NCLT nod to TVS Holdings Scheme issuing 6% bonus redeemable preference shares

1. Background of the Scheme and proceedings

The National Company Law Tribunal, Division Bench-I, Chennai, in In re TVS Holdings Limited (NCLT Chennai), sanctioned a Sections 230 to 232 Scheme of Arrangement filed by TVS Holdings Limited, by order pronounced on 18 August 2026. The Scheme relates to a capital-restructuring measure under the Companies Act 2013, whereby TVS Holdings Limited proposes to distribute its surplus reserves by issuing fully paid-up preference shares as bonus to its existing equity shareholders.

The petition was instituted by TVS Holdings Limited along with its shareholders under Sections 230 to 232 of the Companies Act, 2013 read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

1.1 First motion application and shareholder approval

  • The company initially moved a first motion application, CA(CAA)/15/CHE/2026, seeking directions for convening/dispensing with stakeholder meetings.
  • By order dated 18.03.2026, the NCLT:
    • Dispensed with the meeting of secured creditors.
    • Directed that meetings of equity shareholders and unsecured creditors be convened.

The Chairperson’s report dated 24.04.2026 was filed the same day before the Tribunal. As per this report:

  • 273 equity shareholders attended the meeting.
  • 272 of them, representing 99%, voted in favour of the Scheme.

Following this outcome, the company filed the second motion petition on 28.04.2026, seeking sanction of the Scheme of Arrangement.

2. Commercial rationale for the Scheme

Clause C of the Scheme sets out the primary objectives and reasoning for the proposed arrangement. In essence:

  • TVS Holdings Limited has built up considerable surplus reserves from retained profits over time, which exceed both its present operational needs and its reasonably anticipated future funding requirements.
  • After evaluating forecast free cash inflows and the company’s investment and business plans, management concluded that a significant portion of these accumulated reserves could be returned to shareholders without impairing the company’s ability to meet its obligations or growth plans.
  • To achieve this, the company decided to issue fully paid-up preference shares by way of bonus to its equity shareholders.
  • These preference shares are proposed to be listed on the stock exchanges where the equity shares are listed, enabling shareholders to hold a liquid, tradable instrument that can be encashed, while simultaneously giving the company greater control over liquidity and timing of cash outflows until the date of redemption.
  • In furtherance of good governance and transparency, the company opted to route this bonus issue through a formal Sections 230 to 232 Scheme, subject to all necessary corporate, regulatory and statutory approvals. The company’s case before the NCLT was that the Scheme is in the best interests of equity shareholders and does not adversely affect other stakeholders.

3. Key Scheme mechanics – Appointed Date, Record Date and bonus ratio

3.1 Appointed Date and Effective Date

Under Clause 1.1 of Part I of the Scheme:

  • “Appointed Date” is defined as the “Effective Date” of the Scheme.
  • “Effective Date” is the date on which the last of the conditions precedent in Clause 11 is either fulfilled or validly waived. All references in the Scheme to the Scheme “coming into effect” or “taking effect” are therefore tied to this Effective Date.

Clause 11 lists the conditions precedent, which include:

  1. Obtaining no-objection letters from the stock exchanges under Regulation 37 and Regulation 59A of the SEBI LODR Regulations.
  2. Compliance with other requirements of the relevant SEBI circulars, including approval of shareholders, holders of NCDs and other applicable classes through e-voting.
  3. Sanction of the Scheme by the NCLT under Sections 230 to 232.
  4. Filing of certified/authenticated copies of the NCLT order with the Registrar of Companies (RoC).

The Tribunal examined this event-based appointed date in the context of Section 232(6) of the Companies Act, 2013 and Ministry of Corporate Affairs General Circular No. 9/2019 dated 21 August 2019. It concluded that linking the appointed date to an event (fulfilment/waiver of specified conditions) is permissible, provided the event is clearly identified in the Scheme. The NCLT therefore accepted the event-based appointed date as compliant, while directing that where the event-based date falls after the date of filing the order with the RoC under Section 232(5), the company must file an intimation with the RoC within 30 days of the Scheme coming into force, in line with para 6(d) of the General Circular.

3.2 Record Date

  • “Record Date” is defined as a date to be fixed by the Board after the Effective Date, for determining which equity shareholders are eligible to receive the bonus preference shares.

3.3 Bonus ratio and nature of preference shares

Under Clause 4.1:

  • TVS Holdings Limited will issue, by way of bonus, 46 preference shares of INR 10 each, fully paid-up, for every 1 fully paid-up equity share of INR 5 held by an eligible equity shareholder as on the Record Date.
  • The bonus shares will be issued out of general reserves/retained earnings.

The preference shares are defined in Clause 1.1 as: