How to participate in a scheme-of-arrangement event on Zerodha
A scheme of arrangement is a court-approved corporate restructuring mechanism available under Sections 230 to 232 of the Companies Act, 2013. It is the umbrella legal structure under which mergers, demergers, capital reductions, amalgamations, and complex business reorganisations are implemented in India. The scheme requires approval from:
- The shareholders of the company (by a majority in number representing three-fourths in value of those voting).
- The creditors (if creditors are affected).
- The National Company Law Tribunal (NCLT), which gives the final sanction.
Once the NCLT order is obtained and filed with the Registrar of Companies (RoC), the scheme is legally effective and binding on all shareholders, including those who voted against it. Individual shareholder participation during the scheme process (voting) is, however, important and a legal right.
Zerodha clients holding shares of a company undergoing a scheme of arrangement can:
- Vote on the scheme during the shareholder meeting or postal ballot.
- Receive the scheme’s economic benefits (new shares, cash, or a combination) automatically after the NCLT order.
Conflict-of-interest disclosure: WebNotes is an independent information publisher with no commercial arrangement with Zerodha.
Prerequisites
- An active demat account with Zerodha at CDSL.
- Shares of the company held in the Zerodha demat account on the voting record date (for the shareholder meeting).
- An e-voting login (provided by the company’s RTA through CDSL or NSDL’s e-voting portal) to cast votes.
Regulatory framework
Companies Act, 2013, Sections 230-232
- Section 230: Enables a company to propose a compromise or arrangement with its creditors or members, subject to NCLT sanction.
- Section 231: Empowers the NCLT to enforce a compromise or arrangement.
- Section 232: Governs the merger and amalgamation process specifically, including share exchange obligations.
SEBI’s role in listed companies
For listed companies, SEBI issued Circular SEBI/HO/CFD/DIL3/CIR/P/2021/0000000652 (and predecessors) setting out additional requirements:
- The listed company must obtain SEBI’s no-objection (through the stock exchanges) before approaching the NCLT.
- The scheme must satisfy SEBI’s requirements for shareholder protection (fair valuation, independent board committee review, and valuer’s report).
- A majority of minority shareholders (non-promoter shareholders) must separately approve the scheme by postal ballot/remote e-voting.
Types of events structured as schemes of arrangement
| Event | Description |
|---|---|
| Amalgamation / merger | Company A merges into Company B; A’s shareholders receive B’s shares per the swap ratio |
| Demerger / spin-off | Company P separates a business into Company D; P’s shareholders receive D’s shares |
| Capital reduction | Share capital reduced (see How to participate in a capital reduction) |
| Business transfer / slump sale | One company transfers a business to another; may or may not involve share issuance to shareholders |
| Composite scheme | Multiple transactions (for example, demerger + amalgamation) combined in a single NCLT-approved scheme |
Step-by-step: participating in a scheme-of-arrangement event
Step 1: Monitor the announcement
The company discloses the scheme to the stock exchanges when the board approves it. Key documents to review:
- Board resolution and exchange disclosure: Initial announcement.
- Valuer’s report and Audit Committee report: Fairness opinion on the swap ratio.
- Notice of the NCLT-convened meeting or postal ballot: Sent to all registered shareholders; also available on the company’s website and exchange.
- Explanatory statement: Detailed rationale, swap ratio methodology, and expected post-scheme shareholding.
Step 2: Check the voting record date
The company sets a record date for voting eligibility. Shareholders who hold shares in the Zerodha demat account on this date are eligible to vote. Under T+1 settlement, purchase shares at least one trading day before the voting record date.
Step 3: Cast your vote
Shareholders vote on the scheme via:
- Remote e-voting: Through CDSL’s e-voting platform (evoting.cdsl.com) or the RTA’s portal. Login credentials are sent to the registered email address or phone number.
- Physical meeting: For NCLT-convened meetings, shareholders can attend and vote in person.
- Postal ballot: Some schemes are approved by postal ballot only (without a meeting).
The voting window is disclosed in the notice (typically 10 to 30 days). The Zerodha demat account number (Client ID) and PAN are used to log in to the e-voting portal. Zerodha does not vote on behalf of clients.
How to vote via CDSL e-voting:
- Visit evoting.cdsl.com.
- Log in with your User ID (demat account number, for example, 1201xxxxxxxx) and the OTP sent to your registered mobile or email.
