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Issue of Capital and Disclosure Requirements Regulations 2009 - International Law Office

International Law Office

Capital Markets - India

Issue of Capital and Disclosure Requirements Regulations 2009

November 03 2009

Significant Changes


The Securities and Exchange Board of India (SEBI) recently replaced the Disclosure and Investor Protection Guidelines 2000 with the Issue of Capital and Disclosure Requirements Regulations 2009. Together with incorporating the provisions of the old guidelines into the new regulations, certain changes have also been made by:

  • removing redundant provisions;
  • modifying certain provisions on account of necessary changes due to market design; and
  • clarifying the provisions related to investor protection.

For example, instead of grouping the conditions and general obligations for public issues and rights issues under different chapters, the new regulations group the common conditions and regulations between the two under the same heading. Thus, in many ways these new norms are an improvement on the old norms.

Significant Changes

The significant changes incorporated in the new regulations in comparison to the old guidelines are highlighted in the table below.

Subject Matter

Provision under the Old Guidelines

Provision under the New Regulations

Exemption from eligibility norms for making an initial public offering (IPO).

Exemption available to banking companies, corresponding new banks and infrastructure companies.

Exemption removed. Eligibility norms made uniformly applicable to all types of issuer.


Companies are prohibited from making an issue of securities if they have been prohibited from accessing the capital market under any order or direction passed by SEBI.

The issuer cannot make a public issue or rights issue of specified securities if:

(i) the issuer, any of its promoters, promoter group, directors or persons in control of the issuer are debarred from accessing the capital market by SEBI; or

(ii) any of the promoters, directors or persons in control of the issuer are or were a promoter, director or person in control of any other company which is debarred from accessing the capital market under any order or direction made by SEBI. See Regulation 4(2).

Offer for sale by listed companies.

No provision.

Defined under 'further public offer'. See Regulation 27.

Over-the-Counter Exchange Of India issues and E-IPO.

Contained in Chapters XIV and XI(A).

Excluded from these guidelines. No mention.

Firm allotment in public issues.


Excluded from these guidelines. No mention.

Reservation on competitive basis in public issues.

Permitted for:

(i) Indian and multilateral development financial institutions, Indian mutual funds, foreign institutional investors and scheduled banks; and

(ii) shareholders of the promoting companies in case of a new company and shareholders of group companies in case of an existing company.

(i) Omitted.

(ii) Now permitted only for shareholders (other than promoters) in respect of listed promoting companies, a new issuer and listed group companies, and an existing issuer. See Regulation 42.

Book building process.

Book building process through 75% or 100% of issue size.

75% book building route omitted. See Regulation 26(2)(a).

Allotment/refund period in public issues.

30 days for fixed-price issues and 15 days for book-built issues.

15 days for both fixed-price and book-built issues. See Regulation 18.

Disclosure of price or price band.

Required in draft prospectus in case of fixed-price public issues.

Not required to be disclosed in draft prospectus. See Regulation 30.

Transfer of surplus money in greenshoe option bank account.

Surplus money to be transferred to the Investor Protection Fund of Stock Exchanges.

Surplus money to be transferred to the Investor Protection and Education Fund established by SEBI. See Regulation 45(9).

Issue period for infrastructure companies in public issues.

21 days, as opposed to 10 days for other issues.

Uniform period of 10 days for all types of issuer.

Currency of financial statements disclosed in the offer document.

Particulars according to the audited financial statements must be no more than six months old from the issue opening date for all issuers, except government companies.

Government and non-government issuers treated equally.

Definition of 'key management personnel'.

Not defined.

Defined under Regulation 2(s).

Disclosure on pledge of shares by promoters.

Not provided.

Provided for under Regulation 57(2)(b).

Extent of underwriting obligation.

Not explicit.

Where 100% of the offer through the offer document is underwritten, underwriting obligations shall be for the entire amount underwritten. See Regulation 13(8).

Financial institution as a monitoring agency.

The term 'financial institution' is open to interpretation.

The term 'financial institution' has been replaced by 'public financial institution or a scheduled commercial bank'. See Regulation 16(1).

Definition of 'employee'.

Includes permanent employee/director of subsidiary or holding company of the issuer.

Made narrower in scope. Excludes permanent employee/director of subsidiary or holding company of the issuer and promoters and immediate relatives of promoters.

Restrictions on advertisements.

If the issue opening and closing advertisement contains highlights, the advertisement must contain risk factors.

If the advertisement contains information other than the details specified in the format for issue advertisement, the advertisement must contain risk factors.

Forfeiture of money on unexercised warrants in preferential issues.

Open to interpretation.

Where the warrant holder exercises its option to convert only some of the warrants that it holds, only upfront payment made against such warrants can be adjusted. The balance upfront payment made against the remaining unexercised warrants shall be forfeited. See Regulation 77(4).

Outstanding convertible instruments in case of IPO.

Compulsory conversion of outstanding convertible instruments and other rights held by promoters or shareholders.

Compulsory conversion of all outstanding convertible instruments held by any person. See Regulations 26(5) and 32(2). An IPO cannot be carried out if the issuer has any outstanding convertible securities.

Minimum promoters' contribution.

Could be brought in by promoters or persons belonging to the promoter group or friends, relatives and associates of the promoters.

Shall be brought in only by promoters whose identity is disclosed in the offer document. See Regulation 57(2).

Issue period in case of public issues.

Issue period not clear in case of revision of price band in book-built public issues.

Total issue period must not exceed 10 days, including any revision of the price band. See Regulation 46(1).

Timing of pre-issue advertisement for public issues.

Pre-issue advertisement must be made immediately after receipt of observations from SEBI.

Pre-issue advertisement must be made after registration of the prospectus or red herring prospectus with the registrar of companies before opening the issue. See Regulation 47.

Documents to be attached to the due diligence certificate.

Such documents include:

  • the company's memorandum of association and articles of association;
  • its audited balance sheet; and
  • its checklist for compliance with the guidelines.

Only the checklist must be attached, confirming compliance with the regulations and containing details of:

  • the regulation number;
  • its text;
  • the status of compliance;
  • the page number of the draft red herring prospectus, the draft prospectus or the draft letter of offer where the regulation has been complied with; and
  • further comments.

Group companies.

The term 'group companies' is not explained.

The term 'group companies' is now explained under Schedule VIII.


By introducing these new regulations SEBI has removed some of the problems that arose from the old guidelines. The board now has more control over surplus money by transferring it to the Investor Protection and Education Fund.

SEBI has also hardened its stance on company promoters that have been issued preferential warrants (a type of security issued by a company that gives the holder the right to purchase a certain amount of common stock at a stated price). Promoters will now have to forfeit the upfront payment made on unexercised warrants (Regulation 77(4)). SEBI's new norms are likely intended to contain the situation following January 2008, when the stock market crash brought the price of several shares below the warrant exercise price for promoters, most of whom decided not to exercise their warrants in full. Promoters will now have to be more careful as only their upfront payments made against exercised warrants will be adjusted.

For further information on this topic please contact Manoj K Singh at Singh & Associates by telephone (+91 11 4666 5000), fax (+91 11 4666 5001) or email (manoj@singhassociates.in).

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