Issue of Capital & Disclosure Requirements

Net Worth

The term Net worth is defined in sub-section (57) of section 2 of the Companies Act, 2013 which means the aggregate value of the paid-up share capital and all reserves created out of the profits, securities premium account and debit or credit balance of profit and loss account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(b) (Syllabus 2022).

According to Regulation 2(1)(ss) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, followings are termed as Qualified Institutional Buyers:

1.a mutual fund, venture capital fund, Alternative Investment Fund and foreign venture capital investor registered with SEBI;

2.foreign portfolio investor other than individuals, corporate bodies and family offices;

3.a public financial institution;

4.a scheduled commercial bank;

5.a multilateral and bilateral development financial institution;

6.a state industrial development corporation;

7.an insurance company registered with the Insurance Regulatory and Development Authority of India;

8.a provident fund with minimum corpus of twenty five crore rupees;

9.a pension fund with minimum corpus of twenty five crore rupees registered with the Pension Fund Regulatory and Development Authority established under section 3(1) of the Pension Fund Regulatory and Development Authority Act, 2013;

10.National Investment Fund set up by the Government of India;

11.Insurance funds set up and managed by army, navy or air force of the Union of India;

12.Insurance funds set up and managed by the Department of Posts, India;

13.Systemically important non-banking financial companies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2A(iv) (Syllabus 2022).

Qualified Institutional Buyer (QIB) means:

(i)a mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor registered with the SEBI;

(ii)a foreign portfolio investor other than individuals, corporate bodies and family offices;

(iii)a public financial institution;

(iv)a scheduled commercial bank;

(v)a multilateral and bilateral development financial institution;

(vi)a state industrial development corporation;

(vii)an insurance company registered with the Insurance Regulatory and Development Authority of India;

(viii)a provident fund with minimum corpus of twenty five crore rupees;

(ix)a pension fund with minimum corpus of twenty five crore rupees;

(x)National Investment Fund 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;

(xi)insurance funds set up and managed by army, navy or air force of the Union of India, and

(xii)insurance funds set up and managed by the Department of Posts, India; and

(xiii)Systemically important non-banking financial companies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(i) (Old syllabus).

Private placement or 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 employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities.

Preferential issue means issuance of equity shares to promoter group or selected investors. It covers allotment of fully convertible debentures, partly convertible debentures or any other financial instruments that could be converted into equity shares at a later date. The investors could be institutional investors, private equity investors, high net-worth individuals, or companies.

One of the biggest advantages of a preferential issue is that the company can raise money quickly and cheaply compared with other means of raising money, say IPO or issue of shares on a rights basis. On the other hand, preferential issues and private placement is only for selected class of investors and not for the retail investors. It is like a wholesale market, where institutions with financial clout are allowed to participate. This deprives investment opportunity to the retail investors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 5(d) (Old syllabus).

Private placement or 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 employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities.

Preferential issue means issuance of equity shares to promoter group or selected investors. It covers allotment of fully convertible debentures, partly convertible debentures or any other financial instruments that could be converted into equity shares at a later date. The investors could be institutional investors, private equity investors, high net-worth individuals, or companies.

One of the biggest advantages of a preferential issue is that the company can raise money quickly and cheaply compared with other means of raising money, say IPO or issue of shares on a rights basis. On the other hand, preferential issues and private placement is only for selected class of investors and not for the retail investors. It is like a wholesale market, where institutions with financial clout are allowed to participate. This deprives investment opportunity to the retail investors.

Further, as per Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, a company may make a private placement of Securities.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(i) (Old syllabus).

A public issue of specified securities by an issuer can be either an Initial Public Offer (IPO) or a Further Public Offer (FPO). An IPO is done by an unlisted issuer while a FPO is done by a listed issuer. As per the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the issuer shall comply with the conditions mentioned thereunder before making an IPO or FPO of specified securities. The conditions need to be satisfied both at the time of filing the draft offer document (commonly referred to as the Draft Red Herring Prospectus) and the time of filing the final offer document (commonly referred to as the Prospectus) with the Registrar of Companies.

Under Regulation 5(1) & (2) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, following entities are not eligible to make an Initial Public Offer;

(a)If the issuer, any of its promoters, promoter group, directors, selling shareholders are debarred from accessing the capital market by the SEBI.

(b)If any of the promoters or directors of the issuer is a promoter or a director of any other company which is debarred from accessing the capital market.

(c)If the issuer or any of its promoters or directors is a willful defaulter or a fraudulent borrower.

(d)If any of the promoters or directors of the issuer is a fugitive economic offender.

(e)If there are any outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares of the issuer. This requirement shall not apply to:

•outstanding options granted to employees, whether currently an employee or not, pursuant to an employee stock option scheme in compliance with the Companies Act, 2013, the relevant Guidance Note or accounting standards, if any, issued by the Institute of Chartered Accountants of India or pursuant to the Companies Act, 2013, in this regard;

•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.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(a) (Syllabus 2022).

(a)As per the Regulations of 5(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, an issuer shall not be eligible to make an initial public offer if the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower. In the given case, Jain, one of the promoters of XY Ltd. is categorized as a wilful defaulter by SBI in accordance with the guidelines issued by the RBI. Hence, XY Ltd. cannot proceed to IPO for its business expansion.

(b)Further, an issuer shall not be eligible to make an initial public offer if any of its promoters or directors is a fugitive economic offender. Sinha, the director of VG Garments Ltd., against whom a warrant for arrest was issued by the Court and he left India to keep off criminal prosecution and refused to return to India. Hence, Mr. Sinha being fugitive economic offender, his company is not permitted to make a public issue under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2A(i) (Syllabus 2017).

(i)The entity is eligible to make initial public offer as the period of debarment on the promoter group, who were earlier debarred from accessing capital market by the SEBI, is already over as on the date of filing of the draft offer document with the SEBI. [Regulation 5(1)(a) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

(ii)The entity is not eligible to make initial public offer if the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower and a fugitive economic offender. [Regulation 5(1)(c) and Regulation 5(1)(d) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

(iii)The entity is not eligible to make initial public offer as the issuer has earned only 40% of the revenue for the preceding one full year from the activity indicated by the new name. However, as per requirement of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, an issuer shall be eligible to make an initial public offer if issuer has changed its name within the last one year, at least 50% of the revenue, calculated on a restated and consolidated basis, for the preceding one full year has been earned by it from the activity indicated by its new name. [Regulation 6(1)(d) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

(iv)As per the requirement of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, an issuer shall be eligible to make an initial public offer if the issuer has net worth of at least one crore in each of the preceding three full years (of twelve months each), calculated on a restated and consolidated basis. In the given case, the issuer has a net worth of one crore and fifty lakh rupees in each of the preceding three full years. Thus, the entity is eligible to make initial public offer. [Regulation 6(1)(c) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

(v)As per the requirement of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, an issuer shall be eligible to make an initial public offer, if it has an average operating profit of at least ₹ 15 crores, calculated on a restated and consolidated basis, during the three preceding years (of twelve months each), with operating profit in each of the three preceding years. However, in the given situation, the issuer has an average operating profit of ₹ 10 crore. Therefore, the entity is not eligible to make initial public offer. [Regulation 6(1)(b) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(b) (Syllabus 2017).

(i)Eligibility requirements for an initial public offer [Regulation 6(1) & 6(2) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

An issuer shall be eligible to make an IPO only if:

a.The issuer has net tangible assets of atleast ₹3 crores, calculated on a restated and consolidated basis, in each of the preceding three full years (of 12 months each), of which not more than 50% are held in monetary assets.

However, if more than 50% of the net tangible assets are held in monetary assets, the issuer has utilized or made firm commitments to utilize such excess monetary assets in its business or project. This limit of 50% on monetary assets shall not apply in case of IPO is made entirely through an offer for sale.

b.The issuer has an average operating profit of at least ₹15 crores, calculated on a restated and consolidated basis, during the three preceding 3 years, with operating profit in each of the three preceding years.

c.The issuer has a networth of atleast ₹ 1 crore in each of the preceding three full years, calculated on a restated and consolidated basis.

d.In case the issuer has changed its name within the last one year, atleast 50% of the revenue calculated on a restated and consolidated basis, for the preceding one full year has been earned by it from the activity indicated by the new name.

(ii)In case the Eligibility conditions are not met-

An issuer not satisfying the above-mentioned conditions shall be eligible to make an initial public offer only if the issue is made through the book-building process and the issuer undertakes to allot at least 75% of the net offer to qualified institutional buyers (QIBs) and to refund the full subscription money if it fails to do so.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 3(a) (Syllabus 2022).

Regulation 6 of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 deals with the eligibility requirement of an IPO. The provisions pertaining to Net tangible Assets, Monetary Assets and Net worth as per SEBI (ICDR) Regulations are as under:

a)the issuer has net tangible assets of at least ₹3 crores on a restated and consolidated basis, in each of the preceding three full years of (12 months each) of which not more than 50% is held in monetary assets;

b)the issuer has a net worth of at least 1 crore in each of the preceding three full years, calculated on a restated and consolidated basis;

In the given case, RP Ltd. has net tangible assets of at least ₹3 crores in three years and Net worth of at least ₹1 crores. Monetary assets are also within the threshold limit of 50% in each year, thereby satisfying all the conditions. Therefore, RP Ltd. can proceed with the IPO.

(ii)A company can proceed for IPO, if value of monetary assets is upto 50% of the Net Tangible Assets. In case monetary assets is ₹4 crores in 2016-2017 i.e. 50% of Net Tangible Asset. Hence, RP Ltd. can still proceed for IPO.

