Approval of Scheme of Arrangement/Merger by SEBI Updated – Eshwars
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Approval of Scheme of Arrangement/Merger by SEBI Updated

Authored by Lakshmi Rengarajan

SEBI vide circular dated November 3, 2020, amended its previous circular dated March 10, 2017, updating the information that is required to be submitted by listed entities to the stock exchange, before submitting the scheme of arrangement to National Company Law Tribunal (“NCLT”). In this article, we consolidate the two circulars and summarise the information that is required to be provided to the stock exchanges.


Listed Entities which intend to restructure-whether by way of merger, demerger, reduction of share capital, or any other scheme of arrangement with its members or creditors are required to file the Scheme with the stock exchanges pursuant to the provisions of SEBI (Listing Obligations and Disclosure Requirements), 2015 [“SEBI LODR”], and obtain a No-objection letter (“NOC”) from it before filing the restructuring proposal with NCLT.

There are also compliances to be carried out after the restructuring proposal is approved by NCLT.


The requirement under SEBI LODR is not applicable to:

a) restructuring proposal that is approved as part of resolution plan under section 31 of the Insolvency and Bankruptcy Code, 2016;

b) merger of a wholly owned subsidiary company with its parent company.

I. Information to be filed with stock exchange before filing the Scheme with NCLT

1. To designate one of the stock exchange with nation-wide terminal for coordinating with SEBI.

2. Documents to be provided to the stock exchange, and also to be uploaded on website of the Company:

(a) Draft scheme of arrangement/ amalgamation/ merger/ reconstruction/ reduction of capital (“Scheme”);

(b) Valuation Report from Registered Valuer (Valuation report not required when there is no change in shareholding pattern of the resultant company);

(c) Report from the Audit Committee recommending the Scheme taking into consideration the valuation report. The report should contain comments on:

i. Need for the merger/demerger/amalgamation/arrangement

ii. Rationale of the scheme

iii. Synergies of business of the entities involved in the scheme

iv. Impact of the scheme on the shareholders.

v. Cost benefit analysis of the scheme

(d) Fairness opinion by a SEBI Registered merchant banker on valuation of assets / shares;

(e) Auditor’s Certificate to the effect that the accounting treatment contained in the Scheme is in compliance with all the Accounting Standards;

(f) Compliance Report certified by the Company Secretary, Chief Financial Officer and the Managing Director, confirming compliance with various regulatory requirements;

(g) Report from the Independent Directors committee recommending the draft Scheme;

(h) Undertaking certified by the board and certified by its auditor, if the situations specified in para VII 2 (a) to (e) below is not applicable to the Scheme.

II. Merger of unlisted entity with listed entity

1. Where the Scheme involves unlisted entities, the following additional matters are also required to be fulfilled:

Information submission:

The information to be provided under the previous paragraph, should also include the following information:

i. Pre and post amalgamation shareholding pattern for the unlisted entity.

ii. Audited financials of last 3 years for the unlisted entity

iii. Certificate by merchant banker certifying the accuracy and adequacy of the disclosure to shareholders as given below.

Disclosure to shareholders

The explanatory statement or notice or proposal accompanying the resolution for seeking the approval of the Scheme from the shareholders, should include the applicable information from the format of abridged prospectus as in Part D of Schedule VII of ICDR Regulations.

2. Post merger shareholding pattern

The post-merger shareholding, of the public shareholders and that of QIB’s of the unlisted company, in the merged entity should be greater than or equal to 25%.

III. Report on complaints

Simultaneous with the submission of information with the stock exchange, the listed entity is also required to upload the details on its web site. In the event the listed entity receives any comments or complaints on the draft scheme, such information is also required to be submitted to the stock exchange (designated for coordinating with SEBI) within 28 days from the date of filing the Scheme with the stock exchange.

IV. Dissemination of the observation letter

The listed entity should upload on its website the observation letter of the stock exchange within 24 hours of receiving the same.

V. Changes to the Scheme

Once the Scheme is filed with the stock exchange, no change is permitted, except those that required by any regulator or the tribunal.

VI. Information to be contained in the notice/explanatory statement to be sent to members while convening the meeting for approval of the Scheme:

 In addition to the information that is required to be specified under section 230(3) of the Companies Act, 2013, r/w rule 6 of the Companies (Compromises, Arrangements and Amalgamations) Rule, 2016, in the notice/explanatory statement that is sent in Form No. CAA 2, the following should also be included:

(a) Observation letter

(b) Pre and post arrangement capital structure and shareholding pattern

(c) Fairness opinion

VII. E-voting and simple majority of Public/Non-Promoter shareholders

1. The shareholders should be provided with the facility to vote on the Scheme through electronic voting.

2. Also, the Scheme can be acted upon only if the votes cast by public shareholders in favour of the Scheme is greater than the votes cast against it by other public shareholders, in the following situations:

(a) When additional shares are allotted to Promoters/ Promoter Group, Related Parties of Promoter / Promoter Group, Associates of Promoter / Promoter Group, Subsidiary/(s) of Promoter / Promoter Group of the listed entity (“Promoter shareholders”).

(b) When the Scheme is between a listed entity and another entity involving the Promoter shareholders.

(c) When a holding listed entity acquires equity shares of its subsidiary from the Promoter shareholders and the subsidiary is merged with the holding entity under the Scheme.

(d) Merger of unlisted entity with listed entity, where the resulting voting rights of pre- scheme public shareholders of listed entity will reduce by more than 5% after the merger.

(e) Scheme results in transfer of whole or substantially whole of the undertaking of a listed entity and consideration is not in the form of listed equity shares.

VIII. Compliances subsequent to approval of Scheme by NCLT

The following documents are to be submitted to the stock exchange, after the Scheme is approved by NCLT:

i. Approved Scheme;

ii. Result of voting by shareholders approving the Scheme;

iii. Statement explaining the changes carried out in the Scheme, if any;

iv. Status of compliance of NOC from stock exchange;

v. Application seeking exemption under rule 19(2)(b) of Securities Contract (Regulation) Rules, 1957;

vi. Report on complaints.

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