Merchant Banking

Merchant banking, although a non-banking financial activity, resembles banking function. The functions of merchant banking which originated, and grew in Europe, was enriched by American patronage, and these services are now being provided throughout the world by both banking and non-banking institutions. The word “Merchant Banking” originated among the Dutch and the Scottish traders, and was later on developed and professionalized in Britain. Definition: A set of functions and services rendered by a merchant banker may be termed as ‘merchant banking’. 1. According to Random House Dictionary, “merchant bank is an organisation that underwrites securities for corporations, advises such clients on mergers and is involved in the ownership of commercial ventures. These organizations are sometimes banks which are not merchants and sometimes which are not banks and sometimes houses which bare neither merchants nor banks. 2. According to Charles P. Kindleburger, “merchant banking is the

development of banking from commerce which frequently encountered a prolonged intermediate stage known in England originally as merchant banking”. 3. According to the Securities and Exchange Board of India (Merchant Bankers) Rules, 1992, management either by making arrangements regarding selling , buying or subscribing to securities or acting as manager, consultant, adviser or rendering management” Merchant Bankers A set of financial institutions that are engaged in providing specialist services, which generally include the acceptance of bills of exchange, corporate finance, portfolio management and other banking services, are known as “merchant corporate advisory services in relation to such issue

bankers’. It is not necessary for a merchant banker to carry out all the abovementioned activities. A merchant banker may specialize in one activity, and take u other activities, which may be complementary or supportive to the specialized activity. Functions Merchant banking being a service oriented industry renders the same services in India as merchant banks in UK and other European countries. In the U.S., investment bankers cater to the needs of business enterprises carrying out merchant banking functions. Merchant banks in India carry out the following functions and services: 1. Corporate Counseling 2. Project Counseling 3. Pre-investment Studies 4. Capital Restructuring 5. Credit Syndication and Project Finance 6. Issue Management and Underwriting 7. Portfolio Management 8. Working Capital Finance 9. Acceptance Credit and Bill Discounting 10. Mergers, Amalgamations and Takeovers 11. Venture Capital 12. Lease Financing 13. Foreign Currency Finance

14. Fixed Deposits Broking 15. Mutual Funds 16. Relief to Sick Industries 17. Project Appraisals A brief description of these functions is presented below: I. Corporate Counseling Corporate counseling refers to a set of activities that is undertaken to ensure efficient running of a corporate enterprise at its maximum potential through effective management of finance. It aims at rejuvenating old-line companies and ailing units, and guiding existing units in locating areas/ activities of growth and diversification. A merchant banker, as a managerial economist, guides the client on aspects of organizational goals, locational factors, organization size and operational scale, choice of product and market survey , forecasting for a product, cost reduction and cost analysis, allocation of resources, investment decisions, capital management and expenditure control pricing methods and marketing strategy, etc. As a financial and investment expert, a capital management, financial requirements and sources of finance, evaluating financial alternatives, rate of return and cost of capital, besides providing basic corporate services such as financial rearrangement, reorganization, mergers and acquisitions, etc. Following are the activities which form part of corporate counseling: 1. Providing guidance in areas of diversification based on the government’s economic and licensing policies. 2. Undertaking appraisal of product lines, analyzing their growth and profitability and forecasting future trends.

3. Rejuvenating old-line companies and ailing sick units by appraising their technology and process, assessing their requirements and restructuring their capital base. 4. Commissioning of diagnostic studies 5. Assessment of the revival prospects and planning for rehabilitation through modernization and diversification and revamping of the financial and organizational structure. 6. Arranging for the approval of the financial institutions/bank for schemes of rehabilitation involving financial relief, etc. 7. Providing assistance in getting soft loans from financial institutions for capital expenditure and the requisite credit facilitates from the bank. 8. Monitoring of rehabilitation schemes. 9. Exploring possibilities for takeover of sick units and providing assistance in making consequential arrangements and negotiations with financial institutions/authorities involved. 2. Project Counseling Project counseling is a part of corporate counseling, and relates to project finance. It broadly covers the study of the project, offering advisory assistance on the viability and procedural steps for its implementation. Following are the activities forming part of the Project counseling: 1. Undertaking the general review of the project ideas/project profile. 2. Providing advice on procedural aspects of project implementation 3. Conducting review of technical feasibility of the project on the basis of the project prepared by own experts or by outside consultants.

4. Assisting in the selection of a Technical Consultancy Organization (TCO) for preparing project reports and market surveys, or review of the project reports or market survey reports prepared by TCO 5. Assisting in the preparation of the project report from a financial angle, advising and acting on various procedural steps including obtaining government consents for implementation of the project 6. Assisting in obtaining approvals/licenses/permissions/grants, etc from government agencies in the form of letter of intent, industrial license, DGTD registration, and the government approval for foreign collaboration. 7. Providing guidance to Indian entrepreneurs for making investment in Indian projects in India and in Indian joint venture overseas. 8. Identification of potential investments avenues 9. Carrying out precise capital structuring and shaping the pattern of financing 10. Arranging and negotiating foreign collaborations, amalgamations,

mergers and takeovers. 11. Undertaking financial study of the project and preparation of viability reports to various national financial institutions, state level institutions and banks. 12. Providing assistance in the preparation of project profiles and feasibility studies based on preliminary project ideas, covering the technical, financial and economic aspects of the project from the point of view of their acceptance by financial institutions and banks 13. Advising and assisting clients in preparing applications for financial assistance to various national financial institutions, state level institutions, banks, etc.

14. Assisting clients in preparing applications for obtaining letters of intent, industrial license, DGTD registrations etc. 15. Providing assistance in seeking approvals from the government of India for foreign technical and financial collaboration agreements, guidance on investment opportunities for entrepreneurs coming to India 3. Pre-investment studies Activities that are connected with making a detailed feasibility exploration to evaluate alternative avenues of capital investment in terms of growth and profit prospects are called ‘pre-investment studies. Some of these activities are as follows: 1. Carrying out an in-depth investigation of environment and regulatory factors, location of raw material supply, demand projections and financial requirements in order to assess the financial and economic viability of a given project 2. Helping the client in identifying and short listing those projects which are built upon the client’s inherent strength with a view to accentuate corporate profitability and growth in the long run 3. Conducting such studies as maybe required for foreign companies wishing to participate in joint ventures in India 4. Offering a package of services, including advice on the extent of participation, government regulatory factors and an environmental scan of certain industries in India. 4. Capital restructuring services Activities that are carried out to assist projects in achieving their maximum potential through effective capital structuring and to suggest various strategies to wide3n and restructure the capital base diversify operations and implement

schemes for amalgamations, merger or change in business status are collectively known as Capital restructuring services. Under the gamut of Capital restructuring services, merchant bankers provide advice to companies governed by FERA on disinvestments to their maximum advantage, and restructuring the capital for ailing or sick units. Capital restructuring is undertaken by analyzing the capital structure ratios, asset restructuring ratios and the debt service coverage with overall impact on fund generating capacity of the client corporate unit. Following are the services covered: 1. Examining the capital restructuring services of the client and the company to determine the extent of capitalization required. 2. Preparing a comprehensive memorandum for the Controller of Capital Issues, and securing consent where the capitalization takes place. 3. Suggesting viz, an alternative of capital structure of conforming and to legal of

requirements,

extent

capitalization

reserve

quantum

disinvestments by ‘offer for sale’ and/or fresh issues of corporate securities such as equity share, and preference share in case of FERA companies 4. Preparing a memorandum covering valuation of shares and justifying the level of premium applied for 5. Critically examining tax implications where the proposal involves offer for sale. 6. Suggesting the ideal capital restructuring fir sick units and advising the client companies on the ‘extent and means of bringing fresh capital into business’. 7. Capital restructuring may cover mergers, takeovers and amalgamations, involving modernization or diversification of the existing production systems and the units.

