A listed company can be delisted through a scheme of arrangement, but the route is not a simple alternative to the reverse book building process under the SEBI (Delisting of Equity Shares) Regulations, 2021. Regulation 37 of the Delisting Regulations provides a special mechanism for the delisting of a subsidiary through a scheme, and it is available only where the listed holding company and the listed subsidiary are in the same line of business.
The Regulation 37 Route
Regulation 37 permits a scheme of arrangement between a listed holding company and its listed subsidiary, where the subsidiary is to be merged into the holding company or its shares are to be acquired and cancelled, resulting in the delisting of the subsidiary. The scheme must be approved by the NCLT, and it must comply with the conditions prescribed by SEBI, including the approval of the public shareholders of the subsidiary.
The NCLT has held that where the scheme complies with Regulation 37, a separate meeting of the public shareholders of the subsidiary is not required, because the scheme itself is the mechanism by which the public shareholders approve the delisting. The NCLT's finding is based on a harmonious reading of Section 230 and Regulation 37.
The SEBI Conditions
SEBI's board memorandum of 29 September 2020 proposed a framework for delisting through a scheme, and the framework has been incorporated into the Delisting Regulations and the SEBI circulars. The conditions include the requirement that the scheme be approved by the public shareholders of the subsidiary, that the exit price be determined in accordance with the Delisting Regulations, and that the holding company and its promoters comply with the conditions relating to the minimum public shareholding.
The NOC from the stock exchanges is a condition precedent to the NCLT's approval of a delisting scheme. A scheme that does not have the NOC is a scheme that the NCLT will not sanction.
The Limits and the Risks
The Regulation 37 route is narrow. It is available only for a subsidiary delisting, not for the delisting of a parent company or an unrelated listed entity. A company that wishes to delist but does not satisfy Regulation 37 must use the reverse book building process, which requires a higher threshold of shareholder acceptance and a price discovered through the bidding process.
A delisting scheme that does not comply with Regulation 37 or the SEBI conditions is a scheme that is vulnerable to SEBI objection and to shareholder challenge. The NCLT's sanction does not cure a SEBI violation.
Call to Action
Anuj Desai & Associates advises listed companies and holding companies on delisting through a scheme—from the Regulation 37 eligibility analysis and the SEBI conditions to the stock exchange NOC, the NCLT process, and the post-delisting compliance. If you are considering a delisting scheme, we can help you determine whether the route is available and how to structure it.
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