[2022]

138 taxmann.com 459 (Article)

[2022] 138 taxmann.com 459 (Article)

Date of Publishing: May 26, 2022

SEBI ICDR 2022 – A critical analysis of IPO and

preferential issue amendments

PRIYANSHI JAIN SIMRAN LUNAGARIYA

Abstract

At the outset it is important to note that the primary market plays a

critical role in promoting capital creation in the economy. To put it
simply, here is where the initial round of issuances takes place. As a
result, the Primary Market is the market where new securities are
issued by issuers (including government and corporates) may be used
to raise funds. In India the public issue of various securities is done in
accordance with the mandates of Companies Act, 2013 and Issue of
Capital and Disclosure Regulations, 2009 ("ICDR"). The ICDR
Regulations have been amended multiple times since 2009. To make
more understandable, easy to comprehend compliances that are
adopting changes in market conditions and legal requirements.
Consequently, ICDR of 2018 was introduced. However, the pandemic
era marked by several tales of socioeconomic disaster in India, the
stock market's recent increase is bound to confound those unfamiliar
with its functioning. Numerous companies raised funds through Initial
Public Offerings ("IPO") in 2021 including Zomato, Paytm, and others,
and are running at a loss. Consequently, the nation has recently been
witness to judicial disputes that have brought to light certain existing
gaps in the Regulations. In furtherance of that SEBI's ICDR framework
that was previously amended in 2018 was further amended in
December 2021 (effective from April 2022) . These modifications
come at a time when numerous new-age businesses are looking to
acquire capital via initial public offerings and preferential issue of
shares. SEBI's new guidelines have received widespread appreciation
for aiming to protect regular investors from the risks connected with
the booming IPO business. However, the new restrictions may make it
harder for firms to acquire more cash to drive expansion. Requiring
corporations to describe how they intend to utilise the funds received
in IPOs might hinder flexibility, given how fast business circumstances
change in the real world.

INTRODUCTION

The rate of economic development is constantly changing and can be

forecasted in real time by global capital markets. Economic strategies
emerge and fall; corporate finances face leverage issues; enterprising
people seek greater prospects; Economies see booms and failures;
industries flourish and ripen. The realities of the capital market must
be dealt with in any modern economy. Through the development and
deployment of capital, the capital market distributes finite resources
efficiently and economically for the maximum economic gain. The
capital market can be segregated into primary and secondary market.
While the primary market is concerned with raising of capital, the
secondary market deals with trading of securities. The purpose of this
paper is to excessively ponder upon the legal and regulatory framework
governing issue of capital regime in the Indian primary market.
Primary market helps the economy flourish in a variety of ways. The
first part of the paper is dedicated to the relevance of a capital market.
Followed by an overview on the Indian primary market and how has it
emerged since 2020. The second part of the paper discusses the legal
and regulatory framework (Primarily, Issue of Capital and Disclosure
Requirements Regulations, 2009 ("ICDR") and Companies Act, 2013)
on issue of capital in India. Accompanied by an overview and analysis
of the amendments in the Issue of Capital and ICDR in December 2021.

THE INDIAN LEGAL FRAMEWORK FOR ISSUE OF CAPITAL - AN

OVERVIEW OF SEBI ICDR REGULATIONS

Chapter 3 of the Companies Act, 2013 along with SEBI ICDR

regulations1 forms the foundational block for the issuance of capital in
the primary market. The issue of capital can primarily be classified into
following:

1. Public Issue:

In India, the usual primary listing procedure is an initial public offering

("IPO") of equity shares on the main board of a recognised stock
exchange. A company which is not listed on any stock exchange can
embark its journey in the capital market through IPOs. However, if the
same issuer company comes out with another issue to the public then it
is called Further Public Offer ("FPOs"). Additionally, an issuer may opt
to list the securities at the Main Board, the SME Exchange or at the
Innovators Growth Platform ("IGP").2 The issuers predominantly go
with listing their securities on the Main Board. The SME Exchange
facilitates trading with the help of nationwide terminals approved by
the SEBI. The Innovators Growth Platform provides a platform for
specific sets of entities that comply with the norms listed by the SEBI.
This research paper will revolve around the rules for listing the
securities at the Main Board.

