Introduction:-

SEBI is managed by six members

–
one chairman (nominated by CentralGovernment), two members (officers of central ministries),
one member (fromRBI) and remaining two members nominated by Central Government.
About SEBIESTABLISHMENT OF SEBI

The Securities and Exchange Board of India was established on April 12,1992 in accordance
with the provisions of the Securities and ExchangeBoard of India Act, 1992.
PREAMBLE

The Preamble of the Securities and Exchange Board of India describes thebasic functions of the
Securities and Exchange Board of India as"...to protect the interests of investors in securities and
to promote thedevelopment of, and to regulate the securities market and for mattersconnected
therewith or incidental thereto"
SEBI
-
These Guidelines have been issued by the Securities and Exchange Board of India under Section
11 of the Securities and Exchange Board of India Act,1992.(a) These Guidelines may be called
the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines,
2000.(b) These Guidelines shall come into force from the date specified by theBoard.

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Functions & Responsibilities-

SEBI has to be responsive to the needs of three groups, which constitute themarket:


The issuers of securities



The investors


The market intermediaries.SEBI has three functions rolled into one body:quasi-
legislative,quasi- judicial and quasi-executive. It drafts regulations in its legislative capacity,
itconducts investigation and enforcement action in its executive function andit passes rulings and
orders in its judicial capacity. Though this makes itvery powerful, there is an appeals process to
create accountability. There isa Securities Appellate Tribunal which is a three-member tribunal
and ispresently headed by a former Chief Justice of a High court -Mr. JusticeN.K.Sodhi. A
second appeal lies directly to theSupreme Court.SEBI hasenjoyed success as a regulator by
pushing systemic reforms aggressively and successively. SEBI has been active in setting up the
regulations asrequired under law.SEBI has also been instrumental in taking quick andeffective
steps in light of the global meltdown and the Satyam fiasco. Ithad increased the extent and
quantity of disclosures to be made by Indiancorporate promoters. More recently, in light of the
global melt down, itliberalised the takeover code to facilitate investments by removing
regulatory structures. In one such move, SEBI has increased the application limit forretail
investors to Rs 2 lakh, from Rs 1 lakh at present.
Powers
For the discharge of its functions efficiently, SEBI has been invested withthe necessary powers
which are:1.

T
o approve by−laws of stock exchanges.
2.

T
o require the stock exchange to amend their by−laws.
3.
Inspect the books of accounts and call for periodical returns fromrecognised stock exchanges.4.

Inspect the books of accounts of a financial intermediary.5.

Compel certain companies to list their shares in one or more stockexchanges.6.

Levy fees and other charges on the intermediaries for performing itsfunctions.7.

Grant licence to any person for the purpose of dealing in certainareas.8.

Delegate powers exercisable by it.9.

Prosecute and judge directly the violation of certain provisions of thecompanies Act.
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Name From To
C. B. Bhave18 February 2008 18 February 2011M.
Damodaran18 February 2005 18 February 2008G. N. Bajpai 20 February 2002 18 February 2005D. R. M
ehta 21 February 1995 20 February 2002S. S. Nadkarni 17 January 1994 31 January 1995G. V. Ram
akrishna 24 August 1990 17 January 1994Dr. S. A. Dave 12 April 1988 23 August 1990Function
s of Sebi In Respect Of Matters Specified In Section 11 of theSecurities and Exchange Board of
India Act, 1992
 1. REGULATION OF STOCK EXCHANGES AND SUBSIDIARIES
I. Inspection of Stock Exchanges:
On-site supervision through inspectionof stock exchanges is considered an effective regulatory
tool. Under thepolicy of risk-based supervision which has been adopted from the yearunder
review, stock exchanges having a significant turnover were taken upfor onsite inspection. These
were The Bombay Stock Exchange ( BSE),Calcutta Stock Exchange (CSE), National Stock
Exchange (NSE),
InterConnected Stock Exchange( ISE), Ludhiana Stock Exchange (LSE),Hyderabad
Stock Exchange (HS E ) and Ahmedabad Stock Exchange (ASE).
II. Inspection of Subsidiaries of Stock Exchanges
A. Six subsidiaries of stock exchanges were inspected during the financial year 2002-03
viz ASE Ca p i t a l Ma r k e t s L t d ( ACML
–
Subsidiary of ASE), ISE Securities & Services Ltd (ISS - Subsidiary of ISE),
LSESecurities Ltd (LSESL - Subsidiary of LSE) , HSE Securities Ltd (HSESL -Subsidiary of
HSE), SKSE Securities Ltd (SKSESL - Subsidiary of Saurashtra Kutch Stock Exchange) and
VSE Securities Ltd (VSL- Subsidiary of Vadodara Stock Exchange). A special inspection of
MPSE Securities Ltd(MPSESL
–
Subsidiary of MPSE) was carried out. Follow up action includeddiscussion with the parent
exchanges of the subsidiaries. Letters of displeasure were issued to the parent stock exchanges of
those subsidiariesfor which findings were serious as well as those which failed to comply
withsuggestions/observations of inspection reports.

