Shrikant Turalkar, ACS, LL.M.
All of us must have gone through the provisions of recently issued circular dated February 4, 2013 by SEBI. The said circular is issued in exercise of the powers conferred under Section 11 and Section 11A of the SEBI Act, 1992 read with Rule 19(7) of SCRR, 1957.
The purpose of the aforesaid circular is given in the prelude of the circular.
From the prelude, it is clear that the regulator wants to ensure that all scheme of arrangement or amalgamation should be:
- Giving adequate and proper disclosures of facts to make informed decision.
- Very easy and simple to understand in order to know what is the consideration shareholder of Transferor Company going to get.
- Should have done proper valuation of assets and liabilities of both the companies and its profitability.
However, in order to serve the above purpose and to protect interest of minority shareholders, SEBI has mandated the requirement of mode of passing of resolution of such schemes of arrangement or amalgamation as under:
F. Approval of Shareholders to Scheme through Postal Ballot And e- Voting:
5.16 Listed companies shall ensure that the Scheme submitted with the Hon’ble High Court for sanction, provides for obtaining shareholders’ approval through special resolution passed through postal ballot and e-voting, after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to such resolution. The Scheme shall also provide that the special resolution shall be acted upon only if the votes cast by public shareholders in favor of the proposal amount to at least two times the number of votes cast by public shareholders against it.
The above circular has raised various questions in the minds of professional like us.
They are as under:
- It is not provided under The Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 to approve scheme of arrangement or amalgamation u/s 391 and 394 of the Act.
- Section 391 does not differentiate between public shareholders and promoter shareholders.
- It is not clear whether this new circular is applicable to listed companies getting demerged or amalgamated with unlisted companies or to all listed companies irrespective with whom they are being merged, listed or unlisted.
- Section 391 of the Companies Act provides that all such schemes shall be binding on the Companies, shareholders and creditors, if approved by three forth of members, creditors and sanctioned by tribunal (high court). To that extent it is inconsistent with provisions of Companies Act.
- Is SEBI authorised to administer provisions of Section 391 and 394 of Companies Act?
The above requirement of the circular is clearly in addition to provisions of Companies Act, 1956 requirements.
Further it was observed by the Supreme Court in case of Sahara India Real Estate Corporation Limited & Ors. Vs. Securities and Exchange Board of India & another that Sections 11A and 11B of SEBI Act should be read as provisions additional to Section 55A. Reference was also made to Section 32 of the SEBI Act and it was submitted that the provisions of SEBI Act are “in addition to” and “not in derogation of” the provisions of any other law, unless the provisions of SEBI Act are wholly inconsistent with the Companies Act, the provisions of both the SEBI Act and the Companies Act should be harmonized and both sets of provisions given operation. Further, it was pointed out that Sections 11, 11A, 11B of SEBI Act are special law and Section 55A and the enumerated sections of the Companies Act are general law.
However, the question arises is that whether delegated legislation of SEBI can make provisions over and above parliamentary enactment or notified legislation? We need to see whether above clause 5.16 of the said circular is wholly consistent with the provisions of Companies Act and both sets of provisions could be harmonized and given operation.
Hi Shrikant
Good to read your article.
informative. thanks
Seema Agarwal