To
The Stock Exchanges
Dear Sir/Madam
Sub: Scheme of Arrangement
under the Companies Act, 1956 – Revised requirements for the Stock Exchanges
and Listed Companies
1. Vide Circular No.
SEBI/CFD/SCRR/01/2009/03/09, dated September 03, 2009 (“Circular”) certain
requirements were prescribed for seeking exemption under sub-rule (7) of rule
19 of the Securities Contracts (Regulation) Rules, 1957 (“SCRR, 1957”) from
strict enforcement of clause (b) to sub-rule (2) of rule 19 by listed
companies.
2. The existing Clause 24(f)
of the Listing Agreement mandates that a listed company shall file any
scheme/petition, proposed to be filed before any Court or Tribunal under
sections 391, 394 and 101 of the Companies Act, 1956, with the stock exchange,
for approval, at least a month before it is presented to the Court or Tribunal.
3. In terms of the above
mentioned Circular, pursuant to a scheme of reconstruction or amalgamation
being sanctioned by the Hon’ble High Court under sections 391-394 or 101 of the
Companies Act, 1956 (“Scheme”), the listed companies desirous of getting their
equity shares listed after merger/de-merger/amalgamation etc. were required to
seek an exemption from Securities and Exchange Board of India (“SEBI”) from the
requirements of Rule 19(2)(b) of SCRR, 1957. In terms of Rule 19(7) of SCRR,
1957, SEBI has been granting exemption to such listed companies from time to
time, on a case to case basis.
4. However, in the recent
past, SEBI has received applications, seeking exemption, from certain entities
containing, inter alia, (a) inadequate disclosures, (b) convoluted
schemes of arrangement, (c) exaggerated valuations, etc. SEBI is of the view
that granting listing permission or exemption from the requirements of Rule
19(2)(b) of SCRR, 1957 based on such applications may not be in the interest of
minority shareholders. At the same time, if listing permission or such an
exemption is delayed or denied, it would add to the uncertainty and would
deprive shareholders of an exit opportunity.
5. In order to avoid such
situations, the existing requirements are being revised. The salient features
of the revised requirements, include the following:
I. Requirements before
the Scheme is submitted for sanction by the Hon’ble High Court
A. Obligations of Listed
Companies
The obligations of a listed
company, inter alia, include:
5.1. Listed companies
desirous of undertaking a Scheme of Arrangement under Chapter V of the
Companies Act, 1956, (Amalgamation/ Merger/ Reconstruction/ Reduction Of
Capital, etc.) shall file the Draft Scheme with the stock exchanges in terms of
Clause 24(f) of the Listing Agreement. Listed companies shall also submit the
documents mentioned in Para 2 of Part A of Annexure I to this Circular to the
stock exchanges along with the Draft Scheme.
5.2. Such listed companies
shall place before its Audit Committee the Valuation Report obtained from an
Independent Chartered Accountant. The Audit Committee shall furnish a report
recommending the Draft Scheme, taking into consideration, inter alia,
the aforementioned valuation report.
5.3. Listed companies shall
choose one of the stock exchanges having nation-wide trading terminals as the
designated stock exchange for the purpose of coordinating with SEBI.
5.4. Listed companies shall
be required to:-
(a) include the Observation
Letter of the stock exchanges, referred to in Clause 5.8 below, in the notice
sent to the shareholders seeking approval of the Scheme; and
(b) bring the same to the
notice of the Hon’ble High Court at the time of seeking approval of the Scheme.
B. Obligations of The Stock
Exchanges
5.5. The designated stock
exchange, upon receipt of the Draft Scheme and the documents referred to in
Clause 5.1 above, shall forward the same to SEBI within 3 working days.
5.6. The stock exchanges
shall process the Draft Scheme (including seeking clarifications from company
and/or Opinion from Independent Chartered Accountant.) and forward their
“Objection/No-Objection” letter on the Draft Scheme to SEBI.
5.7. The stock exchanges
shall forward their “Objection/No-Objection” letter on the Draft Scheme to SEBI
within 30 days from the date of application or within 7 days of date of receipt
of satisfactory reply on clarifications from the company and/or opinion from
independent chartered accountant, if any sought by stock exchanges, as
applicable.
5.8. The stock exchanges,
upon receipt of comments from SEBI, as referred to in Clause 5.10 below, shall
issue Observation Letter to the listed company after suitably incorporating the
comments received from SEBI. Stock exchanges shall provide ‘Observation Letter’
to listed company within 7 days of receipt of comments from SEBI on the Draft
Scheme.
C. Processing of the Draft
Scheme by SEBI
5.9. Upon receipt of
“Objection/No-Objection” letter from the stock exchanges, SEBI shall provide
its comments on the Draft Scheme to the stock exchanges. While processing the
Draft Scheme, SEBI may seek clarifications from any person relevant in this
regard including the listed company or the stock exchanges and may also seek an
opinion from an Independent Chartered Accountant.
5.10. 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
company by SEBI; or
b.
date of receipt of opinion from Independent Chartered Accountant, if sought by
SEBI; or
c. date of receipt of
“Objection/No-Objection” letter from the stock exchanges.