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III. Restructuring of Management of Subsidiaries

: The inspection of thesubsidiaries of stock exchanges revealed deficiencies in their
functioningand risk management systems The management structure of thesubsidiaries needed to
undergo change in order to enable them to be able toprovide a safe and transparent market and
effectively discharge
theirresponsibilities towards investor protection. A Circular dated February 11, 2003 has, therefo
re, been issued to stock exchanges directing themto carry out the changes in management
structure of their subsidiaries.
IV. Illegal Trading in Securities
It had come to the notice of the SEBI that certain persons were engaging intrading in securities
outside the purview of the stock
exchanges („illegaltrading in securities‟). Such
trading particularly in Gujarat has come to be
known as „DABBA‟ trading. There were also
reports in the media regardingillegal use of terminals provided to the brokers by the National
StockExchange in Kolkata and other places. Media had also reported Kerb tradingin the cities of
Kanpur, Kolkata, Mathura, Ahmedabad, Rajkot and Mumbai.Since these activities are illegal and
pose a systemic risk besides luringcommon investors into the net the Board tool immediate
action by sending te a m s t o some cities of Gujarat viz . Ahmedabad, Vadodara andRajkot to
conduct surprise inspections. Since it is not possible to identify the persons who carry on these
activities the Chief Ministers of all the Stateswere requested through letters and reminders to use
the local police force tocheck these illegal activities. NSE, BSE and other Stock Exchanges
werealtered to verify involvement of their members and take coercive action. Thepublic were
also cautioned through a notice issued in the newspapers inEnglish, Hindi and major regional
languages about the illegal activities andeducating them about the perils of such illegal trades.

2.Registration And Regulation Of The Working Of Intermediaries:-

In order to interpose between issuers and investors, regulators recognizevarious classes of
intermediaries in the capital market. Regulation
throughintermediaries has been found, perhaps more effective in certain spheresof activity.
SEBI, over the period, recognized many types of capital marketintermediaries in India and
operations during the year is reviewed in thefollowing sections.
I. Primary Market
Intermediaries such as merchant bankers,

underwriters, debenturetrustees, bankers to

an issue, registrars to an issue and share

transferagents and portfolio manager are the

intermediaries that function in theinter alia

in the primary markets.

II. Secondary Market
Brokers are one of the most important links between the investors and themarket. Their
association with the stock exchanges and investors datesback to as early as nineteenth century.A.
Broker Registration details of registered brokers
–
exchange wise, andtheir composition, and ownership pattern. There are 3835 corporate brokersin
India as on March 31, 2003 and they constituted about 40 per cent of total brokers. Percentage of
corporate brokers is found to be at the highestat NSE, OTCEI and BSE at 89 per cent, 76 and 67
per cent respectively andtogether constitute over fifty percent of the corporate brokers in
allexchanges. NSE and BSE together have over one-third of
corporate brokersbetween them. On the smaller exchanges such as Guwahati and Jaipurpercentag
e of corporate brokers is negligible. The composition of membership has been shifting to the
corporate entities over the years.

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MULTIPLE MEMBERSHIP:
Entities are allowed to obtain membership at more than one stock
exchange. The multiple memberships ranges between two to six. It may be seen that854 entities.
have membership at two exchanges while 3 entities havemembership at 6 exchanges. About ten
per cent of the total brokers havemultiple memberships.


Sub-Broker Registration
Sub-brokers are intermediaries between the broker and the investor. SEBIRequirements include
registration of sub-brokers through the stockexchanges at which the broker is a member.III.
Registration of FIIsIV. Registration of Custodian of Securities
3.REGISTRATION AND REGULATION OF COLLECTIVE INVESTMENTSCHEMES
INCLUDING MUTUAL FUNDS
I. Registration of Collective Investment Schemes (CIS) Subsequent to thenotification of
Regulations, SEBI had received applications for grant of registration from 50 CIS entities. Out of
these 50 CIS entities, SEBI
hadgranted provisional registration to six CIS entities, w h i l eapplications of 44 CIS entities
were rejected and they were ordered to windup their schemes and make repayment to
their investors. During the year2002-2003, the provisional registration granted to one CIS entity
expired. Thus, the total number of provisionally registered CIS entities is five.In terms of
Regulations, an existing collective investment scheme which has(i) failed to make an application
for registration to the Board; or (ii) not beengranted provisional registration by the Board; or (iii)
having obtainedprovisional registration fails to comply with the provisions of Regulation71; or
(iv) is not desirous of obtaining provisional registration; is required towind up its existing
schemes, make repayment to the investors andthereafter submi
t “Winding up and

