SEBI's new road map for merger/demerger of Listed Companies

On 04th February 2013, SEBI has issued a Circular No. CIR/CFD/DIL/5/2013 in order to revamp the process of approval of scheme of mergers/demergers for cases which involves one or more listed companies. The said notification has already come into effect from date of notification itself.

Features of revised rules may broadly be described in vernacular language as below:

A.OBLIGATIONS OF LISTED COMPANIES:

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.) is required to file the draft scheme with the stock exchanges in terms of Clause 24(f) of the Listing Agreement.
    
2. Such listed companies are also required to place before its Audit Committee the Valuation Report obtained from an Independent Chartered Accountant. The Audit Committee, thereafter, would furnish a report recommending the Draft Scheme, taking into consideration, inter alia, the said valuation report.
   
   
3. The listed company is further required to choose one of the Stock Exchange as designated stock exchange for the purpose of coordinating with SEBI.
   
   
4. Immediately upon filing of the Draft Scheme with the stock exchanges, the listed company is required to make the Draft Scheme and all the documents public by publishing the same on its website.
   
   
5. While issuing notice to the shareholders seeking approval of the scheme, the listed companies are required to annex Observation Letter of the stock exchange. 
    
6. While seeking approval of the scheme from High Court, the listed companies are required to bring the same on record.
   
   
7. The listed companies need to disclose the said Observation Letter on its website within 24 hours of receiving the same.
   
   
8. Listed companies is required to ensure that the Scheme provides for obtaining shareholders’ approval through special resolution passed through postal ballot and e-voting. Further, the Scheme is also required to provide that the special resolution can 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.

B. OBLIGATIONS OF STOCK EXCHANGES:

1. The designated stock exchange is required to forward the Draft Scheme to SEBI within 3 working days.
   
   
2. The Stock Exchange, immediately on receipt of Draft Scheme, is required to disclose on its websites the details of the said scheme and other relevant documents.
   
   
3. The stock exchanges are required to 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.
   
   
4. The stock exchanges, upon receipt of comments from SEBI, shall issue Observation Letter to the listed company within 7 days from the receipt of the comments. The ‘Observation Letter’ issued by the stock exchanges shall be valid for six months from the date of issuance, within which the Scheme shall be submitted to the Hon’ble High Court.
   
   
5. The Stock Exchange, shall also disclose the Observation Letter on its website immediately upon issuance.

C. PROCESSING OF DRAFT SCHEME BY SEBI:

Upon receipt of “Objection/No-Objection” letter, SEBI shall endeavour to provide its comments on the Draft Scheme to the stock exchanges within 30 days from the later of the following:

1. Date of receipt of satisfactory reply on clarifications, if any sought from the company by SEBI; or
   
   
2. Date of receipt of opinion from Independent Chartered Accountant, if sought by SEBI; or
   
   
3. Date of receipt of “Objection/No-Objection” letter from the stock exchanges.

D.REDRESSAL OF COMPLAINTS:

1. All complaints/comments received by SEBI on the Draft Scheme shall be forwarded to the designated stock exchange, for necessary action and resolution; 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 prior to obtaining Observation Letter from stock exchanges.
   
   
2. “Complaints Report” shall also be included in the notice sent to the shareholders while seeking approval of the Scheme.
   
   
3. “Complaints Report”, shall be submitted to the stock exchanges within 7 days of expiry of 21 days from the date of filing of Draft Scheme with stock exchanges.

E. PROCEDURE AFTER THE SCHEME IS SANCTIONED BY THE HIGH COURT:

1. Upon sanction of Scheme by the High Court, the listed company shall submit the documents, to the stock exchanges.
   
   
2. The designated stock exchange shall forward its recommendations to SEBI.
   
   
3. SEBI shall endeavour to offer its comments/approval, to the designated stock exchange in 30 days.