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TMI BlogMaster Circular on (i) Scheme of Arrangement by Listed Entities and (ii) Relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. A list of SEBI circulars compiled in this Master Circular is given in Appendix at the end of this Master Circular. 5. In case of any inconsistency between the Master Circular and the applicable circulars, the content of the relevant circular shall prevail. 6. This circular is available on SEBI website at www.sebi.gov.in. Yours faithfully Yogita Jadhav General Manager Table of Contents Particulars Page No. Preliminary 3 Part I Requirements before the Scheme of arrangement is submitted for sanction by the National Company Law Tribunal (NCLT) A. Requirements to be fulfilled by Listed entity B. Obligations of Stock Exchange(s) C. Processing of the Draft Scheme by SEBI 4-11 12 12 Part II Application for relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957 A. Requirements to be fulfilled by Listed Entity for Listing of Equity Shares B. Application by a listed entity for Listing of warrants offered along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized Stock Exchange, waive or relax the strict enforcement of any or all of the requirements with respect to listing prescribed by these rules. 4. The Provisions of this circular shall not apply to schemes which solely provide for merger of a wholly owned subsidiary or its division with the parent company. 2 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. 5. 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 V of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended from time to time (hereinafter referred to as the ICDR Regulations ). It is clarified that the relevant date for the purpose of computing pricing shall be the date of Board meeting in which the scheme is approved. 3 6. 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 sanct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity; (e) Pre and post amalgamation shareholding pattern of unlisted entity; (f) Audited financials of last 3 years (financials not being more than 6 months old) of unlisted entity; (g) Auditor s Certificate as per Para (5) below; (h) Detailed Compliance Report as per the format specified in Annexure III duly certified by the Company Secretary, Chief Financial Officer and the Managing Director, confirming compliance with various regulatory requirements specified for schemes of arrangement and all accounting standards. (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. (j) Declaration from the listed entity on any past defaults of listed debt obligations of the entities forming part of the scheme. 7 (k) No Objection Certificate (NOC) from the lending scheduled commercial banks/financial institutions/debenture trustees. 8 2A. 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 a Registered Valuer and Independent SEBI Registered Merc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the resultant company; or (iii) existing shareholder exiting the company pursuant to the Scheme of Arrangement (d) Further, a few examples illustrating 'no change in shareholding pattern' are indicated below: (i) In case a listed entity (say, entity A ) demerges a unit and makes it a separate company (say, entity B ); 1) if the shareholding of entity B is comprised only of the shareholders of entity A; and 2) if the shareholding pattern of entity B is the same as in entity A; and 3) every shareholder in entity B holds equity shares in the same proportion as held in entity A before the demerger (ii) 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'. For the limited purpose of this Circular, 'resultant company' shall mean a company arising / remaining after the listed entity undertakes a Scheme of Arrangement. 5. Auditor s certificate (a) An auditors certificate shall be filed to the effect that the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft scheme. (d) 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. 8. Disclosure on the Website (a) Immediately upon filing of the Draft Scheme of arrangement with the Stock Exchanges, the listed entity shall disclose the Draft Scheme of arrangement and all the documents specified under para (2) above on its website. (b) Listed entity shall also disclose the Observation Letter of the Stock Exchanges on its website within 24 hours of receiving the same. 9. Explanatory Statement or notice or proposal accompanying resolution sent to shareholders for seeking approval of scheme (a) The Listed entity shall include the Observation Letter of the Stock Exchanges, in the explanatory statement or notice or proposal accompanying resolution to be passed sent to the shareholders seeking approval of the Scheme. (b) The listed entity shall ensure that in the explanatory statement or notice or proposal accompanying resolution to be passed, it shall disclose the pre and post-arrangement or amalgamation, expected capital structu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of this clause, the expression substantially the whole of the undertaking in any financial year shall mean twenty per cent or more of value of the company in terms of consolidated net worth or consolidated total income during previous financial year as specified in Section 180(1)(a)(ii) of the Companies Act, 2013. 13 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. (c) For all other cases, the requirements stated at para (10) (b) above, i.e. approval only by public shareholders, shall not be applicable. In such cases, the listed entities shall furnish an undertaking certified by the auditor and duly approved by the Board of the company, clearly stating the reasons for non-applicability of para (10) (a) above. (d) The undertaking as referred to in Para (10) (c) above shall be displayed on the websites of Stock Exchanges and the listed entity along with other documents submitted, as stipulated under Para (2) above. (e) Any misstatement or furnishing of false information with regard to the said undertaking would be viewed seriously and liable for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g: The NCRPS/NCDs have been assigned minimum such credit rating, if any, specified for public issue of NCRPS under SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 or for public issue of NCDs in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008, as the case may be by a credit rating agency registered with the Board. (iv) Valuation Report: The Valuation Report, referred in Para (I)(A)(4) of this Circular shall also include valuation of the underlying NCRPS/ NCDs to be issued pursuant to the scheme of arrangement. (v) Disclosures in the Scheme of Arrangement: The following should be clearly disclosed in Draft Scheme of Arrangement:- (a) Face Value Price (b) Dividend/Coupon: The terms of payment of dividends/Coupon including frequency etc (c) Credit Rating (d) Tenure/ Maturity (e) Redemption: The terms of redemption, amount, date, redemption premium/discount,, and early redemption scenarios, if any (f) Other embedded features (put option, call option, dates, notification times, etc. (g) Other terms of instruments (i.e. term sheet) (h) Any other information/details pertinent for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Unpaid Dues Report shall be forwarded by the Stock Exchanges to SEBI before SEBI communicates its comments on the Draft Scheme to the Stock Exchanges. Such report shall be submitted as per the format specified at Annexure IV. 16 C. Processing of the Draft Scheme by SEBI 17 1. Upon receipt of No-Objection letter from the Stock Exchanges, SEBI shall provide its comments on the Draft Scheme of arrangement to the Stock Exchanges. While processing the Draft Scheme, SEBI may seek clarifications from any person relevant in this regard including the listed entity or the Stock Exchanges and may also seek an opinion from an Independent Chartered Accountant. 