NISM Series III B Issuers Compliance Certification Examination Workbook April 2018 PDF

Workbook for
NISM‐Series‐III‐B: Issuers Compliance
Certification Examination

National Institute of Securities Markets
www.nism.ac.in
NISM‐Series‐III‐B: Issuers Compliance Certification Examination

This workbook has been developed to assist candidates in preparing for the National Institute of
Securities Markets (NISM) Certification Examination for Compliance Issuers.

Workbook Version: April 2018

Published by:
National Institute of Securities Markets
© National Institute of Securities Markets, 2018
Plot 82, Sector 17, Vashi
Navi Mumbai – 400 703, India

All rights reserved. Reproduction of this publication in any form without prior permission of the
publishers is strictly prohibited.

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Disclaimer
The contents of this publication do not necessarily constitute or imply its endorsement,
recommendation, or favoring by the National Institute of Securities Markets (NISM) or the
Securities and Exchange Board of India (SEBI). This publication is meant for general reading and
educational purpose only.
The statements/explanations/concepts are of general nature and may not have taken into
account the particular objective/ move/ aim/ need/ circumstances of individual user/ reader/
organization/ institute. Thus NISM and SEBI do not assume any responsibility for any wrong move
or action taken based on the information available in this publication.
Therefore before acting on or following the steps suggested on any theme or before following
any recommendation given in this publication user/reader should consider/seek professional
advice.
The publication contains information, statements, opinions, statistics and materials that have
been obtained from sources believed to be reliable and the publishers of this title have made
best efforts to avoid any errors. However, publishers of this material offer no guarantees and
warranties of any kind to the readers/users of the information contained in this publication.
Since the work and research is still going on in all these knowledge streams, NISM and SEBI do
not warrant the totality and absolute accuracy, adequacy or completeness of this information
and material and expressly disclaim any liability for errors or omissions in this information and
material herein. NISM and SEBI do not accept any legal liability what so ever based on any
information contained herein.
While the NISM Certification examination will be largely based on material in this workbook,
NISM does not guarantee that all questions in the examination will be from material covered
herein.

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FOREWORD
NISM is a leading provider of high end professional education, certifications, training and
research in financial markets. NISM engages in capacity building among stakeholders in the
securities markets through professional education, financial literacy, enhancing governance
standards and fostering policy research. NISM works closely with all financial sector regulators in
the area of financial education.
NISM Certification programs aim to enhance the quality and standards of professionals employed
in various segments of the financial services sector. NISM’s School for Certification of
Intermediaries (SCI) develops and conducts certification examinations and Continuing
Professional Education (CPE) programs that aim to ensure that professionals meet the defined
minimum common knowledge benchmark for various critical market functions.
NISM certification examinations and educational programs cater to different segments of
intermediaries focusing on varied product lines and functional areas. NISM Certifications have
established knowledge benchmarks for various market products and functions such as Equities,
Mutual Funds, Derivatives, Compliance, Operations, Advisory and Research.
NISM certification examinations and training programs provide a structured learning plan and
career path to students and job aspirants who wish to make a professional career in the Securities
markets. Till May 2017, NISM has certified nearly 6 lakh individuals through its Certification
Examinations and CPE Programs.
NISM supports candidates by providing lucid and focused workbooks that assist them in
understanding the subject and preparing for NISM Examinations. This book covers all important
aspects related role and responsibilities of a Compliance officer of a listed company. It also covers
the various avenues for raising funds from the Indian and global market and the various
compliance requirements for the same; laws and regulations that need to be adhered to by a
public company with respect to issues, corporate actions, and day to day compliance
requirements.

Director
NISM
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Acknowledgement
This workbook has been developed by the Certification Team of NISM in co‐ordination with Ms.
Ramadevi Iyer, Company Secretary.
NISM gratefully acknowledges the contribution of the Examination Committee for the NISM‐
Series‐III‐B: Issuers Compliance Certification Examination consisting of nominated members from
the Company Secretaries of India (ICSI).

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About NISM Certifications
The School for Certification of Intermediaries (SCI) at NISM is engaged in developing and
administering Certification Examinations and CPE Programs for professionals employed in various
segments of the Indian securities markets. These Certifications and CPE Programs are being
developed and administered by NISM as mandated under Securities and Exchange Board of India
(Certification of Associated Persons in the Securities Markets) Regulations, 2007.
The skills, expertise and ethics of professionals in the securities markets are crucial in providing
effective intermediation to investors and in increasing the investor confidence in market systems
and processes. The School for Certification of Intermediaries (SCI) seeks to ensure that market
intermediaries meet defined minimum common benchmark of required functional knowledge
through Certification Examinations and Continuing Professional Education Programmes on
Mutual Funds, Equities, Derivatives Securities Operations, Compliance, Research Analysis,
Investment Advice and many more. Certification creates quality market professionals and
catalyzes greater investor participation in the markets. Certification also provides structured
career paths to students and job aspirants in the securities markets.
About NISM
National Institute of Securities Markets (NISM) was established by the Securities and Exchange
Board of India (SEBI), in pursuance of the announcement made by the Finance Minister in his
Budget Speech in February 2005.
SEBI, by establishing NISM, articulated the desire expressed by the Government of India to
promote securities market education and research.
Towards accomplishing the desire of Government of India and vision of SEBI, NISM delivers
financial and securities education at various levels and across various segments in India and
abroad. To implement its objectives, NISM has established six distinct schools to cater to the
educational needs of various constituencies such as investors, issuers, intermediaries, regulatory
staff, policy makers, academia and future professionals of securities markets.
NISM is mandated to implement Certification Examinations for professionals employed in various
segments of the Indian securities markets.
NISM also conducts numerous training programs and brings out various publications on securities
markets with a view to enhance knowledge levels of participants in the securities industry.
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About the Workbook
This workbook has been developed to assist candidates in preparing for the National Institute of
Securities Markets (NISM) Certification Examination Securities Intermediaries Compliance (Non‐
Fund). NISM‐Series‐III‐B: Issuers Compliance Certification Examination seeks to create a common
minimum knowledge benchmark for Compliance Officers of listed companies and also companies
which are proposed to be listed on the stock exchanges.
The book covers the role and responsibilities of a Compliance officer of a listed company;
discusses the various avenues for raising funds from the Indian and global market and the various
compliance requirements for the same and discusses laws and regulations that need to be
adhered to by a public company with respect to issues, corporate actions, and day to day
compliance requirements and the penalties for non‐compliance.

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About the Certification Examination for Issuers Compliance
The examination seeks to create a common minimum knowledge benchmark for Compliance
Officers of listed companies and also companies which are proposed to be listed on the stock
exchanges.
The certification aims to enhance the knowledge of these Compliance Officers ensuring
continuous updation.

Examination Objectives
On successful completion of the examination, the candidate should:
 Know the role and responsibilities of a Compliance officer of a listed company
 Understand the various avenues for raising funds from the Indian and global market and the
various compliance requirements for the same
 Know the laws and regulations that need to be adhered to by a public company with respect
to issues, corporate actions, and day to day compliance requirements.
 Know the various penalties for non‐compliance with regulations and requirements as
specified in various Regulations

Assessment Structure
The examination consists of 100 questions of 1 mark each and should be completed in 2 hours.
The passing score on the examination is 60%. There shall be negative marking of 25% of the marks
assigned to a question.

How to register and take the examination
To find out more and register for the examination please visit www.nism.ac.in.
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CONTENTS
CHAPTER 1: INTRODUCTION TO INDIAN CAPITAL MARKET ................................................. 1
1.1. CAPITAL MARKET STRUCTURE AND ROLE OF CAPITAL MARKET ....................................................... 1
1.2. REGULATORY FRAMEWORK ................................................................................................... 12
CHAPTER 2: CAPITAL MARKET REGULATIONS ........................................................................ 15
2.1. SEBI ACT, 1992 ................................................................................................................. 15
2.2. COMPANIES ACT, 1956 & 2013 ........................................................................................... 20
2.3. SECURITIES CONTRACTS (REGULATION) ACT, 1956 .................................................................... 22
2.4. SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015 ..................... 22
2.5. FOREIGN EXCHANGE MANAGEMENT ACT, 1999 (FEMA) .......................................................... 22
2.6. PREVENTION OF MONEY LAUNDERING ACT, 2002 (PMLA) ........................................................ 23
2.7. THE COMPETITION ACT, 2002 ............................................................................................... 27
2.8. SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 ........................... 28
2.9. SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011 ..................... 28
2.10. SEBI (BUY‐BACK OF SECURITIES) REGULATIONS, 1998 .............................................................. 29
2.11. SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015 .................................................. 29
2.12. SEBI (INTERMEDIARIES) REGULATIONS, 2008 .......................................................................... 29
2.13. SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2009 ........................................................ 30
2.14. SEBI (SHARE BASED EMPLOYEE BENEFITS) REGULATIONS, 2014 ................................................. 30
2.15. DEPOSITORY RECEIPTS SCHEME 2014 ..................................................................................... 30
2.16. SEBI (ISSUE OF SWEAT EQUITY) REGULATIONS, 2002 ................................................................ 31
CHAPTER 3: COMPLIANCE OFFICER .............................................................................................. 33


3.1. APPOINTMENT OF A COMPLIANCE OFFICER ............................................................................... 33
3.2. ROLE OF COMPLIANCE OFFICER .............................................................................................. 34
3.3. RESPONSIBILITIES OF A COMPLIANCE OFFICER ........................................................................... 35
3.4. REPORTING REQUIREMENTS .................................................................................................. 37
CHAPTER 4: RAISING CAPITAL FROM THE MARKET .............................................................. 41
4.1. WHY RAISE MONEY FROM THE MARKET .................................................................................. 41
4.2. EVOLUTION OF PUBLIC ISSUES ................................................................................................ 41
4.3. METHODS OF RAISING MONEY .............................................................................................. 42
CHAPTER 5: ROLE OF COMPLIANCE OFFICER IN IPO .............................................................. 49
5.1. PLANNING AN IPO ............................................................................................................... 49
5.2. GENERAL OBLIGATIONS DURING PUBLIC ISSUE........................................................................... 72
5.3. MARKETING THE ISSUE ......................................................................................................... 75
5.4. APPLICATION SUPPORTED BY BLOCKED AMOUNT (ASBA) ........................................................... 77
5.5. ALLOTMENT OF SHARES ........................................................................................................ 79
5.6. LISTING WITH STOCK EXCHANGES ........................................................................................... 82
5.7. POST ISSUE COMPLIANCES .................................................................................................... 90
CHAPTER 6: ROLE OF COMPLIANCE OFFICER IN OTHER PUBLIC ISSUES ........................ 93
6.1. FURTHER PUBLIC OFFER (FPO) .............................................................................................. 94
6.2. RIGHTS ISSUE ...................................................................................................................... 94
6.3. BONUS ISSUE .................................................................................................................... 102
6.4. EMPLOYEE STOCK OPTION PLAN (ESOP) ............................................................................... 104
6.5. SWEAT EQUITY .................................................................................................................. 107


6.6. PRIVATE PLACEMENT .......................................................................................................... 108
6.7. INDIAN DEPOSITORY RECEIPTS (IDR) ..................................................................................... 126
CHAPTER 7: RAISING MONEY FROM FOREIGN MARKET .................................................... 142
7.1. AMERICAN DEPOSITORY RECEIPTS (ADR)/GLOBAL DEPOSITORY RECEIPTS (GDR) ......................... 142
7.2. FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) .................................................................. 145
CHAPTER 8: CORPORATE ACTIONS ............................................................................................ 148
8.1. RELATED LAWS AND PROCESS .............................................................................................. 148
CHAPTER 9: ONGOING COMPLIANCE REQUIREMENTS ....................................................... 178
9.1. REPORTS TO BE SUBMITTED AS PER LISTING AGREEMENT ........................................................... 181
9.2. COMPLIANCES UNDER THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS,
2011…………………… ...................................................................................................................... 188
9.3. COMPLIANCES UNDER THE SEBI ( PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015 ............ 190
9.4. APPELLATE TRIBUNAL ......................................................................................................... 191
9.5. SCORES SYSTEM FOR INVESTOR GRIEVANCE .......................................................................... 192
9.6. ESTABLISHMENT OF SPECIAL COURTS ..................................................................................... 194
ADDITIONAL READ: SAT CASES ................................................................................................... 198


Chapter 1: Introduction to Indian Capital Market

LEARNING OBJECTIVES:
After studying this chapter, you should know about:
 Role of capital markets
 Structure of capital market in India

 Important terminology related to capital markets
 Capital market participants
 Regulatory framework in capital market

Capital Market is a market for securities where companies/institutions can raise long term
capital. The capital market can be classified into primary market and secondary market.
Companies issue shares to the public through an Initial Public Offer (IPO) or Further Public Offer
(FPO). Once the issue is closed the securities are listed on Stock Exchanges. This is the primary
market, whereby companies/institutions issue securities to the public and have them listed.
Secondary market is the market where trading on the listed securities takes place through stock
exchanges. Secondary market facilitates trading in securities. The 3 main stock exchanges in India
are National Stock Exchange of India (NSEIL), BSE ltd and MSEI formerly known as MCX‐SX.

1.1. Capital Market Structure and Role of Capital Market
In order to understand the Indian Capital Market, it is necessary to have a basic idea of the
structure and role of the capital market in the economy. In this section, we briefly discuss the
capital market structure in India.
1.1.1. Capital Market Structure in India
Indian Capital Market are classified into viz., Government Securities (Gilt‐edged securities), and
Securities market.
Government Securities are securities issued by the government or semi‐government
organizations and backed by the Reserve Bank of India. They normally carry a fixed rate of
interest. The investors in Government securities are mainly financial institutions who are
required by law to invest a certain percentage of their funds in government securities.
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Securities market is the market for securities issued by companies. This provides long term funds
to the companies and comprises of both debt and equity shares.
A large number of intermediaries provide intermediation services in the market. These
intermediaries may be grouped as Development Financial Institutions and Financial Market
Intermediaries.
 Development financial institutions: Institutions like Industrial Finance Corporation of India
(IFCI), State Finance Corporation (SFC), and Industrial Investment Bank of India (IIBI) etc. are
set up for specific purposes. They provide long term finance to industries. They also raise
funds through deposits and borrowings and subscribe to shares and debentures of companies
and underwrite new issues.
 Financial market intermediaries: Merchant bankers, financial institutions, leasing companies,
venture capital companies, mutual funds etc. fall in this category. Merchant bankers manage
and underwrite new issues. Leasing companies finance the purchase of plant and machinery
and other moveable assets for industries, venture capital companies provide the seed capital
for start‐ups, mutual funds convert the savings of the public and invest them in stock markets
after adequate research.

1.1.2. Role of Capital Market in the Economy
Capital markets have several roles in building up and strengthening the economy. Some of the
important roles are discussed below.
 Provides Long term finance
The capital market is the market for securities, where corporate bodies and governments can
raise long term funds through issue of equity and debt securities. Issue of such securities is a
common way to generate capital and long term funds.
 Helps to bridge investment – savings gap
In developing economies, there is always a gap between investment and savings. This gap means
that funds available fall short of the amount needed to stimulate economic development. Thus,
this gap may hinder the economic growth of a developing country such as India. In such a
situation capital market plays an important role. The investors are induced to invest in
infrastructure and economic development through corporate or government securities. The
investors targeted are both Indian as well as overseas. Capital markets expand the investment
options available in the country.
 Cost effective mode of raising finance
Capital market in any country provides the platform for both corporate bodies and government
to raise long term finance at a low cost as compared to other modes of raising finance.
 Avenue for investors to park their surplus funds
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Capital market provides the investors an avenue to invest their surplus funds. Given the current
interest rate scenario in the world, India is an attractive destination to park the funds.
 Mobilization of savings and productive investment
Mobilization of savings and investment leads to capital formation in country.
 Economic Growth
Capital market facilitates the growth of the industrial sector as well as other sectors of the
economy.
 Development of backward area
The capital market provides funds for the projects in backward areas which is essential for a
country like India.
 Generates Employment
Capital market generates both direct and indirect employment in the country.
 Long Term Capital to Industries
The capital market provides long‐term capital to industries. Once the equity share is issued by a
company; it remains with the company for as long as it exists i.e., perpetuity.

1.1.3. Some Important Terms

Securities
As per Section 2 (h) of the Securities Contracts Regulation Act, 1956, securities include:
 Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of
a like nature in or of any incorporated company or other body corporate;
 Derivative1;
 Units or any other instrument issued by any collective investment scheme to the investors in
such schemes;
 Security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002;
 Units or any other such instrument issued to the investors under any mutual fund scheme;
 Any certificate or instrument (by whatever name called), issued to an investor by any issuer
being a special purpose distinct entity which possesses any debt or receivable, including
mortgage debt, assigned to such entity, and acknowledging beneficial interest of such
investor in such debt or receivable, including mortgage debt, as the case maybe.
 Government securities;

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As per SCRA, derivatives includes a security derived from a debt instrument, share, loan, whether secured or
unsecured, risk instrument or contract for differences or any other form of security; a contract which derives
its value from the prices, or index of prices, of underlying securities; commodity derivatives; and such other
instruments as may be declared by the Central Government to be derivatives. [Amended by the Finance Act 2017]
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 Such other instruments as may be declared by the Central Government to be securities; and
 Rights or interest in securities;
We will discuss some of these securities in this section.
Shares
As per Section 2(84) of the Companies Act, 2013, "share" means share in the share capital of a
company, and includes stock.
As per the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, “shares”
have been defined to mean “shares in the equity share capital of a target company carrying voting
rights, and includes any security which entitles the holder thereof to exercise voting rights;
For the purpose of the aforementioned clause “shares” will include all depository receipts
carrying an entitlement to exercise voting rights in the target company.
 Equity

“Equity share capital” means, with reference to any such company, all share capital which is not
preference share capital. Preference share capital is defined later in this section.
An equity share, commonly referred to as ordinary share, also represents the form of fractional
ownership in which a shareholder, as a fractional owner, undertakes the entrepreneurial risk
associated with a business venture. The holders of such shares are members of the company and
have voting rights.
 Preference
“Preference share” means, with reference to any company limited by shares, those shares,
(a) which carries or will carry a preferential right to pay dividend at a fixed amount or an amount
calculated at a fixed rate. Further this amount may be either free of or subject to income‐tax.
(b) which carries or will carry, a preferential right to be repaid the amount of the capital paid up
or deemed to have been paid up on a winding up or repayment of capital, whether or not there
is a preferential right to the payment of either or both of the following amounts, namely:
 any unpaid money in respect of the amounts specified in (a), up to the date of the
winding up or repayment of capital
 any fixed premium or premium on any fixed scale, specified in the memorandum or
articles of the company.
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Further, Capital shall be deemed to be preference capital, provided that it is entitled to either of
both of the following rights, namely:
o in addition to the preferential right to the dividend amount specified in (a), it has a
right to participate, either fully or to a limited extent, without preferential right to
the capital;
o in addition to the preferential right to the repayment, on a winding up, of the
amounts specified in (b); it has a right to participate, either fully or to a limited
extent, without preferential right to the capital which may remain after the entire
capital has been repaid.
Owners of preference shares are entitled to a fixed dividend or dividend calculated at a fixed rate
to be paid regularly before dividend can be paid in respect of equity shares. They also enjoy
priority over the equity shareholders in repayment of capital in case of winding up or repayment
of capital. But in the event of liquidation, their claims rank below the claims of the company’s
creditors, bondholders / debenture holders.
 Sweat Equity
As per the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002,
clause 2(p) ‘sweat equity shares’ means sweat equity shares as defined in Explanation II of sub
section (1) of Section 79A of the Companies Act, 1956.
The relevant extract is as under:
“Sweat equity shares” means equity shares issued by the company to employees or directors at
a discount or for consideration other than cash for providing know‐how or making available rights
in the nature of intellectual property rights or value additions, by whatever name called.
Though the SEBI regulation has not been amended, Companies Act, 2013 has been notified with
respect to Sweat Equity Shares. Section 2(88) of Companies Act, 2013 defines the sweat equity
shares as “such equity shares which are issued by a company to its directors or employees at a
discount or for consideration, other than cash, for providing their know‐how or making available
rights in the nature of intellectual property rights or value additions, by whatever name called”.
Issue of sweat equity shares under Companies Act, 2013 is governed by Section 54 which states
as under:
(1) a company may issue sweat equity shares of a class of shares already issued, if the following
conditions are fulfilled, namely:—
(a) the issue is authorised by a special resolution passed by the company;
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(b) the resolution specifies the number of shares, the current market price, consideration, if any,
and the class or classes of directors or employees to whom such equity shares are to be issued;
(c) not less than one year has, at the date of such issue, elapsed since the date on which the
company had commenced business; and
(d) where the equity shares of the company are listed on a recognised stock exchange, the sweat
equity shares are issued in accordance with the regulations made by the Securities and Exchange
Board in this behalf and if they are not so listed, the sweat equity shares are issued in accordance
with such rules as may be prescribed.
(2) The rights, limitations, restrictions and provisions as are for the time being applicable to equity
shares shall be applicable to the sweat equity shares issued under this section and the holders of
such shares shall rank pari passu with other equity shareholders.
As per the Securities and Exchange Board of India (Issue of Sweat Equity) Regulations, 2002,
Sweat Equity issued to the promoters is subject to further conditions.
 Issue of Shares with Differential Voting Rights
Companies Act, 2013 vide Section 43 has empowered Companies to issue equity share capital
with differential rights as to dividend or voting or otherwise in accordance with such rules. As per
Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014, no company limited by
shares shall issue equity shares with differential rights as to dividend, voting or otherwise, unless
it complies with conditions specified therein.
 Employees Stock Option Plan (ESOP)
As per SEBI (Share Based Employee Benefits) Regulations, 2014, “Option means the option given
to an employee which gives him a right to purchase or subscribe at a future date, the shares
offered by the company, directly or indirectly, at a pre‐determined price and option grantee
means an employee having a right but not an obligation to exercise an option in pursuance of
ESOS”.
Employee stock option scheme or ESOS means a scheme under which a company grants
employee stock option directly or through a trust.
As per Companies Act, 2013, Employees stock option means the option given to the directors,
officers or employees of a company or of its holding company or subsidiary company/ies, if any,
which gives the directors, officers or employees, the benefit or right to purchase or to subscribe
for the shares of the company at a future date at a predetermined price.
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As per the Regulations, an employee shall be eligible to participate in the schemes of the
company as determined by the compensation committee.
Explanation‐ Where such employee is a director nominated by an institution as its representative
on the board of directors of the company –
(i) The contract or agreement entered into between the institution nominating its employee as
the director of a company, and the director so appointed shall, inter alia, specify the following:
a. whether the grants by the company under its scheme(s) can be accepted by the said employee
in his capacity as director of the company;
b. that grant if made to the director, shall not be renounced in favour of the nominating
institution; and
c. the conditions subject to which fees, commissions, other incentives, etc. can be accepted by
the director from the company.
(ii) the institution nominating its employee as a director of a company shall file a copy of the
contract or agreement with the said company, which shall, in turn file the copy with all the stock
exchanges on which its shares are listed.
(iii) the director so appointed shall furnish a copy of the contract or agreement at the first board
meeting of the company attended by him after his nomination.
 Employees Stock Purchase Scheme (ESPS)
As per the Regulations, Employee stock purchase scheme or ESPS means a scheme under which
a company offers shares to employees, as part of public issue or otherwise, or through a trust
where the trust may undertake secondary acquisition for the purposes of the scheme.

Bonds
Bonds are negotiable certificates evidencing indebtedness. It is normally unsecured. A debt
security is generally issued by a company, public authorities, and other institutions. A bond
investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount
on a specified maturity date. The issuer usually pays the bond holder periodic interest payments
over the life of the loan. The various types of Bonds are as follows‐
o Zero Coupon Bond is a bond that is issued at a discount and repaid at a face value. No
periodic interest is paid on zero coupon bonds. The difference between the issue price
and redemption price represents the return to the holder. The buyer of these bonds
receives only one payment, at the time of maturity of the bond.
o Convertible Bond is a bond that gives the investor the option to convert the bond into
equity share at a fixed conversion price.

 Foreign Currency Convertible Bond (FCCB)
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Foreign Currency Convertible Bond is defined in regulation 2(g) of the Foreign Exchange
Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004 i.e.
Notification No. FEMA 120/ RB‐2004 dated: July 7, 2004. 'Foreign Currency Convertible Bond'
(FCCB) means a bond issued by an Indian company expressed in foreign currency. For an FCCB,
the principal and interest are payable in foreign currency.
FCCB is a type of convertible bond issued in a currency different from the issuer's domestic
currency. In other words, the money being raised by the issuing company is in foreign currency.
A convertible bond is a mix between a debt and an equity instrument. It works like a bond with
respect to regular coupon and principal payments, but these bonds also give the bondholder the
option to convert the bond into shares at a later date.
 Foreign Currency Exchangeable Bond (FCEB)
Foreign Currency Exchangeable Bonds Scheme, 2008 defines Foreign Currency Exchangeable
Bond (FCEB) as a bond expressed in foreign currency, the principal and interest in respect of
which is payable in foreign currency. From Indian market point of view, this is issued by an Indian
Company and subscribed to by a person who is a resident outside India, in foreign currency and
is fully or partly exchangeable into equity share of another company, to be called the Offered
Company, on the basis of any equity related warrants attached to debt instruments. An FCEB may
be denominated in any freely convertible foreign currency.
The Issuing Company shall be part of the promoter group of the Offered Company and shall hold
the equity share/s being offered at the time of issuance of Foreign Currency Exchangeable Bond.
The Offered Company shall be a listed company which is engaged in a sector eligible to receive
Foreign Direct Investment and eligible to issue or avail of Foreign Currency Convertible Bond or
External Commercial Borrowings.
Depository Receipts
As per the Depository Receipts Scheme, 2014, a depository receipt is defined as a foreign
currency denominated instrument, whether listed on an international exchange or not, in a
permissible jurisdiction on the back of eligible securities issued or transferred to that foreign
depository and deposited with a domestic custodian and includes ‘global depository receipt’ as
defined in section 2(44) of the Companies Act, 2013. An eligible person may issue or transfer
eligible securities to a foreign depository for the purpose of issuance of depository receipts in
terms of Depository Receipts Scheme, 2014, subject to the specified terms and conditions.
Indian Depository Receipts (IDR)
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Companies Act, 2013 defines “Indian Depository Receipt” (hereinafter referred to as “IDR”) as
any instrument in the form of a depository receipt created by Domestic Depository in India and
authorized by a company incorporated outside India making an issue of such depository receipt.
An eligible company resident outside India may issue IDRs through a Domestic Depository, to
persons resident in India and outside India, subject to the terms and conditions specified
American Depository Receipts (ADR)
ADR is an instrument issued by a U.S. entity representing a specified number of share(s) of a non‐
US entity, issued to investors in the US and traded on a U.S. stock exchange. ADRs are
denominated in U.S. dollars, with the underlying security held by a U.S. Depository overseas.
 Global Depository Receipts (GDR)
Global Depository Receipts are instruments in the form of a depository receipt by whatever name
called created by a foreign depository outside India and authorized by a company making an issue
of such depository receipts.

Warrants

A warrant is a security which gives the holders a right but not an obligation to buy a proportionate
amount of stock at some specified future date at a specified price, usually one higher than current
market price. Warrants do not carry any voting rights.

Debentures
A debenture is a debt instrument issued by a company and bears a fixed rate of interest usually
payable half yearly on specific dates, and the principal amount of is repayable on a particular
date on redemption of the debentures. Debentures are normally secured / charged against the
asset of the company in favour of debenture holder.
As per the Companies Act, 2013 "Debenture" includes debenture stock, bonds or any other
instrument of a company evidencing a debt, whether constituting a charge on the assets of the
company or not.
Derivatives
A derivative is a security whose price is dependent upon or derived from one or more of
underlying assets. The derivative itself is merely a contract between two or more parties. Its value
9


is determined by fluctuations in the underlying asset. Underlying assets normally include stocks,
bonds, commodities, currencies, interest rates and market indices.
Government Securities
As per The Government Securities Act, 2006 and The Government Securities Regulations, 2007,
Government security means a security created and issued by the Government for the purpose of
raising a public loan or for any other purpose as may be notified by the Government in the Official
Gazette. A government security can be in any of the following forms:
o A Government promissory note (GPN) payable to or to the order of a certain person
o A bearer bond payable to a bearer
o A stock
o A bond held in a bond ledger account (BLA)
A Government security is a tradable instrument issued either by the Central Government or the
State Governments and acknowledges the Government’s debt obligation. Such securities can be
ether short term (usually called treasury bills, with original maturities of less than one year) or
long term (usually called Government bonds or dated securities with original maturity of one year
or more).
In India, the Central Government issues both, treasury bills and bonds or dated securities while
the State Governments issue only bonds or dated securities, which are called the State
Development Loans (SDLs).
Government securities carry practically no risk of default and, hence, are called risk‐free gilt‐
edged instruments. Government of India also issues savings instruments (Savings Bonds, National
Saving Certificates (NSCs), etc.) or special securities (oil bonds, Food Corporation of India bonds,
fertiliser bonds, power bonds, etc.).
 Government Bonds
A government bond is a debt security issued by the central government for a period of more than
one year. This could be in the form of fixed rate bonds, floating rate bonds, zero coupon bonds
or capital indexed bonds.
 T‐Bills
Treasury bills or T‐bills, which are money market instruments, are short term debt instruments
issued by the Government of India and are presently issued in three tenors, namely, 91 days, 182
10


days and 364 days. Treasury bills are zero coupon securities and thus there is no interest payment
made. They are issued at a discount and redeemed at face value on maturity.
 Certificate of Deposit
As per the Master Circular – guidelines for Issue of Certificates of Deposit, Certificates of Deposit
(CDs) are negotiable money market instruments issued in dematerialised form or as a Usance
Promissory Note, against funds deposited at a bank or other eligible financial institution for a
specified time period. Guidelines for issue of CDs are presently issued in the form of various
directives by the Reserve Bank of India, and amended from time to time.
 Commercial Paper
As per the Master Circular ‐ Guidelines for Issue of Commercial Paper, Commercial Paper (CP) is
an unsecured money market instrument issued in the form of a promissory note. CP, as a
privately placed instrument, was introduced in India in 1990 with a view to enable highly rated
corporate borrowers to diversify their sources of short‐term borrowings and to provide an
additional instrument to investors. Subsequently, primary dealers (PDs) and all‐India financial
institutions were also permitted to issue CP to enable them to meet their short‐term funding
requirements.
This instrument is a short term instrument with a promise to repay a fixed amount. It may be
placed on the market either directly or through a specialized intermediary. It is usually issued by
companies with a high credit standing in the form of a promissory note redeemable at par to the
holder on maturity and therefore, doesn’t require any guarantee. Commercial paper is a money
market instrument normally issued for tenure of 90 days.
1.1.4. Market Participants
In this section, we will discuss market participants who are involved in several stages of the issue
process. Each market participant is required to be registered with SEBI under the respective SEBI
regulations for the intermediary.
Merchant Banker carries out the due diligence and prepares the offer document with regard to
an Initial Public Offer (IPO), Follow‐on Public Offer (FPO), Rights, Buy‐back, Takeover, Qualified
Institutional Placement (QIP) and Delisting. They are also responsible for ensuring compliance
with the legal formalities in the entire issue process and for marketing of the issue. When there
is more than one merchant banker, one of them is designated as the Lead Manager.
Registrars to the Issue are involved in processing investor requests and transactions, finalizing
the basis of allotment in an issue and for sending refunds, allotment etc.
11


Bankers to the Issue enable the movement of funds in the issue process and also enable the
Registrars to finalize the basis of allotment by giving details of the clear funds status.
Underwriters are intermediaries who undertake to subscribe to the securities offered by the
company in case these are not fully subscribed by the public, in an underwritten issue.
Depository means a company registered under the Companies Act, 1956/2013 and registered
with SEBI as a Depository, which holds the securities on behalf of other entities in electronic form.
Custodian is an entity which holds the documentary evidence of title to property belonging to
other entities.
Depository Participants (sometimes called as simply participants) act as intermediaries between
the depository and the investor. Depository participants are agents of the Depository.
Stock Brokers are intermediaries who buy and sell securities in the market on behalf of investors.
Sub‐brokers means any person/ company registered as a sub‐broker with SEBI, not being a
member of stock exchange who acts on behalf of a stock broker as an agent or otherwise for
assisting the investors in buying, selling or dealing in securities thorough such stock brokers.
Portfolio Managers are individuals or firms that administer the portfolios of individuals or
provide advice or direction to that effect, for a fee or a share in the profits or a combination of
the two.

1.2. Regulatory Framework

In this section, we discuss the broad regulatory framework within which the Indian capital market
operates. The financial market regulators and their role in brief are covered here. The regulations
are discussed in brief here and are referred to in the following Chapters for relevant portions.
1.2.1. Financial Market Regulators
The primary regulator for the Indian Capital Market is Securities and Exchange Board of India
(SEBI). As per the SEBI Act, 1992, the function of SEBI is to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market and for
matters connected therewith or incidental thereto.
Ministry of Corporate Affairs through its arm – Registrar of Companies monitors the activities of
the companies registered under the Companies Act, 1956/2013. Issue of shares is regulated by
the Companies Act and there are specific provisions to be followed for this purpose.
12


Ministry of Finance through Reserve Bank of India (RBI) regulates the flow of foreign exchange in
and out of India. Issue of securities by foreign companies in India and investment in Indian
securities by persons residing outside India are regulated by the RBI through Foreign Exchange
Management Act, 1999 (FEMA). The activities of banks and Banking Companies activities are
regulated by RBI as per the Banking Regulation Act, 1949. Apart from this, the Non‐banking
Financial Companies are also regulated by RBI.
Insurance Regulatory and Development Authority of India (IRDAI): Insurance companies need to
obtain the approval of the IRDAI before they can make an IPO. The guidelines issued by IRDA(
need to be complied with, approval obtained and before filing the offer document with SEBI.
Economic Offences Wing in CBI was first created vide Resolution No. 24166/64‐AVD, dated April
29, 1964; under various Sections of IPC and Special Acts notified under section 3 of Delhi Special
Police Establishment (DSPE) Act, 1946. The Economic Crimes Division of the Economic Offences
Wing deals with banks frauds, financial frauds, Import Export and Foreign Exchange violations,
large‐scale smuggling of narcotics, antiques, cultural property and smuggling of other contraband
items etc.
Financial Intelligence Unit‐India (FIU‐IND) is the central, national agency responsible for
receiving, processing, analyzing and disseminating information relating to suspect financial
transactions to enforcement agencies and foreign FIUs.

13


Review Questions:

1. Sweat Equity shares are issued normally to which of the following?
A. Promoters
B. Directors
C. Employee
D. All of the above

2. Global Depository Receipts are issued to ___________.
A. US Investors
B. Global Investors
C. European Investors
D. Non‐American Investors

3. Derivative is merely a contract. State whether the statement is TRUE or FALSE.
A. True
B. False

4. Non‐banking financial companies are mainly regulated by:
A. Securities and Exchange Board of India
B. Reserve Bank of India
C. Ministry of Corporate Affair
D. Financial Intelligence Unit
14


Chapter 2: Capital Market Regulations


After studying this chapter, you should know about some important regulations in context of capital
markets:
 SEBI Act, 1992
 Companies Act
 Securities Contract (Regulation) Act, 1956
 Foreign Exchange Management Act, 1999
 Prevention of Money Laundering Act, 2002
 Competition Act, 2002
 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
 SEBI (Substantial Acquisition of Shares and Takeover)
 SEBI (Buy‐Back of Securities) Regulations, 1999
 SEBI (Prohibition of Insider Trading) Regulations, 2015
 SEBI (Intermediaries) Regulations, 2008
 SEBI (Delisting of Equity Shares) Regulations, 2009
 SEBI (Share Based Employee Benefits) Regulations, 2014
 SEBI (Issue of Sweat Equity) Regulations, 2002

2.1. SEBI Act, 1992
It is an Act to provide for the establishment of a Securities and Exchange Board of India, which
will look to protect the interests of investors in securities and to promote the development of,
and to regulate, the securities market and for matters connected therewith or incidental thereto.
This is the preamble of the SEBI Act, 1992. This Act is applicable to all Companies proposing to
be or which has already become a listed entity.
Powers and Functions of the SEBI Board
As per the Act, SEBI in the broader sense performs the functions stated above by introducing
such measures as it may deem necessary. The Act has, in Section 11, also specifically stated
certain measures which the Board may provide for:
 Regulating the business in stock exchanges and any other securities markets
15


 Registering and regulating the working of the stock brokers, sub‐brokers, share transfer
agents, bankers to an issue, registrars to an issue, merchant bankers, underwriters,
portfolio managers, investment advisers and such other intermediaries which may be
associated with the securities markets in any manner
 Registering and regulating the working of the depositories, participants, custodians of
securities, foreign institutional investors, credit rating agencies and such other
intermediaries as the Board may by notification, specify in this behalf
 Registering and regulating the working of Venture Capital Funds and other Collective
Investment Schemes including mutual funds
 Promoting and regulating self‐regulatory organisations
 Prohibiting fraudulent and unfair trade practices relating to securities markets
 Promoting investors’ education and training of intermediaries of securities markets
 Prohibiting insider trading in securities
 Regulating substantial acquisition of shares and take‐over of companies
 Calling for information from, undertaking inspection, conducting inquiries and audits of the
stock exchanges, mutual funds, other persons associated with the securities market
intermediaries and self‐regulatory organisations in the securities markets
 Calling for information and record from any bank or any other authority or board or
corporation established or constituted by or under any Central, State or Provincial Act in
respect of any transaction in securities which is under investigation or inquiry by the Board
 Calling for information from or furnishing information to other authorities whether in India
or outside in matters relating to prevention or detection of violations in respect of
securities laws.
 Performing all such functions and exercising such powers under the provisions of the
Securities Contracts (Regulation) Act, 1956 as maybe delegated to SEBI by the central
government.
 Levying fees or other charges for carrying out the purposes of this section
 Conducting research for the above purposes
16


 Calling from or furnishing to any such agencies, as may be specified by the Board, such
information as may be considered necessary by it for the efficient discharge of its functions
 Performing such other functions as may be prescribed

According to sub‐section 2A, without prejudice to the provisions contained in sub‐section (2), if
SEBI has reasonable grounds to believe that any listed public company or a public company (not
an intermediary referred to in section 12) which intends to get its securities listed on any
recognised stock exchange has been indulging in insider trading or fraudulent and unfair trade
practices relating to securities market, SEBI may take measures to undertake inspection of any
book, or register, or other document or record of such company.
According to sub‐section 3 of Section 11 of the SEBI Act, SEBI while trying a suit has the same
powers as are vested in a civil court, under the Code of Civil Procedure, in respect of the following
matters;
 The discovery and production of books of account and other documents, at a place and
time as may be specified by SEBI
 Summoning and enforcing the attendance of persons and examining them on oath
 Inspection of any books, registers and other documents of any person
 Inspection of any book, register or other document or record of the Company referred to
sub‐section 2A
 Issuing commissions for the examination of witnesses or documents
The Section 11A of the SEBI Act states that without any prejudice to the provisions of the
Companies Act 1956, SEBI in the interest of investor protection, may specify‐
 By regulations
o The matters relating to issue of capital, transfer of securities and other matters
incidental thereto
o The manner in which such matters shall be disclosed by the Companies
 By general or special orders
o Prohibit any company from issuing prospectus, any offer document, or advertisement
soliciting money from the public for the issue of securities
o Specify the conditions subject to which the prospectus, such offer document or
advertisement, if not prohibited, may be issued
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Section 11A (2) states that without prejudice to the provisions of section 21 of the Securities
Contracts (Regulation) Act, 1956(42 of 1956), SEBI may specify the requirements for listing and
transfer of securities and other matters incidental thereto.
Prohibition of Manipulative and Deceptive Devices, Insider Trading
Here we specially mention the provisions under SEBI Act for Manipulative and Deceptive Devices,
Insider Trading. This will be referred to in relevant parts in the Workbook.
Section 12A of the Act states that:
 In connection with the issue, purchase or sale of any securities (which may be either listed
or proposed to be listed on a recognised stock exchange) or contrivance, no person shall
directly or indirectly use or employ any manipulative or deceptive device in contravention
of the provisions of the Act or any rules made thereunder.
 In connection with issue or dealing in securities which are listed or proposed to be listed on
a recognised stock exchange, no person shall directly or indirectly employ any device,
scheme or artifice to defraud.
 In connection with the issue, dealing in securities which are listed or proposed to be listed
on a recognised stock exchange, no person shall directly or indirectly engage in any act,
practice, course of business which operates or would operate as fraud or deceit upon any
person, in contravention of the provisions of the Act or the rules or regulations made
thereunder.
 No person shall directly or indirectly engage in any insider trading.
 No person shall directly or indirectly deal in securities while in possession of material or
non‐public information or communicate such material or non‐public information to any
other person, in a manner which is in contravention of the provisions of the Act or rules or
the regulations made thereunder.
 No person shall directly or indirectly acquire control of any company or securities more
than the percentage of the equity share capital of a company whose securities are listed or
proposed to be listed on a recognised stock exchange in contravention of the regulations
made under this Act.
In this section we also discuss some of the relevant penalties that a listed or to be listed company
is liable to pay on non‐compliance with the provisions of the SEBI Act.
SEBI Act has prescribed certain penalties for failure to comply with the provisions of the Act.
Some of the relevant extracts are given below:
18


Section 15A deals with penalty for failure to furnish information, return, etc. It states that a
person shall be liable to a penalty which shall not be less than 1 lakh rupees but which may extend
to 1 lakh rupees for each day during which such failure continues subject to a maximum of one
crore rupees, if he fails to:
 Furnish any document, return or report to SEBI as required by the Act
 File any return or furnish any information, books or other documents within the time
specified, as required by the Act
 Maintain books of accounts or records
Section 15C deals with penalty for failure to redress investors' grievances. It states that, if any
listed company or any person who is registered as an intermediary, after having been called upon
by SEBI in writing to redress the grievances of investors, fails to redress such grievances within
the time specified by SEBI, such company or intermediary shall be liable to a penalty which shall
not be less than one lakh rupees but which may extend to one lakh rupees for each day during
which such failure continues subject to a maximum of one crore rupees. Section 15G deals with
penalty for insider trading. It states that an insider, who is found guilty of any of the following,
shall be liable to a penalty which shall not be less than ten lakh rupees but which may extend to
twenty‐five crore rupees or three times the amount of profits made out of insider trading,
whichever is higher:
 The insider either on his own behalf or on behalf of any other person, deals in securities of
a body corporate listed on any stock exchange on the basis of any unpublished price
sensitive information.
 The insider communicates any unpublished price‐ sensitive information to any person, with
or without his request for such information except as required in the ordinary course of
business or under any law.
 The insider counsels, or procures for any other person to deal in any securities of any body
corporate on the basis of unpublished price‐sensitive information.
Section 15H deals with penalties regarding non‐disclosure of information on acquisition of shares
and takeovers. It states that if any person fails to do the following, as required under the SEBI
Act, he shall be liable to a penalty which shall not be less than ten lakh rupees but which may
extend to twenty‐five crore rupees or three times the amount of profits made out of such failure,
whichever is higher:
 Disclose his aggregate shareholding in the body corporate before acquiring any shares of
that body corporate.
 Make a public announcement to acquire shares at a minimum price.
 Make a public offer by sending letter of offer to the shareholders of the concerned
company.
19


 Make payment of consideration to the shareholders who sold their shares pursuant to
letter of offer.
Section 15HA deals with penalty for fraudulent and unfair trade practices. It states that, if any
person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable
to a penaltywhich shall not be less than five lakh rupees but which may extend to twenty‐five
crore rupees or three times the amount of profits made out of such practices, whichever is higher
Section 15HB deals with penalty for contravention where no separate penalty has been provided.
It states that whoever fails to comply with any provision of the Act, the rules or the regulations
made or directions issued by SEBI, for which no separate penalty has been provided, shall be
liable to a penalty which shall not be less than one lakh rupees but which may extend to one
crore rupees..

2.2. Companies Act, 1956 & 20132
Companies Act, 1956 applies to all companies registered thereunder. The Companies Act, 1956
is a legislation to consolidate and amend the law relating to companies and certain other
associations. It came into force on April 1, 1956, but has undergone amendments through several
subsequent enactments, some of which were warranted by events such as the establishment of
depositories and dematerialization of shares.
This Act, for the first time, introduced a uniform law pertaining to companies throughout India.
The legislation applies to all trading corporations and to those non‐trading corporations whose
objects extend to more than one State of India. Further, other entities not covered by the scope
of the Companies Act are corporations whose objects are confined to one state, universities, co‐
operative societies and unincorporated trading, literary, scientific and other societies and
associations mentioned in item 32 of the State List in the Seventh Schedule of the Constitution
of India. With some exceptions with respect to Jammu & Kashmir, Goa, Daman and Diu and
Sikkim, the Act applies to the whole of India.
However, with effect from August 29, 2013, the Companies Act 2013 has replaced the Companies
Act, 1956. The Companies Act, 2013 is divided into 29 Chapters containing 470 Sections as against
658 Sections in the Companies Act, 1956. Amendments have been made to the Companies Act,
2013 vide Companies (Amendment) Act, 2015 and Companies (Amendment) Act, 2017 (which

2
The Companies Act 1956 has been replaced by the Companies Act 2013. However, all the sections have not been
notified.
20


has not been fully notified). Given below is a summary of the relevant provisions of the
Companies Act, 2013.
Chapter III deals with Prospectus and Allotment of Securities in public offers and private
placement. Part I of Chapter III speaks about Public offers. Section 24 deals with the Powers of
SEBI in matters related to regulating issue and transfer of securities, non‐payment of dividend
etc. Section 25 deals with those documents containing offer of securities for sale which will
deemed to be prospectus. Section 26 specifies the matters to be stated in the prospectus.
Section 27 deals with the procedures relating to variation in terms of contract or objects in
prospectus.
Part II of Chapter III deals with Private placements. The provisions relating to offer or invitation
for subscription of securities on private placement is dealt with in Section 42.
Chapter IV deals with inter alia, the nature, numbering and certificate of shares, kinds of share
capital, reduction of share capital and transfer of shares and debentures.
Chapter VI explains the term “charge” and also covers various related aspects such as the
registration of creation, modification and satisfaction of charges, Register of Charges, Certificate
of Registration, penalties and so on.
Chapter VII deals with the Management and Administration specifically related to Annual General
Meeting, Quorum of Meeting, Place of keeping and inspection of registers & returns etc., Return
to be filed with Registrar in case Promoters’ stake changes, etc. Sections 106‐110 specifies the
Restrictions on Voting Rights, Voting by show of hands, voting through electronic means, demand
for poll, postal ballot etc.
Chapter VIII relates to declaration and payment of Dividends. Section 124 speaks about Unpaid
Dividend Account and section 125 specifies the establishment of Investor Education and
Protection Fund. Section 127 which speaks about Punishment for failure to distribute dividends
has been notified.
Chapter IX dwells on the Accounts of Companies.
Chapter X deals with audit and auditors
Chapter XI deals with the appointment and qualifications of directors
Chapter XII deals with the meetings of Board and its powers and so on
21


2.3. Securities Contracts (Regulation) Act, 1956
Securities Contracts Regulation Act (SCRA) and the Rules thereunder specify, inter alia, the
conditions for listing and delisting of securities as well as the penalties for failure to comply with
the conditions specified therein. These are discussed later in this workbook.