(iii)As per SEBI regulation, if more than 50% of the net tangible assets are held in monetary assets, the issuer has utilized or made firm commitment to utilize such excess monetary assets in its business or project. Therefore, if monetary assets are ₹5 corers in 2017-2018, the company should have made firm commitment to utilize such excess monetary assets in its business or project, otherwise the company will not be able to proceed for IPO.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(b) (Syllabus 2017).

Eligibility requirements for an initial public offer on Main Board

As per Regulation 6(1) of SEBI (Issue of Capital & Disclosure Requirement) Regulations 2018, an unlisted company may make an Initial Public Offer (IPO) only if it meets all the following conditions:

(a)It has net tangible assets of at least three crore rupees, calculated on a restated and consolidated basis, in each of the preceding three full years (of twelve months each), of which not more than fifty per cent. are held in monetary assets.

Provided that if more than fifty per cent of the net tangible assets are held in monetary assets, the issuer has utilised or made firm commitments to utilise such excess monetary assets in its business or project.

(b)Provided further that the limit of fifty per cent on monetary assets shall not be applicable in case the initial public offer is made entirely through an offer for sale.

(c)It has an average operating profit of at least fifteen crore rupees, calculated on a restated and consolidated basis, during the preceding three years (of twelve months each), with operating profit in each of these preceding three years.

(d)It has a net worth of at least one crore rupees in each of the preceding three full years (of twelve months each), calculated on a restated and consolidated basis.

(e)If it has changed its name within the last one year, at least 50 % fifty per cent of the revenue, calculated on a restated and consolidated basis, for the preceding one full year has been earned by it from the activity indicated by its new name.

Alternative norms for unlisted public companies [Regulation 6(2) of SEBI (ICDR) Regulation 2018]

An issuer not satisfying the condition stipulated in sub-regulation (1) shall be eligible to make an initial public offer only if the issue is made through the book-building process and the issuer undertakes to allot at least seventy five per cent of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so.

Eligibility requirements for an initial public offer on SME Platform

As per Regulation 229 of SEBI (Issue of Capital and Disclosure Requirements), Regulations, 2018, the eligibility requirements for an initial public offer by Small and Medium Enterprises are as follow:

(1)An issuer shall be eligible to make an initial public offer only if its post-issue paid-up capital is less than or equal to ten crore rupees.

(2)An issuer, whose post issue face value capital is more than ten crore rupees and upto twenty five crore rupees, may also issue specified securities in accordance with provisions of this Chapter.

(3)An issuer may make an initial public offer, if it satisfies track record and/or other eligibility conditions of the SME Exchange(s) on which the specified securities are proposed to be listed.

Provided that In case of an issuer which had been a partnership firm or a limited liability partnership, the track record of operating profit of the partnership firm or the limited liability partnership shall be considered only if the financial statements of the partnership business for the period during which the issuer was a partnership firm or a limited liability partnership, conform to and are revised in the format prescribed for companies under the Companies Act, 2013 and also comply with the following:

a.adequate disclosures are made in the financial statements as required to be made by the issuer as per Schedule III of the Companies Act, 2013;

b.the financial statements are duly certified by auditors, who have subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and hold a valid certificate issued by the Peer Review Board‘ of the ICAI.

Provided further that in case of an issuer formed out of merger or a division of an existing company, the track record of the resulting issuer shall be considered only if the requirements regarding financial statements as specified above in the first proviso are complied with.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(b) (Old syllabus).

The additional conditions required under Regulation 8 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, for an Offer for Sale are as follows:

i)Shares must be fully paid-up.

ii)Shares shall be held by the sellers for a period of at least one year prior to the filing of the draft offer document.

iii)In case the 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 (including depository receipts) as well as that of resultant equity shares, together shall be considered for the purpose of calculation of one year period.

iv)Such holding period of one year shall be required to be complied with at the time of filing of the draft offer document.

v)If the equity shares arising out of the conversion or exchange of fully paid up compulsorily convertible securities are being offered for sale, the conversion or exchange should be completed prior to the filing of the offer document, provided full disclosure of the terms of conversion or exchange are made in the draft offer document.

However, the requirement of holding equity shares for a period of one year shall not apply:

a.in case of an offer for sale 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 the infrastructure sector;

b.if the equity shares offered for sale were acquired pursuant to any scheme approved by a High Court or approved by a tribunal or the Central Government under the sections 230 to 234 of Companies Act, 2013, as applicable, in lieu of business and invested capital which had been in existence for a period of more than one year prior to approval of such scheme;

c.if the equity shares 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 the 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 equity shares not being issued by utilisation of revaluation reserves or unrealized profits of the issuer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 3(a) (Syllabus 2022).

According to the provisions of Regulation 9 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, an issuer can make an initial public offer of convertible debt instruments without making a prior public issue of its equity shares and listing thereof. However, the issuer is not 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.

In addition to other requirements laid down in these regulations, an issuer making an initial public offer of convertible debt instruments shall also comply with the following conditions:

secured convertible debt instruments, it shall ensure that such assets are sufficient to discharge the principal amount at all times and are free from any encumbrance.

-The issuer shall redeem the convertible debt instruments in terms of the offer document.

Thus, in the given case, Sigma Ltd can launch its IPO of 5,000 convertible debt instruments each convertible into 2 equity shares, without having prior public issue after complying with the requirements as stated above.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(ii) (Old syllabus).

An issuer shall be eligible to issue warrant in an initial public offer subject to the following:

a)the tenure of such warrants shall not exceed eighteen months from the date of their allotment in the initial public offer,

b)a specified security may have one or more warrants attached to it,

c)the price or formula for determination of exercise price of the warrants shall be determined upfront and disclosed in the offer document and at least 25% of the consideration amount based on the exercise price shall also be received upfront;

However, in case the exercise price of warrants is based on a formula, 25% consideration amount based on the cap price of the price band determined for the linked equity shares or convertible securities shall be received upfront.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(c)(ii) (Syllabus 2017).

When warrant holder does not exercise the option to take equity shares against any of the warrant held by the warrant older, within three months from the date of payment of consideration, such consideration made in respect of such warrants shall be forfeited by the issuer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(c)(iii) (Syllabus 2017).

Regulation 16 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 states that the minimum promoters’ contribution including contribution made by alternative investment funds or foreign venture capital investors or scheduled commercial banks or public financial institutions or insurance companies registered with Insurance Regulatory and Development Authority of India referred to in proviso to sub-regulation (1) of regulation 14, shall be locked-in for a period of eighteen months from the date of allotment in the initial public offer. Provided that in case the majority of the issue proceeds excluding the portion of offer for sale is proposed to be utilized for capital expenditure, then the lock-in period shall be three years from the date of allotment in the initial public offer.

Further provided that, promoters’ holding in excess of minimum promoters’ contribution shall be locked-in for a period of six months from the date of allotment in the initial public offer. In case the majority of the issue proceeds excluding the portion of offer for sale is proposed to be utilized for capital expenditure, then the lock-in period shall be one year from the date of allotment in the initial public offer.

Therefore, Exotica venture capital fund’s pre-issue shareholding will be locked-in as mentioned above to the extent of minimum contribution or excess contribution, hence it cannot sell its shareholding just after the listing of shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(a) (Syllabus 2022).

As per regulation 14 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the promoters of the issuer shall hold at least twenty per cent of the post-issue capital.

Further as per regulation 15 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, for the computation of minimum promoters’ contribution, the following specified securities shall not be eligible:

(a)specified securities acquired during the preceding three years, if it is acquired for consideration other than cash and revaluation of assets or capitalization of' intangible assets is involved in such transaction;

(b)specified securities pledged with any creditor.

In the present case, ₹20 crore equity capital acquired in consideration of transfer of technical know-how will not be eligible for promoters contribution, further ₹10 crore equity capital was pledged with bank will also not eligible for promoters contribution.

The net promoters contribution after deduction of ₹30 crore (₹20 crore & ₹10 crore) will be ₹110 crore (₹140 crore - ₹30 crore), which is below then the prescribed limit i.e, 20% of post issued capital (₹600 x 20%= ₹120 crore), Therefore, promoters are not satisfying minimum promoters contribution requirements as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(c) (Syllabus 2017).

Lock-in of specified securities held by the promoters [Regulation 16(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

The specified securities held by the promoters shall not be transferable (hereinafter referred to as “lock-in”) for the periods as stipulated hereunder:

(i)Minimum promoters’ contribution including contribution made by alternative investment funds or foreign venture capital investors or scheduled commercial banks or public financial institutions or insurance companies registered with Insurance Regulatory and Development Authority of India or any non-individual public shareholder holding at least five per cent. of the post-issue capital or any entity (individual or non-individual) forming part of promoter group other than the promoter(s) referred to in proviso to sub-regulation (1) of regulation 14, shall be locked-in for a period of eighteen months from the date of allotment in the initial public offer.

Provided that in case the majority of the issue proceeds excluding the portion of offer for sale is proposed to be utilized for capital expenditure, then the lock-in period shall be three years from the date of allotment in the initial public offer.

(ii)Promoters’ holding in excess of minimum promoters’ contribution shall be locked-in for a period of six months from the date of allotment in the initial public offer. Provided that in case the majority of the issue proceeds excluding the portion of offer for sale is proposed to be utilized for capital expenditure, then the lock-in period shall be one year from the date of allotment in the initial public offer.

