SEBI Issues Framework for Scheme of Arrangement by Unlisted Stock Exchanges, Clearing Corporations, Depositories

SEBI Issues Framework for Scheme of Arrangement by Unlisted Stock Exchanges, Clearing Corporations, Depositories

The Securities Exchange Board of India (SEBI), has introduced a framework for ‘scheme of arrangement’ by Unlisted Stock Exchanges, clearing corporations and depositories.

A scheme of arrangement is a Court-approved agreement between a company.

In the present scenario, there is no specific provision for unlisted Market Infrastructure Institutions (MIIS) - stock exchanges, clearing corporations and depositories — to file the draft scheme of arrangement with SEBI prior to filing the application before any Court or Tribunal.

Moreover, the process to be followed by unlisted MIIs in case of a scheme of arrangement is currently not specified.

According to SEBI, under the new framework, unlisted MII desirous of undertaking a scheme of arrangement will have to file the draft scheme of arrangement along with a non-refundable fee with the regulator for obtaining the observation letter or no-objection letter before filing such a scheme with any Court or Tribunal.

However, it is pertinent to note that the new provision may not apply to schemes which solely provide for merger of a wholly-owned subsidiary or its division with the parent company.

Notably, such draft schemes shall be filed with SEBI for the purpose of disclosures and the same will be disseminated on the websites of the unlisted MIIs concerned, as per the circular.

In addition to this, the unlisted MIIs must provide certain information to SEBI while filing the draft scheme of arrangement for obtaining the observation letter or no-objection letter.

The entities must provide details on the valuation report, audit committee report, ownership patterns of the unlisted MII before and after the implementation of the scheme of arrangement, and audited financials for the previous three years.

After receiving the application from the unlisted MII, SEBI will provide its observation letter or no-objection letter on the draft scheme.

The regulator has the right to request clarifications from anybody, including the MII that is not publicly traded, as well as to request an independent chartered accountant's view.

The SEBI will provide its observation letter or no-objection letter on the draft scheme within 30 days from receiving satisfactory reply with respect to the clarifications.

The validity of the observation letter or no-objection letter of SEBI will be for six months from the date of issuance, within which the scheme will be filed with any court or tribunal for approval.

The provisions of the circular will come into effect from 30th day from the date of issuance of the circular.