SEBI: NTPC granted exemption, Regulation 24(ii) can be Viewed as Procedural in Nature

SEBI: NTPC granted exemption, Regulation 24(ii) can be Viewed as Procedural in Nature

The Securities Exchange Board of India (SEBI) on 23rd October, 2020 under section 11(1) of the SEBI ACT read with Regulation 28 of the Securities And Exchange Board Of India (Buy–Back Of Securities) Regulations, 2018. in the matter NTPC Limited granted an exemption/relaxation to the Company, for ensuring compliance with the requirement of Regulation 24(ii) of the Buy–back Regulations 2018 in relation to the proposal for buy–back of equity shares.

NTPC had filed an Application dated October 15, 2020 with SEBI seeking exemption/relaxation from the strict enforcement of the requirement contained under Regulation 24(ii) of the SEBI (Buy–back of Securities) Regulations, 2018 (Buy–back Regulations 2018). The aforesaid Application was being necessitated on account of a Scheme of Amalgamation providing for the merger of NTPC's wholly owned subsidiaries with itself, which was brought out in the subsequent case.

The Company proposes to explore the possibility of buying back its equity shares in accordance with the provisions of Section 68 of the Companies Act, 2013 and the Buy–back Regulations 2018 from the existing shareholders (including the Promoter) on proportionate basis through tender offer route, subject to the requisite approval, such buy back will not be permitted under Regulation 24(ii) of the Buy–back Regulations 2018 since there is a Scheme of Amalgamation pending at the time of the public announcement.

The reason behind granting such exemption appeared that such mergers are majorly internal re–organization within Group Companies and does not involve any share consideration. Further, the Companies Act, 2013 does not restrict Companies from announcing a buy–back during the pendency of any merger or amalgamation.

Considering that there was no new issuance of equity shares or change in the shareholding pattern of the Company consequent to the Scheme of Amalgamation, the requirement of Regulation 24(ii) of the Buy–back Regulations 2018 could be prospected as a procedural requirement in the present circumstances.

Further, the Application was contended to be in the interests of investors as the shareholders of the Company (especially small shareholders) will benefit from return of surplus cash through the buy–back program.

SEBI further inquired stating that, "has the proposed Scheme of Amalgamation been approved by the shareholders?" If yes, the company was asked to provide the shareholders' resolution for the aforementioned and secondly, "as stated in the Application, the Scheme of Amalgamation is not yet filed with NSE and BSE as required under Regulation 37 of the LODR Regulations 2015 or with the MCA under the Companies Act, 2013." In this regard, the company was asked to provide the reasons for non–filing and provide the latest developments thereof.

The board after examination of facts noted that, as per Regulation 28 of the Buy–back Regulations 2018, the Board may, in the interest of investors and the securities market, relax the strict enforcement of any requirement of the aforesaid Regulations except the provisions incorporated from the Companies Act, if the Board is satisfied that the requirement is procedural in nature or the requirement may cause undue hardship to investors.

The board further noted that the requirement contained under Regulation 24(ii) of the Buy–back Regulations 2018 in general rule it is substantive in nature and prohibits the Company from making any public announcement of buy–back during the pendency of any Scheme of Amalgamation pursuant to the provisions of the Companies Act, 2013.

Further, NTPC confirmed that there will be no new issue of equity shares or change in the shareholding pattern of the Company consequent to the Scheme of Amalgamation with its wholly owned subsidiaries (which is yet to be approved by the shareholders).

Considering the aforementioned, the board observed that the requirement of Regulation 24(ii) of the Buy–back Regulations 2018 however, could be viewed as a 'procedural requirement' having regard to the facts of the present Application (i.e. a merger between a holding company and its wholly owned subsidiaries not involving any new issuance of equity shares or change in the paid–up share capital of the Company impacting the proposed buy–back).

In addition to this, NTPC had also informed SEBI that in compliance with Regulation 37(6) of the LODR Regulations 2015, the Scheme of Amalgamation proposed to be filed before the MCA under Sections 230–232 of Companies Act, 2013, for sanctioning the Scheme, shall be filed with the stock exchanges for the purpose of disclosures, as mandated. Accordingly, the board was of the view that exemption/relaxation as sought for in the Application be granted to NTPC. However, such exemption/relaxation shall be subject to certain conditions stated herein.