SEBI has constituted a standing commission. chaired by Shri M S Verma. Chairman. TRAI. This commission comprises representatives from ICAI. ICSI. investor associations. merchandiser bankers. Industry associations. Ministry of Finance etc. The footings of mention of this commission are as follows: 1. To rede SEBI on affairs associating to ordinance of mediators for guaranting investor protection in the primary market. 2. To rede SEBI on issues related to development of primary market in ndia. 3. To rede SEBI on affairs required to be taken by for alterations in legal model to present simplification and transparence in the primary market. This commission meets at regular intervals and makes recommendations to SEBI. The commission had received several representations from merchandiser bankers and other participants in the primary market sing the assorted alterations required in the SEBI ( Disclosure and investor Protection ) Guidelines. 2000. in order to do it more market/investor friendly. The commission discussed these suggestions and has made the undermentioned recommendations to SEBI: ( I ) Provisions associating to Book Building I ( 1 ) Requirement to advert floor monetary value in the Red Herring Present Position The company is required to unwrap the floor monetary value in the Red Herring Prospectus to be submitted to RoC. at least 3 yearss prior to the command opening day of the month. as per Clause No. 11. 3. 1 ( seven ) ( a ) of SEBI ( DIP ) Guidelines. 2000. Recommendation

The company may be allowed to unwrap the floor monetary value. merely prior to the command opening day of the month. alternatively of in the Red herring Prospectus. This may be done by any agencies like a public advertizement in newspapers etc. Rationale As per commissariats of subdivision 60B ( 2 ) of Companies Act. 1956 Red Herring prospectus is to be filed with ROC at least 3 yearss prior to the command opening day of the month. That means issuer company has to unwrap the floor monetary value prior to atleast 3 yearss of the command opening day of the month. In a dynamic market scenario. the companies do non like to bespeak a floor monetary value excessively much in progress to the command opening period. as the market conditions may alter. necessitating the company to revise its floor monetary value downwards. which may non be possible in instance the floor monetary value has been frozen in progress. I ( 2 ) Moving monetary value set Present place

As per Clause No. 11. 3. 1 ( seven ) ( a ) of SEBI ( DIP ) Guidelines. 2000. Red Herring prospectus has to unwrap the floor monetary value ( i. e. the monetary value below which the issuer is non willing to ‘ . ) Disclosure of “price band” is non allowed. sell’ Recommendation SEBI may see supplying flexibleness to the issuer company by allowing them to bespeak a 20 % monetary value set ( Flexibility of traveling the monetary value up and down ) . Issuer may be given the flexibleness to revise the monetary value set during the command period. Rationale The commission felt that bespeaking a floor monetary value defeats the really intent of book edifice. as the investors tend to offer at or around the floor monetary value. The monetary value set may be allowed to be moved upwards or downwards. depending on the way in which the book is being built. The moving monetary value set coupled with a closed book edifice will assist in existent monetary value find.

I ( 3 ) Closed Book edifice Present place As per clause 11. 3. 1. the issuer/merchant banker ( s ) are required to guarantee online. existent clip graphical show of demand and command monetary values at the command terminuss. during the command period. The book running lead director is besides required to guarantee the handiness of equal substructure for informations entry of the commands on a existent clip footing. Recommendation The issuers may be allowed to hold a closed book book-building i. e. the book will non be made public and the appliers will hold to take a call on the monetary value at which they should do the command. without holding any entree to information sing the commands made by other appliers. Rationale The commission was of the position that uncovering inside informations of “bids” received in non in consonant rhyme with the construct of “price discovery” as a find is possible merely when the appliers make independent commands. Uncovering the book besides leads to cartelization of the procedure and makes it meaningless.

I ( 4 ) Re-look at 3rd status of Rule 192b for 10 % issue Present place As per Rule 19 ( 2 ) ( B ) of the SC ( R ) R. 1957. a company make an IPO of less than 25 % of its station issue paid up capital topic to 3 conditions. one of which was “Issue should be made through book edifice mechanism. with minimal 60 % allotment to QIBs” ( else the issue fails ) . Recommendation SEBI may analyze this demand and if approved. request Government of India to cancel this demand. Rationale The commission pointed out that there is an anomalousness in position of the followers: A company offering at 25 % of its station issue paid up capital. holding the necessary path record is allowed to come out with either a fixed monetary value issue or a book built issue. However. the same company. if it is offering 24. 99 % of its station issue paid up capital. is required to do the issue through book edifice with mandatory allocation of 60 % to QIBs. neglecting which the issue is deemed to hold failed. As per Clause 2. 2. 1 of the guidelines. this demand of 60 % allotment to QIBs is required merely in instance a company is non holding the necessary path record.

