SEBI

Post Sanction Requirements of Scheme for Listing NCDs/NCRPS: An Analysis

The SEBI through a circular on 17^th November 2022, has made it mandatory that any listed entity willing to make a draft scheme of arrangement for listing NCDs or NCRPS to NCLT shall need to comply with the additional requirements mentioned therein. It requires the listed entity to comply with two types of requirements, i.e., pre- and post-requirements. In the pre-requirement, the listed entity who intends to make a draft scheme of arrangement for listing NCDs or NCPRS shall need to comply with certain requirements such as choosing a designated stock exchange, valuation report, certificate of auditor, fairness opinion, Report on the received complaints or comments, unpaid dues or fines or penalties etc. whereas under the post requirements which will be discussed later in this article talks about the post sanction requirements of scheme to be undertaken by the listed entity after the sanction of scheme of arrangement by NCLT. Further, the article will discuss the related obligations of the stock exchange and the process of the draft scheme by SEBI in order to fulfil the post sanction requirements of scheme.

What Are The Obligations Of The Stock Exchange?

In order to fulfil the post sanction requirements of scheme, the draft scheme of arrangement has to be coupled with the NOC, which is to be provided by the designated stock exchange. Henceforth, the obligations of the stock exchange are:

• Upon the receipt of the draft scheme of arrangement & documents by the designated stock exchange, it is required to:
  • Forward the draft scheme to SEBI within 3 working days from the date of receiving such scheme.
  • Sends the queries for clarification from the registered valuer or the auditors within 10 working days from the date of receiving such scheme.
• The stock exchange must provide the NOC to the SEBI in terms of Regulation 94A of the listing regulations within 7 working days from the date of receiving a reply on clarifications from the entity or an expert. Moreover, it is to be taken care of by the stock exchange that the maximum number of days for providing the NOC to SEBI does not take more than 30 days from the date of receiving the draft scheme.
• The stock exchange shall immediately send the Report on the complaint or comment received by them to the SEBI.
• The stock exchange shall immediately send the Report on unpaid dues, fines, or penalties to SEBI along with the draft scheme.
• The stock exchange shall issue the No objection letter to the listed entity within 7 days from the date of receiving the comments by the SEBI, which shall also be incorporated in such NOC.
• The stock exchange shall disclose all the information received by them in pursuance of the draft scheme or arrangement immediately upon receiving the same on their website.
• The stock exchange shall disclose the No objection letter on its website at the time of issuance.

How Is The Draft Scheme Of Arrangement Processed By The SEBI?

The processing of the draft scheme of arrangement by SEBI is an important step in the process of post sanction requirements of scheme. The processing generally includes scrutiny of the draft scheme by SEBI through undertaking the following steps:

1. Upon receiving the No objection letter from the stock exchange, the SEBI is required to provide its comments on the draft scheme of arrangement.

2. While processing the draft scheme of the arrangement, the SEBI may seek clarifications from any person, including the stock exchange or the listed entity and may also seek expert opinion from a lawyer, practising chartered accountant, practising company secretary etc.

 3. The SEBI shall provide its comments to the stock exchange on the Draft scheme of arrangement within 30 days from the date of:

• Receipt of clarification sought by SEBI from the listed entity.
• Receipt of expert opinion.
• Receipt of No objection certificate from the stock exchange.

4. In case of any complaint or comments are received by the SEBI on the draft scheme of the arrangement, in that case, such complaint or comment shall be forwarded to the designated stock exchange for undertaking necessary resolution by the listed entity.

What Are The Post Sanction Requirements Of Scheme By The Listed Entities?

The process of post sanction requirements of the scheme initiates after the fulfilment of obligations by the Stock exchange and the processing of the draft scheme by SEBI. The post sanction requirements of scheme by the listed entities are:

• The listed entity shall make sure that the steps for listing NCDs or NCRPS issued in pursuance to the scheme of arrangement, are completed and trading commences within 60 days from the date of receiving the order of NCLT on all the stock exchanges.
• The listed entity shall, before the commencement of trading, publish the following information by way of advertisement in the English newspaper and regional newspaper having wide circulation in the registered place of the transferee entity:
  • Company’s Name
  • Registered Address of the Company
  • Corporate office of the Company
  • Information on details of the change of name or object clause
  • Capital structure in Pre and Post scheme of arrangement including details of the issued, authorised, paid up and subscribed capital.
  • Debt Structure in Pre and Post scheme of arrangement including details relating to face value, tenure, coupon, Number of issued NCDs or NCRPS etc.
  • Details relating to Promoters, including educational qualifications, experience, and Address
  • Details relating to the board of directions, including current and past experiences
  • Business Model
  • Business overview & Strategy
  • Any rationale for the scheme of arrangement, amalgamation, reconstruction, merger, etc.
  • Updated and latest audited financial records, in addition to notes to accounts and any audited financial qualifications.
  • Any information on pending litigations or default of the promoter, transferee entity or directors.
  • Information relating to regulatory or disciplinary action taken by stock exchanges or SEBI against the promoters in the last 5 financial years.
  • Details pertaining to outstanding criminal proceedings against the promoters.
  • Any development after the balance sheet date.
  • Any other information specified by SEBI from time to time.

Conclusion

The SEBI^[1] has mandated the listed entities to comply with the post sanction requirements of schemes even after complying with the pre-sanction of the scheme of arrangement. The SEBI, through keeping a check in the listing of con convertible debenture and non-convertible redeemable preference shares during a scheme of the arrangement, has mandated that the listed entity shall obtain the NOC from the stock exchange and further scrutinised the draft scheme by SEBI before making any application for sanction of the scheme to NCLT. Henceforth, in order to make the entity abide by all the provisions in the scheme, it is made mandatory that the listed entity shall start trading within 60 days of receiving the order of NCLT.

Read Our Article: SEBI Scheme of Arrangement for Listed NCDs & NCRPS