Indian Equity – Public Funding – Corporate Funding and Listings in Stock Exchanges Important Questions

Question 1.
Write short note: “Compulsory Delisting”.
Answer:
“Compulsory delisting”: Compulsory delisting means permanent removal of securities of a listed company from a stock exchange. It is a penalizing measure on the order of the stock exchange for not making sub-mission/ complying with various requirements set out in the SEBI (LODR) Regulations, 2015 within the time frames prescribed. A recognized stock exchange may by order, delist any equity shares of a company on any ground prescribed in the rules made under Section 21A of the Securities Contracts (Regulation) Act, 1956.

Question 2.
What are the criteria for compulsory delisting by Stock Exchanges?
Answer:
A recognized stock exchange may, by order, delist equity shares of a company on any grounds prescribed in the rules made under Section 21A of the Securities Contracts (Regulation) Act, 1956. However, no order shall be made under this sub-regulation unless the company concerned has been given a reasonable opportunity of being heard.

Criteria for Compulsory Delisting: Schedule III read with Regulation 22(4) of SEBI (Delisting of Equity Shares) Regulations, 2009 provides for criteria for compulsory delisting. These criteria are:

The recognised stock exchanges shall take all reasonable steps to trace the promoters of a company whose equity shares are proposed to be delisted, with a view to ensuring compliance with Regulation 23(2).
The recognised stock exchange shall consider the nature and extent of the alleged non-compliance of the company and the number and percentage of shareholders who may be affected by such non-compliance.
The recognized stock exchange shall take reasonable efforts to verify the status of compliance of the company with the office of the concerned Registrar of Companies.
The names of the companies whose equity shares are proposed to be delisted and their promoters shall be displayed in a separate section on the website of the recognised stock exchange for a brief period of time. If delisted, the names shall be shifted to another separate section on the website.
The recognised stock exchange shall in appropriate cases file prosecutions against identifiable promoters’ and directors of the company for the alleged non-compliances.
The recognised stock exchange shall in appropriate cases file a petition for winding up the company or make a request to the Registrar of Companies to Strike off the name of the company from the “Register of Companies”.

Question 3.
Write short note: “Voluntary delisting of securities”.
Answer:
“Voluntary delisting of securities”:

According to SEBI (Delisting of Equity Shares) Regulations, 2009, a company can voluntarily apply to the concerned stock exchange(s) for delisting.
Public notice and all announcements are required to be given by the Promoters of the company.
The Company seeking voluntary delisting shall take the approval of the concerned stock exchange(s) and also of public shareholders.
Shareholders’ resolution is required to be passed through Postal ballot.
- The complete process is monitored by the Merchant Bankers. The price should be determined on the basis of the past trading data or book values of the company by the promoters in consultation by the Merchant Bankers.
The company cannot re-list its securities for a period of 5 years.

Question 4.
Write short note on: “Fast track issue”.
Or
Define ‘Fast Track Issue’. List out the conditions to make a ‘Fast Track Issue’.
Or
Write short note on the following: “Fast Track Issue.”
Or
Define the following: “Fast Track Issue.”
Answer:
“Fast track issue”: It may be defined as a time saving manner for bringing public issue by a listed company, satisfying the prescribed conditions of Regulation 155 of SEBI (ICDR) Regulations, 2018. As per the Regulation 155, a listed company can bring further public offer without fulfilling the requirements of Regulation 123, which are as follows:

No need to file three copies of the draft offer document with the concerned regional office of the Board.
No need to file the draft offer document with the stock exchange(s) where the specified securities are proposed to be listed.

Provision Related to Fast Track Issue:
Minimum Listing Period: Equity shares of the issuer have been listed on any stock exchange for a period of at least three years immediately preceding the reference date.

Demat Form: Entire shareholding of the promoter group of the issuer is held in dematerialised form on the reference date.

Average Market Capitalisation: Average Market Capitalisation of public shareholding of the issuer is at INR 1000 crores in case of public issue.

Annualised trading turnover: Annualised trading turnover of the equity shares of the issuer during 6 calendar months immediately preceding the month of the reference date has been at least 296 of the weighted average number of equity shares listed during such 6 months’ period.

Annualized delivery-based trading turnover: Annualized delivery-based trading turnover of the equity shares during six calendar months immediately preceding the month of the reference date has been at least 1096 of the annualised trading turnover of the equity shares during such 6 months’ period.

Compliance with Listing Regulations: Issuer has been in com-pliance with the equity listing agreement or the SEBI (LODR) Regulations, 2015, as applicable, for a period of at least 3 years immediately preceding the reference date.

Question 5.
What are the eligibility conditions for making a Fast Track Issue (FTI)?
Answer:
As per Regulation 155 of SEBI (ICDR) Regulations, 2018 provides for following conditions for fast track public issue:
Minimum Listing Period: Equity shares of the issuer have been listed on any stock exchange for a period of at least three years immediately preceding the reference date.

Demat Form: Entire shareholding of the promoter group of the issuer is held in dematerialised form on the reference date.

Average Market Capitalisation: Average Market Capitalisation of public shareholding of the issuer is at INR 1000 crores in case of public issue.

Compliance with Listing. Regulations: Issuer has been in compliance with the equity listing agreement or the SEBI (LODR) Regulations, 2015, as applicable, for a period of at least 3 years immediately pre-ceding the reference date.

Grievances Redressed: Issuer has redressed at least 9596 of the com-plaints received from the investors till the end of the quarter immediately preceding the month of the reference date.

No Prosecution: No show-cause notices have been issued or prosecution proceedings have been initiated by the Board and pending against the issuer or its promoters or whole-time directors as on the reference date.

No Suspension of Trading: Equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 3 years immediately preceding the reference date.

Question 6.
Whether fast track issue can be proceeded just like an IPO or, are any other conditions to fast track issue? Explain.
Answer:
No, in case of fast track issue the company has to fulfil some additional conditions which are as:
Minimum Listing Period: Equity shares of the issuer have been listed on any stock exchange for a period of at least three years immediately preceding the reference date.

Demat Form: Entire shareholding of the promoter group of the issuer is held in dematerialised form on the reference date.

Average Market Capitalisation: Average Market Capitalisation of public shareholding of the issuer is at INR 1000 crores in case of public issue.

Annualised trading turnover: Annualised trading turnover of the equity shares of the issuer during 6 calendar months immediately preceding the month of the reference date has been at least 2% of the weighted average number of equity shares listed during such 6 months’ period.

Annualized delivery-based trading turnover: Annualized delivery-based trading turnover of the equity shares during six calendar months immediately preceding the month of the reference date has been at least 10% of the annualised trading turnover of the equity shares during such 6 months’ period.

Compliance with Listing Regulations: Issuer has been in compliance with the. equity listing agreement or the SEBI (LODR) Regulations, 2015, as applicable, for a period of at least 3 years immediately preceding the reference date.

Grievances Redressed: Issuer has redressed at least 95% of the com-plaints received from the investors till the end of the quarter immediately preceding the month of the reference date.

No Suspension of Trading: Equity shares of the issuer have not been suspended from trading as a disciplinary measure during last 3 years immediately preceding the reference date.

No Conflict of interest: There shall be no conflict of interest between the lead manager(s) and the issuer or its group companies in accordance with the applicable regulations.

Impact of Audit qualifications: Impact of Audit qualifications, if any and where quantifiable, on the audited accounts of the issuer in respect of those financial years for which such accounts are disclosed in the letter of offer does not exceed 5% of the net profit or loss after tax of the issuer for the respective years.

Question 7.
Write short note on the following: “Lock-in period”.
Answer:
“Lock-in period”: A lock in period is a predetermined time phase during which the holders of securities are not allowed to sell those shares.

Lock-in of specified securities held by the promoters [Reg. 16 of SEBI (ICDR) Regulations, 2018]: The specified securities held by the promoters shall not be transferable for the periods as:
minimum promoters’ contribution including contribution made by alternative investment funds or foreign venture capital investors or scheduled commercial banks or public financial institutions or insurance companies registered with Insurance Regulatory and Development Authority of India shall be locked-in for a period of 3 years from the date of commencement of commercial production or date of allotment in the IPO/FPO, whichever is later.

promoters’ holding in excess of minimum promoters’ contribution shall be locked-in for a period of 1 year from the date of allotment in the initial public offer. In FPO, the excess promoters’ contribution shall not subject to lock-in.

Explanation of “Date of commencement of commercial production”: The expression means the last date of the month in which commercial production of the project in respect of which the funds raised are proposed to be utilized as stated in the offer document, is expected to commence.

Question 8.
Write short note on the following: “Subscription List”.
Answer:
Meaning of subscription list: It means a list or record of subscription and subscribers. In case of issue of securities subscription list or subscription record is kept open for a certain period which is known as “Period of subscription”.

Explanation: As per Regulation 46, “Period of subscription ”is as follows: Except as otherwise provided in these regulations, an initial public offer/ further public offer shall be kept open for at least three working days and not more than ten working days.

Question 9.
Write short note on the following: “ASBA”.
Or
Explain the concept of ASBA in an IPO.
Answer:

As per Regulation 2(1)(d), definition of ASBA: It means an application for subscribing to a public issue or rights issue along with an authorization to self-certified syndicate bank to block the application money in a bank account.
ASBA is an application for subscribing to an issue containing an au-thorization to block the application money in a bank account.
In case of all public issues and rights issues where not more than one payment option is given, the issuer shall provided the facility of ASBA in accordance with the procedure and eligibility criteria specified by SEBI. However, in case of qualified institutional buyers and non-institutional investors the issuer shall accept bids using ASBA facility only.
ASBA process is applicable to all book-built public issues which provide for not more than one payment option.

Advantages of ASBA:

Money moves from the investors accounts, only after allotment.
If the concerned investor didn’t get allotment, then the block is removed hence, there is no concern regarding non-receipt or delay in refund.
No need to pay commission for making of DD etc.
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.

Question 10.
What is ‘applications supported by blocked amount’ (ASBA)? Briefly explain ASBA process.
Or
What do you understand by “Application Supported by Blocking Amount (ASBA)”? How does it work in Initial Public Offer (IPO)? Describe.
Answer:
ASBA stands for “Application supported by Blocked Amount” which means an application for subscribing to a public issue or rights issue, along with an authorization to self-certified syndicate bank to block the application money in a bank account. Under ASBA process instead of moving the application money from the bank account of applicant in an IPO to an escrow account, same is block in applicant’s own bank account and if he receives shares in IPO same is released to the issuer company.

ASBA Process:

An ASBA investor submits an ASBA physically or electronically through the internet banking facility to the Self-Certified Syndicate Banks (SCSBs) with whom the bank account to be blocked is maintained.
The SCSBs 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 finalization 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 is finalized, the Registrar to the Issue sends an appropriate request to the SCSBs 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 SCSBs on receipt of information from the pre-issue merchant bankers.

Question 11.
Write note on the following: Delisting of Securities.
Answer:
A company may delist its equity shares voluntarily from all or from the only recognized stock exchange where they are listed. However, all public shareholders holding equity shares of the class which are sought to be delisted are given an exit opportunity under SEBI (Delisting of Equity Shares) Regulations, 2009.

A recognized stock exchange may, by order, compulsorily delist any equity shares of a company. However, no order shall be made unless the company concerned has been given a reasonable opportunity of being heard.

Question 12.
Answer the following: Briefly explain the provisions relating to delisting of equity shares under SEBI Regulations, 2009.
Answer:
The term “delisting” of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange.

As per SEBI (Delisting of Equity Shares) Regulations, 2009, delisting can be voluntary or compulsory.