2. SEBI shall endeavour to provide its comments on the Draft Scheme to the stock exchanges within 30 days from the later of the following: (a) date of receipt of satisfactory reply on clarifications, if any sought from the listed entity by SEBI; or (b) date of receipt of opinion from Independent Chartered Accountant, if sought by SEBI; or (c) date of receipt of No-Objection letter from the Stock Exchanges. (d) date of receipt of copy of in-principle approval for listing of equity shares of the company se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Companies Act, 2013; (b) At least twenty five per cent of the post-scheme paid up share capital of the transferee entity shall comprise of shares allotted to the public shareholders in the transferor entity; Provided that an entity which does not comply with the above requirement may satisfy the following conditions: i. The entity has a valuation in excess of ₹ 1600 crore as per the valuation report; ii. The value of post-scheme shareholding of public shareholders of the listed entity in the transferee entity is not less than ₹ 400 crore; iii. At least ten percent of the post-scheme paid up share capital of the transferee entity comprises of shares allotted to the public shareholders of the transferor entity; and, The entity shall increase the public shareholding to at least 25% within a period of one year from the date of listing of its securities and an undertaking to this effect is incorporated in the scheme. 20 (c) The transferee entity will not issue/ reissue any shares, not covered under the Draft Scheme of arrangement; (d) As on date of application, there are no outstanding warrants/ instruments/ agreements which give right to any person t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50/2017 dated May 26, 2017 and SEBI Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017, as amended from time to time and with various regulatory requirements specified for schemes of arrangement. 4. 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 further 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree 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. 24 B. Application by a listed entity for Listing of warrants Offered Along With Non-Convertible Debentures (NCDs): A listed entity, desirous of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, including the applicable Accounting Standards as aforesaid, is that of the Board of Directors of the Companies involved. Our responsibility is to examine and report whether the Draft Scheme complies with the applicable Accounting Standards and Other Generally Accepted Accounting Principles. Nothing contained in this Certificate, nor anything said or done in the course of, or in connection with the services that are subject to this Certificate, will extend any duty of care that we may have in our capacity of the statutory auditors of any financial statements of the Company. We carried out our examination in accordance with the Guidance Note on Audit Reports and Certificates for Special Purposes, issued by the Institute of Chartered Accountants of India. Based on our examination and according to the information and explanations given to us, we confirm that the accounting treatment contained in the aforesaid scheme is in compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and circulars issued thereunder and all the applicable Accounting Standards notified by the Central Government under the Companies Act, 1956/ Companies Act, 2013 and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e(s) and the same is in compliance with the applicable provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and this circular, including the following: Sl. Reference Particulars 1 Regulations 17 to 27 of LODR Regulations Corporate governance requirements 2 Regulation 11 of LODR Regulations Compliance with securities laws Requirements of this circular (a) Para (I)(A)(2) Submission of documents to Stock Exchanges (b) Para (I)(A)(2) Conditions for schemes of arrangement involving unlisted entities (c) Para (I)(A)(4) (a) Submission of Valuation Report (d) Para (I)(A)(5) Auditors certificate regarding compliance with Accounting Standards (e) Para (I)(A)(9) Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n compliance with the applicable provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, SEBI Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017, and SEBI Circular No. CIR/IMD/DF/50/2017 dated May 26, 2017, as amended from time to time, including the following: Sr. No. Reference Particulars Whether complied (YES/NO) Remarks (How complied) 1 Para 12(A)(i) Eligibility for seeking listing of NCRPS/NCDs 2 Para 12(A)(ii) Tenure/Maturity 3 Para 12(A)(iii) Credit Rating 4 Para 12(A)(iv) Valuation Report 5 Para 12(A)(v) Disclosures in the Scheme of Arrangement 6 Para 12(A)(vi) Other Cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/CIR/P/2021/0000000659 dated November 18, 2021 9 SEBI Circular No. CFD/DIL3/CIR/P/2018/2 dated January 3, 2018 10 SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/215 dated November 3, 2020 11 SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2019/192 dated September 12, 2019 12 SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/215 dated November 3, 2020 13 SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/215 dated November 3, 2020 14 SEBI Circular No. CIR/IMD/DF/50/2017 dated May 26, 2017 15 SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/215 dated November 3, 2020 16 SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2019/192 dated September 12, 2019 17SEBI Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017 and SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/215 dated November 3, 2020 18 SEBI Circular No. SEBI/HO/CFD/DIL2/CIR/P/2021/0000000657 dated November 16, 2021 19 SEBI Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017 20 SEBI Circular No. CFD/DIL3/CIR/2017/105 dated September 21, 2017 21 SEBI Circular No. CIR/IMD/DF/50/2017 dated May 26, 2017 22 SEBI Circular No. CFD/DIL3/CIR/P/2018/2 dated January 3, 2018 23 SEBI Circular No. CFD/DIL3/CIR/P/2018/2 dat ..... 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