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20.3 Prospectus [Section 60] Prospectus, the divider 20.

3-1 The division of companies limited by shares into private and public is founded on the legal rule that only public companies can promote public issues and offers of their shares/securities while private companies are prohibited to do so as long as they retain that status. Even in respect of public companies, so long as a public issue is not made the provisions in the Act relating to public issue have no application, but if they do so by way of Initial Public Offer (IPO) those provisions become applicable. The manner of making public issues and offers is through issue of prospectus or its variants the offer for sale or the letter of offer. A public issue without a Prospectus is prohibited and a contract with anyone for its waiver is void under section 56(2) of the Act. An improper issue of prospectus in contravention of section 57/58 is punishable with fine up to Rs. 50,000 for the company and everyone of its officers who is knowingly a party to the issue, [section 59]. Section 60(1) refers to a Prospectus in relation to an intended company by which in principle it may be deduced that the issue of a Prospectus on behalf of a company may precede its formation under the Act, but it would appear that such an issue has since been in effect blocked by the SEBI (Disclosure and Investor Protection) Guidelines, 2000, as a track record of the companys financial and other performance is a pre-requisite. Regulation of issue, UK 20.3-2 While the content of the public offer documents is substantially the same in our country as what it used to be in UK prior to the advent of the EU, the streams of regulation have been clearly different almost from the time of the introduction of company as a business form in India. In UK, more than the Companies Act constraints, it was the rules of the Stock Exchange for listing, that were more strict though not regulated by law till 1984 when, as a result of the EC Directives, the Stock Exchange (Listing) Regulations, 1984 were promulgated leading to two kinds of prospectuses, one for listing attracting some provisions of the English Companies Act and the Listing Regulations and the other covered by the English Companies Act provisions only for unlisted public issues. In India, there is nothing like an unlisted public issue of shares or debentures as listing is compulsory for all public issues in terms of section 73 of the Act, though the acceptance of public deposits by companies in terms of sections 58A & 58B of the Act for which an advertisement is required to be released and to which the requirements as to a prospectus as far as may be are applicable except listing, approximates to it. Regulation of issue, India 20.3-3 In UK, listing regulation even today is left to the International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd., as the Competent Authority in matters outside the English Companies Act, whereas in India it used to be under three-fold control of the Central Government and/or Registrar in terms of the Companies Act, Capital Issues Control Act and the Securities Contracts (Regulation) Act, the recognized stock exchanges, and the RBI. Now the nodal Regulator is the SEBI as a statutory body under the SEBI Act, 1992, besides the RBI, subject to the overall policy prescriptions of the Central Government both statutory and others, and the Registrar with a much diminished role. The detailed operation for listing is in accordance with the Securities Contracts (Regulation) Rules, 1957, rule 19 in particular, and the standard listing agreement, the rules of the recognized stock exchanges with certain degree of uniformity now, besides the Depositories Act and the other rules and requirements depending upon the nature of the security and the issue. Other relevant regulations conditioning a public issue

20.3-4 Companies Act as well as a number of other Acts and Regulations issued by the regulatory bodies set up under or authorized by such Acts, for Industries and the Services sectors, the Competition Act, 20021 (in regard to regulation of dominance and dominant combinations covered by sections 5 and 6 of the said Act) and the directions, if any, of the Competition Commission set up under it, RBI, Double Taxation Avoidance Agreements concluded by the Central Government with a number of foreign countries with regard to foreign taxation as well as the Transfer Pricing measures newly introduced effective from April, 2002, condition directly or indirectly the issue and the Prospectus, and also it has to conform to the contours of Corporate Governance under the Companies Act on the one hand, and the SEBI Guidelines/listing agreement clauses on the other, bolstering investor confidence being central to it. Control on capital issues 20.3-5 Prior to the Capital Issues Control Act, 1947, consent of Government of India for capital issues was a must under Defence of India Rules, Rule 94A, by its order, subject to exemption up to a specified limit similar to