Provisions regarding Delisting:
As per Regulation 6 of said regulation: A company may delist its equity shares from one or more recognized stock exchanges where they are listed and continue their listing on one or more other recognised stock exchanges, if after the proposed delisting the equity shares would remain listed on any recognized stock exchange which has nationwide trading terminals, no exit opportunity needs to be given to the public shareholders and not remain listed on any recognized stock exchange having nation-wide trading terminals, exit opportunity shall be given to all the public shareholders holding the equity shares sought to be delisted.

As per Regulation 27 of said regulation: The special provisions for small Companies to be delisted from all the recognized stock exchanges where they are listed.

Question 13.
Answer the following: SEBI in exercise of the powers conferred by section 31 read with section 21A of Securities Contracts (Regulation) Act, 1956, section 30, sub-section (1) of section 11 and sub-section (2) of section 11A of SEBI Act, 1992 made the SEBI (Delisting of Equity Shares) Regulations, 2009. Explain the framework and complete process of delisting as per regulations.
Answer:
The delisting process as per SEBI (Delisting of Equity Shares) Regulations, 2009, are explained as follows:

(A) In case of no exit opportunity:
1. It shall be approved by a resolution of the board of directors of the company in its meeting;

2. The company shall give a public notice of the proposed delisting in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchanges are located.

3. The company shall make an application to the concerned recognized stock exchange regarding this.

4. The fact of delisting shall be disclosed in the first annual report of the company prepared after the delisting.

5. The public notice shall mention the names of the recognized stock exchanges from which the equity shares of the company are intended to be delisted, the reasons for such delisting and the fact of continuation of listing of equity shares on recognized stock exchange having nationwide trading terminals.

6. An application shall be disposed off by the recognized stock exchange within a period not exceeding thirty working days from the date of receipt of such application complete in all respects.

(B) In case of exit opportunity:
In this case if any company desirous of delisting its equity shares:
1. Obtain the prior approval of the board of directors of the company in its meeting;

2. Obtain the prior approval of shareholders of the company by special resolution passed through postal ballot, after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to such resolution. However, the special resolution shall be acted upon if and only if the votes cast by public shareholders in favour of the proposal amount to at least two times the number of votes cast by public shareholders against it.

3. Make an application to the concerned recognized stock exchange for in-principle approval of the proposed delisting.

4. An application shall be disposed off by the recognized stock exchange within a period not exceeding five working days from the date of receipt of such application complete in all respects.

5. Within one year of passing the special resolution, make the final application to the concerned recognized stock exchange in the form specified by the recognized stock exchange.

However, in pursuance of special resolution, passed before the commencement of these regulations, final application shall be made within a period of one year from the date of passing of special resolution or 6 months from the commencement of these regulations, whichever is later.

6. Prior to granting approval, the board of directors of the company shall,
make a disclosure to the recognized stock exchanges on which the equity shares of the company are listed that the promoters/acquirers have proposed to delist the company.

appoint a merchant banker to carry out due-diligence and make a disclosure to this effect to the recognized stock exchanges on which the equity shares of the company are listed.

obtain details of trading in shares of the company for a period of two years prior to the date of board meeting by top twenty five shareholders as on the date of the board meeting convened to consider the proposal for delisting, from the stock exchanges and details of off-market transactions of such shareholders for a period of two years and furnish the information to the merchant banker for carrying out due-diligence. Also, obtain further details and furnish the information to the merchant banker.

7. The board of directors of the company while approving the proposal for delisting shall certify that:

company is in compliance with the applicable provisions of securities laws.
acquirer or promoter or promoter group or their related entities are in compliance with Regulation 4(5).
delisting is In the interest of the shareholders.

8. For certification as mentioned above, the board of directors of the company shall take into account the report of the merchant banker.

9. The merchant banker appointed by the board of directors of the company shall carry out due diligence upon obtaining details from the board of directors of the company.

However, if the merchant banker is of the opinion that details referred above are not sufficient for certification, he shall obtain additional details from the board of directors of the company for such longer period as he may deem fit.

10. Upon carrying out due-diligence as specified in these regulations the merchant banker shall submit a report to the board of directors of the company certifying the following:

The trading carried out by the entities belonging to acquirer or promoter or promoter group or their related entities was in compliance or not, with the applicable provisions of the securities laws; and
Entities belonging to acquirer or promoter or promoter group or their related entities have carried out or not, any transaction to facilitate the success of the delisting offer which is not in compliance with the provisions of Regulation 4(5).

11. An application seeking in-principle approval for delisting’ shall be accompanied by an audit report as required under regulation 55A of SEBI (Depositories and Participants) Regulations, 2018 in respect of the equity shares sought to be delisted, covering a period of six months prior to the date of the application.

12. The recognized stock exchange shall not unfairly withhold such application, but may require the company to satisfy it as to Compliance with these regulations; resolution of investor grievances by the company; Payment of listing fees to that recognized stock exchange; compliance with any condition of the listing agreement with that recognized stock exchange having a material bearing an the interests of its equity shareholders and any litigation or action pending against the company pertaining to its activities in the securities market or any other matter having a material bearing on the interests of its equity shareholders as well as any other relevant matter as the recognized stock exchange may deem fit to verify.

13. Within one year of passing the special resolution make the final application to the concerned recognized stock exchange in the form specified by the recognized stock exchange and shall be accompanied with such proof of having given the exit opportunity in accordance with these regulations as the recognized stock exchange may require.

Question 14.
Write short note: “Promoters’ Contribution”.
Or
Write short note on: “Promoters’ Minimum Contribution”.
Answer:
As per Regulation 113 of SEBI (ICDR) provides for minimum pro-moters’ contribution:

Case 1: As per Regulation 113(1): Minimum promoters’ contribution in case of Pure Securities: The promoters shall contribute in the public issue as follows:
(a) either to the extent of 20% of the proposed issue size or to the extent of 20% of the post-issue capital;

(b) in case of a composite issue (i.e. further public offer cum rights issue), either to the extent of 20% of the proposed issue size or to the extent of 20% of the post-issue capital excluding the rights issue component.

Case 2: As per Regulation 113(2): In case of a public issue or composite issue of convertible securities, the minimum promoters’ contribution shall be as follows:
(a) the promoters shall contribute 20%, as the case may be, either by way of equity shares or by way of subscription to the convertible securities. However, if the price of the equity shares allotted pursuant to conversion is not predetermined and not disclosed in the offer document, the promoters shall contribute only by way of subscription to the convertible securities being issued in the public issue and shall undertake in writing to subscribe to the equity shares pursuant to conversion of such securities.

(b) in case of any issue of convertible securities which are convertible or exchangeable on different dates and if the promoters’ contribution is by way of equity shares (conversion price being pre-determined), such contribution shall not be at a price lower than the weighted average price of the equity share capital arising out of conversion of such securities.

Case 3: As per Regulation 113(3): Minimum promoters’ contribution in case of further Securities: In case of a further public offer or composite issue where the promoters contribute more than the stipulated minimum promoters’ contribution, the allotment with respect to excess contribution shall be made at a price determined in terms of the provisions relating to pricing of frequently trading shares or the issue price, whichever is higher.

Case 4: In case the promoters have to subscribe to equity shares or convertible securities towards promoters’ contribution: The promoters shall satisfy the requirements of at least one day prior to the date of opening of the issue and the amount of promoters’ contribution shall be kept in an escrow account with a scheduled commercial bank and shall be released to the issuer along with the release of the issue proceeds.

Further, where the minimum promoters’ contribution is more than one hundred crore rupees and the further public offer is for partly paid shares, the promoters shall bring in at least one hundred crore rupees before the date of opening of the issue and the remaining amount may be brought on a pro-rata basis before the calls are made to the public.

Question 15.
Critically examine the following: Promoter’s contribution to be brought in before public issue opens.
Answer:
As per Regulation 14(34) of SEBI (ICDR) Regulations, 2018, Promoters shall bring in the full amount of the promoters’ contribution including premium at least one day prior to the issue opening date which shall be kept in an escrow account with a Scheduled Commercial Bank and the said contribution/amount shall be released to the company along with the public issue proceeds.

Where the promoters’ contribution has been brought prior to the public issue and has already been deployed by the company, the company shall give the cash flow statement in the offer document disclosing the use of such funds received as promoters’ contribution.

If the promoters’ minimum contribution exceeds INR 100 crores and the initial public offer is for partly paid shares, the promoters shall bring in INR 100 crores before the opening of the issue and the remaining contribution shall be brought in by the promoters in advance on pro-rata basis before the calls are made on public.

Question 16.
Write short note: “Basis of Allotment”.
Answer:
The issuer shall not make an allotment pursuant to a public issue if the number of prospective allottee(s) is less than one thousand.

The issuer shall not make any allotment in excess of the specified securities offered through the offer document except in case of over-subscription for the purpose of rounding off to make allotment, in consultation with the designated stock exchange.

The allotment of specified securities to applicants other than to the retail individual investors and anchor investors shall be on a proportionate basis within the respective investor categories and the number of securities allotted shall be rounded off to the nearest integer subject to minimum allotment being equal to the minimum application size as determined and disclosed in the offer document. However, the value of specified securities allotted to any person except in case of employees in pursuance of reservation made under these regulations, shall not exceed two lakhs rupees for retail investors or up to five lakhs rupees for eligible employees.

The allotment of specified securities to each retail individual investor shall not be less than the minimum bid lot subject to the availability of shares in retail individual investor category, and the remaining available shares, if any shall be allotted on a proportionate basis.

Question 17.
Write short note on: “Qualified Institutional Buyers (QIBs)”.
Answer:
As per Regulation 2(l)(ss) of SEBI (ICDR) Regulations, 2018 defines “Qualified Institutional Buyer” means:

a mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor registered with the Board.
a foreign portfolio investor other than Category HI foreign portfolio investor, registered with the Board.
a public financial institution.
a scheduled commercial bank.
a multilateral and bilateral development financial institution.
a state industrial development corporation.
an insurance company registered with the Insurance Regulatory and Development Authority of India.
a provident fund with minimum corpus of INR 25 crores.
a pension fund with minimum corpus of INR 25 crores.
National Investment Fund of the Government of India.
insurance funds set up and managed by army, navy or air force of the Union of India; and
insurance funds set up and managed by the Department of Posts, India; and
Systemically important Non-Banking Financial Companies.

Question 18.
Write short note on the following: “Draft offer document”.
Answer:
As per Regulation 2(n), it means the draft offer document filed with the Board in relation to a public issue under SEBI (ICDR) Regulations, 2018.

As per Regulations 24, 25 & 26, some important provisions are as follows:
→ Disclosures in the draft offer document and offer document [Regulation 24]: The draft offer document and offer document shall contain all material disclosures which are true and adequate to enable the applicants to take an informed investment decision.

→ Filing of the draft offer document and offer document [Regula-tion 25]: Prior to making an initial public offer, the issuer shall file three copies of the draft offer document with the concerned regional office of the Board under the jurisdiction of which the registered office of the issuer company is located, in accordance with Schedule IV, along with fees as specified in Schedule III, through the lead manager(s).

→ Draft offer document and offer document to be available to the public [Regulation 26]: The draft offer document filed with the Board shall be made public for comments, if any, for a period of at 21 days from the date of filing, by hosting it of the websites of the Board, stock exchanges where specified securities are proposed to be listed and lead manager(s) associated with the issue.

Question 19.
Can an issuer company offer specified securities at different prices? What are the conditions laid down under the SEBI investor protection guidelines with regard to differential pricing of securities?
Answer:
Yes, an issuer can offer specified securities at different prices.

