Procedure for seeking prior approval for change in control certain intermediaries including Merchant Bankers and Bankers to an Issue
Based on Circular No.: SEBI/HO/CFD/PoD-2/P/CIR/2023/141,
The Securities and Exchange Board of India (SEBI) has explained how to get permission for a change in control of certain middlemen, such as Merchant Bankers and Bankers, before it happens. The letter gives information on how to meet the standards of the laws and stay in line with them.
In the letter that SEBI sent out on August 10, 2023, it says that the notice for the planned change in control must be sent at least 60 days before the change is supposed to take place. The letter must be sent to SEBI and should include information about the company that is buying the business, the portion of ownership that is being transferred, the reason for the change, and any other necessary information.
SEBI may ask for more information from the person who sent the warning if it thinks it is important. The memo says that the person sending the warning must work with SEBI and give them all the information they need quickly so that the application can be processed on time. When SEBI gets the letter, it will let the company know what it thinks within 60 days of getting a full application. Upon satisfying SEBI’s requirement, a fresh registration certificate, shall be made available within two months from the date of receipt of the application.
The complete procedure and requirements for seeking prior approval for change in control with respect to Merchant Bankers and Bankers to an Issue can be found in the circular on SEBI’s official website.
Please note that it is advisable to consult the circular and seek professional advice to understand the specific requirements and procedures involved.
On August 2, 2011, SEBI put out a circular with the number CIR/MIRSD/14/2011. This circular explains how to get approval before a change in control of Merchant Bankers and Bankers to an Issue. In order to follow Regulation 9A(1)(a) of SEBI (Merchant Bankers) Regulations, 1992 and Regulation 8A(1)(a) of SEBI (Bankers to an Issue) Regulations, 1994, Merchant Bankers and Bankers to an Issue need to get approval from SEBI before a change in power.
To make it easier to get approval for a planned change in control of Merchant Bankers and Bankers to an Issue, SEBI has set up a new process that focuses on online applications. These applications must be sent through the SEBI Intermediary Portal (SI Portal) at siportaldotsebidotgovdotin.
Online application through the SI Portal shall carry the following information and declarations:
a) Current and proposed shareholding pattern of the intermediary;
b) Past applications made to SEBI seeking registration in any capacity but not granted, and details thereof;
c) Whether any action has ever been initiated/taken under Securities Contracts (Regulation) Act, 1956 (SCRA) / Securities and Exchange Board of India Act, 1992 (SEBI Act) or rules and regulations made thereunder, and the status thereof along with any corrective actions taken to prevent violations in the future;
d) Confirmation that the acquirer(s) / the person(s) who shall have the control shall honour all past liabilities / obligations of the applicant, if any;
e) Whether any investor complaints are pending, steps taken, and confirmation that the acquirer(s) / the person(s) who shall have the control shall resolve the same;
f) Any details of litigation(s), if any;
g) Confirmation that all the fees due to SEBI have been paid.
Merchant Bankers and Bankers to an Issue must submit complete and accurate online applications at least 60 days before the proposed effective date of the change in control. Upon receipt of a complete application, SEBI shall respond with its views within 60 days. If SEBI deems it appropriate, it may require further information from the intermediary and/or acquirer(s) / the person(s) who shall have the control.
The new procedure specified by SEBI outlines a streamlined and convenient way of obtaining prior approval for change in control of Merchant Bankers and Bankers to an Issue. It is imperative for all those concerned to comply with the regulations and procedures outlined carefully.
Declaration cum undertaking
The intermediary and the acquirer(s) / the person(s) who shall have the control must submit a duly stamped and signed declaration cum undertaking, using the format provided in Annexure A. This declaration should state the following:
i. There will be no change in the incumbent Board of Directors until prior approval is granted.
ii. After receiving prior approval from SEBI, the incumbent must inform all existing investors/clients of the intermediary in advance about the proposed change. This will allow them to make an informed decision regarding their continuation with the new management.
iii. The ‘fit and proper person’ criteria, as specified in Schedule II of SEBI (Intermediaries) Regulations, 2008, must be complied with.
Additional approval for stock brokers, clearing members, and depository participants:
If the current middleman is a qualified stock broker, clearing member, or depository participant, they must also get approval or a No Objection Certificate (NOC) from all the stock exchanges, clearing companies, or depositories where they are a member or bank player. SEBI needs a copy of these approvals or NOCs that has been signed by the person who got them.
Also, it should be mentioned that the licence given by SEBI will be good for six months from the date it was given. Within this time window, the candidate must submit a new register request, which must be approved by other industry officials related to the change in control.
SEBI recently stated changes to the way it approves suggested changes in control of a middleman, especially in cases involving plans of arrangement that need the permission of the National Company Law Tribunal (NCLT) under the Companies Act, 2013. Here is how the new process works:
Streamlined approval process for NCLT-sanctioned schemes of arrangement:
i. The intermediary must file an application for approval of the proposed change in control with SEBI prior to filing with NCLT.
ii. Once SEBI is satisfied that all applicable regulatory requirements have been met, they will grant in-principle approval.
iii. The validity of the in-principle approval will be three months from the date of issuance, within which time the relevant application must be made with NCLT.
iv. Within 15 days of the NCLT order, the intermediary must submit an online application and specific documents to SEBI for final approval.
The specific documents to be submitted to SEBI include:
a. Copy of the NCLT Order approving the scheme
b. Copy of the approved scheme
c. Statement explaining modifications, if any, in the approved scheme vis-à-vis the draft scheme and the reasons for the same
d. Details of compliance with the conditions/observations, if any, mentioned in the in-principle approval provided by SEBI.
This new process supersedes Circular no. CIR/MIRSD/14/2011 dated August 02, 2011, with regards to Merchant Bankers and Bankers to an Issue. The provisions of this circular will be applicable from September 01, 2023.This Circular has been issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992.
These changes will help streamline the approval process for proposed changes in control of an intermediary in cases where schemes of arrangement require NCLT approval. Intermediaries should ensure compliance with these regulations and understand the documentation required for final approval from SEBI.