the Exemption Order issued under sections 3, 4 and 5 of the erstwhile Capital Issues Control Act. SEBI controls 20.3-6 Now, it is for SEBI to exercise control over volumes of public issues/offers and prices of shares, including rights and bonus shares, PSU bonds and debentures, fully or partly convertible or non-convertible. The SEBI Guidelines form the mainstay for public issues and offers, since extended to bodies corporate which are not companies like the Nationalised Banks for shares and the financial institutions and PSUs for bonds of various kinds of tax savings and issue of Units of Mutual Funds. The offer document and the procedure for issue of fungible ADRs/GDRs and FCCBs are governed by the requirements of the applicable foreign laws and the RBI Regulations subject to the Policy Prescriptions of the Finance Ministry pertaining to Foreign Investment in India and Indian Investment abroad, listing in India being a must in all cases regulated by SEBI. 20.3-7 Definition of Prospectus [Section 2(36)] 20.3-7a Prospectus, what is - Prospectus means any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate, section 2(36). Accordingly, the Prospectus dealt in Schedule II is one kind of prospectus and not the Prospectus for all purposes of the Act. 20.3-7b Prospectus is a proffer - For the purpose of our present discussion, a prospectus may be taken as a companys proffer to the public to subscribe for its shares or debentures. Section 2(36) of the Act defines prospectus to mean any document described or issued as a prospectus and includes any notice, circular, advertisement inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in or debentures of a body corporate. The purpose of any such document is its issue, covered by the expression issued generally, section 2(22). It means a prospectus issued to persons irrespective of their being existing members or debenture holders of the issuer company. The prohibition in respect of private companies against public issue for shares/debentures in the articles required to be stated by section 3(1)(iii)(e) does not operate if the invitation conforms to exemption in section 67(3). Even an offer to any section of the public whether selected as members or debenture

holders of the company to whom it may be made or as clients of any persons by whom a prospectus may be issued or sending out invitation on behalf of a company in any manner to subscribe for shares or debentures to any such section of the public generally, amounts to a prospectus issued by the company, section 67. 20.3-7c Privately circulated restricted offer is no prospectus - An offer or invitation is no prospectus if it may properly be regarded, in all circumstances, as not calculated to result directly or indirectly in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation, or if it is a domestic concern between the persons making and receiving the offer or invitation, section 67(3), provided the number of persons to whom the offer is made is less than 50 presumably in each such offer as there is no reference to any time-limit like the previous 12 months specified as under the English system, inserted by the Amending Act, 2000, without, however, prescribing the mechanism on keeping a check on the number by any Regulator and leaving it to corporate self-governance as it would appear. This applies to approaches made directly by the companys directors or through brokers to individuals or others that may be introduced by them to take up shares/debentures on offer or through a registered broker to financial institutions for private placement. 20.3-7d Publicity and prospectus bound up - Making the issue of securities public in general or publicity in some way is implied in a prospectus, public understood as a general word, it being open to anyone and in numbers anything from two to infinity and perhaps even one, if he is intended to be the first of a series of subscribers, but makes further proceedings needless by himself subscribing the whole, but the term does not include a private communicationNash v. Lynde (1929) A.C. 158; whether an offer is public or private depends in the facts and the language of the communication, and an offer by a private company to selected persons is no invitation to public: Rattan Singh v. Managing Director, Moga Transport Co. Ltd. [1959] 29 Comp. Cas. 165 (Punj.). Similarly, an offer to the shareholders of an existing company A of the shares of another company B in exchange of the shares held in A amounted to no offer to public: Government Stock & Other Securities Investment Co. Ltd. v. Christopher [1956] 26 Comp. Cas. 210 (Ch. D). 20.3-7e Public disclosure is the core requirement of prospectus - Investors look to their investment being sound, and a prospectus is expected to be the means of disclosing and informing the investors about the soundness of the company and the venture for which the issue is dedicated. The legal framework regulating the public issue of a prospectus has as its objective investor protection by securing the fullest disclosure of all material and essential particulars and lay the same in full view of the intending purchasers of shares-Pramatha Nath Sanyal v. Kali Kumar Dutt AIR 1925 Cal. 714. 