As per Regulation 30 of SEBI (ICDR) Regulations, 2018 permits the issuer to offer its specified securities at different prices, subject to the following conditions:

Discount (if any) shall be expressed in rupee terms in the offer document.
Retail individual investors or retail individual shareholders or employees entitled for reservation made under Regulation 33 may be offered specified securities at a price not lower than by more than 10% of the price at which net offer is made to other categories of applicants, excluding anchor investors.
In case of a book built issue, the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants.
In case the issuer opts for the alternate method of book building in terms of Part D of Schedule XIII, the issuer may offer the specified securities to its employees at a price not lower than by more than 10% of the floor price.

Question 20.
Explain the following statement: “An issuer can offer specified securities at different prices.”
Answer:
As per Regulation 30, following are important points in this regard relating to different prices:

The issuer may offer its specified securities at different prices, subject to the following: .
(a) retail individual investors or retail individual shareholders or employees entitled for reservation made under Regulation 33 may be offered specified securities at a price not lower than by more than ten per cent, of the price at which net offer is made to other categories of applicants, excluding anchor investors.

(b) in case of a book built issue, the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants;

(c) In case the issuer opts for the alternate method of book building in terms of Part D of Schedule XIII, the issuer may offer the specified securities to its employees at a price not lower than by more than ten per cent, of the floor price.

2. Discount, if any, shall be expressed in rupee terms in the offer document.
Thus, it is rightly said that an issuer can issue specified securities at different prices.

Question 21.
Comment on the following: A company cannot offer its shares at different prices to different sets of people in a particular public issue.
Or
Can a company issue shares at differential price in a public issue? If yes, to whom and under what circumstances the shares can be issued at differential price?
Answer:
Yes, an issuer company can offer specified securities at different prices subject to satisfaction of following conditions:

retail individual investors or retail individual shareholders or employees entitled for reservation made under Regulation 33 may be offered 5 specified securities at a price not lower than by more than 10% of the price at which net offer is made to other categories of applicants, excluding anchor investors.
in case of a book built issue, the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants.
in case the issuer opts for the alternate method of book building in terms of Part D of Schedule XIII, the issuer may offer the specified securities to its employees at a price not lower than by more than 10% of the floor price.
discount, if any, shall be expressed in rupee terms in the offer document.

Question 22.
Write short note on: “Differential pricing of Securities”.
Answer:
As per Regulation 30 of SEBI (ICDR) Regulations, 2018 permits the issuer to offer its specified securities at different prices, subject to the following conditions:

Discount (if any) shall be expressed in rupee terms in the offer document.
Retail individual investors or retail individual shareholders or employees entitled for reservation made under Regulation 33 may be offered specified securities at a price not lower than by more than 10% of the price at which net offer is made to other categories of applicants, excluding anchor investors.
In case of a book built issue, the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants.
In case the issuer opts for the alternate method of book building in terms of Part D of Schedule XIII, the issuer may offer the specified securities to its employees at a price not lower than by more than 10% of the floor price.

Question 23.
Write short note on: “Price and Price Band”
Answer:
Meaning of Price Band: It means a range of prices within which inves-tors can bid. This pricing technique is used in case of book building process.

As per provisions of Regulations 29 & 127 about Price Band as follows:
→ The issuer may mention a price or a price band in the draft prospectus (in case of a fixed price issue) and a floor price or a price band in the red herring prospectus (in case of a book built issue) and determine the price at a later date before registering the prospectus with the Registrar of Companies. However, the prospectus registered with the Registrar of Companies shall con-tain only one price .or the specific coupon rate, as the case may be.

→ The cap on the price band and the coupon rate in case of convert-ible debt instruments shall be less than or equal to one hundred and twenty per cent of the floor price.

→ The floor price or the final price shall not be less than the face value of the specified securities.

→ Where the issuer opt not to make the disclosure of the floor price or price band in the red herring prospectus, the issuer shall announce the floor price or the price band at least two working days before the opening of the issue (in case of an IPO) and at- least one working day before the opening of the bid (in case of a FPO), in the all newspapers in which the pre-issue advertisement was released.

→ Such announcement shall contain relevant financial ratios computed for both upper and lower end of the price band and also a statement drawing attention of the investors to the section titled “basis of issue price” of the offer document.

→ The announcement and the relevant financial ratios shall be disclosed on the websites of those stock exchanges where the securities are proposed to be listed and shall also be pre-filled in the application forms available on the websites of the stock exchanges.

Question 24.
Write short note on the following: “Institutional Placement Pro-gramme.”
Answer:
When a listed issuer makes a further public offer of equity or offer for sale of shares by promoter/promoter group of listed issuer in which the offer allocation and allotment of such shares is made only to QIBs in terms of Chapter VIHA of SEBI (ICDR) Regulations, 2018 for the purpose of achieving minimum public shareholding it is called an Institutional Placement Programme (IPP).

Question 25.
Private Placement and Preferential Allotment
Answer:
Following are the main difference between private placement and preferential allotment:
Description: Private Placement can be described as an offer or invitation to offer made to specified investors by issuing securities, so as to raise funds. On the contrary, Preferential Allotment is the issue of shares or debentures to a particular group of persons is made by a listed company, to raise funds.

Authorization Requirement: The private placement must be authorized by the articles of association of the company. In contrast, no such authorization is required in case of preferential allotment.

Governing Section: Private Placement is governed by section 42 of the Companies Act, 2013. Conversely, in the case of Preferential Allotment section 62(1) of the Companies Act, 2013 will apply.

Requirement of Offer Letter: In the case of private placement, ‘Private placement offer letter’ is sent to the investors for inviting them to subscribe for shares. As against, in the case of preferential allotment,
no such offer document is issued to people.

Mode of receiving application money: In private placement, application money can be received through cheques, demand draft or any other banking modes but not cash. On the other hand, preferential allotment in which the money is received in cash or kind.

Maintenance of separate account: In private placement, the application money is kept in the separate bank account of a scheduled commercial bank. On the contrary, no such account is required in case of preferential allotment.

Question 26.
Write a brief note on ‘Market Making’
Answer:

It is a process whereby two way quotes are offered for the purpose of facilitating trading in respect of certain scrip.
The main advantage of market making is that it affords much needed liquidity to the securities.
Market making also increases the supply of scripts in the market and also triggers demand for the scripts in the market.
Market making also helps in reducing the problem of trading of few securities and thus eliminating the influence of the unbiased sensitive index.

Question 27.
Explain the following statement “Market making is compulsory for public issues.”
Answer:
Market making is compulsory for public issues; it can be clearly evident as follows:

→ The lead manager shall ensure compulsory market making through the stock brokers of SME exchange appointed by the issuer, for a minimum period of three years from the date of listing of specified securities or from the date of migration from the Main Board.

→ The market maker or issuer in consultation with the lead manager may enter into agreement with nominated investors for receiving or delivering the specified securities in the market making subject to the prior approval by the SME exchange.

→ The issuer shall disclose the details of arrangement of market making in the offer document.

→ The specified securities being bought or sold in the process of market making may be transferred to or from the nominated investor with whom the merchant banker has entered into an agreement for the market making. However, the inventory of the market maker, as on the date of allotment of the specified securities, shall be at least 596 of the specified securities proposed to be listed on SME exchange.

→ The market maker shall buy the entire shareholding of a shareholder of the issuer in one lot, where value of such shareholding is less than the minimum contract size allowed for trading on the SME exchange. However, the market maker shall not sell in lots less than the minimum contract size allowed for trading on the SME exchange.

→ Market maker shall not buy the shares from the promoters or persons belonging to promoter group of the issuer or any person who has ii acquired shares from such promoter or person belonging to promoter group, during the compulsory market making period.

→ The promoters’ holding shall not be eligible for offering to the market maker during the compulsory market making period. However, the promoters’ holding which is not locked-in as per these regulations can be traded with prior permission of the SME exchange.

Question 28.
What is ‘market-making’? Discuss in brief the obligation of a market-maker.
Answer:
Market Making:

It is a process whereby two way quotes are offered for the purpose of facilitating trading in respect of certain script.
The main advantage of market making is that it affords much needed liquidity to the securities.
Market making also increases the supply of scripts in the market and also triggers demand for the scripts in the market.
Market making also helps in reducing the problem of trading of few securities and thus eliminating the influence of the unbiased sensitive index.

Obligation of a market-maker:

A market-maker is responsible for enhancing the demand supply situation in securities such as stocks and Futures & Options (F&O).
A market-maker usually is responsible for enhancing activity in a few chosen securities.
Market-makers are obligated to buy or sell the security at a price and size they have quoted.

Note: The person(s) who offers the facility of market making is known as ‘Market Maker’.

Question 29.
What are the eligibility norms for public issue by an unlisted company? [IJune 2010) (4 Marks)]
Answer:
Eligibility norms for public issue by an unlisted company: As per Regulation 6 of SEBI (ICDR) Regulations, 2018, following are the eligibility Requirements for an initial public offer:
→ it has net tangible assets of at least INR 3 crores calculated on a restated and consolidated basis in each of the preceding three full years (of 12 months each) of which not more than 50% are held in monetary assets. However, if more than 50% of the net tangible assets are held in monetary assets, the issuer has utilized or made firm commitments to utilize such excess monetary assets in its business or project. However, the limit of 50% on monetary assets shall not be applicable in case the initial public offer is made entirely through an offer for sale.

→ it has an average operating profit of at least INR 15 crores calculated on a restated and consolidated basis, during the preceding 3 years (of 12 months each), with operating profit in each of these preceding 3 years.

→ it has a net worth of at least INR 1 crore in each of the preceding 3 full years calculated on a restated and consolidated basis.

→ if it has changed its name within the last one year at least 50% of the revenue calculated on a restated and consolidated basis for the preceding one full year has been earned by it from the activity indicated by its new name.

Note: An issuer not satisfying the condition stipulated in Regulation 6(1) shall be eligible to make an initial public offer only if the issue is made through the book-building process and the issuer undertakes to allot at least 75% of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so.

Question 30.
What is ‘book building’? What is the difference between ‘fixed price process’ and ‘book building process’ ?
Answer:

In Book Building Process, there is a “Book Runner Lead Manager (BRLM), who maintains a “book” Where in the bids placed by prospective investors are recorded. Here “Syndicate members” enters into an underwriting agreement with the company and if syndicate members not fulfil their underwriting obligations, the BRLM, brings in development.
It means an invitation by a company to public to subscribe to the securities offered through a prospectus. For public issue a company has to comply with Companies Act, 2013 & SEBI Guidelines.

Difference between “Normal Public Issue” & “Book Building”:

Basis of Difference	Normal Public Issue	Book Building
Pricing mechanism	In normal public issue, issue price is fixed in advance and disclosed in the prospectus.	In Book Building issue price is not fixed, except an indicative price range is given, so prospective investors are not aware about price.
Prospectus Vs. Red – Herring Prospectus	In Public issue issues prospectus.	In book building process, issuer company issues Red-herring prospectus. Prospectus after ascertaining the price.
Payment	In normal public issue, payment is made at the time of subscription.	In the case of a book building, payment is made only after the allocation of securities.
Nature	It is widely used method of public issue.	It is an alternative route for public issue, when co. fails to satisfy eligibility norms.

Question 31.
Briefly explain the term related to public issue: “Book Building”
Or
Explain briefly the SEBI Regulations for book building.
Answer:
“Book Building” means a process undertaken to bring out demand and to assess the price for determination of the quantum or value or coupon of specified securities or Indian Depository Receipts as the case may be.

