Sebi introduces framework for scheme of arrangement by clearing corps

Capital market regulator Sebi on Tuesday 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 and its shareholders or creditors.

At present, 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.

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

Under the new framework, Sebi said that 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.

The provision may not apply to schemes which solely provide for merger of a wholly-owned subsidiary or its division with the parent company. However, such draft schemes will be filed with Sebi for the purpose of disclosures and the same will be disseminated on the websites of the unlisted MIIs concerned, according to a circular.

The unlisted MIIs will have to provide certain information to Sebi while filing the draft scheme of arrangement for obtaining the observation letter or no-objection letter.

Among others, the entities will have to furnish information pertaining to valuation report, audit committee report, shareholding pattern of the unlisted MII pre and post the implementation of the scheme of arrangement, and audited financials for the last 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 may seek clarifications from any person, including the unlisted MII, and may also seek an opinion from an independent chartered accountant.

The markets regulator will have to 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 new framework will come into effect from April 27.