20.3-7f Nothing private in public issue - A line like private and confidential or for private circulation only prominently printed makes no difference to deeming it as a prospectus, section 64. With the insertion of section 58B (along with section 58A regarding acceptance of public deposits by companies in 1974), which states that the provisions of the Act relating to a prospectus shall as far as may be apply to advertisements under section 58A for public deposits, being so delimited, it is not clear whether the advertisements in relation to a prospectus are similarly conditioned, either from the definition of prospectus given in the Act or the definition of the word document given in the General Clauses Act, and if radio-or-TV-ads in voice or visuals or for that matter the road-shows amount to a prospectus, and if so, what should or should not be their content and purport and whether a red-line warning made in some way to say that this is no

prospectus would suffice to shield the issuer. But, the SEBI Guidelines provide the answer by way of giving the meaning of the term advertisementwhich includes notices, brochures, pamphlets, circulars, showcards, catalogues, hoardings, placards, insertions in newspapers, pictures or any other print media, radio, television programmes through electronic medium. 20.3-7g General invitation to subscribe amounts to prospectus - A written or printed invitation open to persons generally to subscribe or purchase shares against cash payment is a prospectus : Government Stock and Other Security Investment Co. Ltd. v. Christopher (1956) 1 All ER 490. What matters is not who receives the invitation but who accepts. Thus, a renounceable rights shares offer is a prospectus insofar as it has a reach to someones other than the persons who receive it may come to subscribe in virtue of the renouncement, if made by the receivers, and therefore the offer is calculated to be general and not limited to a selected group of the public as members apart from the recent limitation of the number to fifty, in terms of sections 67(1)&(2) and 64. However, section 56(5) exempts from its purview two kinds of issue of prospectus or application by a company, namely, the issue related to shares or debentures to existing members or debenture-holders with or without the right to renounce, and the issue relating to shares or debentures which are, or are to be, in all respects uniform with those previously issued and listed, to anyone; the latter part of the exemption in particular is unclear and confusing unless it is limited to any unsubscribed portion of the securities left out of any earlier public issue made. DCA letter No. 8/81/56-PR, dated 4-11-1957 stated that the issue of further shares by a company to its members with the right of renunciation in favour of any outsiders did not require the issue or registration of a prospectus, may be placing reliance on the wording of section 56(5)/section 67(3) (prior to the insertion of the first proviso limiting the number to fifty) read with section 81(1)(c). Under SEBI Guidelines, rights issue is equated to a public offer if its size is over Rs. 50 lakhs. Thus, there is no clarity on rights issues offer document. Deemed Prospectus, offer of sale 20.3-8 Section 64 of the Act deals with deemed Prospectus which usually is in the nature of offer for sale of the companys shares already allotted to promoters or others who may be carrying on the business of a Issue House, a line popular in UK but not so common in India thus far, but it appears that in the not very far future Merchant Bankers may emerge as the Issue Houses. Where a company allots or agrees to allot any of its shares or debentures with a view to all or any of which would be offered later for sale to the public, or such offer takes place within six months of allotment or agreement or at any date at which the offer for sale is made while the company did not receive the full consideration, any document by which the offer is made to the public shall for all purposes be deemed to be a Prospectus issued by the company, with three modifications: (a) additional disclosures of the net amount of consideration received by the company and the place and time at which the relevant contract may be inspected, (b) the persons making the offer to the public shall be deemed directors named in the Prospectus, and (c) if the offeror is a company or a firm, it shall suffice if two of the directors of the company or one-half of the partners of the firm, by themselves or their duly authorized agents sign the document deemed as Prospectus. 20.3-9 Contents of Prospectus 20.3-9a Prospectus demands caution - The applicable legal provisions and rules that should be kept in view in drafting and preparing the Prospectus and the schedule of its issue, no less than market-making for the success of the issue, are both scattered and complicated, the

