Glossary of terms used

The Securities and Exchange Board of India (SEBI) is a body corporate formed under the Securities and Exchange Board of India Act, 1992 (SEBI Act). The head office of SEBI is at Mumbai.

SEBI has been formed to protect the interests of investors in securities and to promote the development of, and to regulate the securities market by taking such measures as it deems fit.

Section 11(2) of the SEBI Act contains measures available with SEBI to implement the legislated desire of investor protection. The measures available with SEBI includes the following -

•  regulating the business in Stock Exchanges (SEs) and any other securities markets

• registering and regulating the working of intermediaries like stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers etc. associated with securities markets

• registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and other intermediaries

•  registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds

•  promoting and regulating self-regulatory organizations

•  prohibiting fraudulent and unfair trade practices relating to securities markets

•  prohibiting insider trading in securities

• regulating substantial acquisition of shares and takeover of companies

•  promoting investors’ education and training of intermediaries of securities markets

• carry out inspection/ audits of the SEs / intermediaries etc.

• call for information from any bank / any authority / corporation / agencies in respect of any transaction in securities which is under investigation or inquiry by SEBI

• performing such functions and exercising such powers under the Securities Contracts (Regulation) Act, 1956 (SCRA)

• levying fees or other charges

• conducting research

• performing such other functions as may be prescribed

SEBI have made Rules and Regulations on various matters to carry out the purposes of the SEBI Act. The chief amongst them are relating to:

• Buy-back of Securities – in case of listed companies

• Collective Investment Scheme

• Credit Rating Agencies

• Delisting of Securities

• Foreign Institutional Investors

• Foreign Venture Capital Investors

• Merchant Bankers

•  Mutual Funds

•  Portfolio Managers

• Stock Brokers and Sub-brokers

• Takeover

• Underwriters

• Unfair trade practices

• Venture Capital Fund etc.

SEBI has powers to regulate issuance of securities and their listing on the SEs. SEBI has issued SEBI (Disclosure and Investor Protection) Guidelines, 2000 (SEBI DIP Guidelines) which contains detailed provisions in matters like eligibility for public issue, qualified institutional placements, preferential issue of securities by listed companies, bonus issue, right issue.

Under Section 55A of the Companies Act, 1956 in respect of the specified provisions of the Companies Act, so far as they relate to issue and transfer of securities and non-payment of dividend in case of listed public companies and those public companies which intend to get their securities listed on any recognized stock exchange in India, are to be administered by SEBI. SEBI Act contains detailed provisions relating to investigations, penalties and adjudication. Penalty provisions are provided for various non compliances including the following-

• Failure to furnish information, return etc.

• Failure to redress investors grievances

• For Insider trading

• For fraudulent and unfair trade practices

•  For non disclosure of acquisition of shares and takeovers etc.

SEBI Act contains provisions for setting up of Appellate Tribunal called Securities Appellate Tribunal (SAT). Any person aggrieved by an order of SEBI under SEBI Act or the Rules or Regulations made there under or by an order of an adjudicating officer may prefer an appeal to SAT. An appeal against the decision of the SAT lies before the Supreme Court.

 
An overview of some of the SEBI Regulations and Guidelines is provided below:

1.  SEBI GUIDELINES FOR INITIAL PUBLIC ISSUE / OFFER FOR SALE OF SECURITIES

SEBI (Disclosure and Investor Protection) Guidelines, 2000 [DIP Guidelines] requires compliance for public issues of securities by listed and unlisted companies, all offers for sale to public, and rights issues aggregating to Rs. 50,00,000 or more by listed companies. In case of the rights issue aggregating to Rs. 50,00,000 or more, the issuer company shall prepare a letter of offer as per DIP Guidelines and file the same with SEBI.

Eligibility norms for listing

Initial public offer [IPO] and offer for sale by unlisted companies

Eligibility criteria -1:	Eligibility criteria -2: (If the issuer does not satisfy Eligibility criteria -1)
(i) Minimum Net tangible assets (as defined) of Rs. 3,00,00,000 in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. If monetary assets exceed 50% of net tangible asset, company should have firm commitments to deploy the excess in its business/project.	(i) (a) Issue is made only through book building process with at least 50% of the net offer to public being allotted to Qualified Institutional Buyers (QIBs); OR (b) Project [i.e., the object for which monies proposed to be raised to cover the objects of the issue] has at least 15% participation by FIs/Scheduled Commercial Banks with at least 10% coming from the Appraiser. Further, 10% of the issue size shall be allotted to QIBs.   AND   (ii) (a) Minimum post-issue face value capital of the company is Rs. 10,00,00,000; OR (b) Compulsory market-making (see note below) for at least 2 years from listing of the shares subject to the conditions.   AND   (iii) Prospective allottees shall be minimum 1,000.
(ii) Track record of distributable profits in terms of section 205 of the Companies Act, 1956 for at least 3 out of immediately preceding 5 years.
(iii) Net worth of minimum Rs. 1,00,00,000 in each of preceding 3 full years (of 12 months each).
(iv) In case of a name change in the last 1 year, at least 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name.
(v) The aggregate of issue size (i.e., offer through offer document + firm allotment + promoters’ contribution through the offer document) in the same financial year does not exceed 5 times its pre-issue net worth (as defined) as per audited balance sheet of the last financial year.
(vi) Prospective allottees shall be minimum 1,000.

Eligibility norms for listed companies

Eligibility criteria -1

Eligibility criteria -2 (If the issuer does not satisfy Eligibility criteria -1)

(i) Aggregate of proposed issued & previous issue 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 5 times its pre-issue net worth as per the audited balance sheet of the last financial year. (ii) In case of a name change in the last 1 year, at least 50% of the total revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name.

(i) (a) Issue is made only through book building process with at least 50% of the net offer to public being allotted to QIBs;                                        OR (b) Project [i.e. the object for which monies proposed to be raised to cover the objects of the issue] has at least 15% participation by FIs/Scheduled Commercial Banks with at least 10% coming from the Appraiser. Further, 10% of the issue size shall be allotted to QIBs. AND (ii) (a) Minimum post-issue face value capital of the company is Rs. 10,00,00,000; OR (b) Compulsory market-making for at least 2 years from listing of the shares subject to the conditions. AND (iii) Prospective allottees shall be minimum 1,000.

•  Compulsory Market making involves the following:

• Market Maker undertakes to offer buy and sell quotes for a minimum depth of 300 shares

• Market makers has to ensure that the bid-ask spread (difference between quotations for sale and purchase) for their quotes shall not at any time exceed 10%

• Inventory of the Market makers on each of the stock exchanges, as on the date of allotment of securities, shall be at least 5% of the proposed issue of the company.

• The eligibility conditions mentioned above are not applicable to banks, infrastructure companies whose project has been appraised and partly (minimum 5%) financed by the specified institutions and right issues by listed companies.

• No unlisted company shall make public issue of equity share or any security convertible at a later date into equity share, if there are outstanding financial instrument or any other right which would entitle existing promoters or shareholders any option to receive equity share capital after the initial public offering.

• No company shall make public or rights issue of equity shares or any security convertible at a later date into equity share, unless all the existing partly paid-up shares have been fully paid or forfeited.

• No company shall make any public issue of securities, unless a draft prospectus has been filed with the SEBI through a Merchant Banker, at least 30 days prior to the filing of the prospectus with the Registrar of Companies.

• No company shall make 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.

• Unlisted company making an IPO shall list its securities on at least one stock exchange having nationwide trading terminals.

Fast Track Issues (FTIs)

•  Listed companies satisfying specified conditions are permitted to make FTIs through Follow-on Public Offerings (FPO) or Rights Issues. Such companies are not required to file draft offer document with SEBI and stock exchanges. Issues made under FTIs will enable the eligible listed companies to proceed with follow-on public offering/rights issue by filing a copy of the Red Herring Prospectus (in case of Book Built Issue)/Prospectus (in case of fixed price issue) registered with the ROC or the letter of offer filed with Designated Stock Exchange, as the case may be, and with SEBI before opening of the issue.

•  Conditions for FTI inter alia includes —

• Minimum issue size (including premium) of Rs. 50,00,000.

• Trading history of 3 years on nation-wide terminals.

• Average market capitalisation of public shareholding of at least Rs. 10,000 crores for a period of 1 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.

• Annualized trading turnover of the shares of the company during 6 calendar months immediately preceding the month of the reference date (as defined) is at least 2% of the weighted average number of shares listed during the said period.

• The company has redressed at least 95% of the total shareholders/investor grievances or complaints received till end of the quarter immediately preceding the month of the reference date (as defined).

• The company has complied with the listing agreement for at least 3 years immediately preceding the reference date.

• The impact of auditors’ qualifications, if any, on the audited accounts of the company in respect of the financial years for which such accounts are disclosed in the offer document does not exceed 5% of the net profit/loss after tax of the company for the respective years.

• No prosecution proceedings or show cause notices issued by SEBI is pending against the company/its promoters/whole time directors as on the reference date; and

• Entire shareholding of the promoter group is held in dematerialised form as on the reference date.

• No such further issue of capital under FTI shall be made during the period between filing of the red herring prospectus (in case of a book built issue) or prospectus (in case of a fixed price issue) with Registrar of Companies (ROC) or the letter of offer with Designated Stock Exchange and listing of the securities offered in the issue and/or refund of application moneys, unless full disclosures regarding the total capital proposed to be so raised are made in the offer document.

Applications Supported by Blocked Amount (ASBA) in case of IPO

SEBI has introduced a supplementary process of applying in public issues, viz. ASBA process. ASBA is an application for subscribing to an issue, containing an authorisation to block the application money in a bank account with a bank which offer the facility of applying through the ASBA process. ASBA application can be submitted either physically or electronically through the internet banking facility, to the Self Certified Syndicate Bank (SCSB) with whom the bank account to be blocked is maintained. SCSB shall then block the application money in the bank account specified in the ASBA, on the basis of an authorization given by the account holder. The application money shall remain blocked in the bank account till finalisation of the basis of allotment in the issue or till withdrawal / failure of the issue or till withdrawal / rejection of the application.

 

ASBA facility shall be provided in all book-built public issues which provide for not more than one payment option to the retail individual investors. It shall co-exist with the current process, wherein cheque is used as a mode of payment.

Discretionary allotment to Anchor Investor (AIs) in public issues

• Issuer making a public issue of shares through book building may allocate on a discretionary basis upto 30% of the QIB portion of the issue to Anchor Investors, who is a QIB.

• Minimum size of application by AIs would be Rs. 10 crores and would bring 25% on application and the balance within 2 days of the date of closure of the public issue.

• 1/3^rd of the Anchor Investor portion shall be reserved for domestic mutual funds.

• Allocation to Anchor Investors shall be on a discretionary basis subject to minimum of 2 investors for allocation of upto Rs. 250 crores and 5 investors for allocation of more than Rs.250 crores.

• Shares allotted to AIs will be locked-in for 30 days from the date of allotment.

• No person related to the promoter/ promoter group/ Book Running Lead Managers (BRLMs) can apply as AIs.

Minimum offer to public [Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957]

In case of public issue by unlisted company or listed company, the issuer company shall offer to public for subscription at least 10% of securities subject to following conditions:

• minimum 20,00,000 securities (excluding reservations, firm allotment and promoters’ contribution) are offered to public;

• the size of the offer to the public, i.e., the offer price multiplied by the number of securities offered to the public is minimum Rs. 100,00,00,000; and

• the issue is made only through book building method with allocation of 60% of the issue size to the QIBs:

If a company does not fulfil the above conditions, the minimum offer to public shall be 25%.

Promoters’ Contribution and Lock-in requirements

Promoters’ contribution

Issue Type	Promoters’ Contribution
By Unlisted Companies – public issue or offer for sale	Minimum 20% of Post-issue Capital
By Listed Companies – public issue or composite issue	Minimum of 20% of the proposed issue or post-issue holding of minimum 20% of the post-issue capital

For the purposes of computing the promoters’ contribution, minimum contribution of Rs. 25,000 per application from each individual and minimum contribution of Rs. 1,00,000 from firms and companies (not being business associates like dealers and distributors), shall be eligible to be considered towards promoters’ contribution.

Promoter’s contribution in any issue shall be in accordance with the provisions as on–

• In case of a Fast Track Issues (FTI) — 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.

•  In any other issue — the date of filing draft offer document with SEBI.

Following securities are ineligible for computation of promoter’s contribution:

• Acquisition of equity shares in preceding 3 years if such shares are –

• acquired for consideration other than cash and revaluation of assets or capitalisation of intangible assets is involved in such transaction(s); or

• resulting from a bonus issue, out of revaluation reserves or reserves created without accrual of cash resources or against shares which are otherwise ineligible for computation of promoters’ contribution.

