DIP2009

Page 1 of 373 SECURITIES AND EXCHANGE BOARD OF INDIA (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000 CONTENTS Chapter No. Name of the Chapter Page no. Chapter I Preliminary 4 Chapter II Eligibility Norms for Companies Issuing Securities 11 Chapter III Pricing by Companies Issuing Securities 25 Chapter IV Part I Part II Part III Promoters’ Contribution and Lock-In Requirements Promoters’ Contribution Lock-In Requirements Other Requirements in Respect of Lock-In 31 31 37 41 Chapter V Pre-Issue Obligations 43 Chapter VI Section I Section II Section III Section IV Contents of Offer Document Contents of the Prospectus Contents of Abridged Prospectus Contents of the Letter of Offer Contents Of the Abridged Letter Of Offer 57 57 104 114 122 Chapter VIA Part I Part II Part III Part IV Issue of Indian Depository Receipts (IDRs) General Requirements Disclosures in a Prospectus for IDRs Applicability of provisions of the SEBI (DIP) Guidelines, 2000 Contents of Abridged Prospectus (See Rule 8(i) of the IDR Rules) 123 123 124 135 135 Chapter VII Post-Issue Obligations 142 Chapter VIII Other Issue Requirements 150 Chapter VIII-A Green Shoe Option 170 Chapter IX Guidelines on Advertisement 175 Chapter X Guidelines for Issue of Convertible Debt Instruments 181 Chapter XI Guidelines on Book Building 192 Chapter XI A Guidelines on Initial Public Offers through the Stock Exchange On-Line System (e-IPO) 216 Chapter XII Guidelines for Issue of Capital by Designated Financial Institutions (Omitted) 222 Chapter XII-A Shelf Prospectus 223 Chapter XIII Guidelines for Preferential Issues 225 Chapter XIII-A Guidelines for Qualified Institutions Placement 236 Chapter XIV Guidelines for OTCEI Issues 243 Chapter XV Guidelines for Bonus Issues 245 Chapter XVI Operational Guidelines 247 Chapter XVII Miscellaneous 257 Page 2 of 373 Schedule No. Name of the Schedule Page no. Schedule I Memorandum of Understanding between the Lead Merchant Banker to the Issue and the Issuer Company 259 Schedule II Interse Allocation of Responsibilities 262 Schedule III Format of Due Diligence Certificate to be given by Lead Merchant Banker(s) along with Draft Offer Document 264 Schedule IIIA Format of Due Diligence Certificate to be given by the Debenture Trustee before Opening of the Issue 270 Schedule IV Format for Due Diligence Certificate at the time of filing the Offer Document with ROC 271 Schedule V Format for Due Diligence Certificate at the time of Opening of the Issue 272 Schedule VI Format for Due Diligence Certificate after the Issue has opened but before it closes for Subscription 273 Schedule VI-A Additional Confirmations /Certification To Be Included In Due Diligence Certificate For Fast Track Issuances 274 Schedule VII Mandatory Collection Centres 275 Schedule VIIA Order of Presentation of Disclosures in Prospectus 276 Schedule VIII Promoters’ Contribution and Lock-In 283 Schedule IX Promoters’ Contribution and Lock-In in respect of Promoters whose name figure in the Prospectus as Promoters 284 Schedule X Statement of Profits and Losses 285 Schedule XI Statement of Assets and Liabilities 286 Schedule XII Tax Shelter Statement 287 Schedule XIII Capitalisation Statement 288 Schedule XIV Form of Auditor’s Certificate regarding Profit Forecast (Omitted) 289 Schedule XV Basis for Issue Price 290 Schedule XVI Post Issue Monitoring Reports 291 Schedule XVI-A Format Of Due Diligence Certificate to be given by Lead Merchant Banker(s) along with Final Post Issue Monitoring Report 306 Schedule XVII Underwriting Devolvement Statement 307 Schedule XVIII Illustration Explaining the Procedure Of Allotment 308 Schedule XVIIIA Illustration Explaining the Minimum Application Size 310 Schedule XIX Format of the Report to be submitted by the Monitoring Agency 311 Schedule XIX-A Illustration Regarding Allotment to QIBs 313 Schedule XX Clarificatory Examples 315 Schedule XX-A Formats of Issue Advertisements 318 Schedule XXI Book Building -Model Time Frame 324 Schedule XXIA Disclosures in Placement Document 325 Schedule XXII Jurisdiction of Regional Offices/Head Office of the Board 327 Schedule XXIII Format for Submitting Draft and Final Offer Document on a 329 Page 3 of 373 Computer Floppy Schedule XXIII A Information to be submitted with Soft Copy of Draft and Final Offer Documents 330 Schedule XXIV Application Form for Issue of No Objection Certificate for Release of 1% Deposit placed with the Designated Stock Exchange (to be submitted to the Board on Issuer Company's Letter Head) 332 Schedule XXV Proforma for Sending Responses to SEBI 335 Schedule XXVI Additional Information for Renewal of Registration as Merchant Banker 337 Schedule XXVII Format for Half Yearly Report to be submitted by Merchant Bankers 339 Schedule XXVIII Contents of the Advertisement to be issued in terms of Clause 8.3.5.4 342 Schedule XXIX Final Report for Green Shoe Option 343 Schedule XXX -Bid Details 344 Text of Sections I and II of Chapter VI of these Guidelines, prior to substitution made vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005 345 Text of Chapter XII of these Guidelines, as omitted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007 367 Page 4 of 373 CHAPTER I PRELIMINARY 1(1.1) Short title, commencement, etc. (a) These Guidelines have been issued by the Securities and Exchange Board of India under Section 11 of the Securities and Exchange Board of India Act, 1992. (b) These Guidelines may be called the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000. (c) These Guidelines shall come into force from the date specified by the Board. 1.2 Definitions 1.2.1 In these Guidelines, unless the context otherwise requires; 2(ia) “Abridged Letter of Offer” in relation to a rights issue means the abridged form of a letter of offer which satisfies the minimum requirements laid down in Section IV of Chapter VI of the Guidelines); 3(ib)) “Abridged Prospectus” means the memorandum as prescribed in Form 2A under Sub-section (3) of Section 56 of the Companies Act, 1956; ii) “Act” means the Securities and Exchange Board of India Act, 1992 (15 of 1992); iii) “Advertisement” includes notices, brochures, pamphlets, circulars, show cards, catalogues, hoardings, placards, posters, insertions in newspaper, pictures, films, cover pages of offer documents or any other print medium, radio, television programmes through any electronic medium; 4((iii-a) “Application Supported by Blocked Amount (ASBA)” means an application for subscribing to an issue containing an authorisation to block the application money in a bank account.) 1 Renumbered clause 1 as “clause 1.1”, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 2 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 3 Renumbered sub-clause (i) as “clause (ib)”, vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 4 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. Page 5 of 373 5((iii-b) “ASBA Investor” means an Investor who intends to apply through ASBA process and a. is a “Resident Retail Individual Investor”; b. is bidding at cut-off, with single option as to the number of shares bid for; c. is applying through blocking of funds in a bank account with the SCSB; d. has agreed not to revise his/her bid; e. is not bidding under any of the reserved categories.) iv) “Board” means the Securities and Exchange Board of India established under provisions of Section 3 of the Act; v) “Book Building” means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document; vi) “Collection Centre” means a place where the application for subscribing to the public or rights issue is collected by the Banker to an Issue on behalf of the issuer company; vii) “Company” means the Company defined in Section 3 of the Companies Act, 1956; viii) “Composite Issues” means an issue of securities by a listed company on a public cum rights basis offered through a single offer document wherein the allotment for both public and rights components of the issue is proposed to be made simultaneously; 6(viii-a) “Convertible Debt Instrument” means an instrument or security which creates or acknowledges indebtedness and is convertible into equity shares at a later date, at or without the option of the holder of the instrument or the security of a body corporate, whether constituting a charge on the assets of the body corporate or not); ix) “Credit Rating Agency” means a body corporate registered under Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999; x) “Designated Financial Institution” means the public financial institution included in or notified under Section 4A of the Companies Act, Industrial 5 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 6 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/28/8 dated August 28, 2008. Page 6 of 373 Development Corporation established by State Governments and financial institutions approved under Section 36(1)(viii) of Income Tax Act, 1961; xi) 7(Deleted) xii) “Depository” means a body corporate registered under Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996; 8(xii-a) “Designated Stock Exchange” means a stock exchange in which securities of the company are listed or proposed to be listed and which is chosen by the company for purposes of a particular issue under these guidelines. Provided that where any of such stock exchanges have nationwide trading terminals, the company shall choose one of them as the designated stock exchange. Provided further that the company may choose a different exchange as a designated stock exchange for any subsequent issue, subject to the above clause.) 9(xiib) “Employee” means a) a permanent employee of the company working in India or out of India; or b) a director of the company, whether a whole time director, part time director or otherwise; c) an employee as defined in sub-clauses (a) or (b) of a subsidiary, in India or out of India, or of a holding company of the company.) 10(xiic) “Fast Track Issue” means a public issue or rights issue made by a listed company which satisfies all the requirements of clause 2.1.2A.) xiii) “Firm Allotment” means allotment on a firm basis in public issues by an issuing company made to Indian and Multilateral Development Financial Institutions, Indian Mutual Funds, Foreign Institutional Investors including non-resident Indians and overseas corporate bodies and permanent/regular employees of the issuer company. 7 Omitted the following sub-clause 1.2.1(xi), vide SEBI/CFD/DIL/DIP/32/2008/28/08 dated August 28, 2008: “xi) Debt-Instrument” means an instrument which creates or acknowledges indebtedness, and includes debenture, stock, bonds and such other securities of a body corporate, whether constituting a charge on the assets of the body corporate or not;” 8 Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. 9 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004. 10 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. Page 7 of 373 11(xiii-a) “Green Shoe Option” means an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism in accordance with the provisions of Chapter VIII-A of these Guidelines, which is granted to a company to be exercised through a Stabilising Agent.) xiv) “Guidelines” means Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 1999 and includes instructions issued by the Board. xv) “Infrastructure Company” means, a company wholly engaged in the business of developing, maintaining and operating infrastructure facility. xvi) “Infrastructure Facility” means the “infrastructure facility” within the meaning of Section 10(23G)(c) of Income Tax Act, 1961. xvii) “Issuer Company” means a company which has filed offer documents with the Board for making issue of securities in terms of these guidelines. xviii) “Listed Company” means a company which has any of its securities offered through an offer document listed on a recognised stock exchange and also includes Public Sector Undertakings whose securities are listed on a recognised stock exchange. xix) “Merchant Banker” means an entity registered under Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992; 12(xix a) “Mutual fund” means a mutual fund registered with the Board under the SEBI (Mutual Funds) Regulations, 1996.) 13(xix b)) 14(“Networth” means aggregate of value of the paid up equity capital and free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred expenditure not written off (including miscellaneous expenses not written off) as per the audited balance sheet.) 11 Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. 12 Inserted vide SEBI/CFD/DIL/DIP/16/2005/19/9 dated September 19, 2005. 13 Renumbered sub-clause (xix a) as “sub-clause (xix b)”, vide SEBI Circular No. SEBI/CFD/DIL/DIP/16/2005/19/9 dated September 19, 2005. 14 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “"networth" means aggregate of value of the paid up equity capital and free reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred expenditure not written off (including miscellaneous expenses not written off)”. Initially inserted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000. Page 8 of 373 xx) “Offer Document” means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue. xxi) “Offer for Sale” means offer of securities by existing shareholder(s) of a company to the public for subscription, through an offer document. xxii) “Preferential Allotment” means an issue of capital made by a body corporate in pursuance of a resolution passed under Sub-section (1A) of Section 81 of the Companies Act, 1956. xxiii) “Public Issue” means an invitation by a company to public to subscribe to the securities offered through a prospectus; xxiv) “Public Financial Institutions” means institutions included in or notified for the purposes of Section 4A of the Companies Act, 1956. 15(xxiv a)) “Qualified Institutional Buyer” means a) a public financial institution as defined in section 4A of the Companies Act, 1956; b) a scheduled commercial bank; c) a mutual fund registered with the Board; d) a foreign institutional investor and sub-account registered with SEBI, other than a sub-account which is a foreign corporate or foreign individual; e) a multilateral and bilateral development financial institution; f) a venture capital fund registered with SEBI; g) a foreign venture capital investor registered with SEBI; h) a state industrial development corporation; i) an insurance company registered with the Insurance Regulatory and Development Authority (IRDA); j) a provident fund with minimum corpus of Rs. 25 crores; k) a pension fund with minimum corpus of Rs. 25 crores); l) National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of Government of India published in the Gazette of India. 16(17(xxiv b))) “Resident retail individual investor” means a Retail Individual Investor who is a person resident in India as defined in Foreign Exchange Management Act, 1999. 18(19(20(xxiv c))) “Retail Individual Investor” means an investor who applies or bids for securities of or for a value of not more than 21(Rs.1,00,000/-).) 15 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/28/8 dated August 28, 2008. 16 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 17 Renumbered sub-clause (xxiva) as “sub-clause (xxiv b)”, vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/28/8 dated August 28, 2008. Page 9 of 373 22(23(xxiv d)) “Retail Individual Shareholder” means a shareholder of a listed company, who – a) as on the record date (i.e., the date fixed for the purpose of determining eligible shareholders), is holding shares which, on the basis of the closing price of the shares as on the previous day, are worth up to Rs.1,00,000/-; and b) applies or bids for securities of or for a value of not more than Rs.1,00,000/-) xxv) “Rights Issue” means an issue of capital under Sub-section (1) of Section 81 of the Companies Act, 1956, to be offered to the existing shareholders of the company through a Letter of Offer. xxvi) “Schedule” means schedule annexed to these Guidelines. 