An issuer proposing to issue securities through book building process shall comply with the conditions specified in Schedule XII of SEBI

(ICDR) Regulations, 2018 (inclusive list of conditions not exclusive):

→ Syndicate Member(s): The issuer may appoint syndicate member(s).

→ Underwriting: The lead manager(s) shall compulsorily underwrite the issue and the syndicate member(s) shall sub-underwrite with the lead manager(s).

→ Agreement with the stock exchanges: The issuer shall enter into an agreement with one or more stock exchange(s) which have the facility of book building through the electronic bidding system, The agreement shall specify inter alia, the rights, duties, responsibilities and obligations of the issuer and the stock exchange(s) z inter se.

→ Appointment of stock brokers as bidding centers: The lead manager(s)/syndicate member(s) shall appoint stock brokers who are members of the stock exchange(s) and registered with the Board, for the purpose of accepting bids and placing orders with the issuer and ensure that the stock brokers so appointed are financially capable of honoring their commitments arising out of defaults of their clients/investors, if any.

→ Price not to be disclosed in the draft red herring prospectus: The draft red herring prospectus shall contain the total issue size which may be expressed either in terms of the total amount to be raised or the total number of specified securities to be issued, and shall not contain the price of the specified securities.

→ Floor price and Price band: The issuer may mention the floor price or price band in the red herring prospectus or advertise at least two working days (in case of an initial public offer) and at least one working day (in case of a further public offer) before the opening of the issue. The cap of the price band should not be higher by more than 2096 of the floor of the band. It means cap of the price band shall be less than or equal to 12096 of the floor of the price band.

→ Margin money: The entire application money shall be payable as margin money by all the applicants. The payment accompanied with any revision of bid, shall be adjusted against the payment made at the time of the original bid or the previously revised bid.

Question 32.
Book building process of determining price of public issue is preferred in case of initial public offer (IPO) while fixed price process is used for further public offer (FPO). [(Dec. 2015) (5 Marks)}
Or
“The book building process is very transparent. All investors including small investors can see on an hourly basis where the book is being built before applying”. Explain the offer to public through Book Building Process.
Answer:
Offer to public through Book Building Process:
An issuer company may, subject to the requirements specified make an issue of securities to the public through a prospectus through 10096 of the net offer to the public through book building process.

Reservation to the extent of percentage specified in these Regulations can be made only to the following categories:

→ Employees and in case of a new issuer, persons who are in permanent and full time employment of the promoting companies excluding the promoter and the relative of promoter of such companies.

→ shareholders of the listed promoting companies in the case of a new company and shareholders of listed group companies in the case of an existing company’ on a ‘competitive basis’ or on a ‘firm allotment basis’ excluding promoters. However, if the promoting companies are designated financial institutions or state or central financial institutions, the shareholder of such promoting companies shall be excluded for this purpose.

→ persons who on the date of filing of the draft offer document with SEBI, have business association, as depositors, bondholders and subscribers to services, with the issuer making an initial public offering. However, no reservation can be made for the issue management team, syndicate members, their promoters, directors and employees and for the group/associate companies of issue management team and syndicate members and their promoters, directors and employees.

→ The issuer company is required to enter into an agreement with one or more of the Stock Exchange(s) which have the requisite system of on-line offer of securities. The agreement would cover inter-alia, the rights, duties, responsibilities and obligations of the company and stock exchange(s) inter-se. The agreement may also provide for a dispute resolution mechanism between the company and the stock exchange. The company may also apply for listing of its securities on an exchange other than the exchange through which it offers its securities to public through the on-line system.

→ The Lead Merchant Banker shall act as the Lead Book Runner. In case the issuer company appoints more than one merchant banker, the names of all such merchant bankers who have sub mitted the due diligence certificate to SEBI, may be mentioned on the front cover page of the prospectus. A disclosure to the effect that “the investors may contact any of such merchant bankers, for any complaint pertaining to the issue” is required to be made in the prospectus, after the “risk factors”.

→ The lead book runner/issuer may designate, in any manner, the other Merchant Bankers if the m/er-5eallocation of responsibilities amongst the merchant bankers is disclosed in the prospectus on the page giving the details of the issue management team and a co-ordinator has been appointed amongst the lead book runners, for the purpose of co-ordination with SEBI. However, the names of only those merchant bankers who have signed the inter-se allocation of responsibilities would be mentioned in the offer document on the page where the details of the issue management team is given.

→ The primary responsibility of building the book is of the Lead * Book Runner. The Book Runner(s) may appoint those interme diaries who are registered with SEBI and who are permitted to carry on activity as an ‘Underwriter’ as syndicate members. The ‘ Book Runner(s)/syndicate members shall appoint brokers of the exchange, who are registered with SEBI, for the purpose of accepting bids, applications and placing orders with the company ; and ensure that the brokers so appointed are financially capable of honouring their commitments arising out of defaults of their clients /investors, if any. However, in case of application supported by blocked amount, Self Certified Syndicate Banks, Registrar to Issue and Share Transfer Agents, Depository Participants shall accept and upload the details of such application in electronic bidding system of the stock exchange.

Question 33.
States briefly the requirements for bidding process related to public issue of equity shares.
Answer:
An issuer proposing to issue specified securities through the book building process shall comply with these requirements:

The bidding process shall only be through an electronically linked transparent bidding facility provided by the stock exchange(s).
The lead manager(5) shall ensure the availability of adequate infrastructure with the syndicate member(5) for data entry of the bids in a timely manner.
At each of the bidding centre(s), at least one electronically linked computer terminal shall be available for the purpose of bidding.
During the period the issue is open to the public for bidding, the applicants may approach the stock brokers of the stock exchange/s through which the securities are offered under online system, self-certified syndicate bank(s), registrar and share transfer agents or depository participant as the case may be to place their bids.
Every stock broker, self-certified syndicate bank, registrar and share transfer agent and depository participant shall accept applications H supported by blocked amount.
The qualified institutional buyers shall place their bids only through the stock broker(5) who shall have the right to vet the bids.
At the end of each day of the bidding period, the demand, shall be shown graphically on the bidding terminals of the syndicate member(5) and websites of the stock exchanges for information of the public (details in relation to allocation made to anchor investors shall also be disclosed).
The retail individual investors may either withdraw or revise their bids until the closure of the issue.
The qualified institutional buyers and the non-institutional investors shall not be permitted to withdraw or lower the size of their bids at any stage of the issue.
The issuer may decide to close the bidding by the qualified institu-tional buyers one day prior to the closure of the issue, subject to the following conditions:
- the bidding period shall be minimum of three days for all cate-gories of applicants.
- necessary disclosures are made in the red herring prospectus regarding the issuer’s intent to close the bidding by the qualified institutional buyers one day prior to the closure of the issue.
The names of the qualified institutional buyers making the bids shall not be made public.
The retail individual investors may bid at the “cut off” price instead of a specific bid price.
The stock exchanges shall continue to display on their website, the book building data in a uniform format, inter alia, giving category-wise details of the bids received for a period of at least three days after the closure of the issue.

Question 34.
Briefly explain the term related to public issue: “Pre-issue advertisement” [(June 2011) (2 Marks)]
Answer:
“Pre-issue advertisement”:
The issuer shall, after registering the red herring prospectus (in case of a book built issue) or prospectus (in case of fixed price issue) with the Registrar of Companies, make a pre-issue advertisement in one English national daily newspaper with wide circulation, Hindi national daily newspaper with wide circulation and one regional language newspaper with wide circulation at the place where the registered office of the issuer is situated.

The pre-issue advertisement shall be in the format and shall contain the disclosures specified in Part A of Schedule X.

However, the disclosures in relation to price band or floor price and financial ratios contained therein shall only be applicable where the issuer opts to announce the price band or floor price along with the pre-issue advertisement pursuant to Regulation 29(4).

Question 35.
You are Company secretary of All Seasons Travels Ltd., which being listed on the stock exchange after IPO is made by the company. Your Board of Directors desires.to understand about the compliance requirements under Regulation 33 of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015. Write a Board note on Regulation 33.
Answer:
The Board of Directors
All Seasons Travels Limited
Sub: Compliance requirements under Regulation 33 of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015

While preparing financial results, the listed entity shall comply with the following:

The financial results shall be prepared on the basis of accrual accounting policy and shall be in accordance with uniform accounting practices adopted for all the periods.
The quarterly and year to date results shall be prepared in accordance- with the recognition and measurement principles laid down in Accounting Standard 25 or Indian Accounting Standard 31 (AS 25/Ind AS 34 – Interim Financial Reporting) as applicable specified in Section 133 of the Companies Act, 2013 read with relevant rules framed thereunder or as specified by the Institute of Chartered Accountants of India, whichever is applicable.
The standalone financial results and consolidated financial results shall be prepared as per Generally Accepted Accounting Principles in India. However, in addition to the above the listed entity may also submit the financial results, as per the International Financial Reporting Standards notified by the International Accounting Standards Board.
The listed entity shall ensure that the limited review or audit reports submitted to the stock exchange(s) on a quarterly or annual basis are to be given only by an auditor who has subjected himself to the peer review process of Institute of Chartered Accountants of India and holds a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India.
The listed entity shall make the disclosures specified in Part A of Schedule IV.

The approval and authentication of the financial results shall be done by listed entity in the following manner:

The quarterly financial results submitted shall be approved by the board of directors. However, while placing the financial results before the board of directors, the chief executive officer and chief financial officer of the listed entity shall certify that the financial results do not contain any false or misleading statement or figures and do not omit any material fact which may make the statements or figures contained therein misleading.
The financial results submitted to the stock exchange shall be signed by the chairperson or managing director, or a whole time director or in the absence of all of them. It shall be signed by any other director of the listed entity who is duly authorized by the board of directors to sign the financial results.
The limited review report shall be placed before the board of directors, at its meeting which approves the financial results, before being submitted to the stock exchange(s).
The annual audited financial results shall be approved by the board of directors of the listed entity and shall be signed in the manner specified.

The listed entity shall submit the financial results in the following manner:

The listed entity shall submit quarterly and year-to-date standalone financial results to the stock exchange within forty-five days of end of each quarter, other than the last quarter.

In case the listed entity has subsidiaries, the listed entity may also submit quarterly/year-to-date consolidated financial results subject to following along with above requirement:
1. the listed entity shall intimate to the stock exchange, whether or not listed entity opts to additionally submit quarterly/year-to-date consolidated financial results in the first quarter of the financial year and this option shall not be changed during the financial year. Provided , that this option shall also be applicable to listed entity that is required to prepare consolidated financial results for the first time at the end of a financial year in respect of the quarter during the financial year in which the listed entity first acquires the subsidiary.
2. In case the listed entity changes its option in any subsequent year, it shall furnish comparable figures for the previous year in accordance with the option exercised for the current financial year.

The quarterly and’year-to-date financial results may be either audited or unaudited subject to the following:
1. In case the listed entity opts to submit unaudited financial results, they shall be subject to limited review by the statutory auditors of the listed entity and shall be accompanied by the limited review report. Provided that in case of public sector undertakings this limited review may be undertaken by any practicing Chartered Accountant.
2. In case the listed entity opts to submit audited financial results, they shall be accompanied by the audit report.

The listed entity shall submit audited standalone financial results for the financial year, within sixty days from the end of the financial year along with the audit report and either Form A (for audit report with unmodified opinion) or Form B (for audit report with modified opinion). However, if the listed entity has subsidiaries, it shall, while submitting annual audited standalone financial results also submit annual audited consolidated financial results along with the audit report and either Form A (for audit report with unmodified opinion) or Form B (for audit report with modified opinion).