•  In case of public issue by unlisted companies, securities which have been acquired by the promoters during the preceding 1 year, at a price lower than the price at which equity is being offered to public.

• 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 1 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.

• If the partners’ capital existed in the firm for a period of more than 1 year on a continuous basis, the shares allotted to promoters against such capital shall be considered eligible.

• If any ineligible shares (as mentioned above) are acquired in pursuance to a scheme of merger or amalgamation approved by a High Court, the same shall be eligible for computation of promoters’ contribution.

• Pledged securities held by promoters shall not be eligible for computation of promoters’ contribution.

• Promoters’ contribution shall not comprise of any private placement made by solicitation of subscription from unrelated persons either directly or through any intermediary.

• In order to be eligible for promoters’ contribution, specific written consent shall be obtained from the respective shareholders for inclusion of their subscription in the minimum promoters’ contribution which will be subject to lock-in requirement.

Lock-in requirements

• The promoter’s contribution shall be locked-in for a period of 3 years, which shall commence from the date of commencement of commercial production or the date of allotment in public issue, whichever is later.

• In case promoter’s contribution exceeds required minimum contribution, the excess shall be locked-in for 1 year.

• Securities issued on firm allotment basis shall be locked in for a period of 1 year from the date of commencement of commercial production or the date of allotment in public issue.

• If short fall in the firm allotment category is met by the promoter, such subscription shall be locked in for 1 year.

• Entire pre issue capital other than locked in as minimum promoters’ contribution shall be locked in for a period of 1 year from the date of allotment in the proposed public issue. Following are the exceptions:

• Pre IPO shares held by the Venture Capital Funds (VCF), Foreign Venture Capital Investors (FVCI) for a period of 1 year at the time of filing draft offer document with SEBI and shares shall be locked in as per applicable SEBI regulations to VCF or FVCI, as the case may be.

• Lock-in requirement shall not apply to pre issue share capital held for a period of 1 year at the time of filing draft offer document with SEBI and being offered to the public through offer for sale.

• Pre IPO shares held by employees other than promoters which were issued under ESOP or ESPS scheme of the issuer company.

Pricing by Companies issuing securities

Both listed and unlisted companies may freely price their equity shares and any security convertible into equity at a later date, offered through a public or rights issue. However, they have to give justification of the price in the offer document/letter of offer.

Listed/unlisted companies are permitted to issue shares to the applicants in the firm allotment category at a price higher than the price offered to the Indian public. Listed company can make a composite (public and rights) issue at differential prices.

Listed/unlisted companies are permitted to issue shares or securities to the retail individual investor and/or retail individual shareholders at a price lower than the price offered to the other category of public provided the difference is not more than 10% of the price at which securities are offered to other category of public.

Companies are permitted to 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 SEBI; actual price being determined at a later date before filing offer document with ROC.

IPO grading/credit rating

Grading of all IPO of equity shares or other securities convertible into equity shares is mandatory. Grading shall be obtained from at least one credit rating agency registered with SEBI and shall be disclosed in the Prospectus or Red Herring Prospectus.

Guidelines for issue of convertible debt instrument

No company shall make a public issue or rights issue of convertible debt instruments  unless the following conditions are 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:

• Credit rating is obtained from at least one credit rating agency registered with SEBI and disclosed in the offer document.

• The company is not in the list of wilful defaulters of RBI.

• 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.

Issuance of debt instrument below investment grade are also permitted through public/right issue.

2.     SEBI GUIDELINES FOR PREFERENTIAL ISSUES

Applicability

The preferential issue of equity shares/or any other convertible financial instruments, by listed companies whose equity shares are listed on any stock exchange, to any select group of persons under Section 81(1A) of the Companies Act 1956 on private placement basis requires compliance with the Chapter XIII of the Disclosure and Investor Protection Guidelines [i.e., Guidelines for Preferential Issues].

Pricing of the Issue

• The issue of shares on preferential basis (other than to QIB not exceeding 5 in number) can be made at a price not less than the higher of the following:
   

  Where the equity shares of a company have been listed on a stock exchange for a period of six months or more on the relevant date [Category–1]

  Where the equity shares of a company have been listed on a stock exchange for a period of less than six months as on the relevant date [Category–2]

  (i) Average of the weekly high and low of the closing prices of the shares quoted on the stock exchange during 6 months preceding the relevant date; OR (ii) Average of the weekly high and low of the closing prices of the shares quoted on a stock exchange during the 2 weeks preceding the relevant date.

  (i) The price at which shares were issued by the company in its IPO or the value per share arrived at in a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, pursuant to which the shares of the company were listed, as the case may be; OR (ii) The average of the weekly high and low of the closing prices of the shares quoted on the stock exchange during the period the shares have been listed preceding the relevant date; OR (iii) The average of the weekly high and low of the closing prices of the shares quoted on a stock exchange during the 2 weeks preceding the relevant date. On completion of a period of 6 months of being listed on a stock exchange, the company shall recompute the price of the shares [as per the pricing guidelines applicable to companies in Category-1] and if the price at which shares were allotted on a preferential basis [as per Category-2] was lower than the price so recomputed, the difference shall be paid by the allottees to the company.

• The issue of shares on preferential basis to QIB (not exceeding 5 in number) shall be at average of the weekly high and low of the closing prices of the shares quoted on a stock exchange during the 2 weeks preceding the relevant date.

• In case of allotment of warrants under Category–1, at least 25% of the price fixed shall be payable on the date of allotment.

The term "Relevant date" and "Stock exchange" are defined as under:

• "Relevant date" means the date 30 days prior to the date on which the meeting of shareholders is held to consider the proposed preferential issue, in terms of Section 81(1A) of the Companies Act, 1956.

• "Stock exchange" means any of the recognized stock exchanges on which the shares of the company are listed and in which the highest trading volume in respect of the shares of the company has been recorded during 6 months immediately the preceding the relevant date recorded during the preceding 6 months prior to the relevant date.

Tenure of financial instruments

In case of any financial instruments with a provision for allotment of equity shares at a future date, either through conversion or otherwise, the tenure of the instruments shall be maximum 18 months from the date of issue of such instrument.

Where the shares/warrants/convertible instruments are issued on preferential basis, the shareholders who have sold their shares during the 6 months prior to the relevant date shall not be eligible for allotment of shares on preferential basis.

Disclosures and compliances

• The explanatory statement annexed to the notice of the general meeting shall contain prescribed disclosures including the following:

• object/s of the issue through preferential offer,

• Intention of promoters/directors/key management persons to subscribe to the offer,

• shareholding pattern before and after the offer,

• Identity of the proposed allottees and the percentage of post preferential issue capital that may be held by them.

• Allotment shall be completed within 15 days from the date of passing of the resolution.

• Equity shares and securities convertible into equity shares at a later date, allotted in terms Section 81(1A) of the Companies Act, 1956 shall be made fully paid-up at the time of their allotment.

• Copy of the auditor’s certificate [certifying that the preferential issue is being made in accordance with the requirements contained in the Guidelines for Preferential Issues] shall be laid before the shareholder’s meeting convened to consider the proposed Preferential Issues.

Pricing of conversion of warrants etc.

For determining the price of equity shares on conversion of warrants/ Partly Convertible Debenture (PCDs) / Fully Convertible Debenture (FCDs) / other convertible instruments, the pricing guidelines as mentioned above will be applicable.

The relevant date for the above purpose may, at the option of the issuer, be either 30 days prior to the date on which the meeting of shareholders is held to consider the proposed preferential issue, in terms of Section 81(1A) of the Companies Act, 1956 (or) 30 days prior to the date on which the holder of the warrants etc. becomes entitled to apply for the equity shares.

The resolution passed in terms of Section 81(1A) shall clearly specify the relevant date on the basis of which the price of the resultant shares shall be calculated.

Lock-in requirements

• Instruments / share allotted pursuant to exercise of options attached to warrants, issued on preferential basis shall be locked-in as under:

• If allotted to promoter/promoter group

•  Upto 20% of the total capital of the company - 3 years

• Balance – 1 year

• If allotted to others – 1 year

• The lock-in period of shares acquired by conversion of the convertible instrument (other than warrants) shall be reduced to the extent the convertible instrument (other than warrants) have already been locked-in.

• Where the shares/warrants/convertible instruments are issued on preferential basis, the entire pre preferential allotment shareholding of such allottees shall be under lock – in from the relevant date up to a period of six months from the date of preferential allotment.

Miscellaneous

• Entire pre-issue shareholding of the allottee shall be held in dematerialised form to receive shares / warrants / convertible instruments under preferential allotment.

• In case of preferential allotment of shares to promoters, their relatives, associates and related entities, for consideration other than cash, valuation of the assets in consideration for which the shares are proposed to be issued shall be done by an independent qualified valuer and the valuation report shall be submitted to SEs.

Non-applicability of the guidelines for preferential issues

Preferential Guidelines are not applicable to following cases –

• Shares allotted in pursuance to the merger and amalgamation scheme approved by the High Court.

• Shares allotted to a person/group of persons in accordance with the provisions of rehabilitation packages approved by Board for Industrial and Financial Reconstruction (BIFR).

• Shares allotted to All India public financial institutions in accordance with the provision of the loan agreements signed prior to 4th August 1994.

• Shares allotted to any financial institution as defined in Section 2(h)(ia) and 2(h) (ii) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993.

• Preferential allotment of equity shares / FCD / PCD, where SEBI has granted relaxation in terms of Regulation 29A of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

3. SEBI GUIDELINES FOR QUALIFIED INSTITUTIONS PLACEMENT

Applicability

Issue of equity shares/FCDs/PCDs/NCDs with warrants/any securities other than warrants, which are convertible/exchangeable into equity shares by a listed company made to QIBs requires compliance with the Chapter XIII-A of the Disclosure and Investor Protection Guidelines [i.e., Guidelines for Qualified Institutions Placement (QIP)]. Issue of such securities to QIBs is permitted if following conditions are fulfilled:

• The equity shares of the issuer company are listed on a SE having nationwide trading terminals for a period of at least 1 year. For this purpose, newly listed company (which is issuer company) being a transferee company in a scheme of merger / demerger / amalgamation / arrangement sanctioned by Court under sections 391 to 394 of the Companies Act can consider the period for which the equity shares of the transferor company were listed on a stock exchange; and

• The issuer company complies with the prescribed minimum public shareholding requirements of the listing agreement.

Investors permitted to subscribe under QIP

• Only Qualified Institutional Buyers (QIBs) shall be eligible for allotment under QIPs. QIBs means:

• Public Financial Institutions as defined in Section 4A of the Companies Act, 1956.

• Scheduled Commercial Banks.

• Mutual Funds registered with SEBI.

• Foreign Institutional Investors (FIIs) and sub-account registered with SEBI.

• Multilateral and Bilateral development financial institutions.

• Venture Capital Funds registered with SEBI.

• Foreign Venture Investors registered with SEBI.

• State Industrial Development Corporations.

• Insurance Companies registered with Insurance Regulatory and Development Authority (IRDA).

• Provident Funds with a minimum corpus of Rs. 25,00,00,000.

• Pension Funds with a minimum corpus of Rs. 25,00,00,000.

• National Investment Fund set up by Government of India

• Minimum of 10% of the securities shall be allotted to mutual funds.

• If no mutual funds are agreeable to subscribe minimum 10% portion, the same may be allotted to other QIBs.

• No allotment shall be made to any QIB being a promoter or any person related to promoters.  

• In case of issue of NCDs with warrants, QIBs can subscribe to the combined offering of NCDs with warrants or to the individual instruments i.e., either NCDs or warrants. SEBI has clarified that NCDs and warrants issued pursuant to a combined offering as mentioned above, can be listed and traded separately. Regulation 22(b)(i) of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 permits listing of debt securities i.e. NCDs. However, for listing of warrants, specific relaxation from the applicability of the provisions of the Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957 [SCRR] needs to be obtained. The minimum contract value for trading of NCDs / warrants has been set at Rs.100,000.

Pricing of Issue

The issue of securities under QIP shall be made at a price not less than average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the 2 weeks preceding the relevant date.

The term "Relevant date" and "Stock exchange" are defined as under:

• "Relevant date" means the date of the meeting in which the board of the company or the committee of directors duly authorised by the board of the company decides to open the proposed issue.

• "Stock exchange" means any of the recognized stock exchanges on which the shares of the company are listed and in which the highest trading volume in such shares has been recorded during 2 weeks immediately the preceding relevant date.