24((xxvi-a) “Self Certified Syndicate Bank (SCSB)” is a Banker to an Issue registered under SEBI (Bankers to an Issue) Regulations, 1994 which offers the service of making an Applications Supported by Blocked Amount and recognized as such by the Board) 25(26(xxvi-aa) “Shelf Prospectus” means a shelf prospectus within the meaning of clause (b) of the Explanation to Section 60A of the Companies Act, 1956.)) xxvii) “Stock Exchange” means a stock exchange which is for the time being recognised under Section 4 of the Securities Contracts (Regulation) Act, 1956. 18 Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. 19Renumbered sub-clause (xxiv-a) as “sub-clause (xxiv-aa)” vide SEBI Circular No SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 20 Renumbered sub-clause (xxivaa) as “sub-clause (xxiv c)” vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/28/8 dated August 28, 2008. 21 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/15/2005/29/3 dated March 29, 2005 for the letters and figures “Rs. 50,000/-“. 22 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 23 Renumbered sub-clause (xxiv b) as “sub-clause (xxiv d)” vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/28/8 dated August 28, 2008. 24 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 25Renumbered sub-clause (xxiv-a) as “sub-clause (xxiv-aa)” vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 26 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/12/2004/8/4 dated April 8, 2004. Page 10 of 373 xxviii) “Underwriting” means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them. xxix) “Unlisted Company” means a company which is not a listed company. 27(1.3) All other words and expressions used but not defined in these Guidelines, but defined in the Act or in the Companies Act, 1956 or in Securities Contracts (Regulation) Act, 1956 and/or the Rules and the Regulations made thereunder, shall have the meanings respectively assigned to them in such Acts or the Rules or the Regulations made thereunder or any statutory modification or re-enactment thereto, as the case may be. 1.4 Applicability of the Guidelines i) These Guidelines shall be applicable to all public issues by listed and unlisted companies, all offers for sale and rights issues by listed companies whose equity share capital is listed, except in case of rights issues where the aggregate value of securities offered does not exceed Rs.50 lacs. 28(Provided that in case of the rights issue where the aggregate value of the securities offered is less than Rs.50 Lakhs, the company shall prepare the letter of offer in accordance with the disclosure requirements specified in these guidelines and file the same with the Board for its information and for being put on the SEBI website.) ii) Unless otherwise stated, all provisions in these guidelines applicable to public issues by unlisted companies shall also apply to offers for sale to the public by unlisted companies. 27Renumbered “clause 1.3.1” as “clause 1.3” vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 28Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. Page 11 of 373 CHAPTER II ELIGIBILITY NORMS FOR COMPANIES ISSUING SECURITIES 2.0 Conditions for issue of securities 29(The companies issuing securities offered through an offer document shall satisfy the following at the time of filing the draft offer document with SEBI30(, unless specified otherwise in the Chapter) and also at the time of filing the final offer document with the Registrar of Companies/Designated Stock Exchange:) 2.1 Filing of offer document 2.1.1 31(No issuer company shall make any public issue of securities, unless a draft Prospectus has been filed with the Board through a Merchant Banker, at least 30 days prior to the filing of the Prospectus with the Registrar of Companies (ROC): Provided that if the Board specifies changes or issues observations on the draft Prospectus (without being under any obligation to do so), the issuer company or the Lead Manager to the Issue shall carry out such changes in the draft Prospectus or comply with the observations issued by the Board before filing the Prospectus with ROC. Provided further that the period within which the Board may specify changes or issue observations, if any, on the draft Prospectus shall be 30 days from the date of receipt of the draft Prospectus by the Board. Provided further that where the Board has sought any clarification or additional information from the Lead Manager/s to the Issue, the period within which the Board may specify changes or issue observations, if any, on the draft Prospectus shall be 15 days from the date of receipt of satisfactory reply from the Lead Manager/s to the Issue. Provided further that where the Board has made any reference to or sought any clarification or additional information from any regulator or such other agencies, the Board may specify changes or issue 29 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “The companies issuing securities offered through an offer document, shall, satisfy the following:” 30 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007. 31 Substituted clause 2.1.1, vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007, for the following: “No company shall make any issue of a public issue of securities, unless a draft prospectus has been filed with the Board, through an eligible Merchant Banker, atleast 21 days prior to the filing of Prospectus with the Registrar of Companies (ROCs). Provided that if, within 21 days from the date of submission of draft Prospectus, the Board specifies changes, if any, in the draft Prospectus (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes in the draft prospectus before filing the prospectus with ROCs.” Page 12 of 373 observations, if any, on the draft Prospectus after receipt of comments or reply from such regulator or other agencies. Provided further that the Board may specify changes or issue observations, if any, on the draft Prospectus only after receipt of copy of in-principle approval from all the stock exchanges on which the issuer company intends to list the securities proposed to be offered through the Prospectus.) 2.1.2 32(No listed issuer company shall make any rights issue of securities, 33(where the aggregate value of such securities, including premium, if any, exceeds Rs. 50 lacs,) unless a draft letter of offer has been filed with the Board, through a Merchant Banker, at least 30 days prior to the filing of the letter of offer with the Designated Stock Exchange (DSE). Provided that if the Board specifies changes or issues observations on the draft Letter of Offer (without being under any obligation to do so), the issuer company or the Lead Manager to the Issue shall carry out such changes in the draft Letter of Offer or comply with the observations issued by the Board before filing the Letter of Offer with DSE. Provided further that the period within which the Board may specify changes or issue observations, if any, on the draft Letter of Offer shall be 30 days from the date of receipt of the draft Letter of Offer by the Board. Provided further that where the Board has sought any clarification or additional information from the Lead Manager/s to the Issue, the period within which the Board may specify changes or issue observations, if 32 Substituted clause 2.1.2, vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007, for the following: “No listed company shall make any issue of security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lacs, unless the letter of offer is filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of the Letter of Offer with Regional Stock Exchange (RSE). Provided that if, within 21 days from the date of filing of draft letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes before filing the draft letter of offer with RSE.” Prior to the above, clause 2.1.2 was substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “No listed company shall make any issue of security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lacs, unless the letter of offer is filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of the Letter of Offer with Regional Stock Exchange (RSE). Provided that if, within 21 days from the date of filing of draft letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes before filing the draft letter of offer with RSE.” 33 In SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007, the words “where the aggregate value of such securities, including premium, if any, exceeds Rs. 50 lacs,” were inadvertently omitted in the opening para of the amended clause 2.1.2. The same clarified vide SEBI Circular No. SEBI/CFD/DIL/DIP/26/2007/24/5 dated May 24, 2007. Page 13 of 373 any, on the draft Letter of Offer shall be 15 days from the date of receipt of satisfactory reply from the Lead Manager/s to the Issue. Provided further that where the Board has made any reference to or sought any clarification or additional information from any regulator or such other agencies, the Board may specify changes or issue observations, if any, on the draft Letter of Offer after receipt of comments or reply from such regulator or other agencies . Provided further that the Board may specify changes or issue observations, if any, on the draft Letter of Offer only after receipt of copy of in-principle approval from all the stock exchanges on which the issuer company intends to list the securities proposed to be offered through the Letter of Offer.) 34(2.1.2A Fast Track Issues 2.1.2A.1 Nothing contained in clauses 2.1.1 and 2.1.2 shall apply to a public issue of securities by a listed issuer company or a rights issue of securities by a listed issuer company, where the aggregate value of such securities, including premium, if any, exceeds Rs. 50 lacs, if the following conditions are satisfied: (a) The shares of the company have been listed on any stock exchange having nationwide terminals for a period of at least three years immediately preceding the reference date; (b) The “average market capitalisation of public shareholding” of the company is at least Rs. 10,000 crores for a period of one year up to the end of the quarter preceding the month in which the proposed issue is approved by the Board of Directors /shareholders of the issuer; (c) The annualized trading turnover of the shares of the company during six calendar months immediately preceding the month of the reference date has been at least two percent of the weighted average number of shares listed during the said six months period; (d) The company has redressed at least 95% of the total shareholder /investor grievances or complaints received till the end of the quarter immediately preceding the month of the reference date; (e) The company has complied with the listing agreement for a period of at least three years immediately preceding the reference date; (f) The impact of auditors’ qualifications, if any, on the audited accounts of the company in respect of the financial years for which such accounts 34 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. Page 14 of 373 are disclosed in the offer document does not exceed 5% of the net profit/loss after tax of the company for the respective years. (g) No prosecution proceedings or show cause notices issued by the Board are pending against the company or its promoters or whole time directors as on the reference date; and (h) The entire shareholding of the promoter group is held in dematerialised form as on the reference date. Explanation: For the purposes of this clause: (a) “Reference date” shall mean: (i) in case of a public issue of securities by a listed company satisfying all the requirements specified in this clause, the date of filing of red herring prospectus (in case of a book built issue) or prospectus (in case of a fixed price issue) with ROC; and (ii) in case of a rights issue of securities by a listed company satisfying all the requirements specified in this clause, where the aggregate value of such securities, including premium, if any, exceeds Rs. 50 lacs, the date of filing of letter of offer with Designated Stock Exchange. (b) “Average market capitalisation of public shareholding” shall mean the sum of daily market capitalization of “public shareholding” for a period of one year up to the end of the quarter preceding the month in which the proposed issue was approved by the Board/shareholders, as the case may be, divided by the number of trading days. For this purpose, “public shareholding” shall have the same meaning as assigned to it in clause 40A of the Listing Agreement. 2.1.2A.2 A listed issuer company satisfying all the requirements specified in this clause and filing a red herring prospectus (in case of a book built issue) or prospectus (in case of a fixed price issue) with ROC or letter of offer with Designated Stock Exchange, as the case may be, shall simultaneously with such filing or as soon thereafter as reasonably practicable, but in any case not later than the opening of the issue, file a copy thereof with the Board.”) 2.1.3 Companies barred not to issue security No company shall make an issue of securities if the company has been prohibited from accessing the capital market under any order or direction passed by the Board. Page 15 of 373 2.1.4 Application for listing No company shall make any public issue of securities unless it has made an application for listing of those securities in the stock exchange (s). 35(Provided that in case of an unlisted company making an Initial Public Offer, the company shall make an application for listing of those securities on at least one stock exchange having nationwide trading terminals.) 2.1.5 Issue of securities in dematerialised form 2.1.5.1 No company shall make public or rights issue or an offer for sale of securities, unless: (a) the company enters into an agreement with a depository for dematerialisation of securities already issued or proposed to be issued to the public or existing shareholders; and (b) the company gives an option to subscribers/shareholders/investors to receive the security certificates or hold securities in dematerialised form with a depository. Explanation: A “depository” shall mean a depository registered with the Board under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996. 2.2 36(Initial Public Offerings by Unlisted Companies) 2.2.1 37(An unlisted company may make an initial public offering (IPO) of equity shares or any other security which may be converted into or 35 Inserted vide SEBI/CFD/DIL/DIP/36/2009/09/07 dated July 9, 2009 36 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “Public Issue by Unlisted Companies”. 