2.4. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
Listing Agreement is the agreement made between an issuer of securities and the Stock Exchange
on which the issuer company is desirous of listing its securities. Listing of securities is a precursor
to admission of securities to dealings in the Stock Exchange. The disclosure requirements by the
issuer and the conditions for initial and continuous listing to the Stock Exchange are specified in
the SEBI Listing Regulations. The Regulation prescribes that Issuers are required to enter into a
Listing Agreement with the Stock Exchanges. Through the Listing Agreement, issuers are agreeing
to comply with the extant provisions of all the applicable statutory enactments governing the
issuance, listing and continued listing of securities once the shares of the company are listed as
long as the issuer remains listed on the exchanges. This includes:
i. compliance of SEBI Listing Regulations and other applicable regulations /guidelines/circulars as
may be issued by SEBI from time to time.
ii. the relevant byelaws / regulations / circulars / notices / guidelines as may be issued by the
Exchange from time to time.
iii. such other directions, requirements and conditions as may be imposed by SEBI / Exchange
from time to time.
It also agrees to pay listing and such other fees / fines as may be specified / levied by the Exchange
from time to time within the prescribed period.

2.5. Foreign Exchange Management Act, 1999 (FEMA)
Foreign Exchange Management Act, 1999 along with its Rules and Regulations are required to be
followed by issuers while issuing securities to persons resident outside India and by foreign
issuers while issuing securities to persons resident in India. At the point of initial issue and further
issue, it is necessary to ensure that sectoral caps, if any, applicable to the issuer is complied with.
This is dealt with in detail in the respective Chapters.
We will briefly cover the penalties under FEMA in this Chapter.
22


If any person contravenes any provision of the Act, or contravenes any rule, regulation,
notification, direction or order issued in exercise of the powers under this Act, or contravenes
any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon
adjudication, be liable to a penalty up to thrice the sum involved in such contravention where
such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and
where such contravention is a continuing one, further penalty which may extend to five thousand
rupees for every day after the first day during which the contravention continues.
Any Adjudicating Authority adjudging any contravention as discussed above, may, if he thinks fit
in addition to any penalty which he may impose for such contravention direct that any currency,
security or any other money or property in respect of which the contravention has taken place
shall be confiscated to the Central Government and further direct that the foreign exchange
holdings, if any of the persons committing the contraventions or any part thereof, shall be
brought back into India or shall be retained outside India in accordance with the directions made
in this behalf.
Note: "property" in respect of which contravention has taken place, includes the following:
 Deposits in a bank, where the said property is converted into such deposits.
 Indian currency, where the said property is converted into that currency.
 Any other property which has resulted out of the conversion of that property.

2.6. Prevention of Money Laundering Act, 2002 (PMLA)
PMLA forms the core of the legal framework put in place by India to combat money laundering.
PMLA and the Rules notified there under came into force with effect from July 1, 2005. Director,
FIU‐IND and Director (Enforcement) have been conferred with exclusive and concurrent powers
under relevant sections of the Act to implement the provisions of the Act.
The PMLA and rules notified thereunder impose obligation on banking companies, financial
institutions and intermediaries to verify identity of clients, maintain records and furnish
information to FIU‐IND. PMLA defines money laundering offence and provides for the freezing,
seizure and confiscation of the proceeds of crime. This act applies to all intermediaries associated
with the securities market.
Section 3 of the PMLA defines the offence of money laundering as a direct or indirect attempt to
indulge or knowingly assist or knowingly be a party to or be actually involved in any process or
activity connected with the proceeds of crime and projecting it as untainted property.
23


SEBI has issued Master Circular on Anti Money Laundering (AML and Combating Financing of
Terrorism (CFT) ‐ Obligations of Intermediaries under the Prevention of Money Laundering Act,
2002 and Rules Framed there‐under. Some of the relevant portions are discussed below.
Monitoring of Transactions
Regular monitoring of transactions is vital for ensuring effectiveness of the AML procedures. This
is possible only if the intermediary has an understanding of the normal activity of the client so
that it can identify deviations in transactions / activities.
 The intermediary is required to pay special attention to all complex, unusually large
transactions / patterns which appear to have no economic purpose. The intermediary
may specify internal threshold limits for each class of client accounts and pay special
attention to transactions which exceeds these limits.
 The background including all documents/office records /memorandums/clarifications
sought pertaining to such transactions and purpose thereof is required to be examined
carefully and findings are to be recorded in writing.
 Further such findings, records and related documents are to be made available to
auditors and also to SEBI/stock exchanges/FIUIND/other relevant Authorities, during
audit, inspection or as and when required. These records are required to be preserved
for ten years as is required under the PMLA.
 The intermediary is required to ensure a record of the transactions is preserved and
maintained in terms of Section 12 of the PMLA and that transactions of a suspicious
nature or any other transactions notified under Section 12 of the Act are reported to the
Director, FIU‐IND. Suspicious transactions should also be regularly reported to the higher
authorities within the intermediary.
 Further, the compliance cell of the intermediary should randomly examine a selection of
transactions undertaken by clients to comment on their nature i.e. whether they are in
the nature of suspicious transactions or not.

Suspicious Transaction Monitoring & Reporting
Intermediaries are required to ensure that appropriate steps are taken to enable suspicious
transactions to be recognized and have appropriate procedures for reporting suspicious
transactions. While determining suspicious transactions, intermediaries should refer to the
definition of a suspicious transaction contained in PML Rules as amended from time to time.
A list of circumstances which may be in the nature of suspicious transactions is given below. This
list is only illustrative and whether a particular transaction is suspicious or not will depend
upon the background, details of the transactions and other facts and circumstances:
24


o Clients whose identity verification seems difficult or clients that appear not to cooperate
o Asset management services for clients where the source of the funds is not clear or not
in keeping with clients apparent standing /business activity
o Clients based in high risk jurisdictions
o Substantial increases in business without apparent cause
o Clients transferring large sums of money to or from overseas locations with instructions
for payment in cash
o Attempted transfer of investment proceeds to apparently unrelated third parties
o Unusual transactions by CSCs and businesses undertaken by offshore banks/financial
services, businesses reported to be in the nature of export‐ import of small items
Any suspicious transaction should be immediately notified to the Money Laundering Control
Officer or any other designated officer within the intermediary. The notification may be done in
the form of a detailed report with specific reference to the clients, transactions and the nature /
reason of suspicion. However, it should be ensured that there is continuity in dealing with the
client as normal until such order is received otherwise and the client shall not be told of the
report/suspicion. In exceptional circumstances, consent may not be obtained to continue to
operate the account, and transactions may be suspended, in one or more jurisdictions concerned
in the transaction, or other action taken. The Principal Officer/ Money Laundering Control Officer
and other appropriate compliance, risk management and related staff members should have
timely access to client identification data and CDD information, transaction records and other
relevant information.
If transactions are abandoned or aborted by clients on being asked to give some details or to
provide documents, Intermediaries should report all such attempted transactions in STRs, even
if not completed by clients, irrespective of the amount of the transaction.
Clause 5.4(vii) of the Master Circular categorizes clients of high risk countries, including countries
where existence and effectiveness of money laundering controls is suspected or which do
not or insufficiently apply FATF standards, as ‘CSC’. Intermediaries are to ensure that such
clients are subject to appropriate counter measures. These measures may include a further
enhanced scrutiny of transactions, enhanced relevant reporting mechanisms or systematic
reporting of financial transactions, and applying enhanced due diligence while expanding
business relationships with the identified country or persons in that country etc.
PMLA has prescribed the penalties for offences under the Act, the relevant parts of which are
discussed below.
25


A person who commits the offence of money‐laundering is punishable with rigorous
imprisonment for a term which shall not be less than three years but which may extend to seven
years and is also be liable to a fine of upto five lakh rupees. However, if the proceeds of crime
involved in money‐laundering relates to any offence specified under paragraph 2 of Part A of the
Schedule of PMLA, the term of imprisonment may be of upto ten years.
Any person wilfully and maliciously giving false information and so causing an arrest or a search
to be made under the Act is on conviction liable for imprisonment for a term which may extend
to two years or with a fine which may extend to fifty thousand rupees, or both.
Further, the following persons can be penalized to a sum which shall not be less than five hundred
rupees but which may extend to ten thousand rupees for each such default or failure.
 A person is legally bound to state the truth of any matter relating to an offence under
section 3, refuses to answer any question put to him by an authority in the exercise of its
powers under the Act.
 A person who refuses to sign any statement made by him in the course of any proceedings
under the Act, which an authority may legally require to sign.
A person to whom a summon is issued under section 50 either to attend to give evidence or
produce books of account or other documents at a certain place and time, omits to attend or
produce books of account or documents at the place or time.
However, no order under this section shall be passed unless the person on whom the penalty is
proposed to be imposed is given an opportunity of being heard in the matter by such authority.
The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply, in so far as they
are not inconsistent with the provisions of this Act, to arrest, search and seizure, attachment,
confiscation, investigation, prosecution and all other proceedings under this Act.
Further, the PMLA lays down what constitutes as offence by companies and the actions that may
be taken against such companies. If a person committing a contravention of any of the provisions
of the PMLA or of any rule, direction or order made thereunder is a company, every person who,
at the time the contravention was committed, was in charge of, and was responsible to the
company, for the conduct of the business of the company as well as the company, will be deemed
to be guilty of the contravention and will be liable to be proceeded against and punished
accordingly unless he proves that the contravention took place without his knowledge or that he
exercised all due diligence to prevent such contravention.
26


However, if such a contravention has been committed by a company and it is proved that the
contravention has taken place with the consent or connivance of, or is attributable to any neglect
on the part of any director, manager, secretary or other officer of any company, such director,
manager, secretary or other officer will also be deemed to be guilty of the contravention and will
be liable to be proceeded against and punished accordingly.
Note: here "company" means anybody corporate and includes a firm or other association of
individuals and "director", in relation to a firm, means a partner in the firm.

2.7. The Competition Act, 2002
The Competition Act, 2002 was passed by the Parliament in the year 2002, to which the President
accorded assent in January, 2003. It was subsequently amended by the Competition
(Amendment) Act, 2007.
In accordance with the provisions of the Amendment Act, the Competition Commission of India
and the Competition Appellate Tribunal have been established. he provisions of the Competition
Act relating to anti‐competitive agreements and abuse of dominant position were notified on
May 20, 2009.
The preamble of the Act states as under:
An Act to provide, keeping in view of the economic development of the country, for the
establishment of a Commission to prevent practices having adverse effect on competition, to
promote and sustain competition in markets, to protect the interests of consumers and to ensure
freedom of trade carried on by other participants in markets, in India, and for matters connected
therewith or incidental thereto.
The Competition Act endeavors to regulate combinations exceeding a certain threshold limit with
regard to total assets under its control or the combined revenue of the entity.
Some of the relevant extracts of the penal provisions specified in this Act are given below.
Section 27 of the act states that, if after inquiry the Commission finds that any agreement
referred to in section 3 or action of an enterprise in a dominant position, is in contravention of
section 3 or section 4, as the case may be, it may pass all or any of the following orders, namely:—
 Direct any enterprise or association of enterprises, or person or association of persons,
involved in such agreement, or abuse of dominant position, to discontinue and not to re‐
enter such agreement or discontinue such abuse of dominant position, as applicable.
27


 Impose a suitable penalty, not exceeding 10% of the average of the turnover for the last
three preceding financial years, upon each party (individual or enterprise) to such
agreements or abuse.
In case any agreement referred to in section 3 has been entered into by a cartel, the
Commission may impose upon each producer, seller, distributor, trader or service provider
included in that cartel, a penalty of up to 3 times of its profit for each year of the
continuance of such agreement or 10% of its turnover for each year of the continuance of
such agreement, whichever is higher.
 Direct that the agreements shall stand modified to the extent and in the manner as may be
specified in the order by the Commission.
 Direct the enterprises concerned to abide by such other orders as the Commission may pass
and comply with the directions, including payment of costs, if any.
 Pass any other suitable order or directions as it may deem fit. However, if while passing
orders the Commission comes to a finding, that an enterprise in contravention to section 3
or section 4 of the Act is a member of a group [as defined in clause (b) of the Explanation
to section 5 of the Act], and other members of such a group are also responsible for, or
have contributed to, such a contravention, then it may pass orders, under this section,
against such members of the group.

2.8. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (SEBI ICDR) is applicable to
the following:
 a public issue;
 a rights issue, where the aggregate value of specified securities is fifty lakh rupees c or more;
 a preferential issue;
 an issue of bonus shares by a listed issuer;
 a qualified institutions placement by a listed issuer;
 an issue of Indian Depository Receipts.

The regulations contained in SEBI ICDR are explained in detail alongwith the issue and listing
process.

2.9. SEBI (Substantial Acquisition Of Shares And Takeovers) Regulations, 2011

These regulations apply to direct and indirect acquisition of shares or voting rights in, or control
over target company. However, these regulations shall not apply to direct and indirect
28


acquisition of shares or voting rights in, or control over a company listed without making a public
issue, on the institutional trading platform of a recognised stock exchange.

2.10. SEBI (Buy‐Back of Securities) Regulations, 1998
These regulations shall be applicable to buy‐back of shares or other specified securities of a
company listed on a stock exchange in accordance with Section 41, Section 67, 68, 69 and 70 of
the Companies Act, 2013.
A company listed on a stock exchange shall not buy‐back its shares or other specified securities
so as to delist its shares or other specified securities from the stock exchange.

2.11. SEBI (Prohibition of Insider Trading) Regulations, 2015
These regulations apply to all listed companies. These regulations restrict the dealing in securities
by connected persons. Following persons are considered to be connected persons.
 Director3of a company.
 An officer or an employee of the company or a person having a professional or business
relationship with the company and who may reasonably be expected to have an access
to unpublished price sensitive information in relation to that company.
Insider means any person who is a connected person or in possession of or having access to
unpublished price sensitive information.
Immediate relative means a spouse of a person and includes parent, sibling and child of such
person or of the spouse, any of whom is either dependent financially on such person or consults
such person in taking decisions relating to trading in securities. Immediate relative too becomes
connected persons for the purpose of these regulations.

2.12. SEBI (Intermediaries) Regulations, 2008
SEBI (Intermediaries) Regulations, 2008 deals with registration of intermediaries and regulation
thereafter of the various intermediaries in the market. It discusses the procedure for registration
of intermediaries, general obligations of the intermediaries including appointment of compliance
officer, inspection and disciplinary proceedings that can be initiated against intermediaries etc.

3
Director is defined in clause (34) of section 2 of the Companies Act, 2013
29


It also mandates the application form for grant of certificate, code of conduct as well as the
criteria for determining ‘a fit and proper person’.

2.13. SEBI (Delisting of Equity Shares) Regulations, 2009
The SEBI (Delisting of Equity Shares) Regulations, 2009 regulations apply to delisting of equity
shares of a company from all or any of the recognised stock exchanges where the shares are
listed.

2.14. SEBI (Share Based Employee Benefits) Regulations, 2014

These Regulations are applicable to any company whose shares are listed on any recognized stock
exchange in India and has a scheme for direct or indirect benefit of employees and involved
dealing in or subscribing to or purchasing securities of the company, directly or indirectly and
satisfying directly or indirectly any one of the following conditions:

a. the scheme is set up by the company or any other company in its group;
b. the scheme is funded or guaranteed by the company or any other company in its group;
c. the scheme is controlled or managed by the company or any other company in its group.

Apart from defining the terms used in the regulations, it specifies the eligibility of an employee
to participate in the Scheme, prescribes the guidelines for formation of a Compensation
Committee, requirements related to shareholders’ approval, pricing norms, lock‐in period,
consequences of failure to exercise option, disclosures to be made in the Directors’ Report,
Accounting Policies required to be followed, Auditors’ Certificate to be obtained etc.

2.15. Depository Receipts Scheme 2014
Foreign Companies incorporated outside India whether they have or have not established any
place of business in India can raise money in the Indian capital market through the issue of Indian
Depository Receipts. Issue of Indian Depository Receipts (IDR) is governed by Companies Act,
2013, Depository Receipt Scheme 2014 as well as Foreign Exchange Management (Transfer or
issue of security by a person resident outside India) Regulations, 2000
SEBI has issued regulations with respect to issue of IDR and they are contained in Chapter X and
Chapter XA of the SEBI ICDR. SEBI also specifies the Listing Agreement to be entered into
between the foreign issuer and the Stock Exchanges. This is dealt with separately in the
appropriate Chapter.
30


Further, the Rules lay down the penalties for a company or any other person in contravention to
any provision of these rules. If no specific punishment is provided in the Companies Act for a
contravention, the company and every officer of the company who is in default or such other
person shall be punishable with the fine which may extend to twice the amount of the IDR issue
and where the contravention is a continuing one, with a further fine which may extend to five
thousand rupees for every day, during Which the contravention continues.

2.16. SEBI (Issue of Sweat Equity) Regulations, 2002
A company whose equity shares are listed on a recognized stock exchange may issue sweat equity
shares in accordance with Section 54 of Companies Act, 2013 and these Regulations to its –(a)
Employees and (b) Directors.
Apart from eligibility, the requirements specified relate to special resolution to be passed in a
general meeting, specific conditions for issue of sweat equity shares to promoters, pricing norms,
valuation of intellectual property, accounting treatment, lock‐in, listing etc.

31


Review Questions
1. SEBI Act is applicable to:
1. All Unlimited Companies
2. All Listed Companies
3. All Companies
4. All Unlisted Companies

2. Matters related to prospectus of the company are specified in:
A. Companies Act
B. SEBI Act
C. RBI Act
D. SEBI (Intermediaries) Regulations

3. PMLA applies to all _______________ associated with securities market.
A. Issuers
B. Investors
C. Stock Exchanges
D. Intermediaries

4. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 shall not apply
to direct and indirect acquisition of shares or voting rights in a company listed without making
a public issue. State whether True or False?
A. TRUE
B. FASLE

32


Chapter 3: Compliance Officer

 Appointment of a compliance officer
 Role of compliance officer

 Responsibilities of a compliance officer
 Reporting requirements by compliance officers

Compliance Officer (CO) is an employee of a Company whose main responsibility is to ensure that
the company complies with the laws and regulations applicable to the Company. The CO is
required to ensure that the internal policies are in conformity with the laws applicable to the
Company as well as monitor the implementation of the internal policies. The job involves:
 Helping the Board and management to decide the corporate regulatory policies with respect
to compliance of laws
 Defining the procedures for implementation of policies
 Designing and implementation of training practices for this purpose
 Monitoring the implementation of compliance procedures in the organization
 Investigating the deviation, if any from standard practices
 Ensuring corrections to avoid deviations in the future.
Compliance is a key function because of stringent laws within which a company has to operate
and the penalties involved in case of non‐compliance. Apart from this, lack of adequate
compliance in both the letter and spirit of law, reflects on the Company’s goodwill and
reputation. Some of the compliances may not be mandatory. However, it is recommended to be
followed by the Compliance Officer for good Corporate Governance. The section below discusses
the need to appoint Compliance Officer and the laws related thereto.

3.1. Appointment of a Compliance Officer
Regulation 6 of the SEBI Listing Regulations states that an issuer company is required to appoint
a qualified company secretary as the compliance officer. The obligations of a compliance officer
are given below:
(a) ensuring conformity with the regulatory provisions applicable to the listed entity in letter and
spirit.
33


(b) co‐ordination with and reporting to SEBI, recognised stock exchange(s) and depositories with
respect to compliance with rules, regulations and other directives of these authorities in manner
as specified from time to time.
(c) ensuring that the correct procedures have been followed that would result in the correctness,
authenticity and comprehensiveness of the information, statements and reports filed by the
listed entity under these regulations.
(d) monitoring email address of grievance redressal division as designated by the listed entity for
the purpose of registering complaints by investors:
The Listed entity is required to submit a compliance certificate to the stock exchange duly signed
by both the compliance officer of the listed entity and the authorised representative of the share
transfer agent, wherever applicable, within one month of end of each half of the financial year,
certifying compliance that all activities in relation to both physical and electronic share transfer
facility are maintained either in house or by Registrar to an issue and share transfer agent
registered with the Board.
The listed entity shall submit a quarterly compliance report on corporate governance in the
format as specified by SEBI from time to time to the recognised stock exchange(s) within fifteen
days from close of the quarter duly signed by the compliance officer or the Chief Executive Officer
of the listed entity.
A listed entity which has made an IDR issue is required to send the hard copy of the annual report
to those IDR holders who request for the same either through domestic depository or Compliance
Officer.

3.2. Role of Compliance Officer
Compliance Officer plays a stellar role in public issues, rights issues, open offers, buybacks and
also in compliances of issuer on a continuous basis. He liaises with SEBI, Stock Exchanges, ROC
and other regulatory authorities to ensure compliance of various laws, rules, regulations and
other directives issued by different authorities. The compliance officer is also responsible for
redressal of investor complaints. Merchant bankers rely on certifications issued by the
Compliance Officer in relation to the issuer company. The Compliance Officer of the issuer is
required to file various declarations and undertakings with SEBI in respect of the issue. For
example, the Stock Exchanges require a certificate from practicing Company Secretary or
Chartered Accountant that the Registrar has completed the allotment as per the Basis of
Allotment approved by the Designated Stock Exchange. Listing of new shares on the Stock
34


Exchanges requires the Compliance Officer to compile and certify various information regarding
the Company, Directors, shareholding pattern etc.

3.3. Responsibilities of a Compliance Officer
The Compliance Officer has various responsibilities and duties towards different stakeholders. In
this section, we briefly discuss the different stakeholders and the duties of the Compliance Officer
towards each of them. Various responsibilities of the compliance officer are covered in following
sections along with the processes. The Compliance Officer must refer to the applicable Acts, Rules
and Regulations, Guidelines, Codes, Circulars, etc., issued by various regulatory bodies for the
day‐to‐day functioning.
3.3.1. Internal Stakeholders
Internal stakeholders are those persons who are already committed to serving the company.
Examples of such stakeholders are Board members, employees, shareholders and lenders. The
responsibilities and duties of the Compliance Officer with respect to each of the Stakeholders are
discussed below:
Board of Directors
There are specific laws in both Companies Act, 1956/Companies Act, 2013 and Regulations issued
by SEBI with respect to Board and Committee meetings and the resolutions to be passed therein.
The Compliance Officer is required to ensure that the laws for conduct of these meetings and the
information to be provided to the Board for this purpose are complied with. The norms of
Corporate Governance specified in SEBI Listing Regulations in regulation 17 with respect to
composition of the Board need to be complied with. The Compliance Officer is also required to
ensure that the Board of Directors is aware of the legal and regulatory requirements applicable
to Directors as well as to the Company and ensure that there is no violation by the Directors; by
keeping them briefed about the latest developments. E.g. insider trading regulations, corporate
governance norms, Directors’ liability etc.
Employees
The Compliance Officer is required to ensure that the employees understand and comply with
the laws governing the Company. The CO is also required to ensure that there are effective ways
for communication by employees with the management. Some of the senior most employees are
also governed by the Code of Conduct of an organization. This Code needs to be appropriately
informed to the employees and compliance with the Code needs to be ensured. Apart from this,
job‐related compliances are required to be effectively communicated and implementation is
35


required to be monitored stringently. E.g. procurement laws, laws related to export and import
of goods/services, excise duty implications, service tax applicability etc.
Shareholders
Shareholders are the financial stakeholders in any company. As per the laws applicable, the
shareholders have certain individual and group rights with respect to the Company. The
Compliance Officer is required to ensure compliance by the Company of the laws applicable with
respect to the shareholders of the Company. E.g. right to receive information with respect to the
Company through Annual Reports, voting powers of the shareholders in General Meetings,
power to requisition general meetings etc.
Lenders/Creditors
Lenders/Creditors are also financial stakeholders in a Company. Laws are in place enshrining the
rights of the lenders/creditors vis‐à‐vis a Company. The CO is required to ensure compliance of
the laws thereto. E.g. creditors’ meeting is required to be held in case of amalgamation.
3.3.2. External Stakeholders
External stakeholders include persons who may not be directly involved with the Company.
However, the Company’s policies, procedures and conduct of business have a direct or indirect
impact on them. Some of the external stakeholders are general public, government, associations,
customers and suppliers. The concept of Corporate Social Responsibility is rooted in this idea.
Corporate Social Responsibility as defined by the Business for Social Responsibility (a voluntary
group of UK companies) refers to business decision‐making linked to ethical values, compliance
with legal requirements, and respect for people, communities and environment. Increasingly,
businesses are looking at policies which will integrate social, economic and environmental
objectives.
General Public
A company exists in public domain. It has an impact on the general public. This is especially true
since goods and services provided by the Company are consumed by the general public.
Associations
Associations are representative bodies acting in the interests of members of specific industries.
These associations have bye‐laws and rules which are required to be followed by the Companies
who are members of such Associations. E.g. Indian Ferro Alloys Producers Association,
Association of Mutual Funds in India (AMFI) etc.
36


Government
The government frames the laws, rules and regulations governing companies. The CO is directly
responsible for ensuring compliance with these laws as well as fulfilling the reporting
requirements under various laws.
Customers
It is the duty of the CO to ensure that the company complies with all laws relating to quality of
products and services of the Company and information dissemination to customers. E.g. laws
relating to weights and measures and pricing to be displayed on packed products, warning to be
displayed on cigarette packs – ‘Smoking is injurious to health’ etc.
Contractual agreements are normally entered into with suppliers by the company. It is the duty
of the CO to ensure that these agreements are adhered to stringently. In case the company
becomes insolvent, the unpaid suppliers have a significant role in the company.

3.4. Reporting Requirements
Mandatory Reporting requirements involve reports that are required to be submitted to various
authorities as per the various laws applicable to companies. This aspect is dealt with separately
in the respective sections. However, some general examples are given here: For Allotment of
shares – Form PAS ‐ 3 is required to be submitted to the Registrar of Companies within 30 days
from the date of allotment, Form FC‐GPR is required to be submitted to Reserve Bank of India
within 30 days from the date of allotment of shares to non‐residents.
Exception Reporting is a report that highlights the differences between planned results and
actual results. All exceptions in reports are required to be reported to various authorities as per
various laws applicable to the Company.
For illustration purpose, some examples are given below:
 Under Regulation 32 of SEBI Listing Regulations : Where the company has appointed a
monitoring agency to monitor utilization of proceeds of a public or rights issue and such
monitoring agency has pointed out any deviation in the use of the proceeds of the issue
from the objects stated in the offer document or has given any other reservations
about the end use of funds, the Company is required to intimate the Stock Exchange
and place the same before the Audit Committee
37


 Another example is drawn from the Master Circular issued by SEBI with respect Money
Laundering. Clause 9.3: The intermediary shall ensure a record of the transactions is
preserved and maintained in terms of section 12 of the PMLA 2002 and that transaction
of a suspicious nature or any other transactions notified under section 12 of the Act are
reported to the Director, FIU‐IND. Suspicious transactions shall also be regularly reported
to the higher authorities within the intermediary.

38


Review Questions
1. Employees are internal stakeholders of a Company. State TRUE or FALSE?
A. True
B. False

2. The Compliance Officer is required to ensure that the employees understand and comply
with the laws governing the Company. State TRUE or FALSE?
A. True
B. False

3. Company's policies have a direct or indirect impact on _____________.
A. All Stakeholders
B. Shareholders only
C. Non‐Stakeholders

4. A Company has an impact on general public because ___________ are provided by the
Company.
A. Environment
B. Good & Services
C. Laws
D. Employees

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40


Chapter 4: Raising Capital from the Market


 Reasons for raising money from capital market
 Evolution of Public Issues
 Methods of Raising money from the market—Equity shares, Debt, Venture Capital and Private
Equity

Earlier in this workbook, we have looked at the various regulators and regulations involved with
raising money from the capital market as well as the key role played by the Compliance Officer
for this purpose. In this chapter, a brief idea is given as to the factors which could act as a guide
to management and influence management decision to raise money from the market.

4.1. Why Raise Money from the Market
Every company requires both long‐term capital and working capital for business purposes. A

small group of persons can invest to augment growth in a company to a limited extent. Raising
money from the market therefore is an option that overcomes this limitation. Some of the key
reasons for raising money from the market are:
 Liquidity: Stock markets provide an easy platform for sale and purchase of shares or
debentures and hence it is attractive for investors to invest money in a listed company.
Even deposits/bonds are transferrable. Commercial Paper is, of course, a short term
instrument and by its very nature, liquid. The ease of sale and purchase is known as
liquidity and gives an investor an opportunity to invest in or sale stakes as and when
required.
 Credibility: Once capital has been raised from the public, it enhances the credibility of the
Company. Being subject to regulations, it is required to make disclosures from time to
time which increases confidence of the public in the company.

4.2. Evolution of Public Issues
In this section, we try to trace the evolution of public issues both in the world economy as well
as in India.
Brief Evolution of Public Issues in the World Economy
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In 1602, the Dutch East India Company was the first to issue stocks and bonds in the world in an
initial public offering. The Amsterdam Stock Exchange was established in 1602. Trading shares of
the Dutch East India Company begun on the Amsterdam Stock Exchange which became the first
official stock exchange.
In early 1700s, stock exchanges in France and England were already fully operational.
Today, stock exchanges operate around the world and exponentially growing trading volume
demands strict regulations.
Brief Evolution of Public Issues in India
Initially, the public issues were monitored and regulated by the Controller of Capital Issues of
India (CCI). However, the capital market in India really started developing after the liberalization
of the Indian economy. During the era of CCI, the permission to any entity to raise capital was
given by the CCI and the pricing for the issues was also determined by the CCI. The Company
could not freely price its issue. With the dismantling of the CCI and subsequent creation of
Securities and Exchange Board of India (SEBI) in 1992 to regulate the capital market, the entire
capital market underwent a positive change.
Till the early nineties, Controller of Capital Issues used to decide about entry of company in the
stock market.
However, following the introduction of disclosure based regime under the aegis of SEBI has
ensured that companies can now determine issue price of securities freely without any regulatory
interference, which gives the flexibility to the companies to take advantage of market forces.
Currently, the companies are free to price the issue.
In today’s scenario, there are two ways of pricing viz. fixed price and book built. In fixed price
issue, the Issuer fixes the price of the securities right at the beginning of the issue and the demand
for the issue is known only at the end of the issue. In the book built method, the process aids
price and demand discovery. It is a mechanism where, during the period for which the book for
the offer is open, the bids are collected from investors at various prices, within the price band
specified by the issuer. The process is directed towards both the institutional as well as the retail
investors. The issue price is determined after the bid closure based on the demand generated in
the bid process.

4.3. Methods of Raising Money
42


There are several methods used to raise money from the market. The decision to raise money
using one method over the other will depend on several factors specific to each company. Apart
from the general factors listed in 4.1 above, within the company, a balance needs to be
maintained between the debt and equity. A company can use the public issue method or private
placement through various methods listed below. All of the options could be explored and the
most advantageous route could be adopted. Each method has its own advantages and
disadvantages. The management has to weigh the pros and cons and decide what is best suited
to the interests of the company. Broadly speaking, the methods are shares, debt, venture capital,
private equity etc. Some of the methods are discussed briefly in this section.
4.3.1. Share Capital

(i) Initial Public Offer
Initial Public Offer (IPO) means an offer of specified securities by an unlisted issuer to the public
for subscription and includes an offer for sale of specified securities to the public by any existing
holders of such securities in an unlisted issuer. When an unlisted company makes either a fresh
issue of securities or an offer for sale of its existing securities or both, for the first time to the
public, it is termed as an IPO. This paves the way for listing and trading of the issuer’s securities.
As stated in the earlier section, IPO can be either through a book building process or through a
fixed price issue.
 Book Building
Book Building has been defined in the SEBI ICDR. It means a process undertaken to elicit demand
and to assess the price for determination of the quantum or value of specified securities or Indian
Depository Receipts, as the case may be, in accordance with these regulations. In the book built
method, the process aids price and demand discovery. It is a mechanism where the book is kept
open for a particular period of time as specified in the regulations. During this period, bids are
collected from investors at various prices at which they are willing to subscribe to a certain
number of shares, within the price band specified by the issuer. The process is directed towards
both the institutional as well as the retail investors. The issue price is determined after the bid
closure based on the demand generated in the process. There is a floor price and the cap cannot
be more than 20% of the floor price.
 Fixed Price Issue
In a fixed price issue, the Issuer specifies the price of the securities right at the beginning of the
issue, at the time of filing the draft offer document to SEBI and the demand for the issue is known
43


only during the subscription period. There is no price discovery and bids are not received from
the prospective investors.
(ii) Further Public Offer (FPO)
A further public offer (FPO) means an offer of specified securities by a listed issuer to the public
for subscription and includes an offer for sale of specified securities to the public by any existing
holders of such securities in a listed issuer. When a listed company makes either a fresh issue of
securities to the public i.e. other than to its existing shareholders or an offer for sale to the public
or both through an offer document it is called a further public offer. An offer for sale in such a
scenario is allowed only if it is made in order to satisfy listing obligations or continuous listing
obligations. Further public offer can be made through a book building process or a fixed price
issue.
Public Issue means an Initial Public offer or Further Public offer.
(iii) Rights Issue
Rights Issue (RI) means an offer of specified securities by a listed issuer to the shareholders of the
issuer as on the record date fixed for the said purpose. Fresh securities are issued by the Issuer
to its existing shareholders as on a particular date (referred to as the “record date”) which is
termed as rights issue. The rights shares are normally offered in a particular ratio to the number
of securities held by the shareholder as on the record date. This route is best suited for
companies who would like to raise capital without diluting stake of its existing shareholders and
also for further consolidation of the existing holdings by the promoters, who subscribe to the
unsubscribed portion of the issue. Some issuers may attach warrants or such other similar
instruments along with equity shares while issuing them on a rights basis.
(iv) Private Placement
When an issuer makes an issue of securities to a select group of persons not exceeding 49, and it
is neither a rights issue nor a public issue, it is called a private placement. Private placement of
shares or convertible securities by listed issuer can be of two types:
 Preferential issue
As per the definition given in SEBI ICDR, preferential issue means an issue of specified securities
by a listed issuer to any select person or group of persons on a private placement basis and does
not include an offer of specified securities made through a public issue, rights issue, bonus issue,
employee stock option scheme, employee stock purchase scheme or qualified institutions
placement or an issue of sweat equity shares or depository receipts issued in a country outside
44


India or foreign securities. When a listed issuer issues specified securities, to a select group of
persons on a private placement basis in terms of provisions of Chapter VII of SEBI ICDR, it is called
a preferential issue. The issuer is required to comply with various provisions which inter‐alia
include pricing, disclosures in the Notice to the shareholders, lock‐in etc, in addition to the
requirements specified in the Companies Act.
 Qualified institutions placement (QIP)
When a listed issuer issues equity shares or securities convertible in to equity shares to Qualified
Institutional Buyers only in terms of provisions of Chapter VIII of SEBI ICDR, it is called a QIP.
As per SEBI ICDR, Qualified Institutional Buyers means:
 Mutual fund, venture capital fund, alternative investment fund and foreign venture
capital investor registered with the SEBI
 Foreign portfolio investor other than Category III foreign portfolio investor registered with
SEBI
 Public financial institution4
 Scheduled commercial bank
 Multilateral and bilateral development financial institution
 State industrial development corporation
 Insurance company registered with the IRDA
 Provident fund with minimum corpus of 25 crore rupees
 Pension fund with minimum corpus of 25 crore rupees;
 National Investment Fund5
 Insurance funds set up and managed by Army, Navy or Air Force of the Union of India
 Insurance funds set up and managed by the Department of Posts, India
 systemically important non‐banking financial companies
Depository Receipts
Indian Companies can raise money from foreign markets in different ways. Issue of Depository
Receipts is one of the methods of Foreign Direct Investment into India and overseas investment
by Indian parties.
Depository Receipts means securities issued outside India on behalf of Indian Companies. The
difference between shares and depository receipts are that these receipts represent the

4
As defined in section 2(72)of the Companies Act, 2013
5
Set up by resolution no. F. No. 2/3/2005‐DDII dated November 23, 2005 of the Government of India published in
the Gazette of India
45


underlying local rupee denominated equity shares of a company held as deposit by a custodian
Bank in India.
Depository Receipts can be listed and traded in Stock Exchanges just like shares/debentures.
Depository Receipts issued in the US are called the American Depository Receipts (ADR) and
those issued in other markets like UK, Singapore, Luxembourg are known as Global Depository
Receipts (GDR).
On the other hand, depository receipts issued in India on behalf of companies registered outside
India are called Indian Depository Receipts (IDR).
4.3.2. Debt
Debt securities have been defined in the Securities and Exchange Board of India (Issue and Listing
of Debt Securities) Regulations, 2008, as:
“Debt securities” means a non‐convertible debt securities which create or acknowledge
indebtedness, and include debenture, bonds and such other securities of a body corporate or any
statutory body constituted by virtue of a legislation, whether constituting a charge on the assets
of the body corporate or not, but excludes bonds issued by Government or such other bodies as
may be specified by the Board, security receipts and securitized debt instruments.
These SEBI (Issue and Listing of Debt Securities) Regulations, 2008 apply to‐
 Public issue of debt securities
 Listing of debt securities issued through public issue or on private placement basis on a
recognized stock exchange
Convertible Securities / Debt Instruments
Convertible security as defined in SEBI ICDR means a security which is convertible into or
exchangeable with equity shares of the issuer at a later date, with or without the option of the
holder of the security and includes convertible debt instrument and convertible preference
shares
Convertible Debt Instrument as defined in SEBI ICDR means an instrument which creates or
acknowledges indebtedness and is convertible into equity shares of the issuer at a later date, at
or without the option of the holder of the instrument or the security of a body corporate,
whether constituting a charge on the assets of the body corporate or not. They can be either
Fully Convertible Debentures or Partly Convertible Debentures.

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Non‐Convertible Debentures
Non‐Convertible Debentures (NCDs) means secured, negotiable money market instruments with
original maturity of less than one year issued by corporates (including NBFCs) to meet their short
term funding requirements, issued by way of private placement with investors.
4.3.3. Others
There are many other modes used for funding. Some of the sources are discussed below:
Venture Capital
Venture Capital means an entity which has a dedicated pool of capital raised in a manner as
specified in SEBI (Alternative Investment Funds) Regulations, 2012 and is proposed to be
invested by the entity in other ventures, mainly start‐up /new entities.
Venture Capital Funds could be industry specific which means that they will invest only in one
specific industry, like media, retail etc.
Angel Fund
Angel Funds means a sub‐category of Venture Capital Fund under Category I Alternative
Investment Fund that raises funds from angel investors and invests in accordance with the
provisions of Chapter IIIA of the SEBI (AIF) Regulations, 2012. An Angel Investor means any person
who proposes to invest in an angel fund and satisfies one of the following conditions namely:
a. an individual investor who has net tangible assets of atleast two crore rupees excluding value
of the principal residence and who has early stage investment experience, or has experience
as a serial entrepreneur or is a senior management professional with at least ten years of
experience as a serial entrepreneur or is a senior management professional with atleast ten
years of experience.
b. a body corporate with a net worth of at least ten crore rupee; or
c. an Alternative Investment Fund registered under the SEBI (AIF) Regulations, 2012.
Private Equity
Private equity is a type of investment by way of equities made by a set of entities that have their
own preferences, goals and strategies. Private equity can take the form of venture capital Fund
or an Angel Fund. However, such equity investments as their name suggests are private and not
traded in the stock market.

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Review Questions
1. Every Company requires _____ capital and ___________ capital for business purposes.
A. Long‐term; medium term
B. Medium term; debt
C. Debt; working capital
D. Long‐term; working

2. Prior to 1992, the public issues were monitored and regulated by the _____________.
A. Securities and Exchange Board of India
B. National Stock Exchange
C. Reserve Bank of India
D. Controller of Capital Issues of India

3. In a fixed price issue, there is a process of price discovery at the beginning. State whether
TRUE or FALSE.
A. True
B. False

4. Angel Funding is same as Venture Capital. State whether TRUE or FALSE
A. True
B. False

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Chapter 5: Role of Compliance Officer in IPO

Learning Objectives:
 The role of compliance officer in various aspects such as: Planning an IPO and Marketing
the Issue
 ASBA system
 Allotment of shares
 Listing of shares on stock exchanges
 Post Issue Compliances
5.1. Planning an IPO
Any project requires planning at both the macro level as well as the micro level. The success of
the project depends on attention to detail at every stage. An IPO is no different. The steps
involved for planning an IPO is discussed in this section.
Once the company management takes a decision to raise an IPO, the Compliance Officer plays
an important role for facilitating an appropriate decision, which would be in the best interests of
the company. The Compliance Officer is required to understand and communicate to the
management the regulatory and investor related activities as well as the obligations arising post
issue and listing. These aspects are dealt with in detail during the course of this Chapter.
A secretarial audit is normally done prior to the IPO to ensure that the company has complied
with all the requirements /compliances specified in the Companies Act, SEBI (ICDR) Regulations,
and other applicable laws.
Once this is completed, the Compliance Officer is required to look into the following matters.
5.1.1. Eligibility
The eligibility conditions to be fulfilled by an issuer for making an initial public offer is specified in
Regulation 26 of the SEBI ICDR. The relevant extracts are given below:
Conditions for Initial Public Offer
(A) An issuer may make an initial public offer, if the following conditions are met.
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 Issuer has net tangible assets6 of at least 3 crore rupees in each of the preceding 3 full years
(of twelve months each), of which not more than 50% are held in monetary assets. Unless
when more than 50% of the net tangible assets are held in monetary assets, the issuer has
made firm commitments to utilise such excess monetary assets in its business or project7.
Further that the limit of 50% on monetary assets is not applicable in case the public offer is
made entirely through an offer for sale.
 It has a minimum average pre‐tax operating profit of rupees fifteen crore, calculated on a
restated and consolidated basis, during the three most profitable years out of the
immediately preceding five years.
 Issuer has a net worth of at least 1 crore rupees in each of the preceding three full years
(of twelve months each).
 The aggregate of the proposed issue and all previous issues made in the same financial year
in terms of issue size cannot exceed 5 times its pre‐issue net worth as per the audited
balance sheet of the preceding financial year.
 If Issuer has changed its name within the last 1 year, at least 50% of the revenue for the
preceding one full year is earned by it from the activity indicated by the new name.
An issuer not satisfying the above conditions may make an initial public offer if:
(A) The issue is made through the book building process and the issuer undertakes to allot at
least 75% of the net offer to public to QIBs and to refund full subscription monies in case it fails
to make allotment to the QIBs
(B) Further to the above conditions discussed, an issuer may make an initial public offer of
convertible debt instruments without making a prior public issue of its equity shares and listing
thereof.
(C) An issuer cannot make an allotment pursuant to a public issue if the number of respective
allottees is less than one thousand.
(D) An issuer cannot make an initial public offer if there are any outstanding convertible securities
or any other right which would entitle any person with any option to receive equity shares. This
is however not applicable for:
(a) a public issue made during the currency of convertible debt instruments which were
issued through an earlier initial public offer, if the conversion price of such convertible

6
“Net Tangible Asset” means sum of all net assets of the issuer, excluding intangible assets as defined in Accounting
Standard 26 (AS 26) issued by the Institute of Chartered Accountants of India.
7
“Project” means the object for which monies are proposed to be raised to cover the objects of the issue
50


debt instruments was determined and disclosed in the prospectus of the earlier issue of
convertible debt instruments;
(b) outstanding options granted to employees pursuant to an employee stock option scheme
framed in accordance with the relevant Guidance Note or Accounting Standards, if any,
issued by the Institute of Chartered Accountants of India in this regard.
(c) fully paid‐up outstanding convertible securities which are required to be converted on or
before the date of filing of the red herring prospectus (in case of book‐built issues) or the
prospectus (in case of fixed price issues), as the case may be.
(E) Subject to provisions of the Companies Act, 1956/Companies Act, 2013 and the ICDR, equity
shares may be offered for sale to public if such equity shares have been held by the sellers for a
period of at least 1 year prior to the filing of draft offer document with SEBI. In case equity shares
received on conversion or exchange of fully paid‐up compulsorily convertible securities including
depository receipts are being offered for sale, the holding period of such convertible securities
as well as that of resultant equity shares together shall be considered for the purpose of
calculation of one year period referred in this sub‐regulation. Further the requirement of holding
equity shares for a period of one year shall not be applicable:
(a) in case of an offer for sale of specified securities of a government company or statutory
authority or corporation or any special purpose vehicle set up and controlled by any one or
more of them, which is engaged in infrastructure sector;
(b) if the specified securities offered for sale were acquired pursuant to any scheme approved by
National Company Law Tribunal under sections 230‐240 of Companies Act, 2013, in lieu of
business and invested capital which had been in existence for a period of more than one year
prior to such approval.
(c) if the specified securities offered for sale were issued under a bonus issue on securities held
for a period of at least one year prior to the filing of draft offer document with the Board and
further subject to the following, ‐
(i) such specified securities being issued out of free reserves and share premium existing in
the books of account as at the end of the financial year preceding the financial year in
which the draft offer document is filed with SEBI; and (ii) such specified securities not
being issued by utilization of revaluation reserves or unrealized profits of the issuer.
(d) An issuer making an initial public offer may obtain grading for such offer from one or more
credit rating agencies registered with the Board.
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5.1.2. Decide on the Funds Required
The next important step is to determine the total amount of funds required and the manner of
raising the same. The Compliance Officer in consultation with the Management has to draw up a
project report / schedule of the requirement of funds and a decision has to be taken by the
management whether the same is to be funded entirely by way of equity or by way of a
combination of equity and debt. If part of the funds required is proposed to be obtained by debt,
a project report has to be submitted to the bankers for necessary sanction of term loan.
5.1.3. Decide on Listing on Exchanges
The Compliance Officer in consultation with the Management must decide the exchanges on
which the company proposes to list its shares. The Compliance Officer is also required to check
whether the clauses of the Memorandum and Articles of Association are in line with the
requirements of the Stock Exchanges prior to initiating the IPO process. The issuer company must
therefore forward a copy of the Memorandum and Articles of Association to the exchanges
where the company proposes to list its shares, for their prior approval.
5.1.4. Board Resolution / Shareholder Resolution
The issuer has to pass necessary Board and shareholder resolutions authorizing the company to
raise money through the public issue. The resolutions should further authorize a committee
comprising of the Managing Director and the Company Secretary / Compliance Officer to carry
out all the activities pertaining to the Public Issue. Further the Resolution should also authorize
the company to appoint a Merchant Banker, who is the most important intermediary to manage
the Issue.
5.1.5. Deciding the timeline
The Compliance Officer alongwith the Board is required to design the macro timeline for the
entire process. While designing this timeline, it will be necessary to interact with other market
participants like Merchant Bankers who are appointed to manage the issue. The Merchant
Banker is referred to as the Book Running Lead Managers.
5.1.6. Decide on the Promoters’ contribution
The promoters of the issuer are required to contribute in the public issue. As per SEBI ICDR this
amount should not be less than 20% of the post issue capital either by way of equity shares or by
way of subscription to the convertible securities. The above requirement has to be satisfied at
least one day prior to the date of opening of the issue and the amount of the promoters’
contribution is required to be kept in an escrow account with a scheduled commercial bank. In
52


case the promoters’ contribution has already been brought in and utilized, the issuer shall give
the cash flow statement disclosing the use of such funds in the offer document. Where the
minimum promoters’ contribution is more than Rs 100 Crore, the promoters are required to bring
in at least Rs 100 Crore before the date of opening of the issue and the remaining amount may
be brought on pro‐rata basis before the calls are made to public. The requirements of minimum
promoters’ contribution are not applicable in case of an issuer which does not have any
identifiable promoter.
In this context, it is necessary to keep in mind the provisions of SEBI ICDR with respect to
promoters’ contribution. The relevant extracts are discussed hereunder:
5.1.6.1. SEBI Regulations on Promoters Contribution

 Securities Ineligible for Minimum Promoters’ Contribution
For the computation of minimum promoters’ contribution, the following specified securities are
not eligible:
a) Specified securities acquired during the preceding three years, if they are:
o acquired for consideration other than cash and revaluation of assets or
capitalisation of intangible assets is involved in such transaction.
OR
o resulting from a bonus issue by utilization of revaluation reserves or unrealized
profits of the issuer or from bonus issue against equity shares which are ineligible
for minimum promoters’ contribution.
b) specified securities acquired by promoters and alternative investment funds during the
preceding one year at a price lower than the price at which specified securities are being
offered to public in the initial public offer.
However the above is not applicable:
(i) if promoters/alternative investment funds, as applicable pay to the issuer, the
difference between the price at which specified securities are offered in the initial public
offer and the price at which the specified securities had been acquired;
(ii) if such specified securities are acquired in terms of the scheme under sections 391‐
394 of the Companies Act, 1956, as approved by a High Court, by promoters in lieu of
business and invested capital that had been in existence for a period of more than one
year prior to such approval;
53


(iii) to an initial public offer by a government company, statutory authority or corporation
or any special purpose vehicle set up by any of them, which is engaged in
infrastructure8sector;
c) specified securities allotted to promoters and alternative investment funds during the
preceding one year at a price less than the issue price, against funds brought in by them
during that period, in case of an issuer formed by conversion of one or more partnership
firms, where the partners of the erstwhile partnership firms are the promoters of the
issuer and there is no change in the management. The specified securities, allotted to
promoters against capital existing in such firms for a period of more than one year on a
continuous basis, shall be eligible for the computation of minimum promoters’
contribution.

d) specified securities pledged with any creditor;
However, specified securities referred to in points (a) and (c) above shall be eligible for the
computation of promoters’ contribution, if such securities are acquired pursuant to a scheme
which has been approved under sections 391‐394 of the Companies Act, 1956.
 Lock‐in of Promoters’ Contribution
Specified securities held by promoters and persons other than promoters are not transferable
i.e., will be ‘locked‐in’ from the date of allotment of the specified securities in the proposed public
issue for a stipulated period. The certificate of specified securities which are subject to lock‐in
contains the inscription “nontransferable” and the lock‐in period. In case such securities are
dematerialised, the issuer needs to ensure that lock‐in is recorded by the depository.
If the specified securities which are subject to lock‐in are partly paid‐up and the amount called‐
up on such specified securities is less than the amount called‐up on the specified securities issued
to the public, the “lock‐in” shall end only on the expiry of three years after such specified
securities have become pari‐passu with the specified securities issued to the public.

