Background

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) provide the procedure (through a circular dated 30 November 2015) to be followed by listed entities for undertaking schemes of arrangements such as amalgamations, mergers, reconstruction, etc.

The Ministry of Corporate Affairs (MCA) on 7 December 2016 notified certain sections of the Companies Act, 2013 (2013 Act) such as sections relating to compromises, arrangements, amalgamations (including fast track amalgamations and demergers), reduction of capital and variations of shareholders’ rights). These sections are effective from 16 December 2016 and the National Company Law Tribunal (NCLT) assumed jurisdiction of the High Courts as the sanctioning authority for certain sections such as compromises, arrangements, reduction of capital and variations of shareholders’ rights.

In order to align SEBI requirements with the 2013
Act, SEBI in its board meeting held on 17 January 2017 had given an
in-principle approval for the revised regulatory framework for the schemes of
arrangements. Accordingly, it issued following circulars highlighting following
important changes:

• The schemes of arrangement for merger of a wholly owned subsidiary with the parent entity would not be required to be filed with SEBI (under the Listing Regulations). Such schemes would be filed with stock exchanges for the purpose of disclosures (circular issued on 15 February 2017)
• Where under a scheme of arrangement allotment of shares takes place only to a select group of shareholders or shareholders of unlisted companies then the pricing provisions of Chapter VII of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 would be applicable (circular issued on 15 February 2017).

New developments

In line with the above two circulars issued on 15 February 2017, SEBI on 10 March 2017 revised certain obligations in the Listing Regulations (given in circular dated 30 November 2015) in relation to the schemes of arrangements. The new circular issued on 10 March 2017 brings about
certain important changes and carries forward many requirements of the SEBI circular dated 30 November 2015.

Additionally, on 23 March 2017, SEBI has issued another clarification (circular no. CFD/DIL3/CIR/2017/26) with respect to the circular issued on 15 February 2017 regarding the scheme of arrangements where allotment of shares takes place only to a select group of shareholders or shareholders of unlisted companies. The 15 February 2017 circular (as explained in the background section above) requires such schemes to follow the pricing provisions of Chapter VII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. The recent circular on 23 March 2017 clarifies that the ‘relevant date’ for the purpose of computing pricing would be the date of board meeting in which such scheme is approved.

Our First Notes provides an overview of the key changes in the requirements to be followed by the listed entities involving the schemes of arrangements.

To access the text of the SEBI circulars on:

• Revisions made in the schemes of arrangements, please click here.
• Clarification regarding the scheme of arrangements where allotment of shares takes place only to a select group of shareholders or shareholders of unlisted companies, please click here.