Schemes of Arrangement by Listed Entities and Relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957
Summary
This circular revises the regulatory framework for schemes of arrangement by listed entities, amending existing regulations and requirements. It mandates that schemes filed after the circular's date are governed by these new provisions, while excluding mergers of wholly owned subsidiaries from certain procedural obligations. The document outlines specific submission requirements, valuation standards, and fee structures for such corporate actions. This section details specific examples of shareholding pattern changes, auditor certification requirements for accounting treatments, and complaint reporting procedures. It mandates website disclosures of draft schemes and observation letters, along with specific content requirements for shareholder explanatory statements. Furthermore, it establishes e-voting protocols for public shareholders in promoter-related transactions and outlines stock exchange obligations to forward documents to SEBI. This section mandates Stock Exchanges to disclose specific documents and observation letters on their websites immediately upon receipt. It outlines SEBI's procedure for processing draft schemes, including seeking clarifications and issuing comments
Text
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 place obligations with respect to Scheme of Arrangement on Listed Entities and Stock Exchange(s) in Regulation 11, 37 and 94.
Regulation 11 provides that schemes do not violate securities laws; Regulation 37 requires filing draft schemes with Stock Exchanges for Observation/No-objection Letter before court filing; Regulation 94 requires Stock Exchanges to forward draft schemes to SEBI.
Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957 provides that SEBI may waive or relax strict enforcement of listing requirements at its discretion or on recommendation of a recognised Stock Exchange.
The schemes filed after the date of this circular shall be governed under this circular. The Schemes already submitted to the stock exchange in terms of SEBI Circular No. CIR/CFD/CMD/16/2015 dated November 30, 2015, shall be governed by the requirements specified in that circular.
The Provisions of this circular shall not apply to schemes which solely provides for merger of a wholly owned subsidiary 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.
The issuance of shares under schemes in case of allotment of shares only to a select group of shareholders or shareholders of unlisted companies pursuant to such schemes shall follow the pricing provisions of Chapter VII of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
The listed entity shall pay a fee to SEBI at the rate of 0.1% of the paid-up share capital of the listed / transferee / resulting company, whichever is higher, post sanction of the proposed scheme, subject to a cap of Rs.5,00,000.
Listed entities shall choose one of the Stock Exchanges having nationwide trading terminals as the designated Stock Exchange for the purpose of coordinating with SEBI.
The Listed entity shall submit the following documents to the Stock Exchanges: Draft Scheme, Valuation Report, Audit Committee Report, Fairness opinion, Pre and post amalgamation shareholding pattern, Audited financials, Auditor’s Certificate, and Detailed Compliance Report.
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 shall not be less than 25%.
All listed entities are required to submit a valuation report from an Independent Chartered Accountant.
In case a wholly-owned-subsidiary (say, "entity X") of a listed entity is merged with its parent listed entity (say, "entity Y"), where the shareholders and the shareholding pattern of entity Y remains the same, it will be treated as 'no change in shareholding pattern'.
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Source: SecMarx — Schemes of Arrangement by Listed Entities and Relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.