37 Substituted clause 2.2.1, vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003, for the following: “2.2.1 An unlisted company shall make a public issue of any equity shares or any security convertible into equity shares at a later date subject to the following:-i.) It has a pre-issue networth of not less than Rs.1 crore in three (3) out of preceding five (5) years, with a minimum networth to be met during immediately preceding two (2) years; and ii.) It has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years. Provided that the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) does not exceed five (5) times its pre-issue networth as per the last available audited accounts, either at the time of filing draft offer document with the Board or at the time of opening of the issue”. Prior to the above, clause 2.2.1 was substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the following: Page 16 of 373 exchanged with equity shares at a later date, only if it meets all the following conditions: (a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets: Provided that if more than 50% of the net tangible assets are held in monetary assets, the company has made firm commitments to deploy such excess monetary assets in its business/project; (b) The company has a track record of distributable profits in terms of Section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years; Provided further that extraordinary items shall not be considered for calculating distributable profits in terms of Section 205 of Companies Act, 1956; (c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of 12 months each); (d) In case the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name; and (e) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e., offer through offer document + firm allotment + promoters’ contribution through the offer document), does not exceed five (5) times its pre-issue networth as per the audited balance sheet of the last financial year.) 2.2.2 38(An unlisted company not complying with any of the conditions specified in Clause 2.2.1 may make an initial public offering (IPO) of "2.2.1 No unlisted company shall make a public issue of any equity share or any security convertible at a later date into equity share unless the company has;-i.) a track record of distributable profits in terms of section 205 of Companies Act, for at least three (3) out of immediately preceding five (5) years; and ii.) a pre-issue networth of not less than Rupees One crore in three (3) out of preceding five (5) years, with the minimum networth to be met during immediately preceding two (2) years.” 38 Substituted clause 2.2.2, vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003, for the following: “2.2.2 An unlisted company can make a public issue of equity shares or any security convertible into equity shares at a later date, only through the book-building process if , i.) it does not comply with the conditions specified in clause 2.2.1 above, or, ii.) its proposed issue size exceeds five times its pre-issue networth as per the last available audited accounts either at the time of filing draft offer document with the Board or at the time of opening of the issue Provided that sixty percent (60%) of the issue size shall be allotted to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded. Explanation 1: i.) Profits emanating only from the information technology business or activities of the company, shall be considered for the purposes of computation of the track record of distributable profits in following cases: a. for companies in "Information Technology" sector or proposing to raise moneys for projects in "information technology" sector, Page 17 of 373 b. for companies whose name suggests that they are engaged in information technology activities /business, etc. viz. the company’s name containing the words ‘software, hardware, info, infotech, .com, informatics, technology, computer, information, etc.; ii.) In case of partnership firms which have since been converted into companies, the track record of distributable profits of the firm shall be considered only if the financial statements of the partnership business for the said years conform to and are revised in the format prescribed for companies under the Companies Act, 1956 and also comply with the following: a. adequate disclosures are made in the financial statements as required to be made by the companies as per Schedule VI of the Companies Act, 1956; b. the financial statements shall be duly certified by a Chartered Accountant stating that: I. the accounts as revised or otherwise and that the disclosures made are in accordance with the provisions of Schedule VI of the Companies Act, 1956; and II. the accounting standards of the Institute of Chartered Accountants of India(ICAI) have been followed and that the financial statements present a true and fair picture of the firm’s accounts. iii) the lead merchant banker shall also verify and confirm that the financial statements furnished on behalf of the partnership firm are in accordance with the Accounting Standards prescribed by the ICAI. iv) In case of an unlisted company formed out of a division of an existing company, the track record of distributable profits of the division spun off shall be considered only if the requirements regarding financial statements as specified for partnership firms in clause (ii) above are complied with. Explanation 2: For the purposes of clause 2.2 above, the term -i.) "Three years out of immediately preceding five years", shall mean that at least three (3) audited accounts for a period of not less than thirty six (36) months are available for computation of the minimum track record of three (3) years of distributable profits. ii.) "Qualified Institutional Buyer" shall mean -a. public financial institution as defined in section 4A of the Companies Act, 1956; b. scheduled commercial banks; c. mutual funds; d. foreign institutional investor registered with SEBI; e. multilateral and bilateral development financial institutions; f. Venture capital funds registered with SEBI.) g. 38(Foreign Venture capital investors registered with SEBI.) h. 38(State Industrial Development Corporations) iii.) "Information Technology" shall comprise the following activities: a. Production of computer software i.e. any representation of instruction, data, sound or image including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine. b. Information technology services i.e. any service which results from the use of any information technology software over a system of information technology products for realizing value addition and will consist of (I) IT software including data processing services (II) Consumer systems, communication and network services and (III) other IT related services. c. manufacturing of information technology hardware d. Manufacturing of information technology products i.e. computer systems, communications and network products and peripherals and subsystems. e. Manufacturing of information technology components i.e. active and passive electronic components, plastic, metal, non-metal, parts and sub assemblies of IT products. f. computer education and training g. computer maintenance h. computer consultancy i. e-commerce /internet related activities.” Prior to the above, sub-clauses (g) and (h) of sub-clause (ii) of Explanation 2 were substituted vide SEBI Circular No. RMB (Compendium) Series Circular No. 1 (2001-2002) dated July 17, 2001 for the following: “g) Foreign Venture Capital investors registered with SEBI h) State Industrial Development corporations” Prior to the above, clause 2.2.2 was substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the following: “2.2.2 An unlisted company which does not satisfy the requirement specified in Clause 2.2.1 above, can make a public issue of equity share capital or any security convertible at later date into equity share capital, provided a public financial institution or a scheduled commercial bank:-a) has appraised the project to be financed through the proposed offer to the public; and ; b) not less than 10% of the project cost is financed by the said appraising bank or institution by way of loan, equity, participation in the issue of security in the proposed issue or combination of any of them. c) the appraising bank or institution shall bring in the minimum specified contribution at least one day before the opening of the public issue. Explanation: Page 18 of 373 equity shares or any other security which may be converted into or exchanged with equity shares at a later date, only if it meets both the conditions (a) and (b) given below: (a) (i) The issue is made through the book-building process, with at least 39(50% of net offer to public) being allotted to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded. OR (a) (ii) The “project” has at least 15% participation by Financial Institutions/Scheduled Commercial Banks, of which at least 10% comes from the appraiser(s). In addition to this, at least 10% of the issue size shall be allotted to QIBs, failing which the full subscription monies shall be refunded AND (b) (i) The minimum post-issue face value capital of the company shall be Rs. 10 crores. OR (b) (ii) There shall be a compulsory market-making for at least 2 years from the date of listing of the shares, subject to the following: 40(a) Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares; 41(b) Market makers undertake to ensure that the bid-ask spread (difference between quotations for sale and purchase) for their quotes shall not at any time exceed 10%: For the purpose of the term 'track record': (A) At least three (3) audited accounts shall be available comprising not less than thirty six (36) months for determining the minimum track record of three (3) years, (B) In case of companies in the information technology sector, the track record of distributable profits shall be considered for the purpose of eligibility requirements only if the profits are emanating from the information technology business or activities. (C) In case of partnership firms which have since been converted into companies, the track record of distributable profits of the firm shall be considered for the purpose of eligibility requirements if, the financial statements for the respective years pertaining to partnership business conform to and are revised in a format identical to that required for companies and also comply with the following: (i) adequate disclosures are made in the financial statements similar to that of companies as specified in Schedule VI of the Companies Act, 1956, and the financial statements shall be duly certified by a Chartered Accountant stating unequivocally that: (a) the accounts as revised or otherwise and disclosures made are in line with the provision of Schedule VI of the Companies Act, 1956; and (b) the accounting standards of the Institute of Chartered Accountants of India (ICAI) have been followed and that the financial statements present a true and fair picture of the firm's accounts, (ii) the lead merchant banker shall also conform that the financial statements furnished on behalf of the Partnership firms are in accordance with accounting standards prescribed by the ICAI. (D) In case of an unlisted company formed out of a division of an exiting company, the track record of distributable profits of the division spun off shall be considered for the purpose of eligibility criteria if the requirements regarding financial statements as specified for partnership firms in clause (C) above are complied with." 39 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/16/2005/19/9 dated September 19, 2005 for the letters and figures “50% of the issue size”. 40 Numbered the bulleted sub-clause, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. Page 19 of 373 42(c) The inventory of the market makers on each of such stock exchanges, as on the date of allotment of securities, shall be at least 5% of the proposed issue of the company.) 43(2.2.2A An unlisted public company shall not make an allotment pursuant to a public issue or offer for sale of equity shares or any security convertible into equity shares unless, in addition to satisfying the conditions mentioned in Clause 2.2.1 or 2.2.2 as the case may be, the prospective allottees are not less than one thousand (1000) in number.) 44(2.2.2B For the purposes of clauses 2.2.1 and 2.2.2 above: (i) ”Net Tangible Assets” shall mean the sum of all net assets of the company, excluding ‘intangible assets’, as defined in Accounting Standard 26 (AS 26) issued by the Institute of Chartered Accountants of India. (ii) “Project” means the object for which the monies proposed to be raised to cover the objects of the issue. (iii) In case of partnership firms which have since been converted into companies, the track record of distributable profits of the firm shall be considered only if the financial statements of the partnership business for the said years conform to and are revised in the format prescribed for companies under the Companies Act, 1956 and also comply with the following: a. adequate disclosures are made in the financial statements as required to be made by the companies as per Schedule VI of the Companies Act, 1956; b. the financial statements shall be duly certified by a Chartered Accountant stating that: I. the accounts as revised or otherwise and the disclosures made are in accordance with the provisions of Schedule VI of the Companies Act, 1956; and II. the accounting standards of the Institute of Chartered Accountants of India (ICAI) have been followed and that the 41 Numbered the bulleted sub-clause, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 42 Numbered the bulleted sub-clause, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 43 Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. . 44 Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. Page 20 of 373 financial statements present a true and fair picture of the firm’s accounts. (iv) In case of an unlisted company formed out of a division of an existing company, the track record of distributable profits of the division spun off shall be considered only if the requirements regarding financial statements as specified for partnership firms in 45(sub-clause (iii)) above are complied with. (v) 46(Deleted) 2.2.3 Offer for sale 2.2.3.1 47(An offer for sale shall not be made of equity shares of a company or any other security which may be converted into or exchanged with equity shares of the company at a later date, unless the conditions laid down in clause 2.2.1 or 2.2.2, as the case may be and in clause 2.2.2A, are satisfied.) 2.2.4 Offer for sale can also be made if provisions of clause 2.2.2 are complied at the time of submission of offer document with Board. 2.3 Public Issue by Listed Companies 45 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009, for the words “sub-clause (iv)”. 46 Omitted the following sub-clause 2.2.2B(v) vide SEBI/CFD/DIL/DIP/32/2008/28/08 dated August 28, 2008: “(v) Qualified Institutional Buyer” shall mean: a. public financial institution as defined in section 4A of the Companies Act, 1956; b. scheduled commercial banks; c. mutual funds; d. foreign institutional investor registered with SEBI; e. multilateral and bilateral development financial institutions; f. venture capital funds registered with SEBI; g. foreign venture capital investors registered with SEBI; h. state industrial development corporations; i. insurance companies registered with the Insurance Regulatory and Development Authority (IRDA); j. provident funds with minimum corpus of Rs. 25 crores; k. pension funds with minimum corpus of Rs. 25 crores); 46(l. National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of Government of India published in the Gazette of India.” Prior to the above, sub-clause (l) was inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/30/2008/17/03 dated March 17, 2008. 47 Substituted clause 2.2.3.1, vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003, for the following: “A company, whose equity shares or any security convertible at later date into equity shares are offered through an offer for sale, shall comply with the provisions of Clause 2.2.”. Prior to the above, clause 2.2.3.1 was substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the following: "A company, whose equity share or any security convertible at later date into equity shares are offered through an offer for sale, has to comply with the provisions of Clause 2.2.1 or Clause 2.2.2". Page 21 of 373 2.3.1 48(A listed company shall be eligible to make a public issue of equity shares or any other security which may be converted into or exchanged with equity shares at a later date: Provided that the aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e., offer through offer document + firm allotment + promoters’ contribution through the offer document), issue size does not exceed 5 times its pre-issue networth as per the audited balance sheet of the last financial year. Provided 49(further) that in case there is a change in the name of the issuer company within the last 1 year (reckoned from the date of filing of the offer document), the revenue accounted for by the activity suggested by the new name is not less than 50% of its total revenue in the preceding 1 full-year period.) 