liabilities onerous and penalties severe. Therefore, the whole exercise, from start to finish, calls for a high degree of care and caution. Contents of the Prospectus covering the various disclosures to be made, reports to be set out and documents to be annexed are primarily specified in Schedule II of the Act [as substituted by Notification No. SO 666(E), dated 3.10.1995] subject to the substantive provisions in Part III of the Act and the Securities Contracts (Regulation) Act (for listing), and as elaborated under the SEBI (Disclosure & Investor Protection) Guidelines, 2000. A host of separate SEBI Rules and Regulations also come into play subject to prior approvals or clearances, where applicable, of SIA, FIPB and the Department of Economic Affairs in the Finance Ministry for the issue, apart from RBI Regulations (discussed in Chapters 6 and 17 to 19) and the Listing Regulations in the shape of the Standard Listing Agreement authorized by SEBI and in force. One difficulty in complying with all these procedures is that there is no direct inter-linking available of the various requirements for informedly easy networking, it being left to the imagination of those concerned with the Prospectus, a feature that should be welcome to the consultants and advisors as without their participation the exercise would remain an uphill task to make and work a Prospectus for an issue. 20.3-9a-1 SCHEDULE II OF COMPANIES ACT REQUIREMENTS [SECTIONS 44(2)(a) & 56] The general tenor of Schedule II to the Act appears to emphasize on the Prospectus related to maiden issues/IPOs for starting a new Project (with Foreign Collaboration) for bringing out and marketing of new products or the acquisition of a business or acquisition of shares of another company outside financial/banking sector as also the insurance, railways and electricity generation or distribution etc. sectors (as these companies are subject to the special Acts made and enforced in those areas), whereas the substantive provisions in the Act dealing with Prospectus are all pervasive including the issues made first after the company is formed or after some years and whether the issue is in respect of a Project which is new or for expansion of existing one or otherwise. Over the last decade or so company type of operations have widened to businesses in services sectors, whether IT enabled, financial or other, a development which is likely to be a permanent feature of the countrys economy in future. Schedule II to the Act is inadequate in this respect needing further revision. 20.3-9a-1a ACT FORMAT OF PROSPECTUS ADMITS REFINEMENT - Moreover, it is usual to consider that the Schedule being part of the Act has the force of law co-extensive with the substantive portion of the Act, but again one finds that its text runs with apparent bias against public issues otherwise than to meet fixed or real or tangible capital outlays militating against total or larger outlays out of the issue proceeds on intangible capital assets acquisition that may be required by the services companies in the shape of intellectual property rights or franchise of territories or utilization of the issue proceeds wholly or mostly towards working capital, and therefore, unclear. In this respect also the Schedule needs revision. The SEBI Guidelines issued under statutory authority of the SEBI Act, further fortify and streamline the public disclosures and investor protection generally keeping pace with the developments and needs of investor protection as also of companies, but it is beyond the scope of the SEBI Act to make good the gaps in Schedule II of Companies Act. 20.3-9a-1b MATTERS TO BE SPECIFIED AND THE REPORTS TO BE SET OUT -The matters to be specified in Prospectus and the Reports to be set out are given in Schedule II to the Act, in three Parts, the third part only conditioning the first two. Part one of Schedule II - Part one deals with General Information :

about the history of the issuer company, its name and address; stock exchanges where the issue would be listed; the declaration/undertaking that if 90% of the subscription, reckoned as the minimum subscription1 [section 69(1) of Companies Act, but the reference to clause 5 in Schedule II made in the section is confusing], is not received within 90 days from the closure of the issue, the subscription monies received will be refunded, and if it is so received the issue of allotment letters/refunds will be made within 10 weeks, any delay beyond 8 days in the refunds being liable to payment of interest as per section 73(2)/(2A); a warning to the public to desist from making fictitious applications [section 68A(1)]; date of opening, closing, earliest closing of issue, names of auditors and the intermediaries like lead managers, debenture-trustees (if the issue is for debentures), managers, registrars etc. for the issue and the credit rating obtained, underwriters and the sufficiency of their resources for the amount underwritten in the opinion of the Board of directors; opening of separate bank account in a scheduled bank for the transfer of the