Super Concise SEBI Guidelines for CA final exams.

SEBI Guidelines:
Cease & Desist Order: Before passing a cease & desist order SEBI shall comply with the following two requirements:
1. It shall make an inquiry to determine whether any person has violated any provisions, rules or regulations of this Act.
2. It shall not pass any Cease & Desist order against any listed Co. which intends to get its securities listed on a RSE unless there are reasonable grounds to believe that the Co. has indulged in insider trading or market manipulation.

Price Sensitive Information (PSI): Price sensitive information means any information which relates to the Co. and the disclosure of which may materially affect the price of the Co.’s securities. It includes the following:
- Periodical financial results, Intended dividend, issue or buy-back of securities, expansion plans, disposal of whole or substantial part of undertaking, significant changes in plans.

Penalty for Insider Trading: Higher of 25 Cr. Or 36 times of the profit made by such insider trading where insider trading includes
- Dealing in securities of a Co. on the basis of unpublished PSI
- Communicating any unpublished PSI to any person
- Counseling for any person to deal in securities of a Co. on the basis of unpublished PSI.

Penalty for non-payment by a stock broker: Lower of 1 Cr. or 1 lakh per day of continuing default if the stock broker fails to pay amount due to the investor in the manner and form prescribed. SEBI shall appoint its adjudicating officer for holding an inquiry into the matter who shall give due regard to the following before imposing penalty:
- Any unfair gain made by the broker due to such default
- Amount of loss caused to the investor
- Repetitive nature of the default.

Appeal to Security Appellate Tribunal (SAT): An appeal to SAT can be made against the order of the adjudicating authority or the order of SEBI within 45 days from the date of the order (any reasonable delay may be condoned). Appeal against the order of the SAT can be made only on a question of law to the Supreme Court within 60 days (+ 60 days extension) from the communication of SAT order.

Power to grant Immunity by CG: CG may grant immunity to any person who has committed a contravention of the provisions of the provisions of SEBI if
- SEBI has made a recommendation to the CG in this behalf
- CG is satisfied that such person has made true & full disclosure in regard to such violation
- Proceeding for prosecution has not begun till the date of receipt of application for immunity
But if the immunity is subsequently withdrawn the person may be tried for the offence and shall also be liable for the imposition of any penalty.

Public issue of shares by a closely held unlisted Co. (Same as IPO): Meet all the 6 conditions:
- Net tangible assets of at least 3 Cr. in each of the preceding 3 full F/Y and of which not more than 50% is held in monetary assets
- Net Worth of at least 1 Cr. in each of the preceding 3 full F/Y
- Track record of distributable profits in at least 3 out of 5 immediately preceding F/Y (even if the Co. has not actually declared dividend but if it has earned sufficient profit in the prescribed years then also it is sufficient)
- In case the Co. has change its name in the last 1 year then at least 50% of the revenue in the preceding full year is earned by the Co. from the activity suggested by the new name
- The proposed new issue + previous issue in the same F/Y should not exceed 5 times the pre-issue net worth as per the audited B/S of the preceding P/Y
- Prospective allottees are >= 1000.

Minimum Promoter’s Contribution: (not applicable to right issue)
- Initial Public Offer – 20% of post issue capital (excluding Sec. Premium)
- Further public offer – 20% of proposed issue or 20% of post issue capital
- Composite issue – 20% of the proposed offer or 20% of post issue capital excluding rights.
Note: Securities which have been issued to the promoters during the preceding 1 year at a price lower than the price currently offered to the public and securities issued in the preceding 3 years for consideration other than cash or bonus issue and securities pledged with any creditor shall not be counted for calculating promoter’s contribution.
Promoter’s contribution shall be brought in before the issue is made and deposited (including premium) at least 1 day prior to the issue date in an escrow account with a scheduled commercial bank and released to the issuer along with the public issue. Such minimum contribution can’t be transferred by the promoter (except among themselves) before 3 years (lock-in-period) from the date of allotment. Any excess contribution can be transferred after 1 year.