Repayment Report ” to SEBI . SEBI

has
received “Winding up and Repayment Report”
from 57 CIS entities.Prosecution under Section 24 of SEBI Act, 1992 has been filed by
SEBIagainst 139 erring CIS entities. Other actions such as debarring thepromoters/ directors/
managers/ persons in charge of the business of thescheme from operating in the capital market;
writing to the StateGovernments to register civil/ criminal cases against the erring entities
forapparent offences of fraud, cheating criminal breach of trust andmisappropriation of public
funds; writing to the Department of Company Affairs to initiate the process of winding up of the
erring 555 CIS entities
hasalso been taken up. Requests have been made to police authorities tofile the First Information
Reports against 49 CIS entities for offences such ascriminal breach of trust, cheating, etc. In
CWP No. 3352/98 in the matter of Shri. S. D Bhattacharya and others vs. SEBI, the
Hon‟ble High Court, Delhi
impleaded all the CIS entities. Earlier, the court had, inter-alia, restrainedthem from selling,
disposing of and /or alienating their immovableproperties or parting with the possession of the
same. Their directors hadalso been interdicted from transferring their immovable property in any
manner whatsoever. The Hon‟ble High Court
also made it clear that its orderwill not come in the way of companies intending to refund the
money totheir investors. In an order
dated January 22, 2002, the Hon‟ble High
Courth a s ordered to freeze the bank accounts of 513 erring CIS entities andtheir
directors/promoters till they comply with the regulations /
SEBIDirections regarding repayment to their investors.II. Mutual Funds Registered with SEBI
during the year, registration wasgranted to two new mutual funds in the private sector viz HSBC
MutualFund and Deutsche Mutual Fund. With the enactment of the UTI(Repealment Ordinance),
the UTI was divided into the UTI-I and UTI-II. UTI-II known as UTI Mutual Fund was
registered with SEBI on January 14,2003. During the year 2002-03, the certificate of registration
granted to twomutual funds was cancelled viz JF Mutual Fund (formerly known
as JardineFleming Mutual Fund) and Pioneer ITI Mutual Fund (formerly known asKothari
Pioneer Mutual Fund). In case of JF Mutual Fund, the schemes were

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taken over by Sun F&C Mutual Fund whereas the schemes of Pioneer ITIMutual Fund were
merged with Templeton Mutual Fund.III. Venture Capital FundsA. Domestic and Foreign
Venture Capital Funds During the year,registration was granted to nine new domestic venture
capital funds(DCVFs). Registration was also granted to four foreign Venture CapitalInvestors
(FVCIs).
4.PROMOTION AND REGULATION OF SELF REGULATORYORGANISATIONS
I. Development of Stock Exchanges as Self Regulatory Organisations Thereare 23 stock
exchanges recognized under Section 4 of the SecuritiesContracts (Regulation) Act, 1956.These
exchanges were recognized /set upover a period of time to stimulate growth of capital market
throughchannelising the savings of individuals and small investors. Theseexchanges are suitably
empowered by the section 9 of SC(R)A, 1956 to makebye laws for the conduct of business,
regulation and control of contracts.SEBI is contemplating development of Self Regulatory
Organizations(SROs)for market intermediaries. Stock exchanges are already acting as SROs
andthe SRO structure needs to be strengthened further. The objective forpromoting
intermediaries like Stock Exchanges as Self Regulatory Organizations (SROs) is that since they
have a better feel on the groundreality, they should take care of the micro aspects of regulation.
The otherinherent advantages of self regulation are:a. Self regulation becomes the responsibility
of market professionals andmay result in greater acceptance of rules by the members of SRO.b.
It also provides market players with greater flexibility to respond tosecurities market.