I. Intermediaries: In order to complete the initial public offering

(IPO), a variety of intermediaries, advisors, and third parties are
involved.

- The issuer must nominate one or more merchant bankers

(registered with the SEBI), designate at least one of them as
the lead. An "issue agreement"3 is entered into between the
issuer and the merchant bankers. The merchant bankers are
the gatekeepers of the IPO. They engage in a variety of
activities like due diligence, administration, Interface with
SEBI/stock exchange, underwriting, price/timing of IPO.
a. In the majority of IPOs, the issuer and the merchant
bankers both select their own Indian legal counsel.4
For oversees issue, overseas legal counsels provide
advice.
b. An IPO's investigation from the issuer's auditors5 on
the revised audited financial statements is vital. The
auditors examine the financial accounts and write
 reassurance letters to the merchant bankers. Due to
the high volume of bids received in an IPO, a SEBI-
registered certified and skilled registrar is required
(RTI). The RTI handles several pre and post-issue
concerns, requiring extensive data processing. The RTI
is in charge of: processing applications, entries,
return/allotment letters, receipt preparation, resolving
investor issues.
II. Eligibility Criteria6:

The eligibility criteria's which the issuer company must comply for
proposing an IPO are as follows;

i. There must be net tangible assets equivalent to at least 30

billion rupees calculated on a consolidated basis, in each of
the preceding three years of which not more than 50% are
held in monetary reserve.
ii. The issuer company must have an average operating profit of
at least 150 million rupees calculated on a consolidated basis
in each preceding three years.
iii. The net worth should account for at least 10 billion rupees in
each of the preceding three years on a consolidate basis.
iv. If in the past year the name of the issuer company has
changed then 50% of the revenue must have been earned from
the new name of the issuer.
v. The issuer, promoter or any director should not be declared as
willful defaulters by relevant authorities.
III. Overview of Listing Requirements:

An issuer company aiming to go for an IPO must comply Listing

Obligations and Disclosure Requirements (LODR)7. The minimum
requirement for offering equity shares to public when an IPO is
proposed is as follows; firstly, minimum 25% of class of equity
shareholders should be offered to public; if post the issue equity share
capital of the issuer is less than or equal to 16 billion rupees. Secondly,
a certain percentage around 4 billion rupees must be offered to the
public; if post the issue the equity share capital is more than 16 billion
rupees but less than 40 billion rupees. Thirdly, minimum 10% of the
class of equity shareholders must be offered to the public, if post the
issue equity share capital of the company is more than 40 billion
rupees. The issuers falling under the last two slabs i.e., more than 16
billion rupees are required to increase their public shareholding by
minimum 25% within three years of listing their securities.

IV. Stock Exchanges:

In the Indian context, the two primary stock exchanges involved are
Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
BSE aims to facilitate trading of equities, debt instruments, mutual
funds and derivates. While on the other hand, NSE helps the issuers to
trade equity and equity linked securities along with mutual funds. As
regulated by SEBI, both the BSE and NSE adhere to the same set of
laws and procedures when it comes to the listing of securities.8

V. Prospectus:

There are several types of prospectuses, all specified or published by

the Companies Act,9 and all of them include red herring prospectus
("RHP"), shelf, and any other documents asking the general public to
submit bids for the subscription or acquisition of a company's stocks.
Issuing a prospectus is primary to IPO process in India. Schedule VI of
the ICDR Regulations specify major disclosures and compliance
requirements related to prospectus.10

A prospectus is stated in Section 2(70) of the Companies Act, 2013.

