The Securities Exchange Board of India (“SEBI”) on November 16, 2021 issued a circular bearing no. SEBI/HO/CFD/DIL2/CIR/P/2021/0000000657 (“Amendment Circular”) to amend the master circular on scheme of arrangement by listed entities dated December 22, 2020 (“Master Circular”).
The following additional obligation have been created on the listed entities vide the Amendment Circular:
The Amendment Circular provides for the following other insertions to the Master Circular:
The Amendment Circular shall be applicable for all the schemes filed with the stock exchanges from the date of the Amendment Circular, i.e., November 16, 2021.
Argus Observation: The circular provides for submission of no objection certificate from the lending scheduled commercial banks/financial institutions, as part of the document deck to be submitted to Stock Exchanges for approval. What the circular does not clarify is, whether such NoCs would have to be obtained from all the lending banks, even if the relevant sanction letter/ facility agreement is silent about obtaining such consent for undertaking a scheme of reorganisation.
But the other significant issue is, whether, by stipulating such NoC as a pre-condition, the circular is overriding the statutory mandate prescribed under Companies Act, 2013, wherein, in terms of Section 230(6), approval of a Scheme only requires approval of majority of persons representing three-fourths in value of the creditors, or class of creditors, as opposed to 100% of lenders (which the circular may suggest).
Another issue that circular does not take into account is, whether the approval of creditors would at all be required in the context of a scheme of merger involving two companies, which does not involve any compromise with the creditors. It may be noted that, at least Mumbai bench of NCLTs routinely allow the request of dispensation of meeting of creditors in a scheme of amalgamation. However, with such direction being in place, the merger approval process is bound to become more time consuming.
Please find a copy of the Amendment Circular here.
This update has been contributed by Arka Majumdar, Partner and Juhi Wadhwani, Associate.
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