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The Securities and Exchange Board of India (SEBI) has vide General Order dated October 09, 2012 framework general criteria subject to which draft offer documents filed for issue of securities with the SEBI (the Board) may be rejected, where the Board has reasonable ground to believe, for the protection of interest of investors, that the adequacy and quality of disclosure in such offer documents are not satisfactory or where the investor is not be able to assess the risk associated with the issue.

The Board does not regulate on merits or approve, documents of offer/issue of securities, but only mandates true, fair and adequate disclosure. The Board issue a letter of observation specifying changes about disclosures and accordingly, the offer document is required to be modified. Whereas, the rejection of draft offer document, the communication in writing shall contain the reason therefore.


The General Order issued herein by the Board shall be applicable to all the draft offer documents filed for issue of securities with the Board. The criteria specified below for rejection is in illustrative nature and prescribed only general standards. Where the Board after scrutinizing the draft offer document is of the opinion that the criteria mentioned in this General order are not adhered to by the issuer/merchant banker, it may reject the draft offer document filed with the Board.


The Board on the basis of above objective scrutinizes the draft offer documents. The scrutiny by the Board may be based on relevant information pertaining to the period of past five years from the date of filing of the draft offer documents with the Board or any other period as deemed appropriate by the Board in exceptional cases. Therefore a draft offer document would be examined based on the following broad criteria:

1. Where Capital Structure involve any of the following:

(i) Existence of circular transactions for building up the capital/net worth of the issuer.

(ii) Ultimate promoters are unidentifiable.

(iii) Promoter Contribution not complying with SEBI (ICDR) Regulations, 2009 in letter or in spirit.

2. Where object of the issue:

(i) is vague for which a major portion of the issue proceeds are proposed to be utilized.

(ii) is repayment of loan or inter corporate deposit or any other borrowing of the similar nature.

(iii) is such where issuer is not in position to disclose the ultimate purpose for which loan was taken or demonstrate utilsation of the same for the disclosed purpose.

(iv) is such where the major portion of the issue proceeds is proposed to be utilized  for the purpose which does not create any tangible assets for the issuer, such as, expenses towards brand building, advertisement, payment to consultants, etc.

(v) is to setup a plant and the issuer has not received crucial clearance/licenses/permissions/approvals from the required competent authority which is necessary for commencement of the activity and because of such non-receipt of clearances/ licenses/permissions/approvals, the issue proceeds might not be used towards the stated objects of the issue.

(vi) is such where the time gap between raising the funds and proposed utilization of the same is unreasonably long.

3. Where business model of an issuer is complex, exaggerated or misleading and the Investor may not be able to assess the risk associated with such business models.

4. Where scrutiny of the Financial Statement shows:

(i) Sudden spurt in the business just before filing the draft offer document and reply to clarifications sought is not satisfactory.

(ii) Qualified Audit Report or the reports where auditors have raised doubts/concerns over the accounting policies.

(iii) Change in accounting policy with a view to show enhanced prospects for the issuer in contradiction with accounting norms.

(iv) Majority of the business is with related parties or where circular transactions with connected/group entities exist with a view to show enhanced prospects of the issuer.

5. Where there exists litigation including regulatory action which is so major that the issuer survival is dependent on the outcome of the pending litigation and where such litigation is willfully concealed or covered.

6. Where the Issuer failure to provide complete documentation in terms of requirements of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

7. Where the Issuer non-furnishing of information or delay in furnishing of information or furnishing of incorrect/vague/misleading/incomplete/false information to the Board.

8. Where the Issuer failure to resolve the conflict of interest whether direct or indirect with merchant banker.


As on the date of issuance of this General Order, one time opportunity for withdrawal of draft offer documents is allowed to the issuers whose draft offer documents are pending with the Board. Draft offer documents can be withdrawn within one month from the date of issuance of this general order.


There are following consequence on rejection of draft offer documents:

(1) Entities whose draft offer documents are rejected will not be allowed to access capital markets for at least one year from the date of such rejection and the same may be increased depending upon the materiality of the omissions and commissions.

(2) In case where the Board rejects a draft offer document or where an issuer or a Merchant Banker to an issue choose to withdraw the draft offer document, there shall be no refund of filing fee with the Board.

(3) The rejection of draft offer documents under this General Order shall be without prejudice to the right of the Board to initiate action which may be undertaken against issuer or Merchant Banker, in accordance with Law.

(4) The list of such draft offer documents rejected by the Board, along with the details of issuers/ Merchant Bankers and the reasons for rejection, shall be determined by the Board in public domain by hosting on its website.

Thanks & Regards

Ajay Mishra

Published by

Ajay Mishra
(Company Secretary)
Category Shares & Stock   Report

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