PARA No.

OLD PROVISION (CIRCULAR DATED MARCH 10, 2017)

NEW PROVISION (CIRCULAR DATED NOVEMBER 03, 2020)

OBSERVATIONS

I A (2) (c)

Report from the Audit Committee recommending the Draft Scheme, taking into consideration, inter alia, the Valuation Report. The Valuation Report is required to be placed before the Audit Committee of the listed entity.

Report from the Audit Committee recommending the Draft Scheme, taking into consideration, interalia, the Valuation Report. The Valuation Report is required to be placed before the Audit Committee of the listed entity. The Audit Committee report shall also comment on the following:

• Need for the merger/demerger/amalgamation/arrangement.
• Rationale of the scheme.
• Synergies of business of the entities involved in the scheme.
• Impact of the scheme on the shareholders.
• Cost benefit analysis of the scheme.

The purpose of this amendment is to enhance the scope of the Audit Committee. Now, the Audit Committee has to review legal and commercial aspect of the Scheme of Arrangement and incorporate the comment on it in their report.

Insertion of Para I A(2) (i)

N.A.

Report from the Committee of Independent Directors recommending the draft Scheme, taking into consideration, interalia, that the scheme is not detrimental to the shareholders of the listed entity.

With this insertion in the Circular, Independent directors are now tasked with the responsibility of recommending that the scheme is not detrimental to the shareholders of the listed entity.

I A (4) (a)

All listed entities are required to submit a valuation report from an Independent Chartered Accountant.

All listed entities are required to submit a valuation report from a Registered Valuer.

For the purpose of this clause, the Registered Valuer shall be a person, registered as a valuer, having such qualifications and experience and being a member of an organization recognized, as specified in Section 247 of the Companies Act, 2013 read with the applicable Rules issued thereunder.

This amendment is made to align the provisions of the Circular with the provisions of Companies Act, 2013.

Explanation to I A (9) (b) (v)

For the purpose of this clause, the expression “substantially the whole of the undertaking” in any financial year shall mean twenty per cent or more of value of the company in terms of consolidated net worth or consolidated total income during previous financial year as specified in Section 180(1)(a)(i) of the Companies Act, 2013.

For the purpose of this clause, the expression “substantially the whole of the undertaking” in any financial year shall mean twenty percent or more of value of the company in terms of consolidated net worth or consolidated total income during previous financial year as specified in Section 180(1)(a)(ii) of the Companies Act, 2013.

The amendment has rectified the clause of the Companies Act, 2013 wherein the definition of “substantially the whole of the undertaking’ is mentioned in Section 180(1)(a)(ii) of the Companies Act, 2013.

I B (4)

Stock Exchanges shall provide the ‘Observation Letter’ or ‘No-Objection’ letter to SEBI on the draft scheme. In case of companies listed exclusively on Regional Stock Exchanges, SEBI shall issue Comment letter upon receipt of ‘Observation Letter’ or ‘No-Objection’ letter from the Designated Stock Exchange. In other cases, SEBI shall issue Comment letter upon receipt of Observation Letter’ or ‘No-Objection’ letter from Stock Exchanges having nationwide trading terminals.

Stock Exchanges shall provide the ‘No-Objection’ letter to SEBI on the draft scheme; in co-ordination with each other. SEBI shall issue Comment letter upon receipt of ‘No-Objection’ letter from Stock Exchanges having nationwide trading terminals. In other cases, SEBI shall issue Comment letter upon receipt of ‘No-Objection’ letter from the Designated Stock Exchange.

The stock Exchanges are now required to issue the No-Objection Letters on the draft Schemes after coordinating with SEBI. Earlier, they were required to issue only an observation letter on the draft Scheme.
These amendments are aimed at ensuring that the recognized stock exchanges refer draft schemes to SEBI only upon being fully convinced that the listed entity is in compliance with SEBI Act, Rules, Regulations and Circulars issued thereunder. Thus, the aforesaid omission of issuing observation letter seems to be in line with such objective.

I C (1) & C (2c)

C (1) Upon receipt of ‘Observation Letter’ or ‘No-Objection’ letter from the Stock Exchanges, SEBI shall provide its comments on the Draft Scheme of arrangement to the Stock Exchanges. While processing the Draft Scheme, SEBI may seek clarifications from any person relevant in this regard including the listed entity or the Stock Exchanges and may also seek an opinion from an Independent Chartered Accountant.
C (2) SEBI shall endeavour to provide its comments on the Draft Scheme to the stock exchanges within 30 days from the later of the following:
(c) date of receipt of ‘Observation Letter’ or ‘No-Objection’ letter from the Stock Exchanges.