c. It avoids duplication of responsibilities: it is observed over years of experience that if the

regulatory body gets into micro r e g u l a t i o n , i tloses the sight of fundamentals and lands up
in duplication of responsibilities, besides d. SROs are expected to have a betterunderstanding of
ground realities. However, for any organization /body likeStock Exchange to effectively function
as an SRO, it is necessary that it hasthe capacity to enforce compliance to byelaws, rules and
regulations laiddown by itself. Further, these SROs should be able to enforce and
establishr u l e s w h i c h p r e v e n t f r a u d u l e n t a n d manipulative tradepractices and
promote just and equitable principles of trade. Presently suchpowers are conferred to the
exchanges by the section 9 of SC(R)A, 1956whereby they can make bye laws for the conduct of
business, regulation andcontrol of contracts. However, developing Stock Exchanges as
Self Regulatory Organizations and enhancing their effective regulatory role putsadditional
responsibility on SEBI to ensure that SROs are efficiently carryingout/conducting their
monitoring responsibilities.
5. FRAUDULENT AND UNFAIR TRADE PRACTICES
SEBI took up investigations in 122 cases in 2002-03 bringing the total casestaken up for
investigation till end of this financial year to 654 cases. Of these 122 cases, investigation into
102 cases has been completed during2002-2003.6. INVESTOR EDUCATION AND THE
TRAINING OF INTERMEDIARIESI. Securities Market AwarenessCampaign: SEBI, launched
the nation-wide Securities Market AwarenessCampaign to empower investors with education in
the securities market in aceremony held at Vigyan Bhawan, N e w D e l h i o n J a n u a r y 1 7 ,2 0 0
3 . T h e campaign was inaugurated by Shri A.B.
Vajpayee, Hon‟ble
Prime Minister, and Republic of
India. Shri Jaswant Singh, Hon‟ble Union
Minister for Finance and Company Affairs delivered the keynote address.Several prominent
personalities contributing to the growth of the Indian

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Securities Market and other eminent personalities were also present.

Theinaugural session of the programme featured a curtain raiser audio vis -ual encompassing the
theme of the campaign
“Empowering
Investors
–
ASEBI Initiative
”. It
showed that people in India have respect for money buttreat it with a little knowledge. A
mnemonic especially created by Shri R.K.Laxman, for the SEBI campaign was also
unveiled by Hon‟ble Prime
Minister. The inaugural session was followed by three technical sessionswhere in discussions em
phasising empowerment of investors througheducation and the roles played by intermediaries,
issuers and professionalsin investor education were held by eminent personalities. This campaign
isexpected to sustain the felt need for investor education and awarenessacross the country.7.
PROHIBITION OF INSIDER TRADING8. SUBSTANTIAL ACQUISITION OF SHARES
AND TAKE-OVERS9. INSPECTION AND INQUIRIES
ELIGIBILITY NORMS FOR COMPANIES ISSUING SECURITIESConditions for issue
of securities
 (The companies issuing securities offered through an offer document shallsatisfy the following
at the time of filing the draft offer document withSEBI30 and also at the time of filing the final
offer document with thRegistrar of Companies/ Designated Stock Exchange :)

Filing of offer document

No issuer company shall make any public issue of securities, unless adraft Prospectus has been
filed with the Board through a MerchantBanker, at least 30 days prior to the filing of the
Prospectus with theRegistrar of Companies (ROC):
Provided that
if the Board specifies changes or issues observations on thedraft Prospectus (without being under
any obligation to do so), the issuercompany or the Lead Manager to the Issue shall carry outsuch
changes in the draft Prospectus or comply with the observationsissued by the Board before filing
the Prospectus with ROC.
Provided further that
the period within which the Board may specify changes or issue observations, if any, on the draft
Prospectus shall be30 days from the date of receipt of the draft Prospectus by the Board.
Provided further that
where the Board has sought any clarification oradditional information from the Lead Manager/s
to the Issue, the periodwithin which the Board may specify changes or issue observations, if any,
on the draft Prospectus shall be 15 days from the date of receiptof satisfactory reply from the
Lead Manager/s to the Issue.
Provided further that
where the Board has made any reference to orsought any clarification or additional information
from any regulator orsuch other agencies, the Board may specify changes or issue observations,
if any, on the draft Prospectus after receipt of commentsor reply from such regulator or other
agencies.
Provided further that
the Board may specify changes or issueobservations, if any, on the draft Prospectus only after
receipt of copy of in-principle approval from all the stock exchanges on which theissuer
company intends to list the securities proposed to be offeredthrough the Prospectus.)