In view of above, Nidhi is not allowed to sell the share on the day of listing. The share will be under lock in period for a minimum of 18 months, if contribution of Nidhi with other promoters is within the minimum promoter’s contribution. In case, contribution of Nidhi which is in excess of minimum promoter’s contribution, shall be locked-in for a period of 6 months.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(e) (Syllabus 2017).

Regulations 27 of SEBI (ICDR) Regulations, 2018 deals with the face Value of Equity Shares which provides that the disclosure about the face value of equity shares shall be made in the draft offer document, offer document, advertisements and application forms, along with price band or the issue price in identical font size.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6(a) (Old syllabus).

As per the Regulation 30 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 the issuer may offer its specified securities at different prices, subject to the following:

a)retail individual investors or retail individual shareholders or employees entitled reservation made under the Regulation 33 of the SEBI (ICDR) Regulations, 2018 may be offered specified securities at a price not lower than by more than ten per cent of the price at which net offer is made to other categories of applicants, excluding anchor investors;

b)in case of a book built issue, the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants.

The proposed price for retail individual investors (RII) is ₹250 and for QIB is ₹300. The maximum discount that can be provided to RII shall not be more than ten per cent of the price at which net offer is made to other categories i.e. 300 X 10% = ₹30. Hence, the price for RII shall not be lower than ₹270. In the given proposal, the difference between the proposed price for RII and QIB is more than 10% as envisaged in the regulation, hence the company cannot issue securities with such proposal.

If case the company proposes ₹280 to anchor investors in book building issue, such issue would not be permissible as the Regulation 30 of the SEBI (ICDR) Regulations, 2018 states that the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 1(c) (Syllabus 2017).

As per the Regulation 30 of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018, the issuer may offer its specified securities at different prices, subject to the following:

(a)retail individual investors or retail individual shareholders or employees entitled for reservation made under the regulation 33 of SEBI (ICDR) Regulations 2018, may be offered specified securities at a price not lower than by more than ten percent of the price at which net offer is made to other categories of applicants, excluding anchor investors:

(b)in case of a book built issue, the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants

The difference between the proposed price for Retail Individual Investor (RII) and Qualified Institutional Buyer (QIB) and Non-Institutional Investors (NIIs) is more than 10%, as envisages in the regulation, hence the company cannot issue securities to RII at ₹ 250 per share.

If the equity shares is proposing to anchor investors at ₹280, it is not as per the regulation 30 of SEBI (ICDR) Regulations, 2018 as the price is lower than the other applicants i,e., QIB and FII.(assuming QIB and FII are other applicants)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2A(ii) (Syllabus 2017).

Regulation 32 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, prescribes that the companies, who complies the requirement of regulation 6(1), the portion available for allocation shall be not more than 50% for QIBs, not less than 35% for retail individual investors and not less than 15% for non-institutional investors. Companies that do not meet the regulation 6(1) requirements, the portion available for allocation shall be not less than 75% to QIBs, not more than 15% to non-institutional investors and not more than 10% to retail individual investors. In an issue made through the book building process, the issuer may allocate up to sixty per cent. of the portion available for allocation to qualified institutional buyers to anchor investors.

In case of Harish Ltd. which is satisfying the conditions of Regulation 6(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the maximum number of shares to be issued to anchor investors are:

Issue size = ₹ 600 crore

Shares = ₹ 600/ ₹ 10 = 60 crore

Reservation for QIB = 60 crore * 50% = 30 crore

Allocation to anchor investor (out of QIB) = 30 crore * 60% = 18 crore In case of Monish Ltd., who is not satisfying the requirements of Regulation 6(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the maximum number of shares to be issued to anchor investors are:

Issue size = ₹ 500 crore

Shares = ₹500/₹10 = 50 crore

Reservation for QIB = 50 crore * 75% = 37.5 crore

Allocation to anchor investor (out of QIB) = 37.5 crore * 60% = 22.5 crore

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(a) (Syllabus 2022).

Allocation in the net offer [Regulation 32(3A) and 129 (3A) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

In an issue made through book building process, the allocation in the non-institutional investors’ category shall be as follows:

(a)1/3rd of the portion available to non-institutional investors shall be reserved for applicants with application size of more than Rs. 2 lakh and up to Rs. 10 lakh;

(b)2/3rd of the portion available to non-institutional investors shall be reserved for applicants with application size of more than Rs. 10 lakh.

Provided that the unsubscribed portion in either of the sub-categories specified in clauses (a) or (b) may be allocated to applicants in the other sub-category of non-institutional investors.

In view of above, if Rajesh, applied with application size of more than Rs. 10 lakh, the reserved portion will be 2/3rd, hence there will be high chance to get the shares allotted under the IPO.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(b) (Syllabus 2022).

Allocation in the net offer [Regulation 32(3A) and 129 (3A) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

In an issue made through book building process, the allocation in the non-institutional investors' category shall be as follows:

(a)one third of the portion available to non-institutional investors shall be reserved for applicants with application size of more than two lakh rupees and up to ten lakh rupees;

(b)two third of the portion available to non-institutional investors shall be reserved for applicants with application size of more than ten lakh rupees.

Provided that the unsubscribed portion in either of the sub-categories specified in clauses (a) or (b), may be allocated to applicants in the other sub-category of non-institutional investors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2(a) (Syllabus 2017).

Anchor investor means a Qualified Institutional Buyer (QIB) who makes an application for a value of at least 10 crore rupees in a public issue on the main board made through the book building process or makes an application for a value of atleast Rs. 2 crore for an public issue on the Small and Medium Enterprises (SME) exchange made in accordance with Chapter IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Allocation to anchor investors shall be on a discretionary basis and subject to the following:

(I)In case of public issue on the main board, through the book building process:

(i)Maximum of 2 such investors shall be permitted for allocation up to Rs. 10 crore.

(ii)Minimum of 2 and maximum of 15 such investors shall be permitted for allocation above Rs.10 crore and upto Rs. 250 crore, subject to minimum allotment of Rs. 5 crore per such investor.

(iii)In case of allocation above Rs.250 crore; a minimum of 5 such investors and a maximum of 15 such investors for allocation upto Rs.250 crore and an additional 10 such investors for every additional Rs.250 crore or part thereof, shall be permitted, subject to a minimum allotment of Rs. 5 crore per such investor.

(II)In case of public issue on the SME exchange, through the book building process:

(i)Maximum of 2 such investors shall be permitted for allocation up to Rs. 2 crore;

(ii)Minimum of 2 and maximum of 15 such investors shall be permitted for allocation above Rs. 2 crore and up to Rs. 25 crore, subject to minimum allotment of Rs. 1 crore per such investor;

(iii)In case of allocation above Rs. 25 crore; a minimum of 5 such investors and a maximum of 15 such investors for allocation up to Rs. 25 crore and an additional 10 such investors for every additional Rs. 25 crore or part thereof, shall be permitted, subject to a minimum allotment of Rs. 1 crore per such investor.

Upto 60% of the portion available for allocation to qualified institutional buyers shall be available to anchor investor(s) for allocation/ allotment ("anchor investor portion") and one-third of the anchor investor portion shall be reserved for domestic mutual funds.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 5(b) (Syllabus 2017).

According to the Regulation 41 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, if the issue size, excluding the size of offer for sale by selling shareholders, exceeds one hundred crore rupees, the issuer shall make arrangements for the use of proceeds of the issue to be monitored by a credit rating agency registered with the SEBI. Provided that nothing contained in this clause shall apply to an issue of specified securities made by a bank or public financial institution or an insurance company.

The monitoring agency shall submit its report to the issuer in the format specified in Schedule XI on a quarterly basis, till hundred per cent of the proceeds of the issue have been utilised.

The board of directors and the management of the issuer shall provide their comments on the findings of the monitoring agency as specified in Schedule XI.

The issuer shall, within forty-five days from the end of each quarter, publicly disseminate the report of the monitoring agency by uploading the same on its website as well as submitting the same to the stock exchange(s) on which its equity shares are listed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2(b) (Syllabus 2017).

Regulations 41 and 137 of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, prescribes the role of Monitoring agency to track the end use of proceeds of IPO. As per Regulation ‘if the issue size excluding the size of offer for sale by selling shareholders exceeds ₹100 crore, the issuer shall ensure that the use of proceeds of the issue is monitored by a public financial institutions or by one of the scheduled commercial banks named in the offer document as a banker to the issuer’.

In the given case, the issue exceeds ₹100 crore i.e ₹5 crore excluding ₹20 crore by selling shareholders. Hence, a monitoring agency should be appointed to track the issue proceeds. Further the monitoring agency shall submit its report to the issuer in the format specified in the ICDR Regulations, 2018 on a quarterly basis, till at least 95% of the proceeds of the issue excluding the proceeds raised for general corporate purposes, have been utilised. The Board of Directors and the management of the issues shall provide their comments on the findings of the monitoring agency. The issuer shall, within 45 days from the end of the each quarter, publicly disseminate the report of the monitoring agency by uploading the same on its website as well as submitting the same to the stock exchange(s) on which its equity shares are listed. However, the above mentioned rule is not applicable if the issuer is a bank or a public financial institution or an insurance company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(b) (Syllabus 2017).

(i)As per the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, in the event of non-receipt of minimum subscription of 90%, all application monies received shall be refunded to the applicants forthwith, but not later than 4 days from the closure of the issue.

