In the corporate world, restructuring or
re-organization of the corporates is a substantial and corporate practice in
existence for the corporate entities business development and expansion – to
effectively handle with various internal and external threats posed and to
survive the stiff competition faced by these entities from the contemporaries
in their line of business.

For such re-organization or restructuring of listed
corporates are in requisite to concoct a scheme of arrangement and have to comply
with certain stringent regulatory procedures for sanction and implementation of
the scheme.

A scheme of arrangement (Scheme) is a court-approved
agreement between a company and its shareholders or creditors. It may affect
mergers and amalgamations and may alter shareholder or creditor rights. 

The Securities Exchange Board of India (SEBI) issued a
directive reducing to bare bones certain procedures related to Scheme with the
objective to shorten the compliance process for facilitating hassle-free Scheme
approval and execution by the listed entities.

The underlying intent in issuance of the directive is
to speed up the dispensation of draft schemes and averting any misuse of
schemes to bypass regulatory requirements.

Relaxation of the norms related to scheme of
arrangement is reflection of receipt of representations of various stakeholders
emphasizing the necessity to strengthen existing regulatory charter and
simplify the norms related to Scheme.

Glimpse of key amendments introduced by SEBI in
relation to Scheme of arrangement for the benefit of listed entities:

·       Mandatory
obligation of filing certain documents related to Scheme by listed entities
with the stock changes following the approval of Scheme by National Company Law
Tribunal is detached with the intent to elude duplication of such filings.

·       Clause 37
filing requirements will no longer be applicable to merger of wholly owned
subsidiary or its division with the parent company. 

·        If
Scheme composed of listed and unlisted entities – for evaluating 25 percent of
public shareholding in the merged entity – shareholding percentage of public
shareholders of the merged entity (post Scheme) to be calculated without
considering dilution on account of outstanding convertible securities. . 

·       Shareholding
percentage of pre-scheme public shareholders of the listed entity and qualified
institutional buyers (QIBs) of the unlisted entity shall not be less than 25
per cent on fully diluted basis in the merged entity.

·       Lock-in
provision shall be applicable to reverse merger (merger of a listed entity into
an unlisted entity and demerger of a listed company into an unlisted
entity). 

·       Entities
are permitted to pledge locked-in shares with banks / public financial
institutions.

·       Promoters
has been granted the freedom to transfer Locked-in shares inter-se amid
promoters.

·       The
locked-in shares shall continue in hands of transferee promoter entity for the
balance period. 

·       Duration is
extended to 60 days following the receipt of NCLT order approval of Scheme to
commence listing and trading transactions by the listed entities.

One can look forward to a serious implementation of
these relaxed norms as it will certainly accelerate the process of sanction and
execution of the Scheme by removing outdated steps involved in the process.

Research and inputs by Paruchuri Baswanth Mohan

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About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at [email protected].