Preferential issue: A listed issuer can make a preferential allotment if
- SR is passed
- All the equity shares if any held by the allottees are in dematerialized form (if in physical form then can’t be allotted)
- Issuer is in compliance with the continuous listing agreement as per the listing agreement with the RSE
- PAN of proposed allottees has been obtained.
But any person who has sold any equity share of the issuer in the preceding 6 months can’t be made any preferential allotment.
Payment of consideration – At least 25% on application and rest on pro-rata basis
Lock-in-period:
For promoters – 3 years from date of allotment
Others – 1 year from the date of allotment
Preferential allotment made pursuant to a scheme of corporate debt restructuring as per RBI’s framework – 1 year from the date of allotment.
If the shares are partially paid then the period shall be computed from the date when they become fully paid.
Pricing of preferential issue:
1. If equity shares of the issuer are listed for >= 6 months on the RSE then at a price not less than higher of the two:
- Average of the weekly high and low of closing prices of the related equity shares during the 6 months before the relevant date or
- Average of the weekly high and low of closing prices of the related equity shares during the 2 weeks preceding the relevant date.
2. If equity shares are listed for < 6 months on RSE then at a price not less than higher of the three: - Price of IPO - Average of the weekly high and low of closing prices of the related equity shares during the preceding the relevant date - Average of the weekly high and low of closing prices of the related equity shares during the 2 weeks preceding the relevant date. Note: If it is issued to a qualified institutional buyer then @ Average of the weekly high and low of closing prices of the related equity shares during the 2 weeks preceding the relevant date. Bonus Issue (for listed issuer): Conditions
- Bonus issue is authorized by AoA. If not then pass SR in GM for authorization.
- There’s no default in payment of Principle and interest on FD or debt security
- There’s no default in payment of statutory dues like PF, Gratuity etc.
- All shares are made fully paid-up
- Can be made only out of genuine free reserves collected in cash only
- Can’t be issued in lieu of dividend
- No O/S fully or partly convertible debt instrument at the time of bonus issue. But holders of such convertible debt instruments shall be issued bonus shares on the same terms or same proportion at the time of conversion in fully paid equity shares.
Note: Bonus issue has to be made within 15 days of obtaining board’s approval for the same in case it was authorized by the AoA. If it is issued by passing SR then it has to be made within 2 months of the date of Board’s meeting where the decision to announce bonus issue was taken subject to shareholders approval. Once bonus issue is announced, the issue cannot be withdrawn.


Initial Public Offer: IPO can be made by 3 routes:

Profitability Route (General): Conditions
1. Net tangible assets of at least 3 Cr. in each of the preceding 3 full F/Y and of which not more than 50% is held in monetary assets.
2. Net Worth of at least 1 Cr. in each of the preceding 3 full F/Y.
3. Track record of distributable profits in at least 3 out of 5 immediately preceding F/Y (even if the Co. has not actually declared dividend but if it has earned sufficient profit in the prescribed years then also it is sufficient).
4. In case the Co. has change its name in the last 1 year then at least 50% of the revenue in the preceding full year is earned by the Co. from the activity suggested by the new name.
5. The proposed new issue + previous issue in the same F/Y should not exceed 5 times the pre-issue net worth as per the audited B/S of the preceding P/Y.
6. Prospective allottees are >= 1000.

Qualified Institutional Buyer (QIB) Route: (If does not satisfy any of the above route-1 conditions)
1. Issue is made through book building process and at least 50% of the issue is made to QIB and if the Co. fails to make such an issue to QIB then it shall refund full subscription money received.
2. Minimum post issue face value capital of the issuer is Rs.10 Cr. OR the issuer undertakes to provide market making for at least 2 years from the date of listing of specified securities subject to the following conditions:
- Market makers offer buy and sell quote for a minimum of 300 securities and ensure that the bid-ask spread (difference between quotations for sale and purchase) never exceeds 10%.
- Inventory of the market maker at the date of the allotment is >= 5% of proposed issue.
3. Prospective allottees are >=1000.