In a public issue, minimum promoters’ contribution including contribution made by alternative
investment funds shall be locked‐in for a period of three years from the date of commencement
of commercial production9 or date of allotment in the public issue, whichever is later. Promoters’
holding in excess of minimum promoters’ contribution shall be locked‐in for a period of one year.

8
“infrastructure sector” includes the facilities or services as specified in Schedule X of ICDR.
9
"date of commencement of commercial production" means the last date of the month in which commercial
production in a manufacturing company is expected to commence as stated in the offer document.
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 Lock‐In of Specified Securities held by Persons other than Promoters
In case of an initial public offer, the entire pre‐issue capital held by persons other than promoters
shall be locked‐in for a period of one year, except :
(a) for equity shares allotted to employees under an employee stock option or employee stock
purchase scheme of the issuer prior to the initial public offer, if the issuer has made full
disclosures with respect to such options or scheme in accordance with Part A of Schedule VIII of
ICDR.
(b) for equity shares held by a venture capital fund or alternative investment fund of Category I
or II a foreign venture capital investor for a period of at least one year prior to the date of filing
the draft prospectus SEBI. In case such equity shares have resulted pursuant to conversion of
fully paid‐up compulsorily convertible securities, the holding period of such convertible securities
as well as that of resultant equity shares together shall be considered for the purpose of
calculation of one year period and convertible securities shall be deemed to be fully paid‐up, if
the entire consideration payable thereon has been paid and no further consideration is payable
at the time of their conversion.
5.1.7. Minimum Offer to Public
While deciding the plan for offer to the Public, the provisions of SEBI ICDR relating to minimum
offer to the public are required to be kept in mind.
The minimum net offer to the public shall be subject to the provisions of clause (b) of sub‐rule
(2) of rule 19 of Securities Contracts (Regulations) Rules, 1957].
5.1.8. Reservation on Competitive Basis
The issuer is permitted to make reservations to certain categories of persons. This is excluding
the promoter’s contribution and the net offer to the public. The relevant portions from SEBI ICDR
for reservation on competitive basis10are as below:

In case of an issue made through the book building process, the issuer may make reservation on
competitive basis out of the issue size excluding promoters’ contribution and net offer to public
in favour of the following categories of persons:

10
"reservation on competitive basis” means reservation wherein specified securities are allotted in proportion of the
number of specified securities applied for in respect of a particular reserved category to the number of specified
securities reserved for that category
55


 employees; and in case of a new issuer, persons who are in the permanent and full time
employment of the promoting companies excluding the promoters and an immediate
relative of the promoter of such companies
 Shareholders, other than promoters, of
o Listed promoting companies, in case of a new issuer11
o Listed group companies, in case of an existing issuer12
 Persons who, as on the date of filing the draft offer document with SEBI, are associated
with the issuer as depositors, bondholders or subscribers to services of the issuer making
an initial public offer.13
In case of an issue made other than through the book building process, the issuer may make
reservation on competitive basis out of the issue size, excluding promoters’ contribution and net
offer to public in favour of the following categories of persons:
Employees
o employees and in case of new issuer. persons who are in Permanent and full time
employment of the promoting companies, excluding the promoters and an
immediate relative of the promoter of such companies
 (b) Shareholders, other than promoters, of
o Listed promoting companies, in case of a new issuer
o Listed group companies, in case of an existing issuer

In case of a further public offer (not being a composite issue), the issuer may make reservation
on competitive basis out of the issue size excluding promoters’ contribution and net offer to
public in favour of retail individual shareholders of the issuer.
5.1.8.1. General Conditions for Reservation on Competitive Basis
Reservation on competitive basis is subject to following conditions:
 The aggregate of reservations for employees shall not exceed 5% of the post issue capital
of the issuer.
 Reservation for shareholders shall not exceed 10% of the issue size.

11
“New issuer” means an issuer which has not completed twelve months of commercial operation and its audited
operative results are not available.
12
If the promoting companies are designated financial institutions or state and central financial institutions, the
shareholders of such promoting companies are not eligible for the reservation on competitive basis.
13
The issuer should not make the reservation to the issue management team, syndicate members, their promoters,
directors and employees and for the group or associate companies of the issue management team and syndicate
members and their promoters, directors and employees.
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 Reservation for persons who as on the date of filing the draft offer document with the
SEBI, have business association as depositors, bondholders and subscribers to services
with the issuer making an initial public offer shall not exceed 5% of the issue size.
 No further application for subscription in the net offer to public category shall be
entertained from any person (except an employee and retail individual shareholder) in
favour of whom reservation on competitive basis is made.
 Any unsubscribed portion in any reserved category may be added to any other reserved
category and the unsubscribed portion, if any, after such inter‐se adjustments among the
reserved categories shall be added to the net offer to the public category.
 In case of under‐subscription in the net offer to the public category, spill‐over to the
extent of under‐subscription shall be permitted from the reserved category to the net
public offer category.
 Value of allotment to any employee in pursuance of reservation made as discussed above,
as the case may be, shall not exceed 2 lakh rupees.
In the case of reserved categories, a single applicant in the reserved category may make an
application for a number of specified securities which exceeds the reservation.
5.1.9. Due Diligence
Due diligence is the investigative analysis of the financial and operating activities of an entity in
connection with a proposed transaction that would result in a significant change in the ownership
or the capital structure of the entity.
The aim of due diligence is to identify problems within the business, particularly any issues which
may give rise to unexpected liabilities in the future. When the due diligence is carried out as part
of the steps leading to an IPO, the exercise takes on added meaning and encompasses a wider
scope.
SEBI ICDR requires certain disclosures in the offer document and the due diligence process
certainly encompasses these areas so as to enable the Company to make the requisite
disclosures. Examples are the risk factors which must be disclosed or the importance of the core
activities to the business, both now and in the future. Whilst there may be several reasons why
a company should offer its shares to the public, there is really one key to a successful listing and
that is adequate preparation.
By identifying the areas or the issues where the company exhibits weaknesses, the due diligence
process becomes a tool which shows the company the way to optimise its potential and thereby
increases its value to potential investors.
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Pre‐IPO due diligence process will result in a gap analysis between the present status of the
company and the company that proposes to be listed. In part, this gap is an expectations gap
created as a result of how the market expects a listed company to conduct its affairs. In this
scenario, once these gaps have been highlighted the due diligence exercise should include advice
given by the advisors/ consultants to the company on the processes and activities which are
required to fill the gaps identified. In an IPO, the due diligence exercise is a broader, fuller exercise
whereby apart from identifying the weaknesses, it also looks at ways of resolving the weaknesses
thereby increasing the value of the company.
The due diligence process aspires to achieve the following:
• to assess the fairness of historical and projected earnings and cash flows
• to identify key vulnerabilities, risks and opportunities;
• to gain an intimate understanding of the company and the market in which the
company operates such that the company’s management can anticipate and manage
change
• to set in motion the planning for the post‐IPO operations
It will result in a critical analysis of the control, accounting and reporting systems of the company
and concomitantly a critical appraisal of key personnel. It will identify the value drivers of the
company thus enabling the directors to understand where the value is and to focus their efforts
on increasing that value.
Formats of due diligence have been specified by SEBI in the SEBI ICDR and has been provided as
Annexure 2 in this workbook.
5.1.9.1. Appointment of Persons conducting the Due Diligence
There are no specific laws for appointment of any person for conducting the due diligence. SEBI
Regulations state that the merchant banker or book running lead manager (BRLM) is required to
carry out the due diligence. However, sometimes, the legal advisor carries out the diligence
activity with regard to the litigations aspect of the issuer. They are also required to verify whether
the title deeds of all property are valid and whether all approvals obtained are valid as on the
date of filing of the Draft Red Herring Prospectus (DRHP) with SEBI.
5.1.9.2. Areas of Due Diligence
The areas to be covered in the due diligence process, are listed in Annexure 3.
5.1.10. Interaction with the Statutory Auditors of the Company
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Since the audited financials of the company are to be restated as per the SEBI ICDR for the last
five financial years, the compliance officer along with the merchant banker must initiate
necessary discussions with the statutory auditors of the company to ensure that the accounts are
restated. Further it is necessary to ensure that the statutory auditor holds a peer review
certificate issued by the Institute of chartered Accountants of India. If not, the financials for the
last financial year and the stub period (i.e. for the period less than 1 year after the last financial
year) must be re‐audited by an Auditor holding a Peer Review Certificate. The details of both the
auditors are required to appear in the offer document.
5.1.11. Interaction with the Legal Advisors of the Company
The Compliance Officer must, along with the Merchant Banker interact with the Legal Advisors
of the Issue to identify and determine the various litigations initiated against and by the company
under Civil, Criminal, Excise, Tax and other acts. The status regarding the various law suits must
be determined and obtained from the Legal advisors.
5.1.12. Corporate Governance
This is an area which is required to be complied with by the Company subsequent to the issue
since it is part of the SEBI Listing Regulations. However, it is suggested that the constitution of
the Board and the constitution of the Audit Committee, Investor Grievance Committee and the
Remuneration Committee is complied with prior to the public issue itself. The terms of reference
of the Committees should be spelt out prior to filing of the draft offer document with SEBI.
5.1.13. Policy on Insider Trading
Since the Insider Trading Regulations would be applicable to the company as soon it is listed, it is
therefore advisable to put a model Insider Trading Code in place before the company files the
draft Offer Document with SEBI.
5.1.14. Appointment of other Advisors and Intermediaries
As per the SEBI ICDR, it is necessary to appoint certain advisors and intermediaries during the
public issue. In this section, we list the advisors and intermediaries required to be appointed, the
eligibility criteria prescribed by SEBI and discuss their role in the issue process.
Advisors and Intermediaries to be appointed:
a. Merchant Bankers
b. Registrar to the Issue
c. Legal Advisor
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d. Bankers
e. Syndicate Members
f. Underwriters
a. Merchant Bankers
In the pre‐issue process, the Merchant Banker takes up the due diligence of company’s
operations/ management/ business plans/ legal etc. Other activities of the Merchant Banker
include drafting and design of Prospectus (DRHP, Red Herring Prospectus (RHP) and the
Prospectus), statutory advertisements and memorandum containing salient features of the
Prospectus. The issuer must enter into an agreement with Lead Merchant Banker as per Schedule
II of SEBI ICDR and with other intermediaries as per the regulations applicable to each
intermediary.
The Merchant Banker is required to ensure compliance with stipulated requirements and
completion of prescribed formalities with the Stock Exchanges, ROC and SEBI including
finalisation of Prospectus and subsequent filing of the same with ROC. Merchant Banker is
responsible for the due diligence process which is the first step for preparation of the offer
document containing all the details about the company. They are also responsible for ensuring
compliance with the legal formalities in the entire issue process and for marketing of the issue.
As per regulation 5 of SEBI ICDR, the Issuer in consultation with Lead Merchant Banker shall
appoint intermediaries that are registered with SEBI. The Lead Merchant Banker shall
independently assess the capabilities of other intermediaries to carry out their obligations,
before advising the issuer.
The Merchant Banker also draws up the various marketing strategies for the issue. The post issue
activities including management of escrow accounts, coordinate non‐institutional allocation,
intimation of allocation and dispatch of refunds to bidders etc. are performed by the Merchant
Banker. The post offer activities involve essential follow‐up steps, which include the finalization
of trading and dealing of instruments and dispatch of certificates and demat of delivery of shares,
with the various agencies connected with the work such as the Registrars to the Offer and
Bankers to the Offer and the bank handling refund business. The Merchant Banker is responsible
for ensuring that these agencies fulfill their functions.
b. Registrars
The Registrar to the Issue finalizes the list of eligible allottees after deleting the invalid
applications and ensures that the corporate action for crediting of shares to the demat accounts
of the applicants is completed and the dispatch of refund orders, where applicable is completed
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without any delay. The Lead Merchant Banker coordinates with the Registrar to ensure follow up
so that the flow of applications from collecting bank branches, processing of the applications and
other matters till the basis of allotment is finalized, dispatch of security certificates and refund
orders are completed and securities are listed.
They are also involved in finalizing the basis of allotment in an issue and for sending refunds,
allotment etc.
c. Legal Advisor
Legal Advisor normally conducts the legal due diligence and vets the draft offer document prior
to filing with the relevant authorities.
d. Banker to an Issue
Banker to the issue, as the name suggests, carries out all activities relating to collection of funds
and transfer to Escrow accounts. The Lead Merchant Banker shall ensure that Bankers to the
Issue are appointed at all the mandatory collection centers as specified in SEBI ICDR. The Lead
Merchant Banker shall also ensure follow‐up with bankers to the issue to get quick estimates of
collection and advising the issuer about closure of the issue, based on the correct figures.
The Bankers to the Issue enable the movement of funds in the issue process and assist the
Registrars for finalization of the basis of allotment by making clear funds status available to the
Registrars.
e. Syndicate Members
Syndicate members are the broking houses responsible for distributing IPO applications,
receiving filled applications from investors and timely update of the data on the stock exchange
IPO shares bidding platform (NSE / BSE).
“Syndicate member” means an intermediary registered with the Board and who is permitted to
carry on the activity as an underwriter;
f. Underwriter
Underwriters are intermediaries who undertake to subscribe to the securities offered by the
company in case these are not fully subscribed by the public, in an underwritten issue.
5.1.14.1. Eligibility Criteria
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SEBI regulates the intermediaries through the SEBI (Intermediaries) Regulations, 2008. Every
intermediary is required to obtain a certificate to act as an intermediary from SEBI. While
considering the eligibility of the applicant and grant of certificate to such applicant, SEBI takes
into account all matters which it deems relevant to the activities in the securities market,
including but not limited to the following ‐
 Whether the applicant or any of its associates have in the past been refused certificate by
SEBI and if so, the ground for such refusal
 Whether the applicant, its directors or partners, or trustees, as the case may be or its
principal officer is involved in any pending litigation connected with the securities market
which has an adverse bearing on the business of the applicant or on development or
functioning of the securities markets
 Whether the applicant satisfies the eligibility criteria and other requirements as specified
in these regulations and the relevant regulations
 Whether the grant of a certificate to the applicant is in the interest of the investors and
the development of the securities market.

5.1.15. Preparation of the Offer Document

5.1.15.1. Nomenclatures
‘Offer document’ is a document which contains all the relevant information about the company,
promoters, projects, financial details, objects of raising the money, terms of the issue etc and is
used for inviting subscription to the issue being made by the issuer. ‘Offer Document’ is called
“Prospectus” in case of a public issue or offer for sale and “Letter of Offer” in case of a rights
issue.
“Offer document” as defined in SEBI ICDR means a red herring prospectus, prospectus or shelf
prospectus and information memorandum in terms of section 60A of the Companies Act, 1956
(now section 31 of Companies Act, 2013) in case of a public issue and letter of offer in case of a
rights issue.
“Draft offer document” means a red herring prospectus, prospectus or shelf prospectus and
information memorandum in terms of section 60A of the Companies Act, 1956 (now section 31
of Companies Act, 2013) in case of a public issue and letter of offer in case of a rights issue.
“Draft red herring prospectus” is a draft offer document filed with SEBI in the case of book built
issue. It does not contain full details with regard to the number of shares to be issued or the
price at which the shares are proposed to be issued.
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“Red herring prospectus” is an offer document used in case of a book built public issue. It contains
all the relevant details except that of price or number of shares being offered. It is filed with ROC
before the issue opens.
“Prospectus” is an offer document issued during a public issue, in which all relevant details
including price and number of shares being offered are filled up. In other words, there are no
blanks in the offer document at this stage. This document is registered with ROC before the issue
opens in case of a fixed price issue and after the closure of the issue and price discovery in case
of a book built issue.
“Shelf prospectus” is a prospectus which enables an issuer to make a series of issues within a
period of 1 year without filing a fresh prospectus every time. This facility is available to public
sector banks /Public Financial Institutions.
“Abridged prospectus” is an abridged version of offer document in public issue and is issued along
with the application form of a public issue. It contains all the salient features of a prospectus.
“Green shoe option” means an option of allotting equity shares in excess of the equity shares
offered in the public issue as a post‐listing price stabilizing mechanism. Green Shoe Option is a
price stabilizing mechanism in which shares are issued in excess of the issue size, upto a maximum
of 15%. From an investor’s perspective, an issue with green shoe option provides more
probability of getting shares. It also implies that the post listing price may show relatively more
stability as compared to the normal market volatility. There are certain norms prescribed for
price stabilisation through the green shoe option, which is covered in Regulation 45 of SEBI ICDR.
Drafting the Offer Document
The elements to be looked into will vary from company to company. Each disclosure needs to be
discussed and decided in conjunction with the Merchant Banker. Apart from this, specific
company and industry related disclosures are required to be discussed with the Merchant
Banker. The disclosures that are required to be made in an offer document are specified in
Section 26 of Companies Act, 2013, as well as In Part A of Schedule VIII of SEBI ICDR.
Penalties
As per section 34 of Companies Act, 2013, if a prospectus, issued, circulated or distributed
includes any statement which is untrue or misleading in form or context in which it is included or
where any inclusion or omission of any matter is likely to mislead, every person who authorises
the issue of such prospectus shall be liable under Section 447.
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The provisions shall not apply if the person proves that the statement or omission was immaterial
or that he had reasonable grounds to believe and did up to the time of the issue of prospectus
believe that the statement was true or the inclusion or omission was necessary.
As per Section 35, if a person has subscribed for securities of a company acting on any statement
included, or the inclusion or omission of any matter, in the prospectus which is misleading and
has sustained any loss or damage as a consequence thereof, the company and every person
who—
(a) is a director of the company at the time of the issue of the prospectus;
(b) has authorised himself to be named and is named in the prospectus as a director of
the company, or has agreed to become such director, either immediately or after an
interval of time;
(c) is a promoter of the company;
(d) has authorised the issue of the prospectus; and
(e) is an expert referred to in sub‐section (5) of section 26,
Shall apart from the punishment prescribed under section 36, be liable to pay compensation to
every person who has sustained such loss or damage.
The persons specified above will not be liable if—
(a) that having consented to become a director of the company, he withdrew his consent
before the issue of the prospectus, and that it was issued without his authority or consent;
or
(b) that the prospectus was issued without his knowledge or consent, and that on
becoming aware of its issue, he forthwith gave a reasonable public notice that it was
issued without his knowledge or consent.
(c) that, as regards every misleading statement purported to be made by an expert or
contained in what purports to be a copy of or an extract from a report or valuation of an
expert, it was a correct and fair representation of the statement, or a correct copy of, or
a correct and fair extract from, the report or valuation; and he had reasonable ground to
believe and did up to the time of the issue of the prospectus believe, that the person
making the statement was competent to make it and that the said person had given the
consent required by sub‐section (5) of section 26 to the issue of the prospectus and had
not withdrawn that consent before delivery of a copy of the prospectus for registration
or, to the defendant's knowledge, before allotment thereunder.
Where it is proved that a prospectus has been issued with intent to defraud the applicants for
the securities of a company or any other person or for any fraudulent purpose, every person
referred to above shall be personally responsible for all or any of the losses or damages that may
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have been incurred by any person who subscribed to the securities on the basis of such
prospectus.
As per Section 36, any person who, either knowingly or recklessly makes any statement, promise
or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to
induce another person to enter into, or to offer to enter into,—
(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or
underwriting securities; or
(b) any agreement, the purpose or the pretended purpose of which is to secure a profit
to any of the parties from the yield of securities or by reference to fluctuations in the
value of securities; or
(c) any agreement for, or with a view to obtaining credit facilities from any bank or
financial institution, shall be liable for action under section 447.
As per Section 37, a suit may be filed or any other action may be taken under section 34 or section
35or section 36 by any person, group of persons or any association of persons affected by any
misleading statement or the inclusion or omission of any matter in the prospectus.
As per Section 38,
(1) Any person who—
(a) makes or abets making of an application in a fictitious name to a company for
acquiring, or subscribing for, its securities; or
(b) makes or abets making of multiple applications to a company in different names or in
different combinations of his name or surname for acquiring or subscribing for its
securities; or
(c) otherwise induces directly or indirectly a company to allot, or register any transfer of,
securities to him, or to any other person in a fictitious name, shall be liable for action
under section 447.
(2) The provisions of sub‐section (1) shall be prominently reproduced in every prospectus issued
by a company and in every form of application for securities.
(3) Where a person has been convicted under this section, the Court may also order
disgorgement of gain, if any, made by, and seizure and disposal of the securities in possession of,
such person.
(4) The amount received through disgorgement or disposal of securities under subsection (3)
shall be credited to the Investor Education and Protection Fund.
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Section 447 states as under:
Without prejudice to any liability including repayment of any debt under this Actor any other law
for the time being in force, any person who is found to be guilty of fraud, involving an amount of
at least ten lakh rupees or one percent of the turnover of the company, whichever is lower shall
be punishable with imprisonment for a term which shall not be less than six months but which
may extend to ten years and shall also be liable to fine which shall not be less than the amount
involved in the fraud, but which may extend to three times the amount involved in the fraud:
However, where the fraud in question involves public interest, the term of imprisonment shall
not be less than three years.
Provided further that where the fraud involves an amount less than ten lakh rupees or one per
cent. of the turnover of the company, whichever is lower, and does not involve public interest,
any person guilty of such fraud shall be punishable with imprisonment for a term which may
extend to five years or with fine which may extend to twenty lakh rupees or with both
Explanation—For the purposes of this section—

(i) “fraud” in relation to affairs of a company or any body corporate, includes any act,
omission, concealment of any fact or abuse of position committed by any person or any
other person with the connivance in any manner, with intent to deceive, to gain undue
advantage from, or to injure the interests of, the company or its shareholders or its
creditors or any other person, whether or not there is any wrongful gain or wrongful loss;
(ii) “wrongful gain” means the gain by unlawful means of property to which the person
gaining is not legally entitled;
(iii) “wrongful loss” means the loss by unlawful means of property to which the person
losing is legally entitled.
5.1.15.2. Filing the Offer Document
The next step is the filing of the draft Offer Document. This is normally done simultaneously with
the submission of the draft offer document to the Credit Rating Agency. IPO grading is intended
to run parallel to the filing of offer document with SEBI and the consequent issuance of
observations by SEBI. Draft offer document is filed with SEBI, before it is filed with the Registrar
of companies (ROCs).
As per Regulation 6 of SEBI ICDR, for all public issues and rights issues, the draft offer document
along with requisite fees as per Schedule IV of ICDR must be filed with SEBI, through the lead
merchant banker atleast 30 days prior to either registering the prospectus /red herring
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prospectus/ shelf prospectus with the ROC or filing the letter of offer with the designated stock
exchange. Further as per SEBI vide circular CIR/CFD/DIL/5/2012 dated May 3, 2012, for issues
upto the size of Rs 500 crore should be filed with the regional SEBI office.
The SEBI after scrutinising the Draft Offer Document issues its observations within 30 days of the
receipt of the Document. If any clarification has been sought from the Merchant Banker or any
other regulatory authority, the 30 days is calculated from the date of receipt of the clarification.
The draft Offer Document is required to be made public for comments, if any, for a period of at
least 21 days from the date of such filing, by hosting it on the websites of SEBI, recognized stock
exchanges where specified securities are proposed to be listed and merchant bankers associated
with the issue.
The lead merchant bankers should, after expiry of the period stipulated in sub‐regulation 6(1) of
ICDR, file with SEBI a statement giving information of the comments received by them or the
issuer on the draft offer document during that period and the consequential changes, if any, to
be made in the draft offer document.
The issuer either on the date of filing the draft offer document with SEBI or on the next day should
make a public announcement in one English national daily newspaper with wide circulation, one
Hindi national daily newspaper with wide circulation and one regional language newspaper with
wide circulation at the place where the registered office of the issuer is situated, disclosing to the
public the fact of filing of draft offer document with SEBI and inviting the public to give their
comments to the Board in respect of disclosures made in the draft offer document.
If SEBI specifies changes or issues observations on the draft offer document, the issuer and lead
merchant banker must carry out requisite changes in the draft offer document before registering
the prospectus, red‐herring prospectus or shelf prospectus, as the case may be, with the Registrar
of Companies or filing the letter of offer with the designated stock exchange.
The issuer should, simultaneously file a copy of prospectus, red herring prospectus or shelf
prospectus with SEBI through the lead merchant banker while registering the above with the
Registrar of Companies or filing the letter of offer with the designated stock exchange or before
the opening of the issue.
While filing the offer document with SEBI, the lead merchant banker should, file a copy of the
same with the designated stock exchanges.
The offer document filed with the Board under this regulation shall also be furnished to the Board
in a soft copy in the manner specified in Schedule V of ICDR.
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5.1.16. General Conditions for Filing Of Draft Offer Document
SEBI ICDR has listed certain general conditions which are required to be complied with prior to
filing of the draft offer document with SEBI. These conditions are listed below:

(A) No issuer can make a public issue or rights issue of specified securities:
 If the issuer, any of its promoters, promoter group or directors or persons in control of
the issuer are debarred from accessing the capital market by SEBI.
 If any of the promoters, directors or persons in control of the issuer was or also is a
promoter, director or person in control of any other company which is debarred from
accessing the capital market under any order or directions made by SEBI.
 Unless it has made an application to one or more recognised stock exchanges for listing
of specified securities on such stock exchanges and has chosen one of them as the
designated stock exchange ( to define designated stock exchange). In case of an initial
public offer, the issuer shall make an application for listing of the specified securities in at
least one recognised stock exchange having nationwide trading terminals.
 Unless it has entered into an agreement with a depository for dematerialisation of
specified securities already issued or proposed to be issued.
 Unless all existing partly paid‐up equity shares of the issuer have either been fully paid up
or forfeited.
 Unless firm arrangements of finance through verifiable means towards seventy five
percent. of the stated means of finance, excluding the amount to be raised through the
proposed public issue or rights issue or through existing identifiable internal accruals,
have been made.
(B) Warrants may be issued along with public issue or rights issue of specified securities if:
 the tenure of such warrants does not exceed 18 months from their date of allotment in
the public/rights issue
 not more than one warrant is attached to one specified security
 the price or conversion formula of the warrants shall be determined upfront and
at least 25% of the consideration amount shall also be received upfront;
 in case the warrant holder does not exercise the option to take equity shares
against any of the warrants held by him, the consideration paid in respect of such
warrant shall be forfeited by the issuer.
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The amount for general corporate purposes, as mentioned in objects of the issue in the draft
offer document filed with the Board, shall not exceed twenty five per cent of the amount raised
by the issuer by issuance of specified securities.
No issuer shall make:
(a) a public issue of equity securities, if the issuer or any of its promoters or directors is a wilful
defaulter; or
(b) a public issue of convertible debt instruments if,
(i) the issuer or any of its promoters or directors is a wilful defaulter, or
(ii) it is in default of payment of interest or repayment of principal amount in respect of
debt instruments issued by it to the public, if any, for a period of more than six months.
An issuer making a rights issue of specified securities, shall make disclosures as specified in Part
G of Schedule VIII, in the offer document and abridged letter of offer, if the issuer or any of its
promoters or directors is a wilful defaulter. (7) In case of a rights issue of specified securities
referred to in sub‐regulation (6) above, the promoters or promoter group of the issuer, shall not
renounce their rights except to the extent of renunciation within the promoter group.
The company is required to enter into a demat agreement with both NSDL and CDSL and also
ensure that 75% of its requirement of funds other than the public issue is firmly tied up before
filing the offer document with SEBI.

5.1.17. Pricing of an Issue
The pricing norms have been specified in the SEBI ICDR in Regulation 28 and Regulation 30 and
are discussed below.
An issuer may determine the price of specified securities in consultation with the lead merchant
banker or through the book building process. An issuer may determine the coupon rate and
conversion price of convertible debt instruments in consultation with the lead merchant banker
or through the book building process. The issuer must undertake the book building process as
given in Schedule XI of ICDR.
The issuer can mention a price or price band in the draft prospectus (in case of a fixed price issue)
and floor price or price band in the red herring prospectus (in case of a book built issue) and
determine the price later, before registering the prospectus with the Registrar of Companies.
However, when the prospectus registered with the Registrar of Companies it must contain only
one price or the specific coupon rate, as the case may be.
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The issuer is required to announce the floor price or price band at least five working days before
the opening of the bid (in case of an initial public offer) and at least one working day before the
opening of the bid (in case of a further public offer), in all the newspapers in which the pre issue
advertisement was released.
These announcements are required to contain relevant financial ratios computed for both upper
and lower end of the price band and also a statement drawing attention of the investors to the
section titled “basis of issue price” in the prospectus.
The announcement referred to above and the relevant financial ratios shall be disclosed on the
websites of those stock exchanges where the securities are proposed to be listed and shall also
be pre‐filled in the application forms available on the websites of the stock exchanges
The cap on the price band14must be less than or equal to 120% of the floor price. And the floor
price or the final price must not be less than the face value of the specified securities.
5.1.17.1. Differential Pricing
Here, it is necessary to note that differential pricing is allowed for certain categories of investors
as per Regulation 29 of SEBI ICDR which is discussed below.
Retail individual investors or retail individual shareholders or employees entitled for reservation
making an application for specified securities of value upto two lakh rupees, may be offered
specified securities at a price upto 10% lower than the price at which net offer is made to other
categories of applicants.
In case of a book built issue, the price of the specified securities offered to an anchor investor
must not be lower than the price offered to other applicants;
In case of a composite issue, the price of the specified securities offered in the public issue may
be different from the price offered in rights issue. Justification for such price difference is
required to be given in the offer document.
In case the issuer opts for the alternate method of book building in terms of Part D of Schedule
XI of ICDR, the issuer may offer specified securities to its employees at a price upto 10% lower
than the floor price
As per circular no. CIR/CFD/DIL/2/2011 dated May 16, 2011 issued by SEBI, it is necessary to
ensure that appropriate disclosures are given in the offer document/application forms to the

14
“Cap on the price band” includes cap on the coupon rate in case of convertible debt instruments.
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effect that investors eligible for discount can make payment after adjusting the discount, if any.
It should be disclosed that such investors shall in the relevant column indicate the bid price before
adjusting for discount, if any. Further, it is to be clearly disclosed under what circumstances
application would be liable for rejection in case of errors, if any, in this regard. For the ease of
calculation by investors eligible for differential pricing, it is preferable that discount, if any, is
stated in absolute rupee terms subject to maximum discount, as per SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2009, that can be given at the issue price. Segregation of
Investor Categories (i.e. two lakh rupees for retail category), shall be based on the net payment
amount (after adjusting for discount).
The issuer and lead merchant bankers shall ensure that the contents of offer documents hosted
on the websites as required in these regulations are the same as that of their printed versions as
filed with the Registrar of Companies, Board and the stock exchanges.
The lead merchant bankers and the recognized stock exchange shall provide copies of the draft
offer document and final offer document to the public as and when requested.
The lead merchant bankers or the recognized stock exchange may charge a reasonable sum for
providing the copy of the offer document.
5.1.18. IPO Grading
An issuer making an initial public offer may obtain grading for such offer from one or more credit
rating agencies registered with SEBI. The grading represents a relative assessment of the
fundamentals of that issue in relation to the other listed equity securities in India. Such grading
is generally assigned on a five‐point point scale with a higher score indicating stronger
fundamentals and vice versa as below.
IPO grade 1: Poor fundamentals
IPO grade 2: Below‐average fundamentals
IPO grade 3: Average fundamentals
IPO grade 4: Above‐average fundamentals
IPO grade 5: Strong fundamentals
IPO grading has been introduced as an endeavour to make additional information available for
the investors in order to facilitate their assessment of equity issues offered through an IPO. This
is typically the function of a Chief Financial Officer (CFO). However, the Company Secretary is
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required to ensure that the draft offer document is handed over to the CFO in time to meet the
timelines. The final prospectus cannot be filed with the SEBI/ROC unless the Grade is received
from the Credit Rating Agency.
The IPO grading process is expected to take into account the prospects of the industry in which
the company operates, the competitive strengths of the company that would allow it to address
the risks inherent in the business(es) and capitalize on the opportunities available, as well as the
company’s financial position.
IPO grading is done without taking into account the price at which the security is offered in the
IPO. Since IPO grading does not consider the issue price, the investor needs to make an
independent judgment regarding the price at which to bid for/subscribe to the shares offered
through the IPO.

5.2. General Obligations during Public Issue
Relevant extracts of general obligations of issuer and intermediaries for public issue as prescribed
by SEBI ICDR are discussed in this section. The compliance officer should be aware and ensure
compliance with respect to these obligations.
5.2.1. Payment of Incentives
A person connected with the distribution of the issue should not offer any direct or indirect
incentive in cash or kind or services or otherwise to any person for making an application for
allotment of specified securities. Fees or commission for services rendered in relation to the issue
do not come under this requirement.
5.2.2. Public Communications
Any public communication15 including advertisement and publicity material issued by the issuer
or research report made by the issuer or any intermediary concerned with the issue or their
associates must contain only factual information and not projections, estimates, conjectures, etc.
or any matter extraneous to the contents of the offer document.
All public communications and publicity material issued or published in any media during the
period commencing from the date of the meeting of the board of directors of the issuer in which

15
“Public communication or publicity material” includes corporate, product and issue advertisements of the issuer,
interviews by its promoters, directors, duly authorized employees or representatives of the issuer, documentaries
about the issuer or its promoters, periodical reports and press releases
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the public issue or rights issue is approved till the date of filing draft offer document with the
Board shall be consistent with its past practices. Else, it must be prominently displayed or
announced in such public communication or publicity material that the issuer is proposing to
make a public or rights issue of specified securities in the near future and is in the process of filing
a draft offer document with SEBI.
All public communications and publicity material issued or published in any media during the
period commencing from the date of filing draft offer document with SEBI till the date of
allotment of securities offered in the issue, are required to prominently disclose the following:
 The issuer is proposing to make a public issue or rights issue of the specified securities and
has filed a draft offer document with SEBI or has filed the red herring prospectus or
prospectus with the Registrar of Companies or the letter of offer with the designated stock
exchange, as the case may be.
 The draft offer document, red herring prospectus or final offer document, as the case may
be, is available on the website of SEBI, lead merchant bankers or lead book runners.
However, these requirements are not applicable in case of product advertisements of the
issuer.
The issuer is required to make prompt, true and fair disclosure of all material developments
relating to its business and securities and also relating to the business and securities of its
subsidiaries, group companies, etc., which may have a material effect on the issuer, by Issuing
public notices in all the newspapers in which the issuer had issued pre‐issue advertisement under
regulation 47 or regulation 55, as the case may be, if such developments take place during the
following periods:
 In case of public issue, between the date of registering final prospectus or the red herring
prospectus with the Registrar of Companies, and the date of allotment of specified
securities
 In case of a rights issue, between the date of filing the letter of offer with the designated
stock exchange and the date of allotment of the specified securities
Regulations prohibit the Issuer to directly or indirectly, release any material or information which
is not contained in the offer document, during any conference or otherwise. In respect of all
public communications, issue advertisements and publicity materials, the issuer is required to
obtain approval from the lead merchant bankers responsible for marketing the issue and shall
also make copies of all issue related materials available with the lead merchant bankers at least
till the allotment is completed.
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Any advertisement or research report issued or caused to be issued by an issuer or any
intermediary concerned with the issue or their associates, is required to comply with the
following:
 Should be truthful, fair and not be manipulative or deceptive or distorted
 Should not contain any statement, promise or forecast which is untrue or misleading16
 Reproduction of any information in the offer document must be in full along with
disclosures of all relevant facts
 Should be in a clear, concise and understandable language
 Should not use extensive technical, legal terminology or complex language and excessive
details which may distract the investor
 Should not include any issue slogans or brand names for the issue except the normal
commercial name of the issuer or commercial brand names of its products already in use
 Should not contain slogans, expletives or non‐factual and unsubstantiated titles
 If it presents any financial data, data for the past three years should also be included along
with particulars relating to sales, gross profit, net profit, share capital, reserves, earnings
per share, dividends and the book values
 Should not contain statements which promise or guarantee rapid increase in profits
 Should not display models, celebrities, fictional characters, landmarks or caricatures or
the likes
 Should not be in the form of crawlers (the advertisements which run simultaneously with
the programme in a narrow strip at the bottom of the television screen)on television
 In any issue advertisement on television, scrolling risk factors should not be shown and
the advertisement should advise the viewers to refer to the red herring prospectus or
other offer document for details
 If an advertisement or research report contains highlights, it should also detail risk factors
with equal importance in all respects including print size (which should not be less than
point seven size)
 An issue advertisement displayed on a billboard should not contain information other
than that specified in Parts A, B and C of Schedule XIII, as applicable

16
(II) An issue advertisement will be considered to be misleading, if it contains:
(a) Statements made about the performance or activities of the issuer without necessary explanatory or qualifying
statements, which may give an exaggerated picture of such performance or activities.
(b) An inaccurate portrayal of past performance or its portrayal in a manner which implies that past gains or
income will be repeated in the future.

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 An issue advertisement which contains highlights or information other than the details
contained in the format as specified in Parts A and B of Schedule XIII must also contain
risk factors
Further, no advertisement issued during the period the issue is open for subscription should give
the impression that the issue has been fully subscribed or oversubscribed. An announcement
regarding closure of issue can be made only after date on which the issue is to be closed and the
lead merchant banker is satisfied that at least 90% of the offer through offer document has been
subscribed and a certificate has been obtained to that effect from the registrar to the issue.
Advertisement or distribution material related to the issue must not contain any offer of any kind
of incentives, whether direct or indirect, cash or kind.
No product advertisement, issued during the period commencing from the date of approving the
public issue or rights issue till the date of allotment of specified securities offered in an issue,
should have any direct or indirect reference to the performance of the issuer.
A research report may be prepared only on the basis of information that has been disclosed to
the public by the issuer.
No selective or additional information which is not disclosed to the public through the offer
document or otherwise, should be given by the issuer or any member of the issue management
team or syndicate to any particular section of the investors or to any research analyst in any
manner whatsoever, including at road shows, presentations, in research or sales reports or at
bidding centres.

5.3. Marketing the Issue
Marketing of an issue can take place in various ways. It is more frequently undertaken through
road shows and advertisement through media, television, radio etc. The terms, methods used
and the applicable laws are briefly discussed below.

5.3.1. Road Show Process
A road show is a presentation by the management of the company to the potential buyers of
securities. It is intended to inform the potential investors about the company and its
management. It is also a process of informing fund managers and analysts about the issue.
It is essential to get the facts and figures which are proposed to be stated in a road show vetted
by the Auditors and legal counsel since the investors will be depending on the information
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provided prior to making the investments. False or misleading information can lead to legal
issues.

5.3.2. SEBI Advertisement Code
SEBI has through the SEBI ICDR specified the norms to be followed for advertisement with respect
to each type of issue. This needs to be stringently followed for pre‐issue as well as post‐issue
advertisements. Provisions of section 30 of Companies Act, 2013 also apply along with Regulation
47 of the SEBI ICDR.
Some of the relevant extracts are reproduced below:
Companies Act
Where an advertisement of any prospectus of a company is published in any manner, it shall be
necessary to specify therein the contents of its memorandum as regards the objects, the liability
of members and the amount of share capital of the company, and the names of the signatories
to the memorandum and the number of shares subscribed for by them, and its capital structure
SEBI ICDR Regulations
After registering the red herring prospectus (in case of a book built issue) or prospectus (in case
of fixed price issue) with the Registrar of Companies, the issuer should make a pre‐issue
advertisement in one English national daily newspaper with wide circulation, Hindi national daily
newspaper with wide circulation and one regional language newspaper with wide circulation at
the place where the registered office of the issuer is situated.
The pre‐issue advertisement should be in the format as specified in Part A of Schedule XIII, along
with all disclosures required.
As per Companies Act, 2013 any person who either knowingly or recklessly makes any statement,
promise or forecast which is false, deceptive or misleading or if he dishonestly conceals material
facts, and induces or attempts to induce another person to enter into, or to offer to enter into‐
 Any agreement to (or with a view to) acquire, dispose, subscribe for or underwrite shares
or debentures
 Any agreement to(or that pretends to) secure a profit to any of the parties from the yield
of shares or debentures, or by reference to fluctuations in the value of shares or
debentures
shall be liable for fraud under Section 447 of the Companies Act, 2013.
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5.3.3. Compliances during the Issue Period
The exact timelines involved with respect to each item in the issue process has been listed in the
checklist given in the Annexure 1. However, the compliances in general are listed below:
 Adhering to Issue Opening/Closing Date as per the requirements of the SEBI ICDR.
 Advertisement for opening and closing dates of issue. (The formats for the same are
specified in Parts B and C of the Schedule XIII of SEBI ICDR.)
 Compiling Field Reports on subscription status as long as the issue is open on a day‐to‐
day basis.
 Coordinating with Registrar/Bankers to the issue. For compiling the reports and to
observe the trend of the issue, it is necessary to co‐ordinate with the Registrars/Bankers.
 Based on the bids received, lead merchant bankers evaluate the final issue price.
 Lead merchant bankers update the 'Red Herring Prospectus' with the final issue price and
send it to SEBI and Stock Exchanges.
 Prepare Basis of allotment with Registrar to an Issue in consultation with the designated
stock exchanges.
 Board meeting for allotment is required to be convened. Decision for allotment of shares
and overseeing of the allotment of shares and subsequent documentation is required to
be completed. Though this is a Board function, the Company Secretary is required to keep
the Board informed of the regulations involved with respect to allocation of shares to
public and qualified institutional investors.
5.4. Application Supported by Blocked Amount (ASBA)

A newer method used for applying in an issue is ASBA, or “Application Supported by Blocked
Amount”. ASBA is an application that has an authorization to Self Certified Syndicate Bank (SCSB)
for blocking the application money in the bank account, for subscribing to an issue. When an
investor applies through ASBA, his application money shall be debited from the bank account
only if his/her application is selected for allotment after the basis of allotment is finalized.

