INDEX

Sr. No. Chapter Name Pg. No.

1 Basic of Capital Market 1.1 – 1.15

2 Secondary Market in India 2.1 – 2.8

3 SCRA 1956 3.1 – 3.14

4 Securities Exchange Board of India 4.1 – 4.18

5 Laws Governing to Depositories and Depository 5.1 – 5.11

Participants
6 Securities Market Intermediaries 6.1 – 6.10

7 International Financial Services Centres Authority 7.1 – 7.12

(IFSCA)
8 Issue of Capital & Disclosure Requirements 8.1 – 8.13

9 Share Based Employee Benefits and Sweat Equity 9.1 – 9.11

10 Issue and Listing of Non-Convertible Securities 10.1 – 10.9

11 Listing Obligations and Disclosure Requirements 11.1 – 11.18

12 Acquisition of Shares and Takeovers – Concepts 12.1 – 12.15

13 Prohibition of Insider Trading 13.1 – 13.11

14 Prohibition of Fraudulent and Unfair Trade Practices 14.1 – 14.8

Relating to Securities Market
15 Delisting of Equity Shares 15.1 – 15.16

16 Buy-Back of Securities 16.1 – 16.10

17 Mutual Funds 17.1 – 17.17

18 Collective Investment Schemes 18.1 – 18.5

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Basic of Capital Market

Basic of Capital Market

INTRODUCTION
The capital market of India initially developed around Mumbai; with around 200 to 250
securities brokers participating in active trade during the second half of the 19th century.
Today we have our Bombay Stock Exchange (BSE), one among the world’s largest exchange in
terms of trading turnover in the same city. Indian Financial market is one of the well-developed
markets in the world.
A Financial market enables efficient trade of securities, and transfer of funds, between lenders
and borrowers and also creates securities for investment. People who have surplus funds
invests in these securities to earn return on their investments.

Basic Functions of Financial Market –

 facilitates mobilisation and channelization of savings
 determining the price of the securities
 liquidity to tradable assets
 facilitates exchange of assets without physical delivery

Money Market
 Money Market is a segment of the financial market where borrowing and lending of
short-term funds take place.
 The maturity of money market instruments ranges from 1 day to 1 year.
 The market consists of negotiable instruments having characteristics of liquidity (quick
conversion into money), minimum transaction costs and no loss in value such as
treasury bills, commercial papers, certificate of deposit, etc.
It performs the crucial role of providing an equilibrating mechanism to even out the short-
term liquidity, surpluses & deficits & therefore facilitates the conduct of monetary policy of
an economy.

Capital Market
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 A market that serves the medium & long-term liquidity needs of borrowers & lenders and
therefore embraces all terms of lending & borrowing
 The capital market also encompasses the process by which securities already outstanding
are transferred. This market is also referred to as the Barometer of the Economy
 It deals with instruments like shares, stocks, debentures and bonds. Companies turn to
capital markets to raise funds needed to finance for the infrastructure facilities and
corporate activities.

Securities Market
A market where financial instruments/claims are commonly & readily available for transfer by
means of sale. The primary function of the securities market is to enable allocation of savings
from investors to those who need it for business purposes.
Securities market has two inter-dependent & inseparable segments which are as follows-
1. Primary Market :
 The primary market deals with the issue of new instruments by the corporate sector such
as equity shares, preference shares and debt instruments
 The primary market creates and offers the merchandise for the secondary market.
 The primary market in which public issue of securities is made through a prospectus is a
retail market and there is no physical location. Offer for subscription to securities is made
to the investing community. It is also known as Initial Public Offer (IPO) Market.
2. Secondary Market :
The secondary market or stock exchange is a market for trading and settlement of
securities that have already been issued. An active secondary market actually promotes the
growth of the primary market and capital formation because investors in the primary
market are assured of a continuous market and they can liquidate their investments. It is
also known as Further Public Offer Market (FPO).

REGULATORS IN CAPITAL MARKET

1. SEBI – The Capital Market Regulator

SEBI acts as a watchdog for all the capital market participants and its main purpose is to
provide such an environment for the financial market enthusiasts that facilitate efficient
and smooth working of the securities market.
To ensure this the three main participants of the financial market should be taken care of,
i.e. issuers of securities, investor, and financial intermediaries.
SEBI endeavors to create an effective surveillance mechanism and encourage responsible
and accountable autonomy on the part of all players in the market, who are expected and
required to discipline themselves and observe the rules of the market.

Powers of SEBI –
a) Quasi-Judicial (enforcement):
With this authority, SEBI can conduct hearings and pass Orders in cases of unethical and

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fraudulent trade practices. This ensures transparency, fairness, accountability and

reliability in the capital market.
b) Quasi-Legislative:
Powers under this segment allow SEBI to draft rules and regulations for the protection of
the interests of the investor.
c) Quasi-Executive:
SEBI is authorised to file a case against anyone who violates its rules and regulation. It is
empowered to inspect account books and other documents if it finds traces of any
suspicious activity.

2. Reserve Bank of India (RBI):

3. Insurance Regulatory and Development Authority of India (IRDAI):
4. Pension Fund Regulatory and Development Authority (PFRDA):

CAPITAL MARKET INVESTMENT INSTITUTIONS

In any economy, financial institutions play an important role because all the financial dealings
and matters are handled and monitored by such institutions.
The Government of India, in order to provide adequate supply of credit to various sectors of
the economy, has evolved a well-developed structure of financial institutions in the country
NATIONAL LEVEL INSTITUTIONS –
1. All-India Development Banks (AIDBs):- Includes those development banks which
provide institutional credit not only to large and medium scale enterprises but also help in
promotion and development of small scale industrial units.
Following are the banks which caters to the need for the growth of different sectors on
India
a) Industrial Development Bank of India (IDBI)
It caters to the diversified needs of medium and large-scale industries in the form of
financial assistance, both directly and indirectly and also promote institutions engaged in
industrial development.
b) Industrial Finance Corporation of India (IFCI)
It aims to provide financial assistance to industry by way of rupee and foreign currency
loans, underwrites/subscribes the issue of stocks, shares, bonds and debentures of
industrial concerns, etc
c) Small Industries Development Bank of India (SIDBI)
It is the principal financial institution for promotion, financing and development of small
scale industries in the economy.
d) Industrial Investment Bank of India Ltd (IIBI)
It assists industry mainly in medium and large sector through wide ranging products and
services.

2. Specialised Financial Institutions (SFIs) These are the institutions which have been set

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up to serve the increasing financial needs of trade and commerce in the area of venture
capital, credit rating and leasing, etc.
IFCI Venture Capital Funds Ltd (IVCF)
It was promoted with the objective of broadening entrepreneurial base in the country by
facilitating funding to ventures involving innovative product/ process/ technology.
ICICI Venture Funds Ltd
It is a technology venture finance company, set up to sanction project finance for new
technology ventures.
Tourism Finance Corporation of India Ltd. (TFCI)
It is a specialised financial institution set up by the Government of India for promotion and
growth of tourist industry in the country.
3. Investment Institutions:- These are the most popular form of financial intermediaries,
which particularly Cater to the needs of small savers and investors. They deploy their
assets largely in marketable securities.
a) Life Insurance Corporation of India (LIC):-
b) Unit Trust of India (UTI):-
c) General Insurance Corporation of India (GIC):-

STATE LEVEL INSTITUTIONS –

1. State Financial Corporations (SFCs):- These are the State-level financial institutions
which play a crucial role in the development of small and medium enterprises in the
concerned States. There are around 18 State Financial Corporations (SFCs) in the
country.

2. State Industrial Development Corporations (SIDCs):-

They have been set up with the objectives of promoting industrial development in the
respective States and providing financial assistance to small entrepreneurs.

PARTICIPANTS OF CAPITAL MARKET

Qualified Institutional Buyers
 QIB’s are investment institutions who buy the shares of a company on a large scale
 If the investor is not capable, either by his/her individual financial limit or not permitted, to
invest individually till he invests a specified statutorily fixed amount, then he usually
participates indirectly through certain institutions, through which he can invest limited
sums according to the viability of both, himself and institution.
 The institution is usually a collective group of people in which a large number of investors
repose faith and the institution collects a large investible sum from various investors to
invest in the market
 There are various types of institutions defined in the rules and regulations, but to qualify as
a ‘Qualified Institutional Buyer’ (QIB), certain regulations formulated by the SEBI needs to
be kept in mind

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Foreign Portfolio Investor

Foreign Portfolio Investor (FPI) means a person who has been registered under Chapter II of
SEBI (Foreign Portfolio Investors) Regulations, 2019 which shall be deemed to be an
intermediary in terms of the provisions of the SEBI Act, 1992.
Categories of FPI
Category I FPIs include:
i. Government and Government related investors including entities controlled or at least
75% directly or indirectly owned by such Government and Government related
investor(s);
ii. Pension funds and university funds;
iii. Appropriately regulated entities such as insurance or reinsurance entities, banks, asset
management companies;
iv. Entities from the Financial Action Task Force member countries, or from any country
specified by the Central Government by an order or by way of an agreement or treaty with
other sovereign Governments, which are–
a. appropriately regulated funds;
b. unregulated funds whose investment manager is appropriately regulated and
registered as a Category I foreign portfolio investor.
c. university related endowments of such universities that have been in existence for
more than 5 years;
v. An entity
A. whose investment manager is from the Financial Action Task Force member country
and such an investment manager is registered as a Category I foreign portfolio
investor; or
B. which is at least 75% owned, directly or indirectly by another entity, eligible under
sub-clause (ii), (iii) and (iv) of clause (a) of this regulation and such an eligible entity is
from a Financial Action Task Force member country.
However such an investment manager or eligible entity undertakes the responsibility of all
the acts of commission or omission of the applicants seeking registration under this sub-
clause.
Category II FPIs include all the investors not eligible under Category I foreign portfolio
investors such as –
i. appropriately regulated funds not eligible as Category-I foreign portfolio investor;
ii. endowments and foundations;
iii. charitable organisations;
iv. corporate bodies;
v. family offices;
vi. individuals;
vii. appropriately regulated entities investing on behalf of their client, as per conditions specified by
the Board from time to time;
viii. Unregulated funds in the form of limited partnership and trusts.

Alternative Investment Funds

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 It refers to any privately pooled investment fund, (whether from Indian or foreign
sources), in the form of a trust or a company or a body corporate or a Limited Liability
Partnership (LLP) which are not presently covered by any Regulation of SEBI governing
fund management nor coming under the direct regulation of any other sectoral regulators
in India- IRDA, PFRDA, RBI.
 Hence, in India, AIFs are private funds which are otherwise not coming under the
jurisdiction of any regulatory agency in India.
 Thus, the definition of AIFs includes capital fund, hedge funds, private equity funds,
commodity funds, Debt Funds, infrastructure funds, etc., while,
 it excludes Mutual funds or collective investment schemes, family trusts, employee benefit
schemes, employee welfare trusts or gratuity trusts, ‘holding companies’ within the
meaning of Section 2(46) of the Companies Act, 2013, securitization trusts regulated a
specific regulatory framework, and funds managed by securitization company or
reconstruction company which is registered with the RBI under Section 3 of the
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002.

Categories of Alternative Investment Funds

Category I: which invests in start-up or early stage ventures or social ventures or SMEs or
infrastructure or other sectors or areas which the government or regulators consider as
socially or economically desirable and shall include venture capital funds (VCF), SME Funds,
social venture funds (SVF), infrastructure funds and such other Alternative Investment Funds
as may be specified;
Category II: which does not fall in Category I and III and which does not undertake leverage or
borrowing other than to meet day-today operational requirements and as permitted in these
regulations;
Category III: which employs diverse or complex trading strategies and may employ leverage
including through investment in listed or unlisted derivatives.

Venture Capital
Venture Capital is one of the innovative financing resource for a company in which the
promoter has to give up some level of ownership and control of business in exchange for
capital for a limited period,
Venture Capital is generally equity investments made by Venture Capital funds, at an early
stage in privately held companies, having potential to provide a high rate of return on their
investments.

Private Equity
Private equity is a type of equity (finance) and one of the asset classes who takes securities and
debt in operating companies that are not publicly traded on a stock exchange. Private equity is
essentially a way to invest in some assets that isn’t publicly traded, or to invest in a publicly
traded asset with the intention of taking it private
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Types of Private Equity –

 Leveraged Buyout (LBO): This refers to a strategy of making equity investments as part of
a transaction in which a company, business unit or business assets is acquired from the
current shareholders typically with the use of financial leverage. The companies involved in
these types of transactions that are typically more mature and generate operating cash
flows.
 Venture Capital: It is a broad sub-category of private equity that refers to equity
investments made, typically in less mature companies, for the launch, early development, or
expansion of a business.
 Growth Capital: This refers to equity investments, mostly minority investments, in the
companies that are looking for capital to expand or restructure operations, enter new
markets or finance a major acquisition without a change of control of the business.

Angel Fund
Angel fund refers to money pool created by high net worth individuals or companies
(generally known as Angel Investor), for investing in start-up business
An angel investor or angel is an affluent individual who provides capital for a business start-up,
usually in exchange for convertible debt or ownership equity
The effective Angels help entrepreneurs to shape business models, create business plans and
connect to resources - but without stepping into a controlling or operating role.

Anchor Investors
 QIB who makes an application for a value of at least Rs. 10 crore in a public issue on the
main board made through the book building process OR
 makes an application for a value of atleast Rs. 2 crore for an public issue on the SME
exchange

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

following:
I. In case of public issue on the main board, though the book building process:
i. Maximum of 2 such investors shall be permitted for allocation upto Rs. 10 crore.
ii. Minimum of 2 and maximum of 15 such investors shall be permitted for allocation
above Rs. 2 crore and up-to Rs. 25 crore, subject to minimum allotment of Rs. 1 crore
per such investor.
iii. In case of allocation above Rs. 25 crore; a minimum of 5 such investors and a
maximum of 15 such investors for allocation up-to Rs. 25 crore and an additional 10
such investors for every additional Rs. 25 crore or part thereof, shall be permitted,
subject to a minimum allotment of Rs. 1 crore per such investor.
II. In case of public issue on the SME exchange, through the book building process:
i. Maximum of 2 such investors shall be permitted for allocation up to Rs. 2 crore;
ii. Minimum of 2 and maximum of 15 such investors shall be permitted for allocation
above Rs. 2 crore and up to Rs. 25 crore, subject to minimum allotment of Rs. 1 crore
per such investor;

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

The bidding for anchor investors shall open one day before the issue opening date allocation to
Anchor Investors shall be completed on the day of bidding by Anchor Investors. Shares allotted
to the Anchor Investor shall be locked- in for 30 days from the date of allotment in the public
issue.

Up-to 60% of the portion available for allocation to QIB shall be available to anchor investor(s)
for allocation/ allotment (“anchor investor portion”) and one-third of the anchor investor
portion shall be reserved for domestic mutual funds.

High Net worth Individuals

HNIs or high net worth individuals is a class of individuals who are distinguished from other
retail segment based on their net wealth, assets and investible surplus. While there is no
standard put forth for the classification, the definition of HNIs varies with the geographical
area as well as financial markets and institutions.

Though there is no specific definition, generally in the Indian context, individuals with over Rs.
2 crore investible surplus may be considered to be HNIs while those with investible wealth in
the range of Rs. 25 lac – Rs. 2 crore may be deemed as Emerging HNIs.

Explanation: If you apply for amount under Rs. 2 lakhs, you are considered as a retail investor.
There may be so many ways in which HNIs are categorized and defined, there is no single
bracket that could put them under one roof.

Pension Fund
Pension Fund means a fund established by an employer to facilitate and organize the
investment of employees’ retirement funds which is contributed by the employer and
employees. The pension fund is a common asset pool meant to generate stable growth over
the long term, and provide pensions for employees when they reach the end of their working
years and commence retirement.
Pensions broadly divided into 2 sector:
A-Formal sector Pensions
Formal sector pensions in India can be divided into 3 categories; viz
 pensions under an Act or Statute,
 Government pensions and
 voluntary pensions.
B-Informal sector Pensions
This scheme will cover unorganized workers who are working or engaged as home based
workers, street vendors, agriculture workers, construction workers, among others.

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CAPITAL MARKET INSTRUMENTS

Equity shares
Equity shares, commonly referred to as ordinary share also represents the form of fractional
ownership in which a shareholder, as a fractional owner, undertakes the maximum
entrepreneurial risk associated with a business venture.

Preference Shares
Preference shares enjoy a preferential right to dividend and repayment of capital in case of
winding-up of the company.
A preference share carries voting rights only with respect of matters which directly affect
the rights of the preference shareholders.

Debentures
“Debenture” includes debenture stock, bonds or any other instrument of a company evidencing
a debt, whether constituting a charge on the assets of the company or not. Types of debentures
-
 Fully Convertible Debentures (FCDs)
 Non-Convertible Debentures (NCDs)
 Partly Convertible Debentures (PCDs)

Bonds
Bonds are the debt security where an issuer is bound to pay a specific rate of interest agreed
as per the terms of payment and repay principal amount at a later time.
The bond holders are generally like a creditor where a company is obliged to pay the amount.
The amount is paid on the maturity of the bond period. Generally, these bonds duration would
be for 5 to 10 years.
Types of Bonds –
 Government Bonds
 Corporate Bonds
 Banks and other financial institutions bonds
 Tax saving bonds

Foreign Currency Convertible Bonds (FCCBS)

FCCB means a bond issued by an Indian company expressed in foreign currency, and the
principal and interest in respect of which is payable in foreign currency.
The FCCBs are unsecured instruments which carry a fixed rate of interest and an option for
conversion into a fixed number of equity shares of the issuer company

Example
Suppose a company ‘A’ issues bonds with following terms –
Issue Price of the Bond Rs. 1000 Coupon rate 2%
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Maturity 2 years
Convertible into equity shares @ Rs.800 per share
Now suppose an investor subscribes to 4 of these bonds. Thus the total investment is
Rs.4000. On this investment, he is entitled to get an interest @ 2% for 2 years. On the
maturity date, i.e. after 2 years, the investor will have an option – to either claim full
redemption of the amount from the company or get the bonds converted into fully paid
equity shares @ Rs. 800 per share. Thus if he goes for the conversion he will be entitled to 5
(4000/800) equity shares. The choice he makes will depend on the market price of the share
on the date of conversion

If the shares of the company ‘A’ is trading at lower than Rs.800, let’s say Rs.500, the investor
will be better off by claiming full redemption of his bonds and buying the shares from the
market. In this case, he will get 8 (4000/500) equity shares as against 5 which he was getting
on conversion. Similarly if the market price of the share is higher than Rs. 800, the investor
will benefit by getting its shares converted. Thus, on the day of maturity, an investor will
seek full redemption if the conversion price is higher than the current market price, and will
go for conversion if the conversion price is less than the current market price.

Foreign Currency Exchangeable Bonds (FCEBs)

Foreign Currency Exchangeable Bond (FCEB) means –
 A bond expressed in foreign currency.
 The principal and the interest in respect of which is payable in foreign currency.
 Issued by an issuing company, being an Indian company.
 Subscribed by a person resident outside India.
 Exchangeable into equity shares of another company, being offered company which is
an Indian company.
Example: Company ABC Ltd. issues FCEBs, then the FCEBs will be convertible into shares of
company XYZ Ltd. that are held by company ABC Ltd. and where companies ABC Ltd. and XYZ
Ltd. form part of the same promoter group. Unlike FCCBs that convert into shares of issuer
itself, FCEBs are exchangeable into shares of Offered Company (OC). Also, relatively, FCEB has
an inherent advantage that it does not result in dilution of shareholding at the OC level.

Indian Depository Receipts

 An IDR is an instrument denominated in Indian Rupee in the form of a depository
receipt created by a domestic depository (Custodian of securities registered with SEBI)
against the underlying equity of issuing company to enable foreign companies to raise
funds from Indian Securities Markets.
 Standard Chartered PLC is only company to offer IDR in the Indian market.
 IDRs are derivative instruments because they derive their value from the underlying
shares.

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Derivatives
A derivative is a financial instrument that derives its value from an underlying asset. This
underlying asset can be stocks, bonds, currency, commodities, metals and even intangible,
assets like stock indices.
Currency derivatives are financial contracts between the buyer and seller involving the
exchange of two currencies at a future date, and at a stipulated rate.
Commodity derivatives are financial instruments whose value is based on underlying
commodities, such as oil, gas, metals, agricultural products and minerals.

Futures
Future refers to a future contract which means an exchange traded forward contract to buy
or sell a predetermined quantity of an asset on a predetermined future date at a
predetermined price.
The idea behind financial future contracts is to transfer future changes is security prices from
one party in the contract to the other and hence it offers a means to manage risk in
participating financial market
A currency future, also known as FX future, is a futures contract to exchange one currency for
another at a specified date in the future at a price (exchange rate) that is fixed on the purchase
date.

Options
Options Contract give its holder the right, but not the obligation, to take or make delivery on or
before a specified date at a stated price
Option contracts are classified into two types on the basis of which party has the option:
• Call option - A call option is with the buyer and gives the holder a right to take delivery.
• Put option - The put option is with the seller and gives the right to take delivery.

Warrant
Warrant means an option issued by a company whereby the buyer is granted the right to
purchase a number of shares (usually one) of its equity share capital at a given exercise price
during a given period.
For example, if the conversion price of the warrant is Rs. 70/-and the current market price is
Rs.110/-, then the investor will convert the warrant and enjoy the capital gain of Rs.40/-. In
case the conversion is at Rs.70/- and the current market price is Rs.40/-, then the investor will
simply let the warrant lapse without conversion

Real Estate Investment Trusts (‘REITs’)

A real estate investment trust (“REIT”) is a collective investment scheme that owns, operates
or finances income-producing real estate.
REITs allow anyone to invest in portfolios of real estate assets the same way they invest in
other industries – through the purchase of individual company stock or through a mutual fund

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or exchange traded fund (ETF).

Benefits of REIT
 Less capital intensive
 Suitable for small investors
 Transperancy
 Assured Dividends
 Tax Free
 Fast capital appreciation
 Easy to buy
Infrastructure Investment Trusts (‘InvITs’)
 The primary objective of InvITs is to promote the infrastructure sector of India by
encouraging more individuals to invest in it.
 An InvIT is established as a trust and is registered with the SEBI.
 It comprises 4 elements, namely –
 Trustee,
 Sponsor,
 Investment manager,
 Project manager

Securitized Debt Instruments

Securitized debt instruments are financial securities that are created by securitizing individual
loans (debt). Securitization is a financial process that involves issuing securities that are
backed by assets, most commonly debt. The assets are transformed into securities, and the
process is called securitization. The owner of the securities receives an income from the
underlying assets; hence, the term asset-backed securities.

Securitized debt instruments come with various advantages over conventional forms of
investing and are more valuable to a portfolio. One of the most common types of securitized
debt is mortgage-backed securities.

Securitized debts can lower interest rates and free up capital for the bank, but they can also
encourage lending for reasons other than making a profit. SEBI had laid down the framework
for public offer and listing of securitized debt instruments vide SEBI (Public Offer and Listing of
Securitized Debt Instruments) Regulations, 2008 and had specified listing agreement for
Securitized Debt Instruments. A few privately placed SDIs have already been listed on
exchanges.

Municipal bonds

Municipal bonds are also referred to as ‘muni bonds’. The urban local government and agencies
issue these bonds. Municipal bonds are issued when a government body wants to raise funds
for projects such as infra-related, roads, airports, railway stations, schools, and so on. SEBI
issued guidelines in 2015 for the urban local bodies to raise funds by issuing municipal bonds.
Municipal bonds exist in India since the year 1997. Bangalore Municipal Corporation is the first
urban local body to issue municipal bonds in India. Ahmedabad followed Bangalore in the
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succeeding years. The municipal bonds lost the ground after the initial investors’ attraction it
received and failed to raise the desired amount of funds. To revive the municipal bonds, SEBI
came up with guidelines for the issue of municipal bonds in 2015.

Municipality should meet the following eligibility criteria to issue municipal bonds in
India:
 The municipality must not have a negative net worth in each of the three previous years.
 The municipality must have no default in the repayment of debt securities and loans availed
from the banks or non-banking financial companies in the last year.
 The municipality, promoter and directors must not been listed in the willful defaulters
published by the RBI. The municipality should have no record of default in the payment of
interest and repayment of principal with respect to debt instruments.
MECHANISM FOR ISSUANCE OF SECURITIES IN PRIMARY MARKET
Book Building
Book building is a systematic process of generating, capturing and recording investor’s
demand for shares during IPO or other securities during their issuance process in order to
support efficient price discovery. This process is also known as price discovery method.
In case of an issue made through the book building process as per regulation 26(1), then the
allocation in the net offer to public category shall be as follows:
 not less than 35 % to retail individual investors
 not less than 15 % to non-institutional investors
 not more than 50% to qualified institutional buyers, 5 % of which shall be allocated to
mutual fund

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Application Supported by Block Amount (ASBA)

If an investor is applying through ASBA, his application money shall be debited from the bank
account only if his/her application is selected for allotment after the basis of allotment is
finalized.
Self-Certified Syndicate Bank (SCSB) is a bank which offers the facility of applying through the
ASBA process. A bank desirous of offering ASBA facility shall submit a certificate to SEBI as per
the prescribed format for inclusion of its name in SEBI’s list of SCSBs.

ASBA Process –

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GREEN SHOE OPTION

 Green Shoe Option (GSO) means an option of allocating shares in excess of the shares
included in the public issue and operating a post-listing price stabilizing mechanism in
accordance with the provisions of Regulations 45 of the SEBI (ICDR) Regulations, 2018
 GSO in the system of IPO using book-building method was recognised by SEBI in India
through its new guidelines on 14th August 2003 (vide SEBI/ CFD/DIL/DIP/ Circular No.
11). ICICI bank was the first to use Green Shoe Option in its public issue through book
building mechanism in India

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Secondary Market in India

Secondary Market in India

Stock exchange is a market place for buying and selling of securities and ensuring
liquidity to them in the interest of Investors.

Role of Stock Exchanges

 Acts as a continuous market for securities:
 Responsible for securities evaluation:
 Mobilizes savings:
 Enables healthy speculation:
 Protect investors:
 Ensures liquidity:
 Acts as an economic barometer:
 Exercise vigilance/control on companies:
 Attracts foreign capital:
 Stock exchanges ensure Safety of Capital and Fair Dealing:
 Regulate company management:

TRADING MECHANISM
In the Indian securities market various products are trading like equity shares,
warrants, debenture, etc. The trading in the securities of the company takes place in
dematerialised form in India. Dematerialization is the process by which physical
securities are converted in the electronic form and credited to the investor’s account
with his Depository Participant (DP).

Trading in the securities of the company takes place on the screen based platforms
provided by the Exchanges. Currently for equity shares the settlement cycle is (T+2
days) (T means trading day/Transaction day). Any shares which are traded on the
Exchange are required to be settled by the clearing corporation of the exchange on 2
working day.

In electronic trading order received are matched electronically on a strict price/time

priority and hence cuts down on time, cost and risk of errors as well as on fraud
resulting in improved operational efficiency. It enables market participants, irrespective
of their geographical locations, to trade with one another simultaneously. It provides
full anonymity by accepting orders, big or small, from brokers without revealing their
identity, thus providing equal access to everybody. It also provides a perfect audit trail,
which helps to resolve disputes by logging in the trade execution process in entirety.

Types of securities

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Listed: The securities of companies, which have signed the listing agreement with a
stock exchange, are traded as “Listed Securities” in that exchange.
Permitted: To facilitate the market participants to trade in securities of such
companies, which are actively traded at other stock exchanges in India but are not listed
on an exchange, trading in such securities is facilitated as “permitted securities”
provided they meet the relevant norms specified by the stock exchange.

Market Participants

MARGINS
An advance payment of a portion of the value of a stock transaction. The amount of
credit a broker or lender extends to a customer for stock purchase.
“Initial margin” in this context means the minimum amount, calculated as a percentage
of the transaction value, to be placed by the client, with the broker, before the actual
purchase. The broker may advance the balance amount to meet full settlement
obligations.
“Maintenance margin” means the minimum amount, calculated as a percentage of
market value of the securities, calculated with respect to last trading day’s closing price,
to be maintained by client with the broker.
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When the balance deposit in the client’s margin account falls below the required
maintenance margin, the broker shall promptly make margin calls. However, no further
exposure can be granted to the client on the basis of any increase in the market value of
the securities.

The broker may liquidate the securities if the client fails to meet the margin calls made
by the broker or fails to deposit the cheques on the day following the day on which the
margin call has been made or the cheque has been dishonoured.

The broker may also liquidate the securities in case the client’s deposit in the margin
account (after adjustment for mark to market losses) falls to 30% or less of the latest
market value of the securities, in the interregnum between making of the margin call
and receipt of payment from the client.

The broker must disclose to the stock exchange details on gross exposure including the
name of the client, unique identification number, name of scrip and if broker has
borrowed funds to provide margin trading facilities, name of the lender and amount
borrowed, on or before 12 Noon on the following day.
Stock exchanges disclose scrip wise gross outstanding in margin accounts with all
brokers to the market. Such disclosures regarding margin trading done on any day shall
be made available after the trading hours on the following day through the website.

BOOK CLOSURE AND RECORD DATE

Book closure is the periodic closure of the Register of Members and Transfer Books of
the company, to take a record of the shareholders to determine their entitlement to
dividends or to bonus or right shares or any other rights pertaining to shares.

Record date is the date on which the records of a company are closed for the purpose
of determining the stock holders to whom dividends, proxy rights etc. are to be sent.

In accordance with Section 91 of the Companies Act, 2013 a company may close the
register of members for a maximum of 45 days in a year and for not more than 30 days
at any one time subject to giving of previous notice by advertisement in newspapers.

Book closure and record date is required for determining dividend, rights issue, bonus
issue, etc. For the companies whose securities are listed on the Exchange are required to
comply with the SEBI (LODR) Regulation 2015. As per SEBI (LODR) Regulation 2015 the
companies are required to give 7 working days’ advance notice of book closure or
record date to stock exchange where the securities of the companies are listed.

BLOCK DEAL

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a facility of allowing Stock Exchanges to provide separate trading window to facilitate
execution of large trades. The Exchanges have introduced new block window
mechanism for the block trades from January 01, 2018.

Session timings:
a) Morning Block deal window: between 8:45 am to 9 am
b) Afternoon Block deal window: Between 2:05 pm to 2:20 pm

 In the block deal the minimum order size for execution of trades in the Block deal
window shall be Rs.10 Crore.
 The orders placed shall be within ±1% of the applicable reference price in the
respective windows as stated above.
 The stock exchanges disseminates the information on block deals such as the name
of the scrip, name of the client, quantity of shares bought/sold, traded price, etc to
the general public on the same day, after the market hours.

BULK DEAL
Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the
number of equity shares of a listed
company.
Bulk deal can be transacted by the normal trading window provided by brokers
throughout the trading hours in a day. Bulk deals are market driven and take place
throughout the trading day.

The stock broker, who facilitates the trade, is required to reveal to the stock exchange
about the bulk deals on a daily basis.
Bulk orders are visible to everyone. If bulk deal happens through a single trade, it
should be notified to exchange immediately upon execution of order. If it happens
through multiple trades, it should be notified to the exchange within one hour from the
closure of the trading.

STOCK MARKET INDEX

An Index is used to give information about the price movement of financial products,
commodities or any other markets. Financial indexes are constructed to measure price
movements of stocks, bonds, T-bills and other forms of investments. Stock market
indexes are meant to capture the overall behaviour of equity markets. A stock market
index is created by selecting a group of stock that are representative of the whole
market or specified sector or segment of the market. An Index is calculated with
reference to a base period and a base index value.

Stock market indexes are useful for variety of reasons such as -

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Secondary Market in India
 They provide a historical comparison of returns on money invested in the stock
market against other
 forms of investments such as gold or debt.
 They can be used as a standard against which to compare the performance of an
equity fund.
 It is a lead indicator of the performance of the overall economy or a sector of the
economy.
 They reflect highly up to date information

Key risks in investing in securities market

 Market risk or systematic risk
 Unsystematic risk
 Inflation risk
 Liquidity risk
 Business risk
 Volatility risk
 Currency Risk

Pre-requisites for investing in securities market:

 Bank Account
 Trading Account
 Demat Account

MARKET SURVEILLANCE
Market Surveillance is broadly categorised in 2 parts viz,
 Preventive Surveillance and
 Post trade Surveillance.

Preventive Surveillance –
 Stringent On boarding norms for Trading Members – Stringent net worth, back
ground, viability etc. checks while on boarding Trading Members.
 Index circuit filters - It brings coordinated trading halt in all equity and equity
derivative markets at 3 stages of the index movement, either way viz., at 10%, 15%
and 20% based on previous day closing index value.
 Trade Execution Range - Orders are matched and trades take place only if the
trade price is within the reference price and execution range.
 Order Value Limitation - Maximum Order Value limit allowed per order.
 Cancel on logout – All outstanding orders are cancelled, if the enabled user logs out.
 Kill switch – All outstanding orders of that trading member are cancelled if trading
member executes kill switch.
 Risk reduction mode – Limits beyond which orders level risk management shall be
initiated instead of trade level.
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Secondary Market in India
 Compulsory close out – Incoming order, if it results in member crossing the
margins available with the exchange, such order will be partially or fully cancelled,
as the case may be, and further disallow the trading member to create fresh
positions.
 Capital adequacy check - Refers to monitoring of trading member’s performance
and track record, stringent margin requirements, position limits based on capital,
online monitoring of member positions and automatic disablement from trading
when limits are breached.
 Fixed Price Band/Dynamic Price band – Limits applied within which securities
shall move; so that volatility is curbed orderliness is bought about. For non-
derivative securities price band is 5%, 10% & 20%. For Derivative products an
operating range of 10% is set and subsequently flexed based on market conditions.
 Trade for Trade Settlement - The settlement of scrip’s available in this segment is
done on a trade for trade basis and no netting off is allowed.
 Periodic call auction - Shifting the security form continuous to call auction method.
 Rumours verifications - Any unannounced news about listed companies is tracked
on online basis and letter seeking clarification is sent to the companies and the reply
received is disseminated.

Post trade surveillance –

 End of day alert – Alerts generated using statistical tools. The tool highlights
stocks which have
 behaved abnormally form its past behaviour.
 Pattern recognition model – Models designed using high end tools and trading
patterns which itself identifies suspects involving in unfair trading practice.
 Transaction alerts for member – As part of surveillance obligation of members
the alerts are downloaded to members under 14 different heads.

IMPACT OF VARIOUS POLICIES ON STOCK MARKETS

1. FED Policy
The Federal reserve system is a central bank of United states. It performs 5 general
functions to promote effective functions of us economy and more generally the public
interest

The Federal Reserve -

 conducts the nation’s monetary policy to promote maximum employment, stable
prices, and moderate long-term interest rates in the U.S. economy;
 Promote the stability of financial system and seeks to minimize and contain system
risks through active monitoring and engagement in US and abroad.

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 Promote the safety and soundness of individual financial institution and monitor
their impact on the financial system as whole.
 Foster payment and settlement safety and efficiency through service to banking
industry and the US govt. that facilitate U.S. government that facilitate U.S. dollar
transactions and payments; and
 promotes consumer protection and community development through consumer-
focused supervision and
 examination, research and analysis of emerging consumer issues and trends,
community economic development activities, and the administration of consumer
laws and regulations.

Credit Policy of RBI

The Reserve Bank of India has a credit policy which aims at pursuing higher growth
with price stability. Higher economic growth means to produce more quantity of goods
and services in different sectors of an economy; The term monetary policy is also
known as RBI’s credit policy or money management policy. It is basically the central
bank’s view on what should be the supply of money in the economy and also in what
direction the interest rates should move in the banking system. It refers to the use of
credit policy instruments which are at the disposal of central bank to regulate the
availability, cost and use of money and credit to promote economic growth, price
stability, optimum levels of output and employment, balance of payments equilibrium,
stable currency or any other goal of government’s economic policy.

The significance of monetary policy is to attain the following objectives

 Rapid Economic Growth
 Exchange Rate Stability
 Price Stability
 BOP Equilibrium
 Neutrality of Money

Various Quantitative instrument of Credit Policy:

 Repo Rate
 Reverse Repo Rate
 CRR
 SLR

Inflation Index
An index is just a collection of data that serves as a baseline for future reference. We use
the index model in all areas of life, from the stock market to inflation. We index wage
level, corporate profits as percentage of GDP and almost anything else that can be
measured. We do this to compare where we are now to where we have been in the past.
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a. Wholesale Price Index

WPI is computed by office of Economic advisor in Ministry of Commerce and industry,
Government of India. It was earlier released on weekly basis for Primary Articles and
Fuel Group. However, since 2012, this practice has been discontinued. Currently, WPI is
released monthly.

b. Consumer Price Index

CPI released at national level are:
 CPI for Industrial Workers (IW)
 CPI for Agricultural Labourers (AL)/ Rural Labourers (RL)
 CPI (Rural/Urban/Combined).

Key differences between WPI & CPI

 Primary use of WPI is to have inflationary trend in the economy as a whole. CPI is
used to adjust income and expenditure streams for changes in the cost of living.
 WPI is based on wholesale prices for primary articles, administered prices for fuel
items and ex-factory prices for manufactured products. On the other hand, CPI is
based on retail prices, which include all distribution costs and taxes.
 Prices for WPI are collected on voluntary basis while price data for CPI are collected
by investigators by visiting markets.
 CPI covers only consumer goods and consumer services while WPI covers all goods
including intermediate goods transacted in the economy.
 WPI weights primarily based on national accounts and enterprise survey data and
CPI weights are derived from consumer expenditure survey data.

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SCRA 1956

Securities (Contract Regulation) Act 1956

INTRODUCTION
Stock Market plays an integral role in the development of an economy. They provide a
platform where people who have surplus money to invest (Investors) meets people
who are in need of money (Corporates). It mobilizes funds from Investor to the
Companies.
Securities Contracts (Regulation) Act, 1956 was enacted with an intention to prevent
undesirable transaction and regulate the working of the Stock Market.
The Act extends to the whole of India and came into force on 20th February, 1957.

Objective of the Act

It provides for direct and indirect control of all aspects of the securities trading
including the running of stock exchanges which aims to prevent undesirable transaction
in securities by regulating the business of dealing therein. It gives the Central
Government regulatory jurisdiction over:
(a) Stock exchanges through a process of recognition and continued supervision,
(b) contracts in securities, and
(c) listing of securities on stock exchanges.

Non-applicability of the Act

The Act shall not apply to:
i. The Government, the RBI, any local authority or any corporation set up by a
special law;
ii. Any convertible bond or share warrant or any option or right in relation thereto.
iii. the CG, in the interest of trade and commerce or the economic development of
the country, may specify any class of contracts as contracts to which this Act or
any provision contained therein shall not apply.
IMPORTANT DEFINITIONS
Securities Securities include:
 Shares, scrips, stocks, bonds, debentures, debenture stock or
other marketable securities of a like nature in or of any
incorporated company or body corporate.
 Derivative and Security Receipt.
 Units or any other instrument issued by any collective
investment scheme or any pooled investment scheme
 Units or any such instrument issued to investors under any
mutual fund scheme.
 Government securities.
 Such other prescribed instruments.
 Rights or interests in securities.

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Contract Contract means a contract for or relating to the purchase or sale of
securities.

Spot Delivery A spot delivery contract means a contract which provides for:
Contract Actual delivery of securities and the payment of a price either on
the same day as the date of the contract or on the next day.
Note: The actual period taken for the dispatch of the securities or
the remittance of money therefor through the post being excluded
from the computation of the period aforesaid if the parties to the
contract do not reside in the same town or locality.
1.
2. Transfer of the securities by depository from account of beneficial
owner to account of another beneficial owner when such securities
are dealt with by a depository.

Stock Stock Exchange means:

Exchange i. Any Body of individuals, whether incorporated or not, constituted
before corporatisation and demutualisation OR
(SE)
ii. A body corporate incorporat ed under the Companies Act whether
under a scheme of corporatisation and demutalization or
otherwise,
iii. for the purpose of assisting, regulating or controlling the business
of buying, selling or dealing in securities.

Demutualization Demutualization refers to the conversion of an existing non-profit

organization into a profits-oriented company. In other words, an
Sec 4A
association that is mutually owned by members converts itself into
an organization that is owned by shareholders.

Recognised Recognised Stock Exchange means a stock exchange which is for

the time being recognised by the CG.
Stock Exchange
(RSE)

Clearing A clearing corporation should mandatorily be a company

incorporated under Companies Act.
Corporation
It shall carry out the following functions: -
a) The periodical settlement of contracts and differences
thereunder;
b) The delivery of, and payment for, securities;
c) Any other matter incidental to, or connected with, such transfer.
Every clearing corporation shall, make bye-laws and submit the
same to the SEBI for its approval.
SEBI may, on being satisfied that it is in the interest of the trade
and also in the interest of public will grant approval to transfer the
duties and functions of a clearing house to a clearing corporation.

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RECOGNITION OF STOCK EXCHANGE
Application to CG (Sec 3)
Any stock exchange may make an application to the CG which shall contain prescribed
particulars and also a copy of the rules relating in general to the constitution of the
stock exchange and in particular to:
i. The governing body of such stock exchange, its constitution and powers of
management and the manner of transacting the business.
ii. The powers and duties of the office bearers of the stock exchange.
iii. The admission into the stock exchange of various classes of members, the
qualifications and other related matters.
iv. The procedure for the registration of partnerships as members of the stock
exchanges.
Grant of Recognition to CG (Sec 4)
The CG (currently delegated to SEBI) may grant recognition to the stock exchange if it is
satisfied after making such inquiry that:
 The rules and bye-laws of a stock exchange are in conformity with prescribed
conditions of investor protection;
 The stock exchange is willing to comply with any other conditions; and
 It would be in the interest of the trade and also in the public interest to grant
recognition to the stock exchange.
Note: Every grant of recognition shall be published in the Gazette of India and also in
the Official Gazette of the State in which the principal office of the stock exchange is
situated, and such recognition shall have effect as from the date of its publication in the
Gazette of India.
Withdrawal of Recognition (Sec 5)
CG can withdraw the recognition in public interest by serving a notice to such Stock
Exchange and after giving opportunity of being heard before giving a notification in the
Official Gazette.
Note: However, the withdrawal shall not affect the validity of any contract entered into
or made before the date of the notification.

POWERS OF THE CENTRAL GOVERNMENT

To call for  Every RSE shall submit periodical returns relating to its affairs to
periodical SEBI.
returns and  SEBI has power to inspect books of accounts and other
make direct documents maintained by stock exchanges at all reasonable
enquiries times.
 Note: Every SE and its members, shall maintain books of
accounts, and other prescribed documents and shall preserve it
up-to 5 years.
 Every stock exchange shall submit a copy of its annual report to
the CG and to SEBI.

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Make Rules CG has power to make rules or direct rules for a particular Stock
or Direct to Exchange or Stock Exchanges in general. The Stock Exchange have to
make Rules abide by the directions within 2 months from the date of order.
for SE

To In case the CG is of opinion that the governing body of any RSE

should be superseded, then,
Supersede
The CG may:
Companies
i. Serve on the governing body a written notice with reason that
of SE
the CG is considering the supersession.
or Suspend ii. Give an opportunity to the governing body;
Business iii. Declare the new governing body of such stock exchange to be
superseded;
Thereof iv. Appoint any person or persons to exercise and perform all the
powers and duties of the governing body; and
v. Appoint one of such persons to be the chairman and another to
be the vice-chairman thereof.
Effect of such order
 The members of the governing body shall cease to hold office.
 The person or persons appointed may exercise and perform all
the powers and duties of the governing body which has been
superseded.
 The property of the stock exchange shall vest in such appointed
person.

Suspend CG can suspend the business of the stock exchange up-to 7 days in
Business of case any emergency has arose and CG feels it is necessary to take
Stock such step to deal with the situation. The period can be extended in
Exchange public interest.

To grant The CG may, if satisfied, that any accused person, has made a full and
Immunity true disclosure in respect of alleged violation, grant immunity from
prosecution for any offence or also from the imposition of any
penalty under this Act with respect to the alleged violation.
An immunity granted may be withdrawn by the CG, if it is satisfied
that such person had not complied with the condition of immunity
or had given false evidence.

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To Prohibit CG can prohibit certain types of contracts related to securities to
Contracts in prevent undesirable speculation in a particular State or area.
Certain
Cases

To delegate CG has power to make rules for the purpose of carrying out the
or to make objects of this Act by notifying in the Official Gazette.
Rules

POWERS OF RECOGNISED STOCK EXCHANGE (RSE)

1. To make Rules restricting Voting Rights etc.
RSE may make rules or amend any existing rules in order to restrict the Voting Rights of
members.
The rules may be related to following matters:
 Only members shall have the voting right in respect of any matter placed before
stock exchange meeting.
 Each member shall be entitled to only one vote, irrespective of paid up share capital.
 Members shall not have a right to appoint a proxy.
 Matters that are required to give shape to the above three matters.

2. To Make Bye-Laws
Any RSE may, subject to the previous approval of SEBI, make bye-laws for the
regulation and control of contracts.
Penalty on Contravention of Bye-laws:
 Fine.
 Expulsion from membership.
 Suspension from membership for a specified period.
 Any other penalty of a like nature not involving the payment of money.

CLEARING CORPORATION (Sec 8A(1))

A RSE may, with the prior approval of the SEBI, transfer the duties and functions of a
clearing house to a clearing corporation, being a company incorporated under the
Companies Act, for the purpose of –
(a) the periodical settlement of contracts and differences thereunder;
(b) the delivery of, and payment for, securities;
(c) any other matter incidental to, or connected with, such transfer.
Clearing Corporation is responsible:-

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 for clearing and settlement of all trades executed on Stock Exchange and deposit and
collateral management and risk management functions;
 to bring and sustain confidence in clearing and settlement of securities;
 to promote and maintain, short and consistent settlement cycles;
 to provide counter-party risk guarantee, and
 to operate a tight risk containment system.

POWERS OF SEBI
1. Power to make or amend Bye-laws of RSE
SEBI has power to make or amend bye-laws of a RSE by publishing in official
Gazette.
Following are the requisites to use this power:
 SEBI can use this power suo-motu (on its own) or on a request made by
governing body of stock exchange.
 It can exercise such power if it is satisfied after consultation with the governing
body of the stock exchange that it is necessary or expedient to do so.
 It will be effective from the date of publication in Official Gazette.
 It will take effect as if the bye-laws are made by the RSE.
Objection by Governing Body
Where the governing body of a RSE objects to any bye-laws made or amended by SEBI
on its own motion, it may, within 2 months of the publication in the Gazette of India
apply to SEBI for revision thereof and SEBI may, after giving an opportunity of being
heard to the governing matter revise the bye-laws so made or amended.
2. Power to make Regulations
SEBI may, by notification in the Official Gazette, make regulations consistent with the
provisions of this Act and the rules made thereunder to carry out the purposes of this
Act.
3. Adjudicating Power
SEBI shall appoint any officer not below the rank of a Division Chief of SEBI to be an
adjudicating officer for holding an inquiry in the prescribed manner after giving any
person concerned a reasonable opportunity of being heard for the purpose of imposing
any penalty.
While carrying out such inspection the adjudicating officer shall have following
powers:
 To summon and enforce the attendance of any person who may have some evidence
documents relevant to the subject matter.
 He may impose such penalty as he thinks fit in accordance with the provisions of
this Act.
While imposing such penalty the adjudicating officer shall consider the
following factors:
i. The amount of gain or unfair advantage made.
ii. The amount of loss caused to an investor or group of investor.
iii. The repetitive nature of the default.

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SCRA 1956
Note: SEBI can enhance the punishment in public interest after giving sufficient
opportunity of being heard to the party concerned.
4. Issue Directions
CG can issue direction to any -
 Stock exchange; or
 Clearing corporation;
 Person or class of persons associated with the securities market;
 Company whose securities are listed or proposed to be listed in a RSE.
Conditions;
CG will issue such directions only if it is:
 In the interest of investors, or development of securities market, OR
 To prevent the affairs of RSE/Clearing corporation in a manner detrimental to the
interests of investors or securities market; OR
 To secure the proper management of any such party mentioned above.
ADDITIONAL TRADING FLOOR
“Additional Trading Floor” means a trading ring or trading facility offered by a RSE
outside its area of operation to enable the investors to buy and sell securities through
such trading floor under the regulatory framework of that stock exchange.
Section 13A stipulates that a stock exchange may establish additional trading floor with
the prior approval of the SEBI in accordance with the terms and conditions stipulated
by the SEBI.
PUBLIC ISSUE AND LISTING OF SECURITIES
 No securities shall be offered to the public or listed on any RSE unless the issuer
fulfil such eligibility criteria and complies with such other requirements as may be
specified by regulations made by the SEBI.
 Every issuer intending to bring public offer shall make an application, before issuing
the offer document to the public, to one or more RSE for permission to list on the
stock exchange or each such stock exchange.
 Where the permission applied for listing has not been granted or refused by the RSE
or any of them, the issuer shall forthwith repay all moneys, if any, received from
applicants in pursuance of the offer document, and if any such money is not repaid
within 8 days after the issuer becomes liable to repay it, the issuer and every
director or trustee thereof, as the case may be, who is in default shall, on and from
the expiry of the 8th day, be jointly and severally liable to repay that money with
interest at the rate of 15% per annum.
CONTRACTS IN DERIVATIVES (Sec 18A)
Notwithstanding anything contained in any other law for the time being in force,
contracts in derivative shall be legal and valid if such contracts are –
 traded on a RSE;
 settled on the clearing house of the RSE, or in accordance with the rules and bye-
laws of such stock-exchange;

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 between such parties and on such terms as the CG may, by notification in the official
Gazette, specify.

LISTING OF SECURITIES
Conditions for Listing (Sec 21)
Where securities are listed on the application of any person in any RSE, such person
shall comply with the conditions of the SEBI (Listing Obligations and Disclosure
Requirements) Regulations.
DELISTING OF SECURITIES
On prescribed grounds A RSE may delist the securities of any company after giving
reasonable opportunity of being heard to the company.
Appeal against delisting order

Appeal can be filed - A listed company or

by - An aggrieved investor

Appeal can be filed Securities Appellate Tribunal (SAT)

before

within Within 15 days from the date of the decision of the RSE.
Extension of 1 month can be granted by SAT

RIGHT TO APPEAL
Refusal by RSE to list the securities
Where a stock exchange refuses to list the securities of any company it shall furnish the
reasons for such refusal and may, within 15 days from the date on which the reasons for
such refusal are furnished to it
Appeal to SAT against Refusal of Recognised Stock Exchange
The aggrieved company can file an appeal against refusal of the RSE to Securities
Appellate Tribunal (SAT) within 15 days.
Extension of 1 month can be granted by SAT if cause of delay is sufficiently explained.
Disposal of Appeal by SAT
On receipt of application SAT should give an opportunity of being heard to the Stock
Exchange thereafter within 6 months SAT can pass any of the following order:
 Vary the order
 Set aside the order
 Confirm the order
The Stock Exchange shall act in conformity with the orders of the SAT.
Procedure and Powers of SAT (Sec 22B)

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The SAT shall not be bound by the procedure laid down by the CPC, 1908, but shall be
guided by the principles of natural justice and, subject to the other provisions of this Act
and of any rules, the SAT shall have powers to regulate their own procedure including
the places at which they shall have their sittings.
Appeal against order of SAT to Supreme Court
An aggrieved party can file an appeal to the Supreme Court (only on question of law)
against the order of SAT within 60 days of receipt of order of SAT. Extension of 60 days
can be granted by the Supreme Court if sufficient reason is explained.
Offences

If any person contravenes or attempts to Imprisonment: Maximum 10

contravene or abets the contravention of the years, OR
provisions of this Act or of any rules or Fine: Maximum Rs. 25 Crore or
regulations or bye-laws made thereunder, for
Both
which no punishment is provided elsewhere.

If any person fails to pay the penalty imposed by Imprisonment: Minimum 1

the adjudicating officer or fails to comply with month & Maximum 10 years, OR
any of his directions or orders. Fine: Maximum Rs. 25 Crore
OR Both

Special Note: The above offences are in addition to the penalties imposed by the
Adjudicating Officer.
Settlement of administrative and civil proceedings (Sec 23JA)
Any person, against whom any proceedings have been initiated or may be initiated may
file an application in writing to SEBI proposing for settlement of the proceedings.
All settlement amounts, excluding the disgorgement amount and legal costs, realised
under this Act shall be credited to the Consolidated Fund of India (CFI).
Recovery of amounts
If a person fails to pay the penalty imposed under this act or fails to comply with any
direction of SEBI, the Recovery Officer may draw up under his signature a statement
and shall proceed to recover from such person the amount specified in the certificate by
one or more of the following modes, namely
 Attachment & sale of person's movable property
 Attachment of the person's bank accounts;
 Attachment and sale of the person's immovable property
 Arrest of the person & his detention in prison
 Appointing a receiver for the management of the person's movable and immovable
properties
APPEAL TO SECURITIES APPELLATE TRIBUNAL (Sec 23L)
Any person aggrieved, by the order or decision of the RSE or the adjudicating officer or
any order made by SEBI, may prefer an appeal before the SAT

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Every appeal shall be filed within 45 days from the date on which a copy of the order or
decision is received by the appellant
SAT shall give an opportunity of being heard and pass an order-confirming/ modifying
setting aside the appealed order
SAT to send a copy of every order to the parties to appeal and to concerned adjudicating
officer
Every appeal filed before SAT to be disposed of within 6 months from the date of
receipt of appeal.
COMPOSITION OF OFFENCES
Following offences can be compounded
 Offences punishable with fine only
 Offences punishable with fine or imprisonment
 Offences punishable with fine or imprisonment or both
Following offences cannot be compounded
 Offence punishable with imprisonment only, or
 Offences punishable with imprisonment and also with fine
Compounding the offences can be done by -
 Securities Appellate Tribunal, or
 Court
Application for compounding can be filed
At any time, either before or after the institution of any proceeding.
Offences by Company

Every person who, at the time when the Shall be deemed to be guilty of the
offence was committed, was in charge of, offence
and was responsible to, the company for However, any such person shall not be
the conduct of tire business. liable to any punishment provided in this
Act, if he proves that the offence was
committed without his knowledge or that
he exercised all due diligence to prevent
the commission of such offence.

Offence has been committed with the Deemed to be guilty of that offence.
consent or connivance of, or is
attributable to any gross negligence on
the part of any director, manager,
secretary or other officer of the company.

MISCELLANEOUS
ESTABLISHMENT OF SPECIAL COURT

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 The CG may establish Special Courts for the purpose of providing speedy trial of
offences under this Act.
 Composition: A Special Court shall consist of a single judge who shall be appointed
by the Central Government with the concurrence of the Chief Justice of the High
Court within whose jurisdiction the judge to be appointed is working.
 Qualification: He should be Sessions Judge or an Additional Sessions Judge.
ENTITLEMENT TO DIVIDEND
General Rule (Transferor Right): Right to retain and receive dividend lies in the
hands of the registered holder of shares even if he has transferred the shares for
consideration to transferee.
Exception Rule (Transferee Right): Right to get dividend will shift to transferee of
securities if the transferee has lodged all the documents required for making the
transfer of security within 15 days of the due date of dividend.
Extension of time can be granted as follows:

Particulars Extension
In case of death of the transferee Actual period taken by his legal
representative to establish his claim to
the dividend

In case of loss of the transfer deed by Actual period taken for the replacement
theft or any other cause beyond the of transfer deed
control of the transferee

In case of delay caused due to post Actual period of delay

Special Note: This section will be applicable also in case of income declared by
collective investment scheme or mutual funds.

SECURITIES CONTRACTS (REGULATION) RULES, 1957

Listing of Securities
Listing of securities with stock exchange is a matter of great importance for companies
and investors as it provides the liquidity to the securities in the market. The prices at
which the securities are traded in the stock exchange are published in the News Papers.
A public company wishes to get its securities listed on a RSE, shall apply to the stock
exchange for listing of securities along with the following documents and particulars: -
a) MOA and AOA and a copy of debenture trust deed in case of issue of debenture.
b) Copies of prospectus or statements in lieu of prospectus issued by the company at
any time.
c) Copies of offers for sale and circulars or advertisements offering any securities for
subscription or sale during the last 5 years.

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d) Copies of balance sheets and audited accounts for the last 5 years, or in the case of
new companies, for such shorter period for which accounts have been made up.
e) A statement showing:
i. Dividends and cash bonuses, if any, paid during the last 10 years (or such shorter
period as the company has been in existence, whether as a private or public
company);
ii. Dividends or interest in arrears, if any.
f) Certified copies of agreements or arrangements with or between:
1. Vendors and/or promoters;
2. Underwriters and sub-underwriters;
3. Brokers and sub-brokers.
g) Certified copy of every letter, report, balance sheet, valuation contract, court order
or other document, part of which is reproduced or referred to in any prospectus,
offer for sale, circular or advertisement offering securities for subscription or sale,
during the last 5 years.
h) A statement containing particulars of the dates of, and parties to all material
contracts, agreements (including agreements for technical advice and
collaboration), concessions and similar other documents (except those entered
into in the ordinary course of business carried on or intended to be carried on by
the company) together with a brief description of the terms, subject-matter and
general nature of the documents.
i) A brief history of the company since its incorporation giving details of its activities
including any reorganization, reconstruction or amalgamation, changes in its
capital structure (authorised, issued and subscribed) and debenture borrowings.
Minimum offer & Allotment to public

Post Issued Capital Minimum offer to public

Size

Up-to Rs. 1600 Crore At least 25% of each class or kind of equity shares or
debenture convertible into equity shares issued by the
company.

Above Rs. 1600 Crore At least such percentage of each class or kind of equity
up-to Rs. 4000 Crore shares or debentures convertible into equity shares issued
by the company which is equivalent to the value of Rs. 400
Crore.

Above Rs. 4000 Crore At least 10% of each class or kind of equity shares or
up to Rs. 1 Lakh Cr. debentures convertible into equity shares issued by the
company.

Above Rs. 1 Lakh Cr. At least such % age of Eq. shares or convertible debentures
up to Rs. 5000 Cr. And at least 5% of Eq. shares or
convertible Debentures issued by the company.
However, it shall increase its public shareholding to atleast
10% within 2 yrs. And 25% within 5 yrs. from date of listing
in specified manner.

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Special Note: If the public shareholding falls below 10% due to implementation of
resolution plan approved u/s 31 of IBC 2016, it shall be increased to at-least 10%
within max 12 months from date of such fall.
Also every listed co. shall maintain public shareholding of at least 5% as a result of
implementation of resolution plan approved u/s 31 of the IBC 2016.

Application for listing of new securities

a) All new issues of any class or kind of securities of a company to be offered to the
public.
b) All further issues of any class or kind of securities of a company if such class or kind
of securities of the company is already listed on a RSE.
Minimum Shareholding (Rule 19A)
(1) Every listed public sector company other than public sector company shall maintain
public shareholding of at least 25%.
(2) Where the public shareholding in a listed company falls below 25 % at any time,
such company shall bring the public shareholding to 25% within maximum 12 months
from the date of such fall in the manner specified by the SEBI.
(5) Where the public shareholding in a listed company falls below 25%, as a result of
implementation of the resolution plan approved u/s 31 of the IBC, 2016, such company
shall bring the public shareholding to 25% within maximum 3 years from the date of
such fall, in the manner specified by the SEBI.
However, if the public shareholding falls below 10%, the same shall be increased to at
least 10%, within maximum 12 months from the date of such fall, in the manner
specified by the SEBI.
It is further provided that every listed company shall maintain public shareholding of at
least 5% as a result of implementation of the resolution plan approved u/s 31 of the
Insolvency and Bankruptcy Code, 2016.
SUSPENSION OR WITHDRAWAL OF ADMISSION TO DEALINGS IN SECURITIES ON
STOCK EXCHANGE
A RSE may suspend or withdraw admissions to dealing in securities of a company.
Reason for Withdrawal
 Breach/Non-compliance of conditions
 Any other reason, to be recorded in writing
Important Highlights
 Before such suspension/withdrawal company should be given a reasonable
opportunity of being heard and show cause notice.
 If the period of suspension exceeds 3 months’ company may prefer an appeal to SAT.
 SAT after giving opportunity of being heard can set aside, confirm or vary the
decision of Stock Exchange.
 The order of SAT shall be a binding on Stock Exchange.

DELISTING OF SECURITIES ON STOCK EXCHANGE

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A RSE may delist any securities listed on it
Grounds of Delisting
 The company has incurred losses during the preceding 3 consecutive years and it
has negative networth.
 Trading in the securities of the company has remained suspended for more than 6
months.
 Securities of the company have remained infrequently traded during the preceding 3
years.
 The company or any of its promoters or any of its directors has been convicted
under this Act, SEBI Act and Depositories Act.
 Company is unable to maintain the minimum public shareholding.
Before delisting company should be given a reasonable opportunity of being heard and
show cause notice.
ROLE OF COMPANY SECRETARY
Company Secretary has the Right to Legal Representation before SAT. The appellant
may either appear before SAT in person or authorise one or more chartered
accountants or company secretaries or cost accountants or legal practitioners or any
of its officers to present his or its case.

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SECURITIES EXCHANGE BOARD OF INDIA

INTRODUCTION

The Securities and Exchange Board of India (SEBI) was established on April 12, 1992 in
accordance with the provisions of the SEBI Act, 1992. The first statutory regulatory
body that the Government of India set up post the reforms of 1991 was the SEBI. The
SEBI Act 1992 extends to the whole of India. It shall be deemed to have come into force
on the 30th day of January, 1992.

OBJECTIVE OF SEBI
i. Protecting the interests of investors in securities;
ii. Promoting the development of the securities market; and
iii. Regulating the securities market.
Establishment of SEBI (Sec 3)
SEBI is established as
 a body corporate;
 having perpetual succession and a common seal;
 with power to acquire, hold and dispose of property,
both movable and immovable; and
 to contract, and shall, by the said name, sue or be
sued;
 the head office of the Board shall be at Mumbai.
 the Board may establish offices at other places in
India.

COMPOSITION OF SEBI (Sec 4)

i. A Chairman;
ii. 2 members from MCA dealing with finance &
administration of the Companies Act, 2013;
iii. 1 member from the RBI;

iv. 5 other members of whom at least 3 shall be the whole-time members to be

appointed by CG.

The Chairman and the other members shall be persons of ability, integrity and standing
who have shown capacity in dealing with problems relating to securities market or have
special knowledge or experience of law, finance, economics, accountancy,
administration or in any other discipline which, in the opinion of the Central
Government, shall be useful to the Board.

FUNCTIONS and Powers of SEBI (Chapter IV)

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It is the duty of SEBI to take such measures for the protection of the interest of the
investors and promoting the development of the securities market.
These measures include:
i. Regulating the Business in Stock Exchanges and any other securities market;
ii. Registering and Regulating the work of the Intermediaries;
iii. Registering and Regulating the work of the Depositories, Participants, FIIs and
Credit Rating Agencies;
iv. Registering and Regulating the work of the Venture Capital Funds and Collective
Investment Schemes;
v. Prohibiting the Unfair and Fraudulent Trade Practices;
vi. Prohibiting the Insider Trading in Securities;
vii. Regulating Substantial Acquisition of Shares and Takeover of Companies;
viii. Calling for any required Information, undertaking Inspections and conducting
Inquiries and Audits of the Stock Exchanges;
ix. Levying Fees and other charges for carrying out the purposes of this section;
x. Conducting Research for above purposes;
xi. Performing any other function as may be prescribed.
SEBI has been vested with the same powers as that of a Civil Court in respect of:
i. The discovery and production of books of accounts and other documents;
ii. Summoning and enforcing the attendance of persons and examining them on
oath;
iii. Inspection of books, registers and other related instruments of intermediaries;
iv. Issuing commissions for the examination of the witnesses or documents.
Passing of an order by SEBI
SEBI, may, by an order or for reasons to be recorded in writing, in the interest of
investors or securities market take any of the following measures either pending
investigation or inquiry or on completion of such investigation or enquiry namely:
1. Suspend the trading of any security in a recognised stock exchange.
2. Restrain persons from accessing the securities market and prohibit any person
associated with securities market to buy, sell or deal in securities.
3. Suspend any office-bearer of any stock exchange or self-regulatory organisation
from holding such position.
4. Impound and retain the proceeds or securities in respect of any transaction which is
under investigation.
5. Attach, for max 90 days, bank accounts or other property of any intermediary or any
person associated with the securities market in any manner involved in violation.

However, the SEBI shall, within 90 days of the said attachment, obtain confirmation
of the said attachment from the Special Court, established u/s 26A, having
jurisdiction and on such confirmation, such attachment shall continue during the
pendency of the aforesaid proceedings.

Further, only property, bank account or accounts or any transaction entered therein,
so far as it relates to the proceeds actually involved in violation shall be allowed to
be attached.

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6. Direct any intermediary or any person associated with the securities market in any
manner not to dispose of or alienate an asset forming part of any transaction which
is under investigation.

Power to regulate and prohibit issue of prospectus, offer document or

advertisement soliciting money for issue of securities
SEBI may, for the protection of investors,
Specify by regulations –
 the matters relating to issue of capital, transfer of securities and other matters
incidental thereto
 the manner in which such matters shall be disclosed by the companies
by general or special orders
 prohibit any company from issuing prospectus, any offer document, or
advertisement soliciting money from the public for the issue of securities
 Specify the conditions subject to which the prospectus, such offer document or
advertisement, if not prohibited, may be issued.
Power to Issue Directions (Sec 11B)
SEBI may issue such directions to any person or class of persons associated with
security market OR
To any company in respect of matters relating to issue of capital, transfer of securities
and other matter incidental thereto, as may be appropriate in the interests of investors
in securities and the securities market.

In the interest of the investors

i. To prevent the activities of any intermediary;
ii. To secure proper management of such intermediary.
The power to issue directions under this section shall include and always be deemed to
have been included the power to direct any person, who made profit or averted loss by
indulging in any transaction or activity in contravention of the provisions of this Act or
regulations made thereunder, to disgorge an amount equivalent to the wrongful gain
made or loss averted by such contravention.
Investigations
i. If SEBI has reasonable grounds to believe that:
 Any matter connected with the securities market is dealt in a way detrimental to
the interest of investors, it may direct an investigation;
 Any intermediary or any person associated with the securities market has
violated any of the provisions of this Act or the rules or the regulations.
It may initiate the investigation by appoint the investigating Authority.
ii. It is the duty of any authorized person of the company and every intermediary to
produce necessary documents before the investigating authority.
iii. The investigating authority has the right to keep any books, registers, other
documents and records for 6 months in his custody and may be called again if
needed.
iv. Investigating officer may, examine on oath, any manager, MD, officer and other
employee of any intermediary or any person associated with securities market in
any manner, in relation to the affairs of his business and may administer an oath

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accordingly and for that purpose may require any of those persons to appear before
it personally.
v. If investigating officer have reason to believe that the records may be destroyed,
mutilated, altered, falsified or secreted, he may make an application to the
Magistrate or Judge for an order for the seizure of such books, registers, other
documents and records.
However, the Magistrate or Judge of the Designated Court shall not authorize seizure
of records of any listed public company or a public company which intends to get its
securities listed on any recognized stock exchange unless such company indulges in
insider trading or market manipulation.
Case law

Mr. Neelesh Kumar Lahoti Vs. SEBI

Every person from whom information is sought should fully co-operate with the
investigating officer and promptly produce all documents, records, information as
may be necessary for the investigations.

SEBI conducted an investigation into the affairs of Supreme Tex Mart Limited (STML/
Company) for the period June 01, 2016 to October 31, 2016. During the course of
investigation, the Investigating Authority (IA) of SEBI issued summons to Mr.
Neeleshkumar Radheshyam Lahoti (Noticee) seeking certain documents/ information.
The Noticee replied to the summons and submitted certain information. However, it
was alleged that the Noticee submitted incorrect information. In view of the same, SEBI
initiated adjudication proceedings against the Noticee.

SEBI imposed a penalty of Rs. 8 lakh on the Noticee. It was established that the Noticee
provided incorrect information to the Investigating Authority (IA) of SEBI and
hampered the process of investigation. It was a deliberate attempt of Noticee to
misguide investigation.

vi. If such person fails without reasonable cause or refuses to cooperate in investigation
–
He shall be punishable with
 Imprisonment up to 1 year OR
 Fine up to 1 Cr. OR
 Both
+
With a further fine up to Rs. 5 Lakh for every day after the first during which the
failure or refusal continues.

Power to make regulations (Sec 30)

SEBI may, by notification, make regulations consistent with this Act and the rules made
thereunder to carry out the purposes of this Act.
In particular, and without prejudice to the generality of the foregoing power, such
regulations may provide for all or any of the following matters, namely:–
 the times and places of Board meetings and the procedure to be followed at such
meetings;
 the terms and other conditions of service of officers and employees of the SEBI;
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 the matters relating to issue of capital, transfer of securities and other matters
incidental thereto and the manner in which such matters shall be disclosed by the
companies;
 The utilisation of the amount credited to IEPF.
 the fulfilment of other conditions relating to collective investment scheme;
 the conditions subject to which certificate of registration is to be issued, the amount
of fee to be paid for certificate of registration and the manner of suspension or
cancellation of certificate of registration;
 the terms determined by the SEBI for settlement of proceedings and the procedure
for conducting of settlement proceedings;
 Any other matter which is required to be, or may be, specified by regulations or in
respect of which provision is to be made by regulations.

POWERS OF SEBI NOT TO APPLY TO INTERNATIONAL FINANCIAL SERVICES
CENTRE (IFSC) (Sec 28C)
The powers exercisable by the SEBI under this Act,—
a) shall not extend to an IFSC set up u/s 18(1) of the Special Economic Zones Act,
2005;
b) shall be exercisable by the IFSC Authority established u/s 4(1) of the IFSC Authority
Act, 2019,
in so far as regulation of financial products, financial services and financial institutions
that are permitted in the IFSC are concerned.

Registration of Intermediaries (Chapter V) (Sec 12(1))

The following intermediaries are required to obtain a registration certificate from the
SEBI to buy, sell or deal in securities:
 Stock-Broker
 Sub-Broker
 Share Transfer Agent
 Banker to an issue
 Trustee of Trust Deed
 Registrar to an Issue
 Merchant Banker
 Underwriter
 Portfolio Manager
 Investment Adviser
 Depository
 Depository Participant
 Custodian of Securities
 Foreign Institutional Investor
 Credit Rating Agency

PROHIBITION OF MANIPULATIVE AND DECEPTIVE DEVICES, INSIDER TRADING

ETC. (Sec 12A)
A person shall not directly or indirectly:
1. Use or employ any manipulative or deceptive device or contrivance in contravention
of the provisions of this Act or the rules or the regulations made thereunder;
2. Employ any device, scheme or artifice to defraud in securities which are listed or
proposed to be listed;
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3. Engage in any act, practice, course of business which operates or would operate as
fraud or deceit upon any person, in connection with the issue, dealing in securities
which are listed or proposed to be listed;
4. Engage in insider trading;
5. Deal in securities on the basis of Unpublished price sensitive information;
6. acquire control of any company or securities more than the prescribed percentage of
equity share capital of a listed company or proposed to be listed.

Consent Orders
It means an order settling administrative or civil proceedings between the regulator
and a person who may be found to have violated securities laws.
In simple terms, consent order in relation to SEBI, it is an out-of-court settlement order
between regulator and a violating company.
It provides flexibility of wider array of enforcement and remedial actions which will
achieve the twin goals of:
i. Appropriate sanctions;
ii. Remedies & deterrence without resorting to litigation, lengthy proceedings and
delays.

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PENALTIES
Section Default/Failure Punishment

 15A  Failure to furnish any Document,

Return or Report to the Board
 To file any return which was
required to be filed under the Act
 Failure to maintain Books of
Accounts or Records
15B Any person who is registered as an
Intermediary and is required to enter
into an agreement with his client, fails
to enter into such agreement
15C If a Company or any Intermediary fails
to redress investors grievances
If Mutual Fund or CIS failed to obtain
certificate of registration from SEBI
If Mutual Fund or CIS failed to comply
with conditions of certificate of
registration
Failure to make an Application for Penalty of Rs. 1 Lakh for each
Listing of the Schemes by Mutual Fund day of failure or Rs. 1 Cr, (w.i.l)
or CIS
15D Failure by Mutual Fund or CIS to
dispatch unit Certificate of any
Schemes by Mutual Fund or CIS
Failure by Mutual Fund or CIS to
Refund Application Monies of
Investors of a CIS
Failure by Mutual Fund or CIS to invest
the Money as decided
15E Penalty for failure to observe rules and
regulations by an asset management
company
15EB In case investment adviser and research
analyst fails to comply with the
regulations made by the SEBI or
directions issued by the SEBI.

15EA In case of alternative investment funds, Penalty of at least Rs. 1 lakh but
infrastructure investment trusts and real may extend to Rs. 1 lakh per day
estate investment trusts fails to comply during which such failure
with the regulations made by the SEBI or continues, subject to a maximum
directions issued by the SEBI. of Rs. 1 Cr. or 3 times the
amount of gains made out of
such failure, whichever is higher.

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Section Default/Failure Punishment
15F If a stock broker fails to deliver any Rs. 1 Lakh or 5 times the
security or fails to make payment of amount of brokerage charged in
the amount due to the investor within excess of the specified
the period specified in the regulations brokerage, (w.i.h)
If charges an amount of brokerage
which is in excess of the brokerage
specified in the regulations
15G Offence related to Insider Trading Minimum: Rs. 10 Lakh
Maximum: Penalty of Rs. 25 Cr
or 3 times profit made out of
insider trading, whichever is
higher
15H Offence related to Non-Disclosure of Minimum: Rs. 10 Lakh
Acquisition of Shares and Takeovers Maximum: Penalty of Rs. 25 Cr
or 3 times profit made out of
insider trading, (w.i.h)

15HA Penalty for fraudulent and unfair trade Minimum: Rs. 5 Lakh
practices Maximum: Rs. 25 Cr or 3 times
the amount of profits made out
of such practices, (w.i.h)
15 Alteration, destruction, etc., of records
Minimum: Rs. 1 Lakh
HAA and failure to protect the electronic
Maximum: Rs. 10 crore or 3 times
database of Board. the amount of Profits made out of
such act, whichever is higher.
15HB Penalty for contravention where no Minimum: Rs. 1 Lakh
separate penalty has been provided Maximum Rs. 1 Crore

Note: All sums realized by way of penalties under this Act shall be credited to the
Consolidated Fund of India.

Adjudicating Power
SEBI shall appoint any officer not below the rank of a Division Chief of SEBI to be an
adjudicating officer for holding an inquiry in the prescribed manner after giving any
person concerned a reasonable opportunity of being heard for the purpose of imposing
any penalty.
While carrying out such inspection the adjudicating officer shall have following
powers:
 To summon and enforce the attendance of any person who may have some evidence
documents relevant to the subject matter.
 He may impose such penalty as he thinks fit in accordance with the provisions of
this Act.
While imposing such penalty the adjudicating officer shall consider the following
factors:
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i. The amount of gain or unfair advantage made.
ii. The amount of loss caused to an investor or group of investor.
iii. The repetitive nature of the default.

CASE LAW

Adjudicating Officer, SEBI (Appellant) vs. Bhavesh Pabari (Respondent)

The Supreme Court of India ruled granting back the discretionary power to
Adjudicating Officer (AO) under supervision and scrutiny of the court.

India Ratings and Research Private Ltd. (Appellant) vs. SEBI Securities Appellate
(Respondent)

SEBI can call for and examine records of any proceedings if it considers the orders
passed by the adjudicating officer erroneous and not in the interests of securities
markets. After making inquiry, SEBI may enhance the quantum of penalty
imposed, if the circumstances of the case so justify.

SEBI has the power to initiate proceedings. SAT directed the Appellant to deposit a sum
of Rs.25 lakhs pursuant to the impugned order before the Respondent within 4 weeks
which would be subject to the result of the appeal. SAT further directed that the
proceedings in pursuance to the second show cause notice dated 28th January, 2020
will continue and the Respondent will pass appropriate orders after giving an
opportunity of hearing to the Appellant either through physical hearing or through
video conferencing but any order that is passed by the Respondent shall not be given
effect to during the pendency of this appeal.

Settlement of Administrative and Civil Proceedings (Sec 15JB)

Any person against whom any proceedings have been initiated or may be initiated, may
file an application in writing to the SEBI proposing for settlement of proceeding
initiated or to be initiated for the alleged defaults.

The SEBI, may, after taking into consideration the nature, gravity and impact of defaults,
agree to the proposal for settlement, on payment of such amount by the defaulter or on
other determined terms.

No appeal shall lie against any order passed by the SEBI or adjudicating officer as the
case may be.
All the settlement amounts excluding the disgorgement amount and legal costs, realised
shall be credited to the CFI.

Relevant Case Laws

1. JM Financial Ltd’s (JMFL) former vice president on July 16, 2020 had settled an
alleged insider trading case with SEBI by paying Rs. 15 lakh towards settlement
charges. During the span of investigation, SEBI observed that he had entered into 2
off-market trades in shares of JMFL and had not obtained pre- clearance from JMFL

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for the 2 off-market trades. Besides, he had entered the off-market transaction when
the trading window was closed.
2. Shareholders of the Kapashi Commercials Ltd. on 10 th July, 2020, a BSE Listed
company, have settled with SEBI a case of alleged violation of takeover norms by
paying over Rs 34 lakh amount towards settlement terms. They had filed an
application with the SEBI proposing to settle the case for alleged violation of SAST
Regulations in respect of change in their shareholding in Kapashi Commercials. It
was alleged that the four individuals made delayed disclosures to the company and
BSE, about the change in their shareholding in Kapashi Commercials.
3. Northward Financial Planners (NFP) and its partners on July, 09, 2020 have settled
with SEBI a case related to alleged violation of Investment Advisers regulations
upon payment of Rs. 21.67 lakh towards settlement charge. NFP and partners were
carrying on investment advisory activities since F.Y. 2013-14 and filed application
for SEBI registration after a delay of over 4 years and continued to carry on
investment advisory activity without seeking registration.

SECURITIES APPELATE TRIBUNAL (SAT)

The CG is empowered to establish by notifications one or more Appellate Tribunals, to
be known as the SAT. SAT will accept appeals against the SEBI orders or penalties.

Composition of SAT (Sec 15L)

SAT shall consist of -
 1 Presiding officer
 Such other number of Judicial or Technical members as CG may determine
Subject to the provisions of this Act,—
1. The jurisdiction of the SAT may be exercised by Benches which may be constituted
by the Presiding Officer with 2 or more Judicial or Technical Members as he may
deem fit;
2. The Benches of the SAT shall ordinarily sit at Mumbai or other places as the CG may
notify.
The Presiding Officer may transfer Member from one Bench to another Bench.
The vacancy if any shall be filled by CG and any vacancy of the Presiding Officer by
reason of his death, resignation or otherwise, the senior -most Judicial Member shall act
as the Presiding Officer until the date on which a new Presiding Officer is appointed.

Qualification of Members of SAT (Sec 15M)

Presiding officer
is, or has been, a Judge of the Supreme Court or a Chief Justice of a High Court or a Judge
of High Court for at least 7 years, in the case of the Presiding Officer.

Judicial member
is, or has been, a Judge of High Court for at least 5 years, in the case of a Judicial
Member.
The Presiding Officer and Judicial Members shall be appointed by the CG in consultation
with the Chief Justice of India or his nominee.

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SEBI
Technical member
is, or has been, a Secretary or an Additional Secretary in the Ministry or Department of
the CG or any equivalent post; OR
is a person of proven ability, integrity and standing having special knowledge and
professional experience, of not less than 15 years, in financial sector including securities
market or pension funds or commodity derivatives or insurance.

The Technical Members shall be appointed by the CG on the recommendation of a

Search-cum-Selection Committee consisting of the following, namely:

1. Presiding Officer, SAT – Chairperson;

2. Secretary, Department of Economic Affairs – Member;
3. Secretary, Department of Financial Services – Member; and
4. Secretary, Legislative Department or Secretary, Department of Legal Affairs –
Member.

The Secretary, Department of Economic Affairs shall be the Convener of the Search-
cum-Selection Committee. The Search-cum-Selection Committee shall determine its
procedure for recommending the names of persons to be appointed.

Validity of Appointment (Sec 15MC)

No appointment of the Presiding Officer, a Judicial Member or a Technical Member shall
be invalid merely by reason of any vacancy or any defect in the constitution of the
Search cum- Selection Committee.
A member or part time member of the SEBI or the IRDA or the Pension Fund Regulatory
and Development Authority, or any person at senior management level equivalent to
the Executive Director in the SEBI or in such Authorities, shall not be appointed as
Presiding Officer or Member, during his service or tenure as such with the SEBI or with
such Authorities, as the case may be, or within 2 years from the date on which he ceases
to hold office as such in the SEBI or in such Authorities.

Tenure of office of Presiding Officer and other Members of SAT (Sec 15N)
 5 Years or 70 years of age which-ever is earlier
 Shall be eligible for reappointment for another 5 years.

Resignation and Removal (Sec 15Q)

The members of SAT may resign by giving written notice to CG.
However they shall, unless he is permitted by the CG to relinquish his office sooner,
continue to hold office –
 Until 3 months from the date of such notice OR
 Until A person duly appointed as his successor enters upon his office, or
 Until the expiry of his original tenure.
Which-ever is earlier

Note:
1. The proceedings of the SAT will not be invalidated in any manner on the ground
merely of any defect in the constitution of a SAT.
2. Presiding Officer and other officers and employees of SAT shall be deemed to be
public servants.
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Removal of Presiding Officer or Judicial Member or Technical Member
The CG may, after an inquiry made by the Judge of the Supreme Court, remove the
Presiding Officer or Judicial Member or Technical Member, on such conditions as may
be specified.
Provided that he shall not be removed from office unless he has been given a reasonable
opportunity of being heard in the matter. The CG may, by rules, regulate the procedure
for the investigation of misbehavior or incapacity of the Presiding Officer or any other
Member.
Orders Constituting Appellate Tribunal to be Final and not to invalidate its
Proceedings (Sec 15R)
No order of the CG appointing the Presiding Officer or a member of a SAT shall be called
in question in any manner, and no Act or proceeding before a SAT shall be called in
question in any manner on the ground merely of any defect in the constitution of a SAT.
Appeal to SAT
Any person aggrieved by the order of the SEBI or adjudicating officer or by an order of
IRDA or PFRDA may appeal to SAT within 45 days of receiving the order. SAT may
grant extended time if satisfied.

Disposal of Appeal by SAT

On receipt of application SAT should give an opportunity of being heard to the parties
thereafter SAT can pass any of the following order
 Vary the order
 Set aside the order
 Confirm the order
Note: SAT shall deal with the appeal as expeditiously as possible and within 6 months.
Appeal against order of SAT
An aggrieved party can file an appeal to the Supreme Court (only on question of Law)
against the order of SAT within 60 days of receipt of order of SAT. Extension of 60 days
can be granted by the Supreme Court if sufficient reason is explained.
Procedure in SAT
 SAT is not bound by the procedure laid down by the CPC, 1908
 It shall be guided by the principles of natural justice
 It will be bound by provisions of this Act and of any rules.
 The provisions of the Limitations Act, 1963 shall apply to an appeal made to SAT
Powers of SAT
The SAT shall have the same powers as are vested in a Civil Court under the CPC, 1908,
while trying a suit, in respect of the following matters, namely:
 Summoning and enforcing the attendance of any person and examining him on oath;
 Requiring the discovery and production of documents;
 Receiving evidence on affidavits;
 Issuing commissions for the examination of witnesses or documents;

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 Reviewing its decisions;
 Dismissing an application for default or deciding it ex parte,
 Setting aside any order of dismissal of any application for default or any order
passed by it ex parte;
 Any other matter which may be prescribed.
Note: No civil court has jurisdiction to entertain any suit or proceeding in respect of any
matter which is taken up by SAT.
Every proceeding before the SAT shall be deemed to be a judicial proceeding. The
Presiding Officer and other officers and employees of SAT shall be deemed to be public
servants.
Where benches are constituted, the Presiding Officer of the SAT may, from time to time
make provisions as to the distribution of the business of the SAT amongst the benches
and also provide for the matters which may be dealt with, by each bench.
On the application of any of the parties and after notice to the parties, and after hearing
such of them as he may desire to be heard, or on his own motion without such notice,
the Presiding Officer of the SAT may transfer any case pending before one Bench, for
disposal, to any other Bench.
If a Bench of the SAT consisting of 2 members differ in opinion on any point, they shall
state the point or points on which they differ, and make a reference to the Presiding
Officer of the SAT who shall either hear the point or points himself or refer the case for
hearing only on such point or points by one or more of the other members of the SAT
and such point or points shall be decided according to the opinion of the majority of the
members of the SAT who have heard the case, including those who first heard it.
The provisions of the Limitations Act, 1963 shall apply to an appeal made to SAT.
Appeal to Supreme Court
 Any person aggrieved by any decision or order of the SAT may file an appeal to the
Supreme Court within 60 days from order of the SAT.
 Extension of 60 days can be granted if sufficient cause for delay is explained.

POWERS OF CENTRAL GOVERNMENT

 To Issue Directions:
The CG has the power to issue directions in writing to SEBI on question of policy as it
may deem fit from time to time.
 To Supersede the Board:
 The CG has the power to supersede the SEBI for maximum 6 months after the
satisfaction of necessary conditions and by notification in the Official Gazette
 The CG can exercise its power in following circumstances: -
a) On account of grave emergency when SEBI is unable to discharge its functions
and duties.
b) SEBI has persistently made default in complying with any direction issued by CG
or did not discharged its functions and duties imposed.
c) In the public interest.
 Effect of Supersession:
 The members shall vacate their office from the date of supersession;
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SEBI
 All the powers, functions and duties which may of the Board will be discharged
by such person as the CG may direct; and
 All property owned or controlled by SEBI shall vest in the CG until SEBI is
reconstituted.
 To grant immunity:
 CG may grant immunity to any person who is alleged to have violated any of the
provisions of this Act.
 Such immunity will be granted if the person has made a full and true disclosures in
respect of alleged violations and fulfilled other conditions.
 Such immunity be granted only if recommended by SEBI.
 No such immunity shall be granted by the CG if the proceedings for the
prosecution for offence have been instituted before the date of receipt of
application for grant of such immunity.
 An immunity granted to a person can be withdrawn if CG is satisfied that the
person has not complied with the condition on which the immunity was granted.
To make rules
the CG may, by notification, make rules for carrying out the purposes of this Act. In
particular, and without prejudice to the generality of the foregoing power.
Returns and Reports
The SEBI shall furnish to the CG within 90 days from end of each FY in prescribed form
and manner, returns and statements and particulars in regard to any proposed or
existing programme for the promotion and development of the securities market giving
a true and full disclosure.
A copy of the report be laid, as soon as may be after it is received, before each House of
Parliament.
The SEBI may, by general or special order in writing delegate to any member, officer of
the SEBI or any other person subject to such conditions, if any as may be specified in the
order, such of its powers and functions.
Bar on Jurisdiction (Sec 20A)
No civil court shall have jurisdiction in respect of any matter which the SEBI (or the
adjudicating officer) is empowered by, or under, this Act to pass any order and
No injunction shall be granted by any court or other authority in respect of any action
taken or to be taken as per any order of SEBI or the adjudicating officer.
OFFENCES

If any person contravenes or attempts to Imprisonment: up-to 10 years,

contravene or abets the contravention of the OR
provisions of this Act or of any rules or
Fine: up-to Rs. 25 Crore or Both
regulations or bye-laws made thereunder, for
which no punishment is provided elsewhere.

If any person fails to pay the penalty imposed by Imprisonment: Min 1 month &
the adjudicating officer or fails to comply with Max 10 years, OR
any of his directions or orders. Fine: Rs. 25 Crore or Both

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Special Note: The above offences are in addition to the penalties imposed by the
Adjudicating Officer.
Compounding of Offences
Following offences can be compounded
 Offences punishable with fine only
 Offences punishable with fine or imprisonment
 Offences punishable with fine or imprisonment or both.
Following offences cannot be compounded
 Offence punishable with imprisonment only, or
 Offences punishable with imprisonment and also with fine
Sec 26(1)  No court shall take cognizance of any offence punishable under this Act or
any rules or regulations made thereunder, save on a complaint made by SEBI.
Section 26A(1)  CG may establish or designate Special Courts for providing speedy
trial of offences.
Section 26A(2)  Special Court shall consist of a single judge (appointed by the CG)
with the concurrence of the Chief Justice of the High Court.
Section 26A(3)  Qualification for Judge of a Special Court is, holding the office of a
Sessions Judge or an Additional Sessions Judge, as the case may be.
Offence triable by special court (Sec 26B)
Notwithstanding anything contained in the CrPC, 1973, all offences under this Act, shall
be taken cognizance of and tried by the Special Court established for the area in which
the offence is committed or where there are more Special Courts than one for such area,
by such one of them as may be specified in this behalf by the High Court concerned.
Appeal and Revision (Sec 26C)
The High Court may exercise, all the powers conferred by CrPC, 1973 on a it, as if a
Special Court within the local limits of the jurisdiction of the High Court were a Session
Court trying cases within the local limits of the jurisdiction of the High Court.
Transitional Provision (Sec 26E)
 Any offence committed under this Act, which is triable by a Special Court shall, until
a Special Court is established, be taken cognizance of and tried by Session Court.
 However, High Court can transfer any case or class of cases taken cognizance by a
Session Court.
Contravention by Company (Sec 27)

Every person who, at the time when the Shall be deemed to be guilty of the
offence was committed, was in charge of, offence.
and was responsible to, the company for However, any such person shall not be
the conduct of the business. liable to any punishment, if he proves
that the offence was committed without
his knowledge or that he exercised all
due diligence to prevent the commission
of such offence.
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Offence has been committed with the Deemed to be guilty of that offence.
consent or connivance of, or is
attributable to any gross negligence on
the part of any director, manager,
secretary or other officer of the company.

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SEBI
Recovery of Amount

if a person

Fails to comply Fails to comply

with any with a direction Fails to pay
Fails to pay the
direction of the of any fees due to
penalty imposed
SEBI for refund disgorgement the SEBI
of monies order

Recovery officer will draw up and sign a statement specifying the amount due
from the person and shall proceed to recover the amount by one or more of the
following modes

Attachment Attachment Attachment Appoint a

& sale of the of the & sale of the Arrest & receiver for
person's person's person's detention of managing the
movable bank immovable person proceeds of sale
property accounts property of property

"Recovery Officer” means any officer of SEBI, authorized by general or special order in
writing, to exercise the powers of a Recovery Officer.

Continuance of proceedings (Sec 28B (1))

Where a person dies, his legal representative shall be liable to pay the penalty but only
in case the penalty has been imposed before the death of the deceased person.

Any proceeding for recovery before the Recovery Officer, (except a proceeding for levy
of penalty), initiated against the deceased before his death or could have initiated if he
had survived, shall be deemed to have been initiated against the LR, and may be
continued against the LR from the stage at which it stood on the date of the death of the
deceased;

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Every legal representative shall be personally liable for any sum payable by him in his
capacity as legal representative if, while his liability for such sum remains undischarged,
he creates a charge on or disposes of or parts with any assets of the estate of the
deceased, which are in, or may come into, his possession, but such liability shall be
limited to the value of the asset so charged, disposed of or parted with.

The liability of a legal representative shall be limited to the extent of estate of the
deceased.

Here “legal representative” means a person who in law represents the estate of a
deceased person, and includes any person who inter-meddles (interfere improperly)
with the estate of the deceased and where a party sues or is sued in a representative
character, the person on whom the estate devolves on the death of the party so suing or
sued.

Role of a Company Secretary

1. Right to Legal Representation: Any person aggrieved (the appellant) may either
appear in person or authorize one or more CA or PCS or cost accountants or legal
practitioners or any of its officers to present his or its case before the SAT.
2. Compliance Officer: SEBI also recognizes the CS as the Compliance Officer of the
company
3. Certification by Practicing Company Secretary (PCS): PCS can issue various
certificates including corporate governance in case of listed companies.

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Depositories and Depository Participants

Laws Governing to Depositories and Depository

Participants
INTRODUCTION
1. The Depositories Act, 1996 has introduced the system of depositories in India. It has
come into force with effect from 20th September, 1995.
2. A depository is an organisation where the securities of an investor are held in the
electronic form at his request through the medium of a Depository Participant
(DP).
3. DP is the representative or agent in the depository system and it maintain the
investor's securities account balances and intimates to him the status of his holdings
from time to time. The investor can open accounts with one or more DPs.

Depository System – An overview

 A Depository is an organization like a Central Bank where the securities of a shareholder
are held in the electronic form at the request of the shareholder through the medium of a
Depository Participant. To utilize the services offered by a Depository, the investor has to
open an account with the Depository through a Depository Participant
 In the depository system, share certificates belonging to the investors are to be
dematerialized and their names are required to be entered in the records of depository as
beneficial owners. Consequent to these changes, the investors’ names in the companies’
register are replaced by the name of depository as the registered owner of the securities.
 The depository, however, does not have any voting rights or other economic rights in
respect of the shares as a registered owner. The beneficial owner continues to enjoy all the
rights and benefits and is subject to all the liabilities in respect of the securities held by a
depository.

Definition and Meaning of Depository [Section 2(e)]

"Depository means a company formed and registered under the Companies Act, 2013 and
which has been granted a certificate of registration by SEBI".
There are 2 depository players in the market i.e., National Securities Depository
Limited (NSDL) and Central Depository Service (India) Limited (CDSL).

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Difference between Bank and Depository

Bank Depository
Holds funds in an account Holds securities in an account
Transfers funds between accounts on the Transfers securities between accounts on the
instruction of the account holder instruction of the Beneficial owner account
holder
Facilitates transfer without having to handle Facilitates transfer of ownership without
money having to handle securities
Accountable for the safe keeping of funds Accountable for the safe keeping of securities

Difference between Custodian and Depository

Both depository and custodian services are responsible for safe keeping of securities but
they are different in the sense that the Depository can legally transfer beneficial
ownership, while a custodian cannot. The main objective of a Depository is to minimize
the paper work involved with the ownership, trading and transfer of securities.

Benefits of Depository System

 Elimination of bad deliveries
 Elimination of all risks associated with physical certificates
 Immediate transfer and registration of securities
 Faster disbursement of non-cash corporate benefits like rights, bonus, etc
 Reduction in brokerage by many brokers for trading in dematerialized securities
 Elimination of problems related to change of address of investor, transmission, etc.
 Elimination of problems related to selling securities on behalf of a minor

Models of Depository
Immobilisation – Where physical share certificate are kept in vaults with the depository for
safe custody and all subsequent transactions in these securities take place in book entry form.
The actual owner has the right to withdraw his physical securities as and when desired. The
immobilization of fresh issue may be achieved by issuing a jumbo certificate representing the
entire issue in the name of depository, as nominee of the beneficial owners.
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Depositories and Depository Participants
Dematerialisation – No Physical scrip in existence, only electronic records maintained by
depository.

Depository Participant
Depository Participant (DP) is the agent of the depository and is the interface between
the depository and the investor. According to SEBI Guidelines, financial institutions,
banks, custodians, stock brokers etc. can become depository participants.
Stock Holding Corporation of India Limited (SHCIL) is the first depository participant in
India registered with NSDL.

Public financial institutions, scheduled commercial banks, foreign banks operating in India
with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-
brokers, clearing corporations / clearing houses, NBFCs and registrar to an issue or share
transfer agent complying with the requirements prescribed by SEBI can be registered as DP.

Characteristics of a DP
 Transmission requests/nomination
 Acts as an Agent of Depository
 Customer interface of Depository
 Functions like Securities Bank
 Account opening
 Facilitates dematerialisation/rematerialisation
 Instant transfer on pay-out
 Enables off market transfers
 Settles trades in electronic segment
 Pledge/enforcement of pledge etc.

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Opening a Beneficiary Account

 Fills up account opening form and submits photographs of each signatory.
 Signs agreement with DP.
 DP intimates Account No.
 Investor to quote Account No. in all correspondence with DP.

Procedure to Pledge or Hypothecation of Securities

 If a beneficial owner intends to create a pledge/hypothecation on a security owned by
him, he shall make an application to the Depository through his Depository Participant.
 The Depository, after confirmation from the pledgee (pawnee) that the securities are
available for pledge with the pledger (pawner), shall, within 15 days, create and record
the pledge and send the information of the same to Depository Participants of pledger
and the pledgee.
 On receipt of intimation, the Depository Participants of both the pledger and the
pledgee shall inform the pledger and the pledgee respectively of the entry of creation
of pledge/hypothecation.
 The entry of pledge/ hypothecation made may be cancelled by the Depository if the
pledger or pledgee makes an application to the Depository through their Depository
Participants.
 It may be noted that if the application for cancellation of the entry of pledge has been
made by the pledger, then it shall be cancelled by Depository only with the prior
concurrence (agreement) of the pledgee.

Dematerialisation
Dematerialization is a process by which the physical share certificates of an investor are taken
back by the Company and an equivalent number of securities are credited his account in
electronic form at the request of the investor
The procedure for dematerialization is as under: -
 Submits dematerialization request form (DRF) along with the share certificates
(transferred in the name of the investor).
 Deface share certificates as "surrendered for dematerialization".
 DP electronically transmits DRF to the depository.
 DP sends the share certificates and physical DRF to the RTA / Company.
 Depository electronically transmits the demat request to the RTA / Company.
 RTA/Company checks authenticity of request and confirms to Depository.
 Investor's account with DP is credited.
 DP sends Statement of Transaction to the investor.

Rematerialisation
It is the process by which electronic holdings are converted back into Physical certificates.
Procedure for rematerialisation of securities is as follows:-
 The beneficial owner sends the request in rematerialisation request form (RRF) to DP.
 DP intimates the Depository of such request electronically.
 Depository confirms the rematerialisation request to the RTA/ Company.
 RTA/Company update account and prints certificates and confirm the Depository.
 Depository updates account and download the details to DP.
 RTA/Company dispatches the certificates to the holder thereof.
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Depositories and Depository Participants
 DP also sends the intimation about rematerialisation to its client.

ELECTRONIC CREDIT IN NEW ISSUES

 Investor opens account with DP
 Submits application with option to hold securities in depository giving DP-Id and Client-Id
 Registrar uploads list of allottees to Depository
 Depository credits allottee’s account with DP
 Refunds sent by Registrar as usual.

CORPORATE ACTIONS
 Dividends/cash benefits, these benefits are directly forwarded to the investors by the
company or its registrar and transfer agent.
 Non-cash benefits, viz. Bonus, Rights Issue, etc. these benefits are electronically credited to
the beneficial owner’s account through Depository.

Difference between D.P and Depositories

Basis Depository Participant Depositories
i) Intermediary Between Beneficial owner Between company & D.P
(B.O) & Depositories
ii) Agent D.P is an agent of B.O Depositories is an agent of
company

iii) Deal Dealing of shares through D.P No direct dealing through

Depositories
iv) System D.P is a component of Depositories is a system to
Depositories system facilitate electronic trading
v) Registration D.P only register with SEBI Registered as well as required
COBC

Secretarial Audit
 All the issuer companies must immediately subject themselves to a Secretarial Audit.
 Companies shall reconcile total shares of a company held in NSDL, CDSL and physical
form by the shareholders with the total issued and listed capital of the company.
 Thus every listed company is required to obtain a certificate on a quarterly basis from
a practicing CS or practicing CA, reconciling of the shares held in electronic form and in
physical form with the issued and listed capital of the company.
 Every listed company is required to submit the aforesaid certificate to the Stock
exchanges where the securities of the company are listed within 30 days of the close of
relevant quarter.

DEPOSITORIES ACT, 1996

Certificate of Commencement of Business by Depositories (Sec 3)
No depository shall act as a depository unless it obtains a certificate of commencement of
business from the SEBI in prescribed form.
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Depositories and Depository Participants
The SEBI shall not grant a certificate unless it is satisfied that the depository has adequate
systems and safeguards to prevent manipulation of records and transactions.

Eligibility Condition for Depository Services

Any company or other institution to be eligible to provide depository services must:
 has a net worth of not less than Rs. 100 Cr.
 be formed and registered as a company under the Companies Act.
 be registered with SEBI as a depository under SEBI Act, 1992.
 has framed bye-laws with the previous approval of SEBI.
 has one or more participants to render depository services on its behalf.
 has adequate systems and safeguards to prevent manipulation of records and transactions
to the satisfaction of SEBI.
 complies with Depositories Act, 1996 and SEBI (Depositories and Participants) Regulations,
2018.
 meets eligibility criteria in terms of constitution, network, etc.

Rights and Obligations of Depositories, Participants, Issuers and Beneficial Owners

 A depository shall enter into an agreement with one or more participants as its agent.
 Any person, through a participant, may enter into an agreement, with any depository for
availing its services.
 such person shall surrender the certificate of security, for which he seeks to avail the
services of a depository, to the issuer in prescribed manner.
 The issuer, shall cancel the certificate of security and substitute in its records the name of
the depository as a registered owner in respect of that security and inform the depository
accordingly.
 A depository shall, on receipt of the information from issuer, enter the name of the person
in its records, as the beneficial owner.
 Every depository shall, on receipt of intimation from a participant, register the transfer of
security in the name of the transferee. If a beneficial owner or a transferee of any security
seeks to have custody of such security the depository shall inform the issuer accordingly.

Restriction on Transfer of Securities

The shareholders who continue to hold shares and other types of securities of listed companies
in physical form even after this date, will not be able to lodge the shares with company / its
RTA for further transfer. They will need to convert them to demat form compulsorily if they
wish to affect any transfer. Only the requests for transmission and transposition of securities in
physical form, will be accepted by the listed companies / their RTAs.

Registered and Beneficial Owners

Registered Owner
A depository should be deemed to be the registered owner in the depository’s system who will
transfer and hold security on behalf of a beneficial owner
 The depository as a registered owner should not have any voting rights or any other rights
in respect of securities held by it.
 Every depository is required to maintain a register of beneficial owner.
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Depositories and Depository Participants
 Every depository shall furnish to the issuer information about the transfer of securities in
the name of beneficial owners.
Beneficial Owners
The Investor is not the registered owner but the beneficial owner in depository system.
 The beneficial owner is entitled to all the rights and benefits.
 He is subject to all the liabilities in respect of his securities held by a depository.
 A beneficial owner may with the previous approval of the depository create a pledge or
hypothecation or any other encumbrance in respect of a security owned by him through a
depository.

Fungibility (Sec 9)
All securities held in depository shall be fungible, i.e., all certificates of the same security
shall become interchangeable in the sense that investor loses the right to obtain the exact
certificate he surrenders at the time of entry into depository.
It is like withdrawing money from the bank without bothering about the distinctive
numbers of the currencies.
Furnishing of Information and Records by Depository and Issuer (Sec 13)
Depository shall furnish to the issuer information about the transfer of securities in the
name of beneficial owners at such intervals and in such manner as may be specified by the
bye-laws. Every issuer shall make available to the depository copies of the relevant
records in respect of securities held by such depository.

POWERS OF THE SEBI (Sec 18)

SEBI can exercise the following powers, if it is necessary in the public interest or in the
interest of investors:
 It can call upon any issuer, depository, depository participant, or beneficial owner to
furnish certain information.
 It can authorize any person to make an enquiry or inspection in relation to the affairs
of the issuer, depository, depository participant, or beneficial owner.

Section 19 provides after the enquiry or inspection, SEBI may issue such directions as
may be appropriate in the interest of the investor or the securities market, to the following
persons:
 Any depository.
 Any depository participant.
 Any issuer.
 Any person associated with the securities market.

Section 25 of the Act provides that the SEBI may, by notification in the Official Gazette, make
regulations consistent with the provisions of this Act and the rules made thereunder to carry
out the purposes of this Act.

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Depositories and Depository Participants
PENALTIES
Offence/Contravention/Default Penalty

Any person fails to furnish any information, Minimum : Rs. 1 Lakh

documents, books, returns or fails to maintain Maximum : Rs. 1 Lakh for each day
books of account during which such failure continues Rs. 1
Crore (w.i.l)
Failure by any person to enter into an
agreement with clients

Failure to redress investor grievances

Delay in dematerialisation or issue of

certificate of securities

Failure to reconcile records

Failure to comply with directions issued by

SEBI

Penalty for contravention where no separate Minimum : Rs. 1 Lakh Maximum : Rs. 1
penalty is imposed Crore

Penalty for failure to conduct business in a fair Minimum: Rs. 5 Cr.

manner.
Max: Rs. 25 Cr. or 3 times the amount of
gains made out of such failure, whichever is
higher.
Note: The adjudication procedure as mentioned under Sections 19H to 19J of the Depositories
Act, 1996 is same as the adjudication procedure prescribed under SEBI Act, 1992.
OFFENCES
If any person contravenes or attempts to contravene Imprisonment: 10 years, or
or abets the contravention of the provisions of this Fine: Rs. 25 Crore, or Both
Act or of any rules or regulations or bye-laws made
thereunder, for which no punishment is provided
elsewhere

If any person fails to pay the penalty imposed by the Imprisonment: Min 1 month &
adjudicating officer or fails to comply with any of his Max 10 years, OR
directions or orders Fine: Rs. 25 Crore, or Both

POWER OF DEPOSITORIES TO MAKE BYE-LAWS

A depository shall, with the previous approval of the SEBI, make bye-laws consistent with the
provisions of this Act and the regulations.
Where the SEBI considers it expedient so to do, it may, by order in writing, direct a depository
to make any bye-laws or to amend or revoke any bye-laws already made within specify period.
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Depositories and Depository Participants
If the depository fails or neglects to comply with such order, the SEBI may make the bye-laws
or amend or revoke the bye-laws made.

SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATION, 1996

 The registration of the depository, its participant and the custodian is mandatory with
SEBI;
 Requisite fees must also be paid to SEBI in respect of the registration;
 The proper agreement must be entered into by all the parties;
 Drafts of these agreements are to be included in the bye-laws and to be approved by SEBI.
Records to be maintained by Depository & Depository Participant Depository
Every depository is required to maintain following records & documents which are as follows:-
i. Records of securities dematerialised;
ii. The names of the transferor, transferee, and the dates of the transfer of securities;
iii. A register and index of beneficial owner;
iv. The details of holding of securities of the beneficial owner at the end of each day;
v. Records of approvals, notices, entries;
vi. Details of participants;
vii. Details of securities declared to be eligible for dematerialisation.
Depository Participant
The Participants have to maintain the following Documents for 5 years:-
i. Records of all transactions entered into;
ii. Details of the securities dematerialised;
iii. Records of instructions received from beneficial owners;
iv. Records of approvals, notices, entries.
Audit (Reg 76)
i. It is the duty of every issuer to submit an audit report on a quarterly basis on a
recognized stock exchange.
ii. Any difference in the records maintained by the issuer shall be reported to the
depositories and stock exchanges.
iii. The audit report is required to give the updated status of the register of members of the
issuer and confirm that securities have been dematerialized as per requests within 21
days from the date of receipt of requests by the issuer and where the dematerialization
has not been effected within stipulated period, the report would disclose the reasons for
such delay.
Internal Audit
Every Depository Participant shall ensure that an internal audit in respect of the operations of
the Depository is conducted at intervals of 6 months by a qualified CA or a CS or a CMA, holding
a Certificate of Practice and a copy of the internal audit report shall be furnished to the
Depository.
Every Depository Participant shall ensure that an internal audit shall be conducted in respect
of the participant's operations relating to CDSL by a qualified CA or by a PCS, or by a Cost
Accountant at specified intervals. A copy of Internal Audit report shall be furnished to CDSL.
Concurrent Audit
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Depositories and Depository Participants
The process of Demat Account opening, control and verification of Delivery Instructions slips is
subject to concurrent audit. Depository Participants have been advised to appoint a firm of
qualified CA/CS holding a certificate of practice for conducting the concurrent audit. However,
the participants may entrust the concurrent audit to their Internal Auditors.
Issuance of DIS:
The procedure followed is as under:-
i. Issuance of DIS booklets;
ii. Existence of control on DIS issued to clients;
iii. Maintenance of records for issuance of DIS booklets in the back office.
Verification of DIS:
The procedure followed is as under:-
i. Date and time stamping on instruction slips;
ii. Blocking of used/lost/stolen instruction slips;
iii. 2-step verification for a transaction for more than Rs. 5 lakhs;
iv. Instruction received from the dormant accounts.
In respect of account opening, the auditor should verify all the documents including KYC
documents furnished by the Clients and verified by the officials of the Participants. The scope
of concurrent audit with respect to control and verification of DIS cover the areas given
below:—
The Concurrent Auditor should conduct the audit in respect of all accounts opened, DIS issued
and controls on DIS as mentioned above, during the day, by the next working day. If audit could
not be completed within the next working day due to large volume, it should be completed
within a week's time.
Any deviation and/or non-compliance observed in the aforesaid areas should be mentioned in
the audit report of the Concurrent Auditor. The Management of the Participant should
comment on the observations made by the Concurrent Auditor. The Concurrent Audit Report
should be submitted to NSDL, on a quarterly basis, in a hardcopy form. If the Auditor for
Internal and Concurrent Audit is the same, consolidated report may be submitted.
Role of a Company Secretary
1. Right to Legal Representation: Any person aggrieved (the appellant) may either appear
in person or authorise one or more CA or PCS or cost accountants or legal practitioners or
any of its officers to present his or its case before the SAT.
2. Internal Audit of DP's: The 2 Depository services providers in India, NSDL and CDSL have
allowed PCS to undertake internal audit of the operations of Depository Participants (DPs).
3. Concurrent Audit of DP's: PCS can carry out concurrent audit of depository participants.
4. Reconciliation of Share Capital Audit: Company Secretary is authorised to issue
quarterly certificate on reconciliation of share certificate
Case Law
Jaypee Capital Services Ltd (Noticee) vs. SEBI
Facts of the Case
SEBI granted a Certificate of Registration as a Depository Participant to Jaypee Capital Services
Limited according to DP Regulations initially for 5 years which was valid from August 11, 2006
to August 10, 2011. The certificate of registration was, thereafter, renewed in 2011 for a
further 5 years and the renewed certificate was valid till August 10, 2016.
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SEBI received a letter dated April 05, 2016 from CDSL informing that it has terminated the
agreement with the Noticee w.e.f April 04, 2016 due to non- compliance of bye-laws of CDSL.
CDSL also requested SEBI to cancel the certificate of registration with immediate effect.
Thereafter, NSDL informed SEBI that it has also terminated the agreement with JCSL due to the
non-compliance of various bye- laws of NSDL.
Based on the information provided by the Depositories viz. CDSL and NSDL, as above, it was
alleged that the Noticee was no longer eligible to be admitted as a participant of depository and
had failed to inform SEBI about the termination of its agreements with CDSL and NSDL.
Order
The failure on the part of the Noticee to inform SEBI of the termination of the agreement by the
depositories would have to be considered as a violation of Clause 14 of the Code of Conduct for
the DPs.
SEBI, in exercise of powers, cancelled the certificate of registration granted to the Noticee /
Jaypee Capital Services Limited with immediate effect.

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Securities Market Intermediaries

Securities Market Intermediaries

INTRODUCTION

Capital Market Intermediaries are an important link between investor, issuer company
and the regulator. In other words, we cannot imagine any transaction in the capital
market without Capital Market Intermediaries.
They simply connect an investor with the user of funds in pursuance of SEBI
regulations. Market intermediaries help investors to select investments by providing
investment consultancy, market analysis and credit rating of investment instruments.

Objectives
 To smoothen the process of investment
 To establish a link between the investors and the users of funds
 Corporations and Governments hire the services of the market intermediaries to
represent them to the investors
 Market intermediaries help investors to select investments by providing investment
consultancy, market analysis and credit rating of investment instruments

SECURITIES MARKET INTERMEDIARIES

The following are the Securities Market Intermediaries: —
a) Merchant Bankers
b) Registrars and Share Transfer Agents (RTA)
c) Underwriters
d) Bankers to issue
e) Debenture Trustees
f) Portfolio Manager
g) Stock-brokers and sub-brokers
h) Custodian of Securities
i) Investment Advisor
j) Credit rating Agencies
k) Depository Participant
SEBI (INTERMEDIARIES) REGULATIONS, 2008
 The SEBI introduced the SEBI Intermediaries Regulations in order to regulate the
activities of intermediaries in the financial markets such as registrars to an issue,
participants, asset management companies, clearing member of a clearing
corporation or clearing house, foreign portfolio investors and trading members of a
derivative segment or currency derivatives segment of a stock exchange.
 In order to act as an intermediary, a person is required to apply to the SEBI for the
grant of a certificate to act as an intermediary, as per the SEBI Intermediaries
Regulations.

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 The SEBI grants a certificate in the form specified in the relevant regulations on
satisfaction of the eligibility of the applicant.
 A person may carry on the activities of one or more intermediaries only if it obtains
a separate certificate to carry on each such activity. Intermediaries are required to
provide the SEBI with a certificate on April 1 of each year certifying, inter alia,
compliance with obligations, responsibilities and fulfilment of eligibility criteria on a
continuous basis.
 Further, they are required to redress investor grievances within 45 days of receipt
thereof or within the time specified by the SEBI, when called upon by the SEBI.

REGISTRATION OF INTERMEDIARIES
• Application for Registration: An application made to the SEBI in Form A of Schedule
I with such additional information as required to be provided under the relevant
regulations, and the application fee, as specified in the relevant regulations.
• Process of Application: The stock exchange, the clearing corporation, the depository
or the specified self-regulatory organization has to examine the eligibility of the
applicant in terms of these regulations, relevant regulations and the rules, regulations
or bye-laws of the concerned stock exchange, clearing corporation, depository or the
self-regulatory organization and forward the application with the application fees to the
SEBI along with its recommendation as early as possible but not later than 30 days of
receipt of the complete application with the specified application fees.
• Additional Information: The SEBI may require the applicant to furnish further
information or clarifications, regarding matters relevant to the activity of such an
intermediary or which may otherwise be considered necessary by the SEBI, to consider
and dispose of the application.
• Furnishing of additional information: The applicant has to furnish such information
and clarification to the satisfaction of the SEBI , within the time specified in this regard
by the SEBI .
• Verification / Inspection: While considering the application, the information
furnished by the applicant and its eligibility, the SEBI may, if it so desires, verify the
information by physical verification of documents, office space, and inspect the
availability of office space, infrastructure, and technological support which the applicant
is required to have.
• Consideration of Application: the SEBI shall take into account all matters which it
deems relevant to the activities in the securities market, including but not limited to the
following –
 whether the applicant have in the past been refused certificate by the SEBI and if so,
the ground for such refusal;
 whether the applicant satisfies the eligibility criteria;
 whether the grant of a certificate to the applicant is in the interest of the investors ;

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Securities Market Intermediaries
 whether the grant of a certificate to the applicant is in the interest of the
development of the securities market.
• Rejection of Application:
 which does not contain such additional information as required by the SEBI;
 which is incorrect, false or misleading in nature;
 where the applicant is not a fit and proper person;
 can be rejected by the SEBI for reasons to be recorded by the SEBI in writing.
• Granting of Certificate: The SEBI on being satisfied that the applicant is eligible, shall
grant a certificate in the form specified in the relevant regulations and send an
intimation to the applicant in this regard.
• Conditional Registration: Where a pending proceeding before the Board or any court
or tribunal may result in the suspension or cancellation of the certificate, the SEBI may
give a conditional registration.
• Separate Certificate for other activity: When an intermediary, who has been
granted a certificate and who has filed Form A under these regulations, wishes to
commence a new activity which requires a separate certificate under the relevant
regulations, it has to, while seeking such certificate, not be required to file Form A, and
has to furnish to the SEBI only such additional information as is required under the
relevant regulations.
• Conditions of Certificate:
 where the intermediary proposes to change its status or constitution, it has to obtain
prior approval of the SEBI for continuing to act as an intermediary after such change
in status or constitution;
 it has to pay the applicable fees in accordance with the relevant regulations;
 it has to continuously comply with the requirements of Regulation 4
 it has to meet the eligibility criteria and other requirements specified in these
regulations and the relevant regulations.
• Deemed Approval: A request for prior approval which is complete in all respects has
to be disposed off by the SEBI within a period of 60 days from the date of receipt of such
request and where the decision of the SEBI has not been communicated to the
intermediary within the said period of 60 days, the prior approval has to be deemed to
have been granted.
• Effect of refusal to grant certificate or expiry of certificate: Where an intermediary
has failed to make an application or where an existing intermediary has been refused
grant of certificate under these regulations, the intermediary has to:
 forthwith cease to act as such intermediary;
 make provisions as regards liability incurred or assumed by the intermediary;
 take such other action, within the time period and in the manner, as may be required
under the relevant regulations or as may be directed by the SEBI.

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• Period of validity of certificate: The certificate granted to an intermediary has to be
permanent unless surrendered by the intermediary or suspended or cancelled in
accordance with these regulations.
Merchant Banker: Merchant Banker means a person who manages the business of
issue of securities by making arrangements for selling, buying or subscribing to
securities. It is obligatory on the part of Issuer company to appoint a merchant banker
in relation to any public issue like IPO, Right Issue, Buy Back & Delisting. A person who
undertakes any assignment of merchant bankers shall first get it registered with SEBI
under the provisions of SEBI (Merchant Banker) Regulations, 1992.
Under clause (2)(cb) of SEBI (Merchant Banker) Regulations, 1992, Merchant Banker
means any person who is engaged in the business of issue management either by
making arrangements regarding selling, buying or subscribing to securities or acting as
manager, consultant, adviser or rendering corporate advisory service in relation to such
issue management. Merchant Banker shall have minimum Net worth of Rs. 5 Crores for
registration.
Example of Merchant Banker
 SBI Capital Markets Ltd.,
 ICICI Securities Ltd.,
 Reliance Securities Ltd. and
 Karvy Investor Services Limited
The Merchant banker undertakes the following activities including preparation of
prospectus, advisory on projects, determining financial structure, due diligence, tie-up
with financiers, allotment of shares and refunds:
a) Managing of public issue of securities;
b) Preparation of prospectus/letter of offer;
c) Final allotment of shares and refund of application money;
d) Underwriting connected with the aforesaid public issue management business;
e) Managing/Advising on international offerings of debt/equity i.e. GDR, ADR, ECBs,
FCCBs, FCEBs and bonds;
f) Private placement of securities;
g) Primary or satellite dealership of government securities;
h) Corporate advisory services with regard to takeovers, acquisition and
disinvestment.
Registrar and Transfer Agent (RTA):
RTA means a person who works like a Registrar to an Issue and Transfer Agent. An RTA
is governed under the provisions of the SEBI (Registrar to an Issue and Share Transfer
Agents) Regulations, 1993.

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Securities Market Intermediaries
Example of RTA: Karvy Computershare Pvt. Ltd. & Intime Spectrum Registry Ltd._

RTA

Registrar to issue Share transfer agent

Helps in allotment of shares and Helps in transfer and its

its registration registration

 Registrar to an Issue: Registrar to an Issue means a person who finalizes the list of
eligible allottees for a public issue. He is responsible for rejecting the invalid
applications and also ensures crediting shares to the demat accounts of the
successful applicants. He dispatches the refund orders to those applicants in whose
favour no share has been allotted.
 Functions/Activities of Registrar to an Issue:
a) Collecting application from investors in respect of an issue;
b) Keeping proper record of applications and monies received from investors;
c) Determining the basis of allotment in consultation with the stock exchange;
d) Finalising the list of allottees;
e) Processing and dispatching the allotment letters, refund orders or certificates
etc.
 Share Transfer Agent: Share Transfer Agent means a person who keeps records of
holders of the securities in connection with transfer and redemption of securities. In
India, it is obligatory to all listed companies to outsource the activities in relation to
registration and transfer of securities.
The Registrars to an Issue and Share Transfer Agents constitute an important
category of intermediaries in the primary market. They render very useful services
in mobilising new capital and facilitating proper records of the details of the
investors, so that the basis for allotment could be decided and allotment ensured as
per SEBI Regulations.
 Pre-Issue Activities:
a) Sending instructions to Banks for reporting of collection figures and collection of
applications.
b) Providing Practical inputs to the Lead Manager and Printers regarding the design
of the Bid cum-Application form.
c) Facilitate and establish information flow system between clients , Banks and
Managers to the issue.
d) Liaisoning with Regulatory Authorities such as SEBI & Stock Exchanges.
 Activities during issue

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a) Collection and Reporting of daily Collection figures.
b) Collection of Data and Forms from Banks.
c) Liaisoning with clients and Intermediaries to the Issue.
 Post Issue Activities
a) Data capturing & validation
b) Reconciliation
c) Provide Allotment Alternatives in consultation with Client / Merchant Banker
and Stock Exchanges
d) Facilitating Listing
e) Uploading of data to the Depositories for crediting of securities electronically
f) Dispatch of Refund orders / Share Certificates / Credit Advise
g) Periodic Report submission to Regulatory Authorities
h) Reconciliation of Refund payments
i) Attending to post issue Investor queries
 RTAs shall have minimum Net worth of Rs. 50 lakhs for category I and Rs. 25 lakhs
for category II for registration.

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Underwriter:
Underwriter means a person who engages in the business of underwriting of an issue of
securities of a company. An underwriter assures the issuing company to take up shares
or securities to a certain limit in case the company fails to collect minimum subscription
from the general public to the expected level.
For this arrangement, the underwriter will enter into an agreement with the issuing
company and the assuring party such as a financial institution, banks, merchant banker,
or broker. Underwriting is mandatory for a public issue. It is necessary for a public
company which invites public subscription for its securities to ensure that its issue is
fully subscribed. In case of any short-fall, it has to be made good by underwriting
arrangements made in advance of the opening of the public issue.
Banker to an Issue:
Banker to an Issue means a scheduled bank which carries out the activities like
acceptance of application and application monies, acceptance of allotment or call
monies, refund of application monies & payment of dividend or interest warrant during
and after issue of securities.
It also opens Escrow account for collection and utilisation of public issue proceeds. The
banks are expected to furnish prompt information and records to the issuer company
and to the lead manager for monitoring and progressing the issue work. For this
purpose, the company has to enter into an agreement with different banks specifying
the conditions, terms and remuneration for services to be rendered by each such bank.
Debenture Trustee:
Debenture Trustee (DT) means a trustee of a trust deed for securing any issue of
debentures of a company. DT protects the interest of debenture holders in case the
company fails to pay the principal as well as interest amount to the debenture holders.
It is necessary that the company makes proper arrangements to extend assurances and
comply with legal requirements in favour of the investors who are entitled to this type
of security. The issuing company has to complete the process of finalising and executing
the trust deed or document and get it registered within the prescribed period and file
the charge with the Registrar of Companies (ROC) in respect of the security offered.
Debenture Trustees shall have minimum Net worth not less than of Rs. 10 Crores for
registration.
Role and Functions:
i. Call for periodical reports from the company, i.e., issuer of debentures.
ii. Take possession of trust property in accordance with the provisions of the trust
deed.
iii. Enforce security in the interest of the debenture holders.
iv. Ensure that the property charged to the debenture is available and adequate at
all times to discharge the interest and principal amount payable in respect of the
debentures and such property is free from any other encumbrances.

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v. Exercise due diligence to ensure compliance by the company with the provisions
of the Companies Act and the listing agreement or the trust deed.
vi. To take appropriate measures for protecting interest of the debenture holders in
case of any breach comes to notice.
vii. To ascertain that the debentures have been converted or redeemed as per law.
viii. Appoint a nominee director on the board of the company, if required.
Portfolio Manager:
Any person who pursuant to contract or arrangement with the client, advises or directs
or undertakes on behalf of the client, the management or administration of a portfolio of
securities or the funds of the clients, as the case may be.
A portfolio manager plays an important role in deciding the best investment plan for an
individual as per his income, age as well as ability to undertake risks. A portfolio
manager is responsible for making an individual aware of the various investment tools
available in the market and benefits associated with each plan. Make an individual
realize why he actually needs to invest and which plan would be the best for him. A
portfolio manager is responsible for designing customized investment solutions for the
clients according to their financial needs. Portfolio Manager shall have minimum Net
worth of Rs. 5 Crores for registration.
Stock-broker & Sub-broker:
Stock Broker is a member of stock exchange and they are intermediaries who are
allowed to trade in securities on the exchange. They buy and sell on their own behalf as
well as on behalf of their clients. A stock broker plays an important role in the
secondary market helping both the seller and the buyer of the securities to enter into a
transaction. When executing an order the stock broker may on behalf of his client buy or
sell securities from his own account i.e. as principal acts, as an agent.
Sub-broker means any person not being a member of stock exchange who acts on behalf
of a stock broker as an agent or otherwise for assisting the investors in buying, selling
or dealing in securities through such stock brokers.
A sub-broker is one who works along with the main broker and is not directly
registered with the stock exchange as a member. He acts on behalf of the stock broker as
an agent or otherwise for assisting the investors in buying, selling or dealing in
securities through such stock brokers.
Custodian of Securities:
A custodian is a person who carries on the business of providing custodial services to
the client. The custodian keeps the custody of the securities of the client. The custodian
also provides incidental services such as maintaining the accounts of securities of the
client, collecting the benefits or rights accruing to the client in respect of securities.
Every custodian should have adequate facilities, sufficient capital and financial strength
to manage the custodial services. Custodians shall have minimum Net worth of Rs. 50
Crores for registration.

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Roles and Responsibilities:
i. Administrate and protect the assets of the clients.
ii. Open a separate custody account and deposit account in the name of each client.
iii. Record assets.
iv. Conduct registration of securities.
v. Custodial services refer to the safeguarding of securities of a client. The activities
relating to custodial services involve collecting the rights benefiting the client in
respect of securities, maintaining the securities' account of the client, informing
the clients about the actions taken or to be taken, and maintaining records of the
services.
Investment Adviser:
Investment Adviser means any person, who for consideration, is engaged in the
business of providing investment advice to clients or other persons or group of persons
and includes any person who holds out himself as an investment adviser, by whatever
name called.
The globalization of the capital markets, the proliferation of asset classes and the
bewildering variety of risks that the average institutional investor is confronted which
have increased the need for the specialized expertise that investment advisers provide.
Investment advisers serve as facilitators, making sure that all clients have many
opportunities to express their financial concerns and issues. Basically Investment
advisers give advice and provide services related to the investment management
process.
In order to add value, the investment adviser is called upon to apply specialized
knowledge, experience and analytical resources to create and deliver focused advice to
client and works to increase the investment knowledge of clients and thereby support
the fiduciary obligations clients face in the management of their plan.
Investment advisers who are non-individuals shall have a net worth of not less than Rs.
50 lakh. Investment advisers who are individuals shall have net tangible assets of value
not less than Rs. 5 lakh.
Credit Rating Agencies (CRA):
Credit Rating is an indicator of risk involved in any financial products. Credit Rating
symbolises risk of any financial product based on the overall evolution of the issuer
company. In other words, credit rating establishes a link between risk and return.
An investor can use credit rating to understand the level of risk and expected rate of
return from such financial product. We can also say that credit rating is the evaluation
of the creditworthiness of a business organisation based on various parameters like
financial conditions, industry risk and management etc.
As per SEBI (Credit Rating Agencies) Regulations, 1999, the definition of credit rating
agencies and rating: "CRA means a body corporate engaged in or proposes to be

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engaged in the business of rating of securities offered by the way of public or right
issue."
In simple term, CRA is a company that assigns credit ratings, which rate a debtor's
ability to pay back debt by making timely interest payments and the likelihood of
default. Further, it is an obligation on all the companies which are doing rating business,
must register itself with SEBI before starting its business. In India, there are six credit
rating agencies registered with SEBI which give credit ratings namely, CRISIL (Credit
Rating and Information Services (India) Limited), ICRA Limited (Investment
Information and Credit Rating Agency of India Limited), CARE (Credit Analysis and
Research Limited), India Ratings and Research Pvt. Ltd. (Formerly Fitch Rating India
Pvt. Ltd.), Brickwork Rating Pvt. Ltd., and SMERA (SME Rating Agency of India Limited).
Requirement: Minimum Rs. 25 Crores
INTERNAL AUDIT OF INTERMEDIARIES BY PCS
Efficient internal control systems and processes are basis key for good governance.
Governance is a dynamic concept requires constant evaluation and monitoring of the
systems and processes. In the context of Capital Markets, capital markets intermediaries
are an important constituent of overall governance framework. Being an important link
between regulators, investors and issuers, they are expected to ensure that their
internal controls are so efficient that ensure effective investor service at all times and
provide regulators comfort as to the compliance of regulatory prescription. In this
direction, SEBI has authorised PCS to undertake internal audit of various capital market
intermediaries.
ROLE OF COMPANY SECRETARY
All market intermediaries shall appoint a Company Secretary as a compliance officer
who shall be responsible for monitoring the compliance of the Act, rules and
regulations, notifications, guidelines, instructions etc. issued by SEBI or the CG and for
redressal of investors' grievances. The compliance officer shall immediately and
independently report to SEBI for any non-compliance observed by him.

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International Financial Services Centres
Authority (IFSCA)
BACKGROUND ON CAPITAL MARKET AND SECURITIES SECTOR IN INTERNATIONAL
FINANCIAL SERVICES CENTRE (IFSC)
The role of securities market in the domestic sector is to facilitate efficient allocation of
capital to companies and contribute towards overall development of the economy. The
role of the capital markets in IFSC is multifaceted as on one hand it seeks to provide
Indian companies an access to foreign capital and on the other hand it will be the gateway
to channelize flow of foreign capital into Indian capital market through various means,
including fund management. The funds set up in IFSC can pool capital from foreign
investors and NRIs for investments into various products in securities markets in India.
Further, the fund ecosystem in IFSC can also contribute towards attracting foreign
investments in certain sectors such as start-ups, SMEs, green and sustainable projects,
real estate projects, infrastructure investments, etc. The Indian corporates (including
banks, Central Public Sector Enterprises etc.) can also raise capital through listing of
foreign currency bonds and/ or masala bonds on the stock exchanges in IFSC. The IFSC
infrastructure in capital market consists of three stock exchanges viz., India International
Exchange, NSE IFSC and India International Bullion Exchange which offer various
derivative products, bonds and bullion trading through IFSC. Apart from the exchanges
there are clearing corporations, depository, broker-dealers, clearing members, depository
participants, custodians, investment advisors, portfolio managers, debenture trustee,
vault manager, etc. The IFSCA has notified the regulatory framework for several activities
in capital markets, including policies relating to regulation and supervision of market
infrastructure institutions (stock exchanges, clearing corporations and depositories),
issuance and listing of various securities on recognized stock exchanges in IFSC,
regulation and supervision of various types of intermediaries operating in capital markets
in IFSC and various fund management activities in IFSC. The Authority is aiming to
benchmark regulations with the best practices in other jurisdictions and to facilitate ease
of doing business in IFSC. Going forward, capital markets in IFSC aim to emerge as a
regional/ global hub to attract investments from the investors (including India) for
providing services and channelizing investments into overseas jurisdictions.

INTERNATIONAL FINANCIAL SERVICES CENTRE

Financial Services Centres those which cater to customers outside their own jurisdiction
are referred to as IFSCs. These centres are ‘international’ in the sense that they deal with
the flow of finance and financial products/services across borders. International financial
services (IFS) are those cross-border services, that deal with the flow of finance and
financial products and services such as raising of funds such as debt and equity, risk
management, mutual funds and pension funds, asset management done by insurance
companies, corporate treasury management operations among others. In common
parlance, an IFSC is a jurisdiction with high concentration of financial institutions such as
Banks, Stock Markets & related entities, Insurance firms, Fund Managers, FinTech firms,

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etc., which offer specialized financial services to non-residents and residents, in an
environment that promotes financial innovation and facilitates cross border transactions.
Importance of IFSCs
Globally, IFSCs have assumed prominence in the financial services ecosystem primarily
because of three reasons
1. they have contributed enormously to the growth of international financial transactions,
2. these centres have played a pivotal role in accelerating the pace of financial globalization,
and
3. these centres have played an invaluable role in accelerating the socio-economic growth of
host countries.
In the last three decades, the world has witnessed unprecedented expansion in global
trade and commerce. This global churn was primarily fueled by the integration of
developing countries, especially in Asia with the global financial system. These
fundamental changes brought about a paradigm shift in the global economy and created
huge demand for international financial services amongst developing countries. As a
result, several countries in Asia and Middle East took proactive measures to establish new
age International Financial Centres in Dubai, Abu Dhabi, Qatar, etc.
The Gujarat International Finance Tech-city (GIFT) SEZ is India’s maiden IFSC set up u/s
18 of the Special Economic Zone Act, 2005. It is being developed as a global financial
services hub. GIFT IFSC is a Multi Services SEZ which has commenced its business in April
2015.
The Percy Mistry committee report in 2007 highlighted the need for setting up an IFSC in
India to bring back the financial services and transactions, that are currently carried out
in offshore financial centres by Indian corporate entities to a centre which is physically on
Indian soil. Further, the IFSC has been designed as a special international financial
jurisdiction by virtue of Foreign Exchange Management Act, 2002 (“FEMA”). Under this,
the units in IFSC enjoy the benefits of a non-resident under exchange control provisions.
This special carve out enables transactions to be conducted in any freely convertible
foreign currency. In other words, while capital control restrictions are applicable in
domestic India, the same restrictions are not applicable in the IFSC jurisdiction.

Fiscal Benefits and Tax Exemptions for Gift-IFSC

Taxes and Duties Benefits for Units in IFSC Benefits for Investors
Income-tax a) 100% tax exemption for 10 (a) Interest income paid to non-
consecutive years out of 15 residents on: -
years (i) Monies lent to IFSC units not
b) IFSC Unit has the flexibility to taxable
select any 10 years out of 15 (ii) Long Term Bonds and Rupee
years block c) MAT / AMT @ 9% Denominated Bonds listed on
of book profits applies to IFSC exchanges taxable at lower
Company / others setup as a rate of 4%.
unit in IFSC - MAT not applicable
to companies in IFSC opting for (b) Transfer of specified

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new tax regime securities* listed on IFSC
exchanges by a non-resident not
d) Dividend paid to shareholders treated as transfer - Gains
of company in IFSC accruing thereon not chargeable
 From 01 April 2020, dividend to tax in India.
income distributed by Company
in IFSC to be taxed in the hands *Specified securities include
of the shareholder. Bond, GDR, Foreign currency
denominated bond, Rupee
denominated bond of an Indian
company, Derivatives, Unit of a
Mutual Fund, Unit of a business
trust, Unit of Alternative
Investment Fund and Foreign
currency denominated equity
share of a company.
Goods and Services a) No GST on services – No GST on transactions carried
Tax (GST) (i) received by unit in IFSC; out in IFSC exchanges.
(ii) provided to IFSC / SEZ units,
Offshore clients.

b) GST applicable on services

provided to Domestic Tariff
Area.
Other taxes duties State Subsidies – Exemption from Securities
 Lease rental, Transaction Tax, Commodity
 PF contribution, Transaction Tax, stamp duty in
 electricity charges. respect of transactions carried
out on IFSC exchanges.

Following taxes are at NIL rates: -

(i) Security Transaction Tax (STT)
(ii) Commodity Transaction Tax (CTT)
(iii) Dividend Distribution Tax (DDT)
(iv) Long Term Capital Gain (LTCG)
(v) Short Term Capital Gain (STCG)
Necessity of IFSC for domestic economy
 On shoring the offshore international financial services: One of the fundamental factors
which incentivized India to set up its own IFSC was the fact that as one of the largest and
fastest growing major economies in the world, India could no longer afford to play a
passive role in the international financial services ecosystem. India had been heavily
relying on overseas financial centres for the purchase of international financial services.
Therefore, GIFT-IFSC was set up to transform India from being an importer of
international financial services to becoming self-sufficient as well as an exporter of
international financial services. Thus, the vision was of “onshoring the offshore
international financial services”.

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 India’s economic growth trajectory: More significantly, a vibrant IFSC has the potential to
act as a growth catalyst for domestic Indian economy which is striving to become a USD 5
Trillion economy. Services offered in an IFSC, including Banking, Asset Management,
Insurance and Capital Markets attract huge amounts of global capital inflows, such
inflows can be channelized for the social economic development of India as well as to
meet the Sustainable Development Goals - 2030. Therefore, the development of an IFSC
was an imperative step in India’s economic growth trajectory.

Another driving force for setting up an IFSC within the country was to allow bright young
Indian talent especially in finance and information technology field to fully exhibit &
showcase their talent and expertise, who hitherto, had to travel and work in overseas
financial centres.
IFSC Benefits for India –
 Internationalisation of Rupee
 Regional Financial Integration
 Development of Niche Areas
 Gateway for inbound & outbound capital Flows
 Employment Generation
 Innovation in Financial Services

Thus, the setting up and operationalization of India’s maiden IFSC was a bold and historic
step which has catapulted India into a 21st century modern, resilient, and sustainable
economy. The below diagrams are the overview on GIFT-IFSC and also provides a bird
view on the Business activities in IFSC.

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IFSCA

INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY

A major inflection point in IFSC’s journey towards becoming a full-fledged International
Financial Centre, which is comparable to and competitive with other overseas financial
centres, came in the year 2019 when Government of India through the International
Financial Services Centres Authority Act, 2019 (hereafter referred to the Act) established
the International Financial Services Centres Authority (IFSCA) as a dedicated and unified
financial regulator for IFSCs in India. The IFSCA has been statutorily empowered to
develop and regulate the financial markets in the IFSCs in India.
The Act empowers IFSCA to exercise powers of four domestic regulators namely
 Reserve Bank of India (“RBI”),
 Securities & Exchange Board of India (“SEBI”),
 Insurance & Regulatory Development Authority of India (“IRDAI”) &
 Pension Fund Regulatory & Development Authority (“PFRDA”)
under 15 Central Acts in so far as development and regulation of financial products,
financial institutions and financial services within the IFSCs is concerned.
Thus, IFSCA can perform all such quasi-legislative, executive, and quasi-judicial
functions in IFSCs as are being performed by these regulators in domestic areas under
these 15 Acts.
To develop the IFSC, the Authority has adopted a multi-pronged and calibrated approach
which inter alia, includes creating an internationally aligned regulatory framework across
all business verticals such as
 Banking, Capital Markets,
 Fund Management,
 Insurance, etc.
Secondly, the authority is working to onshore new and niche international financial
services which were previously being procured entirely from overseas financial
jurisdictions.
The niche financial services include International Bullion Exchange, Aircraft Leasing and
Finance, Courses offered in Financial Management, Fin-Tech, Science, Technology,
Engineering and Mathematics by foreign universities or foreign institutions, Ship Leasing
and Financing, FinTech related services, etc. and thirdly, the Authority has been

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proactively working with multiple stakeholders to facilitate ease of doing business for the
global and domestic financial services industry operating from GIFT IFSC.
The IFSCA is a unique Authority which has been vested with a dual mandate of developing
and regulating the IFSCs in India. Section 12 of the Act specifically provides that in
addition to the regulatory powers of IFSCA, it shall be the duty of the IFSC Authority to
develop financial institutions, financial services and financial products within the IFSCs.

Functions of the Authority (Sec 12)

a) Develop and regulate the financial products, financial services and financial institutions in
an IFSC, by such measures as it deems fit.
b) Regulate those financial products, financial services and financial institutions in an IFSC:
i. which are permitted to operate in IFSC before the commencement of IFSCA Act, by any
regulator; and
ii. those which are notified by Central Government from time to time.
c) Recommend to the Central Government to notify other financial products, services and
institutions in an IFSC.

Powers of the Authority (Sec 13)

1. All powers exercisable by an appropriate regulator specified in First Schedule of the
IFSCA Act, 2019 under respective acts, in an IFSC shall be exercised by the IFSCA, in so for
as it relates to financial products, financial services and financial institutions.
2. Central Government can amend the First Schedule by including or omitting any financial
sector regulator and the law administered by it, through notification.

FINANCIAL PRODUCTS AND FINANCIAL SERVICES

Financial Products Section 3(1)(d) -
(i) Securities;
(ii) Contracts of insurance;
(iii) Deposits;
(iv) Credit arrangements; E.g., Trade Financing Services.
(v) Foreign currency contracts other than contracts to exchange one currency for another
that are to be settled immediately; and
(vi) Any other product or instrument that may be notified by the CG from time to time.
New Financial Products notified by the Central Government:
(i) Aircraft lease including operating and financial lease and any hybrid of operating and
financial lease of aircraft or helicopter and engines of aircraft or helicopter or any other
part thereof;
(ii) Bullion spot delivery contract;
(iii) Bullion depository receipt with underlying bullion;

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(iv) Operating lease including any hybrid of operating and financial lease of such product or
equipment as financial product. Under this, IFSCA has been empowered to bring
framework for products such as ship leasing and other equipment;
(v) Ship lease including operating lease, and hybrid of operating and financial lease, of a ship
or ocean vessel, engines of ship or ocean vessel, or any other part thereof, as a financial
product.
Financial Services -
(i) Buying, selling, or subscribing to a financial product or agreeing to do so;
(ii) Acceptance of deposits;
(iii) Safeguarding and administering assets consisting of financial products, belonging to
another person, or agreeing to do so;
(iv) Effecting contracts of insurance;
(v) Offering, managing or agreeing to manage assets consisting of financial products
belonging to another person;
(vi) Exercising any right associated with a financial product or financial service;
(vii) Establishing or operating an investment scheme;
(viii) Maintaining or transferring records of ownership of a financial product;
(ix) Underwriting the issuance or subscription of a financial product;
(x) Providing information about a person’s financial standing or creditworthiness; e.g., Credit
Information Companies, Credit rating agencies.
(xi) Selling, providing, or issuing stored value or payment instruments or providing payment
services;
(xii) Making arrangements for carrying on any of the above services;
(xiii) Rendering or agreeing to render advice on or soliciting for the purposes of—
a. buying, selling, or subscribing to a financial product; or
b. availing any of the services in sub-clauses (i) to (xi); or
c. exercising any right associated with a financial product or any of the services in clauses (i)
to (xi);
(xiv) Any other service that may be notified by the Central Government from time to time.
The framework allows the following permissible activities under ancillary services: -
a) Legal, Compliance and Secretarial;
b) Auditing, Accounting, Bookkeeping and Taxation Services;
c) Professional & Management Consulting Services;
d) Administration, Assets Management Support Services and Trusteeship Services;
e) Any other services as approved by IFSCA from time to time.
Under the said framework more than 34 Ancillary Services firms have been authorized by
IFSCA as of now.
New Financial Services notified by the Central Government:
(i) Global in-House Centres (GIC), as financial service to provide services relating to financial
products and financial services;

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(ii) Trading in bullion depository receipts with underlying bullion in relation to bullion spot
delivery contracts;
(iii) Provision of bullion financing, bullion-based loans, bullion loans against collateral, bullion
vaulting, clearing and settlement services in relation to bullion spot delivery contracts
and bullion depository receipts;
(iv) Courses offered in Financial Management, Fin-Tech, Science, Technology, Engineering and
Mathematics by foreign universities or foreign institutions in IFSC.

LISTING AND TRADING OF SECURITIES IN IFSC

In Globalized world, Global capital acts as an important driver of economic growth and
development. The setting up of the IFSC in India is aimed at tapping global capital flows to
meet India’s development needs and simultaneously provide international issuers a
globally competitive financial platform for the full range of international financial
services.
Section 23 (3) of the Companies Act, 2013, enable listing of equity shares of public Indian
companies in permissible foreign jurisdictions, including IFSC.
Listing of securities
(a) The IFSCA (Issuance and Listing of Securities) Regulations, 2021 (“Listing
Regulations”) enables the following types of listing:
(i) an initial public offer of specified securities by an unlisted issuer;
(ii) a follow-on public offer of specified securities by a listed issuer;
(iii) Listing of specified securities by a start-up company or a SME;
(iv) Secondary listing;
(v) An initial public offer of specified securities by a SPAC;
(vi) Listing of depository receipts;
(vii) Listing of debt securities (including SMART City bonds); and
(viii) Listing of ESG focused debt securities.
(b) The following entities would be eligible for listing of securities on the recognised stock
exchanges in IFSC:
i. A company incorporated in an IFSC;
ii. A company incorporated in India; and
iii. A company incorporated in a foreign jurisdiction.
(c) Further, in respect of listing of debt securities, the following entities are also eligible to
list on the recognised stock exchanges in IFSC:
i. any supranational, multilateral or statutory organisation/ institution/agency provided
such organization/institution/agency is permitted to issue securities as per its
constitution; and
ii. any municipality or any Statutory Body or Board or corporation, Authority, Trust or
Agency established or notified by any Central or State Act or any Special Purpose Vehicle
notified by the State Government or Central Government including for the purpose of
raising fund by the issuer to develop SMART city;

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iii. An entity whose securities are irrevocably guaranteed by a Sovereign (India or a Foreign
Jurisdiction).
Listing of specified securities through IPO (including Offer for Sale)
The salient features for raising of capital through IPOs on a recognised stock exchange in
IFSC are as follows:
A. Eligibility:
An issuer shall be eligible to make an initial public offer only if:
a. the issuer has an average pre-tax profit, based on consolidated audited accounts, of at
least USD 1 million during the preceding 3 FY; or
b. the issuer has an operating revenue of at least USD 20 million in the preceding FY; or
c. any other eligibility criteria that may be prescribed by IFSCA.
B. Issue size:
The issue size shall be atleast USD 15 million or any other amount as may be specified by
IFSCA from time to time.
C. Minimum subscription:
The minimum number of subscribers should be 200 and at least 75% of the offer size
should be subscribed for the offer to be successful.
D. Lock-up:
The pre-issue shareholding shall be locked-up for 180 days from the date of allotment in
the IPO.
Listing of Start-up and SME Companies
The start-up fulfilling the following criteria shall be eligible to list on the recognised stock
exchanges in IFSC:
a) Less than 10 years from the date of incorporation;
b) The turnover of the company for any of the financial years since incorporation should not
have exceeded USD 20 million.
c) The company is working towards innovation, development or improvement of products
or processes or services, or it is a scalable business model with a high potential of
employment generation or wealth creation.
The SME Companies, as defined in their respective home jurisdiction, shall be eligible to
list on specified securities on a recognised stock exchange.
The salient features for the framework for listing of start-up and SME companies
are as follows:
(a) Direct Listing: The start-ups and SMEs are also permitted to list on the recognised
stock exchanges in IFSC without public offer. This would encourage start-ups (including
Fintech companies) to list in IFSC and would be a step towards developing IFSC as a hub
for Fintech companies.

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(b) Offer size in case of public offer: Not less than USD 2 million or any other amount as
may be specified by IFSCA from time to time.
(c) Minimum subscription: The minimum number of subscribers should be 50 and at
least 75% of the offer size should be subscribed for the offer to be successful.

Listing of SPAC
A SPAC shall be eligible to raise capital through IPO of specified securities on the
recognised stock exchanges in IFSC, only if:
(a) The primary objective of the issuer is to effect a merger or amalgamation or acquisition of
shares or assets of a company having business operations (“business acquisition”);
(b) The issuer does not have any operating business.
The salient features of the framework for listing of SPACs are as follows:
(a) Offer size: Not less than USD 50 million or any other amount as may be specified by
the Authority from time to time. Further, the sponsor shall hold at least 20% of the post
issue paid up capital.
(b) Minimum application size: The minimum application size in an initial public offer of
SPAC shall be USD 250,000.
(c) Minimum subscription: At least 75% of the offer size.
(d) SPAC specific obligations: Requirements have also been prescribed with respect to
maintenance of escrow account, eligible investments pending utilisation, acquisition
timeline of 3 years extendable up-to 1 year, right of dissenting shareholders, liquidation
provisions, etc.
Listing of Debt Securities
The following categories of debt securities (including ESG focused bonds, SMART City
bonds) shall be eligible for listing on recognised stock exchanges in IFSC:
(a) Debt securities issued by issuers incorporated in IFSC;
(b) Debt securities issued by issuers incorporated in India or foreign jurisdiction in any
currency other than INR;
(c) Masala Bonds;
(d) Any other debt securities as permitted by relevant authority from time to time.
SEBI (IFSC) Guidelines, 2015
These Guidelines, 2015 provides a comprehensive regulatory framework for Market
Infrastructure Institutions (MII) such as Stock exchanges, Clearing corporation,
Depositories.
Eligibility and shareholding
1) Eligibility and shareholding limit for stock exchanges desirous of operating in IFSC:
Any Indian recognised stock exchange or any stock recognised exchange of a foreign
jurisdiction may form a subsidiary to provide the services of stock exchange in IFSC

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wherein at least fifty-one per cent. of paid-up equity share capital shall be held by such
stock exchange and the remaining share capital shall be held by the following:
a) any other stock exchange,
b) a depository,
c) a banking company,
d) an insurance company,
e) commodity derivatives exchange, whether Indian or of foreign jurisdiction, and
f) a public financial institution of Indian jurisdiction.
However, any one of the aforesaid entities may acquire or hold, either directly or
indirectly, either individually or together with persons acting in concert, up to 15 % of the
paid-up equity share capital of such stock exchange.
2) Eligibility and shareholding limit for clearing corporations desirous of operating in
IFSC:
Any Indian recognised stock exchange or clearing corporation, or any recognised stock
exchange or clearing corporation of a foreign jurisdiction shall form a subsidiary to
provide the services of clearing corporation in IFSC wherein at least 51% of paid-up
equity share capital shall be held by such stock exchange or clearing corporation, and
remaining share capital shall be held by the following:
a) any other stock exchange,
b) a clearing corporation,
c) a depository,
d) a banking company,
e) an insurance company, whether Indian or foreign jurisdiction, and
f) a public financial institution of Indian jurisdiction.
However, any one of the aforesaid entities may acquire or hold, either directly or
indirectly, either individually or together with persons acting in concert, up to fifteen per
cent. of the paid-up equity share capital of such clearing corporation.

3) Eligibility and shareholding limit for foreign depositories desirous of operating in

IFSC:
(a) Any regulated depository of a foreign jurisdiction shall form a subsidiary to provide the
depository services in IFSC where at least 51% of paid-up capital is held by such
depository or recognised stock exchange or clearing corporation, whether Indian or of
foreign jurisdiction.
(b) Setting up of IFSC Depositories Services by Indian registered depositories: Any
Indian registered depository may set up a branch – IFSC Depository Services (IDS) at
IFSC. The interested depositories shall be required to obtain prior approval of the Board
for setting up an IDS. Such Indian depository shall be required to ring fence its domestic
operations, financially, operationally, and technologically, from its operations at IFSC.

4) Permissible securities: The stock exchanges operating in IFSC may permit dealing in
following types of securities and products in such securities in any currency other than
Indian rupee, with a specified trading lot size on their trading platform subject to prior
approval of the SEBI:
i) Equity shares of a company incorporated outside India;
ii) Depository receipt(s);
iii) Debt securities issued by eligible issuers;

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iv) Currency and interest rate derivatives;
v) Index based derivatives;
vi) Commodity Derivatives;
vii) Derivatives on Equity shares;
viii) Such other securities as may be specified by the Board.

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ICDR
Issue of Capital & Disclosure Requirements
(ICDR)
Stages of an Issue
The whole process of issue of shares can be divided into two parts:
 Pre-issue activities, and
 Post-issue activities

IMPORTANT DEFINITIONS
Qualified Institutional Buyer:
i. Mutual fund, venture capital fund investor registered with the SEBI;
ii. A foreign institutional investor and sub-account (other than a sub-account which
is a foreign corporate or foreign individual), registered with the SEBI;
iii. A public financial institution;
iv. A scheduled commercial bank;
v. A multilateral and bilateral development financial institution;
vi. A State industrial development corporation;
vii. Insurance company registered with the IRDA;
viii. A provident fund with minimum corpus of Rs. 25 crore;
ix. A pension fund with minimum corpus of Rs. 25 crore;
x. National Investment Fund set up by resolution of the GOI published in the
Gazette;
xi. Insurance funds set up and managed by army, navy or air force of the Union of
India;
xii. Insurance funds set up and managed by the Department of Posts, India.

Anchor Investor: Means a QIB who makes an application for the following values:

Case Minimum value of Application

Public issue on the main board made through the At-least Rs. 10 Crore
book building process
Public issue of Small Medium Enterprises (SME) At-least Rs. 2 Crore

Draft Offer document: means the offer document in draft stage. The draft offer
documents are filed with SEBI, at least 30 days prior to the filing of the Offer
Document with ROC/SEs who may specify changes, if any, in the Draft Offer Document
and the Issuer shall carry out such changes in the draft offer document before filing the
Offer Document with ROC/SEs. The Draft Offer document is available on the SEBI
website for public comments for 21 days from the filing of the Draft Offer Document
with the SEBI.

Offer Document: Offer document means Prospectus/Shelf Prospectus/Red Herring

Prospectus in case of a public issue and Letter of Offer in case of a right issue, which is
filed with ROC and SE. It covers all relevant information to help an investor to make
investment decision.
Note: Offer Document before filing with ROC is a draft Offer Document.
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ICDR

Red Herring Prospectus (RHP): It is a prospectus, which does not have details of
either price or number of shares being offered, or the amount of issue. An RHP for an
FPO can be filed with the ROC without the price band and the issuer, in such a case will
notify the floor price or a price band by way of an advertisement one day prior to the
opening of the issue. Only on completion of the bidding process, the details of the final
price are included in the offer document. The offer document filed thereafter with ROC
is called a prospectus.

Reference Date: Reference date means:

 In case of a public issue of securities by a listed company - the date of filing of red
herring prospectus (in case of a book built issue) or prospectus (in case of a fixed
price issue) with ROC;
 In case of a rights issue of securities by a listed company where the aggregate value
of such securities, including premium, if any, exceeds Rs. 10 Cr - the date of filing of
letter of offer with Designated Stock Exchange (DSE).

Infrastructure Company:
An enterprise wholly engaged in the business of -
i. Developing, or
ii. Operating and maintaining, or
iii. Developing, operating and maintaining any infrastructure facility.

Promoter:
Promoter shall include a person -
i. who has been named as such in a draft offer document or offer document or is
identified by the issuer in the annual return; OR
ii. who has control over the affairs of the issuer, directly or indirectly whether as a
shareholder, director or otherwise; OR
iii. in accordance with whose advice, directions or instructions the BOD of the issuer
is accustomed to act.

Note: If a person gives direction/instructions merely in professional capacity, he shall

not be treated as promoter.

TYPES OF ISSUES
Public Issue of shares means the selling of shares to the general public by issue of
prospectus. Primary Market deals with those securities, which are issued to the public
for the first time. A company can raise funds from the primary market by using the
following methods:

Public Issue: When an offer is made to new investors (general public) for becoming
shareholders of the issuer company it is called a public issue.

Classification of Public issue:

(i) Initial Public Offer (IPO):
When an unlisted public company offers its securities for sale for the first time to the
general public, it is known as an IPO.
(ii) Further Public Offer (FPO) or Follow on offer:
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When a listed company offers a fresh issue of securities to the general public for sale, it
is known as an FPO.

Rights Issue: When a listed company offers or issues securities to the existing
shareholders on a particular date fixed by the issuer company (i.e. record date), it is
called a rights issue. The rights issue is always issued at price not like bonus shares.

Bonus Issue: When an issuer makes an issue of securities to its existing shareholders as
on a record date, without any consideration from them, it is called a bonus issue. The
shares are issued out of the company's free reserve or share premium account in a
particular ratio to the number of securities held on a record date.

Private Placement: When an issuer makes an issue of securities to a select group of

persons not exceeding 200 and which is neither a rights issue nor a public issue, it is
called a private placement.

APPLICABILITY OF THE SEBI (ICDR) REGULATIONS, 2018

 Initial public offer by an unlisted issuer
 Further public offer by a listed issuer
 Preferential issue by a listed issuer
 Bonus issue by a listed issuer
 Listing on the innovators growth platform through an issue or without an issue
 Initial public offer by a small and medium enterprise
 Initial public offer of Indian depository receipts
 Right issue of Indian depository receipts

INITIAL PUBLIC OFFER/ FURTHER PUBLIC OFFER

When an unlisted public company offers its securities for sale for the 1st time to the
general public, it is known as an IPO.

Eligibility requirements for an initial public offer [Reg 6(1) & 6(2)]
An unlisted company can make an IPO of equity shares only if it fulfils the
following conditions.
The company has:
i. Net tangible assets of at least Rs. 3 Cr in each of the preceding 3 full years, of
which not more than 50% is held in monetary assets.
However, if more than 50% of the net tangible assets are held in monetary
assets, the issuer has utilized or made firm commitments to utilize such excess
monetary assets in its business or project. This limit of 50% shall not apply in
case of IPO is made entirely through an offer for sale.
ii. Minimum Average Operating Profit of Rs. 15 Cr during preceding 3 years with
operating profit in each of these preceding 3 years.
iii. Net worth of at least Rs. 1 Cr in each of the preceding 3 full years.
iv. In case of change of name of the company within the last 1 year, at least 50% of
the revenue for the preceding 1 full year is being earned by the company from
the activity suggested by the new name.
In case of FPO

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In case of change of name of the company within the last 1 year, at least 50% of the
revenue for the preceding 1 full year is being earned by the company from the activity
suggested by the new name.

Alternatively: If a company does not satisfy the above conditions it can bring an IPO
only if it is made through the book-building process and the issuer undertakes to allot,
at least 75% of the net offer to public, to QIB and to refund full subscription money if it
fails to make the said minimum allotment to QIB.

Ineligibility (Reg 5(1)&(2))

An issuer shall not be eligible to make an IPO/FPO if-
(a) The issuer, any of its promoters, promoter group or directors or selling
shareholders are debarred from accessing the capital market by the SEBI.
(b) If the issuer or any of its promoters or directors is a wilful defaulter or fugitive
economic offender.
(c) If there are any outstanding convertible securities or any other right which
would entitled any person with any option to receive equity shares of the issuer.

NON-APPLICABILITY of Reg 5
 Outstanding options granted to employees (past or present), pursuant to an ESOS.
 Fully paid-up outstanding convertible securities which are required to be converted
on or before in the date of filing of the red herring prospectus or the prospectus.

General Conditions for IPO/FPO [Reg 7 & Reg 104]

An issuer making an initial public offer shall ensure that:
An issuer making an initial public offer shall ensure that:
i. it has made an application to one or more stock exchanges to seek an in-principle
approval for listing of its specified securities on such stock exchanges and has chosen
one of them as the designated stock exchange;
ii. it has entered into an agreement with a depository for dematerialisation of the
specified securities already issued and proposed to be issued;
iii. all its specified securities held by the promoters are in dematerialised form prior to
filing of the offer document;
iv. all its existing partly paid-up equity shares have either been fully paid-up or have
been forfeited;
v. it has made firm arrangements of finance through verifiable means towards 75% of
the stated means of finance for a specific project proposed to be funded from the
issue proceeds, excluding the amount to be raised through the proposed public issue
or through existing identifiable internal accruals.
The amount for general corporate purposes, as mentioned in objects of the issue in the
draft offer document and the offer document shall not exceed 25% of the amount being
raised by the issuer.

Issue of Warrants in IPO/FPO (Reg 13 & 111)

Eligibility
 A specified security may have one or more warrants attached to it
 Tenure of such warrants shall not exceed 18 months from the date of their
allotment in the IPO

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 In case the warrant holder does not exercise the option to take equity shares within
3 months from the date of payment of consideration, such consideration shall be
forfeited by the issuer.
 Price or formula for determination of exercise price of the warrants shall be
determined upfront and disclosed in the offer document and at least 25 % of the
consideration amount based on the exercise price shall also be received upfront

Minimum Promoters Contribution in IPO (Reg 14)

Unlisted company Public Issue Not less than 20% of the post issue capital
Listed company Public issue Up to 20% of proposed issue or 20% of post
issue capital
Listed company Composite issue 20% of proposed issue or 20% of post issue
capital

Provided further that the requirement of minimum promoters' contribution shall not
apply in case an issuer does not have any identifiable promoter.

Promoters shall contribute 20%., as the case may be, either by way of equity
shares including SR equity shares held, if any, or by way of subscription to
convertible securities.

Here “SR equity shares” means the equity shares of an issuer having superior voting
rights compared to all other equity shares issued by that issuer.

Exemption from requirement of promoters’ Contribution:

The requirements of minimum promoters’ contribution shall not apply in case of:
a) No identifiable promoter
b) Where the equity shares are frequently traded for a period of at least 3 years
immediately preceding the reference date, and:
 the issuer has redressed at least 95% of the investor complaints received till the
end of the quarter immediately preceding the month of reference date, and
 the issuer has been in compliance with the LODR Regulation for a minimum of
3 years immediately preceding the reference date
c) Right issue

Important Provisions: Promoters shall bring in the full amount of the promoter's
contribution including premium at least one day prior to the issue opening date. The
promoter's contribution shall be kept in an escrow account and the said contribution
amount shall only be released to the company along with the public issue proceeds.

Where the promoter's contribution has been brought prior to the public issue and has
already been deployed by the company, the company shall give the cash flow statement
in the offer document disclosing the use of such funds. If the promoter's contribution
exceeds Rs. 100 Cr, the promoters shall bring in Rs. 100 Cr. before the opening of the
issue and the remaining contribution shall be brought in by the promoters in advance
on pro-rata basis before the calls are made on public.
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Lock-in-Period for Promoter’s Contributions (Reg 16 & Reg 115)
The promoter's minimum contribution (i.e. 20%) shall be locked-in for 18 months
from the date of commencement of commercial production or the date of allotment in
the public issue, whichever is later.
The excess promoters' contribution over the required minimum contribution shall be
locked-in for 6 months from the date of commencement of commercial production or
the date of allotment in the public issue, whichever is later.

Pricing (Reg 28 & 126)

Price of Issue

Face Value Issue Price

Differential
Free Pricing
Pricing
Face Value (Reg 27& 125)
An issuer company is free to decide the denomination of each equity share for any
initial public offer. The disclosure about the face value of equity shares shall be made in
the draft offer document, offer document, advertisements and application forms, along
with the price band or the issue price.

Issue Price
Free Pricing
A company may freely price its public issue of equity shares. An issuer company shall
decide the price of public issue in consultation with lead merchant banker. SEBI & Govt,
do not play any role in price fixation. Issue price should not be less than face value
otherwise it will result into contravention of Sec 53 of the Companies Act, 2013.

In this regard, the company and the lead merchant banker are required to give full
disclosure of the parameters of fixing of price.

There are 2 types of price:

 Fixed Price, and
 Floor Price/Price Band

Differential Pricing (Reg 30 & 128)

An issuer company can offer securities subject to the following provisions:
i. It will only be offered to retail individual investors/employees.
ii. The value for making an application under this category shall not be more than
Rs. 2 Lakhs.
Note:
1. ‘Retail individual investor’ means an investor who applies or bids for securities of or
for a value of not more than Rs. 2,00,000.

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2. ‘Employee’ means a permanent employee, working in India or outside India, of the
issuer or of the promoters or subsidiary company of the issuer, or a director of the
issuer, whether whole-time or not and does not include -
a) Promoters;
b) A person belonging to the promoter group; or
c) A director who either himself/herself or through their relatives or through any
body corporate, directly or indirectly, holds more than 10% of the outstanding
equity shares of the issuer.
iii. The difference shall not be more than 10% of the price at which specified
securities are offered to other categories of applicants.
iv. If the issuer company opts for alternate method of book building, the issuer
company can offer securities to its employees at a price, lower than floor price
and the difference between such price and floor price shall not be more than
10%.

Price and Price Band (Reg 29 & 127)

 For Book Building Process: The issuer company has to announce price band in
place of fixed price for the issue of securities. The price band shall be included in the
red herring prospectus of the company.
 For Other than Book Building Process: The issuer company has to fix price of
issue of securities before submitting prospectus with the ROC.

Reservation on Competitive Basis [Reg 33 & 130]

The issuer may make reservation on a competitive basis out of the issue size excluding
promoters’ contribution in favour of the following categories of persons:
 Employees;
 shareholders (other than promoters and promoter group) of listed subsidiaries or
listed promoter companies.
But not for
 the lead managers,
 registrar,
 syndicate members,
 their promoters, directors and employees and
(2) In case of an FPO, other than in a composite issue, the issuer may make a reservation
on a competitive basis out of the issue size excluding promoters’ contribution for the
existing retail individual shareholders of the issuer.
(3) The reservation on competitive basis shall be subject to following conditions:
 the aggregate of reservations for employees shall not exceed 5% of the post
issue capital and the value of allotment to any employee shall not exceed Rs. 2
Lakh. However, in the event of under-subscription in the employee
reservation portion, the unsubscribed portion may be alloted on a
proportionate basis, for a value in excess of Rs. 2 Lakh, but not exceeding Rs. 5
Lakh.
 reservation for shareholders shall not exceed 10% of the issue size;
 No further application for subscription in the net offer can be made by
persons (except an employee and RII of the listed issuer and RII of listed

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subsidiaries of listed promoter companies) in favour of whom reservation on
a competitive basis is made;
 any unsubscribed portion in any reserved category may be added to any other
reserved category and the unsubscribed portion, if any, after such inter-se
adjustments among the reserved categories shall be added to the net offer
category;
 in case of under-subscription in the net offer category, spill-over to the extent
of under-subscription shall be permitted from the reserved category to the net
public offer category.
(4) An applicant in any reserved category may make an application for any member of
specified securities, but not exceeding the reserved portion for that category.
The issuer shall accept bids using only the ASBA facility in the manner specified by SEBI.

Security Deposit [Reg 38 & 135]

The issuer shall, before the opening of the subscription list, deposit with the stock
exchange 1% of the issue size.

Allocation in net offer to Public

In book building process as per regulation 6(1)-

a) atleast 35% to retail individual investors (RII);
b) atleast 15% to non-institutional investors;
c) max 50% to QIB, 5% of which shall be allocated to mutual fund.

In book building process under regulation 6(2), -

a) max 10% to RII;
b) max 15% to non-institutional investors;
c) at least 75% to QIB, 5% of which shall be allocated to mutual fund.

In other than the book building process, -

a) Minimum 50% to RII; and
b) Remaining to:
 Individual applicants other than RII, and
 Other investors including corporate bodies or institutions, irrespective of the
number of specified securities applied for.

Underwriting (Reg 40 & 136)

Underwriting means an agreement with the underwriters to subscribe to the securities
of a company when the total subscription from all the subscribers does not match the
minimum subscription (i.e. 90% of the issue). In short, underwriting means an
agreement with or without conditions to subscribe to the securities of a body corporate
when the existing shareholders of such body corporate and/or the public do not
subscribe to the securities offered to them.

In this regard, the important provisions are:

a) The issuer company shall appoint one or more underwriters.
b) Book building issue, shall be underwritten by lead managers or syndicate members.
c) QIBs cannot be underwritten.

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d) There should be a valid underwriting agreement with lead managers, and other
syndicate members.
e) If syndicate members fail to fulfill their underwriting obligations, the lead managers
shall fulfill the underwriting obligations.

Monitoring Agency [Reg 41 & 137]

If the issue size excluding the size of offer for sale by selling shareholders, exceeds
Rs.100 crores, the issuer shall ensure that the use of the proceeds of the issue is
monitored by a public financial institution or by one of the scheduled commercial
banks named in the offer document as a banker to the issuer

The monitoring agency shall submit its report to the issuer on a quarterly basis, till at
least 95% of the proceeds of the issue excluding the proceeds raised for general
corporate purposes, have been utilized.
 The BOD and the management of the issuer shall provide their comments on the
findings of the monitoring agency.
 The issuer shall, within 45 days from the end of each quarter, publicly
disseminate the report by uploading the same on its website as well as submitting
the same to the stock exchange(s) on which its equity shares are listed.

Note: Above provision is not applicable if the issuer is a bank or a public financial
institution or an insurance company.
Issue-related Advertisements [Reg 43 & 139]
 The issuer shall, after filing the RHP or prospectus with the ROC, make a pre-issue
advertisement in newspapers disclosing all the material facts of the Issue.

Opening of the Issue (Reg 44 & 140)

An IPO may be opened within 12 months from the date of issuance of the observation
letter by SEBI.
In case the issuer has filed a shelf prospectus, the first issue may be opened within 3
months of the issuance of observations by the SEBI.
In case of book building process, an issue shall be opened after at least 3 working
days from the date of registering the RHP.

Minimum Subscription (Reg 45 & 141)

The minimum subscription to be received should not be less than 90% of the offer
otherwise all application monies received shall be refunded within 15 days from the
closure of the issue.
Note: The requirement of minimum subscription is not applicable to offer for sale.

Period for Subscription (Reg 46 & 142)

A public issue must be kept open for at least 3 working days but not more than 10
working days.
if the price band is revised, the bidding period should be extended for a minimum 3
working days. However, the total bidding period should not exceed 10 working days.
Rights issue should be kept open for a minimum 7 days and for a maximum 30 days.

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Minimum Number of Share Applications and Application Money (Reg 47 & 143)
The minimum application money varies from issue to issue within the range of Rs.
10,000 to Rs. 15,000.
The minimum application moneys to be paid by an applicant at the time of
application shall not be less than 25% of the issue price.

Manner of Calls [Reg 48 & 144]

If the issuer proposes to receive subscription monies in calls, it shall ensure that the
outstanding subscription money is called within 12 months from the date of allotment
and if applicant fails to pay the call money then his shares shall be forfeited.
Note: In case the issuer has appointed a monitoring agency, the issuer shall not be
required to call the outstanding subscription money within 12 months.

Basis for Allotment [Reg 49 & 145]

The MD of Stock Exchange and Lead Merchant Banker and the RTI shall finalise the
basis of allotment in a fair and proper manner and allotment shall not be made if the
number of allottees are less than 1000.

Allotment, refund and payment of interest (Reg 50 & 146)

The issuer and lead managers shall ensure that:
 The specified securities are allotted, Application monies are refunded or unblocked
within specified time.
 Credit of dematerialized securities and refund or unblocking of application monies,
as may be applicable, are done electronically.
 Payment of interest at the rate of 15% p.a. if refund not done within specified time.
Post-Issue Advertisements (Reg 51 & 147)
After completion of issue, the Lead Manager is required to advertise all information
relating to oversubscription, basis of allotment, number, value and percentage of
applications, number, value and percentage of successful allottees, date of completion of
dispatch of refund orders or instructions to self certified syndicate banks by the
Registrar, date of dispatch of certificates and date of filing of listing application is
released within 10 days from the date of completion of the various issue related
activities.

Release of subscription money [Regulations 53 & 149]

 The lead managers shall confirm to the bankers to the issue that all formalities of
issue have been completed and that the banker is free to release the money to the
issuer or release the money for refund in case of failure of the issue.
 In case the issuer fails to obtain listing or trading permission, it shall refund through
verifiable means the entire monies received within 7 days of receipt of intimation
rejecting the application for listing and if any such money is not repaid within 8
days after the issuer becomes liable to repay it, the issuer and every director of the
company who is an officer in default shall, on and from the expiry of the 8th day, be
jointly and severally liable to repay that money with interest at 15% per annum.
 The lead managers shall ensure that the monies received in respect of the issue are
released to the issuer.

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Post-issue reports (Reg 55 & 151)
The lead manager(s) shall submit a final post-issue report, along with a due diligence
certificate as, within 7 days of the date of finalization of basis of allotment or within 7
days of refund of money in case of failure of issue.

Fast Track Right Issue

This concept was introduced for the purpose to access primary market in lesser time.
“Fast Track Issues" enable well established and law compliant listed companies to
access Indian primary market in a time effective manner. A Listed Company has to
satisfy terms & conditions for accessing primary market under Fast Track Issues
scheme.

The aforesaid companies are not required to file draft offer document with SEBI and SE.

Fast Track FPO (Reg 155)

Under fast track Issue, Company need not to file the draft offer document with SEBI and
obtain observations from SEBI, if it satisfies the following conditions for making a FPO
through fast track route:
 Equity shares of the issuer have been listed on any stock exchange for at least 3
years immediately preceding the reference date
 Entire shareholding of the promoter group is held in dematerialised form on the
reference date.
 Average market capitalisation of public shareholding of the issuer is at least Rs.1000
crores.
 Annualised trading turnover of the equity shares of the issuer during 6 calendar
months immediately preceding the month of the reference date has been at least 2%
of the weighted average number of equity shares listed during such 6 months’
period. However, if the public shareholding is less than 15% of its issued equity
capital, the annualised trading turnover of its equity shares has been at least 2% of
the weighted average number of equity shares available as free float during such 6
months’ period.
 Annualized delivery-based trading turnover of the equity shares during 6 calendar
months immediately preceding the month of the reference date has been at least
10% of the annualised trading turnover of the equity shares during such 6 months
period
 The issuer has been in compliance with LODR Reg, 2015, for at least 3 years
immediately preceding the reference date.
However, if not complied with LODR Reg 2015, relating to composition of BOD, for
any quarter during the last 3 years but complied at the time of filing of letter of offer,
and adequate disclosures are made in the letter of offer about such non-
compliances, it shall be deemed complied.
 Issuer has redressed at least 95% of the complaints received from the investors till
the end of the quarter immediately preceding the month of the reference date.
 No show-cause notices have been issued or prosecution proceedings have been
initiated by the SEBI and pending against the issuer or its promoters or WTD as on
the reference date;
 Issuer or promoter or promoter group or director of the issuer has not settled any
alleged violation of securities laws through the consent or settlement mechanism
with the SEBI during last 3 years.
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 Trading of Equity shares of issuer have not been suspended during last 3 years.
 There shall be no conflict of interest between the lead merchant bankers and the
issuer or its group or associate company in accordance with applicable regulations.
 Impact of audit qualifications, does not exceed 5% of the net profit or loss after
tax of the issuer for the respective years.

“Average Market Capitalisation of Public Shareholding” means the sum of daily

market capitalisation of public shareholding for 1 year up to the end of the quarter
preceding the month in which the proposed issue was approved by the shareholders or
the board of the issuer, as the case may be, divided by the number of trading days.

EXIT OPPORTUNITY TO DISSENTING SHAREHOLDERS [SCHEDULE XX]

Conditions for Exit Offer
The promoters or shareholders in control shall make the exit offer, to the dissenting
shareholders, if:
 The proposal for change in objects or variation in terms of a contract, referred to in
the offer document is dissented by at least 10 % of the shareholders who voted
in the general meeting; and
 The amount to be utilized for the objects for which the offer document was issued
is less than 75 % of the amount raised.

Eligibility of shareholders for availing the exit offer

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

Exit offer price

The ‘exit price’ payable to the dissenting shareholders shall be the highest of the
following:
 the volume-weighted average price paid or payable for acquisitions, whether by
the promoters or shareholders having control or by any person acting in concert
with them, during the 52 weeks immediately preceding the relevant date;
 the highest price paid or payable for any acquisition, by any acquirer, during the 26
weeks immediately preceding the relevant date;
 the volume-weighted average market price of such shares of 60 trading days
immediately preceding the relevant date, provided such shares are frequently
traded;
 For infrequently traded shares, the price determined by the promoters or
shareholders having control and the merchant banker taking into account valuation
parameters including book value, comparable trading multiples, and such other
parameters as are customary for valuation of shares of such issuers.

Manner of providing exit to dissenting shareholders

 The notice of SR for changing the objects of the issue shall also contain information
about the exit offer to the dissenting shareholders.
 After passing of SR, the issuer shall submit the voting results to SE along with list of
dissentient shareholders.

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 The promoters or shareholders in control (Acquirers), shall appoint a merchant
banker and finalize the exit offer price and shall intimate the stock exchange about
it.
 The stock exchanges shall disseminate the same to public within 1 working day.
 To ensure security for performance of their obligations, Acquirers shall create an
escrow account and deposit consideration at least 2 working days prior to opening
of the tendering period.
 The tendering period shall start within 7 working days from Date of SR and shall
remain open for 10 working days.
 The dissenting shareholders who have tendered their shares shall have the option
to withdraw such acceptance till the date of closure of the tendering period.
 The Acquirers shall provide facility through the stock exchange mechanism as
specified by SEBI for the purpose of takeover, buy-back and Delisting.
 The promoters or shareholders having control shall, within 10 working days from
the last date of the tendering period, make payment of consideration to the
dissenting shareholders who have accepted the exit offer.
 Within 2 working days from the payment of consideration, the issuer shall provide
all the details to the stock exchanges.

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SBEB & SE
Share Based Employee Benefits and Sweat Equity
HISTORY
Earlier SEBI (Issue of Sweat Equity) Regulations, 2002 ("Sweat Equity Regulations") and
SEBI (Share Based Employee Benefits) Regulations, 2014 (“SBEB Regulations”) were
notified.

Where the Sweat Equity regulations provided framework for issuance of Sweat Equity
shares by listed companies and the SBEB Regulations provided framework to regulate
Employee Stock Option Scheme, Employee Stock Purchase Scheme and other share based
employee benefits.

Further, to improve ease of doing business from a regulatory perspective, it was observed
that, both the SBEB Regulations and the Sweat Equity Regulations regulate employee
benefits arising out of and relating with the equity shares of listed companies, thus the
possibility of merging both such regulations may be explored. Accordingly, the SEBI
constituted the Expert Group to analyze the above proposals, and to provide its
recommendations to:
 Review the framework of SBEB regulations and suggesting policy change thereto.
 Review the framework of SEBI Sweat equity regulations vis-à-vis the Companies Act,
2013 and suggesting policy changes thereto.
 Suggest, whether it is advisable to combine both the regulations and if so, providing a
draft of combined regulations.

The changes in the 2 regulations and their merger into a single regulation were approved
by SEBI in the Board Meeting held on August 06, 2021.
Thereafter, the SEBI (SBEB and Sweat Equity) Regulations, 2021 have been notified and
become effective on August 13, 2021.
And, the SEBI (SBEB) Regulations, 2014 and SEBI (Issue of Sweat Equity) Regulations,
2002 stand repealed.

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SBEB & SE
SHARE BASED EMPLOYEE BENEFITS (CHAPTER I, II and III)

APPLICABILITY
The provisions of these regulations shall apply to the following: -
(i) Employee stock option schemes;
(ii) Employee stock purchase schemes;
(iii) Stock appreciation rights schemes;
(iv) General employee benefits schemes;
(v) Retirement benefit schemes; and
(vi) Sweat equity shares.

COMPANIES COVERED
These regulations shall apply to Listed company who seeks to issue sweat equity shares
or has a scheme: -
i. for direct or indirect benefit of employees;
ii. involving dealing in or subscribing to or purchasing securities of the Company, directly or
indirectly and
iii. Satisfying directly or indirectly , any one of the following conditions:
a) The scheme is set up by the company or its group company.
b) The scheme is funded or guaranteed by the company or its group company.
c) The scheme is controlled or managed by the company or its group company.

IMPORTANT DEFINITIONS
1. Employee, except in relation to issue of sweat equity shares, means, —
(i) an employee of company, working in India or outside India; or
(ii) a director of the company, whether a WTD or not, including a non-executive director who
is not a promoter or member of the promoter group, but excluding an independent
director; or
(iii) an employee or Director of a group company including subsidiary or its associate
company or of a holding company of the company,
But does not include—
a) An employee who is a promoter or a person belonging to the promoter group; or
b) A director who, either himself or through his relative or through any body corporate,
directly or indirectly, holds more than 10% of the outstanding equity shares of the
company.

2. Scheme means a scheme of a company proposing to provide share based benefits to its
employees, which may be implemented and administered directly by such company or
through a trust.
3. Employee stock option scheme or ESOS means a scheme under which a company
grants employee stock options to employees directly or through a trust.
4. Employee stock purchase scheme or ESPS means a scheme under which a company
offers shares to employees, as part of public issue or otherwise, or through a trust where
the trust may undertake secondary acquisition for the purposes of the scheme.
5. General employee benefits scheme or GEBS means any scheme of a company framed
in accordance with these regulations, dealing in shares of the company or the shares of its
listed holding company, for the purpose of employee welfare including healthcare
benefits, hospital care or benefits, or benefits in the event of sickness, accident, disability,
death or scholarship funds, or such other benefit as specified by such company.
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6. Retirement benefit scheme or RBS means a scheme of a company, dealing in shares of
the company or the shares of its listed holding company, for providing retirement
benefits to the employees.
7. Appreciation means the difference between the market price of the share of a company
on the date of exercise of SAR or the date of vesting of SAR, as the case may be, and the
SAR price.
8. Exercise means making of an application by an employee to the company or to the trust
for issue of shares or appreciation in form of cash, against vested options or vested SARs
in pursuance of the schemes.
9. Exercise period means the time period after vesting within which an employee can
exercise his/her right to apply for shares against the vested option or appreciation
against vested SAR in pursuance of the schemes.
10. Exercise price means the price, if any, payable by an employee for exercising the option
or SAR granted to such an employee in pursuance of the schemes.
11. Stock appreciation right or SAR means a right given to a SAR grantee entitling him to
receive appreciation for a specified number of shares of the company where the
settlement of such appreciation may be made by way of cash payment or shares of the
company.

Explanation
1. A SAR settled by way of shares of the company shall be referred to as equity settled SAR.
2. For the purpose of these regulations, any reference to stock appreciation right or SAR
shall mean equity settled SARs and does not include any scheme which does not, directly
or indirectly, involve dealing in or subscribing to or purchasing, securities of the
company.
12. Vesting means the process by which the employee becomes entitled to receive the
benefit of a grant made to him/her under any of the schemes.
13. Vesting period means the period during which the vesting of option, SAR or a benefit
granted under any of the schemes takes place.

IMPLEMENTATION OF SCHEMES THROUGH TRUST

1. A company may implement a scheme either directly or by setting up an irrevocable trust.
If the scheme is to be implemented through a trust, the same has to be decided upfront at
the time of taking approval of the shareholders for setting up the scheme.
However, if prevailing circumstances so warrant, the company may change the mode of
implementation of the scheme subject to the condition that a fresh approval of the
shareholders by a special resolution is obtained prior to implementing such a change and
that such a change is not prejudicial to the interests of the employees. Further it is
provided that if the scheme involves secondary acquisition or gift or both, then it shall be
mandatory for the company to implement such scheme through a trust.

2. A company may implement several schemes as permitted under these regulations

through a single trust. However, such single trust shall keep and maintain-
 proper books of account;
 records and documents;
for each such scheme so as to explain its transactions and to disclose at any point of time
the financial position of each scheme and in particular give a true and fair view of the
state of affairs of each scheme.

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3. The trust deed and any modifications thereto shall be mandatorily filed with the
recognised stock exchanges in India where the shares of the company are listed.

4. Any person can be appointed as a trustee of the trust, except in cases where such
person—
i. is a director, KMP or promoter of the company or its group company including its
holding, subsidiary or associate company or any relative of such director, KMP or
promoter; or
ii. Beneficially holds 10% or more of the paid-up share capital or the voting rights of the
company. However, where individuals or “OPC” is appointed as trustees, there shall be a
minimum of 2 such trustees, and in case a corporate entity is appointed as a trustee, then
it may be the sole trustee.

5. The trustees shall not vote in respect of the shares held by such trust, so as to avoid any
misuse arising out of exercising such voting rights.

6. The trustee should ensure that the requisite approval from the shareholders has been
obtained by the company in order to enable the trust to implement the scheme and
undertake secondary acquisition for the purposes of the scheme.

7. The trust shall not deal in derivatives and shall undertake only delivery-based
transactions for the purposes of secondary acquisition as permitted by these regulations.

8. Subject to the requirements of the Companies Act, 2013, the company may lend monies
to the trust on appropriate terms and conditions to acquire the shares either through
new issue or secondary acquisition, for the purpose of implementation of the schemes.

9. For the purpose of disclosures to the recognised stock exchange, the shareholding of the
trust shall be shown as “non-promoter and non-public” shareholding.
Explanation,—The shares held by the trust shall not form part of the public shareholding
which needs to be maintained at a minimum of 25% as prescribed under the Securities
Contracts (Regulation) Rules, 1957.

10. Secondary acquisition in a financial year by the trust shall not exceed 2 % of the paid up
equity capital of the company as at the end of the previous financial year.

11. The total number of shares under secondary acquisition held by the trust shall at no point
of time exceed the below mentioned limits as a percentage of the paid up equity capital of
the company as at the end of the financial year immediately prior to the year in which the
shareholders’ approval is obtained for such secondary acquisition:

1 For the schemes enumerated in Part A, Part B or Part C of 5%

Chapter III of these regulations
2 For the schemes enumerated in Part D, or Part E of 2%
Chapter III of these regulations
3 For all the schemes in aggregate 5%
12. The trust shall be permitted to undertake off-market transfer of shares only under the
following circumstances: -
a) Transfer to the employees pursuant to scheme;
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b) While participating in an open offer under the SAST Regulations or while participating in
a buyback, delisting or any other exit offered by the company generally to its
shareholders.

13. The trust shall not become a mechanism for trading in shares and hence shall not sell the
shares in secondary market except under the following circumstances:
a) to enable the employee to fund the payment of the exercise price, the amount necessary
to meet his/her tax obligations and other related expenses pursuant to exercise of
options granted under the ESOS;
b) on vesting or exercise, as the case may be, of SAR;
c) in case of emergency for implementing the schemes, and for this purpose–
i. the trustee shall record the reasons for such sale; and
ii. Money so realised on sale of shares shall be utilised within a definite time period.
d) Participation in buy-back or open offers or delisting offers or any other exit offered by the
company generally to its shareholders, if required;
e) For repaying the loan, if the unappropriated inventory of shares held by the trust is not
appropriated within time;
f) Winding up of the scheme; and
g) Based on approval granted by the Board to an applicant, for the reasons recorded in
writing in respect of the schemes, upon payment of a non-refundable fee of Rs. 1 Lakh to
the Board along with the application by way of direct credit in the bank account through
NEFT/RTGS/IMPS or any other mode allowed by the RBI.

ELIGIBILITY CRITERIA
An employee shall be eligible to participate in the schemes of the company as determined
by the compensation committee.

COMPENSATION COMMITTEE
1) A company shall constitute a compensation committee for administration and
superintendence of the schemes. Where the scheme is being implemented through a trust
the compensation committee shall delegate the administration of such scheme to the
trust.
2) The compensation committee shall be a committee of such members of the Board of
Directors of the company as provided under LODR Reg 2015. Provided that a company
may also opt to designate its nomination and remuneration committee as the
compensation committee for the purposes of these regulations.
3) The compensation committee shall, inter alia, formulate the detailed terms and
conditions of the schemes.
4) The compensation committee shall frame suitable policies and procedures to ensure that
there is no violation of securities laws including the SEBI (Prohibition of Insider Trading)
Regulations, 2015 and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices
Relating to the Securities Market) Regulations, 2003, by the trust, the company and its
employees, as may be applicable.

SHAREHOLDERS APPROVAL
A Scheme shall not be offered to employees of a company unless the shareholders of the
company approve it by passing a special resolution in the general meeting.

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Explanatory statement shall be annexed with notice and the resolution proposed to be
passed by shareholders for the schemes shall include the information as specified by the
SEBI in this regard.

Approval of shareholders by way of separate resolution in the general meeting

shall be obtained by the company in case of:
a) Secondary acquisition for implementation of the schemes. Such approval shall mention
the percentage of secondary acquisition that could be undertaken;
b) Secondary acquisition by the trust in case the share capital expands due to capital
expansion undertaken by the company including preferential allotment of shares or
qualified institutions placement, to maintain the 5% cap as prescribed in these
regulations of such increased capital of the company;
c) Grant of option, SAR, shares or other benefits, as the case may be, to employees of
subsidiary or holding company;
d) Grant of option, SAR, shares or benefits, as the case may be, to identify employees, during
any 1 year, equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the company at the time of grant of option, SAR, shares or
incentive, as the case may be.

VARIATION OF TERMS OF THE SCHEMES

1) A company may by special resolution of its shareholders vary the terms of the schemes
offered pursuant to an earlier resolution of the general body but not yet exercised by the
employees, if such variation is not prejudicial to the interests of the employees.
2) A company shall be entitled to vary the terms of the schemes to meet any regulatory
requirement without seeking shareholders’ approval by special resolution.
3) The notice for passing a special resolution for variation of terms of the schemes shall
disclose full details of the variation, the rationale therefor, and the details of the
employees who are beneficiaries of such variation.
4) A company may reprice the options, SAR or shares, as the case may be, which are not
exercised, whether or not they have been vested, if the schemes were rendered
unattractive due to fall in the price of the shares in the stock market.

WINDING UP OF THE SCHEMES

In case of winding up of the schemes being implemented by a company, the excess
monies or shares remaining with the trust after meeting all the obligations, if any, shall be
utilised for repayment of loan or by way of distribution to employees or subject to
approval of the shareholders, be transferred to another scheme under these regulations,
as recommended by the compensation committee.

NON-TRANSFERABILITY
a. Option, SAR or any other benefit granted to an employee shall not be transferable to any
person. No person, other than the employee to whom the option, SAR or other benefit is
granted, shall be entitled to the benefit arising out of such option, SAR or other benefit.
b. The option, SAR, or any other benefit granted to the employee shall not be pledged,
hypothecated, mortgaged or otherwise alienated in any other manner.
c. In the event of death of the employee while in employment, all the options, SAR or any
other benefit granted under a scheme to him/her till his/her death shall vest, with effect
from the date of his/her death, in the legal heirs or nominees of the deceased employee,
as the case may be.

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d. In case the employee suffers a permanent incapacity while in employment, all the
options, SAR or any other benefit granted to him/her under a scheme as on the date of
permanent incapacitation, shall vest in him/her on that day.
e. In the event of resignation or termination of an employee, all the options, SAR or any
other benefit which are granted and yet not vested as on that day, shall expire.

LISTING
In case a new issue of shares is made under any scheme, shares so issued shall be listed
immediately on all recognised stock exchanges where the existing shares are listed,
subject to the following conditions:
a) The scheme is in compliance with these regulations;
b) The company obtains an in-principle approval from the recognised stock exchanges;
c) As and when an exercise is made, the company notifies the concerned recognised stock
exchanges.

CERTIFICATE FROM AUDITORS

In the case of every company which has passed a resolution for the schemes under these
regulations, the Board of Directors shall at each AGM place before the shareholders a
certificate from the secretarial auditors of the company that the schemes has been
implemented.

ADMINISTRATION OF SPECIFIC SCHEMES

Employee Stock Option Scheme (ESOS)

Administration An ESOS shall contain the details of the manner in which the scheme
and will be implemented and operated. ESOS shall not be offered unless
Implementation the disclosures, as specified by SEBI in this regard, are made by the
company to the prospective option grantees.
Pricing The company granting options to its employees pursuant to an ESOS
shall be free to determine the exercise price subject to conforming
to the accounting policies specified in these regulation.
Vesting Period There shall be a minimum vesting period of 1 year in case of ESOS
 The company may specify the lock-in period.
Rights of the An employee shall not have right to receive any dividend or to vote
option holder or in any manner enjoy the benefits of a shareholder in respect of
option granted to him/her, till shares are issued upon exercise of
option.
Consequence of The amount paid by the employee, if any, at the time of grant,
failure to vesting or exercise of option, -
exercise option May be forfeited by the company if the option is not exercised by the
employee within the exercise period; or
 May be refunded to the employee if the options are not vested due
to non-fulfilment of conditions relating to vesting of option.

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Note: In regard to Vesting period, -

 Where options are granted by a company under an ESOS in lieu of options held by an
employee under an ESOS in another company which has merged, demerged, arranged or
amalgamated with the first mentioned company, the period during which the options
granted by the transferor company were held by such employee shall be adjusted against
the minimum vesting period.
 In the event of death or permanent incapacity of an employee, the minimum vesting
period of one year shall not be applicable and in such instances, the options shall vest on
the date of the death or permanent incapacity.

Employee Stock Purchase Scheme (ESPS)

Administration and An ESPS Scheme shall contain the details of the manner
Implementation in which the scheme Administration will be
implemented and operated
Pricing & Lockin A company may determine the price of shares to be
period issued under an ESPS, provided they conform to the
provisions of accounting policies under these regulation.
 Shares issued under an ESPS shall be locked-in for
minimum 1 year from the date of allotment.
 If ESPS is part of a public issue and the shares are issued
to employees at the same price as in the public issue , the
shares issued to employees pursuant to ESPS shall not
be subject to lock in

Note: In regard to pricing and Lock-in-

 Where shares are allotted by a company under an ESPS in lieu of shares acquired by the
employee under an ESPS in another company which has merged or amalgamated with
the first mentioned company, the lock-in period already undergone in respect of shares of
the transferor company shall be adjusted against the lock-in period.
 In the event of death or permanent incapacity of an employee, the requirement of lock-in
shall not be applicable from the date of death or permanent incapacity.

Stock Appreciation Rights Scheme (SAR Scheme)

Administration A SAR scheme shall contain the details of the manner in which the
and scheme will be implemented and operated ;
implementation  A company shall have the freedom to implement cash settled or equity
settled SAR scheme
 No SAR shall be offered unless the disclosures as specified by SEBI in
this regard, are made by the company to the prospective SAR grantees
Vesting There shall be a minimum vesting period of 1 year in case of SAR
scheme.
Rights of the SAR The employee shall not have right to receive dividend or to vote or in
holder any manner enjoy the benefits of a shareholder in respect of SAR
granted to him/her

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Note:
 In case of equity settled SAR scheme, if the settlement results in fractional shares, then
the consideration for fractional shares should be settled in cash.
 In a case where SAR is granted by a company under a SAR scheme in lieu of SAR held by
the employee under a SAR scheme in another company which has merged or
amalgamated with the first mentioned company, the period during which the SAR
granted by the transferor company were held by the employee shall be adjusted against
the minimum vesting period.
 In the event of death or permanent incapacity, the minimum vesting period of one year
shall not be applicable and in such instances, the options shall vest on the date of death or
permanent incapacity.

General Employee Benefits Scheme (GEBS)

Administration and Implementation

1. GEBS shall contain the details of the scheme and the manner in which the scheme shall be
implemented and operated.
2. The shares of the company or shares of its listed holding company shall not exceed ten
per cent of the book value or market value or fair value of the total assets of the scheme,
whichever is lower, as appearing in its latest balance sheet for the purposes of GEBS.
3. The secretarial auditor of the company shall certify the above mentioned point
compliance at the time of adoption of such balance sheet by the company.

Retirement Benefit Scheme (RBS)

Administration and Implementation

1. The retirement benefit scheme shall contain the details of the benefits under the scheme
and the manner in which the scheme shall be implemented and operated.
2. The shares of the company or shares of its listed holding company shall not exceed 10%
of the book value or market value or fair value of the total assets of the scheme,
whichever is lower, as appearing in its latest balance sheet for the purposes of RBS.
3. The secretarial auditor of the company shall certify compliance with above mentioned
point at the time of adoption of such balance sheet by the company.

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Part B
ISSUE OF SWEAT EQUITY BY A LISTED COMPANY (CHAPTER IV)

EMPLOYEE
(i) An employee of the company working in India or abroad; or
(ii) A director of the company whether a whole time director or not.

Issue of sweat equity shares to employees

A company whose equity shares are listed on a recognised stock exchange may issue
sweat equity shares in accordance with section 54 of the Companies Act, 2013 and these
regulations to its employees for their providing know-how or making available rights in
the nature of intellectual property rights or value additions, by whatever name called.

Maximum quantum of sweat equity shares

A company shall not issue sweat equity shares for more than 15% of the existing paid up
equity share capital in a year.

However, the issuance of sweat equity shares in the company shall not exceed 25% of the
paid up equity share capital of the company at any time.

Further, a company listed on IGP shall be permitted to issue not more than 15% of the
paid up equity share capital in a financial year subject to overall limit not exceeding 50%
of the paid up equity share capital of the company, up to 10 years from the date of its
incorporation or registration.

Special Resolution
1. For the purposes of passing a special resolution, the explanatory statement shall contain
disclosures as specified in these regulations.
2. The issue of sweat equity shares to employees who belong to promoter or promoter
group shall be approved by way of a resolution passed by a simple majority of the
shareholders in general meeting. However, for passing such a resolution, voting through
postal ballot and/or e-voting as specified under Companies (Management and
Administration) Rules, 2014 shall also be adopted. Further, provided that the
promoters/promoter group shall not participate in such resolution.
3. Each issue of sweat equity shares shall be voted by a separate resolution.
4. The resolution for issue of sweat equity shares shall be valid for max 12 months from the
date of passing of the resolution.

Pricing of sweat equity shares

The price of sweat equity shares shall be determined in accordance with the pricing
requirements stipulated for a preferential issue to a person other than a QIB under the
ICDR Regulations, 2018.

Valuation
1. The valuation of the know-how or intellectual property rights or value addition shall be
carried out by a merchant banker.
2. The merchant banker may consult such experts and valuers, as it may deem fit, having
regard to the nature of the industry and the nature of the valuation of know-how or
intellectual property rights or value addition.
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3. The merchant banker shall obtain a certificate from an independent CA certifying that the
valuation of the know-how or intellectual property rights or value addition is in
accordance with the relevant accounting standards.

Accounting Treatment
Where the sweat equity shares are issued for a non-cash consideration, such non-cash
consideration shall be treated in the following manner in the books of account of the
company:-
a) Where the non-cash consideration takes the form of a depreciable or amortizable asset, it
shall be carried to the balance sheet of the company in accordance with the relevant
accounting standards; or
b) Otherwise, it shall be expensed as provided in the relevant accounting standards.

Placing of auditor’s certificate before annual general meeting In the general meeting
subsequent to the issue of sweat equity shares, the BOD shall place before the
shareholders, a certificate from the secretarial auditor of the company that the issue of
sweat equity shares has been made.

Ceiling on managerial remuneration

The amount of sweat equity shares issued shall be treated as part of managerial
remuneration, if the following conditions are fulfilled:
(i) The sweat equity shares are issued to any director or manager; and
(ii) The sweat equity shares are issued for non-cash consideration, which does not take the
form of an asset which can be carried to the balance sheet of the company in accordance
with the relevant accounting standards.

Listing
The sweat equity shares issued by a listed company shall be eligible for listing subject to
their issuance being in accordance with these regulations.

General Obligations
The company shall ensure that –
a. The explanatory statement to the notice for general meeting contains the disclosures.
b. The secretarial auditor’s certificate required is placed in the general meeting of the
shareholders.
c. The company, within seven days of the issue of sweat equity shares, sends a statement to
the recognised stock exchange, disclosing:
i. number of sweat equity shares issued;
ii. price at which the sweat equity shares are issued;
iii. total amount received towards sweat equity shares;
iv. details of the persons to whom sweat equity shares have been issued; and
v. The consequent changes in the capital structure and the shareholding pattern before and
after the issue of sweat equity shares.

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Issue and Listing of Non-Convertible Securities

Issue and Listing of Non-Convertible Securities

INTRODUCTION
SEBI vide its notification dated August 09, 2021 introduced SEBI (Issue and Listing of Non-
Convertible Securities) Regulations, 2021 (‘NCS Regulations’). The NCS Regulations came into
effect from the 7th day from the date of their publication in the official gazette i.e. 16th August,
2021.

The new NCS Regulations provides for issuance and/or listing of the following securities
a) Debt securities;
b) Non-Convertible redeemable preference shares;
c) Perpetual debt instruments or Perpetual Non-cumulative preference shares;
d) Commercial Paper

“Non-convertible securities” means debt securities, non-convertible redeemable preference

shares, perpetual non-cumulative preference shares, perpetual debt instruments and any other
securities as specified by the SEBI.
Corporate bond markets are an important part of the global capital markets and play a key role in
financing the real economy. They act as an alternative to the banking channels. Hence, it is
imperative to ensure fair, efficient and transparent functioning of these markets.

IMPORTANT DEFINITIONS UNDER THE SEBI NCS REGULATIONS

Debt securities: A non-convertible debt security with a fixed maturity period which creates or
acknowledge indebtedness and includes debentures, bonds or any other security whether
constituting a charge on the assets/ properties or not, but excludes security receipts, securitized
debt instruments, money market instruments regulated by the Reserve Bank of India, and bonds
issued by the Government or such other bodies as may be specified by the SEBI.

Secured debt securities: These are such debt securities which are secured by creation of a charge
on the properties or assets of the issuer or its subsidiaries or its holding companies or its associate
companies having a value which is sufficient for the due repayment of principal and payment of
interest thereon.

Electronic Book Provider Platform: An electronic platform for private placement of non-
convertible securities provided by a recognized stock exchange(s) or a recognised depository,
pursuant to obtaining approval from the Board.

APPLICABILITY [REG 3]
Unless otherwise provided, SEBI (Issue and Listing of Non-Convertible Securities) Regulations,
2021 regulations shall apply to the:
 Issuance and listing of debt securities and non-convertible redeemable pref share by way of
public issue.
 Listing of commercial papers issued as per RBI guidelines.
 Issuance and listing of debt securities on private placement basis

GENERAL CONDITIONS AND ELIGIBILITY CRITERIA [Chapter II]

Applicability of this chapter (Regulation 4)
This chapter shall apply to the issuance and listing of:
a) Debt securities and non-convertible redeemable preference shares by an issuer by way of
public issuance;
b) Non-convertible securities by an issuer on private placement basis.
Unless otherwise provided in these regulations, an issuer making an offer of nonconvertible
securities shall satisfy the conditions of these regulations as on:
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Issue and Listing of Non-Convertible Securities

a) Date of filing of the draft offer document with the Board or stock exchange(s);
b) Date of filing the offer document with the Board or stock exchange(s), as the case may be; and
c) Date of filing the offer document with the Registrar of Companies.

Eligible issuers (Regulation 5)

(1) The issuer shall not make an issue of non-convertible securities if as on the date of filing of
draft offer document or offer document:
a. The issuer, any of its promoters, promoter group or directors are debarred from accessing
the securities market or dealing in securities by the SEBI;
b. Any of the promoters or directors of the issuer is a promoter or director of another
company which is debarred from accessing the securities market or dealing in securities by
the SEBI;
c. The issuer or any of its promoters or directors is a wilful defaulter;
d. Any of the promoters or whole-time directors of the issuer is a promoter or whole-time
director of another company which is a wilful defaulter;
e. Any of its promoters or directors is a fugitive economic offender; or
f. Any fine or penalties levied by the SEBI/Stock Exchanges is pending to be paid by the issuer
at the time of filing the offer document.
However, the:
i. Restrictions mentioned at (b) and (d) above shall not be applicable in case of a person who
was appointed as a director only by virtue of nomination by a debenture trustee in other
company.
ii. Restrictions mentioned in (a) and (b) above shall not be applicable if the period of debarment
is over as on date of filing of the draft offer document with the SEBI.
iii. Restrictions mentioned at (c) and (d) shall not be applicable in case of private placement of
nonconvertible securities.
(2) Issuer shall not make a public issue of non-convertible securities if as on the date of filing of
draft offer document or offer document, the issuer is in default of payment of interest or
repayment of principal amount in respect of non-convertible securities, if any, for a period of
more than six months.

In-principle approval (Regulation 6)

The issuer shall make an application to one or more stock exchange(s) and obtain an in-principle
approval for listing of its non-convertible securities from the stock exchange(s) where such
securities are proposed to be listed. However, where the application is made to more than one
stock exchange, the issuer shall choose one among them as the designated stock exchange.

Depositories (Regulation 7)
The issuer shall enter into an arrangement with a depository for dematerialization of the non-
convertible securities in accordance with the Depositories Act, 1996 and regulations made
thereunder and also take such steps to ensure that such securities are admitted on all the
depositories.

Debenture Trustee (Regulation 8)

The issuer shall appoint a debenture trustee in case of an issue of debt securities.

Registrar to the Issue (Regulation 9)

The issuer shall appoint a Registrar to the Issue, registered with the SEBI, which has established
connectivity with all the depositories. However, if the issuer itself is a Registrar to the Issue, it shall
not appoint itself as a Registrar to the Issue. Provided further that the lead manager shall not act as
a Registrar to the Issue in which it is also handling the post-issue responsibilities.

Credit rating (Regulation 10)

The issuer shall obtain credit rating from at least one credit rating agency, which shall be disclosed
in the offer document. However, where the credit ratings are obtained from more than one credit
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Issue and Listing of Non-Convertible Securities

rating agency for the issue, all the ratings, including the unaccepted ratings, shall be disclosed in
the offer document.

Creation of Recovery Expense Fund (Regulation 11)

The issuer shall create a recovery expense fund with the designated stock exchange, by depositing
such amount and in such form and manner as may be specified in the regulations.

Electronic Issuances (Regulation 12)

An issuer proposing to issue non-convertible securities through the on-line system of the stock
exchange and depositories shall comply with the relevant applicable requirements as may be
specified in the regulations.

Regulatory fees (Regulation 13)

In case of public issue of debt securities and/or non-convertible redeemable preference shares, the
issuer shall while filing a draft offer document with the stock exchange forward a soft copy of the
draft offer document to SEBI for its records along with regulatory fees as specified in the
regulations.
In case of non -convertible securities issued on a private placement basis, the designated stock
exchange shall collect a regulatory fee as specified in Schedule VI of these regulations from the
issuer at the time of their listing.

Right to recall or redeem prior to maturity (Regulation 15)

An issuer making issuance of non-convertible securities shall:
a) have the right to recall such securities prior to the maturity date (call option); or,
b) shall have a right to provide such right of redemption of debt securities prior to the maturity
date (put option) to all the investors or only to retail investors.

Such right to recall non-convertible securities or redeem debt securities prior to the maturity date
shall be exercised in accordance with the terms of issue and detailed disclosure in this regard shall
be made in offer document including date from which such right is exercisable, period of exercise
(which shall not be less than three working days) and redemption amount (including the premium
or discount at which such redemption shall take place).

The issuer or investor may exercise such right with respect to all the non-convertible securities
issued or held by them respectively or with respect to a part of the non-convertible securities so
issued or held.

In case of partial exercise of such right in accordance with the terms of the issue by the issuer, it
shall be done on proportionate basis only. No such right shall be exercisable before the expiry of
one year from the date of issue of such non-convertible securities. Issuer shall send notice to all the
eligible holders of such non-convertible securities and debenture trustee at least twenty-one days
before the date from which such right is exercisable.

Issuer shall also provide a copy of such notice to the stock exchange(s) where such nonconvertible
securities are listed for wider dissemination and shall make an advertisement in an english
national daily and regional daily having wide circulation at the place where the registered office of
the issuer is situated, indicating the details of such rights and eligibility of the holders who are
entitled to avail such right. Issuer shall pay interest at the rate of fifteen percent per annum for the
period of delay, if any.

After the completion of the exercise of such right, the issuer shall:
a) submit a report to the stock exchange(s) where the non-convertible securities are listed for
public dissemination regarding the details of non-convertible securities redeemed during the
exercise period and details of redemption thereof;

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Issue and Listing of Non-Convertible Securities

b) inform the debenture trustee regarding the debt securities redeemed during the exercise
period and details of redemption thereof; and
c) Inform the depositories for extinguishing the non-convertible securities that have been
redeemed.

Debenture Redemption Reserve/ Capital Redemption Reserve (Regulation 16)

The issuer shall create a debenture redemption reserve or capital redemption reserve in
accordance with the relevant provisions of the Companies Act, 2013.

International Securities Identification Number (Regulation 17)

An issuer issuing non-convertible securities shall comply with the conditions relating to the issue
of International Securities Identification Number, as may be specified by the SEBI from time to
time. Any default committed by the issuer shall be reckoned at the International Securities
Identification Number level notwithstanding the debt securities and/or non-convertible
redeemable preference shares being issued under different offer documents.

Trust Deed (Regulation 18)

The issuer and the debenture trustee shall execute the trust deed within such timelines as may be
specified by the SEBI. Where an issuer fails to execute the trust deed within the specified period,
the issuer shall also pay interest of at least 2 percent per annum or such other rate, as specified by
the SEBI to the holder of debt securities, over and above the agreed coupon rate, till the execution
of the trust deed.

Every debenture trustee shall amongst other matters, accept the trust deeds which shall contain
the matters as provided under Section 71 of the Companies Act, 2013 and Form No. SH.12 of the
Companies (Share Capital and Debentures) Rules, 2014.
Such trust deed shall consist of two parts:
a) Part A containing statutory/standard information pertaining to the debt issue.
b) Part B containing details specific to the particular debt issue.

The trust deed shall not contain any clause which has the effect of:
a) Limiting or extinguishing the obligations and liabilities of the debenture trustees or the issuer
in relation to any rights or interests of the holders of the debt securities.
b) Limiting or restricting or waiving the provisions of the Act, these regulations and circulars or
guidelines issued by the SEBI.
c) Indemnifying the debenture trustees or the issuer for loss or damage caused by their act of
negligence or commission or omission.

The trust deed shall contain the issuer’s bank details from which it proposes to pay the interest and
redemption amount of the debt securities and the issuer shall pre-authorise the debenture trustee
at the time of executing the trust deed to allow the debenture trustee to seek information about
interest payment and redemption payment from such bank.
The trust deed shall also contain such other particulars as may be specified by SEBI.

Listing Agreement (Regulation 19)

Every issuer desirous of listing its non-convertible securities on a recognised stock exchange shall
execute an agreement with such stock exchange.

Continuous Listing Conditions (Regulation 20)

All the issuers of non-convertible securities which are listed on stock exchange shall comply with
the listing regulations and/or such other conditions and disclosure requirements as may be
specified by the SEBI from time to time.

Trading of Non-Convertible Securities (Regulation 21)

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Issue and Listing of Non-Convertible Securities

The trades in non-convertible securities listed on stock exchange shall be cleared and settled
through clearing corporation of stock exchange, subject to conditions as specified by the SEBI.
In case of trades of non-convertible securities which have been traded over the counter, such
trades shall be reported on any one of the reporting platforms of a recognized stock exchange
having a nation-wide trading terminal or such other platform as may be specified by the SEBI.
The SEBI may specify conditions for reporting of trades on the recognized stock exchange or such
other platform as referred to in the regulations.

Distribution of Dividend in case of default in payment of interest or redemption of debt

securities (Regulation 22)
Where the issuer has defaulted in payment of interest or redemption of debt securities or in
creation of security in accordance with the terms of the offer document, any distribution of
dividend shall require approval of the debenture trustee.

Obligations of the Issuer (Regulation 23)

 The issuer shall treat all applicants to an issue of non-convertible securities in a fair and
equitable manner as per the procedures as may be specified by the SEBI.
 The issuer shall not employ any device, scheme, or artifice to defraud in connection with
issue or subscription or distribution of non-convertible securities which are listed or
proposed to be listed on the recognized stock exchange.
 The issuer shall apply for Securities and Exchange Board of India Complaints Redress System
(SCORES) authentication in the format specified by the SEBI and shall use the same for all
issuance of non-convertible securities.
 In case of a public issue, the issuer shall provide all required information/ documents to the
lead managers for conducting the due diligence, in the form and manner as may be specified
by the SEBI.
 The issuer shall ensure that the secured debt securities are secured by 100% security cover
or higher security cover as per the terms of the offer document and/or Debenture Trust
Deed, sufficient to discharge the principal amount and the interest thereon at all times for the
issued debt securities.

Obligations of Debenture Trustee (Regulation 24)

 The debenture trustee shall be vested with the requisite powers for protecting the interest of
holders of debt securities including a right to appoint a nominee director on the Board of the
issuer in consultation with holders of such debt securities and in accordance with applicable
law.

 The debenture trustees shall supervise the implementation of the conditions regarding
creation of security for the debt securities, creation of recovery expense fund and debenture
redemption reserve, as applicable.
 The debenture trustee shall monitor the security cover in relation to secured debt securities
in the manner as specified by the Board.

PUBLIC ISSUE AND LISTING OF DEBT SECURITIES AND NON CONVERTIBLE REDEEMABLE
PREFERENCE SHARES [chapter III]

Conditions for public issue:

The issuer shall appoint one or more merchant bankers registered with the SEBI, as lead manager
to the issue. Where the issue is managed by more than one lead manager, the rights, obligations
and responsibilities, relating to disclosures, allotment, refund and underwriting obligations, if any,
of each lead manager shall be predetermined and disclosed in the draft offer document and the
offer document.

Where there is only one lead manager it shall not be an associate of the issuer as provided under
the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992. However, in
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Issue and Listing of Non-Convertible Securities

case the lead manager is an associate of the issuer, it shall disclose itself as an associate of the
issuer and its role shall be limited to marketing of the issue. Such lead manager shall not issue any
due diligence certificate, in relation to the issue of such debt securities and/or non-convertible
redeemable preference shares: Provided further that in case there is more than one lead manager,
at least one lead manager to the issue shall not be an associate.

The issuers shall not make a public issue of debt securities and non-convertible redeemable
preference shares for providing loan to or acquisition of shares of any entity who is part of the
promoter group or group companies. However, where the issuer is a Non-Banking Finance
Company, Housing Finance Company or a Public Financial Institution the aforesaid restriction shall
not apply and appropriate disclosures shall be made as specified in the Schedule I of these
regulations.

Issuance of green debt securities:

An issuer desirous of issuing and listing of green debt securities shall comply with the conditions as
may be specified by the SEBI.
Green Debt Security means a debt security issued for raising funds that are to be utilised for
project(s) and/ or asset(s) falling under any of the following categories, subject to the conditions as
may be specified by the SEBI from time to time:
i. Renewable and sustainable energy including wind, solar, bioenergy, other sources of energy
which use clean technology,
ii. Clean transportation including mass/public transportation,
iii. Sustainable water management including clean and/or drinking water, water recycling,
iv. Climate change adaptation,
v. Energy efficiency including efficient and green buildings,
vi. Sustainable waste management including recycling, waste to energy, efficient disposal of
wastage
vii. Sustainable land use including sustainable forestry and agriculture, afforestation,
viii. Biodiversity conservation, or
ix. A category as may be specified by the SEBI, from time to time.

Filing of draft offer document

 Issuer shall not make a public issue of debt securities and/or non-convertible redeemable
preference shares unless a draft offer document has been filed with all the stock exchanges
on which such securities are proposed to be listed, through the lead manager.

 The draft offer document filed with the stock exchange shall be made public by posting the
same on the website of the stock exchange for seeking public comments for 7 working days
from the date of filing the draft offer document with stock exchange.

 The draft offer document shall also be displayed on the website of the issuer and the lead
manager.

 The lead manager shall ensure that the draft offer document clearly specifies the names and
contact particulars including the postal and email address and telephone number of the
compliance officer who shall be a Company Secretary of the issuer.

 The lead manager shall ensure that all comments received on the draft offer document are
suitably addressed prior to the filing of the offer document with the Registrar of Companies.

 The lead manager shall, prior to filing of the offer document with the Registrar of Companies,
furnish to the SEBI a due diligence certificate in the format as per the regulations.

Disclosures in the offer document:

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Issue and Listing of Non-Convertible Securities

The offer document shall contain all material true, fair and adequate disclosures which are
necessary for the subscribers of the debt securities and non-convertible redeemable preference
shares to take an informed investment decision and shall not omit/ include any material fact which
may make the statements made therein, in light of the circumstances under which they are made,
misleading or untrue.

Mode of Disclosure of the offer document:

The offer document shall be displayed on the websites of stock exchange, issuer and lead manager
which shall be available for download in PDF or any other format as may be specified by the SEBI.
The issuer shall file the offer document with the stock exchange, simultaneously while filing
thereof with the Registrar of Companies, for dissemination on their respective websites prior to
the opening of the issue.

Advertisements for Public issues:

The issuer shall make an advertisement in an English national daily and regional daily with wide
circulation at the place where the registered office of the issuer is situated, on or before the issue
opening date and such advertisement shall, amongst other things, contain the disclosures as
specified in Schedule V.

Prohibition on payment of incentives:

Any person connected with the issue shall not offer any incentive, whether direct or indirect, in any
manner, whether in cash or kind or services or otherwise to any person for making an application
in the issue, except for fees or commission for services rendered in relation to the issue.

Abridged Prospectus and application forms:

The issuer and lead manager shall ensure that every application form and the abridged prospectus
is in the format as specified by the SEBI and the abridged prospectus shall not contain matters
which are extraneous to the contents of the offer document. The issuer may provide the facility for
subscription of application in electronic mode.

Price Discovery and Book building:

The issuer may determine the price and/or coupon of debt securities and non-convertible
redeemable preference shares in consultation with the lead manager. The issue of debt securities
and non-convertible redeemable preference shares may be at fixed price and fixed coupon or the
issuer may determine the demand and price or coupon of the debt securities and non-convertible
redeemable preference shares through book building process in accordance with the procedure as
may be specified by the SEBI.

Minimum subscription:
Minimum subscription for a public issue shall not be less than 75% of the base issue size or as may
be specified by the SEBI. In the event of non-receipt of minimum subscription, all blocked
application money shall be unblocked forthwith, but not later than 8 working days from the date of
closure of the issue or such time as may be specified by the SEBI.

Allotment of securities and payment of interest:

The issuer shall ensure that in case of listing of debt securities and non-convertible redeemable
preference shares issued to public, allotment of securities offered to public shall be made within
such timeline as may be specified by the SEBI.
Where the debt securities and non-convertible redeemable preference shares are not allotted
and/or application monies are not unblocked within the period stipulated, the issuer shall
undertake to pay interest at the rate of 15% per annum to the investors.

Underwriting:

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Issue and Listing of Non-Convertible Securities

A public issue of debt securities and non-convertible redeemable preference shares may be
underwritten by eligible intermediaries, either in full or part and in such case, adequate disclosures
regarding the underwriting arrangements shall be disclosed in the offer document.

Mandatory listing of a public issue of debt securities and non-convertible redeemable

preference shares:
An issuer desirous of making an offer of debt securities and non-convertible redeemable
preference shares to the public shall make an application for listing to stock exchange in terms of
sub-sections (1) and (2) of Section 40 of the Companies Act, 2013.
Other Obligations of the Lead Manager
 The lead manager shall not employ any device, scheme, or artifice to defraud in connection
with issue or subscription or distribution of debt securities and non-convertible redeemable
preference shares which are listed or proposed to be listed on a recognized stock exchange.

 The lead manager shall ensure that the secured debt securities are secured by hundred
percent security cover or higher security cover as per the terms of the offer document
and/or Debenture Trust Deed, sufficient to discharge the principal amount and the interest
thereon at all times for the issued debt securities.

 The lead manager shall ensure payment of additional interest by the issuer in accordance
with these regulations in case of non-allotment of debt securities and non-convertible
redeemable preference shares.

Due Diligence by Debenture Trustee

The debenture trustee shall, at the time of filing the draft offer document with the stock exchange
and prior to opening of the public issue of debt securities, furnish to the SEBI and stock exchange, a
due diligence certificate:

LISTING OF PRIVATE PLACEMENT OF DEBT SECURITIES AND NON-CONVERTIBLE

REDEEMABLE PREFERENCE SHARES [CHAPTER IV]

Listing Application: Where the issuer has disclosed the intention to seek listing of debt securities
and non-convertible redeemable preference shares issued on private placement basis, the issuer
shall forward the listing application along with the disclosures as per this regulation to the stock
exchange within such days as may be specified by the SEBI from the date of closure of the issue.

Allotment of securities: The issuer shall ensure allotment of debt securities and non-convertible
redeemable preference shares issued on a private placement basis and credit to the dematerialised
account of the Investors, is made within such time as may be specified by the SEBI.

ISSUANCE AND LISTING OF PERPETUAL DEBT INSTRUMENTS, PERPETUAL NON-

CUMULATIVE PREFERENCE SHARES AND SIMILAR INSTRUMENTS [CHAPTER V]

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Issue and Listing of Non-Convertible Securities

General Conditions: An issuer may issue perpetual debt instruments, perpetual non-cumulative
preference shares and instruments of similar nature in compliance with the guidelines issued by
the Reserve Bank of India and/or any other relevant laws applicable to them.
Issuers permitted by the Reserve Bank of India to issue perpetual debt instruments, perpetual non-
cumulative preference shares and instruments of similar nature forming part of non-equity
regulatory capital may list such instruments after complying with the conditions stipulated under
chapter V of these Regulations.

LISTING OF COMMERCIAL PAPER [CHAPTER VI]

a) Issuers desirous of listing of commercial paper shall comply with the conditions as may be
specified by the SEBI from time to time.

b) The designated stock exchange shall collect a regulatory fee as specified in the regulations
from an issuer of commercial paper at the time of their listing.

c) The issuer shall apply for Securities and Exchange Board of India Complaints Redress System
(SCORES) authentication in the format specified by the Board and shall use the same for
issuance and listing of commercial paper.

ROLE OF A COMPANY SECRETARY

A Company Secretary is a vital link between the company and its Board of Directors, shareholders,
government and regulatory authorities and all other stakeholders. A Company Secretary can play
an important role in fulfilling the role as a governance professional for companies with listed debt
securities. The Company Secretary monitors, manages the information updates and conducts
regular assessment to ensure that company remains abreast of the regulatory standards.

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LODR

Listing Obligations and Disclosure Requirements

Under Securities Contract Regulation Act, 1956 every company is required to
comply with Listing Agreement, thereby making it mandatory for every listed entity
in India to comply with the Listing Agreement. Listing Agreement is an agreement
entered at the time of listing between the company and the Stock Exchange.
In 2015, SEBI has revamped the listing agreement compliance requirement and
replaced it with the new SEBI (LODR) Regulation, 2015 notified on September 2, 2015
which came into force from December 1, 2015.
Accordingly, the listed entity, before issuing securities, shall obtain an ‘in-principle’
approval from recognised stock exchange (RSE) in the following manner:
(a) Where the securities are listed only on RSE having nationwide trading terminals
(NTT), from all such SE;
(b) Where the securities are not listed on any RSE having NTT, from all the SE in which
the securities of the issuer are proposed to be listed;
(c) Where the securities are listed on RSE having NTT as well as on the RSE not having
NTT, from all RSE having NTT.
The requirement of obtaining in-principle approval from RSE, shall not be applicable
for securities issued pursuant to the scheme of arrangement for which the listed entity
has already obtained No-Objection Letter from RSE in accordance with regulation 37
of these SEBI (LODR) Regulations.

APPLICABILITY
The Listing Regulations are applicable to a listed entity which has listed any of the
following designated securities on recognized stock exchange(s):
 Specified securities [Link] shares and convertible securities listed on main
Board, or SME Exchange or institutional Trading Platform;
 Non-convertible Debt Securities, Non-convertible Redeemable Preference Shares,
Perpetual Debt Instrument, Perpetual Non-cumulative Preference Shares;
 Indian depository receipts;
 Securitised Debt Instruments;
 Units issued by mutual funds;
 Other securities as may be specified by SEBI.

OBLIGATIONS OF LISTED ENTITIES

Following are the categories of Obligations: -
1. Common Obligation which are applicable to all listed entities.
2. Obligation of Listed Entities whose specified securities are listed.
Note: Specified securities means Equity shares & Convertible securities.
3. Obligation of Listed entities which has listed its
 Non-convertible Debt Securities, OR
 Non-convertible Redeemable Preference shares, OR
 Both

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LODR
4. Obligation of listed entities which has listed its Specified Securities and Non-
convertible Debt Securities or Non-convertible Redeemable Preference shares or
Both.
5. Obligation of Listed entities which has listed its Indian Depository Receipts.
6. Obligation of Listed entities which has listed its debt instruments.
7. Obligation of Listed entities which has listed its Mutual Fund units.

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LODR
COMPLIANCES UNDER SEBI (LODR) REGULATIONS, 2015

Compliances under SEBI (LODR) Regulations. 2015

One Time Quarterly Half Yearly Yearly Event based

Compliance Compliance Compliance Compliance Compliance

ONE TIME COMPLIANCES

Reg 6(1) A listed entity shall appoint a Company Secretary as the

Compliance Officer –
 ensuring conformity with the regulatory provisions applicable
to the listed entity in letter and spirit
 Co-ordination and reporting to SEBI, RSE and depositories
 Ensuring correct procedures are followed and reports are
filed.
 Monitoring email address of grievance redressal division

Reg 7(1) The listed entity shall appoint a share transfer agent or shall have
in house share transfer facility

Reg 9 The listed entity shall have a policy for preservation of documents
approved by BOD of Co.

Reg 18 Constitution of Audit Committee

Reg 19 Constitution of Nomination and Remuneration Committee

Reg 20 Constitution of Stakeholders Relationship Committee

Reg 21 Constitution of Risk Management Committee

Reg 22 Constitution of Vigil Mechanism

QUARTERLY COMPLIANCES

Regulation Particulars Time limit

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LODR
Reg 13(3) Submission of Investor Grievance Within 21 days from
Statement to RSE end of quarter
Content of statement: A statement giving
the no. of investor complaints
 pending at the beginning of the
quarter,
 received during the quarter,
 disposed of during the quarter, and
 remaining unresolved at the end of
the quarter.

Reg 27 Submission of Corporate Governance Within 15 days from

Report end of quarter
Content: Quarterly Compliance report on
Corporate Governance.

Reg Submission of Share Holding Pattern Within 21 days from

31(l)(b) end of quarter
Content: A statement showing holding of
securities and shareholding pattern
separately for each class of securities.

Reg 33(3) Submission of Financial Results and Within 45 days from

Consolidated Financial Results end of quarter
Content: Quarterly and year-to-date
financial results and Consolidated Financial
Results.

Reg 47 Advertisements in Newspapers Within 48 hours of

conclusion of Board
Financial results, along-with the modified
opinion(s) or reservation(s), if any, meeting.
expressed by the auditor

HALF YEARLY COMPLIANCES

Regulation Particulars Time Limit

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LODR
23(9) Related Party disclosures within 30 days from
the date of publication
The listed entity shall submit to the stock of financial results
exchange, disclosures of related party on for the half year
consolidated basis

33(3) Statement of Assets and Liabilities/ half-yearly basis

Cashflow
The listed entity shall also submit as part of
its standalone or consolidated financial
results for the half year a statement of
assets and liabilities and a statement of
cash flows by way of a note
YEARLY COMPLIANCES

Regulation Particulars Time limit

Reg 7(3) Submission of Compliance Certificate to Within 30 days from

RSE end of FY
Certificate duly signed by both the
compliance officer of co. and STA

Reg 14 Annual Listing Fees within 30 days of the

end of FY.
The listed entity shall pay all such fees or
charges, as applicable, to the RSE.

Reg 33(3) Annual Financial results within 60 days

from the end of the
The listed entity shall submit annual
FY
audited standalone financial results with
audit report and Statement on Impact of
Audit Qualifications applicable only for
audit report with modified opinion, to the
SE.

Reg 34 Annual Report Not later than the

day of
The listed entity shall submit the annual
commencement of
report along with the Notice of the AGM to
dispatch to its
the stock exchange.
shareholder.

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Reg Changes to annual report within 48 hours
34(1)(b) In case any changes to the annual report, the after the AGM
revised copy along with the details of and
explanation for the changes shall be sent.

Reg 36 Annual reports to securities holders At least 21 days

before the AGM.
The listed entity shall send annual report to
the securities holders

Reg 40(9) Certificate from PCS Within 30 days from

end of FY
The listed entity shall ensure that the STA
and/or the in-house share transfer facility,
as the case may be, produces a certificate
from a PCS Certifying that all share
certificates have been issued within 30
days of the date of lodgment for transfer

Reg 40(10) Submission of PCS Certificate As soon as received by

STA/In-house transfer
The certificate received above in regulation
facility
40(9) will be submitted by Listed Entity to
RSE

EVENT BASED COMPLIANCES

Regulation Particulars Time limit

Reg 7(5) Appointment of Share Transfer Agent Within 7 days of

Agreement with RTA
The listed entity shall intimate the
appointment of Share Transfer Agent, to the
stock exchange

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LODR
Reg 28(1) In-principal Approval Prior of making a fresh
The listed entity shall obtain In-principle issue
approval from RSE

Reg Intimation of BM for approval of At least 5 days in

29(1)(a) & Financial Result advance
proviso to Prior intimations of Board Meeting for
29(2) approval of financial result viz. quarterly,
half yearly or annual, to the SE

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LODR
Reg 29(1 Intimation of BM At least 2 days in
)(b), (c), (d) advance
Prior intimations of Board Meeting for
(e), (f) &
Buyback, Voluntary delisting, Fund raising
29(2) by way of FPO, Rights Issue, ADR, GDR,
QIP, FCCB, Preferential issue, debt issue
or any other method,
Declaration/recommendation of dividend,
issue of convertible securities or the passing
over of dividend, proposal for declaration
of Bonus securities etc., to the stock
exchanges.

Reg 29(3) Intimation of BM At least 11 days in

advance
Prior intimations of Board Meeting for
alteration in nature of Securities to the SE

Reg 30(6) Price Sensitive Information Not later than 24 hours

Disclosure of Price Sensitive Information
to the SE

Reg Statement of shareholding prior to listing 1 day prior to listing

31(l)(a) of securities

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LODR
Reg Capital Restructuring Within 10 days of any
31(l)(c) change in capital
Statement of shareholding at the time of
structure exceeding
capital restructuring
2% of the total PSC

Reg 31A(8) Disclosure of material events in case for within 24 hours

reclassification of any person as from the event
promoter/public
The listed entity shall disclose to the SE the
deemed material events.

Reg 37(2) The listed entity shall file draft Scheme of Prior approval before
Arrangement to the stock exchange filing with Court

Reg 39(2) Issue of Certificate within 30 days

from the date of
The listed entity shall issue certificates or
such lodgment
receipts or advices, as applicable, of
subdivision, split, consolidation,
renewal, exchanges, endorsements,
issuance of duplicates thereof or issuance of
new certificates or receipts or advices, as
applicable, in cases of loss or old decrepit
or worn out certificates or receipts or
advices, as applicable.

Reg 39(3) Information relating loss of securities Within 2 days of

getting in-
The listed entity shall submit information
with respect to loss of share certificates and formation
issue of the duplicate certificates to the SE.

Reg 40(3) Registering the transfer of securities within 15 days

from the date of
The listed shall register transfer of its
such receipt of
securities in the name of transferee and
transfer request.
issue certificate, receipt, advice of transfer;
or issue any valid objection or intimation to
the transferee or transferor, as the case
may be

In case securities
Transmission request
held in Demat
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LODR
The listed entity shall proceed the Mode, within 7
transmission request for securities held in days after receipt
dematerialization mode and physical of the documents
mode In case of Physical
Mode, within 21
days after receipt
of the documents.

Reg 42(2) Intimation of Record Date In case of Right Issue, at

least 3 working days in
The listed entity shall intimate the record advance (excluding the
date or date of closure of transfer books to
date of intimation and
all the stock exchange
record date)

Other than Right Issue,

at least 7 working days
in advance (excluding the
date of intimation and
record date).
Reg 43A Dividend distribution policy To formulate a
Dividend Distribution Policy by the top 1000 dividend distribution
listed entities based on market capitalization policy which shall be
(calculated as on March 31 of every FY) disclosed on the
website of the listed
entity and a web-link
shall also be provided
in their annual reports.
Reg 44(3) Voting Result Within 2 working days
The listed entity shall submit to the stock of conclusion of its GM
exchange details regarding voting results by
shareholders

Reg 46 Maintenance of website within 2 working days

The listed entity shall maintain a functional from the date of change
website containing the basic information in content.
about the listed entity and update any
change in the content of its website.

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LODR
CORPORATE GOVERNANCE UNDER SEBI(LODR) REGULATIONS, 2015
Corporate governance denotes the process, structure and relationship through which
the BOD oversees what the management does. It is also about being answerable to
different stakeholders.
Corporate governance deals with laws, procedures, practices and implicit rules that
determine a company's ability to take informed managerial decisions.

The ICSI definition: Corporate Governance is the application of best management

practices, compliance of law in true letter and spirit and adherence to ethical
standards for effective management and distribution of wealth and discharge of
social responsibility for sustainable development of all stakeholders...

Non-applicability of provisions related to Corporate Governance

1. These provisions shall not apply to the listed entity having:
 Paid up equity share capital up-to Rs. 10 Cr, and
 Net worth up-to Rs. 25 Cr, as on the last day of the previous FY.
Note: If the provisions of the regulations become applicable to a listed entity at a
later date, such listed entity shall comply with the requirements those regulations
within 6 months from the date on which the provisions became applicable to the
listed entity.
2. The listed entity which has listed its specified securities on the SME Exchange.
3. An entity undergoing Insolvency Resolution Process under IBC, 2016.

Composition of Board of Directors

Minimum number of directors
The minimum number of Directors in a listed company is 3 as per the Companies
Act, 2013.
Women Director
The Companies Act and SEBI (LODR) Regulations require at least 1 women director
to be on the board of listed entities who may be either an independent or a non-
independent director.
However, for the top 1000 listed entities, at least 1 independent woman director on
the board.
Executive/Non-Executive Director
 Not less than 50% of the BOD shall comprise of non-executive directors;
 The number of independent directors would depend on whether the Chairman is
executive or non-executive;
 If the Board has a Non-Executive Chairman,1/3 of the Board should comprise
of independent directors;
 If the Board has an Executive Chairman, at least 1/2 of Board should comprise of
independent directors.

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Special Note: If the regular non-executive Chairman is a promoter of a listed company

or is related to promoter or persons occupying management positions at the board level
or at one level below the board, at least 50% of the board of the company should
consist of independent directors.

A person shall not be a director in more than 7 listed entities. Also, a person shall not
serve as an independent director in more than 7 listed entities.

Appointment or Continuation of a person as a NED on attaining the age of 75 years will

require shareholders' approval by a Special Resolution. Explanatory statement
annexed to the notice for such motion should indicate the justification for appointing
such a person.

Note: The Companies Act has a similar requirement only for the MD, WTD, or managers
attaining the age of 70 years.

Limit on appointment of independent Directors

 A person shall not serve as an independent director in more than 7 listed
companies; OR
 Any person who is serving as a WTD in any listed company shall serve as an
independent director in not more than 3 listed companies.
Note: The count for the number of listed entities on which a person is a
director/independent director shall be only those whose equity shares are listed on a
stock exchange.

Quorum of the Board Meeting

The quorum for every board meeting of the top 2000 listed entities shall be 1/3rd of
its total strength or 3 directors, whichever is higher, including at least 1
independent director.
In case of listed entity, 1 independent director should be present at the Meeting to
form a quorum.
Board Committees
Aboard committee is a small working group identified by the board, consisting of
directors. Committees are usually formed as a means of improving board effectiveness
and efficiency, in areas where more focused, specialized and technical discussions
are required.
Committees are usually formed as a means of improving board effectiveness and
efficiency in areas where more focused, specialized and technical discussions are

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required. These committees prepare the groundwork for decision-making and report
at the subsequent board meeting.
Any board should regularly review its own structure and performance and whether it
has the right committee structure and an appropriate scheme of delegation from the
board.

Classification of Board Committees

Mandatory Committees under SEBI (LODR) Regulatlions, 2015 are:
• Audit Committee
• Nomination and Remuneration Committee (NRC)
• Stakeholders Relationship Committee (SRC)
• Risk Management Committee (RMC)

AUDIT COMMITTEE (Reg 18)

Every listed entity shall constitute a qualified and independent audit committee
Members: The Audit Committee shall comprise of minimum 3 directors with majority
of the directors being Independent Directors. The majority of members of Audit
Committee should be financial literate and at least one member shall have accounting
or related financial management expertise
Chairman: The Chairperson shall be an independent director. The Chairman of the
Audit Committee should be financially literate.

Role of Audit Committee:

a) The recommendation for appointment, remuneration and terms of appointment
of auditors;
b) Review and monitor the auditors' independence and performance, and
effectiveness of audit process;
c) Examination of the financial statement and the auditors' report thereon;
d) Approval or any subsequent modification of transactions of the company with
related parties;
e) Scrutiny of inter-corporate loans and investments;
f) Valuation of undertakings or assets of the company, wherever it is necessary;
g) Evaluation of internal financial controls and risk management systems;
h) Monitoring the end use of funds raised through public offers and related matters.
Number of Meetings: The Audit Committee should meet at least 4 time in a year and
the maximum gap between 2 meetings shall not exceed 120 days.
Quorum: The quorum shall be either 2 members or l/3rd of the members of Audit
Committee whichever is greater subject to minimum of 2 independent members
present in the meeting.
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LODR

NOMINATION AND REMUNERATION COMMITTEE (Reg 19)

Members: The company shall set up a Nomination and Remuneration Committee which
shall comprise at least 3 directors, all of whom shall be non-executive directors and at
least 1/2 shall be independent.
Chairman: The Chairman of the committee shall be an independent director. The
Chairman of the Nomination and Remuneration Committee shall present at the AGM
and answer the shareholders' queries in this regard.
Additional Role under LODR:
 Formulation of criteria for evolution of performance of Independent director
and the Board of Directors.
 Devising a policy on diversity of Board of Directors.
 To extent or continue the terms of appointment of Independent Director.
 The role of the NRC of the board of a listed entity will also include recommendations
made to the board on all the payments made, in whatsoever from to the senior
management.
Meeting: NRC is required to meet at least once in a year. The quorum for a meeting of
the NRC shall be either 2 members or 1 /3rd of the members of the committee,
whichever is greater, including at least one independent director in attendance.
Special Note: Dormant and Section 8 Companies not required to constitute NRC.
Role & Responsibilities of Nomination and Remuneration Committee
a. Identifying the persons who are qualified to become Directors and who may be
appointed in senior management;
b. Recommend to the Board the appointment and removal of any director;
c. Specify the mariner for effective Evaluation of Board, Director's Committees
performance;
d. Formulation of the parameters for determining qualifications, positive attributes
and independence of a Director, and
e. Recommend a policy relating to the remuneration for the Directors, KMP and
other employees.
STAKEHOLDERS RELATIONSHIP COMMITTEE (SRC) (Reg 20)
The listed entity shall constitute a Stakeholders Relationship Committee to specifically
look into the mechanism of redressal of grievances of shareholders, debenture
holders and other security holders.
Members: The company shall set up an SRC which shall comprise at least 3 directors,
atleast one of whom shall be independent.
Chairperson: The Chairperson of this committee shall be a non-executive director.
The Chairman of the SRC shall present at the AGM and answer the shareholders'
queries in this regard.
Meeting: Members of the Stakeholders Relationship Committee shall meet atleast once
in a year.
Additional Role of SRC under LODR

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 Resolving the grievances of the security holders of the listed entity including
complaints related to transfer/transmission of shares, non-receipt of annual
report, non-receipt of declared dividends, issue of new/duplicate certificates,
general meetings, etc.
 Review of measures taken for effective exercise of voting rights by the
shareholders.
 Review of adherence to the service standards adopted by the listed entity in respect
of various services being rendered by the Registrar & Share Transfer Agent.
 Review of the various measures and initiatives taken by the listed entity for
reducing the quantum of unclaimed dividends.
 Ensuring timely receipt of dividend warrants/Annual Reports/statutory notices
by the shareholders of the company.
RISK MANAGEMENT COMMITTEE (Reg 21)

 RMC shall have minimum 3 members with majority of them being members of the
board of directors, including at least 1 independent director.
 Chairperson of the Risk management committee shall be a member of the board of
directors and senior executives of the listed entity may be members of the
committee.
 The committee shall meet at least twice in a year.
 Quorum shall be either 2 members or one third of the members of the committee,
whichever is higher, including at least 1 member of the board of directors in
attendance.
As per regulation 21 of the listing regulation, the top 1000 listed entities,
determined on the basis of market capitalisation, shall lay down the procedures about
the risk assessment and minimization procedures:
a. The Board is responsible for framing, implementing and monitoring the risk
management plan.
b. The company shall also constitute a Risk Management Committee. The Board shall
define the roles and responsibilities of the Risk Management Committee.
VIGIL MECHANISM (Reg 22)
The listed entity shall formulate a vigil mechanism for directors and employees to
report genuine concern and provide for adequate safeguards against victimization of
directors or employees or any other person who avail the mechanism.
Note:
1. The vigil mechanism shall also provide for direct access to the Chairperson of the
Audit Committee in appropriate or exceptional cases.
2. If the Board is required to take recommendation of any of the Committee on any
matter, and the Board has not accepted the recommendation, then the Board is
required to disclose this fact, along with the reasons thereof.
Related Party Transaction (Sec 23)
Deemed Related Party

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Related Party includes any person or entity belonging to the promoter or promoter
group of the listed entity and holding 20% or more of shareholding in the listed
entity shall be deemed to be a related party.
"Related party transaction means a transfer of resources services or obligations
between a listed entity and a related party, regardless of whether a price is charged
or not whether in single or multiple transaction"
Note: Related party transactio definition is wide in LODR as compared to
Companies Act, 2013.

Policy on The listed entity shall formulate a policy on materiality of

materiality of related party transactions and on dealing with related
related party party transactions.
transactions

When will a A transaction with a related party shall be considered

transaction with a material if the transaction(s) whether individually or taken
related party be together with previous transactions during a financial year,
material? exceeds 10% of the annual consolidated turnover of the
listed entity as per the last audited financial statements of
the listed entity.

Approval of Related
Party Transactions
Related Party Transaction
(RPT)

Audit Committee Shareholder's

Approval Approval

All RPT transaction Material RPT

need audit transaction need
committee shareholder
approval approval

Approval of Audit Committee: All related party

transactions shall require prior approval of the Audit
Committee.
Approval of Shareholders: All material related party
transactions shall require approval of the shareholders
through resolution.
Note: Approval of shareholders will not be required for
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resolution plan approved under Section 31 of Insolvency
and Bankruptcy Code, 2016 if such plan was disclosed to
Stock Exchange within 1 day of such plan.
Exceptions
The approval of Audit Committee and shareholders shall not
be required in the following cases:-
 transactions between 2 government companies.
 transactions entered into between a holding company
and its wholly owned subsidiary whose accounts are
consolidated with such holding company and placed
before the shareholders at the general meeting for
approval.

Omnibus Approval Audit Committee may grant omnibus approval for related
of Audit Committee party transactions if following conditions are satisfied:-
 the Audit Committee shall lay down the criteria for
granting the omnibus approval in accordance with the
policy on related party transactions;
 the Audit Committee should be satisfied for the need of
omnibus approval in the interest of the listed entity;
 Contents of omnibus approval:
 the name(s) of the related party, nature of
transaction, period of transaction, maximum
amount of transactions that shall be entered into;
 the indicative base price/current contracted price
and the formula for variation in the price if any;
and
 such other conditions.
Note: Where above details are not available, Audit Committee
may grant omnibus approval for value not exceeding Rs. 1
Crore per transaction.
Quarterly review of related party transaction entered by
omnibus approval.

MISCELLANEOUS
Secretarial Audit
As per SEBI (LODR) (Amendment) Regulations, 2018, every listed entity and its
material unlisted Indian subsidiaries is required to annex with its annual report, a
secretarial audit report given by a practising company secretary.
Every listed entity shall submit a secretarial compliance report to stock exchanges,
within 60 days from end of each financial year.

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Note: Material subsidiary to mean a subsidiary whose income or net worth exceeds
10% of the consolidated income or net worth, respectively, of the listed entity and
its subsidiaries in the immediately preceding accounting year.
Meetings of Shareholders and voting (Reg 44)
The top 100 listed entities by market capitalization, determined as on March 31st of
every financial year, shall hold their annual general meetilngs within a period of 5
months from lthe date of closing of the financial year.
The top 100 listed entities shall provide one-way live webcast of the proceedings of
the annual general meetings.
The listed entity shall provide the facility of remote e-voting to its shareholders and
submit to the stock exchange, within 2 working days of conclusion of its General
Meeting, details regarding the voting results in the format specified by the Board.

ROLE OF A COMPANY SECRETARY

1. A Company Secretary shall be appointed as the The compliance officer of the listed
entity shall be responsible for:
 Ensuring conformity with the regulatory provisions.
 Co-ordination with and reporting to SEBI, recognised stock exchange(s) and
depositories with respect to compliance.
 Ensuring that the correct procedures have been followed that would result in the
correctness, authenticity and comprehensiveness of the information,
statements and reports filed by the listed entity under these regulations.
 Monitoring email address of grievance redressal division as designated by the
listed entity for the purpose of registering complaints by investors.
2. Issue of Certificate by PCS under regulation 40(9) (discussed in half yearly
compliance).
3. Signing of Corporate Governance Certificate (discussed in quarterly
compliance).
4. Issue of Certificate by PCS disclosing that none of the directors on the board of the
company have been debarred or disqualified from being appointed or continuing
as the directors of companies by the SEBI/MCA or any such statutory authority.

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Takeover

Acquisition of Shares and Takeovers - Concepts

Introduction
The term takeover is not defined in the Companies Act, 2013. Broadly speaking, takeover
refers to acquisition of company by another company.

Takeover is an acquisition of shares carrying voting rights in a company with a view to gain
control over the management of the company. It takes place when an individual or a group of
individuals or a company acquires control over the assets of a company either by acquiring
majority of its shares or by obtaining control of management of the business and affairs of the
company.

Quite often, as a prelude to non-organic corporate restructuring, corporate embark on

acquisition of companies and then take steps to amalgamate or merge the acquired company
or amalgamate or merger with the acquired company and in the process also demerge some of
the undertakings.

OBJECTS/ADVANTAGES OF TAKEOVER:
 To achieve product development through acquiring firms with compatible products and
technological competence.
 To diversify by acquiring companies with new product lines.
 To maximize shareholders wealth by optimum utilization of resources.
 To eliminate competition.
 To obtain the advantage of economies of scale.
 To increase market share.
 To command better bargaining position.

KINDS OF TAKEOVER:
Takeovers may be broadly classified into three kinds:

Friendly Friendly takeover is with the consent of taken over company. In friendly
Takeover: takeover, there is an agreement between the management of 2 companies
through negotiations and the takeover bid may be with the consent of
majority or all shareholders of the target company. It is also called
negotiated takeover.
Hostile When an acquirer company does not offer the target company the
Takeover proposal to acquire its undertaking but silently and unilaterally pursues
efforts to gain control against the wishes of existing management, such
acts of acquirer are known as ‘hostile takeover’.
Bail out Takeover of a financially sick company by a profit earning company to bail
Takeover out the former is known as bail out takeover. Such takeover normally
takes place in pursuance to the scheme of rehabilitation approved by the
financial institution or the scheduled bank, who have lent money to the
sick company. The lead financial institutions, evaluates the bids received
in respect of the purchase price track record of the acquirer and his
financial position.

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LEGAL FRAMEWORK FOR TAKEOVER
Following is the legal framework for takeover of companies:
 Section 235 & 236 of the Companies Act, 2013.
 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; and
 Regulation 31 & 38 of the Listing Obligation and disclosure Regulations 2015.

Note: - In the case of unlisted companies, takeover is regulated only by Section 235 & 236 of
the Companies Act 2013, however, in the case of listed companies; takeover is regulated by
aforesaid Takeover Code and LODR 2015.

Takeover Bids
A technique adopted by company for taking over control of the management and affairs of
another company by acquiring its controlling shares.

An offer to the shareholders of a company, whose shares are not closely held, to buy their
shares in the company at the offered price within the stipulated period of time. It is addressed
to the shareholders with a view to acquiring sufficient number of shares to give the Offeror
Company, voting control of the target company.

Mandatory Takeover bids (as per SAST requirement)

 For acquisition of 25% or more of the shares or voting rights;
 For acquiring additional shares or voting rights more than 5% of the voting rights in any
financial year ending on 31st March if such person already holds not less than 25% but not
more than Max non – public holding in a company as the case may be;
 For acquiring control over a company.

Factors Determining Vulnerability of Companies to Takeover Bids

 Low stock price with relation to the replacement cost of assets or their potential earning
power;
 A highly liquid balance sheet with large amounts of excess cash, a valuable securities
portfolio, and significantly unused debt capacity;
 Good cash flow in relation to current stock prices;
 Subsidiaries and properties which could be sold off without significantly impairing cash
flow; and
 Relatively small stockholdings under the control of an incumbent management.

Takeover of Unlisted and Closely Held Companies (Sec 235 & 236)
Power to acquire shares of shareholders dissenting from scheme or contract approved
by majority [Sec 235]
(1) Where a scheme or contract of transfer of shares the transferor company to the
transferee company has (within 4 months after making of an offer in that behalf by the
transferee company) been approved by the holders of not less than 9/10th in value of
the shares whose transfer is involved, other than shares already held at the date of the
offer by, or by a nominee of the transferee company or its subsidiary companies, the
transferee company may, within 2 months after the expiry of the said 4 months, give
notice in the prescribed manner to any dissenting shareholder that it desires to acquire
his shares.

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(2) Where a notice is given, the transferee company shall (unless on an application made by
the dissenting shareholder to the NCLT, within 1 month from the date on which the
notice was given and the NCLT thinks fit to order otherwise) be entitled to and bound to
acquire those shares on the terms of scheme or contract.
(3) If the NCLT has not made an order to the contrary, the transferee company shall, on the
expiry of 1 month from the date of notice or, if an application to the NCLT by the
dissenting shareholder is then pending, after that application has been disposed of, send
a copy of the notice to the transferor company together with an instrument of transfer, to
be executed on behalf of the shareholder by any person appointed by the transferor
company and on its own behalf by the transferee company, and pay or transfer to the
transferor company the amount or other consideration representing the price payable by
the transferee company for the shares, that company is entitled to acquire, and the
transferor company shall—
(a) Thereupon register the transferee company as the holder of those shares; and
(b) Within 1 month of the date of such registration, inform the dissenting
shareholders about such registration and receipt of consideration representing
the price payable to them by the transferee company.
(4) Any sum received by the transferor company shall be paid into a separate bank a/c, and
shall be held by that company in trust for the several persons entitled to the shares and
shall be disbursed within 60 days.
Note:  Dissenting shareholder includes a shareholder who has not assented to the scheme or
contract and any shareholder who has failed or refused to transfer his shares to the trf’ee
company under the scheme or contract.

Purchase of minority shareholding [Sec 236]

(1) When the acquirer, or a PAC with such acquirer, becoming registered holder of 90% or
more of the issued equity share capital of a company, or when any person or group of
persons becoming 90% majority or holding 90% of the issued equity share capital of a
company, by virtue of an amalgamation, share exchange, conversion of securities or for
any other reason, such acquirer, person or group of persons, as the case may be, shall
notify the company of their intention to buy the remaining equity shares.
(2) The acquirer shall offer to the minority shareholders of the company for buying their
equity shares at a price determined on the basis of valuation by a registered valuer.
(3) The minority shareholders of the company may offer to the majority shareholders to
purchase their shareholding at the above determined price.
(4) The majority shareholders shall deposit an amount equal to the value of shares to be
acquired by them, in a separate bank a/c to be operated by the transferor company for
at least 1 year for payment which shall be disbursed within 60 days.
Provided that such disbursement shall continue to be made to the entitled shareholders
for 1 year, who for any reason had not been made disbursement within the said 60 days
or if the disbursement have been made within 60 days, fail to receive or claim payment
arising out of such disbursement.
(5) Here, the transferor company shall act as a transfer agent for receiving and paying the
price to the minority shareholders and for taking delivery of the shares and delivering
such shares to the majority, as the case may be.
(6) In the absence of a physical delivery of shares by the shareholders within the specified
time, the share certificates shall be deemed to be cancelled, and the transferor company
shall be authorised to issue shares in lieu of the cancelled shares and complete the
transfer and make payment of the price.
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(7) If majority shareholders requires a full purchase and making payment of price by
deposit with the company for any shareholder who have died or ceased to exist, or
whose heirs, successors, administrators or assignees have not been brought on record
by transmission, the right of such shareholders to make an offer for sale of minority
equity shareholding shall continue and be available for 3 years from the date of majority
acquisition.
(8) Where the shares of minority shareholders have been acquired and before the date of
transfer, the shareholders holding 75% or more minority equity shareholding negotiate
on a higher price for any transfer, proposed or agreed upon, of the shares held by them
without disclosing the fact or likelihood of transfer taking place on the basis of such
negotiation, the majority shareholders shall share the additional compensation so
received by them with such minority shareholders on a pro rata basis.
(9) When the majority equity shareholder fails to acquire full purchase of the shares of the
minority equity shareholders, then, the provisions of this section shall continue to apply
to the residual minority equity shareholders, even though,—
a. The shares of the company of the residual minority equity shareholder had been
delisted; and
b. The period of 1 year or the period specified in the SEBI regulations had elapsed.

Takeover of Listed Company

In case of Takeover of listed company apart from the above mentioned requirement we also
have to follow SAST Regulations 2011 and also the requirement under the Listing Regulations.
Some requirement of FEMA 1999 may also have to be followed if acquirer is person Resident
outside India.

Listing Obligation and Disclosure Requirement 2015

Regulation 38 – Minimum level of public shareholding
(i) The issuer company agrees to comply with the requirements specified in Rule 19(2) and
Rule 19A of the Securities Contracts (Regulation) Rules, 1957.
(ii) Where the issuer company is required to achieve the minimum level of public
shareholding specified in Rule 19(2)(b) and/or Rule 19A of the Securities Contracts
(Regulation) Rules, 1957, it shall adopt any of the following methods to raise the public
shareholding to the required level:-
a) Issuance of shares to public through prospectus; or
b) offer for sale of shares held by promoters to public through prospectus; or
c) sale of shares held by promoters through the secondary market in terms of SEBI
circular or
d) Rights Issues to public shareholders, with promoter/promoter group shareholders
forgoing their entitlement to equity shares, whether present or future, that may arise
from such issue; OR
e) Bonus Issues to public shareholders, with promoter/promoter group shareholders
forgoing their entitlement to equity shares, whether present or future, that may arise
from such issue; OR
f) Any other method as may be approved by SEBI, on a case to case basis.

Regulation 31 – Takeover Offer

A company agrees that it is a condition for continued listing that whenever the takeover offer is
made or there is any change in the control of the management of the company, the person who
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secures the control of the management of the company and the company whose shares have
been acquired shall comply with the relevant provisions of the SEBI (SAST) Regulations 2011.
Target The Listed company / body corporate or corporation in which a change of
Company shareholding or control is proposed by an acquirer.

Control “Control” includes

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:
Disclaimer  It is to be noted that filing of draft letter of offer to SEBI doesn’t amount
Clause to approval of SEBI’s consent
 Filing of offer document is to facilitate the shareholders of company to
take an informed decision with regards to offer made by the acquirer
 SEBI is not responsible for correctness of any document.
 Primary responsibility is that of acquirer & lead merchant Banker.
Promoter Has the same meaning as in SEBI (ICDR) Regulations, 2018.

Wilful Any person who is categorized as a wilful defaulter by any bank or financial
Defaulter institution or consortium thereof, in accordance with the guidelines on
wilful defaulters issued by RBI and includes any person whose director,
promoter or partners categorised as such.

Disclosures Related Provisions

Event Based Disclosure Continual Disclosure

Any person, who along with PACs crosses Continual disclosures of aggregate shareholding
the threshold limit of 5% or more of shall be made within 7 working days of
shares or voting rights, has to disclose financial year ending on March 31 to the target
his aggregate shareholding and voting company at its registered office and every stock
rights to the Target Company at its exchange where the shares of the Target
registered office and to every Stock Company are listed by:
Exchange where the shares of the Target (a) Shareholders (along with PACs, if any)
Company are listed within 2 working holding shares or voting rights entitling them to
days of acquisition as per the format exercise 25% or more of the voting rights in
specified by SEBI. the target company.
(b) Promoter (along with PACs, if any) of the
Any person who already holds 5% or target company irrespective of their percentage
more of shares or Voting rights of the of holding.
target company and who acquires or sells
shares exceeding 2% of total shares or
the voting rights, shall disclose details of
such acquisitions/sales to the Target
company at its registered office and to
every Stock Exchanges where the shares
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of the Target Company are listed within 2
working days of such transaction, as per
the format specified by SEBI.

Disclosures of encumbered shares

The promoter (along with PACs) of the target company shall disclose details of shares
encumbered by them or any invocation or release of encumbrance of shares held by them to
the target company at its registered office and every stock exchange where shares of the target
company are listed, within 7 working days of such event.

Encumbrance (Regulation 28(3))

Includes a pledge, lien or any such transaction, by whatever name called and are required to be
disclosed to the stock exchanges in terms of the Takeover Regulations, 2011.

Important to Note :- for disclosure purpose Shares includes convertible securities also. So for
computing the trigger limit for disclosure.
%age with respect to shares  Total no. of Eq. + other Convertible securities should be taken
into account

% age with respect to voting rights  Voting right on Eq. + other securities(GDR/ADR if
carry voting right)

Example 1:
Company A has 100 equity shares, 50 partly convertible debentures and 10 GDRs. 1 GDR
carries 1 voting right.
Hence
Total shares of Company A = 100 + 50 + 10 = 160
Total voting capital of Company A = 100 + 10 = 110

Example 2:
Person B has 8 equity shares, 7 PCDs and 1 GDR
Person b has 8+7+1 = 16 shares (shares for disclosure purpose includes convertible securities)
Person B’s holding in terms of shares = 16/160 = 10% of shares
Person B’s voting rights = 8+1 = 9 voting rights
Person B’s holding in terms of voting rights = 9/110 = 8% of voting rights

Since person B is holding more than 5% of shares or voting rights, he is required to make
disclosures for any acquisition/ sale of 2% or more of shares or voting rights.

Scenario I
Person B acquires 2 equity shares and 2 PCD
In terms of shares, Person B has acquired 4/160 = 2.5% of shares
In term of voting Right, person B has acquired 2/110 = 1.8% of voting rights
Since acquisition done by person B represents 2% or more of shares, the disclosure are
required.

Scenario II
Person B acquires 20 PCDs

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In terms of shares, person B has acquired 20 shares, i.e. 20/160 i.e. 12.5% shares. In terms of
voting rights, he has not acquired a single voting right i.e. 0 voting right. However, since
acquisition done by person B represent 2% or more of shares (through no voting rights) the
disclosure are required.

Regulation 3: - Open offer thresholds

1. If acquires ≥ 25% of shares or voting rights  Open offer before acquiring such additional
shares.

2. If acquisition > 25% < maximum permissible non public shareholding  Need to make open
offer before further acquisition of > 5% of voting rights in FY ending 31 stMarch

Here Maximum Permissible non public shareholding = Total Shareholding – min public share
holding.

Note:- As per SCRR 1957 minimum public shareholding

*Public Co. other than PSU 25%
*Public Co. which is PSU10%

Regulation 3(2): - Creeping acquisition

An acquirer who along with the PAC holds 25% or more but less than maximum permissible
non-public shareholding in a target company, can acquire additional 5% of voting rights in any
financial year ending March 31st, without making an open offer.

Delisting offer (Reg 5A)

1) If an acquirer makes a public announcement of an open offer for acquiring shares of a

target company, he may delist the company as per SEBI (Delisting of Equity shares)
Regulation 2021.

Provided that the acquirer shall have declared upfront his intention to so delist at the time
of making the detailed public statement

2) If an offer made is not successful because of any prescribed reason, the acquirer shall make
an announcement within 2 working days in respect of such failure in all the newspapers in
which the Detailed Public Statement (DPS) was made and shall comply with all applicable
provisions of these regulations.
3) Where a competing offer is made -
a) the acquirer shall not be entitled to delist the company;
b) the acquirer shall not be liable to pay interest to the shareholders on account of delay
due to competing offer;
c) the acquirer shall comply with all the applicable provisions of these regulations and
make an announcement in this regard, within 2 working days from the date of public
announcement made in all the newspapers in which the DPS was made.
4) Shareholders who have tendered shares in acceptance of the offer, shall be entitled to
withdraw such shares tendered, within 10 working days from the date of the
announcement

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5) Shareholders who have not tendered their shares in acceptance of the offer shall be entitled
to tender their shares in acceptance of the offer made

Regulation 6: - Voluntary Open offer

To be made by a person holding ≥ 25% of shares or voting rights but < maximum permissible
non-public shareholding. But shall be made for atleast 10% of shares or Voting Rights.

Regulation 6A
Notwithstanding anything contained in these regulations, no person who is a wilful defaulter
shall make a public announcement of an open offer for acquiring shares or enter into any
transaction that would attract the obligation to make a public announcement of an open offer
for acquiring shares under these regulations;

Provided that this regulation shall not prohibit the wilful defaulter from making a competing
offer upon any other person making an open offer for acquiring shares of the target company.

Offer Size (Reg 7)

The open offer for acquiring shares to be made by the acquirer and persons acting in concert
with him shall be for at least 26% of total shares of the target company, as of 10 th working
day from the closure of the tendering period.

The total shares of the target co. as of 10 th working day from the closure of the tendering
period shall take into account all potential increases in the no. of outstanding shares during the
offer period contemplated as of the date of the public announcement.

A Voluntary open offer can be made for the acquisition of shares representing at least 10% of
voting rights in target company but shall not exceed such no. of such shares which will take
the holding of the acquirer and PACs to beyond maximum non-public shareholding permitted.

Upon a competing offer being made, such an acquirer would be permitted to increase his offer
size to a normal full sized open offer within 15 working days.

CONDITIONAL OFFER
An offer in which the acquirer has stipulated a minimum level of acceptance is known as a conditional
offer.

Open offer process

 Prior to making of a public announcement, the acquirer shall appoint Merchant Banker
registered with the SEBI, who is not an associate of the acquirer, as manager to the offer.
 The public announcement of the open offer for acquiring shares shall be made by the
acquirer through such manager to the open offer.

Provided further if Acquirer acquires the shares or voting rights of the Target Company in
excess of the limits prescribed under Regulation 3 and 4, then the Acquirer is required to give a
Public Announcement of an Open Offer to the shareholders of the Target Company.

During the process of making the Public Announcement of an Open Offer, the Acquirer is
required to give Public Announcement and publish Detailed Public Statement.
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Exemption from making an open offer (Mandatory Bids)

Regulation 10: Automatic Exemption
1. Acquisition in relation to inter se transfer of shares amongst qualifying person. Provided
acquisition price is not more than 25% of 60 days VWAP (volume weighted Average price)
[for frequently trade shares]
For infrequently traded shares  Acquisition price shall not be more than 25% of price
determined under regulation 8(2)

2. Acquisition in ordinary course of business by

 Underwriters
 Stock Broker
 Merchant Banker (acting as Stabilizing Agent)
 Registered Market Maker
 Scheduled Commercial Bank (SCB)
 Invocation of pledge by Bank
 Acquisition as per SEBI (ICDR) Regulation 2018

3. Acquisition in pursuant of -
 Agreement of disinvestment
 Arrangement involving Merger and Amalgamation, Demerger ordered by Court.
 Provision of SARFAESI Act 2002
 SEBI (Delisting of Equity Shares) Regulation 2021
 Transmission, succession or inheritance
 Scheme of corporate Debt Restructuring according to scheme notified by RBI.

4. Increase in voting rights pursuant to buy back, provided the shareholding shall decrease
below the threshold within 90 days of such increase

Regulation 11
Exemption granted by SEBI
1. Where Central Govt. or State Govt. superseded the Board of Directors (BOD) of company.
2. Exemption in public interest.

Note: - For seeking exemption acquire/ target co. needs to file an application along-with
affidavit to SEBI.

Regulation 16: - Filing Draft Letter of offer

Within 5 working days of publication DPS, the acquirer through the manager to the offer is
required to file a draft letter of offer with SEBI for its observations.

The SEBI shall give its comments on the draft letter of offer as expeditiously as possible but
within 15 working days of the receipt of the draft letter of offer and if no comments being
issued by the SEBI, it shall be deemed that the SEBI does not have comments to offer:

Provided that in the event the SEBI has sought clarifications or additional information from the
manager to the open offer, the period for issuance of comments shall be extended to the 5th

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working day from the date of receipt of satisfactory reply to the clarification or additional
information sought.

Provided further that in the event the SEBI specifies any changes, the manager to the open
offer and the acquirer shall carry out such changes in the letter of offer before it is dispatched
to the shareholders.

Regulation 17:- Escrow account

At-least 2 working days prior to the date of the DPS of open offer for acquiring shares, the
acquirer shall create an escrow account towards security for performance of his obligations
under these regulations, and deposit in escrow account such aggregate amount as specified.

The purpose of these provisions is to ensure that the acquirer has sufficient funds to pay the
consideration under the offer and he has secured sufficient financial arrangement.

Escrow a/c means: - a bank account which is required to be opened by an acquirer who
proposes to make public announcement of offer.

Amount to be deposited in Escrow Account:

 On 1st 500 Cr.  25% of consideration
 On balance  Additional amt equal to 10%.

If offer is made conditional upon minimum level of acceptance, then higher of following shall
be deposited
 100% of consideration payable in respect of minimum level of acceptance or
 50% of consideration payable under the open offer.
Note: - if any upward revision is made in open offer  make corresponding increase in Escrow
Account.

Mode of Payment (Reg 9)

(a) Cash Deposit with any scheduled commercial bank
Empower the manager to the open offer to instruct the bank to issue a banker’s cheque
or demand draft or to make payment of the amounts lying to the credit of the escrow
account.
(b) Bank guarantee
In the favour of manager (merchant banker) to the offer and shall be kept valid
throughout the offer period and additional 30 days after the payment to the
shareholders who have tendered their shares have been made.
(c) Deposit of frequently traded and freely transferable equity shares or other freely
transferable securities. Manager to the Open Offer shall be empowered to realize the value
of escrow account by way of sale or otherwise.

Further in case of any shortfall in the amount in the escrow account, such shortfall shall
be made good by the Manager

Note: - in case of Bank Guarantee or Deposit of Securities at least 1% of total consideration
should be deposited in Cash.
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Release of amount from Escrow Account

In the following cases only
1. In case of withdrawal of offer, the entire amount can be released only after certification by
the managers to the open offer.
2. The amount deposited in special escrow account is transferred to special bank account
opened with the Bankers to an issue; however the amount so transferred shall not exceed
90% of the cash deposit.
3. The balance 10% is released to the acquirer on the expiry of 30 days from the completion of
all obligations under the offer.
4. The entire amount to the acquirer on the expiry of 30 days from the completion of all
obligations under the offer where the open offer is for exchange of shares or other secured
instruments.
5. In the event of forfeiture of amount, the entire amount is distributed in the following
manner:
 1/3rd of the amount to Target Company;
 1/3rd of the Escrow account to the IEPF established under SEBI (IEPF) Regulations,
2009;
 Residual 1/3rd is to be distributed to the shareholders who have tendered their shares in
the offer.

Regulation 18
Draft Letter of  Send a copy of the draft letter of offer to the target company at its
offer registered office
 Address and to all stock exchanges where the shares of the target
company are listed.
Dispatch of letter  within 7 working days from the receipt of comments from the SEBI
of or
offer to share  Where no comments are offered by the SEBI, within 7 working days
holders from the expiry of the stipulated period.
Letter of offer to  Send the letter of offer to the custodian of shares underlying
the custodian of depository receipts, if any, of the target company
shares
underlying
depository
receipts

Size of an Open Offer

 An Open offer must be made for a minimum of 26% of the target company’s share capital.
 Voluntary open offer must be for at least 10% of the target company’s share capital.

Disclosure of To each of the stock exchanges on which the shares of the target company
acquisition are listed and to the target company at its registered office within 24 hours
during offer of such acquisition, and the stock exchanges shall forthwith disseminate
period such information to the public:

Provided that the acquirer shall not acquire or sell any shares of the target
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company during the period between 3 working days prior to the
commencement of the tendering period and until the expiry of the tendering
period.

Advertisement 1 working day before the commencement of the tendering period,

before the announcing the schedule of activities for the open offer, the status of
tendering statutory and other approvals, if any, whether for the acquisition attracting
period the obligation to make an open offer under these regulations or for the open
offer, unfulfilled conditions, if any, and their status, the procedure for
tendering acceptances and such other material detail as may be specified:

Provided that such advertisement shall be,—

 Published in all the newspapers in which the DPS was made; and
 Simultaneously sent to the SEBI, all the stock exchanges on which the
shares of the target company are listed, and the target company at its
registered office.
Offer period The period starting from the date of the event triggering open offer till
completion of payment of consideration to shareholders by the acquirer or
withdrawal of the offer by the acquirer as the case maybe.
Tendering The 10 working days falling within the offer period, during which the
period eligible shareholders who wish to accept the open offer can tender their
shares in the open offer. The tendering period shall start within 12 working
days from date of receipt of comments from the SEBI and shall remain
open for 10 working days. Shareholders who have tendered shares in
acceptance of the open offer shall not be entitled to withdraw such
acceptance during the tendering period.
Completion of Within 10 working days from the last date of the tendering period, complete
requirements all requirements relating to the open offer including payment of
consideration to the shareholders who have accepted the open offer.
Acquirer will be responsible for all statutory approvals required to
complete the open offer without any default, neglect or delay
Post offer Within 5 working days after the offer period, giving details including
Advertisement aggregate number of shares tendered, accepted, date of payment of
consideration.
Such advertisement shall be,—
i. Published in all the newspapers in which the DPS was made; and
ii. Simultaneously sent to the SEBI, all the stock exchanges on which the
shares of the target company are listed, and the target company at its
registered office.

Regulation 19:- Conditional Offer

An offer in which the acquirer has stipulated a minimum level of acceptance.
‘Minimum level of acceptance’ implies minimum number of shares which the acquirer desires
under the said conditional offer. If the number of shares validly tendered in the conditional
offer, are less than the minimum level of acceptance stipulated by the acquirer, then the
acquirer is not bound to accept any shares under the offer. In a conditional offer, if the
minimum level of acceptance is not reached, the acquirer shall not acquire any shares in the
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target company under the open offer or the Share Purchase Agreement which has triggered the
open offer.

Regulation 20 :- Competing Offer

An offer made by a person, other than the acquirer who has made the first public
announcement. A competitive offer shall be made within 15 working days of the date of the
DPS made by the acquirer who has made the first PA. If any competitive offer is made, the
acquirer can revise the terms of his open offer provided the revised terms are favourable to the
shareholders of the target company. Such revision can be made up to ONE working days.

Regulation 21:- Payment of Consideration

The acquirer shall complete payment of consideration whether in the form of cash, or as the
case may be, by issue, exchange/transfer of Securities, to all shareholders who have tendered
shares in acceptance of the open offer within 10 working days of the expiry of the tendering
period, by transferring the consideration to a Special Escrow Account.

Regulation 23 :- Withdrawal of open Offer

Open offer cannot be withdrawn except in following cases:
 Statutory approvals required for the open offer or for effecting the acquisitions attracting
the obligation to make an open offer have been refused subject to such requirement for
approvals having been specifically disclosed in the DPS and the letter of offer;
 Any condition stipulated in the Share Purchase Agreement attracting the obligation to make
the open offer is not met for reasons outside the reasonable control of the acquirer, subject
to such conditions having been specifically disclosed in the DPS and the letter of offer;
 Sole acquirer being a natural person has died;
 Such circumstances which in the opinion of SEBI merit withdrawal of open offer.

Regulation 25:- Obligation of Acquirer

(1) Ensure financial arrangements have been made for fulfilling the payment obligations under
the open offer and that the acquirer is able to implement the open offer, subject to any
statutory approvals for the open offer that may be necessary.
(2) In the event the acquirer has not declared an intention in the detailed public statement and
the letter of offer to alienate any material assets of the target company or of any of its
subsidiaries whether by way of sale, lease, encumbrance or otherwise outside the ordinary
course of business, the acquirer, where he has acquired control over the target company, shall
be debarred from causing such alienation for a period of 2 years after the offer period:

Provided that in the event the target company or any of its subsidiaries is required to so
alienate assets despite the intention to alienate not having been expressed by the acquirer,
such alienation shall require a special resolution passed by shareholders of the target
company, by way of a postal ballot and the notice for such postal ballot shall inter alia contain
reasons as to why such alienation is necessary.
(3) Ensure that the contents of the public announcement, the detailed public statement, the
letter of offer and the post-offer advertisement are true, fair and adequate in all material
aspects and not misleading in any material particular, and are based on reliable sources, and
state the source wherever necessary.

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(4) The acquirer and persons acting in concert with him shall not sell shares of the target
company held by them, during the offer period.
(5) The acquirer and persons acting in concert with him shall be jointly and severally
responsible for fulfilment of applicable obligations under these regulations.

Regulation 26 :- Obligation of Target Company

1. After public announcement of Public offer, BOD of such target company shall ensure that
during the offer period, the business of the target company is conducted in the ordinary
course consistent with past practice.

2. During offer period the BOD of target co. Or its subsidiary should not
 Alienate any material assets whether by way of sale, lease, encumbrance or otherwise
or enter into any agreement therefor outside the ordinary course of business
 Effect any material borrowings outside the ordinary course of business;
 Issue or allot any authorised but unissued securities entitling the holder to voting rights

Provided that the target company or its subsidiaries may,—

i. issue or allot shares upon conversion of convertible securities issued prior to the
public announcement of the open offer, in accordance with pre-determined terms
of such conversion;
ii. issue or allot shares pursuant to any public issue in respect of which the red
herring prospectus has been filed with the ROC prior to the public announcement of
the open offer; or
iii. issue or allot shares pursuant to any rights issue in respect of which the record date
has been announced prior to the public announcement of the open offer;
 Implement any buy-back of shares or effect any other change to the capital structure of
the target company;
 Enter into, amend or terminate any material contracts to which the target company or
any of its subsidiaries is a party, outside the ordinary course of business, whether such
contract is with a related party, within the meaning of the term under applicable
accounting principles, or with any other person; and
 Accelerate any contingent vesting of a right of any person to whom the target company
or any of its subsidiaries may have an obligation, whether such obligation is to acquire
shares of the target company by way of employee stock options or otherwise.
3. In any general meeting of a subsidiary of the target company, the target company and its
subsidiaries, if any, shall vote in a manner consistent with the special resolution passed by
the shareholders of the target company.
4. The target company shall be prohibited from fixing any record date for a corporate action
on or after the 3rd working day prior to the commencement of the tendering period and
until the expiry of the tendering period.
5. The target company shall furnish to the acquirer within 2 working days from the identified
date, a list of shareholders as per the register of members of the target company containing
names, addresses, shareholding and folio number, in electronic form, wherever available,
and a list of persons whose applications, if any, for registration of transfer of shares are
pending with the target company:
Provided that the acquirer shall reimburse reasonable costs payable by the target company
to external agencies in order to furnish such information.

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6. Upon receipt of the DPS, the BOD of the target company shall constitute a committee of
independent directors to provide reasoned recommendations on such open offer, and the
target company shall publish such recommendations:
Provided that such committee shall be entitled to seek external professional advice at the
expense of the target company.
7. The committee of independent directors shall provide its written reasoned
recommendations on the open offer to the shareholders of the target company and such
recommendations shall be published in such form as may be specified, at least 2 working
days before the commencement of the tendering period, in the same newspapers where the
public announcement of the open offer was published, and simultaneously, a copy of the
same shall be sent to,—
 The SEBI;
 All the stock exchanges on which the shares of the target company are listed, and the
stock exchanges shall forthwith disseminate such information to the public; and
 To the manager to the open offer, and where there are competing offers, to the manager
to the open offer for every competing offer.
8. The BOD of the target company shall facilitate the acquirer in verification of shares
tendered in acceptance of the open offer.
9. The BOD of the target company shall make available to all acquirers making competing
offers, any information and co-operation provided to any acquirer who has made a
competing offer.
10. Upon fulfilment by the acquirer, of the conditions required under these regulations, the
BOD of the target company shall without any delay register the transfer of shares acquired
by the acquirer in physical form, whether under the agreement or from open market
purchases, or pursuant to the open offer.

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Insider Trading

SEBI (Prohibition of Insider Trading) Reg. 2015

INTRODUCTION

With an intention of bringing the Insider Trading

practices with parity to the global scenario and to fill the
loopholes in the existing regulations SEBI introduced the
new SEBI (Prohibition of Insider Trading) Regulations,
2015 which replaced and repealed the SEBI (Prohibition
of Insider Trading) Regulations, 1992.

LATEST INSIDER TRADING CASE IN USA

Rajat Gupta: Rajat Gupta, who sat on boards at some of

the most influential companies in the U.S., was charged in
October with helping his friend Raj Rajaratnam carry out
his ill-fated insider trading scheme. The FBI contends that
Gupta illegally leaked inside information about firms
where he had been a director - including Goldman Sachs
and Procter & Gamble - to Rajaratnam's Galleon Group
hedge fund. The conspiracy count of which Gupta was
convicted carries a maximum sentence of five years in
prison and at least $250,000 in fines. Gupta faces 20 years
and a $5 million fine for each securities fraud count. He
has been found guilty for one conspiracy and three of the
five counts of securities fraud.

Raj Rajaratnam: The Galleon Group founder was convicted in

May of spearheading the largest insider trading scheme to ever
involve a hedge fund. The regulator slapped Raj Rajaratnam with
a record $92.8 million penalty and 11 years behind the bar for
his crimes. The case also marked the first time the SEC deployed
court-ordered wiretaps to track down criminality on Wall Street.

WHAT IS INSIDER TRADING

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Insider Trading
Insider Trading is trading/dealing of a company's securities by an insider
on the basis on Unpublished Price Sensitive Information.
So the elements of the definition are as follows: —
 There is a trading or dealing of a company's securities
 The dealing is by an Insider
 The dealing is on the basis of Unpublished Price Sensitive Information
Trading of Securities:
"Trading" means and includes subscribing, buying, selling, dealing, or
agreeing to subscribe, buy, sell, deal in any securities, and "trade" shall be
construed accordingly.

In simple words it means and includes:

 Subscribing
 Buying
 Selling
 Dealing
 Agreeing to subscribe, buy, sell, deal in any securities
Insider
"Insider" means any person who is:
i. a connected person; or
ii. in possession of or having access to unpublished price sensitive
information
Note: The new Regulations have also brought in its ambit person who do
not occupy any position in a company but are in regular touch with the
company & its officials and therefore possess Unpublished Price Sensitive
Information.
Connected Person
Connected person" means -
 any person who is or has during the 6 months prior to the concerned act
has been associated with a company, directly or indirectly, in any
capacity which may include:
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 frequent communication with its officers, or
 contractual, fiduciary or employment relationship, or
 being a director, officer or an employee of the company, or
 holds any position including a professional or business relationship
between himself and the company whether temporary or permanent,
that allows such person, directly or indirectly, access to UPSI or is
reasonably expected to allow such access.
 Person is Deemed to be a Connected Person:
The persons falling within the following categories shall be deemed to be
connected persons unless the contrary is established:
a) an immediate relative of connected persons specified above; or
b) a holding company or associate company or subsidiary company; or
c) an intermediary or an employee or director thereof; or
d) an investment company, trustee company, asset management
company or an employee or director thereof; or
e) an official of a stock exchange or of clearing house or corporation; or
f) a member of board of trustees of a mutual fund or a member of the
board of directors of the asset management company of a mutual
fund or is an employee thereof; or
g) a member of the board of directors or an employee, of a public
financial institution as defined in section 2(72) of the Companies Act,
2013; or
h) an official or an employee of a self-regulatory organization
recognised or authorized by the Board; or
i) a banker of the company; or
j) a concern, firm, trust, Hindu undivided family, company or
association of persons wherein a director of a company or his
immediate relative or banker of the company, has more than 10% of
the holding or interest.
Unpublished Price Sensitive Information
Any information, relating to a company or its securities, that is not
generally available, and is likely to materially affect the price of the
securities is a UPSI.
It includes:
 Financial results;
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 Dividends;
 Change in capital structure;
 Mergers, de-mergers, acquisitions, delisting, disposals and expansion of
business and such other transactions;
 Changes in key managerial personnel; and
 Material events in accordance with the listing agreement.
In short, till the time price sensitive information is not intimated to general
public via newspaper, stock exchange, media or websites of a listed
company, such information is known as unpublished price sensitive
information provided such information is likely to materially affect the
price.

COMPLIANCES UNDER SEBI (PROHIBITION OF INSIDER TRADING)

REGULATIONS, 2015
COMMUNICATION OR PROCUREMENT OF UNPUBLISHED PRICE
SENSITIVE INFORMATION (Regulation 3)
(a) No Communication of UPSI except official communication: Reg.
3(1):
No insider shall communicate, provide, or allow access to any
unpublished price sensitive information, relating to a company or
securities listed or proposed to be listed, to any person including other
insiders except where such communication is in furtherance of
legitimate purposes, performance of duties or discharge of legal
obligations.
(b) No Procurement of UPSI from Insider: Reg. 3(2):
No person shall procure from or cause the communication by any
insider of unpublished price sensitive information, relating to a
company or securities listed or proposed to be listed, except in
furtherance of legitimate purposes, performance of duties or discharge
of legal obligations
(c) Exception to the above provisions: Reg. 3(3):
An UPSI may be communicated, provided, allowed access to or
procured, in following cases:— For Open Offer: UPSI may be
communicated, provided, allowed access to or procured if it involve an
obligation to make an open offer under the takeover regulations where
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the board of directors of the company is of informed opinion that the
proposed transaction is in the best interests of the company.
Other than open offer: UPSI may be communicated, provided, allowed
access to or procured if it does not attract the obligation to make an
open offer under the takeover regulations but where the board of
directors of the company is of informed opinion that the proposed
transaction is in the best interests of the company and the information
that constitute UPSI is disseminated to be made generally available at
least 2 trading days prior to the proposed transaction being effected in
such form as the board of directors may determine.
(d) Execution of a confidentiality and non-disclosure agreement:
The board of directors shall require the parties to execute agreements to
contract confidentiality and non-disclosure obligations on the part of
such parties and such parties shall keep information so received
confidential, except for the purpose of sub-regulation (3), and shall not
otherwise trade in securities of the company when in possession of
unpublished price sensitive information.

TRADING WHEN IN POSSESSION OF UNPUBLISHED PRICE SENSITIVE

INFORMATION (UPSI) (Regulation 4)
An insider shall not trade in securities, which are listed or proposed to be
listed on stock exchange when in possession of unpublished price sensitive
information.
Exceptions:
1. Off-market Transaction between Promoters
Promoters possessing UPSI can trade in securities if ALL the following
conditions are satisfied:
 They have acquired such price sensitive information without breaching
regulation 3.
 Both parties had made a conscious and informed trade decision.
2. If Insiders are Non-Individual
A non-individual insider like Banks/Depositories of the company etc. can
trade in securities if ALL the following conditions are satisfied:

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 The individual possessing such UPSI is different from individual taking
decision of trading.
 The individual who took decision of trading did not had any UPSI at the
time of decision making.
 Appropriate and adequate arrangements were in place to ensure that
these regulations are not violated.
3. Any other Case
Trading is permitted if the trades were pursuant to a trading plan set up in
accordance with regulation 5.

TRADING PLAN (Regulation 5)

If an Insider wants to trade in securities of a company of which he possess
UPSI he is required to submit trading plan in advance to the compliance
officer for his approval. Following are the important compliances related to
trading plan:
o Such trading plan on approval by the compliance officer will also be
disclosed to the stock exchanges, where the securities of the company
are listed.
o Trading plan shall be for a minimum period of 12 months.
o No overlapping of plan with the existing plan submitted by Insider.
o It shall contain the following details:
 Value of trades to be effected or the number of securities to be trade
 Nature of the trade
 Intervals of date or dates on which such trades shall be effected.
o Trading shall commence only after the expiry of 6 months from the
public disclosure of plan.
o Trading shall close 20 days before the closure of the financial period till
the 2nd trading day after the disclosure of such financial results.
Example: If the financial period is 1st quarter (April to June) then the
trading will be closed from twentieth trading day before 30 June to the
second trading day after the disclosure of financial results for first
quarter (result is declared in BM as per LODR).
o The trading plan once approved by the Compliance Officer shall be
irrevocable and the insider shall mandatorily have to implement the
plan.
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DISCLOSURES OF TRADING BY INSIDERS - General Disclosure

(Regulation 6)
a) Specific form for disclosure: Reg. 6(1): Every public disclosure shall be
made in a specified form.
b) Disclosure by any person: Reg. 6(2): The disclosures to be made by
any person shall include those relating to trading by such person's
immediate relatives, and by any other person for whom such person
takes trading decisions.
c) Disclosure includes derivatives: Reg. 6(3): The disclosures of trading
in securities shall also include trading in derivatives of securities and
the traded value of the derivatives shall be taken into account.
d) Maintenance of Record: Reg. 6(4): The disclosures made shall be
maintained by the company, for a minimum period of 5 years, in the
specified form.

DISCLOSURE ON INTEREST BY CERTAIN PERSON (Regulation 7)

Category of Content of Disclosure By Disclosure Time period

Disclosure Disclosure Whom to whom

Holding on the Promoter, Company Within 30

date of KMP or days of these
commencement Director of a Regulation
of regulation listed taking effect
Initial company
Disclosure Holding on the Promoter, Company Within 7
date of KMP or days of the
appointment Director of a appointment
listed
company

Value of Step 1
Continual
securities
Disclosure traded, in Promoter or Company Within 2
Director or days of such
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aggregate, in a Employee transaction
calendar
quarter, Step 2
exceeds traded
value of Rs. 10 Company Stock Within 2
Lac or any Exchange days of
other value as receipt of
may be disclosure
prescribed from
promoter
director or
employee

other As required by Connected Company As specified

connected the company Person by the
person Company

Code of Fair Disclosure (Regulation 8)

1. The board of directors of every company, whose securities are listed on
a stock exchange, shall formulate and publish on its official website, a
code of practices and procedures for fair disclosure of unpublished price
sensitive information that it would follow in order to adhere to each of
the principles set out in Schedule A to these regulations, without
diluting the provisions of these regulations in any manner.
2. Every such code of practices and procedures for fair disclosure of
unpublished price sensitive information and every amendment thereto
shall be promptly intimated to the stock exchanges where the securities
are listed.
Some important contents of this Code are:
 Uniform & universal dissemination of UPSI to avoid selective disclosure;
 Designation of a senior officer as a chief investor relations officer to deal
with dissemination of information & disclosure of UPSI;
 Appropriate & fair response to queries on new reports & requests for
verification of market rumors by regulatory authority;
 Ensuring that information shared with analysts & research personnel is
not UPSI.

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Code of Conduct (Regulation 9)
1. The board of directors of every listed company and market intermediary
shall formulate a code of conduct to regulate, monitor and report
trading by its employees and other connected persons towards
achieving compliance with these regulations, adopting the minimum
standards set out in Schedule B to these regulations, without diluting the
provisions of these regulations in any manner.
2. Every other person who is required to handle unpublished price
sensitive information in the course of business operations shall
formulate a code of conduct to regulate, monitor and report trading by
employees and other connected persons towards achieving compliance
with these regulations, adopting the minimum standards set out in
Schedule B to these regulations, without diluting the provisions of these
regulations in any manner.
3. Every listed company, market intermediary and other persons
formulating a code of conduct shall identify and designate a compliance
officer to administer the code of conduct and other requirements under
these regulations.
Some important contents of this Code are:
 All information shall be handled within the organization on a need-to-
know basis;
 The BOD shall, in consultation with the Compliance Officer, specify the
designated persons to be covered by such code;
 A notional trading window shall be used as an instrument of monitoring
trading by designated persons. Trading window shall be closed
designated persons is expected to be in possession of UPSI;
 Compliance officer shall determine timing for re-opening of the trading
window, which shall not be less than 48 hrs. when the information
becomes publically available;
 Designated persons shall be subject to pre-clearance by compliance
officer;
 Code of conduct shall stipulate such formats as the BOD deems fit for
making applications for pre-clearance etc.
PENALITIES FOR NON-COMPLIANCE

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Penalty for insider trading under Section 24 of SEBI Act: If any person
contravenes or attempts to contravene or abets the contravention of the
provisions of this Act or of any rules or regulations made thereunder or if
any person fails to pay the penalty imposed by the adjudicating officer or
fails to comply with any of his directions or orders. He shall be punishable
with imprisonment for a term which shall not be less than 1 month but
which may be extended to 10 years and fine which may be extended to Rs.
25 crores or both.
Penalty for insider trading under Section 15G of SEBI Act: If any Insider
who either on his own behalf or on behalf of any other person, deals in
securities of a listed entities on the basis of any UPPSI; or communicates
any UPPSI to any person, with or without his request for such information
except as required in the ordinary course of business or under any law; or
counsels, or procures for any other person to deal in any securities of
anybody corporate on the basis of UPPSI. He shall be liable to a penalty of
Rs. 25 crores or three times the amount of profits made out of insider
trading, whichever is higher.
ROLE OF COMPANY SECRETARY FOR INSIDER TRADING COMPLIANCES
The following obligations cast upon the Company Secretary with regard to
Compliances of insider trading regulations:
a) Compliances with Insider Trading Regulations: Ensure compliance
of SEBI (Prohibition of Insider Trading) Regulations, 2015 including
maintenance of various register record documents.
b) Framing of Code of Conduct: CS shall frame a code of fair disclosure
and conduct in line with the model code as specified under the insider
trading regulations and get it approved by the board of directors of the
company.
c) Place before SEBI: CS should place before SEBI the "minimum
standards for Code of Conduct" to regulate, monitor and report trading
by insiders as enumerated in the Schedule B of the regulations.
d) One time Disclosures: CS should receive initial disclosure from every
Promoter, KMP and director or every person on appointment as KMP or
director or becoming a Promoter, about their shareholding within:
 30 days from the effect of insider regulations, or
 7 days of such appointment or becoming a promoter.

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e) Continual Disclosures: CS should receive from every Promoter,
employee and director, continual disclosures of the number of securities
acquired or disposed of, if the value of the securities traded, exceeds Rs.
10 lakh in any calendar quarter within 2 trading days of:
 receipt of the disclosure, or
 from becoming aware of such information.
f) No Trading Period: CS should ensure that no trading shall happen
between 20th day prior to closure of financial period and 2nd trading
day after disclosure of financial results.
g) Approval of Trading Plan: Approve the trading plan and after the
approval of the trading plan, as compliance officer shall notify the plan
to the stock exchanges on which the securities are listed.
h) Maintain the records: Maintain the records of all the declarations
given by the directors/ designated employees/partners for a minimum
period of 3 years.
i) Monitoring of Trades: Monitor of trades and the implementation of the
code of conduct under the overall supervision of the Board of Directors
of the listed company.
j) Maintain the list of Information: Maintain a list of all information
termed as 'price sensitive information'.
k) Keeping record of Trading Window: Keep records of periods specified
as 'close period' and the 'Trading window'.

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Prohibition of Fraudulent and Unfair Trade Practices

relating to Securities Market
Introduction

Securities & Exchange Board of India Act, 1992 l SEBI (Prohibition of Fraudulent and
Unfair Trade Practices relating to Securities Market) Regulations, 2003 INTRODUCTION
The SEBI (Prohibition of Fraudulent and Unfair Trade Practices in relation to the
Securities Market) Regulations, 2003 enable SEBI to investigate into cases of market
manipulation and fraudulent and unfair trade practices. These regulations empower
SEBI to investigate into violations committed by any person, including an investor,
issuer or an intermediary associated with the securities market. The regulations define
frauds as acts, expression, omission or concealment committed whether in a deceitful
manner or not by a person or by any other person or agent while dealing in securities in
order to induce another person with his connivance or his agent to deal in securities,
whether or not there is any wrongful gain or avoidance of any loss. The regulations
specifically prohibit dealing in securities in a fraudulent manner, market manipulation,
misleading statements to induce sale or purchase of securities, and unfair trade
practices relating to securities. SEBI can conduct investigation, suo moto or upon
information received by it, through an investigation officer in respect of conduct and
affairs of any person buying/selling/dealing in securities. Based on the report of the
investigating officer, SEBI can initiate action for suspension or cancellation of
registration of an intermediary.

SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING

TO SECURITIES MARKET) REGULATIONS, 2003
Important Definitions
 Dealing in Securities [Reg 2 (1) (b)]
Dealing in Securities includes:
(i) an act of buying, selling or subscribing pursuant to any issue of any security
or agreeing to buy, sell or subscribe to any issue of any security or
otherwise transacting in any way in any security by any persons including
as principal, agent, or intermediary referred to in section 12 of the SEBI Act;
(ii) such acts which may be knowingly designed to influence the decision of
investors in securities; and
(iii) any act of providing assistance to carry out the aforementioned acts.

 Fraud [Reg 2(1)(c)]

“Fraud” includes any act, expression, omission or concealment committed
whether in a deceitful manner or not by a person or by any other person with his
connivance or by his agent while dealing in securities in order to induce another
person or his agent to deal in securities, whether or not there is any wrongful
gain or avoidance of any loss, and shall also include—
1. a knowing misrepresentation of the truth or concealment of material fact in
order that another person may act to his detriment;
2. a suggestion as to a fact which is not true by one who does not believe it to
be true;
3. an active concealment of a fact by a person having knowledge or belief of the
fact;
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4. a promise made without any intention of performing it;

5. a representation made in a reckless and careless manner whether it be true
or false;
6. any such act or omission as any other law specifically declares to be
fraudulent;
7. deceptive behaviour by a person depriving another of informed consent or
full participation;
8. a false statement made without reasonable ground for believing it to be true;
9. The act of an issuer of securities giving out misinformation that affects the
market price of the security, resulting in investors being effectively misled
even though they did not rely on the statement itself or anything derived
from it other than the market price.

Exceptions to ‘Fraud’
Nothing contained in the clause shall apply to any general comments made in good faith
in regard to-
a) The economic policy of the government
b) The economic situation of the country
c) Trends in the securities market or
d) Any other matter of a like nature whether such comments are made in public or in
private.

 Investigating Authority [Reg 2(1)(d)]

“Investigating Authority” means any person authorized by the SEBI to undertake
investigation under section 11C of the SEBI Act.

PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO

THE SECURITIES MARKET
Prohibition of certain dealings in securities [Reg 3]
No person shall directly or indirectly –
a. buy, sell or otherwise deal in securities in a fraudulent manner;
b. use or employ, in connection with issue, purchase or sale of any security listed or
proposed to be listed in a recognized stock exchange, any manipulative or deceptive
device or contrivance in contravention of the provisions of the SEBI Act or the rules
or the regulations made there under;
c. employ any device, scheme or artifice to defraud in connection with dealing in or
issue of securities which are listed or proposed to be listed on a recognized stock
exchange;
d. engage in any act, practice, course of business which operates or would operate as
fraud or deceit upon any person in connection with any dealing in or issue of
securities which are listed or proposed to be listed on a recognized stock exchange
in contravention of the provisions of the SEBI Act or the rules and the regulations
made there under
Examples:
1. Ramesh is working as Finance Executive with company ABC Ltd. He used to receive
instructions from Piyush, who is Managing Director of ABC Ltd. Based on the said
instructions Ramesh used to trade on behalf of Piyush. Ramesh indulged in front
running by using information received from Piyush for trading in same scrip and
squared off trades along with trades of Piyush for making wrongful gain.

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2. X bought shares in advance of ABC company based on the price-sensitive information

received from the employee of XYZ and later sold those shares of ABC company to XYZ
company for profit (frontrunning)

Prohibition of Manipulative, Fraudulent and Unfair Trade Practices [Reg 4]

(1) No person shall indulge in a fraudulent or an unfair trade practice in securities.

Any act of Diversion, Mis-utilisation or siphoning off of assets or earnings of a

company whose securities are listed or any concealment of such act or any device,
scheme or artifice to manipulate the books of accounts or financial statement of such a
company that would directly or indirectly manipulate the price of securities of that
company shall be and shall always be deemed to have been considered as
manipulative, fraudulent and an unfair trade practice in the securities market
(2) Further, any dealing in securities shall be deemed to be a manipulative,
fraudulent or an unfair trade practice if it involves any of the following:—
(a) knowingly indulging in an act which creates false or misleading appearance
of trading in the securities market;
(b) dealing in a security not intended to effect transfer of beneficial ownership
but intended to operate only as a device to inflate, depress or cause
fluctuations in the price of such security for wrongful gain or avoidance of
loss;
(c) Inducing any person to subscribe to an issue of the securities for fraudulently
securing the minimum subscription to such issue of securities, by advancing
or agreeing to advance any money to any other person or through any other
means;
(d) inducing any person for dealing in any securities for artificially inflating,
depressing, maintaining or causing fluctuation in the price of securities
through any means including by paying, offering or agreeing to pay or offer
any money or money’s worth, directly or indirectly, to any person;
(e) any act or omission amounting to manipulation of the price of a security
including, influencing or manipulating the reference price or bench mark
price of any securities;
(f) knowingly publishing or causing to publish or reporting or causing to report
by a person dealing in securities any information relating to securities,
including financial results, financial statements, mergers and acquisitions,
regulatory approvals, which is not true or which he does not believe to be
true prior to or in the course of dealing in securities;
(g) Entering into a transaction in securities without intention of performing it or
without intention of change of ownership of such security;
(h) Selling, dealing or pledging of stolen, counterfeit or fraudulently issued
securities whether in physical or dematerialized form.
Provided that if:-
i. the person selling, dealing in or pledging stolen, counterfeit or
fraudulently issued securities was a holder in due course; or
ii. the stolen, counterfeit or fraudulently issued securities were previously
traded on the market through a bonafide transaction;
iii. such selling, dealing or pledging of stolen, counterfeit or fraudulently
issued securities shall not be considered as a manipulative, fraudulent,
or unfair trade practice.

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(i) disseminating information or advice through any media, whether physical or

digital, which the disseminator knows to be false or misleading in a reckless
or careless manner and which is designed to, or likely to influence the
decision of investors dealing in securities;
(j) a market participant entering into transactions on behalf of client without
the knowledge of or instructions from client or misutilizing or diverting the
funds or securities of the client held in fiduciary capacity;
(k) circular transactions in respect of a security entered into between persons
including intermediaries to artificially provide a false appearance of trading
in such security or to inflate, depress or cause fluctuations in the price of
such security;
(l) fraudulent inducement of any person by a market participant to deal in
securities with the objective of enhancing his brokerage or commission or
income;
(m) an intermediary predating or otherwise falsifying records including contract
notes, client instructions, balance of securities statement, client account
statements;
(n) any order in securities placed by a person, while directly or indirectly in
possession of information that is not publically available, regarding a
substantial impending transaction in that securities, its underlying securities
or its derivative;
(o) Knowingly planting false or misleading news which may induce sale or
purchase of securities;
(p) Mis-selling of securities or services relating to securities market.
Mis-selling means sale of securities or services relating to securities market
by any person, directly or indirectly, by-
 knowingly making a false or misleading statement, or
 knowingly concealing or omitting material facts, or
 knowingly concealing the associated risk, or
 not taking reasonable care to ensure suitability of the securities or
service to the buyer
(q) illegal mobilization of funds by sponsoring or causing to be sponsored or
carrying on or causing to be carried on any collective investment scheme by
any person.