Appraisal Route: (If does not satisfy any of the above Route-1 conditions)
1. Minimum 15% of the project cost is contributed by scheduled commercial banks or public financial institutions.
2. Minimum post issue face value capital of the issuer is Rs.10 Cr. OR the issuer undertakes to provide market making for at least 2 years from the date of listing of specified securities subject to the following conditions:
- Market makers offer buy and sell quote for a minimum of 300 securities and ensure that the bid-ask spread (difference between quotations for sale and purchase) never exceeds 10%.
- Inventory of the market maker at the date of the allotment is >= 5% of proposed issue.
3. Prospective allottees are >=1000.
Further Public Offer: Co. can make further issue if following conditions are satisfied
1. In case the Co. has change its name in the last 1 year then at least 50% of the revenue in the preceding full year is earned by the Co. from the activity suggested by the new name.
2. The proposed new issue + previous issue in the same F/Y should not exceed 5 times the pre-issue net worth as per the audited B/S of the preceding P/Y.
Else it can go for the QIB route or Appraisal route.
Pricing: Co. may determine the price in consultation with the lead merchant banker or through book building process undertaken in a manner specified under schedule XI.

Differential Pricing: Co. may offer different prices subject to the following conditions:
1. In case Retail individual investors who are entitled for reservation under regulation 42 are applying for the securities then they may be offered a lower price than others subject to a maximum difference of 10% of the issue price to others.
2. In case of book built issue, price offered to an anchor investor shall be lower than the price offered to others.
3. In case of composite issue, price offered in public issue may be different from a right issue.
4. In case of alternate method of book building, Price may be offered to the employees at a price lower than the floor price subject to a maximum difference of 10% of the floor price.

Price and Price band: Mention Price/Price band in Draft Prospectus (in case of fixed price issue) and floor price/Price band in a Red herring prospectus (in case of book built issue). If floor price is not mentioned in the red herring prospectus then the issuer may announce it at least 2 working days before (for IPO) & at least 1 working day before (for further issue) the opening of the bid. The Cap on the price band shall be <= 100 and 20% of floor price. The price band can be revised during the bidding period. But the maximum revision on either side can be 20% of the floor price. And then the cap on price band is applied on the revised floor price. Face value of equity shares:
1. If issue price is >= 500 then face value can be less than Rs.10 but minimum Re.1
2. If issue price is < 500 then face value has to be Rs.10. Nothing mentioned above shall apply to a Govt. Co., Statutory authority or any vehicle created by them, engaged in the infrastructure sector. Allocation in Net offer to Public:
1. In book building process:
- To retail individual investors >=35%
- To non-institutional investors >=15%
- To QIB <= 50%, 5% of which shall be allocated to mutual funds However where 60% is required to be allotted to QIB, the percentage allocation for retail & non-institutional investors shall be 30% and 10% respectively. 2. In other than book building process: - Retail individual investors >=50% and rest to individual investors & other investors like corporate bodies or institutions.

Green Shoe Option: It means an option of allotting equity shares in excess of equity shares offered in the IPO as a post listing price stabilization mechanism. It ensures that the price on stock exchange does not fall below the issue price after issue of shares. For this purpose the Co. enters into a contract with promoters before public issue to lend their shares (maximum 15% of issue size) to the merchant banker acting as the stabilizing agent for price stabilization on behalf of the Co. The maximum stabilization period can be 30days from the date of allotment. The Co. then goes on to make the allotment including over allotment to the extent of green shoe option exercised. The money received from over allotment is deposited in an escrow account and used by the merchant banker for stabilizing prices post issue.
The monies left in the escrow account after remitting to the issuer and deduction of merchant banker’s expenses shall be transferred to the Investor Protection and education fund. The stabilizing agent shall report to the SE on daily basis during the stabilizing period and maintain a register for 3 years containing details of promoters, stabilizing process and allotments made.
Reservation on Competitive basis:
1. Aggregate reservation for employees shall not exceed 5% of post issue capital.
2. Reservation for shareholders shall not exceed 10% of issue size.
3. Reservation for persons having business association as depositors, bondholders and subscribers to services shall not exceed 5% of issue size.
4. Value of allotment to any employee under reservation shall not exceed Rs.1 lakh.