5.4.1. ASBA Process
Under ASBA process, investors apply in any public/ rights issues by using their bank account.
Investor submits the ASBA form (available at the designated branches of the banks acting as
SCSB) after filling the requisite details such as name of the applicant, PAN number, demat account
number, bid quantity, bid price and other relevant details, to their banking branch by giving an
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instruction to block the amount in their account. In turn, the bank will upload the details of the
application in the bidding platform. It is the investor’s duty to ensure that the details that are
filled in the ASBA form are correct or else the form may be rejected.
In all, ‐
(i) Public issues, the issuer shall accept bids using only ASBA facility in the manner
specified by the Board;
(ii) Rights issues, where not more than one payment option is given, the issuer shall
provide the facility of ASBA in accordance with the procedure and eligibility
criteria specified by the Board:
Provided that in case of qualified institutional buyers and non‐institutional investors the issuer
shall accept bids using ASBA facility only.
Issuer, in consultation with the lead merchant bankers, is required to ensure the following:
 Registrar to issue appointed by the issuer has capability to comply with the procedures
laid down by SEBI for ASBA.
 Sufficient number of physical ASBA application forms are printed and made available to
all SCSBs.
 ASBA and Non‐ASBA shall be treated at par and the selling commission shall be paid
accordingly to Syndicate Members or SCSBs, as the case may be, for collecting ASBA.
The ASBA facility is explained briefly below:
An ASBA investor shall submit an ASBA physically or electronically through the internet banking
facility, to the SCSB with whom, the bank account to be blocked, is maintained. The SCSB shall
then block the application money in the bank account specified in the ASBA, on the basis
of an authorization given by the account holder in the ASBA. The application money shall remain
blocked in the bank account till finalization of the basis of allotment of the issue or till
withdrawal/failure of the issue or will withdrawal/ rejection of the application, as the case may
be. The application data shall thereafter be uploaded by the SCSB in the electronic bidding
system through a web enabled interface provided by the Stock Exchanges.
Once the basis of allotment is finalized, the Registrar to the Issue shall send an appropri
ate request to SCSB for unblocking the relevant bank accounts and for transferring the r
equisite amount to the issuer’s account designated for this purpose. In case of withdraw
al/ failure of the issue, the amount shall be unblocked by the SCSB on receipt of informa
tion from the pre‐issue merchant bankers through the concerned Registrar to the Issue.
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The ASBA facility is given in detail in Annexure II of SEBI Circular No. SEBI /CFD /DIL /ASBA /1
/2009/30/12 dated 30th December, 2009. Annexure IIA of the same circular specifies the main
contents of ASBA form for public issues. The indicative time schedule for various activities
pertaining to ASBA is given in Annexure B of SEBI Circular No. CIR/CFD/DIL/1/2011 dated April
29, 2011.

5.5. Allotment of Shares

Allotment of shares is the next step in an issue process once the issue is closed. The Process of
allotment and the applicable laws are discussed in this section.

5.5.1. Allotment Process
After the closure of the public issue, in case of a book built public issue, the bids received are
aggregated under different categories i.e., firm allotment, Qualified Institutional Buyers(QIBs),
Non‐Institutional Buyers (NIBs), Retail, etc. SEBI ICDR has specified several regulations for this
purpose. Here we discuss some of these regulations from SEBI ICDR.
A person applying in public category cannot make an application exceeding the number of
specified securities offered to public.
 In an issue made through the book building process, the allocation in the net offer to public
category:
a) Cannot be less than 35% to retail individual investors
b) Cannot be less than 15% to non‐institutional investors
c) Cannot be more than 50% to qualified institutional buyers, (of which 5% is to be allocated
to mutual funds)
The above will not hold for an issue made through book‐building process, where the issuer
undertakes to allot atleast75% of the net offer to QIBs.
In addition to 5% allocation as given above, mutual funds are eligible for allocation under the
balance available for qualified institutional buyers.
In an issue made through the book building process under sub‐regulation (2) of regulation 26,
the allocation in the net offer to public category shall be as follows:

(a) not more than ten per cent to retail individual investors;
(b) not more than fifteen per cent to non‐institutional investors;
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(c) not less than seventy five per cent to qualified institutional buyers, five per cent of which shall
be allocated to mutual funds:
Provided that in addition to five per cent allocation available in terms of clause (c), mutual funds
shall be eligible for allocation under the balance available for qualified institutional buyers.
In an issue made through the book building process, the issuer may allocate upto 60% of the
portion available for allocation to QIBs to an anchor investor in accordance with the conditions
specified in this regard in Schedule XI of ICDR.
In an issue made other than through the book building process, allocation in the net offer to
public category:
a) Should be atleast 50% to retail individual investors17
b) remaining to:
(i) individual applicants other than retail individual investors
(ii) other investors including corporate bodies or institutions, irrespective of the number
of specified securities applied for
c) the unsubscribed portion in either of the above categories may be allocated to applicants
in the other category
Basis of Allotment
The allotment of specified securities to applicants other than anchor investors is on
proportionate basis within the specified investor categories and the number of securities allotted
is rounded off to the nearest integer, subject to minimum allotment being equal to the minimum
application size, which is to be determined and disclosed by the issuer.
Value of specified securities allotted, on reservation basis, to employees in permanent or full
time employment, cannot not exceed Rs 2 lakh.
The executive director or managing director of the designated stock exchange along with the
post issue lead merchant bankers and registrars to the issue are required to ensure that the basis
of allotment is carried out in a fair and proper manner in accordance with the allotment
procedure as specified in Schedule XV of ICDR.
Utilisation of Subscription Money

17
If the retail individual investor category is entitled to more than 50% on proportionate basis, the retail individual
investors will be allocated as per the entitlement.
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It is the duty of the post‐issue lead merchant banker to ensure that moneys received in respect
of the issue are released to the issuer in compliance with the provisions of section 40(3) of the
The ratio of oversubscription is calculated for each of the categories as against the shares
reserved for the categories in the offer document. Within each category, the bids are then
segregated into different segments based on the number of shares applied for. The
oversubscription ratio is then applied to the number of shares applied for and the number of
shares to be allotted for applicants in each of the segments is determined. Then, the number of
successful allottees is determined. This process is followed in case of proportionate
allotment. Thus allotment to each investor is made based on proportionate basis in both book
built and fixed price public issue. The Companies Act, FEMA and SEBI ICDR needs to be followed
during the allotment process. All the investors applying in a public issue use only Application
Supported by Blocked Amount (ASBA) facility for making payment, hence upon finalisation of
allotment, funds are debited or unblocked from the investors’ bank account as the case may be.
5.5.2. Process of Refund
As discussed earlier in this chapter, the investors can invest by way of ASBA or through the normal
banking processes. In case the investor avails of the second option, the refunds may be made by
the issuer by way of Direct Credit, RTGS (Real Time Gross Settlement), ECS (Electronic Clearing
Service) and NEFT (National Electronic Funds Transfer).
5.5.3. Allotment and Refund for NRI and FII
It is required to look into Foreign Exchange Management (Transfer or issue of Security by a Person
Resident outside India) Regulations, 2000 as well as the SEBI (Foreign Portfolio Investors)
Regulations, 2014 for the process of allotment/refund to NRIs and FIIs. Notification No. FEMA 20
/2000‐RB dated 3rd May 2000 issued by RBI should be referred to as well.
FPI’s are permitted to invest through the Portfolio Investment Scheme and NRI’s are permitted
to invest under both repatriable (PIS) and non‐repatriable schemes. All foreign investments are
freely repatriable (net of applicable taxes) except in the following cases:
 If the foreign investment is in a sector like Construction and Development Projects and
Defence wherein the foreign investment is subject to a lock‐in‐period
 If an NRI chooses to invest specifically under non‐repatriable schemes
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As per the SEBI (FPI) Regulations, FPIs are permitted to invest only in certain securities. The
transaction of business in securities by a foreign portfolio investor shall be only through stock brokers
registered by the Board

5.6. Listing with Stock Exchanges
Here we discuss the next step after allotment, i.e., getting the shares listed with the Stock
Exchanges.

The regulations applicable for the purpose are SEBI Listing Regulations apart from the Listing
Agreement entered into with the Stock Exchange. SEBI Listing Regulations are applicable to a
listed entity who has listed any of the following securities on recognised stock exchange(s):
 specified securities listed on the main board or SME Exchange or Institutional Trading
Platform;
 Non‐Convertible Debt Securities, Non‐Convertible Redeemable Preference Shares,
perpetual debt instrument, perpetual non‐cumulative preference shares;
 Indian depository receipts;
 securitized debt instruments
 units issued by mutual fund and
 any other securities as may be specified by SEBI

5.6.1. Process of Listing
Once the allotment of securities is completed, an issuer company is required to make the trading
application, along with applicable listing fees, to the Stock Exchanges within the specified time
limit after finalization of allotment.
Companies desirous of getting their securities listed at Stock Exchanges are required to comply
with the provisions of SEBI Listing Regulations and enter into an agreement with Stock Exchanges
called the Listing Agreement. The Regulations are divided into two parts: substantive provisions
incorporated into the main Regulation and procedural requirements which are specified as
Schedule to the Regulations
Chapter II of the SEBI Listing Regulations provide the broad principles in relation to disclosures
and obligations of the listed entities. In the event of absence of specific requirements or
ambiguity, these principles would serve to guide the listed entities.
► Chapter III of the SEBI Listing Regulations specifies common obligations of all listed entities.
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► Chapter IV to IX of the SEBI Listing Regulations deal with obligations which are applicable to
specific types of securities have been incorporated in various chapters.
► Chapter X and XI of the SEBI Listing Regulations list down the responsibilities of the stock
exchanges to monitor compliance or adequacy / accuracy of compliance with the provisions of
these regulations and to take action for noncompliance.
► Company desirous of listing its securities shall enter into a listing agreement with the stock
exchange. Existing listed entities are required to execute a fresh listing agreement within 6
months from date of notification of SEBI Listing Regulations.
► All circulars stipulating or modifying the provisions of the listing agreement including those
specified in Schedule X of SEBI Listing Regulations, stand rescinded.
The Listing Department of Stock Exchanges monitors the compliance by the companies with the
provisions of the Listing Agreement, especially with regard to timely payment of annual listing
fees, submission of results, shareholding patterns and corporate governance reports on a
quarterly basis. Penal action is taken against the defaulting companies.
The calculation of Annual Issuers charges has been reviewed by SEBI vide circular no.
CIR/MRD/DP/05/2011 dated 27th April, 2011. The annual issuer charges would be based on the
average no. of folios (ISIN positions) during the previous financial year instead of the total number
of folios (ISIN positions) as on 31st March of the previous financial year. The average no. of folios
(ISIN positions) for an Issuer may be arrived at by dividing the total number of folios for the entire
financial year by the total number of working days in the said financial year.
In exercise of the powers conferred by the regulation 30 of the SCRA, the Central Government
has made the Securities Contracts (Regulation) Rules, 1957.
Securities Contracts (Regulation) Rules, 1957 vide clause 19 prescribes the requirements with
respect to listing of securities on a recognised stock exchange and are discussed below.

5.6.2. Conditions for Application for Listing
An application for listing can be either for a new issue of securities offered to the public or further
issues of securities of the company already listed on a recognised stock exchange.
A public company desirous of getting its securities listed on a recognised stock exchange, is
required to apply to the stock exchange within 20 days from the date of allotment along with the
following documents and particulars:
 Memorandum and articles of association
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 In the case of a debenture issue, a copy of the trust deed
 Copies of all prospectuses or statements in lieu of prospectuses issued by the company
at any time
 Copies of offers for sale and circulars or advertisements offering any securities for
subscription or sale during the last 5 years
 Copies of balance‐sheets and audited accounts for the last 5 years (in the case of new
companies, for such shorter period for which accounts have been made up).
 A statement showing dividends and cash bonuses, if any, paid during the last 10 years (or
such shorter period as the company has been in existence) and dividends or interest in
arrears, if any.
 Certified copies of agreements or other documents relating to arrangements with or
between (i) vendors and/or promoters, (ii) underwriters and sub‐underwriters, and (iii)
brokers and sub‐brokers.
 Certified copies of agreements with (i) managing agents and secretaries and treasurers,
(ii) selling agents, (iii) managing directors and technical directors and (iv) general
manager, sales manager, manager or secretary.
 Certified copy of every letter, report, balance‐sheet, valuation contract, court order or
other document, part of which is reproduced or referred to in any prospectus, offer for
sale, circular or advertisement offering securities for subscription or sale, during the last
five years.
 A statement containing particulars of the dates of, and parties to all material contracts,
agreements (including agreements for technical advice and collaboration), concessions
and similar other documents (except those entered into in the ordinary course of business
carried on or intended to be carried on by the company) together with a brief description
of the terms, subject‐matter and general nature of the documents.
 A brief history of the company since its incorporation giving details of its activities
including any re‐organisation, reconstruction or amalgamation, changes in its capital
structure, (authorised, issued and subscribed) and debenture borrowings, if any.
 Particulars of shares and debentures issued‐ (i) for consideration other than cash,
whether in whole or part, (ii) at a premium or discount, or (iii) in pursuance of an option.
 A statement containing particulars of any commission, brokerage, discount or other
special terms including an option for the issue of any kind of the securities granted to any
person.
 Certified copies of acknowledgement card or the receipt of filing offer document with the
Securities and Exchange Board of India
 Certified copies of agreements, if any, with the Industrial Finance Corporation, Industrial
Credit and Investment Corporation and similar bodies.
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 Particulars of shares forfeited, if any
 A list of highest ten holders of each class or kind of securities of the company as on the
date of application along with particulars as to the number of shares or debentures held
by and the address of each such holder.
 Particulars of shares or debentures for which permission to deal is applied for
Note: A recognised stock exchange may either through its bye‐laws or on a case to case basis call
for further particulars or documents.
The applicant company also needs to satisfy the stock exchange that:
 Its articles of association provide for the following in particular
o That the company shall use a common form of transfer
o That the fully paid shares will be free from all lien, while in the case of partly paid
shares, the company’s lien, if any, will be restricted to moneys called or payable
at a fixed time in respect of such shares
o That any amount paid‐up in advance of calls on any share may carry interest but
shall not entitle the holder of the share to participate in respect thereof, in a
dividend subsequently declared
o That there will be no forfeiture of unclaimed dividends before the claim becomes
barred by law
o That option or right to call of shares shall not be given to any person except with
the sanction of the company in general meeting:
Note: A recognised stock exchange may provisionally admit to dealings the securities of a
company which is to amend its articles of association in its next general meeting so as to
fulfill the foregoing requirements and agrees to act in the meantime strictly in accordance
with the all relevant provisions. "The minimum offer and allotment to public in terms of
an offer document shall be‐";
 (i) at least twenty five per cent. of each class or kind of equity shares or debenture
convertible into equity shares issued by the company, if the post issue capital of the
company calculated at offer price is less than or equal to one thousand six hundred crore
rupees;
 (ii) at least such percentage of each class or kind of equity shares or debentures
convertible into equity shares issued by the company equivalent to the value of four
hundred crore rupees, if the post issue capital of the company calculated at offer price is
more than one thousand six hundred crore rupees but less than or equal to four thousand
crore rupees;
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(iii) at least ten per cent. of each class or kind of equity shares or debentures convertible into
equity shares issued by the company, if the post issue capital of the company calculated at offer
price is above four thousand crore rupees: Provided that the company referred to in sub‐clause
(ii) or sub‐clause (iii), shall increase its public shareholding to at least twenty five per cent. within
a period of three years from the date of listing of the securities, in the manner specified by the
Securities and Exchange Board of India: Provided further that this clause shall not apply to a
company whose draft offer document is pending with the Securities and Exchange Board of India
on or before the commencement of the Securities Contracts (Regulation) Third Amendment
Rules, 2014, if it satisfies the conditions prescribed in clause (b) of sub‐rule (2) of rule 19 of the
Securities Contracts (Regulation) Rules, 1956 as existed prior to the date of such commencement.
As a pre‐condition, the company applying for listing undertakes:
 That letters of allotment will be issued simultaneously and that, in the event of its being
impossible to issue letters of regret at the same time, a notice to that effect will be
inserted in the press so that it will appear on the morning after the letters of allotment
have been posted,
 That letters of right will be issued simultaneously
 That letters of allotment, acceptance or rights will be serially numbered, printed on good
quality paper and examined and signed by a responsible officer of the company and that
whenever possible, they will contain the distinctive numbers of the securities to which
they relate
 That letters of allotment and renounceable letters of right will contain a proviso for
splitting and that, when so required by the exchange, the form of renunciation will be
printed on the back of or will be attached to the letters of allotment and letters of right
 That letters of allotment and letters of right will state how the next payment of interest
or dividend on the securities will be calculated
 To issue, when so required, receipts for all securities deposited with it for registration,
sub‐division, exchange, etc. and not to charge any fees for registration of transfers, for
sub‐division and consolidation of certificates and for sub‐division of letters of allotment,
renounceable letters of right, and split, consolidation, renewal and transfer receipts into
denominations of the market unit of trading
 To issue, when so required, consolidation and renewal certificates in denominations of
the market unit of trading to split certificates, letters of allotment, letters of right, and
transfer, renewal, consolidation and split receipts into smaller units, to split call notices,
issue duplicates thereof and not require any discharge on call receipts and to accept the
discharge of members of stock exchange on split, consolidation and renewal receipts as
good and sufficient without insisting on the discharge of the registered holders
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 When documents are lodged for sub‐division or consolidation or renewal through the
clearing house of the exchange the issuer undertakes:
o To accept the discharge of an official of the stock exchange clearing house on the
company’s split receipts and consolidation receipts and renewal receipts as good
and sufficient discharge without insisting on the discharge of the registered
holders
o To verify when the company is unable to issue certificates or split receipt or
consolidation receipts or renewal receipts immediately on lodgement whether the
discharge of the registered holders, on the documents lodged for sub‐division or
consolidation or renewal and their signatures on the relative transfers are in order
 To make on transfers an endorsement, on production of the necessary documents by
shareholders or by members of the exchange, to the effect that the power of attorney or
probate or letters of administration or death certificate or certificate of the Controller of
Estate Duty or similar other document has been duly exhibited to and registered by the
company;
 To issue certificates in respect of shares or debentures lodged for transfer within a period
of one month of the date of lodgement of transfer and to issue balance certificates within
the same period where the transfer is accompanied by a larger certificate
 To inform the stock exchange of the date of the board meeting at which the declaration
or recommendation of a dividend or the issue of right or bonus share will be considered
 To recommend or declare all dividends and/or cash bonuses at least five days before the
commencement of the closure of its transfer books or the record date fixed for the
purpose and to advise the stock exchange in writing of all dividends and/or cash bonuses
recommended or declared immediately after a meeting of the board of the company has
been held to finalise the same
 To notify the stock exchange of any material change in the general character or nature of
the company’s business;
 To notify the stock exchange of any change—
(i) in the company’s directorate by death, resignation, removal or otherwise
(ii) of managing director, managing agent or secretaries and treasurers
(iii) of auditors appointed to audit the books and account of the company
 To forward to the stock exchange copies of statutory and annual reports and audited
accounts as soon as issued, including directors’ report
 To forward to the stock exchange copies of all other notices and circulars sent to the
shareholders, including proceedings of ordinary and extraordinary general meetings of
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the company, as soon as they are issued and to file with the stock exchange certified
copies of resolutions of the company as soon as such resolutions become effective
 To notify the stock exchange prior to intimating the shareholders of any new issue of
securities whether by way of right, privilege bonus or otherwise and the manner in which
it is proposed to offer or allot the same
 To notify the stock exchange in the event of re‐issue of any forfeited securities or the issue
of securities held in reserve for future issue
 To notify the stock exchange of any other alteration of capital including calls
 To close the transfer books only for the purpose of declaration of dividend or issue of
right or bonus shares or for such other purposes as the stock exchange may agree and to
give notice to the stock exchange as many days in advance as the exchange may from
time to time reasonably prescribe, stating the dates of closure of its transfer books (or,
when the transfer books are not to be closed, the date fixed for taking a record of its
shareholders or debenture holders) and specifying the purpose or purposes for which the
transfer books are to be closed (or the record is to be taken); and in the case of a right or
bonus issue to so close the transfer books or fix a record date only after the sanctions of
the competent authority subject to which the issue is proposed to be made have been
duly obtained, unless the exchange agrees otherwise
 To forward to the stock exchange an annual return immediately after each annual general
meeting of at least ten principal holders of each class of security of the company along
with particulars as to the number of shares or debentures held by, and address of, each
such holder;
 to grant to shareholders the right of renunciation in all cases of issue of rights, privileges
and benefits and to allow them reasonable time not being less than four weeks within
which to record, exercise, or renounce such rights, privileges and benefits and to issue,
where necessary, coupons or fractional certificates or provide for the payment of the
equivalent of the value of the fractional right in cash unless the company in general
meeting or the stock exchange agrees otherwise;
 To promptly notify the stock exchange—
(i) of any action which will result in the redemption, cancellation or retirement in
whole or in part of any securities listed on the exchange,
(ii) of the intention to make a drawing of such securities, intimating at the same time
the date of the drawing and the period of the closing of the transfer books (or the date
of the striking of the balance) for the drawing,
(iii) of the amount of securities outstanding after any drawing has been made;
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 To intimate the stock exchange any other information necessary to enable the
shareholders to apprise the position of the company and to avoid the establishment of a
false market in the shares of the company
 That in the event of the application for listing being granted, such listing shall be subject
to the rules and bye‐laws of the exchange in force from time to time and that the company
will comply within a reasonable time, with such further listing requirements as may be
promulgated by the exchange as a general condition for new listings
A recognised stock exchange may suspend or withdraw admission to dealings in the securities of
a company or body corporate either for a breach of or non‐compliance with, any of the conditions
of admission to dealings or for any other reason, to be recorded in writing, which in the opinion
of the stock exchange justifies such action. In such cases, the company or body corporate
concerned will be given a reasonable opportunity by a notice in writing, stating the reasons, to
show cause against the proposed action.
If a recognized stock exchange has withdrawn admission to dealings in any security, or if
suspension of admission to dealings has continued for a period exceeding 3 months, the company
or body corporate concerned may appeal to the Securities Appellate Tribunal The Securities
Appellate Tribunal, after giving the stock exchange an opportunity of being heard, will vary or set
aside the decision of the stock exchange and its orders shall be carried out by the stock exchange.
A recognized stock exchange may, either at its own discretion or shall in accordance with the
orders of the Securities Appellate Tribunal restore or re‐admit to dealings any securities
suspended or withdrawn from the list.
5.6.3. Continuous Listing Requirements
Every listed company is required to maintain public shareholding of at least 25%. every listed
public sector company which has public shareholding below twenty five per cent., on the date of
commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2014, shall
increase its public shareholding to atleast twenty five per cent., within a period of three years, in
the manner, as may be specified, by the Securities and Exchange Board of India
Where the public shareholding in a listed company falls below twenty‐five per cent, in
consequence to the Securities Contracts (Regulation) (Amendment) Rules, 2015, such company
shall increase its public shareholding to at least twenty‐five per cent. in the manner specified by
the Securities and Exchange Board of India within a period of three years, as the case may be,
from the date of notification of:
(a) the Depository Receipts Scheme, 2014 in cases where the public shareholding falls below
twenty five per cent as a result of such scheme;
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(b) the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations,
2014 in cases where the public shareholding falls below twenty‐five per cent as a result
of such regulations;
The detailed compliances for a listed company is discussed in Chapter 9.

5.7. Post Issue Compliances

Post issue compliance is a major component of the issue process. Regulations pertaining to these
compliances are given hereunder:

5.7.1. Regulations pertaining to Post‐Issue Compliances

Post Issue Reports

The Compliance Officer is required to co‐ordinate and work with the Merchant Banker for
submission of initial and final post‐issue reports within the time limits specified in the SEBI ICDR.
The CO is also required to co‐ordinate the filing of returns with the Registrar of Companies and
the RBI. The formats for the initial post issue report are specified in Parts A and B of Schedule XVI
of the SEBI ICDR. The formats for the final post issue report are specified in Parts C and D of
Schedule XVI of SEBI ICDR.

Post Issue Advertisement

The Compliance Officer is required to co‐ordinate and work with the Merchant Banker for issue
of post –issue advertisement. This is required to be issued within 10 days from the date of
completion of various activities specified in SEBI ICDR.

Other Responsibilities

Apart from these two major activities, some of the other important compliances are listed below:
 Crediting shares in beneficiary account/despatch of share certificates based on the
allotment made. If the issue is in compulsory demat mode, the shares will be credited to
the account of the beneficiary otherwise, share certificates are required to be despatched
the shareholders.
 Despatch of refund orders ‐ In case any amount is required to be refunded, the refund
orders are required to be despatched within specified time.
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 Payment of stamp duty –Stamp duty is required to be paid on the shares issued. This
varies across states.
 Oversee Refund by Registrar to an Issue – As discussed above, refund orders may be
required to be issued in certain cases. The Registrar is mainly responsible for the despatch
of the refund orders. However, it is the duty of the Company Secretary to oversee the
despatch of refund orders by the Registrar and ensure compliance with the conditions
specified in SEBI ICDR.
 Complete formalities with Stock Exchange for Listing. While submitting the application
for listing of shares, the following documents are required to be submitted:
o Clauses of Articles of Association
o Application Letter for Listing
o Listing Application providing pre‐issue details of securities
o Listing Application providing post‐issue details of securities
o Checklist for supporting documents
o Schedule of Distribution
o Listing Agreement
 Decide on date for listing once all shares are transferred to investor’s accounts
 Filing for Listing with Designated Stock Exchange and payment of listing fees is required
to be made as per the requirements specified in SEBI ICDR
 Finalisation of Listing Process is required to be completed in conjunction with the
Merchant Bankers
 Redressal of shareholder complaints is required to be completed as per the SEBI ICDR by
the Merchant Banker and the Compliance Officer

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Review Questions
1. Issuer cannot make an allotment pursuant to a public issue if the number of respective
allottees is less than ____________.
A. 2000
B. 1000
C. 3000
D. 4000

2. The Compliance Officer along with the Board of the issuer company decides the timeline
for the entire IPO process. State whether True or False?
A. True
B. False

3. As per SEBI ICDR, the aggregate of reservations for shareholders shall not exceed
__________ % of the issue size.
A. 5
B. 10
C. 15
D. 20

4. Post issue activities are the responsibility of the _________________.
A. Merchant Banker
B. Registrar to the Issue
C. Banker to the Issue
D. Legal Advisor

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Chapter 6: Role of Compliance Officer in other Public Issues

After studying this chapter, you should know about the role of compliance officer in:
 Further Public Offering
 Bonus Issue
 Employee Stock Option Plan
 Sweat Equity

 Private Placement
 Indian Depository Receipts

As explained earlier, there are different types of issues other than Initial Public Offer. SEBI ICDR
has imposed certain restrictions on further issues, the relevant details of which are given below:
Restriction on further capital issues
An issuer cannot make any further issue of specified securities by way of:
 public issue,
 rights issue,
 preferential issue,
 qualified institutions placement,
 issue of bonus shares or otherwise
(a) in case of a fast track issue, during the period between:
 the date of registering the red herring prospectus (in case of a book built issue) or
prospectus (in case of a fixed price issue) with the Registrar of Companies or filing the
letter of offer with the designated stock exchange and
 the listing of the specified securities offered through the offer document or refund of
application moneys; or
(b) in case of other issues, during the period between:
 the date of filing the draft offer document with the Board and
 the listing of the specified securities offered through the offer document or refund of
application moneys;
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unless full disclosures regarding the total number of specified securities and amount proposed
to be raised from such further issue are made in such draft offer document or offer document,
as the case may be.

6.1. Further Public Offer (FPO)

Further public offer means an offer of specified securities by a listed issuer to the public for
subscription. It includes an offer for sale of specified securities to the public by any existing
holders of such securities in a listed issuer.
Compliance Officer is required to check whether the issuer satisfies the eligibility conditions as
per SEBI Regulations. The eligibility conditions required to be satisfied specified in SEBI ICDR are
given below:
Conditions for further public offer
An issuer may make a further public offer if it satisfies the following conditions:
1. The aggregate of the proposed issue and all previous issues made in the same financial
year in terms of issue size does not exceed five times its pre‐issue net worth as per the
audited balance sheet of the preceding financial year; and

2. If it has changed its name within the last one year, at least fifty per cent of the revenue
for the preceding one full year has been earned by it from the activity indicated by the
new name.
An issuer not satisfying any of the conditions stipulated above may make an initial public offer if:
At least seventy five per cent of the net offer to public is to qualified institutional buyers, if the
issue is made through book building process and the issuer is required to refund full subscription
monies if it fails to make allotment to the qualified institutional buyers; In case of a further public
offer, the minimum promoter’s contribution shall be either to the extent of twenty per cent of
the proposed issue size or to the extent of twenty per cent of the post‐issue capital. Apart from
these specific conditions, the process is similar to an IPO

6.2. Rights Issue
“Rights issue” means an offer of specified securities by a listed issuer to the shareholders of the
issuer as on the record date fixed for the said purpose. SEBI ICDR applies to a rights issue where
the aggregate value of specified securities offered is fifty lakh rupees or more.
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There are no eligibility criteria for a Rights Issue and there is no requirement for minimum
promoters’ contribution in a rights issue. The common conditions specified in Chapter II are
applicable to both public issues and rights issues. These conditions have already been dealt with
in the Chapter on IPO. Apart from these regulations, following are some of the regulations,
contained in Chapter IV, specific to a Rights Issue:
6.2.1. Regulations
Record Date
 A listed issuer making a rights issue shall announce a record date for the purpose of
determining the shareholders eligible to apply for specified securities in the proposed
rights issue.
 The issuer shall not withdraw rights issue after announcement of the record date.
If the issuer withdraws the rights issue after announcing the record date, it shall not make
an application for listing of any of its specified securities on any recognized stock exchange
for a period of twelve months from the record date. However, the issuer may seek listing
of its equity shares allotted pursuant to conversion or exchange of convertible securities
issued prior to the announcement of the record date, on the recognized stock exchange
where its securities are listed.
Restriction on rights issue
 An issuer shall not make a rights issue of equity shares, unless it has made reservation of
equity shares of the same class in favour of the holders of outstanding compulsorily
convertible debt instruments, if any, in proportion to the convertible part thereof.
 The equity shares so reserved for the holders of fully or partially compulsorily convertible
debt instruments shall be issued at the time of conversion of such convertible debt
instruments on the same terms at which the equity shares offered in the rights issue were
issued.
Letter of offer, abridged letter of offer, pricing and period of subscription
 The abridged letter of offer, along with application form, shall be dispatched through
registered post or speed post to all the existing shareholders at least three days before
the date of opening of the issue. However, the letter of offer shall be given by the issuer
or lead merchant banker to any existing shareholder who has made a request in this
regard.
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 The shareholders who have not received the application form may apply in writing on a
plain paper, along with the requisite application money.
 The shareholders making application otherwise than on the application form shall not
renounce their rights and shall not utilize the application form for any purpose including
renunciation even if it is received subsequently.
 Where any shareholder makes an application on application form as well as on plain
paper, the application is liable to be rejected.
 The issue price shall be decided before determining the record date which shall be
determined in consultation with the designated stock exchange.
 A rights issue shall be open for subscription for a minimum period of fifteen days and for
a maximum period of thirty days.
 The issuer shall give only one payment option out of the following to all the investors—
(a) part payment on application with balance money to be paid in calls; or
(b) full payment on application:
Provided that where the issuer has given the part payment option to investors, the part payment
on application shall not be less than 25% of the issue price and such issuer shall obtain the
necessary regulatory approvals to facilitate the same.

6.2.2. Due Diligence Process
The due diligence process is very similar to that of an IPO as discussed in Chapter 5. However the
following additional documents will be collected by the merchant banker since the company is
listed.
Sl. Name of the Document Items to be checked and verified

No
1 Memorandum and Articles of Check for change in name and the date of

Association change, along with the relevant
resolutions.
Check the amendments made in the

Memorandum. Cross verify with the
resolutions passed in this regard,
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minutes book of both shareholders
meeting and Board Meetings, the
relevant Forms filed with the ROC.
To also check whether the stock

exchanges have been informed on time
about the changes.
Listing approval of the stock exchange To check if any action has been taken by

and stock exchange correspondence file stock exchanges where the shares of the
company are listed – if so, the
compliance measures taken by the
company in this regard.
To check if the scrip has been suspended
at any time. If so why and the steps taken
to restore trading.
To check for compliances of the various
clauses of the SEBI Listing Regulations by
company without any delay.
To check whether Listing Fees has been
paid on time.
The above exercise has to be done for all
the stock exchanges, where the shares of
the company are listed and not only
BSE/NSE.
Has the company de‐listed its securities To check the relevant shareholder

from any exchange? If yes, the relevant resolution, the application for delisting
correspondence file and the current status. In case the shares
are yet to be de‐listed, and the company
has not made necessary compliances, it
is advisable to de‐list before proceeding
with the issue.
Compliance with SEBI (SAST) On verification, should confirm and verify

Regulations File whether the promoters have been filing
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reports under 6(1), 6(2), 8(1), 8(2) and 8A
of the Takeover Regulations, 1997 and
under Regulation 29 /30 and 31 of
Takeover Regulations, 2011 on time.
Whether the company has been filing its
reports under 6(3) and 8(3) of the
Takeover Regulations, 1997
Has the company filed for any

exemption?
Has the company filed any reports under
Regulation 3(4) of the Takeover
Regulations 1997 and under Regulation
10 of Takeover Regulations, 2011?
Has the company or the promoters opted
for the SEBI Regularization Scheme of
2002.
SEBI (Prohibition of Insider Trading Check if there is an Insider Trading Policy.

Regulations) File
Whether all documents are being
received and preserved as per the Policy.
Is the Stock Exchange being informed on
time on receipt of such information?
Correspondence with SEBI File Any notification or intimation from SEBI
regarding investigation / inspection. The
fall out of such investigation shall be
studied in detail.
Adjudication Orders / Section 11B To check if such orders exist and to
Orders of SEBI on the promoters, ascertain that the promoters or the
directors and the company or promoter company have not been debarred from
group company accessing the capital market.
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Annual Reports of the company for the To check if the company has been making
last 5 years. profits or losses. If losses, the reasons for
the same.

To also collect the restated audited
financial statements for the last 5 years, Has the company been referred to BIFR?
prepared in accordance with SEBI If yes, the correspondence regarding the
Guidelines. same, scheme that has been worked out
and the compliance regarding the same.
Preferential issue – Resolution under For all the preferential issue made by the

Section 62 with Form PAS ‐ 3 filed with company after listing of securities, to
ROC and correspondence with stock ensure that it is in accordance with the
exchange. SEBI ICDR in this regard.
Bonus issues made – Board Resolution, To be in conformity SEBI ICDR and

Shareholder Resolution, Form PAS ‐ 3 Companies Act, 2013
filed with ROC
Check that no bonus share has been
issued out of revaluation reserves.
No Check that no bonus has been issued
in lieu of dividend.
Details of transactions in the last 6 Check for violations of SEBI Regulations.

months by the promoters of the
company.
Shareholding Pattern Study the pattern from the date of listing.
If there are changes– check for violations
of SEBI Regulations
Copy of the prospectus / Letter of Offer A tabular column denoting the date of

for all previous issues of company issue, issue price, issue size, promises
made, performance.
ESOP Schemes and the details of

options granted under the Scheme,
options vested and options exercised.
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To also get details of options lapsed in
this regard.

6.2.3. Preparation of the Offer Document
Once the Compliance Officer in consultation with the Merchant banker confirms that the
Company is eligible to make a rights issue, a Board Meeting is required to be convened to discuss
the proposal and appoint a Merchant Banker for the issue. A listed issuer making a rights issue
of specified securities shall make disclosures as specified in clause 5 Part E of SEBI ICDR, if it
satisfies certain conditions. Part E of SEBI ICDR deals with the Disclosures in Letter of Offer. The
detailed provisions are given below:
(1) A listed issuer making a rights issue of specified securities shall make disclosures specified
below, in the letter of offer, if it satisfies the following conditions:
(a) the issuer has been filing periodic reports, statements and information in compliance
with the listing agreement for the last three years immediately preceding the date of
filing the letter of offer with the designated stock exchange in case of a fast track issue
and in any other case, the date of filing the draft letter of offer with the Board;
(b) the reports, statements and information referred above are available on the website
of any recognised stock exchange with nationwide trading terminals or on a common
e‐filing platform specified by the Board;
(c) the issuer has investor grievance‐handling mechanism which includes meeting of the
Shareholders’ or Investors’ Grievance Committee at frequent intervals, appropriate
delegation of power by the board of directors of the issuer as regards share transfer
and clearly laid down systems and procedures for timely and satisfactory redressal of
investor grievances.
(2) If the listed issuer does not satisfy the conditions specified above, it shall make
disclosures specified in SEBI ICDR in the letter of offer:
(3) Irrespective of whether the conditions specified in clause (1) are satisfied or not, the
following listed issuers shall make disclosures specified in SEBI ICDR in the letter of offer:
(a) a listed issuer whose management has undergone change pursuant to acquisition of
control in accordance with the provisions of Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and is making a
rights issue of specified securities for the first time subsequent to such change;
(b) an issuer whose specified securities have been listed consequent to relaxation granted
by the Board under the Securities Contracts (Regulation) Rules, 1957 for listing of its
specified securities pursuant to a scheme sanctioned by a High Court under sections
391 to 394 of the Companies Act, 1956 (now sections 230‐240 of Companies Act,
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2013) and is making a rights issue of specified securities for the first time subsequent
to such listing.
(4) A listed issuer shall make the disclosures in the letter of offer, as far as possible, in the
order in which the disclosures are specified in this clause
As per SEBI ICDR, the Draft Letter of Offer is made by the Issuer in conjunction with the Merchant
Banker. Once the observations on the Draft Letter of Offer are received from SEBI and
incorporated in the document, the document becomes the final Letter of Offer and another
Board Meeting will need to be convened for approval of the letter of offer, for fixing the record
date for issue of shares, pricing and period of subscription. The Letter of Offer is required to be
despatched through registered post or speed post to all existing shareholders at least 3 days
before the date of opening of issue (As per regulation 54 of SEBI ICDR). A rights issue is required
to be kept open for subscription for a minimum period of 15 days and for a maximum period of
thirty days
As per Regulation 55 of SEBI ICDR, an advertisement is required to be issued for rights issue with
specified disclosures prior to the issue. The advertisement shall be made in at least one English
national daily newspaper with wide circulation, one Hindi national daily newspaper with wide
circulation and one regional language daily newspaper with wide circulation at the place where
registered office of the issuer is situated, at least three days before the date of opening of the
issue.
As per Regulation 55A of SEBI ICDR, subject to other applicable provisions of these regulations,
the issuer may make reservation for employees’ alongwith rights issue subject to the condition
that value of allotment to any employee shall not exceed two lakh rupees.
As per Regulation 56 of SEBI ICDR, the issuer shall utilize funds collected in rights issues after the
finalization of the basis of allotment.

6.2.4. Other Procedures
The Promoters can subscribe to their entitlement and can also apply for additional shares.
However the subscription for additional shares will be exempted from the application of the
provisions of the acquisitions made by a promoter under SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011. As per the said Regulation, the following acquisitions shall be
exempt from the obligation to make an open offer:
(a) acquisition of shares by any shareholder of a target company, upto his entitlement,
pursuant to a rights issue;
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(b) acquisition of shares by any shareholder of a target company, beyond his entitlement,
pursuant to a rights issue, subject to fulfillment of the following conditions,—
(i) the acquirer has not renounced any of his entitlements in such rights issue; and
(ii) the price at which the rights issue is made is not higher than the ex‐rights price of the
shares of the target company, being the sum of,—
 the volume weighted average market price of the shares of the target company during
a period of sixty trading days ending on the day prior to the date of determination of
the rights issue price, multiplied by the number of shares outstanding prior to the
rights issue, divided by the total number of shares outstanding after allotment under
the rights issue. However, such volume weighted average market price shall be
determined on the basis of trading on the stock exchange where the maximum
volume of trading in the shares of such target company is recorded during such
period; and
 the price at which the shares are offered in the rights issue, multiplied by the number
of shares so offered in the rights issue divided by the total number of shares
outstanding after allotment under the rights issue.

6.2.5. Time Schedule
An activity chart with a tentative time schedule is placed at Annexure ‐ 4

6.3. Bonus Issue
Bonus issue means shares issued to existing shareholders of the company free of cost. These
shares are issued in proportion to the existing shares held by the shareholders. Typically, these
shares are issued after adjusting the free reserves of the company.
Issue of bonus shares is governed by the Companies Act,2013. The Articles of Association of the
Company is required to contain a provision for the purpose. SEBI ICDR also applies to an issue of
bonus shares by a listed issuer. The restriction on further capital issues as per Regulation 19 of
SEBI ICDR applies to bonus issues as well. This has been dealt with in Chapter 5.
As per Chapter IX, Regulation 92 of SEBI ICDR, a listed company may issue bonus shares to its
members if:
(a) it is authorised by its articles of association for issue of bonus shares, capitalisation of
reserves, etc.If there is no such provision in the articles of association, the issuer shall
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pass a resolution at its general body meeting making provisions in the articles of
associations for capitalisation of reserve;
b) it has not defaulted in payment of interest or principal in respect of fixed deposits or
debt securities issued by it;
(c) it has sufficient reason to believe that it has not defaulted in respect of the payment of
statutory dues of the employees such as contribution to provident fund, gratuity and
bonus;
(d) the partly paid shares, if any outstanding on the date of allotment, are made fully paid
up.

As per Regulation 93 of SEBI ICDR, no issuer shall make a bonus issue of equity shares, unless it
has made reservation of equity shares of the same class in favour of the holders of outstanding
compulsorily convertible debt instruments, if any, in proportion to the convertible part thereof.

The equity shares so reserved for the holders of fully or partly compulsorily convertible debt
instruments shall be issued at the time of conversion of such convertible debt instruments on the
same terms or same proportion at which the bonus shares were issued.

As per Regulation 94 of SEBI ICDR, the bonus issue shall be made out of free reserves built out of
the genuine profits or securities premium collected in cash only and reserves created by
revaluation of fixed assets shall not be capitalised for the purpose of issuing bonus shares.
The bonus share shall not be issued in lieu of dividend.

An issuer, announcing a bonus issue after the approval of its board of directors and not requiring
shareholders’ approval for capitalisation of profits or reserves for making the bonus issue, shall
implement the bonus issue within fifteen days from the date of approval of the issue by its Board
of directors. Where the issuer is required to seek shareholders’ approval for capitalisation of
profits or reserves for making the bonus issue, the bonus issue shall be implemented within two
months from the date of the meeting of its board of directors wherein the decision to announce
the bonus issue was taken subject to shareholders’ approval.
Once the decision to make a bonus issue is announced, the issue cannot be withdrawn
Procedure for issue of bonus shares is given below:
 Verify whether the Issuer is eligible to issue bonus shares based on all applicable laws.
 Verify whether the Articles of Association contains a provision for issue of bonus shares
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 Verify whether there is adequate unissued equity share capital.
 Verify whether the conditions for bonus issue as per SEBI ICDR have been complied with
 Determine the terms of issue e.g. ratio of shares to be issued, capitalisation of reserves,
cut‐ off date for issue of bonus shares etc.
 Convene the Board Meeting
 Send advance notice to Stock Exchange intimating the record date
 Intimate Stock Exchange of approval of bonus issue by the Board within 30 minutes of the
closure of the Board Meeting by phone, fax, telegram, e‐mail.
 Notice of General Meeting to be sent to Stock Exchange if general meeting is required to
be held
 Convene the General Meeting of Shareholders, if required
 If allotments are being made to non‐resident investors, provisions of FEMA need to be
checked and appropriate approvals need to be obtained
 If shareholders’ approval was not required for making the bonus issue, verify that the bonus
issue was implemented within 15 days from the date of approval of the issue by its Board
of Directors.
 Where the issuer is required to seek shareholders’ approval for capitalisation of profits or
reserves for making the bonus issue, check whether the bonus issue is implemented within
two months from the date of the meeting of its board of directors wherein the decision to
announce the bonus issue was taken subject to shareholders’ approval.
 Convene Board Meeting for allotment of shares
 File the return of allotment and resolution of general meeting alongwith the relevant forms
to Registrar of Companies
 Send copy of proceedings of General Meeting to Stock Exchange
 Apply to Stock Exchange for enlistment of bonus shares of the record date along with three
copies of Distribution Schedule.
 File with SEBI a Compliance Report to the effect that the guidelines regarding bonus issue
have been duly complied with.

6.4. Employee Stock Option Plan (ESOP)
Employee Stock Option Plans are governed by Securities and Exchange Board of India (Share
Based Employee Benefits) Regulations, 2014 (“ESOP Regulations”).
The ESOP Regulations are applicable to any Company. The provisions of these regulations shall
apply to any company whose shares are listed on a recognised stock exchange in India, and has
a scheme:
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(i) for direct or indirect benefit of employees; and
(ii) involving dealing in or subscribing to or purchasing securities of the company, directly or
indirectly; and
(iii) satisfying, directly or indirectly, any one of the following conditions:
a. the scheme is set up by the company or any other company in its group;
b. the scheme is funded or guaranteed by the company or any other company in its group;
c. the scheme is controlled or managed by the company or any other company in its
group.
Some of the specific requirements of ESOP Regulations are covered in the procedure given below:
 Determine the employees eligible to participate in the Scheme. This is determined as per
the eligibility norms specified in ESOP Regulations.
 In addition to the information that a company is required to disclose, in relation to
employee benefits under the Companies Act, 2013, the board of directors of such a
company shall also disclose the details of the scheme(s) being implemented, as specified
by SEBI in this regard and the company constitutes a Compensation Committee for
administration and superintendence of the ESOS. The norms for constitution for the
Committee are prescribed in ESOP Regulations.
 Draft an Employees Stock Option Scheme.
 Shareholders’ approval is to be obtained vide a special resolution passed in the general
meeting. The Explanatory statement to the Notice and the resolution proposed to be
passed in the general meeting for ESOS is required to contain specific information as
prescribed by the ESOP Regulations.
 Appoint a registered Merchant Banker for implementation of the guidelines for framing the
ESOS and obtaining in‐principal approval of Stock Exchanges.
 Disclosure to be made in the Director’s Report or in the Annexure to the Director’s Report,
as per the Companies Act and Rules thereunder which are
(a) options granted;
(b) the pricing formula;
(c) options vested;
(d) options exercised;
(e) the total number of shares arising as a result of exercise of option;
(f) options lapsed;
(g) variation of terms of options;
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(h) money realised by exercise of options;
(i) total number of options in force;
(j) employee wise details of options granted to;‐
(i) senior managerial personnel;
(ii) any other employee who receives a grant in any one year of option amounting
to 5% or more of option granted during that year.
(iii) identified employees who were granted option, during any one year, equal to
or exceeding 1% of the issued capital (excluding outstanding warrants and
conversions) of the company at the time of grant;
(k) diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of option
calculated in accordance with Accounting Standard (AS) 20 ‘Earnings Per Share’.
(l) where the company has calculated the employee compensation cost using the intrinsic
value of the stock options, the difference between the employee compensation cost so
computed and the employee compensation cost that shall have been recognized if it had
used the fair value of the options, shall be disclosed. The impact of this difference on
profits and on EPS of the company shall also be disclosed.
(m) Weighted‐average exercise prices and weighted‐average fair values of options shall
be disclosed separately for options whose exercise price either equals or exceeds or is
less than the market price of the stock
(n) a description of the method and significant assumptions used during the year to
estimate the fair values of options, including the following weighted‐average information:
(i) risk‐free interest rate,
(ii) expected life,
(iii) expected volatility,
(iv) expected dividends, and
(v) the price of the underlying share in market at the time of option grant.
 Accounting policies as specified in the ESOP Regulations to be followed.
 Board of Directors to place before the shareholders at each annual general meeting, a
certificate from the auditors of the company that the scheme has been implemented in
accordance with ESOP Regulations and in accordance with the resolution passed in the
general meeting.
 If any options granted to the employee are outstanding at the time of an Initial Public
Offering, certain requirements have been stated in the ESOP Regulations which are
required to be fulfilled.
 Prior to exercise of option, the company is required to file a Statement with the Stock
Exchange and obtain in principle approval.
 Once the option is exercised, the company has to notify the Stock Exchanges as per the
statement.
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 The company is required to ensure listing of the shares on the exchanges, where the shares
of the company are already listed, once the option is exercised.

