Securities and Exchange Board of India (SEBI) vide circular dated January 03, 2018 has laid down the framework for Schemes of Arrangement by Listed Entities and relaxation under Rule 19 (7) of the Securities Contracts (Regulation) Rules, 1957.
SEBI has received representations suggesting improvements to the existing regulatory framework governing scheme of arrangement. Considering the above and in order to expedite the processing of draft schemes and to prevent misuse of schemes to bypass regulatory requirements, it has been decided to make certain amendments to the Circular. Amendment to Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017 is as under:-
· Para 7 has been substituted which reads as- The Provisions of this circular shall not apply to schemes which solely provides for merger of a wholly owned subsidiary or its division with the parent company. However, such draft schemes shall be filed with the Stock Exchanges for the purpose of disclosures and the Stock Exchanges shall disseminate the scheme documents on their websites.”
· New Para (I)(A)(2A) is inserted which reads as- The valuation report referred to in Para 2(b) above and the Fairness opinion referred to in Para 2(d) above shall be provided by Independent Chartered Accountant and Independent SEBI Registered Merchant Banker respectively. The chartered accountant and the merchant banker referred herein shall not be treated as independent in case of existence of any material conflict of interest among themselves or with the company, including that of common directorships or partnerships
· Para (I)(A)(3)(b) has been substituted which reads as- The percentage of shareholding of pre-scheme public shareholders of the listed entity and the Qualified Institutional Buyers (QIBs) of the unlisted entity, in the post scheme shareholding pattern of the “merged” company on a fully diluted basis shall not be less than 25%.
· Deletion of Para (II) Para (II) of Annexure I to the circular shall stand repealed.
· Para (III)(A)(3) has been substituted which reads as- In case of a scheme involving merger of a listed company or its division into an unlisted entity, the entire pre-scheme share capital of the unlisted issuer seeking listing shall be locked in as follows:
a) Shares held by Promoters up to the extent of twenty percent of the post-merger paid -up capital of the unlisted issuer, shall be locked in for a period of three years from the date of listing of the shares of the unlisted issuer;
b) The remaining shares shall be locked in for a period of one year from the date of listing of the shares of the unlisted issuer.
c) No additional lock-in shall be applicable if the post scheme shareholding pattern of the unlisted entity is exactly similar to the shareholding pattern of the listed entity Provided that the shares locked-in under this clause may be pledged with any scheduled commercial bank or public financial institution as collateral security for loan granted by such bank or institution if pledge of shares is one of the terms of sanction of the loan;
[Circular No.: CFD/DIL3/CIR/2018/2]