The Securities and Exchange Board of India (Sebi) on Friday made it mandatory for listed companies entering a merger or acquisition transaction to first take clearance from the market regulator before approaching any court or the National Company Law Tribunal (NCLT) with a so-called scheme of arrangement.
A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors. The regulator said that this would be applicable for amalgamation, reduction of capital, reconstruction and other similar matters, apart from M&As.
“This will take care of the issue where many companies were questioning Sebi’s locus standi in raising objections to any scheme, when it was already approved by a high court. Such clarity would take care of this aspect,” said Kaushik Mukherjee, partner with BMR Legal, a law firm. “However, this can also increase the time taken to receive approvals for mergers. Today, it takes about 4-6 months, it can go up to 8-9 months.”
Mint had reported on 5 January that this move is expected to reduce litigation in M&A deals. Sebi’s oversight early on in the process will also ensure that minority shareholders aren’t short-changed in such transactions.
Sebi said this decision has been taken in consultation with the stock exchanges and market participants.
The regulator has listed several documents, such as draft scheme of arrangement, valuation report, report of the audit committee and fairness report by a merchant banker that need to be submitted to the exchanges before filing such schemes with the NCLT for sanction.
Listed entities that want to undertake a scheme of arrangement will have to file the draft scheme with stock exchange for obtaining an “observation letter” or no-objection letter, before filing it with any court or tribunal, the regulator said.
Stock exchanges have to forward their objection/no-objection letter on such schemes to Sebi, which can also review the scheme and issue necessary observations, within three working days.
In February 2013, Sebi issued regulations to curb misuse of amalgamation norms when the regulator noticed that companies were making inadequate disclosures, exaggerating valuations to list entities or seek exemption from an initial public offer. Sebi found that companies were trying to skip takeover norms, bypass preferential issue guidelines by using a share swap to increase promoter holding, and circumvent delisting regulations by not securing approval from shareholders.
PTI contributed to this story.