Therefore. there is an component of incompatibility in the commissariats of the SCRR vis a vis SEBI ( DIP ) Guidelines. as SC ( R ) R equates companies with path record. but offering less than 25 % with companies without path record. In order to guarantee harmonious commissariats in the SC ( R ) R. the commission felt that a company otherwise fulfilling the eligibility standard laid down by SEBI may be allowed to offer less than 25 % topic to conformity with the first two conditions. I ( 5 ) Research study Present place Clause 9. 3. 1 ( three ) . sing research study. states the undermentioned: “no study or information. other than the contents of the bill of exchange offer papers shall be circulated by the issuer or any member of the issue direction team/ mob or their associates. after the day of the month of reception of observations from SEBI. ” Recommendation It has been recommended that black out period for research should be re-stated as “from 40 yearss before issue gap till 40 yearss after issue closing” .

Rationale The commission noted that the current demands are really restrictive in nature. SEBI’ observations are valid for a period of 1 twelvemonth. In such instances. the members of the s issue direction squad can non publish any research studies from the day of the month of the observations. which. in utmost instance means a blackout for about a twelvemonth. It was besides submitted that the international pattern is to hold blackout for 30-45 yearss prior to launch of issue till the same period after issue shutting. ( II ) Other commissariats II ( 1 ) Hosting of Draft and concluding prospectus on the company/Lead Manager’s site boulder clay naming. Present place The bill of exchange offer papers is hosted on SEBI’ web site for a period of 21 yearss from s filing of the papers and the concluding prospectus is hosted from issue opening till closing of the issue. Red herring prospectus is available on SEBI’ web site boulder clay command s shutting. Recommendation The bill of exchange and concluding offer papers may be made available on the lead manager’ and s company’ web site boulder clay naming. s Rationale

The commission felt that to hold broad airing of information in the prospectus/draft offer papers and to supply easy and broad entree to investors. the bill of exchange and concluding prospectus of issuer companies may be hosted on the company and lead manager’ web sites. s II ( 2 ) Definition of Retail Investors Present place Retail investor. in instance of a book built issue is defined as any applier who applies for non more than 1000 portions. Even in fixed monetary value part at least 50 % of the issue is made available for investors who have applied for non more than 1000 portions. Recommendation “Retail investor” may be re-defined in footings of the sum applied for. alternatively of the figure of portions applied for. as at nowadays. Rationale The commission was of the position that current definition does non distinguish between a “retail investor” who has applied for 1000 portions of Rs. 530 each and a “retail investor” using for 1000 portions of Rs. 10 each. even though the profile of these investors differs immensely.

II ( 3 ) Requirement sing minimal subscription in an issue Present place A company is required to return the full subscription received in the issue in instance it has non been able to roll up at least 90 % of the issue size. Recommendation SEBI should see non holding a compulsory demand of 90 % subscription and leting the companies to unwrap in the prospectus. the sum of minimal subscription they require and the beginnings for run intoing the deficit. Rationale The commission was of the position that there may be instances where the company has multiple undertakings in manus and seeks to raise resources for them through the public issue. Even if the company does non acquire 90 % sum. it may still be able to take up some of the undertakings and non taking up the remainder may non hold any impact on the other undertakings. Furthermore. progressively companies. particularly those in the services sector. are raising resources for enlargement of installations. Even in these instances. less than 90 % subscription may intend a decrease in the enlargement programs. non a complete failure. However. his may necessitate amendments to the Companies Act commissariats.

II ( 4 ) Green shoe option One of the grounds attributed for the dull sentiment in the IPO market is that of the sensed overpricing of the issues and trading of portions at a monetary value below the issue monetary value instantly after naming. SEBI has been following a policy of “free pricing” for issues and allows a company to freely monetary value its portions. topic to the justification for the monetary value being disclosed in the papers. However. the commission felt that SEBI. in its developmental function. needs to interrupt the barbarous circle of “dull market-lack of merchandising interest-depressed prices-dull market” and recommended that SEBI may analyze the pattern of “green shoe option” available in other markets abroad. Green shoe option is an “over allotment” option granted by the issuer to the investment banker in a public offering. This enables the mob member to over apportion the portions to the extent of option available and to later buy extra portions from the issuer at the original offering monetary value in order to cover the over-allotments ( if required ) .

