Date: 2021-07-06Category: Not ApplicableState: Union GovernmentCountry: India
Standard Operating Procedure for listed subsidiary company desirous of getting delisted through a Scheme of Arrangement wherein the listed parent holding company and the listed subsidiary are in the same line of business
Executive Summary:
This circular, issued by SEBI on July 6, 2021, clarifies the criteria for defining "same line of business" when a listed subsidiary seeks delisting through a scheme of arrangement with its listed parent company. It specifies requirements for revenue, assets, and industrial classification, along with certification by auditors and merchant bankers. The circular also references the requirement for both companies to be listed for at least 3 years.
Key Points / Main Content:
Definition of "Same Line of Business":
* The principal economic activities of both the listed holding company and the listed subsidiary must fall under the same 3-digit numeric code according to the National Industrial Classification (NIC) Code 2008.
* At least 50% of revenue from operations of both companies must come from the same line of business, as per the last audited annual financial results submitted under SEBI LODR Regulations, 2015.
* At least 50% of net tangible assets of both companies must be invested in the same line of business, as per the last audited annual financial results submitted under SEBI LODR Regulations, 2015.
* In case of a name change within the last year, at least 50% of the revenue for the preceding full year (restated and consolidated) must be from the activity indicated by the new name.
* The listed holding company and the listed subsidiary must provide self-certification that both companies are in the same line of business.
Certification Requirements:
* The above criteria must be certified by the Statutory Auditor and a SEBI Registered Merchant Banker.
Listing Duration Requirements:
* The shares of the listed holding company and the subsidiary company must be listed for at least 3 years.
* The subsidiary company must be a listed subsidiary of the listed holding company for a period of at least 3 years.
Dissemination:
* Recognized stock exchanges are directed to bring the provisions of this circular to the notice of the listed companies and disseminate the same on their website.
Impact Analysis:
Listed Entities (Holding and Subsidiary Companies):
Impact: Must adhere to the specified criteria for "same line of business" if a subsidiary seeks delisting through a scheme of arrangement. They must also meet the listing duration requirements.
Action Required: Ensure compliance with the "same line of business" criteria, provide necessary self-certification, and meet the minimum listing duration.
Statutory Auditors and SEBI Registered Merchant Bankers:
Impact: Required to certify the compliance of listed entities with the "same line of business" criteria.
Action Required: Perform due diligence and provide accurate certification regarding the "same line of business" criteria.
Recognized Stock Exchanges:
Impact: Responsible for informing listed companies about this circular and disseminating it on their websites.
Action Required: Notify listed companies about the circular's provisions and publish the circular on their websites.
Investors:
Impact: Protection of interests in securities.
Action Required: No action specified.
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.
SEBI Delisting of Equity Shares Regulations, 2021: Regulations pertaining to the delisting of equity shares from stock exchanges in India.
Scheme of Arrangement: A corporate restructuring mechanism used for delisting a subsidiary company when the parent and subsidiary are in the same line of business.
SEBI LODR Regulations, 2015: SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 which establishes requirements for listed entities.
National Industrial Classification (NIC) Code 2008: A standardized system for classifying economic activities, used to define the 'same line of business' criterion.
Nationwide Stock Exchanges: Stock exchanges operating across India, to whom the circular is addressed.
Securities and Exchange Board of India Act, 1992: The law that established SEBI and defines its powers and functions.
Yogita Jadhav: General Manager at SEBI, signatory of the circular.
CIRCULAR
SEBI/HO/CFD/DIL1/CIR/P/2021/0585 Date: July 06, 2021
To
All Listed Entities who have listed their equity and convertibles
All the Nationwide Stock Exchanges
Dear Sir/Madam,
Sub: Standard Operating Procedure for listed subsidiary company desirous of
getting delisted through a Scheme of Arrangement wherein the listed parent
holding company and the listed subsidiary are in the same line of business.
1. SEBI, vide notification dated June 10, 2021, has notified the amendments made to
the SEBI (Delisting of Equity Shares) Regulations, 2021 wherein, in Chapter VI,
Part C, and Regulation 37, special provisions for a listed subsidiary company
getting delisted through a scheme of arrangement have been inter-alia inserted
with respect to a listed holding company and the listed subsidiary company who
are in the ‘same line of business’.
2. It is hereby clarified that for the purposes of defining ‘same line of business’, the
following criteria need to be fulfilled by the listed holding company and the listed
subsidiary company: -
i. The principal economic activities of both Holding company and Subsidiary
Company are under the same Group (3-digit numeric code) under the
National Industrial Classification (NIC) Code 2008.
ii. Not less than 50% of revenue from the operations of the listed holding and
listed subsidiary company must come from the same line of business as per
Page 1 of 3last audited annual financial results submitted by both the companies in
compliance with SEBI (LODR) Regulations, 2015.
iii. Not less than 50% of the net tangible assets of the listed holding and listed
subsidiary must have been invested in the same line of business as per last
audited annual financial results submitted by both the companies in
compliance with SEBI (LODR) Regulations, 2015.
iv. In case of change of name of the listed entities, within the last one year, at
least fifty percent of the revenue, calculated on a restated and consolidated
basis, for the preceding one full year has to be earned by it from the activity
indicated by its new name.
v. The listed holding company and the listed subsidiary have to provide a self
certification with respect to both the companies being in the same line of
business.
3. All of the above mentioned criteria (i.e. Sr. No. 2 i to 2 v) shall be certified by the
Statutory Auditor and SEBI Registered Merchant Banker.
4. In terms of Regulation 37(2)(e) and (f) of the SEBI (Delisting of Equity Shares)
Regulations, 2021, the shares of the listed holding company and the subsidiary
company shall be listed for at least 3 years and the subsidiary company shall be a
listed subsidiary of the listed holding company for a period of 3 years.
5. 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.
6. 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
of SEBI (Listing Obligations and Disclosure Requirements) Regulations, to protect
the interests of investors in securities and to promote the development of, and to
Page 2 of 3regulate the securities market.
7. 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
yogitaj@sebi.gov.in
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