SEBI issues circular clarifying procedure in case of delisting of a subsidiary company through a Scheme of Arrangement wherein listed parent company and listed subsidiary are in the same line of business

SEBI has issued a circular dated July 06, 2021, providing a standard operative procedure and clarifying the purpose of defining “same line of business” in cases where a listed subsidiary desirous of getting delisted through a scheme of arrangement wherein the listed parent holding company and listed subsidiary are in the same line of business.

This is in furtherance to SEBI’s notification dated June 10, 2021, wherein SEBI had notified the SEBI (Delisting of Equity Shares) Regulations, 2021 wherein, special provisions for a listed subsidiary company getting delisted through a scheme of arrangement have been inserted wherein the listed holding company and the listed subsidiary company are in the ‘same line of business’.

SEBI has hereby clarified that for the purposes of defining ‘same line of business’, the following criteria to be fulfilled by the listed holding company and the listed subsidiary company: –

  • The principal economic activities of both Holding company and Subsidiary Company are under the same Group (3-digit numeric code) under the National Industrial Classification (NIC) Code 2008.
  • Not less than 50% of revenue from the operations of the listed holding and listed subsidiary company must come from the same line of business as per last audited annual financial results submitted by both the companies in compliance with SEBI (LODR) Regulations, 2015.
  • Not less than 50% of the net tangible assets of the listed holding and listed subsidiary must have been invested in the same line of business as per last audited annual financial results submitted by both the companies in compliance with SEBI (LODR) Regulations, 2015.
  • In case of change of name of the listed entities, within the last one year, at least fifty percent of the revenue, calculated on a restated and consolidated basis, for the preceding one full year has to be earned by it from the activity indicated by its new name.
  • The listed holding company and the listed subsidiary have to provide a self-certification with respect to both the companies being in the same line of business.

The above standards must be certified by the Statutory Auditor and SEBI Registered Merchant Banker.

SEBI has also stated that in such cases, in terms of Regulation 37(2)(e) and (f) of the SEBI (Delisting of Equity Shares) Regulations, 2021, the shares of the listed holding company and the subsidiary company shall be listed for atleast 3 years, and the subsidiary company shall be a listed subsidiary of the listed holding company for a period of 3 years.

 


*Tanvi Singh, Editorial Assistant has put this story together.

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