Executive Summary:
This SEBI circular, dated November 3, 2020, streamlines the processing of draft schemes of arrangement by listed entities and amends the circular dated March 10, 2017. It ensures stock exchanges refer draft schemes to SEBI only when fully convinced of the listed entity's compliance. The circular is applicable to schemes filed after November 17, 2020, with an amendment regarding listing and trading approval applicable from November 3, 2020.
Key Points / Main Content:
* **Audit Committee Report:**
* The Audit Committee must consider the Valuation Report and comment on the need, rationale, synergies, shareholder impact, and cost-benefit analysis of the scheme.
* **Committee of Independent Directors:**
* A Committee of Independent Directors must recommend the draft scheme, confirming it is not detrimental to shareholders.
* **Valuation Report:**
* All listed entities must submit a valuation report from a Registered Valuer as specified in Section 247 of the Companies Act, 2013.
* **Definition of "Substantially the Whole of the Undertaking":**
* "Substantially the whole of the undertaking" means twenty percent or more of the company's value in terms of consolidated net worth or consolidated total income during the previous financial year.
* **No-Objection Letter:**
* Stock Exchanges shall provide the No-Objection letter to SEBI on the draft scheme in coordination with each other. SEBI shall issue a comment letter upon receipt.
* **Observation Letter:**
* The words "Observation letter" are deleted from Para C1 and Para C2c.
* **Listing of Specified Securities:**
* Listing and trading of securities must commence within sixty days of the High Court/NCLT order on all stock exchanges where the entity was listed.
* The transferee entity must disclose information, including financial details and risk factors, via stock exchange websites and advertisements in specified newspapers.
* **Repeal:**
* Para IIIB of Annexure I to the circular is repealed.
Impact Analysis:
**Listed Entities:**
* *Impact:* Changes in requirements for schemes of arrangement, valuation reports, and disclosures.
* *Action Required:* Comply with the amended requirements for submitting draft schemes, including obtaining valuation reports from registered valuers and ensuring Audit Committee and Committee of Independent Directors provide necessary reports.
**Stock Exchanges:**
* *Impact:* Streamlined process for reviewing draft schemes, increased responsibility for ensuring listed entity compliance, and coordinating the provision of No-Objection letters to SEBI.
* *Action Required:* Implement the revised process for draft scheme review, ensure listed entities are informed of the circular's provisions, and disseminate the circular on their websites.
**Investors:**
* *Impact:* Enhanced disclosures and a more rigorous review process for schemes of arrangement, potentially leading to better-informed investment decisions and protection of interests.
* *Action Required:* Review disclosures made by listed entities regarding schemes of arrangement and consider the information when making investment decisions.
**Registered Valuers:**
* *Impact:* Increased demand for valuation reports and need to adhere to the requirements specified under the Companies Act, 2013.
* *Action Required:* Ensure they meet the qualification and experience criteria as specified in Section 247 of the Companies Act, 2013 and comply with the applicable rules.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body for securities markets in India, responsible for protecting investors and promoting market development.
Securities Contracts Regulation Rules, 1957: A set of rules governing the regulation of securities contracts in India.
SEBI Listing Obligations and Disclosure Requirements Regulations, 2015: Regulations pertaining to the listing obligations and disclosure requirements for listed entities in India.
Nationwide Stock Exchanges: Stock exchanges in India that have trading terminals accessible across the country.
Schemes of Arrangement: Corporate restructuring plans undertaken by listed entities, such as mergers, demergers, and amalgamations.
SEBI Act, 1992: The law that established the Securities and Exchange Board of India (SEBI) and defines its powers and functions.
Companies Act, 2013: Indian law that regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.
Audit Committee: A committee of the board of directors responsible for overseeing the financial reporting process and internal controls of a company.
CIRCULAR
SEBI/HO/CFD/DIL1/CIR/P/2020/215 November 3, 2020
To
All Listed Entities who have listed their equity and convertibles
All the Nationwide Stock Exchanges
Dear Sir/Madam,
Sub: Schemes of Arrangement by Listed Entities and (ii) Relaxation under Sub-
rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957
1. SEBI Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017 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.
2. Empowering the stock exchanges: It has been decided to further streamline the
processing of draft schemes filed with the stock exchanges, and make certain
amendments to the aforesaid Circular dated March 10, 2017, 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 after November 17, 2020.
The amendment indicated at Para 7 of the Annexure shall be applicable for all
listed entities seeking listing and/or trading approval from the stock exchanges after
November 3, 2020.
Page 1 of 54. 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.
5. 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
yogitag@sebi.gov.in
Page 2 of 5Annexure
Amendment to Annexure 1 of Circular No.CFD/DIL3/CIR/2018/2 dated March 10,
2017 (‘the circular’)
1. Amendment to Para I A(2)
Para 2(c) of the Circular stands revised as follows:
Report from the Audit Committee recommending the Draft Scheme, taking into
consideration, interalia, the Valuation Report. The Valuation Report is required
to be placed before the Audit Committee of the listed entity. The Audit
Committee report shall also comment on the following:
• Need for the merger/demerger/amalgamation/arrangement
• Rationale of the scheme
• Synergies of business of the entities involved in the scheme
• Impact of the scheme on the shareholders.