Pricing of shares on conversion

For determining the price of equity shares on conversion of securities, the above pricing guidelines shall be followed.

The relevant date for the above purpose may, at the option of the issuer, be either the date of the meeting in which the board of the company or the committee of directors duly authorised by the board of the company decides to open the proposed issue or the date on which the holder of the securities becomes entitled to apply for the equity shares.

The price so determined is subject to price adjustments in specified circumstances.

Tenure of security

In case of security, which is convertible/exchangeable into equity shares at a future date, the tenure of such security shall be maximum 60 months from the date of allotment.

Tenure of shareholders’ resolution

• Allotment shall be completed within 12 months from the date of passing of the resolution under section 81 (1A) of the Companies Act.

• The placements under QIP made pursuant to authority of the same shareholders’ resolution shall be separated by at least 6 months between each placement.

Placement document

• Securities issued under QIP shall be issued on the basis of a placement document.

• The placement document shall be a private document and should contain all material information as specified.

• Placement document shall be filed with SEBI within 30 days of the allotment of securities.

Number of allottees and size of issue

• The minimum number of allottees for each placement of securities shall not be less than:

• Minimum 2 — where the issue size is less than or equal to Rs. 250,00,00,000

• Minimum 5 — where the issue size is greater than Rs. 250,00,00,000.

subject to the condition that no single allottee shall be allotted more than 50% of the issue size.

• Aggregate of the proposed QIP and all previous QIP made in the same financial year shall not exceed 5 times of the net worth as per the audited balance sheet of the previous financial year.

Lock-in requirements

Shares/securities allotted pursuant to Guidelines for QIP shall not be sold by QIBs for 1 year from the date of allotment, except on a recognised stock exchange. Sale by way of a bulk/block transaction on stock exchange shall be treated as a sale on a recognised stock exchange.

Merchant banker

Issue and allotment of securities under QIP shall be managed by the merchant bankers.

Non-applicability of Preferential Issues guidelines to QIP

The Guidelines for Preferential Issues shall not apply to issue of securities made pursuant to the Guidelines for QIP.

4. MUTUAL FUNDS

Mutual fund is a mechanism for pooling financial resources by issuing units to the investors and investing the funds so raised in securities / money market instruments / gold / gold related instruments in accordance with objectives disclosed in the offer document. Mutual Funds are regulated by SEBI pursuant to SEBI (Mutual Funds) Regulations, 1996 [Mutual Funds Regulations].

A mutual fund is set up in the form of a trust, which has a sponsor, trustees, Asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. AMC approved by SEBI manages the funds by making investments in various types of securities/money market instruments/gold/gold related instruments or real estate assets. Custodian, who is registered with SEBI, holds the securities etc. of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. The trustees shall monitor the performance and compliance of Mutual Funds Regulations by the mutual fund.

Eligibility criteria for registration of mutual fund

For the purpose of grant of a certificate of registration of mutual fund, the applicant has to fulfil the following conditions —

• The sponsor should have a sound track record (like positive networth in preceding 5 years, carrying on the business in financial service for at least 5 years etc.) and general reputation of fairness and integrity.

• The sponsor has contributed or contributes at least 40% to the net worth of the AMC.

• The applicant meets the requirement of being a "fit and proper person" as per criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008.

• The sponsor or any of its directors/principal officer to be employed by the mutual fund should not have been guilty of fraud / convicted of an offence involving moral turpitude / found guilty of any economic offence.

• Appointment of trustees to act as trustees for the mutual fund, appointment of AMC to manage the mutual fund and operate the schemes and appointment of a custodian to keep custody of the securities/gold or gold related instruments and carry out the custodian activities.

Trustees of a mutual fund

• Trustees shall be appointed only with prior approval of SEBI.

• No AMC or any director/officer/employee of AMC shall act as trustee of any mutual fund.

• No person who is appointed as Trustee of a AMC shall act a trustee of any other AMC.

• 2/3rd of the trustees shall be independent persons and shall not be associated with the sponsors.

• Trustee and AMC shall enter into an investment management agreement.

• Trustees shall exercise due diligence.

Constitution and management of AMC

• In case AMC is an existing AMC, it should have a sound track record, general reputation, and fairness in transaction.

• AMC is a fit and proper person.

• Directors of AMC are persons having adequate professional experience in finance and financial services related field and not found guilty of moral turpitude or convicted of any economic offence or violation of any securities laws.

• Key personnel of AMC have not been found guilty of moral turpitude or convicted of economic offence or violation of securities laws or worked for any AMC or mutual fund or any intermediary during the period when its registration has been suspended or cancelled at any time by SEBI.

• At least 50% of the directors of AMC must be independent.

• Chairman of the AMC should not be a trustee of any mutual fund.

• AMC must have a minimum net worth of Rs.10,00,00,000.

• No director of the AMC shall hold the office of the director in another AMC unless such person is an independent director and approval of the board of directors of the AMC, in which he is a director, has been obtained.

• AMC cannot act as a trustee of any mutual fund or undertake any other business activities except activities in the nature of portfolio management services/management and advisory services to offshore funds/Venture capital fund etc. provided it does not conflict with the activity of mutual funds.

• No appointment of a director of AMC shall be made without prior approval of the trustees.

Investment ceiling and conditions

• Mutual fund may invest moneys collected under any scheme only in securities, money market instruments, privately placed debentures, securitized debt instruments which are asset backed or mortgaged backed, gold or gold related instruments, real estate assets.

• No mutual fund scheme shall make investment in:

1. any unlisted security of an associate or group company of the sponsor.

2. any security issued by way of private placement by an associate or group company of the sponsor.

3. the listed securities of group companies of the sponsor which is in excess of 25% of the net assets of mutual fund.

• Mutual funds having securities worth Rs. 10,00,00,000 or more, as on the latest balance-sheet date, shall settle their transactions only through dematerialized securities.

• The mutual fund shall not borrow except to meet temporary liquidity needs for repurchase/redemption of units or payment of interest/dividend, provided the mutual fund shall not borrow more than 20% of the net asset of the scheme and the duration of such a borrowing shall not exceed a period of 6 months.

• Mutual fund shall not advance any loans for any purpose.

• Investment in rated debt instruments issued by a single issuer, should not exceed 15% of NAV of the scheme. This limit may be extended to 20% of the NAV of the scheme with the prior approval of the boards of AMC and trustees.

• Investment in unrated debt instruments by a single issuer shall not exceed 10% of the NAV of the scheme and total investment in such instruments shall not exceed 25% of NAV of the scheme. All investment requires prior approval of boards of AMC and Trustee.

• Mutual fund under all its scheme shall not own more than 10% of paid-up voting capital of any company.

• No mutual fund scheme (other than Index fund or sector/industry specific fund) shall invest more than 10% of its NAV in equity shares of any company.

• Investments in unlisted shares have been restricted to a maximum of 10% of the NAV of a scheme in case of close ended scheme and 5% in case of open-ended schemes.

• Transfers of investments from one scheme to another in the same mutual fund shall be allowed only if such transfers are done at the prevailing market price for quoted instruments on spot basis.

• A scheme may invest in another scheme under the same AMC or any other mutual fund without charging any fees, provided that aggregate inter-scheme investment made by all schemes under the same management or in schemes under the management of any other AMC shall not exceed 5% of the NAV of the mutual fund. These provision shall not apply to any Fund of Fund (FoF) scheme.

• Every mutual fund shall buy and sell securities on the basis of deliveries.

Mutual funds may engage in short selling of securities, lending and borrowing of securities in accordance with the SEBI's framework relating to short selling and securities lending and borrowing. The funds of a scheme shall not in any manner be used in carry forward transactions. Mutual funds are permitted to enter into derivatives transactions in a recognized stock exchange, subject to the framework specified by SEBI. Sale of government securities already contracted for purchase shall be in accordance with RBI guideline.

• All the securities shall be transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature.

• Pending deployment of funds in terms of investment objectives, mutual fund can invest the funds in short-term deposits of scheduled commercial banks as per the prescribed guidelines.

• No mutual fund scheme shall invest in any fund of fund scheme.

• Fund of fund shall not invest its assets other than in the schemes of mutual funds. Fund of fund scheme shall not invest in any other fund of fund scheme.

• Mutual funds are permitted to invest in ADRs / GDRs / Foreign equity or debt / money market instruments / derivatives for hedging and portfolio balancing / short term deposits with banks overseas / units or securities of overseas mutual funds / foreign government securities etc. within the overall limit of US $ 7 billion. Mutual funds are required to appoint a dedicated fund manager.

Types of Mutual Fund Schemes

Close-ended

• A Close-ended scheme has a stipulated maturity period, which generally ranges from 5-7 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the Stock Exchanges, if they are listed. Some close-ended schemes also carry out periodic repurchase. Either listing or repurchase by mutual fund shall exist to give exit opportunity to shareholders.

• Close ended scheme other than an equity linked savings scheme shall be listed on a SE within such time period and subject to such conditions as specified by SEBI. Certain close ended scheme launched prior to April 8, 2009 like scheme that provides periodic repurchase facility, scheme that provides for monthly income or which caters to special classes of persons like senior citizens, women, children, capital protection oriented scheme etc., will continue not to mandatorily list in the stock exchanges.

• Close ended scheme, other than equity linked savings scheme, launched on or after April 8, 2009, cannot be repurchased before the end of maturity period of such scheme.

Open-ended

An Open-ended scheme is one that is available for subscription and repurchase on a continuous basis. These do not have a fixed maturity. Investors can buy and sell units at NAV related prices. These are more liquid.

Schemes accordingly to investment objectives

Schemes may also be classified as per its investment objectives. Such schemes may be open-ended or close-ended. The noticeable examples are growth/equity oriented scheme, Income/Debt Oriented Schemes, Balanced Fund, Money Market/Liquid Scheme, Gilt Fund, Index Fund, Fund of Funds, Gold Exchange Traded Fund, REMF etc.

Real Estate Mutual Fund (REMF)

“Real estate asset” means an identifiable immovable property:

• located within a specified city in India or in a Special Economic Zone (SEZ);

• on which construction is complete and which is usable;

• which is evidenced by valid title documents;

• which is legally transferable;

• which is free from all encumbrances;

• which is not subject matter of any litigation,
  but does not include-

• a project under construction;

• vacant land;

• deserted property;

• land specified for agricultural use;

• a property reserved or attached by any Government or other authority or pursuant to orders of a court or the acquisition of which is otherwise prohibited under any law.

‘Specified city in India’ means cities mentioned in (a) List of million plus Urban Agglomerations / cities; or (b) List of million plus cities which appear in Census Statistics of India (2001).

Additional eligibility criteria and other conditions for REMFS

• Existing MF may launch REMFS provided it has adequate number of key personnel with adequate experience in real estate.

• Launch of REMFS alone shall be permitted if the Sponsor has been carrying on business in real estate atleast for a period of at least 5 years and fulfil other eligibility criteria.

• REMFS shall be close-ended with a specified maturity period and its units shall be listed on a recognized stock exchange.

• The unit holder of REMFS shall not be conferred the right to use the real estate assets held by the REMFS.

• REMFS shall not undertake lending or housing finance activities.

• All financial transactions of a REMFS shall be routed through banking channels only.

Permissible investments and restrictions 

• Permissible Investments:

• Minimum 75% of the net assets of REMFS as under:

  • Minimum of 35% of net assets of the REMFS to be mandatorily invested directly in ‘real estate assets’.

  • Subject to above mandatory investments in real estate assets, a REMFS may invest in –

v   real estate assets,

v   mortgage backed securities (but not directly in mortgages),

v   equity shares or debentures of companies engaged in dealing in real estate assets or undertaking real estate development projects whether listed on recognized stock exchange in India or not.

• The balance 25% of the net assets of REMFS can be invested in other securities.

Restrictions

• No mutual fund shall transfer real estate assets amongst its schemes.

• No mutual fund shall invest in any real estate asset which was owned by the sponsor or the Asset Management Company (AMC) or any of its associates during the period of last 5 years or in which the sponsor or the AMC or any of its associates hold tenancy or lease rights.

• Exposure by a MF under all REMFS is capped as under:

• Not more than 30% of net assets in a single city, unless disclosed in the offer document;

• Not more than 15% of net assets in a single real estate project i.e. project by a builder in a single location within a city;

• Not more than 25% of the total issued capital of any unlisted company.

• Following are the additional restrictions on investment by a REMFS:

• Not to invest more than 15% of net assets in the equity shares or debentures of any unlisted company;

• Not to invest in:-

• any unlisted security of the sponsor or its associate or group company;

• any listed security issued by way of a preferential allotment by the sponsor or its associate or group company;

• any listed security of the sponsor or its associate or group company in excess of 25% of the net assets of the REMFS.