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(No listed issuer company shall make any rights issue of securities,
33
(where the aggregate value of such securities, including premium, if any, exceeds Rs. 50 lacs,)
unless a draft letter of offer has been filed withthe Board, through a Merchant Banker, at least 30
days prior to the filingof the letter of offer with the Designated Stock Exchange (DSE).
Provided that
if the Board specifies changes or issues observationson the draft Letter of Offer (without being
under any obligation to doso), the issuer company or the Lead Manager to the Issue shall
carry out such changes in the draft Letter of Offer or comply with theobservations issued by the
Board before filing the Letter of Offer withDSE.
Provided further that
the period within which the Board may specify changes or issue observations, if any, on the draft
Letter of Offer shallbe 30 days from the date of receipt of the draft Letter of Offer by theBoard.
Provided further that
where the Board has sought any clarification oradditional information from the Lead Manager/s
to the Issue, the periodwithin which the Board may specify changes or issue observations,
ifany, onthe draft Letter of Offer shall be 15 days from the date of receipt of satisfactory reply
from the Lead Manager/s to the Issue.
Provided further that
where the Board has made any reference to orsought any clarification or additional information
from any regulator orsuch other agencies, the Board may specify changes or issueobservations, if
any, on the draft Letter of Offer after receipt of comments or reply from such regulator or other
agencies .
Provided further that
the Board may specify changes or issueobservations, if any, on the draft Letter of Offer only
after receipt of copy of in-principle approval from all the stock exchanges on which theissuer
company intends to list the securities proposed to be offeredthrough the Letter of Offer.)

Companies barred not to issue security

No company shall make an issue of securities if the company has beenprohibited from accessing
the capital market under any order ordirection passed by the Board.
Application for listing
No company shall make any public issue of securities unless it hasmade an application for listing
of those securities in the stock exchange(s).
35
(
Provided that
in case of an unlisted company making an InitialPublic Offer, the company shall make an
application for listing of thosesecurities on at least one stock exchange having nationwide
tradingterminals.)
Issue of securities in dematerialised form
No company shall make public or rights issue or an offer for sale of securities, unless:(a) the
company enters into an agreement with a depository fordematerialisation of securities already
issued or proposed to be issuedto the public or existing shareholders; and(b) the company gives
an option to subscribers/ shareholders/ investors toreceive the security certificates or hold
securities in dematerialisedform with a depository.
Explanation:
A “depository” shall mean a
depository registered with the Board underthe Securities and Exchange Board of India
(Depositories andParticipants) Regulations, 1996. (
Initial Public Offerings by UnlistedCompanies
) (An unlisted company may make an initial public offering (IPO)of equity shares or any other
security which may be converted into orexchanged with equity shares at a later date, only if it
meets all the followingconditions:
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(a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full
years (of 12 months each), of which not more than50% is held in monetary assets:
Provided that
if more than 50% of the net tangible assets are held inmonetary assets, the company has made
firm commitments to deploy such excess monetary assets in its business/project;(b) The
company has a track record of distributable profits in terms of Section 205 of the Companies
Act, 1956, for at least three (3) out of immediately preceding five (5) years;
Provided further that
extraordinary items shall not be considered forcalculating distributable profits in terms of Section
205 of CompaniesAct, 1956;(c) The company has a net worth of at least Rs. 1 crore in each of
thepreceding 3 full years (of 12 months each);(d) In case the company has changed its name
within the last one year,atleast 50% of the revenue for the preceding 1 full year is earned by the
company from the activity suggested by the new name; and(e) The aggregate of the proposed issue and
all previous issues made inthe same financial year in terms of size (i.e., offer through offer
document + firm allotment + promoters‟ contribution through the offer
document), does not exceed five (5) times its pre-issue networth as perthe audited balance sheet
of the last financial year.)(An unlisted company not complying with any of the
conditionsspecified in Clause 2.2.1 may make an initial public offering (IPO) of equity shares or
any other security which may be converted into orexchanged with equity shares at a later
date, only if it meets both theconditions (a) and (b) given below:

(a) (i) The issue is made through the book-building process, with at least
39
(50% of net offer to public) being allotted to the Qualified InstitutionalBuyers (QIBs), failing
which the full subscription monies shall be refunded.
OR
(a) (ii) The “project” has at least 15% participation by Financial Institutions/
Scheduled Commercial Banks, of which at least 10% comes from theappraiser(s). In addition to
this, at least 10% of the issue size shall beallotted to QIBs, failing which the full subscription
monies shall berefunded
AND
(b) (i) The minimum post-issue face value capital of the company shall be Rs.10 crores.
OR
(b) (ii) There shall be a compulsory market-making for at least 2 years fromthe date of listing of
the shares, subject to the following:
40
(a) Market makers undertake to offer buy and sell quotes for a minimumdepth of 300 shares;
41
(b) Market makers undertake to ensure that the bid-ask spread(difference between quotations for
sale and purchase) for their quotes shallnot at any time exceed 10% @ The inventory of the
market makers on eachof such stock exchanges, as on the date of allotment of securities, shall be
atleast 5% of the proposed issue of the company.
Offer for sale47
(An offer for sale shall not be made of equity shares of a company or any other security which
may be converted into or exchanged with equity sharesof the company at a later date, unless the
conditions laid down in clause2.2.1 or 2.2.2, as the case may be and in clause 2.2.2A, are
satisfied.)2.2.4 Offer for sale can also be made if provisions of clause 2.2.2 arecomplied at the
time of submission of offer document with Board.