(ii)Yes, there is a mechanism for monitoring of utilization of IPO proceeds, if the issue size exceeds one hundred crore rupees. Regulation 41 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 states that if the issue size, excluding the size of offer for sale by selling shareholders, exceeds one hundred crore rupees, the issuer shall make arrangements for the use of proceeds of the issue to be monitored only by a credit rating agency registered with the SEBI. This shall not apply to an issue of specified securities made by a bank or public financial institution or an insurance company.

(iii)Regulation 16(1)(a) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 prescribes that the minimum promoters’ contribution by the promoters shall be locked-in for a period of eighteen months (in case the majority of the issue proceeds is proposed to be utilized for capital expenditure, then the lock-in period shall be three years) from the date of allotment in the Initial Public Offer. Promoters’ holding in excess of minimum promoters’ contribution shall be locked-in for a period of six months (in case the majority of the issue proceeds is proposed to be utilized for capital expenditure, then the lock-in period shall be one year) from the date of allotment in the initial public offer.

(iv)As per the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the cap on the price band, shall be less than or equal to 120% of the floor price. Provided that the cap of the price band shall be at least 105% of the floor price.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(d) (Syllabus 2017).

Period of Subscription Initial Public Offer

Regulation 46(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 provides that an Initial Public Offer (IPO) shall be kept open for at least 3 working days and not more than 10 working days. Further, Regulation 46(3) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 stipulates that in case of force majeure, banking strike or similar unforeseen circumstances, the issuer may, for reasons to be recorded in writing, extend the bidding (issue) period disclosed in the red herring prospectus (in case of a book built issue) or the issue period disclosed in the prospectus (in case of a fixed price issue), for a minimum period of one working day subject to the provisions of regulation 46(1). Hence, total period shall not exceed 10 working days including extended period. In the given situation, XYZ Ltd. opened bid for 4 days and therefore, XYZ Ltd. can extend the time of bid for 2 more days.

Period of subscription in case of Initial Public Offer by Small and Medium Enterprises (SME)

Regulation 266(1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 provides that a public issue shall be kept open for at least 3 working days and not more than 10 working days. Further, Regulation 266(3) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 stipulates that in case of force majeure, banking strike or similar unforeseen circumstances, the issuer may, for reasons to be recorded in writing, extend the bidding (issue) period disclosed in the red herring prospectus (in case of a book built issue) or the issue period disclosed in the prospectus (in case of a fixed price issue), for a minimum period of one working day subject to the provisions of regulation 266(1). Hence, total period shall not exceed 10 working days including extended period. In the given situation XYZ Ltd. opened bid for 4 days and therefore, XYZ Ltd. can extend the time of bid for 2 more days.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(d) (Syllabus 2017).

(i)Application and Minimum Application Value (Regulations 47 & 143 of SEBI (ICDR) Regulations, 2018]

The issuer shall stipulate in the offer document the minimum application size in terms of number of specified securities which shall fall within the range of minimum application value of ten thousand rupees to fifteen thousand rupees. Thus, in the given case Actnow Edge Limited should fix the minimum number of shares in one application in such a manner that minimum application value should not cross the limit of ₹10,000 to ₹15,000. Hence, minimum number of shares in one application will be:

At lower level of price band: 20 Shares (₹10000/₹ 500) & 30 Shares (₹15000/ ₹500)

At higher level of price band : 17 Shares (₹10000/₹600) & 25 Shares (₹15000/ ₹600)

(ii)The minimum sum payable on application per specified security shall be at least twenty five per cent of the issue price.

(iii)Period of Subscription [Regulations 46 & 142]

An IPO shall be kept open for at least three working days and not more than ten working days.

In case of a revision in the price band, the issuer shall extend the bidding (issue) period disclosed in the red herring prospectus, for a minimum period of three working days.

In case of force majeure, banking strike or similar circumstances, the issuer may, for reasons to be recorded in writing, extend the bidding (issue) period disclosed in the red herring prospectus (in case of a book built issue) or the issue period disclosed in the prospectus (in case of a fixed price issue), for a minimum period of three working days.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3(a) (Syllabus 2017).

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 in accordance with the provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Green Shoe Option process is as follows:

1.An issuer may provide a green shoe option for stabilising the post listing price of its specified securities, subject to the following:

•the issuer has been authorized, by a resolution passed in the general meeting of shareholders approving the public issue, to allot specified securities to the stabilising agent, if required, on the expiry of the stabilisation period;

•the issuer has appointed a lead manager as a stabilising agent, who shall be responsible for the price stabilisation process;

•prior to filing the draft offer document, the issuer and the stabilising agent have entered into an agreement, stating all the terms and conditions relating to the green shoe option including fees charged and expenses to be incurred by the stabilising agent for discharging its responsibilities;

•prior to filing the offer document, the stabilising agent has entered into an agreement with the promoters or pre-issue shareholders or both for borrowing specified securities from them, specifying therein the maximum number of specified securities that may be borrowed for the purpose of allotment or allocation of specified securities in excess of the issue size (hereinafter referred to as the “overallotment”), which shall not be in excess of fifteen per cent. of the issue size;

•the lead manager, in consultation with the stabilising agent, shall determine the amount of specified securities to be over-allotted in the public issue;

•the draft offer document and offer document shall contain all material disclosures about the green shoe option specified in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018;

•in case of an initial public offer pre-issue shareholders and promoters and in case of a further public offer pre-issue shareholders holding more than five per cent. specified securities and promoters, may lend specified securities to the extent of the proposed over-allotment;

•the specified securities borrowed shall be in dematerialised form and allocation of these securities shall be made pro-rata to all successful applicants.

2.For the purpose of stabilisation of post-listing price of the specified securities, the stabilising agent shall determine the relevant aspects including the timing of buying such securities, quantity to be bought and the price at which such securities are to be bought from the market.

3.The stabilisation process shall be available for a period not exceeding thirty days from the date on which trading permission is given by the stock exchanges in respect of the specified securities allotted in the public issue.

4.The stabilising agent shall open a special account, distinct from the issue account, with a bank for crediting the monies received from the applicants against the over-allotment and a special account with a depository participant for crediting specified securities to be bought from the market during the stabilisation period out of the monies credited in the special bank account.

5.The specified securities bought from the market and credited in the special account with the depository participant shall be returned to the promoters or pre-issue shareholders immediately, in any case not later than two working days after the end of the stabilization period.

6.On expiry of the stabilisation period, if the stabilising agent has not been able to buy specified securities from the market to the extent of such securities over-allotted, the issuer shall allot specified securities at issue price in dematerialised form to the extent of the shortfall to the special account with the depository participant, within five days of the closure of the stabilisation period and such specified securities shall be returned to the promoters or pre-issue shareholders by the stabilising agent in lieu of the specified securities borrowed from them and the account with the depository participant shall be closed thereafter.

7.The issuer shall make a listing application in respect of the further specified securities allotted, to all the stock exchanges where the specified securities allotted in the public issue are listed and the provisions of Chapter V of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 shall not be applicable to such allotment.

8.The stabilising agent shall remit the monies with respect to the specified securities allotted to the issuer from the special bank account.

9.Any monies left in the special bank account after remittance of monies to the issuer and deduction of expenses incurred by the stabilising agent for the stabilisation process shall be transferred to the Investor Protection and Education Fund established by the Board and the special bank account shall be closed soon thereafter.

10.The stabilising agent shall submit a report to the stock exchange on a daily basis during the stabilisation period and a final report to the SEBI in the specified format.

11.The stabilising agent shall maintain a register for a period of at least three years from the date of the end of the stabilisation period.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(c) (Syllabus 2017).

Green Shoe Option is a post listing price stabilising mechanism. Good Luck Finance Ltd. issued 20 lakh equity shares@₹180 each. As per SEBI (ICDR) Regulations, 2018, the maximum number of securities that can be borrowed for the purpose of allotment/ allocation of securities in excess of issue size shall not be more than 15% of the issue size.

Hence, Nishan (Stabilising agent) can purchase 3,00,000 equity shares (15% of 20,00,000 equity shares) to stabilise the price.

Having bought back all of the 300000 equity shares, these shares would be temporarily held in a special depository account with the depository participant (Green Shoe Demat Account), and would then be returned back to the lender shareholders, within a maximum period of two days after the stabilisation period.

Any surplus lying in the Green Shoe Escrow Account would then be transferred to the Investor Protection and Education Fund established by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(b) (Syllabus 2017).

(i)As per SEBI (ICDR) Regulations, 2018, the maximum number of shares that can be borrowed by the stabilizing agent shall not be in excess of 15% of the issue size.

In the given case, stabilizing agent can borrow 7.5 Lakh shares (15% of 50 Lakh shares).

(ii)The issuer company would allot the differential 2.5 Lakhs shares into the Green Shoe Demat Account to cover up the shortfall, and the Stabilising Agent would discharge his obligation to the lending shareholder(s) by returning the 7.5 Lakhs shares that had been borrowed from them.

The issuer company would need to apply to the exchanges for obtaining listing/ trading permissions for the incremental shares allotted by them, pursuant to the Green Shoe mechanism.

(iii)The Amount which should be transferred to Investor Protection and Education Fund will be calculated as follows:

= 5,00,000 (200-180) = ₹1,00,00,000

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 5(c) (Syllabus 2017).

According to the Regulation 59 of the SEBI (ICDR) Regulations, 2018, the promoters, or shareholders in control of an issuer, shall provide an exit offer to dissenting shareholders as provided for in the Companies Act, 2013, in case of change in objects or variation in the terms of contract related to objects referred to in the offer document as per conditions and manner as provided in Schedule XX of the SEBI (ICDR) Regulations, 2018.