6.5. Sweat Equity

Issue of Sweat Equity shares is governed by SEBI (Issue of Sweat Equity) Regulations, 2002.
According to section 2(88) of Companies Act, 2013, sweat equity shares mean equity shares
issued by a company to its directors or employees at a discount or for consideration, other than
cash for providing know‐how or making available rights in the nature of intellectual property
rights or value additions, by whatever name called. The procedure for issue of Sweat Equity is
given below:
 Convene a Board Meeting by issuing notice in accordance with the provisions of the
Companies Act, 2013 for :‐
o Considering issue of Sweat Equity Shares
o Convening General Meeting
o Approving notice of General Meeting and authorizing any director/secretary for
making necessary arrangements for holding the meeting
 Notice convening the general meeting to contain the disclosures specified in the Schedule
to the Regulations
 Immediately after the Board meeting, intimate stock exchanges about the Board’s decision
to issue sweat equity shares.
 Hold General Meeting where special resolution authorising issue of sweat equity shares will
be passed.
 File a certified copy of the special resolution and an explanatory statement, with the ROC,
within 30 days after passing of the resolution, in e‐form MGT 14
 Sweat equity shares shall be issued in accordance with the provisions of Companies Act and
the SEBI Regulations.
 If the shares are to be issued for consideration other than cash, follow the procedure for
such issue.
 If the shares are to be issued at discount, no approval is required to be taken.
 After the allotment of shares, file a return of allotment within 30 days, in eform PAS ‐3
 Apply for listing of shares.
 Equity shares issued as sweat equity shall be at par in all respects with other equity shares
of the company.
 At the General Meeting subsequent to issue of sweat equity, the Board of Directors are
required to place before the shareholders, a certificate from the auditors of the company
that the issue of sweat equity shares has been made in accordance with the Regulations
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and in accordance with the resolution passed by the company authorizing the issue of such
Sweat Equity Shares.
 Register of Sweat equity is required to be maintained.

6.6. Private Placement

6.6.1. Preferential Issue
Regulation 19 containing the restriction on further capital issues is applicable to preferential
issues as well. Regulations 70 to 79 of the SEBI ICDR contain the relevant provisions with regard
to preferential issues. This also specifies the specific conditions under which the provisions may
not apply to preferential issues.
The first step is to check whether the conditions for preferential issue of equity shares have been
complied with. Board Meeting is required to be convened for considering the proposal for
preferential issue. Shareholders’ meeting is required to be convened for obtaining the approval
of the shareholders for this purpose. In case the company proposes to issue instruments which
are convertible into equity at a later date, the special resolution shall specifically indicate the
relevant date on the basis of which price of the equity shares is to be allotted on conversion or
exchange of convertible securities. The explanatory statement which is sent for convening the
shareholders’ meeting is required to comply with the Disclosure requirements specified in SEBI
ICDR. The Company Secretary is responsible for the entire process stated above.
The issuer is required to place a copy of the certificate of its statutory auditor before the general
meeting of the shareholders, considering the proposed preferential issue, certifying that the
issue is being made in accordance with the requirements of these regulations. The company
Secretary is required to co‐ordinate the obtaining of the certificate before the general meeting.
Where specified securities are issued on a preferential basis to promoters, their relatives,
associates and related entities for consideration other than cash, the valuation of the assets in
consideration for which the equity shares are issued shall be done by an independent qualified
valuer, which shall be submitted to the recognised stock exchanges where the equity shares of
the issuer are listed: The Company Secretary is required to obtain the valuation certificate.
Allotment pursuant to the special resolution shall be completed within a period of fifteen days
from the date of passing of such resolution or the receipt of allotment from statutory authorities,
whichever is later.
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If the allotment of specified securities is not completed within fifteen days from the date of
special resolution, a fresh special resolution shall be passed and the relevant date for determining
the price of specified securities under Chapter VII of the SEBI ICDR will be taken with reference
to the date of the latter special resolution.
SEBI ICDR Regulations has prescribed the norms for pricing, payment of consideration – the
process, the lock‐in requirements and transferability of lock‐in securities which are required to
be complied with by the issuer. This is typically the responsibility of the Company Secretary in
Companies.
Relevant date
As per Regulation 71 of SEBI ICDR, "relevant date" means:
(a) in case of preferential issue of equity shares, the date thirty days prior to the date on which
the meeting of shareholders is held to consider the proposed preferential issue. In case of
preferential issue of equity shares pursuant to a scheme approved under the Corporate Debt
Restructuring framework of Reserve Bank of India, the date of approval of the Corporate Debt
Restructuring Package shall be the relevant date.
b) in case of preferential issue of convertible securities, either the relevant date referred to
above or a date thirty days prior to the date on which the holders of the convertible securities
become entitled to apply for the equity shares.

Where the relevant date falls on a Weekend/Holiday, the day preceding the Weekend/Holiday
will be reckoned to be the relevant date.
Conditions for preferential issue
As per Regulation 72 of SEBI ICDR, a listed issuer may make a preferential issue of specified
securities, if:
(a) a special resolution has been passed by its shareholders;
(b) all the equity shares, if any, held by the proposed allottees in the issuer are in dematerialised
form;
(c) the issuer is in compliance with the conditions for continuous listing of equity shares as
specified in the listing agreement with the recognized stock exchange where the equity shares of
the issuer are listed;
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(d) the issuer has obtained the Permanent Account Number of the proposed allottees.
The issuer shall not make preferential issue of specified securities to any person who has sold
any equity shares of the issuer during the six months preceding the relevant date. In respect of
the preferential issue of equity shares and compulsorily convertible debt instruments, whether
fully or partly, the Board may grant relaxation from the requirements specified above, if the
Board has granted relaxation in terms of regulation 29A of the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 to such preferential
allotment.Where any person belonging to promoter(s) or the promoter group has sold his equity
shares in the issuer during the six months preceding the relevant date, the promoter(s) and
promoter group shall be ineligible for allotment of specified securities on preferential basis.
Where any person belonging to promoter(s) or the promoter group has previously subscribed to
warrants of an issuer but failed to exercise the warrants, the promoter(s) and promoter group
shall be ineligible for issue of specified securities of such issuer on preferential basis for a period
of one year from:
(a) the date of expiry of the tenure of the warrants due to non exercise of the option to convert;
or
(b) the date of cancellation of the warrants
Disclosures
As per Regulation 73, the issuer shall, in addition to the disclosures required under section 173
of the Companies Act, 1956/Section 102 of Companies Act, 2013 or any other applicable law,
disclose the following in the explanatory statement to the notice for the general meeting
proposed for passing special resolution:
(a) the objects of the preferential issue;
(b) the proposal of the promoters, directors or key management personnel of the issuer to
subscribe to the offer;
(c) the shareholding pattern of the issuer before and after the preferential issue;
(d) the time within which the preferential issue shall be completed;
(e) the identity of the proposed allottees, the percentage of post preferential issue capital
that may be held by them and change in control, if any, in the issuer consequent to the
preferential issue;
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(f) an undertaking that the issuer shall re‐compute the price of the specified securities in
terms of the provision of these regulations where it is required to do so;
(g) an undertaking that if the amount payable on account of the re‐computation of price is
not paid within the time stipulated in these regulations, the specified securities shall
continue to be locked‐ in till the time such amount is paid by the allottees.
(h) disclosures, similar to disclosures specified in Part G of Schedule VIII, if the issuer or any
of its promoters or directors is a wilful defaulter
The issuer shall place a copy of the certificate of its statutory auditor before the general meeting
of the shareholders, considering the proposed preferential issue, certifying that the issue is being
made in accordance with the requirements of these regulations.
Where specified securities are issued on a preferential basis to promoters, their relatives,
associates and related entities for consideration other than cash, the valuation of the assets in
consideration for which the equity shares are issued shall be done by an independent qualified
valuer, which shall be submitted to the recognized stock exchanges where the equity shares of
the issuer are listed. If the recognized stock exchange is not satisfied with the appropriateness
of the valuation, it may get the valuation done by any other valuer and for this purpose it may
obtain any information, as deemed necessary, from the issuer.
The special resolution shall specify the relevant date on the basis of which price of the equity
shares to be allotted on conversion or exchange of convertible securities shall be calculated.
Allotment pursuant to special resolution
As per Regulation 74, allotment pursuant to the special resolution shall be completed within a
period of fifteen days from the date of passing of such resolution. However, where any
application for exemption from the applicability of the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 or any approval or
permission by any regulatory authority or the Central Government for allotment is pending, the
period of fifteen days shall be counted from the date of order on such application or the date of
approval or permission, as the case may be. It further states that where the Board has granted
relaxation to the issuer in terms of Regulation 29A of SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011, the preferential issue of equity shares and compulsorily
convertible debt instruments, whether fully or partly, shall be made by it within such time as may
be specified by the Board in its order granting the relaxation.
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The requirement of allotment within fifteen days shall not apply to allotment of specified
securities on preferential basis pursuant to a scheme of corporate debt restructuring as per the
corporate debt restructuring framework specified by the Reserve Bank of India.
If the allotment of specified securities is not completed within fifteen days from the date of
special resolution, a fresh special resolution shall be passed and the relevant date for determining
the price of specified securities under this Chapter will be taken with reference to the date of
latter special resolution.
Allotment shall only be made in dematerialised form.
Tenure of convertible securities
As per Regulation 75, the tenure of the convertible securities of the issuer shall not exceed
eighteen months from the date of their allotment.
Pricing of equity shares – Frequently traded shares
As per Regulation 76, if the equity shares of the issuer have been listed on a recognized stock
exchange for a period of twenty six weeks or more as on the relevant date, the equity shares
shall be allotted at a price not less than higher of the following:
(a) The average of the weekly high and low of [volume weighted average price] of the
related equity shares quoted on the recognised stock exchange during the [twenty six
weeks] preceding the relevant date; or
(b) The average of the weekly high and low of the [volume weighted average prices] of the
related equity shares quoted on a recognised stock exchange during the two weeks
preceding the relevant date.
If the equity shares of the issuer have been listed on a recognized stock exchange for a period of
less than twenty six weeks as on the relevant date, the equity shares shall be allotted at a price
not less than the higher of the following:
(a) the price at which equity shares were issued by the issuer in its initial public offer or the
value per share arrived at in a scheme of arrangement under sections 391 to 394 of the
Companies Act, 1956 (now Sections 230‐240 of Companies Act, 2013), pursuant to which
the equity shares of the issuer were listed, as the case may be; or
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(b) the average of the weekly high and low of the volume weighted average prices] of the
related equity shares quoted on the recognised stock exchange during the period shares
have been listed preceding the relevant date or
(c) the average of the weekly high and low of the volume weighted average prices] of the
related equity shares quoted on a recognised stock exchange during the two weeks
preceding the relevant date.
Such price shall be recomputed by the issuer on completion of twenty six weeks from the
date of listing on a recognised stock exchange with reference to the average of the weekly
high and low of the volume weighted average prices of the related equity shares quoted
on the recognised stock exchange during these 26 weeks and if such recomputed price is
higher than the price paid on allotment, the difference shall be paid by the allottees to the
issuer.
Any preferential issue of specified securities, to qualified institutional buyers not exceeding five
in number, shall be made at a price not less than the average of the weekly high and low of the
volume weighted average prices of the related equity shares quoted on a recognised stock
exchange during the two weeks preceding the relevant date.
For the purpose of this regulation, ‘stock exchange’ means any of the recognised stock exchanges
in which the equity shares are listed and in which the highest trading volume in respect of the
equity shares of the issuer has been recorded during the preceding twenty six weeks prior to the
relevant date.
Pricing of equity shares – Infrequently traded shares.
76A. Where the shares are not frequently traded, the price determined by the issuer shall take
into account valuation parameters including book value, comparable trading multiples, and such
other parameters as are customary for valuation of shares of such companies:
Provided that the issuer shall submit a certificate stating that the issuer is in compliance of this
regulation, obtained from an independent merchant banker or an independent chartered
accountant in practice having a minimum experience of ten years, to the stock exchange where
the equity shares of the issuer are listed.
Adjustments in pricing ‐ Frequently or infrequently traded shares
The price determined for preferential issue in accordance with regulations stated above shall be
subject to appropriate adjustments, if the issuer:
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(a) makes an issue of equity shares by way of capitalization of profits or reserves, other than by
way of a dividend on shares;
(b) makes a rights issue of equity shares;
(c) consolidates its outstanding equity shares into a smaller number of shares;
(d) divides its outstanding equity shares including by way of stock split;
(e) re‐classifies any of its equity shares into other securities of the issuer;
(f) is involved in such other similar events or circumstances, which in the opinion of the concerned
stock exchange, requires adjustments.
Payment of consideration
As per Regulation 77, full consideration of specified securities other than warrants issued under
this Chapter shall be paid by the allottees at the time of allotment of such specified securities. In
case of a preferential issue of specified securities pursuant to a scheme of corporate debt
restructuring as per the corporate debt restructuring framework specified by the Reserve Bank
of India, the allottee may pay the consideration in terms of such scheme.
An amount equivalent to at least twenty five per cent of the consideration determined in terms
of regulation 76 shall be paid against each warrant on the date of allotment of warrants.
The balance seventy five per cent of the consideration shall be paid at the time of allotment of
equity shares pursuant to exercise of option against each such warrant by the warrant holder.
In case the warrant holder does not exercise the option to take equity shares against any of the
warrants held by him, the consideration paid in respect of such warrant shall be forfeited by the
issuer.
The issuer shall ensure that the consideration of specified securities, if paid in cash, shall be received
from respective allottee's bank account.
The issuer shall submit a certificate of the statutory auditor to the stock exchange where the equity
shares of the issuer are listed stating that the issuer is in compliance of above sub‐regulation and the
relevant documents thereof are maintained by the issuer as on the date of certification.
Lock‐in of specified securities
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As per Regulation 78, the specified securities allotted on preferential basis to promoter or
promoter group and the equity shares allotted pursuant to exercise of options attached to
warrants issued on preferential basis to promoter or promoter group, shall be locked‐in for a
period of three years from the date of trading approval from the stock exchanges of the specified
securities or equity shares allotted pursuant to exercise of the option attached to warrant, as the
case may be. However, not more than twenty per cent of the total capital of the issuer shall be
locked‐in for three years from the date of allotment. It further states that equity shares allotted
in excess of the twenty per cent shall be locked‐in for one year from the date of trading approval
from the stock exchanges pursuant to exercise of options or otherwise, as the case may be.
The specified securities allotted on preferential basis to persons other than promoter and
promoter group and the equity shares allotted pursuant to exercise of options attached to
warrants issued on preferential basis to such persons shall be locked in for a period of one year
from the date of the trading approval.
The lock‐in of equity shares allotted pursuant to conversion of convertible securities other than
warrants, issued on preferential basis shall be reduced to the extent the convertible securities
have already been locked‐in.
The equity shares issued on preferential basis pursuant to a scheme of corporate debt
restructuring as per the Corporate Debt Restructuring framework specified by the Reserve Bank
of India shall be locked‐in for a period of one year from the trading approval
Partly paid up equity shares, if any, shall be locked‐in from the date of trading approval and the
lock‐in shall end on the expiry of one year from the date when such equity shares become fully
paid up.
If the amount payable by the allottee, in case of re‐calculation of price as stated above, is not
paid till the expiry of lock‐in period, the equity shares shall continue to be locked in till such
amount is paid by the allottee.
The entire pre‐preferential allotment shareholding of the allottees, if any, shall be locked‐in from
the relevant date upto a period of six months from the date of trading approval from the stock
exchanges.
Explanation: For the purpose of this regulation:
(I) The expression “total capital of the issuer” means:
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(a) equity share capital issued by way of public issue or rights issue including equity shares
issued pursuant to conversion of specified securities which are convertible; and
(b) specified securities issued on a preferential basis to promoter or promoter group.
(II) (a) For the computation of twenty per cent of the total capital of the issuer, the amount of
minimum promoters’ contribution held and locked‐in, in the past in terms of Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 or these
regulations shall be taken into account.
(b) The minimum promoters’ contribution shall not again be put under fresh lock‐in, even though
it is considered for computing the requirement of twenty per cent of the total capital of the
issuer, in case the said minimum promoters’ contribution is free of lock‐in at the time of the
preferential issue.
 For the purposes of this regulation, the date of trading approval shall mean the latest date when
trading approval has been granted by all the recognised stock exchanges where the equity shares of the
issuer are listed, for specified securities allotted as per the provisions of this Chapter.
Transferability of locked‐in specified securities and warrants issued on preferential basis
As per Regulation 79, subject to the provisions of SEBI (Substantial Acquisition of shares and
Takeovers) Regulations, 2011, specified securities held by promoters and locked‐in as stated
above, may be transferred among promoters or promoter group or to a new promoter or persons
in control of the issuer. However, lock‐in on such specified securities shall continue for the
remaining period with the transferee.
The specified securities allotted on preferential basis shall not be transferred by the allottee till trading
approval is granted for such securities by all the recognised stock exchanges where the equity shares of
the issuer are listed.
6.6.2. Qualified Institutions Placement (QIP)
There are specific provisions specified in Chapter VIII of the SEBI ICDR to be complied with for
private placement of securities with Qualified Institutional Investors by a listed company.
As per Regulation 81 of SEBI ICDR:
 “eligible securities” include equity shares, non‐convertible debt instruments along with
warrants and convertible securities other than warrants;
 “qualified institutions placement” means allotment of eligible securities by a listed issuer
to qualified institutional buyers on private placement basis in terms of the SEBI ICDR;
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 "relevant date" means:
o in case of allotment of equity shares, the date of the meeting in which the board
of directors of the issuer or the committee of directors duly authorised by the
board of directors of the issuer decides to open the proposed issue;
o in case of allotment of eligible convertible securities, either the date of the
meeting in which the board of directors of the issuer or the committee of directors
duly authorised by the board of directors of the issuer decides to open the issue
of such convertible securities or the date on which the holders of such convertible
securities become entitled to apply for the equity shares.
Pre‐issue Conditions
The listed issuer can make a QIP only if the conditions specified under Regulation 82 of the SEBI
ICDR. The conditions are:
(a) a special resolution approving the qualified institutions placement has been passed
by its shareholders;
(b) the equity shares of the same class, which are proposed to be allotted through
qualified institutions placement or pursuant to conversion or exchange of eligible
securities offered through qualified institutions placement, have been listed on a
recognised stock exchange having nation‐wide trading terminal for a period of at
least one year prior to the date of issuance of notice to its shareholders for convening
the meeting to pass the special resolution.
Where an issuer which is the transferee company in a scheme of merger, de‐merger,
amalgamation or arrangement sanctioned by a High Court under sections 391 to 394
of the Companies Act, 1956, makes qualified institutions placement, the period for
which the equity shares of the same class of the transferor company were listed on a
stock exchange having nationwide trading terminals shall also be considered for the
purpose of computation of the period of one year;
(c) In the special resolution, it shall be, among other relevant matters, specified that the
allotment is proposed to be made through qualified institutions placement and the
relevant date referred to in sub‐clause (ii) of clause (c) of regulation 81 shall also be
specified.
The Compliance Officer is required to ensure that the issuer is eligible to make a QIP and
thereafter proceed to appoint a merchant banker. A Board Meeting will be required to be
convened for approval of the QIP subject to the shareholders consent.

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As per Regulation 83 of SEBI ICDR, the Compliance Officer in co‐ordination with the Merchant
Banker is required to obtain the in‐principle of the Stock Exchange where these securities are
proposed to be listed. As per the Regulation:
(1) A qualified institutions placement shall be managed by merchant banker(s) registered with
the Board who shall exercise due diligence.
(2) The merchant banker shall, while seeking in‐principle approval for listing of the eligible
securities issued under qualified institutions placement, furnish to each stock exchange on which
the same class of equity shares of the issuer are listed, a due diligence certificate stating that the
eligible securities are being issued under qualified institutions placement and that the issuer
complies with requirements of this Chapter.
Issue Process
A Placement document is required to be made prior to the issue process containing all material
information as specified in Regulation 84 of SEBI ICDR. The Merchant Banker while preparing the
placement document conducts a due diligence, which is similar to that of IPO. The co‐ordination
point for providing the information required to the merchant banker is normally the Compliance
Officer. The Placement Document should contain all material disclosures, as given in schedule
XVIII of the SEBI ICDR. The placement document is required to be serially numbered and copies
are to be circulated only to selected investors and should be filed with the Stock Exchange for
their in‐principle approval. This is required to be accompanied by a Certificate from the Issuer
confirming compliance of the provisions of SEBI ICDR on Qualified Institutional Placement. The
Issuer is required to be aware of the pricing norms, allotment procedures, validity of the special
resolution, restrictions on amount that can be raised and tenure and transferability of eligible
securities while issuing this Certificate. This Compliance Certificate is the responsibility of the
Compliance Officer.
Other Provisions specified in SEBI ICDR related to QIP include pricing, restrictions on allotment,
minimum number of allottees, validity of special resolution, restrictions on amount raised, tenure
of the securities and transferability of eligible securities. Regulations 80 ‐91 of SEBI ICDR states
as under:
As per Regulation 80, the provisions of this Chapter shall apply to a qualified institutions
placement made by a listed issuer.
Regulation 81 defines the terms for the purposes of this Chapter as under:

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(a) “eligible securities” include equity shares, non‐convertible debt instruments along with
warrants and convertible securities other than warrants;
(b) “qualified institutions placement” means allotment of eligible securities by a listed issuer to
qualified institutional buyers on private placement basis in terms of these regulations;
(c) "relevant date" means:
(i) in case of allotment of equity shares, the date of the meeting in which the board of directors
of the issuer or the committee of directors duly authorised by the board of directors of the issuer
decides to open the proposed issue;
(ii) in case of allotment of eligible convertible securities, either the date of the meeting in which
the board of directors of the issuer or the committee of directors duly authorised by the board
of directors of the issuer decides to open the issue of such convertible securities or the date on
which the holders of such convertible securities become entitled to apply for the equity shares.
Regulation 82 prescribes the conditions to be satisfied by a listed issuer. A listed issuer may make
qualified institutions placement if it satisfies the following conditions:

(a) a special resolution approving the qualified institutions placement has been passed by its
shareholders;
(b) the equity shares of the same class, which are proposed to be allotted through qualified
institutions placement or pursuant to conversion or exchange of eligible securities offered
through qualified institutions placement, have been listed on a recognised stock exchange having
nation‐wide trading terminal for a period of at least one year prior to the date of issuance of
notice to its shareholders for convening the meeting to pass the special resolution.
Where an issuer, being a transferee company in a scheme of merger, de‐merger, amalgamation
or arrangement sanctioned by a High Court (now National Company Law Tribunal) under sections
391 to 394 of the Companies Act, 1956 (now sections 230 to 240 of Companies Act, 2013), makes
qualified institutions placement, the period for which the equity shares of the same class of the
transferor company were listed on a stock exchange having nation‐wide trading terminals shall
also be considered for the purpose of computation of the period of one year.
(d) In the special resolution, it shall be, among other relevant matters, specified that the
allotment is proposed to be made through qualified institutions placement and the relevant date
referred to in sub‐clause (ii) of clause (c) of regulation 81 shall also be specified.
For the purpose of clause (b), “equity shares of the same class” shall have the same meaning as
assigned to them in Explanation to sub‐rule (4) of rule 19 of the Securities Contracts (Regulation)
Rules, 1957.
Regulation 83 deals with the appointment of merchant banker. The provisions thereunder are:
(1) A qualified institutions placement shall be managed by merchant banker(s) registered with
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the Board who shall exercise due diligence.
(2) The merchant banker shall, while seeking in‐principle approval for listing of the eligible
securities issued under qualified institutions placement, furnish to each stock exchange on which
the same class of equity shares of the issuer are listed, a due diligence certificate stating that the
eligible securities are being issued under qualified institutions placement and that the issuer
complies with requirements of this Chapter.
Regulation 84 deals with the provisions related to placement document. These are:
(1) The qualified institutions placement shall be made on the basis of a placement document
which shall contain all material information, including those specified schedule in the regulation.
(2) The placement document shall be serially numbered and copies shall be circulated only to
select investors.
(3) The issuer shall, while seeking in‐principle approval from the recognised stock exchange,
furnish a copy of the placement document, a certificate confirming compliance with the
provisions of this Chapter along with any other documents required by the stock exchange.
(4) The placement document shall also be placed on the website of the concerned stock exchange
and of the issuer with a disclaimer to the effect that it is in connection with a qualified institutions
placement and that no offer is being made to the public or to any other category of investors.
Pricing provisions are specified in Regulation 85 as under:
(1) The qualified institutions placement shall be made at a price not less than the average of the
weekly high and low of the closing prices of the equity shares of the same class quoted on the
stock exchange during the two weeks preceding the relevant date.
(2) Where eligible securities are convertible into or exchangeable with equity shares of the issuer,
the issuer shall determine the price of such equity shares allotted pursuant to such conversion or
exchange taking the relevant date as decided and disclosed by it while passing the special
resolution.
(3) The issuer shall not allot partly paid up eligible securities: Provided that in case of allotment
of non‐convertible debt instruments along with warrants, the allottees may pay the full
consideration or part thereof payable with respect to warrants, at the time of allotment of such
warrants: Provided further that on allotment of equity shares on exercise of options attached to
warrants, such equity shares shall be fully paid up.
(4) The prices determined for qualified institutions placement shall be subject to appropriate
adjustments if the issuer:
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(a) makes an issue of equity shares by way of capitalization of profits or reserves, other
than by way of a dividend on shares;
(b) makes a rights issue of equity shares;
(c) consolidates its outstanding equity shares into a smaller number of shares;
(d) divides its outstanding equity shares including by way of stock split;
(e) re‐classifies any of its equity shares into other securities of the issuer;
(f) is involved in such other similar events or circumstances, which in the opinion of the
concerned stock exchange, requires adjustments.
The term “stock exchange” means any of the recognised stock exchanges in which the equity
shares of the same class of the issuer are listed and in which the highest trading volume in such
equity shares has been recorded during the two weeks immediately preceding the relevant date.
There are certain restrictions on allotment which are specified in Regulation 86. These are:
(1) Allotment under the qualified institutions placement shall be made subject to the following
conditions:
(a) Minimum of ten per cent. of eligible securities shall be allotted to mutual funds:
Provided that if the mutual funds do not subscribe to said minimum percentage or any part
thereof, such minimum portion or part thereof may be allotted to other qualified
institutional buyers;
(b) No allotment shall be made, either directly or indirectly, to any qualified institutional
buyer who is a promoter or any person related to promoters of the issuer: Provided that a
qualified institutional buyer who does not hold any shares in the issuer and who has
acquired the said rights in the capacity of a lender shall not be deemed to be a person
related to promoters.
(2) In a qualified institutions placement of non‐convertible debt instrument along with warrants,
an investor can subscribe to the combined offering of non‐ convertible debt instruments with
warrants or to the individual securities, that is, either non‐ convertible debt instruments or
warrants.
(3) The applicants in qualified institutions placement shall not withdraw their bids after the
closure of the issue.
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A qualified institutional buyer who has any of the following rights shall be deemed to be a person
related to the promoters of the issuer:
(a) rights under a shareholders’ agreement or voting agreement entered into with
promoters or persons related to the promoters;
(b) veto rights; or
(c) right to appoint any nominee director on the board of the issuer.
Regulation 87 specifies the minimum number of allottees as under:
(1) The minimum number of allottees for each placement of eligible securities made under
qualified institutions placement shall not be less than:
(a) two, where the issue size is less than or equal to two hundred and fifty crore rupees;
(b) five, where the issue size is greater than two hundred and fifty crore rupees:
However, no single allottee shall be allotted more than fifty per cent. of the issue size.
(2) The qualified institutional buyers belonging to the same group or who are under same control
shall be deemed to be a single allottee.
The expression “qualified institutional buyers belonging to the same group” shall have the same
meaning as derived from sub‐section (11) of section 372 of the Companies Act, 1956;
Regulation 88 specifies the validity of the resolution as:
(1) Allotment pursuant to the special resolution referred to in clause (a) of regulation 82
shall be completed within a period of twelve months from the date of passing of the
resolution.
(2) The issuer shall not make subsequent qualified institutions placement until expiry of
six months from the date of the prior qualified institutions placement made pursuant to
one or more special resolutions.
As per Regulation 89, the aggregate of the proposed qualified institutions placement and all
previous qualified institutions placements made by the issuer in the same financial year shall not
exceed five times the networth of the issuer as per the audited balance sheet of the previous
financial year.
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As per Regulation 90, the tenure of the convertible or exchangeable eligible securities issued
through qualified institutions placement shall not exceed sixty months from the date of
allotment.
As per Regulation 91, the eligible securities allotted under qualified institutions placement shall
not be sold by the allottee for a period of one year from the date of allotment, except on a
recognised stock exchange

6.6.3. Institutional Placement Programme
A new Chapter VIII‐A has been added to the SEBI ICDR pertaining to the Institutional Placement
Programme. The relevant extracts of the Regulations are reproduced below:

(1) The provisions of this Chapter shall apply to issuance of fresh shares Securities Contracts
(Regulation) Rules, 1957.

(2) Unless otherwise specified, no provisions of these regulations shall be applicable to the
institutional placement programme except for the following:‐
(a) regulations 2, 5, 12, 18, 19, 47, 48, 51, 59, 60, 61, 64, 65, 66 and 68;
(b) clauses (a) and (b) of sub‐regulation (2) of regulation 4;
(c) clause (b) of regulation 7.
The definitions are specified in Regulation 91B as under:
(a) “eligible securities” shall mean equity shares of same class listed and traded in the stock
exchange(s);
(b) “eligible seller” include listed issuer, promoter/promoter group of listed issuer;
(c) “institutional placement programme” means a further public offer of eligible securities by an
eligible seller, in which the offer, allocation and allotment of such securities is made only to
qualified institutional buyers in terms of this Chapter.

Regulation 91C prescribes the conditions for institutional placement programme as under:

(1) An institutional placement programme may be made only after a special resolution approving
the institutional placement programme has been passed by the shareholders of the issuer in
terms of section 81(1A) of the Companies Act, 1956/Section 62 of Companies Act, 2013
(2) No partly paid‐up securities shall be offered.
(3) The issuer shall obtain an in‐principle approval from the stock exchange(s).

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As per Regulation 91D, an institutional placement programme shall be managed by merchant
banker(s) registered with the Board who shall exercise due diligence.

The Offer Document issued under this programme is required to follow certain specifications as
prescribed under Regulation 91E which are:

(1) The institutional placement programme shall be made on the basis of the offer document
which shall contain all material information, including those specified in Schedule XVIII.
(2) The issuer shall, simultaneously while registering the offer document with the Registrar of
Companies, file a copy thereof with the Board and with the stock exchange(s) through the lead
merchant banker.
(3) The issuer shall file the soft copy of the offer document with the Board as specified in Schedule
V, along with the fee as specified in Schedule IV.
(4) The offer document shall also be placed on the website of the concerned stock exchange and
of the issuer clearly stating that it is in connection with institutional placement programme and
that the offer is being made only to the qualified institutional buyers.
(5) The merchant banker shall submit to the Board a due diligence certificate as per Form A of
Schedule VI, stating that the eligible securities are being issued under institutional placement
programme and that the issuer complies with requirements of this Chapter.

The Pricing and allocation/allotment under Regulation 91F are:

(1) The eligible seller shall announce a floor price or price band at least one day prior to the
opening of institutional placement programme.
(2) The eligible seller shall have the option to make allocation/allotment as per any of the
following methods –
(a) proportionate basis;
(b) price priority basis; or
(c) criteria as mentioned in the offer document.
(3) The method chosen shall be disclosed in the offer document.
(4) Allocation/allotment shall be overseen by stock exchange before final allotment.

The restrictions with respect to the issue under this Chapter are prescribed under Regulation 91G
as under:

(1) The promoter or promoter group shall not make institutional placement programme if the
promoter or any person who is part of the promoter group has purchased or sold the eligible
securities during the twelve weeks period prior to the date of the programme and they shall not
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purchase or sell the eligible securities during the twelve weeks period after the date of the
programme:
Provided that such promoter or promoter group may, within the period provided in sub‐
regulation (1), offer eligible securities held by them through institutional placement programme
or offer for sale through stock exchange mechanism specified by the Board, subject to the
condition that there shall be a gap of minimum two weeks between the two successive offer(s)
and /or programme(s).
(2) Allocation/allotment under the institutional placement programme shall be made subject to
the following conditions:
(a) Minimum of twenty five per cent of eligible securities shall be allotted to mutual funds and
insurance companies:
Provided that if the mutual funds and insurance companies do not subscribe to said minimum
percentage or any part thereof, such minimum portion or part thereof may be allotted to other
qualified institutional buyers;
(b) No allocation/allotment shall be made, either directly or indirectly, to any qualified
institutional buyer who is a promoter or any person related to promoters of the issuer:
Provided that a qualified institutional buyer who does not hold any shares in the issuer and who
has acquired the rights in the capacity of a lender shall not be deemed to be a person related to
promoters.
(3) The issuer shall accept bids using ASBA facility only.
(4) The bids made by the applicants in institutional placement programme shall not be revised
downwards or withdrawn.
A qualified institutional buyer who has any of the following rights shall be deemed to be a person
related to the promoters of the issuer:‐
(a) rights under a shareholders’ agreement or voting agreement entered into with promoters or
persons related to the promoters;
(b) veto rights; or
(c) right to appoint any nominee director on the board of the issuer.

As per Regulation 91H, the minimum number of allottees required are:
(1) The minimum number of allottees for each offer of eligible securities made under
institutional placement programme shall not be less than ten. However, no single allottee
shall be allotted more than twenty five percent of the offer size.
(2) The qualified institutional buyers belonging to the same group or who are under same
control shall be deemed to be a single allottee. “Qualified institutional buyers belonging
to the same group” shall have the same meaning as derived from sub‐section (11) of
section 372 of the Companies Act, 1956;

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The restrictions on size of the offer are prescribed under Regulation 91‐I as under:
(1) The aggregate of all the tranches of institutional placement programme made by the
eligible seller shall not result in increase in public shareholding by more than ten per cent
or such lesser per cent as is required to reach minimum public shareholding.
(2) Where the issue has been oversubscribed, an allotment of not more than ten per cent
of the offer size shall be made by the eligible seller.

The Period of Subscription and display of demand are specified under Regulation 91J as under:
(1) The issue shall be kept open for a minimum of one day or maximum of two days.
(2) The aggregate demand schedule shall be displayed by stock exchange(s) without
disclosing the price.

As per Regulation 91K, the eligible seller shall have the right to withdraw the offer in case it is not
fully subscribed.

As per Regulation 91L, the eligible securities allotted under institutional placement programme
shall not be sold by the allottee for a period of one year from the date of allocation/allotment,
except on a recognised stock exchange.

6.7. Indian Depository Receipts (IDR)
The key regulation for Issue of Indian Depository Receipts (IDR) is governed by Section 390 of
Companies Act, 2013 and the rules thereunder apart from Depository Scheme, 2014 SEBI ICDR is
also applicable with certain exceptions.
As per Regulation 97 of SEBI ICDR, the eligibility conditions required to be fulfilled for IDR are
that:
(a) the issuing company is listed in its home country;
(b) the issuing company is not prohibited to issue securities by any regulatory body;
(c) the issuing company has track record of compliance with securities market regulations in
its home country.

Apart from the eligibility conditions specified above, the SEBI ICDR has prescribed the following
conditions for issue of IDR which are required to be fulfilled.

The relevant extracts are given below:

As per Regulation 96:
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(1) The provisions of this Chapter shall apply to an issue of Indian Depository Receipts (hereinafter
referred to as “IDR”) made in terms of section 605A of the Companies Act, 1956 and Companies
(Issue of Indian Depository Receipts) Rules, 2004.
(2) All provisions of these regulations shall be applicable in case of issue of IDR, except the
disclosure requirements with respect to public issue and rights issue of specified securities as
provided in these regulations and the following:
(a) clauses (a), (b), (c) and (f) of sub‐regulation (2) of regulation 4;
(b) sub‐regulations (1), (2) and (3) of regulation 6,
(c) clauses (c),(d) and (e) of sub‐regulation (1) of regulation 8;
(d) sub‐regulations (2) and (3) of regulation 8;
(e) regulations 10,16,17,19, 20,21,22,23,24,26,27,31,41, 42, 45,47, 49 and 68;
(f) sub‐regulation (2) of regulation 11;
(g) sub‐regulation (2) of regulation 28;
(h) clauses (b) and (c) of regulation 29;
(i) Parts III and IV of Chapter III;
(ia) regulation 43, except sub‐regulation (3) thereof;
(j) Chapter IV;
(k) sub‐regulation (3) of regulation 65;
(l) Chapters VII, VIII and IX.
(3) Further, the applicability of regulation 60 shall be as follows:
(a) the applicability of sub‐regulations (1) and (7) and Explanation II shall be restricted to
any issue advertisements made in India or any research report circulated in India,
pertaining to the IDR issue of the issuing company;
(b) the applicability of sub‐regulations (2) and (3) shall be restricted to any public
communications and publicity material issued or published in any media in India;
(c) the applicability of sub‐regulations (5) and (6) shall be restricted to any material or
information released in India and any issue advertisements and publicity materials issued
or published in any media in India;
(d) the applicability of sub‐regulation (13) shall be restricted to any product
advertisement of an issuing company issued or published in any media in India;
(e) all other provisions of regulation 60 shall be applicable.

As per Regulation 97, an issuing company making an issue of IDR shall also satisfy the following:
(a) the issuing company is listed in its home country;
(b) the issuing company is not prohibited to issue securities by any regulatory body;
(c) the issuing company has track record of compliance with securities market regulations
in its home country.
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The term “home country” means the country where the issuing company is incorporated and
listed.
As per Regulation 98, an issue of IDR shall be subject to the following conditions:
(a) issue size shall not be less than fifty crore rupees;
(b) procedure to be followed by each class of applicant for applying shall be mentioned in
the prospectus;
(c) minimum application amount shall be twenty thousand rupees;
(d) at least 50% of the IDR issued shall be allotted to qualified institutional buyers on
proportionate basis.
(e) the balance 50% may be allocated among the categories of non‐institutional investors
and retail individual investors including employees at the discretion of the issuer and the
manner of allocation shall be disclosed in the prospectus. Allotment to investors within a
category shall be on proportionate basis:
Provided that at least 30% of the IDRs being offered in the public issue shall be available for
allocation to retail individual investors and in case of under subscription in retail individual
investor category, spill over to other categories to the extent of under subscription may be
permitted.
“Employee” shall mean a person who,‐
(a) is a resident of India, and
(b) is a permanent and full‐time employee or a director, whether whole time or part time,
of the issuer or of the holding company or subsidiary company or of the material
associate(s) of the issuer, whose financial statements are consolidated with the issuer’s
financial statements, working in India and does not include promoters and an immediate
relative of the promoter (i.e., any spouse of that person, or any parent, brother, sister or
child of the person or of the spouse).
(f) At any given time, there shall be only one denomination of IDR of the issuing company.
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(g) the issuing company shall ensure that the underlying equity shares against which IDRs
are issued have been or will be listed in its home country before listing of IDRs in stock
exchange(s).
(h) the issuing company shall ensure that the underlying shares of IDRs shall rank pari‐passu
with the existing shares of the same class.
The minimum subscription requirements prescribed under Regulation 99 are given hereunder:
(1) For non‐underwritten issues:
(a) If the issuing company does not receive the minimum subscription of ninety per cent of
the offer through offer document on the date of closure of the issue, or if the subscription
level falls below 90% after the closure of issue on account of cheques having being returned
unpaid or withdrawal of applications, the issuing company shall forthwith refund the entire
subscription amount received.
(b) If the issuing company fails to refund the entire subscription amount within fifteen days
from the date of the closure of the issue, it is liable to pay the amount with interest to the
subscribers at the rate of 15% per annum for the period of delay.
(2) For underwritten issues: If the issuing company does not receive the minimum subscription
of 90% of the offer through offer document including devolvement of underwriters within sixty
days from the date of closure of the issue, the issuing company shall forthwith refund the entire
subscription amount received with interest to the subscribers at the rate of fifteen per cent per
annum for the period of delay beyond sixty days.
As per Regulation 100, The Indian Depository Receipts shall be fungible into underlying equity shares of
the issuing company in the manner specified by the Board and Reserve Bank of India, from time to time.
SEBI, vide circular No: CIR/CFD/DIL/3/2011 dated June 03, 2011, has prescribed the framework
for redemption of IDRs into underlying equity shares. The circular has, inter‐alia, stated that after
the completion of one year from the date of issuance of IDRs, redemption of the IDRs shall be
permitted only if the IDRs are infrequently traded on the stock exchange(s) in India. However, to
retain the domestic liquidity, it is decided to allow partial fungibility of IDRs (i.e.
redemption/conversion of IDRs into underlying equity shares) in a financial year to the extent of
25% of the IDRs originally issued.
There are certain requirements to be complied with for filing of draft prospectus, due diligence
certificates, payment of fees and issue advertisement for IDR as per Regulation 101 which are
given below:
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(1) The issuing company shall appoint one or more merchant bankers, at least one of whom shall
be a lead merchant banker and shall also appoint other intermediaries, in consultation with the
lead merchant banker and shall enter into an agreement with the merchant banker on the lines
of format of agreement as specified in Schedule II
(2) Where the issue is managed by more than one merchant banker, the rights, obligations and
responsibilities, relating inter‐alia to disclosures, allotment, refund and underwriting obligations,
if any, of each merchant banker shall be predetermined and disclosed in the prospectus on the
lines of format as specified in Schedule I.
(3) The issuing company shall file a draft prospectus with the Board through a merchant banker
alongwith the requisite fee, as prescribed in Companies (Issue of Indian Depository Receipts)
Rules, 2004.
(4) The prospectus filed with the Board under this regulation shall also be furnished to the Board
in a soft copy on the lines specified in Schedule V.
(5) The lead merchant bankers shall:
(a) submit a due diligence certificate as per format given in Part C of Schedule XIX to the
Board along with the draft prospectus.
(b) certify that all amendments, suggestions or observations made by the Board have
been incorporated in the prospectus
(c) submit a fresh due diligence certificate as per format given in Part C of Schedule XIX,
at the time of filing the prospectus with the Registrar of the Companies.
(d) furnish a certificate as per format given in Part C of Schedule XIX, immediately before
the opening of the issue, certifying that no corrective action is required on its part.
(e) furnish a certificate as per format given in Part C of Schedule XIX, after the issue has
opened but before it closes for subscription.
(6) The issuing company shall make arrangements for mandatory collection centres as specified
in Schedule III.
(7) The issuing company shall issue an advertisement in one English national daily newspaper
with wide circulation and one Hindi national daily newspaper with wide circulation, soon after
receiving final observations, if any, on the publicly filed draft prospectus with the Board, which
shall be on the lines of the format and contain the minimum disclosures as given in Part A of
Schedule XIII.

As per Regulation 101A, the issuing is required to appoint a registrar and transfer agent which
has connectivity with all the depositories. The issuing company shall enter into an agreement
with overseas custodian bank and domestic depository. The lead merchant banker, after
independently assessing the capability of other intermediaries and others to carry out their
obligations, shall advise the issuing company on their appointment.

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As per Regulation 102, “The stock exchange(s) offering online bidding system for the book
building process shall display on their website, the data pertaining to book built IDR issue, in the
format specified in Part B(2) of Schedule XI, from the date of opening of the bids till at least three
days after closure of bids. The issuing company shall ensure that letter of allotment for the IDRs
are issued simultaneously to all allottees and that in the event of it being impossible to issue
letters of regret at the same time, a notice to that effect be issued in the media so that it appears
on the morning after the letters of allotment have been dispatched.”

Regulation 103 prescribes the disclosures in prospectus and abridged prospectus as under:

(1) The prospectus shall contain all material disclosures which are true, correct and adequate so
as to enable the applicants to take an informed investment decision.
(2) Without prejudice to the generality of sub‐regulation (1), the prospectus shall contain:
(a) the disclosures specified in Schedule to Companies (Issue of Indian Depository
Receipts)Rules, 2004; and
(b) the disclosures in the manner as specified in Part A of Schedule XIX.
(3) The abridged prospectus for issue of Indian Depository Receipts shall contain the disclosures
as specified in Part B of Schedule XIX.

Post‐issue reports are required to be submitted as per Regulation 104 which are:

(1) The merchant banker shall submit post‐issue reports to the Board in accordance with (2)
below.
(2) The post‐issue reports shall be submitted as follows:
(a) initial post issue report on the lines of Parts A and B of Schedule XVI, within three days
of closure of the issue;
(b) final post issue report on the lines of Parts C and D of Schedule XVI, within fifteen days
of the date of finalisation of basis of allotment or within fifteen days of refund of money
in case of failure of issue.

As per Regulation 105, in case of undersubscribed issue of IDR, the merchant banker shall furnish
information in respect of underwriters who have failed to meet their underwriting devolvement
to the Board on the lines of the format specified in Schedule XVII.