Right Issue: Co. shall announce a record date for determining the shareholders eligible to apply for the right issue. Once a record date is announced, the right issue can’t be withdrawn.
No issuer shall make a right issue if it has and O/S convertible debt instrument at the time of making the right issue unless reservation has been made of equity shares of the same class in favour of the holders of convertible debt instrument. The letter of offer along with the application form shall be dispatched to all the existing shareholders at least 3 days before the date of opening of issue. Right issue subscription should be kept open for a minimum of 15 working days & maximum of 30 working days.

Indian Depository Receipts: Conditions for issue
1. Issue size shall be a minimum of 50 Cr.
2. Minimum application amount – Rs.20000.
3. At least 50% of IDRs should be allocated to QIBs on proportionate basis.
4. Balance 50% may be allotted to non-institutional investors and retail individual investors including employees in any manner of allocation provided at least 30% of the IDRs shall be available for retail individual investors and in case of under subscription, the spillover to other categories may be permitted.
5. There shall be only one denomination to IDRs.
6. Minimum subscription is 90% of offer through offer document.
7. The issuing Co. should be listed in its home nation and not prohibited to issue securities.

Disclosure of Risk factor in offer document:
- If there are any criminal charges under IPC or violation of securities law
- Statutory clearance and approvals yet to be received by issuer
- Seasonality of business of issuer
- If the industry segment for which the issue is proposed has contributed less than 25% of the issuers total revenue in the last 3 fiscal.
- Default in repayment of principle and interest if any
- Interest of directors, managers and promoters of the issuer
- Excessive dependence on the key management for the project
- The loss making group companies of the issuer etc..

Delisting of Shares:
1. Voluntary delisting being sought by shareholders:
- Delist securities from SE where they are listed provided listed for a minimum period of 3 years on any SE.
- Delisting through a book building process by determination of an exit price
- SR needs to be passed at GM
- Make public announcement of delisting in the manner provided
- Apply to the delisting SE in the form prescribed & comply with other conditions.
2. Shareholding of the Co. falls below the minimum limit prescribed in the listing agreement
3. Compulsory delisting by SE: The SE may delist securities of such Co.’s which have been suspended for a minimum period of 6 months for non-compliance of the listing agreement or as per norms provided in the Schedule III by giving a SCN to the Co and asking to show cause within 15 days. After delisting the SE shall ensure wide and adequate public notice of delisting through newspapers/notice boards/SE’s website etc.
4. A person in control of the management of the Co. seeking to consolidate his holdings in a Co., in a manner which would result in a decline in the public shareholding in the Co. below the limit specified in the listing agreement with the SE.
Reinstatement of delisted securities can be made only after a cooling period of 2 years.

Book Building: An issuer proposing to issue securities through book building shall comply with the following:
- Issuer shall appoint one or more merchant banker as book runner and disclose their name in the Red herring prospectus.
- There shall be only one lead book runner and other merchant bankers can be appointed as co-book runners or syndicate members (appointed by book runners) who shall compulsorily underwrite the issue.
- The final underwriting arrangement shall be printed in the prospectus before it is registered.
- The issuer shall enter into an agreement with one or more SEs having the system of online offer of securities.
- The issuer shall pay commission/fees to the book runners/syndicate members/stock brokers for their services.
- The Red herring prospectus shall be filed with the board by the merchant banker. But no such filing required in case of fast track issue.
- The rules relating to pricing/price & price band/differential pricing/face value of equity shares/allocation of equity shares in net offer to public are the same as mentioned above.

Anchor Investors:
- They shall make an application of at least 10 Cr. in public issue.
- Allocation to anchor investors shall be discretionary subject to a minimum number of 2 such investors for allocation of upto 250 Cr. & 5 such investors for allocation of more than 250 Cr.
- Upto 30% of the portion available for allocation to QIB shall be available to anchor investors.
- 1/3rd of the anchor investors’ portion shall be reserved for domestic mutual funds.
- Bidding for them shall open 1 day before the issue opening date and complete on the day of bidding by the Anchor investors.
- Lock-in-period for them shall be 30 days from the date of allotment.