2.3
Public Issue by Listed Companies
2.3.1
48
(A listed company shall be eligible to make a public issue of equity shares or any other security
which may be converted into or exchanged withequity shares at a later date:
Provided that
the aggregate of the proposed issue and all previous issuesmade in the same financial year in
terms of size (i.e., offer through offer
document + firm allotment + promoters‟ contribution
through the offerdocument), issue size does not exceed 5 times its pre-issue networth as perthe
audited balance sheet of the last financial year.
Provided 49
(
further
)
that
in case there is a change in the name of theissuer company within the last 1 year (reckoned from
the date of filing of theoffer document), the revenue accounted for by the activity suggested by
thenew name is not less than 50% of its total revenue in the preceding 1 full- year period.)2.3.2
50
(A listed company which does not fulfill the conditions given in theprovisos to Clause 2.3.1
above shall be eligible to make a public issue,subject to complying with the conditions specified
in clause 2.2.2.) 2.3.3
51
(Deleted)
Exemption from Eligibility Norms
The provisions of clauses
52
(2.2 and 2.3) shall not be applicable in caseof:i) a banking company including a Local Area Bank
(hereinafter referredto as Private Sector Banks) set up under sub-section (c) of Section 5 of the
Banking Regulation Act, 1949 and which has received license fromthe Reserve Bank of India;
orii) a corresponding new bank set up under the Banking Companies(Acquisition and Transfer of
Undertaking) Act, 1970 Banking Companies(Acquisition and Transfer of Undertaking) Act,
1980, State Bank of India Act1955 and State Bank of India (Subsidiary Banks) Act, 1959
(hereinafter
referred to as “public sector banks”);
iii) an infrastructure company:a)
53
(whose project has been appraised by a Public Financial Institution(PFI) or Infrastructure
Development Finance Corporation (IDFC) orInfrastructure Leasing and Financing Services Ltd.
(IL&FS) or a bank whichwas earlier a PFI; and) b) not less than 5% of the project cost is
financed by any of the institutions referred to in sub-clause (a), jointly or severally,irrespective of
whether they appraise the project or not, by way of loan orsubscription to equity or a
combination of both;iv) rights issue by a listed company.
Explanation: 54
(Deleted)
Credit Rating for Debt Instruments55
(2.5.1A No issuer company shall make a public issue or rights issue of
56
(convertible debt instruments), unless the following conditions arealso satisfied, as on date
of filing of draft offer document with SEBIand also on the date of filing a final offer document
with ROC/Designated Stock Exchange:(i)
57
(credit rating is obtained from at least one credit rating agency registered with the Board and
disclosed in the offer document;)(ii) The company is not in the list of wilful defaulters of RBI;
(iii) The company is not in default of payment of interest or repayment of principal in respect of
debentures issued to the public, if any, for aperiod of more than 6 months.2.5.1B
58
(Deleted)2.5.2
59
(Where credit ratings are obtained from more than one credit ratingagencies, all the ratings,
including the unaccepted ratings, shall bedisclosed in the offer document.)2.5.3
60
(Deleted.)2.5.4 All the credit ratings obtained during the three (3) years preceding thepubic or
rights issue of debt instrument (including convertible instruments)for any listed security of the
issuer company shall be disclosed in the offerdocument.

61
(2.5A
IPO Grading
2.5A.1 No unlisted company shall make an IPO of equity shares or any othersecurity which may
be converted into or exchanged with equity sharesat a later date, unless the following conditions
are satisfied as on thedate of filing of Prospectus (in case of fixed price issue) or Red
HerringProspectus (in case of book built issue) with ROC:(i) the unlisted company has obtained
grading for the IPO from at leastone credit rating agency;(ii) disclosures of all the grades
obtained, along with the rationale/description furnished by the credit rating agency(ies) for each
of thegrades obtained, have been made in the Prospectus (in case of fixedprice issue) or Red
Herring Prospectus (in case of book built issue);and(iii) the expenses incurred for grading IPO
have been borne by the unlistedcompany obtaining grading for IPO.)2.6
Outstanding Warrants or Financial Instruments
2.6.1 No unlisted company shall make a public issue of equity share or any security convertible
at later date into equity share, if there are any outstanding financial instruments or any other right
which would entitlethe existing promoters or shareholders any option to receive equity
sharecapital after the initial public offering.2.7
Partly Paid-up Shares
2.7.1 No company shall make a public or rights issue of equity share or any security convertible
at later date into equity share, unless all the existingpartly paid-up shares have been fully paid or
forfeited in a manner specifiedin clause 8.6.2.
62
(2.8
Means of Finance
No company shall make a public or rights issue of securities unlessfirm arrangements of
finance through verifiable means towards 75% of the stated means of finance, excluding the
amount to be raised throughproposed Public/ Rights issue, have been made.)