As per Regulation 106, the executive director or managing director of the stock exchange, where
the IDR are proposed to be listed, along with the post issue lead merchant bankers and registrars
to the issue shall ensure that the basis of allotment is finalised in a fair and proper manner in
accordance with the allotment procedure as specified in Schedule XV.
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Steps involved for issue of IDR are:
 The issuing company making an issue of IDR shall enter into an agreement with a
merchant banker (the format of the agreement is specified in SEBI ICDR)
 Where the issue is managed by more than one merchant banker, the rights, obligations
and responsibilities, relating inter‐alia to disclosures, allotment, refund and underwriting
obligations, if any, of each merchant banker shall be predetermined and disclosed in the
prospectus in the format specified in SEBI ICDR.
 The issuing company shall file a draft prospectus with the Board through a merchant
banker along with the requisite fee, the prospectus filed with the Board under this
regulation shall also be furnished to the Board in a soft copy on the lines specified in
Schedule V.
The lead merchant bankers shall:
 submit a due diligence certificate as per format given to the Board along with the draft
prospectus.
 certify that all amendments, suggestions or observations made by the Board have been
incorporated in the prospectus
 submit a fresh due diligence certificate as per format given in part C of Schedule XIX, at
the time of filing the prospectus with the Registrar of the Companies.
 furnish a certificate as per format given in part C of Schedule XIX, immediately before the
opening of the issue, certifying that no corrective action is required on its part.
 furnish a certificate as per format given in part C of Schedule XIX, after the issue has
opened but before it closes for subscription.
o The issuing company shall make arrangements for mandatory collection centres
as specified in Schedule III.
o The issuing company shall issue an advertisement in one English national daily
newspaper with wide circulation and one Hindi national daily newspaper with
wide circulation, soon after receiving final observations, if any, on the publicly filed
draft prospectus with the Board, which shall be on the lines of the format and
contain the minimum disclosures as given in Part A of Schedule XIII of SEBI ICDR.
o Disclosure requirements prescribed in SEBI ICDR need to be complied with.
(Regulation 103)

Post‐issue reports

As per Regulation 104 of SEBI ICDR, the merchant banker is required to submit post‐issue reports
to the Board as follows:
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(a) initial post issue report on the lines of Parts A and B of Schedule XVI, within three days
of closure of the issue;
(b) final post issue report on the lines of Parts A and B of Schedule XVI,, within fifteen days
of the date of finalisation of basis of allotment or within fifteen days of refund of money in
case of failure of issue.

Basis of allotment

As per Regulation 106 of SEBI ICDR, the executive director or managing director of the stock
exchange, where the IDR are proposed to be listed, along with the post issue lead merchant
bankers and registrars to the issue shall ensure that the basis of allotment is finalised in a fair and
proper manner in accordance with the allotment procedure specified in SEBI (ICDR) Regulations.

Under‐Subscription

As per Regulation 105 of SEBI ICDR, in case of undersubscribed issue of IDR, the merchant banker
is required to furnish information in respect of underwriters who have failed to meet their
underwriting devolvement to the Board on the lines of the format specified in Schedule XVII of
the SEBI ICDR.

Rights Issue

There are certain requisites for rights issue which are discussed below. Regulation 106 A
prescribes the applicability of the Regulations as under:
(1) In addition to compliance with Chapter X, a listed issuer offering IDR through a rights issue
shall satisfy the conditions specified in this Chapter at the time of filing the offer document:
Provided that the provisions of the following regulations shall not be applicable in case of rights
issue of IDRs:
(a) clauses (a), (b), (c), (d) and (e) of regulation 98;
(b) regulation 102; and
(c) regulation 103.
(2) Every listed issuer offering IDRs through a rights issue shall prepare the offer document in
accordance with the home country requirements along with an addendum containing disclosures
as specified in Part A of Schedule XXI and regulation 106F and file the same with the Board and
the stock exchanges on which the IDRs of the issuer are listed.

As per Regulation 106B, no issuer shall make a rights issue of IDRs:

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(a) if at the time of undertaking the rights issue, the issuer is in breach of ongoing material
obligations under the Listing Agreement as may be applicable to such issuer or material
obligations under the deposit agreement entered into between the domestic depository
and the issuer at the time of initial offering of IDRs; and
(b) unless it has made an application to all the recognised stock exchanges in India, where
its IDRs are already listed, for listing of the IDRs to be issued by way of rights and has chosen
one of them as the designated stock exchange.

As per Regulation 106C, unless the laws of the home jurisdiction of the issuer company otherwise
provide, the rights offering shall be deemed to include a right exercisable by the person
concerned to renounce the IDRs offered to the IDR holder in favour of any other person subject
to applicable laws and the same shall be disclosed in the offer document.

Regulation 106D states that the domestic depository shall, in accordance with the depository
agreement executed with the issuer at the time of initial offering of IDRs, take such steps as are
necessary to enable the IDR holders to have entitlements under the rights offering and issue
additional IDRs to such IDR holders, distribute the rights to the IDR Holders/ renouncees or
arrange for the IDR holders/renounces to subscribe for any additional rights which are available
due to lack of take‐up by other holders of underlying shares.

The details of requirements related to Record Date are prescribed in Regulation 106E as under:

(1) A listed issuer making a rights issue of IDRs shall in accordance with provisions of the listing
agreement, announce a record date for the purpose of determining the shareholders eligible to
apply for IDRs in the proposed rights issue.
(2) If the issuer withdraws the rights issue after announcing the record date, it shall notify the
Board about the same and shall notify the same in one English national daily newspaper with
wide circulation, one Hindi national daily newspaper with wide circulation and one regional
language daily newspaper with wide circulation at the place where principal office of the issuer
is situated in India. If the issuer withdraws the rights issue after announcing the record date, it
shall not make an application for offering of IDRs on a rights basis for a period of twelve months
from the said record date.

As per Regulation 106F, offer documents are required to contain certain disclosures as under:

(1) The offer document for the rights offering shall contain disclosures as required under the
home country regulations of the issuer.
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(2) Apart from the disclosures as required under the home country regulations, an additional
wrap (addendum to offer document) shall be attached to the offer document to be circulated in
India containing information as specified in Part A of Schedule XXI and other instructions as to
the procedures and process to be followed with respect to rights issue of IDRs in India.
(3) Without prejudice to the generality of sub‐regulations (1) and (2), the offer document and the
addendum attached with it, shall contain all material information, which are true, correct and
adequate, so as to enable the applicants to take an informed investment decision.

Filing of draft offer document and the addendum for rights offering requirements are prescribed
in Regulation 106G as under:

(1)The issuer shall appoint one or more merchant bankers, one of whom shall be a lead merchant
banker and shall also appoint other intermediaries, in consultation with the lead merchant
banker, to carry out the obligations relating to the issue.
(2) The issuer shall, through the lead merchant banker, file the draft offer document prepared in
accordance with the home country requirements along with an addendum containing disclosures
as specified in Part A of Schedule XXI with the Board, as a confidential filing accompanied with
fees as specified in Part A of Schedule IV.
(3) The Board may specify changes or issue observations, if any, on the draft offer document and
the addendum within thirty days or from the following dates, whichever is later:
(a) the date of receipt of the draft offer document prepared in accordance with the home
country requirements along with an addendum under sub‐regulation (2); or
(b) the date of receipt of satisfactory reply from the lead merchant bankers, where the
Board has sought any clarification or additional information from them; or
(c) the date of receipt of clarification or information from any regulator or agency, where
the Board has sought any clarification or information from such regulator or agency; or
(d) the date of receipt of a copy of in‐principle approval letter issued by the recognised
stock exchanges.
(4) If the Board specifies changes or issues observations on the draft offer document and the
addendum under sub‐regulation(3), the issuer and the merchant banker shall file the revised
draft offer document and the updated addendum after incorporating the changes suggested or
specified by the Board.
(5) The issuer shall also submit an undertaking from the Overseas Custodian and Domestic
Depository addressed to the issuer, to comply with their obligations with respect to the said
rights issue under their respective agreements entered into between them, along with the offer
document.
(6) The issuer shall ensure that the Compliance Officer, in charge of ensuring compliance with the
obligations under this Chapter, functions from within the territorial limits of India.
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The issuer is permitted to make a fast track issue on fulfillment of certain conditions as
prescribed under 106H:

(1) Nothing contained in sub‐regulations (1), (2), (3) and (4) of regulation 106G shall apply, if the
issuer satisfies the following conditions:
(a) the issuer is in compliance in all material respects with the provisions of deposit
agreement and the provisions of listing agreements (or listing conditions) applicable in all
the jurisdictions wherever the issuer is listed, for a period of at least three years
immediately preceding the date of filing of the offer document, and a certification to this
effect is provided by the issuer;
(b) the offer document for the rights offering of the securities of the issuer has been filed
and reviewed by the securities regulator in the home country of the issuer;
(c) there are no pending show‐cause notices or prosecution proceedings against the issuer
or its promoters, where applicable, or whole time directors on the reference date by the
Board or the regulatory authorities in its home country restricting them from accessing the
capital markets; and
(d) the issuer has redressed at least ninety five per cent of the complaints received from
the IDR holders before the end of the three months period immediately preceding the
month of date of filing the letter of offer with the designated stock exchange.
(2) Where the conditions in sub‐regulation (1) are satisfied, the issuer may opt for rights issue of
IDRs by filing a copy of the offer document prepared in accordance with the home country
requirements along with an addendum containing disclosures as specified in Part A of Schedule
XXI with the Board for record purposes, before filing the same with the recognised stock
exchanges.

The dispatch of abridged letter of offer and application form is required to be made as per
Regulation 106I as under:

(1) The abridged letter of offer, containing disclosures as specified in Part B of Schedule XXI, for
a rights offering, along with application form, shall be dispatched through registered post or
speed post to all the eligible IDR holders at least three days before the date of opening of the
issue and shall be made available on the website of the issuer with appropriate access restrictions
at the same time it is made available to the holders of its equity shares.
Provided that a hard copy of the offer document for a rights offering along with the addendum
shall be made available at the principal office of the issuer or lead merchant banker to any
existing IDR holder who has made a request in this regard.
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(2) The eligible IDR holders who have not received the application form may apply in writing on
a plain paper to the domestic depository, along with the requisite application money within the
time frame for acceptance.
(3) The eligible IDR holders making an application otherwise than on the application form shall
not renounce their rights and shall not utilise the application form for any purpose including
renunciation even if it is received subsequently.
(4) Where any eligible IDR holder makes an application on an application form as well as on plain
paper, such application is liable to be rejected.
(5) The issue price and the ratio shall be decided simultaneously with record date in accordance
with the home country regulations.

As per Regulation 106J, a rights issue shall be open for subscription in India for a period as
applicable under the laws of its home country but in no case less than 10 days. The issuing
company shall ensure that it sends the allotment letter of rights to IDR Holders at the time they
are sent to shareholders of the issuing company as per the requirement of its home country or
other jurisdictions where its securities are listed.

Pre‐Issue Advertisement for rights issue are specified under Regulation 106K as under:

(1) The issuer shall issue an advertisement for the rights issue disclosing the following:
(a) the date of completion of despatch of the abridged letter of offer and the application
form;
(b) the centres other than principal office of the issuer in India where the eligible IDR
holders may obtain duplicate copies of the application forms in case they do not receive
the application form within a reasonable time after opening of the rights issue;
(c) a statement that if the eligible IDR holders have neither received the original application
forms nor they are in a position to obtain the duplicate forms, they may make application
in writing on a plain paper to subscribe to the rights issue;
(d) a format to enable the eligible IDR holders, to make the application on a plain paper
specifying therein necessary particulars such as name, address, ratio of rights issue, issue
price, number of IDRs held, ledger folio numbers, depository participant ID, client ID,
number of IDRs entitled and applied for, amount to be paid along with application, and
particulars of cheque, etc. to be drawn in favour of the issuer’s account;
(e) a statement that the applications can be directly sent by the eligible IDR holders through
registered post together with the application moneys to the issuer's designated official at
the address given in the advertisement;
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(f) a statement to the effect that if the eligible IDR holder makes an application on plain
paper and also on application form both his applications shall be liable to be rejected at the
option of the issuer.
(2) The advertisement shall be made in at least one English national daily newspaper with wide
circulation, one Hindi national daily newspaper with wide circulation and one regional language
daily newspaper with wide circulation at the place where principal office of the issuer is situated
in India at least three days before the date of opening of the issue.

As per Regulation 106L, the issuer shall utilise funds raised in relation to the IDRs pursuant to the
rights offering only upon completion of the allotment process.

Redemption
IDRs are not redeemable into equity shares before the expiry of one year period from the date
of issue of IDRs. As per SEBI Circular No. CIR/CFD/DIL/3/2011 dated 3rd June, 2011, redemption
is permitted only if certain conditions are fulfilled. The relevant extracts of the circular are given
hereunder:
a. After the completion of one year from the date of issuance of IDRs, redemption of the IDRs
shall be permitted only if the IDRs are infrequently traded on the stock exchange(s) in India.
Explanation‐ For this purpose, IDRs shall be deemed to be “infrequently traded” if the annualized
trading turnover in IDRs during the six calendar months immediately preceding the month of
redemption is less than five percent of the listed IDRs.
b. The issuer company shall test the frequency of trading of IDRs on a half yearly basis ending on
June and December of every year.
c. When the IDRs are considered “infrequently traded” on the above basis, it shall be the trigger
event for redemption.
d. The issuer company shall make a public announcement in an English and Hindi language
newspaper with wide circulation in the prescribed format (including brief details about the
trigger of the redemption event, time period for submission of application and the approach for
processing the applications) as well as notify the stock exchanges. Such announcement shall be
made within seven days of closure of the half year ending on which the liquidity criteria is tested.
A suitable format for this purpose shall be prescribed by the stock exchange(s).
e. The IDR holders may submit their application to the domestic depository for redemption of
IDRs within a period of thirty days from the date of such public announcement.
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f. The redemption of IDRs shall be completed within a period of thirty days from the date of
receipt of application for redemption.
g. Pursuant to such redemption, the domestic depository shall notify the revised shareholding
pattern of the issuer company to the concerned stock exchanges within seven days of completion
of the process of redemption.

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Review Questions
1. The abridged Letter of Offer is required to be dispatched to all existing shareholders at
least ____ days before the date of opening of the rights issue.
A. 5
B. 10
C. 7
D. 3

2. Bonus shares cannot be issued in lieu of which of the following?
A. Shares
B. Debentures
C. Dividends
D. None of the Above

3. Minimum of ____ % of the eligible securities is required to be allotted to mutual funds in
case of Qualified Institutions Placement.
A. 5
B. 10
C. 15
D. 25

4. In case of Institutional Placement Programme, the applicants are free to withdraw or
revise their bids. State TRUE or FALSE?
A. True
B. False

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Chapter 7: Raising Money from Foreign Market



 American Depository Receipts (ADRs)
 Global Depository Receipts (GDRs)
 Foreign Currency Convertible Bonds (FCCB)

An issuer may raise money from the Indian market or from a foreign market. Money can be
raised from a foreign market through an issue of American Depository Receipts (ADR), Global
Depository Receipts (GDR), Foreign Currency Convertible Bonds (FCCB) or Foreign Currency
Exchangeable Bonds (FCEB). The process and applicable laws for these issues are covered below.

7.1. American Depository Receipts (ADR)/Global Depository Receipts (GDR)
As stated in Chapter 3 above, Indian Companies can raise money from foreign markets in
different ways. Issue of Depository Receipts is one of the methods of Foreign Direct Investment
into India.
Depository Receipts can be listed and traded in Stock Exchanges just like shares/debentures.
Depository Receipts issued in the US are called the American Depository Receipts (ADR) and
issued in other markets like UK, Singapore, Luxembourg are known as Global Depository Receipts
(GDR). In the Indian context, Depository Receipts are treated as Foreign Direct Investment.
Participants in the Issue

 Issuer Company: The Company which intends to raise money from the foreign market
 Lead Manager: The Merchant Banker who will co‐ordinate the whole issue process
 Custodian: The Indian Custodian Company which will hold the shares of the Indian
Company against which the Depository Receipts are issued.
 Depository: The bank which is authorised to issue the ADR/GDR to the foreign investors
against the shares lying with the custodian
Related Regulations
Indian companies can raise foreign currency resources abroad through the issue of ADRs/GDRs,
in accordance with the Depository Receipts Scheme 2014.
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Apart from Scheme specified above, the Indian Companies are regulated by RBI through the
FEMA 20/RB‐2000 dated 3rd May, 2000‐ Foreign Exchange Management (Transfer Or Issue Of
Security By A Person Resident Outside India) Regulations, 2000 as amended from time to time.
A company can issue ADRs / GDRs, if it is eligible to issue shares to person resident outside India
under the FDI Scheme. However, an Indian listed company, which is not eligible to raise funds
from the Indian Capital Market including a company which has been restrained from accessing
the securities market by the Securities and Exchange Board of India (SEBI) will not be eligible to
issue ADRs/GDRs.
Unlisted companies, which have not yet accessed the ADR/GDR route for raising capital in the
international market, would require prior or simultaneous listing in the domestic market, while
seeking to issue such overseas instruments. Unlisted companies, which have already issued
ADRs/GDRs in the international market, have to list in the domestic market on making profit or
within three years of such issue of ADRs/GDRs, whichever is earlier. ADRs / GDRs are issued on
the basis of the ratio worked out by the Indian company in consultation with the Lead Manager
to the issue. The proceeds so raised have to be kept abroad till actually required in India. Pending
repatriation to India, the proceeds can be invested in specified securities.
There are no end use restrictions except for a ban on deployment / investment of such funds in
Real Estate or the Stock Market. There is no monetary limit upto which an Indian company can
raise ADRs / GDRs.
The ADR / GDR proceeds can be utilised for first stage acquisition of shares in the disinvestment
process of Public Sector Undertakings / Enterprises and also in the mandatory second stage offer
to the public in view of their strategic importance
Voting rights in the case of banking companies will continue to be in terms of the provisions of
the Banking Regulation Act, 1949 and the instructions issued by the Reserve Bank from time to
time, as applicable to all shareholders exercising voting rights.
Erstwhile OCBs which are not eligible to invest in India and entities prohibited to buy/sell or deal
in securities by SEBI will not be eligible to subscribe to ADRs / GDRs issued by Indian companies
The issuer is required to comply with the pricing norms prescribed under FEMA.
Two‐way Fungibility Scheme
A limited Two‐way Fungibility scheme has been put in place by the Government of India for ADRs
/ GDRs.
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Under this scheme, a stock broker in India, registered with SEBI, can purchase shares of an Indian
company from the market for conversion into ADRs/GDRs based on instructions received from
overseas investors.
Re‐issuance of ADRs /GDRs would be permitted to the extent of ADRs / GDRs which have been
redeemed into underlying shares and sold in the Indian market.
Sponsored ADR/GDR issue
An Indian company can also sponsor an issue of ADR / GDR. Under this mechanism, the company
offers its resident shareholders a choice to submit their shares back to the company so that on
the basis of such shares, ADRs / GDRs can be issued abroad.
The proceeds of the ADR / GDR issue is remitted back to India and distributed among the resident
investors who had offered their rupee denominated shares for conversion. These proceeds can
be kept in Resident Foreign Currency (Domestic) accounts in India by the resident shareholders
who have tendered such shares for conversion into ADR / GDR.
Reporting of ADR/GDR Issues
The Indian company issuing ADRs / GDRs is required to furnish to the Reserve Bank, full details
of such issue in the form as specified, within 30 days from the date of closing of the issue. The
company is also required to furnish a quarterly return in the form enclosed in Annex‐9, to Reserve
Bank within 15 days of the close of the calendar quarter. The quarterly return is required to be
submitted till the entire amount raised through ADR/GDR mechanism is either repatriated to
India or utilized abroad as per the extant Reserve Bank guidelines.
Procedure
The following steps are required to be taken:
The first step is to ensure that the accounts of the Issuer are in compliance with International
Accounting Standards mainly the US GAAP – Generally Accepted Accounting Principles. The last
three years accounts need to be restated in line with US GAAP.
Convene a Board Meeting for appointment of the intermediaries required which include
Merchant Bankers, Auditors, Legal Advisors (both Indian and foreign) etc.
Apart from the appointment, Board approval is required for:
 Authorisation for the issue
 Prospectus
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 Issue Price
 Agreements to be entered into with Depository, Custodian and other intermediaries
 Allotment of shares
 Opening of bank account outside India
 Filing applications for listing in the Stock Exchanges abroad
Shareholder’s meeting is required to be convened to approve the proposal. An in‐principle
approval of the Department of Economic Affairs, Ministry of Finance, Government of India is
required to be obtained prior to the issue. After the issue structure is finalised, the issuer
company is required to obtain the final approval from the Government. Apart from this, approval
of RBI and SEBI is also required to be obtained.
Application is required to be made to the Indian Stock Exchange where the shares are proposed
to be listed.
The issuer is required to file the Prospectus with SEBI, Stock Exchange and the Registrar of
Companies prior to the issue.

7.2. Foreign Currency Convertible Bonds (FCCB)
Norms for FCCB issue have been prescribed by the RBI in the Foreign Exchange Management
(Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004 i.e. Notification No.
FEMA 120/ RB‐2004 dated: July 7, 2004. Issue of FCCB is also governed by Depository Receipts
Scheme, 2014 FCCBs are bonds subscribed by a non‐resident in foreign currency convertible into
ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of
any equity related warrants attached to the bonds. The requirements prescribed for ADR/GDR
apply to FCCBs also. Apart from this, additional requirements are given below:
An application for listing of the Bonds has to be made to the stock exchange of the country where
the FCCBs are to be issued and traded i.e. international stock exchange.
‘In‐principal’ approval has to be obtained from the Indian Stock exchange to list the shares issued
upon conversion of bonds, when the bondholder exercises the convertibility option.
Filing the Offer Document (Offering Circular) is required to be made with Securities Exchange
Board of India, Reserve Bank of India and stock exchanges prior to FCCB issue

7.2.1. Foreign Currency Exchangeable Bond (FCEB)
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“Issue of Foreign Currency Exchangeable Bonds (FCEB) Scheme, 2008”, notified by the
Government of India, Ministry of Finance, Department of Economic Affairs vide Notification
G.S.R.89(E) dated February 15, 2008. The term has been defined earlier in this workbook.
Accordingly, RBI has issued a circular no. RBI/2008‐09/192, A.P. (DIR Series) Circular No.17 dated
September 23, 2008 setting out the requirements for this purpose. The Scheme as well as the
Circular read together prescribe the eligibility conditions and subscription of FCEB, the end‐use
requirements, the operational procedure, pricing and maturity norms, mandatory requirements
to be fulfilled by the issuer e.g. approval of Board of Directors and shareholders, if applicable,
compliance of SEBI Act, Rules and Regulations etc.; retention and deployment of proceeds of
FCEB and Taxation on FCEB.

146


Review Questions

1. Issue of Indian Depository Receipts (IDRs) is a method of _______________.
A. Foreign Direct Investment in India
B. Overseas Investment
C. Overseas Direct Investment
D. External Commercial Borrowings

2. There is no monetary limit upto which an Indian company can raise ADRs / GDRs. State
TRUE or FALSE.
A. True
B. False

3. Opening of bank account outside India is not required for ADR issue. State TRUE or FALSE.
A. True
B. False

4. Norms for FCCB issue have been prescribed by the _________.
A. Central Government
B. Foreign Investment Promotion Board (FIPB)
C. Reserve Bank of India (RBI)
D. Ministry of Corporate Affairs (MCA)

147


Chapter 8: Corporate Actions


After studying this chapter, you should know about various types of corporate actions such as:

 Splits/Consolidation
 Mergers and Acquisition
 Takeovers
 Buyback
 Demerger

The term ‘Corporate Action’, encompasses a broad spectrum of actions taken by corporates at
different points of time. Some of the corporate actions include split, consolidation, merger etc.
The role of compliance officer in corporate actions and the laws and processes involved are
explained below.

8.1. Related Laws and Process

8.1.1. Split/Consolidation
A corporate action in which a company's existing shares are divided into multiple shares is called
split of shares. Although the number of shares outstanding increases by a specific multiple, the
total value of the shares remains the same compared to pre‐split amounts, because no real value
has been added as a result of the split.
The only eligibility specified is that the shares of the company should be in demat mode only.
Consolidation, on the other hand, is the opposite of share split. Each shareholder’s shares are
replaced with lower number of shares of a higher face value/par value.
The provisions of Companies Act and the SEBI Listing Regulations are required to be followed for
this purpose. The procedure for the split/consolidation of shares is given below:
 Verify whether the split/consolidation of shares is permitted by the Articles of Association
 Intimate Stock Exchange of the date of the Board Meeting where it is proposed to be
discussed
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 Convene a Board Meeting for approval of the split/consolidation and to convene the
general meeting
 Intimate Stock Exchange of split/consolidation approved by the Board
 Notice of General Meeting to be sent to Stock Exchange
 Convene the General Meeting of Shareholders
 Send copy of proceedings to Stock Exchange
 File the resolution with the ROC in e‐form MGT 14 and e‐form SH‐7
 Convene Board Meeting for fixing record date
 Advance intimation to Stock Exchange is required to be given for holding the Board
Meeting
 Obtain copy of Notice from Stock Exchange fixing the ‘No Delivery Period’ and submit the
same to the Depository
 File Corporate Action Form with respective Depository
The Stock Exchanges have prescribed specific documentation which are required to be submitted
for this purpose. A sample documentation list prescribed by NSE is given hereunder:
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NATIONAL STOCK EXCHANGE OF INDIA LIMITED
Sub-Division of Equity Shares / Face Value Split
Documents Required to be Submitted to the Exchange
Sr.No. List of Documents/ details to be submitted Submission Status -

Yes / No / Not
Applicable
1 Notice of Record Date / Book Closure to the Exchange
2 An undertaking stating the date on which the new equity shares
will be credited to the beneficiary accounts of the
shareholders.
3 Details of issued and paid up equity share capital (No. of
Equity Shares) before face value split & after face value split.
4 Post face value split distinctive numbers of Equity Shares
5 Four copies of equity share certificates (post face value split).
6 Certified true copy of the notice convening the AGM/EGM of
shareholders where the subdivision of equity shares of Rs.__/-
each of the company into equity shares of Rs.__/- was
proposed.
7 Certified true copy of the resolution passed at the AGM/EGM
for subdivision of equity shares of Rs.__/- each of the
company into equity shares of Rs.__/-each.
8 Certified true copies of amended Memorandum and Articles
of Association.
9 ISIN code to be assigned to equity shares of the company by
the depositories pursuant to face value split.
10 Credit confirmation from the Depositories with regard to sub-
division of shares from Rs.__/- to Rs.__/-.
Date
Place
Authorised Signatory and
Stamp of the company
Name
Designation
Note
These documents shall be required to be given to the Exchange alogwith the Book
Closure / Record Date Notice or immediately after fixing the Book Closure / Record 150
Date.


8.1.2. Mergers and Acquisitions
Mergers and Acquisitions are regulated under various laws in India. Some of the laws governing
mergers and acquisitions are Companies Act, 1956/2013, FEMA, SEBI SAST regulations,
Competition Act, 2002 etc.
The relevant provisions of the respective regulations are given below:
 Companies Act, 2013– 56, 79, Sections 230‐240
 Companies Act, 1956 Chapter IX – 581ZN.
 SEBI Listing Regulations and Listing Agreement
 Foreign Exchange Management Act, 1999 applies for Joint Ventures between an Indian
Company and a foreign company. The regulations are specified in FEMA 20 and FEMA
120.
 SEBI Act, 1992 – Section 15H (already specified earlier)
 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 – discussed later
 The Competition Act, 2002 – already discussed

The procedure for mergers and acquisitions (M & A) are listed briefly below:
Authority in the Memorandum and Articles of Association for the mergers and acquisitions: The
objects clause in the Memorandum of Association of' both the acquirer company as well as the
acquired companies should have adequate provisions to the following effect:‐
(a) Provision to amalgamate with any other company or body corporate, along with the
provision to sell or dispose of the whole or any part of the undertaking, or any of the
undertakings of the company;
(b) Provision to carry on the business of the acquired company, with particular reference
to the business activity;
(c) Provision of adequacy of authorized capital to be able to absorb the capital structure of
the acquired company within its own frame work of authorized capital;
(d) In case there is no provision in the objects clause in respect of the above matters, then
the company has to take measures to amend the memorandum to comply with the
requirements of sections 13 and 15 of the Companies Act, 2013. Advance steps will have
to be taken by the acquirer company for amendment to the object clause.
The above changes have to be reflected in the Articles of Association of the company which is
also to be amended simultaneously.
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In the absence of specific powers in the objects clause of Memorandum of amalgamating
companies to the above effect, the scheme of amalgamation cannot be entertained by the
National Company Law Tribunal (NCLT).
 Prepare Draft Scheme of Amalgamation as per Companies Act, 2013
 Board of Directors’ approval
 SEBI Listing Regulations requirements to be complied with, w.r.t. intimation to Stock
Exchanges
 Application to the National Company Law Tribunal (NCLT).
 Shareholders and creditors meetings to be held as per the directions of the NCLT in terms
of the Companies Act.
 Advertisement norms to be followed
 NCLT order to be filed with ROC in terms of Companies Act
 Transfer of assets and liabilities
 Board resolution to be passed for allotment of shares to the shareholders in exchange of
shares held in the transferor company
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
As per Regulation 3, a substantial acquisition of shares or voting rights by any person, such that
the individual shareholding of such person exceeds the stipulated thresholds, shall, inter alia, be
attracting the obligation to make an open offer for acquiring the shares of the target company.
Similarly, as per Regulation 4, irrespective of acquisition or holding of shares or voting rights in a
target company, no acquirer shall acquire, directly or indirectly, control over such target company
unless the acquirer makes a public announcement of an open offer for acquiring shares of such
target company in accordance with these regulations Regulation 5 deals with indirect acquisition
of shares or control. The relevant regulations are reproduced below:
As per Regulation 3 relation to substantial acquisition of shares or voting rights:
(1) No acquirer shall acquire shares or voting rights in a target company which taken together
with shares or voting rights, if any, held by him and by persons acting in concert with him in such
target company, entitle them to exercise twenty‐five per cent or more of the voting rights in such
target company unless the acquirer makes a public announcement of an open offer for acquiring
shares of such target company in accordance with these regulations.
(2) No acquirer, who together with persons acting in concert with him, has acquired and holds in
accordance with these regulations shares or voting rights in a target company entitling them to
exercise twenty‐five per cent or more of the voting rights in the target company but less than the
maximum permissible non‐public shareholding, shall acquire within any financial year additional
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shares or voting rights in such target company entitling them to exercise more than five per cent
of the voting rights, unless the acquirer makes a public announcement of an open offer for
acquiring shares of such target company in accordance with these regulations:
Provided that such acquirer shall not be entitled to acquire or enter into any agreement to
acquire shares or voting rights exceeding such number of shares as would take the aggregate
shareholding pursuant to the acquisition above the maximum permissible non‐public
shareholding.

Explanation‐ For purposes of determining the quantum of acquisition of additional voting rights
under this sub‐regulation,—
(i) gross acquisitions alone shall be taken into account regardless of any intermittent fall
in shareholding or voting rights whether owing to disposal of shares held or dilution of
voting rights owing to fresh issue of shares by the target company.
(ii) in the case of acquisition of shares by way of issue of new shares by the target
company or where the target company has made an issue of new shares in any given
financial year, the difference between the pre‐allotment and the post‐allotment
percentage voting rights shall be regarded as the quantum of additional acquisition .

(3) For the purposes of sub‐regulation (1) and sub‐regulation (2), acquisition of shares by any
person, such that the individual shareholding of such person acquiring shares exceeds the
stipulated thresholds, shall also be attracting the obligation to make an open offer for acquiring
shares of the target company irrespective of whether there is a change in the aggregate
shareholding with persons acting in concert.
(4) Nothing contained in this regulation shall apply to acquisition of shares or voting rights of a
company by the promoters or shareholders in control, in terms of the provisions of Chapter VI‐A
of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009.
Regulation 4 specifies the provisions relating to acquisition of control as under:
Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer
shall acquire, directly or indirectly, control over such target company unless the acquirer makes
a public announcement of an open offer for acquiring shares of such target company in
accordance with these regulations.
Indirect acquisition of shares or control are required to comply with the provisions specified in
Regulation 5 as under:
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(1) For the purposes of regulation 3 and regulation 4, acquisition of shares or voting rights in, or
control over, any company or other entity, that would enable any person and persons acting in
concert with him to exercise or direct the exercise of such percentage of voting rights in, or
control over, a target company, the acquisition of which would otherwise attract the obligation
to make a public announcement of an open offer for acquiring shares under these regulations,
shall be considered as an indirect acquisition of shares or voting rights in, or control over the
target company.

(2) Notwithstanding anything contained in these regulations, in the case of an indirect acquisition
attracting the provisions of sub‐regulation (1) where,—
(a) the proportionate net asset value of the target company as a percentage of the
consolidated net asset value of the entity or business being acquired;
(b) the proportionate sales turnover of the target company as a percentage of the
consolidated sales turnover of the entity or business being acquired; or
(c) the proportionate market capitalisation of the target company as a percentage of the
enterprise value for the entity or business being acquired;
is in excess of eighty per cent, on the basis of the most recent audited annual financial
statements, such indirect acquisition shall be regarded as a direct acquisition of the target
company for all purposes of these regulations including without limitation, the obligations
relating to timing, pricing and other compliance requirements for the open offer.
Explanation.— For the purposes of computing the percentage referred to in clause (c) of
this sub‐regulation, the market capitalisation of the target company shall be taken into
account on the basis of the volume‐weighted average market price of such shares on the
stock exchange for a period of sixty trading days preceding the earlier of, the date on
which the primary acquisition is contracted, and the date on which the intention or the
decision to make the primary acquisition is announced in the public domain, as traded on
the stock exchange where the maximum volume of trading in the shares of the target
company are recorded during such period.

Regulation 5A specifies the provisions with respect to Delisting offer:

(1) Notwithstanding anything contained in these regulations, in the event the acquirer
makes a public announcement of an open offer for acquiring shares of a target company
in terms of regulations 3, 4 or 5, he may delist the company in accordance with provisions
of the SEBI (Delisting of Equity Shares) Regulations, 2009:
Provided that the acquirer shall have declared upfront his intention to so delist at the
time of making the detailed public statement.
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(2) Where an offer made under sub‐regulation (1) is not successful,‐ 2 (i) on account of
non–receipt of prior approval of shareholders in terms of clause (b) of sub‐regulation (1)
of regulation 8 of SEBI (Delisting of Equity Shares) Regulations, 2009; or (ii) in terms of
regulation 17 of SEBI (Delisting of Equity Shares) Regulations, 2009; or (iii) on account of
the acquirer rejecting the discovered price determined by the book building process in
terms of sub‐regulation (1) of regulation 16 of SEBI (Delisting of Equity Shares)
Regulations, 2009, the acquirer shall make an announcement within two
working days in respect of such failure in all the newspapers in which the detailed public
statement was made and shall comply with all applicable provisions of these regulations.

(3) In the event of the failure of the delisting offer made under sub regulation (1), the
acquirer, through the manager to the open offer, shall within five working days from the
date of the announcement under sub‐regulation (2), file with the Board, a draft of the
letter of offer as specified in sub‐regulation (1) of regulation 16 and shall comply with all
other applicable provisions of these regulations: Provided that the offer price shall stand
enhanced by an amount equal to a sum determined at the rate of ten per cent per annum
for the period between the scheduled date of payment of consideration to the
shareholders and the actual date of payment of consideration to the shareholders.
Explanation: For the purpose of this sub‐regulation, scheduled date shall be the date on
which the payment of consideration ought to have been made to the shareholders in
terms of the timelines in these regulations.

(4) Where a competing offer is made in terms of sub‐regulation (1) of regulation 20,‐ (a)
the acquirer shall not be entitled to delist the company; (b) the acquirer shall not be liable
to pay interest to the shareholders on account of delay due to competing offer; (c ) the
acquirer shall comply with all the applicable provisions of these regulations and make an
announcement in this regard, within two working days from the date of public
announcement made in terms of sub‐regulation (1) of regulation 20, in all the newspapers
in which the detailed public statement was made.

(5) Shareholders who have tendered shares in acceptance of the offer made under sub‐
regulation (1), shall be entitled to withdraw such shares tendered, within 10 working days
from the date of the announcement under sub‐regulation (2).

(6) Shareholders who have not tendered their shares in acceptance of the offer made
under sub‐regulation (1) shall be entitled to tender their shares in acceptance of the offer
made under these regulations.

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Regulation 6A states as under:

6A. Notwithstanding anything contained in these regulations, no person who is a wilful defaulter
shall make a public announcement of an open offer for acquiring shares or enter into any
transaction that would attract the obligation to make a public announcement of an open offer
for acquiring shares under these regulations: Provided that this regulation shall not prohibit the
wilful defaulter from making a competing offer in accordance with regulation 20 of these
regulations upon any other person making an open offer for acquiring shares of the target
company

However, there are certain exemptions to the requirement of making an open offer which is dealt
with in Regulation 10. The extracts of Regulation 10 are given hereunder:

Regulation 10 specifies the general exemptions as under:

The following acquisitions shall be exempt from the obligation to make an open offer under
regulation 3 and regulation 4 subject to fulfillment of the conditions stipulated therefore,‐

(1) (a) acquisition pursuant to inter se transfer of shares amongst qualifying persons, being,‐
(i) immediate relatives;
(ii) persons named as promoters in the shareholding pattern filed by the target company in
terms of the listing agreement or these regulations for not less than three years prior to the
proposed acquisition;
(iii) a company, its subsidiaries, its holding company, other subsidiaries of such holding
company, persons holding not less than fifty per cent of the equity shares of such company,
other companies in which such persons hold not less than fifty per cent of the equity shares,
and their subsidiaries subject to control over such qualifying persons being exclusively held
by the same persons;
(iv) persons acting in concert for not less than three years prior to the proposed acquisition,
and disclosed as such pursuant to filings under the listing agreement;
(v) shareholders of a target company who have been persons acting in concert for a period
of not less than three years prior to the proposed acquisition and are disclosed as such
pursuant to filings under the listing agreement, and any company in which the entire equity
share capital is owned by such shareholders in the same proportion as their holdings in the
target company without any differential entitlement to exercise voting rights in such
company:
Provided that for purposes of availing of the exemption under this clause,—
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(i) If the shares of the target company are frequently traded, the acquisition price per share
shall not be higher by more than twenty‐five per cent of the volume‐weighted average
market price for a period of sixty trading days preceding the date of issuance of notice for
the proposed inter se transfer under sub‐regulation (5), as traded on the stock exchange
where the maximum volume of trading in the shares of the target company are recorded
during such period, and if the shares of the target company are infrequently traded, the
acquisition price shall not be higher by more than twenty‐five percent of the price
determined in terms of clause (e) of sub‐regulation (2) of regulation 8; and
(ii) the transferor and the transferee shall have complied with applicable disclosure
requirements set out in Chapter V.
(b) acquisition in the ordinary course of business by,—
(i) an underwriter registered with the Board by way of allotment pursuant to an underwriting
agreement in terms of the Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2009;
(ii) a stock broker registered with the Board on behalf of his client in exercise of lien over the
shares purchased on behalf of the client under the bye‐laws of the stock exchange where
such stock broker is a member;
(iii) a merchant banker registered with the Board or a nominated investor in the process of
market making or subscription to the unsubscribed portion of issue in terms of Chapter XB
of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009;
(iv) any person acquiring shares pursuant to a scheme of safety net in terms of regulation 44
of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009;
(v) a merchant banker registered with the Board acting as a stabilising agent or by the
promoter or pre‐issue shareholder in terms of regulation 45 of the Securities and Exchange
Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
(vi) by a registered market‐maker of a stock exchange in respect of shares for which he is
the market maker during the course of market making;
(vii) a Scheduled Commercial Bank, acting as an escrow agent; and
(viii) invocation of pledge by Scheduled Commercial Banks or Public Financial Institutions
as a pledgee.

(c) acquisitions at subsequent stages, by an acquirer who has made a public announcement of
an open offer for acquiring shares pursuant to an agreement of disinvestment, as contemplated
in such agreement:
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Provided that,—
(i) both the acquirer and the seller are the same at all the stages of acquisition; and
(ii) full disclosures of all the subsequent stages of acquisition, if any, have been made in the public
announcement of the open offer and in the letter of offer.

(d) acquisition pursuant to a scheme,—
(i) made under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1
of 1986) or any statutory modification or re‐enactment thereto;
(ii) of arrangement involving the target company as a transferor company or as a transferee
company, or reconstruction of the target company, including amalgamation, merger or
demerger, pursuant to an order of a court or a tribunal or a competent authority under any
law or regulation, Indian or foreign;
(iii) of arrangement not directly involving the target company as a transferor company or as
a transferee company, or reconstruction not involving the target company’s undertaking,
including amalgamation, merger or demerger, pursuant to an order of a court or a tribunal
or a competent authority under any law or regulation, Indian or foreign, subject to,—
(A) the component of cash and cash equivalents in the consideration paid being less
than twenty‐five per cent of the consideration paid under the scheme; and
(B) where after implementation of the scheme of arrangement, persons directly or
indirectly holding at least thirty‐three per cent of the voting rights in the combined
entity are the same as the persons who held the entire voting rights before the
implementation of the scheme.
(da) acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and
Bankruptcy Code, 2016 (31 of 2016)
(e) acquisition pursuant to the provisions of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(f) acquisition pursuant to the provisions of the Securities and Exchange Board of India (Delisting
of Equity Shares) Regulations, 2009;
(g) acquisition by way of transmission, succession or inheritance;
(h) acquisition of voting rights or preference shares carrying voting rights arising out of the
operation of sub‐section (2) of section 87 of the Companies Act, , 1956 (1 of 1956).

[(i) Acquisition of shares by the lenders pursuant to conversion of their debt as part of a debt
restructuring scheme implemented in accordance with the guidelines specified by the Reserve
Bank of India:
Provided that the conditions specified under sub‐regulation (5) of regulation 70 of the SEBI (Issue
of Capital and Disclosure Requirements) Regulations, 2009 are complied with.
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(ia) Acquisition of shares by the person(s), by way of allotment by the target company or purchase
from the lenders at the time of lenders selling their shareholding or enforcing change in
ownership in favour of such person(s), pursuant to a debt restructuring scheme implemented in
accordance with the guidelines specified by the Reserve Bank of India:
Provided that in respect of acquisition by persons by way of allotment by the target company,
the conditions specified under sub‐regulation (6) of regulation 70 of the SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2009 are complied with:
Provided further that in respect of acquisition by way of purchase of shares from the lenders, the
acquisition shall be exempted subject to the compliance with the following conditions:

(a) the guidelines for determining the purchase price have been specified by the Reserve Bank of
India and that the purchase price has been determined in accordance with such guidelines;

(b) the purchase price shall be certified by two independent qualified valuers, and for this
purpose ‘valuer’ shall be a person who is registered under section 247 of the Companies Act,
2013 and the relevant Rules framed thereunder:
Provided that till such date on which section 247 of the Companies Act, 2013 and the relevant
Rules come into force, valuer shall mean an independent merchant banker registered with the
Board or an independent chartered accountant in practice having a minimum experience of ten
years;

(c) the specified securities so purchased shall be locked‐in for a period of at least three years from
the date of purchase;
(d) the lock‐in of equity shares acquired pursuant to conversion of convertible securities
purchased from the lenders shall be reduced to the extent the convertible securities have already
been locked‐in;

(e) a special resolution has been passed by shareholders of the issuer before the purchase;

(f) the issuer shall, in addition to the disclosures required under the Companies Act, 2013 or any
other applicable law, disclose the following information pertaining to the proposed acquirer(s) in
the explanatory statement to the notice for the general meeting proposed for passing special
resolution as stipulated at clause (e) of this sub‐regulation:
a. the identity including of the natural persons who are the ultimate beneficial owners of the
shares proposed to be purchased and/ or who ultimately control the proposed acquirer(s);
b. the business model;
c. a statement on growth of business over the period of time;
d. summary of audited financials of previous three financial years;
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e. track record in turning around companies, if any;
f. the proposed roadmap for effecting turnaround of the issuer.

(g) applicable provisions of the Companies Act, 2013 are complied with.

j) increase in voting rights arising out of the operation of sub‐section (1) of section 106 of the
Companies Act, 2013 or pursuant to a forfeiture of shares by the target company, undertaken in
compliance with the provisions of the Companies Act, 2013 and its articles of association.

(2) The acquisition of shares of a target company, not involving a change of control over such
target company, pursuant to a scheme of corporate debt restructuring in terms of the Corporate
Debt Restructuring Scheme notified by the Reserve Bank of India vide circular no. B.P.BC
15/21.04, 114/2001 dated August 23, 2001, or any modification or re‐notification thereto
provided such scheme has been authorised by shareholders by way of a special resolution passed
by postal ballot, shall be exempted from the obligation to make an open offer under regulation
3.

(3) An increase in voting rights in a target company of any shareholder beyond the limit attracting
an obligation to make an open offer under sub‐regulation (1) of regulation 3, pursuant to buy‐
back of shares by the target company shall be exempt from the obligation to make an open offer
provided such shareholder reduces his shareholding such that his voting rights fall to below the
threshold referred to in sub‐regulation (1) of regulation 3 within ninety days from the date on
which the closure of the buy back offer.
(4) The following acquisitions shall be exempt from the obligation to make an open offer under
sub‐regulation (2) of regulation 3,—

(a) acquisition of shares by any shareholder of a target company, upto his entitlement, pursuant
to a rights issue;

(b) acquisition of shares by any shareholder of a target company, beyond his entitlement,
pursuant to a rights issue, subject to fulfillment of the following conditions,—

(i) the acquirer has not renounced any of his entitlements in such rights issue; and

(ii) the price at which the rights issue is made is not higher than the ex‐rights price of the shares
of the target company, being the sum of,—

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(A) the volume weighted average market price of the shares of the target company during a
period of sixty trading days ending on the day prior to the date of determination of the rights
issue price, multiplied by the number of shares outstanding prior to the rights issue, divided
by the total number of shares outstanding after allotment under the rights issue:

Provided that such volume weighted average market price shall be determined on the basis
of trading on the stock exchange where the maximum volume of trading in the shares of such
target company is recorded during such period; and

(B) the price at which the shares are offered in the rights issue, multiplied by the number of
shares so offered in the rights issue divided by the total number of shares outstanding after
allotment under the rights issue:

(c) increase in voting rights in a target company of any shareholder pursuant to buy‐back of
shares:

Provided that,—

(i) such shareholder has not voted in favour of the resolution authorising the buy‐back of
securities under section 77A of the Companies Act, 1956 (1 of 1956);

(ii) in the case of a shareholder resolution, voting is by way of postal ballot;

(iii) where a resolution of shareholders is not required for the buyback, such shareholder, in his
capacity as a director, or any other interested director has not voted in favour of the resolution
of the board of directors of the target company authorising the buy‐back of securities under
section 77A of the Companies Act, 1956 (1 of 1956); (relevant section of Companies Act, 2013)
and

(iv) the increase in voting rights does not result in an acquisition of control by such shareholder
over the target company:

Provided further that where the aforesaid conditions are not met, in the event such shareholder
reduces his shareholding such that his voting rights fall below the level at which the obligation to
make an open offer would be attracted under sub‐regulation (2) of regulation 3, within ninety
days from the date on which the buy back offer of the target company closes the shareholder
shall be exempt from the obligation to make an open offer;

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(d) acquisition of shares in a target company by any person in exchange for shares of another
target company tendered pursuant to an open offer for acquiring shares under these regulations;

(e) acquisition of shares in a target company from state‐level financial institutions or their
subsidiaries or companies promoted by them, by promoters of the target company pursuant to
an agreement between such transferors and such promoter;

(f) acquisition of shares in a target company from a venture capital fund or a foreign venture
capital investor registered with the Board, by promoters of the target company pursuant to an
agreement between such venture capital fund or foreign venture capital investor and such
promoters.

