The Securities and Exchange Board of India (SEBI) has issued a circular dated 3 January 2018 (Ref: CFD/DIL3/CIR/2018/2) (2018 Amendment Circular), amending certain provisions of the SEBI Circular dated 10 March 2017 (Ref: CFD/DIL3/CIR/2017/21) which laid down detailed guidelines and procedures for listed entities undertaking schemes of arrangements (2017 Circular).


SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) provide that a scheme of arrangement/ amalgamation/ merger/ reconstruction/ reduction of capital undertaken by a listed entity (Schemes) must be in compliance with the applicable securities laws. The Listing Regulations further, inter alia, provide that a listed entity must file a Scheme to obtain an observation letter or a no objection letter, as the case may be, from the designated stock exchange (Stock Exchange) before filing the Scheme with the relevant bench of National Company Law Tribunal (NCLT).

SEBI has received representations on 2017 Circular. Considering the suggestions and in order to expedite the processing of draft schemes and to prevent misuse of Schemes to bypass regulatory requirements, SEBI has made certain amendments to the 2017 Circular. Material changes to the 2017 Circular are detailed below.

Merger of a wholly owned subsidiary (WOS) with its parent

An amendment was made to the Listing Regulations on 15 February 2017 which relaxed the requirement of obtaining prior approval of Stock Exchanges for Schemes which solely provided for merger of a wholly owned subsidiary with its parent entity.

Now SEBI has widened the scope of this relaxation to Schemes which provide for demerger/ hive-off of a division of a wholly owned subsidiary with its holding entity. Such Schemes are however, required to be filed with Stock Exchanges for the limited purpose of disclosures.

Independent Valuer and Independent Merchant Banker

The 2017 Circular provided for obtaining a fairness opinion from merchant banker and in certain cases, a valuation report from an independent chartered accountant. The 2018 Amendment Circular has mandated that fairness opinion shall be obtained from an ‘independent’ merchant banker and defined ‘Independent’ as having no material conflict of interest with the independent chartered accountant or with the company, including that of common directorships or partnerships. However, the 2018 Amendment Circular does not define the term ‘material conflict of interest’.

Minimum public shareholding in Schemes involving unlisted entities

The 2017 Circular provided that the public shareholding of the listed entity and the pre-Scheme shareholding of the Qualified Institutional Buyers (QIBs) in the unlisted company(ies) shall be regarded as ‘public’ shareholders of the merged entity for the purposes of computing minimum public shareholding of 25% of the merged entity.

The 2018 Amendment Circular now clarifies that such computation of 25% shareholding, shall be done on a fully diluted basis.

No requirement of Part II (commonly known as Part B) approval

The 2017 Circular required the listed company to seek prior consent of SEBI through Stock Exchange(s) for any modification to the draft scheme as approved by the SEBI. The Part II of the 2017 Circular which, inter alia, provided the listed company to (i) disclose the changes made to the draft scheme between the date of SEBI approval and NCLT approval; and (ii) file certain documents along with Order of the jurisdictional NCLT, had become redundant because of the requirement of prior consent of SEBI to any change proposed to be made to the draft scheme.

The 2018 Amendment Circular deletes the provisions of Part II of the 2017 Circular, which will reduce the overall timelines for listing of specified securities pursuant to the Scheme by at least one month.

Lock-in requirements

The 2018 Amendment Circular provides that in case of a Scheme involving a hiving-off of a division of a listed entity into an unlisted entity or merger of a listed entity with an unlisted entity and its subsequent listing, the entire pre-scheme share capital of the unlisted entity will be locked-in as follows:

  • up to 20% of the shares held by the promoters of the post merger paid up share capital of the unlisted issuer will be locked-in for 3 years from the date of listing; and
  • the remaining shares will be locked-in for a period of 1 year from the date of listing.

However, no additional lock-in will be required if the post scheme shareholding of the unlisted entity is the same as that of the listed entity.

The 2017 Circular did not provide for any exemption for pledge or transferability of such lock-in securities as was available under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2015 (SEBI ICDR Regulations).

The 2018 Amendment Circular provides that:

  • locked-in shares can be pledged with any scheduled commercial bank or public financial institution as collateral security for loan granted by such bank or institution, provided that pledge of shares is one of the terms of sanction of the loan;
  • locked-in shares may be transferred ‘inter-se’ among promoters in accordance with the conditions specified under Regulation 40 of SEBI ICDR Regulations i.e, lock-in on such specified securities shall continue for the remaining period with the transferee and such transferee shall not be eligible to transfer them till the lock-in period has expired; and
  • this clause is retrospectively applicable to any shares presently under lock-in as per the provisions of earlier circulars.

Amendment to overall timelines for listing of specified securities pursuant to the Scheme

With the omission of requirement to obtain approval of SEBI under Part II of the 2017 SEBI Circular, the 2018 Amendment Circular now stipulates an overall timeline of 60 days, from the receipt of the order of the Hon’ble High Court/ NCLT, for completion of listing and commencement of trading in securities by the issuing entity.


The 2018 Amendment Circular is a welcome step by SEBI. It has done away with certain duplicative procedures (Part II approval), facilitated faster process (in case of demerger/ hive-off of a division of a wholly owned subsidiary), aligned lock-in provisions with SEBI ICDR Regulations, strengthened the procedures (Independent Merchant Banker). These amendments will lead to overall reduction in timelines for consummation of the Schemes.