• Cost benefit analysis of the scheme.
2. Insertion of Para I A(2)(i)
Following para shall be inserted in Para I A(2), Sr. No. (i)
(i) Report from the Committee of Independent Directors recommending the
draft Scheme, taking into consideration, interalia, that the scheme is not
detrimental to the shareholders of the listed entity.
3. Amendment to Para 4
Para 4(a) of the Circular shall be replaced with the following:
(a) “All listed entities are required to submit a valuation report from a Registered
Valuer.”
For the purpose of this clause, the Registered Valuer shall be a person,
registered as a valuer, having such qualifications and experience and being
a member of an organization recognized, as specified in Section 247 of the
Companies Act, 2013 read with the applicable Rules issued thereunder.
4. Amendment to Para 9(b)(v)
The explanation to Para 9(b)(v) of the Circular stands revised as follows:
For the purpose of this clause, the expression “substantially the whole of the
undertaking” in any financial year shall mean twenty percent or more of value
of the company in terms of consolidated net worth or consolidated total income
Page 3 of 5during previous financial year as specified in Section 180(1)(a)(ii) of the
Companies Act, 2013.
For the purpose of this clause, the term ‘public’ shall carry the same meaning
as defined under Rule 2 of Securities Contracts (Regulation) Rules, 1957.
5. Amendment to Para B(4)
Para B(4) of Annexure 1 shall be replaced with the following:
“4. Stock Exchanges shall provide the ‘No-Objection’ letter to SEBI on the draft
scheme; in co-ordination with each other. SEBI shall issue Comment letter upon
receipt of ‘‘No-Objection’ letter from Stock Exchanges having nationwide
trading terminals. In other cases, SEBI shall issue Comment letter upon receipt
of ‘‘No-Objection’ letter from the Designated Stock Exchange.
6. Amendment to Para C(1) and Para C(2c)
The words ‘Observation letter or’ in Para C(1) and Para C(2c) stand deleted.
7. Amendment to Para III(A)(5)
Para III(A)(5) of Annexure 1 stands revised as under:
“5. It shall be ensured that steps for listing of specified securities are completed
and trading in securities commences within sixty days of receipt of the order of
the Hon’ble High Court/NCLT, simultaneously on all the stock exchanges where
the equity shares of the listed entity (or transfer entity) are/were listed. Before
commencement of trading, the transferee entity in addition to disclosing the
information in the form of an information document on the website of the stock
exchange/s shall also give an advertisement in one English and one Hindi
newspaper with nationwide circulation and one regional newspaper with wide
circulation at the place where the registered office of the transferee entity is
situated, giving following details:”
a. Name of the Company;
b. Address of Registered Office and Corporate Office of Company;
c. Details of change of name and/or object clause;
d. Capital structure - pre and post scheme of amalgamation. This shall
provide details of the authorized, issued, subscribed and paid up capital
(Number of instruments, description, and aggregate nominal value);
e. Shareholding pattern giving details of its promoter group shareholding,
group companies - pre and post scheme of amalgamation;
f. Names of its ten largest shareholders - number and percentage of
shares held by each of them, their interest, if any;
g. Name and details of Promoters - educational qualifications, experience,
address;
Page 4 of 5h. Name and details of Board of Directors (experience including current /
past position held in other firms);
i. Business Model / Business Overview and Strategy;
j. Reason for the amalgamation;
k. Restated Audited Financials for the previous three financial years prior
to the date of listing;
l. Latest restated audited financials along with notes to accounts and any
audit qualifications. (Financial statements should not be later than six
months prior to the date of listing);
m. Change in accounting policies in the last three years and their effect on
profits and reserves;
n. Summary table of contingent liabilities as disclosed in the restated
financial statements;
o. Summary table of related party transactions in last 3 years as disclosed
in the restated financial statements;
p. Details of its other group companies including their capital structure and
financial statements;
q. Internal Risk Factors (Minimum 5 and Maximum 10);
r. Outstanding litigations and defaults of the transferee entity, promoters,
directors or any of the group companies;
s. Regulatory Action, if any - disciplinary action taken by SEBI or Stock
Exchanges against the Promoters in last 5 financial years;
t. Brief details of outstanding criminal proceedings against the Promoters;
u. Particulars of high, low and average prices of the shares of the listed
transferor entity during the preceding three years;
v. Any material development after the date of the balance sheet; and
w. Such other information as may be specified by the Board from time to
time.
8. Deletion of Para III(B)
Para III B of Annexure I to the circular shall stand repealed.
***********
Page 5 of 5