According to the Schedule XX, the promoter or the shareholders in control, as the case may be, shall make an exit offer in accordance with the provisions of Chapter II of SEBI (ICDR) Regulations to the dissenting shareholders, in cases only if a public issue has opened after April 1, 2014; if:

(a)The proposal for change in objects or variation in terms of a contract, referred to in the offer document is dissented by atleast ten percent of the shareholders who voted in the general meeting; and

(b)The amount to be utilized for the objects for which the offer document was issued is less than seventy five percent of the amount raised (including the amount for general corporate purposes as disclosed in the offer document).

In the given problem M/s Highspeed Ltd. has utilized Rs. 400 crore out of total Rs. 500 crore raised through public issue. As the amount utilized is more than 75% of the total amount raised, the company may utilize the remaining unutilized 100 crore for the purpose as stated in the question.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(i) (Syllabus 2017).

Entities not eligible for Rights Issue

Regulation 61 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 stipulates that an issuer shall not be eligible to make a rights issue of specified securities:

(a)if the issuer, any of its promoters, promoter group or directors of the issuer are debarred from accessing the capital market by the SEBI,

(b)if any of the promoters or directors of the issuer is a promoter or director of any other company which is debarred from accessing the capital market by the SEBI,

(c)if any of its promoters or directors is a fugitive economic offender.

The restrictions under (a) and (b) above will not apply to the persons or entities mentioned therein who were debarred in the past by the SEBI and the period of debarment is already over as on the date of filing of the draft letter of offer with the SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6(a) (Syllabus 2022).

As per Regulation 102 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, a company shall not be eligible to make a Further Public Offer where the director of the company is a fugitive offender. Therefore, Turnkey Ltd. would not be able to issue FPO.

General Conditions and eligibility requirement for FPO as prescribed under Regulations 103 and 104 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 are given below:

Eligibility requirements for FPO

An issuer may make a FPO if it has changed its name within the last one year and at least 50% of the revenue in the preceding one full year has been earned from the activity suggested by the new name.

If an issuer does not satisfy the above mentioned conditions, it may make a FPO only, if, the issue is made through the book building process and the issuer undertakes to allot at least 75% of the net offer, to qualified institutional buyers and to refund full subscription money if it fails to make the said minimum allotment to qualified institutional buyers.

General Conditions for FPO

An issuer making an FPO shall ensure that-

a)An application is made for listing of the specified securities to one or more of the recognised stock exchanges and choose one of the exchanges as the designated stock exchange.

b)An agreement is entered into with a depository for dematerialisation of specified securities already issued or proposed to be issued.

c)All the existing partly paid up equity shares have either been fully paid up or have been forfeited in other words, if a company has partly paid up equity shares, they shall not be permitted to make a public issue.

d)The issuer should make firm arrangements of finance through verifiable means towards 75% of the stated means of finance excluding the amount to be raised through the proposed public issue or through existing identifiable internal accruals.

e)The amount of General Corporate Purpose as mentioned in objects of the issue in the draft offer document and the offer document shall not exceed twenty five percent of the amount being raised by the issuer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 4(a) (Syllabus 2017).

Eligibility Requirements for further public offer (FPO)

Regulation 103 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 stipulates that an issuer shall be eligible to make a further public offer, if it has not changed its name in the last one year period immediately preceding the date of filing the relevant offer document. However, if an issuer has changed its name in the last one year period immediately preceding the date of filing the relevant offer document, such an issuer shall make further public offer if at least 50% of the revenue for the preceding one full year has been earned by it from the activity indicated by its new name.

Further provided that an issuer not satisfying the condition stipulated above, shall make a further public offer only if the issue is made through the book building process and the issuer undertakes to allot at least 75% of the net offer, to qualified institutional buyers and to refund full subscription money if it fails to make the said minimum allotment to qualified institutional buyers.

Lock-in of specified securities held by the promoters in excess of minimum promoters’ contribution

Regulation 115 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 prescribed that Promoters’ holding in excess of minimum promoters’ contribution shall be locked in for a period of 6 months. However, lock in period shall be 1 year in case the majority of the issue proceeds excluding the portion of offer for sale is proposed to be utilized for capital expenditure.

Therefore, PBR Ltd. shall ensure compliance with the above to issue Further Public Offer (FPO).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 3(a) (Syllabus 2022).

Regulation 163 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, deals with the disclosures by issuer to Shareholders in case of preferential issue.

The issuer shall in addition to the disclosures required under the 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:

(i)The objects of the preferential issue.

(ii)Maximum number of specified securities to be issued.

(iii)Intent of the promoters, directors or Key Managerial Personnel of the issuer to subscribe to the offer.

(iv)The shareholding pattern of the issuer before and after the preferential issue.

(v)The time frame within which the preferential issue shall be completed.

(vi)The identity of the natural person who are the ultimate beneficial owners of the shares proposed to be allotted and/or who ultimately control 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.

However, if there is any listed company, mutual fund, bank or insurance company in the chain of ownership of the proposed allottee, no further disclosure will be necessary.

(vii)An Undertaking that the issuer shall re-compute the price of the specified securities where it is required to do so.

(viii)An Undertaking that if the amount payable on account of the re-computation of price is not paid within the time stipulated, the specified securities shall continue to be locked- in till the time such amount is paid by the allottees.

(ix)Disclosures as specified, if the issuer or any of its promoters or directors is a wilful defaulter.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 5(e) (Old syllabus).

(a)Pricing of frequently traded shares [Regulation 164(1) of SEBI (ICDR) Regulations, 2018] : If equity shares of the issuer have been listed on a recognised stock exchange for a period of 26 weeks or more as on the relevant date, the price of equity shares to be allotted pursuant to the preferential issue shall be not less than higher of the following:

a.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 26 weeks preceding the relevant date i.e ₹. 275; 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 2 weeks preceding the relevant date i.e ₹ 280

So, the price of warrant should not be less than ₹280 per share warrant.

b)The price or formula for determination of exercise price of the warrants shall be determined upfront and disclosed in the offer document and at least 25 per cent of the consideration amount based on the exercise price shall also be received upfront. However, in case the exercise price of warrants is based on a formula, 25 per cent consideration amount based on the cap price of the price band determined for the linked equity shares or convertible securities shall be received upfront.

Hence, the promoters are liable to pay at least 25% of the share warrant i.e ₹ 70 per share warrant. This amount should be paid on the date of the allotment of share warrant by the promoters.

Amount to be payable by the promoters at the time of allotment of the warrants = 20,00,000 shares x ₹70 = ₹14 crore.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(ii) (Syllabus 2017).

As per Regulation 172 of the SEBI (ICDR) Regulations, 2018:

1.A listed issuer may make a qualified institutions placement of eligible securities if it satisfies the following conditions:

(a)a special resolution approving the qualified institutions placement has been passed by its shareholders, and the special resolution shall, among other relevant matters, specify that the allotment is proposed to be made through qualified institutions placement and the relevant date referred to in sub-clause (ii) of clause (b) of regulation 17 the SEBI (ICDR) Regulations, 2018;

Provided that no shareholders’ resolution will be required in case the qualified institutions placement is through an offer for sale by promoters or promoter group for compliance with minimum public shareholding requirements specified in the Securities Contracts (Regulation) Rules, 1957.

Provided further that allotment pursuant to the special resolution referred to in this Clause (a) of regulation 172 shall be completed within a period of 365 days from the date of passing of the resolution.

(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 stock exchange 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.

\Provided that where an issuer, being a transferee company in a scheme of compromise. arrangement and amalgamation sanctioned by a High Court under sections 391-394 of the Companies Act, 1956 or approved by a tribunal or the Central Government under sections 230 to 234 of the Companies Act, 2013, whichever is applicable 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.

Provided further that this clause shall not be applicable to an issuer proposing to undertake qualified institutional placement for complying with the minimum public shareholding requirements specified in the Securities Contracts (Regulation) 1957.

Explanation : For the purpose of clause (b), “equity shares of the same class" shall mean equity shares which rank pari passu in relation to rights as to dividend, voting or otherwise.

2.An issuer shall he eligible to make qualified institutions placement if any of its promoters or directors is not a fugitive economic offender.

3.All eligible securities issued through a qualified institutions placement shall be listed on the recognized stock exchange where the equity shares of the issuer are listed. Provided that the issuer shall seek approval under rule 19(7) of the Securities Contracts (Regulations) Rules, 1957, if applicable.

4.The issuer shall not make any subsequent qualified institutions placement until the expiry of six months from the date of the prior qualified institutions placement made pursuant to one or more special resolutions.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(b) (Old syllabus).

(a)“Innovators growth platform” means the trading platform for listing and trading of specified securities of issuers that comply with the eligibility criteria specified in Regulation 283 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Regulation 283 states that an issuer which is intensive in the use of technology, information technology, intellectual property, data analytics, bio- technology or nano-technology to provide products services or business platforms with substantial value addition shall be eligible for listing on the innovators growth platform, provided that as on the date of filing of draft information document or draft offer document with the SEBI, as the case may be, 25% of the pre-issue capital of the Issuer Company for at least a period of one year, should have been held by Qualified Institutional Buyers(QIBs), Innovators Growth Platform Investors and any other class of investors as specified by SEBI.

(b)Such startups (issuer) shall comply with following conditions in terms of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 to get itself listed on Innovators Growth Platform –

•Listing is allowed with or without initial public offer.

•An issuer shall be eligible for listing on the Innovators Growth Platform if none of the promoters or directors of the issuer company is a fugitive economic offender.