7. FOREIGN INSTITUTIONAL INVESTORS

Foreign Institutional Investor (FII) is a recognized investor under the foreign investment policies of the Government of India. Registration of FII and their sub-accounts with SEBI under SEBI [Foreign Institutional Investors] Regulations, [FII Regulations] act as a single window clearance for making investments in Indian securities.

Under the FII regulations, investment in securities can be made as a FII or as a sub-account of a FII (where investments are made by the FII on behalf of its sub-account). Key definitions are as under:

• "FII" means an institution established or incorporated outside India which proposes to make investment in India in securities.

• "Sub-account" means any person resident outside India, on whose behalf investments are proposed to be made in India by a FII and who is registered as a sub-account under FII Regulations.

Eligibility criteria for registration as FII

SEBI will inter alia consider

• Applicant’s track record, professional competence, financial soundness, experience, general reputation of fairness and integrity;

• in case of a newly established fund, the track record of the investment manager of the fund who has promoted it, will be considered. Such investment manager has to furnish the details in respect of disciplinary action, if any, taken against it.

• Applicant should be regulated by appropriate foreign regulatory authority except for university fund, endowments, foundations or charitable trusts or charitable societies;

• Whether applicant is —

• an institution established or incorporated outside India as a pension fund, mutual fund, investment trust, insurance company or reinsurance company;

• an International or Multilateral Organization or an agency thereof or a Foreign Governmental Agency, Sovereign Wealth Fund or a Foreign Central Bank;

• an asset management company, investment manager or advisor, bank or institutional portfolio manager, established or incorporated outside India and proposing to make investments in India on behalf of broad based funds and its proprietary funds, if any;

• A trustee of trust established outside India and proposing to make investments in India on behalf of broad based funds and its proprietary funds, if any;

• University fund, endowments, foundations or charitable trusts or charitable societies subject to compliance with additional condition.

• Whether the grant of certificate to the applicant is in the interest of the development of the securities market.

• Whether applicant is fit and proper person as per criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008 .

The term "broad based fund" for the above purposes has been defined to mean a fund, established or incorporated outside India, which has at least 20 investors, with no single individual investor holding more than 49% of the shares or units of the fund. If the broad based fund has institutional investor(s) it shall not be necessary for the fund to have 20 investors. If the broad based fund has an institutional investor who holds more than 49% of the shares or units in the fund, then the institutional investor must itself be a broad based fund.

Eligibility criteria for registration as sub-account

SEBI will inter alia consider

• Whether the applicant is —

• “broad based fund” or portfolio which is broad based, incorporated or established outside India; or

• proprietary fund of a registered FII; or

• foreign corporate; or

• foreign individual; or

• University fund, Endowment, Foundation, Charitable trust or Charitable society who are eligible to be registered as a FII under the FII Regulations.

• a fit and proper person.

“foreign corporate” means a body corporate incorporated outside India which fulfills the following conditions:-

• its securities are listed on a stock exchange outside India;

• it has asset base of not less than USD 2 billion;

• it had an average net profit of not less than USD 50 million during the 3 financial years preceding the date of the application.

 “foreign individual” means a foreigner who fulfills the following conditions:-

• has a networth of not less than USD 50 million;

• holds the passport of a foreign country for a period of at least 5 years preceding the date of application;

• holds a certificate of good standing from a bank;

• is the client of the FII or any other entity which belongs to the same group as the FII, for a period of at least 3 years preceding the date of the application:

• Non-resident Indian shall not be eligible to apply as sub-account.

• Whether the FII through whom the application for registration as sub-account is made —

• holds a certificate of registration as FII;

• is authorized to invest on behalf of the sub-account;

• has submitted the joint undertakings as required under FII Regulations. 

A sub-account who has been granted registration by SEBI shall be deemed to be registered as a FII with SEBI for the limited purpose of availing of the benefits available to FII under Section 115AD of the Income-tax Act, 1961.

Registrations of FII and sub-account is permanent registrations subject to payment of fees and unless suspended or cancelled by SEBI.

FII shall be responsible and liable for all acts of commission and omission of all its sub-accounts and other deeds and things done by such sub-accounts in their capacity as sub-accounts.

Investment Restrictions

• A FII can invest only in the following —

• Securities in the primary and secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognized SE in India;

• Units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognized stock exchange or not, units of scheme floated by a Collective Investment Scheme

• Dated Government Securities,

• Derivatives traded on a recognized stock exchange,

• Commercial paper,

• Security receipts.

• Where a FII/ sub-account holds equity shares in an unlisted company and continues to hold such shares after IPO and listing thereof, such shares shall be locked-in for the same period, if any, as applicable to shares held by a foreign direct investor placed in similar position under the FDI policy of the Central Government.

• Total investments in equity / equity related instruments by an FII in India (whether on his own account or on behalf of sub-account), shall not be less than 70% of total investment in India (own account and on behalf of sub-account).

• Above requirement of 70% investment shall not apply to investment in debt securities after obtaining prior approval of SEBI and for investment in securities receipts issued by securitization/reconstruction companies registered with RBI under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).

• No FII shall invest on behalf of its sub-account in securities receipts issued by securitization/reconstruction companies registered with RBI under the SARFAESI.

• FII/sub-account shall transact in Indian securities only (other than derivatives traded on the stock exchange) on the basis of taking and giving delivery of securities purchased or sold. They may enter into short selling transactions only in accordance with the framework specified by SEBI.

• FII/sub-account may lend or borrow securities in accordance with the framework specified by SEBI.

• FII shall not carry forward any transactions on the stock exchange.

• FII shall transact in securities only through SEBI registered stockbrokers, subject to exceptions e.g. shares offered under buyback, open offer under SEBI Takeover regulation etc.

• FII shall transact in Government securities, treasury bills, commercial paper in the manner specified by RBI.

• FII shall deliver or cause to be delivered securities in demat form only except where the issuer of the securities has not established connectivity with depositories.

• In case of purchase of equity capital, each FII shall not hold more than 10% of total issued capital of a company.

• In case of purchase of equity capital, each sub-account of the FII shall not hold more than 10% of total issued capital of a company.

• In case of sub-account being a foreign corporate or individual, the said limit shall be 5% for each such sub-accounts.

• No sub-account shall issue Offshore Derivative Instruments (ODIs).

• FII may issue ODIs if following conditions are satisfied:

• such ODIs are issued only to persons who are regulated by an appropriate foreign regulatory authority;

• such ODIs are issued after compliance with ‘know your client’ norms;

• FII shall ensure that no further issue or transfer is made of any ODI to any person other than a person regulated by an appropriate foreign regulatory authority.

Reporting and other regulatory obligations

• FII is required to appoint a domestic custodian (Indian custodian). For appointing more than one custodian prior approval of SEBI is required. However, only one custodian can be appointed for a single sub-account of an FII.

• Domestic custodian are required to monitor the investments of FII, report the transactions of FII to SEBI on a daily basis, furnish necessary information to SEBI from time to time etc.

• FII are required to open a foreign currency denominated accounts and special NRE account with a branch of a bank approved by RBI.

• FII are required to appoint compliance officer, who shall be responsible for monitoring the applicable statutory compliances.

• FIIs/sub-accounts are required to make investment as per the Government of India’s Policy.

• Fees payable to SEBI for registration or renewal of registration of an FII is US$ 5,000/- for every block of 3 years.

8. Fees payable to SEBI for registration or renewal of registration of a sub-account is US$ 1,000/- for every block of 3 years. VENTURE CAPITAL FUND

VCF means a Fund established in the form of a Trust or an Indian company/body corporate and registered under SEBI (Venture Capital Funds) Regulations, 1996 [VCF Regulations] and which —

• has a dedicated pool of capital

• raised in the manner specified under SEBI VCF Regulations

• invests in accordance with SEBI VCF Regulations

Eligibility criteria for registration as VCF

SEBI will inter alia consider –

• If the application is made by a company :—

• memorandum of association as has its main objective, the carrying on of the activity of a venture capital fund;

• it is prohibited by its memorandum and articles of association from making an invitation to the public to subscribe to its securities;

• its director or principal officer or employee is not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant;

• its director, principal officer or employee has not at any time been convicted of any offence involving moral turpitude or any economic offence;

• If the application is made by a trust—

• the instrument of trust is in the form of a deed and has been duly registered under the provisions of the Indian Registration Act, 1908;

• the main object of the trust is to carry on the activity of a venture capital fund;

• the directors of its trustee company, if any or any trustee is not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant;

• the directors of its trustee company, if any, or a trustee has not at any time, been convicted of any offence involving moral turpitude or of any economic offence.

• If the application is made by a body corporate—

•  it is set up or established under the laws of the Central or State Legislature;

• the applicant is permitted to carry on the activities of a venture capital fund;

• the directors or the trustees, as the case may be, of such body corporate have not been convicted of any offence involving moral turpitude or of any economic offence;

• the directors or the trustees, as the case may be, of such body corporate, if any, are not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant.

• Applicant is a fit and proper person as per criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008.

Investment in VCF

• A VCF may raise monies from any investor whether Indian, Foreign or non-resident Indian by way of issue of units. For this purpose "unit" means beneficial interest of the investors in the scheme or fund floated by trust or shares issued by a company including a body corporate.

• No VCF shall issue any document or advertisement inviting offers from the public for the subscription or purchase of any of its units.

• VCF may receive monies for investment in the VCF only through private placement of its units.

• No VCF shall accept any investment from any investor which is less than Rs. 500,000.

• Each scheme/fund set up by a VCF shall have firm commitment from the investors for contribution of at least Rs. 5,00,00,000 before the start of operations of VCF.

Prohibition on listing

No VCF shall be entitled to get its units listed on the stock exchange till the expiry of 3 years from the date of the issuance of units by VCF.

Investment Restrictions on VCF

• VCF shall disclose its investment strategy to SEBI.

• VCF shall not invest more than 25% of its corpus in one venture capital undertaking (VCU). The term VCU is defined in VCF Regulation to mean a domestic company—

  • whose shares are not listed on a recognized stock exchange in India;

  • which is engaged in the business of providing services, production or manufacture of article or things but does not include such activities or sectors which are specified in the negative list by the Board with the approval of the Central Government by notification in the Official Gazette.

• VCF are permitted to invest in securities of foreign companies.

• VCF are permitted to invest in Offshore Venture Capital Undertakings (i.e., foreign company whose shares are not listed on any of the recognized stock exchange in India or abroad), subject to overall limit of US $ 500 million prescribed by the RBI. The proposal for investment shall be made to SEBI for its prior approval — no separate permission from RBI is necessary in such case. Such investments have to be in compliance with prescribed conditions by SEBI.

• VCF shall not invest in associate companies.

• Minimum 2/3^rd of investible funds shall be invested in equity shares/equity linked instruments of unlisted VCUs.

  • Equity linked instruments includes instruments convertible into equity shares or share warrants, preference shares, debentures compulsorily or optionally convertible into equity.

• VCF can invest maximum 1/3^rd of investible funds in following –

• IPO of VCU whose shares are proposed to be listed;

• Debt instrument of VCU in which VCF has already invested by way of equity;

• Preferential allotment of equity shares of a listed company (with a lock-in period of 1 year);

• Equity shares/equity linked instruments of a financially weak company (as defined) or sick industrial company whose shares are listed;

• SPVs created by the VCF for facilitating/promoting investment as per SEBI VCF Regulations;

• VCF shall disclose the duration of life cycle of the fund.

• No VCF shall issue any document or advertisement inviting offers from the public for subscription/purchase of its units.

• VCF is prohibited from investing in the following:

• Non-banking financial services excluding those NBFC registered with RBI and have been categorized as Equipment Leasing or Hire Purchase companies.

• Gold financing excluding those companies which are engaged in gold financing for jewellery.

• Activities not permitted under the Industrial Policy of Government of India

• Any other activity which may be specified by SEBI in consultation with the Government of India.

9. FOREIGN VENTURE CAPITAL INVESTOR

For investment in India under the FVCI route, the applicant has to register itself with SEBI under SEBI (Foreign Venture Capital Investor) Regulations, 2000 [FVCI Regulations], before it can commence business.

Eligibility criteria for registration as FVCI

SEBI will inter alia consider —

• Applicant’s track record, professional competence, financial soundness, experience, general reputation of fairness and integrity;

• Receipt of RBI approval, if applicable’;

• Whether the applicant is –

• an investment company, investment trust, investment partnership, pension fund, mutual fund, endowment fund, university fund, charitable institution or any other entity incorporated outside India; or

• whether applicant is an — asset management company, investment manager, investment management company or any other investment vehicle incorporated outside India.