There are two - fold requirements for a prospectus i.e., firstly, it invites
subscription to, for purchase of either the shares or debentures or any
other security of the issuer company and secondly, the offer is made to
the public11. The prospectus forms to be the heart and blood of the
entire public issue process. Moreover, in the case of Sahara India
Real Estate Corp. Ltd v. SEBI12 it was held that any issuer offering
the securities to public by way of prospectus must make an application
on the recognized stock exchange. Moreover, the sections 34 to 38 of
companies act calls for punishment in case there is any untrue
disclosure of information in the prospectus.

a. Red Herring Prospectus:

The Red herring prospectus is stated in Section 32 of the Companies

Act. This prospectus is only issued for book building method. This
prospectus helps the investor understand the price band and other
relevant information pertaining to IPO and the company.

It is also important, as was shown in the DLF Ltd. v. SEBI13 case, to

include in a draft prospectus any information pertaining to any
commercial transactions or financial practice to which the proceeds
from the sale of securities might apply, whether explicitly or implicitly.
Prospectus information may be broken down into the following
categories: Financial information about company; Factors affecting the
industry; relevant information regarding IPO and all other material
information pertaining to the company.1415

b. Shelf Prospectus: 16

On the other hand, the shelf prospectus is defined under Section 31 of

the Companies Act, 2013. It is a prospectus for multiple issues. An
issuer company can offer the securities to the public without a separate
prospectus for every offering for a certain period of time.

c. Abridged Prospectus:

It is described as a condensed version of the prospectus that contains

all pertinent and relevant information submitted with the registrar.
According to Section 33(1) of the Companies Act, 2013, all
documentation for the acquisition of a company's stocks must contain
an abbreviated prospectus. Investors get an abbreviated prospectus in
addition to the offer-cum-application form.

VI. Advertisement of an IPO: 17

The issuer hires an advertising/public relations firm to help with

regulatory compliance and positioning. Events and roadshows,
meetings and discussions with private investors and questioning
session are few ways of marketing the issue. Issuers of red herring
prospectuses (RHPs) must submit a pre-issue advertising that includes
information on the price band and other features as required by SEBI
ICDR. There must be advertising for both the opening and closing of
the issue. The SEBI ICDR 2018 applies to research reports of IPO in
India.18

VII. Methods of IPO:

The construction of a book building may either be optional or mandated
by the publisher. If a corporation does not meet the qualifying
requirements, it must conduct a book-built issue. SEBI ICDR
Regulation 2(1)(g)19 defines "book building". The compliance
mechanism for compulsory and voluntary book building is differently
classified in the ICDR regulations.

Underwriting is done for book built IPO only by the merchant

banker/syndicate member. Before the prospectus is filed, the issuer
enters into an underwriting agreement with the underwriters.
Underwriting is only done in case of less subscription. Subscription
minimums are a tool that underwriters might use to restrict their
responsibilities.

Six to 12 months after the issuer chooses to launch an IPO, the process
may begin. To help ease the burden on retail investors, SEBI has
mandated that all intermediaries provide the Unified Payments
Interface Mechanism ("UPIM") as an alternative for retail investors to
bid on public offerings.20

As part of an IPO's price stabilization system, the ICDR Regulations

provide a green shoe option.21 In order to support shareholders that
they may leave the stock market at a price near to the issue price
during the first 30 days after the stock's listing, this method was
created.

VIII. Statutory Lock - in Period:22

Minimum 20% of post issue paid up capital held by promoters shall be

locked in for at least three years. The rest of the shareholding is
subject to lock in period of a year from the date of allocation of an
IPO.23

IX. Rejection Criteria:

As per the guidelines stated by SEBI, the draft offer document can be
rejected based on the following grounds; the purpose for which the
funds are being raised is vague, the investors are not aware about the
risks associated with the said business model or the promoters cannot
be traced.
2) Further public offer:

A follow-on public offer (FPO) is a stock offering by a publicly traded

firm that has previously been listed on a stock market. Using a follow-
on public offering, corporations may obtain extra cash to grow their
operations, decrease their debt, or for other objectives. The firm, on
the other hand, must already be listed on the stock exchanges via an
initial public offering (IPO). Shares provided via FPO must also be open
to the whole public, not simply current shareholders, as is the case
now.24

3) Rights issue:

The current shareholders of a publicly traded firm are issued shares or

convertible securities as of a certain date set by the company in this
transaction (that is, the record date). Since the record date, holders of
shares or convertible instruments have the opportunity to participate in
the offering.25

4) Composite Issue:

In a composite issue public business may issue shares or convertible

instruments rights basis, in which the public issue and the rights issue
occur concurrently.

