Checklist For Demerger DEVESH PANDEY COR
Checklist For Demerger DEVESH PANDEY COR
Checklist For Demerger DEVESH PANDEY COR
For Demerger ~ DEVESH PANDEY CORPORATE LAWS BLOG
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DEMERGER CHECKLIST
Demerger, in relation to companies, means the transfer, pursuant to a scheme of arrangement under Sections 391 to 394
of the Companies Act, 1956, by a demerged company of its one or more undertakings to any resulting company in the
manner specified in Section 2(19AA) of the Income Tax Act. The provisions of Section 395 of the Companies Act, 1956
are available to protect the interest of shareholders dissenting from the scheme approved by the majority. Section 2(42C)
of the Income Tax Act, 1961 and introduced a concept of “slump sale’. Slump sale means the transfer of one or more
undertakings as a result of sale fro a lump sum consideration without values being assigned to the individual assets and
liabilities in such sale. Therefore, demerger cannot be accomplished with ‘slump sales’ since such a sale is only for sale
of undertaking. The demerger should be in accordance with the act by the Central Government in this behalf which
envisages the Companies Act, 1956. If the original company which is split into several companies after divisions is
wound up voluntarily, the provisions of Sections484 to 498 of the Companies act to be followed.
STEPS TO DEMERGER:
Generally the following steps are adopted in a demerger process:
Step1: Preparation of scheme of demerger
Step2: Application to court for direction to hold meeting of the members/creditor
Step3: Obtaining court’s order for holding meetings of members/creditors
Step4: Notice of the meetings of members/creditors
Step5: Holding meeting(s) of members/creditors
Step6: Reporting the result of the meeting by the chairman to the court
Step7: Petition to the court for sanctioning the scheme of demerger
Step8: Obtain order of the court sanctioning the scheme
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Step9: Court’s order on petition sanctioning the scheme of demerger
ACTIVITIES FROM BOARD MEETING FOR APPROVAL OF DEMERGER SCHEME TO COURT ORDER:
Ø Intimation in Stock Exchange of Board Meeting date for considering Demerger
Ø Board Approval for the Scheme
Ø Informing Stock Exchange of Board’s decision
Ø Consent from shareholders to the Scheme for Resulting Companies (in case of Closely held unlisted
Companies)
Ø Filing scheme with the Stock Exchanges
Ø NOC/ Approval from Stock Exchanges (BSE/NSE)
Ø Filing of application under section 391(1) with High Court (along with Judge’s summons, affidavit in support of
summons and draft minutes of order)
Ø Finalizing the Notice/Explanatory Statement for Meeting of the Shareholders/Secured and unsecured Creditors
Ø Hearing of company’s application
Ø Hearing of Resulting Companies application
Ø Receiving authenticated copy of order for holding/ dispensing with the Meeting of Shareholders/ Secured and
unsecured Creditors
Ø Obtaining certified copy of order of High court for court
Ø Convened Meeting
Ø Commencement of Printing of Notice for court convened meetings
Ø Completion of dispatch of notices for meeting under UCP
Ø Advertisement of notice of meetings
Ø Filing of Notice – Advertisement of meeting with stock Exchange(s)
Ø Filing of advertisement of meeting with court
Ø Filing of Affidavit signed by Chairman of the meeting or other person directed by the court verifying that the
directions regarding the issue of notices and the advertisements have been duly complied with
Ø Meeting of Creditors and Members
Ø Reporting the decision of the poll to the High Court
Ø Filing of petition with the Court along with relevant documents
Ø Admission of the petition
Ø Minutes of order by judge fixing the date of hearing of petition and advertisement of notice of hearing
Ø Advertising the notice of hearing in news paper
Ø Obtaining certified copy of order on admission of petition
Ø Filing of copy of petition with annexures with RD / ROC through FORM 61 (eform)
Ø Filing of affidavit confirming service of notice of petition and publication in newspaper
Ø 28 Follow up with RD/ ROC
Ø Receipt of letter, queries etc., from RD and ROC
Ø Follow – up with RD/ROC/ Legal Counsel to resolve issues, if any
Ø Initial date of hearing of petition
Ø Adjoined hearing if any
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Ø Filing of amended petition if any
Ø Final date of hearing of petition
Ø Obtaining certified copy of order on petition
Ø Payment of Stamp duty, if required
Ø Filing of certified order with RD / ROC along with Form 21
ACTIVITIES FROM COURT ORDER TILL RECORD DATE
Ø Acknowledgement of receipt from ROC and certified true copy of court order to be filed with the Stock
Exchange.
Ø Notice to Stock Exchange for Record Date to determine eligibility to receive shares of the Resulting Companies
and voluntarily give advertisement of the Record Date in National Dailies ( 30 day notice)
Ø Agreement with CDSL and NSDL for admitting its securities
Ø Printing of stationery – Allotment Advice, Share Certificate, Envelopes
Ø Application seeking exemption for relaxation of Rule 19(2)(b) from SEBI through the designated Stock
Exchange
Ø Application to Stock exchange for in – principle approval for listing of shares
Ø Designated Stock exchange to forward the application to
Ø SEBI for approval under Rule 19 (2)(b) of SCRA Rules
Ø Prepare Information Memorandum (IM)
Ø Compliance with clause 49 – prerequisite For Listing
Ø File Information Memorandum with BSE and NSE
Ø Stock Exchange to receive SEBI Approval and give InPrinciple approval for listing of shares of the resulting
companies.