issue proceeds to be so kept until permission for listing is granted by all the stock exchanges where listing as specified in the Prospectus is sought; giving the details of the monies raised earlier by public issues and their utilization as well as the details of unutilized monies; companys capital structure and the size of the present issue giving the reservations to promoters and othersshares reserved for subscription on firm allotment basis are to be excluded in arriving at the number of shares on offer to the public, Circular No. 6/150/6440 of 3.5.1962; terms of the issue; particulars of the issue, its object, project cost and means of financing, vital facts about the company, its management, its subsidiaries, promoters and their background, managerial personnel and directors; details of the Project on which the issue proceeds would be outlaid, like its location, plant and machinery, technology/process, collaboration, performance guarantee or marketing support from the collaborator, infrastructure (water and power), schedule of project implementation giving details of progress already made, land acquired, civil works, plant erection, trial production, expected date of start of commercial production, nature of the productwhether consumer or industrial and export possibilities/obligations, or, if a service companydetails about it, future prospects, operation in the first three years and the year when cash/net profits are expected to be earned, and stock-market data for the companys securities during the last six months; particulars of the companies under the same management; outstanding litigations, defaults made in respect of loans taken or debentures issued or the amount of unpaid arrears of dividend on cumulative preference shares, if any, issued, companies promoted by the same promoters and their status, material developments after the date of the latest balance sheet and their impact on the companys performance and prospects, and the managements perception of the Risk Factors like non-availability of inputs for the manufacture etc.

Part two of Schedule II - Part two requires disclosures : A. General Information: the confirmation that the consents in writing having been obtained of the directors, auditors, solicitors/advocates, managers and registrars to the issue, bankers to the

company and bankers to the issue and the experts, lead-managers, co-managers and brokers connected with the issue, giving their names and addresses; contents of the experts [section 59(2)] opinion obtained for the issue; changes in the companys Board during the previous three years with reasons; authority for the issue and details of the resolutions passed for the issue; schedule of allotment and issue of certificates; names and addresses of the company secretary, legal advisor, lead managers, co-managers, auditors, bankers to the issue, and brokers to the issue. B. Financial Information - (Reports to be set out)the report by the Companys auditor with respect to (1) the companys profits and losses distinguishing items of a non-recurring nature for each of the five financial years immediately preceding the issue or if the actual number of years are less for those years; and if the company has any subsidiaries, separate reports, one as mentioned above and the other in either of two ways, that is, either for all the subsidiaries together or subsidiary-wise, highlighting the effect so far as the profits and losses concern the members of the company, or, as a whole consolidated with the profits and losses of the company and of all the subsidiaries highlighting the effect so far as they concern members of the company, and (2) as regards the assets and liabilities of the company as they stood at the last date to which the accounts of the company were made up, and if the company has any subsidia-ries, both separately for the company and as a whole with the combined assets and liabilities of all its subsidiaries with or without the companys assets and liabilities, or individually with the assets and liabilities of each such subsidiary, indicating as respects the assets and liabilities of the subsidiaries, the allowance to be made for persons other than members of the company. 20.3-9b Where accounts not made up for a part of 5 years - If the accounts were not made up in respect of any part of the five year period ending on a date three months before the date of issue of the Prospectus, then, a statement of that fact together with a statement of accounts made up to a date not earlier than six months prior to the date of Prospectus showing the profit or loss and the assets and liabilities position disclosing the nature of the provisions or adjustments made or to be made as at that date, duly audited and certified by the auditor. 