Tag Archive for: scheme of arrangement

– Nitu Poddar | corplaw@vinodkothari.com

Reg 37A of Listing Regulations requires additional voting and disclosure requirements

Disposal of an undertaking (whole or substantially the whole) can be done either as part of a scheme of arrangement or otherwise by way of slump sale / business transfer agreement (‘BTA’). Disposal, other than by way of scheme of arrangement, have so far been regulated as per section 180(1)(a) of the Companies Act, 2013 (‘Act’) which requires approval of the shareholders by way of special resolution. SEBI has prescribed approval requirement in this regard by way of introduction of regulation 37A vide SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023 (‘Amendment Regulations’) effective from June 14, 2023 that requires listed entities to follow a stricter regime for disposal of undertaking inter alia mandating approval from majority of the public shareholders who are not interested in the transaction, disclosure of the object, commercial rationale and use of proceeds arising from such transaction. While there is an exemption provided in case of transactions with a wholly owned subsidiary (WOS), the approval regime will apply in case of disposal of undertaking by such WOS or any reduction in shareholding in the WOS subsequent to transfer of the undertaking.

The said amendment is based on the Consultation Paper rolled by SEBI on February 21, 2023. Apart from incorporating the provisions proposed in this regard in the Consultation Paper, the amendment has introduced new provisions as well. Provision with respect to seeking approval from the shareholders of the listed entity in case a WOS is used as a conduit for transfer in undertaking is a new requirement brought in through the amendment.