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regulator Securities and Exchange Board of India (SEBI) issued a
circular on 16 November 2021 (the circular) concerning the
processing of schemes of arrangement by listed entities.
The circular states that SEBI has laid down the framework for
schemes of arrangement by listed entities on 22 December 2020.
Through this circular, SEBI has provided further clarification on
guidelines for processing draft schemes and made certain amendments
to the existing framework as well.
We have summarized the gist of the circular as
along with an undertaking
||The listed entity is
required to submit a valuation report. As per the revised
guidelines, this report needs to be accompanied by an undertaking
from the listed entity, stating that no material event impacting
the valuation has occurred during the intervening period of filing
the scheme documents with exchange and period under consideration
|Declaration on past
||The listed entity is
required to submit a declaration that if any past defaults of
listed debt obligations of the entities forming part of the
|No objection from
||The listed entity
will be required to submit a no objection certificate from the
lending scheduled commercial banks/financial institutions as well
as debenture trustees.
In case of
fractional entitlements in the scheme, the circular provides as
entitlements, if any, shall be aggregated and held by the trust,
nominated by the Board in that behalf;
- the trust shall
sell such shares in the market at such price, within a period of 90
days from the date of allotment of shares, as per the draft
- the listed company
has to submit a report from its audit committee and the independent
directors certifying that the listed entity has compensated the
- both the reports
will be submitted within 7 days of compensating the
- stock exchange to
ensure compliance with the guidelines and the non-compliance, if
any, has to be submitted to the regulator on a quarterly
- any misstatement or
furnishing of false information will make the listed entity liable
for punitive action
||This circular shall
be applicable for all the schemes filed with the stock exchanges
from the date of the circular.
Certain requirements need to be fulfilled before the scheme of
arrangement is submitted for sanction by the National Company Law
Tribunal. This includes that listed entities choose a stock
exchange with nationwide trading terminals as the designated stock
exchange to coordinate with SEBI. Approval of the scheme by SEBI is
pre-cursor for approval by the Tribunal. SEBI stated that the
amendments aim to ensure that the recognized stock exchanges refer
draft schemes to SEBI only upon being fully convinced that the
listed entity complies with SEBI regulatory framework. However, the
requirement of a no objection certificate from lenders tightens the
scheme process, and it increases one more layer of scrutiny. This
is likely to increase the timeline substantially as onboarding of
lenders is a prerequisite. The amendments further cast additional
onus on the audit committee and independent directors who are
required to submit their reports.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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