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SEBI issues directions for settlement of outstanding dues prior to filing a scheme of arrangement

SEBI issues directions for settlement of outstanding

The Securities and Exchange Board of India (SEBI) through its circulars1 provides regulations to be followed for the schemes of arrangements.

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Background

The Securities and Exchange Board of India (SEBI) through its circulars1 provides regulations to be followed for the schemes of arrangements. 

New development

In order to streamline the processing of draft schemes of arrangements, SEBI on 12 September 2019 has issued directions to listed entities in relation to payment of outstanding dues to SEBI, stock exchanges and depositories. The SEBI has amended its circular dated 10 March 2017 and a new paragraph no. 11 on ‘ Unpaid Dues Report’ has now been inserted. Below are the new provisions relating to unpaid dues to SEBI, stock exchanges and depositories:

Obligations on listed entities

  • Payment of fines/penalties: All listed entities should ensure that all dues to, and/or fines/penalties imposed by SEBI, stock exchanges, depositories, etc. have been paid/settled before filing the draft scheme with the designated stock exchange
  • Unpaid dues: In case there are unpaid dues/fines/penalties, then a listed entity, prior to obtaining observation letter from the stock exchanges on the draft scheme should submit a ‘Report on the Unpaid Dues’ to the stock exchanges in the manner prescribed. 

Format for Report on Unpaid Dues is as below:

Sr. no Particulars Details of dues/fine

Amount

Reason for non-payment
1. Pending dues of SEBI      
2. Pending dues of stock exchanges      
3. Pending dues of depositories      

The report on unpaid dues should be submitted by the listed entity to the stock exchange along with the draft scheme.  

  • Punitive action for misstatement of facts: Furnishing of false information or misstatement of facts will make the listed entity liable to punitive action as per the provisions of law.

Obligations on stock exchanges:

  • Communication to SEBI: The ‘unpaid dues report’ should be forwarded by the stock exchanges to SEBI before SEBI communicates its comments on the draft scheme of arrangement to the stock exchanges. Additionally, stock exchanges would need to communicate to SEBI the status of implementation of the provisions of this circular through a monthly development report.

Our comments

The recent directive of SEBI to listed entities would help clearing dues outstanding to the stock exchanges, SEBI and depositories. This move is likely to enhance SEBI’s effort to streamline the processing of draft schemes of arrangements.  Listed entities are required to disclose details regarding the nature of dues or fines, amounts and reasons for non-payment to SEBI and other stock exchanges. It is important for listed entities to note that any misstatement of facts will make the listed entity liable for punitive action as per applicable laws and regulations.  

Companies which have filed for a scheme of arrangement and such schemes are under consideration with the stock exchanges and SEBI should also consider the impact of these new provisions. Such companies may be required to furnish the report on unpaid dues prior to obtaining observation letter from the stock exchanges on the draft scheme submitted in the past.

1 SEBI Circular No. CIR/CFD/CMD/16/2015 dated 30 November 2015 and SEBI Circular No.

  CFD/DIL3/CIR/2017/21 dated 10 March 2017.

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

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