The words ‘Observation letter or’ in Para C (1) and Para C (2c) stand deleted.

The amended circular has omitted the word ‘Observation Letter’ as now the stock exchanges are required to issue the ‘No-Objection Letter’ on the draft Schemes. The omission is in line with the objective.

III A (5)

It shall be ensured that trading in securities commences within forty five days of the order of the Hon’ble High Court/ NCLT. Before commencement of trading, the transferee entity shall give an advertisement in one English and one Hindi newspaper with nationwide circulation and one regional newspaper with wide circulation at the place where the registered office of the transferee entity (is situated, giving following details:

1. Name and address of its registered office;
2. Details of change of name and/or object clause;
3. Capital structure – pre and post scheme of amalgamation. This shall provide details of the authorized, issued, subscribed and paid up capital (Number of instruments, description, and aggregate nominal value);
4. Shareholding pattern giving details of its promoter group shareholding, group companies;
5. Names of its ten largest shareholders – number and percentage of shares held by each of them, their interest, if any;
6. Details of its promoters – educational qualifications, experience, address;
7. Business and its management;
8. Reason for the amalgamation;
9. Financial statements for the previous three years prior to the date of listing;
10. Latest audited financial statements along with notes to accounts and any audit qualifications. Change in accounting policies in the last three years and their effect on profits and reserves (Financial statements should not be later than six months prior to the date of listing);
11. Details of its other group companies including their capital structure and financial statements;
12. Outstanding litigations and defaults of the transferee entity, promoters, directors or any of the group companies;
13. Particulars of high, low and average prices of the shares of the listed transferor entity during the preceding three years;
14. Any material development after the date of the balance sheet; and
15. Such other information as may be specified by the Board from time to time.

It shall be ensured that steps for listing of specified securities are completed and trading in securities commences within sixty days of receipt of the order of the Hon’ble High Court/NCLT, simultaneously on all the stock exchanges where the equity shares of the listed entity (or transfer entity) are/were listed. Before commencement of trading, the transferee entity in addition to disclosing the information in the form of an information document on the website of the stock exchange/s shall also give an advertisement in one English and one Hindi newspaper with nationwide circulation and one regional newspaper with wide circulation at the place where the registered office of the transferee entity is situated, giving following details:”

1. Name of the Company;
2. Address of Registered Office and Corporate Office of Company;
3. Details of change of name and/or object clause;
4. Capital structure – pre and post scheme of amalgamation. This shall provide details of the authorized, issued, subscribed and paid up capital (Number of instruments, description, and aggregate nominal value);
5. Shareholding pattern giving details of its promoter group shareholding, group companies – pre and post scheme of amalgamation;
6. Names of its ten largest shareholders – number and percentage of shares held by each of them, their interest, if any;
7. Name and details of Promoters – educational qualifications, experience, address;
8. Name and details of Board of Directors (experience including current / past position held in other firms);
9. Business Model / Business Overview and Strategy;
10. Reason for the amalgamation;
11. Restated Audited Financials for the previous three financial years prior to the date of listing;
12. Latest restated audited financials along with notes to accounts and any audit qualifications. (Financial statements should not be later than six months prior to the date of listing);
13. Change in accounting policies in the last three years and their effect on profits and reserves;
14. Summary table of contingent liabilities as disclosed in the restated financial statements;
15. Summary table of related party transactions in last 3 years as disclosed in the restated financial statements;
16. Details of its other group companies including their capital structure and financial statements;
17. Internal Risk Factors (Minimum 5 and Maximum 10);
18. Outstanding litigations and defaults of the transferee entity, promoters, directors or any of the group companies;
19. Regulatory Action, if any – disciplinary action taken by SEBI or Stock Exchanges against the Promoters in last 5 financial years;
20. Brief details of outstanding criminal proceedings against the Promoters;
21. Particulars of high, low and average prices of the shares of the listed transferor entity during the preceding three years;
22. Any material development after the date of the balance sheet; and
23. Such other information as may be specified by the Board from time to time.

With this amendment, SEBI has enhanced the list of information/ disclosures that is required to be disclosed in the form of Information Memorandum on the website of the Stock Exchange and in the form of prescribed newspaper advertisement. These kind of disclosure will give the better clarity about the company seeking listing pursuant to Scheme of Arrangement.  

III (B)

Application by a listed entity for Listing of Equity Shares with Differential Rights as to Dividend, Voting or Otherwise:

Para III B of Annexure I to the circular shall stand repealed.

The 2017 Circular provided that relaxation from IPO requirement under SCRR for listing of equity shares with differential rights may be provided subject to complying of certain conditions. The Amendment Circular has repealed the relevant provisions dealing with such relaxation requirements.