M&A Critique

Concept of Deemed Record Date – need for schemes under Sec 232

In September 2013, the Board of Directors of Man Industries Ltd. approved the Scheme of Arrangement between Man Industries (India) Limited and Man Infraprojects Limited a 100% subsidiary of Man Industries, Man Infraprojects was first to be merged and then demerged with the holding company to create two separate entities. Shareholders of Man Industries (India) have approved the demerger of the company’s saw pipes, real estate and infrastructure operations and subsequent merger of the division into Man Infraprojects Ltd. Almost all the shareholders voted in favor of the Scheme of Arrangement. However, the issue with the record date persists despite such a long time.

Man Industries (India) Ltd. (MAN), a flagship company of the MAN Group, a listed company, with core business of manufacturing and coating of large diameter carbon steel pipes and real estate.

“Effectiveness of the scheme is dependent on various applicable corporate, regulatory, NCLT approvals which having significant impact on the parties involved in the Scheme.”

Man Infraprojects limited (MAN Infra), a wholly-owned subsidiary of MAN, forward integrating into the high-value realm of IT parks, SEZ’s, residential complexes and commercial complexes. The real estate business of Man group is conducted through Man Infraprojects Ltd.

Merino Shelters Private Limited another group company of Man group wholly owned subsidiary of Man Infraprojects Limited, though it was not directly part of the scheme.

The Transaction

To restructure the business into two separate and independent listed entities.

  1. Demerger of the business division of Man Infraprojects dealing in construction/development of residential projects into Man Industries. (Demerged Undertaking -I)
  2. Demerger of real estate business of Man Industries into Man Infraprojects. (Demerged Undertaking -II)

The Appointed Date for the transaction was 1st April 2013.


As MAN Infra is a wholly-owned subsidiary of Man Industries, there will be no issue of shares or payment of consideration by Man Industries to Man Infra for transfer and vesting of Demerged Undertaking I.

As consideration for transfer of Demerged Undertaking II, Man Infra Limited will issue to equity shareholders of Man Industries Limited one fully paid-up equity share of INR 5 each, for every one fully paid-up equity share of INR 5 each held by them in Man Industries Limited. The shareholding of Man Infraprojects Ltd, therefore, will be identical to the shareholding of Man Industries Limited and Man Infraprojects Limited will be separately listed. Post issue of equity shares investment of Man Industries into Man Infra will automatically get cancelled.

Before issue & allotment of shares, there was reclassification/ sub-division of the capital of Man Infra from Rs. 10/- each share to Rs. 5/- each share.


The Hon’ble High Court at Judicature at Bombay has passed order of approval of the scheme of arrangement on 20th March 2015 with suggested amendments viz.

  1. To delete the para relating to family arrangement under the heading Rationale
  2. To delete entire clause 14 referring to the swapping of shares between tow promotors group
  3. To delete Schedule IV of the Scheme giving details of family members and entities of two groups
  4. To consequential amendment of renumbering clauses.

And the order was filed with Registrar of Companies on May 16, 2015 by Man Industries. The purpose behind the said scheme was to divide the business between two group of families i.e. RCM group and JCM Group.

Link to the Scheme as uploaded on BSE

Post Approval Drama

Effectiveness of the scheme is dependent on various conditions precedent including but not limited to applicable corporate, regulatory, NCLT approvals which have a significant impact on the parties involved in the Scheme. As mentioned in the Scheme Effective Date will be the last event of following

Sr.No. Particulars Date
1. Requisite consent, approval, permission of CG, SEBI (Securities and Exchange Board of India), or concerned Stock Exchanges: Observation letter of BSE (Bombay Stock Exchange) 18thFebruary 2014
2. Approval of Scheme by requisite majority of Shareholders 12thJuly 2014
3. Sanction and Orders of High Court 20thMarch 2015
4. Certified Copy of Order of High court filed with RoC 16thMay 2015

The implementation of the scheme was done like transfer and recording of assets and liabilities in the books of the demerged company and resulting company and resulting company’s ROC data shows share allotment but crediting shares in the Demat accounts of shareholders is not accomplished for more than 5 years as Record Date to determine shareholders who are entitled to shares is not yet fixed because of Record Date issue.

The Man Industries in its Directors Report dated 25th August 2016 under the title Residuary Disclosures showed that earlier Directors of Man Infra have been removed by Man Industries on account of mismanaging affairs in violation of approved code of conduct. Further, the Application was pending for modification of the scheme and to provide swapping of shares between two promoter groups, which was withdrawn by the High Court.

The High Court has restricted Meeting of Board of Directors of Man Infra through order dated 14th August 2015. The claims made by Man Infra against the Man Industries were also rejected by Ld Arbitrator in his Final Report. On basis of said Final Order, Man Industries fixed Record Date as 25th September 2020 but again same is restrained for implementation by High Court through its Order dated 25th September 2020.