• Whether applicant is authorized to invest in venture capital fund or carry on activity as a FVCI;

• Whether applicant —

• is regulated by appropriate foreign regulatory authority; or

• is an income tax payer; or

• submits a certificate from its banker of its or its promoter’s track record where the applicant is neither a regulated entity nor an income tax payer.

• Applicant is a fit and proper person as per criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008.

• FVCI shall obtain firm commitment from their investors for contribution of an amount of at least USD 1 million at the time of submission of applications seeking registration as FVCIs.

Investment Restrictions

• FVCI shall disclose its investment strategy to SEBI.

• FVCI can invest its total funds committed in one VCF.

• Minimum 2/3^rd of investible funds shall be invested in equity shares/equity linked instruments of unlisted Venture Capital Undertakings (VCUs).

• FVCI can invest maximum 1/3^rd of investible funds in following –

• IPO of VCU whose shares are proposed to be listed;

• Debt instrument of VCU in which FVCI has already invested by way of equity;

• Preferential allotment of equity shares of a listed company (with a lock-in period of 1 year);

• Equity shares/equity linked instruments of a financially weak company (as defined) or sick industrial company whose shares are listed;

• SPVs created by the FVCI for facilitating/promoting investment as per FVCI Regulations;

• FVCI shall disclose the duration of life cycle of the fund.

• Aforesaid investment conditions and restrictions shall be achieved by the FVCI by the end of the life cycle.

• FVCI is prohibited from investing in the following:

• Non-banking financial services excluding those NBFC registered with RBI and have been categorized as Equipment Leasing or Hire Purchase companies

• Gold financing excluding those companies which are engaged in gold financing for jewellery.

• Activities not permitted under the Industrial Policy of Government of India

• Any other activity which may be specified by SEBI in consultation with the Government of India.

Reporting and regulatory obligations

• FVCI or global custodian of FVCI shall appoint a domestic custodian for FVCI.

• Domestic custodian are required to monitor the investments of FVCI, furnishing of periodical reports to SEBI, furnish necessary information to SEBI from time to time.

• FVCI are required to open a foreign currency denominated accounts or special NRE account with a branch of a bank approved by RBI.

10.    PROHIBITION OF INSIDER TRADING REGULATIONS

SEBI (Prohibition of Insider Trading) Regulations, 1992 [Insider Trading Regulations] deals with prohibition on dealing, communicating or counselling on matters relating to insider trading based on unpublished Price sensitive information etc. Key definitions are as under:

• "Insider" means any person who,

• is/was connected/deemed to have been connected with the company, and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of the company, or

• has received or has had access to such unpublished price sensitive information.

• "Price sensitive information" has been defined to mean any information which is directly or indirectly related to a company and which if published is likely to materially affect the price of securities of company. The following shall be deemed to be price sensitive information

• periodical financial results of the company;

• intended declaration of dividends (both interim and final);

• issue of securities or buy-back of securities;

• any major expansion plans or execution of new projects;

• amalgamation, mergers or takeovers;

• disposal of the whole or substantial part of the undertaking; and

• significant changes in policies, plans or operations of the company

• "Unpublished" means information which is not published by the company or its agents and is not specific in nature. However, speculative reports in print or electronic media shall not be considered as unpublished information.

Prohibition on dealing etc.

• Insider is prohibited from dealing in securities of listed companies, either himself or on behalf of any other person, when he is in possession of any unpublished price sensitive information.

• An insider shall not communicate, counsel or procure, directly or indirectly, any unpublished price sensitive information to/from any person while in possession of such unpublished price sensitive and information shall not deal in securities.

  • The above prohibition shall not apply to communication in the ordinary course of business or profession or employment or under any law.

• A company shall not deal in the securities of another company/associate of that other company while in possession of any unpublished price sensitive information of that company.

Any insider who deals in securities in contravention of above provisions shall be guilty of insider trading.

Disclosure of interest to company

Director/officer

• Initial disclosure: A director / officer shall disclose to the company the number of shares or voting rights held and position taken in derivatives by such person and his dependents (as defined by the company), within 2 working days of becoming a director / officer in the prescribed form.

• Continual disclosure: A director/officer shall disclose to the company and stock exchanges the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person and his dependents (as defined by the company) from the last disclosure made within 2 working days of receipt of intimation of allotment/acquisition/sale in prescribed form if the change exceeds the lower of the following —

• Rs. 500,000 in value or

• 25,000 shares or

• 1% of total shareholding or voting rights,

Substantial shareholders

• Initial disclosure: A person who holds more than 5% of shares/voting rights in any listed company shall disclose to the company the number of shares/voting rights to the company within 2 working days of receipt of intimation of allotment/acquisition in the prescribed form.

• Continual disclosure: Where there is a change in shareholding of a person (holding more than 5% of shares/voting rights), which exceed 2% of total shareholding, he shall disclose the same to the Company within 2 working days of receipt of intimation of allotment/acquisition/sale in prescribed form, even if such change results in shareholding falling below 5%.

Disclosure by directors, officers and substantial shareholders in listed companies may also be made through electronic filing in accordance with the system devised by the stock exchange.

Disclosure of interest by Listed Company to stock exchange

The listed Company shall disclose to the stock exchanges the aforesaid information received by it within 2 days of receipt.

Code of conduct

All the listed companies, intermediaries associated with securities markets including self-regulatory organizations, stock exchanges shall frame a code of internal procedures and conduct themselves as near thereto the Model Code specified in the Insider Trading Regulations without diluting it in any manner and abide by the code of Corporate Disclosure Practices specified in Insider Trading Regulations.

11. TAKEOVER REGULATIONS

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 [Takeover Regulations] lays down the reporting and disclosure to be made by the acquirer/investee company (whose shares are being acquired) for acquisition beyond specified limits, procedure for consolidation of holding without any requirement of making an open offer to public, procedure for substantial acquisition of securities of a listed companies and making open offer to public etc.

Key definitions under the Takeover Regulations are as under:

"Acquirer" means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer.

"Control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

Explanation —

1. Where there are two or more persons in control over the target company, the ceasing of any one of such persons from such control shall not be deemed to be a change in control of management nor shall any change in the nature and quantum of control amongst them constitute change in control of management, Provided the transfer from joint control to sole control is effected in accordance with Regulation 3(1)(e).

2. If consequent upon change in control of the target company in accordance with regulation 3, the control acquired is equal to or less than the control exercised by person(s) prior to such acquisition of control, such control shall not be deemed to be a change in control;

"Person Acting in Concert" (PACs) comprises of persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company. PACs shall also deem to include certain persons (specified in the Takeover Regulations), unless the contrary is established.

"Shares" means shares in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights but shall not include preference shares.

"Target company" means a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired;

Acquisition triggering open offer to public by the acquirer

In following circumstances, the acquirer/PACs would require making a Public Announcement (PA) for acquisition of shares from public through an open offer.

Acquisition of shares/voting rights

• Acquirer acquires shares/voting rights which (together with shares etc. already held by him/through PACs) entitle him to exercise 15% or more of voting rights of a target company.

• Acquirer together with PACs who has already acquired 15% or more but less than 55% of the shares/voting rights of a target company, acquires either by himself/through PACs additional shares/voting rights entitling him to exercise more than 5% of voting rights in a financial year ending 31st March.

• Acquirer together with PACs already holding 55% or more but less than 75% of the shares/voting rights of a target company acquires either by himself/through PACs any additional shares/voting rights.

Exception to above

• Acquirer can acquire upto 5% voting rights in the target company without making PA, if such acquisition is made -

• through open market purchase in the normal segment on the stock exchange but not through bulk deal / block deal / negotiated deal or preferential allotment; or

• pursuant to a buy-back of shares by the target company. and

• The post acquisition shareholding of the acquirer together with PAC with him shall not increase beyond 75%.

• Where an acquirer together with PACs already holding 55% or more but less than 75% of the shares/voting rights of a target company and is desirous of consolidating his holding while ensuring that the public shareholding in the target company does not fall below the minimum level permitted by the Listing Agreement.

In case the target company had made offer of at least 10% of issue size to the public in terms of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957, the aforesaid limit of 75% should be read as 90%.

For above purposes, the term acquisition shall mean and include (i) direct acquisition in a listed company (ii) indirect acquisition by virtue of acquisition of companies, whether listed/unlisted, whether in India or abroad.

Acquisition of control

Acquisition of Control over a target company (irrespective of whether or not there is any acquisition of shares/voting rights). In case change in Control takes place in pursuance to a special resolution passed by the shareholders through voting through postal ballot, the acquirer will not be required to make a PA.

For above purposes, acquisition shall include direct/indirect acquisition of Control of target company by virtue of acquisition of companies, whether listed/unlisted and whether in India or abroad.

Exemptions from making an open offer

Some of the significant exemptions under the Takeover Regulations are as under:

• Allotment in pursuance to the public issue. If such allotment is made pursuant to a firm allotment in the public issues, the prescribed disclosures shall be made in the prospectus.

• Allotment pursuant to right issue (other than acquisition results in change of control of management) subject to conditions.

• Inter se transfer of shares amongst —

1. Group as defined in the Monopolies and Restrictive Trade Practices Act, 1969

2. Relatives as defined in Section 6 of the Companies Act, 1956

3. Qualifying Indian promoters (as defined) and foreign collaborators who are shareholders or Qualifying promoters (as defined) — subject to the condition of the transferor as well as the transferee holding the shares in the target company for minimum 3 years prior to the proposed acquisition;

4. Acquirer and PAC, where such transfer of shares takes place after 3 years after closure of the public offer made by them under Takeover Regulations.

Exemption under (i) to (iv) for increasing shareholding or inter se transfer of shareholding shall be subject to transferor(s) and transferee(s) having complied with the requisite disclosure under Takeover Regulations.

Exemption under (iii) and (iv) above shall not be available if inter se transfer of shares is done at a price exceeding 25% of the "price" determined under Takeover Regulations and provided the disclosure requirements are complied with.

• Acquisition of shares by a person in exchange of shares received under a public offer made under Takeover Regulations.

• Acquisition of shares by way of transmission on succession or inheritance.

• Transfer of shares from VCF or FVCI to promoters of a VCU or VCU pursuant to an agreement.

• Pursuant to the scheme of arrangement or reconstruction including amalgamation or merger or demerger under any law or regulation, Indian or foreign.

• Change in control by takeover/restoration of management of the borrower target company by the secured creditor in terms of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

• Acquisition of shares in companies whose shares are not listed on any stock exchange, provided that by virtue of such acquisition/change of control of such unlisted company, whether in India or abroad, the acquirer does not acquire shares/voting rights/control over a listed company.

• Acquisition of shares in terms of delisting guidelines

• Acquisition of American Depository Receipts (ADRs) or Global Depository Receipts (GDRs) so long as they are not converted into shares carrying voting rights.

• Such cases as may be exempted by the SEBI Board on recommendation of the Takeover Panel of SEBI. This would require an application to the Takeover Panel giving details of proposed acquisition and grounds on which exemption is sought.

Some of the exemptions mentioned above would require the Acquirer to intimate the stock exchanges of the details of the proposed transaction at least 4 working days in advance of the date of the proposed acquisition in case of acquisition exceeding 5% of the voting share capital of the company.

Some of the exemptions mentioned above would require the Acquirer to file with SEBI a report in prescribed form and manner within 21 days of the date of acquisition in respect of acquisition which would entitle such person to exercise 15% or more voting rights.

Public Announcement

• The public offer made by the acquirer to the shareholders of the target company shall be for a minimum 20% of the voting capital of the target company. If the acquisition results in the public shareholding of the target company, reducing below the minimum level required as per the Listing Agreement, the acquirer shall take steps to facilitate compliance within the time period mentioned in the Listing Agreement.

• The public offer made by the acquirer to the shareholders of the target company, in case acquirer holding 55% or more but less than 75% of the shares/voting rights and is desirous of consolidating his holding while ensuring that the public shareholding in the target company does not fall below the minimum level permitted by the Listing Agreement, shall be lesser of the following –

• 20% of the voting capital of the target company

• such other lesser percentage of the voting capital of the target company which enables the acquirer to increase his holding to the maximum level possible, which is in compliance with minimum public shareholding required to be maintained as per Listing Agreement.

Disclosure of acquisition of shares by the acquirer/Target Company

1. Acquirer who acquires shares/voting rights which (together with shares etc. already held by him) entitle him to more than 5% or 10% or 14% or 54% or 74% shares etc. in a target company shall intimate his holding at each of such stage to that company and Stock Exchanges (SEs) within 2 days of receipt of intimation of allotment/acquisition in the prescribed form.