GUIDELINES ON INITIAL PUBLIC OFFERS THROUGH THE STOCKEXCHANGEON-LINE

SYSTEM (e-IPO)
11A.1 A company proposing to issue capital to public through the on-linesystem of the stock
exchange for offer of securities shall comply withthe requirements as contained in this Chapter in
addition to otherrequirements for public issues as given in these Guidelines,
whereverapplicable.11A.2
Agreement with the Stock exchange.
11A.2.1 The company shall enter into an agreement with the StockExchange(s) which have the
requisite system of on-line offer of securities.
515
(Deleted)11A.2.2 The agreement mentioned in the above clause shall specify inter-alia, the
rights, duties, responsibilities and obligations of the company andstock exchange (s) inter se. The
agreement may also provide for a disputeresolution mechanism between the company and the
stock exchange.11A.3
Appointment of Brokers
11A.3.1 The stock exchange, shall appoint brokers of the exchange, who areregistered with
SEBI, for the purpose of accepting applications and placingorders with the company.11A.3.2 For
the purposes of this Chapter, the brokers, so appointedaccepting applications and application
monies, shall be considered as
„collection

centres‟.
11A.3.3 The broker/s so appointed, shall collect the money from his/theirclient for every order
placed by him/them and in case the client fails to pay for shares allocated as per the Guidelines,
the broker shall pay suchamount.11A.3.4 The company/lead manager shall ensure that the
brokers havingterminals are appointed in compliance with the requirement of
mandatory collection centres, as specified in clause 5.9 of Chapter V of the Guidelines.
11A.3.5 The company/lead manager shall ensure that the brokers soappointed are financially
capable of honouring their commitments arisingout of defaults of their clients, if any.11A.3.6
The company shall pay to the broker/s a commission/fee for theservices rendered by him/them. The
exchange shall ensure that thebroker does not levy a service fee on his clients in lieu of his services.
11A.4 Appointment of Registrar to the Issue
11A.4.1 The company shall appoint a Registrar to the Issue havingelectronicconnectivity with
the Stock Exchange/s through which the securitiesare offered under the system.
11A.5 Listing
11A.5.1
516
(The company may apply for listing of its securities on anexchangeother than the exchange
through which it offers its securities to publicthrough the on-line system.)
11A.6 Responsibility of the Lead Manager
11A.6.1 The Lead Manger shall be responsible for co-ordination of all theactivities amongst
various intermediaries connected in the issue / system.11A.6.2 The names of brokers appointed
for the issue along with the namesof the other intermediaries, namely, Lead managers to the
issue andRegistrars to the Issue shall be disclosed in the prospectus and applicationform.
11A.7 Mode of operation
11A.7.1 The company shall, after filing the offer document with ROC andbefore opening of the
issue, make an issue advertisement in one English andone Hindi daily with nationwide
circulation, and one regional daily with widecirculation at the place where the registered office
of the issuer company issituated.

11A.7.2 The advertisement shall contain the salient features of the offer
document as specified in Form 2A of the Companies (Central Government‟s)
General Rules and Forms, 1956. The advertisement inaddition to other required information,
shall also contain the following:i. the date of opening and closing of the issueii. the method and
process of application and allotmentiii. the names, addresses and the telephone numbers of the
stock brokersand centres for accepting the applications.11A.7.3 During the period the issue is
open to the public for subscription,the applicants may a) approach the brokers of the stock
exchange/s through which thesecurities are offered under on-line system, to place an order for
subscribingto the securities. Every broker shall accept orders from all clients who placeorders
through him;b) directly send the application form along with the cheque/Demand Draftfor the
sum payable towards application money to the Registrar to theIssue or place the order to
subscribe through a stock- broker under theOn-line system.11A.7.4 In case of issue of capital of
Rs. 10 crores or above the Registrar tothe Issue shall open centres for collection of direct
applications at the fourMetropolitan centres situated at Delhi, Chennai, Calcutta
and Mumbai.11A.7.5 The broker shall collect the client registration form duly filled upand
signed from the applicants before placing the order in the system asper "Know your client rule"
as specified by SEBI and as may be modifiedfrom time to time.11A.7.6 The broker shall,
thereafter, enter the buy order in the system, onbehalf of the clients and enter details including
the name, address,telephone number and category of the applicant, the number of sharesapplied
for, beneficiary ID, DP code etc. and give an order number/orderconfirmation slip to the
applicant.11A.7.7 The applicant may withdraw applications in terms of the CompaniesAct, 1956.

