scheme of arrangement by listed entities

SEBI has vide its circular dated 3rd November, 2020 amended its own circular dated March 10, 2017 which laid down guidelines for scheme of arrangement by listed entities and the documents it needs to submit to the NCLT for that purpose. Following are the salient amendments.

  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

The highlighted portion has been added.

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.

Its a new para which has been added in Para IA(2) which pertains to submission of documents.

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.

The earlier requirement was valuation by an independent chartered accountant.

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 during 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.

The change is only in the section details earlier it was section 180(1)(a)(i) now it is section 180(1)(a)(ii)

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.

The highlighted portions have been changed. Co-ordination between stock exchanges in co-ordination with each other. Earlier the first Comment letter was on receipt of NOC from designated stock exchange and the second Comment letter was on receipt of NOC from stock exchanges having nationwide terminals. It has been flipped around.

The words ‘Observation letter or’ in Para C(1) and Para C(2c) stand deleted.

Where the NOC has been specified, Observation letter becomes redundant and is therefor deleted.

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;
h. 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.

Para (III)(A)(5) refers to application to be made seeking relaxation under rule 19(7) of Securities Contracts Regulation Rules, 1957.

Rule 19(7) The 27[Securities and Exchange Board of India] may, at its own discretion or on the recommendation of a recognised stock exchange, waive or relax the strict enforcement of any or all of the requirements with respect to listing prescribed by these rules.

The highlighted portions are amended. Earlier the time period was 45 days.

Para III B of Annexure I to the circular shall stand repealed.

IIIB pertained to application by a listed entity for listing of equity shares with differential rights as to dividend, voting or otherwise.

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