D. Disclosure on the Website
5.11. Immediately upon
filing of the Draft Scheme with the stock exchanges under Clause 5.1 above, the
listed company shall disclose the Draft Scheme and all the documents mentioned
in Clause 5.1 above on its website. It shall also disclose the Observation
Letter of the stock exchanges on its website within 24 hours of receiving the
same.
5.12. The stock exchanges
where the specified securities are listed / proposed to be listed shall also
disclose on their websites the Draft Scheme and documents listed at Clause 5.1
above immediately on receipt. It shall also disclose the Observation Letter on
its website immediately upon issuance.
E. Redressal of Complaints:
5.13. All
complaints/comments received by SEBI on the Draft Scheme shall be forwarded to
the designated stock exchange, for necessary action and resolution by the
listed company. Listed company shall submit to stock exchanges a ‘Complaints
Report’ which shall contain the details of complaints/comments received by it
on the Draft Scheme from various sources (complaints/comments written directly
to the company or forwarded to it by the stock exchanges) prior to obtaining
Observation Letter from stock exchanges on Draft Scheme.
5.14. Listed companies shall
also include the ‘Complaints Report’ in the notice sent to the shareholders
while seeking approval of the Scheme. The ‘Complaints Report’ shall be
forwarded by the stock exchanges to SEBI before SEBI communicates its comments
on the Draft Scheme to the stock exchanges.
5.15. ‘Complaints Report’ as
mentioned above, shall be submitted by listed companies 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 listed at
Clause 5.1 above on the websites of stock exchanges and the listed company. The
stock exchanges shall thereafter submit the ‘Complaints Report’ to SEBI. Such
Report shall be submitted as per the format specified at Annexure II to this
Circular.
F. Approval of Shareholders
to Scheme Through Postal Ballot And e- Voting:
5.16. Listed companies shall
ensure that the Scheme submitted with the Hon’ble High Court for sanction,
provides for obtaining shareholders’ approval through special resolution passed
through postal ballot and e-voting, after disclosure of all material facts in
the explanatory statement sent to the shareholders in relation to such
resolution. The Scheme shall also provide that the special resolution shall be
acted upon only if the votes cast by public shareholders in favor of the
proposal amount to at least two times the number of votes cast by public
shareholders against it.
II. Requirements after the
Scheme is Sanctioned by the Hon’ble High Court (hereinafter referred to as
“Approved Scheme”)
5.17. Upon sanction of the
Scheme by the Hon’ble High Court, the listed company shall submit the documents
mentioned in Para 2 of Part B of Annexure I to this Circular, to the stock
exchanges.
5.18. The designated stock
exchange shall forward its recommendations to SEBI on the documents submitted
by the listed company as referred to in Clause 5.17 above.
5.19. SEBI shall endeavour
to offer its comments/approval, wherever applicable, to the designated stock
exchange in 30 days.
6. Validity of
Observation Letter: The validity of the ‘Observation Letter’ of stock
exchanges shall be six months from the date of issuance, within which the
Scheme shall be submitted to the Hon’ble High Court.
7. Applicability: The
revised requirements shall be applicable to listed companies which, on the date
of this Circular, have not submitted the Scheme with the Hon’ble High Court. It
is clarified that the revised requirements shall also be applicable in cases wherein
the companies have submitted the Draft Scheme with the stock exchanges under
Clause 24(f) of Listing Agreement and such schemes have not yet been submitted
with the Hon'ble High Court for approval. Therefore, the companies that have
submitted the Draft Scheme with the stock exchanges and have already received
approval thereon but have not yet submitted to the Hon'ble High Court, shall be
required to resubmit the same in accordance with the requirements of this
Circular.
8. For consideration of
applications involving Schemes of Arrangement, Warrants along with NCDs, and
Issuance of Equity shares with Differential Rights, the detailed requirements
to be complied with are mentioned in Annexure I to this Circular.
9. Repeal and Saving: Pursuant
to issuance of this Circular, SEBI Circular No. SEBI/CFD/SCRR/01/2009/03/09
dated September 03, 2009 stands rescinded. Notwithstanding such rescission, anything
done or any action taken or pending in respect of the said Circular shall
continue to be dealt under SEBI Circular No. SEBI/CFD/SCRR/01/2009/03/09 except
as expressly provided under Clause 7 of this Circular.
10. The stock exchanges are
advised to take into account the requirements of this Circular and to bring the
same to the notice of the companies listed on their exchange.
11. This Circular is issued
in exercise of the powers conferred under Section 11 and Section 11A of the
SEBI Act, 1992 read with Rule 19(7) of SCRR, 1957.
12. This Circular is
available on SEBI website at www.sebi.gov.in under the categories “Legal
Framework” and “Issues and Listing”.
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Annexure I
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Part A
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Requirements for Listed Companies While
Submitting Draft Scheme of Arrangement
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Part B
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Requirements for
Stock Exchanges/Listed companies while Submitting Scheme Sanctioned by the
Hon’ble High Court
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Part C
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Application by a
Listed Issuer for Listing of Equity Shares with Differential Rights as to
Dividend, Voting or Otherwise
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Part D
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Application by a
Listed Issuer for Listing of Warrants Offered Along With Non Convertible
Debentures (NCDs)
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Part E
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Miscellaneous
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Annexure II
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Format for Complaints Report
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