5. Credit syndication Activities connected with credit procurement and project financing, aimed at raising Indian and fore I g n currency loans from banks and financial institutions, are collectively known as ‘credit syndication’ Activities covered under credit syndication are as follows: 1. Estimating the total cost of the project to be undertaken 2. Drawing up a financial plan for the total project cost which conforms to the requirements of the promoters and their collaborators, financial institutions and banks, government agencies and underwriters 3. Preparing loan application for financial assistance from term

lenders/financial institutions/banks, and monitoring their progress, including presanction negotiations 4. Selecting institutions and banks for participation in financing 5. Follow-up of term loan application with the financial institutions and banks, obtaining the approval for their respective share of participation 6. Arranging bridge finance 7. Assisting in completions of formalities for drawing of term finance sanctioned by institutions expediting legal documentation formalities, drawing up agreements etc as prescribed by the participating financial institutions and banks 8. Assessing working capital requirements It is to be noted that loan syndication services overlap with those of project counseling and project finance. In practice, banks and financial institutions undertake wide ranging functions, such as preparing the applications for financial assistance from financial institutions/banks, monitoring their progress including the pre-sanction negotiations, post-sanction negotiation/liaisons with the term lenders,

completing the formalities for drawing the sanctioned loan amount, and assisting in the final disbursal of the sanctioned loan amount in rupee or foreign currencies. 6. Issue Management and Underwriting Issue management and underwriting connotes activities that are concerned with the management of the public issues of corporate securities, viz. equity shares, preference shares, and debentures or bonds, and are aimed at mobilization of money from the capital market. Following are some of the popular services provided by merchant bankers in this regard: 1. Preparation of an action plan 2. Preparation of budget for the total expenses for the issues 3. Preparation of CCI application and assisting in obtaining

consent/acknowledgement 4. Drafting of prospectus 5. Selection of institutional and broker underwriters for

syndication/underwriting arrangements 6. Selection of Issue Houses and advertising for undertaking pre and postissue publicity 7. Obtaining the approval of institutional underwriters and stock exchange for publication of the prospectus 8. Making arrangements for designing and printing of prospectus and application forms, as well as their dispatch, if necessary 9. Providing assistance in launching the issue in the form of advertising campaigns by holding press, brokers and investors conferences, etc.

10. Coordination with the underwriters, brokers and bankers to the issue, and the stock exchanges. 11. Providing advice on the design of a sound capital structure, acceptable to financial to financial institutions 12. Determining the quantum, terms and timing of the public issue of different forms of securities, the extent and sources, loan finance and deployment of internal resources etc in compliance with the requirements of the Companies Act/Stock Exchanges, etc 13. Arranging for Stock Exchange clearances and listing of securities 14. Liasioning and coordinating with various constituents of the public isse to make the function of issue management successful 7. Portfolio Management Making decisions relating to the investment of the cash resources of a corporate enterprise in marketable securities by deciding the quantum, timing and the type of security to be bought, is known as ‘Portfolio Management’. It involves making the right choice of investment, aimed at obtaining an optimum investment mix, taking into account factors such as the objectives of the investment, tax bracket of the investor, need for maximizing yield and capital appreciation, etc. The services covered are as follows: 1. Undertaking investment in securities 2. Undertaking investment for non-resident Indians, on both repatriation and non-repatriation basis 3. Undertaking review of Provident fund Investment, Trust investment, etc 4. Safe custody of securities in India and overseas

5. Collection of return on investment and re-investment of the same in profitable avenues, investment advisory services to the investors and other related services on selection of investments 6. Providing advice on selection of investments 7. Carrying out a critical evaluation of investment portfolio 8. Securing approval from RBI for the purchase /sale of securities(for NRI clients) 9. Maintaining investment records and complying with ceiling requirements 10.Collecting and remitting interest and dividend on investment 11.Providing tax counseling and filing tax returns through tax consultants 8. Working Capital Finance The finance required for meeting the day-to-day expenses of an enterprise is known as ‘Working Capital Finance”. Merchant Bankers undertake the following activities as part of providing this type of finance: 1. Assessment of working capital requirements 2. Preparing the necessary application to negotiations for the sanction of appropriate credit facilities 3. Providing assistance in negotiations with all banks, and suggesting a sharing pattern of credit limits amongst participating banks, where more than one bank is involved. 4. Assisting coordinating and expediting documentation and other formalities for disbursement 5. Advising on the issue of debentures for augmenting long-term requirements of working capital

9. Acceptance Credit and bill Discounting Activities relating to the acceptance and the discounting of bills of exchange, besides the advancement of loans to business concerns on the strength of such instruments, are collectively known as ‘Acceptance Credit and Bill Discounting’. Bill accepting and discounting are an integral part of the developed merchant market. In order that the bill accepting and discounting takes place on sound lines, it is imperative that the firms involved command a good reputation and financial standing. Further, collecting credit information and rating the credit-worthiness of the parties concerned are very much a part of this function. In developed money markets like London and New York, there are specialized agencies, such as discount houses and acceptances houses, that play an active role in the promotion of this function. In India, RBI takes special care in developing the bill market. 10. Merger and Acquisition This is a specialized service provided by the merchant banker who arranges for negotiating acquisitions and mergers by offering expert valuation regarding the quantum and the nature of consideration, and other related matters. The various functions that form part of this activity are as follows: 1. Undertaking management audits to identify areas of corporate strength and weakness in order to help formulate guidelines and directions for future growth. 2. Conducting exploratory studies on a global basis to locate overseas markets, foreign collaboration and prospective joint ventures associates 3. Examining the pros and cons of proposals and formulating financial reconstruction, merger and acquisition 4. Obtaining approvals from the shareholders, depositories, creditors, schemes for

government and other authorities.

