The SEBI (Buy-back of Securities) Regulations, 2018 states in regulation 24(ii) that a company shall not announce a buy-back when a scheme of amalgamation or compromise or arrangement pursuant to the provisions of the Companies Act, 2013 is pending. Such a proscription against buy-back operates because a scheme of amalgamation is a material transaction and could potentially alter the fundamental nature of the business of the company. When there is some uncertainty as to whether the scheme would be approved or not, shareholders will be adversely affected if the company proceeds with the buy-back during such a period. More importantly, such a scheme of arrangement would potentially alter the share capital structure of the company, and any intervening buy-back of securities would complicate matters even further. In that sense, the SEBI structure envisages a sequential approach to an amalgamation and buy-back rather than a parallel or simultaneous approach.
In this context, SEBI had to consider a dispensation request from Wipro Limited to permit a buy-back of securities by the company during the pendency of a scheme of amalgamation. SEBI responded favourably to Wipro’s request given the peculiarity of the facts and circumstances of the case and that shareholders’ interests were not likely to be adversely affected by Wipro proceeding simultaneously with the amalgamation and the buy-back of securities.
The facts involved a proposal by Wipro Limited to amalgamate four wholly-owned subsidiaries with itself (i.e., the parent company). Of these wholly-owned subsidiaries, two were incorporated in Austria, one in France and the last in India. The laws of each of these jurisdictions permitted the amalgamation of their companies into a company incorporated in another jurisdiction, viz., India. Wipro’s request to SEBI was premised on the basis that the amalgamation was largely an internal restructuring exercise within the Wipro group of companies. Moreover, given the amalgamation of wholly-owned subsidiaries with their parent, the amalgamated parent company would not issue any shares and instead the shares it holds in such subsidiaries would be cancelled. Wipro’s shareholding structure would undergo no change whatsoever as a result of the amalgamation transaction. On these grounds, Wipro sought SEBI’s relaxation of regulation 24(ii). Regulation 28 of the SEBI Buy-back Regulations does confer SEBI with the power to relax the strict requirements of any regulations so long as they are procedural in nature and the requirement may cause hardship to investors.
Accordingly, SEBI found that the strict application of regulation 24(ii) was unnecessary given the specific nature of the amalgamation transaction, in that it was not only an internal exercise involving the amalgamation of wholly-owned subsidiaries, but also that Wipro’s share capital structure would remain untouched by the transaction. This would not in any way affect the interests of Wipro’s shareholders. On the contrary, awaiting the conclusion of the amalgamation will only deprive the shareholders of their opportunity to sell shares in a buy-back. This is especially so due to the uncertainly regarding the timing of approval of the amalgamation by the National Company Law Tribunal.
Although this is a rather straightforward case, it is indicative SEBI’s intention to adopt a purposive interpretation of the Buy-back Regulations in the light of investor interests from a broader perspective (rather than a narrow technical perspective). At the same time, SEBI has expressly cautioned that this is not to be treated as a precedent as its impact is limited to the specific facts and circumstances of the case.