SEBI REGULATIONS – MERGERS & ARRANGEMENTS

When any of the party to the Mergers and Arrangements under section 230 to 234 of the Companies Act,2013 is Listed Company, such Mergers and Arrangements are required to be complied with the provisions of applicable SEBI Regulations, Circulars etc. and other Stock Exchange Requirements, if any.

Apart from the requirements of the Companies Act, 2013, Listed Company is required to comply with the following while entering into a Merger / Arrangement with another Listed /Unlisted Company:

  1. Audit Committee in its meeting to approve draft Scheme and Valuation Report.
  2. At the time of passing of Board Resolution for the draft Scheme approval, choose one of the Stock Exchange as Designated Stock Exchange to co-ordinate with SEBI.
  3. File draft Scheme with all Stock Exchanges where its shares are listed, to obtain their Objection Letter/No Objection Letter (Refer Annexure A for Documents required to send to Stock Exchange to obtain this Letter)
  4. Submit with NCLT, the draft Scheme within 6 months from the date of this No Objection Letter.
  5. In case of merger of Wholly Owned Subsidiary with its holding company, no such letter is required. But, the draft scheme is to be filed with the Stock Exchange for Disclosure purpose.
  6. One month Notice to be given to Shareholders and in case of Creditors Meeting, to Creditors to approve the Scheme by way of special resolution to be passed which is to be passed through postal ballot and e-Voting in addition to voting at the meeting.
  7. Notice along with Explanatory Statement of the Shareholders’ Meeting and Creditors’ meeting, if any, is also to be sent to SEBI and Stock Exchange and also to be placed on Company Website and publish by way of advertisement.
  8. Ensure that shareholding percentage of pre scheme public shareholders of the listed company and Qualified Institutional Buyers (QIBs) of unlisted company is minimum 25% in post scheme shareholding pattern of the Merged Company.
  9. Submit with Stock Exchange Valuation report of Independent Chartered Accountant.
  10. Valuation report is not required to be submitted in cases where there is no change in the shareholding pattern of the listed company. Only in case of the following, there will be considered as “change in shareholding pattern” and accordingly Valuation Report will be required to be submitted:

(a) Change in the proportion of shareholding of any of the existing shareholders of the listed company in the resultant company or

(b) New shareholder being allotted equity shares of the resultant company or

(c) Existing shareholder exiting the company pursuant to the Scheme of Arrangement.

  1. Submit with Stock Exchange Auditors’ Certificate confirming Accounting Treatment in the Scheme is in compliance with Accounting Standards specified pursuant to Section 133 of the Companies Act, 2013.
  2. Submit with Stock Exchange Report on Complaints received from /forwarded by SEBI or Stock Exchange, within 7 days after expiry of 21 days from the date of filing of Draft Scheme with Stock Exchange and hosting of it on the Stock Exchange and the Company website.
  3. Disclose on its website draft scheme along with the documents filed with Stock Exchange.
  4. Disclose on its website, Observation Letter of Stock Exchange within 24 hours of its receipt.
  5. Following documents to form part of Explanatory Statement or Notice or Proposal sent to Shareholders for Scheme approval
  6. Observation Letter of the Stock Exchange
  7. Pre Post Merger /Arrangement Shareholding Pattern
  • Expected Capital Structure
  1. Fairness Report of Merchant Banker

 

  1. In cases specified in para I (A) (9) (b) of Annexure I to SEBI Circular dtd. 10th March, 2017, Shareholders’ Resolution approving the Scheme of Merger/Arrangement is to be passed by Public Shareholders only. In all other cases where voting of non-public shareholders will also be counted for passing of the Resolution, the listed Company has to provide to the Stock Exchange an undertaking certified by its Auditors and approved by its Board stating the reasons for non-applicability of para I (A) (9) (b) above. The Company shall upload the undertaking on its website also.

 

  1. Once Scheme is sanctioned by NCLT, the Listed company shall submit following documents with Stock Exchange:
  2. Copy of NCLT approved Scheme
  3. Voting Results of Shareholders resolution approving Scheme
  • Statement of changes with reasons in Draft Scheme and Approved Scheme
  1. Status on Compliance with Stock Exchange Observation /No Observation Letter
  2. Application to get exemption from requirement of minimum 25% public shareholding, if applicable.
  3. Report on Complaints as mentioned above.

 

Annexure A

The listed company shall submit the following documents to the Stock Exchanges:

  1. Draft Scheme of Merger/Arrangement
  2. Valuation Report from Independent Chartered Accountant;
  3. Report from the Audit Committee recommending the Draft Scheme, taking into consideration, inter alia, the Valuation Report mentioned above.
  4. Fairness opinion by Merchant banker on Assets/Shares Valuation done by Valuer;
  5. Pre and post Merger shareholding pattern of unlisted company;
  6. Audited financials of last 3 years (not old more than 6 months) of unlisted company;
  7. Auditors Certificate regarding Accounting Treatment; and
  8. Compliance Report as per Annexure IV of SEBI Circular dtd. 10.03.2018.