SAMPLE WRITING ON SECURITIES LAW DEVELOPMENT

1. What are the key aspects and procedures involved in External Commercial
Borrowings (ECBs) in India?
ECBs are basically cross-border transactions. ECBs are commercial loans raised by
eligible resident entities from recognised non-resident entities and should conform to
parameters such as minimum maturity, permitted and non-permitted end-uses,
maximum all-in-cost ceiling, etc. External Commercial Borrowings Framework
enables permitted resident entities to borrow from recognized non-resident entities.
These parameters apply in totality and not on a standalone basis. Under the ECB
framework, ECBs can be raised either under the automatic route or under the approval
route. The procedure for raising ECB under approval route requires the borrowers to
approach the RBI with an application in prescribed format Form ECB for examination
through their AD Category I bank. Such cases are considered keeping in view the
overall guidelines, macroeconomic situation and merits of the specific proposals. ECB
proposals received in the Reserve Bank above certain threshold limit (refixed from
time to time) are placed before the Empowered Committee set up by the Reserve
Bank. The Reserve Bank takes a final decision taking into account recommendation
of the Empowered Committee. For conversion of ECB dues into equity, the exchange
rate prevailing on the date of the agreement between the parties concerned for such
conversion or any lesser rate can be applied with a mutual agreement with the ECB
lender.

2. Which SEBI Regulation talks about Ombudsman?

Ombudsman is an independent person appointed to hear and act upon citizen’s
complaint about government services. This concept was invented in Sweden and the
idea has been widely adopted. For example, various banks, insurance companies have
appointed Ombudsman to attend to the complaints of their customers. SEBI has
issued SEBI (Ombudsman) Regulations, 2003. Regulation 2(l) of the Regulations
defines Ombudsman as under: “Ombudsman” means any person appointed under
regulation 3 of these regulations and unless the context otherwise requires, includes
stipendiary Ombudsman. Regulation 2(n) of the Regulations defines stipendiary
Ombudsman as a person appointed under regulation 9 for the purpose of acting as
Ombudsman in respect of a specific matter or matters in a specific territorial
jurisdiction and for which he may be paid such expenses, honorarium, sitting fees as
may be determined by SEBI from time to time. The regulations further deal with
establishment of office of Ombudsman, powers and functions of Ombudsman,
procedure for redressal of Grievances and implementation of the award.

3. Which development banks in India cater to the needs of various sectors,

including small, medium, and large-scale enterprises, and aid in the promotion
and development of small-scale industrial units?

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 It includes those development banks which provide institutional credit not only to
large and medium scale enterprises but also help in promotion and development of
small scale industrial units.
Following are the banks which caters to the need for the growth of different sectors on
India: –
a. Industrial Development Bank of India (IDBI):- It was established in July 1964 as
an apex financial institution for industrial development in the country. It caters to
the diversified needs of medium and large scale industries in the form of financial
assistance, both directly and indirectly. Direct assistance is provided by way of
project loans, underwriting of and direct subscription to industrial securities, soft
loans, technical refund loans, etc. Indirect assistance is provided in the form of
refinance facilities to industrial concerns.

b. Industrial Finance Corporation of India (IFCI):- It was the first development

finance institution set up under the IFCI Act 1948. In order to pioneer long-term
institutional credit to medium and large scale enterprises. It aims to provide
financial assistance to industry by way of rupee and foreign currency loans,
underwrites/subscribes the issue of stocks, shares, bonds and debentures of
industrial concerns, etc. It has also diversified its activities in the field of merchant
banking, syndication of loans, formulation of rehabilitation programmes,
assignments relating to amalgamations and mergers, etc.

c. Small Industries Development Bank of India (SIDBI):- It was set up by the

Government of India in April 1990, as a wholly owned subsidiary of IDBI. It is
the principal financial institution for promotion, financing and development of
small scale industries in the economy. It aims to empower the Micro, Small and
Medium Enterprises (MSME) sector with a view to contributing to the process of
economic growth, employment generation and balanced regional development.

d. Industrial Investment Bank of India Ltd (IIBI):- It was set up in 1985 under the
Industrial reconstruction Bank of India Act, 1984, as the principal credit and
reconstruction agency for sick industrial units. It was converted into IIBI on
March 17, 1997, as a full-fledged development financial institution. It assists
industry mainly in medium and large sector through wide ranging products and
services. Besides project finance, IIBI also provides short duration non-project
asset-backed financing in the form of underwriting/direct subscription, deferred
payment guarantees and working capital/ other short-term loans to companies to
meet their fund requirements.