(5) In respect of acquisitions under clause (a) of sub‐regulation (1), and clauses (e) and (f) of sub‐
regulation (4), the acquirer shall intimate the stock exchanges where the shares of the target
company are listed, the details of the proposed acquisition in such form as may be specified, at
least four working days prior to the proposed acquisition, and the stock exchange shall forthwith
disseminate such information to the public.

(6) In respect of any acquisition made pursuant to exemption provided for in this regulation, the
acquirer shall file a report with the stock exchanges where the shares of the target company are
listed, in such form as may be specified not later than four working days from the acquisition,
and the stock exchange shall forthwith disseminate such information to the public.

(7) In respect of any acquisition of or increase in voting rights pursuant to exemption provided
for in clause (a) of sub‐regulation (1), sub‐clause (iii) of clause (d) of sub‐regulation (1), clause (h)
of sub‐regulation (1), sub‐regulation (2), sub‐regulation (3) and clause (c) of sub‐regulation (4),
clauses (a), (b) and (f) of sub‐regulation (4), the acquirer shall, within twenty‐one working days
of the date of acquisition, submit a report in such form as may be specified along with supporting
documents to the Board giving all details in respect of acquisitions, along with a non‐refundable
fee of rupees one lakh fifty thousand by way of direct credit in the bank account through
NEFT/RTGS/IMPS or any other mode allowed by RBI or by way of a banker’s cheque or demand
draft payable in Mumbai in favour of the Board.

Explanation ‐ for the purposes of sub‐regulation (5), sub‐regulation (6) and sub‐regulation (7) in
the case of convertible securities, the date of the acquisition shall be the date of conversion of
such securities.

8.1.3. Takeover
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Takeover is a process by which one company takes over the shares, voting rights or control and
management of another company. SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 governs the takeover process. Some of the requirements specified are given
hereunder:
Norms are specified for compulsory offer, voluntary offer, pricing, mode of payment, exemptions
for certain acquisitions etc. When a company is taken over by another entity, the compliance
officer of the target company is required to ensure that the provisions of Regulation 24 and
Regulation 26 of the SEBI (SAST) Regulations, 2011, are complied with strictly. The relevant
extracts of Regulation 24 and Regulation 26 are given below:
Regulation 24 relating to directors of the target company specify as under:
(1) During the offer period, no person representing the acquirer or any person acting in concert
with him shall be appointed as director on the board of directors of the target company, whether
as an additional director or in a casual vacancy:
Provided that after an initial period of fifteen working days from the date of detailed public
statement, appointment of persons representing the acquirer or persons acting in concert with
him on the board of directors may be effected in the event the acquirer deposits in cash in the
escrow account referred to in regulation 17, one hundred per cent of the consideration payable
under the open offer:
Provided further that where the acquirer has specified conditions to which the open offer is
subject in terms of clause (c) of sub‐regulation (1) of regulation 23, no director representing the
acquirer may be appointed to the board of directors of the target company during the offer
period unless the acquirer has waived or attained such conditions and complies with the
requirement of depositing cash in the escrow account.
(2) Where an open offer is made conditional upon minimum level of acceptances, the acquirer
and persons acting in concert shall, notwithstanding anything contained in these regulations, and
regardless of the size of the cash deposited in the escrow account referred to regulation 17, not
be entitled to appoint any director representing the acquirer or any person acting in concert with
him on the board of directors of the target company during the offer period.
(3) During the pendency of competing offers, notwithstanding anything contained in these
regulations, and regardless of the size of the cash deposited in the escrow account referred to in
regulation 17, by any acquirer or person acting in concert with him, there shall be no induction
of any new director to the board of directors of the target company:
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Provided that in the event of death or incapacitation of any director, the vacancy arising
therefrom may be filled by any person subject to approval of such appointment by shareholders
of the target company by way of a postal ballot.
(4) In the event the acquirer or any person acting in concert is already represented by a director
on the board of the target company, such director shall not participate in any deliberations of
the board of directors of the target company or vote on any matter in relation to the open offer.
The obligations of the target company are specified in Regulation 26 as under:
(1) Upon a public announcement of an open offer for acquiring shares of a target company being
made, the board of directors of such target company shall ensure that during the offer period,
the business of the target company is conducted in the ordinary course consistent with past
practice.
(2) During the offer period, unless the approval of shareholders of the target company by way of
a special resolution by postal ballot is obtained, the board of directors of either the target
company or any of its subsidiaries shall not,—
(a) alienate any material assets whether by way of sale, lease, encumbrance or otherwise
or enter into any agreement there for outside the ordinary course of business;
(b) effect any material borrowings outside the ordinary course of business;
(c) issue or allot any authorised but unissued securities entitling the holder to voting
rights:
Provided that the target company or its subsidiaries may,—
(i) issue or allot shares upon conversion of convertible securities issued prior to the public
announcement of the open offer, in accordance with pre‐determined terms of such
conversion;
(ii) issue or allot shares pursuant to any public issue in respect of which the red herring
prospectus has been filed with the Registrar of Companies prior to the public
announcement of the open offer; or
(iii)issue or allot shares pursuant to any rights issue in respect of which the record date
has been announced prior to the public announcement of the open offer;
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(d) implement any buy‐back of shares or effect any other change to the capital structure
of the target company;
(e) enter into, amend or terminate any material contracts to which the target company
or any of its subsidiaries is a party, outside the ordinary course of business, whether such
contract is with a related party, within the meaning of the term under applicable
accounting principles, or with any other person; and
(f) accelerate any contingent vesting of a right of any person to whom the target company
or any of its subsidiaries may have an obligation, whether such obligation is to acquire
shares of the target company by way of employee stock options or otherwise.
(3) In any general meeting of a subsidiary of the target company in respect of the matters referred
to in sub‐regulation (2), the target company and its subsidiaries, if any, shall vote in a manner
consistent with the special resolution passed by the shareholders of the target company.
(4) The target company shall be prohibited from fixing any record date for a corporate action on
or after the third working day prior to the commencement of the tendering period and until the
expiry of the tendering period.
(5) The target company shall furnish to the acquirer within two working days from the identified
date, a list of shareholders as per the register of members of the target company containing
names, addresses, shareholding and folio number, in electronic form, wherever available, and a
list of persons whose applications, if any, for registration of transfer of shares are pending with
the target company:
Provided that the acquirer shall reimburse reasonable costs payable by the target company to
external agencies in order to furnish such information.
(6) Upon receipt of the detailed public statement, the board of directors of the target company
shall constitute a committee of independent directors to provide reasoned recommendations on
such open offer, and the target company shall publish such recommendations:
Provided that such committee shall be entitled to seek external professional advice at the
expense of the target company.
(7) The committee of independent directors shall provide its written reasoned recommendations
on the open offer to the shareholders of the target company and such recommendations shall
be published in such form as may be specified, at least two working days before the
commencement of the tendering period, in the same newspapers where the public
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announcement of the open offer was published, and simultaneously, a copy of the same shall be
sent to,—
(i) the Board;
(ii) all the stock exchanges on which the shares of the target company are listed, and the
stock exchanges shall forthwith disseminate such information to the public; and
(iii) to the manager to the open offer, and where there are competing offers, to the
manager to the open offer for every competing offer.
(8) The board of directors of the target company shall facilitate the acquirer in verification of
shares tendered in acceptance of the open offer.
(9) The board of directors of the target company shall make available to all acquirers making
competing offers, any information and co‐operation provided to any acquirer who has made a
competing offer.
(10) Upon fulfillment by the acquirer, of the conditions required under these regulations, the
board of directors of the target company shall without any delay register the transfer of shares
acquired by the acquirer in physical form, whether under the agreement or from open market
purchases, or pursuant to the open offer.
In case the Compliance officer is of the acquirer company, he must be aware of the following
procedure for the takeover process:
 Appointment of Merchant Banker (Regulation 12)
 Release of the Public Announcement on the date of the trigger(Regulation 13)
 Release of the Detailed Public Statement( Regulation14, 15 )
 Opening of Escrow Account (Regulation 17, 21)
 Filing of Letter of Offer with SEBI (Regulation 16)
 Obligations of Acquirer (Regulation 25)

Further, the compliance officer of a listed entity is required to comply with the SEBI (SAST)
Regulations, 2011, with regard to certain disclosures. This will be covered in the chapter on
Continuous compliances i.e. Chapter 9.
Formats for all disclosures to be made under the SEBI (SAST) Regulations, 2011 are given
hereunder:
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167


List of formats for reports/ disclosures under SAST Regulations 2011 Formats and the
related Regulations of SAST Regulations 2011

1. Format under Regulation 10(5) ‐ Intimation to Stock Exchanges in respect of
acquisition under regulation 10(1)(a)
Format under Regulation 10(5) ‐ Intimation to Stock Exchanges in respect of
2. acquisition under regulation 10(4)(e)

Format under Regulation 10(5) ‐ Intimation to Stock Exchanges in respect of
3. acquisition under regulation 10(4)(f).

Format under Regulation 10(6) ‐ Report to Stock Exchanges in respect of any
4. acquisition made in reliance upon exemption provided for in regulation 10.

Format under Regulation 10(7) ‐ Report to SEBI in respect of any acquisition made
5. in reliance upon exemption provided for in regulation 10 (1)(a)(i).

6. in reliance upon exemption provided for in regulation 10(1)(a)(ii).

7. in reliance upon exemption provided for in regulation 10(1)(a)(iii).

8. in reliance upon exemption provided for in regulation 10(1)(a)(iv).
9. Format under Regulation 10(7) ‐ Report to SEBI in respect of any acquisition made

in reliance upon exemption provided for in regulation 10(1)(a)(v).
10. in reliance upon exemption provided for in regulation 10(1)(d)(iii).

11. in reliance upon exemption provided for in regulation 10(1)(h).

12. in reliance upon exemption provided for in regulation 10(2).
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13. in reliance upon exemption provided for in regulation 10(3) and (4)(c).

14. in reliance upon exemption provided for in regulation 10(4)(a) and 10(4)(b).

Format under Regulation 10 (7) ‐ Report to SEBI in respect of any acquisition made
15. in reliance upon exemption provided for in regulation 10(4)(f)

8.1.4. Buy‐back

SEBI has framed the SEBI (Buy‐Back of Securities) Regulations, 1998 regulates the buy‐back of
securities by listed companies. As far as Companies Act, 2013 is concerned, the provisions
regulating buy back of shares are contained in Sections 67 to section 70 of the Companies Act,
2013. Buy back means purchase of own shares or securities by the Company using its free
reserves, securities premium or the proceeds of any shares or other specified securities. As per
the SEBI Regulations, buy back can be either through the tender offer or through a stock
exchange mechanism. As per the recent amendments made by SEBI, reservation for small
shareholders i.e. a shareholder of a listed company, who holds shares or other specified securities
whose market value, on the basis of closing price of shares or other specified securities, on the
recognised stock exchange in which highest trading volume in respect of such security, as on
record date is not more than two lakh rupees.Fifteen percent of the number of securities which
the company proposes to buy back or number of securities entitled as per their shareholding,
whichever is higher, shall be reserved for small shareholders.
The procedure for buy‐back is briefly given hereunder:
 Check whether the Articles of Association of the company contains the provisions
authorising the company to buy‐back its own shares or securities. (Companies Act).
 At least 2 working days prior intimation excluding the date of the intimation and date of
the meeting about the Board Meeting at which proposal for buy‐back is proposed to be
considered is required to be given to Stock exchange(s), where the company’s securities
are listed (Regulation 29(2) of SEBI Listing Regulations).
 Convene Board Meeting for approval of the buy‐back and for convening the general
meeting approval of postal ballot forms and to appoint the scrutinizer (Companies Act)
 The resolution passed by Board of directors or shareholders should specify maximum
price for buy‐back.
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 Copy of the Board resolution should be filed within 2 working days of the passing of the
resolution with SEBI and stock exchange(s), where the company’s securities are listed.
 The decision of the Board at its meeting should be informed to the SEs within 30 minutes
of the closure of the meeting Regulation 30(4) of SEBI Listing Regulations.
 Disclosure on website of this event.
 Notice of General Meeting to be sent to Stock Exchange Regulation 30(4) of SEBI Listing
Regulations.
 Convene the General Meeting of Shareholders (Companies Act).
 Copy of the proceedings of the General Meeting to be submitted to the Stock Exchange
Regulation 30(4) of SEBI Listing Regulations.
 File a copy of special resolution with the ROC in e‐form MGT 14 (Companies Act) within
30 days of passing the resolution.
 Make Public Announcement as prescribed (Regulations 6, 7, 8 of SEBI Buy Back
Regulations is required to be made.
 Copy of Public Announcement alongwith soft copy is required to be submitted to SEBI
simultaneously through a merchant banker.
 The explanatory statement is required to contain disclosures as per Schedule II, Part A (as
per SEBI notification February 7, 2012).
 The company, within 5 working days of the public announcement, is required to file with
SEBI a draft letter of offer along with soft copy containing disclosures as specified in
Schedule III and fees as specified in Schedule IV of the Regulations through a merchant
banker.
 The draft Letter of Offer and declaration of solvency is required to be filed in prescribed
form with ROC. (Regulation 8 of SEBI Buy Back Regulations).
 Regulation 9 which is required to be followed stringently is reproduced below:
(1) A company making a buyback offer shall announce a record date for the
purpose of determining the entitlement and the names of the security holders,
who are eligible to participate in the proposed buyback offer.
(2) The letter of offer along with the tender form shall be dispatched to the
security holders who are eligible to participate in the buyback offer, not later than
five working days from the receipt of communication of comments from the
Board.
(3) The date of the opening of the offer shall be not later than five working days
from the date of dispatch of letter of offer.
3A. The acquirer or promoter shall facilitate tendering of shares by the
shareholders and settlement of the same, through the stock exchange mechanism
as specified by the Board.
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(4) The offer for buy back shall remain open for a period of ten working days.
(5) The company shall accept shares or other specified securities from the security
holders on the basis of their entitlement as on record date.
(6) The shares proposed to be bought back shall be divided in to two categories;
(a) reserved category for small shareholders and (b) the general category for other
shareholders, and the entitlement of a shareholder in each category shall be
calculated accordingly.
(7) After accepting the shares or other specified securities tendered on the basis
of entitlement, shares or other specified securities left to be bought back, if any in
one category shall first be accepted, in proportion to the shares or other specified
securities tendered over and above their entitlement in the offer by security
holders in that category and thereafter from security holders who have tendered
over and above their entitlement in other category.”
 Intimation to Stock Exchange to be made on daily basis about the securities purchased
for buy‐back (Regulation 15(i) of SEBI Buy Back Regulations).
 Verification of securities to be completed within prescribed time limits (Regulation 9(5)
of SEBI Buy Back Regulations).
 Extinguish and destroy security certificates in the presence of the Registrar to the Issue,
Merchant banker, Statutory Auditors of the Company within the prescribed time limits
(Regulation 12 of SEBI Buy Back Regulations).
 Furnish certificate to SEBI and Stock Exchanges about extinguishment and destruction of
certificates. (Regulations 12 and 19(4) of SEBI Buy Back Regulations.
 Issue advertisement as prescribed after completion of buy‐back (Regulation 19(5) of SEBI
Buy Back Regulations).
 Register of Securities Bought Back to be maintained (Companies Act).
 Return to be filed with ROC and SEBI after completion of Buy‐Back (Companies Act).

8.1.5. Demerger
Demerger is not specifically defined in Companies Act. However, a general understanding of the
word demerger is that it is a division of the company by transferring a part of the undertaking in
the form of shares or assets to another company. This forms part of the scheme of arrangement
under Sections 230‐240 of the Companies Act. SEBI regulates this process through the SEBI
Listing Regulations. The relevant clauses of the Regulations are: Regulation 11, 30, 42 and 68.

8.1.6. Delisting
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Delisting of equity shares is governed by SEBI (Delisting of Equity Shares) Regulations, 2009.
These regulations apply to delisting of equity shares of a company from all or any of the
recognised stock exchanges where such shares are listed.
Provided that these regulations shall not apply to securities listed without making a public issue,
on the institutional trading platform of a recognised stock exchange.

Delisting is not permitted in certain cases which is prescribed as under:
(1) No company shall apply for and no recognised stock exchange shall permit delisting of equity
shares of a company,‐
(a) pursuant to a buy back of equity shares by the company; or
(b) pursuant to a preferential allotment made by the company; or
(c) unless a period of three years has elapsed since the listing of that class of equity shares
on any recognised stock exchange; or
(d) if any instruments issued by the company, which are convertible into the same class of
equity shares that are sought to be delisted, are outstanding.
(1A) No promoter or promoter group shall propose delisting of equity shares of a company, if any
entity belonging to the promoter or promoter group has sold equity shares of the company
during a period of six months prior to the date of the board meeting in which the delisting
proposal was approved in terms of sub‐regulation (1B) of regulation 8.

(2) For the removal of doubts, it is clarified that no company shall apply for and no recognised
stock exchange shall permit delisting of convertible securities.
(3) Nothing contained in clauses (c) and (d) of sub‐regulation (1) shall apply to a delisting of equity
shares falling under clause(a) of regulation 6.
(4) No promoter shall directly or indirectly employ the funds of the company to finance an exit
opportunity provided under Chapter IV or an acquisition of shares made pursuant to sub‐
regulation(3) of regulation 23.
(5) No acquirer or promoter or promoter group or their related entities shall –
(a) employ any device, scheme or artifice to defraud any shareholder or other person; or
(b) engage in any transaction or practice that operates as a fraud or deceit upon any
shareholder or other person; or
(c) engage in any act or practice that is fraudulent, deceptive or manipulative –in
connection with any delisting sought or permitted or exit opportunity given or other
acquisition of shares made under these regulations.
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Delisting can be voluntary or compulsory. The procedure for each varies and the Regulations
prescribe separate procedure for each type of listing.For voluntary delisting, Regulation 5
specifies as under:
Subject to the provisions of these regulations, a company may delist its equity shares from all the
recognised stock exchanges where they are listed or from the only recognised stock exchange
where they are listed. All public shareholders holding equity shares of the class which are sought
to be delisted are given an exit opportunity in accordance with Chapter IV.

As per Regulation 6, a company may delist its equity shares from one or more recognised stock
exchanges where they are listed and continue their listing on one or more other recognised stock
exchanges, subject to the provisions of these regulations and subject to the following ‐
(a) if after the proposed delisting from any one or more recognised stock exchanges, the equity
shares would remain listed on any recognised stock exchange which has nationwide trading
terminals, no exit opportunity needs to be given to the public shareholders; and,
(b) if after the proposed delisting, the equity shares would not remain listed on any recognised
stock exchange having nation‐wide trading terminals, exit opportunity shall be given to all the
public shareholders holding the equity shares sought to be delisted in accordance with Chapter
IV.
Explanation: For the purposes of this regulation, ‘recognised stock exchange having nation‐wide
trading terminals’ means the Bombay Stock Exchange Limited, the National Stock Exchange of
India Limited or any other recognised stock exchange which may be specified by the Board in this
regard.
Procedure for delisting where no exit opportunity is required (where the Company continues to
be listed in at least one recognised Stock Exchange in Regulation 7 as under:
(1) In a case falling under clause (a) of regulation 6 –
(a) the proposed delisting shall be approved by a resolution of the board of directors of the
company in its meeting;
(b) the company shall give a public notice of the proposed delisting in at least one English national
daily with wide circulation, one Hindi national daily with wide circulation and one regional
language newspaper of the region where the concerned recognised stock exchanges are located;
(c) the company shall make an application to the concerned recognised stock exchange for
delisting its equity shares; and
(d) the fact of delisting shall be disclosed in the first annual report of the company prepared after
the delisting.
(2) The public notice made under clause (b) of sub‐regulation (1) shall mention the names of the
recognised stock exchanges from which the equity shares of the company are intended to
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be delisted, the reasons for such delisting and the fact of continuation of listing of equity shares
on recognised stock exchange having nationwide trading terminals.
(3) An application for delisting made under clause (c) of sub‐regulation
(1) shall be disposed of by the recognised stock exchange within a period not exceeding thirty
working days
Conditions and procedure for voluntary delisting where exit opportunity is required is specified
in Clause 8:
(1) Any company desirous of delisting its equity shares under the provisions of Chapter III shall,
except in a case falling under clause (a) of regulation 6, ‐
(a) obtain the prior approval of the board of directors of the company in its meeting;
(b) obtain the prior approval of shareholders of the company by special resolution passed
through postal ballot, after disclosure of all material facts in the explanatory statement sent to
the shareholders in relation to such resolution:
Provided that the special resolution shall be acted upon if and only if the votes cast by public
shareholders in favour of the proposal amount to at least two times the number of votes cast by
public shareholders against it.
(c) make an application to the concerned recognised stock exchange for in‐principle approval of
the proposed delisting in the form specified by the recognised stock exchange; and
(d) within one year of passing the special resolution, make the final application to the concerned
recognised stock exchange in the form specified by the recognised stock exchange:
Provided that in pursuance of special resolution as referred to in clause (b), passed before the
commencement of these regulations, final application shall be made within a period of one year
from the date of passing of special resolution or six months from the commencement of these
regulations, whichever is later.
(1A) Prior to granting approval under clause (a) of sub‐regulation (1), the board of directors of
the company shall,‐
(i) make a disclosure to the recognized stock exchanges on which the equity shares of the
company are listed that the promoters/acquirers have proposed to delist the company;
(ii) appoint a merchant banker to carry out due‐diligence and make a disclosure to this effect to
the recognized stock exchanges on which the equity shares of the company are listed;
(iii) obtain details of trading in shares of the company for a period of two years prior to the date
of board meeting by top twenty five shareholders as on the date of the board meeting convened
to consider the proposal for delisting, from the stock exchanges and details of off‐market
transactions of such shareholders for a period of two years and furnish the information to the
merchant banker for carrying out due‐diligence;
(iv) obtain further details in terms of sub‐regulation (1D) of regulation 8 and furnish the
information to the merchant banker.
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(1B) The board of directors of the company while approving the proposal for delisting shall certify
that :
(i) the company is in compliance with the applicable provisions of securities laws;
(ii) the acquirer or promoter or promoter group or their related entities, are in compliance with
sub‐regulation (5) of regulation 4;
(iii) the delisting is in the interest of the shareholders.
(1C) For certification in respect of matters referred to in sub‐regulation (1B), the board of
directors of the company shall take into account the report of the merchant banker as specified
in sub‐regulation (1E) of regulation 8.
(1D) The merchant banker appointed by the board of directors of the company under clause (ii)
of sub‐regulation (1A) shall carry out due diligence upon obtaining details from the board of
directors of the company in terms of clause (iii) of sub‐regulation (1A) of regulation 8. Provided
that if the merchant banker is of the opinion that details referred to in clause (iii) of sub‐
regulation (1A) of regulation 8 are not sufficient for certification in terms of sub‐regulation (1E)
of regulation 8, he shall obtain additional details from the board of directors of the company for
such longer period as he may deem fit.
(1E) Upon carrying out due‐diligence as specified in terms of sub‐regulation (1D) of regulation 8,
the merchant banker shall submit a report to the board of directors of the company certifying
the following:

(a) the trading carried out by the entities belonging to acquirer or promoter or promoter group
or their related entities was in compliance or not, with the applicable provisions of the securities
laws; and
(b) entities belonging to acquirer or promoter or promoter group or their related entities have
carried out or not, any transaction to facilitate the success of the delisting offer which is not in
compliance with the provisions of sub‐regulation (5) of regulation 4.

(2) An application seeking in‐principle approval for delisting under clause (c) of sub‐regulation (1)
shall be accompanied by an audit report as required under regulation 55A of the SEBI
(Depositories and Participants) Regulations, 1996 in respect of the equity shares sought to be
delisted, covering a period of six months prior to the date of the application.
(3) An application seeking in‐principle approval for delisting shall be disposed of by the
recognised stock exchange within a period not exceeding five working days from the date of
receipt of such application complete in all respects.
(4) While considering an application seeking in‐principle approval for delisting, the recognised
stock exchange shall not unfairly withhold such application, but may require the company to
satisfy it as to ‐
(a) compliance with clause (b) of sub‐regulation (1);
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(b) the resolution of investor grievances by the company;
(c) payment of listing fees to that recognised stock exchange;
(d) the compliance with any condition of the listing agreement with that recognised stock
exchange having a material bearing on the interests of its equity shareholders;
(e) any litigation or action pending against the company pertaining to its activities in the securities
market or any other matter having a material bearing on the interests of its equity shareholders;
(f) any other relevant matter as the recognised stock exchange may deem fit to verify.
(5) A final application for delisting made under clause (d) of sub‐regulation(1) shall be
accompanied with such proof of having given the exit opportunity in accordance with the
provisions.
The following matters are prescribed for both the types of voluntary delisting:
 Public Announcement is required to be made in all cases (Clause 10)
 Escrow Account is required to be opened and amount to be deposited (Clause 11)
 Letter of offer to the public shareholders of equity shares (clause 12)
 Bidding period – minimum period of 3 working days and maximum period of 5 working
days (Clause 13)
 Offer Price Filing of forms with the ROC (Companies Act)
 Publication of notice in the newspapers (Clause 7 8 & 10)
 Exit opportunity for shareholders in the region. (Clause 8 & 9)
 Pricing norms (Clause 15)
 Minimum number of equity shares to be acquired (Clause 17)
 Procedure after closure of offer (Clause 18)
 Payment of consideration and return of equity shares (Clause 20)
A recognised stock exchange may, by order, delist any equity shares of a company on any ground
prescribed in the rules made under section 21A of the Securities Contracts (Regulation) Act, 1956.
Procedure for compulsory delisting is given hereunder:
 Before making the order for delisting, the recognised Stock Exchange shall give a notice
(Clause 22)
 Stock Exchange will consider representations (Clause 22)
 After passing the order, the Stock Exchange is required to publish a notice (clause 22)
 Rights of equity shareholders is prescribed (Clause 23)

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Review Questions

1. For any merger, authority is required in the Memorandum of Association of the Company.
State True or False?
A. True
B. False

2. During the offer period in a takeover process, a person representing the acquirer may be
appointed as director of the Target Company. State TRUE or FALSE?
A. True
B. False

3. The provisions of Companies Act relating to demerger are different from the requirements
for amalgamation. State TRUE or FALSE?
A. True
B. False

4. No company shall apply for and no recognised stock exchange shall permit delisting of equity
shares of a company unless a period of _____has elapsed since the listing of that class of
equity shares on any recognised stock exchange.
A. Three Years
B. Five Years
C. Two Years
D. One Year
A.

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Chapter 9: Ongoing Compliance Requirements



 Compliance measures pertaining to continuous listing requirements
 Reports to be submitted by the compliance officer as per the listing agreement
 Compliance requirements under SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations
 Compliance requirements under the SEBI (Prohibition of Insider Trading) Regulations, 2015
 Securities Appellate Tribunal
 SCORES System for Investor Grievance

The Compliance Officer is responsible for all compliances under the SEBI Listing Regulations, the
listing agreement and the various laws applicable to a Company. Once the Company is listed,
there are certain specific compliance requirements which are to be made on an ongoing basis
with respect to various laws and regulations. Apart from this, a brief note has been made on the
Securities Appellate Tribunal and the SCORES system for investor grievance

Continuous Listing Requirements
Section 21 of the Securities Contracts (Regulation) Act, 1956 specifies that the person applying
for listing on any recognised Stock Exchange is required to comply with the conditions of the SEBI
Listing Regulations and the Listing Agreement with that Exchange. Section 21A specifies the
grounds on which a Company may be delisted from a recognised Exchange. Section 23(2) and
Section 23A to Section 23H prescribe the penalties for contravention of the provisions of this Act.
The relevant extracts are reproduced below:
Delisting of securities requirements are prescribed in Section 21A as under:
(1)A recognised stock exchange may delist the securities, after recording the reasons therefore,
from any recognised stock exchange on any of the ground or grounds as may be prescribed under
this Act:
However, the securities of a company shall not be delisted unless the company concerned has
been given a reasonable opportunity of being heard.
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(2) A listed company or an aggrieved investor may file an appeal before the Securities Appellate
Tribunal (SAT) against the decision of the recognised stock exchange delisting the securities
within fifteen days from the date of the decision of the recognised stock exchange delisting the
securities and the provisions of sections 22B to 22E of this Act, shall apply, as far as may be, to
such appeals:
Provided that the Securities Appellate Tribunal (SAT) may, if it is satisfied that the company was
prevented by sufficient cause from filing the appeal within the said periods, allow it to be filed
within a further period not exceeding one month.
As per Regulation 23(2), any person who enters into any contract in contravention of the
provisions contained in section 15 or who fails to comply with the provisions of section 21 or
section 21A or with the orders of or section 22 or with the orders of the Securities Appellate
Tribunal (SAT) shall, without prejudice to any award of penalty by the Adjudicating Officer under
this Act, on conviction, be punishable with imprisonment for a term which may extend to ten
years or with fine, which may extend to twenty‐five crore rupees, or with both.
Penalty for failure to furnish information, return, etc. are specified in Section 23A as under:
Any person, who is required under this Act or any rules made there under,—
(a) to furnish any information, document, books, returns or report to a recognised stock
exchange, fails to furnish the same within the time specified therefore in the listing agreement
or conditions or bye‐laws of the recognised stock exchange, shall be liable to a penalty which
shall not be less than one lakh rupees for each day during which such failure continues subject to
a maximum of one crore rupees for each such failure;
(b) to maintain books of account or records, as per the listing agreement or conditions, or bye‐
laws of a recognised stock exchange, fails to maintain the same, shall be liable to a penalty which
shall not be less than one lakh rupees but which may extend to one lakh rupees for each day
during which such failure subject to a maximum of one crore rupees
Penalty for failure by any person to enter into an agreement with clients under Section 23B is as
under:
If any person, who is required under this Act or any bye‐laws of a recognised stock exchange
made there under, to enter into an agreement with his client, fails to enter into such an
agreement, he shall be liable to a penalty which shall not be less than one lakh rupees but which
may extend to one lakh rupees for each day during which such failure continues subject to a
maximum of one crore rupees for every such failure..
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Penalty for failure to redress investors’ grievances has been specified in Section 23C which states
as under:
If any stock broker or sub‐broker or a company whose securities are listed or proposed to be
listed on a recognised stock exchange, after having been called upon by the SEBI or a recognised
stock exchange in writing, to redress the grievances of the investors, fails to redress such
grievances within the time stipulated by the SEBI or a recognised stock exchange, he or it shall
be liable to a penalty which shall not be less than one lakh rupees but which may extend to one
lakh rupees for each day during which such failure continues subject to a maximum of one crore
rupees.
Penalty for failure to segregate securities or moneys of client or clients as per Section 23D is given
below:
If any person, who is registered under section 12 of the Securities and Exchange Board of India
Act, 1992 (15 of 1992) as a stock broker or sub‐broker, fails to segregate securities or moneys of
the client or clients or uses the securities or moneys of a client or clients for self or for any other
client, he shall be liable to a penalty which shall not be less than one lakh rupees but which may
extend to one crore rupees.
Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds
is specified in Section 23E as under:
If a company or any person managing collective investment scheme or mutual fund, fails to
comply with the listing conditions or delisting conditions or grounds or commits a breach thereof,
it or he shall be liable to a penalty which shall not be less than five lakh rupees but which may
extend to twenty‐five crore rupees.
Penalty for excess dematerialisation or delivery of unlisted securities as per Section 23F is given
below:
If any issuer dematerialises securities more than the issued securities of a company or delivers in
the stock exchanges the securities which are not listed in the recognised stock exchange or
delivers securities where no trading permission has been given by the recognised stock exchange,
he shall be liable to a penalty which shall not be less than five lakh rupees but which may extend
to twenty‐five crore rupees..
Penalty for failure to furnish periodical returns, etc. as specified in Section 23G is:
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If a recognised stock exchange fails or neglects to furnish periodical returns to the SEBI or fails or
neglects to make or amend its rules or bye‐laws as directed by the SEBI or fails to comply with
directions issued by the SEBI, such recognised stock exchange shall be liable to a penalty which
shall not be less than five lakh rupees but which may extend to twenty‐five crore rupees..
Penalty for contravention where no separate penalty has been provided in Section 23H as under:
Whoever fails to comply with any provision of this Act, the rules or articles or byelaws or the
regulations of the recognised stock exchange or directions issued by the SEBI for which no
separate penalty has been provided, shall be liable to a penalty which shall not be less than one
lakh rupees but which may extend to one crore rupees.

9.1. Reports to be submitted as per Listing Agreement
The Listed companies are regulated by SEBI through the Stock Exchanges. The listing regulations
are required to be complied with throughout the year on an ongoing basis. The principles
governing disclosures are given in brief below:
The listed entity which has listed securities shall make disclosures and abide by its obligations
under these regulations, in accordance with the following principles:
(a) Information shall be prepared and disclosed in accordance with applicable standards of
accounting and financial disclosure.
(b) The listed entity shall implement the prescribed accounting standards in letter and spirit in
the preparation of financial statements taking into consideration the interest of all stakeholders
and shall also ensure that the annual audit is conducted by an independent, competent and
qualified auditor.
(c) The listed entity shall refrain from misrepresentation and ensure that the information
provided to recognised stock exchange(s) and investors is not misleading.
(d) The listed entity shall provide adequate and timely information to recognised stock
exchange(s) and investors.
(e) The listed entity shall ensure that disseminations made under provisions of these regulations
and circulars made thereunder, are adequate, accurate, explicit, timely and presented in a simple
language.
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(f) Channels for disseminating information shall provide for equal, timely and cost efficient access
to relevant information by investors.
(g) The listed entity shall abide by all the provisions of the applicable laws including the securities
laws and also such other guidelines as may be issued from time to time by the Board and the
recognised stock exchange(s) in this regard and as may be applicable.
(h) The listed entity shall make the specified disclosures and follow its obligations in letter and
spirit taking into consideration the interest of all stakeholders.
(i) Filings, reports, statements, documents and information which are event based or are filed
periodically shall contain relevant information.
(j) Periodic filings, reports, statements, documents and information reports shall contain
information that shall enable investors to track the performance of a listed entity over regular
intervals of time and shall provide sufficient information to enable investors to assess the current
status of a listed entity.
Disclosures are required to be made in the Annual Report as per Schedule V of the SEBI Listing
Regulations.
Apart from this, on an ongoing basis, the listed entity is required to submit the following:
Sr. No. Regulation Compliance required

No. of SEBI
Listing
Regulations
1. 7(3) The listed entity shall submit a compliance certificate to the
exchange, duly signed by both the compliance officer of the listed
entity and the authorised representative of the share transfer agent,
wherever applicable, within one month of end of each half of the
financial year, certifying compliance that all activities in relation to
both physical and electronic share transfer facility are maintained
either in house or by Registrar to an issue and share transfer agent
registered with the Board.
2. 7(4) Listed company to intimate change or appointment of new share
transfer agent within 7 days of entering into the agreement with the
new share transfer agent
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The listed entity shall file the reports, statements, documents,
3. 10(1) filings and any other information with the recognised stock
exchange(s) on the electronic platform as specified by the Board or
the recognised stock exchange(s).
4. 13(3) The listed entity shall file with the recognised stock exchange(s) on a
quarterly basis, within twenty one days from the end of each quarter,
a statement giving the number of investor complaints pending at the
beginning of the quarter, those received during the quarter,
disposed of during the quarter and those remaining unresolved at
the end of the quarter.
5. 13(4) The statement as specified 13(3) shall be placed, on quarterly basis,
before the board of directors of the listed entity.
6. 14 The listed entity shall pay all such fees or charges, as applicable, to
the recognised stock exchange(s), in the manner specified by the
Board or the recognised stock exchange(s).
The listed entity shall submit a quarterly compliance report on
7. 27(2)(a) corporate governance in the format as specified by the Board from
time to time to the recognised stock exchange(s) within fifteen days
from close of the quarter.
The listed entity shall give prior intimation to stock exchange about
8. 29(1) the meeting of the board of directors with respect to certain
proposals is due to be considered at least 2 working days in
advance and if the proposal is with respect to financial results at
least 5 working days in advance
The listed entity shall give intimation to the stock exchange(s) at
9. 29(3) least eleven working days before any of the following proposal is
placed before the board of directors ‐
(a) any alteration in the form or nature of any of its securities that
are listed on the stock exchange or in the rights or privileges of the
holders thereof.
(b) any alteration in the date on which, the interest on debentures
or bonds, or the redemption amount of redeemable shares or of
debentures or bonds, shall be payable.
Every listed entity shall make disclosures of any events or
10. 30(1) and information which, in the opinion of the board of directors of the
30(6) listed company, is material. – as soon as reasonably possible and
not later than 24 hours from the occurrence of the event
The listed entity shall disclose on its website all such events or
11. 30(7)
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information which has been disclosed to stock exchange(s) under
this regulation , and such disclosures shall be hosted on the website
of the listed entity for a minimum period of five years and
thereafter as per the archival policy of the listed entity, as disclosed
on its website.
The listed entity shall submit to the stock exchange(s) a statement
12. 31 showing holding of securities and shareholding pattern separately
for each class of securities, in the format specified by the Board
from time to time within the following timelines ‐
(a) one day prior to listing of its securities on the stock exchange(s);
(b) on a quarterly basis, within twenty one days from the end of
each quarter; and,
(c) within ten days of any capital restructuring of the listed entity
resulting in a change exceeding two per cent of the total paid‐up
share capital:
Provided that in case of listed entities which have listed their
specified securities on SME Exchange, the above statements shall
be submitted on a half yearly basis within twenty one days from the
end of each half year.
All entities falling under promoter and promoter group shall be
13. 31A disclosed separately in the shareholding pattern appearing on the
website of all stock exchanges having nationwide trading terminals
where the specified securities of the entity are listed, in accordance
with the formats specified by SEBI.
The listed entity shall submit to the stock exchange the following
14. 32 statement(s) on a quarterly basis for public issue, rights issue,
preferential issue etc. ,‐
(a) indicating deviations, if any, in the use of proceeds from the
objects stated in the offer document or explanatory statement to
the notice for the general meeting, as applicable;
(b) indicating category wise variation (capital expenditure, sales and
marketing, working capital etc.) between projected utilisation of
funds made by it in its offer document or explanatory statement to
the notice for the general meeting, as applicable and the actual
utilisation of funds.
The statement(s) specified in sub‐regulation (1), shall be continued
to be given till such time the issue proceeds have been fully utilised
or the purpose for which these proceeds were raised has been
achieved.

Financial results are required to be submitted periodically
15. 33
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The listed entity shall submit the annual report to the stock
16. 34 exchange within twenty one working days of it being approved and
adopted in the annual general meeting as per the provisions of the
The listed entity shall submit to the stock exchange(s) an Annual
17. 35 Information Memorandum in the manner specified by the Board
from time to time.
Annual report is required to be sent to shareholders not less than
18. 36 21 days before the AGM
(1) listed entity desirous of undertaking a scheme of
19. 37 arrangement or involved in a scheme of arrangement, shall
file the draft scheme of arrangement, proposed to be filed
before any Court or Tribunal under sections 391‐394 and 101
of the Companies Act, 1956 or under Sections 230‐234 and
Section 66 of Companies Act, 2013, whichever applicable,
with the stock exchange(s) for obtaining Observation Letter
or No‐objection letter, before filing such scheme with any
Court or Tribunal, in terms of requirements specified by the
Board or stock exchange(s) from time to time.
(2) Upon sanction of the Scheme by the Court or Tribunal, the
listed entity shall submit the documents, to the stock
exchange(s), as prescribed by the Board and/or stock
exchange(s) from time to time.

The listed entity shall submit information regarding loss of share
20. 39 certificates and issue of the duplicate certificates, to the stock
exchange within two days of its getting information.
On receipt of proper documentation, the listed entity shall register
21. 40 (3) transfers of its securities in the name of the transferee(s) and issue
certificates or receipts or advices, as applicable, of transfers; or
issue any valid objection or intimation to the transferee or
transferor, as the case may be, within a period of fifteen days
from the date of such receipt of request for transfer:
Provided that the listed entity shall ensure that transmission
requests are processed for securities held in dematerialized mode
and physical mode within seven days and twenty one days
respectively, after receipt of the specified documents:
Provided further that proper verifiable dated records of all
correspondence with the investor shall be maintained by the listed
entity
The listed entity shall ensure that the share transfer agent and/or
22. 40(10) the in‐house share transfer facility, as the case may be, produces a
certificate from a practicing company secretary within one month
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of the end of each half of the financial year, certifying that all
certificates have been issued within thirty days of the date of
lodgement for transfer, sub‐division, consolidation, renewal,
exchange or endorsement of calls/allotment monies
(1) The listed entity shall intimate the record date to all the stock
23. 42 exchange(s) where it is listed for the following purposes:
(a) declaration of dividend;
(b) issue of right or bonus shares;
(c) issue of shares for conversion of debentures or any other
convertible security;
(d) shares arising out of rights attached to debentures or any other
convertible security
(e) corporate actions like mergers, de‐mergers, splits and bonus
shares, where stock derivatives are available on the stock of listed
entity or where listed entity's stocks form part of an index on which
derivatives are available;
(f) such other purposes as may be specified by the stock
exchange(s).
(2) The listed entity shall give notice in advance of atleast seven
working days (excluding the date of intimation and the record date)
to stock exchange(s) of record date specifying the purpose of the
record date.
(3) The listed entity shall recommend or declare all dividend and/or
cash bonuses at least five working days (excluding the date of
intimation and the record date) before the record date fixed for the
purpose.
(4) The listed entity shall ensure the time gap of at least thirty days
between two record dates.
On receipt of confirmation regarding name availability from
24. 45(3) Registrar of Companies, before filing the request for change of
name with the Registrar of Companies in terms of provisions laid
down in Companies Act, 2013 and rules made thereunder, the
listed entity shall seek approval from Stock Exchange by submitting
a certificate from chartered accountant stating compliance with
conditions at Regulation 45(1)
The listed entity shall maintain a functional website containing the
25. 46 basic information about the listed entity as specified in the
Regulations
(1) The listed entity shall publish the following information in the
26. 47 newspaper:
(a)notice of meeting of the board of directors where financial
results shall be discussed
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(b) financial results, as specified in regulation 33, along‐with the
modified opinion(s) or reservation(s), if any, expressed by the
auditor: Provided that if the listed entity has submitted both
standalone and consolidated financial results, the listed entity shall
publish consolidated financial results along‐with (1) Turnover, (2)
Profit before tax and (3) Profit after tax, on a stand‐alone basis, as a
foot note; and a reference to the places, such as the website of
listed entity and stock exchange(s), where the standalone results of
the listed entity are available.
(c)statements of deviation(s) or variation(s) as specified in sub‐
regulation (1) of regulation 32 on quarterly basis, after review by
audit committee and its explanation in directors report in annual
report;
(d) notices given to shareholders by advertisement. (2) The listed
entity shall give a reference in the newspaper publication, in
sub‐regulation (1), to link of the website of listed entity and stock
exchange(s), where further details are available.
(3) The listed entity shall publish the information specified in sub‐
regulation (1) in the newspaper simultaneously with the submission
of the same to the stock exchange(s).
Provided that financial results at clause (b) of sub‐regulation (1),
shall be published within 48 hours of conclusion of the meeting of
board of directors at which the financial results were approved.
(4) The information at sub‐regulation (1) shall be published in at
least one English language national daily newspaper circulating in
the whole or substantially the whole of India and in one daily
newspaper published in the language of the region, where the
registered office of the listed entity is situated:
Provided that the requirements of this regulation shall not be
applicable in case of listed entities which have listed their specified
securities on SME Exchange.
In addition to the tabular compliances given above, specific obligations of the listed entity which
has listed its non‐convertible debt securities or non‐convertible redeemable preference shares
or both has been specified in Chapter V of the SEBI Listing Regulations. Similarly Chapter VI
compliances are specified for listed entities which have listed its specified securities and either
non‐convertible debt securities or non‐convertible redeemable preference shares or both.
Obligations of listed entity have been specified in Chapter VII of the SEBI Listing Regulations if
they have listed their IDRs and Chapter VIII obligations are required to be followed if they have
listed their Securitised Debt Instruments
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9.2. Compliances under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011

Regulations have now cast the responsibility of all the disclosures on the promoters / acquirers
and the company is not required to make any filing with the stock exchanges. However the
Compliance Officer must be aware of the disclosures as specified in Chapter V of the aforesaid
regulations and keep the promoters / management informed of the same at the appropriate
times. The initial disclosures to be made by the acquirer/promoter as per Regulation 3, 4 and 5
and the general exemptions as per Regulation 10 of the abovementioned Regulations have
already been covered in Chapter 2.

The relevant extracts pertaining to ongoing disclosures to be made with respect to shareholding
and control are given below:
 For all other acquisitions, which are exempted, necessary reports must be filed with the
stock exchange atleast 4 working days after and also need to give prior intimation to stock
exchange and file report with SEBI if applicable.

Disclosure‐related provisions are specified in Regulation 28 as under:

(1) The disclosures under this Chapter shall be of the aggregated shareholding and voting rights
of the acquirer or promoter of the target company or every person acting in concert with him.
(2) For the purposes of this Chapter, the acquisition and holding of any convertible security shall
also be regarded as shares, and disclosures of such acquisitions and holdings shall be made
accordingly.
(3) For the purposes of this Chapter, the term “encumbrance” shall include a pledge, lien or any
such transaction, by whatever name called.
(4) Upon receipt of the disclosures required under this Chapter, the stock exchange shall
forthwith disseminate the information so received.