•The issuer shall be in compliance with minimum public shareholding requirements specified in the Securities Contracts (Regulation) Rules, 1957.The minimum offer size shall be Rs. 10 crores in case of IPO.

•Minimum application size shall be Rs. two lakhs and in multiples thereof .

•Number of allottees in the initial public offer shall be at least fifty.

•Minimum trading lot shall be Rs. two lakhs and in multiples thereof.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(ii) (Syllabus 2017).

(i)According to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Section 8 companies are included in the definition of “Not for Profit Organization” and a Not for Profit Organisation can raise the funds from public through Social Stock Exchange

(SSE). [Regulation 292A (e) and Regulation 292G of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018].

(ii)No, the answer will not change, as the Charitable trusts are also included in the definition of Not for Profit Organisation. [Regulation 292A (e) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018].

(iii)A Not for Profit Organization may raise funds on a Social Stock Exchange through:

(i)issuance of Zero Coupon Zero Principal Instruments to institutional investors and/or non-institutional investors;

(ii)donations through Mutual Fund schemes as specified by SEBI;

(iii)any other means as specified by SEBI from time to time. [Regulation 292G of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

Therefore, CYL is allowed for raising fund through the above-mentioned instruments.

(iv)The Social Enterprise shall have at least 67% of its activities, qualifying as eligible activities to the target population, to be established through:

–members of the target population to whom the eligible activities have been provided constitute at least 67% of the immediately preceding 3-year average of the total customer base and/or total number of beneficiaries.

In the given situation, if 40% target population is general public and unserved population, then CYL is not be identified as Social Enterprise and thus, not eligible for fund raising through SSE. [Regulation 292E(2)(c) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018]

(v)A Social Enterprise shall not be eligible to register or raise fund, if the Social Enterprise or any of its promoters or directors or trustees has been debarred from carrying out its activities or raising funds by the Ministry of Home Affairs. In the given case, CYL was debarred by Ministry of Home Affairs, thus, it cannot register or raise fund through SSE. [Regulation 292H(e)]

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 1(b) (Syllabus 2022).

In term of the Chapter X-A of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the Social Stock Exchange means a separate segment of a recognized stock exchange having nationwide trading terminals permitted to register Not for Profit Organizations and / or list the securities issued by Not for Profit Organizations in accordance with provisions of these regulations.

Regulation 292J of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 prescribes that a Social Enterprise which is a Not for Profit Organization registered with a Social Stock Exchange may make an issue of Zero Coupon Zero Principal Instruments and list them on such Social Stock Exchange. “Not for Profit Organization” means a Social Enterprise which is any of the following entities:

(i)a charitable trust registered under the Indian Trusts Act, 1882;

(ii)a charitable trust registered under the public trust statute of the relevant state;

(iii)a charitable society registered under the Societies Registration Act, 1860;

(iv)a company incorporated under section 8 of the Companies Act, 2013;

(v)any other entity as may be specified by SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2A(v) (Syllabus 2017).

Chapter XI consisting of regulation 293-295 of the SEBI (ICDR) Regulations, 2018 stipulates the provisions with respect to issue of bonus shares. Regulation 293 provides that, subject to the provisions of the Companies Act, 2013 or any other applicable law, a listed issuer shall be eligible to issue bonus shares to its members if:

(i)it is authorized by its Articles of Association for issue of bonus shares, capitalization of reserves, etc;

Provided that if there is no such provision in the Articles of Association, the issuer shall pass a resolution at its general body meeting making provisions in the Articles of Association for capitalization of reserve;

(ii)it has not defaulted payment of interest or principal in respect of fixed deposits or debt securities issued by it;

(iii)it has not defaulted in payment of statutory dues of the employees such as contribution to provident fund, gratuity and bonus;

(iv)any outstanding partly paid shares on the date of the allotment of the bonus shares are made fully paid-up;

(v)any of its promoters or directors is not a fugitive economic offender.

The Article of Association must authorize it to issue the bonus shares. If there is no provision in the Article for Bonus shares, firstly articles shall be amended by the company.

Determination of increase in authorized capital required:

Since authorized capital is Rs.700 crores only, it is required to increase the authorized capital by 200 crores or more.

The Reserves & Surplus is Rs. 800 crores, therefore bonus issue of Rs. 450 crores can be made out of reserves & surplus.

Other conditions to be followed:

•Bonus shares shall not be issued in lieu of dividend

•A resolution shall be passed by the Board in its meeting

•Bonus issue shall be completed within 15 days from the date of approval of Board of Directors, if shareholders’ approval is not required

•Where approval of shareholders is required, bonus issue shall be completed within 2 months from the date of meeting of Board of Directors wherein the decision to announce the bonus issue was taken subject to shareholder’s approval

•A bonus issue, once announced, shall not be withdrawn.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(b) (Syllabus 2017).

Regulation 294 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 deals with the restrictions on a bonus issue. As per this regulation:

(i)An issuer shall make a bonus issue of equity shares only if 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.

(ii)The equity shares so reserved for the holders of fully or partly compulsorily convertible debt instruments, shall be issued to the holder of such convertible debt instruments or warrants at the time of conversion of such convertible debt instruments, optionally convertible instruments, warrants, as the case may be, on the same terms or same proportion at which the bonus shares were issued.

(iii)A bonus issue shall be made only out of free reserves, securities premium account or capital redemption reserve account and built out of the genuine profits or securities premium collected in cash and reserves created by revaluation of fixed assets shall not be capitalised for this purpose.

(iv)Bonus shares shall not be issued in lieu of dividends.

(v)If an issuer has issued SR equity shares to its promoters or founders, any bonus issue on the SR equity shares shall carry the same ratio of voting rights compared to ordinary shares and the SR equity shares issued in a bonus issue shall also be converted to equity shares having voting rights same as that of ordinary equity shares along with existing SR equity shares.

(vi)The allotment of shares in a bonus issue shall be made only in the dematerialised form.

As per Regulation 295(2) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, a bonus issue, once announced, shall not be withdrawn.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(a) (Syllabus 2022).

Application Supported by Blocked Amount (ASBA)

ASBA means “Application Supported by Blocked Amount”. ASBA is an application by an investor containing an authorisation to Self-Certified Syndicate Bank (SCSB) to block the application money in the bank account, for subscribing to an issue. If an investor is applying 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 finalised.

SEBI has reviewed the processing of Application Supported by Blocked Amount (ASBA) applications in the Public Issues by market intermediaries and Self-Certified Syndicate Banks (SCSBs) as a part of the continuing efforts to further streamline the bidding process and to ensure the orderly development of securities market.

SEBI vide its circular dated May 30, 2022 has provided that the ASBA applications in Public Issues shall be processed only after the application monies are blocked in the investor’s bank accounts. Accordingly, all intermediaries / market infrastructure institutions are advised by SEBI to ensure that appropriate systemic and procedural arrangements are made within three months from the date of issuance of this circular.

Further provided that the Stock Exchanges shall accept the ASBA applications in their electronic book building platform only with a mandatory confirmation on the application monies blocked.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(a) (Syllabus 2017).

Application Supported by Blocked Amount (ASBA) is an application by an investor containing an authorization to Self-Certified Syndicate Bank (SCSB) to block the application money in the bank account, for subscribing to an issue. If an investor is applying 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.

SEBI, in its endeavour to protect investors' interest and reduce investor grievances relating to refund, introduced ASBA as the sole payment mechanism in the IPO and Rights issues. Considering that payment through ASBA mechanism is investor friendly and enables faster completion of the process, it has been decided by the SEBI vide its circular dated 8th December, 2020 to introduce additional payment mechanism (i.e. ASBA, etc.) for making subscription and/or payment of calls in respect of partly paid specified securities through self-certified syndicate banks (SCSBs) and intermediaries such as Trading Members/ Brokers - having three in one type account and Registrar and Transfer agents (RTA).

For the purpose of making payment of balance money for calls in respect of partly paid specified securities, the additional channels are tabulated below:

The payment period for payment of balance money in Calls shall be kept open for fifteen days.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2(a) (Syllabus 2017).

Self-Certified Syndicate Bank

Self-Certified Syndicate Bank (SCSB) is a bank which offers the facility of applying through the ASBA process. A bank desirous of offering ASBA facility shall submit a certificate to SEBI as per the prescribed format for inclusion of its name in SEBI's list of SCSBs.

A SCSB shall identify its Designated Branches (DBs) at which an ASBA investor shall submit ASBA and shall also identify the Controlling Branch (CB) which shall act as a coordinating branch for the Registrar of the issue, Stock Exchanges and Merchant Bankers. The SCSB, its DBs and CB shall continue to act as such, for all issues it to which ASBA process is applicable. The SCSB may identify new DBs for the purpose of ASBA process and intimate details of the same to SEBI, after which SEBI will add the DB to the list of SCSBs maintained by it. The SCSB shall communicate the following details to Stock Exchanges for making it available on their respective websites; these details shall also be made available by the SCSB on its website:

(i)Name and address of all the SCSB.

(ii)Addresses of DBs and CB and other details such as telephone number, fax number and email ids.

(iii)Name and contacts details of a nodal officer at a senior level from the CB.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(e) (Syllabus 2017).

ASBA

–ASBA stands for “Application supported by Blocked Amount”.

–ASBA is an application for subscribing to an issue, containing an authorization to block the application money in a bank account.

–The main advantage of ASBA is that the investor continues to receive the interest for amount blocked until allotment, only when shares are allotted, the money moves from the investors accounts.

