Norms for Scheme of Arrangement by unlisted Stock Exchanges, Clearing Corporations and Depositories

Scheme of Arrangement

Capital market regulator SEBI introduced a framework for “schemes of arrangement” for unlisted stock exchanges, clearing organisations, and depositories on March 28, 2023. A court-approved scheme between a firm and its shareholders or creditors is known as a scheme of arrangement.

According to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015[1], listed entities (including listed Market Infrastructure Institutions (MIIs) such as Stock Exchanges, Depositories, and Clearing Corporations) desiring to undertake a scheme of arrangement or involved in a scheme of arrangement are required to file the draught scheme with stock exchanges for obtaining an observation letter or no-objection letter, before filing the final scheme with any court or tribunal. Stock Exchanges must submit these draught schemes to SEBI for review and feedback.

However, no particular provision under the current law requires unlisted MIIs interested in or engaged in a scheme of arrangement to file the draught scheme of arrangement with SEBI before filing the application with any court or tribunal. Furthermore, it is currently unclear what procedure unlisted MIIs should follow in the event of an arrangement scheme.

Unlisted MIIs’ comments were requested, and the Secondary Market Advisory Committee debated the issue to harmonise and uniformed the rules governing the scheme of arrangements for unlisted MIIs with those already in effect for listed MIIs (SMAC). It has been decided to create the framework for the Scheme of Arrangement by Unlisted MIIs, taking into account the recommendations of SMAC.

Market Infrastructure Institution

A financial organisation known as a market infrastructure institution provides the necessary infrastructure for the everyday operation of the stock market and capital markets. The efficient trading of financial securities made possible by the MIIs contributes to the nation’s economic development.

These entities offer platforms and mechanisms for trading, clearing, settlement, keeping records, storing securities, etc. Any disturbance in how these institutions operate might negatively affect how the entire financial system functions. 

The MIIs are independent corporations that want to make money from the services they provide. But they must also adhere to strict corporate governance standards because they are the market’s first-line regulators.

The capital markets must be strengthened because of the recent increases in trade volume and investor numbers. The regulators work to protect investors while also enhancing system processes on a constant basis

The three stock market entities listed below make up the majority of the market infrastructure institutions

  1. Stock Exchanges (including commodity exchanges).
  2. Clearing Corporation/ Clearing House
  3. Depository Organisation
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Detailed Framework for Scheme of Arrangements by Unlisted MIIs

The following is the detailed framework for the scheme of arrangements by unlisted MIIs:

  • The unlisted MII must submit the draught scheme of arrangement and a non-refundable fee to SEBI as per the requirements set forth by SEBI from time to time in order to obtain the observation letter or letter of non-objection before filing the scheme with any court or tribunal. This is in accordance with the provisions of the Companies Act of 2013, which governs schemes of arrangement.
  • After approval of the proposed plan, the unlisted Market Infrastructure Institution shall pay a fee to SEBI at a rate of 0.1% of the paid-up share capital of the unlisted, transferee, or resultant company, whichever is higher, up to a maximum of INR 5,00,000.
  • The restrictions might not be applicable to plans that only call for the merger of a fully owned subsidiary or its division from the parent company. However, such draught schemes must be submitted to SEBI for disclosure purposes and made available on the unlisted MII’s websites.

Details to be provided to SEBI

The unlisted MIIs must provide the following information to SEBI with their draught scheme of arrangement in order to receive an observation letter or letter of no objection:

  1. The “scheme,” also known as the “Draft Scheme of Arrangement, Amalgamation, Merger, Demerger, Reconstruction, Reduction of Capital, etc.” 
  2. The proposed scheme has received the approval of the unlisted MII’s board of directors.
  3. A valuation report issued by an independent registered valuer that is supported by an undertaking from the unlisted MII that no significant event could have affected the valuation over the previous six months. The Audit Committee of the MII that is not publicly traded must be presented with the Valuation Report. According to Section 247 of the Companies Act, 2013, read with the relevant Rules issued thereunder, a person who is registered as a valuer, has the necessary qualifications and experience and is a member of an organisation recognised shall be deemed to be a Registered Valuer for the purposes of this clause.
  4. Report from the Audit Committee recommending the draught Scheme, taking into account, among other things, the Valuation Report, and making the following comments:
    The Need for the Plan
    • The Purpose of the Plan
    • Business collaboration between the organisations taking part in the scheme
    • The Scheme’s effects on the stockholders.
    • The Scheme’s cost-benefit analysis.
  5. The valuer for the unlisted MII shall obtain a fair opinion on the valuation of the assets or shares from a third-party SEBI-registered merchant banker.
  6. The unlisted MII’s shareholding patterns before and after the Scheme.
  7. Unlisted entities’ audited financial statements for the previous three years must not be older than six months.
  8. Auditor’s Certificate certifying that the Scheme’s accounting treatment complies with all accounting standards specified by the Central Government according to Section 133 of the Companies Act, 2013, read with the rules and regulations framed thereunder, or, as applicable, the Accounting Standards issued by the Institute of Chartered Accountant in India (ICAI), as well as other generally accepted accounting principles.
  9. A statement regarding any prior defaults of debt obligations (including listed debt, if any) made by entities that are a part of the scheme from the unlisted MII.
  10. If the unlisted MII or businesses participating in the Scheme have any outstanding debt obligations, a No Objection Certificate (NOC) from the lending, scheduled commercial banks, financial institutions, or debenture trustees is required.
  11. Report on Complaints, which includes information on the complaints and comments the organisation has received against the proposed Scheme from various sources (direct complaints and comments as well as comments provided by SEBI or any other agency), as listed in Annexure I.
  12. Detailed Compliance Report in accordance with the prescribed format The Company Secretary, Chief Financial Officer, and Managing Director have properly attested in Annexure II that all regulatory requirements stipulated for the Scheme and all accounting standards have been complied with.
  13.  Before submitting the draught scheme, the unlisted MII must make sure that any outstanding debts and any fines or penalties levied by SEBI or another body have been paid or resolved. Before submitting the draught scheme, the unlisted business shall submit to SEBI a “Report on the Unpaid Dues” that contains the details of any outstanding dues in the format specified in Annexure III in the event that any dues, fines, or penalties are unpaid.
  14. The unlisted MII must disclose any ongoing legal actions or proceedings brought against it or any other entities included in the scheme and any associated liabilities.
  15. The unlisted MII must post the draught Scheme and any pertinent documentation on its website as soon as the draught Scheme is filed with SEBI.
  16. After the draught Scheme has been submitted to SEBI, no changes may be made, with the exception of those required by regulators, authorities, courts, or tribunals, without the express written consent of SEBI.
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Registered Valuer and Independent SEBI Registered Merchant Banker, respectively, should produce the valuation report and fairness opinion referred to above. In the event of any conflict of interest between them or with the company, including that of shared directorships or partnerships, the registered valuer and the merchant banker referred to therein shall not be recognised as independent.

Processing of the Proposed Scheme by SEBI

SEBI must give the MII its observation letter or letter of no objection to the draught Scheme after receiving the application from the unlisted MII. While processing the draught Scheme, SEBI may seek clarifications from anyone pertinent in this respect, including the unlisted MII, and may even request an independent chartered accountant’s opinion if necessary.

SEBI will make an effort to submit its letter of observation or letter of no objection on the draught Scheme within 30 days of the earliest of the following:

  • Date of receipt of any clarifications from the unlisted MII that were satisfactorily answered; 
  • Date of receipt of any Independent Chartered Accountant opinion that SEBI requested;
  • The unlisted MII will receive any complaints or comments that SEBI receives regarding the draught Scheme to take the appropriate measures and address the issue.

Validity of the letter of observation or letter of approval

The SEBI observation letter or no-objection letter shall be valid for six months from the date of issuance, during which the Scheme must be submitted to the appropriate Court or Tribunal, as required, for approval.


To protect the investor’s interest in securities, encourage the growth of the securities markets, and regulate them, this circular is being issued in accordance with the authority granted by Section 11(1) of the Securities and Exchange Board of India Act (SEBI), 1992. The provisions of this circular shall take effect 30 days after the date of issuance.

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Also Read:
SEBI Scheme of Arrangement for Listed NCDs & NCRPS
Scheme of Arrangement for Corporate Debtor going into Liquidation

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