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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 ..... otwithstanding such rescission, 4.1. Anything done or any action taken or purported to have been done or taken under the rescinded circulars, prior to such rescission, shall be deemed to have been done or taken under the corresponding provisions of this Master Circular; 4.2. any application made to SEBI under the rescinded circulars, prior to such rescission, and pending before it shall be deemed to have been made under the corresponding provisions of this Master Circular; 4.3. the previous operation of the rescinded circulars or anything duly done or suffered thereunder, any right, privilege, obligation or liability acquired, accrued or incurred under the rescinded circulars, any penalty, incurred in respect of any violation committed against the rescinded circulars, or any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty as aforesaid, shall remain unaffected as if the rescinded circulars have never been rescinded; 5. Recognized Stock Exchanges, Issuers and other stakeholders are directed to: 5.1. comply with the conditions laid down in this circular; 5.2. bring the provisions of this ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urities and Exchange Board of India (SEBI) may, at its own discretion or on the recommendation of a recognized 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. [SEBI Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017] 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. [SEBI Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, inter alia, 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; d) Fairness opinion by a SEBI Registered merchant banker on valuation of assets/shares done by the valuer for the listed entity and unlisted 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 I 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 recomme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January 3, 2018 ] c) Unlisted entities can be merged with a listed entity only if the listed entity is listed on a Stock Exchange having nationwide trading terminals. 4. Valuation Report a) All listed entities are required to submit a valuation report from a Registered Valuer. [SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/215 dated November 3, 2020 ] The valuation report shall contain the workings, relative fair value per share and fair share exchange ratio in the manner as provided in Annexure-II. 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 there under. b) However, Valuation Report is not required in cases where there is no change in the shareholding pattern of the listed entity / resultant company. c) For the limited purpose of this Circular, 'change in the shareholding pattern' shall mean; i. change in the proportion of shareholding of any of the existing shareholders of the listed entity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the Draft Scheme from various sources (complaints/comments written directly to the listed entity or forwarded to it by the Stock Exchanges/SEBI) as per Annexure IV of this Circular prior to obtaining Observation Letter from Stock Exchanges on Draft Scheme. b) Report on Complaints as mentioned above, shall be submitted by listed entity to the Stock Exchanges within 7 days of expiry of 21 days from the date of filing of Draft Scheme with Stock Exchanges and hosting the Draft Scheme along with documents specified under para (2) above on the websites of Stock Exchanges and the listed entity. 7. Unpaid Dues Report [ SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2019/192 dated September 12, 2019 ] a) All listed entities shall ensure that all dues to, and/or fines/penalties imposed by SEBI, Stock Exchanges and the Depositories have been paid/settled before filing the draft scheme with the designated stock exchange. b) In case of unpaid dues / fines / penalties, the listed entity shall submit to stock exchanges a Report on the Unpaid Dues which shall contain the details of such unpaid dues in the format given in Annexure V to this Circular, prior to obtaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f votes cast by the public shareholders against it, in the following cases: i. Where additional shares have been allotted to Promoter / Promoter Group, Related Parties of Promoter / Promoter Group, Associates of Promoter / Promoter Group, Subsidiary/(s) of Promoter / Promoter Group of the listed entity, or ii. Where the Scheme of Arrangement involves the listed entity and any other entity involving Promoter / Promoter Group, Related Parties of Promoter / Promoter Group, Associates of Promoter / Promoter Group, Subsidiary/(s) of Promoter / Promoter Group. 12 SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/215 dated November 3, 2020 iii. Where the parent listed entity has acquired, either directly or indirectly, the equity shares of the subsidiary from any of the shareholders of the subsidiary who may be Promoter / Promoter Group, Related Parties of Promoter / Promoter Group, Associates of Promoter / Promoter Group, Subsidiary/(s) of Promoter / Promoter Group of the parent listed entity, and if that subsidiary is being merged with the parent listed entity under the Scheme. iv. Where the scheme involving merger of an unlisted entity results in reduction in the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed its specified securities, may seek listing of NCDs and/or NCRPS issued pursuant to a scheme of arrangement provided that it has complied with the following provisions:- a) Eligibility for seeking listing of NCRPS/ NCDs i. A listed entity which has listed its specified securities may seek listing of NCDs and/or NCRPS issued pursuant to a scheme of arrangement only in case where the listed entity is a part of such scheme of arrangement and such NCDs and/or NCRPS are issued to the holders of specified securities of such listed entity. Such scenarios may broadly include the following: A listed entity, which has listed its specified securities, (demerged entity) demerges a unit and transfers the same to another entity (resultant entity), and the resultant entity issues NCDs and/or NCRPS to the holders of the specified securities of listed entity (i.e. demerged entity) as a consideration under the scheme of arrangement. A listed entity, which has listed its specified securities, (amalgamating entity) is merged with another entity (amalgamated entity), and the amalgamated entity issues NCDs and/or NCRPS to the holders of the specified securities of listed entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e(s) 1. The designated Stock Exchange, upon receipt of the Draft Scheme of Arrangement and documents referred to at part (I) (A) (2) above shall forward the same to SEBI within three working days. 2. The Report on Complaints 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 to this Circular. 