- Select the company from the active voting list.
- Review the resolution (scheme approval) and cast your vote (assent or dissent).
- Submit and download/print the acknowledgement.
Step 4: Await the NCLT order
After the shareholder and creditor votes, the NCLT holds hearings. The NCLT order (sanction) may take several months. Once granted:
- The company files the NCLT order with the Registrar of Companies (RoC).
- The scheme becomes effective from the effective date (typically the date of RoC filing).
Step 5: Record date for the scheme’s economic effect
The company sets a separate record date (after NCLT effectiveness) for the purpose of implementing the share swap, cash distribution, or other economic benefit. This record date determines which shareholders receive the new shares or cash.
Step 6: Receive new shares or cash
After the record date:
- New shares (from an amalgamation, demerger, or composite scheme) are credited to the Zerodha demat account within 15 to 45 working days of the record date.
- Cash payments (for fractional entitlements or cash components of the scheme) are credited to the registered bank account within 30 to 60 days.
- Old shares (if cancelled in an amalgamation or capital reduction) are debited from the demat account by CDSL on RTA instructions.
Verify the credit in Console > Holdings after CDSL processes the change.
Dissenting shareholders: what happens if you vote against the scheme
Once the NCLT sanctions the scheme, it is binding on all shareholders, including those who voted against it. Dissenting shareholders cannot refuse the share swap or cash component. However, if the scheme involves a cash option (for example, some schemes offer dissenting shareholders a cash exit), the scheme document will specify the mechanism for claiming the cash consideration.
SEBI’s guidelines (Circular 2021) also require that a majority of minority (non-promoter) shareholders approve the scheme through a separate postal ballot. If this condition is not met, SEBI may not grant its no-objection, and the scheme may not proceed.
What can go wrong
Missed the voting window: If you do not vote within the specified window, your vote is not counted. This does not prevent the scheme from proceeding (if the required majority is obtained from other shareholders). You cannot submit a belated vote.
Shares not credited after the scheme effective date: Scheme share credits can take longer than standard corporate actions due to NCLT formalities and RTA processing. If new shares are not credited within 60 days of the record date, raise a support ticket with Zerodha.
E-voting login not received: If you do not receive e-voting credentials, contact the company’s RTA with your demat account number. The credentials are linked to the email/phone registered at CDSL, which may differ from the contact registered with Zerodha.
Company delisted before scheme completion: In some mergers, the listed transferor company is delisted before the new shares are credited. During this window, the demat account may show a zero balance (old shares cancelled, new shares pending). This resolves once the transferee company’s shares are credited.
Tax treatment
The tax treatment depends on the type of corporate action structured as the scheme:
| Scheme type | Tax treatment |
|---|---|
| Qualifying amalgamation (Section 2(1B)) | No capital gains in year of swap; cost and holding period inherited |
| Qualifying demerger (Section 2(19AA)) | No capital gains in year of swap; cost apportioned between parent and demerged entity |
| Capital reduction with cash | Capital gains under Section 46A on excess over cost |
| Non-qualifying scheme (cash merger, partial cash) | Capital gains taxable in year of scheme |
| Dissenting shareholder cash exit | Capital gains on cash received, based on original cost and holding period |
Refer to the specific guides for the applicable action type:
Related guides
- How to handle a merger or demerger on Zerodha
- How to participate in a capital reduction on Zerodha
- How to handle a fractional share entitlement
- How to participate in a takeover or spin-off on Zerodha
- Capital gains tax in India
- SEBI
- CDSL demat account
- Demat account overview
References
- Companies Act, 2013, Sections 230, 231, 232, scheme of arrangement framework.
- SEBI Circular SEBI/HO/CFD/DIL3/CIR/P/2021/0000000652, SEBI no-objection requirements for listed companies in schemes of arrangement.
- Income Tax Act, 1961, Sections 2(1B), 47(vii), qualifying amalgamation tax neutrality.
- Income Tax Act, 1961, Sections 2(19AA), 47(vid), qualifying demerger tax neutrality.
- Income Tax Act, 1961, Section 46A, capital reduction proceeds.
- CDSL e-voting platform (evoting.cdsl.com), remote e-voting for listed company resolutions.
- NCLT Rules, 2016, procedure for scheme sanction.
- Zerodha support documentation, scheme-related share credits and e-voting.