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    Question

    Which of the following is true regarding transfers to

    wholly-owned subsidiaries under the "majority of minority" rule?
    A The rule is not applicable to transfers to wholly-owned subsidiaries. Correct Answer Incorrect Answer
    B Shareholder approval is required only if the subsidiary dilutes its shareholding. Correct Answer Incorrect Answer
    C Shareholder approval is required only if the listed company dilutes its shareholding. Correct Answer Incorrect Answer
    D Shareholder approval is required in both cases of dilution or subsidiary transfer. Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Public shareholders will now have a say in the sale or disposal of undertaking by a listed company through slump sales as SEBI has now mandated the “majority of minority” rule for such transactions to sail through in the coming days.  To strengthen the extant framework of slump sale executed outside Scheme of Arrangement and safeguard the interest of minority shareholders, SEBI has stipulated that such transactions can go through only if majority of public shareholders vote in favour than those voting against it.      This will have to be in addition to the requirement to pass a Special resolution, according to the latest changes made to SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations and now notified by SEBI.  SEBI has also now mandated disclosure of the objects and commercial rationale for such sale, disposal or lease, to the shareholders.   Exemption from the “majority of minority” rule has been provided for transfers to wholly-owned subsidiaries. However, the listed company has to comply with the latest shareholder approval provisions in the event the wholly owned subsidiary transfers the business or the listed company dilutes its shareholding in the subsidiary anytime     A slump sale involves selling off an undertaking or the whole business against a lumpsum amount.

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