2.3.2 50(A listed company which does not fulfill the conditions given in the provisos to Clause 2.3.1 above shall be eligible to make a public issue, subject to complying with the conditions specified in clause 2.2.2.) 2.3.3 51(Deleted) 48 Substituted clause 2.3.1, vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003, for the following: “A listed company shall be eligible to make a public issue of equity shares or any security convertible at later date into equity share. Provided that the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) does not exceed five (5) times its pre-issue networth as per the last available audited accounts either at the time of filing draft offer document with the Board or at the time of opening of the issue.” Prior to the above, clause 2.3.1 was substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the following: "2.3.1 A listed company shall be eligible to make a public issue of equity shares or any security convertible at later date into equity share. Provided that, if as a result of the proposed issue, networth of the company becomes more than five times the networth prior to the issue, the company shall satisfy either the provisions of Clause 2.2.1 or Clause 2.2.2, before it can make the proposed public issue. 49 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 50 Substituted clause 2.3.2, vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003, for the following: “A listed company which does not fulfill the condition given in the proviso to clause 2.3.1 above, shall be eligible to make a public issue only through the book building process. Provided that sixty percent (60%) of the issue size shall be allotted to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded.” Prior to the above, clause 2.3.2 was substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the following: “2.3.2 Public issue by listed companies which has changed its name to indicate as if it was engaged in the business /activities in information technology sector during a period of three years prior to filing of offer document with the Board, shall be eligible to make a public issue of equity share or securities convertible at a later date into equity share, if; (a) (i) it has a track record of distributable profits in terms of Section 205 of Companies Act, for at least three (3) out of immediately preceding five (5) years from the information technology business /activities, and (ii) it has a pre-issue networth of not less than Rs.One Crore in three (3) out of preceding five (5) years, with the minimum networth to be met during immediately preceding two (2) years. (b) if the company does not satisfy the requirements specified in clause (a) above, it can make a public issue provided that it satisfies the requirements laid down in sub-clauses (a), (b) and (c ) of clause 2.2.2." Page 22 of 373 2.4 Exemption from Eligibility Norms 2.4.1 The provisions of clauses 52(2.2 and 2.3) shall not be applicable in case of: i) a banking company including a Local Area Bank (hereinafter referred to as Private Sector Banks) set up under sub-section (c) of Section 5 of the Banking Regulation Act, 1949 and which has received license from the Reserve Bank of India; or ii) a corresponding new bank set up under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980, State Bank of India Act 1955 and State Bank of India (Subsidiary Banks) Act, 1959 (hereinafter referred to as “public sector banks”); iii) an infrastructure company: a) 53(whose project has been appraised by a Public Financial Institution (PFI) or Infrastructure Development Finance Corporation (IDFC) or Infrastructure Leasing and Financing Services Ltd. (IL&FS) or a bank which was earlier a PFI; and) b) not less than 5% of the project cost is financed by any of the institutions referred to in sub-clause (a), jointly or severally, irrespective of whether they appraise the project or not, by way of loan or subscription to equity or a combination of both; iv) rights issue by a listed company. Explanation: 54(Deleted) 51 Omitted the following clause 2.3.3, vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003: “A listed company which has changed its name so as to indicate that it is a company in the information technology sector as defined in Clause ‘iii’ of Explanation 2 of Clause 2.2.1, during a period of three years prior to filing of offer document with the Board, shall comply with the requirements of Clause 2.2 for unlisted companies, before it can make a public issue of equity shares or securities convertible at a later date into equity shares.” 52 Substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for "2.2.1, 2.2.2 and 2.3.1". 53 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “whose project has been appraised by a Public Financial Institution or Infrastructure Development Finance Corporation (IDFC) or Infrastructure Leasing and Financing Services Ltd. (IL&FS) and”. 54 Omitted the following explanation, vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000, for the following: "For the purposes of Clauses 2.2.1 and 2.3.1, “networth” shall mean aggregate of value of the paid up Equity capital and Free Reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred Expenditure not written off including miscellaneous expenses not written off)". Page 23 of 373 2.5 Credit Rating for Debt Instruments 55(2.5.1A No issuer company shall make a public issue or rights issue of 56(convertible debt instruments), unless the following conditions are also satisfied, as on date of filing of draft offer document with SEBI and also on the date of filing a final offer document with ROC/Designated Stock Exchange: (i) 57(credit rating is obtained from at least one credit rating agency registered with the Board and disclosed in the offer document;) (ii) The company is not in the list of willful defaulters of RBI; (iii) The company is not in default of payment of interest or repayment of principal in respect of debentures issued to the public, if any, for a period of more than 6 months. 2.5.1B 58(Deleted) 2.5.2 59(Where credit ratings are obtained from more than one credit rating agencies, all the ratings, including the unaccepted ratings, shall be disclosed in the offer document.) 55 Substituted clause 2.5.1A and clause 2.5.1B, vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003, for the following: “2.5.1 No public or rights issue of debt instrument (including convertible instruments) irrespective of their maturity or conversion period shall be made unless credit rating from a credit rating agency is obtained and disclosed in the offer document.” 56 Substituted vide SEBI/CFD/DIL/DIP/32/200/28/8 dated August 28, 2008 for the words and brackets “debt instruments (whether convertible or not)”. 57 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/29/2007/03/12 dated December 3, 2007 for the following: “(i) credit rating of not less than investment grade is obtained from not less than two credit rating agencies registered with SEBI and disclosed in the offer document;” 58 Omitted vide circular No. SEBI/CFD/DIL/DIP/32/2008/28/08 dated August 28, 2008 the following” “2.5.1B An issuer company shall not make an allotment of non-convertible debt instrument pursuant to a public issue if the proposed allottees are less than fifty (50) in number. In such a case the company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest @15% p.a. to the investors.)” Prior to the above, clause 2.5.1B was substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003, for clause 2.5.1, the details of which are given in the footnote on pre-page. 59 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/29/2007/03/12 dated December 3, 2007 for the following: “Where credit ratings are obtained from more than two credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, shall be disclosed” Prior to the above, clause 2.5.2 was substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “Where credit rating is obtained from more than one credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, shall be disclosed.” Page 24 of 373 2.5.3 60(Deleted.) 2.5.4 All the credit ratings obtained during the three (3) years preceding the pubic or rights issue of debt instrument (including convertible instruments) for any listed security of the issuer company shall be disclosed in the offer document. 61(2.5A IPO Grading 2.5A.1 No unlisted company shall make an IPO of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, unless the following conditions are satisfied as on the date of filing of Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of book built issue) with ROC: (i) the unlisted company has obtained grading for the IPO from at least one credit rating agency; (ii) disclosures of all the grades obtained, along with the rationale/description furnished by the credit rating agency(ies) for each of the grades obtained, have been made in the Prospectus (in case of fixed price issue) or Red Herring Prospectus (in case of book built issue); and (iii) the expenses incurred for grading IPO have been borne by the unlisted company obtaining grading for IPO.) 2.6 Outstanding Warrants or Financial Instruments 2.6.1 No unlisted company shall make a public issue of equity share or any security convertible at later date into equity share, if there are any outstanding financial instruments or any other right which would entitle the existing promoters or shareholders any option to receive equity share capital after the initial public offering. 2.7 Partly Paid-up Shares 2.7.1 No company shall make a public or rights issue of equity share or any security convertible at later date into equity share, unless all the existing partly paid-up shares have been fully paid or forfeited in a manner specified in clause 8.6.2. 62(2.8 Means of Finance 60 Omitted the following vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003: “For a public and rights issue of debt-securities of issue size greater than or equal to Rs.100 crores, two ratings from two different credit rating agencies shall be obtained.” 61 Inserted clause 2.5A, vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007. Page 25 of 373 No company shall make a public or rights issue of securities unless firm arrangements of finance through verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through proposed Public/Rights issue, have been made.) 62 Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. Page 26 of 373 CHAPTER III PRICING BY COMPANIES ISSUING SECURITIES 3.0 The companies eligible to make public issue can freely price their equity shares or any security convertible at later date into equity shares in the following cases: 3.1 Public/Rights Issue by Listed Companies 3.1.1 A listed company whose equity shares are listed on a stock exchange, may freely price its equity shares and any security convertible into equity at a later date, offered through a public or rights issue. 3.2 Public Issue by Unlisted Companies 3.2.1 An unlisted company eligible to make a public issue and desirous of getting its securities listed on a recognised stock exchange pursuant to a public issue, may freely price its equity shares or any securities convertible at a later date into equity shares. 63(3.2A) Infrastructure company 64(3.2A.1) An eligible infrastructure company shall be free to price its equity shares, subject to the compliance with the disclosure norms as specified by SEBI from time to time. 3.3 Initial public Issue by Banks 3.3.1 The banks (whether public sector or private sector) may freely price their issue of equity shares or any securities convertible at a later date into equity share, subject to approval by the Reserve Bank of India. 3.4 Differential Pricing 3.4.1 Any unlisted company or a listed company making a public issue of equity shares or securities convertible at a later date into equity shares, may issue such securities to applicants in the firm allotment category at a price different from the price at which the net offer to the public is made, provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which securities are offered to public. 63 Numbered vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. 64 Renumbered clause “3.2.3” as 3.2A.1, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. Page 27 of 373 Explanation: The net offer to the public means the offer made to the Indian public and does not include firm allotments or reservations or promoters’ contributions. 65(3.4.1A An unlisted company or a listed company making a public issue of equity shares or securities convertible at a later date into equity shares may issue such securities to retail individual investors and/or retail individual shareholders at a price lower than the price at which net offer is made to other categories of public. Provided that the difference between the price at which the securities are issued to retail individual investors and/or retail individual shareholders and the price at which the net offer is made to other categories of public, is not more than 10% of the price at which securities are offered to other categories of public.) 3.4.2 A listed company making a composite issue of capital may issue securities at differential prices in its public and rights issue. 3.4.3 In the public issue which is a part of a composite issue, differential pricing as per 66(sub-clauses 3.4.1 and 3.4.1A) above is also permissible. 3.4.4 Justification for the price difference shall be given in the offer document for 67(sub-clauses 3.4.1, 3.4.1A and 3.4.2). 3.5 Price Band 3.5.1 Issuer company can mention a price band of 20% (cap in the price band should not be more than 20% of the floor price) in the offer documents filed with the Board and actual price can be determined at a later date before filing of the offer document with ROCs. 3.5.2 If the Board of Directors has been authorised to determine the offer price within a specified price band such price shall be determined by a Resolution to be passed by the Board of Directors. 3.5.3 68(The Lead Merchant Bankers shall ensure that in case of the listed companies, a 48 hours notice of the meeting of the Board of Directors for 65 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 66 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007 for the words "sub-clause 3.4.1”. 67 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007 for the words “sub-clauses 3.4.1 and 3.4.2” 68 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: Page 28 of 373 passing resolution for determination of price is given to the Designated Stock Exchange.) 69(3.5.4 In case of public issue by listed issuer company, issue price or price band may not be disclosed in the draft prospectus filed with the Board.) 70(3.5.5 In case of a rights issue, issue price or price band may not be disclosed in the draft letter of offer filed with the Board. The issue price may be determined anytime before fixation of the record date, in consultation with the Designated Stock Exchange.) 71(3.5.6) The final offer document shall contain only one price and one set of financial projections, if applicable. 3.6 Payment of Discounts/Commissions, etc. 3.6.1 No payment, direct or indirect in the nature of a discount, commission, allowance or otherwise shall be made either by the issuer company or the promoters in any public issue, to the persons who have received firm allotment in such public issue. 