Executive Summary:
This circular, issued by SEBI on November 16, 2021, amends the framework for Schemes of Arrangement by listed entities as outlined in Master Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/249 dated December 22, 2020. The amendments aim to ensure stock exchanges refer draft schemes to SEBI only when fully satisfied with the listed entity's compliance. This circular is applicable to all schemes filed with stock exchanges from November 16, 2021.
Key Points / Main Content:
* **Amendments to Draft Scheme Processing:**
* Stock exchanges must be fully convinced of a listed entity's compliance with SEBI regulations before referring draft schemes to SEBI.
* **Amendments to Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/249:**
* **Valuation Report:** Listed entity must provide an undertaking stating that no material event impacting valuation occurred during the period between filing with the Stock Exchange and the valuation period.
* **Declaration of Defaults:** Listed entity must declare any past defaults on listed debt obligations of entities within the scheme.
* **No Objection Certificate (NOC):** NOC required from lending scheduled commercial banks/financial institutions.
* **Fractional Entitlements:** Fractional entitlements shall be aggregated and held by a trust nominated by the Board, who will sell the shares in the market within 90 days from the date of allotment.
* **Shareholder Compensation Report:** The listed company shall submit reports from its Audit Committee and Independent Directors certifying that the listed entity has compensated the eligible shareholders. Both reports shall be submitted within 7 days of compensating the shareholders.
* **Exchange Oversight:** Exchanges must ensure compliance and report non-compliance to SEBI quarterly.
* **False Information:** Misstatements or false information will result in punitive action.
Impact Analysis:
**Recognized Stock Exchanges:**
* *Impact:* Responsible for ensuring listed entities comply with the circular's provisions before referring draft schemes to SEBI. They must also disseminate the circular on their websites and ensure compliance regarding fractional entitlements.
* *Action Required:* Bring the circular to the notice of listed companies, disseminate it on their websites, ensure compliance of Para D 1, and submit non-compliance reports to SEBI quarterly.
**Listed Entities:**
* *Impact:* Subject to new requirements regarding valuation reports, declaration of defaults, obtaining NOCs, managing fractional entitlements, and reporting on shareholder compensation.
* *Action Required:* Provide an undertaking on the valuation report, declare past defaults on debt obligations, obtain NOCs from lenders, manage fractional entitlements as per the circular, and submit reports on shareholder compensation.
**Merchant Bankers and Brokers registered with SEBI Registrars to an Issue:**
* *Impact:* Need to be aware of the updated requirements for Schemes of Arrangement and ensure compliance in their respective roles.
* *Action Required:* Ensure compliance with the updated requirements in their respective roles when advising or assisting listed entities with Schemes of Arrangement.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulator of the securities market in India. The circular is issued by SEBI.
SEBI Act, 1992: The Securities and Exchange Board of India Act, 1992, which provides SEBI with the legal authority to regulate the securities market.
SEBI Listing Obligations and Disclosure Requirements Regulations, 2015: Regulations pertaining to the listing obligations and disclosure requirements for listed entities, as per SEBI.
Securities Contracts Regulation Rules, 1957: Rules pertaining to securities contracts regulation.
Schemes of Arrangement: Refers to corporate restructuring plans undertaken by listed entities, which are the subject of this circular.
SEBI Master Circular No. SEBIHOCFDDIL1CIRP2020249: SEBI Master Circular regarding the framework for Schemes of Arrangement by listed entities, dated December 22, 2020.
Recognized Stock Exchanges: Stock exchanges that are recognized by SEBI.
Audit Committee: A committee of the listed company that is responsible for oversight of the financial reporting process.
CIRCULAR
SEBI/HO/CFD/DIL2/CIR/P/2021/0000000657 November 16, 2021
To
All Recognized Stock Exchanges (except Commodity Exchanges)
All Recognized Depositories
Issuer Companies
Merchant Bankers and Brokers registered with SEBI
Registrars to an Issue
Dear Sir / Madam,
Sub: Schemes of Arrangement by Listed Entities
1. SEBI Master Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/249 dated December 22, 2020 has laid
down the framework for Schemes of Arrangement by listed entities.
2. Empowering the stock exchanges: It has been decided to provide further clarifications on the
processing of draft schemes filed with the stock exchanges, and make certain amendments to
the aforesaid Circular dated December 22, 2020, as provided in the Annexure to this Circular.
These amendments are aimed at ensuring that the recognized stock exchanges refer draft
schemes to SEBI only upon being fully convinced that the listed entity is in compliance with SEBI
Act, Rules, Regulations and circulars issued thereunder.
3. Applicability of this Circular: This Circular shall be applicable for all the schemes filed with the
stock exchanges from the date of the Circular.
4. The recognized stock exchanges are directed to bring the provisions of this circular to the notice
of the listed companies and also to disseminate the same on their website
Page 1 of 35. This circular is issued in exercise of powers conferred by Section 11(1) of the Securities and
Exchange Board of India Act, 1992 and Regulations 11, 37 and 94 read with Regulation 101(2)
of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Rule 19(7) of
Securities Contracts (Regulation) Rules, 1957 to protect the interests of investors in securities
and to promote the development of, and to regulate the securities market.
6. A copy of this circular is available on SEBI website at www.sebi.gov.in under the categories
“Legal Framework/Circulars”.
Yours faithfully,
Yogita Jadhav
General Manager
Corporation Finance Department
+91 22 2644 9583
Email - yogitag@sebi.gov.in
Page 2 of 3Annexure
Amendment to PART-I of Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/249 dated December 22,
2020 (‘the circular’)
1. Amendment to Part I Para A 2(b)
Para 2(b) of the Circular stands revised as follows:
Valuation Report as per Para (4) below; accompanied with an undertaking from the listed entity
stating that no material event impacting the valuation has occurred during the intervening
period of filing the scheme documents with Stock Exchange and period under consideration for
valuation.
2. Insertion of Part I Para A 2(j)
Declaration from the listed entity on any past defaults of listed debt obligations of the entities
forming part of the scheme.
3. Insertion of Part I Para A 2(k)
No Objection Certificate (NOC) from the lending scheduled commercial banks/financial
institutions.
4. Insertion of Part I, Para D
1. The fractional entitlements, if any, shall be aggregated and held by the trust, nominated by
the Board in that behalf, who shall sell such shares in the market at such price, within a
period of 90 days from the date of allotment of shares, as per the draft scheme submitted
to SEBI.
2. The listed company shall submit to the designated stock exchange a report from its Audit
Committee and the Independent Directors certifying that the listed entity has compensated
the eligible shareholders. Both the reports shall be submitted within 7 days of compensating
the shareholders.
3. The Exchange shall ensure compliance of the above and non-compliance, if any, shall be
submitted to SEBI on a quarterly basis.
4. Any misstatement or furnishing of false information with regard to the said information
shall make the listed entity liable for punitive action as per the provisions of applicable laws
and regulations.
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