Consequences of non or late implementation of the Scheme

“One also needs to examine whether the scheme is considered as implemented on Record date as till that date consideration as envisaged in the scheme is not discharged.”

Under the circumstances, when As per Section 232 (7) of Companies Act, 2013 read with Rule 21 of Companies (Compromises, Arrangements and Amalgamations) Rule, 2016 states that every Company involved in relation to which order is made shall until the scheme is fully implemented, file a statement in form CAA-8 with the Registrar of Companies within two hundred and ten days from the end of every financial year, the said form is not available on MCA Records.

Companies can delay the implementation by giving disclosures in the form CAA-8. Please note that provisions are silent about the time limit and no penalty if any for delay in implementation of the scheme in a reasonable time.

Non-fixing of the Record Date

Regulation 42 (1) (e) of SEBI (LODR) Regulations, 2015 provides for intimation of Record Date to Stock Exchanges and as per clauses of the Scheme Record Date is to be fixed by the Board of Directors of  Man Industries Ltd s in consultation with the Board of Directors of  Man Infraprojects Ltd.

In absence of precise provisions as to when the Record Date to be fixed in case of corporate actions like mergers, de-mergers, it is at discretion of the Management of the Companies involved in restructuring to fix the record date. Generally, after the effective date Companies fix the Record Date within reasonable time and complete the formalities of issue and allotment of shares.

What if Record Date is fixed as of 2015?

Since 2015 the holding of JCM Group in Man Industries is continuously decreasing:

Year Percentage of Holding of JCM group as a promoter in Man Industries
March 2015 18.29%
March 2016 17.97%
March 2017 11.3% *
March 2018 5.29%
March 2019 2.24%
March 2020 0%

*Being declassified from promoter group.

After the Order of High Court in March 2015, it seems like JCM group has sold their stake in open market and some of the shares might have transferred to RCM Group. In line with available information, we are not sure whether JCM group is holding shares in Man Industries under the category of Public Shareholder.

The contentions of Man Infra was to keep the Record date as of 2015 in contemporaneous with Effective Date, if same is approved, practical difficulties for issue and allotment to the person who were shareholders of Man Industries in 2015 will create muddle.

JCM group has sold or transferred its stake in Man Industries after order of High Court in March 2015. If Record Date is fixed as in 2015, then as per original Scheme JCM Group to transfer its shares in Man Industries to RCM Group and vice versa as per clause 14 of the scheme. But The honourable high court and even stock exchange approval made the company to remove the clause and hence the scheme which is approved does not have such compulsion for inter-se transfer. However, considering negligible stake of the JCM group in Man Industries, swapping of shares may have resulted in less consideration to RCM Group. So JCM group might need to compensate RCM Group. As from effective date both the companies are separate entities from each other.

What if Record Date is fixed as of current date?

The contentions of Man Industries were to keep the Record Date as of current date.

If Record Date is of Current date, then considering the negligible or no stake of JCM group in Man Industries as on date, JCM Group will get only such tiny or zero percentage of shares in Man Infra, which means JCM Group will not be majority shareholder in Man Infra thus not serving purpose of the Scheme.

Actual Allotment vs Allotment in books of Account

Both the Companies have recorded undertaking in their respective financial statements and Man Infra has also given effect that it has issued the shares by considering shareholding pattern of Man Industries as on same date in 2015. Though Man Industries has derecognized its investment in the shares of Man Infra, but the Auditors has mentioned in a note on Financial Statements since 2016 that Man Industries is still holding Company which is contradictory. Man Infra has also given impact of issue and allotment in its financial statements for FY 2014-15 and 2015-16 without completing filing of respective e-forms viz return of allotment. Also, as per Scheme until Company receives the approval from Stock Exchanges for Listing, allotted shares shall remain Frozen in the Depository System the actual status is not known.

One needs to see whether showing of allotment in financial statements by Man Infra is in violation of court order or provisions of the Companies Act?

Our observations

  1. Based on the provisions of the companies Act, Effective Date is the day on which scheme is implemented only post that Record Date is fixed and shares are allotted.
  2. In this case, Record Date is yet to be fixed even after 5 years, though the Resultant company already shows in its book’s allotment of shares, it is not clear whether actual control on assets and business has changed. Such a delay has grave consequences and law needs to have some provisions by which post Effective Date, Record Date has to be in reasonable time. One also needs to examine whether the scheme is considered as implemented on Record Date as till that date consideration as envisaged in the scheme is not discharged. As stock exchange records do not have any Record Date, it is not possible to have Record Date somewhere in 2015 now. Shares already allotted by Man Infraprojects Ltd needs to be cancelled and shares to be issued to present shareholders on Record Date as and when it is fixed. Any disputes between two group of promotors should not affect public shareholders. In light of this, regulatory norms to be framed for fixation of the Record Date just like due dates has been fixed for filing of Order with Roc / Stamp duty authorities.
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Shriprasad Pise