4. What are Qualified Institutional Buyers (QIBs) and what role do they play in the
investment process?
QIBs are investment institutions who buy the shares of a company on a large scale.
Qualified Institutional Buyers are those Institutional investors who are generally
perceived to possess expertise and the financial proficiency to evaluate and to invest

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 in the Capital Markets. According to SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009, “Qualified Institutional Buyer” means: Investment
in the company, either domestic or foreign, can be made by many types of investors
who are governed by specified sets of regulations. If the investor is not capable, either
by his/her individual financial limit or not permitted, to invest individually till he
invests a specified statutorily fixed amount, then he usually participates indirectly
through certain institutions, through which he can invest limited sums according to
the viability of both, himself and institution. The institution is usually a collective
group of people in which a large number of investors repose faith and the institution
collects a whopping investible sum from various investors to invest in the market.
When investing through the institution, investors usually have limited control on their
investments in comparison to the individual investment as they hand over the amount
for investment to the institution and they, in turn, keep experts to have a vigil on the
market. Accordingly, experts recommend the investments to be made and thus the
institutions in the spree invest in that market.

5. What is Private Equity?

Private equity is a type of equity (finance) and one of the asset classes who takes
securities and debt in operating companies that are not publicly traded on a stock
exchange. Private equity is essentially a way to invest in some assets that isn’t
publicly traded, or to invest in a publicly traded asset with the intention of taking it
private. Unlike stocks, mutual funds, and bonds, private equity funds usually invest in
more illiquid assets, i.e. companies. By purchasing companies, the firms gain access
to those assets and revenue sources of the company, which can lead to very high
returns on investments. Another feature of private equity transactions is their
extensive use of debt in the form of high-yield bonds. By using debt to finance
acquisitions, private equity firms can substantially increase their financial returns.
Private equity consists of investors and funds that make investments directly into
private companies or conduct buyouts of public companies. Capital for private equity
is raised from retail and institutional investors, and can be used to fund new
technologies, expand working capital within an owned company, make acquisitions,
or to strengthen a balance sheet. The major of private equity consists of institutional
investors and accredited investors who can commit large sums of money for long
periods of time.

6. What is the Green Shoe Option and how does it operate in the context of public
offerings?
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.
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. GSO in the system of IPO using book-building method was
recognised by SEBI in India through its new. ICICI bank was the first to use Green
Shoe Option in its public issue through book building mechanism in India.

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7. What is the role of market surveillance in ensuring market integrity and who is
responsible for conducting market surveillance in India?
Market surveillance plays a vital role in ensuring market integrity which is the core
objective of regulators. Market integrity is achieved through combination of
surveillance, inspection, investigation and enforcement of relevant laws and rules.
Globally market surveillance is either conducted by the Regulators or Exchanges or
both. In India, the primary responsibility of market surveillance has been entrusted to
Stock exchanges and is being closely monitored by SEBI. Millions of Orders are
transmitted electronically every minute and therefore surveillance mechanisms to
detect any irregularities must also be equally developed. Exchanges adopt automated
surveillance tools that analyse trading patterns and are installed with a comprehensive
alerts management system.

8. What is a Foreign Currency Exchangeable Bond (FCEB) and how does it

function in raising funds from international markets?
The FCEB is used to raise funds from the international markets against the security
and exchangeability of shares of another company. It means-
(i) A bond expressed in foreign currency.
(ii) The principal and the interest in respect of which is payable in foreign
currency.
(iii) Issued by an issuing company, being an Indian company.
(iv) Subscribed by a person resident outside India.
(v) Exchangeable into equity shares of another company, being offered company
which is an Indian company.
(vi) Either wholly or partly or on the basis of any equity related warrants attached
to debt instruments.
It may be noted that issuing company to be the part of promoter group of offered
company and the offered company is to be listed and is to be eligible to receive
foreign investment. Under this option, an issuer company may issue FCEBs in foreign
currency, and these FCEBs are convertible into shares of another company (offered
company) that forms part of the same promoter group as the issuer company. Unlike
FCCBs that convert into shares of issuer itself, FCEBs are exchangeable into shares of
Offered Company (OC). Also, relatively, FCEB has an inherent advantage that it does
not result in dilution of shareholding at the OC level.

