Reliance Power has decided not to challenge the applicability of the market watchdog Securities and Exchange Board of India's circulars relating to mergers and amalgamations, which affected its proposed restructuring with Reliance Clean Power, a wholly-owned subsidiary.

Earlier, Reliance Clean Power had proposed to be merged with parent company and had approached the court against Sebi's stand. The capital market regulator had declared that its permission was mandatory before any merger or demerger of subsidiaries was proposed with listed entities. Later, Reliance Power filed a plea against Sebi over restructuring process with Reliance Clean Power.

Billionaire Anil Ambani's Reliance Power had taken the view that company doesn't need approval from market regulator to merge its unlisted company with itself. However, Sebi had said that it will examine company's scheme before it goes through.

While filing the scheme for amalgamation in the Bombay High Court, Reliance Power argued that company has not issued any fresh shares, but this scheme is merely for transfer of wholly-owned subsidiary within; hence, there is no need for market regulator's nod for the merger.

"The high court has not ruled on this point because, as stated in the order, Reliance Clean Power decided not to pursue this line of challenge," said Srishti Jha, partner, Desai & Diwanji. "The order expressly states that the interpretation point is kept open for adjudication in future cases. Therefore, while the position of the regulators is not so difficult to read, till Sebi issues a formal circular or the courts issue a definitive verdict on the point, the interpretation may remain open to challenge."

Many large Indian conglomerates and Indian subsidiaries of MNCs, especially in sectors such as infrastructure, retail, manufacturing and pharmaceuticals, were watching the case closely as companies often restructure subsidiaries to gain better operation efficiencies. An email and phone query to Reliance Power did not fetch any results.

"Industry practice suggests that any scheme of amalgamation involving a listed company must be approved by the Sebi pursuant to the February circular," says Neerav Merchant, senior partner, Majmudar & Partners. "This procedure has been followed even in the merger of Ambuja Cements (a listed company) with Holcim India (an unlisted company), to acquire a stake in ACC."

"For minority shareholders, especially private equity investors and FIIs who have small shareholding in companies, this means that such shareholders can have a meaningful say in the manner in which such schemes of arrangements are carried out," says Simone Reis, cohead, M&A, Nishith Desai & Associates.

"There have been mixed views arising out of the Sebi M&A Circulars. One particular criticism is that the circulars do not differentiate between different kinds of schemes of arrangements. For instance, schemes of amalgamation between a parent and its long-term whollyowned subsidiary may not require such scrutiny as the interests of the minority shareholders remain unaffected. This may result in unnecessary procedural compliances and delays."

The Sebi came out with the circular in February and May 2013 relating to amalgamations.