5. Monitoring the implementation of merger and amalgamation schemes 6. Identifying organizations with matching characteristics
7. Assisting in the compliance of legal requirements, obtaining consent from

various authorities, etc by coordinating with solicitors, accountants, valuators and other professional experts involved in the task
8. Advising on capital reorganization of business enterprises

Merchant bankers provide advice on acquisition propositions after careful examination of all aspects, viz., financial statements, articles of associations, provisions of companies act, rules and guidance of trade chambers, the issuing house associations, etc. There are many reasons for the recent trend towards mergers and

amalgamations, such as: 1. Existence of excess unused manufacturing capacity of the purchasing company, which can be utilized efficiently by taking over other units.
2. Lack of manufacturing space with the purchase company. The best solution

may be to buy the controlling interest in another company having excessive manufacturing space or capacity. 3. Advantages of economics of scale, viz. bulk buying and joint-selling, particularly the possibility of reduced sales promotion expenses may cause a takeover bid in a horizontal merger of enterprises in a similar trade. 4. Benefit of vertical integration attracts a takeover bid by a company which is a supplier to customers who are making larger profits, so that the group as a whole can reap the benefits. 11. Venture financing

A specially designed capital, as a form of equity financing for funding highrisk and high reward projects, is known as ‘Venture Capital’. The concept of venture capital originated in the USA in the 1950’s, when business magnates like Rockfeller financed new technology companies. The concept became more popular in the sixties and the seventies, when several private enterprises undertook the financing of high-risk and high reward projects. In India, venture capital companies have largely contributed to the technological and industrial revolution. A large number of Indian and international companies are engaged in venture capital funding for high technology and high risk projects. A number of leading national development financial institutions such as IFCI, IDBI and ICICI are engaged in venture capital financing, and have developed a number of special schemes for this purpose. 12. Lease Financing A merchant banking activity whereby financial activities are provided to companies that undertake leasing, is known as ‘Lease Financing’. Leasing involves letting out assets on lease for a particular time period for use by the lessee. Leasing provides an important alternative source of financing capital outlay. Lease financing benefits both the lessor and the lessee. Following are the important services provided in regard to leasing: 1. Providing advice on the viability of leasing as an alternative source for financing capital investment projects. 2. Providing advice on the choice of a favorable rental structure. 3. Providing assistance in establishing lines of lease for acquiring capital equipment, including preparation of proposals, documentation, etc. In India, leasing is a non-banking financial activity, undertaken by leading development financial institution like ICICI, IDBI and IFCI. Commercial banks also

provide lease financing by forming subsidiaries under the amended Banking Regulations Act of 1949. 13. Foreign Currency Financing The finance provided to fund foreign trade transactions is called ‘Foreign Currency Finance’. The provision of foreign currency finance takes the form of export-import trade finance, euro currency loans, and Indian Joint Ventures abroad and foreign collaborations. The main areas that are covered in this type of merchant activity are as follows: 1. Providing assistance for carrying out the study of turnkey and construction contract jobs 2. Arranging assistance in application to working groups, liaison with RBI, ECGD and other institutions 3. Arranging for the syndication of various types of guarantees, letters of credit pre-shipment credit deferred credit facilities 4. Providing assistance in opening and operating bank accounts abroad 5. Arranging foreign currency loans under buyer’s credit scheme for importing goods 6. Arranging deferred payment guarantees under suppliers credit schemes for importing capital goods 7. Providing assistance in obtaining export credit facilitates from the EXIM bank for export of capital goods, and arranging for the necessary government approvals and clearance 8. Undertaking negotiations for deferred payment, export payment, export finance, buyers credit, documentary credits and other foreign exchange services like packing credit, etc. post-shipment credit, bridge loans, and other

9. Providing guidance on forward cover for exchange risk 10. Assisting in arranging foreign currency guarantees and performance bonds for exporters 14. Brokering Fixed Deposits Following are the services rendered by merchant bankers in this regard: 1. Computation of the amount that could be raised by a company in the form of deposits from the public and loams from shareholders. 2. Drafting of advertisements for inviting deposits 3. Filing a copy of advertisement with the Registrar of Companies for registration
4. Arranging for the issue of advertisement in newspapers, as required by the

Companies Act 5. Drafting and printing of application forms 6. Making arrangements for the collection of deposits at the bank branches 7. Submission of periodical statements to companies concerned 8. Making arrangement for payment of interest amounts 9. Providing advice to the company on the terms and conditions of fixed deposits, and deciding on the appropriate rate of interest, keeping in view the prevailing capital and money market conditions 10.Helping the company to observe all the rules and regulations in this connection 11.Assisting in maintenance of records and registers for the purpose Assistance in provided under Sec.58 (A) of the Companies Act, 1956 and the rules there under.

15. Mutual Funds Institutions and agencies that are engaged in the mobilization of savings of innumerable investors for the purpose of channeling them into productive investments of a wide variety of corporate and other securities are called “Mutual Funds”. UTI is the first and the largest mutual fund in the country. The mutual fund industry has a large number of players, both in the public as well as the private sector. Commercial banks are also making rapid strides in the realm of mutual funds business. Some of the services rendered by Mutual Funds are as follows 1. Mopping up public savings 2. Investing the funds in a diversified portfolio of shares and debentures belonging to well managed and growing companies 3. Earning investors a steady return on investments with an assurance of capital appreciation0 4. Engaging in the business of acquisition, holding or disposable of securities 5. Making investments in any commercial paper floated by the central Govt., RBI, any local authority, any foreign govt., foreign bank, or any other authority outside India and approved by RBI. 16. Relief to Sick industries Merchant Bankers extend the following services as part of providing relief to sick industries: 1. Rejuvenating old-lines and ailing units by appraising their technology and process, assessing their requirements and restructuring their capital base
2. Evolving rehabilitation packages which are acceptable to financial institutions

and banks

3. Exploring the possibilities of mergers/amalgamations, wherever called for 4. Assisting in obtaining approvals from the Board for Industrial and Financial Reconstruction and other authorities under the Sick Industrial Companies (Special Provisions) Act, 1985 5. Monitoring the implementation of rehabilitation schemes, mergers and/or amalgamations 17. Project Appraisal The evaluation of industrial projects in terms of alternative variants in technology, raw materials, production capacity, and location of plant is known as ‘Project Appraisal’. Project evaluation is indispensable because resources are scarce and alternative opportunities exist in terms of projects for commitment of resources. Project selection can be rational only if it is superior to others commercially or important to the nation as a whole. The various steps in a project appraisal are:  Financial appraisal Financial appraisal involves assessing the feasibility of a new proposal for setting up a new project or the expansion of existing production facilities. Financial appraisal is done in order to gauge the viability of the project, as well as to rank projects on the basis of their profitability. It may be noted that financial appraisal is concerned with the measurement of profitability of the project without reference to the source of finance. While appraising a project, the direct benefits and costs that are associated with the project are estimated at the prevailing market prices. Financial appraisal is undertaken through an analysis which takes into account the financial features of the project, including sources of financing. Financial analysis helps trace the smooth operation of the project over its entire life cycle. The two major aspects of financial analysis are liquidity analysis and

capital structure analysis, for which ratios are employed. Liquidity ratios measure a project’s ability to meet its short-term obligations. Capital structure analysis is done to assess long term solvency, i.e., the project’s ability to meet long-term commitments to creditors.  Technical Appraisal Technical appraisal is primarily concerned with the project concept in terms of technology, design, scope and content of the plant, as well as inputs and infrastructure facilities envisaged for the project. Basically, the project should be able to deliver a marketable product from the resources deployed, at a cost which would leave a margin that would be adequate to service the investment, and also plough back a reasonable amount into the project to enable the enterprise to consolidate its position.  Economic Appraisal Economic appraisal of a project deals with the impact of the project on economic aggregates. These may be classified under two broad categories. The first deals with the effect of the project on employment and foreign exchange, and the second deals with the impact of the project on net social benefits or welfare.