5) Bonus Issue:

When a publicly traded firm distributes new shares of stock to its

existing owners, it does not take in account their shareholdings as of a
record date. Complimentary reserves or share bonus accounts are used
to issue the shares in a certain proportion to the amount of securities
owned on the date of registration.26

6) Private Placement:

Section 4227 of Companies Act, 2013 defines private placement of

shares. Explanation I of Section 42 states that private placement means
offering the shares to particular group by the company (other than the
way of public offer). Additionally, Section 42 must be coupled with
following conditions;

i. Special resolution from shareholders is to be secured for each

 invitation.
ii. Made to a selected group of individuals who have been
'identified' by Board, whose number shall not exceed than 50
or as may be prescribed by the Rules.
iii. No fresh offer or invitation as per this section shall be made
unless the allotments with respect to the previous offer or
invitation has been complied with.
iv. No advertisement or promotion of the private placement is
allowed.
Private placements of shares or convertible instruments by publicly
traded companies may be classified into three categories:

a. Preferential Allotment: the allocation of a matter to a

chosen set of recognised individuals. The issuer is expected to
comply to a number of regulations, such as price, notification
disclosures, and lock-in, along with the standards provided in
the Companies Act; The issuer is expected to adhere to a
variety of regulations, including price, notification disclosures,
and lock-in, along with the standards provided in the
Companies Act.28
b. Qualified Institutional Placement ("QIP"): This can be
done to a Qualified Institutional Buyer on only as per ICDR
Regulations. A QIP may consist of equity shares, non-
convertible debt instruments, and convertible securities other
than warrants.29
c. Institutional Placement Programme ("IPP"): A
subsequent public offer of equity shares, or an offer for sale of
shares by a listed issuer's promoter/promoter group, in which
the offer, distribution, and allocation of such shares is
restricted to QIBs in order to achieve a minimal public
ownership.30
7) Offer for Sale:

Section 28 of the Companies Act, 2013 deals with offer for sale of
shares by promoters of the company. It is a simpler method wherein the
promoters in the public company try to reduce their shareholding by
selling on an exchange platform. The bidding is done by the buyer and
the floor price is set by the issuer company. Once this is done, shares
are allocated to different buyers. There is no minimum threshold or
criteria, a buyer can bid for even a single share in an OFS.

SEBI ICDR AMENDMENTS OF DECEMBER 2021: 31

Under the need to protect the investors' interest, SEBI brought

amendments in December, 2021 to the regulatory framework under the
SEBI, (Issue of Capital and Disclosure Requirements) Regulations,
2018 (ICDR Regulations). These amendments are effective from April,
2022. The amendments are as follows:

A) CHANGES WITH RESPECT TO INITIAL PUBLIC OFFERING: 32

a. Draft Red Herring Prospectus:

i. Changes in the Object Clause:

SEBI has made it significantly clear that if there is an object in the

draft offer documents of the issuer company for funding of inorganic
growth, but the target is not specified then the capital that can raised
for inorganic growth plus General Corporate Purposes (GCP) shall be
limited to 35% of the IPO size. Additionally, if there is no target and
same has not been specified in an object of the draft offer then the
amount cannot exceed 25% of the IPO size. Exception is allowed if the
target is identified and the disclosures are also made in prospectus.

ii. Changes in the Offer for Sale:

SEBI has stated that shareholders who are having more than 20% of
the pre -issue of capital, along with the persons acting in concerts
(PACs), shall not sell more than 50% of their shareholding. Additionally,
shareholders having more than 20% of the pre issue capital, along with
the PACs, shall not sell more 10% of their shareholding.