Examples:
1. Suresh is em ployed as the Managing Director and Chief Executive Officer in
XYZ Ltd. a public listed company. The auditors raised a suspicion regarding the
veracity of the financial statements of the Company. The share price of the
Company had gone up due to the misstatements. Hence, Suresh has violated the
provisions of section 12A(a), 12(A)(b) and 12A(c) of the Securities and Exchange
Board of India Act 1992, read with Regulations 3(b), 3(c), 3(d), 4(1), 4(2)(e),
4(2)(k) and 4(2)(r) of the PFUTP Regulations, 2003.

2. The company ‘VCL’ came out with an Initial Public Offering of 10 lakh equity
shares of Rs. 10 which was subsequently listed on Delhi Stock Exchange, Bombay
Stock Exchange Ltd. (BSE) and National Stock Exchange of India Limited (NSE).
The company has issued the misleading advertisements. Hence, the company has
violated the provisions of Regulations 4, 5 and 6 of the PFUTP Regulations, 2003.

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INVESTIGATION

Power of the SEBI to order investigation [Reg 5]

Where the SEBI, the Chairman, the member or the Executive Director (hereinafter
referred to as “appointing authority”) has reasonable ground to believe that—
(a) the transactions in securities are being dealt with in a manner detrimental to the
investors or the securities market in violation of these regulations;
(b) any intermediary or any person associated with the securities market has violated
any of the provisions of the Act or the rules or the regulations,
It may, at any time by order in writing, direct any person (hereinafter referred to as the
“Investigating Authority”) specified in the order to investigate the affairs of such
intermediary or persons associated with the securities market or any other person and
to report thereon to the SEBI in the manner provided in section 11C of the SEBI Act

Powers of Investigating Authority [Regulation 6]

Without prejudice to the powers conferred under the SEBI Act, the Investigating
Authority shall have the following powers for the conduct of investigation, namely:—
1. to call for information or records from any person;
2. to undertake inspection of any book, or register, or other document or record of any
listed public company or a public company which intends to get its securities listed
on any recognized stock exchange where the Investigating Authority has reasonable
grounds to believe that such company has been conducting its activities in violation
of these regulations;
3. to require any intermediary or any person associated with securities market in any
manner to furnish such information to, or produce such books, or registers, or other
documents, or record before him or any person authorized by him in this behalf as
he may consider necessary if the furnishing of such information or the production
of such books, or registers, or other documents, or record is relevant or necessary
for the purposes of the investigation;
4. to keep in his custody any books, registers, other documents and record produced
for a maximum period of six months: However, the Investigating Authority may call
for any book, register, other document or record if the same is needed again:
Further, if the person on whose behalf the books, registers, other documents and
record are produced requires certified copies of the books, registers, other
documents and record produced before the Investigating Authority, he shall give
certified copies of such books, registers, other documents and record to such person
or on whose behalf the books, registers, other documents and record were
produced;
5. to examine orally and to record the statement of the person concerned or any
director, partner, member or employee of such person and to take notes of such
oral examination to be used as an evidence against such person : However, the said
notes shall be read over to, or by, and signed by, the person so examined;
6. to examine on oath any manager, managing director, officer or other employee of
any intermediary or any person associated with securities market in any manner in
relation to the affairs of his business and may administer an oath accordingly and
for that purpose may require any of those persons to appear before him personally;
7. to call for information and record from any person including any bank or any other
authority or board or corporation established or constituted by or under any
Central, State or Provincial Act in respect of any transaction in securities which are
under investigation;
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8. to make an application to the Judge of the designated court in Mumbai as notified by

the Central Government for an order for the seizure of any books, registers, other
documents and record, if in the course of investigation, the Investigating Authority
has reasonable ground to believe that such books, registers, other documents and
record of, or relating to, any intermediary or any person associated with securities
market in any manner may be destroyed, mutilated, altered, falsified or secreted;
9. to keep in his custody the books, registers, other documents and record seized
under these regulations for such period not later than the conclusion of the
investigation as he considers necessary and thereafter to return the same to the
person, the company or the other body corporate, or, as the case may be, to the
managing director or the manager or any other person from whose custody or
power they were seized: However, the Investigating Authority may, before
returning such books, registers, other documents and record as aforesaid, place
identification marks on them or any part thereof;
10. Every search or seizure made under this regulation shall be carried out in
accordance with the provisions of the Code of Criminal Procedure, 1973 relating to
searches or seizures made under that Code.

Duty to co-operate, etc.[Regulation 8]

1. It shall be the duty of every person in respect of whom an investigation has been
ordered-
(a) to produce to the Investigating Authority or any person authorized by him such
books, accounts and other documents and record in his custody or control and
to furnish such statements and information as the Investigating Authority or
the person so authorized by him may reasonably require for the purposes of the
investigation;
(b) to appear before the Investigating Authority personally when required to do so
by him under regulation 6 to answer any question which is put to him by the
Investigating Authority.

2. Without prejudice to the provisions of the Companies Act, 2013, it shall be the duty
of every manager, managing director, officer and other employee of the company
and every intermediary referred to in section 12 of the SEBI Act or every person
associated with the securities market to preserve and to produce to the
Investigating Authority or any person authorized by him in this behalf, all the books,
registers, other documents and record of, or relating to, the company or, as the case
may be, of or relating to, the intermediary or such person, which are in their custody
or power.

3. Such person shall—

a. allow the Investigating Authority or any person authorized by him in this behalf
to have access to the premises occupied by such person at all reasonable times
for the purpose of investigation;
b. extend to the Investigating Authority or any person authorized by him in this
behalf reasonable facilities for examining any books, accounts and other
documents in his custody or control (whether kept manually or in computer or
in any other form) reasonably required for the purposes of the investigation;
c. provide to such Investigating Authority or any person authorized by him in this
behalf any such books, accounts and records which, in the opinion of the
Investigating Authority, are relevant to the investigation or, as the case may be,
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allow the Investigating Authority or any person authorized by him in this behalf
to take computer print-outs thereof

Submission of report to SEBI [Reg 9]

The Investigating Authority shall, on completion of investigation, after taking into
account all relevant facts, submit a report to the appointing authority. However, the
Investigating Authority may submit an interim report pending completion of
investigations if he considers necessary in the interest of investors and the securities
market or as directed by the appointing authority
Enforcement by the SEBI [Reg 10 & 11]
If SEBI is satisfied that there is a violation of these regulations and after giving a
reasonable opportunity of hearing to the persons concerned, may issue directions or
take action.
Further, the SEBI may, in the interest of investors and securities market, dispense with
the opportunity of predecisional hearing by recording reasons in writing and shall give
an opportunity of post-decisional hearing to the persons concerned as expeditiously as
possible.

SEBI may, by an order, for reasons to be recorded in writing, in the interests of investors
and securities market, issue or take any of the following actions or directions, either
pending investigation or enquiry or on completion of such investigation or enquiry,
namely:—
1. suspend the trading of the security found to be or prima facie found to be involved in
fraudulent and unfair trade practice in a recognized stock exchange;
2. restrain persons from accessing the securities market and prohibit any person
associated with securities market to buy, sell or deal in securities;
3. suspend any office-bearer of any stock exchange or self-regulatory organization
from holding such position;
4. impound and retain the proceeds or securities in respect of any transaction which is
in violation or prima facie in violation of these regulations;
5. direct and intermediary or any person associated with the securities market in any
manner not to dispose of or alienate an asset forming part of a fraudulent and unfair
transaction;
6. require the person concerned to call upon any of its officers, other employees or
representatives to refrain from dealing in securities in any particular manner;
7. prohibit the person concerned from disposing of any of the securities acquired in
contravention of these regulations;
8. direct the person concerned to dispose of any such securities acquired in
contravention of these regulations, in such manner as the SEBI may deem fit, for
restoring the status quo ante.

Any final order passed shall be put on the website of the SEBI.

Manner of service of summons and notices issued by the SEBI [Regulation 11A]
1) A summons or notice issued by the SEBI shall be served on the person through any
of the following modes, namely—
i. by delivering or tendering it to that person or his duly authorised agent; or

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ii. by sending it to the person by fax or electronic mail or electronic instant

messaging services along with electronic mail or by courier or speed post or
registered post:

However, the courier or speed post or registered post shall be sent to the
address of his place of residence or his last known place of residence or the
place where he carried on, or last carried on, business or personally works, or
last worked, for gain, with acknowledgment due: Further, a summons or
notice sent by fax shall bear a note that the same is being sent by fax and in
case the document contains annexure, the number of pages being sent shall
also be mentioned:

Also, a summons or notice sent through electronic mail or electronic instant

messaging services along with electronic mail shall be digitally signed by the
competent authority and bouncing of the electronic mail shall not constitute
valid service.

2) In case of failure to serve a summons or notice through any one of the modes as
mentioned above, the summons or notice may be affixed on the outer door or some
other conspicuous part of the premises in which the person resides or is known to
have last resided, or carried on business or personally works, or last worked, for
gain and a written report thereof shall be prepared in the presence of two witnesses.

3) In case of failure to affix the summons or notice on the outer door, the summons or
notice shall be published in at least two newspapers, one of which shall be in an
English daily newspaper having nationwide circulation and another shall be in a
newspaper having wide circulation published in the language of the region where
that person was last known to have resided or carried on business or personally
worked for gain.

Suspension or cancellation of registration [Reg 12]

The SEBI may, without prejudice to any action under the securities laws or directions or
circulars issued thereunder, by an order, for reasons to be recorded in writing, in the
interests of investors and securities market take the following action against an
intermediary:
a) issue a warning or censure;
b) suspend the registration of the intermediary; or
c) cancel of the registration of the intermediary.
However, no final order of suspension or cancellation of an intermediary for violation of
these regulations shall be passed unless the procedure specified in the regulations
applicable to such intermediary is complied with.

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SEBI (DELISTING OF EQUITY SHARES)

REGULATIONS, 2021
Definitions (Reg 2)
(1) In these regulations, unless the context otherwise requires, the terms defined herein
shall bear the meaning assigned to them below and their cognate expressions and
variations shall be construed accordingly,-

b) “Acquirer” includes a person -

i. who decides to make an offer for delisting of equity shares of the company along
with the persons acting in concert in accordance with regulation 5A of the
Takeover Regulations as amended from time to time ; or
ii. who is the promoter or part of the promoter group along with the persons acting
in concert.

d) “Bidding period” means the period within which shareholders may tender their
shares in acceptance of the offer for delisting of equity shares of the company made
under these regulations;

e) “Control” shall have the same meaning as assigned to it under the Takeover
Regulations as amended from time to time;

j) “delisting” means permanent removal of equity shares of the company from the
trading platform of a stock exchanges, either by way of voluntary or compulsory
method;

k) “delisting period” means the period between the date of initial public
announcement and the date of payment of consideration to the shareholders, whose
shares have been accepted in the reverse book building process or the date on which
shares have been returned upon failure of the delisting offer, as the case may be;

l) "discovered price" means the price discovered through reverse book building
process in terms of Schedule II of these Regulations;

m) "floor price" means the minimum price offered by the acquirer while making the
proposal for voluntarily delisting of the equity shares of the company;

o) "indicative price" means the price offered by the acquirer, which is higher than the
floor price, while making the proposal to voluntarily delist the equity shares of the
company;

s) "Peer Review Company Secretary" means a Company Secretary in practice, who is

either practicing individually or as a sole proprietor or as a partner of a Peer Reviewed
Practice Unit, holding a valid certificate of peer review issued by the Institute of
Company Secretaries of India;

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t) “public shareholding” shall have the same meaning as assigned to it under rule 2(e)
of the Securities Contracts (Regulation) Rules, 1957 as amended from time to time and
“public shareholders” shall be construed accordingly;

u) “Persons acting in concert” shall have the same meaning as assigned to it under the
Takeover Regulations as amended from time to time;

bb) “voluntary delisting” means the delisting of equity shares of a company voluntarily
on an application made by it;

DELISTING OF EQUITY SHARES

Scope and applicability Regulation 3
1. These regulations shall apply to delisting of equity shares of a company including
equity shares having superior voting rights from all or any of the stock exchanges
where such shares are listed.
2. Nothing contained in these regulations shall apply to the delisting of equity shares of
a listed company—
a) that have been listed and traded on the innovators growth platform of a stock
exchanges without making a public issue;
b) made pursuant to a resolution plan approved u/s 31 of the Insolvency Code, if
such plan provides for:
i. delisting of such shares; or
ii. an exit opportunity to the existing public shareholders at a specified price:
Provided that the existing public shareholders shall be provided the exit
opportunity at a price which shall not be less than the price, by whatever
name called, at which a promoter or any entity belonging to the promoter
group or any other shareholder, directly or indirectly, is provided an exit
opportunity:
Provided further that the details of delisting of such shares along with the
justification for the exit price in respect of the proposed delisting shall be
disclosed to the stock exchange where the shares are listed within one day of
approval of the resolution plan u/s 31 of the Insolvency Code.

Conditions for delisting (Reg 4)

a) Co. shall be listed for atleast 3 yrs;
b) No convertible securities are pending for conversion;
c) No buyback of any class of securities was done in last 6 months before delisting;
d) No preferential allotment was made in last 6 months.

1) No shares are sold by acquirer in last 6 months before delisting offer.

2) Acquirer shall not use funds of Target company to give exit opportunity in delisting
offer.
3) No acquirer shall, directly or indirectly,–
a) employ any device, scheme or artifice to defraud any person; or
b) engage in any fraudulent, deceptive or manipulative transaction;
In any delisting offer or exit opportunity given or other acquisition of equity
shares.

VOLUNTARY DELISTING

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Conditions and procedure for delisting where exit opportunity is not required

Delisting from some of the stock exchanges (Reg 5)

A company may delist its equity shares from one or more of the stock exchanges on
which it is listed without providing an exit opportunity to the public shareholders, if
after the proposed delisting, the equity shares remain listed on any stock exchanges that
has nationwide trading terminals.

Procedure for delisting where no exit opportunity is required (Reg 6)

1) Any company desirous of delisting its equity shares shall -
(a) obtain the prior approval of its BOD;
(b) make an application to the relevant stock exchange for delisting its equity
shares;
(c) issue a public notice of the proposed delisting from the relevant stock exchange
in at least one English national newspaper with wide circulation, one Hindi
national newspaper with wide circulation in their all India editions and one
vernacular newspaper of the region where the relevant stock exchange is
located;
(d) disclose the fact of delisting in its 1st annual report post delisting.
2) The public notice shall mention the names of the stock exchange from which the
equity shares of the company are intended to be delisted, the reasons for such
delisting and the fact of continuation of listing of equity shares on the stock
exchange having nationwide trading terminals.
3) An application for delisting made, shall be disposed of by the stock exchange within
30 working days from the date of receipt of such application that is complete in all
respects.

Conditions and procedure for delisting where exit opportunity is required

Delisting from all the stock exchanges (Reg 7)

The equity shares of a company may be delisted from all the stock exchanges having
nationwide trading terminals on which they are listed, after an exit opportunity has
been provided by the acquirer to all the public shareholders holding the equity shares
sought to be delisted, and after following the relevant procedure.

Initial public announcement (Reg 8)

1) On the date when the acquirers decides to voluntarily delist the equity shares of the
company, it shall make an initial public announcement to all the stock exchanges on
which the shares of the company are listed and the stock exchanges shall forthwith
disseminate the same to the public.
2) A copy of the initial public announcement shall also be sent to the company at its
registered office not later than 1 working day from the date of the initial public
announcement.
3) The initial public announcement shall contain such information as may be specified,
including:—
a) the reasons for delisting;
b) An undertaking with respect to compliance with regulation 4.

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4) The initial public announcement shall not omit any relevant information or contain
any misleading information.

Appointment of the Manager to the offer (Reg 9)

1) Prior to making an initial public announcement, the acquirer shall appoint a
merchant banker registered with the SEBI as the Manager to the offer.
2) The Manager to the offer appointed shall not be an associate of the acquirer.
3) The initial public announcement and the subsequent activities as required under
these regulations shall be undertaken by the acquirer through the Manager to the
offer.

Approval by the Board of Directors (Reg 10)

1) The company shall obtain the approval of its Board of Directors in respect of the
proposal of the acquirer to delist the equity shares of the company, within 21 days
from the date of the initial public announcement.
2) The BOD of the company, before considering the proposal of delisting, shall appoint
a Peer Review Company Secretary and provide the following information to such CS
for carrying out due-diligence: -
a) the details of buying, selling and dealing in the equity shares of the company by
the acquirer or its related entities during 2 years prior to the date of board
meeting held to consider the proposal for delisting, including the details of the
top 25 shareholders, for the said period;
b) the details of off-market transactions of all the shareholders for 2 years;
c) Any additional information, for a longer period of time, sought by the CS if the CS
is of the opinion that the information provided is not sufficient for providing the
certification.
3) After obtaining the information from the BOD of the company, the CS shall carry out
the due-diligence and submit a report to the Board of Directors of the company
certifying that the buying, selling and dealing in the equity shares of the company
carried out by the acquirer or its related entities and the top 25 shareholders is in
compliance with the applicable provisions of securities laws.
4) The Board of Directors of the company, while considering the proposal for delisting,
shall certify that—
a) the company is in compliance with the applicable provisions of securities laws;
b) the acquirer and its related entities are in compliance with the applicable
provisions of securities laws in terms of the report of the CS;
c) The delisting, in their opinion, is in the interest of the shareholders of the
company.
5) While communicating the decision of the Board of Directors on the proposal for
delisting of equity shares, the company shall also submit to the stock exchanges on
which the equity shares of the company are listed, the due - diligence report of the
Company Secretary and the audit.
6) Upon receipt of the communication from the company, the stock exchanges shall
forthwith disseminate the same to the public.

Approval by shareholders (Sec 11)

1) The company shall obtain the approval of the shareholders through a special
resolution, within 45 days from the date of obtaining the approval of Board of
Directors.

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2) The special resolution shall be passed through postal ballot and e-voting.
3) The company shall disclose all material facts in the explanatory statement sent to
the shareholders in relation to such a resolution.
4) The special resolution shall be acted upon only if the votes cast by the public
shareholders in favour of the proposal are at least 2 times the number of votes cast
by the public shareholders against it.

In-principle approval of the stock exchange (Reg 12)

1) The company shall make an application to the relevant stock exchanges for in-
principle approval of the proposed delisting of its equity shares in the Form
specified by the stock exchanges from time to time, within 15 working days from
the date of passing of the special resolution or receipt of any other statutory or
regulatory approval, whichever is later.
2) The application seeking in-principle approval for the delisting of equity shares shall
be accompanied by an audit report of demat shares in respect of the equity shares
sought to be delisted, covering 6 months prior to the date of the application.
3) Such application seeking in-principle approval for the delisting of the equity shares
shall be disposed of by the stock exchanges within 15 working days from the date
of receipt of such application that is complete in all respects.
4) The stock exchanges shall not unfairly withhold such an application, but may require
the company to satisfy or inform it as regards -
a) compliance with regulations 10 & 11;
b) resolution of investor grievances by the company;
c) payment of listing fees due to the stock exchanges;
d) compliance with any provision of the LODR Regulations;
e) any litigation or action pending against the company pertaining to its activities in
the securities market or any other matter having a material bearing on the
interests of its equity shareholders;
f) Any other relevant matter as it may deem fit.

Escrow account (Reg 14)

1) The acquirer shall open an interest bearing escrow account with a Bank, within 7
working days from the date of obtaining the shareholders’ approval, and deposit
25 % of the total consideration, calculated on the basis of the number of equity
shares outstanding with the public shareholders multiplied with the floor price or
the indicative price, if any given by the acquirer, whichever is higher.
2) The acquirer shall enter into a tripartite agreement with the Manager to the offer
and the Bank for the purpose of opening the escrow account and shall authorize the
Manager to the offer to operate such account as per the provisions of these
regulations.
3) Before making the detailed public announcement, the acquirer shall deposit in the
escrow account, the remaining consideration amount being 75% calculated on
the basis of the number of equity shares outstanding with the public
shareholders multiplied with the floor price or the indicative price, if any given by
the acquirer, whichever is higher.
4) On determination of the discovered price and making of the public announcement
accepting the discovered price, the acquirer shall forthwith deposit in the escrow
account such additional sum as may be sufficient to make up the entire sum due and

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payable as consideration in respect of equity shares outstanding with the public

shareholders.
5) The escrow account shall consist of either the cash deposited with a Bank or a
bank guarantee in favour of the Manager to the offer or a combination of both.
6) Where the escrow account consists of a deposit with a Bank, the acquirer shall,
while opening the account, authorize the Manager to the offer to make fund
transfers through electronic mode or such other mode permitted by the RBI, and to
instruct the bank to issue banker’s cheques or demand drafts for the amount lying
to the credit of the escrow account and the amount in such account, if any,
remaining after full payment of consideration for the equity shares tendered in the
delisting offer and those tendered shall be released to the acquirer.
7) Where the escrow account consists of a bank guarantee, such bank guarantee shall
be valid till payments are made in respect of all shares tendered.
8) In case of failure of the delisting offer, 99% of the amount lying in the escrow
account shall be released to the acquirer within 1 working day from the date of
public announcement of such failure.
9) The remaining 1 % amount lying in the escrow account shall be released post
return of the shares to the public shareholders or confirmation of revocation of lien
marked on their shares by the Manager to the offer as per the timelines provided in
these regulations.

Detailed public announcement (Reg 15)

1) The acquirer shall, within 1 working day from the date of receipt of in-principle
approval for delisting of equity shares from the stock exchanges, make a detailed
public announcement in at least 1 English national newspaper with wide circulation,
1 Hindi national newspaper.r with wide circulation in their all India editions and 1
vernacular newspaper of the region where the relevant stock exchanges is located.
2) The detailed public announcement shall contain all material information including
the information specified in Schedule I of these regulations and shall not contain any
false or misleading statement.
3) The detailed public announcement shall also specify a date, being a day not later
than 1 working day from the date of the detailed public announcement, which shall
be the ‘specified date’ for determining the names of the shareholders to whom the
letter of offer shall be sent.
4) The detailed public announcement shall be dated and signed by the acquirer.
Explanation,— If the acquirer is a company, the detailed public announcement shall
be dated and signed on behalf of the BOD of the company by its Manager or
Secretary, if any, and by at least 2 directors of the company, 1 of whom shall be the
MD where there is 1.

Letter of offer (Reg 16)

1) The acquirer shall dispatch the letter of offer to the public shareholders within 2
working days from the date of the detailed public announcement.
2) The letter of offer shall be sent to all public shareholders, holding equity shares of
the class sought to be delisted, whose names appear on the register of the company
or depository as on the date specified in the detailed public announcement.
3) A copy of the letter of offer shall also be made available on the websites of the
company and the Manager to the offer for the benefit of the public shareholders.

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4) The letter of offer shall contain all the disclosures made in the detailed public
announcement and such other disclosures as may be necessary for the shareholders
to take an informed decision.
5) The public shareholders shall have the right to inspect all the documents as referred
in the letter of offer and the Manager to the offer shall facilitate the inspection.
6) The letter of offer shall be accompanied with a Form for the use of public
shareholders for the purpose of either creating a lien or tendering the physical
shares, as the case may be.
7) An eligible public shareholder may participate in the offer for the delisting of equity
shares and make bids even without receiving the Form or letter of offer and such
shareholder may tender shares in the manner specified by the Board in this regard.

Bidding mechanism (Reg 17)

1) The bidding period shall start within 7 working days from the date of the detailed
public announcement and shall remain open for 5 working days.
2) The acquirer shall facilitate tendering of shares by the shareholders and settlement
of the same, through the stock exchange mechanism as specified by the SEBI.
3) The Manager to the offer shall ensure that the outcome of the reverse book building
process is announced within two hours of the closure of the bidding period.
4) Within two working days from the closure of the bidding period, the acquirer shall,
through the Manager to the offer, make a public announcement in the same
newspapers in which the detailed public announcement was made, disclosing the
success or failure of the reverse book building process, along with the discovered
price accepted by the acquirer in the event of success of the said process.

Manner of tendering shares (Reg 18)

The equity shares shall be tendered/offered by the public shareholders, including by
way of marking a lien through the stock exchange mechanism, in the manner specified
by the Board.

Right of shareholders to participate in the reverse book building process (Reg 19)
1) Public shareholders holding the equity shares of the company, which are sought to
be delisted, shall be entitled to participate in the reverse book building process.
2) The Manager to the issue shall take necessary steps to ensure above compliance.
3) Any holder of depository receipts issued on the basis of underlying equity shares
and a custodian keeping custody of such equity shares shall not be entitled to
participate in the reverse book building process:
Provided that any holder of depository receipts may participate in the reverse book
building process after converting such depository receipts into equity shares of the
company that are proposed to be delisted.

Discovered price (Reg 20)

1) After fixation of the floor price, the discovered price shall be determined through the
reverse book building process and the Manager to the offer shall disclose the same
in the detailed public announcement and the letter of offer.
2) The floor price shall be determined as per regulation 8 of Takeover Regulations.
3) The reference date for computing the floor price would be the date on which the
stock exchange was required to be notified of the board meeting in which the
delisting proposal was considered and approved.

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4) The acquirer shall have the option to provide an indicative price in respect of the
delisting offer, which shall be higher than the floor price calculated.
5) The acquirer shall also have the option to revise the indicative price upwards before
the start of the bidding period and the same shall be duly disclosed to the
shareholders.
6) The acquirer may, if it deems fit, pay a price higher than the discovered price.

Minimum number of equity shares to be acquired (Reg 21)

An offer made or a counter offer made by the acquirer, shall be deemed to be successful
if,-
a) the post offer shareholding of the acquirer, along with the shares tendered / offered
by public shareholders accepted as eligible bids at the discovered price or the counter
offer price, as the case may be, reaches 90% of the total issued shares of that class
excluding the following:
i. shares held by custodians against which depository receipts have been issued
overseas;
ii. shares held by a Trust set up for implementing an Employee Benefit scheme;
iii. shares held by inactive shareholders such as vanishing companies and struck off
companies, shares transferred to the IEPF’s account.
Provided that such shareholders shall be certified by the Peer Review Company
Secretary appointed by the Board of Directors of the company for due-diligence.

Explanation,— The cut-off date for determination of inactive shareholders shall be the
date on which the in-principle approval of the Stock Exchange is received, which shall
be adequately disclosed in the public announcement.

Option to accept or reject the discovered price or counter offer (Reg 22)
1) The acquirer shall be bound to accept the equity shares tendered or offered in the
delisting offer, if the discovered price determined through the reverse book building
process is equal to the floor price or the indicative price, if any, offered by the
acquirer.
2) The acquirer shall be bound to accept the equity shares, at the indicative price, if any
offered by the acquirer, even if the price determined through the reverse book
building process is higher than the floor price but less than the indicative price.
3) Above 2 provisions shall not apply, if the discovered price is higher than the
indicative price.
4) In case the discovered price is not acceptable to the acquirer, a counter offer may be
made by the acquirer to the public shareholders within 2 working days of the
closure of bidding period and thereafter, the acquirer shall ensure compliance with
the provisions of these regulations in accordance with the timelines provided.
5) The counter offer price shall not be less than the book value of the company as
certified by the Manager to the offer.

Explanation, —, the book value shall be computed on the basis of both consolidated
and standalone financial statements of the company as per the latest quarterly
financial results filed by the company on the stock exchange as on the date of public
announcement for counter offer, and the higher of the values so computed shall be
treated as the book value.

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Failure of the offer (Reg 23)

1) The delisting offer shall be considered to have failed under the following
circumstances:-
a) The minimum number of shares are not tendered / offered as provided.
Explanation,— If a counter offer has been made by the acquirer, the failure of the
said counter offer shall be considered in accordance with clause (a); or
b) The price discovered through the reverse book building process is rejected by the
acquirer.
2) In case of failure of the delisting offer,
a) the equity shares tendered / offered, shall be released-
i. on the date of disclosure of the outcome of the reverse book building process, if
the minimum number of shares are not tendered / offered;
ii. on the date of making public announcement for the failure of the delisting offer,
if the price discovered through the reverse book building process is rejected by
the acquirer;
iii. if a counter offer has been made by the acquirer:
Provided that the acquirer shall not be required to return the shares if the offer
is made as per regulation 5A of Takeover Regulations.
b) The expenses relating to the offer for delisting shall be borne by the acquirer.
c) the acquirer, whose delisting offer has failed, shall not make another delisting offer
until the expiry of 6 months-
i. from the date of disclosure of the outcome of the reverse book building process if
the minimum number of shares as provided are not tendered / offered;
ii. from the date of making public announcement for the failure of the delisting offer
if the price discovered through the reverse book building process is rejected by
the acquirer;
iii. from the date of making public announcement for the failure of counter.
3) Nothing contained in (2)(c) shall apply to the delisting of equity shares made by a
new promoters pursuant to the re-classification in terms of LODR Reg or a new
acquirers who has made an offer under regulation 5A of Takeover Regulations.

Payment upon success of the offer (Reg 24)

1) All the public shareholders, whose bids are accepted, shall be paid the discovered
price or a higher price, if any, offered by the acquirer as stated in the public
announcement in the following manner -
i. In case the discovered price is equal to the floor price or the indicative price, or
in case the acquirer is bound to accept the equity shares in the delisting offer, the
payment shall be made through the secondary market settlement
mechanism;
ii. In case the discovered price or the price, if any, offered by the acquirer, is higher
than the floor price or the indicative price, as the case may be, the payment shall
be made within 5 working days from the date of the public announcement.
2) The acquirer shall be liable to pay interest at the rate of 10% per annum to all the
shareholders, whose bids have been accepted in the delisting offer, if the price
payable is not paid to all the shareholders within the time specified thereunder:

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Provided that in case the delay was not attributable to any act or omission of the
acquirer or was caused due to the circumstances beyond the control of the acquirer,
the Board may grant waiver from the payment of such interest.

Final application to the stock exchange after successful delisting (Reg 25)
1) Within 5 working days from the date of making the payment to the public
shareholders, the acquirer shall make the final application for delisting to the
relevant stock exchange in the Form specified by such stock exchange from time to
time.
2) The final application for delisting shall be accompanied with necessary details /
information, as the stock exchange may require, of having provided the exit
opportunity.
3) The final application for delisting shall be disposed of by the stock exchange within
15 working days from the date of receipt of such application that is complete in all
respects.
4) Upon disposal of the final application for delisting by the stock exchange, the equity
shares of the company shall be permanently delisted from the stock exchange.

Right of the remaining public shareholders to tender equity shares (Reg 26)
1) The remaining public shareholders, whose shares were either not accepted or were
not tendered at all during the bidding period, shall have a right to tender their equity
shares for a minimum 1 year from the date of delisting.
2) The acquirer shall be under an obligation during such period to accept the shares of
the remaining public shareholders, at the same price at which the equity shares had
been delisted.
3) The payment of consideration for equity shares accepted shall be made out of the
balance amount lying in the escrow account.
4) The Manager to the offer shall ensure that the amount lying in the escrow account or
the bank guarantee shall not be released to the acquirer for a minimum 1 year or till
the time payment has been made to the remaining public shareholders, whichever is
earlier.

Measures to protect the rights of remaining public shareholders (Reg 27)

1) The Manager to the offer, in coordination with the acquirer shall ensure that the
rights of the remaining public shareholders are protected and in furtherance of the
same shall:
a) publish, on a quarterly basis, an advertisement in the same newspapers in which
the detailed public announcement of the offer for delisting of equity shares was
published, inviting the remaining public shareholders to avail the exit
opportunity during the one year exit window after delisting of shares;
b) send follow up communications to the remaining public shareholders on a
quarterly basis; and
c) file a quarterly progress report to the stock exchange, which shall be
disseminated to the public thereafter by the stock exchange, disclosing the
following:
i. number of remaining public shareholders at the beginning and end of the
quarter; and
ii. Details of public shareholders who availed the exit opportunity during the
quarter.

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2) The stock exchange shall monitor the above compliance.

Obligations of the company (Reg 28)

1) Upon receipt of the detailed public announcement, the Board of Directors of the
company shall constitute a Committee of independent directors to provide reasoned
recommendations on the delisting offer.
2) The Committee of independent directors shall provide its written reasoned
recommendations on the proposal for delisting of equity shares to the Board of
Directors of the company and in relation thereto, the Committee may also seek
external professional advice at the expense of the company.
3) The Committee of independent directors, while providing reasoned
recommendations on the delisting proposal, shall disclose the voting pattern of the
meeting in which the said proposal was discussed.
4) The company shall publish such recommendations of the Committee of independent
directors, along with the details of the voting pattern, at least 2 working days
before the commencement of the bidding period, in the same newspapers in which
the detailed public announcement of the offer for delisting of equity shares was
published, and simultaneously, a copy of the same shall be sent to the stock
exchange and the Manager to the offer.

Obligations of the Manager to the offer (Reg 29)

1) Before making the detailed public announcement, the Manager to the offer for
delisting of equity shares shall ensure that, —
a) the acquirer is able to implement the delisting offer; and
b) Firm arrangements for funds through verifiable means have been made by the
acquirer to meet the payment obligations under the delisting offer.
2) The Manager to the offer shall ensure that the contents of the initial public
announcement, the detailed public announcement, the letter of offer and the post-
bidding advertisements are complete, true, fair and adequate in all material aspects,
based on reliable sources and are in compliance with the law requirements.
3) The Manager to the offer shall ensure that market intermediaries engaged for the
purpose of the delisting of equity shares are registered with the Board.
4) The Manager to the offer shall exercise due diligence, care and professional
judgment to ensure compliance with these regulations.
5) The Manager to the offer shall not, either directly or indirectly through its
associates, deal in its own account in the shares of the company after its
appointment as Manager to the offer till the conclusion of the delisting offer.
6) It shall be the responsibility of the Manager to the offer to ensure that the acquirer
complies with the provisions of these regulations.

Obligations of the acquirer (Reg 30)

1) Prior to making the initial public announcement of the offer for the delisting of
equity shares, the acquirer shall ensure that firm financial arrangements have been
made for fulfilling the payment obligations under the delisting offer and that the
acquirer is able to implement the delisting offer, subject to any statutory approvals
for the delisting offer that may be necessary.
2) The acquirer shall ensure that the contents of the initial public announcement, the
detailed public announcement, the letter of offer and announcement about success
or failure of the offer for delisting are true, fair and adequate in all material aspects,

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not misleading and based on reliable sources that shall be mentioned wherever
necessary.
3) The acquirer and the persons acting in concert with it shall be jointly and severally
responsible for the fulfilment of the applicable obligations.
4) The acquirer shall ensure to acquire the shares offered by the remaining public
shareholders at the same price at which the equity shares had been delisted for a
minimum 1 year.
5) No acquirer or persons acting in concert with it shall sell shares of the company
during the delisting period.

Cancellation of outstanding depository receipts (Reg 31)

After delisting of equity shares from all the stock exchanges having nationwide trading
terminals, the company shall be required to compulsorily cancel all the outstanding
depository receipts issued overseas and change them into the underlying equity shares
in the home jurisdiction after termination of the depository receipts programs, within 1
year of such delisting.

COMPULSORY DELISTING
Compulsory delisting by a stock exchange (Reg 32)
1) A stock exchanges may, by a reasoned order, delist equity shares of a company on
any ground prescribed.
Provided that no order shall be issued under this sub-regulation unless the company
has been given a reasonable opportunity of being heard.
2) The decision regarding the compulsory delisting shall be taken by a panel to be
constituted by the stock exchanges consisting of –
a) 2 directors of the stock exchanges one of whom shall be a public representative;
b) 1 representative of an investor association recognised by the Board;
c) 1 representative of the MCA or ROC; and
d) the Executive Director or Secretary of the stock exchanges.
3) Before passing an order, the stock exchanges shall give a notice in at least 1 English
national newspaper with wide circulation, 1 Hindi national newspaper with wide
circulation in their all India editions and 1 vernacular newspaper of the region
where the relevant stock exchanges is located, of the proposed delisting, giving a
time of at least 15 working days from the date of such notice, within which
representations, if any, may be made to the stock exchanges by any person
aggrieved by the proposed delisting and shall also display such notice on its trading
systems and website.
4) The stock exchanges shall, while passing any order, consider the representation, if
any, made by the company and also any representation received in response to the
notice given, and shall comply with the guidelines provided.
5) Where the stock exchanges passes an order, it shall, -
a) forthwith publish a notice in 1 English national newspaper with wide circulation,
1 Hindi national newspaper with wide circulation in their all India editions and 1
vernacular newspaper of the region where the relevant stock exchanges is
located, of the fact of such delisting, disclosing therein the name and address of
the company, the fair value of the delisted equity shares and the names and
addresses of the promoters of the company who would be liable;
b) inform all other stock exchanges where the equity shares of the company are
listed, about such delisting; and

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c) upload a copy of the said order on its website.

6) The above provisions shall not be applicable to a compulsory delisting made by a
stock exchanges under this Chapter.

Rights of public shareholders in case of compulsory delisting (Reg 33)

1) Where the equity shares of a company are delisted by a stock exchanges under this
Chapter, the stock exchanges shall appoint an independent valuers who shall
determine the fair value of the delisted equity shares.
2) The stock exchanges shall form a Panel of expert valuers and from the said Panel, the
valuers shall be appointed.
3) The value of the delisted equity shares shall be determined by the.
4) The promoters of the company shall acquire the delisted equity shares from the
public shareholders by paying them the value determined by the valuer, within 3
months of the date of delisting from the stock exchanges, subject to the option of
the public shareholders to retain their shares.
5) The promoter shall be liable to pay interest at the rate of 10% per annum to all the
shareholders, who offer their shares under the compulsory delisting offer, if the
price payable is not paid to all the shareholders within the time specified:
Provided that in case the delay was not attributable to any act or omission of the
acquirer or was caused due to the circumstances beyond the control of the acquirer,
the Board may grant waiver from the payment of such interest.

Consequences of compulsory delisting (Reg 34)

(1) Where a company has been compulsorily delisted, the company, its whole-time
directors, persons responsible for ensuring compliance with the securities laws, its
promoters and the companies which are promoted by any of them shall not directly
or indirectly access the securities market or seek listing of any equity shares or act
as an intermediary in the securities market for 10 years from the date of such
delisting.
(2) In case of a company whose fair value is positive -
a) such a company and the depositories shall not effect transfer, by way of sale,
pledge, etc., of any of the equity shares held by the promoters / promoter group
and the corporate benefits like dividend, rights, bonus shares, split, etc. shall be
frozen for all the equity shares held by the promoters/ promoter group, till the
promoters of such company provide an exit option to the public shareholders, as
certified by the relevant stock exchange;
b) The promoters, whole-time directors and persons responsible for ensuring
compliance with the securities laws, of the compulsorily delisted company shall
also not be eligible to become directors of any listed company till the exit option
is provided.
(3) The stock exchange shall monitor the compliance of the provisions of this Chapter
and take appropriate action for non-compliance thereof.

SPECIAL PROVISIONS FOR SMALL COMPANIES

Delisting of equity shares of small companies (Reg 35)

1) Equity shares of a company may be delisted from all the stock exchanges where they
are listed, without following the procedure in Chapter IV of these regulations, if,-

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a) the company has a paid up capital not exceeding Rs. 10 Cr. and net worth not
exceeding 25 Cr. as on the last date of preceding financial year;
b) the number of equity shares of the company traded on each such stock
exchanges during the 12 calendar months immediately preceding the date of
board meeting held for consideration of the proposal is less than 10% of the total
number of shares of the company:
Provided that where the share capital of a particular class of shares of the
company is not constant throughout such period, the weighted average of the
shares of such class shall represent the total number of shares of such class of the
company;
c) The company has not been suspended by any of the stock exchanges having
nationwide trading terminals for any non-compliance in the preceding 1 year.
2) Delisting of equity shares may be made only if, in addition to fulfilment of the
requirements of regulations 10 & 11 of these regulations, the following conditions
are fulfilled:-
a) acquirers appoints a Manager to the offer and decides an exit price after
consultation;
b) the exit price offered to the public shareholders shall not be less than the floor
price;
c) the acquirer writes individually to all the public shareholders of the company
informing them of its intention to get the equity shares delisted, the exit price
together with the justification therefor and seeking their consent for the
proposal for delisting;
d) the public shareholders, irrespective of their numbers, holding 90% or more of
the public shareholding give their consent in writing to the proposal for delisting,
and consent either to sell their equity shares at the price offered by the acquirer
or to continue to hold the equity shares even if they are delisted;
e) the acquirer completes the process of inviting the positive consent and
finalisation of the proposal for delisting of equity shares within 75 working days
of the first communication made;
f) the acquirer makes payment of consideration in cash within 15 working days
from the date of expiry of 75 working days.
3) The communication made to the public shareholders shall contain justification for
the offer price with particular reference to the applicable parameters and
specifically mention that consent for the proposal would include consent for
dispensing with the exit price discovery through reverse book building method.
4) The acquirer shall be liable to pay interest at the rate of ten percent per annum to all
the shareholders, whose bids have been accepted in the delisting offer, if the price
payable is not paid to all the shareholders within the time specified thereunder:
Provided that in case the delay was not attributable to any act or omission of the
acquirer or was caused due to the circumstances beyond the control of the acquirer,
the Board may grant waiver from the payment of such interest.
5) The relevant stock exchanges may delist such equity shares upon satisfying itself of
compliance with this regulation.

SPECIAL PROVISIONS FOR COMPANIES LISTED ON INNOVATORS GROWTH

PLATFORM

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Delisting of equity shares of companies listed on innovators growth platform

(IGP) after making an initial public offer (Reg 36)
1) The provisions of these regulations, shall mutatis mutandis apply to delisting of
equity shares of a company listed on IGP after making a public issue, subject to the
following provisions.
2) A company whose equity shares are listed and traded on the IGP pursuant to an
initial public offer may be delisted, if -
a) such delisting is approved by the Board of Directors of the company;
b) such delisting is approved by the shareholders of the company by a special
resolution passed through postal ballot or e-voting, after disclosure of all
material facts in the explanatory statement sent to the shareholders in relation
to such resolution:
Provided that the special resolution shall be acted upon only if the votes cast by
the majority of public shareholders are in favour of such exit proposal;
c) delisting price is based on a floor price determined and an additional delisting
premium justified by the acquirer;
d) the post offer shareholding of the acquirer along with the persons acting in
concert with it, taken together with the shares tendered reaches 75% of the total
issued shares of that class and at least 50% shares of the public shareholders as
on date of the board meeting are tendered and accepted; and
e) the stock exchange, on which its shares are listed, approves of such delisting.

SPECIAL PROVISIONS FOR A SUBSIDIARY COMPANY GETTING DELISTED

THROUGH A SCHEME OF ARRANGEMENT WHEREIN THE LISTED HOLDING
COMPANY AND THE SUBSIDIARY COMPANY ARE IN THE SAME LINE OF BUSINESS

Delisting of equity shares of a subsidiary company pursuant to a scheme of

arrangement (Reg 37)
1) Nothing contained in these regulations shall apply to the delisting of equity shares of
a subsidiary company, pursuant to a scheme of arrangement by an order of a Court
or Tribunal with its listed holding company, whose equity shares are frequently
traded, and where the listed holding company and the subsidiary company are in the
same line of business.
2) The delisting of the equity shares of a subsidiary company be permitted subject to
the following:-
a) the listed holding company shall provide for the issue of its equity shares in lieu
of cancellation of any equity shares in the delisting subsidiary company;
b) upon such delisting becoming effective, the subsidiary company shall become a
wholly owned subsidiary of the listed holding company;
c) compliance with LODR Reg and the Circulars issued thereunder;
d) e-voting from shareholders of both listed companies wherein votes cast by public
shareholders of the listed subsidiary in favour of the proposal are at least 2 times
the number of votes cast against it and the votes cast by the public shareholders
of the listed holding company in favour of the proposal are more than the
number of votes cast by the public shareholders against it;
e) the shares of the listed holding company and the subsidiary company are listed
for at least 3 years and shall not be suspended at the time of taking this route;
f) the subsidiary company has been a listed subsidiary of the listed holding
company for the past 3 years;

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g) no adverse orders have been passed by the Board in the past 3 years against the
listed holding company and the listed subsidiary company;
h) no further restructuring shall be undertaken by the listed holding company for 3
years from the date of the Order of the Court or Tribunal approving the scheme
of arrangement;
i) the equity shares of the listed subsidiary so delisted, shall not be allowed to seek
relisting for a period of 3 years from the date of delisting and such relisting shall
be; and,
j) the valuation of shares of the listed subsidiary per share shall not be less than 60
days volume weighted average price.

Explanation,— The reference date for computing the volume weighted average price
would be the date on which the stock exchange was required to be notified of the board
meeting in which the delisting proposal of the subsidiary was considered and approved.

SPECIAL PROVISIONS FOR DELISTING BY OPERATION OF LAW

Delisting in case of winding up of a company and de-recognition of a stock

exchange (Reg 38)
1) In case of winding up proceedings of a company whose equity shares are listed on a
stock exchanges, the rights, if any, of the shareholders of such company shall be in
accordance with the laws applicable to those proceedings.
2) Where the Board withdraws recognition granted to a stock exchange or refuses
renewal of recognition to it, the Board may, in the interest of investors pass
appropriate order in respect of the status of equity shares of the companies listed on
that stock exchange.

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BUY BACK OF SECURITIES

 The term buy-back implies the act of purchasing its own shares/securities by a
company
 Buy-back of securities is a corporate financial strategy which involves
repurchase of its outstanding shares by a company.
 A buy-back represent a more flexible way of returning surplus cash to its
shareholders as it is governed by a process laid down by law, it is carried out
through the stock exchange mechanism and is more tax efficient as it does not
involve the company to make payment of dividend distribution tax and it has the
benefits of long-term capital gains.

A rise in buy-backs in the FY 2021 was seen as a global phenomenon with companies
such as Apple and Berkshire doubling their share buy-backs. Another reason for the
jump in buy-backs is dividend distribution taxation (DDT) being in the hands of
shareholders, who are mandated to pay tax on dividends received at the applicable tax
rate compared to a low (capital gains) tax rate in case of buy-backs.

PURPOSE:
A company would opt for buy - back for the following reasons:-
i. To improve shareholder value - Buy back generally results in higher earnings
per share (E.P.S.)
ii. As a defence mechanism - Buy back provides a safeguard against hostile takeovers
by increasing promoters’ holding.
iii. To provide an additional exit route to shareholders when shares are
undervalued or thinly traded.
iv. To return surplus cash to shareholders.

PROVISIONS OF COMPANIES ACT, 2013

[Section 68(1)]:
(1) A company may purchase its own shares or other specified securities out of :
(i) Its free reserves;
(ii) The securities premium account; or
(iii) The proceeds of an earlier issue of shares or other specified securities.

However, no buy - back can be done out of proceeds of all earlier issue of same
kind of shares / securities.
Note: - Company must have sufficient balance in any one or more of these accounts for
this purpose.

(2) For buy - back purpose, the following conditions must be fulfilled:-
a. Buy - back is authorized by the articles of association of the Company. If it
doesn’t, Alter the AOA
b. A company may, by a Board Resolution or Special Resolution in AGM can buy
back depending on quantum of buyback. In case of Listed co. Shareholders’
approval shall be through Postal Ballet only.

QUANTUM OF BUYBACK
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a) If buyback is up to 10% of total paid up equity Capital & Free Reserveby passing
BR in BM
b) If Buy back up to 25% of total paid up Capital & Free ReserveBy SR in GM

However in a financial year, they can only approve up-to 25% of total Equity Capital.

Note: - Board resolution must be passed at a Board Meeting only and not by
circulation. Such buyback can be done once in one year only. If it wants to acquire more
than 10% within 365 days of previous buyback. BOD will have to take approval of
Shareholders in AGM for buyback up to 25%.

 No offer shall be made within a period of 1 yr from the date of Closure of preceding
offer of buyback
 After buy - back, the debt equity ratio shall be less than or equal to 2 i.e., the debt
should not be more than twice the equity after buy - back. However, the Central
Government may notify higher ratio of Debt equity.
 Every buy-back shall be completed within a period of 1 year from the date of
passing of the special resolution or Board Resolution as the case may be.

SEBI (BUY-BACK OF SECURITIES) REGULATION, 2018:

These regulations are applicable only on Listed Entities and the unlisted entities shall
continue to be governed by applicable provisions of Companies Act, 2013.

Important Definitions –
1. Buy-back Period
The period between the date of board of directors resolution; or date of declaration of
results of the postal ballot for special resolution, as the case may be, to authorize buy-
back of shares of the company and the date on which the payment of consideration to
shareholders who have accepted the buy-back offer is made.
2. Tender offer
An offer by a company to buy-back its own shares or other specified securities through
a letter of offer from the holders of the shares or other specified securities of the
company.

CONDITIONS FOR BUY BACK

1. The maximum limit of any buy-back shall be 25% or less of the aggregate of paid-
up capital and free reserves of the company, based on both standalone and
consolidated financial statements of the company
2. All shares or other specified securities for buy-back shall be fully paid-up.
3. A company shall not buy-back its shares or other specified securities:
a) so as to delist its shares or other specified securities from the stock exchange.
b) from any person through negotiated deals, whether on or off the stock exchange or
through spot transactions or through any private arrangement.
4. A company shall not make any offer of buy-back within a period of 1 year reckoned
from the date of expiry of buy-back period of the preceding offer of buy-back, if any.
5. A company shall not allow buy-back of its shares unless the consequent reduction of
its share capital is effected.

