Securities and Exchange Board of India, on 6th July 2021 issued a circular[1] to all the listed entities who have listed their equity and convertibles on the nationwide stock exchanges about the standard operating procedure for listed subsidiary companies desirous of getting delisted through a scheme of arrangement wherein the listed parent holding company and the listed Subsidiary are in the same line of business.

There were amendments made to the Securities and Exchange Board of India (delisting of equity shares) regulations, 2021 which was notified to all through a notification dated 10th June 2021. The amendment in chapter VI, Part C, and Regulation 37 that talks about special provisions for a listed subsidiary company getting delisted through a scheme of arrangement have been inter-alia inserted to a listed holding company and the listed subsidiary company who're in the same line of business.

The circular has clarified and defined the term same line of business and provided with the criteria which are needed to be fulfilled by the listed subsidiary company and the listed holding company.

There are five criteria mentioned in the circular-

1. The principal economic activities of both the subsidiary company and the holding company are under the same group (three-digit numeric code) under the NIC 2008 (National Industrial Classification Code 2008).
2. Revenues from the operations of the listed subsidiary company and the listed holding company must not be less than 50%, if they come from the same line of business as for the last audited annual financial results submitted by both listed holding company and listed subsidiary company in the compliance with Securities and Exchange Board of India (Listing obligations and disclosure requirements) Regulations, 2015.
3. As per the last audited annual financial result submitted by both the listed subsidiary company and the listed home building company in compliance with Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 not less than 50% of the net tangible assets off both the companies must be invested in the same line of business.
4. At least 50% of the revenue for the preceding one full year has to be earned by the company from the activities indicating a new name if the name of the listed entities is changed within the last one year and revenues should be calculated on a restated and consolidated basis.
5. The listed subsidiary company and the listed holding company have to provide a self-certification stating that they both are in the same line as a business parent.

Five criteria as mentioned above need to be certified by the SEBI Registered Merchant Banker and this the Statutory Auditor. The shares of the subsidiary company and the listed holding company shall be listed for at least three years and the subsidiary company shall be understood subsidiary of a listed holding company for at least three years, according to Regulation 37 (2)(e) and (f) of the SEBI (Delisting of Equity Shares) Regulations, 2021. The circular advises bringing the provision of the circulars to notice of all the listed companies and also disseminate the same. Section 11(1) of the SEBI Act, 1992 and Regulations 11, 37, and 94 of the SEBI (LODR) Regulations confers the power to issue a circular to protect the interests of investors in securities, promote development and regulate the securities market.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws being force In India, for the time being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Consulting & Governance shall not be responsible for any errors caused due to human error or otherwise.

[1] SEBI/HO/CFD/DIL1/CIR/P/2021/0585