About Securities and Exchange Board of India SEBI
Now the minority shareholders need not to remain as a mute spectator to the scheme of mergers and amalgamation, they have got a major role to play in deciding the fate of scheme of Compromises and Arrangements and the credit for this goes to SEBI. SEBI vide Circular No. CIR/CFD/DIL/5/2013 dated 4th February, 2013, has amended the all requirements for listed companies pertaining to the approval of Scheme of Mergers/Demergers/Arrangements. This move of market regulator is in line with the certain action taken by it in the recent past to protect the investors in the securities market specially the small one. Certainly the amendment has made the merger & amalgamation a lengthy and complex process but having regard to the reason for such amendment; the action of SEBI is commendable.
BACKGROUND (Reasons for making amendments)
Till now the listed company contemplating a scheme of Compromises or Arrangement is required to file the draft scheme of Compromises and Arrangements with the stock exchange before submitting the same with the concerned High Court and obtain approval of stock Exchange. Similarly, schemes which allow listing of unlisted companies require approval of the SEBI after the scheme is approved by the High Court.
Further Rule 19 (2) (b) of securities contracts (Regulation) rules, 1957, prescribes the minimum public shareholding for the listed as 25%. SEBI vide circular no. SEBI/CFD/SCRR/01/2009/03/09 dated on September 03, 2009, has prescribed certain condition for seeking the exemption under rule 19 (7) of Securities contracts (Regulation) Rules, 1957, from strict enforcement of Rule 19 (2) (b) of the said rules.
In terms of aforesaid circular, pursuant to the scheme of Amalgamation or reconstruction or demerger being sanctioned by the High Court under section 391-394 of Companies Act, 1956, the listed companies desirous of getting their securities listed on stock exchange were seeking the exemption from SEBI. It has been observed by SEBI that the application by certain entities seeking exemption as aforesaid contain inadequate disclosures, convoluted scheme of arrangements & exaggerated valuations etc. SEBI is of the view that granting the exemption on the basis of above application may not be in the interest of minority shareholders and not according the approvals will result in uncertainty and deprive the shareholders of an exit opportunity. In order to avoid such situation SEBI has revised the existing requirements. The amended provisions are intended to protect the interest of the minority shareholders by providing them the larger say in the deciding the scheme and bring the more transparency in the process of merger & amalgamation and its implementation by mandating the disclosures to be made by the listed entity and Stock Exchanges.
BACKGROUND (Reasons for making amendments)
Till now the listed company contemplating a scheme of Compromises or Arrangement is required to file the draft scheme of Compromises and Arrangements with the stock exchange before submitting the same with the concerned High Court and obtain approval of stock Exchange. Similarly, schemes which allow listing of unlisted companies require approval of the SEBI after the scheme is approved by the High Court.
Further Rule 19 (2) (b) of securities contracts (Regulation) rules, 1957, prescribes the minimum public shareholding for the listed as 25%. SEBI vide circular no. SEBI/CFD/SCRR/01/2009/03/09 dated on September 03, 2009, has prescribed certain condition for seeking the exemption under rule 19 (7) of Securities contracts (Regulation) Rules, 1957, from strict enforcement of Rule 19 (2) (b) of the said rules.
In terms of aforesaid circular, pursuant to the scheme of Amalgamation or reconstruction or demerger being sanctioned by the High Court under section 391-394 of Companies Act, 1956, the listed companies desirous of getting their securities listed on stock exchange were seeking the exemption from SEBI. It has been observed by SEBI that the application by certain entities seeking exemption as aforesaid contain inadequate disclosures, convoluted scheme of arrangements & exaggerated valuations etc. SEBI is of the view that granting the exemption on the basis of above application may not be in the interest of minority shareholders and not according the approvals will result in uncertainty and deprive the shareholders of an exit opportunity. In order to avoid such situation SEBI has revised the existing requirements. The amended provisions are intended to protect the interest of the minority shareholders by providing them the larger say in the deciding the scheme and bring the more transparency in the process of merger & amalgamation and its implementation by mandating the disclosures to be made by the listed entity and Stock Exchanges.
