Market Regulator Securities and Exchange Board of India (SEBI) vide Circular No. CIR/CFD/DIL//5/2013 dated 4th February has issued stricter norms, which need to be complied with by the companies intending to list their equities under the Scheme of Arrangement under the Companies Act, 1956.

Listed Companies intending to go for the Scheme of Arrangement (Amalgamation, Merger or De-merger) are required to comply with the provisions of Listing Agreement, in addition to complying with the provisions as mentioned under section 391 to 394 of the Companies Act, 1956. One of the important Clause 24(f ) of the Listing Agreement imposes liability on the listed companies to file a copy of the scheme/ petition of the Arrangement with the Stock Exchange for approval, at least one month before it is presented to the Court / Tribunal.

In this regard, the listed companies intending to get their equity shares listed after merger/de-merger/ amalgamation may seek an exemption from SEBI from the requirements of Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as SCRR, 1957). In so far, SEBI has been granting exemption to such listed companies on a case to case basis in terms of Rule 19(7) of SCRR, 1957, SEBI.

Now, SEBI has observed that granting such exemption from the requirements of Rule 19(2)(b) of SCRR, 1957 based on applications from listed companies may not be in the interest of minority shareholders. Further, where such listing permission or such exemption is delayed or denied, it would add to the uncertainty and would deprive shareholders of an exit opportunity. In order to circumvent these situations, SEBI has issued the revised requirements which are discussed below.


The revised requirements which needs to be abided by the listed companies planning to opt for the scheme of arrangement are divided into two parts. First one relates to the requirements which needs to be complied before the Scheme is submitted for sanction by the Hon’ble High Court. However, the other part includes the requirements to be complied with after the scheme is sanctioned by the Hon’ble High Court.


  1. Obligations of Listed Companies Listed companies desirous of undertaking a Scheme of Arrangement shall be required to fulfill the following requirements:
    1. File the Draft Scheme with the stock exchanges in terms of Clause 24(f) of the Listing Agreement along with the following documents:
      • Draft Scheme of arrangement/ amalgamation/ merger/ reconstruction/ reduction of capital, etc.;
      • Valuation Report from Independent Chartered Accountant;
      • Report from the Audit Committee recommending the Draft Scheme, taking into consideration, inter alia, the Valuation Report as stated in Para (b) above. The Valuation Report mentioned in Para (b) above is required to be placed before the Audit Committee of the listed company;
      • Fairness opinion by merchant banker;
      • Pre and post amalgamation shareholding pattern of unlisted company;
      • Audited financials of last 3 years (financials not being more than 6 months old) of unlisted company;
      • Compliance with Clause 49 of Listing Agreement; and
      • Complaints Report
    2. Place the Valuation Report obtained from an Independent Chartered Accountant before its Audit Committee. Thereafter, the Audit Committee shall furnish a report recommending the Draft Scheme, taking into consideration, the aforementioned valuation report.
    3. For the purpose of coordinating with SEBI, the companies shall be required to choose one of the stock exchanges having nation-wide trading terminals as the designated stock exchange.
    4. Further, at the time of sending notice to the shareholders seeking approval of the scheme and also at the time of seeking approval of the Scheme from Hon’ble High Court, companies shall be required to include the Observation Letter as issued by the Stock Exchange.
    5. Listed Companies shall make sure that the scheme submitted with the Hon’ble High Court for sanction, provides for obtaining shareholders’ approval through special resolution passed through postal ballot and e-voting, after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to such resolution.
  2. Obligations of The Stock Exchanges
    1. Upon receipt of the Draft Scheme of arrangement along with the relevant documents from the companies, the designated stock exchange shall within 3 working days forward the same to SEBI.
    2. The stock exchanges shall process the Draft Scheme (which includes clarifications from company and/or Opinion from Independent Chartered Accountant) and forward its “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 applicable.
    3. On receipt of comments from SEBI, the stock exchanges, shall issue Observation Letter to the listed company within 7 days of receipt of comments from SEBI on the Draft Scheme. Further, SEBI in its circular has clarified that the validity period for the “Observation Letter” issued by Stock Exchange shall be six months from the date of issuance, within which the Scheme shall be submitted to the Hon’ble High Court.
  3. Obligations of SEBI
    1. Once the SEBI receives a “Objection/No- Objection” letter from the stock exchanges, it shall provide its comments on the Draft Scheme to the stock exchanges. SEBI, while processing the scheme, may seek clarifications from any person relevant in this regard including the listed company or the stock exchanges and may also seek an opinion from an Independent Chartered Accountant.
    2. SEBI shall endeavor to provide its comments on the Draft Scheme to the stock exchanges within 30 days from the later of the following:
      • date of receipt of satisfactory reply on clarifications, if any sought from the company by SEBI; or
      • date of receipt of opinion from Independent Chartered Accountant, if sought by SEBI; or
      • date of receipt of “Objection/No- Objection” letter from the stock exchanges.


  1. Obligation of Listed Companies

Where the scheme has been approved by the Hon’ble High Court, the listed companies shall be required to submit the following documents to the Stock Exchange:

  • Copy of the High Court approved Scheme;
  • Result of voting by shareholders for approving the Scheme;
  • Statement explaining changes, if any, and reasons for such changes carried out in the Approved Scheme vis-à-vis the Draft Scheme;
  • Status of compliance with the Observation Letter/s of the stock exchanges;
  • The application seeking exemption from Rule 19(2)(b) of SCRR, 1957, wherever applicable; and
  • Complaints Report
  1. Obligation of Stock Exchange

The designated stock exchange shall forward its recommendations to SEBI on the documents submitted by the listed company

  1. Obligation of SEBI

SEBI shall endeavor to offer its comments/approval, wherever applicable, to the designated stock exchange in 30 days.


The above mentioned requirements will safeguard the interest of the shareholders as well as various stakeholders. The requirements as discussed above shall be applicable to listed companies which, as on 4th February, 2013 have not submitted the Scheme with the Hon’ble High Court. SEBI has further clarified that the revised requirements shall also be applicable to the companies even in the cases wherein the companies have submitted the Draft Scheme to the Stock Exchange and such scheme have not been submitted with the Hon’ble High Court for approval.