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Role of SEBI in Regulating The Primary Market For Securities PDF
Role of SEBI in Regulating The Primary Market For Securities PDF
SECURITIES
CERTIFICATE OF AUTHENTICITY
Mr. Vipan Kumar
Assistant Professor of Law
PATIALA, PUNJAB
SUPERVISORS CERTIFICATE
This is to certify that the Project Report entitled Role of SEBI in regulating Primary Market
for Securities submitted to Rajiv Gandhi National University of Law, Patiala, Punjab in partial
fulfilment of the requirements for Corporate Law - II is a bonafide research work carried out by
Group 2, Fifth Semester under my supervision and guidance. It is further certified that no part of
this study has been submitted anywhere else for the award of any other Degree or Diploma.
Group no. 2
Nikhil Suresh Pareek (502)
Vibhor Raj (514)
Sidhant Sood (524)
Somesh Shukla (538)
Jatin Garg (552)
We are extremely grateful to Mr. Vipan Kumar for his continuous support for the project, from
initial advice and contacts in the early stages of conceptual inception, and through ongoing
advice and encouragement to this day. He was instrumental in conceptualization of this study.
We would also like to acknowledge the help provided to us by the staff of the Library and the
computer lab.
Group no. 2
Nikhil Suresh Pareek (502)
Vibhor Raj (514)
Sidhanth Sood (524)
Somesh Shukla (538)
Jatin Garg (552)
Corporate Law II
Page 3
1.1.1.
1.1.2.
1.1.2.1.
1.2.
Chapter 2 ....................................................................................................................................... 10
Securities Market .......................................................................................................................... 10
2.1.
2.2.
Chapter 3 ....................................................................................................................................... 14
SEBI: Introduction ........................................................................................................................ 14
3.1.
3.2.
3.3.
3.4.
3.5.
3.6.
3.7.
3.8.
3.9.
Chapter 4 ....................................................................................................................................... 22
SEBI Regulations .......................................................................................................................... 22
4.1.
4.1.1.
4.1.2.
4.1.3.
Underwriters ........................................................................................................... 25
4.1.4.
Group II
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4.2.1.
4.2.2.
4.2.2.1.
4.2.4.
4.2.5.
4.2.5.1.
Debarrment ...................................................................................................... 31
4.2.5.2.
4.2.5.3.
4.2.5.4.
4.2.5.5.
4.2.5.6.
4.2.5.7.
4.2.5.8.
Conclusion .................................................................................................................................... 37
Bibliography ................................................................................................................................. 38
Corporate Law II
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Group II
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Securities
Securities Market
Market,
however,
refers
to
the
markets
for
those
financial
Ibid.
Corporate Law II
Page 7
Group II
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Corporate Law II
Page 9
Group II
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Corporate Law II
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10
S. Suryanarayanan, V. Varadarajan, SEBI Law, Practice & Procedure, Commercial Law Publishers Pvt. Ltd..
Group II
Page 12
Corporate Law II
Page 13
11
12
Ibid, section 3.
13
Group II
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14
Corporate Law II
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levying fees or other charges for carrying out the purposes of this section;
Page 16
15
Vide its Circular No. EFD/ED/Cir- 1/2007 dated 20th April 2007.
16
Corporate Law II
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Mamta Bhargava, Compliances and Procedures under SEBI Law, Shreeji Publishers.
18
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Page 19
19
Group II
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20
Corporate Law II
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21
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regarding
selling
buying
or
subscribing
to
securities
or
acting
as
22
SEBI (Merchant Bankers) Rules, 1992; SEBI (Merchant Bankers) Regulations, 1992.
Corporate Law II
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23
Group II
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24
Corporate Law II
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Group II
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Unlisted Company
An unlisted company can make an initial public offering (IPO) of equity shares or any other
security which may be converted into or exchanged with equity shares at a later date, only if it
meets all the following conditions27:
(a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full
years (of 12 months each), of which not more than 50% is held in monetary assets:
(b) The company has a track record of distributable profits in terms of Section 205 of the
Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years;
(c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of
12 months each);
(d) The aggregate of the proposed issue and all previous issues made in the same financial year
in terms of size, does not exceed five (5) times its preissue net worth as per the audited balance
sheet of the last financial year.