Regulatory Framework on Merchant Banking
The SEBI has brought about a number of regulative measures for the purpose of disciplining the functioning of the merchant bankers in India. The objective is to usher in an era of regulated financial markets and thereby pave way for the development of the capital market in India. The measures were introduced by the SEBI in the year 1992. The measures were revised by SEBI in 1997. Te salient

features of the regulative framework of merchant banking in India are described as follows: SEBI Regulations: I. Registration of Merchant Bankers The relevant guidelines with regard to the registration of merchant bankers are as follows:  Application for Grant of Certificate An application by a person for grant of a certificate shall be made to the Board in Form A. The application shall be made for any one of the following categories of the merchant banker namely:
 Category I: To carry on an activity of the issue management, which will

inter-alia consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financers and final allotment and refund of the subscription: and to act as adviser, consultant, manager, underwriter, portfolio manager.
 Category II: To act as adviser, consultant, co-manager underwriter,

portfolio manager.
 Category III: to act as an underwriter, adviser, consultant, co-manager,

underwriter, portfolio manager
 Category IV: To act only as adviser or consultant to an issue.

With effect from 9th December, 1997 an application can be made only for carrying on the activity mentioned in category I. An application can carry on the activity as underwriter only if he obtains certificate of registration under the provisions of Securities and Exchange Board of India Regulations, 1993.  Conformance to Requirements

Subject to the provisions of the regulations, any application, which is not complete in all respects and does not conform to the instruction specified In the form, shall be rejected. However, before rejecting any such application, the applicant will be given an opportunity to remove within the time specified such objections as may be indicated by the Board.  Furnishing of Information The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of a merchant banker for the purpose of disposal of the application. The applicant or its principal officer shall, if so required, appear before the Board for personal representation.  Consideration of Application The Board shall take into account for considering the grant of a certificate all matters, which are relevant to the activities relating to merchant banker and in particular whether the applicant complies with the following requirements:  That the applicant shall be a body corporate other than a non-banking financial company as defined under clause(f) of section 45-I of the Reserve Bank of India Act, 1934, 92 of 1934) as amended from time to time:  That the merchant banker who has been granted registration by the Reserve Bank of India to act as a Primary or Satellite Dealer may carry on such activity subject to the condition that it shall not accept or hold public deposit  That the applicant has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities  That the applicant has in his employment minimum of two persons who have the experience to conduct the business of the merchant banker.

 That a person directly or indirectly connected with the applicant has not been granted registration by the Board  That the applicant fulfils the capital adequacy requirement as specified in the relevant  That the applicant, his partner, director, partner or principal officer is not involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant  That the applicant, his director partner or principal officer has not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence.  That the applicant has the professional qualification from an institution recognized by the government in finance, law or business management:  That the applicant is a fit and proper person  That the grant of certificate to the applicant is in the interest of investors.  Capital adequacy Requirement According to the regulations, the capital adequacy requirement shall not be less that the net worth of the person making the application for grant of registration. For this purpose, the net worth shall be as follows Category Category I Category II Category III Category IV Minimum Requirement Rs. 5, 00, 00,000 Rs. 50, 00,000 Rs. 20, 00,000 Nil

For the propose of this regulation “net worth” means in the case of an applicant which is a partnership firm or a body corporate, the value of the capital contributed to the business of such firm or the paid up capital of such body corporate plus free reserves as the case may be at a time of making application.  Procedure for Registration The Board on being satisfied that the applicant is eligible shall grant a certificate in Form B. On the grant of certificate the applicant shall be liable to pay the fees in accordance with Schedule II.  Renewal of Certificate Three months before the expiry of the certificate, the merchant banker, may if he so desires, makes an application for renewal in Form A. The applicant for renewal shall be dealt with in the same manner as if it were a fresh application for the grant of certificate. In case of an application for renewal of certificate of registration the provision of clause (a) of regulation 6 shall not e applicable up to June 30th, 1998. The Board on being satisfied that the applicant is eligible for renewal certificate shall grant a certificate in Form B and send intimation to the applicant. On the grant of a certificate the applicant shall be liable to pay the fees in accordance with Schedule II.  Procedure where Registration is not Granted Where an application for grant of a certificate under regulation 3 or of renewal under regulation 9, does not satisfy the criteria set out in regulation 6, the Board may reject the application after giving an opportunity of being heard. The refusal to grant of registration shall be communicated by the board within thirty days of refusal to the applicant stating therein the grounds on which the application has been rejected. Any applicant may, being aggrieved by the decision of the Board, under subregulation (1), apply within a period of thirty days from the date of receipt of such

intimation to the Board for reconsideration of decision. The Board shall reconsider an application made under sub-regulation (3) and communicate its decision as soon as possible in writing to the applicant.

 Effect of Refusal to Grant Certificate Any merchant banker whose application for a certificate has been refused by the Board shall on and from the date of the receipt of the communication under sub-regulation (2) of regulation 10 cease to carry on the activity as a Merchant Banker.  Payment of Fees Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified in Schedule II. Where a merchant banker fails to pay the annual fees as provided in sub-regulation (1), read with Schedule II, the Board may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists. General Obligations The 1992 SEBI Regulations have enunciated the following general obligations and responsibilities for the merchant bankers:  Sole Function Every merchant Banker shall abide by the code of conduct as specified in Schedule III. They are as follows:  Merchant Banker not to associate with any business other than that of the securities market.

 No merchant banker, other than a bank or a public financial institution,

who has been granted a certificate of registration under these regulation, shall after June 30th, 1998 carry on any business other than that in the securities market. However, a merchant banker who prior to the date of notification of the Securities and Exchange Board of India (Merchant Bankers) Amendment Regulations, 1997, has entered into a contract in respect of a business other than that of the securities market may, if he so desires, discharge his obligations under such contract. Similarly, a merchant banker who has been granted certificate of registration to act as primary or satellite dealer by Reserve Bank of India may carry on such business as may be permitted by Reserve Bank of India.  Maintenance of Books Every merchant banker shall keep and maintain the following books of accounts, records and documents:  A copy of balance sheet as at the end of each accounting period:  A copy of profit and loss account for that period:  A copy of the auditors report on the accounts for that period: and  A statement of financial position. Every merchant banker shall intimate to the Board the place where the books of accounts, records and documents are maintained, Every merchant banker shall, after the end of each accounting period furnish to the Board copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting years when required by the Board.

