The Securities and Exchange Board of India, via a new circular, has cleared the pathway for unlisted stock exchanges, depositories, and clearing corporations to file a draft scheme of arrangement with the market regulator, thereby creating a quicker and far more efficient route for them to secure a No-Objection letter from the regulator itself.
Till now, any such unlisted Market Infrastructure Institutions (MII) which was unlisted and desirous of filing a scheme of arrangement would have no option but to file a draft scheme with the stock exchanges for securing an Observation letter or a No-Objection letter. The stock exchanges would, then, pass on the draft scheme to SEBI. They would additionally have to approach a court or tribunal as well.
With the release of the circular, the market regulator is instituting an explicit mechanism for unlisted MIIs to approach it.
Comments were sought by SEBI from unlisted MIIs, and the matter was deliberated by the Secondary Market Advisory Committee (SMAC). Taking into account the recommendations of SMAC, SEBI has decided to introduce the framework for a scheme of arrangement by unlisted MIIs.
What is the process for filing?
The unlisted MII desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement as per the provisions of Companies Act, 2013 shall file the draft scheme of arrangement along with a non-refundable fee with SEBI for obtaining the observation letter or no-objection letter, before filing such scheme with any Court or Tribunal, in terms of requirements specified by SEBI from time to time.
The unlisted MII shall pay a fee to SEBI at the rate of 0.1% of the paid-up share capital of the unlisted or transferee or resulting company, whichever is higher, post sanction of the proposed scheme, subject to a cap of Rs 5,00,000.
What information is to be provided to SEBI?
- The draft scheme of arrangement or amalgamation or merger or demerger or reconstruction or reduction of capital, etc
- Approval of the governing board of the unlisted MII for the proposed scheme
- Valuation Report provided by an independent registered valuer, accompanied with an undertaking from the unlisted MII stating that no material event impacting the valuation has occurred during the last 6 months. The Valuation Report is required to be placed before the Audit Committee of the unlisted MII.
- Report from the Audit Committee recommending the draft scheme, taking into consideration, inter-alia, the valuation report, and also having comments on the need for the scheme, rationale of the Scheme, synergies of business of the entities involved in the scheme, the impact of the scheme on the shareholders, the cost benefit analysis of the Scheme, the fairness opinion on valuation of assets
- Shareholding pattern of the unlisted MII pre and post the scheme.
- Audited financials of last 3 years (financials not being more than 6 months old)of unlisted entities.
SEBI shall endeavour to provide its observation letter or no-objection letter on the draft Scheme within 30 days of receipt of the date of clarifications sought from the MII or receipt of an opinion sought from the chartered accountant, if any.
Such Observation or No-Objection letter shall be valid for a period of 6 months.
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