2. Acquirer who acquires shares/voting rights under regulation 11(1) [i.e., 5% or less (generally known ‘creeping acquisition’) in a financial year ending 31st March where the Acquirer holds 15% or more but less than 55%] shall intimate to the target company and SE for every purchase/sale of 2% or more of the share capital of the target company within 2 days of receipt of intimation of allotment/acquisition in the prescribed form.

3. SE shall immediately display the information received under (i) & (ii) above on the trading screen, notice board and its website.

4. Target company shall in turn disclose the intimation received under (i) & (ii) above to the SE within 7 days of receipt of information in the prescribed form.

Continual Disclosures

1. Every person holding 15% or more of shares/voting power shall make yearly discloser to the target company about his holding within 21 days from the financial year ending 31st March in the prescribed form.

2. Promoters/person having control over a listed company shall disclose to the target company his holding within 21 days from the financial year ending 31st March as well as Record Date for declaration of dividend in the prescribed form.

3. Target company shall disclose to the SE within 30 days from the financial year ending 31st March as well as Record Date for declaration of dividend for any changes in holding of (i) & (ii) in the prescribed form.

Disclosure of pledged shares by the promoter / the Company

• A promoter or every person forming part of the promoter group of any company shall inform the details of creation of pledge / invocation of pledge on shares of that company to that company within 7 working days of creation/invocation of such pledge.

• The company shall disclose the information received from the promoter and every person forming part of the promoter group with regard to the pledge of shares or invocation of the pledge of shares, as the case may be, to all the SE on which shares of the company are listed within 7 working days of the receipt thereof, if during any quarter ending March, June, September and December of any year:

1. aggregate number of pledged shares, with shares already pledged, during that quarter by such promoter or persons exceeds 25,000; or

2. aggregate of total pledged shares, along with shares already pledged, during that quarter by such promoter or persons exceeds 1% of total shareholding or voting rights of the company,

whichever is lower.

For the purpose of above disclosure, the term "promoter" and "promoter group" is defined to have the same meaning as is assigned under Clause 40A of the Listing Agreement.

Offer price for public offer

The offer price for acquisition of shares under open offer made to public shall not be lower of the following:

For frequently traded shares	For infrequently traded shares
Highest of the following prices –	Offer price shall be determined by the acquirer and the merchant banker taking into account the following factors –
Negotiated price as per the agreement for acquisition of shares by the Acquirer	Negotiated price as per the agreement for acquisition of shares by the acquirer
Highest price paid by the Acquirer/PAC in past 26 weeks prior to date of PA	Highest price paid by the Acquirer/PAC in past 26 weeks prior to date of PA
Average of weekly high and low of the closing prices of the shares during past 26 weeks prior to date of PA. Average of daily high and low of the prices of the shares during past 2 weeks prior to date of PA. [This criteria shall not be applicable to disinvestment of a PSU]	Price determined on basis of other parameters such as: o        Return on net worth o        Book Value of shares of target company o        Earning per share o        Price earning multiple vis-a-vis the industry average

In case of infrequently traded shares, SEBI where considered necessary may require valuation of such shares done by an independent merchant banker or an independent chartered accountant of minimum 10 years’ standing or a public financial institution.

Shares shall be deemed to be infrequently traded if the annualized trading turnover (on the stock exchange) of such shares during preceding 6 calendar months prior to the month in which the PA [financial bid is opened in case of disinvestment of a PSU] is made is less than 5% (by number of shares) of the listed shares. Where the shares are listed for less than 6 months, the weighted average number of shares listed during the said 6 months period may be taken.

Any payment made to the persons other than target company in respect of non- compete agreement in excess of 25% of the offer price arrived as above shall be added to the offer price.

Public Announcement Process

Where the acquisition triggers a PA, the acquirer are required to appoint a merchant banker and make a PA in the news paper making the offer to the public to acquire shares from them. The acquirers have to file letter of offer with SEBI and issue the same to the shareholders. They need to open a bank account and deposit sum required for payment of shares offered to be bought through open offer. The entire takeover process has to be complied in a time bound schedule.

Other provisions

• Takeover Regulations contain provisions relating to competitive bidding, upward revision of offer price, withdrawal of offer etc.

• Takeover Regulations also contains provisions which applies to acquisition of shares in a financially weak company not being a sick industrial company, in pursuance of a scheme of rehabilitation approved by a public financial institution or a scheduled bank. The expression "financially weak company" means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than 50 per cent but less than 100 per cent of its net worth as at the beginning of the previous financial year that is to say of the sum total of the paid-up capital and free reserves.

12. INFORMAL GUIDANCE SCHEME

SEBI (Informal Guidance) Scheme, 2003 lays down the procedure for seeking guidance from SEBI by intermediaries, listed companies, any acquirer or prospective acquirer under the Takeover Regulations on the applicability of Acts, Rules, Regulations and Circulars administered by SEBI.

Salient provisions of the said schemes are as under:

• Informal guidance are of two types:

• No action letters — where a department of SEBI would indicate that it would not recommend any action under any legal provision administered by SEBI to the SEBI Board if the proposed transaction described in the request is consummated.

• Interpretive letters — where a department of SEBI would provide interpretation of legal provision administered by SEBI based on the facts of the case.

• Request for informal guidance shall disclose and analyze all material facts and applicable legal provisions accompanied by prescribed fees.

• SEBI may not respond to the requests in which the requestor has no direct/proximate interest, cases involving hypothetical situations, matters pending before any Tribunal or Court and issues which are subjudice etc.

• The guidance offered under the informal guidance scheme shall not to be construed as an order of SEBI and is not appealable.

• The response of SEBI together with the incoming request is posted on the web site of SEBI.

13. CERTIFICATION OF ASSOCIATED PERSONS IN THE SECURITIES MARKET

"Associated Person" has been defined to mean a ‘principal’ or employee of an ‘intermediary’ or an ‘agent’ or ‘distributor’ or other natural person engaged in the securities business and includes an employee of a foreign institutional investor or a foreign venture capital investor working in India.

SEBI (Certification of Associated Persons in the Securities Market) Regulations, 2007 (CAPSM Regulations) require the specified categories of Associated Persons to obtain requisite certificate for engagement or employment with the specified intermediaries in the manner specified in the Regulations. SEBI shall take into consideration the following while specifying the categories of Associated Persons required to obtain requisite certificate for engagement or employment; i.e., whether the associated person:

• as part of his work or operation deals or interacts with investors, issuers or clients of intermediaries

• deals with assets or funds of investor or clients

• handles redressal of investor grievances

• is responsible for internal control or risk management

• is responsible for compliance of any rules or regulations

• is engaged in activities that have a bearing on operational risk of the intermediary.

An associated person can obtain a certificate of registration by passing a certification examination, obtaining classroom credits through attending classes and by delivering formal classroom sessions.

SEBI has specified categories of associated persons who are required to obtain certificate of engagement or employment and who cannot engage in the activities mentioned above (factors considered by SEBI while specifying category of associated person required to obtain certification) without holding such certification.

National Institute of Securities Markets (NISM) has been made responsible for conduct of certification examination and programmes of Continuing Professional Education (CPE).

Certification of Associated Persons has been made a pre-condition for registration of intermediaries.

SEBI has approved the Series-I: Currency Derivatives Certification Examination, as specified by National Institute of Securities Markets, as the required certification for approved users and sales personnel of trading members of the Currency Derivatives Segment of recognized stock exchanges for the purpose of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. Trading member of the Currency Derivatives Segment of a recognised stock exchanges have to ensure that all its approved users and sales personnel obtain Series-I: CD certification by August 10, 2009.

14. CLAUSE 41 OF THE LISTING AGREEMENT REGARDING SUBMISSION/ PUBLISHING OF QUARTERLY/ANNUAL RESULTS ETC.

Clause 41 of the Listing Agreement is summarized as under:

Sr. No.	Particulars	Requirements
1)	Submission of quarterly results (other than last quarter) to the Stock Exchanges	Unaudited quarterly and year to date financial results within 1 month from the end of the relevant quarter followed by limited review report by the auditor (or by any Practising Chartered Accountant in case of PSUs) within 2 months of the end of the relevant quarter.   OR Audited quarterly and year to date financial results along with audit report within 1 month of the end of the relevant quarter.
2)	Submission of quarterly results for the last quarter to the Stock Exchanges	Unaudited quarterly results within 1 month from the end of the last quarter followed by limited review report by the auditor (or by any Practising Chartered Accountant in case of PSUs) within 2 months of the end of the last quarter and further followed by audited financials for the entire financial year as soon as approved by the Board. OR The audited financial results for the entire financial year within 3 months from the end of the financial year, provided it is intimated to Stock Exchanges within 1 month from the end of the financial year.
3)	Consolidated Accounts	Companies having subsidiaries may, in addition to submitting quarterly and year to date stand alone financial results to the stock exchanges within 1 month from the end of the quarter, also submit quarterly and year to date consolidated financial results to the stock exchange within 2 months from the end of the quarter. While submitting annual audited financial results prepared on stand-alone basis, it shall also submit annual audited consolidated financial results to the stock exchange.
4)	Signature on financial results	Financial results submitted to the stock exchange shall be signed by the Chairman or managing director, or a whole time director. In the absence of all of them, it shall be signed by any other director of the company who is duly authorized by the Board to sign the financial results.
5)	Submission of all financial results to the stock exchange	The financial results shall be submitted to the stock exchange within 15 minutes of conclusion of the meeting of the Board or Committee in which they were approved through such mode as may be specified by the stock exchange.
6)	Publication of financial results in the newspaper	The company shall, within 48 hours of conclusion of the Board or Committee meeting at which the financial results were approved, publish a copy of the financial results which were submitted to the stock exchange in at least 1 English daily newspaper and 1 regional newspaper where the registered office is situated. Where the company has opted to submit audited financial results it shall also publish the qualifications /reservations of the auditor together with the audited results. Companies who submit both stand-alone and consolidated results to the stock exchange shall publish only consolidated financial results in the newspapers subject to the following conditions: ·         It has intimated to the stock exchange in the first quarter of the financial year in this regard and shall not change the same during the financial year. ·         In case the company changes its option in any subsequent year, it shall furnish comparable figures for the previous year in accordance with the option exercised for the current year. ·         It shall give a reference in the newspaper publication, to the places, such as the company’s website and stock exchanges’ websites, where the standalone results of the company are available.
7)	Variation in respect of quarterly/year to date/annual results between (i) unaudited and audited results; (ii) unaudited and results amended pursuant to limited review	Variation to be explained to the stock exchange, while submitting limited review report / audited results, in respect of following   ·     Net profit or net loss after tax and ·     Exceptional / extraordinary items for variation of 10% or Rs. Rs.10 lakhs, whichever is higher   In case there is such variation, the limited review report shall be placed before the Board of Directors or the Committee thereof (other than Audit Committee) before being submitted to stock exchanges. When the limited review report are approved by a Committee, it shall be placed before the Board at its next meeting.
8)	Approval of results by the Board/committee	Quarterly financial results to be approved by the Board of Directors or by a committee of Board of Directors (other than the audit committee). When the quarterly financial results are approved by a Committee, they shall be placed before the Board at its next meeting.   Annual audited accounts shall be approved by the Board of Directors.
9)	Certification by CEO and CFO for quarterly results	While placing the financial results before the Board, the CEO and CFO, by whatever name called, shall certify that the financial results do not contain any false or misleading statement or figures and do not omit any material fact which may make the statements or figures contained therein misleading.
10)	Disclosure of Promoters Shareholding	The quarterly financial result  is also required to include details of promoters and promoter group shareholding including the details of pledged / encumbered shares.

15. CONSENT ORDERS

SEBI has issued the guidelines for Consent Orders and for considering request for composition of offences under the Securities and Exchange Board of India Act, 1992, Securities Contracts (Regulation) Act, 1956 and Depositories Act, 1996. Salient provisions of the same are as under:

• Consent Orders are an order settling administrative or civil proceedings between the regulator and a person (party) who prima facie has been found to have violated securities laws.

• SEBI shall take into account various factors while considering the proposal of Consent from any party such as whether violation is intentional, party’s conduct in the investigation and disclosure of full facts, gravity of charge, history of non-compliance etc.

• Consent Orders cannot be construed as waiver of statutory powers by SEBI. SEBI shall have a right to proceed for appropriate action if it cannot achieve its objectives through a Consent Order.

• Consent Order shall be binding on the party and in cases where the party undertakes any compliances, it has to comply with the same as per agreed schedule.