Every merchant banker shall furnish to the Board half-yearly unaudited financial results when required by the Board with a view to monitor the capital adequacy of the merchant banker. The merchant banker shall preserve the books of accounts and other records and documents maintained under regulation 14 for a minimum period of five years.  Appointment on Maintenance of Lead Merchant Bankers All issues should be managed by at least one merchant banker functioning as the lead merchant banker. In an issue of offer of rights to the existing members with or without the right of renunciation, the amount of the issue of the body corporate does not exceed rupees fifty lakhs, the appointment of a lead merchant banker shall not be essential. Every lead merchant banker shall before taking up the assignment relating to an issue, enter into an agreement with such body corporate setting out their mutual right, liabilities and obligations relating such an issue and in particular to disclosures, allotment and refund.  Restriction on appointment of Lead Managers The number of lead merchant bankers may not, exceed in case of an issue of the following: Size of Issue Bankers Less than Rs. 50 Crores > Rs. 50 Crores but < Rs. 100 Crores > Rs. 100 Crores but < Rs. 200 Crores > Rs. 200 Crores but < Rs. 400 Crores Two Three Four Five Number of Merchant

> Rs. 400 Crores SEBI  Responsibilities of Lead Managers

Five or more as agreed by

No manager shall agree to manage or be associated with any issue unless his responsibilities relating to the issue mainly, those of disclosures, allotment and refund are clearly defined, allocated and determined and a statement specifying such responsibilities is furnished to the Board at least one month before the opening of the issue for subscription. Where there are more than one lead merchant bankers to the issue the responsibilities of each of such lead merchant banker shall clearly be demarcated and a specifying such responsibilities shall be furnished to the at least one month before the opening of the issue for subscription. No lead merchant banker shall, agree to manage the issue made by any body corporate, if such body corporate is an associate of the lead merchant banker. A lead merchant banker shall not be associated with the issue if a merchant banker who is not holding a certificate is associated with the issue.  Underwriting Obligations In respect of every issue to be managed the lead merchant banker holding a certificate under Category I shall accept a minimum Underwriting obligation of five percent of the total underwriting commitment or rupees twenty-five lacs, whichever is less. If the merchant banker is unable to accept the minimum underwriting obligation, that lead merchant banker shall keep the board informed of such arrangement.  Submission of Due Diligence Certificate The lead merchant banker, who is responsible for verification of the contents of a prospectus or the Letter of Offer in respect of an issue and the reasonableness of the views expressed therin, shall submit to the Board at least two weeks prior to the opening of the issue for subscription, a due diligence certificate in Form C.

 Documents to be Furnished to the Board The lead manager responsible for the issue shall furnish to the Board, the following documents:  Particulars of issue:  Draft prospectus or where there is an offer to the existing shareholders, the draft letter of offer:  Any other literature intended to be circulated to the investors, including the shareholders: and  Such other documents relating to prospectus or letter of offer as the case may be. The documents shall be furnished at least two weeks prior to date of filling of the draft prospectus or the letter of offer, as the case may be, with Registrar of Companies or with the Regional Stock Exchanges, or with both. The lead manager shall ensure that the modifications and suggestions, if any, made by the Board on the draft prospectus or the Letter of offer as the case may be, with respect to information to be given to the investors are incorporated therein.  Payment of Fees to the Board The draft prospectus or draft letter of offer referred to in regulation 24 shall be submitted along with such fees and in such manner as may be specified in schedule IV.
 Continuance of Association of Lead Manager

The lead manager undertaking the responsibility for refunds or allotment of securities in respect of any issue shall continue to be associated with the issue till the subscriptions have received the share or debenture certificates for refund of

excess application money. Where a person other than the lead manager is entrusted with the refund or allotment of securities in respect of any issue, the lead manager shall continue to be responsible for ensuring that such other person discharges the requisite responsibilities in accordance with the provisions of the Companies Act and the listing agreement entered into by the body corporate with the stock exchange.  Acquisitions of Shares Prohibited No merchant banker or any of its directors, partners manager or principal officer shall either on their respective accounts or through their associates or relatives enter into any transaction in securities of bodies corporate on the basis of unpublished price sensitive information obtained by them during the course of any professional assignment either from the clients or otherwise  Information to the board Every merchant banker shall submit to the Board complete particulars of any transaction for acquisition of securities of any body corporate whose issue is being managed by that merchant banker within fifteen days from the date of entering into such transaction.

 Disclosures to the Board A merchant banker shall disclose to the board as and when required, the following information:  His responsibilities with regard to the management of the issue;  Any change in the information or particulars previously furnished, which have a bearing on the certificate granted to it;

 The names of the body corporate whose issue he has managed or has been associated with;
 The particulars relating to breach of the capital adequacy requirement as

specified in regulation 7;  Relating to his as a manager, underwriter, consultant or adviser to an issue as the case may be.  Appointment of Compliance Officer Every merchant banker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the act, rules and regulation, notifications, guidelines, instructions, etc, issued by the Board or the Central Government and for redressal of investor’s grievances. The compliance officer shall immediately and independently report to the board any non-compliance observed by him and ensure that the observations made or deficiencies pointed out by the Board on/in the draft prospectus or the Letter of offer as the case may be, do not recur. II. Procedure for inspection  Board’s right to inspect The Board may appoint one or more persons as inspecting authority to undertake inspections of the books of accounts, Records and documents of the merchant banker for any of the purpose specified in sub-regulation 92). The purposes referred to in sub-regulation (1) may be as follows:  To ensure that the books of accounts are being maintained in the manner required:  To ensure that the provision of the Act, rules, regulations are being complied with:

 To investigate into the complaints received from investors, other merchant bankers or any other person on any matter having a bearing on the activities of the merchant banker: and  To investigate suo-moto in the interest of securities business or investors interests in the affairs of merchant banker.  Notice before inspection Before undertaking an inspection under regulation 29 the Board shall give a reasonable notice to the merchant banker for that purpose. Where the Board is satisfied that in the interest of the investors no such notice should be given, it may by an order in writing directing that the inspection of the affairs of the merchant banker be taken up without such notice. During the course of inspection, the merchant banker against whom an inspection is being carried out shall be bound to discharge his obligations as provided under regulation 31.

 Obligations of Merchant Banker on inspection It shall be the duty of every director, proprietor, partner, officer and employee of the merchant banker, who is being inspected, to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to his activities as a merchant banker within such time as the inspecting authority may require. The merchant banker shall allow the inspecting authority to have reasonable access to the premises occupied by such merchant banker or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the merchant banker or any such other person and also provide copies of documents or other materials which, in the opinion of the inspecting authority are relevant for the purpose of the inspection.

The inspecting authority, in the course of inspection, shall be entitled to examine or record statements of any principal officer, director, partner, proprietor and employee of the merchant banker. It shall be the duty of every director, proprietor, partner, officer or employee of the merchant banker may reasonably be expected to give.

 Submission of Report to the Board The inspecting authority shall, as soon as possible submit, an inspection report to the Board.

 Action on Inspection or Investigation Report The Board or the chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry Officer and Imposing Penalty) Regulations, 2002.

 Appointment of Auditor The Board may appoint a qualified auditor to investigate into the books of accounts or the affairs of the merchant banker. The auditor so appointed shall have the same powers of the inspecting authority as are mentioned in regulation 29 and the obligations of the merchant banker in regulation 31 shall be applicable to the investigation under this regulation.

 Communication of Findings

The Board shall after consideration of the inspection report communicate the findings to the merchant banker to give him an opportunity of being heard before any action is taken by the Board on the findings of the inspecting authority. On receipt of the explanation if any, from the merchant banker, the Board may call upon the merchant banker to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the act, rules and regulations.

III.