The listed entity shall also submit the audited financial results in respect of the last quarter along-with the results for the entire financial year, with a note stating that the figures of last quarter are the balancing figures between audited figures in respect of the full financial year and the published year-to-date figures upto the third quarter of the current financial year.

The listed entity shall also submit as part of its standalone or consolidated financial results for the half year by way of a note, a statement of assets and liabilities as at the end of the half-year.

Mr. A
Company Secretary
All Seasons Travels Limited

Question 36.
Explain briefly the following statements: “Public issue aims at selling and marketing of shares to public.”
Answer:

Public issues of shares mean the selling or marketing of shares for subscription by the issue of prospectus to general public.
Company shall also fulfil the criteria of having at least 1000 prospective allottee in its issue.
For raising capital from the public by the issue of shares, a public company has to comply with the provisions of the Companies Act and the Securities Contracts (Regulation) Act, 1956 including the rules made there under as well as the guidelines and instructions issued by the concerned Government authorities, the Stock Exchanges and the SEBI etc.

Question 37.
Discuss the rules for preferential issue of shares by existing listed companies.
Or
Discuss briefly the SEBI regulations for preferential issue of shares by listed Companies.
Answer:
A listed issuer making a preferential issue of specified securities shall ensure that:

all equity shares allotted by way of preferential issue shall be made fully paid up at the time of the allotment.
a special resolution has been passed by its shareholders.
all equity shares held by the proposed allottees in the issuer are in dematerialized form.
the issuer is in compliance with the conditions for continuous listing of equity shares as specified in the listing agreement with the stock exchange where the equity shares of the issuer are listed and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, and any circular or notification issued by the Board there under.
the issuer has obtained the Permanent Account Numbers of the proposed allottees except those allottees which may be exempt from specifying their Permanent Account Number for transacting in the securities market by the Board.

The issuer shall not make preferential issue of specified securities to any person who has sold any equity shares of the issuer during the six months preceding the relevant date.

Any person belonging to promoter(s) or the promoter group has previously subscribed to warrants of an issuer but failed to exercise the warrants, the promoter(s) and promoter group shall be ineligible for issue of specified securities of such issuer on preferential basis for a period of one year from the date of expiry of the tenure of the warrants due to non-exercise of the option to convert or the date of cancellation of the warrants, as the case may be.

Question 38.
“Preferential issue is not for retail investors.”
Answer:

Preferential issue means issuance of equity shares to promoter group or selected investors. It covers allotment of fully convertible debentures, partly convertible debentures or any other financial instruments that could be converted into equity shares at a later date.
The investors could be institutional investors, private equity investors, high net worth individuals, or companies.
Thus, preferential issue is not for retail investors.

Question 39.
Discuss briefly the following methods of raising funds from the primary capital market:

Public Issue.
Rights Issue.
Preferential Issue.
Private Placement.
Qualified institutional placement (QIP).

Answer:
Following methods of raising funds from the primary capital market are discussed below:

Public Issue are of two types: IPO and FPO.
Initial public offer (IPO) means an offer of specified securities by an unlisted issuer to the public for subscription and includes an Offer for Sale (OFS) of specified securities to the public by any existing holder of such securities in an unlisted issuer.

Further Public Offer (FPO) means an offer of specified securities by a listed issuer company to the public for subscription. It is an another issue to the public other than its existing shareholders by the listed persons is referred to as a Further Public Offer.

Right Issue: Rights Issue of Securities is an issue of specified securities by a company to its existing shareholders as on a record date in a predetermined ratio.

Preferential Allotment: Preferential allotment refers to an issue, where a listed issuer issues shares or convertible securities to a select group of persons in terms of provisions of Chapter V of SEBI (ICDR) Regulations, 2018. It is called a preferential allotment.

The issuer is required to comply with various provisions which inter alia include pricing, disclosures in the notice, lock in etc. in addition to the requirements specified in the Companies Act.

Private Placement: Private placement refers to an issue where an issuer makes an issue of securities to a select group of persons not exceeding 200 and which is neither a rights issue nor a public issue.

Qualified Institutional Placement: Qualified Institutional Placement (QIP) is another form of Preferential issue which refers to an issue by a listed entity to only Qualified Institutional Buyers (QIBs) in accordance of Chapter VI of SEBI (ICDR) Regulations, 2018.

Question 40.
Answer the following: “A company can raise funds from primary market through different methods, different types of issues and by means of offer document and red herring prospectus.” Enumerate.
Answer:
A company can raise funds from the primary market through different method:

Public issue: When an issue/officer of securities is made to new investors for becoming part of shareholders’ family of the issuer it is called a public issue. Public issue can be further classified into Initial public offer (IPO) and Further public offer (FPO). The significant features of each type of public issue are discussed below:

Initial public offer (IPO): When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer’s securities in the Stock Exchanges.

Further public offer (FPO) or Follow on offer: When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a FPO.

Right issue: When an issue of securities is made by an issuer to its shareholders existing as on a particular date fixed by the issuer (i.e. record date), it is called a rights issue. The rights are offered in a par-ticular ratio to the number of securities held as on the record date.

Bonus issue: When an issuer makes an issue of securities to its exist-ing shareholders as on a record date, without any consideration from them, it is called a bonus issue. The shares are issued in a particular ratio to the number of securities held on a record date.

Private placement: When an issuer makes an issue of securities to a select group of persons not exceeding 49 and which is neither a rights issue nor a public issue. It is called a private placement.

Preferential allotment: When a listed issuer issues shares or convertible securities, to a select group of persons in terms of provisions of SEBI (ICDR) Regulations, it is called a preferential allotment. The issuer is required to comply with various provisions which inter alia include pricing, disclosures in the notice, lock in apart from the requirements specified in the Companies Act, 2013.

Qualified institutions placement (QIP): When a listed issuer issues equity shares or securities convertible into equity shares to Qualified Institutions Buyers (QIBs) only in terms of provisions of SEBI (ICDR) Regulations, it is called a QIP.

Question 41.
Explain the following statements: “Pre-marketing is a tool through which syndicate members evaluate the prospects of the issue.”
Answer:

Pre-marketing is a tool through which the syndicate members evaluate the prospectus of the issue. This is normally done closer to the issue.
The research analysts along with the sales force of the syndicate members meet the prospective investors during pre-marketing road show. This enables the syndicate members to understand the market and the probable response from the prospective investors.
The pre-marketing exercise helps in assessing the depth of investors’ interest in the proposed issued their view about the valuation of the share and the geographical locations of the investors who are interested in the issue.
The response received during pre-marketing provides vital information for taking important decisions relating to timing, pricing and size of the issue. This would also help the syndicate members in evolving strategies for marketing the issue.

Question 42.
“SEBI has provided alternative eligibility norms for the public issues of securities.”
Answer:
An issuer not satisfying the condition stipulated in Regulation 6(1) of SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 shall be eligible to make an initial public offer only if the issue is made through the book-building process and the issuer undertakes to allot at least 75% of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so.

The purpose of alternative eligibility route is to provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters.

Question 43.
What do you understand by Qualified Institutional Placement (QIP)?
Answer:
Definition of Qualified Institutions Placement [Regulation 2(tt) of SEBI (ICDR) Regulations, 2018J:
“Qualified institutions placement” means issue of eligible securities by a listed issuer to qualified institutional buyers on a private placement basis and includes an offer for sale of specified securities by the pro-moters and/or promoter group on a private placement basis, in terms of these regulations.

A listed issuer may make a Qualified Institutions Placement of eligible securities if it satisfies the following conditions:

a special resolution approving the qualified institutions placement has been passed by its shareholders. However, no shareholders’ resolution will be required in case the qualified institutions place-ment is through an offer for sale by promoters or promoter group for compliance with minimum public shareholding requirements specified in the Securities Contracts (Regulation) Rules, 1957.
allotment pursuant to the special resolution shall be completed within a period of 365 days from the date of passing of the resolution.
the equity shares of the same class, which are proposed to be allotted through qualified institutions placement or pursuant to conversion or exchange of eligible securities offered through qualified institutions placement have been listed on a stock exchange for a period of at least one year prior to the date of issuance of notice to its shareholders for convening the meeting to pass the special resolution.
an issuer shall be eligible to make a qualified institutions place-ment if any of its promoters or directors is not a fugitive economic offender.
all eligible securities issued through a qualified institutions place-ment shall be listed on the recognized stock exchange where the equity shares of the issuer are listed. However, the issuer shall seek approval under Rule 19(7) of the Securities Contracts (Reg-ulation) Rules, 1957, if applicable.
issuer shall not make any subsequent qualified institutions placement until the expiry of 6 months from the date of the prior qualified institutions placement made pursuant to one or more special resolutions.

Question 44.
Explain the following terms associated with public offering of equity shares. Attempt any five:
(i) Subscription list
(ii) Issue opening date
(iii) Differential pricing
(iv) Lock-in period
(v) Price band
(vi) Red-herring prospectus
Answer:
Following terms are associated with public offering:

(i) Subscription list: It means a list or record of subscription and subscribers. In case of issue of securities subscription list or subscription record is kept open for a certain period, which is known as “Period of subscription”. As per Regulation 45 subscription period is an initial public offer shall be kept open for at least three working days and not more than ten working days.

(ii) Issue opening date: It means the maximum period, within which shares must be offered to public for subscription. As per Regulation 140, the provision relating to “Opening of the issue”:

1. Subject to the compliance with the provisions of the Companies Act, 2013, a public issue may be opened within 12 months from the date of issuance of the observations by the Board under sub-regulation (4) of Regulation 123; or Provided that in case of a fast track issue, the issue shall open within the period specifically stipulated under the Companies Act, 2013.

2. In case of shelf prospectus, the first issue may be opened within 3 months of issuance of observations by the Board.

3. The issue shall be opened after at least 3 working days from the date of registering the red herring prospectus with the Registrar of Companies in case of book built issues and prospectus with the Registrar of Companies in case of fixed price issues.

(iii) Differential pricing: As per Regulation 30 of SEBI (ICDR) Regulations, 2018 permits the issuer to offer its specified securities at different prices, subject to the following:

retail individual investors or retail individual shareholders or employees entitled for reservation made under Regulation 33 more than 10% of the price at which net offer is made to other categories of applicants, excluding anchor investors.
Discount, if any shall be expressed in rupee terms in the offer document.
in case of a book built issue, the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants.
in case the issuer opts for the alternate method of book building in terms of Part D of Schedule XIII, the issuer may offer the specified securities to its employees at a price not lower than by more than 10% of the floor price.

(iv) Lock-in period: The specified securities held by the promoters shall not be transferable (hereinafter referred to as “lock-in”) for the periods as stipulated hereunder:
(a) minimum promoters’ contribution including contribution made by AIFs, FVCs etc, shall be locked-in for a period of 3 years from the date of commencement of commercial production or date of allotment in the initial public offer, whichever is later;
(b) promoters’ holding in excess of minimum promoters’ contribution shall be locked-in for a period of 1 year from the date of allotment in the initial public offer.

(v) Price band: It means a range of prices within which investors can bid. This pricing technique is used in case of book building process. As per Regulation 127 about Price Band:
1. The issuer may mention a price or a price band in the draft prospectus (in case of a fixed price issue) and a floor price or a price band in the red herring prospectus (in case of a book built issue) and determine the price at a later date before registering the prospectus with the Registrar of Companies. However, the prospectus registered with the Registrar of Companies shall contain only one price or the specific coupon rate, as the case may be.