20.3-9c DCA clarification - DCA has clarified that the period of five years refers to a simple period of five years ending on a date three months before the issue of prospectus, and hence, every company will have to give the position of accounts made up to a date not earlier than six months from the date of issue of the prospectus, irrespective of the fact whether or not the financial year of the company closes on a date three months before the issue of the prospectus, Circular No. 5/72/CL-IV/65 of 11.11.1968: non-inclusion of the Report would amount to a default under section 56(1). 20.3-9d If purchase of business is intended - If the proceeds or any part of the issue is directly or indirectly meant for purchase of any business or an interest in any business whereby the issuer company would gain from the profits or be liable to the losses in the capital or profits and loss or both in that business to the extent exceeding 50%, then, a report made by an independent chartered accountant (who shall be named in the Prospectus) upon the profits or losses of that business for each of the five financial years preceding the issue and the assets and liabilities made up as at the date not earlier than 120 days preceding the date of the issue, has to be annexed to the Prospectus. 20.3-9e If acquisition of a company is intended - In the event that the issue proceeds would

be outlaid directly or indirectly in the issuer company acquiring in any manner shares in any other body corporate whereby that body corporate becomes a subsidiary of the issuer company, a similar report as mentioned above additionally indicating how the profits and losses of the other body corporate affect the members of the issuer company and the allowance that would be fall the holders of those shares of the other body corporate if the issuer company had at all material times held the shares to be acquired, as well as the effect similarly of the profits and losses and assets and liabilities of the other body corporate and its subsidiaries, if it has any, in relation to the issuer company and its subsidiaries, if any, with the exception that the assets and liabilities of the other body corporate may be as at the last date to which its accounts were made up (the statements of accounts have to be annexed to the Prospectus); the principal terms of the loans taken and the charge created on the assets of the issuer company (each of the Reports mentioned should either indicate by way of note any necessary adjustments as respects the figures of any profits or losses/assets and liabilities, or incorporate such adjustments, disclosing the same, and the reports should be rendered by chartered accountants being neither employees nor proposed directors and qualified to be appointed as the companys auditors). C. Statutory and other information Minimum subscription, expenses of the issue giving the break-up of the amounts payable to each of the advisors, registrars, managers to the issue and the trustees for the debenture-holders (if the issue is for debentures), underwriting commission and brokerage; details of the previous issues made for cash and non-cash and the public/rights issues made, including the commission and brokerage paid, during the previous five years; particulars of debentures/preference shares/other instruments issued by the issuer company and remaining unredeemed as on the date of the Prospectus; details of options to subscribe for shares or other securities to be dealt with in a depository; as regards purchase of property, full details of the vendor(s) or deemed vendor(s)-[that is, as specified in Paras 16 and 17 of Part three of Schedule II: every person who has entered into any contract, absolute or conditional, for the sale or purchase or for any option of purchase, of any property to be acquired as free-hold or on lease-hold by the company, in case where (a) the purchase money is not fully paid at the date of issue of the Prospectus, (b) to be paid or satisfied wholly or in part out of the issue proceeds, (c) the contract depends for its validity or fulfilment on the result of the issue] whether the purchase is straight or a sub-purchase for the issuer company, for cash or other consideration consisting of shares or debentures, paid or payable to each vendor (if the vendor is a firm, its partners are not separate vendors), specifying the nature of the title that would accrue to the issuer company in respect of the property, and for goodwill; short particulars of every transaction related to purchase of property and completed within the two years preceding the issue of the Prospectus which involved any interest of a promoter, director or proposed director as a vendor, directly or indirectly, giving the dates, names and prices paid; if the purchases of any property are proposed to be met wholly or partly out of the proceeds of the issue and such purchases are not in the ordinary course of the companys business or not made in contemplation of the issue, nor the issue being a consequence of such contracts, then, full particulars should be disclosed unless the amount of the purchase money is not material. 20.3-9f Details to be disclosed about the business to be acquired - If a business of less than three years track record is proposed to be acquired, then, the actual length of time of the business should be disclosed.