–If the concerned investor didn’t get allotment. The block is removed hence, there is no concern regarding non receipt or delay in refund, in case of allotment which was the major issue when made of payment was through cheque/DD etc.

–The ASBA process is mandatory in all public issues made through the book building route.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(ii) (Old syllabus).

(i)According to SEBI Circular no. SEBI/HO/CFD/DIL2/CIR/P/2018/22 dated February 15, 2018, the following factors have been taken into account while finalization of uniform policy for calculation of minimum compensation payable to investors:

(a)the opportunity loss suffered by the investor due to non-allotment of shares;

(b)the number of times the issue was oversubscribed in the relevant category;

(c)the probability of allotment; and

(d)the listing gains if any on the day of listing.

(ii)Calculation of minimum fair compensation is as follows:

*Listing price shall be taken as the highest of the opening prices on the day of listing across the recognized Stock Exchanges.

Compensation amount = (₹350 - ₹300) x 20 shares x (7/8)

= ₹50 x 20 x (7/8)

Compensation amount = ₹875

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(b) (Syllabus 2017).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(a) (Old syllabus).

Cut off price:

Cut off price is the highest price at which demand for securities is fulfilled. Simply, it is the highest price at which all shares offered can be sold by the company. All those investors who have submitted their bid at price equal to or above the cut off price are known as successful bidder and they are entitled for the allotment of shares as per method prescribed in SEBI (ICDR) Regulation, 2018.

In the given question, we calculate cut off price as under:

Total number of Equity Shares for public issue: 15,00,000

Price Band: ₹500 - ₹600

Firstly, we have to arrange the demand for shares on the basis of price in descending order and cumulative demand has been calculated.

From the above table it is clear that the demand is fulfilled at a price of ₹575, so cut off price will be ₹575. Bids that are at or above the issue price only qualify for share allotment.

All those investors who have applied at ₹575 and above shall be eligible for allotment.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(c) (Syllabus 2017).

Difference between fixed price process and book building process

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(e) (Old syllabus).

Indian Depository Receipts (IDRs) means any instruments in the form of a depository receipt created by Domestic Depository in India against the underlying equity shares of issuing company.

Domestic Depository means custodian of securities registered with SEBI and authorized by the issuing company to issue Indian Depository Receipts.

Eligibility as per SEBI Regulations

An issuing company making an issue of IDR shall satisfy the following:

a.the issuing company is listed in its home country for at least three immediately preceding years

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

d.any of its promoters or directors is not a fugitive economic offender.

Conditions for issue of IDR as per SEBI Regulations

The issue of IDR shall be subject to the following conditions:

a)issue size shall not be less than fifty crore rupees;

b)at any given time, there shall be only one denomination of IDRs of the issuer.

c)issuer 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).

d)issuer shall ensure that the underlying shares of IDRs shall rank pari passu with the existing shares of the same class.

The issuer shall ensure that:

a)it has made an application to one or more stock exchanges to seek an in-principle approval for listing of the IDRs on such stock exchanges and has chosen one of them as the designated stock exchange

b)it has entered into an agreement with a depository for dematerialisation of the IDRs proposed to be issued

c)it has made firm arrangements of finance through verifiable means towards 75% of the stated means of finance for the project proposed to be funded from issue proceeds, excluding the amount to be raised through the proposed issue of IDRs or through existing identifiable internal accruals, have been made.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(b) (Old syllabus).

Eligible issuer on the Innovators Growth Platform

The following issuers are eligible for listing on the Innovators Growth Platform:

(i)An issuer which is intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology or nano technology to provide products, services or business platforms with substantial value addition shall be eligible for listing on the innovators growth platform, provided that as on the date of filing of draft information document or draft offer document with the SEBI, as the case may be, twenty five per cent of the pre-issue capital of the Issuer Company for at least a period of one year, should have been held by Qualified Institutional Buyers / Innovators Growth Platform Investors for the purpose of Innovators Growth Platform/ Foreign Portfolio Investor/ Regulated Entities / Any other class of investors as specified by SEBI from time to time.

(ii)An issuer shall be eligible for listing on the Innovators Growth Platform, if none of the promoters or directors of the issuer company is a fugitive economic offender.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(v) (Old syllabus).

Institutional Trading Platform (ITP) : SEBI has notified new norms for listing of small and medium enterprises (SMEs) including the start-up companies on Institutional Trading Platform (ITP) on stock exchanges without an initial public offering. This will allow SMEs to list themselves on stock exchanges without raising funds from the public. In the modified rules to permit listing of start-ups and SMEs in ITP without having to make an IPO, a minimum amount of trading or investment on the ITP would be ₹10 lakh. This move will provide easier exit options for entities such as Angel investors, capital funds and private equity.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2(b) (Old syllabus).

Under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, an issuer can offer specified securities at different prices, subject to the following:

(a)retail individual investors or retail individual shareholders or employees entitled for reservation may be offered specified securities at a price not lower than by more than ten per cent. of the price at which net offer is made to other categories of applicants, excluding anchor investors;

In other words, if the issue price to the other categories of applicants is Rs.100 the price at which the securities can be offered to the reserved categories shall not be less than Rs.90;

(b)in case of a book built issue, the price of the specified securities offered to an anchor investor should not be lower than the price offered to other applicants;

(c)in case of a composite issue, the price of the specified securities offered in the public issue can be different from the price offered in rights issue and justification for such price difference should be given in the offer document;

(d)in case the issuer opts for the alternate method of book building, the issuer may offer the specified securities to its employees at a price not lower by more than 10% of the floor price.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(e) (Old syllabus).

In order to ensure completeness of the offer document for investors and provide greater clarity & consistency in the disclosures and for timely processing, SEBI has issued ‘Guidelines for returning of draft offer document and its resubmission’.

The Broad guidelines for returning of the draft offer document are as under:

Return of Draft Offer document

The draft offer document / draft letter of offer filed with SEBI for public issue / rights issue of securities shall be scrutinized based on the broad guidelines specified as under and accordingly, the draft offer document shall be returned to the Issuer and the Lead Manager(s) for resubmission in accordance with the following guidelines, if-

Disclosures made in the draft offer document do not satisfy one or more of the following requirements-:

(i)Draft offer document must be drafted in simple language with visual representation of data, so as to ensure ease of understanding of its contents.

(ii)The information in the draft offer document is presented in a clear, concise and intelligible manner.

(iii)The draft offer document avoids complex presentations, vague, ambiguous and imprecise explanations, complex information, repetition of disclosures and inconsistency.

(iv)The risk factors are appropriately worded in simple, clear and unambiguous language to bring out clearly the risk to the investor, without undermining the same.

Resubmission of Draft Offer Document

(i)While there shall be no requirement for payment of any fees on account of resubmission of draft offer document, the requirement for paying applicable fees for the changes, if any, in terms of changes specified in Schedule XVI of the ICDR Regulations for the updated offer document shall continue to apply as is applicable to issuer for updation in offer document.

(ii)There shall be no refund of the filing fees on account of non-submission of draft offer document by the issuer after return.

(iii)The issuer, within two days of resubmission of draft offer document with the SEBI, shall make a public announcement in the mode and manner as prescribed under ICDR Regulations, as applicable, and the issuer shall also include a disclosure that it is a resubmitted document.

(iv)Issuer shall make written intimation to its sectoral regulator, if any, informing about the return and resubmission of the draft offer document, as applicable.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(c) (Syllabus 2022).

Dissenting Shareholders

(i)“Dissenting Shareholders” mean those shareholders who have voted against the resolution for change in Objects or variation in terms of a contract, referred to in the offer document of the issuer.

(ii)Only those dissenting shareholders of the issuer who are holding shares as on the relevant date shall be eligible to avail the exit offer.

(iii)Conditions for Exit Offer

The promoters or shareholders in control of Karuna Ltd. shall make the exit offer to the dissenting shareholders, in cases only if a public issue has opened after April 1, 2014, if :

1.The proposal for change in objects or variation in terms of a contract, referred to in the offer document is dissented by at least 10 per cent of the shareholders who voted in the general meeting; and

2.The amount to be utilized for the objects for which the offer document was issued is less than 75 % of the amount raised (including the amount earmarked for general corporate purposes as disclosed in the offer document).

(iv)The “exit price' payable to the dissenting shareholders shall be the highest of the following:

(a)The volume-weighted average price paid or payable for acquisitions, whether by the promoters or by any person acting in concert with them, during the fifty-two weeks immediately preceding the relevant date;

(b)The highest price paid or payable for any acquisition, whether by the promoters or by any person acting in concert with them, during the twenty six weeks immediately preceding the relevant date;

(c)the volume-weighted average market price of such shares for a period of sixty trading days immediately preceding the relevant date as traded on the recognised stock exchange where the maximum volume of trading in the shares of the issuer are recorded during such period, provided such shares are frequently traded;

(d)where the shares are not frequently traded, the price determined by the promoters or shareholders having control and the lead manager(s) taking into account valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such issuers.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(b) (Syllabus 2017).

Dissenting Shareholders mean those shareholders who have voted against the resolution for change in objects or variation in terms of a contract, referred to in the prospectus of the issuer. Regulation 69D of SEBI (ICDR) Regulations, 2009, provides that only those dissenting shareholders of the issuer who are holding shares as on the relevant date shall be eligible to avail the exit offer.