2. The cap on the price band and the coupon rate in case of convertible debt instruments, shall be less than or equal to one hundred and. twenty percent of the floor price.

3. The floor price or the final price shall not be less than the face value of the specified securities.

4. Where the issuer opt not to make the disclosure of the floor price or price band in the red herring prospectus, the issuer shall be announce the floor price or the price band at least two working days before the opening of the issue (in case of an IPO) and at least one working day before the opening of the issue (in case of a FPO), in the all newspapers in which the pre-issue advertisement was released.

5. Such announcement discussed above shall contain relevant financial ratios computed for both upper and lower end of the price band and also a statement drawing attention of the investors to the section titled “basis of issue price” of the offer document.

(vi) Red-herring prospectus:

Red-herring prospectus is a prospectus which does not have details of either price or number of shares being offered, or the amount of issue.
Red-herring prospectus for a Further Public Offer (FPO) can be filed with the ROC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement.
In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring Prospectus filed with ROC in terms of the provisions of the Companies Act.
On completion of the bidding process, the details of the final price are included in the offer document. The offer document thereafter with ROC is called a prospectus.

Question 45.
Comment on the following statements:
i. Book building process of determining price of a public issue is preferred in case of initial public offer (IPO) while fixed price process is used for further public offer (FPO).
Answer:
‘Fixed price process’ and ‘Book Building process’ are pricing mechanisms in the issue of shares through public offer. When an issuer at the outset decides the issue price and mentions in the offer document it is commonly known as “Fixed price issue”. On the other hand, when the price of an issue is discovered on the basis of demand received from the prospective investors at various price levels, it is called as “Book Built Issue”. A company, whether issues shares through Initial Public Offer (IPO) or Further Public Offer (FPO) has the option to choose the pricing mechanism, under ‘Fixed Price Issue’ or ‘Book Built Issue’, subject to conditions specified under SEB1 (ICDR) Regulations, 2018.

ii. A company cannot offer shares at different sets of people in a particular public issue.
Answer:
The given statement i.e. “A company can’t offer shares at different prices to different sets of people in a particular public issue” is not correct.
As per Regulation 30 of SEBI (ICDR) Regulations, 2018 an issuer company can offer specified securities at different prices, subject to following conditions:

retail individual investors or retail individual shareholders or employees entitled for reservation made may be offered specified securities at a price not lower than by more than ten percent, of the price at which net offer is made to other categories of applicants, excluding anchor investors.
in case of a book built issue, the price of the specified securities offered to the anchor investors shall not be lower than the price offered to other applicants.
In case the issuer opts for the alternate method of book building in terms of Part D of Schedule XIII, the issuer may offer the specified securities to its employees at a price not lower than by more than ten percent of the floor price.
Discount, if any, shall be expressed in rupee terms in the offer document.

iii. Every institutional buyer is a qualified institutional buyer (QIB).
Answer:
The given statement is False. Every ‘Institutional Buyer’ is not a ‘Qualified Institutional Buyer (QIB)’. SEBI (ICDR) Regulations, 2018 defines “Qualified Institutional Buyers”. Accordingly, “Qualified Institutional Buyers” shall mean the following:

A mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor registered with SEBI.
A foreign portfolio investor other than category HI foreign port-folio investor registered with SEBI.
Public Financial Institutions within the meaning of Section 2(72) of Companies Act, 2013.
Scheduled Commercial Banks.
Multilateral and Bilateral Development Financial Institutions.
State Industrial Development Financial Corporations.
Insurance Companies.
Provident Funds with minimum corpus of INR 25 Crores.
Pension Funds with minimum corpus of INR 25 Crores.
National Investment Fund.
Insurance Funds set up and managed by Army, Navy or Air Force.
Insurance Funds set up and managed by the Department of Posts.

Thus, only selected institutional buyers are covered not every institutional buyer is a qualified institutional buyer.

Question 46.
The shares of Runfast Ltd. were listed in Delhi Stock Exchange. The Stock exchange delisted the shares of the company. The aggrieved company approaches you as a Company Secretary in Practice to know the remedy available to the Company. Give your suggestion to the company keeping in view the provisions of the Securities Contracts (Regulation) Act, 1956.
Answer:
Applicable provisions:

Section 21A provides that a recognized stock exchange may delist the securities, after recording the reasons therefore from any recognized stock exchange on any of the ground or grounds as may be prescribed under this Act.
Securities of a company shall not be delisted unless the company concerned has been given a reasonable opportunity of being heard.
A listed company or an aggrieved investor may file an appeal before the Securities Appellate Tribunal against the decision of the recognized stock exchange delisting the securities within 15 days from the date of the decision of the recognized stock exchange delisting the securities and the provisions of Sections 22B to 22E of this Act shall apply as far as may be to such appeals.
The Securities Appellate Tribunal may if it is satisfied that the company was prevented by sufficient cause from filing the appeal within the said period allow it to be filed within a further period not exceeding one month.

Facts of the case:
The shares of Runfast Ltd. were listed in Delhi Stock Exchange. The Stock exchange delisted the shares of the company.

Conclusion: So in the instant case ‘Runfast Ltd.’ should file an appeal to the SAT against the delisting decision of Delhi Stock Exchange within 15 days or such extended period not exceeding 1 (one) month after showing sufficient cause of not filing within 15 days.

Question 47.
What do you mean by ‘reservation on competitive basis’? Who are the persons eligible in case of issue made through book building process?
Answer:
Meaning: Reservation on competitive basis means reservation wherein specified securities are allotted in portion of the number of specified securities applied for in respect of a particular reserved category to the number of specified securities reserved for that category.

Eligible Persons: As per Regulation 13 0( 1) of SEBI (ICDR) Regulations, 2018, the issuer may make reservations on a competitive basis out of the issue size excluding promoters’ contribution in favour of the following categories of persons:

Employees;
Shareholders (other than promoters and promoter group) of listed subsidiaries or listed promoter companies.

However, the issuer shall not make any reservation for the lead manager(s), registrar, syndicate member(5), their promoters, directors and employees and for the group or associate companies as defined in Companies Act, 2013, of the lead manager(y), registrar and syndicate member(s) and their promoters, directors and employees.

Question 48.
Comment on the following: “Delisting is not permissible under certain circumstances”.
Answer:
In following cases delisting is not permissible as per SEBI (Delisting of Equity Shares) Regulations, 2009:

Buy back of equity shares by the company.
Preferential allotment made by the company.
Unless a period of three years has elapsed since the listing of that class of equity shares.
Instruments which are convertible into the same class of equity shares that are sought to be delisted are outstanding.
Delisting of convertible securities.
No promoter shall directly or indirectly employ the funds of the company to finance an exit opportunity or an acquisition of shares made pursuant to provided under these regulation.
Employ any device, scheme or artifice to defraud any shareholder or other person.
Engage
- in any transaction or practice that operates as a fraud or deceit upon any shareholder or other person.
- in any act or practice that is fraudulent, deceptive or manipulative in connection with such delisting.

Question 49.
What is SME exchange? Explain the benefits of listing on SME exchange. [(Dec. 2015) (4 Marks)]
or
Comment on the following: “Benefits available to a company on listing at SME Exchange.”
Answer:
“SME Exchange” means a trading platform of a recognised stock exchange having nationwide trading terminals permitted by SEBI to list the specified securities issued in accordance with SEBI (ICDR) Regulation and includes a stock exchange granted recognition for this purpose but does not include the Main Board.

Explanation: “Mam Board” means a recognized stock exchange having nationwide trading terminals
other than SME exchange.

Benefits of Listing on SME Exchange:
→ Access to capital and future financing opportunities: Going public would provide the MSME’s with equity financing opportunities to grow their business’ from expansion of operations to acquisitions.

→ Increased visibility and prestige: Going public is likely to enhance the company’s visibility. Greater public awareness gained through media coverage, publicly filed documents and coverage of stock by sector investment analysts can provide the SME with greater profile and credibility. This can result in a more diversified group of investors, which may increase the demand for that company’s shares leading to an increase in the company’s value.

→ Liquidity for shareholders: Becoming a public company establishes a market for the company’s shares, providing its investors with an efficient and regulated vehicle in which to trade their own shares. Greater liquidity in the public market can lead to better valuation for shares than would be seen through private transactions.

→ Facilitation of growth through Mergers and Acquisitions: As a public company, company’s shares can be utilized as an acquisition currency to acquire target companies, instead of a direct cash offering. Using shares for an acquisition can be a tax efficient and cost effective vehicle to finance such a transaction.

→ Encouragement of Innovation and Entrepreneurial Spirit: The ability of companies in their early stages of development to raise funds in the capital markets allows these companies to grow very quickly. This growth helps speed up the dissemination of new technologies throughout the economy. In addition, by raising the returns available from pursuing new ideas, technologies etc the capital markets facilitate entrepreneurial activities.

→ Creation of employee incentive mechanisms: The employees of the SME enterprises can participate in the ownership of their own company and benefit from being a shareholder.

Question 50.
Comment on the following and support your answer with necessary reasons:
The market makers infuse liquidity in securities that are not frequently traded on stock exchanges.
Answer:

A market-maker usually is responsible for enhancing activity in a few chosen securities. In the process, the market-maker provides both a buy and a sell quote for his chosen securities. Market making is solely done to infuse liquidity to lesser traded shares.
It is the market maker who is responsible for enhancing the demand-supply situation in securities which is inclusive of stocks, Futures and Options (F&O).
Market maker is an institution or a broker, who gets an incentive to recommend the securities to the investors and thereby creating a market for the lesser traded options.
The market-maker provides both a buy and a sell quote for his chosen securities. He profits from the spread between buy and sell quotes.
Market-makers are helpful as they are always ready to buy or sell as long as investors are willing to pay the price quoted by them.

For example, if the market-maker gives a bid-ask quote of ₹ 55-50 (which means the market-maker will buy from the market at ₹ 50 and sell at ₹ 55), then the profit is ₹ 5.

Question 51.
Critically examine the following: “Warrant cannot be issued along with public issue or right issue of specified securities.”
Answer:
Warrant may be issued along with public issue or rights issue of specified securities subject to the following reasons as discussed below:

Tenure: The tenure of such warrant shall not exceed eighteen months from their date of allotment in the public/rights issue.
Number of warrant attached to one specified security: Not more than one warrant shall be attached to one specified security.
Price or conversion formula: The price or conversion formula of the warrant shall be determined upfront and at least 25% of the consideration amount shall also be received upfront.
Forfeiture of consideration paid in case warrant holder not exercise the option to take equity shares: In case the warrant holder does not exercise the option to take equity shares against any of the warrants held by this then the consideration paid in respect of such warrant shall be forfeited by the issuer.

Question 52.
Explain the following: “Institutional Trading Platform”.
Answer:
SEBI has notified new norms for listing of small and medium enterprises (SMEs) including the start-up companies on Institutional Trading Platform (ITP) on stock exchanges without an initial public offering. This will allow SMEs to list themselves on stock exchanges without raising funds from the public.

In the modified rules to permit listing of start-ups and SMEs in ITP without having to make- an IPO, a minimum amount of trading or investment on the ITP would be INR 10 lakh. This will provide easier exit options for entities such as Angel investors, capital funds and private equity.

Question 53.
Can an entity, pursue listing of its specified securities without making a public issue? Give the exemptions, if any.
Answer:
Yes, an entity can pursue listing of its specified securities without making a public issue.

