SEBI issues schemes of Arrangement by Listed Entities and Relaxation under Sub-rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957

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·       Deletion of Para (II) Para (II) of Annexure I to the circular shall stand repealed.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]