9. What is an Indian Depository Receipt (IDR) and how does it enable foreign
companies to raise funds from the Indian Securities Markets?
An IDR is an instrument denominated in Indian Rupee in the form of a depository
receipt created by a domestic depository (Custodian of securities registered with
SEBI) against the underlying equity of issuing company to enable foreign companies
to raise funds from Indian Securities Markets. In an IDR, foreign companies would
issue shares, to a domestic (Indian) depository, which would in turn issue depository
receipts to investors in India. The actual shares underlying the IDRs would be held by

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 an Overseas Custodian, which shall authorize the Indian depository to issue the IDRs.
To that extent, IDRs are derivative instruments because they derive their value from
the underlying shares. Standard Chartered PLC is only company to offer IDR in the
Indian market. The foreign company issuing IDRs need to comply with the
requirements of rules prescribed under Companies Act, SEBI Regulations and RBI
notifications/circulars.

10. What is ASBA and how does it simplify the process of applying for public issues
while reducing listing time for IPOs?
An ASBA investor submits an ASBA physically or electronically through the internet
banking facility, to the SCSB with whom the bank account to be blocked is
maintained, then the SCSB blocks the application money in the bank account
specified in the ASBA, on the basis of an authorization to this effect given by the
account holder in the ASBA. The application money remains blocked in the bank
account till finalisation of the basis of allotment in the issue or till withdrawal/failure
of the issue or till withdrawal/rejection of the application, as the case may be. The
application data shall thereafter be uploaded by the SCSB in the electronic bidding
system through a web enabled interface provided by the Stock Exchanges. Once the
basis of allotment of finalized, the Registrar to the Issue sends an appropriate request
to the SCSB for unblocking the relevant bank accounts and for transferring the
requisite amount to the issuer’s account. In case of withdrawal/failure of the issue, the
amount shall be unblocked by the SCSB on receipt of information from the pre-issue
merchant bankers. The process of applying for public issue, rights issue, etc has
become very easy for investors. The investors are no more required to wait for receipt
of refund in case of the public issue. The ASBA process has also helped to reduce the
listing time for IPO to 6 working days from the date of the closure of the equity shares
public issue.

11. What is dematerialization in the Indian securities market? How does electronic
trading improve efficiency and provide equal access to participants?
In the Indian securities market various products trade like equity shares, warrants,
debenture, etc. The trading in the securities of the company takes place in
dematerialised form in India. Dematerialization is the process by which physical
certificates of an investor are converted to an equivalent number of securities in
electronic form and credited to the investor’s account with his Depository Participant
(DP).Trading in the securities of the company takes place on the screen based
platforms provided by the Exchanges. Currently for equity shares the settlement cycle
is (T+2 days) (T means trading day). Any shares which are traded on the Exchange is
required to be settled by the clearing corporation of the exchange on 2 working day.
In electronic trading order received are matched electronically on a strict price/time
priority and hence cuts down on time, cost and risk of error, as well as on fraud
resulting in improved operational efficiency. It enables market participants,
irrespective of their geographical locations, to trade with one another simultaneously.
It provides full anonymity by accepting orders, big or small, from brokers without
revealing their identity, thus providing equal access to everybody. It also provides a

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 perfect audit trail, which helps to resolve disputes by logging in the trade execution
process in entirety.

12. What is venture capital and how does it work as a financing resource for
companies?
Venture Capital is one of the innovative financing resource for a company in which
the promoter has to give up some level of ownership and control of business in
exchange for capital for a limited period, say, 3-5 years. Venture Capital is generally
equity investments made by Venture Capital funds, at an early stage in privately held
companies, having potential to provide a high rate of return on their investments. It is
a resource for supporting innovation, knowledge based ideas and technology and
human capital intensive enterprises. Essentially, a venture capital company is a group
of investors who pool investments focused within certain parameters. The participants
in venture capital firms can be institutional investors like pension funds, insurance
companies, foundations, corporations or individuals but these are high risk
investments which may give high returns or high loss.

Commentary references-

1. Guide to SEBI, Capital Issues, Debentures & Listings, 5th ed

2. A Ramaiya: Guide To The Companies Act, 18th Edition 2014
3. M L Tannan : Banking Law & Practice in India, 25th Edition
4. SEBI and Corporate: Taxmann, 59/32
5. SEBI Monthly Bulletin : SEBI, Mumbai.

Website references-
1. SEBI- www.sebi.gov.in
2. NSE - www.nseindia.com
3. BSE- www.bseindia.com
4. RBI- www.rbi.org.ii
5. MCA- www.mca.gov.in