11A.7.8 The broker may collect an amount to the extent of 100% of theapplication money as
margin money from the clients before he placesan order on their behalf.11A.7.9 The broker shall
open a separate bank account [Escrow Account]with the clearing house bank for primary market
issues and the amountcollected by the broker from his clients as margin money shall be
depositedin this account.11A.7.10 The broker shall, at the end of each day while the issue is open
forsubscription, download/forward the order data to the Registrar to the Issueon a daily basis.
This data shall consist of only valid orders (excluding thosethat are cancelled). On the date of
closure of the issue, the final status of orders received shall be sent to the Registrar to the
issue/company.11A.7.11
517
(On the closure of the issue, the Designated Stock Exchange,along with the Lead merchant
banker and Registrars to the Issue shallensure that the basis of allocation is finalised in fair and
proper manner onthe lines of the norms with respect to basis of allotment as specified inChapter
VII of the Guidelines, as may be modified from time to time.)11A.7.12 After finalisation of basis
of allocation, the Registrar to theIssue/company shall send the computer file containing the
allocation detailsi.e. the allocation numbers, allocated quantity etc., of successful applicantsto the
Exchange. The Exchange shall process and generate the broker-wisefunds pay-in obligation and
shall send the file containing the allocationdetails to member brokers.11A.7.13 On receipt of the
basis of allocation data, the brokers shallimmediately intimate the fact of allocation to their client
/applicant. Thebroker shall ensure that each successful client/applicant submits the duly filled-in
and signed application form to him along with the amount payabletowards the application
money. Amount already paid by the applicant asmargin money shall be adjusted towards the
total allocation money
payable. The broker shall, thereafter, hand over the application forms of thesuccessful applicants
who have paid the application money, to theexchange, which shall submit the same to the
Registrar to Issue/company for their records.

11A.7.14 The broker shall refund the margin money collected earlier, within3 days of receipt of
basis of allocation, to the applicants who did not receiveallocation.11A.7.15 The brokers shall
give details of the amount received from eachclient and the names of clients who have not paid
the application money tothe exchange. The brokers shall also give soft copy of this data to
theexchange.11A.7.16 On the pay- in day, the broker shall deposit the amount collectedfrom the
clients in the separate bank account opened for primary issueswith the clearing house/bank. The
clearing house shall debit the primary issue account of each broker and credit the amount so
collected from eachbroker to the "Issue Account"11A.7.17 In the event of the successful
applicants failing to pay theapplication money, the broker through whom such client placed
orders,shall bring in the funds to the extent
of the client‟s default. If the broker
does not bring in the funds, he shall be declared as a defaulter by theexchange and action as
prescribed under the Bye-Laws of the StockExchange shall be initiated against him. In such a
case, if the minimumsubscription as disclosed in the prospectus is not received, the
issueproceeds shall be refunded to the applicants.11A.7.18 The subscriber shall have an option to
receive the security certificates or hold the securities in dematerialised form as specified in
theGuidelines11A.7.19 The concerned Exchange shall not use the Settlement/TradeGuarantee
Fund of the Exchange for honoring brokers commitments incase of failure of broker to bring in
the funds.11A.7.20 On payment and receipt of the sum payable on application for theamount
towards minimum subscription, the company shall allot theshares to the applicants as per these
Guidelines. The Registrar to theissue shall post the share certificates to the investors or, instruct
thedepository to credit the depository account of each investor, as thecase may be.

11A.7.21 Allotment of securities shall be made not later than 15 days fromthe closure of the
issue failing which interest at the rate of 15% shall bepaid to the investors.11A.7.22 In cases of
applicants who have applied directly or by post to theRegistrar to the issue, and have not
received allocation, the Registrar to theissue shall arrange to refund the application monies paid
by them within thetime prescribed.11A.7.23 The brokers and other intermediaries engaged in the
process of offering shares through the on-line system shall maintain the followingrecords for a
period of 5 years :i. orders receivedii. applications receivediii. details of allocation and
allotmentiv. details of margin collected and refundedv. details of refund of application
money 11A.7.24 SEBI shall have the right to carry out an inspection of the records,books and
documents relating to the above, of any intermediary connectedwith this system and every
intermediary in the system shallat all times co-operate with the inspection by SEBI. In addition
thestock exchanges have the right of supervision and inspection of theactivities of its member
brokers connected with the system.)