16. BUY-BACK OF SECURITIES

The provisions regulating buy-back of securities are contained in Sections 77A, 77AA and 77B of the Companies Act, 1956. SEBI has issued SEBI (Buy-Back of Securities) Regulations, 1998, [Buy-Back Regulations] which are applicable to buy-back of shares or other specified securities of a company listed on stock exchange. The Buy-Back Regulations do not permit buy-back of shares/specified securities so as to delist the same from the stock exchange.

Methods of Buy-Back

A listed company may buy-back its securities in any of the following methods:

• From the existing security holders on a proportionate basis through the tender offer;

•  From the open market through:

  • Book building process

  • Stock exchange

• From odd lot holders

A listed company shall not buy-back its shares/specified securities from any person through negotiated deals, whether on or off the stock exchange or through spot transactions or through any private arrangement.

Salient features of Buy-Back of securities by listed companies

• The buy-back should be authorized by the Articles of Association of the company.

• Buy-back may be made out of

• free reserves (means those reserves which as per the latest audited balance sheet of the company, are free for distribution as dividend, securities premium account but does not include share application money), or

• securities premium account, or

• the proceeds of any shares or other specified securities (other than proceeds of an earlier issue of the same kind)

• Buy-back of securities up to 10% of the Company’s total paid-up equity capital and free reserves can be authorized by a Board resolution. The gap between two successive buy-backs through such Board approval route must be at least 365 days.

• Members have to approve buy-back by a special resolution if the buy-back exceeds 10% of the Company’s total paid-up equity capital and free reserves.

• In case of a special resolution, the explanatory statement shall contain prescribed disclosures.

• Intention of the promoter and persons in control of the company to tender their securities for buy-back should be mentioned in the explanatory statement.

• Buy-back should not exceed 25% of the total paid-up share capital and free reserves of the company in a financial year (quantum of funds available for buy-back).

• Buy-back of equity shares in any financial year shall not exceed 25% of its total paid-up equity capital in that financial year (number of shares available for buy-back).

• Buy-back shall be offered to all shareholders and in case of oversubscription, acceptance should be done on a proportionate basis.

• The ratio of debt owed by a company shall not be more than twice the capital and its free reserves after such buy-back [i.e. debt-equity ratio post buy-back should not exceed 2:1.

• Buy-back cannot be done out of money borrowed from banks / financial institutions.

• All shares or specified securities for buy-back must be fully paid-up.

• The buy-back has to be completed within 12 months from the date of passing of the special resolution/board resolution, as the case may be.

• Where buy-back of shares is made out of its free reserves, a sum equal to the nominal value of the shares so purchased shall be transferred to the Capital Redemption Reserve (CRR) account.

• The shares have to be extinguished and physically destroyed within 7 days of completion of buy-back.

• A company which completes buys-back of its securities is prohibited from further issue of same kind of securities within a period of 6 months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity, or conversion of preference shares or debentures into equity shares.

• The company is prohibited, directly or indirectly, to purchase its own securities through subsidiaries or any investment company or group of investment companies.

• Buy-back cannot be made where there is a subsisting default by the company in repayment of deposit or interest, redemption of debentures or preference shares, payment of dividend, or repayment of any term loan or interest payable thereon to any financial institution or a bank.

• Listed Company is required to appoint a merchant banker registered with SEBI to implement buy-back of securities.

Fixing the price for buy-back

There are no guidelines to fix the price of shares for buy-back. In case of buy-back through tender offer including odd lot shares, the price will be fixed through the special resolution and there is no provision for fixing maximum price. In case of buy-back through stock exchanges and book building process i.e., from open market, the maximum price has to be fixed through the buy-back special resolution. The final price will be fixed accordingly. In book building, the merchant banker and the company will have to determine the price based on acceptances received from the shareholders. The final price will be the highest price accepted.

Obligations of the company

• The company shall not issue any securities including by way of bonus till the date of closure of the offer made under Buy-back Regulations.

• The company must pay the consideration only by way of cash.

• The company should not withdraw the offer after the draft letter of offer is filed with SEBI or public announcement is made.

• The promoter or the person in control should not deal in the securities of the company in the stock exchange during the period when the buy-back offer is open.

• No public announcement of buy-back shall be made during the pendency of any scheme of amalgamation or compromise or arrangement.

• Company shall nominate a compliance officer and investors service centre for compliance with buy-back regulations and to redress the grievances of the investors.

• Company shall not buy-back the locked-in/non-transferable securities till the pendency of the lock-in or till the securities become transferable.

While submitting the offer document or copy of the public announcement to SEBI, prescribed fee is required to be paid to SEBI, as per the size of the Buy-back. The fee ranges from minimum of Rs.1,00,000 to 0.125% of the offer size subject to maximum fee of Rs. 3,00,00,000.

17. DELISTING OF EQUITY SHARES

SEBI (Delisting of Equity Shares) Regulations, 2009 [the Delisting Regulations] lay down the conditions for delisting, process of delisting of equity shares of a company from Recognised Stock Exchange [RSE], etc. The Delisting Regulations have come into force with effect from June 10, 2009.

Delisting of equity shares

 

 

 

 

 

 

Compulsory Delisting BY RSEs

Grounds for compulsory delisting:

The Delisting Regulations read with new rule 21 of Securities Contracts (Regulation) Rules, 1957 provide the following grounds on which a RSE may order for compulsory delisting of securities including equity shares of a company:

• the company has incurred losses during the preceding 3 consecutive years and it has negative networth;

• shareholding of the company held by the public has come below the minimum level applicable to the company as per the listing agreement  under the Securities Contracts (Regulations) Act, 1956 [SCRA] and the company has failed to raise public holding to the required level within the time specified by the RSE;

• trading in securities of the company has remained suspended for a period exceeding 6 months;

• securities of the company have remained infrequently traded during the preceding 3 years;

• company or any of its promoters or any of its director has been convicted for failure to comply with any of the provisions of the SCRA or the SEBI Act, 1992 or the Depositories Act, 1996 or rules, regulations, agreements made there under, as the case may be and awarded a penalty of not less than Rs. 10 million or imprisonment of not less than 3 years;

• addresses of the company or any of its promoter or any of its directors, are not known or false addresses have been furnished or the company has changed its registered office in contravention of the provisions of the Companies Act, 1956.

Process for Compulsory Delisting of equity shares:

• Decision regarding compulsory delisting of equity shares shall be taken by a panel constituted by RSE which will comprise of representatives from investors, RSE and the Government of India.

• Company to be given reasonable opportunity of being heard before passing of the order.

• RSE to give a prior notice inviting representations, within period of not less than 15 working days, from persons who may be aggrieved by the proposed delisting.

• RSE to pass final order, give public notice and inform other stock exchanges about delisting and the circumstances thereof.

Factors that need to be considered / steps that need to be taken by RSE:

• Representations received from the company / in response to the notice.

• Nature and extent of non-compliance and the extent of shareholders who may be affected by such non-compliance.

• Status of compliance of the company with ROC.

• Take all reasonable steps to trace the promoters of the company.

• File prosecution under SCRA or any other law against the identifiable promoters and directors for the alleged non-compliances.

• File a petition for winding-up or make a request to ROC to strike off the name of the company as defunct company, in appropriate cases.

Rights of public shareholders:

• Promoters of the company shall acquire delisted equity shares from the public shareholders by paying them the value determined by the valuer, subject to the public shareholders having the option of retaining their shares.

• RSE shall appoint an independent valuer(s) from a panel of expert valuers to determine the fair value of the delisted equity shares. "Valuer" means –

1. a Chartered Accountant who has undergone peer review as specified by ICAI; or

2. a merchant banker.

• The fair value of delisted equity shares shall be determined as follows:
   

  For frequently traded equity shares

  For infrequently traded equity shares

  Highest of the following prices – Average of weekly high and low of the closing prices of the equity shares during past 26 weeks OR 2 weeks, as quoted on the RSE where the equity shares of the company are most frequently traded.

  Taking into account the following factors – §      Highest price paid by the promoter for acquisitions including by way of allotment in a public or rights issue or preferential allotment during the prior 26 weeks; and §      Other parameters such as: o        Return on net worth o        Book value of shares of the company o        Earning per share o        Price earning multiple vis-a-vis the industry average

• Where the equity shares are frequently traded in some RSEs and infrequently traded in some other RSEs, the fair value of the delisted equity shares shall be arrived at taking into account the highest of the prices arrived at above.

Equity shares shall be deemed to be infrequently traded, if on the RSE, the annualised trading turnover in such shares during the preceding 6 calendar months is less than 5% (by number of equity shares) of the total listed equity shares of that class.

Consequences of Compulsory Delisting:

• Company, its whole time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of 10 years.

• Company, promoters and directors of the company shall be jointly and severally liable to purchase the equity shares from the holders who wish to sell them at a fair price determined as aforesaid.

• The equity shares shall be delisted from all RSEs.

Voluntary delisting

 

 

 

 

 

 

 

 

 

 

 

Exit opportunity

All public shareholders holding equity shares of the class which are sought to be delisted would be given an exit opportunity by participating in book building process.

• Voluntary delisting where exit opportunity is required to be given will require approval of shareholders by special resolution through postal ballot. The additional condition which is to be satisfied is that the votes cast by public shareholders in favour of the proposed delisting should be atleast 2 times the number of votes cast by public shareholders against the proposed delisting.

• The promoter has to appoint a merchant banker who cannot be an associate of the promoter.

• A promoter or a Person Acting in Concerts [PACs] with the promoter is not entitled to participate in the offer.

• Holder of depository receipts and custodian in respect of such depository receipts shall not be entitled to participate in the offer except in case where such holders exchange depository receipts with the equity shares of the class proposed to be delisted.

• An offer for voluntary delisting shall be deemed to be successful if post offer, the shareholding of the promoter (along with PACs) taken together with the shares accepted through eligible bids at the final price determined through book building process, reaches the higher of –

  • 90% of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas; or

  • the aggregate percentage of pre offer promoter shareholding (along with PACs with him) and 50% of the offer size.

Offer Price

• Before the book building process commences, the floor price has to be determined. The floor price shall not be less than the following:

For frequently traded equity shares

For infrequently traded equity shares

Highest of the following prices – Average of weekly high and low of the closing prices of the equity shares during past 26 weeks OR 2 weeks as quoted on the RSE where the equity shares of the company are most frequently traded prior to date of intimation to RSEs of the board meeting in which the delisting proposal was considered.

Floor price shall be determined by the promoter and the merchant banker taking into account the following factors – §      Highest price paid by the promoter for acquisitions including by way of allotment in a public or rights issue or preferential allotment during the prior 26 weeks prior to the date of intimation to RSEs of the board meeting in which the delisting proposal was considered  and  upto the date of PA; and §      Other parameters such as: o        Return on networth o        Book value of shares of the company o        Earning per share o        Price earning multiple vis-a-vis the industry average

 

·         Where the equity shares are frequently traded in some RSEs and infrequently traded in some other RSEs, the floor price shall be the highest of the prices arrived at above.

·         Subject to the floor price, the offer price shall be determined through book building process as specified. The final offer price shall be determined as the price at which the maximum number of equity shares is tendered by the public shareholders.

·         The promoter shall not be bound to accept the equity shares at the offer price determined by the book building process.

·         Once the equity shares are delisted, any remaining public shareholder holding such equity shares may tender his shares to the promoter upto a period of atleast 1 year from the date of delisting and the promoter shall accept the shares tendered at the same final price at which the shares were accepted in open offer.

Delisting of Small Companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Listing of delisted equity shares

• In case of compulsory delisting, relisting of equity shares possible only after period of 10 years from the date of delisting.

• In case of voluntary delisting (other than small companies), relisting of equity shares possible only after period of 5 years from the date of delisting.

• Relaxation may be given in case of an application for listing of delisted equity shares made on recommendation of BIFR.

Key definitions in the Delisting Regulations

• "Company" means a company within the meaning of section 3 of the Companies Act, 1956 and includes a body corporate or corporation established under a central Act, state Act or provincial Act for the time being in force, whose equity shares are listed on a recognised stock exchange.

• "Public Shareholder" means the holders of equity shares, other than:

  a.      promoters;

  b.      holders of depository receipts issued overseas against equity shares held with a custodian and such custodian;

•  "Recognized Stock Exchange" means any stock exchange which has been granted recognition under section 4 of the Securities Contracts (Regulation) Act, 1956

•  "Control", "Person acting in concert", "Promoter" and "Public shareholding" shall have the meanings respectively assigned to them under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

Non-applicability of Delisting Regulations

• Delisting Regulations do not apply to delisting made pursuant to a scheme sanctioned by BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 or by the National Company Law Tribunal under section 424D of the Companies Act, 1956, if such scheme

• lays down any specific procedure to complete the delisting; or

• provides an exit option to the existing public shareholders at a specified rate.