3.7 Freedom to determine the denomination of shares for public /rights issues and to change the standard denomination 3.7.1 72(An eligible company shall be free to make public or rights issue of equity shares in any denomination determined by it in accordance with Sub-section (4) of Section 13 of the Companies Act, 1956 and in compliance with the following and other norms as may be specified by SEBI from time to time: i. In case of initial public offer by an unlisted company, a. if the issue price is Rs. 500/-or more, the issuer company shall have a discretion to fix the face value below Rs. 10/-per share subject to the condition that the face value shall in no case be less than Rs. 1 per share; “The Lead Merchant Bankers shall ensure that in case of the listed companies, a 48 hours notice of the meeting of the Board of Directors for passing resolution for determination of price is given to the regional Stock Exchange.” 69 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 70 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 71 Renumbered clause 3.5.4 as “clause 3.5.6”, vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 72 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/13/2004/28/5 dated May 28, 2004 for the following: “An eligible company shall be free to make public or rights issue of equity shares in any denomination determined by it in accordance with sub-section (4) of section 13 of the Companies Act, 1956 and in compliance with the norms as specified by SEBI in circular no.SMDRP/POLICY/CIR-16/99 dated June 14, 1999 and other norms as may be specified by SEBI from time to time.” Page 29 of 373 b. if issue price is less than Rs. 500 per share, the face value shall be Rs. 10/-per share; 73(Provided that nothing contained in sub-clause (i) shall apply to initial public offer made by any government company, statutory authority or corporation or any special purpose vehicle set up by any of them, which is engaged in infrastructure sector. Explanation: For the purposes of this proviso, the term “Infrastructure sector” shall include the following facilities/services: (i) Transportation (including inter modal transportation), including the following: (a) Roads, national highways, state highways, major district roads, other district roads and village roads, including toll roads, bridges, highways, road transport providers and other road-related services; (b) Rail system, rail transport providers, metro rail roads and other railway related services; (c) Ports (including minor ports and harbours), inland waterways, coastal shipping including shipping lines and other port related services; (d) Aviation, including airports, heliports, airlines and other airport related services; (e) Logistics services; (ii) Agriculture, including the following: (a) Infrastructure related to storage facilities; (b) Construction relating to projects involving agro-processing and supply of inputs to agriculture; (d) Construction for preservation and storage of processed agro-products, perishable goods such as fruits, vegetables and flowers including testing facilities for quality; (iii) Water management, including the following: (a) Water supply or distribution; (b) Irrigation; (c) Water treatment, etc. (iv) Telecommunication, including the following: (a) Basic or cellular, including radio paging; 73 Inserted proviso to sub-clause (i) and Explanation to the proviso, vide SEBI Circular No. SEBI/CFD/DIL/DIP/27/2007/10/7 dated July 10, 2007. Page 30 of 373 (b) Domestic satellite service (i.e., satellite owned and operated by an Indian company for providing telecommunication service); (c) Network of trunking, broadband network and internet services; (v) Industrial, Commercial and Social development and maintenance, including the following: (a) Real estate development, including an industrial park or special economic zone; (b) Tourism, including hotels, convention centres and entertainment centres; (c) Public markets and buildings, trade fair, convention, exhibition, cultural centres, sports and recreation infrastructure, public gardens and parks; (d) Construction of educational institutions and hospitals; (e) Other urban development, including solid waste management systems, sanitation and sewerage systems, etc.; (vi) Power, including the following: (a) Generation of power through thermal, hydro, nuclear, fossil fuel, wind and other renewable sources; (b) Transmission ,distribution or trading of power by laying a network of new transmission or distribution lines; (vii) Petroleum and natural gas, including the following: (a) Exploration and production; (b) Import terminals; (c) Liquefaction and re-gasification; (d) Storage terminals; (e) Transmission networks and distribution networks including city gas infrastructure; (viii) Housing, including the following: (a) Urban and rural housing including public /mass housing, slum rehabilitation etc; (b) Other allied activities such as drainage, lighting, laying of roads, sanitation facilities etc.; (ix) Other miscellaneous facilities/services, including the following: (a) Mining and related activities; (b) Technology related infrastructure; (c) Manufacturing of components and materials or any other utilities or facilities required by the infrastructure sector like energy saving devices and metering devices, etc; (d) Environment related infrastructure; Page 31 of 373 (e) Disaster management services; (f) Preservation of monuments and icons; (g) Emergency services (including medical, police, fire, and rescue); (x) Such other facility/service which, in the opinion of the Board, constitutes infrastructure sector.) ii. The disclosure about the face value of shares (including the statement about the issue price being “X” times of the face value) shall be made in the advertisement, offer documents and in application forms in identical font size as that of issue price or price band.) 3.7.2 The companies which have already issued shares in the denomination of Rs.10/-or Rs.100/-may change the standard denomination of the shares by splitting or consolidating the existing shares. 3.7.3 The companies proposing to issue shares in any denomination or changing the standard denomination in terms of clause 3.7.1 or 3.7.2 above shall comply with the following: (a) the shares shall not be issued in the denomination of decimal of a rupee; (b) the denomination of the existing shares shall not be altered to a denomination of decimal of a rupee; (c) at any given time there shall be only one denomination for the shares of the company; (d) the companies seeking to change the standard denomination may do so after amending the Memorandum and Articles of Association, if required; (e) the company shall adhere to the disclosure and accounting norms specified by SEBI from time to time. Page 32 of 373 CHAPTER IV PROMOTERS’ CONTRIBUTION AND LOCK-IN REQUIREMENTS PART I – PROMOTERS’ CONTRIBUTION 4.0 74(Promoters’ contribution in any issue shall be in accordance with the following provisions as on – (i) the date of filing red herring prospectus (in case of a book built issue) or prospectus (in case of a fixed price issue) with ROC or letter of offer with Designated Stock Exchange, as the case may be, in case of a fast track issue; and (ii) the date of filing draft offer document with the Board, in any other case.) 4.1 Promoters’ Contribution in a Public Issue by Unlisted Companies 4.1.1 In a public issue by an unlisted company, the promoters shall contribute not less than 20% of the post issue capital. 4.1.2 75(Deleted) 4.2 Promoters’ Shareholding in Case of Offers for Sale 4.2.1 The promoters’ shareholding after offer for sale shall not be less than 20% of the post issue capital. 4.3 Promoters’ Contribution in Case of Public Issues by Listed Companies 4.3.1 In case of public issues by listed companies, the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital. 4.4 Promoters’ Contribution in Case of Composite Issues 4.4.1 In case of composite issues of a listed company, the promoters’ contribution shall at the option of the promoter(s) be either 20% of the proposed public issue or 20% of the post-issue capital. 74 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007 for the following: “Promoters’ contribution in any public issue shall be in accordance with the following provisions 74(as on the date of filing of draft offer document with SEBI, unless specified otherwise in this Part):” 75 Omitted the following clause vide SEBI Circular No. RMB (Compendium) Series Circular No. 2 (1999-2000) dated February 16, 2000: "For unlisted companies eligible to bring out public issue at premium in accordance with Clause 3.2.2 in Chapter III, the promoters shall contribute not less than 50% of the post issue capital of the issuer company." Page 33 of 373 4.4.2 Rights issue component of the composite issue shall be excluded while calculating the post-issue capital. 4.5 76(Deleted) 4.6 Securities Ineligible for Computation of Promoters’ Contribution 4.6.1 Where the promoters of any company making an issue of securities have acquired equity during the preceding three years, before filing the offer documents with the Board, such equity shall not be considered for computation of promoters contribution if it is; (i) acquired for consideration other than cash and revaluation of assets or capitalisation of intangible assets is involved in such transaction(s); or (ii) resulting from a bonus issue, out of revaluation reserves or reserves created without accrual of cash resources 77(or against shares which are otherwise ineligible for computation of promoters’ contribution); 4.6.2 In case of public issue by unlisted companies, securities which have been 78(acquired by) the promoters during the preceding one year, at a price lower than the price at which equity is being offered to public shall not be eligible for computation of promoters’ contribution. Provided that the shares for which the difference between the offer price and the issue price for these shares is brought in by the promoters shall be considered eligible subject to issuer company complying with the applicable provisions of the Companies Act, 1956 (such as passing of revised resolution by shareholders or issuer’s Board, filing of revised return of allotment with ROC, etc.) 79(Provided further that nothing contained in clause 4.6.2 shall apply to shares acquired by promoters interse, if such shares had been acquired by the transferor promoter during the preceding one year at a price equal or higher than the price at which equity is being offered to 76 Omitted the following clauses vide SEBI Circular No. RMB (Compendium) Series Circular No. 2 (1999-2000) dated February 16, 2000: "4.5 Promoters contribution in case of public issues by infrastructure companies 4.5.1 For unlisted infrastructure companies eligible to bring out public issues at premium in accordance with Clause 3.2.3 of Chapter III, the promoters alongwith equipment suppliers and other strategic investors shall contribute not less than 50% of the post issue capital of the issuer company at the same or higher price than the price at which the securities are being offered to the public. 4.5.2 The contribution by equipment suppliers and other strategic investors shall be eligible to be treated as promoters contribution." 77 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007. 78 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007 for the words "issued to". 79 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007. Page 34 of 373 public or had been acquired by the transferor promoter prior to the preceding one year.) 80(Provided further that nothing contained in clause 4.6.2 shall apply to an unlisted government company, statutory authority or corporation or any special purpose vehicle set up by any of them, which is engaged in infrastructure sector. 81(Provided further that nothing contained in clause 4.6.2 shall apply to shares acquired by promoters in lieu of business and invested capital which had been in existence for a period of more than one year prior to the restructuring scheme under sections 391-394 of the Companies Act, 1956, as approved by a High Court, which entitled the promoters to acquire such shares.) Explanation: For the purposes of 3rd proviso above, the term “Infrastructure sector” shall have the same meaning as assigned to it in Explanation to proviso to sub-clause (i) of clause 3.7.1.) 4.6.3 In respect of companies formed by conversion of partnership firms, where the partners of the erstwhile partnership firm and the promoters of the converted company are the same and there is no change in management, the shares allotted to the promoters during previous one year out of the funds brought in during that period shall not be considered eligible for computation of promoters contribution unless such shares have been issued at the same price at which the public offer is made. Provided that if the partners’ capital existed in the firm for a period of more than one year on a continuous basis, the shares allotted to promoters against such capital shall be considered eligible. 4.6.4 In respect of Clauses 4.6.1, 4.6.2 and 4.6.3, such ineligible shares acquired in pursuance to a scheme of merger or amalgamation approved by a High Court shall be eligible for computation of promoters’ contribution. 82(4.6.4A Pledged securities held by promoters shall not be eligible for computation of promoters’ contribution.) 80 Inserted proviso to clause 4.6.2 and Explanation thereto, vide SEBI Circular No. SEBI/CFD/DIL/DIP/27/2007/10/7 dated July 10, 2007. 81 Inserted proviso to clause 4.6.2, vide SEBI Circular No. SEBI/CFD/DIL/DIP/32/2008/28/08 dated August 28, 2008. 82 Inserted clause, vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007. Page 35 of 373 4.6.5 For the purposes of computing the promoters’ contribution referred to in Clauses 4.1.1, 83(Deleted) 4.2.1, 4.3.1 84(and) 4.4.1 85(Deleted) above, minimum contribution of Rs.25000 per application from each individual and minimum contribution of Rs.1 lac from firms and companies (not being business associates like dealers and distributors), shall be eligible to be considered towards promoters’ contribution. 4.6.6 No securities forming part of promoters’ contribution shall consist of any private placement made by solicitation of subscription from unrelated persons either directly or through any intermediary. 4.6.7 The securities for which a specific written consent has not been obtained from the respective shareholders for inclusion of their subscription in the minimum promoters’ contribution subject to lock-in shall not be eligible for promoters’ contribution. 4.7 Computation of Promoters’ Contribution in Case of Issue of Convertible Security 4.7.1 In case of any issue of convertible security by a company, the promoters shall have an option to bring in their subscription by way of equity or by way of subscription to the convertible security being offered through the proposed issue so that the total promoters’ contribution shall not be less than the required minimum contribution referred to in Clauses 4.1.1, 86(Deleted), 4.2.1, 4.3.1 87(and) 4.4.1 88(Deleted) above. Provided that, if the conversion price of emerging equity is not predetermined and the same has not been specified in the offer document (instead a formula for conversion price is indicated), the promoters shall not have the said option and shall contribute by subscribing to the same instrument. 83Omitted the figures and punctuation “4.1.2,” vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009. 84Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009 for the punctuation “,”. 85Omitted the words and figures “& 4.5.1” vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009. 86 Omitted the figures and punctuation “4.1.2,” vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009. 87 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009 for the punctuation “,”. 