FEMA and SEBI Issues in Resolution Plans
SEBI exempts an approved plan from open offers and preferential-issue rules. FEMA grants no such exemption.
A resolution plan is a corporate transaction, and section 30(2)(e) of the Code requires that it not contravene any law in force. For a listed corporate debtor that means SEBI's rules on takeovers, preferential issues, listing and delisting. For a foreign resolution applicant it means India's foreign-investment rules under FEMA. SEBI has written specific carve-outs for plans approved under section 31; FEMA has not, so a foreign applicant must fit the ordinary rules.
IBBI's syllabus lists the Securities Contracts (Regulation) Act and four sets of SEBI Regulations (Takeovers, LODR, ICDR and Delisting) under General Laws. FEMA is not a listed Act. As always, the exam tests these as they stood on 4 February 2025; every SEBI carve-out below was in force by then.
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SEBI Carve-outs for an Approved Resolution Plan
SAST regulation 10(1)(da)
Normal rule
Reaching 25% of voting rights, or acquiring control, triggers an open offer
For a plan approved under section 31
Exempt from the open-offer obligation under regulations 3 and 4
SAST, proviso to regulation 3(2)
Normal rule
A creeping acquirer cannot go above the maximum permissible non-public shareholding
For a plan approved under section 31
Exempt from that limit
ICDR regulation 158(2)
Normal rule
Chapter V governs preferential issues: pricing, disclosures, timelines
For a plan approved under section 31
Chapter V does not apply, except its lock-in provisions
ICDR regulation 167(4)
Normal rule
Lock-in varies by allottee
For a plan approved under section 31
Shares issued under the plan are locked in for one year from trading approval, except to the extent needed to reach 10% public shareholding
Delisting regulation 3(2)(b)
Normal rule
Delisting follows the Regulations' process, including price discovery
For a plan approved under section 31
The Regulations do not apply if the plan provides for delisting or an exit at a specified price, subject to the conditions below
LODR regulation 23(4)
Normal rule
Material related party transactions need shareholder approval
For a plan approved under section 31
Not required, if disclosed to the exchanges within one day of plan approval
LODR regulation 37(7)
Normal rule
A scheme of arrangement needs the stock exchanges' no-objection
For a plan approved under section 31
Not required for a restructuring in the plan, if disclosed within one day
LODR regulation 15(2A)
Normal rule
Board composition and duties under regulation 17
For a plan approved under section 31
Suspended during CIRP; the IRP or RP fulfils the board's role. Compliance is due within three months of plan approval
| Regulation | Normal rule | For a plan approved under section 31 |
|---|---|---|
| SAST regulation 10(1)(da) | Reaching 25% of voting rights, or acquiring control, triggers an open offer | Exempt from the open-offer obligation under regulations 3 and 4 |
| SAST, proviso to regulation 3(2) | A creeping acquirer cannot go above the maximum permissible non-public shareholding | Exempt from that limit |
| ICDR regulation 158(2) | Chapter V governs preferential issues: pricing, disclosures, timelines | Chapter V does not apply, except its lock-in provisions |
| ICDR regulation 167(4) | Lock-in varies by allottee | Shares issued under the plan are locked in for one year from trading approval, except to the extent needed to reach 10% public shareholding |
| Delisting regulation 3(2)(b) | Delisting follows the Regulations' process, including price discovery | The Regulations do not apply if the plan provides for delisting or an exit at a specified price, subject to the conditions below |
| LODR regulation 23(4) | Material related party transactions need shareholder approval | Not required, if disclosed to the exchanges within one day of plan approval |
| LODR regulation 37(7) | A scheme of arrangement needs the stock exchanges' no-objection | Not required for a restructuring in the plan, if disclosed within one day |
| LODR regulation 15(2A) | Board composition and duties under regulation 17 | Suspended during CIRP; the IRP or RP fulfils the board's role. Compliance is due within three months of plan approval |
Delisting Through a Plan: The Two Conditions
- check_circlePublic shareholders must get an exit price no lower than the price at which any promoter, promoter-group entity or other shareholder is given an exit.
- check_circleThe delisting details and the justification for the exit price must be disclosed to the stock exchanges within one day of the plan's approval under section 31.
- check_circleA company delisted under a plan may later apply to relist without the waiting period that otherwise applies (Delisting regulation 40(2)(a)).
Foreign Resolution Applicants and FEMA
- Entry route and sectoral cap
- A non-resident acquiring shares of the corporate debtor makes a foreign investment. The sector's cap and route under the FEMA foreign-investment rules apply as they would to any other acquisition.
- Land-border investors
- An entity or citizen of a country sharing a land border with India, or an investor whose beneficial owner is such a citizen, may invest only under the Government route (RBI Master Direction on Foreign Investment, para 3.2). A plan from such an applicant needs Government approval.
- Timing
- Approvals under other laws must be obtained within one year of the NCLT's approval of the plan, or the period that law allows, whichever is later (section 31(4)). Competition approval is the exception, governed by the proviso.
How the Limited Insolvency Examination Tests This
In the business and general laws case study, expect a listed corporate debtor and an applicant that will hold 92% after the plan. Questions ask whether it must make an open offer (no, regulation 10(1)(da)), whether the new shares are locked in (yes, one year from trading approval), and what it must do about public shareholding.
The trap is assuming the carve-outs cover everything. They exempt the plan from specific SEBI steps, but disclosure duties remain, delisting needs a fair exit price, and nothing in SEBI's rules exempts a foreign applicant from FEMA.
FAQs
Does a resolution applicant need to make an open offer under SEBI takeover rules?expand_more
No. Regulation 10(1)(da) of the SEBI Takeover Regulations exempts an acquisition under a resolution plan approved under section 31 of the Code from the open-offer obligation in regulations 3 and 4.
Can a listed company be delisted under a resolution plan?expand_more
Yes. Regulation 3(2)(b) of the SEBI Delisting Regulations, 2021 disapplies the Regulations if the plan provides for delisting or an exit price, provided public shareholders get at least the price offered to promoters or others and the details are disclosed within one day of plan approval.
Do SEBI preferential issue rules apply to shares issued under a resolution plan?expand_more
Only the lock-in. ICDR regulation 158(2) disapplies Chapter V except lock-in, and regulation 167(4) locks the shares in for one year from trading approval.
Is FEMA in the IBBI Limited Insolvency Examination syllabus?expand_more
Not as a listed Act. It matters to plans from foreign applicants because section 30(2)(e) requires every plan to comply with the law in force.
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