribing certain conditions to be fulfilled by unlisted
companies seeking listing of its shares issued
pursuant to a Scheme of Arrangement sanctioned by
the High Court for seeking exemption under Rule
19(7) of the SCRR from strict enforcement of Rule
19(2)(b) of SCRR. The Circular was issued to the
Stock Exchanges for considering the same while
making recommendations on application received by
them.
____________
1
Circular No. SEBI/CFD/SCRR/01/2009/03/09, 3 September 2009

The SEBI has now issued a Circular
2
(the Circular),
revising existing requirements, as the existing Circular
was not addressing certain specific types of situations
including inadequate disclosures, convoluted Schemes
of Arrangement, exaggerated valuations, etc. The
Circular repeals the erstwhile Circular except that it will
continue to operate in cases where the Scheme is
already submitted to the High Court on the date of the
Circular.
Summary of key revised requirements are as
under:

I. Requirements before the Scheme is
submitted for sanction by the High Court
The Draft Scheme to provide for obtaining of
shareholders approval through special resolution
passed by way of postal ballot and e-voting.
___________

2
Circular No. SEBI/CFD/DIL/5/2013 dated 4 February 2013






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The Draft Scheme to provide that the special
resolution should be acted upon only if 2/3rd of
votes cast by public shareholders are in favor of
the proposal.

Listed Company to obtain report from its Audit
Committee recommending the Draft Scheme after
taking into consideration, inter alia, the valuation
report obtained from independent Chartered
Accountant.

Listed Company shall submit following documents to
the Stock Exchanges along with the Draft Scheme
required to be filed under Clause 24(f) of the Listing
Agreement

Valuation Report from Independent Chartered
Accountant;

Audit Committee Report referred in (b) above

Fairness opinion by merchant banker;

Pre and post amalgamation shareholding
pattern of unlisted company;

Audited financials of last 3 years (financials not
being more than 6 months old) of unlisted
company;

Compliance with Clause 49 of Listing
Agreement; and

Complaints Report as per Annexure II of this
circular.

The Listed Company and stock exchanges to
disclose the Draft Scheme and other documents in
(d) above on their respective websites.

Listed Company to choose one of the stock
exchanges having nation-wide trading terminals for
the purpose of coordinating with SEBI.

The Designated Stock Exchange to forward the
Draft Scheme along with the prescribed set of
documents to SEBI within 3 working days.

The stock exchanges to forward their 'Objection /
No-Objection' letter to the 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.



SEBI to provide comments on Draft Scheme, after
receipt of Objection/No-Objection letter from
stock exchanges, post seeking clarifications from
any person including the listed company or the
stock exchanges and opinion from independent
Chartered Accountant.

SEBI to provide its comments on the Draft
Scheme to the stock exchanges within 30 days
from date of :

Receipt of Reply from the Company or

Receipt of opinion from independent
Chartered Accountant or

Receipt of Objection/No-Objection letter
from stock exchanges

The Listed company to comply with the Redressal
mechanism for Complains on the Draft Scheme
and submit a report in prescribed format to the
stock exchanges.

Stock exchanges shall issue Observation Letter to
the listed companies within 7 days of receipt of
comments from SEBI. Observation letter issued
by the stock exchanges shall be valid for 6 months
from the date of issuance.

Listed companies shall include Observation
Letter of the stock exchanges and Complaints
Report in the notice sent to the shareholders
seeking approval of the Scheme and the same
shall be also brought to the notice of the High
Court at the time of seeking approval of the
Scheme.

The Listed Company and stock exchanges to
disclose the Observation letter on their respective
websites.
II. Requirement after the Scheme is
sanctioned by the High Court

Upon sanction of the Scheme by the High Court:

Unlisted company is required to make an
application to the SEBI under Rule 19(7) of
SCRR for seeking relaxation under Rule 19(2)(b)
of SCRR if following significant conditions are
satisfied :

The equity shares sought to be listed have
been allotted to the holders of securities of a
listed transferor entity in terms of the Scheme
sanctioned by the High Court;






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At least twenty five percent of the post Scheme
paid-up capital, computed in prescribed manner,
is allotted to public shareholders of the listed
transferor entity;

The share certificates have been dispatched to
the allottees pursuant to the Scheme or their
names have been entered as beneficial owner
in the records of the depositories.

Listed companies shall submit required documents
to the stock exchanges and stock exchanges in turn
shall forward the same to the SEBI.

Lock-in and certain other requirements continue to
be the same as existing.
Applicability
It applies to listed companies which have not filed the
Scheme with the High Court on the date of this Circular.
It shall apply to such Schemes even if the same was
already approved by / submitted for approval to the
Stock exchange and will have to be resubmitted
Our comments
The Circular is aimed at bringing in more transparency
and to safeguard the interests of minority shareholders
in case of companies claiming relaxation under Rule
19(2)(b) of SCRR. A plain reading of certain portion of
the Circular creates an impression that it applies to all
Schemes, involving a listed company not requiring
relaxation under Rule 19(2)(b) of SCRR. However, it is
pertinent to note that the Circular is issued under
Section 11 /11A of the SEBI Act read with Rule 19(7) of
SCRR which operates only in case exemption /
relaxation is claimed thereunder. Therefore, the Circular
should be applicable only to cases involving issue of
shares proposed to be listed and exemption is sought
under Rule 19(7) of SCRR and not in case of other
Schemes not claiming any exemption under Rule 19(7)
of SCRR.







2013 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity. All rights reserved.
























The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we
endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
2013 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity. All rights reserved.
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