b. The regulator has made its stance clear that the use of IPO's
proceeds shall be scrutinized by the Credit Rating Agencies (CRAs)
registered with the SEBI rather than the Scheduled Commercial Banks
and Public financial Institutions. Moreover, the funds raised by way of
GCPs will also be monitored by CRAs and the utilization report must be
prepared by the issuer company which has to be chaired before the
audit committee quarterly rather than annually.
c. In case of book-built issues, SEBI has set up a minimum price band
of 105% of floor price. This amendment proposes that the upper price
band shall be at least 105% of the lower price band.

d. As stated in SEBI's consultation paper, anchor investors help in

facilitating the price discovery mechanism. The current lock in period
of 30 days shall exists for the 50% portion allotted to the anchor
investors and for the remaining 50% portion, a lock in period of 90 days
has been stated.

e. SEBI has proposed that book-built issues taking place after April 01,
2022, a one third of the portion accredited to NIIs will be given to
those whose application ranges from Rupees 2 to 10 lacs slab.
Furthermore, allocation of securities in the NII Category will be done
by way of draw of lots.

B) CHANGES 33 IN THE PREFERENTIAL ISSUE: 34

f. Preference shall not be accorded to any person/promoter or promoter

group, as the instance may be, who has sold or transmitted any of the
issuer's equity shares during the 90 trading days previous the
applicable date.

g. In-Principle Application to stock exchanges should be made on the

same day as investors are notified of the AGM/EGM.

h. Only share swaps will be authorised as a method of payment for

preferred issuance, in lieu of cash. A valuation report must be received
from a certified impartial valuer.

i. Calculation of the Minimum Issue Price (for Frequently Traded

Shares):

a. For 5% of fully diluted post-issuance share capital is allotted -

The greater of 90/10 trading days' volume weighted average
price (VWAP) of the scrip before the relevant date or any
tougher provision in the issuing company's Articles of
Association (AOA).
b. For an allottee who receives more than 5% of the post-
issuance fully diluted share capital, either alone or in
conjunction with other allottees -
 The method for determining the floor price in case of a
preferential issue has been changed. SEBI has clearly stated
that the floor price of a frequently traded security shall be
calculated by taking the higher of 90/10 trading days' volume
weighted average price of the scrip preceding the relevant
date or any stricter provision in the Article of Association
(AoA) of the Company. In case of an infrequently traded
security, a valuation report from a registered independent
valuer will be required. In addition, if there is a change in
control or allocation of more than 5% of the post issue of
capital, then the allottee or allottees acting in concert, shall
require a valuation report to determine the floor price.
j. The greater of the following: 90/10 trading days' volume
weighted average price (VWAP) of the scrip preceding the
applicable date, or any stringent requirement in the issuer
company's Articles of Association (AOA); A completely
seperate meeting of a committee of Independent Directors is
needed to be held obligatorily; Such Committee is expected to
provide a rationalised suggestion along with their remarks on
all facets of preferential issuance. The committee's voting
behaviour should also be made available to shareholders/the
general public.
k. Allottees' entire pre-preferential allocation ownership must be
locked-in from the applicable date for a period of 90 selling
days from the date of selling approval/allotment, in the event
of equity shares/convertible securities.

l. Promotors: Up to 20% of post-issuance paid-up capital: For a

period of 18 months
Above 20% of post-issuance paid-up capital: Six months

Non-Promotors: For a six-month period

ANALYSIS OF THE AMENDMENTS:

Amid economic disruptions and financial turmoil induced by the second

wave of COVID-19 outbreaks that struck India from April to June of
2021, the stock markets in India outperformed other developing
economies in fiscal year 2021, according to the Bloomberg index.
Market analysts ascribed this to a variety of causes, including the
following:

1. Expansion of immunizations over the whole country of India.

2. The government's economic stimulus programmes.
3. The Reserve Bank of India's liquidity assistance strategies are
described in detail below.
After posting spectacular gains of 22 percent and 24 percent,
correspondingly, in 2021, the SENSEX and the Nifty 50 indices had
their greatest year returns since 2017. Zomato, India's first digital
internet unicorn, went public in July 2021, generating INR 93,750
million in what was (at the time) the third biggest IPO in the country's
history. Paytm, an Indian Fintech business that specialises in digital
payment systems, e-commerce, and financial services, launched an
initial public offering IPO in November 2021 that was the biggest in
India's history at INR 183,000 million. Several factors contributed to
the IPO market's vigour in 2021:

i. A strong secondary market - domestic institutional investors

("DIIs") such as mutual funds and insurance firms, and some
others have been pivotal in strengthening the marketplace;
ii. Abundant liquidity in the system; and
iii. Increased engagement by retail investors. The secondary
market, for example, saw strong growth in 2018.
SEBI has always been proactive when it comes to primary market
reforms. The IPO haul led to several implications to the capital market
in India, especially with respect to IPO valuation and disclosures. SEBI
has brought additions to ICDR Regulations, 2018 to ensure Investor
Protection when it comes to such IPOs.

The amendments have also been made to the preferential allotment

norms. This was made because a number of investors, including the
US-based Carlyle Group, have withdrawn their interest in PNB Housing
Finance's planned preference share distribution. In the agreement that
was eventually cancelled, SEBI questioned PNB Housing Finance's
reasoning for establishing the issue price, among other things. The
legal fights that have been going on in the country recently have
brought to light some lacunae in the Regulations, and the Amendment
Regulations are meant to fill in those loop holes. Hence, whether the
recent amendments have walked the talk or not will be analysed in this
chapter:

a. Allottee's eligibility with regard to the sale of pre-issue

holdings: In the amendment pre-issue holding has been
reduced to the shorter pre-issue selling period of 90 trading
days from 180 days, the preferred issue comeback time for
any allottee who has sold his shares is plausible to be cut
down.
b. Non-cash consideration: SEBI found that there were no
protections or valuation guidelines in place for preferential
award of reward other than cash. That's why it's now illegal to
do that thing again. Restricting preferred allotments for
payment other than cash to solely share swaps may be a
barrier to strategic deals in which the allottees may not have
adequate cash to pay for the shares, but are instead able to
use an asset. Share Swaps are the only form of payment that is
not cash. There is a need for the firms to identify whether or
not the limits would affect the compliances relevant to
"consideration other than cash" issues, such as disclosures
under the explanatory statement or financial statements etc.
Whether share swaps will entail an exchange of shares
between the issuer and the investor may be a question that
arises in the context of a preferred issuance made by a target
business to the acquiring firm. Only an indirect exchange of
shares is involved in the agreement. Despite the fact that it
seems to contravene the spirit of the legislation, the current
arrangement nonetheless meets the concern about value
stated in the Consultation Paper. It's unclear whether or not
the revisions would make it illegal to offset mutual
commitments as "consideration other than cash" when they go
into effect. The basic rule of law is that if two parties meet and
decide to set one claim against each other, they must not go
through the process of passing money again and again. Is
frame of mutual obligations exempt from the 'payment other
than cash' limitation, or does it fall within the definition of
'consideration in cash', which is defined in the Amendment?
These are still unaddressed questions.
c. Calculation of the Minimum Issue Price (for Frequently
Traded Shares) and Requirements for Frequently traded
stocks: The old pricing period of 26 weeks and 2 weeks used
 to have a substantial price difference in many circumstances.
So, the new pricing will allow for preferred offerings to occur
at 90/10 trading days, which is a very recent price trend. As
long as any Company's AOA includes any additional price
requirements, they must be fulfilled. The recent price
fluctuations seem to be mostly the result of legal variances
and an increase in the activity of proxy advisers.
While considering the allotment of more than 5% fully diluted
shares an extra indicator for valuation was not contemplated
under SEBI's previous Reg 164 where preferential allocation
of more than 5 percent was proposed to any allottee, either
alone or in concert with other people. As a result, the issuing
business has introduced a need for a valuation report to
account for the control premium that controlling allottees
would receive.
d. Pricing in the Event of a Control Change: SEBI's Takeover
Regulations have necessitated the addition of these measures.
When a firm Board of Directors approves a preferred issue, a
separate committee of Independent directors will also suggest
the reason for the issuance and the price of such an issue, if a
transfer of control occurs as a result of the preferential issue.
e. Lock-in period: Lock-in durations are decreased in
accordance with lock-in regulations for IPOs. Strategic
Investors in preferred offerings may be encouraged as a
result. This clause may not have much of an influence on the
promoters, since they often do not sell their shares. In the
event of equity shares or convertible securities, the pre-
preferential allotment ownership will be held in for six months
following the date of issuing approval/date of allotted. If
certain circumstances are met, the decrease in lock-in
obligations under public issue will be granted. In the case of
preferential issue, however, there is no conditional reduction
of lock-in obligations.
f. Utilization of Funds
The regulator was of the opinion that when the IPO proceeds
are utilised without specifying the investment target then it
might create ambiguity in the IPO Objects. Furthermore, it
stated that many start-ups are based upon the asset light
business model and hence should place their reliance on the
 new customers and technologies rather than funding for
capital assets. Acquisitions by the novel tech companies
without specifying the investment target have been seen
recently in the market. These companies need upfront cash to
swiftly carry their market operations. Appositely, the current
cap of 35% may limit the scope of issuer's company to go
ahead with the acquisitions.
Furthermore, the IPO proceeds will be monitored by the
Credit Rating Agencies. They will be monitoring all the 100%
issue proceeds as compared to 95%. This came in light to
protect the investments made by the public and to take
account of new age tech companies which often does not
specify the target and raise money. Therefore, to curtail the
discretion exercised by the issuer in case of IPO proceeds, the
CRA's has been given the responsibility to act as a watchdog.
g. Restriction on selling of shares by Anchor Investors
The massive listing of Paytm totally failed its debut
performance on the stock exchange. The share prices plunged
drastically because the lock in period for anchor investors had
ended. The goal has always been to prevent the share price
volatility which has been seen recently in the cases of Paytm
and Nykaa. The lock in period will disallow the anchor
investors to sell off their holding. As per the current regime, a
30-day lock in period exists for the 50% portion allotted to the
anchor investors and for the remaining 50% portion, a lock in
period of 90 days has been stated. While this has been done, a
longer lock in period may help to boost the investors'
confidence.
h. Existing Shareholders cannot sell their shares beyond a
certain threshold
The principle of "ensuring skin in the game" which states that
promoters are required to maintain Minimum Promoter
Contribution (MPC), up to at least 20% which is locked in for
18 months post the issue has now been extended to other
selling shareholders. In the context of ICDR Regulations, 2018
for OFS in an IPO, significant shareholders can offer their
equity shares which has to be held by them prior to filing of
the draft offer for around one year. However, while taking IPO
wherein there are no promoters and only selling shareholders,
 there is no need for MPC post the listing. Therefore, to protect
the interest of the investors by the significant shareholders
and bring parity, the principle of ensuring skin the game has
been extended to significant shareholders. The limits imposed
by SEBI stated that shareholders who are having more than
20% of the pre-issue of capital, along with the (PACs), shall not
sell more than 50% of their shareholding. Additionally,
shareholders having more than 20% of the pre issue capital,
along with the PACs, shall not sell more 10% of their
shareholding.
i. Pricing
In case of book-built issues, the regulator has mandated that
the price band range shall be at least 105% of the floor price.
Earlier companies were free to set up any price, but the limit
has been imposed now. Additionally, this proposed amendment
is likely to benefit all the issuers because they will price the
IPO accurately and accordingly the price will be determined.