Full details of the directors, part-time and whole-time, holding office at the date of the Prospectus or proposed, their remuneration, the appointment and remuneration of managing directors, their interests and borrowing powers and their holding of the qualification shares, the benefits received by or due to the promoters and officers during the previous two years and the consideration for the same, have to be disclosed. 20.3-9g Material contracts - The dates, parties to, and the general nature of every contract appointing or fixing the remuneration of a managing director/manager to the date of the Prospectus, and every other material contract entered into within two years before the date of the Prospectus, other than those made in the ordinary or intended course of business of the company, have to be disclosed, specifying the time and place where such contracts or their copies may be inspected. 20.3-9h Interest of directors and promoters - Full particulars of the nature and extent of the interests of every director or promoter in the promotion of the company or the property acquisitions made within the two years preceding the date of the Prospectus or the property proposed to be acquired, including those acquired or proposed to be acquired from a firm or company in which they are interested (in which case all sums paid to such firm or company in cash or kind or otherwise, to be disclosed) particularly such payments made as inducement to be or to become a director, or as a settlement for services rendered by him, in connection with the promotion or formation of the company, should be disclosed. 20.3-9i Revaluation of assets done - Details of revaluation of assets done during the previous five years, should be disclosed; the rights and the process of modification of the rights of members in respect of voting, dividends and obligations of the nature of lien on shares and their forfeiture as well as the restrictions on the transfer/transmission/consolidation/splitting of shares and debentures, have to be disclosed. 20.3-9j Inspection of documents - The time and place for inspection of all the balance sheets and profit and loss accounts on which the report of the auditors is based, and the material contracts and documents during the period from the date of the Prospectus to the date of closing of subscription list, should be specified. Lastly, the directors of the company should declare as follows and sign the Prospectus, with date. Declaration That all the relevant provisions of the Companies Act, 1956, and the guidelines issued by the Government or the guidelines issued by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992, as the case may be, have been complied with and no statement made in prospectus is contrary to the provisions of the Companies Act, 1956 or the Securities and Exchange Board of India Act, 1992 or rules made thereunder or guidelines issued, as the case may be. Disclosure of delivery of prospectus to Registrar for registration [Section 60 (2)] - Every prospectus at its publication shall carry a disclosure on its face that a copy of it has been delivered for registration by the Registrar under section 60 of the Act. Additionally, it shall also carry a disclosure specifying the documents required by section 60 to be endorsed on or attached to the prospectus while delivering copy for registration to the Registrar.

20.3-9-2 EXPERTS, WHO ARE? - In the preparation of a prospectus, a peek into the future prospects of the company winning its way and its presentation through the opinions of well-known experts in the field assumes considerable emphasis. As such statement of opinions are futuristic and speculative in their very nature, their inclusion in the prospectus is regulated by the provisions made in sections 57, 58 and 62(2) to keep a check on unverifiable and therefore tending to be untrue statements having the potential to mislead the public, provided such a statement is misleading in the form and context in which it is included, or an omission calculated to mislead (section 65). Accordingly, an expert should be a person who is not, and has not been, engaged or interested in the formation or promotion, or in the management of the company (section 57), and he named in the prospectus only on the strength of their written consents to be so named for the issue of his statement included in the prospectus given to the company and not withdrawn as of the date of its issue (section 58); subsequent to the first issue of the prospectus and before the fifth day thereafter, the experts are free for any good and valid reason to issue a public disclaimer diminishing or limiting their liability as they become persuaded subsequent to giving their written consents and immediately after the first issue of the prospectus, in which case the date for allotment of shares would stand postponed till the fifth day from the date of issue of the disclaimer under section 72 read with section 74. As to the meaning of expert, an elaboration is found in sections 59(2) and 604(2) to say that the expression expert includes an engineer, a valuer, an accountant and any other person whose profession gives authority to a statement made by him. Further, a statement shall be deemed to be included in the prospectus if it is contained in any report or memorandum appearing on the face the prospectus or by reference incorporated in it or issued with it. SEBI Guidelines [Section 55A] 20.3-10 Issue of securities through an offer document should satisfy the requirements of SEBI Guidelines. The powers of SEBI regarding Prospectus for issue of shares or debentures/securities have been extended as laid down in section 55A of the Companies Act, inserted by the Amending Act, 2000 (effective from 13-12-2000). The SEBI has its Head Office in Mumbai with Regional Offices as given in Schedule XXII to the SEBI Guidelines. The areas falling to SEBI include administering the issue and transfer of securities and non-payment of dividend in case of listed companies and other public companies intending to get their securities listed, in terms of sections 55A to 58, 59 to 81 (including sections 68A, 77A and 80A), 108 to 113, 116 to 122, and 206, 206A and 207, so far as they relate to those matters, which imply that the Registrars role with respect to prospectus is to file and place it on public record, if cleared by SEBI, on its being presented to him by the issuer company. 20.3-10a Mixed roles of Registrar and SEBI - It is not clear from the Act provisions in whose charge it falls to deal with infractions of law pertaining to Prospectus and the consequent losses to individual investorsan area that was already lax due to the invisible commitment to public interest in that behalf on the part of the Registrar over the last five decades since the 1956 Act reform came into force, now rendered into divided roles and blurred, with a somewhat reluctant role conceded by the Government under the SC(R)A, Depositories Act, Companies Act besides the SEBI Act, and cautiously assumed by SEBI. The Disclosure & Investor Protection Guidelines seem to be essentially of the character of detailed procedure-drill founding, certainly in a pioneering effort, with a prospect of vast improvement in exacting compliance with the Rules/Guidelines by the intermediaries and the companies, dispensing however no relief to the way-laid victims in any way from the errant promoters, though empowered to do so under the SEBI Act, as if investor protection means prevention first and last rather than cure.