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METHODS OF BUY-BACK:
A company may buy back its own shares or other specified securities by any one 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.

It may be noted that no offer of buy back for 15% or more of paid up capital and free
reserves, shall be made from the open market.

SOURCES OF BUY BACK –

 its free reserves
 the securities premium account or
 the proceeds of the issue of any shares or other specified securities
Note: Buy-back shall not be made out of the proceeds of an earlier issue of the same
kind of shares or same kind of other specified securities.

PROHIBITIONS FOR BUY BACK –

The Company shall not directly or indirectly purchase its own shares or other
specified securities:
 through any subsidiary company including its own subsidiary companies;
 through any investment company or group of investment companies; or
 if a default is made by the company in the repayment of deposits accepted
either before or after the commencement of the Companies Act, interest
payment thereon, redemption of debentures or preference shares or payment
of dividend to any shareholder, or repayment of any term loan or interest
payable thereon to any financial institution or banking company.
The buy-back is not prohibited, if the default is remedied and a period of 3 years has
lapsed after such default ceased to subsist

AUTHORISATION FOR BUY BACK

The company shall not authorise for any buy-back whether by way of tender offer or
from open market or odd lot unless:
 Authorisation for Buyback in the Articles of the Company
 A special resolution is required to passed at a general meeting of the company for
such authorisation.
No special resolution is required where the buy-back is 10% or less of the total
paid-up equity capital and free reserves of the company and such buy-back has been
authorised by the board resolution passed at its meeting

In case of Special Resolution, a copy of the resolution shall be filed with SEBI and the
stock exchanges where the shares or other specified securities of the company are
listed, within 7 days from the date of passing of the resolution.

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In case of only Board Resolution, a copy of Board Resolution shall be filed with SEBI
and the stock exchanges, within 2 working days of the date of the passing of the
resolution.

The company shall, after expiry of the buy-back period, file with the ROC and SEBI, a
return containing such particulars relating to the buy-back within 30 days of such
expiry.

EXPLANATORY STATEMENT
The notice of the meeting at which the special resolution is proposed to be passed shall
be accompanied by an explanatory statement pursuant to section 102 of the
Companies Act containing mandatory disclosures as specified under Sec 68(3) of the
Companies Act –
• a full and complete disclosure of all material facts;
• the necessity for the buy-back;
• the class of shares or securities intended to be purchased under the buy-back;
• the amount to be invested under the buy-back; and
• the time-limit for completion of buy-back.

Additional Disclosures
An explanatory statement containing full and complete disclosure and the following
disclosures prescribed in Schedule II Part A of the Regulations should be annexed to
the notice where the buy-back is pursuant to shareholders’ approval.
 Date of the Board meeting at which the proposal for buy back was approved;
 Necessity for the buy back;
 Maximum amount required under the buy back and its percentage of the total
paid up capital and free reserves;
 Maximum price at which the shares or other specified securities are proposed be
bought back;
 Maximum number of securities that the company proposes to buy back;
 Method to be adopted for buyback;
 the aggregate shareholding of the promoter and of the directors of the
promoters, as on the date of the notice convening the General Meeting or the
Board Meeting;
 aggregate number of shares or other specified securities purchased or sold
from a period of 6 months preceding the date of the Board Meeting at which
the buyback was approved till the date of notice convening the general
meeting;
 the maximum and minimum price at which purchases and sales made along
with the relevant dates;
 Intention of the promoters to tender shares or other specified securities for
buyback indicating the number of shares or securities, details of acquisition with
dates and price;
 A confirmation that there are no defaults subsisting in repayment of deposits,
redemption of debentures or preference shares or repayment of term loans to any
financial institutions or banks;
 A confirmation that the Board of Directors has made a full enquiry into the
affairs and prospects of the company and that they have formed the opinion:-

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 there will be no grounds on which the company could be found unable to pay its
debts;
 the company will be able to meet its liabilities as and when they fall due and
will not be rendered insolvent within a period of 1 year from that date; and
 for the above purposes, the directors shall take into account the liabilities as if
the company were being wound up under the provisions of the Companies Act,
(including prospective and contingent liabilities);
 auditor’s report addressed to the Board of Directors
 they have inquired into the company’s state of affairs;
 the amount of the permissible capital payment for the securities properly
determined; and
 That the company will not, having regard to its state of affairs, will not be
rendered insolvent within a period of 1 year from that date.

Regulation 6
Buy-back from existing security-holders through tender offer:
A company may buy back its securities from its existing security-holders on a
proportionate basis in accordance with the provisions of the Regulations. 15% of the
number of securities which the company proposes to buy back of number of
securities entitled as per their shareholding, whichever is higher, shall be reserved
for small shareholders.

Regulation 7
Additional Disclosures:
In addition to disclosure required under Schedule II Part A, the following disclosures
to be made to the explanatory statement.
 the maximum price at which the buy-back of shares or other specified securities
shall be made and whether the BOD of the company are being authorized at the
GM to determine subsequently the specific price at which the buy-back may be
made at the appropriate time;
 If the promoter intends to offer their shares or other specified securities,
 The quantum of shares or other specified securities proposed to be tendered, and
 The details of their transactions and their holdings for the last 6 months prior to
the passing of the special resolution including number of shares or securities
acquired, the price and the date of acquisition.
Regulation 8
Public announcement and Filing of offer documents:
 The company shall make a public announcement within 2 working days from the
date of resolution in at-least one English National Daily, one Hindi National Daily
and a Regional language daily all with wide circulation at the place where the
Registered office of the company is situated and shall contain all the material
information as specified in Schedule II, Part A.
 A copy of the public announcement shall also be submitted to the Board through a
merchant banker.
 The company shall within 5 working days of the public announcement file with
the Board a draft-letter of offer containing disclosures as specified in Schedule III
through a merchant banker.
 The Board may give its comments on the draft letter within 7 working days of the
receipt of the draft letter of offer.
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 In the event the Board has sought clarifications or additional information from
the merchant banker the period of issuance of comments shall be extended to the 7th
working day from the date of receipt of satisfactory reply.
 In the event the Board specifies any changes, the merchant banker and the
company shall carry out such changes in the letter of offer before it is dispatched
to the shareholders.
 The company shall file along with the draft letter of offer, a declaration of
solvency in the prescribed form and in a manner prescribed in the Companies Act.

Regulation 9
Offer procedure:
 A company shall announce a record date for the purpose of determining the
entitlement and the names of the security holders, who are eligible to participate.
 The letter of offer and tender form shall be dispatched to the security holders not
later than 5 working days from the receipt of communication of comments from the
Board.
 The date of the opening of the offer shall be not later than 5 working days from the
date of dispatch of letter of offer.
 The offer for buy back shall remain open for a period of 10 working days.
 The company shall accept shares or other specified securities from the security
holders on the basis of their entitlement as on record date.
 The shares proposed to be bought back shall be divided in to 2 categories;
 reserved category for small shareholders and
 the general category for other shareholders

Regulation 10
Escrow account
Provides That -
 The company should on or before the opening of the offer, deposit in an escrow
account.
 the escrow amount is payable in the following manner:
 if the consideration payable does not exceed Rs 100 Cr: 25% of the
consideration payable;
 if the consideration payable exceeds Rs 100 Cr: 25% up-to Rs 100 crores and
10% thereafter;
 the escrow account referred to above shall consist of:
 cash deposited with a scheduled commercial bank, or
 bank guarantee in favour of the merchant banker, or
 deposit of acceptable securities with appropriate margin, with the merchant
banker, or
 a combination of (a),(b) and (c) above;
 where the escrow account consists of deposit with a scheduled commercial
bank:- the company while opening the account, should empower the merchant
banker to instruct the bank to issue a banker’s cheque or demand draft
 where the escrow account consists of bank guarantee: - such bank guarantee shall
be in favour of the merchant banker and valid until 30 days after the closure of the
offer;
 Where the escrow account consists of securities: - merchant banker to realize the
value of such escrow account by sale or otherwise. If there is any deficit on
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realization of the value of the securities, the merchant banker shall be liable to
make good any such deficit;
 in case the escrow account consists of bank guarantee or approved securities,
these shall not be returned by the merchant banker till the completion of all
obligations under the Regulations;
 where the escrow account consists of bank guarantee or deposit of approved
securities:- the company required to deposit with the bank in cash 1% of the total
consideration payable;
 on payment of consideration and after completion of all the formalities of buy-
back, the amount, guarantee and securities in the escrow, if any, should be
released to the company;
 SEBI, in the interest of the security-holders, may, in case of non-fulfillment of
obligations by the company forfeit the escrow account either in full or in part;
 The amount so forfeited may be distributed pro rata amongst the security-
holders who accepted the offer and the balance, if any, shall be utilized for investor
protection.

Regulation 11
Payment to the Security holders:
 after the date of closure of the offer: - The company should open a special account
with a SEBI registered banker to an issue and deposit the amount lying in the
escrow account make up the entire sum due and payable as consideration for the
buy-back and for this purpose, may transfer the funds from the escrow account.

 The company shall complete the verifications of offers received and make
payment of consideration to security holders or return the shares or other specified
securities to the security holders within 7 working days of the closure of the offer.

Regulation 12
Extinguishing of bought-back securities:
 The company shall extinguish and physically destroy the security certificates so
bought back in the presence of a Registrar to issue or the Merchant Banker and the
Statutory Auditor within 15 days of the date of acceptance of the shares or other
specified securities. The company shall also ensure that all the securities bought -
back are extinguished within 7 days of the last date of completion of buy – back.
 Dematerialized securities shall be extinguished and destroyed in the manner of SEBI
(Depositories and Participants) Regulations.
 The company shall, furnish a certificate to the Board certifying compliance duly
certified and verified by -
 the registrar and whenever there is no registrar by the merchant banker;
 2 directors of the company 1 of whom shall be a MD where there is one;
 the statutory auditor of the company,
 The certificate shall be furnished to the Board by the 7th day of the month
succeeding the month in which the securities certificates are extinguished and
destroyed.
 The company shall furnish, the particulars of the security certificates
extinguished and destroyed, to the stock exchanges by the 7th day of the month
succeeding the month in which the securities certificates are extinguished and
destroyed.
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 The company shall also maintain a record of security certificates which have been
cancelled and destroyed.

Regulation 14
Buy-back from Open Market:
 buy-back of shares or other specified securities from the open market may be:
(i) Through stock exchange; or
(ii) Book-building process.
 At least 50% of the amount earmarked for buy back, resolutions is utilized for
buying back shares and other specified securities

Regulation 15
Buy-back through the stock exchange:
Provides that a company should buy-back its specified securities through the stock
exchange as provided hereunder:
 the SR/BR as under Regulation 5 and 5A respectively, should specify the maximum
price at which the buy-back will be made;
 The buy-back of securities should not be from the promoters.
 the company should appoint a merchant banker and make a public
announcement within 7 days from the date of passing the resolution;
 the company shall file a copy of the public announcement with the SEBI.
 the company shall submit the information regarding the shares or securities bought
back, to the stock exchange on a daily basis and the stock exchange shall upload
the same on its official website immediately;”
 the company shall upload such information on its website on a daily basis;”
 The buy-back offer shall open within 7 working days from the date of public
announcement and shall close within 6 months from the date of opening of the
offer."
 the buy-back should be made only on stock exchanges having Nationwide
Trading Terminal facility and only through the order matching mechanism
except ‘all or none’ order matching system;
 the company shall submit information regarding the shares or other specified
securities bought back, to the stock exchange on daily basis in such form as may
be specified by the SEBI and on the website of company;
 The identity of the company as a purchaser would appear on the electronic
screen when the order is placed.

Buy-back through book-building (Regulation 17)

A company can buy-back its securities through the book-building process as
provided hereunder:
1. (a) The special regulation, should specify the maximum price at which the buy-
back will be made.
(b) The company should appoint a merchant banker.
(c) A public announcement shall be made at least 7 days prior to the commencement
of the buy-back.
(d) The provisions of Regulation 10 regarding escrow account are applicable:
(i) The deposit in the escrow account should be made before the date of the public
announcement.

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Buy back of Securities
(ii) The amount to be deposited in the escrow account should be determined with
reference to the maximum price as specified in the public announcement containing
detailed methodology of the book-building process, manner of acceptance, format of
acceptance to be sent by the security-holders pursuant to public announcement and
details of bidding centres.
(e) A copy of the public announcement must be filed with SEBI within 2 days of the
announcement along with the fees. The Public announcement shall also contain the
detailed methodology of the book building process, the manner of acceptance, the
format of acceptance to be sent by the security holders pursuant to the public
announcement and the details of bidding centres.
(f) The book-building process should be made through an electronically linked
transparent facility.
(g) The number of bidding centres should not be less than 30 and there should be at
least 1 electronically linked computer terminal at all the bidding centres.
(h) The offer for buy-back should be kept open to the security-holders for at least 15
days and not exceeding 30 days.
(i) The merchant banker and the company should determine the buy-back price
based on the acceptances received and the final buy-back price, which should be the
highest price accepted should be paid to all holders whose securities have been
accepted for the buy-back.

Obligations of the company (Reg 19)

The company shall ensure that:
 the letter of offer, the public announcement of the offer or any other
advertisement, circular, brochure, publicity material contains true, factual and
material information and does not contain any misleading information and must
state that the directors of the company accept the responsibility for the
information contained in such documents;
 the company shall not issue any specified securities including by way of bonus
till the date of closure of the offer is made;
 the company shall pay consideration only by cash;
 the company shall not withdraw the offer to buy-back after the draft letter of
offer is filed with the SEBI or public announcement of the offer to buy-back is
made;
 The promoter or the person shall not deal in the specified securities of the
company in the stock exchange or off market, including inter-se transfer of shares
among the promoters during the period “from the date of passing the resolution
till the closing of the offer.
 The company shall not raise further capital for a period of 1 year from the closure
of buy-back offer, except in discharge of its subsisting obligations.
No public announcement of buy-back shall be made during the pendency of any
scheme of amalgamation or compromise or arrangement.

The company should nominate a compliance officer and investors service centre
for compliance with the buy-back regulations and to redress the grievances of the
investors.

The particulars of the said security certificates extinguished and destroyed should
be furnished by the company to the stock exchanges where the securities of the
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Buy back of Securities
company are listed, within 7 days of extinguishment and destruction of the
certificates.

The company should not buy-back the locked-in securities and non-transferable
securities till the pendency of the lock-in or till the securities become transferable.

The company should issue, within 2 days of the completion of buy-back, a public
advertisement in a national daily, inter alia, disclosing the following:
i. number of securities bought;
ii. price at which the securities were bought;
iii. total amount invested in the buy-back;
iv. details of the security-holders from whom securities exceeding 1 % of the total
securities were bought-back; and
v. The consequent changes in the capital structure and the shareholding pattern after
and before the buy-back.

Obligations of the merchant banker (Regulation 20)

The merchant banker should ensure that:
 the company is able to implement the offer;
 the provision relating to escrow account has been made;
 firm arrangements for monies for payment to fulfil the obligations under the offer
are in place;
 the public announcement of buyback is made and the letter of offer has been
filed;
 the merchant banker should furnish to SEBI, a due diligence certificate which
should accompany the draft letter of offer;
 The merchant banker should ensure that the contents of the public
announcement of offer as well as the letter of offer are true, fair and adequate and
quoting the source wherever necessary.
 the merchant banker should ensure compliance of Sec 68 & Sec 69 of the
Companies Act, and any other applicable laws or rules in this regard;
 Upon fulfilment of all obligations by the company under the Regulations, the
merchant banker should inform the bank with whom the escrow or special amount
has been deposited to release the balance amount to the company and send a final
report to SEBI in the specified form, within 15 days from the date of closure of the
buy-back offer.

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Mutual Funds

Mutual Funds
INTRODUCTION
Mutual fund is a process of pooling resources from the
investors and investing funds in securities. The process of
pooling the resources together and. issuing units to the
investors and then investing funds in securities is known
as the scheme of "Mutual Funds".
In other words, it works like a trust which pools the
savings of investors and invests these in capital and
money market instruments. Mutual funds offer good
investment opportunities to the investors. Like all
investments, they also carry certain risks.

MUTUAL FUND OF CYCLE

Return is
passed on to the Investor pools fund
Investors together
Investor

Mutual Fund Cycle

Mutual Fund
Mutual fund
generates Mutual fund invests in
Return Securities Market

Securities

List of all stakeholders in Indian mutual fund industry is as follows:

• Reserve Bank of India (RBI)
• Securities and Exchange Board of India (SEBI)
• Association of Mutual Funds in India ( AMFI)
• Ministry of Finance
• Self Regulatory Organization (SROs)
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Mutual Funds
• Income Tax Regulations
• Investors‘ Associations
Regulator: Securities and Exchange Board of India (SEBI)
 Regulates mutual funds, custodians and registrars & transfer agents
 The applicable guidelines for mutual funds are set out in SEBI (Mutual Funds)
Regulations, 1996; updated periodically
Industry Body: Association of Mutual Funds in India (AMFI)
• As of now, all 45 AMCs are members of AMFI
• Recommends and promotes best business practices and code of conduct
• Disseminates information and carries out studies/research on mutual fund industry
PLAYERS OF MUTUAL FUND

PLAYERS OF MUTUAL FUND

PRIMARY PLAYERS

Unit
Sponsor Trustee AMC Custodian
Holders

Holds Manages
Establishes Has custody of Holds units
property of investment
Mutual securities of of Mutual
Mutual of Mutual
Fund Mutual Fund Fund
Fund Fund

SECONDARY PLAYERS (INTERMEDIARIES)

Transfer
Custodian Depository
Agent

Has custody of
Maintain transfer Keep units in
securities of Mutual
records of units Demat form
Fund

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Mutual Funds
Primary Players
 Sponsor: A sponsor is the one who establishes the Mutual Fund. He is the promoter
of the Mutual Fund. The sponsor is required to invest at-least 40% of the Net worth
of the mutual fund.
 Trustees: Trustees are the ones who hold property of the Mutual Fund, for the
benefit of the unit holders. The trustee can be an individual person or a company.
 Asset Managing Company (AMC): AMC is a company registered under the
Companies Act, 2013 registered with SEBI. AMC is entrusted with the responsibility
of managing the various schemes and operations of the Mutual Fund. It decides how
to invest the funds of mutual fund. The AMC is the investment manager of the trust.
 Mutual Fund: It is formed under India Trust Act and registered with SEBI for sale of
units of mutual funds to the public which pools the funds of unit holders.
 Unit holders: The person who holds the units of mutual fund is known as Unit
Holder.
Secondary Players (Intermediaries of Securities Market)
o Custodian: The custodian has the custody of all the shares and various other
securities bought by the AMC. The custodian is responsible for the safe keeping of all
the securities. It is registered with SEBI.
o Transfer Agents: Registered with SEBI to facilitate issue, redemption and transfer
of securities. They maintain updated investment records.
o Depository: Depository holds the units in De-mat form to ensure free flow of
mutual fund trade.
ADVANTAGES OF MUTUAL FUNDS
 Professional Management: The funds of Asset Management Company (AMC) are
managed by the experience and high caliber professionals who are backed by the
dedicated research team. The research team analyses the performance and
prospects of the companies for purpose of investments of funds.
 Diversified Investment: The AMC diversifies the total funds into different sectors
or industry for reducing the risk. In short, diversification of funds reduces the risk of
investment.
 Return Potential: Mutual funds provide higher returns as they invest in a
diversified basket of selected securities.
 Low Cost: If we compare this form of investment with the other forms, the mutual
funds are less expensive, because the economies of scale is achieved in brokerage,
custodial fee, etc.
 Transparency: It provides regular information to the investors about the value of
their investment.
 Liquidity: The open ended mutual funds are very liquid and it can be easily
encashed by the investors. Even the close ended schemes are tradable in the
securities market.

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Mutual Funds
 Tax Benefits: Many mutual funds are tax exempt under section 80C of the Income
Tax Act.
 Protection to the interest of Investors: Being regulated by the SEBI, mutual funds
have to comply with the strict rules and regulations designed to protect the interest
of the Investors.

TYPES OF RISK:
Volatility risk:
Typically, equity-based funds invest in the shares of companies that are listed on stock
exchanges. The value of such funds is based on companies’ performance, which often
gets affected due to the prevalent microeconomic factors.

Credit risk
Credit risk in mutual fund investment often results from a situation, wherein, the issuer
of the scheme fails to pay the promised interest. In case of debt funds, typically, fund
managers include investment-grade securities with high credit ratings.
Liquidity risk
Mutual funds with a long-term and rigid lock-in period like ELSS often come with
liquidity risk. Such a risk signifies that investors often find it challenging to redeem their
investments without incurring a loss.
Concentrated risk
This mutual fund risk is also prevalent among investors. It can be described as the
situation when investors tend to put all their money into a single investment scheme or
in one sector. For instance, investing entirely in just one company’s stocks often bears a
substantial risk of losing capital if caught amidst bad market situations.
Inflation risk
It can be best described as the risk of losing one’s purchasing power, mainly due to the
rising inflation rate.

DISADVANTAGES OF MUTUAL FUND

Mutual funds may face the following risks, leading to non-satisfactory performance:—
1. Excessive diversification of portfolio, losing focus on the securities of the key
segments.
2. Too much concentration on blue-chip securities which are high priced and which do
not offer more than average return.
3. Necessity to effect high turnover through liquidation of portfolio resulting in large
payments of brokerage and commission.
4. Poor planning of investment returns.
5. Unresearched forecast on income, profits and Government policies.
6. Fund managers being unaccountable for poor results.
7. Failure to identify clearly the risk of the scheme as distinct from risk of the market.
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Mutual Funds
8. Under performance in comparison to peers.

BASIC CLASSIFICATION OF MUTUAL FUNDS (MF)

 Open-ended Mutual Funds:
It is a mutual fund scheme where investors invest and redeem their investment
throughout the year. It gives flexibility to an investor to purchase and redeem the units
of mutual funds at any time at a fixed NAV during the life time of funds.
Example: Unit Trust of India's US 64 Scheme and State Bank of India Mutual Fund's SBI
Magnum Mutual Fund
Key features of such scheme are liquidity and its free entry and exit from the fund. It is a
never ending fund and can be used it as systematic investment platform. The listing of
open ended mutual fund is not required and the corpus of this fund is flexible and
always varies.
 Close-ended Mutual Funds:
It is a fund which opens for limited period for subscription. The investors can invest
directly in the fund at the time of initial offer. After initial offer, an investor can buy
units of this type
of mutual funds from tire market like equity shares of any company. The listing of Close-
ended mutual funds is mandatory on the recognized stock exchanges (i.e. BSE & NSE or
others).
Example: ICICI Prudential Fusion Fund - Growth, Principal PNB Long Term Fund 3-year
Series II - Growth, Reliance Fixed Horizon Fund - V 3 Yrs Plan - Dividend
In other words, a close-ended scheme has fixed corpus and stipulated maturity period
ranging between 2 and 5 years.
Difference between Open-ended & Close-ended Mutual Funds:

Heading Open-ended Mutual Funds Close-ended Mutual Funds

Purchased Can be purchased on any Can be purchased only during NFO

transaction day

Redeemed Can be redeemed on any Can be redeemed only at maturity

transaction day [Except when
units are locked-in in the case
of Equity-Linked Savings
Scheme (ELSS) funds]

Liquidity High liquidity High liquidity

Types of Mutual Fund Plans

a) Regular Plans
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Mutual Funds
• Sold through a distributor
• Higher Expense Ratio (Due to commissions paid to distributor)
• Potentially lower returns to the investor (Due to higher expenses)
b) Direct Plans
• Sold directly by the Asset Management Company (AMC)
• Lower Expense Ratio (No commission paid to distributor)
• Potentially higher returns (Due to lower expenses)
CATEGORIES

MUTUAL FUND SCHEMES BASED ON INVESTMENT OBJECTIVE

Income Oriented Mutual Fund: These funds offer a fixed income to investors and it
has lower risk as compared to growth funds. Under this scheme, the Asset Management
Company invests funds income oriented schemes like Bonds, Debentures, Government
Bonds & securities and commercial papers.

Features
i. These schemes are generally have lesser risk as compared to Growth schemes.
ii. These schemes give fixed income.
Growth oriented Mutual Fund: These funds offer capital appreciation over a period.
Under this scheme, the Asset Management Company invests funds in the equity shares
which have significant growth potential. Despite good return under this mutual fund
scheme, there is no assurance or guarantee of return. In other words, it is a scheme
which has high risk and high return.
Features:
i. High risk and High return.
ii. No Guarantee or assurance for return.
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Mutual Funds
iii. The objective of this fund to get High capital appreciation.
Hybrid Mutual Funds/Balanced Mutual Funds: These funds have features of income
oriented funds and growth oriented funds.
Example: HDFC Prudence, an equity oriented hybrid fund under this scheme, the AMC
invests the entire funds in types of securities:
i. Equity shares, and
ii. Bonds & Fixed income oriented instruments.
High Growth Schemes: These funds primarily invest in high risk and high return
volatile securities in the market and induce the investors with a high degree of capital
appreciation.
Capital Protection Oriented Scheme: It is a scheme which protects the capital
invested in the mutual fund through suitable orientation of portfolio structure.
Real Estate Funds: These are close-ended mutual funds which invest predominantly in
real estate and properties.
Off-shore Funds: Such funds invest in securities of foreign companies with RBI
permission.
Leverage Funds: Such funds, also known as borrowed funds, increase the size and
value of portfolio and offer benefits to members from out of the excess of gains over
cost of borrowed funds. They tend to indulge in speculative trading and risky
investments.
Hedge Funds: They employ their funds for speculative trading, i.e. for buying shares
whose prices are likely to rise and for selling shares whose prices are likely to fall.
Fund of Funds: They invest only in units of other mutual funds. Such funds do not
operate at present in India.
New Direction Funds: They invest in companies engaged in scientific and technological
research such as birth control, anti-pollution, oceanography etc.
Exchange Trade Funds (ETFs): These are a new variety of mutual funds that first
introduced in 1993. ETFs are sometimes described as mere "tax efficient" than
traditional equity mutual funds, since in recent years, some large ETFs have made
smaller distribution of realized and taxable capital gains than most mutual funds.
Money Market Mutual Funds: These funds invest in short-term debt securities in the
money market like certificates of deposits, commercial papers, government treasury
bills etc. Owing to their large size, the funds normally get a higher yield on such short-
term investments than an individual investor.
Infrastructure Debt Fund: They invest primarily in the debt securities or securitized
debt investment of infrastructure companies.
Tax Saving Schemes: These schemes offer tax rebates to the investors under tax laws
as prescribed from time to time. This is made possible because the Government offers
tax incentive for investment in specified avenues. For example, Equity Linked Saving
Schemes (ELSS) and pensions schemes.
Special Schemes: This category includes index schemes that attempt to replicate the
performance of particular index such as the BSE, Sensex or the NSE-50 or industry

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Mutual Funds
specific schemes (which invest in specific industries) or sectoral schemes (which invest
exclusively in segment such as ‘A’ Group or initial public offering).

Mutual Fund Terminology

A . Offer Document
• AMC raises money in new schemes through New Fund Offer (NFO)
• Offer document contains key details about the NFO – open and close dates, scheme
objective, nature of the scheme, etc.
• Filed with SEBI
Two parts:
1. Scheme Information Document (SID)
2. Statement of Additional Information
B. Key Information Memorandum (KIM)
• Essentially a summary of SID & SAI
• As per SEBI regulations, every application form should be accompanied by the KIM
• The KIM has to be updated at least once a year
C. Fact Sheets
Usually provided on a monthly basis by AMCs
D. Assets under Management (AUM)
It is the total market value of the assets managed by a mutual fund scheme as on a
particular date
Periodic AUM Available
• Month-end
• Quarterly average
E. Know Your Client (KYC)
• A one-time process made mandatory to invest in mutual funds
• Key details required: PAN, Address proof, contact details, occupation and income
details
F. Foreign Account Tax Compliance Act (FATCA)
Requires that all financial institutions (including Indian mutual funds) need to report
financial transactions of US persons and entities in which US persons hold a substantial
ownership.
G. Modes of Holding
 Single
 Either or Survivor
 Joint
NET ASSET VALUE (NAV)
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Mutual Funds
Mutual funds raise money by selling their shares to public and redeeming them at
current net asset value. Net asset value is the value of the assets of each unit of the
scheme. Thus if the NAV is more than the face value of, there is an appreciation for the
investment. If the NAV is less than the face value, it indicates depreciation of the
investment.
Every mutual fund shall compute the NAV of each scheme by dividing the net asset of
the scheme by the number of units of that scheme outstanding on the date of valuation
and publish the same at least in two daily newspapers at intervals not exceeding one
week. However, the net asset value of any scheme for special target segment or any
monthly scheme which are not mandatorily required to be listed in the stock exchange
may publish the NAV at monthly or quarterly intervals as permitted by SEB1.
The Net Asset Value (NAV) of a mutual fund is the price at which units of a mutual fund
are bought or sold. It is the market value of the fund after deducting its liabilities.
Calculation of NAV
Net Assets of the Scheme ∗
Net Asset Value = Number of units Outstanding

*Net Asset of the Scheme

Add: Less:

Market value of investments Accrued Expenses

Receivables Other Payables

other accrued income Other Liabilities

other assets

Rules for Market Value of Investment

Asset Valuation Rule

Liquid assets like cash As per books

Listed & Traded Securities Closing Market Price

Debenture & Bonds Closing traded price or yield

Illiquid shares or debentures Last known price or book values whichever is lower

Fixed Income Securities Current yield

Note: See Practical Question given below for clarity.

Cut-off time of NAV

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Mutual Funds
An investor can invest in a mutual fund on any business day of the year, but the NAV of
the mutual fund will not be same every day. Rather the purchasing NAV will depend
upon what time you submit your application. This could be the NAV of the same day,
previous day or the next day. The rules for cut-off time of NAV are as follows:

Type of Transaction Timing NAV applicable

Equity & Debt Funds

Purchase & Switch-in of value Before 3 PM. Same day NAV

up-to Rs. 2 Lakhs
After 3 P.M. Next business day NAV

Purchase & Switch-in of value Before 3 P.M. NAV of the business day on which
more than Rs. 2 Lakhs funds are available for utilization
After 3 P.M.

Redemption & switch-out Before 3 P.M. Same day NAV

After 3 P.M. Next business day NAV

Liquid Funds

Purchase & Switch-in Before 2 P.M. Previous day NAV (only if the money is
also paid before 2 PM.)

After 2 P.M. Same day NAV (only if the money is

also paid)

Redemption & switch-out Before 2 P.M. Previous day NAV (only if the fund also
transfer before 2 P.M.)

After 2 PM. Same day NAV (only if the fund also

transfer before 2 P.M.)

HOLDING PERIOD RETURN/RETURN ON MUTUAL FUND

Holding period return is the total return received from holding an asset or portfolio of
assets over a period of time, generally expressed as a percentage.
Holding Period Return/Return =
Income (in the form of Dividend and Capital Gain) + Change in NAV × 100
NAV at purchase date
D1 + CGI + (NAVI – NAV0)
OR Return = × 100
NAV0

Where,
D1 is Dividend
CGI is capital gain
NAVI is Current present date NAV
NAV0 is NAV on purchase date
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Mutual Funds
Q1. Safal Mutual Fund provides the following information related to one of its
schemes: —
Size of the scheme: R$. 2,000 crore.
Face value of the units : Rs. 10 per unit.
Number of outstanding units : 200 crore.
Market value of funds' portfolio : Rs. 4,200 crore.
Receivables : Rs. 100 crore.
Accrued income : Rs. 100 crore.
Liabilities : Rs. 150 crore.
Accrued expenses : Rs. 275 crore.
You are required to calculate net asset value (NAV) of the scheme and rate of
return if a unit holder has purchased units at the NAV ofRs. 15 per unit and
received a dividend of Rs. 2 per unit during the period.
(6 marks) June 2006

Ans. 𝐍𝐞𝐭 𝐀𝐬𝐬𝐞𝐭𝐬 𝐨𝐟 𝐭𝐡𝐞 𝐒𝐜𝐡𝐞𝐦𝐞

Net Asset Value = 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐮𝐧𝐢𝐭𝐬 𝐎𝐮𝐭𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠

Net Asset of the Scheme = Market value of investments + Receivables +

other accrued income + other assets - Accrued Expenses - Other Payables -
Other Liabilities.

Net Asset of the Rs. 4200 Crore + Rs. 100 Crore + Rs. 100 Crore - Rs.
Scheme 150 Crore - Rs. 275 Crore

= Rs. 3975 Crore

NAV = Rs. 3975 Crore

200 Crore units

= Rs. 19.875

Return = (𝐍𝐀𝐕𝟏− 𝐍𝐀𝐕𝟎) + 𝐃𝟏 + 𝐂𝐆𝐈

× 100
𝐍𝐀𝐕𝟎

= (𝟏𝟗.𝟖𝟕𝟓 – 𝟏𝟓) + 𝟐
× 100=45.833%
𝟏𝟓

Q2. A mutual fund had a net asset value of Rs. 20 at the beginning of month made
income & capital gain distribution of Re. 0.0375 and Re. 0.03 per share
respectively during the month and then ended the month with a NAV of Rs.
20.06. Calculate monthly return.

Ans. Return = (NAV1 - NAV0) + D1 + CGI × 100 NAV0

(𝟐𝟎.𝟎𝟔 – 𝟐𝟎) + 𝟎.𝟎𝟑𝟕𝟓 + 𝟎.𝟎𝟑
= ×100 = 0.6375% per month
𝟐𝟎

Note: Since the NAV of the beginning and end of the month is given we need not
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Mutual Funds
divide the return by 12 to find monthly return as it is already in monthly form.

Q3. Determine NAV of a mutual fund scheme:

Listed shares at cost (ex dividend) Rs. 20 Lakh

Cash in hand Rs. 1.23 Lakh

Bonds & Debentures at Cost Rs. 4.30 Lakh

(out of the above bonds not listed & quoted are 1

Lakh)

Other fixed interest securities at cost Rs. 4.50 Lakh

Dividend accrued Rs. 0.80 Lakh

Amounts payable on shares Rs. 6.32 Lakh

Expenditure accrued Rs. 0.7/Lakh

Number of units (Rs. 10 Face Value each) 2,40,000

Current realizable value of fixed income securities Rs. 106.50

of FV ofRs. 100

All listed shares were purchased when index (price) was 1200. On NAV date, the
index (price) is ruling at 2120. Listed bonds & debentures carry a market value
of Rs. 5 Lakhs on NAV date.

Ans. Particulars Computation Value in lakhs

Equity shares Index (2120/1200) × 20 35.33

Cash in hand Book Value 1.23

Bonds & Debentures not Book Value 1.00

listed

Bonds & Debentures Market Value 5.00

listed

Dividend accrued 0.80

Fixed Income securities Market Value (106.50/100) × 4.79

4.50

TOTAL ASSETS (I) 48.15

Due on shares 6.32

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Mutual Funds
Expenses payable 0.75

TOTAL LIABILITIES (II) 7.07

NET ASSETS (I - II) 41.08

No. of units is 240000 i.e 2.4 lakhs

41.08 Lakhs
NAV = = Rs. 17.12 per unit
2.40 Lakhs

Expense Ratio is the annual fee charged by the mutual fund scheme to manage money
on your behalf. It covers the fund manager's fee along with other expenses required to
run the fund administration. It includes the following:—
 Fees paid to service providers like trustees, Registrar & Transfer Agents, Custodian,
Auditor, etc.
 Asset management expenses
 Commissions paid to distributors
 Other selling expenses including advertising expenses
 Expenses on investor communication, account statements, dividend/redemption
cheques/ warrants
 Listing fees and Depository fees
 Service tax
The lower the Expense Ratio the higher the NAV.
Front End & Back End Load
A front-end load is a commission or sales charge applied at the time of the initial
purchase of units of mutual fund. A back-end load is a fee (sales charge or load) that
investors γay when selling mutual fund shares.
Expenses Ratio = (Expenses x 100) / (NAV1 + NAV0) / 2
Where, NAV1 = NAV at Year End
NAV0 = NAV at beginning of Year
Purchase Price OR Public offer Price = NAV / (1 - front end load)
Redemption Price = NAV / (1 + back end load)

Q4. Super mutual fund has launched a scheme named 'Super Bonanza'. The net
asset value (NAV) of the scheme is Rs. 12.00 per unit. The redemption price of
Rs. 11.65 per unit and offer price is Rs. 12.50 per unit. You are required to
calculate—
(i) Front end load
(ii) Back end load (6 marks) June 2015

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Mutual Funds
Ans. Net asset value of the Scheme 'Super Bonanza' is Rs. 12.00 per unit. Redemption
price is Rs. 11.65 per unit and offer price is Rs. 12.50 per unit
(i) Front-end load charges
Public Offer Price = NAV / (1 - front end load)
Let us assume that front end load = x
12.50 = 12/1 - x
12.50 - 12.50x = 12
x = 0.50/12.50
x = 0.04
Front-end load = 4%
Front-end load charges = Rs. 0.48/- per unit
(ii) Back-end load charges
Redemption Price = NAV / (1 + back end load)
Let us assume that back end load = y
11.65 = 12/1 + y
y = 0.35/11.65 = 0.03
Back-end load = 3%
Back-end load charges = Rs. 0.36/ - per unit

Q5. The redemption price of a mutual fund unit is Rs. 48 while the front-end load
and back-end load charges are 2% and 3% respectively. You are required to
calculate —
(i) Net asset value per unit; and
(ii) Public offer price of the unit. (7 marks) June 2010

Ans. Information's as per question Redemption price of Mutual Fund = Rs. 48

Front end Load = 2% @ 0.02, Back end Load = 3% or 0.03
(i) Net Assets value = ?
Redemption price = NAV/ (1 + Back end Load)
Now putting figures with the help of question
48 = NAV / (1 + 0.03)
Or, 48 = NAV (1.03)
Or, NAV = 48 x (1.03) = Rs. 49.44
(ii) Public offer price = 50.45

SEBI (MUTUAL FUNDS) REGULATIONS, 1996

Key provisions of this regulation:

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Mutual Funds
 All the schemes to be launched by the AMC needs to be approved by the Board of
Trustees and copies of offer documents of such schemes are to be filed with SEBI.
 The offer documents shall contain adequate disclosures to enable the investors to
make informed decisions.
 The sponsor or asset management company shall invest not less than one percent of
the amount which would be raised in the new fund offer or fifty lakh rupees,
whichever is less, and such investment shall not be redeemed unless the scheme is
wound up.
 The listing of close-ended schemes is mandatory and they should be listed on a
recognised stock exchange within 6 months from the closure of subscription.
However, the listing is not mandatory in case:
 if the scheme provides for monthly income or caters to senior citizens, women,
children and physically handicapped;
 if the scheme discloses details of repurchase in the offer document; or
 if the scheme opens for repurchase within six months of closure of subscription;
 if the scheme is a capital protection oriented scheme.
 Units of a close-ended scheme can be converted into an open-ended scheme with the
consent of a majority of the unit-holders and disclosure is made in the offer
document about the option and period of conversion.
 Units of close-ended scheme may be rolled over by passing a resolution by a
majority of the shareholders.
 No scheme other than equity-linked saving scheme can be opened for subscription
for more than 15 days. Further, the minimum subscription and the extent of over
subscription that is intended to be retained should be specified in the offer
document. In the case of over-subscription, all applicants applying up to 5,000 units
must be given full allotment subject to over-subscription.
 The AMC is required to refund the application money if minimum subscription is not
received, and also the excess over subscription within five working days of closure
of subscription.
 A close-ended scheme shall be wound up on redemption date, unless it is rolled
over, or if 75% of the unit-holders of a scheme pass a resolution for winding up of
the scheme; if the trustees on the happening of any event require the scheme to be
wound up; or if SEBI, so directs in the interest of investors.
RESTRICTION ON INVESTMENT BY MUTUAL FUNDS
(i) The schemes shall not invest more than 10% of its NAV in debt instruments issued
by a single issuer which are rated not below investment grade by a CRA.
However, such limit can be increased to 12% of its NAV with prior approval of
Board of Trustee and Board of Directors of AMC.
(ii) A mutual fund scheme shall not invest in unlisted debt instruments including
commercial papers, except Government Securities and other money market
instruments. However, Mutual Fund Schemes may invest in unlisted non- convertible
debentures up to a maximum of 10% of the debt portfolio of the scheme subject to such
conditions as may be specified by the SEBI.
(iii) Mutual fund shall not own more than 10% of company’s paid - up capital carrying
voting rights.

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Mutual Funds
(iv) The transfer of investments from one scheme to another shall be done only at the
prevailing market price & the securities so transferred shall be in conformity with the
investment objective of the scheme to which such transfer has been made;
(v) A scheme may invest in another scheme under the same asset management
company or any other mutual fund without charging any fees. However, the aggregate
inter-scheme investments made by all schemes shall not exceed 5% of the NAV of the
mutual fund. (This shall not apply to funds of funds scheme)
(vi) The buy and sell by all the mutual funds shall be made on the basis of the deliveries.
(vii) All securities shall be purchase or transferred in the name of the mutual fund
scheme.
(viii) No mutual fund scheme shall make any investment in:
(a) any unlisted security of an Associate or Group Company of the Sponsor;
(b) any security issued by way of private placement by an associate or group company
of the sponsor;
(c) the listed securities of group companies of the sponsor which is in excess of 25 per
cent of the net Assets.
(ix) No mutual fund shall make any investment in the funds of fund scheme.
(x) No mutual fund shall invest more than 10% of its NAV in the equity shares or equity
related instruments of any company.
(xi) All investments by a mutual fund scheme in equity shares and equity related
instruments shall only be made provided such securities are listed or to be listed
(xii) A fund of funds scheme shall be subject to the following investment restrictions:
(a) A fund of funds scheme shall not invest in any other fund of funds scheme;
(b) A fund of funds scheme shall not invest its assets other than in schemes of mutual
funds, except to the extent of funds required for meeting the liquidity requirements for
the purpose of repurchases or redemptions, as disclosed in the offer document of fund
of funds scheme.

PRICING OF UNITS OF MUTUAL FUND

 The mutual fund shall provide the methodology of calculating the sale and
repurchase price of units in the manner specified by the SEBI.
 While determining the prices of the units, the mutual fund shall ensure that the
repurchase price is not lower than 95% of the Net Asset Value.

SEBI (LODR) REGULATIONS, 2015

Obligations of Listed Entity, Which Has Listed Its Mutual Fund Units
Applicability (Regulation 88): Applicable to the asset management company
managing the mutual fund scheme whose emits are listed on the RSE.
Compliances for listed Assets Management Company (Regulation 90):

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Mutual Funds
1. The listed entity shall intimate to the recognized stock exchange(s) the information
relating to
a) Daily Net Asset Value (NAV),
b) Monthly portfolio,
c) Half yearly portfolio of those schemes.
2. The listed entity shall intimate to the recognised stock exchange(s) in the manner
specified by the recognised stock exchange(s) of:
a) Movement in unit capital of those schemes whose units are listed on the RSE
b) Rating of the scheme whose units are listed on the RSE and any changes in the
rating thereof (wherever applicable);
c) Imposition of penalties and material litigations against the listed entity and
Mutual Fund;
d) Any prohibitory orders restraining the listed entity from transferring units
registered in the name of the unit holders.
Dissemination on the website of stock exchange(s) (Regulation 91): The listed entity
shall submit such information and documents, which are required to be disseminated
on the listed entity's website in terms of SEBI (Mutual Funds) Regulations, 1996 and
directions issued thereunder, to the RSE for dissemination.

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Collective Investment Scheme

Collective Investment Scheme

INTRODUCTION
A collective investment scheme is a trust based scheme that
comprises a pool of assets that is managed by a collective
investment scheme manager and is governed by the
Collective Investment Schemes Regulations given by SEBI.
The sums of money that are exchanged on the Stock
Exchange and in the money markets make them too pricy
for most people. With a CIS, the money or funds from a
group of investors are pooled or collected together to form
a CIS portfolio.

COLLECTIVE INVESTMENT SCHEME

A collective investment scheme is a scheme that comprises a pool of assets
that is managed by a collective investment scheme manager and is
governed by the Collective Investment Schemes Regulations given by SEBI.
The investor hold a portion of the scheme known as Units of CIS. Investors
do not have day-to-day control over the management and operation of such
scheme or arrangement.
Definition of Collective Investment Scheme
Section 11AA of the SEBI Act, 1992 defines it as any Scheme or
Arrangement made or offered by any company under which:
a) The contributions, or payments made by the investors, by whatever
name called, are pooled and utilised solely for the purposes of the
scheme or arrangement;
b) The contributions or payments are made to such scheme or
arrangement by the investors with a view to receive profits, income,
produce or property, whether movable or immovable from such scheme
or arrangement;
c) The property, contribution or investment forming part of scheme or
arrangement, whether identifiable or not, is managed on behalf of the
investors; and

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Collective Investment Scheme
d) The investors do not have day-to-day control over the management and
operation of the scheme or arrangement.
On the backdrop of Sahara/Saradha scams, in 2013 SEBI modified the
definition of Collective Investment Scheme and include any
scheme/arrangement floated by any person (instead of a company as was
defined earlier) and any such scheme with corpus of more than Rs. 100
Crore shall also be deemed to be a CIS by SEBI.
The Securities Laws (Amendment) Act, 2014 defines it "Any pooling of
funds under any scheme or arrangement, which is not registered with SEBI,
involving a corpus amount of Rs. 100 crore or more shall be deemed to be a
collective investment scheme
In short, A Collective Investment Scheme (CIS), as its name suggests, is an
investment scheme wherein several individuals come together to pool their
money for investing in a particular asset(s) and for sharing the returns
arising from that investment as per the agreement reached between them
prior to pooling in the money.
"Close ended collective investment scheme" means any collective
investment scheme launched by a collective investment management
company, in which the maturity period of the collective investment scheme
is specified and there is no provision for repurchase before the expiry of
the collective investment scheme.
• The CIS, however, does not include any Scheme or Arrangement:
i. Made or offered by a co-operative society,
ii. Under which deposits are accepted by non-banking financial
companies,
iii. Being a contract of insurance,
iv. Providing for any Scheme, Pension Scheme or the Insurance Scheme
framed under the Employees' Provident Funds and Miscellaneous
Provisions Act, 1952,
v. Under which deposits are accepted under section 74 of the
Companies Act, 2013,
vi. Under which deposits are accepted by a company declared as Nidhi
or a mutual benefit society under section 406 of the Companies Act,
2013,

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Collective Investment Scheme
vii. Falling within the meaning of Chit business as defined in clause (d) of
section 2 of Chit Fund Act, 1982, and
viii. Under which contributions made are in the nature of subscription to
a mutual fund.
SEBl (COLLECTIVE INVESTMENT SCHEMES) REGULATIONS, 1999 - AN
OVERVIEW
Definition
Collective Investment Management Company mean a company
incorporated under the Companies Act, 2013 and registered with SEBI
under these regulations, whose object is to organize, operate and manage a
collective investment.
Certificate of Registration to carry on CIS business
No person other than a Collective Investment Management Company which
has obtained a certificate under the regulations should carry on or sponsor
or launch a collective investment scheme.
Collective Investment Scheme Property
“Collective investment scheme property" includes:
 subscription of money or money's worth (including bank deposits) to
the collective investment scheme;
 property acquired, directly or indirectly, with, or with the proceeds of,
subscription of money; or
 income arising, directly or indirectly from, subscription money or
property above.
Restriction on Business Activities
Collective Investment Management Company should not:
i. undertake any activity other than that of managing the scheme;
ii. act as a trustee of any scheme;
iii. launch any scheme for the purpose of investing in securities;
iv. invest in any schemes floated by it.
However, it has been provided that a CIMC may invest in its own scheme, if
it makes a disclosure of its intention to invest in the offer document of the
scheme, and does not charge any fees on its investment in that scheme.

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Collective Investment Scheme
Obligations of Collective Investment Management Company
Every Collective Investment Management Company should:
i. be responsible for managing funds or properties of scheme on behalf
of the unit holders;
ii. exercise due diligence and care in managing assets and funds of the
scheme;
iii. also be responsible for the acts of commissions and omissions by its
employees or the persons whose services have been availed by it;
iv. appoint registrar arid share transfer agents and should also abide by
their respective Code of Conducts as specified by SEBI;
v. give monthly receipts for all monies received and report of receipts &
payments to SEBI;
vi. hold a meeting of Board of Directors to consider the affairs of
scheme, at least twice in every 3 months and also ensure that its
officers or employees do not make improper use of their position or
information to gain an advantage for themselves or for any other
person or to cause detriment to the scheme;
vii. obtain adequate insurance against the properties of the schemes and
comply with such guidelines, directives, circulars and instructions as
may be issued by SEBI.
Penal Provisions
If, a registered collective investment management company violates certain
provisions of the regulations, then following will be the consequences:—
 Suspension/cancellation of certificate.
 SEBI may initiate criminal prosecution in the interests of the securities
market and the investors passing of following directions such as:
o requiring the person concerned not to collect any money from
investor or to launch any scheme;
o prohibiting the person concerned from disposing of any of the
properties of the scheme acquired in violation of the Regulations;
o requiring the person concerned to dispose off the assets of the
scheme in a manner as may be specified in the directions;
o requiring the person concerned to refund any money or the assets to
the concerned investors along with the requisite interest or
otherwise, collected under the scheme;
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Collective Investment Scheme
o Prohibiting the person concerned from operating in the capital
market or from accessing the capital market for a specified period.
ROLE OF COMPANY SECRETARY
The Company Secretary shall ensure that the money mobilization carried
out by the company will not trigger the parameters of CIS Regulations.

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