M&A Critique


The Scheme of Arrangement seeking Stock Exchange’s NOC under Regulation 37 of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR’) shall be submitted to the Exchange along with all the documents as per the Exchange Checklist within 15 working days of board meeting approving the draft scheme of arrangement. Securities and Exchange Board of India (SEBI), from time to time, has been issuing various circulars/directions which lay down the detailed requirements to be complied by listed entities while undertaking schemes of arrangements. SEBI circular no. SEBI/HO/CFD/DIL2/CIR/P/2021/0000000657 dated 16th November 2021 added three more clauses and replacement of one clause with new requirements in Master Circular dated 20th December 2020 effective from the date of circular.

BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) vide circular dated 1st November 2021 and 2nd December 2021 respectively have come out with Standard Operating Procedure (SOP) for the first time on the application filed under Regulation 37 of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 w.r.t. Scheme of Arrangement. In this article, we have summarized below amendments made under the master circular, the SOPs, and their implications on the companies covered by the regulation mentioned above.


Amendments are effective from the date of the circular, hence it seems that it should not be applicable to companies which filed the application before the date. New requirements as per the circular are as follows: –

  1. The listed entity shall provide declaration of any past default of listed debt securities of the entities forming part of the scheme. Amendment in Part I Para A 2(j)

Interestingly it refers to entities (which may include unlisted companies or other entities i.e., LLP) which committed default on listed debt securities.

  1. No Objection Certificate from the lending scheduled commercial banks /financial institutions shall be obtained. Amendment in Part I Para A 2(k)

This requirement of getting NOC for all secured loans from banks/institutions is stringent than the provisions of the Companies Act, 2013 (CA). It will inordinately delay in our estimate minimum by3-4 months in filing the scheme and relevant documents with stock exchanges.

  1. New para (Part I, Para D) provides for SEBI monitored trust for shareholders, to the extent they are entitled to fractions as consideration. As of now, the company adopts different procedures like rounding off to higher integral, rounding off the nearest integral or through company appointed trustee for compensation to shareholders who are entitled to fraction. This new para provides for allotment of such fractions to the trust nominated by SEBI in that behalf. The said trust shall sell such shares in the market within a period of 90 days from the date of allotment of shares. The Company shall submit a report from its Audit Committee and the Independent Directors certifying that the listed entity has compensated the eligible shareholders. Both the reports shall be submitted within 7 days of compensating the shareholders.

This is the welcome change by having time bound and fair consideration SEBI/Stock exchange/audit committee monitored payment to shareholders who got fraction shares in course of the scheme. In our opinion, if the listed entity issuing shares after rounding off to next/higher integer to fractional shareholders, this provision will not apply.

  1. Part I Para A 2(b) stands revised. Now it provides that Valuation Report being submitted shall be accompanied with an undertaking that no material event impacting the valuation of the company has been occurred during the period between period under consideration for valuation and period of filing the scheme documents with Stock Exchange.

Though SEBI has not defined/stated the meaning of material events, one can consider Regulation 30, Para A of Part A of Schedule III of SEBI LODR, which gives the list of events which are deemed to be material events. e.g., Acquisition, Scheme of Arrangement, Shareholders Agreement, Change in Directors, etc.

While filing an application with the stock exchange, Audited Financials of the last 3 years (financials not being older than 6 months) of the unlisted companies involved in the scheme of arrangement are required to be submitted. It is now clarified that the valuer is required to consider these financials for the preparation of valuation report under the Income Approach.

If the valuer is preparing the valuation report using methods other than the income approach, the valuation is required to be done based on considering the period of last 3 months and not older than that.

Example – If the board meeting to consider scheme is being held in the month of December 2021 –

a) If the valuation is based on the income approach, valuer cannot issue report on the basis the financials not later than that of 30th June 2021.

b) If the valuation is based on any other approach than income approach valuer cannot issue report on the basis the financials not later than that of 30th September 2021. Further, if the company fails to provide necessary clarification within a period of 5 days, company may have to again perform the valuation exercise if the period considered for valuation as mentioned in above example got over.


For the first time, stock exchange has given SOP considering the circular issued by SEBI under Regulation 37. The Scheme of Arrangement seeking Stock Exchange’s NOC under Regulation 37 of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR’) shall be in compliance of these SOPs.

In case the application is not submitted within 15 working days from the date of board approving the scheme, the company shall take fresh approval from its board considering fresh financials, valuation reports, etc.

At the time of submission of application with the stock exchange(s) under Regulation 37, documents referred in para (I) (A) (2) of SEBI Circular, dated March 10, 2017 (as amended) and included in the checklist of respective stock exchange(s), should be complete in all aspects. Board meeting to consider scheme of arrangement is required to be held within 7 days of issuance of valuation report.

 At the time of submission of the application to the Exchange(s) under Regulation 37 of SEBI LODR, the Audited financials of last 3 years (financials not being older than 6 months) of unlisted company(ies) involved in the Scheme of Arrangement must be submitted as required under para I (A) (2) (f) of SEBI Circular dated March 10, 2017, and amendment thereof read with SEBI Master Circular dated December 22, 2020.

The previously mentioned financials shall be considered for preparation of Valuation Report by the valuer under Income Approach.

However, the period under consideration for valuations, other than Income Approach, should not be older than 3 months.

New timeline after considering the SOP and the amendments in Master Circular:

  • At the time of providing its observation letter to the listed entity, the exchange shall seek an undertaking from the listed entity stating that it shall ensure that the financials of the unlisted company(ies) shall not be more than 6 months old at the time of submission of the scheme papers to NCLT.

Until now there was no prescribed timeline for filing the scheme with the stock exchange after getting approval from the Board of Directors. Further, in case of fairness opinion report it should date as per the valuation report or any time before convening of board meeting for consideration of scheme. Due to the restricted timeline for filing applications, company shall convene board meetings to consider scheme only when the company is ready with all documents required for filing applications.

  • After filing of application if stock exchange requires any additional clarification, the scheme is returned to the Company for necessary rectifications/clarification. In case scheme is returned by the stock exchange for the 1st time, a period of 5 working days will be allowed for rectification/clarification. If the company fails to provide required clarification within 5 working days, the application will be cancelled, and fees paid by the Company for processing application will be forfeited. In case of additional clarification is required, the similar response period shall be provided by the stock exchange.

In order to speed up the procedure for getting observation letters stock exchange has given the stricter timeline for submission of reply.


Amendments to Master Circular by SEBI and SOPs by stock exchanges no doubt in the interest of secured lenders and shareholders. To ensure the prevention of manipulation in share price, stringent provision made for preparation of valuation report and filing of application immediately after the board meeting held for approval of scheme is a welcome move. Though there is the change in timeline for submission of clarification on queries raised by the stock exchange, there is no change in timeline applicable for stock exchange and SEBI for providing observation letter. As of now, stock exchange takes on an average takes 3 months for providing observation letter on the scheme of arrangement. With the help of these changes we expect that the period of 3 months will get further reduce.

But whether it will be smoothened and expedite the process and it will be in line of “Ease of Business“ motto of the government is not free from doubt. We hope that NCLT (NATIONAL COMPANY LAW TRIBUNAL) should not start implementing the same on the unlisted companies.

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Sanket Joshi