Typically this option is to the extent of 15 % of the issue size. In the Indian context. if the issuer company opts for Green Shoe option. the mechanism would work as follows: I. If a company is publishing 100 portions. the company will allow an over-allotment option to one of the members of Issue direction squad to the extent of say 15 portions. two. Simultaneously. the boosters would impart 15 portions to the mob member for a limited period of 30 yearss from the day of the month of listing. ( To this extent. freedom would be required from SEBI ( DIP ) Guidelines sing lock in of pre-IPO portions for one twelvemonth from allocation. The proviso may be added to let Syndicate Member to borrow portions for this intent ) Allotment would be made to the extent of 115 portions. ( 100 portions issued by the company and 15 borrowed from the boosters ) Listing permission is taken for 100-115 portions ( To this extent. Stock Exchanges would be required to give listing blessing for portions. which may or may non be issued. depending upon the scenario ) . In instance. on naming the monetary value falls below the issue monetary value. the Syndicate Member may purchase portions from the market to the extent of 15 portions. This may counter the merchandising force per unit area. The portions bought by the Syndicate member are so returned to the boosters. Therefore. merely 100 portions remain listed on the exchange after 30 yearss. In instance the portion monetary value rises quickly. the Syndicate member does non come in the market and at the terminal of the 30 twenty-four hours period ( or before ) invokes the overallotment option. asks the company to assign 15 more portions. These portions are so returned to the boosters. Therefore 115 portions remain listed on the exchange.

B. Equity Shares with Differential Voting Rights

The extant SEBI ( DIP ) Guidelines. 2000 specifies norms for Public Issue/Rights Issue/Offer for Sale of any security. Section 86 of the Companies Act. 1956 has been amended w. e. degree Fahrenheits 13/12/2000 supplying for issue of equity portion capital with different rights as to dividend. vote or otherwise. The amended subdivision reads as under: “The portion capital of a company limited by portions shall be of two sorts merely. viz. : ( a ) equity portion capital – ( I ) with vote rights ; or. ( two ) with differential rights as to dividend. vote or otherwise in conformity with such regulations and capable to such conditions as may be prescribed ; ( B ) penchant portion capital. ” As. SEBI ( DIP ) Guidelines is applicable for Public Issue/Rights Issue/Offer for Sale of any security. Equity Shares with Differential Rights besides comes under its horizon.

In visible radiation of this amendment in the Companies Act. SEBI ( DIP ) Guidelines 2000 has been reviewed internally. It was found that SEBI ( DIP ) Guidelines. 2000 in general. is applicable for Equity Shares with differential vote rights. However. the following issues have been specifically examined and addressed Public Issue demands in DIP Guidelines As SEBI ( DIP ) Guidelines. 2000 is applicable for Public Issue/Rights Issue/Offer for Sale of any instrument. it will be applicable for Public Issue/Rights Issue/Offer for Sale of Equity Shares with differential vote rights. In the same logic. the bounds of boosters part. post-issue capital etc. would hold to be calculated in the line of the same applicable for Equity Shares with normal vote rights.

Under the bing jurisprudence. there appears to be no prohibition against composite issue of Equity portions with normal vote rights and Equity portions with Differential voting rights. Therefore composite issue of Equity portions with normal vote rights and Equity portions with Differential voting rights may be allowed. At the same clip. it can be reasonably assumed that Equity portions with Differential voting rights will be holding less voting power compared to Equity portions with normal vote rights. Therefore. holders of Equity portions with normal vote rights will act upon the determination of the company in most of the instances. It has hence been felt that a company should non be allowed to do an initial public offering of Equity portions with Differential voting rights ( ESDVR ) prior to doing an initial public offering of Equity portions with normal vote rights ( ESNVR ) to guarantee public engagement in the determination doing procedure of a listed company. Rule 19 ( 2 ) ( B ) of SCRR This regulation provides for minimal public offering of 25 % or 10 % as a pre-condition for listing. The regulation starts with the words: “At least 10 % of each category or sort of securities issued by a company was offered to the public… ” .

In position of the underlined words. the normal building would be that 10 % or 25 % . as the instance may of. the differential rights portions would besides hold to be individually offered to the populace in the mode provided. This is because though subdivision 86 speaks merely of two sorts of capital. differential rights portions constitutes a separate category of instrument within the equity portions class. Listing requirement Conformity with regulation 19 ( 2 ) ( B ) as explained above is necessary for obtaining listing. . Therefore atleast 25 % or 10 % of the Equity portions with Differential vote rights are required to be offered to public for being eligible for naming. The conditions of continued naming shall be applicable for each instrument individually. Furthermore. in instance of a farther issue of differential rights portions to boosters. the commissariats of clause 40A ( three ) of the Listing Agreement would be applicable and would hold to be complied with.

