SEBI recent guidelines on LODR Regulations
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The Securities and Exchange Board of India (hereinafter referred to as the ‘SEBI’) in order to consolidate the conditions under different securities’ listing agreements in one single regulation issued SEBI (Listing Obligations & Disclosure Requirements) Regulation, 2015 (hereinafter referred to as the “LODR Regulations”). Regulation 37 of the LODR Regulations requires a listed entity desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement to file the draft scheme of arrangement with the relevant stock exchange (s) for obtaining an ‘observation letter’ or a ‘no-objection letter’, before filing such scheme with any court or tribunal. The listed entity cannot file any scheme of arrangement under the Companies Act, 1956 or the Companies Act, 2013, whichever applicable, with any Court or Tribunal unless it has obtained observation letter or No-objection letter from the stock exchange(s).
SEBI Circular dated November 30, 2015
SEBI, in furtherance of this regulation issued a circular[1] on November 30, 2015, stating additional requirements in order to achieve the intent of regulations. These requirements made no distinction between the scheme of arrangement of wholly owned subsidiary and other listed entities. Thereafter, SEBI amended the LODR Regulations vide SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2017 on February 15, 2017, to provide that nothing contained in the LODR regulation shall apply to draft schemes which solely provide for merger of a wholly owned subsidiary with its holding company. The amendment further provided that such draft schemes shall be filed with the stock exchanges for the purpose of disclosures.
SEBI Circular dated March 10, 2017
Later on March 10, 2017, SEBI vide a circular[2] revised the regulatory framework for such scheme of arrangement. This circular governs all schemes filed after March 10, 2017. It provides the requirements that any listed company must comply in order to obtain observation letter or No-objection letter from the stock exchange(s). In accordance with the amendment, the circular states that it shall not apply to schemes which solely provides for merger of a wholly owned subsidiary with the parent company. However, such draft schemes shall be filed with the Stock Exchanges for the purpose of disclosures and the Stock Exchanges shall disseminate the scheme documents on their websites. However, this circular only provided exception of the merger of wholly owned subsidiary with the parent company and did not provide the exception for its division such as demerger or hiving off with the parent company.
SEBI Circular dated January 03, 2017
Thereafter SEBI amended the previous circular dated March 10, 2017, vide another circular[3] on January 3, 2018. This circular provides that the Provisions of earlier circular dated March 10, 2017, shall not apply to schemes which solely provides for merger of a wholly owned subsidiary or its division with the parent company. However, such draft schemes shall be filed with the Stock Exchanges for the purpose of disclosures and the Stock Exchanges shall disseminate the scheme documents on their websites.
Conclusion/ Analysis
SEBI has further relaxed the requirements under Regulation 37 of the LODR Regulations. This amendment promotes the ease of doing business and facilitates faster process.
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[1] CIR/CFD/CMD/16/2015 dated November 30, 2015 available at : https://www.sebi.gov.in/legal/circulars/nov-2015/schemes-of-arrangement-by-listed-entities-and-ii-relaxation-under-sub-rule-7-of-rule-19-of-the-securities-contracts-regulation-rules-1957_31143.html.
[2] CFD/DIL3/CIR/2017/21 dated March 10, 2017 available at : https://www.sebi.gov.in/legal/circulars/mar-2017/circular-on-schemes-of-arrangement-by-listed-entities-and-ii-relaxation-under-sub-rule-7-of-rule-19-of-the-securities-contracts-regulation-rules-1957_34352.html.
[3] CFD/DIL3/CIR/2018/2 dated January 03, 2018 available at : https://www.sebi.gov.in/legal/circulars/jan-2018/circular-on-schemes-of-arrangement-by-listed-entities-and-ii-relaxation-under-sub-rule-7-of-rule-19-of-the-securities-contracts-regulation-rules-1957-_37265.html.