Ø Keep share certificates, covering letter, envelop of the resulting companies ready for over printing.
Ø Keep text and stationery ready for intimation of corporate actions for the Resulting Companies
Ø Letter relating to cost of Acquisition to be sent to Shareholders
Ø Ex Date for Stock Exchange for F & O
Ø Record Date
ACTIVITIES FROM RECORD DATE TILL LISTING:
Ø Procure details of Register of Members from R&T agent as on Record Date
Ø Prepare list of eligible shareholders of the resulting companies, including details of the shareholding
Ø Hold Board Meeting of Resulting Companies for allotment of shares
Ø File Form 2 with ROC
COMPLIANCES RELATING TO DEMERGER:
Ø Resulting Companies to submit the Corporate Action
Ø Forms to depositories and pay fee for the same
Ø Over Printing of share certificates, cover letter, envelops and Dispatch of Share certificates or demat credit of
equity shares of the resulting companies.
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Ø Dispatching share certificate
Ø Send intimation to the shareholders of each of the resulting companies regarding the corporate Action
Ø Application to Stock exchange, attaching dispatch certificate/demat credit certificate and copy of advertisement,
for trading permission
Ø Publication of the Advertisement (as per Schedule 28 of SEBI DIP Guidelines) in one English daily, Hindi Daily
and Regional Daily
Ø Trading of shares at Stock Exchange
DOCUMENTS TO BE FILED ALONG WITH COMPANY APPLICATION WITH THE HIGH COURT:
Application is to be filed with the High Court where the Registered Office is situated for directions to convene a meeting
for considering the draft Scheme of Demerger or for dispensing with the meeting. The following documents are necessary
at this stage:
Ø Judge’s Summons under Order XIV read with Rule 67 (or Rule 9, 11(b) & 19) read with Sections 391 to 393 and
394 of the Companies Act (to be filed in Form No. 33 of the Companies (Court) Rules, 1959).
Ø An affidavit in support of summons in Form No. 34 of the Companies (Court) Rules, 1959.
Ø Memorandum and Articles of Association of the company.
Ø Latest Audited Balance Sheet.
Ø List of Shareholders (if meetings are to be dispensed with).
Ø List of Secured Creditors.
Ø Scheme of Demerger.
Ø Consent affidavits from all shareholders (if meetings areto be dispensed with).
Ø Consent letters from secured creditors.
Ø If the company does not have any secured creditor, a certificate to that effect from the statutory auditor must be
obtained.
Ø Valuation Report regarding share exchange ratio.
Ø Extract of the Board Resolution approving the draft Scheme of Demerger.
Ø Draft notice of meeting, Explanatory Statement pursuant to Section 393 of the Companies Act, form of proxy (In
case meetings are convened)
COURT PROCEDURE TIME FRAME:
Submission of application under section 391 along with affidavit (F34) in terms of Companies (Court) Rules, 1959:
Ø Notice and the explanatory statement under section 393
Ø Obtain summon for direction in F35 in terms of Companies (Court) Rules, 1959
Ø Settlement of notice convening shareholders meeting
Ø Dispatch of notice to the shareholders
Ø Publication of notice convening shareholders meeting
Ø Submission of 3 copies of the published notice to stock exchange
Ø Filing of affidavit of service regarding dispatch of individual notice with court.
Ø Appointment of scrutinizers at the meeting
Ø Requisite resolution to be passed at shareholders meeting
Ø Publication of result of the poll
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Ø Intimation to stock exchange regarding approval
Ø Filing of report along with affidavit
Ø Forward minutes of the meeting of the shareholders to the stock exchange
Ø Filing of petition for confirmation of the scheme in F40 with court.
Ø Servicing of notice of hearing of petition on central government.
Ø Filing of Affidavit with Court regarding service of notice of hearing of petition on CG
Ø Filing of Form23 with ROC.
Ø Publication of Notice of hearing of petition
Ø Filing of affidavit with court regarding servicing of notice to Central Government and publication.
Ø Hearing of petition, in case of objections if any
Ø Obtaining no objection of Central Govt.
Ø Obtaining sanction of the respective courts to the scheme.
Ø Obtaining certified copies of court order approving Demerger scheme.
Ø Court Order Copies to be filed with Stock exchanges
Ø Court Order Copies to be filed with Registrar of Companies.
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This blog is authored by Mr. Devesh Pandey. He is a corporate legal adviser based at Delhi He is a
corporate law advisor with diversified experience in matters relating to Corporate and Commercial
Laws. His core practice areas are General corporate law (Company Law & FEMA) Mergers and
Acquisitions, Foreign Direct Investment etc. He has worked with few eminent corporate law firms
of India. Mr. Pandey is advising foreign investors, Indian individuals and bodies corporate in setting
up their business ventures, obtaining FIPB approvals, legal and regulatory issues and also on various
legal and commercial issues during the course of running business. He has significantly worked in
the areas of foreign direct investment, foreign exchange control issue, drafting negotiating
shareholders foreign collaboration & joint venture agreements, technology transfers, JV
negotiations, mergers, acquisition and takeovers, due diligence etc. He has an extensive experience
in the sectors like power, oil & gas Infrastructure, Information Technology, financial services, retail,
gem & jewellery, micro finance, non-profitorganisations, real estate, E-commerce, education etc.
Mr. Pandey has also taught corporate laws to the CA and CS students. Apart from the above, he is
also speaker in corporate law relates programms/workshops.
Contact: [email protected]
Mobile.: +91 9811237186
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