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Stock exchanges have refused no-objection certificates to more than 10 companies for misuse of scheme of arrangement/ amalgamation with a view to circumvent SEBI’s rules and regulations.
Out of 180 companies, which applied for a scheme of arrangement in the last one year, SEBI’s adverse findings prompted exchanges to refuse no-objection certificates to 13 companies. These are Heera Ispat, Ganon Trading and Finance, Mapro Industries, Saboo Brothers, Khoday India, Aris International, Rajlaxmi Industries, Aashee Infotech, Crazy Infotech, Source Industries, Trilogical Digital Media, Trio Mercantile and Trading and Zenith Capitals.
SEBI had, in February 2013, issued regulations to plug misuse of the scheme of arrangement, making inadequate disclosures and exaggerated valuations used to list unlisted companies or seek exemption from an IPO. Prior to this, there was no check on such abuse by companies.
SEBI found these companies violated its regulations and tried to become listed companies without going through an IPO.
Other violations include sidestepping takeover regulations, bypassing preferential issue guidelines by using a share swap to increase promoter holding, and circumventing delisting regulations without shareholders’ approval.
SEBI has also found that the companies had indulged in bringing in a change in control without providing an exit opportunity to existing investors.
Swap ratio Some entities were found to have a swap ratio in favour of an unlisted company while others had deprived their minority shareholders of fair value by undervaluing the listed company.
To ensure effective curbs against such violations, SEBI said the draft scheme of arrangement/ amalgamation should be submitted to it through stock exchanges 30 days prior to seeking High Court approval.
The circular directs listed companies to furnish the draft scheme of arrangement/ amalgamation, independent valuation report, audit committee recommending the scheme, fairness opinion by merchant banker, pre- and post-amalgamation shareholding pattern of unlisted company and audited financials of the last three years of the unlisted entity.
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