The promoters or shareholders in control shall make the exit offer in accordance with the provisions of the SEBI (ICDR) Regulations, 2009, to the dissenting shareholders, if:

—the public issue has opened after April 1, 2014; and

—the proposal for change in objects or variation in terms of a contract, referred to in the prospectus is dissented by at least 10 per cent of the shareholders who voted in the general meeting; and

—the amount to be utilized for the objects for which the prospectus was issued is less than 75 % of the amount raised (including the amount earmarked for general corporate purposes as disclosed in the offer document).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(b) (Old syllabus).

As per SEBI (ICDR) Regulations, 2009, Promoters shall bring in the full amount of the promoters’ contribution including premium at least one day prior to the issue opening date which shall be kept in an escrow account with a Scheduled Commercial Bank and the said contribution/ amount shall be released to the company along with the public issue proceeds.

However, where the promoters’ contribution has been brought prior to the public issue and has already been deployed by the company, the company shall give the cash flow statement in the offer document disclosing the use of such funds received as promoters’ contribution.

If the promoters’ minimum contribution exceeds ₹100 crores, the promoters shall bring in ₹100 crores before the opening of the issue and the remaining contribution shall be brought in by the promoters in advance on pro-rata basis before the calls are made on public.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 5(c) (Old syllabus).

IPO Grading

It is a service aimed at facilitating the assessment of equity issues offered to public. The grade assigned to any individual issue represents a relative assessment of the fundamentals of that issue in relation to the universe of other listed equity securities in India. Such grading is assigned on a five point scale with a higher score indicating stronger fundamentals.

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

Thus IPO Grading facilitates investors better appreciate the meaning of disclosures in the issue documents to the extent that they affect the issue’s fundamentals. It serves as an additional investor information and investment guidance tool.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(c) (Old syllabus).

IPO grading (Initial Public Offering Grading) is a service aimed at facilitating the assessment of equity issues offered to public. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals' of that issue in relation to the universe of other listed equity securities in India. Such grading is assigned on a five-point scale with a higher score indicating stronger fundamentals.

IPO grading is different from an investment recommendation. Investment recommendations are expressed as 'buy', 'hold' or 'sell' and are based on a security specific comparison of its assessed ‘fundamentals factors’ (business prospects, financial position etc.) and ‘market factors' (liquidity, demand, supply etc.) to its price. On the other hand, IPO grading is expressed on a five point scale and is a relative comparison of the assessed fundamentals of the graded issue to other listed equity securities in India.

As the IPO grading does not take cognizance of the price of the security, it is not an investment recommendation. Rather it is one of the inputs to the investors to aiding in the decision making process.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(b) (Old syllabus).

Red-herring Prospectus

“Red Herring Prospectus” (RHP) is a prospectus, which does not have details of either price or number of shares being offered, or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. An RHP for an FPO can be filed with the ROC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the RHP filed with ROC as per the Companies Act, 2013. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(e) (Syllabus 2022).

Value of right is calculated by the following formula:

Value of Right = Right Shares offered/ Number of shares held x (Ex-right price-Right offer price)

Value of Right = 15000/5000 x (40-24)

Value of Right = ₹48

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 1(c) (Old syllabus).

Roadshows represent meetings of issues, analysts and potential investors. Details about the company presented in the roadshows and such details usually include the following information about the company making the issue:

–History

–Organisational structure

–Principal objects

–Business lines

–Position of the company in Indian and international market

–Past performance of the company

–Future plans of the company

–Completion – domestic as well as foreign

–Financial results and operating performance

–Valuation of shares

–Review of Indian stock market and economic situations

Thus at road shows, series of information presentations are organized in selected cities around the world with analysts and potential institutional investors. It is, in fact a conference by the issuer; with the prospective investors. Road show is arranged by the lead manager by sending invitation to all prospective investors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(a) (Old syllabus).

Public issue application using UPI is s step towards digitizing the offline processes involved in the application process by moving the same online. This requires to create a UPI ID and Pin using any of the UPI enabled mobile application. The UPI ID can be used for blocking of funds and making payment in the public issue process. One can accept the request to block the funds for the amount they have bid by entering their UPI Pin in the mobile application. The money shall be blocked and shall be automatically remitted to the Escrow Bank, in case of allotment. UPI in public issue process shall essentially bring in comfort, ease of use and reduce the listing time for public issues.

UPI as part of Bidding:

•Investor will fill in the bid details in the application form as per the existing process along with his UPI ID.

•As per the existing process, investors may submit the application with any of the intermediary (Syndicate Member/Registered Stock Brokers/Registrar and Transfer Agents/Depository Participants), who, on receipt of application will upload the bid details along with investors UPI ID in the stock exchange bidding platform.

•The stock exchange will electronically share the bid details, along with investors UPI ID, with the Escrow/Sponsor Bank appointed by the issuer company.

UPI as part of Blocking:

•The Escrow/Sponsor Bank will intimate a mandate request on the investor, i.e., request the investor to authorize blocking of funds equivalent to applicant amount and subsequent debit of funds in case of allotment.

•The request raised by the Escrow/Sponsor Bank, would be electronically received by the investor as SMS/Intimation on his/her mobile number linked to UPI ID.

•Upon validation of block request by the investor, the said information would be electronically received by the investor’s bank, where the funds, equivalent to application amount, would get blocked in investors account. Intimation regarding confirmation of such block of funds in investors account would also be received by the investor.

UPI as part of payment for shares post allocation process:

•The Registrar to the issue, based on information of bidding and blocking received from stock exchange, would undertake reconciliation and prepare the basis of allotment.

•Upon approval of such basis, the instructions would be sent to sponsor bank to initiate process for credit of funds in the public issue ESCROW account and unblocking excess money.

•Based on authorization given by investor using UPI Pin at the time of blocking, the funds, equivalent to the allotment, would be debited from investors account and remaining funds, if any, would be unblocked.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(b) (Syllabus 2017).

Unified Payments Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI), an RBI regulated entity. UPI is built over the IMPS (Immediate Payment Service) infrastructure and allows you to instantly transfer money between any two parties’ bank accounts. UPI as a payment mechanism is available for all public issues for which Red Herring prospectus is filed after 1st January, 2019.

UPI as a payment option can be used in the public issue process in following ways:

1.UPI as part of bidding :

2.UPI as part of blocking :

-The Escrow / Sponsor Bank will initiate a mandate request on the investor i.e. request the investor to authorize blocking of funds equivalent to applicant amount and subsequent debit of funds in case of allotment.

-The request raised by the Escrow/Sponsor Bank, would be electronically received by the investor as SMS/intimation on his / her bank provided mobile no. linked to UPI ID.

-Upon validation of block request by the investor, the said information would be electronically received by the investors' bank, where the funds, equivalent to application amount, would get blocked in investors account. Intimation regarding confirmation of such block of funds in investors account would also be received by the investor.

3.UPI as part of payment for shares post allocation process :

-The registrar to the issue, based on information of bidding and blocking received from stock exchange, would undertake reconciliation and prepare the basis of allotment.

-Upon approval of such basis the instructions would be sent to sponsor bank to initiate process for credit of funds in the public issue escrow account and unblocking excess money.

-Based on authorization given by investor using UPI PIN at the time of blocking, the funds, equivalent to the allotment, would be debited from investors account and remaining funds, if any, would be unblocked.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6A(ii) (Syllabus 2017).

Unified Payments Interface (UPI) is an instant payment system developed by the National Payment Corporation of India (NPCI), an RBI regulated entity. UPI is built over the IMPS (Immediate Payment Service) infrastructure and allows you to instantly transfer money between any two parties' bank account. UPI as a payment mechanism is available for all public issues for which Red Herring Prospectus is filed after January 01, 2019.

The applicability of UPI as a payment mechanism has been prescribed in a Phased manner as under:

Phase I : From January 01, 2019, the UPI mechanism for retail individual investors through intermediaries will be made effective along with the existing process and existing timeline of T+6 days. The same will continue for a period of 3 months or floating of 5 main board public issues, whichever is later.

Phase II : Thereafter, for applications by retail individual investors through intermediaries, the existing process of physical movement of forms from intermediaries to Self-Certified Syndicate Bank for blocking of funds will be discounted and only the UPI mechanism with existing timeline of T+6 days will continue, for a period of 3 months or floating of 5 main board public issues, whichever is later.

Phase III : Subsequently, final reduced timeline will be made effective using the UPI mechanism.

The limit for IPO application is 2 lakhs per transaction on UPI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 5(c) (Syllabus 2017).

Unified Payments Interface (UPI)

UPI is an instant payment system developed by the National Payments Corporation of India (NPCI), an RBI regulated entity. UPI is built over the IMPS (Immediate Payment Service) infrastructure and allows you to instantly transfer money between any two parties’ bank accounts. UPI as a payment mechanism is available for all public issues for which Red Herring Prospectus is filed after January 01, 2019.

Public issue application using UPI is a step towards digitizing the offline processes involved in the application process by moving the same online. This requires you to have to create a UPI ID and PIN using any of the UPI enabled mobile application. The UPI ID can be used for blocking of funds and making payment in the public issue process. One can accept the request to block the funds for the amount they have bid by entering their UPI PIN in the mobile application. The money shall be blocked and shall be automatically remitted to the Escrow Bank, in case of allotment. UPI in public issue process shall essentially bring in comfort, ease of use and reduce the listing time for public issues.

The limit for Initial Public Offer (IPO) application is 2 Lakhs per transaction on UPI.

Only retail individual investors are allowed to use UPI for payment in public issues. Qualified Institutional Buyers and High Net-worth Individuals shall continue to apply as per the existing process.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(b) (Syllabus 2017).