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.

During the year ended 31 March 2017, various developments took place with respect to such schemes of arrangements. The key developments are as follows:       

• Notification of related sections of the Companies Act, 2013: On 7 December 2016, the Ministry of Corporate Affairs (MCA) notified certain sections of the Companies Act, 2013 (2013 Act) including sections relating to compromises, arrangements, amalgamations (including fast track amalgamations and demergers), reduction of capital and variations of shareholders’ rights.
  
  These sections became 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.
  
  
• Revised regulatory framework: On 17 January 2017, SEBI gave an in-principle approval for the revised regulatory framework for the schemes of arrangements and issued two circulars highlighting the 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
  • Where under a scheme of arrangement the 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.
    
    
• Revision in the Listing Regulations: On 10 March 2017, SEBI made revision to certain obligations for in the Listing Regulations (given in circular dated 30 November 2015) and laid down the detailed requirements to be complied with by the listed entities while undertaking schemes of arrangement for listing of equity or warrants pursuant to the scheme.
  
  The circular did not provide guidance forlisting of the Non-Convertible Redeemable Preference Shares (NCRPS) or Non-Convertible Debentures (NCDs) which could also be issued, in lieu of specified securities in a scheme of arrangement.
  
  

New Development

On 26 May 2017, SEBI issued a circular (SEBI circular on listing of NCRPS/NCDs) which lays down the additional conditions to be complied when NCRPS/NCDs are issued in lieu of the specified securities and such NCRPS/NCDs are proposed to be listed on the recognised stock exchanges.

These additional conditions have been classified under the following heads:

• Conditions to be complied before the scheme of arrangement is submitted for sanction by the NCLT.
• Conditions to be complied after the scheme of arrangement is sanctioned by the High Court/NCLT and at the time of making application for relaxation under Rule 9(7) of the Securities Contracts (Regulation) Rules, 1957.

The above conditions have to be complied with in addition to the requirements specified under the SEBI circular dated 10 March 2017.

This issue of First Notes provides an overview of the conditions specified under the above two heads.

To access the text of the SEBI circular, please click here.