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Regulatory Alert - Amendment in the framework for Schemes of Arrangement by listed entities

19 November 2021

On 16 November 2021, the Securities and Exchange Board of India (SEBI), released a circular (Circular) amending certain provisions relating to the Schemes of Arrangement (Scheme) by listed entities as laid down under SEBI Master Circular dated 22 December 2020 (Master Circular). The amended provisions shall come into effect immediately and be applicable for all the schemes filed with the stock exchanges from the date of the Circular.

The key highlights of the Circular are summarised below:

Additional documentation/declaration

  • The listed entity,
    • While submitting a valuation report to the stock exchange for its in-principle approval, must also submit along with it, an undertaking stating that there has been no material event impacting the valuation during the period under consideration for valuation report till the filing of the scheme documents with stock exchange.
    • Shall declare all past defaults of listed debt obligations of all the entities forming part of the Scheme.
    • shall submit No Objection Certificate (NOC) from the lending scheduled commercial banks / financial institutions.

Fractional entitlement

  • All fractional entitlements, if any, shall be aggregated and held by the trust and 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 scheme submitted to SEBI.
  • The listed entity shall submit to the designated stock exchange, a report from its Audit Committee and the Independent Directors certifying that the listed entity has compensated all the eligible shareholders. Both these reports are to be submitted within 7 days of compensating the shareholders.
  • Any misstatement or false information will result in punitive action for the listed company.

BDO Comments

Vide this circular, SEBI has added a further compliance burden for a listed entity in relation to the processing of draft schemes filed with stock exchange. Taking an NOC from banks & financial institutions at the initial stage would only delay in culmination of the process, which can otherwise be sought through convening of the lenders meeting as per directions of the Hon’ble National Company Law Tribunal.