88Omitted the words and figures “& 4.5.1” vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009. Page 36 of 373 4.7.2 In case of any issue of security convertible in stages either at par or premium (conversion price being predetermined), the promoters’ contribution in terms of equity share capital shall not be at a price lower than the weighted average price of the share capital arising out of conversion. Explanation: For the purposes of clause 4.7.2, (a) ”weights” means the number of equity shares arising out of conversion of security into equity at various stages. (b) ”price” means the price of equity shares on conversion arrived at after taking into account predetermined conversion price at various stages. 4.7.3 The promoters’ contribution shall be computed on the basis of postissue capital assuming full proposed conversion of such convertible security into equity. Provided that where the promoter is contributing through the same optional convertible security as is being offered to the public, such contribution shall be eligible as promoters’ contribution only if the promoter(s) undertakes in writing to accept full conversion. 4.8 Promoters’ Participation in Excess of the Required Minimum Contribution to be Treated as Preferential Allotment 4.8.1 In case of a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage referred in Clauses 4.3.1 and 4.4.1 shall attract the pricing provisions of Guidelines on preferential allotment, if the issue price is lower than the price as determined on the basis of said preferential allotment guidelines. 4.9 Promoters’ Contribution to be brought in before Public Issue Opens 4.9.1 Promoters shall bring in the full amount of the promoters’ contribution including premium at least one day prior to the issue opening date 89(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.) 90(Provided that, 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 89 Inserted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000. 90 Inserted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000. Page 37 of 373 document disclosing the use of such funds received as promoters’ contribution.) Provided 91(further) that where the promoters’ minimum contribution exceeds Rs.100 crores, the promoters shall bring in Rs.100 crores before the opening of the issue and the remaining contribution shall be brought in by the promoters in advance on pro-rata 92(basis) before the calls are made on public. 4.9.2 The company’s board shall pass a resolution allotting the shares or convertible instruments to promoters against the moneys received. 4.9.3 A copy of the resolution along with a Chartered Accountants’ Certificate certifying that the promoters’ contribution has been brought in shall be filed with the Board before opening of the issue. 4.9.4 The certificate of the Chartered Accountants shall also be accompanied by a list of names and addresses of friends, relatives and associates who have contributed to the promoters’ quota along with the amount of subscription made by each of them. 4.10 Exemption from Requirement of Promoters’ Contribution 4.10.1 The requirement of promoters’ contribution shall not be applicable: (a) in case of public issue of securities by a company which has been listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 immediately preceding years. Provided that if the promoters participate in the proposed issue to the extent greater than higher of the two options available as per Clauses 4.3.1 and 4.4.1 above, the subscription in excess of such percentage shall attract pricing guidelines on preferential issue, if the issue price is lower than the price as determined on the basis of said guidelines on preferential issue. (b) in case of companies where no identifiable promoter or promoter group exists. (c) in case of rights issues. Provided 93(that) in case of (a) and (c) above, the promoters shall disclose their existing shareholding and the extent to which they are participating in the proposed issue, in the offer document. 91 Inserted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000. 92 Inserted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000. 93 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. Page 38 of 373 PART II -LOCK-IN REQUIREMENTS 4.11 Lock in of Minimum Specified Promoters’ Contribution in Public Issues 4.11.1 In case of any issue of capital to the public the minimum promoters’ contribution (as per clause 4.1, 4.2, 4.3 94(and) 4.4 95(Deleted)) shall be locked in for a period of 3 years. 4.11.2 The lock-in shall start from the date of allotment in the proposed public issue and the last date of the lock-in shall be reckoned as three years from the date of commencement of commercial production or the date of allotment in the public issue whichever is later. Explanation: The expression "Date of commencement of commercial production" means the last date of the month in which commercial production in a manufacturing company is expected to commence as stated in the offer document. 4.12 Lock-in of Excess Promoters’ Contribution 4.12.1 In case of a public issue by unlisted company, if the promoters’ contribution in the proposed issue exceeds the required minimum contribution, such excess contribution shall also be locked in for a period of 96(one year). 4.12.2 In case of a public issue by a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage shall also be locked-in for a period of 97(one year) as per the lock-in provisions as specified in Guidelines on Preferential issue. Provided that excess promoters’ contribution as per Clause 4.10.1(a) of Part I of this Chapter shall not be subject to lock-in. 94 Substituted the punctuation “’,” vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009. 95 Omitted the words and figures “& 4.5” vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009. 96 Substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for "3 years". 97 Substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the words "three years". Page 39 of 373 4.12.3 In case shortfall in the firm allotment category is met by the promoter as specified in clause 8.5(e), such subscription shall be locked in for a period of 98(one year). 4.13 99(Deleted) 4.13.1 100(Deleted) 4.14 Lock-in of pre-issue share capital of an unlisted company 4.14.1 101(The entire pre-issue capital, other than that locked-in as minimum promoters’ contribution, shall be locked-in for a period of one year from the date of allotment 102(in the proposed public issue). Provided that where shares held by promoter(s) are lent to the SA under clause 8A.7, they shall be exempted from the lock in requirements specified above for the period starting from the date of such lending and ending on the date on which they are returned to the same lender(s) under clause 8A.13 or under clause 8A.15, as the case may be.) 98 Substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the words "three years". 99 Omitted the following clause vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007: “4.13 Securities Issued Last to be Locked-in First” 100 Omitted the following clause vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007: “4.13.1 The securities forming part of promoters’ contribution as specified in Clauses 4.1.1, 4.1.2, 4.2.1, 4.3.1, 4.4.1 & 4.5.1 of Part I of this Chapter and issued last to the promoters shall be locked in first for the specified period. Provided that the securities issued to the financial institutions appearing as promoters, if issued last, shall not be locked-in before the shares allotted to the other promoters.” 101 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006 for the following: “The entire pre-issue share capital, other than that locked-in as promoters’ contribution, shall be locked-in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later. Provided that where shares held by promoter(s) are lent to the SA under clause 8A.7, they shall be exempted from the lock in requirements specified above, for the period starting from the date of such lending to the date when they are returned to the same promoter(s) under clause 8A.13 or under clause 8A.15, as the case may be.” Prior to the above, clause 4.14.1 was substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “The entire pre-issue share capital, other than that locked-in as promoters’ contribution, shall be locked-in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later.” 102 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/23/2006/16/10 dated October 16, 2006. Page 40 of 373 4.14.2 103(Clause 4.14.1 shall not be applicable to: (i) 104(pre-issue shares held by a Venture Capital Fund or a Foreign Venture Capital Investor, subject to the following conditions: (a) the shares have been held by the Venture Capital Fund or the Foreign Venture Capital Investor, as the case may be, for a period of at least one year as on the date of filing draft prospectus with the Board; Explanation: (I) If the shares being held by the Venture Capital Fund or Foreign Venture Capital Investor have been acquired on conversion of convertible instruments at any time before the date of filing draft prospectus with the Board, then the period during which the convertible instruments were held by the Venture Capital Fund or the Foreign Venture Capital Investor as fully paid up, shall be included for purpose of calculation of the period mentioned in item (a). (II) Convertible Instruments shall be deemed to be fully paid up for the purpose of clause (I), if the entire amount payable thereon has been paid and no further payment is envisaged to be made at the time of their conversion. 103 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “4.14.2 Clause 4.14.1 shall not be applicable to the pre-issue share capital) (i) 103(held by Venture Capital Funds and Foreign Venture Capital Investors registered with the Board. However, the same shall be locked-in as per the provisions of the SEBI (Venture Capital Funds) Regulations, 1996 and SEBI (Foreign Venture Capital Investors) Regulations, 2000 and any amendments thereto (ii) held for a period of at least one year at the time of filing draft offer document with the Board and being offered to the public through offer for sale.)” Prior to the above, sub-clause (i) of clause 4.14.2 was substituted vide SEBI Circular No. RMB (Compendium) Series Circular No. 1 (2001-2002) dated July 17, 2001. Prior to the above amendments made (vide footnotes 55 and 56), clauses 4.14.1 and 4.14.2 were substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the following: “4.14.1 Any security issued to promoters or other shareholders, out of revaluation of assets or capitalisation of intangible assets, within a period of 3 preceding years from the date of filing of offer documents with the Board, shall be locked-in for a period of 3 years from the date of allotment of the proposed issue of capital. 4.14.2 Any security to promoters or other shareholders, issued by way of bonus out of revaluation reserves, within a period of 3 preceding years, shall be locked-in for a period of 3 years from the date of allotment of the proposed issue of capital. 4.14.3 In case of unlisted companies, any security issued to promoter or to any other shareholder, during the preceding one year, at a price lower than the price at which equity is being offered to public shall be locked-in for a period of 3 years from the date of allotment of the proposed issue of capital.” 104 Substituted sub-clause (i) vide SEBI Circular No. SEBI/CFD/DIL/DIP/23/2006/16/10 dated October 16, 2006 for the following: “(i) pre-issue share capital held by Venture Capital Funds and Foreign Venture Capital Investors registered with the Board. However, the same shall be locked-in as per the provisions of the SEBI (Venture Capital Funds) Regulations, 1996 and SEBI (Foreign Venture Capital Investors) Regulations, 2000 and any amendments thereto;” Page 41 of 373 (b) shares shall be locked in as per the provisions, if any, in SEBI (Venture Capital Funds) Regulations, 1996 or SEBI (Foreign Venture Capital Investors) Regulations, 2000, as the case may be.) (ii) pre-issue share capital held for a period of at least one year at the time of filing draft offer document with the Board and being offered to the public through offer for sale; 105(Provided that the minimum holding requirement of pre-issue capital shall not apply to an offer for sale of equity shares of an unlisted government company, statutory authority or corporation or any special purpose vehicle set up by any of them, which is engaged in infrastructure sector. 106(Provided further that the minimum holding requirement of preissue capital shall also not apply to shares which have been acquired during one year preceding the date of filing draft offer document with the Board in lieu of business and invested capital which had been in existence for a period of more than one year prior to the restructuring scheme under sections 391-394 of the Companies Act, 1956, as approved by a High Court, which entitled acquisition of such shares.) 107(Provided further that in case equity shares, received on conversion of fully paid compulsorily convertible securities, including depository receipts, are being offered for sale, the holding period of such convertible securities as well as that of resultant equity shares together shall be considered for the purpose of calculation of the eligibility period.) Explanation: For the purposes of 108(1st proviso above), the term “Infrastructure sector” shall have the same meaning as assigned to it in Explanation to proviso to sub-clause (i) of clause 3.7.1.) (iii) pre-IPO shares held by employees other than promoters, which were issued under employee stock option or employee stock purchase scheme of the issuer company before the IPO. However the same is subject to the issuer company complying with the requirements laid 105 Inserted proviso to sub-clause (ii), vide SEBI Circular No. SEBI/CFD/DIL/DIP/27/2007/10/7 dated July 10, 2007. 106 Inserted Proviso to sub-clause (ii) clause 4.14.2, vide SEBI Circular No. SEBI/CFD/DIL/DIP/32/2008/28/08 dated August 28, 2008 107 Inserted, vide SEBI Circular No. SEBI/CFD/DIL/DIP/36/2009/09/07 dated July 9, 2009. 108 Substituted vide SEBI circular No. SEBI/CFD/DIL/DIP/32/2008/28/08 dated August 28, 2008 for the words “this proviso”. Page 42 of 373 down in Clause 22.4 of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.) 109(4.14A Lock-in of securities issued on firm allotment basis Securities issued on firm allotment basis shall be locked-in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later.) PART III -OTHER REQUIREMENTS IN RESPECT OF LOCK-IN 4.15 Pledge of Securities Forming Part of Promoters Contribution 4.15.1 Locked-in Securities held by promoters may be pledged only with banks or financial institutions as collateral security for loans granted by such banks or financial institutions, provided the pledge of shares is one of the terms of sanction of loan. 110(Provided that if securities are locked in as minimum promoters’ contribution under clause 4.11.1, the same may be pledged, only if, in addition to fulfilling the requirements of this clause, the loan has been granted by such banks or financial institutions for the purpose of financing one or more of the objects of the issue.) 