Procedure for action in case f default  Liability for action in case of default A merchant Banker who fails to comp[ly with any conditions subject to

which certificate has been granted, and contravenes any of the provisions of the Act, rules or regulations, shall be dealt with in the manner provided under SEBI Regulations 2002. The penalties referred to in sub-regulation (1) may be either suspension of registration or cancellation of registration.  Suspension of registration A penalty for suspension of registration of a merchant banker may be imposed under the following circumstances:  where the merchant banker violates the provisions of the Act, rules or regulations; or
 where the merchant banker fails to furnish any information relating to

his activities as merchant banker as required by the Board; or furnishes wrong or false information; or does not submit periodical returns as required by the Board; or does not cooperate in any enquiry conducted by the Board; or

 where the merchant banker fails to resolve the complains of the investors or fails to give a satisfactory reply to the board in this behalf; or  where the merchant banker indulges in manipulating or price rigging or cornering activities;
 Where the merchant banker

is guilty of misconduct or improper or

unbusiness-like or unprofessional conduct which is not in accordance with the Code of Conduct specified in the Schedule III; or
 Where the merchant banker fails to maintain the capital adequacy

requirement in accordance with the provision of regulation 7; or
 Where the merchant banker fails to pay the fees; or  Where the merchant banker violates the conditions of registration; or  Where the merchant banker does not carry out his obligation as

specified in the regulation.  Cancellation of registration A penalty of cancellation of registration of a merchant banker may be imposed where:
 Where the merchant banker indulges in manipulating or price rigging

or cornering activities affecting the securities market and the investors interest:
 The financial position of the merchant banker detoriates to such an

extent that the board is of the opinion that his continuance as merchant banker is not in the interest of investors:
 The merchant banker is guilty of fraud, or is convicted of a criminal

offence;

 In case of repeated defaults of the nature mentioned in regulation 36

provided that the board furnishes reasons for cancellation in writing

Manner of making order of suspension or cancellation  No order of penalty of suspension or cancellation no order of penalty of suspension or cancellation as the case may

be; shall be imposed except after holding an enquiry in accordance with the procedure specified in regulation.  Manner of holding Enquiry before Suspension or Cancellation For the purpose of holding may appoint an enquiry officer. merchant an enquiry under regulation 38; the Board The enquiry officer shall issue to the or the principal place of

banker a notice the registered office

business of the merchant banker . The merchant banker may document or within thirty days from the date of receipt

of such notice, furnish to the enquiry officer a reply together with copies of other evidence relied on by him or sought by the Board from the merchant banker. The enquiry officer shall, give a reasonable opportunity of hearing to

the merchant banker may either from the merchant banker The enquiry officer shall, give a reasonable opportunity of hearing to the merchant banker to enable him to make submissions in support of his reply made under sub-regulation [3]. The merchant banker may either appear in person or through any duly authorized person. No lawyer or advocate shall be permitted to represent the merchant banker at the enquiry . Where a lawyer or an advocate has been appointed by the Board as a presenting

officer under sub-regulation [6] , it shall be lawful to present its case through a lawyer or advocate.

for the merchant banker

If it is considered necessary ; the enquiry officer may ask the Board to appoint a presenting officer to present its case. The enquiry officer, after taking into account all relevant facts and submissions made by the merchant banker, submit a report to the Board and recommend the penalty to be imposed as also the grounds on the basis of which the proposed penalty is justified.  Show cause Notice and Order On receipt of the report from the enquiry officer, the Board shall consider the same and issue a show-cause notice as to why the penalty as proposed by the enquiry officer should not be imposed. The merchant banker shall within twentyone days of the date of the receipt of the show-cause send a reply to the Board. The Board after considering the reply to the show-cause notice, if recived, shall as soon as possible but not later than thirty-says from the receipt of the reply, if any, pass such order as it deems fit. Every order passed under sub-regulation (3) shall be self contained and give reasons for the conclusion stated therein including justification of the penalty imposed by that order The Board send a copy of the order under sub-regulation (3) to the merchant banker  Effect of Suspension and Cancellation On and from the date of the suspension of the merchant banker he shall cease to carry on any activity as a merchant banker during the period of suspension. On and from the date of cancellation the merchant banker shall with immediate effect cease to carry on any activity as a merchant banker. The order of suspension or cancellation of certificate passed under sub-regulation (3) of the regulation 40 shall be published in at least two daily newspapers by the Board.  Appeal to the Securities

Any person aggrieved b an order of the Board made, on and after the commencement of the Securities Laws Act, 1999, under these regulations may prefer an appeal to as Securities Appellate Tribunal having jurisdiction in the master.  Fees Every merchant banker shall pay a sum of Rupees five Lacs as registration fees at the time of the grant of certificate by the Board. The fee shall be paid by the merchant banker within fifteen days from the date of receipt of the intimation from the Board under sub-regulation (1) of regulation 8. A merchant Banker to keep registration in force shall pay renewal fee of Rs. 2.5 lacs every three years from the fourth year from the date of initial registration. The fee shall be paid by the merchant banker within fifteen days from the date of receipt of intimation from the board under sub-regulation (3) of regulation (9). The fees specified shall be payable by merchant banker by demand draft in favor of ‘Securities and Exchange Board of India’ payable at Mumbai or at the respective regional office. Every Merchant Banker shall pay registration fees as set out below:  Category I merchant banker. A sum of Rs. 2.5 Lacs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs. 1 lakh to keep his registration in force:  Category II merchant banker. A sum of Rs 1 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs. 50000 to keep his registration in force  Category III merchant banker.

A sum of Rs 1 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs. 25000 to keep his registration in force.  Category IV merchant banker. A sum of Rs 5000 to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs. 1000 to keep his registration in force.  Renewal Fees  Category I merchant banker. A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs. 20000 to keep his registration in force.  Category II merchant banker. A sum of Rs 75000 to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs. 10000 to keep his registration in force.

 Category III merchant banker. A sum of Rs 50000 to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs. 5000 to keep his registration in force.

 Category IV merchant banker.

A sum of Rs 5000 to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs. 2500 to keep his registration in force. In addition the merchant bankers have to pay the following fees towards documentation: Size of the Issue document (Rs.) Upto 5 crores More than 5 crores and upto 10 crores More than 10 crores and upto 50 crores More than 50 crores and upto 100 crores More than 100 crores and upto 500 crores More than 500 crores 10000 15000 25000 50000 250000 500000 Fee per

IV.

Code of Conduct for merchant Banker (Under Regulation 13)

 A Merchant Banker shall make all efforts to protect the interests of investors.
 A Merchant Banker shall maintain high standards of integrity, dignity and

fairness in the conduct of its business.  A Merchant Banker shall fulfill its obligations in a prompt, ethical, and professional manner.  A Merchant Banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment

 A Merchant Banker shall endeavor to ensure that enquiries from investors are

adequately dealt with: grievances of investors are redressed in a timely and appropriate manner: where a complaint is not remedied promptly, the investor is advised of any further steps which may be available to the investor under the regulatory system.
 A Merchant Banker shall ensure that adequate disclosures are made to the

investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision.
 A Merchant Banker shall endeavor to ensure that the investors are provided

with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investments decision.  A Merchant Banker shall endeavor to ensure that copies of the prospectus, offer document, letter of offer or any other related literature is made available to the investors at the time of issue of the offer.  A merchant banker shall not discriminate amongst its clients, save and except on ethical and commercial considerations.  A Merchant Banker shall make any statement, either oral or written, which would misrepresent the services that the Merchant Banker is Capable of performing for any client or has rendered to any client.  A Merchant Banker shall avoid conflict of interest and make adequate disclosure of its interest.  A merchant Banker shall put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arises, shall take reasonable steps to resolve the same in an equitable manner.