As per Regulation 282(1) of the SEBI (ICDR) Regulations, 2018 provides that the provisions of Chapter X of SEBI (LODR) Regulations shall apply to issuers seeking listing of their specified securities pursuant to an initial public offer or for only trading on a stock exchange of their specified securities without making a public offer.

Regulation 284 (3) of the SEBI (ICDR) Regulations, 2018 lays down that the regulations relating to the following as stated under the Chapter of Initial Public Offer on Main Board shall not be applicable(exemption):

Allotment;
Issue opening or closing;
Advertisements;
Underwriting;
Pricing;
Dispatch of issue material;
Other such provisions related to offer of specified securities to the public.

Question 54.
Explain the eligibility criteria for listing on Innovators Lisiting Growth platform.
Answer:
Eligibility criteria for listing on Innovators Listing Growth Platform are as under:

An issuer who is intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition shall be eligible for listing on the innovators growth platform. However, on the date of filing of draft information document/draft offer document with the Board as the case may be 25% of the pre-issue capital of the Issuer Company for at least a period of two years should have been held by:

Qualified Institutional Buyers.
Family trust with net-worth of more than five hundred crore rupees, as per the last audited financial statements.
Accredited Investors for the purpose of Innovators Growth Platform.
Regulated entities as follows, namely:
- Category III Foreign Portfolio Investor.
- An entity meeting all the following criteria:
- It is a pooled investment fund with minimum assets under management of one hundred and fifty million USD.
It is registered with a financial sector regulator in the jurisdiction of which it is a resident.
It is resident of a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding or a signatory to Bilateral Memorandum of Understanding with the Board.
It is not resident in a country identified in the public statement of Financial Action Task Force as:
(a) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
(b) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

Question 55.
You are the company secretary of Great India Ltd. Prepare a Board note outline various requirements of SEBI guidelines for rights issue and H list out the major steps involved in rights issue.
Answer:
To
The Board of Directors Great India Ltd.
Sir/Madam
Sub: Notes on requirement and steps relating to right issue

Requirements: As per SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018, the requirement for right issue are summarized as:

Record Date: The Great India Ltd. (hereinafter called issuer company), shall announce a record date for the purpose of determining the shareholders eligible to apply for specified securities in the proposed right issue.

Restriction on rights issue: The issuer shall reserve equity shares for FCD or PCD while making right issue.

Letter of offer, abridged letter of offer pricing & period of subscription:
i. The abridged letter of offer, along with application form shall be dispatched through registered post or speed post to all the existing share holders at least 3 days before the date of opening of the issue.
ii. The issue price shall be decided before determining the record date which shall be determined in consultation with the designated stock exchange.
iii. A right issue shall be open for a minimum period of 15 days and for a maximum period of 30 days.

Pre-issue Advertisement for right issue: The issuer shall issue an advertisement containing particulars like – the date of completion of dispatch of abridged letter of offer and the application form or the place from. Where application form can be obtained.

Reservation for employee: A maximum value of reservation for each employee upto INR 2 lakhs can be made.

Utilization of funds: The funds raised in right issue shall be utilized only after finalization of the basis of allotment.

Steps involved in Right – issue:

Ensure that right issue is within the authorized share capital of the company otherwise take necessary steps for increasing the authorized capital.
Notify at least 2 days in advance to the stock exchange about the, Board – meeting at which proposal of right issue will be considered.
Convene & hold the Board Meeting and notify the stock exchange immediately about the decisions taken in Board meeting.
If shares are proposed to offered to persons other than share holders of the company, convene General Meeting and pass appropriate resolution.
Forward six sets of letter of offer to concerned stock exchange(s).
Dispatch letters of offer to shareholders by registered post.
Publish the advertisement giving date of completion of dispatch of letter of offer in at least an English National Daily, one Hindi National Paper and a Regional language Daily, where registered office of the company is situated.
Make arrangement with bankers for acceptance of share application forms.
Prepare a scheme of allotment in consultation with stock exchange.
Convene Board meeting and make allotment of shares.
Make an application to the stock exchange(s) Where the company’s shares are listed for permission of listing of new shares.

Mr. X
Company Secretary
Great India Ltd.

Question 56.
You are Company Secretary of Golden Securities Ltd. The Board of directors wants to make a rights issue of shares to its existing shareholders in the ratio of 2 shares for every single share held by a shareholder. Prepare a qualitative note highlighting the steps involved in the issue of rights shares.
Answer:
To
Board of Directors
Golden Securities Limited
Sub: Right Issue of Shares

Rights issue as identified in the SEBI (ICDR) Regulations, 2018 is an issue of securities made by an issuer to its existing shareholders as on a particular date fixed by the issuer (ie. record date). A listed company cannot make any issue of security through a rights issue where the aggregate value of securities including premium exceeds INR 1 crore unless it has filed a draft letter of offer with SEBI through a Merchant Banker at least 30 days prior to the filling of prospectus with the designated stock exchange.

Steps involved for issue of rights share are enumerated below:

Check whether the rights issue is within the authorized share capital of the company. If not, steps should be taken to increase the authorized share capital.
In case of a listed company notify the stock exchange concerned about the date of Board Meeting at which the rights issue is proposed to be considered at least 2 days in advance of the meeting.
Rights issue shall be kept open for at least 15 days and not more than 30 days.
Convene the Board meeting and place before it the proposed for rights issue.
Board should decide on the matters relating to Quantum of issue proportion of rights shares.
Immediately after the Board Meeting notify the concerned Stock Exchanges about particulars Of Board’s decision.
Forward six sets of letter of offer to concerned Stock Exchanges. Dispatch letters of offer to shareholders by registered post.
Check that an advertisement giving date of completion of dispatch of letter of offer has been released in at least an English National Daily, one Hindi National Paper and a Regional Language Daily where registered office of the issuer company is situated.
Make arrangement with bankers and Self Certified Syndicate Banks for acceptance of share application forms.
Prepare a scheme of allotment in consultation with Stock Exchange.
Convene Board Meeting and make allotment of shares.
File return of allotment with Registrar of Companies within 30 days of allotment.
Make an application to the Stock Exchange(s) where the company’s shares are listed for permission of listing of new shares.

Yours faithfully,
Mr. A
(Company Secretary)

Question 57.
As a Company Secretary of Lucky Ltd., prepare a Board note giving various requirements of SEBI guidelines for right issue and enumerate the various major steps involved in such an issue.
Answer:
To
The Board of Directors Date:
Lucky Limited
Sub: SEBI Regulation for right issue and major steps for right issue
Sir/Madam,
We are highlighting SEBI Regulations for right issue for your consideration:
1. Check whether the rights issue is within the authorized share capital of the company. If not, steps should be taken to increase the authorised share capital.

2. In case of a listed company, notify the stock exchange concerned the date of Board Meeting at which the rights issue is proposed to be considered at least 2 days in advance of the meeting.

3. Rights issue shall be kept open for at least 15 days and not more than 30 days.

4. Convene the Board Meeting and place before it the proposal for rights issue.

5. The Board of Directors should decide on the following matters:

Quantum of issue and the proportion of rights shares,
Alteration of share capital, if necessary and offering shares to persons other than existing holders of shares in terms of Section 62 of the Companies Act, 2013,
Fixation of record date,
Appointment of merchant bankers and underwriters (if necessary) and
approval of draft letter of offer or authorization of managing director/ company secretary to finalize the letter of offer in consultation with the managers to the issue, the stock exchange

6. Immediately after the Board Meeting notify the concerned Stock Exchanges about particulars of Board’s of Directors decision.

7. If it is proposed to offer shares to persons other than the shareholders of the company, a General Meeting has to be convened and a resolution is to be passed for the purpose in terms of Section 62 of the Companies Act, 2013.

8. Forward six sets of letter of offer to concerned Stock Exchange(s).

9. Dispatch letters of offer to shareholders by registered post.

10. Check that an advertisement giving date of completion of dispatch of letter of offer has been released in at least an English National Daily, one Hindi National Paper and a Regional Language Daily where registered office of the issuer company is situated.

11. Check that the advertisement contains the list of centres where shareholders or persons entitled to rights may obtain duplicate copies of composite application forms in case they do not receive original application form along with the prescribed format on which application may be made.

12. The applications of shareholders who apply both on plain paper and also in a composite application form are liable to be rejected.

13. Make arrangement with bankers for acceptance of share application forms.

14. Prepare a scheme of allotment in consultation with Stock Exchange.

15. Convene Board Meeting and make allotment of shares.

16. Make an application to the Stock Exchange(s) where the company’s shares are listed for permission of listing of new shares.

Mr.
Company Secretary
Lucky Ltd.

Question 58.
Elaborate the various steps involved in the issue of rights shares.
Or
State the SEBI regulations relating to issue of rights shares.
Or
“Right issue as identified in the SEBI Regulations is an issue of Capital under Section 62 of the Companies Act, 2013 to be offered to the existing shareholders of the company through a letter of offer.” Enumerate the steps involved in issue and listing of rights shares.
Answer:
The various steps involved for issue & listing of rights share are enumerated below:

1. Check whether the right issue is within the authorzied share capital of the company. If not, steps should be taken to increase the authorsied share capital.

2. In case of a listed company, notify the stock exchange concerned the date of Board Meeting at which the rights issue is proposed to be considered at least 2 days in advance of the meeting.

3. Rights issue shall be kept open for at least 15 days and not more than 30 days.

4. Convene the Board Meeting and place before it the proposal for rights issue.

5. The Board of Directors should decide on the following matters:

Quantum of issue and the proportion of rights shares,
Alteration of share capital, if necessary and offering shares to persons other than existing holders of shares in terms of Section 62 of the Companies Act, 2013,
Fixation of record date,
Appointment of merchant bankers and underwriters (if necessary) and
Approval of draft letter of offer or authorization of managing director/ company secretary to finalize the letter of offer in consultation with the managers to the issue, the stock exchange and SEBI.

6. Immediately after the Board Meeting notify the concerned Stock Exchanges about particulars of Board’s of Directors decision.

8. Forward six sets of letter of offer to concerned Stock Exchange(s).

9. Dispatch letters of offer to shareholders by registered post.

11. Check that the advertisement contains the list of centres where share-holders or persons entitled to rights may obtain duplicate copies of composite application forms in case they do not receive original application form along with the prescribed format on which application may be made.

12. The applications of shareholders who apply both on plain paper and also in a composite application form are liable to be rejected.

13. Make arrangement with bankers for acceptance of share application forms.

14. Prepare a scheme of allotment in consultation with Stock Exchange.

15. Convene Board Meeting and make allotment of shares.

16. Make an application to the Stock Exchange(s) where the company’s shares are listed for permission of listing of new shares.