3. The Stock Exchanges where the specified securities are listed / proposed to be listed shall also disclose on their websites the documents listed at part (I) (A) (2) above immediately on receipt. It shall also disclose the Observation Letter on its website immediately upon issuance. 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. [SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2020/215 dated November 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the listed entity has compensated the eligible shareholders. Both the reports shall be submitted within 7 days of compensating the shareholders. 2. The Exchange shall ensure compliance of the above and non-compliance, if any, shall be submitted to SEBI on a quarterly basis. 3. 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. PART-II: Application for relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957 [ SEBI Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017 ]. A. Requirements to be fulfilled by Listed Entity for Listing of Equity Shares 1. Eligibility conditions for companies seeking relaxation under sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957 A listed issuer may submit the Draft Scheme of arrangement under sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, thereby seeking relaxation from the strict enforcement of clause (b) to sub-rule (2) of rule 19 thereof, for listing of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation) Rules, 1957 Stock Exchanges shall ensure that, an unlisted issuer may make an application to the Board under sub-rule (7) of rule 19 of the SCRR, pursuant to Part II(A) of this Circular if it satisfies the following conditions: a) Observation Letter or No Objection Letter has been issued by the Stock Exchanges to the Draft Scheme of arrangement; b) The listing of the equity shares of the transferee entity is in terms of the Scheme sanctioned by the Hon ble High Court / NCLT or its order whereby the Scheme of arrangement has been sanctioned; c) The equity shares sought to be listed have been allotted by the unlisted issuer (transferee entity) to the holders of securities of a listed entity (transferor entity); d) The names of the allottees have been entered as beneficial owners in the records of the depositories pursuant to the Scheme or share certificates have been dispatched to the allottees. 3. Additional conditions to be complied after the Scheme is sanctioned by the Hon ble High Court or NCLT and at the time of making application for relaxation under Sub-rule (7) of rule 19 of the Securities Contracts (Regulation) Rules, 1957, if listing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Chapter VI of the ICDR Regulations; and c) NCDs and warrants shall be traded in the minimum trade lot of one lakh rupees. C. Requirements to be fulfilled by Stock Exchange(s) 1. The designated Stock Exchange shall forward the documents to the Board along with its recommendations on documents and recommendation, if applicable, on the application for granting exemption, under sub-rule (7) of rule 19 of SCRR. D. Processing of the Scheme by SEBI 1. The Board may, while granting relaxation, if any, under sub-rule (7) of rule 19 of SCRR, stipulate any other conditions as may be deemed necessary in the interest of investors and securities market, under the facts and circumstances of the specific case. 2. SEBI shall endeavour to intimate its comments/approval, wherever applicable, to the designated Stock Exchange within 30 days of receipt of complete information, including the no-objection certificate from the Stock Exchange. Annexure I Format of the Compliance Report to be submitted along with the draft scheme It is hereby certified that the draft scheme of arrangement involving (Name of the entities) does not, in any way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Share X Y Exchange Ratio (rounded off) xx Annexure III Format for Auditor's Certificate To, The Board of Directors, . (Name and address of the Company) We, the statutory auditors of . (name of the listed entity),(hereinafter referred to as the Company ), have examined the proposed accounting treatment specified in clause (specify clause number) of the Draft Scheme of .. (specify the type of Scheme) between .. (names of the companies/entities involved) in terms of the provisions of section(s) (specify the relevant section(s)) of the Companies Act, 1956/ Companies Act, 2013 with reference to its compliance with the applicable Accounting Standards notified under the Companies Act, 1956/ Companies Act, 2013 and Other Generally Accepted Accounting Principles. The responsibility for the preparation of the Draft Scheme and its compliance with the relevant laws and regulations, includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 Number of complaints received directly 2 Number of complaints forwarded by Stock Exchanges / SEBI 3 Total Number of complaints/comments received (1+2) 4 Number of complaints resolved 5 Number of complaints pending Part B Sr. No. Name of complainant Date of Complaint Status 1 2 3 Sr. No. Particulars Details of dues/fine Amount Reason for non payment 1. Pending Dues of SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars/Notifications S. No. Circular / Master Circular Notification No. and Date Subject 1 CFD/DIL3/CIR/2017/21 dated March 10, 2017 Schemes of Arrangement by Listed Entities and (ii) Relaxation under Sub-rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957 2 CFD/DIL3/CIR/2017/26 dated March 23, 2017 Schemes of Arrangement by Listed Entities and (ii) Relaxation under Sub-rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957 3 CIR/IMD/DF/50/2017 dated May 26, 2017 Listing of Non-Convertible Redeemable Preference Shares (NCRPS) / Non- Convertible Debentures (NCDs) through a Scheme of Arrangement 4 CFD/DIL3/CIR/2017/105 dated September 21, 2017 Schemes of Arrangement by Listed Entities and (ii) Relaxation under Sub-rule (7) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957 5 CFD/DIL3/CIR/2018/2 Janu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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