Revised Requirements for Companies for Scheme of Arrangement


Listed companies in India, desirous of getting their equity shares listed after merger/de-merger/amalgamation etc., can seek exemption under Rule 19(7) of the Securities Contracts (Regulation) Rules, 1957 (“SCRR, 1957”) from strict enforcement of Rule 19(2)(b) provisions. Such companies are mandated by Clause 24(f) of the Listing Agreement to 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.

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.

In order to avoid such situations, SEBI has revised the existing requirements for listed companies and the stock exchanges for Scheme of Arrangement under the Companies Act, 1956. The salient features of the revised requirements are listed below:

  1. Obligation on listed companies including:
    • Listed Companies to file draft scheme of arrangement with the stock exchanges as per Clause 24(f) of the Listing Agreement (1 month before the scheme is presented to the Court) along with following documents:
      • Draft Scheme of arrangement
      • Valuation Report from Independent Chartered Accountant
      • Report from the Audit Committee recommending the Draft Scheme
      • Fairness opinion by merchant banker
      • Pre and post amalgamation shareholding pattern of unlisted company
      • Audited financials of last 3 years of unlisted company (financials not older than 6 months)
      • Compliance with Clause 49 of Listing Agreement
      • Complaints Report as prescribed by SEBI
    • Audit Committee to furnish a report recommending the Draft Scheme taking into consideration a valuation report obtained from an Independent Chartered Accountant.
    • One of the stock exchanges having nation-wide trading terminals to be chosen as the designated stock exchange for the purpose of coordinating with SEBI
    • Observation letter of stock exchanges to be included in the notice sent to shareholders and also to bring the same to the notice of the High Court at the time of seeking shareholder approval.
  2. Obligation on the stock exchanges for processing of the documents, release of observation letter etc. within stipulated timelines
  3. Disclosure on the website of all material documents related to the Draft Scheme of arrangement
  4. Provisions for redressal of complaints.
  5. Approval of shareholders to scheme through postal ballot and e- voting through a special resolution provided 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.
  6. Obligations on listed companies and the stock exchanges after the Scheme is sanctioned by the High Court
  7. Compliance requirements for listing of equity shares with differential rights or for listing of warrants offered along with non convertible debentures (NCDs)

The revised requirements shall be applicable to listed companies which have not submitted the Scheme with the High Court and shall also be applicable in cases where in 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 High Court for approval.


The article can also be read form this link: Moneycontrol – Feb 07 2013