Disclosure of acquisition and disposal are required to be made as per Regulation 29:

(1) Any acquirer who acquires shares or voting rights in a target company which taken together
with shares or voting rights, if any, held by him and by persons acting in concert with him in such
target company, aggregating to five per cent or more of the shares of such target company, shall
disclose their aggregate shareholding and voting rights in such target company in such form as
may be specified.
(2) Any acquirer, who together with persons acting in concert with him, holds shares or voting
rights entitling them to five per cent or more of the shares or voting rights in a target company,
188


shall disclose every acquisition or disposal of shares of such target company representing two
per cent or more of the shares or voting rights in such target company in such form as may be
specified.
(3) The disclosures required under sub‐regulation (1) and sub‐regulation (2) shall be made within
two working days of the receipt of intimation of allotment of shares, or the acquisition of shares
or voting rights in the target company to,—
(a) every stock exchange where the shares of the target company are listed; and
(b) the target company at its registered office.
(4) For the purposes of this regulation, shares taken by way of encumbrance shall be treated as
an acquisition, shares given upon release of encumbrance shall be treated as a disposal, and
disclosures shall be made by such person accordingly in such form as may be specified. However,
such requirement shall not apply to a scheduled commercial bank or public financial institution
as pledgee in connection with a pledge of shares for securing indebtedness in the ordinary course
of business.

As per Regulation 30, continual disclosures are required to be made as under:
(1) Every person, who together with persons acting in concert with him, holds shares or voting
rights entitling him to exercise twenty‐five per cent or more of the voting rights in a target
company, shall disclose their aggregate shareholding and voting rights as of March 31, in such
target company in such form as maybe specified.
(2) The promoter of every target company shall together with persons acting in concert with him,
disclose their aggregate shareholding and voting rights as of March 31, in such target company
in such form as may be specified.
seven working days from the end of each financial year to,—
(a) every stock exchange where the shares of the target company are listed; and (b) the
target company at its registered office.

Disclosure of encumbered shares are required to be made as per Regulation 31 as under:

(1) The promoter of every target company shall disclose details of shares in such target company
encumbered by him or by persons acting in concert with him in such form as may be specified.
(2) The promoter of every target company shall disclose details of any invocation of such
encumbrance or release of such encumbrance of shares in such form as may be specified.
seven working days from the creation or invocation or release of encumbrance, as the case may
be to,—
(a) every stock exchange where the shares of the target company are listed; and
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(b) the target company at its registered office.

9.3. Compliances under the SEBI ( Prohibition of Insider Trading) Regulations, 2015

SEBI (Prohibition of Insider Trading) Regulations prescribes certain compliances to be made by
the Company which are given hereunder:

No insider shall trade in securities that are listed or proposed to be listed on a stock exchange
when in possession of unpublished price sensitive information An insider shall be entitled to
formulate a trading plan and present it to the compliance officer for approval and public
disclosure pursuant to which trades may be carried out on his behalf in accordance with such
plan.

Initial Disclosures.
(a) Every promoter, key managerial personnel and director of every company whose securities
are listed on any recognised stock exchange shall disclose his holding of securities of the company
as on the date of these regulations taking effect, to the company within thirty days of these
regulations taking effect;
(b) Every person on appointment as a key managerial personnel or a director of the company or
upon becoming a promoter shall disclose his holding of securities of the company as on the date
of appointment or becoming a promoter, to the company within seven days of such appointment
or becoming a promoter.

Continual Disclosures.
(a) Every promoter, employee and director of every company shall disclose to the company the
number of such securities acquired or disposed of within two trading days of such transaction if
the value of the securities traded, whether in one transaction or a series of transactions over any
calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value
as may be specified;
(b) Every company shall notify the particulars of such trading to the stock exchange on which the
securities are listed within two trading days of receipt of the disclosure or from becoming aware
of such information.
Explanation. — It is clarified for the avoidance of doubts that the disclosure of the incremental
transactions after any disclosure under this sub‐regulation, shall be made when the transactions
effected after the prior disclosure cross the threshold specified in clause (a) of sub‐regulation (2).

Disclosures by other connected persons.
(a) Any company whose securities are listed on a stock exchange may, at its discretion require
any other connected person or class of connected persons to make disclosures of holdings and
trading in securities of the company in such form and at such frequency as may be
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 The board of directors of every company, whose securities are listed on a stock exchange,
shall formulate and publish on its official website, a code of practices and procedures for fair
disclosure of unpublished price sensitive information that it would follow in order to adhere
to each of the principles set out in Schedule A to these regulations, without diluting the
provisions of these regulations in any manner determined by the company in order to
monitor compliance with these regulations.
 Every such code of practices and procedures for fair disclosure of unpublished price sensitive
information and every amendment thereto shall be promptly intimated to the stock
exchanges where the securities are listed.
 The board of directors of every listed company and market intermediary shall formulate a
code of conduct to regulate, monitor and report trading by its employees and other
connected persons towards achieving compliance with these regulations, adopting the
minimum standards set out in Schedule B to these regulations, without diluting the provisions
of these regulations in any manner.
 Every other person who is required to handle unpublished price sensitive information in the
course of business operations shall formulate a code of conduct to regulate, monitor and
report trading by employees and other connected persons towards achieving compliance
with these regulations, adopting the minimum standards set out in Schedule B to these
regulations without diluting the provisions of these regulations in any manner.
 Every listed company, market intermediary and other persons formulating a code of conduct
shall identify and designate a compliance officer to administer the code of conduct and other
requirements under these regulations.

9.4. Appellate Tribunal
The Securities Appellate Tribunal (SAT) according to Section 15U is not bound by the procedure
laid down by the Code of Civil Procedure, but shall be guided by the principles if natural justice
and shall have the powers to regulate their own procedures. The tribunal for the purpose of
discharging its functions under this Act shall have the same powers as are vested in a civil court
under the Code of Civil Procedure while trying a suit in respect of the following matters, namely:‐
 Summoning and enforcing the attendance of any person and examining him on oath;
 Requiring the discovery and production of documents;
 Receiving evidence on affidavits;
 Issuing commissions for the examination of witnesses or documents;
191


 Reviewing its decisions;
 Dismissing an application for default or deciding its ex‐parte;
 Setting aside any order of dismissal of any application for default or any order passed by
it ex‐parte.
 Any other matter which may be prescribed
Any Every proceeding before the SAT shall be deemed to be a judicial proceeding within
the meaning of sections 193 and 228 and for the purposes of section 196 of the Indian
Penal Code and the Securities Appellate Tribunal shall be deemed to be a civil court for
all the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.
Section 15T of the SEBI Act gives the right to “Appeal to the Securities Appellate Tribunal (SAT)”.
It states that any person aggrieved by an order –
(i) Of the SEBI made, on and after the commencement of the Securities Laws (Second
Amendment) Act, 1999, under the SEBI Act, or the rules and regulations made
thereunder; or
(ii) Made by an adjudicating officer appointed under this Act;
may prefer an appeal to the SAT having jurisdiction in this matter. Every appeal should be filed
within a period of 45 days from the date on which a copy of the order made by the SEBI Board or
the Adjudicating Officer is received by him and it should be in a specified form and accompanied
by such fee as may be prescribed.
Section 15Zgives the right to appeal to Supreme Court against an order given by SAT. Any person
aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the
Supreme Court within 60 days from the date of communication of the decision or order of the
SAT to him on any question of law arising out of such order. However, the Supreme Court may,
if it is satisfied that the applicant was prevented by sufficient cause from filing the appeal within
the said period, allow it to be filed within a further period not exceeding sixty days.

9.5. SCORES System for Investor Grievance

SEBI has vide its Circular No. CIR/OIAE/2/2011 dated June 3, 2011 provided for a system for
processing of investor complaints against listed companies called SEBI Complaints Redress
192


System (SCORES). This is a centralised web based complaints redress system. The salient
features of this system are:
 Centralised database of all complaints
 Online movement of complaints to the concerned listed companies
 Online upload of Action Taken Reports (ATRs) by the concerned companies and
 Online viewing by investors of actions taken on the complaint and its current status
Complaints arising out of issues that are covered under SEBI Act, Securities Contract Regulation
Act, Depositories Act and rules and regulation made there under and provisions that are covered
under section 55A of Companies Act are complaints dealt with by SEBI
Certain matters are not considered as complaints in SCORES. These are given hereunder:
 Complaints that are incomplete or not specific
 Allegations without supporting documents
 Offering suggestions or seeking guidance/explanation
 Seeking explanation for non‐trading of shares or illiquidity of shares
 Not satisfied with trading price of the shares of the companies
 Non‐listing of shares of private offer
 Disputes arising out of private agreement with companies/intermediaries
Apart from this, there are certain complaints not dealt with by SEBI:
o Complaints against unlisted/delisted/wound up/liquidated/sick companies
o Complaints that are sub‐judice (relating to cases which are under consideration by
court of law, quasi‐judicial proceedings etc.)
o Complaints falling under the purview of other regulatory bodies viz. RBI, IRDA,
PFRDA, CCI, FMC, etc., or under the purview of other ministries viz., MCA, etc.
The relevant extracts of the circulars have been provided below:
All complaints pertaining to companies will be electronically sent through SCORES at
http://scores.gov.in/Admin
The companies are required to view the complaints pending against them and submit ATRs along
with supporting documents electronically in SCORES. Failure on the part of the company to
update the ATR in SCORES will be treated as non redressal of investor complaints by the company.
Submission of physical ATR will not be accepted for complaints lodged in SCORES. For complaints
forwarded to companies on or before 20/05/2011, physical ATRs should be submitted. It has
been further specified by SEBI vide CIR/OIAE/1/2012 dated August 13, 2012 that all companies
whose securities are listed on stock exchanges, are advised to obtain SCORES authentication by
193


September 14, 2012 in terms of Circular No. No. CIR/OIAE/2/2011 dated June 3, 2011. All
companies against whom complaints are pending on SCORES, shall take appropriate necessary
steps within 7 days of receipt of complaint by the concerned company through SCORES, so as to
resolve the complaint within 30 days of receipt of complaint and also keep the complainant duly
informed of the action taken thereon. The user id and password for logging into SCORES at
http://scores.gov.in/Adminare being communicated separately to companies against whom
complaints are lodged in SCORES.
In case the complaints are processed by the Registrar to Issue and Share Transfer Agent (RTI/STA)
on behalf of the company, the company should indicate in the Annexure given below whether
they require the facility to forward complaints to the RTI/STA, so that the ATRs can be uploaded
by them. In such cases, the name of the RTI/STA, the name of the Compliance Officer and email
id should be furnished, so that the user id and password can be provided accordingly. Further,
failure on the part of the RTI/STA to update the ATR in SCORES will be treated as non redressal
of investor complaints by the company. All complaints shall be forwarded electronically through
SCORES only. Failure on the part of the entity in updating the Action Taken Report (ATR) on the
SCORES will be considered as non‐redressal of complaint and will be shown as pending against
the entity.

9.6. Establishment of Special Courts

As per Section 26A of the SCRA, Central Government may, for the purpose of providing speedy
trial of offences under this Act, by notification, establish or designate as many Special Courts as
may be necessary.

As per Section 26B, all offences under this Act committed prior to the date of commencement of
the Securities Laws (Amendment) Act, 2014 or on or after the date of such commencement, shall
be taken cognizance of and tried by the Special Court established for the area in which the
offence is committed or where there are more Special Courts than one for such area, by such one
of them as may be specified in this behalf by the High Court concerned.

Section 26C specifies that High Court may exercise, so far as may be applicable, all the powers
conferred by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 on a High Court, as
if a Special Court within the local limits of the jurisdiction of the High Court were a Court of
Session trying cases within the local limits of the jurisdiction of the High Court.

194


Section 26D states that the provisions of the Code of Criminal Procedure, 1973 shall apply to the
proceedings before a Special Court and for the purposes of the said provisions, the Special Court
shall be deemed to be a Court of Session and the person conducting prosecution before a Special
Court shall be deemed to be a Public Prosecutor within the meaning of clause (u) of section 2 of
the Code of Criminal Procedure, 1973.
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ANNEXURE
AUTHENTICATION FOR SCORES
1. Name of the Company:
2. Whether complaints processed through: RTI In‐house
3. If through RTI, please indicate the following:
Name of the RTI:
Whether complaints can be passed to them manually by the company or directly to RTI
4. The details of the concerned person of the company to whom User id and password will be
sent:
Name:
Email id:
Telephone No.:
Fax No.:
Place: Signature:
Date: Name:
Designation:
Company Seal:
Note: A scanned copy can be sent by email to scores@sebi.gov.in followed by hard copy

196


Review Questions
1. Securities Appellate Tribunal (SAT) is bound by the procedure laid down in the Code of Civil
Procedure. State TRUE or FALSE.
A. True
B. False

2. Any person aggrieved by an order of Securities Appellate Tribunal (SAT) may prefer an
appeal within a period of ____ days from the date on which a copy of the order made by
the SAT is received by him.
A. 15
B. 30
C. 45
D. 60

3. SEBI Complaints Redress System (SCORES) provides for a system for processing of investor
complaints against listed companies. State TRUE or FALSE.
A. True
B. False

4. Failure on the part of the company to update the requisite report in SEBI Complaints
Redress System (SCORES) will be treated as non redressal of investor complaints by the
company. State TRUE or FALSE.
A. True
B. False

197


Additional Read: SAT Cases

CASE 1 – VASWANI INDUSTRIES LIMITED
Facts of the case:
The IPO of Vaswani Industries Limited opened on April 29, 2011 and closed on May 3, 2011. The
Company made an offer of 10,000,000 equity shares in a price band of Rs.45 to Rs.49/‐. As on
the date of issue closure, the level of subscription was at 0.16 times, 11.29 times and 6.82 times
for QIBs, Non‐institutional Investors and Retail Individual Investors respectively. The shares were
allotted to the investors on May 10, 2011.
In the meantime, SEBI received about 100 complaints on May 13, 2011 from investors pointing
out large scale withdrawals/rejections in the issue. It was alleged that certain applications were
submitted to artificially inflate the subscriptions in QIB and HNI category to attract and mislead
investors and the same applications were withdrawn later through stop payment, stop allotment,
cheque return etc. and that this was a pre‐planned move amongst the promoters of the issuer
company Lead Manager, Registrar and the other operators.
SEBI, after examining all the matters in this case passed an Order dated July 11, 2011 as under:
 Vaswani Industries to give withdrawal option to all investors in the Non‐institutional and
retail investor category for such number of shares by which the allotment ratio was
impacted due to withdrawals/rejections in the aforesaid categories. The withdrawal
option to be kept open for 10 days
 On closure of the withdrawal option, if the subscription level after such withdrawals falls
below the minimum level of subscription as required by law, the BRLM, Ashika Capital
Limited, may purchase or arrange purchase through any investor(s) identified by it of such
number of shares so as to ensure that the subscription does not fall below the minimum
level of subscription. Non‐compliance of such condition shall result in refund of entire
subscription money to the investors and cancellation of all the shares so allotted by the
Company.
 In the event of the Company failing to provide withdrawal option within the given time
frame, the BRLM shall take necessary steps to ensure that allotment of shares is cancelled
and money is refunded to investors within seven days of such failure.
Vaswani Industries had appealed to SAT against the order of SEBI. The appeal was disposed of
on 25.8.2011 on the following terms;
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1. The Appellant shall give a withdrawal option to investors in the RII category to the extent of
15,00,348 shares as set out in its letter dated 8th July 2011.
2. The Appellant shall issue a public advertisement giving details of the withdrawal option and
the information regarding the bonus issue mentioned below. The public advertisement shall be
made in consultation with SEBI and Bombay Stock Exchange Limited as soon as possible, but in
any event, within 7working days of this order.
3. For the purpose of the withdrawal of offers and other related issues, the Appellant shall follow
the other procedures laid down in the SEBI order dated July 11, 2011.
4. After completion of the withdrawal of offers by RIIs and placement of those shares with either
the Sole Syndicate Member cum BRLM i.e. Ashika Capital Limited or investors identified by Ashika
Capital Limited, and subject to thereceipt of minimum subscription and any other compliance,
the stock exchanges shall grant listing permission for the shares.
5. Immediately upon listing of the shares, the Appellant shall take steps to make a bonus issue of
shares to the investors in the IPO in the ratio of one share for every four shares held. The
promoters and the promoter group entities of the Appellant have provided a written undertaking
that they will not receive such bonus shares in the said bonus issue. The Appellant hereby
undertakes that it will not issue such bonus shares to any of the promoters or the promoter group
entities. A list of the promoters and their group entities has been filed before us the correctness
of which is confirmed by the Appellant. It is made clear that promoters and the promoter group
entities shall not directly or indirectly receive the bonus shares mentioned above.
6. The public advertisement mentioned in paragraph 2 above shall give full information and
details regarding the bonus issue mentioned in paragraph 2above, and shall make it clear that
investors will receive the bonus shares mentioned therein in respect of such of their shares for
which they have not exercised the withdrawal option. For the purpose of clarification, an
illustration shall be included in the advertisement.
7. Trading in the shares on the stock exchanges shall be permitted only after the bonus issue of
shares and their listing is completed in all respects.
8. The entire process regarding the withdrawal of offers and the bonus issue shall be completed
within sixty days of this order.

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CASE 2:
Extracts of the background of the case is given hereunder:
1. BSE, on Aug 27, 2011 received a Fax from Bodal Chemicals Ltd. (hereinafter referred to as
‘Bodal’ or company) on a letterhead of the company informing that the meeting of the Board of
Director of the company will be held on August 29, 2011 to consider and approve the Bonus issue
and also enclosed an undated press release issued by the company which inter alia stated about
the disinvestments plans of the company. The letter was duly signed by the company secretary.
The Press Release informed the following:
a) That the meeting of the Board of Director of the company will be held on August29, 2011 to
consider and approve the issue of Bonus issue.
b) The company announces the divestiture of its Single Super Phosphate (S.S.P) Plant situated at
Padra, Vadodara for a cash consideration of Rs. 640 Crores toM/s Kiri Dyes Limited, Ahmedabad.
c) CRISIL – one of the most renowned credit rating agencies in India has assigned CRICIL GVC Level
3 rating on the companies corporate governance and value creation practices for all its stake
holders. The rating indicates that the company’s capability with regard to corporate governance
and value creation for all its stake holders is high.
d) The shares of the company are now listed at National Stock Exchange of India Ltd.
2. It is observed from the sender details of the fax that this letter from the company containing
material disclosure was sent on a Saturday (August 27, 2011) with sender detail as Radheshyam
Stationery (Fax No. 00917926761022).
3. August 27, 2011 being a holiday, these string of announcements or disclosures on the letter
and press release sent by fax were disseminated on BSE website on Aug 29, 2011, at 8:13 hrs and
8:18 hrs. Further, on the same day during market hours at 14:24hrs, Exchange disseminated a
clarification it received from the company with reference to the earlier two announcements
disseminated on BSE website. Bodal informed that it had not issued any Press Release on August
27, 2011 for said subject and the Company has not sent any fax on August 27, 2011. While going
through the disclosures received by the company it is noted that while both the letters are
written on the letter head purportedly of Bodal but the appearance of the letter heads are
different. The genuineness of the fax sent on August 27, 2011 needs to be verified in the course
of investigation.
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After investigation of the price movements in the shares, SEBI has issued the following order on
30th August, 2011:
It directed BSE and NSE to withhold the pay‐out of securities and funds for the trading done on
their respective exchanges on Aug. 29, 2011. Prohibition of the persons involved from buying,
selling or dealing in the securities in any manner whatsoever till further directions.

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Annexure1: Timeline for Activities involving IPO
CHECKLIST OF ACTIVITIES FOR IPOs (BOTH FIXED PRICE AND BOOK BUILT ISSUES)
The following summarises the checklist of activities carried out in an initial public offering of
securities with approximate time lines.
Sl. No Activity Time Line
1 Decide on Public Issue ( IPO/FPO) X
2 Check whether any licenses are required either from the SIA X
or the FIPB. If yes, make application and obtain the same
before the issue structure is finalised
3 Make applications for all approvals that are required from X+10
Government Agencies like power sanction, conversion of
agricultural land, usage of water, environmental clearance,
etc. In case any approvals have expired, make fresh
application
4 Ensure that a secretarial audit is undertaken and completed X+30
to ensure that all compliances as regards the Companies
Act, 1956/Companies Act, 2013, as may be applicable have
been complied with and compounding done wherever
required.
5 Preparation of the Project Report / Drawing out the X+30

estimate of the requirement of funds.
6 Working out on the funding pattern, making out an X+30
application for term loan if any, to bankers.
7 Submit application for appraisal to appraising agency if X+30

appraisal route is being followed.
8 Determine Promoters contribution, ensure that minimum X+30

eligible promoters contribution exists, or else inform
promoters about shortfall and arrange for the subscription
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9 Have a meeting with the statutory auditors of the company, X+10
and get the accounts of the company restated as per the
SEBI requirements, with all the requisite annexures.
10 Hold a Board Meeting to increase authorised capital, issue X+30

of equity shares, approve the notice for the holding of
General Meeting of the shareholders to get their approval
for the issue of securities and other matters relating
thereto.
11 Obtain clearance from the Stock Exchange for the X+30
Memorandum and Articles of Association.
12. Despatch notice to shareholders for the holding of General X+30

Meeting for the approval of the issue
13 Obtain the restated accounts, study the accounts and X+50
ensure that the company is eligible to make an IPO. Obtain
statement of tax benefits from the auditors
14 Hold General Meeting and obtain shareholder approval for X+60

the amendment to the capital clause in the MOA, objects
clause if necessary, issue of capital to public as required
under the Companies Act, 2013
15 File all the resolutions passed at the General Meeting with X+61

the ROC
16 Enter into MOU with Lead Managers X+61
17 Begin due diligence, continuous interactions with the X+61

company officials to draw up the risk factors / make
necessary disclosures in the document.
18 Complete Due Diligence and collect all documents X+71

necessary for preparation of prospectus
19 Obtain term loan sanction, appraisal report and clearance X+75

from bankers / financial institutions for the IPO, if any.
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20 Finalise the other agencies involved in the IPO. To advise X+75
company to enter into MOU with Registrar.
21 Have a session with the legal advisors to the issue to X+75
determine the litigations in which the company / directors/
promoters / promoter group companies / associate
companies are involved and try to quantify the amount
involved in the same. Obtain latest status of the cases
22 Enter into agreement with the depositories ( NSDL & CDSL) X+75
23 Complete preparation of the prospectus X+80
24 To prepare and give necessary declarations from the X+80
company to the Merchant Banker / SEBI
25 To Obtain necessary consents from directors of the X+80
company, auditors, experts and other persons, for inclusion
of their names in the prospectus
26 File the draft Red Herring prospectus / Draft Prospectus X+82
with SEBI along with the due diligence and the necessary
certificates / undertakings.
27 File the draft Red Herring prospectus / Draft prospectus X+82
with stock exchanges and make an application for in‐
principle approval
28 Host the draft document on the web site of the merchant X+82

banker and also release advertisement in the newspaper
regarding filing of DRHP and request for comments /
complaints from public
29 Continuous interaction with stock exchanges and SEBI
30 File 21 day “No Complaints certificate” with SEBI X+103
31 Obtain in‐principle approval from the stock exchanges, X+142

where the company proposes to list its shares, and inform
SEBI of obtaining the in‐principle approval
204


32 Obtain final observations from SEBI X+150
33 Finalise the final prospectus / RHP X+160
34 Start Meetings with Syndicate Members & QIBs X+160
35 Preparation of the abridged prospectus ( Form 2A) X+160
36 Prepare the statutory advertisement X+160
37 Interaction with advertisement agency for the release of X+160
the statutory advertisement.
38 Obtain final clearance from SEBI X+162
39 Hold a Board Meeting to accept the letters of underwriting, X+163

(Only for fixed price issues) approve, sign and authorise the
final prospectus(only for fixed price issues), opening of
escrow accounts with banks, filing of listing application with
the stock exchanges.
40 Decide the issue opening date and the price band X+163
41 Strike order for the printing of issue stationery X+163
42 File the RHP ( Book built issues) / prospectus ( in case of X+165
fixed price issues) with ROC along with the necessary
material contracts and documents for inspection
43 Obtain acknowledgement card from ROC X+167
44 Send the required copies of the final prospectus / RHP to X+167

SEBI along with the soft copy of the same. Also send the
necessary copies of the final prospectus / RHP to the stock
exchanges where the shares of the company are to be
listed.
45 Release the statutory announcement of the prospectus in X+168

the newspapers
46 Opening of bank accounts/ escrow bank accounts X+177
205


47 Issue Advertisement, releasing the price band / floor price X+177

(for Book Built Issues, if the RHP does not carry the price
band / floor price.)
48 Hold road shows, one to one interactions with QIBs,
meetings with brokers etc
49 1% of the issue size to the public to be deposited with the X+178

designated stock exchange
50 Opening of the issue / bid X+179
51 Arrange to receive collection figures on a daily basis /

monitor on‐line registration of bids.
52 On the date of closure / one day before closure of the issue, X+182

determine if the issue is subscribed to the extent of 90%
53 Issue / Bid closes for subscription X+183/X+189
54 In case of Book Built Issues, finalize the price X+189
55 In case of Book Built Issues, finalise the underwriting X+190
pattern
56 Enter into Underwriting Agreement with Syndicate ( Book X+190

Built Issues)
57 File Initial Post Issue report with SEBI X+186 / x+192
58 Prepare the Prospectus and file with ROC ( Book Built Issues) X+192
59 Co‐ordinate the preparation of the basis of allotment, X+193
meeting with the stock exchanges for the approval of the
basis
60 After approval of the basis of allotment, prepare the list of X+194

successful allottees, the list of shareholders who must
receive refunds
206


61 Have a Board meeting to approve the allotment of shares, X+194

printing and signing of share certificates, demat credits,
printing and signing of refund orders, authorising of
opening bank accounts for collection of allotment money,
authorising the opening of bank account for the despatch of
refunds and for the execution of the listing agreement.
62 Work out the stamp duty payable and incorporate the X+195
details of stamp duty paid for the share certificates –
although the responsibility is that of the company, to
remind them of the same, before despatch of the share
certficates.
63 Complete despatch of refund orders/ refund credits X+196

through ECS or direct credits, demat credits
64 Listing of the securities X+198
65 Filing Final Post Issue Report with SEBI X+209
66 File application with SEBI for NOC for the purpose of release After 6 months of

of 1% deposit the closure of
issue
67 Get the NOC from SEBI and file necessary application with
stock exchange for the release of the 1% deposit

207


Annexure 2 – List of Formats of Due Diligence Certificates

Format of due diligence certificate to be given
Form A by merchant banker along with draft offer
document
Form B by debenture trustee along with draft offer
document
Form C by merchant banker at the time of registering
offer document with the
Registrar of companies / filing letter of offer
with the designated stock exchange
Form D by merchant banker immediately before
opening of the issue
Form E by merchant banker after opening of the issue
but before closure of subscription
Additional confirmations/ certification to be
Form F given by merchant banker in due diligence
certificate to be given along with offer
Document for fast track issue
Form G by merchant banker along with final post issue
report
Additional confirmations/ certification to be
Form H given by merchant banker in due diligence
certificate to be given along with offer
document regarding SME exchange

208


Annexure 3: Areas to be covered in the due diligence process
Sl. Name of the Document Items to be checked and verified / Likely queries

No from the Merchant Banker
1 Memorandum of Association The basic document which will be checked for

the date of incorporation, date of receipt of
certificate of commencement of business, the
dates of changes of name of the company, if any
and the new names of the company each time a
change was made.
2 E‐form INC 22 All the Form No. INC ‐22 filed by the company
with the ROC are required to be scrutinised. This
will indicate the change in the address of the
registered office of the company. With every
change, the Board resolution, the shareholder
resolution, minutes book and e‐form MGT 14
filed with the ROC will have to be checked for
correctness of date, address and the procedural
requirement under Companies Act, 1956.
3 Letter head of the company To indicate the address, telephone numbers, fax
numbers, email id and web site. In case the
company does not have a web site or email id,
the same is to be created before the filing of the
DRHP with SEBI.
4 Compliance Officer The appointment letter of the company secretary
shall be checked to determine that the company
secretary has the necessary qualifications and is
a permanent employee of the company.
5 Application for in‐principle To ensure that the company has obtained the
approval of the stock clearance from the stock exchanges for the
exchange Memorandum and Articles of Association and
the company has applied for “in‐Principle”
approval.
209



6 Copies of registration To ensure that all the intermediaries associated

certificate of all with the IPO hold valid registration and such
intermediaries registration shall be valid until the completion of
the IPO.
7 Abbreviations and terms To collect a list of all special terms associated
associated with the company with the company or industry and the
/ industry abbreviations that are special to the company
and the industry in which the company operates
8 Annual Reports of the From the annual reports, to check if the company

company for the past 5 years is eligible to make an IPO on the basis of
networth, ability to pay dividend and net tangible
assets.
To check if there is any change in accounting

policy and by virtue of this change, the company
meets the eligibility criteria.
To study the increase in share capital over the

last 5 years, the related party transactions, value
of inventory, value of sundry debtors, value of
advances and the amount of unsecured loans
taken by the company.
To also make a note of the persons from whom
the unsecured loans have been taken and the
terms of such unsecured loans. In case huge
advances have been given by the company, the
names of the persons to whom such advances
have been given, whether they are related to the
promoters / directors shall also be verified and
the reasons for the non‐ repayment of the
advance.
Check for format and accurate records
210



Cash Flow Statement of the

company
9 Application to the credit To ensure that the grade is obtained and include

rating agency for grading the grades along with the rationale for the award
of that particular grade.
10 Name of the address of the Verify the same

statutory auditors of the
company along with the
membership number, email
id.
11 Board of Directors of the Get the list of Board of Directors

company – collect copy of
consents to act as directors, To check the minutes book of the shareholders
list of directors with their age, meeting for the appointment of each of the
qualification and address. above directors. To check whether consents have
been obtained from the directors. Copies of
relevant forms filed with ROC for every
appointment of director shall be verified.
To also collect the bio‐data of
each director‐ which shall
indicate the other
directorships. Collect the age, qualification and experience of
the directors. Also find out the relationship
amongst the directors.
Copy of the Driving license, To check the articles of association to see the
electoral ID card, passport maximum number of directors that the company
and a photograph. can have and to verify if the number of directors
on the board is less than the maximum number
specified.
211



To check the constitution of the Board ‐ and

ensure compliance of the requirements of SEBI
Listing Regulations
12 Names and addresses of the

bankers to the company along
with the name of the contact
person and email id.
13 Copy of the project report if

any prepared by the
company.
14 Copy of the application made
to the bankers for term loan if
any.
15 Copy of sanction letter

received from the bankers for
term loan and also consent
letters from the bankers /
appraising entities for
inclusion of their names in the
prospectus. In case the banks
have appraised the project, a
copy of the appraisal report.
16 In case the company is making To incorporate the credit rating in the offer
a debt issue, the application document
made to the credit rating
agency for the rating of the
securities
17 Names of trustees, in case of
debt issues.
212



18 E‐form SH – 7 All the E‐form SH‐ 7 filed by the company with
ROC shall be arranged date wise and checked to
see if the current authorised capital tallies with
the figures stated therein.
To also check and verify that the paid up capital
of the company after the IPO shall be within the
authorised capital. If not advise the company to
increase the authorise capital.
19 e‐form PAS 3 E‐form PAS 3 is filed with every allotment of
capital. All the Forms PAS 3 shall be collected,
arranged date wise and cross verified to
determine the increase in paid‐up capital. Each
increase shall also be cross verified with the
Board minutes, shareholder meeting minutes
book and a copy of the e‐form MGT 14 filed with
ROC for the special resolution authorising the
allotment of shares.
In case Bonus issues have been made, check

whether they have been made from free
reserves – This can be done by verifying the
annual report / balance sheet of the company.
Check and ensure that bonus issues were not
made when there were partly paid shares.
Necessary resolutions were passed and filed with
ROC.
20 Partly Paid Shares & To check the annual report to find out whether

Outstanding instruments there are any partly paid shares or any
instruments which are convertible into equity. If
partly paid shares exist, they shall either be made
fully paid or forfeited. In case there are any
213



outstanding instruments that are convertible
into equity, the company shall be advised to
convert these instruments into equity before the
document is filed with SEBI.
21 Promoters’ contribution From the issued capital, determine if there is
eligible promoters’ contribution. To check if
shares have been issued for consideration other
than cash and revaluation is involved or shares
have been issued out of revaluation reserves or
issued at a lesser price in the last 12 months
(before filing the DRHP with SEBI).
In case there is a bonus issue and there are

ineligible shares, to remember bonus out of free
reserves on these ineligible shares are also
ineligible for computing promoters’ contribution.
22 List of top 10 shareholders, 2
years before the issue and on
the date of filing the DRHP
with SEBI.
23 ESOP Schemes In case the company has formulated ESOP

schemes, obtain the scheme, options granted,
options vested and shares issued against the
options. These details can be obtained from the
shareholders’ resolution and the annual report /
director’s report of the company. To also take
the names of the employees to whom the
options have been granted. No option under
ESOP shall be granted to the promoters of the
company.
24 Details of shares purchased or In case shares have been acquired for a price less

acquired in the last 6 months than the issue price, ensure that such shares are
214



not included for computation of minimum
promoters’ contribution.
25 Objects of the Issue To check if the objects proposed to be carried on

by the company is permitted by the Objects
Clause of the Memorandum of Association of the
company.
26 Funding Arrangements : Ensure that 75% of the means of finance is tied

up firmly.
Term Loan Sanction letter
If the project is to be funded by internal accruals,
check the audited financial results to ensure that
the company has adequate internal accruals.
27 Land documents – for the To check if the vendors are related to the
project promoters. If yes the price at which the seller
purchased the land and the price at which the
land is being sold is required to be verified.
If freehold, sale deed and title To check if the land is registered in the name of
of registration the company or any of the officials / directors /
promoters of the company.

In case of lease hold property, to study the terms
If leasehold, the lease
of lease, to ensure that the lease is valid on the
agreement.
date of filing the DRHP with SEBI. To check if the
lease deeds are registered.
For all the other property of Make a tabular column of the property available

the company: with the company, the vendor, the date of sale,
date of lease, any related party involved, the
amount of consideration paid for the same and
the lease amount payable / lease deposit made.

Get the title deeds, deed of

sale or lease deed.
215



28 Architects estimates for To go through the architect’s estimates for the
building, if any owned by the building, the various facilities that are to be built
company in the building. A tabular column containing the
details, name of the facility, sq feet, type of
construction, the amount per square feet, total
amount and the likely date of completion of
construction shall be made.
To check if the architect is any way related to the
promoters / directors of the company.
29 Invoices of the plant and To break down the machinery required facility
machinery / purchase orders wise or phase wise or process wise as is required.
placed.
To check if there is any second hand machinery.
Import licences for the If so, get a certificate of life worthiness and
machinery. period for which the machinery can be put into
effective use.
To segregate imported and indigenous

machinery. For imported machinery, check if
licenses are required and ensure that import
licences have been obtained or applied for.
To arrive at the value of machinery for which

orders have been placed, check bank accounts
for the advance paid.
To also confirm the dates by which orders will be
placed for the balance machinery.
To ensure that the estimates obtained are not

more than 3 months old at the time of filing the
DRHP.
216



30 Application to bankers for

working capital.
Correspondence with bankers
regarding the credit limits
currently enjoyed by the
company.
31 Certificate of the auditors of

the company for the amount
deployed in the project and
Year wise deployment of
funds.
32 Statement of Tax Benefits To request the auditors to highlight the special
available to the company tax benefits available to the company.
33 A write‐up on the industry in
which the company is
operating
34 Minutes Book of the To study in detail to determine the activities that

shareholders meetings and the company has been involved in from the date
Board Meetings. of incorporation. To see if there are any change
in the objects of the company. Check if there are
shareholder resolutions for the same, e‐form
MGT 14 filed for the resolution and Forms filed
with ROC for the alteration of the Object Clause.
35 List of Customers
36 Patents registered / applied

for
37 Branch Office set up
217



38 Copies of certifications

received by the company.
39 Sanction for Power and In case the sanctions have expired to ensure that

application for renewal / applications have been made for renewal before
fresh power if any filing the DRHP.
40 Sanction for use of water

from river / lake etc.
41 Environmental clearance To ensure that the company is holding NOC from

the Pollution Control Board and is valid as on the
date of filing DRHP. Else, the company has
applied for the same / for renewal of the same.
In case the company is involved in the

manufacture of hazardous chemicals or emission
of dangerous fumes, did the company comply
with all the conditions imposed by the pollution
control authorities. Were there any problems
with the authorities in the past?
42 Brochures describing the

products of the company.
43 Technical collaboration /

performance guarantees
44 Balance sheet of the Study in detail and incorporate the shareholding

subsidiary companies, pattern, Board of directors and objects /
shareholding pattern, Board activities undertaken by the subsidiaries
of directors and a copy of the
Memorandum of Association
of the subsidiary companies.
218



45 Foreign Collaboration To obtain the balance sheet of the foreign
agreement. collaborator.
46 Shareholder Agreements To incorporate the details of these agreements in

the DRHP and to make it a document for
inspection.
47 Resolution of Shareholders

passed determining the
borrowing powers of the
Board of Directors of the
Company.
48 Minutes of the Audit

Committee, Remuneration
Committee and Shareholders’
Committee.
49 Terms of Reference of

appointment of the
committees under Corporate
Governance
50 A copy of the Insider Trading If such a policy does not exist, to draft one and

Policy. include it as the insider trading Regulations
would be applicable, once listed
51 Shareholder Resolution To check if the remuneration is within the limits

approving the remuneration specified in the Companies Act, 2013. If not,
of the directors whether the company obtained necessary
approval from the Central Government in this
regard.
52 A list showing the changes in For every change, whether appointment or

the directors and Form filed resignation, check whether requisite form is filed
with ROC since incorporation. with ROC. To also check if the shareholders have
219



approved the appointment of new directors. To
check and verify the minutes book and e‐form
MGT 14 filed with ROC.
53 Appointment letters of Key

Management Personnel
54 Bio data of key management To confirm whether any of the key management

personnel‐ with copies of personnel are related as per AS‐18.
certificates for educational
qualifications.
Copy of the Attendance To check if the employees are on the permanent

Register rolls of the company and are not employed in a
group company or by a subsidiary.
To check the shares held by any employee.
To also check if the employees / key

management personnel have any other interest
in the company.
55 List showing changes in the

key management personnel
in the last 3 years.
56 List of Promoter group

companies.
57 For each of the promoter To reproduce the details in the prospectus. To
companies – please collect also determine if any of the companies have
conflict of interest with the issuer company and
Memorandum of Association. whether any of the group companies are making
losses / have not commenced operations.
Shareholding Pattern
If any of the group companies have not
Board of Directors
commenced any commercial activity, but hold
220



investments, to check whether they have
Balance Sheet for the last 3 registered with RBI, as an Investment Company.
years.
58 If any of the group companies Prepare a Promise Vs Performance and

has made a public or rights incorporate the same in the prospectus.
issue in the past:
Copy of the Prospectus or

Letter of Offer.
59 If any of the group companies Check the correspondence with Stock Exchange

are listed : File thoroughly. Compliances with the all the
exchanges where the shares of the company are
Their stock exchange filings listed shall be checked. Non‐compliance shall be
since the date of listing. highlighted and shall form part of the prospectus.
60 If the group companies have Non compliances shall be highlighted and
taken over any listed incorporated in the prospectus.
company since the year 1997
– check for compliances with
SEBI Takeover Code.
61 List of relatives with their

relationship
62 A list of ventures / companies To enquire the reasons for the disassociation. To

from which the promoters check for litigation against these companies. (
have disassociated in the past pending and closed)
3 years.
63 Restated Financial To read the financial statements thoroughly:

Statements:
a. To enquire if there are ups and downs in
(Consolidated if there are the value of sundry debtors in the last 5
subsidiaries) years.
221



b. To enquire if there is a huge value of

inventory.
c. To enquire if a huge percentage of Sundry
debtors is more than 6 month old.
d. To check if NAV and EPS are calculated as
per weighted average number of shares if
bonus is issued from the earliest
reporting period.
e. To check if there is any change in any

accounting policy.
f. To check if the policies are in conformity
with the Accounting Standards.
g. To check if under related party

transactions the name of the party, the
relationship and the amount of contract
is given.
h. Check for secured loans.
i. Unsecured loans – the term and whether
repayable on demand shall be seen.
j. Value of investments.
k. Check for negative cash flows from

operating, financing or investment
activities – report as risk factor.
l. Check the details of contingent liabilities
– report as a risk factor.
222



64 Secured Loans – Term Loan The detailed terms and conditions and restrictive

sanction letter. covenants shall be studied in detail.
Register of Charges In case prior permissions are required, the same
must be obtained from the banks before
Form 8 filed with ROC proceeding with the issue.
65 Management Discussion and

Analysis of the Financial
Statements
66 Litigation: Detailed scrutiny of the cases shall be

undertaken. The financial liability involved shall
Cases shall be segregated as be ascertained. The status as on a date, not older
than one week before the filing of DRHP shall be
a. Filed by Company
taken. In case the financial liability is huge, to
b. Filed against company confirm necessary provisions have been made
for the same in the accounts of the company.
c. Filed against
Promoters
d. Filed against directors. A table should be prepared having the column

headings: OS NO, parties, brief details of the
e. Filed by and against case, financial liability where quantifiable,
subsidiary companies current status.
f. Filed by and against

group companies /
associate companies.
If possible a further

segregation into income tax
cases, excise, involving
economic offences, labour
cases and criminal cases shall
be done
223



67 Action by SEBI To check if there is any Order issued by SEBI
prohibiting the company, promoters or directors
from accessing the capital market. ( Website of
SEBI may also be checked apart from the records
of the company)
68 CIBIL site – to be verified Independent check of the CIBIL site shall be made

to find out if the company or its directors or
promoters have been named as wilful defaulters
in the CIBIL site
69 Amount due to small scale To find out from the Annual Reports / financials

undertakings of the company
70 Past Penalties To enquire and find out if any penalties have
been imposed under any statute in the past on
the company, promoters, directors and any of
the promoter group entities.
71 Enquire about material

developments after the date
of the balance sheet
72 Licences and Approvals Check all the documents, look for conditions

imposed, whether complied with or not. To also
check if the licenses / approvals are live or have
expired. If expired, to advise for renewal before
filing DRHP.
73 Board Resolution authorising Must be before the date of the EGM / AGM. Must

the Issue also approve the notice for the EGM / AGM
74 Shareholder Resolution The resolution shall state the amount, the
authorising the Issue. instrument and must authorise the directors to
do all such acts that are necessary to complete
the IPO.
224



75 Articles of Association Read the Articles, to ensure that necessary

clauses on Dematerialisation, Nomination and
Buy back of Securities are inserted.
76 Demat Agreements Ensure that agreements have been entered into

with both NSDL and CDSL. Obtain ISIN number.
77 Minimum Subscription While drafting the minimum subscription, ensure

that the correct wording is there, so as to avoid
the wordings for Compulsory Book Building when
the company is eligible for voluntary book
building.
78 Tax returns filed by the

company and the promoters /
directors of the company
79 Annual Returns filed by the

company.
80 Number of Shareholders

225

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CHAPTER 1: INTRODUCTION TO INDIAN CAPITAL MARKET ................................................. 1

CHAPTER 2: CAPITAL MARKET REGULATIONS ........................................................................ 15

CHAPTER 3: COMPLIANCE OFFICER .............................................................................................. 33

CHAPTER 4: RAISING CAPITAL FROM THE MARKET .............................................................. 41

CHAPTER 5: ROLE OF COMPLIANCE OFFICER IN IPO .............................................................. 49

CHAPTER 6: ROLE OF COMPLIANCE OFFICER IN OTHER PUBLIC ISSUES ........................ 93

CHAPTER 7: RAISING MONEY FROM FOREIGN MARKET .................................................... 142

CHAPTER 8: CORPORATE ACTIONS ............................................................................................ 148

CHAPTER 9: ONGOING COMPLIANCE REQUIREMENTS ....................................................... 178

ADDITIONAL READ: SAT CASES ................................................................................................... 198

Every company requires both long‐term capital and working capital for business purposes. A

Sl. Name of the Document Items to be checked and verified

1 Memorandum and Articles of Check for change in name and the date of

Check the amendments made in the

To also check whether the stock

Listing approval of the stock exchange To check if any action has been taken by

Has the company de‐listed its securities To check the relevant shareholder

Compliance with SEBI (SAST) On verification, should confirm and verify

Has the company filed for any

SEBI (Prohibition of Insider Trading Check if there is an Insider Trading Policy.

Preferential issue – Resolution under For all the preferential issue made by the

Bonus issues made – Board Resolution, To be in conformity SEBI ICDR and

Details of transactions in the last 6 Check for violations of SEBI Regulations.

Copy of the prospectus / Letter of Offer A tabular column denoting the date of

ESOP Schemes and the details of

Sr.No. List of Documents/ details to be submitted Submission Status -

9. Format under Regulation 10(7) ‐ Report to SEBI in respect of any acquisition made

Sr. No. Regulation Compliance required

Sl. No Activity Time Line

5 Preparation of the Project Report / Drawing out the X+30

7 Submit application for appraisal to appraising agency if X+30

8 Determine Promoters contribution, ensure that minimum X+30

10 Hold a Board Meeting to increase authorised capital, issue X+30

12. Despatch notice to shareholders for the holding of General X+30

14 Hold General Meeting and obtain shareholder approval for X+60

15 File all the resolutions passed at the General Meeting with X+61

16 Enter into MOU with Lead Managers X+61

17 Begin due diligence, continuous interactions with the X+61

18 Complete Due Diligence and collect all documents X+71

19 Obtain term loan sanction, appraisal report and clearance X+75

22 Enter into agreement with the depositories ( NSDL & CDSL) X+75

23 Complete preparation of the prospectus X+80

28 Host the draft document on the web site of the merchant X+82

30 File 21 day “No Complaints certificate” with SEBI X+103

31 Obtain in‐principle approval from the stock exchanges, X+142

32 Obtain final observations from SEBI X+150

33 Finalise the final prospectus / RHP X+160

34 Start Meetings with Syndicate Members & QIBs X+160

35 Preparation of the abridged prospectus ( Form 2A) X+160

36 Prepare the statutory advertisement X+160

38 Obtain final clearance from SEBI X+162

39 Hold a Board Meeting to accept the letters of underwriting, X+163

40 Decide the issue opening date and the price band X+163

41 Strike order for the printing of issue stationery X+163

43 Obtain acknowledgement card from ROC X+167

44 Send the required copies of the final prospectus / RHP to X+167

45 Release the statutory announcement of the prospectus in X+168

46 Opening of bank accounts/ escrow bank accounts X+177

47 Issue Advertisement, releasing the price band / floor price X+177

49 1% of the issue size to the public to be deposited with the X+178

50 Opening of the issue / bid X+179

51 Arrange to receive collection figures on a daily basis /