26
Supra note, 9.
27
Corporate Law II
Page 27
28
Ibid.
Group II
Page 28
V.K. Bhalla, Investment Management - Security Analysis and Portfolio Management, S. Chand & Co. Ltd.
Corporate Law II
Page 29
(ii) Qualified institutions placement (QIP): When a listed issuer issues equity
shares or securities convertible in to equity shares to Qualified Institutions
Buyers only in terms of provisions of Chapter VIII of SEBI (ICDR)
Regulations, it is called a QIP.
Group II
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Debarrment
An issuer can not make a public issue or rights issue of specified securities if the issuer, any of
its promoters, promoter group or directors or persons in control of the issuer are debarred from
accessing the capital market by SEBI. If any of the promoters, directors or person in control of
the issuer was or also is a promoter, director or person in control of any other company which is
debarred from accessing the capital market under any order or directions made by SEBI. 30
4.2.5.2.
An issuer company can not make any public issue of securities, unless a draft offer document has
been filed with SEBI through a Merchant Banker, at least 30 days prior to registering the
prospectus with the Registrar of Companies (ROC) or filing the letter of offer with the
designated stock exchange.
However, if SEBI specifies changes or issues observations on the draft Prospectus within 30
days from the date of receipt of the draft Prospectus by SEBI the issuer company or the Lead
Manager to the Issue shall carry out such changes in the draft Prospectus or comply with the
observations issued by SEBI before filing the Prospectus with ROC. SEBI may specify changes
30
Supra note, 9.
Corporate Law II
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A company cannot make public or rights issue or an offer for sale of securities, unless the
company enters into an agreement with a depository for dematerialization of securities already
issued or proposed to be issued to the public or existing shareholders; and the company gives an
option to subscribers/ shareholders/ investors to receive the security certificates or hold securities
in dematerialized form with a depository.
4.2.5.4.
Considering the need to enable well established and compliant listed companies to access Indian
primary market in a time effective manner through follow-on public offerings and rights issues,
it has been decided by SEBI to enable listed companies satisfying certain specified requirements
to make Fast Track Issues (FTIs).31 Accordingly such listed companies are now able to proceed
with follow-on public offering/rights issue by filing a copy of the Red Herring Prospectus (in
case of book built issue)/Prospectus (in case of fixed price issue) registered with the Registrar of
Companies or the letter of offer filed with Designated Stock Exchange, as the case may be, with
SEBI and stock exchanges. Such companies are not required to file draft offer document with
SEBI and stock exchanges.
4.2.5.5.
31
Introduction of ASBA
Group II
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Minimum Subscription
The minimum subscription to be received in an issue should not be less than ninety percent of
the offer through offer document. In the event of non-receipt of minimum subscription all
applications moneys received should be refunded to the applicants forthwith, but not later than33:
a. fifteen days of the closure of the issue, in case of a non-underwritten issue.
b. seventy days of the closure of the issue, in case of an underwritten issue.
Where minimum subscription including devolvement obligations paid by the underwriters is not
received within 60 days of the closure of issue.34
32
33
Corporate Law II
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Green Shoe Option 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 Regulation 45 of SEBI (ICDR) Regulations, 2009.35
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 has used Green Shoe Option in the first time in case of its public issue through book
building mechanism in India. A company desirous of availing this option, should in the
resolution of the general meeting authorising the public issue, seek authorisation also for the
possibility of allotment of further shares to the Stabilising Agent (SA) at the end of the
stabilisation period.36
The company should appoint one of the merchant bankers or book runners, amongst the issue
management team, as the stabilising agent (SA), who will be responsible for the price
stabilisation process, if required. The SA shall enter into an agreement with the issuer company,
prior to filing of offer document with SEBI, clearly stating all the terms and conditions relating
to this option including fees charged/expenses to be incurred by SA for this purpose.