4.16 Inter-se Transfer of Securities Amongst Promoters 4.16.1 111(Inter-se Transfer of Locked-in Securities 109 Substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the following clause: “Lock-in of pre issue share capital of an unlisted company Where an unlisted company eligible to make a public issue and desirous of getting its securities listed on a recognised stock exchange pursuant to a public issue has issued shares to any person within six (6) months prior to the date of opening of the public issue at a price lower than the price at which equity is being offered/issued to public, the entire share capital (except shares issued to venture capitalists and employees of the company) existing prior to public issue shall be locked in for a period of six (6) months from the date of trading of the shares on the regional stock exchange. Provided, the lock-in would not apply to the shares (other than shares issued to promoters, friends, relatives and associates) if the same were issued more than 6 months prior to the date of opening of the public issue and are offered under offer for sale." Initially inserted vide SEBI Circular No. RMB (Compendium) Series Circular No. 2 (1999 – 2000) dated February 16, 2000. 110 Inserted proviso, vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007. Page 43 of 373 a) Shares held by the person other than the promoters, prior to Initial Public Offering (IPO), which are locked in as per Clause 4.14 of these Guidelines, may be transferred to any other person holding shares which are locked in as per clause 4.14 of these Guidelines subject to continuation of lock-in in the hands of transferees for the remaining period and compliance of Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997, as applicable. b) Shares held by promoter(s) which are locked in as per the relevant provisions of this chapter, may be transferred to and amongst promoter/promoter group or to a new promoter or persons in control of the company, subject to continuation of lock-in in the hands of transferees for the remaining period and compliance of Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997, as applicable.’) 4.17 Inscription of Non-Transferability 4.17.1 The securities which are subject to lock-in shall carry inscription `non transferable’ along with duration of specified non-transferable period mentioned in the face of the security certificate. 111 Substituted vide SEBI Circular No. RMB (Compendium) Series 2003-2004 Circular No. 9 dated May 2, 2003 for the following clause: “Transfer of locked-in securities amongst promoters as named in the offer document, can be made subject to the lock-in being applicable to the transferees for the remaining period of lock in.” Page 44 of 373 CHAPTER V PRE-ISSUE OBLIGATIONS 5.0 The pre-issue obligations are detailed below: 5.1 The lead merchant banker shall exercise due diligence. 5.1.1 The standard of due diligence shall be such that the merchant banker shall satisfy himself about all the aspects of offering, veracity and adequacy of disclosure in the offer documents. 5.1.2 The liability of the merchant banker as referred to clause 5.1.1 shall continue even after the completion of issue process. 5.2 The lead merchant banker shall pay requisite fee in accordance with regulation 24A of Securities and Exchange Board of India (Merchant Bankers) Rules and Regulations, 1992 along with draft offer document filed with the Board. 112(In case of a fast track issue, the requisite fee shall be paid along with the copy of the red herring prospectus, prospectus or letter of offer, as the case may be, filed under clause 2.1.2A.2.) 113(5.2.1 The lead merchant banker shall ensure that facility of Applications Supported by Blocked Amount is provided in all book built public issues which provide for not more than one payment option to the retail individual investors.) 5.3 Documents to be submitted along with the Offer Document by the Lead Manager 5.3.1 Memorandum of Understanding (MOU) 5.3.1.1 No company shall make an issue of security through a public or rights issue unless a Memorandum of Understanding has been entered into between a lead merchant banker and the issuer company specifying their mutual rights, liabilities and obligations relating to the issue. 5.3.1.2 The MOU shall contain such clauses as are specified at Schedule I and such other clauses as considered necessary by the lead merchant banker and the issuer company. Provided that the MOU shall not contain any clause whereby the liabilities and obligations of the lead merchant banker and issuer company under the Companies Act, 1956 and Securities and 112 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 113 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008 Page 45 of 373 Exchange Board of India (Merchant Bankers) Rules and Regulations, 1992 are diminished in any way. 5.3.1.3 The Lead Merchant Banker responsible for drafting of the offer documents shall ensure that a copy of the MOU entered into with the issuer company is submitted to the Board along with the draft offer document. 5.3.2 Inter-se Allocation of Responsibilities 5.3.2.1 In case a public or rights issue is managed by more than one Merchant Banker the rights, obligations and responsibilities of each merchant banker shall be demarcated as specified in Schedule II. 5.3.2.2 In case of under subscription at an issue, the Lead Merchant Banker responsible for underwriting arrangements shall invoke underwriting obligations and ensure that the underwriters pay the amount of devolvement and the same shall be incorporated in the inter-se allocation of responsibilities (Schedule II) accompanying the due diligence certificate submitted by the Lead Merchant Banker to the Board . 114(Provided that in case of a fast track issue, inter-se allocation of responsibilities (Schedule II) shall not be submitted to the Board) 5.3.3 Due Diligence Certificate 5.3.3.1 The lead merchant banker, shall furnish to the Board a due diligence certificate as specified in Schedule III along with the draft 115(offer document.) 116(5.3.3.1A In case of a fast track issue, the lead merchant banker shall furnish a due diligence certificate to the Board as per the format specified in Schedule III, after including therein additional confirmations /certification to Schedule III, as specified in Schedule VI-A, along with the copy of the red herring prospectus, prospectus or letter of offer, as the case may be, filed under clause 2.1.2A.2.) 117(118(5.3.3.1B) In case of a debenture issue, the lead merchant banker shall also furnish to the Board a due diligence certificate given by the 114 Inserted proviso, vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 115 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007 for the words “prospectus”. 116 New clause 5.3.3.1A inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007, after renumbering the erstwhile clause 5.3.3.1A as clause 5.3.3.1B. 117 Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 as “clause 5.3.3.1A”. Subsequently renumbered the clause as “clause 5.3.3.1B”, vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. Page 46 of 373 debenture trustee in the format specified in Schedule IIIA along with the draft offer document 119(or in case of a fast track issue, along with the copy of the red herring prospectus, prospectus or letter of offer filed under clause 2.1.2A.2.)) 5.3.3.2 In addition to the due diligence certificate furnished along with the draft offer document, the Lead Merchant Banker shall also: 120((ia) where provisos to clause 6.3 or clause 6.39 are applicable, certify that the issuer company is complying with conditions (a) and (b) laid down in 1st proviso to clause 6.3 or with conditions (a) and (b) laid down in 1st proviso to clause 6.39, as the case may be); 121((ib)) certify that all amendments suggestion or observations made by Board have been incorporated in the offer document; (ii) furnish a fresh "due diligence" certificate at the time of filing the prospectus with the Registrar of Companies as per the format specified at Schedule IV. (iii) furnish a fresh certificate immediately before the opening of the issue that no corrective action on its part is needed as per the format specified at Schedule V. (iv) furnish a fresh certificate after the issue has opened but before it closes for subscription as per the format specified at Schedule VI. 122(5.3.3.3 The Lead Managers who are responsible for conducting due diligence exercise with respect to contents of the offer document, as per inter-se allocation of responsibilities shall sign due diligence certificate 5.3.4 Certificates Signed by the Company Secretary or Chartered Accountant, in Case of Listed Companies Making Further Issue of Capital 5.3.4.1 The Lead Merchant Banker shall furnish the following certificates duly signed by 123(Company Secretary) or Chartered Accountants along with the draft offer documents: 118 Renumbered clause 5.3.3.1A as clause 5.3.3.1B, vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 119 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 120 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 121 Renumbered sub-clause (i) as “clause (ib)”, vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 122 Inserted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. Page 47 of 373 (a) all refund orders of the previous issues were despatched within the prescribed time and in the prescribed manner; (b) all security certificates were despatched to the allottees within the prescribed time and in the prescribed manner; (c) the securities were listed on the Stock Exchanges as specified in the offer documents. 5.3.5 Undertaking 5.3.5.1 The issuer shall submit an undertaking to the Board to the effect that transactions in securities by the `promoter' the 'promoter group' and the immediate relatives of the `promoters during the period between the date of filing the offer documents with the Registrar of Companies or Stock Exchange as the case may be and the date of closure of the issue shall be reported to the Stock exchanges concerned within 24 hours of the transaction(s). 5.3.6 124(List of Promoters’ Group and other Details 5.3.6.1 The issuer company shall submit to the Board the list of the persons who constitute the Promoters’ Group and their individual shareholding. 5.3.6.2 The issuer company shall submit to the Stock Exchanges on which securities are proposed to be listed, the Permanent Account Number, Bank Account Number and Passport Number of the promoters at the time of filing the draft offer document to them.) 5.4 Appointment of Intermediaries 5.4.1 Appointment of Merchant Bankers 5.4.1.1 125(A Merchant Banker shall not lead manage the issue if he is a promoter or a director or associate of the issuer company. 123 Substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the word "companies". 124 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: 5.3.6 List of Promoters’ Group 5.3.6.1 The issuer shall submit to the Board a list of persons who constitute the Promoters’ Group and their individual shareholdings.” 125 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “Merchant Banker who is associated with the issuer company as a promoter or a director shall not to lead manage the issue of the company. Provided that the lead merchant banker holding the securities of the issuer company may lead manage the issue; a. if the securities of the issuer company are listed or proposed to be listed on the Over the Counter Exchange of India (OTCEI) and; Page 48 of 373 Provided that a merchant banker holding the securities of the issuer company may lead manage the issue if; a. the securities of the issuer company are listed or proposed to be listed on the Over the Counter Exchange of India (OTCEI) and; b. the Market Makers have either been appointed or are proposed to be appointed as per the offer document. 126(Provided further that a merchant banker who is an associate of the issuer company may be appointed as a merchant banker for the issue, if it is involved only in the marketing of the issue.) Explanation: For the purposes of this clause, a merchant banker shall be deemed to be an associate of the issuer if: (i) either of them controls directly or indirectly, through itself, its subsidiary or holding company, not less than 15 percent of the voting power of the other; or (ii) either of them, directly or indirectly, by itself or in combination with other persons, exercises control over the other; or (iii) There is a common director, excluding nominee director, amongst the body corporate/its subsidiary or holding company and the Merchant Banker. Provided that the expression ”control” shall have the same meaning as defined under clause (c) of Regulation 2 of SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 1997.) 5.4.2 127(Deleted) 5.4.3 Appointment of Other Intermediaries 5.4.3.1 Lead Merchant Banker shall ensure that the other intermediaries 128(deleted) are duly registered with the Board, wherever applicable. b the Market Makers have either been appointed or are proposed to be appointed as per the offer document.” 126 Inserted proviso, vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 127 Omitted the following clause vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005: “5.4.2 Appointment of Co-managers 5.4.2.1 Lead Merchant Bankers shall ensure that the number of co-managers to an issue does not exceed the number of Lead Merchant Bankers to the said issue and there is only one advisor to the issue.” 128 Omitted the following words vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008: “being appointed” Page 49 of 373 5.4.3.1.1 Before advising the issuer on the appointment of other intermediaries, the Lead Merchant Banker shall independently assess the capability and the capacity of the various intermediaries to carry out assignment. 129(Provided that nothing contained in this clause shall apply in case of Self Certified Syndicate Bank.) 5.4.3.1.2 The Lead Merchant Banker shall ensure that issuer companies enter into a Memorandum of Understanding with the intermediary (ies) concerned whenever required 130(and also take note of the deemed agreement with the Self Certified Syndicate Banks as provided in the Application Supported by Blocked Amount process). 5.4.3.2 The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed in all the mandatory collection centres as specified in clause 5.9. 5.4.3.3 The Lead Merchant Banker shall not act as a Registrar to an issue in which it is also handling the post issue responsibilities. 5.4.3.4 The Lead Merchant Bankers shall ensure that; a the Registrars to Issue registered with the Board are appointed in all public issues and rights issues; b in case where the issuer company is a registered Registrar to an Issue, the issuer shall appoint an independent outside Registrar to process its issue; 131(c) Registrar to an issue which is associated with the issuer company as a promoter or a director shall not act as Registrar for the issuer company. 132(d) Where the number of applications in a public issue is expected to be large, the issuer company in consultation with the lead merchant banker may associate one or more Registrars registered with the Board for the limited purpose of collecting the application forms at different centres and forward the same to the designated Registrar to the Issue as mentioned the offer document. The designated Registrar to the Issue shall, be primarily and solely responsible for all the activities as assigned to them for the issue management. 129 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 130 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 131 Omitted the following vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005 and numbered the sub clause as “c” : “The lead merchant banker shall ensure that” 132 Numbered the sub-clause as “d”, vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. Page 50 of 373 5.5 Underwriting 5.5.1 The lead merchant banker shall satisfy themselves about the ability of the underwriters to discharge their underwriting obligations. 5.5.2 The lead merchant banker shall: a incorporate a statement in the offer document to the effect that in the opinion of the lead merchant banker, the underwriters' assets are adequate to meet their underwriting obligations; b obtain Underwriters’ written consent before including their names as underwriters in the final offer document. 