Circumstances under which Delisting is not permissible

• Delisting of equity shares shall not be permitted under the Delisting Regulations in the following circumstances:

1. Pursuant to a buy-back of equity shares by the company

2. Pursuant to a preferential allotment made by the company

3. Before completion of period of 3 years from the listing of equity shares on any RSE

4. When instruments convertible into the class of equity shares which are sought to be delisted, are outstanding

Delisting of equity shares is permissible under (c) & (d) above, where equity shares remain listed on atleast 1 RSE having nationwide trading terminal.

• Delisting of convertible securities is not permissible.

• No promoter shall directly or indirectly employ the funds of the company to finance the exit opportunity under a voluntary or a compulsory delisting.

Applicability of SEBI (Delisting of Securities) Guidelines, 2003

Consequent to the notification of the Delisting Regulations, the Delisting Guidelines 2003 will not be applicable for delisting of equity shares on and after June 10, 2009 except to the extent provided by the transitional provisions in the Delisting Regulations.

18.  PUBLIC OFFER AND LISTING OF SECURITIZED DEBT INSTRUMENTS

SEBI (Public Offer and Listing of Securitized Debt Instruments) Regulations, 2008 (SDI Regulations) provides regulation for public offer or listing of securitized debt instruments issued to public or any persons on a recognized stock exchanges with a view to develop market for securitized debt instruments. SDI Regulations were effective from May 26, 2008.

Securitized Debt Instruments (SDIs) has been defined to mean any certificate or instrument, by whatever name called, of the nature referred to in Section 2 (h)(ie) of Securities Contracts (Regulations) Act, 1956 (SCRA) issued by a special purpose distinct entity.

As per Section 2 (h)(ie) of SCRA the term ‘securities’ includes any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be.

Special Purpose Distinct Entity (SPDE) has been defined to mean a Trust which acquires debt or receivables out of funds mobilized by it by issuance of SDIs through one or more schemes and includes any trust set up by the specified entities under the SDI Regulations

Eligibility criteria and exemptions for registration

• On and from the commencement of SDI Regulations, no person shall make a public offer of securitised debt instruments (SDI) or seek listing for such SDI unless –

•  it is constituted as a special purpose distinct entity;

• all its trustees are registered with the Board under the SDI Regulations; and

• it complies with all applicable provisions of the SDI Regulations and the SCRA.

• The requirement of obtaining registration under the SDI Regulations shall not apply to the following persons, who acts as trustees of special purpose distinct entities:

• person registered as a debenture trustee with SEBI;

• securitisation company or a reconstruction company registered with RBI;

• National Housing Bank;

• National Bank for Agriculture and Rural Development.

Structure of SPDE

• SPDE i.e. the issuer of SDI shall be constituted in the form of a trust.

• The Trust deed shall contain specified particulars.

• SPDE shall not raise any money in the form of debt or issue any debt securities other than through issue of SDIs except issue of ‘security receipts’.

• SPDE shall not be dissolved until the SDIs issued under all its schemes are fully redeemed or written off in accordance with their terms of issue.

• Trustees who are nominees of the sponsor or the originator or who are associated in any manner with the sponsor or the originator or with a company in the same management as the sponsor or originator shall not constitute more than one half of the Board of Trustees of the SPDE, as the case may be.

• SPDE shall not carry on any activity other than regulated activities and those incidental thereto and it shall not be engaged in:

1. business of lending or investment except making passive financial investments required in accordance with the scheme;

2. activities of an asset management company or portfolio manager or a mutual fund

Restriction under (a) shall not be applicable to Trust or any other body created by National Housing Bank, National Bank for Agriculture and Rural Development, securitisation company or a reconstruction company registered with RBI and any securitisation undertaken by a SPDE, which involves private placement of any instruments representing securitised debt which are not proposed to be listed on any recognised stock exchange.

 

Assignment of Debt or receivable

• The originator and trustee shall, in respect of assignment of debt or receivables to the special purpose distinct entity, ensure fulfillment of certain conditions including generation of identifiable cash flows for the purpose of servicing the securitised debt instruments, debt or receivables are free from any encumbrances etc.

• Assignment of assets to the issuer shall be a true sale. Debt or receivables assigned to the issuer should be expected to generate identifiable cash flows for the purpose of servicing the instrument and the originator should have valid enforceable interests in the assets and in cash flow of assets prior to securitization

• The securitisation transaction shall be structured in such a manner so as to minimise the risk of the asset pool being consolidated with the assets of the originator or the sponsor, in the event of insolvency or winding up of either of them.

Obligation to redeem SDIs

• Trustee and the special purpose distinct entity shall ensure timely payment of interest and redemption amounts to the investors in terms of the offer document or other terms of issue of the SDIs out of the realisations from the asset pool, credit enhancer or liquidity provider.

• The expected period of maturity of each scheme and the possibility of extension or shortening of such period shall be disclosed in the offer document.

Credit enhancement and liquidity facilities

• Subject to specified disclosures, SPDE may opt for credit enhancement of the asset pool or may avail the services of a liquidity provider.

Public offer of SDI

• In respect of public offers of SDIs, the SPDE shall get the SDIs listed on the stock exchange.

• Listed SDIs shall have the following characteristics:

• free transferability

• being in the nature of such undivided beneficial interest of the investors in the asset pool as is specified in the scheme, and not constituting debt of the special purpose distinct entity or originator;

• SPDE shall enter into a listing agreement with the stock exchanges where its SDIs are proposed to be listed.

• SPDE shall obtain rating from at least 2 credit rating agencies in respect of its SDIs.

• The draft offer document shall be filed with SEBI at least 15 days before opening of the issue. No public offer of SDIs shall remain open for more than 30 days.

• Offer document issued by a SPDE or trustee thereof shall contain all material information which is true, fair and adequate for an investor to make informed investment decision and shall disclose the specified matters.

• Offer document shall disclose the minimum subscription it seeks to raise under the scheme.

Other provisions

• The SDI Regulations also contains provisions inter alia relating to Accounts and Audit, Winding up of the Scheme, Holding by the Originator in the SDI, Schemes of SPDE etc.

19. ISSUE AND LISTING OF DEBT SECURITIES

SEBI (Issue and Listing of Debt Securities) Regulations 2008 [Debt Securities Regulations] provides, inter alia, regulatory framework for issuance and listing of non convertible Debt Securities issued by any company, public sector undertaking or statutory corporation.

“Debt Securities” means a non-convertible debt securities which create or acknowledge indebtedness, and include debenture, bonds and such other securities of a body corporate or any statutory body constituted by virtue of a legislation, whether constituting a charge on the assets of the body corporate or not, but excludes bonds issued by Government or such other bodies as may be specified by the Board, security receipts and securitized debt instruments.

The regulation applies to public issue of debt securities; and listing of debt securities issued through public issue or on private placement basis on a recognized stock exchange.

General conditions for making public issues of Debt Securities includes following –

• Issuer, the person in control of the issuer, or its promoter should not have been restrained or prohibited or debarred by SEBI from accessing the securities market or dealing in securities.

• Application for listing of such securities on recognized stock exchange has been made and in-principle approval has been obtained.

• Credit rating has been obtained from at least 1 credit rating agency.

• Issuer shall not issue debt securities for providing loan to or acquisition of shares of any person who is part of the ‘same group’ or who is ‘under the same management’.

Disclosure, filing and disclosure of draft offer document

• The offer document shall contain all material disclosures for the subscribers of the Debt Securities to make an informed investment decision.

• Issuer shall file a draft offer document with the stock exchange

• Every application form is to be accompanied by a copy of the abridged prospectus

• The issue may be at fixed price or the price may be determined through book building process. 

• The issuer may decide minimum subscription to be achieved by the issue.

• A public issue of Debt Securities may be underwritten by an underwriter.

Debenture Redemption Reserve

• For the redemption of the Debt Securities, the issuer company shall create debenture redemption reserve as per provisions of the Companies Act.

• In case of default in payment of interest or redemption or in creation of security, distribution of dividend will require approval of debenture trustees.

Redemption and Roll-over

• The Issuer shall redeem the Debt Securities in terms of the offer document.

• Debt Securities issued can be rolled over subject to certain conditions including:

• Roll over is approved by 75% or more of the holders through postal ballot.

• At least 1 rating is obtained from credit rating agency within last 6 month of due date of redemption.

• Fresh trust deed shall be executed or existing trust deed may be continued if it provides for such continuation.

Listing of Debt Securities issued on private placement basis

• Debt Securities issued on private placement basis may be listed on a recognized stock exchange subject to the conditions including:

• Debt Securities is issued as per provisions of the Companies Act, 1956.

• Credit rating has been obtained from at least 1 credit rating agency

• Debt Securities proposed to be listed are in dematerialized form

• Required disclosures have been made

Other provisions

• The Regulations also contains provisions inter alia relating to conditions for continuous listing, trading of Debt Securities, obligations of issuers and intermediaries, penalties for default etc.

• SEBI (Disclosure and Investor Protection) Guideline in so far as it relate to issue and listing of Debt Securities are rescinded and the provision of the regulation will be applicable.

20. PORTFOLIO MANAGER

Portfolio Manager (PM) means any person who pursuant to a contract or arrangement with a client, advises/directs/undertakes on behalf of the client the management/administration of a portfolio of securities or the funds of the client, whether on a discretionary basis or otherwise. PM have to comply with the provisions of SEBI (Portfolio Manager) Regulations, 1993 [Portfolio Manager Regulations]

Registration of PM

• A PM must register with SEBI under the Portfolio Manager Regulations.

• As per the Portfolio Manager Regulations, following conditions need to be fulfilled for registration as a PM:

  • The applicant is a body corporate.

  • The applicant needs to have necessary infrastructure like adequate office space, equipments and the manpower to effectively discharge the activities of a PM.

  • The applicant must have in his employment at least two persons who, between them, have at least 5 years experience in related activities in portfolio management or stock broking or investment management or in the areas related to fund management etc.

  • The applicant should have a minimum net-worth of Rs. 2,00,00,000.

  • Principal officer of the applicant must have either the professional qualifications from a recognized institution / university in finance, law, accountancy or business management or at least 10 years related experience in securities market.

  • The applicant must be a fit and proper person as per criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008.

Contract with Clients and Disclosures

The PM shall, before taking up an assignment of management of funds or portfolio of securities on behalf of the client, enter into an agreement clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations relating to management of the funds/portfolio of the client. The agreement between the PM and the client should contain the terms specified in the Portfolio Manager Regulations.

General Responsibilities of PMs

• The discretionary PM shall individually and independently manage the funds of each client in accordance with the needs of the client in a manner which does not partake character of a mutual fund.

• A non-discretionary PM shall manage the funds in accordance with the directions of the client.

• PM shall not accept from the client, funds or securities worth less than Rs. 5,00,000.

• The funds of all clients shall be placed by the PM in a separate account to be maintained by it in a scheduled commercial bank.

• PM shall transact in securities within the limitation placed by client with regard to dealing in securities under the provisions of Reserve Bank of India Act, 1934.

• PM shall not derive any direct or indirect benefit out of the client’s funds or securities.

• PM shall not borrow funds or securities on behalf of the client.

• PM shall not lend securities held on behalf of clients to a third person except as provided under the Portfolio Manager Regulations.

• PM shall charge an agreed fee from the clients for rendering portfolio management services without guaranteeing or assuring, either directly or indirectly, any return and the fee so charged may be a fixed fee or a return based fee or a combination of both.

Investment of client’s money and management of clients’ portfolio of securities

PM shall segregate each client’s funds and portfolio of securities and keep them separately from his own funds and securities and be responsible for safe keeping of clients’ funds and securities. SEBI has issued following clarifications -

• There shall be a clear segregation of each client’s fund through proper and clear maintenance of back office records

• PM shall not use the funds of one client for another client

• PM shall also maintain an accounting system containing separate client-wise data for their funds and provide statement to clients for such accounts at least on monthly basis

• PM shall reconcile the client-wise funds with the funds in the aforesaid bank account on daily basis

Foreign Institutional Investors (FIIs) and sub-accounts registered with SEBI may avail of the services of a PM.

This document is based on the existing provisions of law as on 9^th July 2009.

This document is based on our interpretation, which is subject to change from time to time. No assurance is given that the statutory authorities/courts will concur with the views expressed herein. We do not assume the responsibility to update this document for the amendment/changes in law taking place consequent to above date.