 A Merchant Banker shall make appropriate disclosure to the client of its

possible source or potential areas of conflict of duties and interest while acting as Merchant Banker which would impair its ability to render fair, objective and unbiased services.  A Merchant Banker shall always endeavor to render the best possible advice to the clients having regard to their needs.  A Merchant Banker shall not divulge ton anybody either orally or in writing, directly or indirectly, any confidential information about its clients which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force.  A Merchant Banker shall ensue that any change In registration status/any

penal action taken by the Board or any material change in the Merchant Banker’s financial status, which may adversely affect the interests of clients/investors is promptly informed to the clients and any business remaining outstanding is transferred to another registered intermediary in accordance with any instructions of the affected clients
 A Merchant Banker shall not indulge in any affair competition, such as weaning

away the clients on assurance of higher premium or advantageous offer price or which is likely to harm the interests of the other merchant banker or the investors or is likely to place other merchant banker in a disadvantageous position while competing for or executing any assignment  A Merchant Banker shall maintain arms length relationship between its merchant banking activity and any other activity.
 A Merchant Banker shall have internal control procedures and financial and

operational capabilities which can be reasonably expected to protect its operations, its clients, investors and other registered entities from financial loss

arising from theft, fraud and other dishonest acts, professional misconducts or omissions.
 A Merchant Banker shall not make untrue statement or suppress any material

fact in any documents, reports or information furnished to the board.
 A Merchant Banker shall maintain an appropriate level of knowledge and

competence and abide by the provisions of the ACT, regulations made thereunder, circulars and guidelines, which may be applicable and relevant to the activities carried on by it.  A Merchant Banker shall ensure that the board is the promptly informed about any action, legal proceedings etc., initiated against it in respect of material breach or non-compliance by it, of any law, rules, regulations, directions of the Board or of any other regulatory body.  A Merchant Banker or any of its employees shall not render, directly or indirectly, any investment advice about any security in any publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including a long or short position, in the said security has been made, while rendering such advice.  A Merchant Banker shall demarcate the responsibilities of the various intermediaries appointed by it clearly so as to avoid any conflict or confusion in their job description.  A merchant banker shall provide adequate freedom and powers to its compliance officer for the effective discharge of the compliance officer’s duties.
 A Merchant Banker shall develop its own internal code of conduct for governing

its internal operations and laying down its standards of appropriate conduct for its employees and officers in carrying out their duties. Such a code may extend to the maintenance of professional excellence and standards, integrity,

confidentiality, objectivity, avoidance or resolution of conflict of interests, disclosures of shareholdings and interests etc.  A Merchant Banker shall ensure that good corporate policies and corporate governance are in place  A Merchant Banker shall ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in th capacity so employed or appointed.
 A Merchant Banker shall ensure that it has adequate resources to supervise

diligently and does supervise diligently persons employed or appointed by it in the conduct of its business , in respect of dealing in securities market.
 A Merchant Banker shall be responsible for the acts or omissions of its

employees and agents in respect of the conduct of its business.
 A Merchant Banker shall ensure that the senior management; particularly

decision makers have access to all relevant information about the business on a timely basis.
 A Merchant Banker shall not be a party to or instrumental for creation of false

market; price rigging or manipulation; or passing of unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange to any person or intermediary in the securities market.

SEBI Guidelines
Operational Guidelines SEBI has pronounced the following guidelines for compliance by the eligible merchant bankers:
1. Submission of offer document:

The offer documents of issue size up to Rs. 20 crores shall be filed by lead merchant bankers with the concerned regional office of the Board under the jurisdiction of which the registered office of the issuer company falls. The jurisdiction of regional offices / head office shall be as per Schedule XXII. According to Clause 5.6 of Chapter V of the Guidelines, the draft offer document filed with the board shall be made public. The lead merchant banker shall make available 10 copies of the draft offer document o the Board and 25 copies to the stock exchange(s) where the issue is proposed to be listed. Copies of the draft offer document shall be made available to the public by the lead merchant bankers/ Stock Exchange. The lead merchant banker and the Stock Exchange(s) may charge for providing a copy of the draft offer document. The lead merchant banker shall also submit to the board the draft offer document on a computer floppy in the format specified in Schedule XXII. The lead Merchant Banker shall submit two copies of the printed copy of the final offer document to dealing offices of the Board “within three days of filing offer document with Registrar of Companies/ concerned Stock Exchange(s) as the case may be.” The lead merchant banker shall submit one printed copy of the final offer document to the Primary Market Department, SEBI, Head Office, “within three days of filing the offer document with Registrar of companies/ concerned Stock Exchange(s) as the case may be.” The lead merchant banker shall submit a computer floppy containing the final prospectus/ letter of offer to the Primary Market Department, SEBI, and Head Office, as specified in Schedule XXII within three days of filing the final prospectus / letter of offer with the Registrar of Companies / concerned Stock Exchange. Along with the floppy, the lead manager shall submit an undertaking to SEBI certifying that the contents of the floppy are in HTML format, and are identical to the printed

version of the prospectus/ letter of offer filed with the Registrar of Companies/ concerned Stock Exchange, as the case may be.

Whenever offer documents (for public/ rights, takeovers or for any other purpose) are filed with any Department/ office of the Board, the following details “certified as correct” shall be given by the lead merchant banker in the forwarding letters: a. Registration number b. Date of Registration/ Renewal of registration c. Date of expiry of registration d. If applied for renewal, date of application e. Any communication from the Board prohibiting them from acting as a merchant banker f. Any inquiry/ investigation being conducted by the Board g. Period upto which registration/ renewal fees has been paid h. Whether any promoter/ director/ group and/ or associate company of the issuer company is a associated with securities- related business and registered with SEBI i. If any one or more of these persons/ entities are registered with SEBI, their respective registration numbers j. If registration has expired, reasons for non renewal
k. Details of enquiry/ investigation conducted by SEBI at any time

l. Penalty imposed by SEBI (Penalty includes deficiency/ warming letter, adjudication proceedings, suspension/ cancellation/ prohibitory orders) m. Outstanding fees payable to SEBI by these entities, if any

Offer documents not accompanied by the information as contained above may be rejected. Lead merchant bankers shall obtain similar information from other intermediaries to ensure that they comply with the guidelines and are eligible to be associated with the concerned issue. The intermediaries shall also indicate their letters that they have obtained such information from other intermediaries.

2. Dispatch of issue material:

Lead merchant shall ensure that whenever there is a reservation for NRIs, 10 copies of the prospectus together with 1000 application forms are dispatched in advance of the issue opening date, directly along with a letter addressed in person to Adviser (NRI), Indian Investment Centre, Jeevan Vihar Building Sansad Marg, and New Delhi. Twenty copies of the prospectus and application forms shall be dispatched in advance of the issue opening date to the Investors Associations.

3. Underwriting:

While selecting underwriters and finalizing underwriting arrangements, lead merchant bankers shall ensure that the underwriters do not overexpose themselves so that it becomes difficult to fulfill their underwriting commitments. The overall exposure of underwriter(s) belonging to the same

group or management in an issue shall be assed carefully by the lea merchant banker. OTC Dealers registered with the Board under SEBI (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992 shall be treated at par with the brokers of other stock exchanges in respect of underwriting arrangement.