Question 59.
Attempt the following questions: ABC Ltd. a company whose equity shares are listed at BSE and NSE is seeking delisting of its equity shares from both the recognised stock exchanges. It provides an exit opportunity to all public shareholders in accordance with SEBI (Delisting of Equity Shares) Regulations, 2009. Calculate the minimum number of equity shares to be acquired for the delisting offer to be successful. Also determine the final offer price from the details give hereunder:

(i)

	Number of Shares	Percentage holding
Promoter	75,00,000	75
Public	25,00,000	25
	1,00,00,000	100

(ii) The floor price in terms of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 is ₹ 550 per shares.
(iii) Assume that all the public shareholders holding shares in the demat mode had participated in the book building process as follows:

Bid Price (₹)	Number of Investors	Demand (Number of shares)
550	5	2,50,000
565	8	4,00,000
575	10	2,00,000
585	4	4,00,000
595	6	1,20,000
600	5	1,30,000
605	3	2,10,000
610	3	1,40,000
615	3	1,50,000
620	1	5,00,000
	48	25,00,000

Answer:
Calculation of minimum Numbers of Equity Shares & Final offer price:

Bid Price	Number of	Demand (No. of	Cumulative Demand
(INR)	Investors	Shares)	(No. of Shares)
550	5	2,50,000	2,50,000
565	8	4,00,000	6,50,000
575	10	2,00,000	8,50,000
585	4	4,00,000	12,50,000
595	6	1,20,000	13,70,000
600	5	1,30,000	15,00,000
605	3	2,10,000	17,10,000
610	3	1,40,000	18,50,000
615	3	1,50,000	20,00,000
620	1	5,00,000	25,00,000

As per SEBI (Delisting of Equity Shares) Regulations, 2009 a delisting offer made shall be deemed to be successful only if the post offer promoter shareholding taken together with the shares accepted through eligible bids at the final price determined reaches ninety per cent of the total issued shares of that class.

Let the minimum number of equity shares to be acquired be x :
x + 75% = 90% of total issued shares,
x = 15% of total issued shares,
x = 15,00,000 shares.
Therefore, Final offer price = Price at which post offer promoter shareholding reaches the threshold of 90% i.e., ₹ 600/- per share.

Question 60.
Answer the following: XYZ Ltd. made a public issue of equity shares in September, 2014 and sought listing of BSE and NSE. Soon, thereafter, the promoters of the company started contemplating a change in the objects clause mentioned in the prospectus. To give effect to the same the company convened an extra-ordinary general meeting of shareholders in November 2015. Though the resolution was passed by the company there were nevertheless, the dissenting shareholders too. The promoters decide to provide an exit opportunity to the dissenting shareholders. In the light of the above, answer the following questions:
(i) Is this act of the promoters justified? Highlight the relevant regulatory legal framework for the same?
Answer:
Yes, the promoters Act is justified in accordance with Chapter VI-A namely ‘Conditions and Manner of Providing Exit Opportunity to Dissenting Shareholders’ of SEBI (Issue of Capital and disclosure Requirements) Regulations, 2009. The provisions of this Chapter shall apply to an exit offer made by the promoters or shareholders in control of an issuer to the dissenting shareholders in terms of section 13(8) and section 27(2) of the Companies Act, 2013, in case of change in objects or variation in the terms of contract referred to in the prospectus.

(ii) Who are the dissenting shareholders?
Answer:
“Dissenting Shareholders” mean those shareholders who have voted against the resolution for change in objects or variation in terms of a contract, referred to in the prospectus of the issuer.

(iii) Enumerate the conditions required to be complied with to give effect to this recourse which was availed by the promoters.
Answer:
Conditions required to be complied with to give effect to this recourse % which was availed by the promoters: The promoters or shareholders ‘ in control shall make the exit offer in accordance with the provisions of this Chapter to the dissenting shareholders, if:

public issue has opened after April 1, 2014; and
proposal for change in objects or variation in terms of a contract, referred to in the prospectus is dissented by at least 10 per cent of the shareholders who voted in the general meeting; and
amount to be utilized for the objects for which the prospectus was issued is less than 75% of the amount raised (including the amount earmarked for general corporate purposes as disclosed in the offer document).

Question 61.
Who are dissenting shareholders? Elucidate the conditions of any to provide exit opportunity to them.
Answer:
Meaning: Dissenting Shareholders mean those shareholders who have voted against the resolution for change in objects or variation in terms of a contract referred to in the prospectus of the issuer.

Conditions to provide exit opportunity:

As per Regulation 69 of SEBI (ICDR) Regulations, 2018 provides that only those dissenting shareholders of the issuer who are holding shares as on the relevant date shall be eligible to avail the exit offer.

The promoters or shareholders in control shall make the exit offer in accordance with the provisions of the SEBI (ICDR) Regulations, 2009, to the dissenting shareholders, if:

the proposal for change in objects or variation in terms of a contract, referred to in the prospectus is dissented by at least 10 per cent of the shareholders who voted in the general meeting and
the amount to be utilized for the objects for which the pro-spectus was issued is less than 75% of the amount raised (including the amount earmarked for general corporate purposes as disclosed in the offer document).

Question 62.
Shaurya Ltd. a company dealing with glass molding and peripherals has plans to go public and raise ₹ 1,000 Crores. They appoint CFO financial Services as their lead managers. The company’s directors having no knowledge of rules and regulations argue with the lead managers that 40% of shares are to be allotted to public, 40% to QIBs, 10% to HNI clients and balance to be taken by underwriters. As a Company Secretary, explain to the directors the Regulations 40 and 136 of underwriting.
Answer:
Regulations 40 & 136 of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009:
The directors of the company are not correct as the rules pertaining to issue states that allotment of shares has to be made based on the following regulation:

If an issuer makes a IPO/FPO other than through the book building process, desires to have the issue underwritten, it shall appoint the underwriters in accordance with the SEBI (Underwriters) Regulations, 1993.

If the issuer makes a public issue through a book building process:

The issue shall be underwritten by lead managers and syndicate members. However, at least 75% of the net offer to the public is proposed to be compulsorily allotted to the QIBs, and such portion cannot be underwritten.
The issuer shall prior to filing the prospectus, enter into an un-derwriting agreement with the lead manager(s) and syndicate member(s) which shall indicate the number of specified securities which they shall subscribe to at the predetermined price in the event of under-subscription in the issue.
If the syndicate member(s) fail to fulfil their underwriting obliga-tions, the lead manager(.s) shall fulfil the underwriting obligations.
The lead manager(s) and syndicate member(s) shall not subscribe to the issue in any manner except for fulfilling their underwriting obligations.
In case of every underwriting issue, the lead manager(s) shall undertake minimum underwriting obligation as specified in the SEBI (Merchant Bankers) Regulations, 1992.
Where the issue is required to be underwritten, the underwriting obligations should at least to the extent of minimum subscription.

Question 63.
Discuss various types of Issue?
Answer:
Types of Issue are as follows:
Initial Public Offer (IPO): Initial public offer (IPO) means an offer of specified securities by an unlisted issuer to the public for subscription and includes an Offer for Sale (OFS) of specified securities to the public by any existing holder of such securities in an unlisted issuer.

Further public offer (FPO): Further public offer (FPO) means an offer of specified securities by a listed issuer company to the public for subscription. In other words, another issue to the public other than its existing shareholders by the listed persons is referred to as a Further Public offer

Right Issue: Rights Issue of Securities is an issue of specified securities by a company to its existing shareholders as on a record date in a predetermined ratio.

The issuer is required to comply with various provisions which inter alia include pricing, disclosures in the notice, lock in etc. in addition to the requirements specified in the Companies Act.

Question 64.
List entities which are not eligible to make FPO?
Answer:
As per Regulation 102, an issuer shall not be eligible to make a FPO of specified securities:

If the issuer any of its promoters, promoter group or directors, selling shareholders are debarred from accessing the capital market by SEBI.
If the issuer or any of its promoters or directors is a wilful defaulter.
If any of the promoters or directors of the issuer is a fugitive economic offender.
If any of the promoters or directors of the issuer is a promoter or a director of any other company which is debarred from accessing the capital market by SEBI. p

Question 65.
Write short note on: “Monitoring Agency”.
Answer:

“Monitoring Agency”: The monitoring agency shall submit its report to the issuer in the format specified in the ICDR Regulations, 2016, on a quarterly basis till at least ninety five per cent of the proceeds of the issue excluding the proceeds raised for general corporate purposes have been utilized.
The issuer shall within forty five days from the end of each quarter publicly disseminate the report of the monitoring agency by way of uploading the same on its website as well as submitting the same to the stock exchange(S) on which its equity shares are listed.
Board of directors and management of the issuer shall provide their comments on the findings of the monitoring agency.

Note: In case the issuer is a bank or a public financial institution or an insurance company, this provision is not applicable.

Question 66.
Write short note on: “Post-issue Advertisement”.
Answer:
As per Regulations 51 and 147, Post-issue Advertisements shall also be placed on the websites of the stock exchange(s).

An Post-issue Advertisement giving details relating to:

subscription,
basis of allotment,
number, value and percentage of all applications including ASBA,
number, value and percentage of successful allottees for all applications including ASBA,
date of completion of despatch of refund orders, as applicable, or
instructions to self-certified syndicate banks by the registrar,
date of credit of specified securities and date of filing of listing application, etc.
is released within ten days from the date of completion of the various activities in at least one English national daily newspaper with wide circulation, one Hindi national daily newspaper with wide circulation and one regional language daily newspaper with wide circulation at the place where registered office of the issuer is situated.

Question 67.
What are the conditions for exit offer for dissenting shareholders?
Answer:
The promoters/shareholders in control shall make the exit offer to the dissenting shareholders in cases only if a public issue has opened after April 1, 2014, if: ‘

the proposal for change in objects or variation in terms of a contract, referred to in the offer document is dissented by at least 10 per cent of the shareholders who voted in the general meeting; and
the amount to be utilized for the objects for which the offer document was issued is less than 75% of the amount raised (including the amount earmarked for general corporate purposes as disclosed in the offer document).

Question 68.
What is Exit price which is payable to dissenting shareholders?
Answer:
The ‘exit price’ payable to the dissenting shareholders shall be the highest of the following:
→ the volume-weighted average price paid or payable for acquisitions, whether by the promoters or shareholders having control or by any person acting in concert with them during the fifty-two weeks immediately preceding the relevant date.

→ the volume-weighted average market price of such shares for a period of sixty trading days immediately preceding the relevant date as traded on the recognised stock exchange where the maximum volume of trading in the shares of the issuer are recorded during such period, provided such shares are frequently traded.

→ where the shares are not frequently traded, the price determined by the promoters or shareholders having control and the merchant banker taking into account valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such issuers.

→ the highest price paid or payable for any acquisition, whether by the promoters or shareholders having control or by any person acting in concert with them, during the twenty-six weeks immediately preceding the relevant date.

Question 69.
An issuer shall not eligible to make a right issue of specified securities. Comment.
Answer:
An issuer shall not be eligible to make a rights issue of specified securities:
(a) if the issuer, any of its promoters, promoter group or directors of the issuer are debarred from accessing the capital market by SEBI.
(b) if any of the promoters or directors of the issuer is a promoter or director of any other company which is debarred from accessing the capital market by SEBI.
(c) if any of its promoters or directors is a fugitive economic offender.

Note: Restrictions imposed under a) and b) will not apply to the promoters or director of the issuer who were debarred in the past by SEBI and the period of debarment is already over as on the date of filing of the draft letter of offer with SEBI.

Question 70.
What are the conditions for Preferential Issue?
Answer:
A listed issuer may make a preferential issue of specified securities, if:

All equity shares allotted by way of preferential issue shall be made fully paid up at the time of the allotment.
A special resolution has been passed by its shareholders.
All the equity shares, if any, held by the proposed allottees in the issuer are in dematerialised form.
The issuer has obtained the Permanent Account Number of the proposed allottee(s).
The issuer is in compliance with the conditions for continuous listing of equity shares as specified in the listing agreement with the recognised stock exchange where the equity shares of the issuer are listed, SEBI Listing Regulations, 2015 as amended, and any circular or notifications issued by SEBI there under.

Indian Equity – Public Funding – Corporate Funding and Listings in Stock Exchanges Important Questions

Indian Equity – Public Funding – Corporate Funding and Listings in Stock Exchanges Important Questions

Corporate Funding and Listings in Stock Exchanges Notes