All commissariats of the Listing Agreement would be applicable to differential rights portions besides since they are besides a category of equity portions. provided no absurdness arises on such application. Discriminatory Allotment Clause 13. 0 of the DIP Guidelines says that the discriminatory allocation guidelines apply to all discriminatory allocations of equity portions. As per subdivision 86 of Companies Act. 1956. Equity portions with Differential voting rights is besides a type of equity portion. Therefore commissariats of SEBI ( DIP ) Guidelines. 2000 sing discriminatory allocation will be applicable for discriminatory allocation of Equity portions with Differential voting rights. Bonus portions entitlement Regulation 96 of Table A ( Model Articles of Association to be adopted ) of Schedule I of the Companies Act lays down the commissariats associating to bonus issue. Sub-clause

( 1 ) ( B ) thereof says that the militias etc. may be capitalised inter alia for the intent of publishing to the full paid fillip portions “amongst the members who would hold been entitled thereto. if distributed by manner of dividend and in the same proportions. ” Therefore. if a company has the same articles as Table A. the fillip portions have to be issued in the same proportion in which dividend would be distributed. Therefore in the instance of portions holding differential rights as to dividend. would hold to be treated otherwise and the entitlement of holders of such category will be scaled up or down to the same extent as their dividend would hold been. If the articles contain some other proportion. that has to be followed. Rights entitlement Section 81 ( 1 ) of the Companies Act. specifies the manner of doing a rights issue. Clause ( a ) says that the farther rights portions “shall be offered to the individuals who. at the day of the month of the offer. are holders of equity portions of the company. in proportion. every bit about as fortunes admit. to the capital paid-up on those portions at that day of the month. ” Thus for make up one’s minding the rights entitlement. merely the capital paid up on each portion is relevant.

The rights to dividend. voting etc. are non. As per regulation 3 ( 9 ) ( vitamin E ) of the said Rules. the company has to province in its explanatory statement that a member of the company keeping differential rights portions shall be entitled to bonus portions and right portions of the same category. This does non talk of the proportion of their entitlement vis-a-vis holders of ordinary equity portions. Thus the reading given above in computation of rights and fillip entitlement has to be taken. In position of the above-named consideration. the undermentioned proposals are being made: ? ? ? All commissariats associating to ordinary Equity Shares will be every bit applicable to the ‘Shares with differential vote rights’ besides. SEBI ( DIP ) Guidelines. 2000 needs to be amended forbiding IPO of ‘Shares with differential vote rights’ prior to IPO of ordinary of Equity Shares. Composite issue of both ordinary equity portions and portions with differential vote rights can be done.

However. all commissariats of SEBI ( DIP ) Guidelines. 2000. applicable for issue of Equity Shares are to be complied with in instance of issue of portions with differential vote rights on a base entirely footing. Commissariats of Section 73 of Companies Act. 1956 are required to be complied with if ‘Shares with differential vote rights’ are intended to be offered to public. Both ordinary Equity Shares and ‘Shares with differential vote rights’ have to be of same denomination. ‘Shares with differential vote rights’ are required to be offered to the populace in the mode specified in Rule 19 ( 2 ) ( B ) of SCR ( R ) . 1957. ‘Shares with differential vote rights’ are to be listed obligatorily capable to conformity with Rule 19 ( 2 ) ( B ) of SCR ( R ) . 1957. All commissariats of the Listing Agreement would be applicable to ‘Shares with differential vote rights’ .

Commissariats of SEBI ( DIP ) Guidelines. 2000. applicable for discriminatory allocation of ordinary Equity Shares will be applicable to the discriminatory allocation of ‘Shares with differential vote rights’ . ? It is allowable to publish 100 % ‘Shares with differential vote rights’ to the boosters. However. in that instance commissariats of Section 81 ( 1A ) of Companies Act. 1956 will be applicable. In instance of a listed company. proviso of Commissariats of SEBI ( DIP ) Guidelines. 2000. applicable for discriminatory allocation of ordinary Equity Shares will be applicable. In instance of Bonus Issue. Rights Issue. holder of ‘Shares with differential vote rights’ shall be entitled to the portions of same category in the same proportion at which holders of the Equity Shares with normal right are acquiring the benefits.