4. Compliance obligations:

The merchant banker shall ensure compliance with the following postissue obligations: a. Association OF RESOURCE PERSONEL In terms of Clause 7.1 of Chapter VII of these Guidelines, in case of over-subscription in public issues, a Board nominated public representative shall be associated in the process of finalization of the basis of allotment. The lead merchant banker shall intimate to the person so nominated the date, time, venue etc regarding the process of finalization of the basis of allotment. The expenses of the public representatives associated in the allotment process of oversubscribed issues shall be borne by the lead merchant bankers, and recovered from the issuers. Honorarium at a minimum of Rs. 500/- per day, plus normal conveyance charges shall be paid to them, and the Board Regional Managers at New Delhi, Chennai and Calcutta shall be associated with them. b. Redressal of investor grievances The merchant bankers shall assign high priority to investor grievances, and take al preventive steps to minimize the number of complaints. The lead merchant banker shall set up a proper grievance monitoring and redressal system in coordinating with the issuers and the Registrars to Issue. They shall take all necessary measures to resolve the grievances quickly. They actively associate with post-issue

refund and allotment activities, and regularly monitor investor grievances arising therefrom.
c. Submission of post issue monitoring reports The concerned lead merchant

banker shall submit, in duplicate , the Post issue Monitoring Reports specified in Clause 7.2 chapter VII of these Guidelines, within 3 working days from the due dates, either by registered post or deliver them at the respective regional offices of the Board, a copy of the report shall inform the Board on important developments about the particular issues being lead managed by them during the period intervening the reports
d. Issue of No Objection Certificate (NOC) In accordance with the Listing

Agreement of the Stock Exchanges, the issuer companies shall deposit 1% of the amount of securities offered to the public and/ or to the holders of the existing securities of the company as the case may be with the regional Stock Exchange. These securities can be released by the concerned Stock Exchange only after obtaining an NOC from the Board. e. Registration of Merchant Bankers Application for renewal of certificate of registration shall be made by the merchant bankers according to regulation 9 of SEBI (Merchant bankers) Rules and regulation 1992. While filing the renewal application for the certificate of registration as merchant banker, it shall provide a statement highlighting the changes that have taken place in the information that was submitted to the Board for earlier registration, and a declaration stating that no other change besides those mentioned in the above statement have taken place. Merchant bankers, while forwarding the renewal application in Form A of SEBI (Merchant bankers) Rules and regulation 1992, shall also forward the additional information as specified in schedule XXVI. Registered merchant

bankers shall inform the board of their having become a member of AMBI, with the relevant details.
f.

Reporting requirements In terms of regulation 28 of SEBI (Merchant bankers) Rules and regulation 1992, the merchant bankers shall send a half yearly report, in the format specified in schedule XXVII, relating to their merchant banking activities. The report referred to in sub clause A shall be submitted twice a year on March 31st and Sept 30, and it should reach the board within 3 months from the close of period to which it relates.

g. Impositions of Penalty points Penalty points may be imposed on the

merchant banker for violation of any of the provisions for operational guidelines. the merchant banker, on whom penalty point of 4 or more has been imposed may be restrained from filing any other offer document or associating or managing any issues for a particular period. The board may initiate action under the SEBI (Merchant bankers) Rules and regulation against the merchant bankers, irrespective of whether any penalty point is imposed or not. Imposing of penalty point bankers) Rules and regulation 1992. Guidelines on Advertisement: Following are the guidelines applicable to lead merchant bankers who shall ensure due compliance by the issuer company: 1. Factful and truthful: An issue advertisement shall be truthful, fair and clear and shall not contain any statement that is untrue or misleading. Any advertisement reproducing, or purporting to reproduce, any information contained in an offer document shall reproduce such information in full and disclose all relevant Facts. It should not be is not a pre-condition for initiation of proceedings against the merchant banker under SEBI (Merchant

restricted to select extracts relating to that item. An issue advertisement shall be considered to be misleading, if it contains: a) Statements made about the performance or activities of the company in the absence of necessary explanatory or qualifying statements, which may give n exaggerated picture of the performance activities. b) An inaccurate portrayal, or its portrayal in a manner which implies that past gains or income will be repeated in the future. 2. Clear and Concise: An advertisement: An advertisement shall be set forth in a clear, concise and understandable language. Extensive use of technical, legal terminology or complex language and the inclusion of excessive details which may distract the investor shall be avoided. 3. Promise of profits: An issue advertisement shall not contain statements which promise or guarantee rapid increase in profits. An issue advertisement shall not contain statements which promise or guarantee rapid increase in profits. An issue advertisement shall not contain any information that is not contained in the offer document. 4. Mode of advertising: No models, celebrities, fictional characters, landmarks, caricatures or the like shall be displayed on or form part of the offer documents or issue advertisements. Issue advertisements shall not appear in the form of crawlers on television. Similarly, no advertisement shall include any issue slogans or brand names for the issue, except the normal commercial name of the company or commercial brand names of its products already in use. No slogans, expletives or non-factual and unsubstantiated titles shall appear in the issue advertisements or offer documents. 5. Financial Data:

If any advertisement carries any financial data it shall also contain data for the past three years and shall include particulars relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividends, and book values. 6. Risk Factors: All issues advertisements carried I the print media such as newspapers, magazines, brochures or, pamphlets shall contain highlights relating to any issue, besides containing detailed information on the risk factors. The print size of highlights and risk factors in issue advertisements shall not be in less than point 7 sizes. It shall contain the names of Issuer Company, address of its registered office, names of the main lead merchant bankers and Registrars to the issue. No issue advertisement shall be released without giving “Risk Factors” in respect of the highlights need not contain risk factors. 7. Issue Date: No corporate advertisement of Issuer Company shall after 21 days of filing of the offer document with the board until the closure of the issue, unless the risk factors which are required to be mentioned in the offer document are mentioned in the advertisement. 8. Product advertisement: No product advertisement of the company shall contain any reference, directly or indirectly, to the performance of the company during the period. 9. Subscription: No advertisement shall be issued stating that the issue has been fully subscribed or oversubscribed during the period the issue is open for subscription, except to the effect that the issue is open or closed.
10. Issue Closure:

No announcement regarding closure of the issue shall be made except on the date of closing. If the issue is fully subscribed before the date on which the issue is to be closed. Announcements regarding closure of the issue shall be made only after the lead merchant banker is satisfied that at least 90% of the issue has been subscribed, and a certificate has been obtained to that effect from the Registrar to the Issue. 11.Incentives: No incentives, apart from the permissible underwriting commission and brokerage, shall be offered through advertisements to anyone associated with marketing the issue. 12.Reservation: In case there is a reservation for NRI’s, the issue advertisement shall specify the same, and, also indicate the place in India from where the individual NRI applicant can procure application forms. 13. Underwriting: An underwriting has to be obtained from the issuer as part of the MoU between the lead merchant banker and the issuer company to the effect that the issuer company shall not directly or indirectly release, during any conference or at any other time, any material or information which is not contained in the offer documents.
13. Availability of copies:

To

ensure

that

the

issuer

company

obtains

approval

for

all

issue

advertisements and publicity materials from the lead merchant banker responsible for marketing the issue and also ensure the availability of copies of all issue related materials with the lead merchant banker, at least until the allotment is completed.

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