Further, the current regime governing the proportional

allocation mechanism is not beneficial for small non-
institutional investors because often, they are pushed out by
the large non-institutional investors. Therefore, to ensure the
diversity in the public offerings, SEBI has proposed that book-
built issues taking place after April 01, 2022, a one third of the
portion accredited to NIIs will be given to those whose
application ranges from Rupees 2 to 10 lacs slab.
Furthermore, allocation of securities in the NII Category will
be done by way of draw of lots.
CONCLUSION:

The role of primary market in any economy is extensive. The effective

regulation of this market can bring about tremendous economic
benefits. Ranging from growth of indigenous business to inviting
foreign investments. In the absence of efficient regulatory framework
business entities can raise the capital in the primary market through
unfair means causing market failure. In other words, the shareholders
and stockholders might become highly vulnerable to ill-practices of the
promotors. In the light of this apprehension, the law and regulations
with respect to issue of capital must be changed. This in turn prevents
the shareholders from getting misled. The SEBI ICDR Amendment of
2021 on IPO is positive step towards protecting the shareholders while
the amendments on preferential issue helps in maintaining equal
benefits for the promotors.

■■

1. Id.
2. SEBI, https://www.sebi.gov.in/sebi_data/meetingfiles/mar-
2019/1553245431351_1.pdf, (last visited Feb. 27, 2022).
3. SEBI (Issue of Capital and Disclosure Requirements), 2018,
Regulation 106M.
4. Id., Regulation 5(5) & 101(1). See also schedule II.
5. Supra Note 18, schedule VIII.
6. Supra Note 18, Regulation 5.
7. SEBI, https://www.sebi.gov.in/legal/regulations/jan-
2022/securities-and-exchange-board-of-india-listing-
obligations-and-disclosure-requirements-amendment-
regulations-2022_55526.html, (last visited Feb. 26, 2022).
8. BSE, http://www.bsepsu.com/introduction-BSE.asp, (last
visited Feb. 27, 2022).
9. Supra Note 8, s. 26.
10. Supra Note 18, schedule VII.
11. Nash v. Lynde [1929] A.C. 158.
12. [2013] 1 SCC 1.
13. [2012] 28 taxmann.com 92/[2013] 118 SCL 22 (Delhi).
14. Supra Note 18, Schedule VI r/w regulation 106O(2) and
91E(5), Schedule XI r/w regulation 28(3) and 102.
15. Supra Note 8, s. 32.
16. Supra Note 8, s. 31.
17. Supra Note 18, Regulation 2,30, 47, 48, 55, 60, 66 schedule
VIII, XIII.
18. Supra Note 18, Regulation 60.
19. Supra Note 18, Regulation 2(1)(g).
20. Supra Note 18, Regulation 30, 47, 48, 55, 66 schedule VIII,
XIII.
21. Id.
22. Supra Note 18, Schedule VIII, regulation 35.
23. Supra Note 18, Regulation 29 (c), Regulation 32.
24. Supra Note 18, Regulation 2(n), Schedule VIII.
25. Supra Note 18, Chapter 3.
26. Supra Note 18, s. 2(z), schedule VIII, Chapter 9.
27. Supra Note 8, s. 42.
28. Payal Agarwal, Preferential Issue Norms Undergo Changes
by SEBI, VINOD KOTHARI CONSULTANTS (Feb. 28, 2022,
9:00 AM).
29. Supra Note 18, Chapter VIII.
30. BSE,
https://www.bseindia.com/Static/PublicIssues/aboutIPP.aspx,
(last visited Feb. 28, 2022).
31. SEBI, https://www.sebi.gov.in/media/press-releases/dec-
2021/sebi-board-meeting_55018.html, (last visited March 3,
2022).
32. SEBI, https://www.sebi.gov.in/reports-and-
statistics/reports/nov-2021/consultation-paper-on- review-of-
certain-aspects-of-public-issue-framework-under-sebi-issue-
of-capital-and- disclosure-requirements-regulations-
2018_53983.html (last visited Feb. 28, 2022).
33. Id.
34. SEBI, https://www.sebi.gov.in/reports-and-
statistics/reports/nov-2021/consultation-paper-on- review-of-
certain-provisions-related-to-preferential-issue-
guidelines_54226.html (last visited Feb. 9, 2022).