5.5.3 In respect of every underwritten issue, the lead merchant banker(s) shall undertake a minimum underwriting obligation of 5% of the total underwriting commitment or Rs.25 lacs whichever is less. 5.5.4 The outstanding underwriting commitments of a merchant banker shall not exceed 20 times its networth at any point of time. 5.5.5 In respect of an underwritten issue, the lead merchant banker shall ensure that the relevant details of underwriters are included in the offer document. 5.6 Offer Document to be Made Public 5.6.1 The draft offer document filed with the Board shall be made public for a period of 133(134(21 days)) from the date of filing the offer document with the Board. 5.6.2 135(The lead merchant banker shall, i. while filing the draft offer document with the Board in terms of Clause 2.1, also file the draft offer document with the stock exchanges where the securities are proposed to be listed; 136(i-a while filing the copy of the red herring prospectus, prospectus or letter of offer, as the case may be, with the Board under clause 2.1.2A.2, 133 Substituted, vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007, for the words “21 days”. 134 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007, for the words “21 days”. 135 Substituted vide SEBI Circular No. DIP (Compendium) Circular No. 3 dated August 04, 2000 for the following: "The Lead Merchant Banker shall; a. simultaneously file copies of the draft offer document with the stock exchanges where the securities offered through the issue are proposed to be listed. b. make copies of offer document available to the public". Page 51 of 373 also file the copy of the red herring prospectus, prospectus or letter of offer with the stock exchanges on which the securities to be offered in the fast track issue are proposed to be listed); ii. 137(make copies of the draft offer document available to the public, host the draft and final offer documents on the websites of the all the lead managers /syndicate members associated with the issue and also ensure that the contents of documents hosted on the websites are the same as that of their printed versions.) 138(Further, where the issuer company is complying with provisos to clause 6.3 or clause 6.39, as the case may be, the offer document of the immediately preceding public or rights issue shall also be displayed on the websites in a similar manner); 139(Provided that nothing contained in this sub-clause, other than the provisions pertaining to hosting of the final offer documents on the websites of all the lead managers /syndicate members associated with the issue and ensuring that the contents of the final offer documents hosted on the websites are the same as that of their printed versions, shall apply to a fast track issue.) iii. obtain and furnish to the Board, an in-principle approval of the stock exchanges for listing of the securities within 15 days of filing of the draft offer document with the stock exchanges.) 5.6.3 Lead merchant banker or stock exchanges may charge an appropriate sum to the person requesting for the copy of offer document. 140(5.6A Pre – Issue Advertisement 5.6A.1 Subject to section 66 of the Companies Act, 1956, the issuer company shall soon after receiving final observations, if any, on the draft prospectus or draft Red Herring Prospectus from the Board, make an advertisement in an English national Daily with wide circulation, one Hindi National newspaper and a regional language newspaper with wide circulation at the place where the registered office of the issuer is situated, which shall be in the format and contain the minimum disclosures as given in Part A of Schedule XX – A both in case of fixed price issues as well as book built issues.) 136 Inserted sub-clause, vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 137 Substituted vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003 for the following: “make copies of draft offer document available to the public”. 138 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 139 Inserted proviso, vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 140 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005. Page 52 of 373 141(Provided that in case of a fast track issue, the advertisement shall be made before the issue opening date) 5.6B 142(IPO Grading 5.6B.1 Every unlisted company obtaining grading for IPO under clause 2.5A.1 shall disclose all the grades obtained, along with the rationale/description furnished by the credit rating agency(ies) for each of the grades obtained, in the Prospectus, Abridged Prospectus, issue advertisements and at all other places where the issuer company is advertising for the IPO.) 143(5.6B.2 IPO grading reports for each of the grades obtained by the unlisted company shall be included in the list of material contracts required under clause 6.15.1.) 5.7 Despatch of Issue Material 5.7.1 The lead merchant banker shall ensure that for public issues offer documents and other issue materials are dispatched to the various stock exchanges, brokers, underwriters, bankers to the issue, investors associations, 144(Self Certified Syndicate Banks) etc. in advance as agreed upon. 5.7.2 In the case of rights issues, lead merchant banker shall ensure that the 145(abridged letters of offer) are dispatched to all shareholders at least 146(three days) before the date of opening of the issue. 147(Provided that where a specific request for letter of offer is received from any shareholder, the Lead Merchant Banker shall ensure that the letter of offer is made available to such shareholder.) 141 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 142 Substituted, vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007, for the following clause, which was inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/21/2006/24/4 dated April 24, 2006: “5.6B IPO Grading 5.6B.1 An unlisted company making an IPO of equity shares or any other security which may be converted into or exchanged with equity shares at a later date may opt to obtain grading for such an IPO from one or more credit rating agencies. 5.6B.2 Where an issuer opts to obtain IPO grading under clause 5.6B.1, it shall disclose all grades so obtained by it, including unaccepted grades, in the prospectus and abridged prospectus.” 143 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 144 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 145 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006 for the words “letters of offer” 146 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/34/2009/24/09 dated February 24, 2009 for the words “one week”. Page 53 of 373 5.7.3 148(Deleted) 5.8 No Complaints Certificate 5.8.1 After a period of 149(150(21 days)) from the date the draft offer document was made public, the Lead Merchant Banker shall file a statement with the Board: i) giving a list of complaints received by it; ii) a statement by it whether it is proposed to amend the draft offer document or not, and; iii) highlight those amendments. 5.9 Mandatory Collection Centres 5.9.1 The minimum number of collection centres for an issue of capital shall be: a) the four metropolitan centres situated at Mumbai, Delhi, Calcutta and Chennai b) all such centres where the stock exchanges are located in the region in which the registered office of the company is situated. c) the regional division of collection centres is indicated in Schedule VII. 5.9.2 The issuer company shall be free to appoint as many collection centres as it may deem fit in addition to the above minimum requirement. 151(5.9.3 In addition to the provisions of clause 5.9.1 and 5.9.2 above, in respect of issues where Application Supported by Blocked Amount is applicable, all designated branches of Self Certified Syndicate Banks shall be deemed as mandatory collection centres.) 147 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006. 148 Omitted the following clause vide SEBI Circular No. RMB (Compendium) Series Circular No. 2 (1999-2000) dated February 16, 2000: "after the prospectus a letter of offer has been filed with the Registrar of Companies or Stock Exchange, the printed prospectus or letter of offer shall be forwarded to Board atleast 10 days prior to the issue opening date". 149 Substituted, vide SEBI Circular No. SEBI/CFD/DIL/DIP/25/2007/30/4 dated April 30, 2007, for the words “21 days”. 150 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007 for the words “30 days”. 151 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. Page 54 of 373 5.10 Authorised Collection Agents 5.10.1 The issuer company can also appoint authorised collection agents in consultation with the Lead Merchant Banker subject to necessary disclosures including the names and addresses of such agents made in the offer document. 5.10.2 The modalities of selection and appointment of collection agents can be made at the discretion of the Lead Merchant Banker. 5.10.3 The lead merchant banker shall ensure that the collection agents so selected are properly equipped for the purpose, both in terms of infrastructure and manpower requirements. 5.10.4 The collection agents may collect such applications as are accompanied by payment of application moneys paid by cheques, drafts and stock invests. 5.10.5 The authorised collection agent shall not collect application moneys in cash. 5.10.6 The applications collected by the collection agents shall be deposited in the special share application account with designated scheduled bank either on the same date or latest by the next working day. 5.10.7 The application forms along with duly reconciled schedules shall be forwarded by the collection agent to the Registrars to the Issue after realisation of cheques and after weeding out the applications in respect of cheques return cases, within a period of 2 weeks from the date of closure of the public issue. 5.10.8 152(Deleted) 5.10.9 The offer documents and application forms shall specifically indicate that the acknowledgement of receipt of application moneys given by the collection agents shall be valid and binding on the issuer company and other persons connected with the issue. 5.10.10 The investors from the places other than from the places where the mandatory collection centres and authorised collection agents are located, can forward their applications along with stockinvests to the Registrars to the Issue directly by Registered Post with Acknowledgement Due. 152 Omitted the following clause vide SEBI Circular No. SEBI/CFD/DIL/DIP/14/2005/25/1 dated January 25, 2005: “5.10.8 The applications accompanied by stockinvests shall be sent directly by the collection agent to the Registrars to the Issue along with the schedules within one week from the date of closure of the issue. “ Page 55 of 373 5.10.11 The applications received through the registered post shall be dealt with by the Registrars to the Issue in the normal course. 5.11 Advertisement for Rights Post Issues 5.11.1 The Lead Merchant Banker shall ensure that in case of a rights issue, an advertisement giving the date of completion of despatch of letters of offer, shall be released in at least in an English National Daily with wide circulation, one Hindi National Paper and a Regional language daily circulated at the place where registered office of the issuer company is situated at least 153(3 days) before the date of opening of the issue. 5.11.2 The advertisement referred to in clause 5.11.1 shall indicate the centres other than registered office of the company where the shareholders or the persons entitled to rights may obtain duplicate copies of composite application forms in case they do not receive the original application form within a reasonable time even after opening of the rights issue. 5.11.3 Where the shareholders have neither received the original composite application forms nor are they in a position to obtain the duplicate forms, they may make applications to subscribe to the rights on a plain paper. 5.11.4 The advertisement shall also contain a format to enable the shareholders to make the application on a plain paper containing necessary particulars like name, address, ratio of right issue, issue price, number of shares held, ledger folio numbers, number of shares entitled and applied for, additional shares if any, amount to be paid along with application, particulars of cheque, etc. to be drawn in favour of the company Account -Rights issues. 5.11.5 The advertisement shall further mention that applications can be directly sent by the shareholder through Registered Post together with the application moneys to the company's designated official at the address given in the advertisement. 5.11.6 The advertisement may also invite attention of the shareholders to the fact that the shareholders making the applications otherwise than on the standard form shall not be entitled to renounce their rights and shall not utilise the standard form for any purpose including renunciation even if it is received subsequently. 153 Substituted vide SEBI circular No. SEBI/CFD/DIL/DIP/32/2008/28/08 dated August 28, 2008 for the words and figures “7 days”. Page 56 of 373 5.11.7 If the shareholder makes an application on plain paper and also in standard form, he may face the risk of rejection of both the applications. 5.12 Appointment of Compliance Officer 5.12.1 An issuer company shall appoint a compliance officer who shall directly liaise with the Board with regard to compliance with various laws, rules, regulations and other directives issued by the Board and investors complaints related matter. 5.12.2 The name of the compliance officer so appointed shall be intimated to the Board. 5.13 Abridged Prospectus 5.13.1 The Lead Merchant Banker shall ensure the following: i) Every application form 154(including Application Supported by Blocked Amount forms) distributed by the issuer Company or anyone else is accompanied by a copy of the Abridged Prospectus. ii) The application form 155(including Application Supported by Blocked Amount forms) may be stapled to form part of the Abridged Prospectus. Alternatively, it may be a perforated part of the Abridged Prospectus. iii) The Abridged Prospectus shall not contain matters which are extraneous to the contents of the prospectus. iv) 156(The Abridged prospectus shall be printed in a font size as specified in clause 6.16.1.) v) Enough space shall be provided in the application form to enable the investors to file in various details like name, address, etc. 157(5.14 Agreements with depositories 5.14.1 The lead manager shall ensure that the issuer company has entered into agreements with all the depositories for dematerialisation of 154 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 155Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008. 156 Substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/19/2006/31/3 dated March 31, 2006 for the following: “The Abridged Prospectus shall be printed at least in point 7 size with proper spacing.” 157 Inserted Clause nos. 5.14 and 5.14.1 vide SEBI Circular No. RMB (Compendium) Series Circular No. 2 (1999-2000) dated February 16, 2000. Page 57 of 373 securities. He shall also ensure that an option be given to the investors to receive allotment of securities in dematerialised form through any of the depositories.) 158(5.15 Branding of securities 5.15.1 Securities may be branded describing their nature but not the quality.) 159(5.15A Non applicability of certain provisions to fast track issues) 160(5.15A.1 Nothing contained in clauses 5.3.1.3, 5.3.3.1, 5.3.3.2, 5.3.4.1, 5.3.5.1, 5.3.6.1, 5.3.6.2 and sub-clauses (i) and (iii) of clause 5.6.2 shall apply to a fast track issue.) 158 Inserted Clause nos. 5.15 and 5.15.1 vide SEBI/CFD/DIL/DIP/Circular No. 11 dated August 14, 2003. 159 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007. 160 Inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated November 29, 2007.