The Securities and Exchange Board of India (“SEBI”), vide notification dated June 10, 2021 (“Notification”), had notified the SEBI (Delisting of Equity Shares) Regulations, 2021 (“Delisting Regulations”). Regulation 37 of the Delisting Regulations sets out special provisions for a listed subsidiary company getting delisted through a scheme of arrangement where the listed holding company and the listed subsidiary company are in the ‘same line of business’.  

In this regard, SEBI has now vide its circular dated July 6, 2021 (“Circular”) clarified that for the above purposes of defining ‘same line of business’, the following criteria need to be fulfilled by the listed holding company and the listed subsidiary company: 

1. The principal economic activities of both the holding company and the subsidiary company are under the same group (3-digit numeric code) under the National Industrial Classification (NIC) Code 2008;
2. 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 the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”);
3. 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 the LODR Regulations;
4. In case of change of name of the listed entities, within the last 1 year, at least 50% of the revenue, calculated on a restated and consolidated basis, for the preceding 1 full year has to be earned by it from the activity indicated by its new name;
5. 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. 

SEBI has further specified that:

1. All of the above mentioned criteria will have to be certified by the statutory auditor and SEBI registered merchant banker; and
2. In terms of Regulation 37(2)(e) and (f) of the Delisting Regulations, the shares of the listed holding company and the subsidiary company shall be listed for at least 3 years and the subsidiary company shall be a listed subsidiary of the listed holding company for a period of 3 years. 

Please find a copy of the Circular here and copy of the Notification here.

This update has been contributed by Aastha (Partner) and Swaraj Narula (Senior Associate).

Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.