The SA should also enter into an agreement with the promoter(s) or pre-issue shareholders who
will lend their shares under the provisions of this scheme, specifying the maximum number of
shares that may be borrowed from the promoters or the shareholders, which shall not be in
excess of 15% of the total issue size. 37
34
Ibid.
35
36
Ibid.
37
Group II
Page 34
38
Ibid.
Corporate Law II
Page 35
IPO Grading
IPO grading is a service aimed at facilitating the assessment of equity issues offered to public.
The grade assigned to any individual issue represents a relative assessment of the fundamentals
of that issue in relation to the universe of other listed equity securities in India. Such grading is
assigned on a five-point point scale with a higher score indicating stronger fundamentals. IPO
grading is different from an investment recommendation. Investment recommendations are
expressed as buy, hold or sell and are based on a security specific comparison of its assessed
fundamentals factors (business prospects, financial position etc.) and market factors (liquidity,
demand supply etc.) to its price.
On the other hand, IPO grading is expressed on a five-point scale and is a relative comparison of
the assessed fundamentals of the graded issue to other listed equity securities in India.
Group II
Page 36
Corporate Law II
Page 37
Franklin, Allen; Chakrabarti, Rajesh and De, Sankar (2007). Indias Financial System,
Unpublished working paper, Electronic copy available at http://ssrn.com/abstract=
1261244
Gokarn, Subir (1996). Indian Capital Market Reforms, 1992- 96: An Assessment,
Economic and Political Weekly, April 13.
Goswami, Omkar (2000). The Tide Rises Gradually Corporate Governance in India,
downloaded from http:///www.oecd.org/dataoecd/6/47/1931364.pdf on July 4, 2005.
KPMG Audit Committee Institute (2008). The State of Corporate Governance in India -A Poll, KPMG India.
Khurshed, Arif; Paleari, Stefano; Pandey, Alok and Vismara, Silvio (2008). IPO
Garding in India: Does It Add Value to the Book Building Process, Unpublished
Working Paper accessed from www.unibg.it/dati/bacheca/530/36104.pdf
NSE (2009). Indian Securities Market: A Review, Mumbai: National Stock Exchange of
India.
SEBI: Various reports of the annual report from 1992-93 to 2008- 09.
Group II
Page 38
Sabarinathan, G (2010). Securities and Exchange Board of India and the Regulation of
Indian Securities Market Working Paper No 2010-06-309, Unpublished working paper,
Indian Institute of Management, Bangalore.
Sen, Dilip Kumar (2004). Clause 49 of Listing Agreement on Corporate Governance, The
Chartered Accountant, December, pp 806-811.
Shah, Ajay (1999). Institutional Change on Indias Capital Markets, Economic and
Political Weekly, 34(3-4), 183-194.
Shah, Ajay and Thomas, Susan (2000a). David and Goliath Displacing A Primary
Market, Global Financial Market, Spring, 14-23.
Shah, Ajay and Susan Thomas (2000b), Policy Issues in Indias Capital Markets in
2000, in New Economic Policies for a New India, Ed. Surjit S Bhalla, ICSSR, pp 185210.
Shah, Ajay; Thomas, Susan and Gorham, Michael (2009). Indias Financial Markets An
Insiders Guide to How the Markets Work, Noida, UP: Elsevier.
Singh, Jitendra; Useem, Mike and Singh, Harbir (2007). Corporate Governance in India:
Has Clause 49 Made a Difference? Published in IndiaKnowledge@Wharton: January
25.
Subramanian, Samanth (2010). What is this Sebi-Irda-Ulip Issue all about, available at
http://www.livemint.com/ 2010/04/14162251/What-is-this-SEBIIRDAULIP-is.html
World Bank (2004). Report on Observance of Standards and Governance, Corporate
Governance Country Assessment, India.
Corporate Law II
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