20.3-10b SEBI Rules - SEBIs rules for investor protection are published as Guidelines (probably a feature of SEBI when it was a non-statutory body at start prior to SEBI Act, 1992, allowed to continue) for self-regulation of companies for public issues and offers in the care of licensed intermediaries like Merchant Bankers, Depositories, Custodians besides the brokers and the SEs under the eagles eye of SEBI, with hardly any deterrence to company promoters else than the likelihood of a self-imposed vanishing act after the loot or facing a future ban against accessing the capital market imposed by SEBI with or without the liability to fines to accrue to the Exchequer, which is what the captains of business seem to avidly covet in our country frankly enough. The regulator should not exceed its boundaries and at best give broad guidelines, broad framework and broad regulations for the corporate sector was the observation of the President of FICCI, while lauding the withdrawal of the Companies (Amendment) Bill, 2003 by the Government and with it the amendment to Clause 49 of the Listing Agreement proposed by SEBI in respect of independent directors on a companys Board, having regard to the concerns of corporate sector on the Bill Clauses (Economic Times dated 23rd October, 2003). 20.3-10c Action point against voilations - The action point comes out clear in the direction of the Lucknow Bench of the Allahabad High Court reported as having been given on October 23, 2003 to the Ministry of Finance, SEBI and the DCA to explain why the Orders issued by it on March 16, 1999 in the case of vanishing companies, (some 229 of them, a fraction of the whole lot, said to have been identified but with no arrests or recovery of the amounts embezzled out of collections from the public, made), have not been complied with for four and a half years, in spite of the assurance given by the additional solicitor-general on behalf of the Union of India, SEBI and the DCA, and to comply with the same before November 3, 2003, the next hearing date, in the PIL filed by Midas Touch Investors Association (Asian Age, 24th October, 2003). Functional overlaps seem to be the apparent reason for this regulator failure that goes to sap the investor confidence. Role of Central Government - Such matters mentioned in section 55A entrusted to SEBI but related to other companies have been left to be administered by the Central Government, that is, matters relating to statement in lieu of prospectus, return of allotment, issue of shares and redemption of irredeemable preference shares and preference shares etc., the powers being exercisable by the Central Government/Tribunal/Registrar, as the case may be. 20.3-10d Role of SEBI - By section 11(1) of the SEBI Act, it is the duty of SEBI to protect the interests of investors in securities by such measures as it deems fit; and section 11A of the said Act authorizes SEBI : (1) to prescribe regulations on matters relating to issue of capital, transfer of securities and other incidental matters as well as the manner in which such matters shall be disclosed in the offer documents by the companies, without prejudice to the Companies Act provisions; (2) by general or special orders, prohibit any company from issuing prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities as also specify the conditions subject to which the prospectus, offer document or advertisement, if not prohibited, may be issued; and (3) specify the requirements for listing and transfer of securities and other incidental matters, without prejudice to section 21 of the Securities Contracts (Regulation) Act (that is, the mandatory requirement of complying with the conditions of the listing agreement).

20.3-10e Outline of SEBI Guidelines - Accordingly, SEBI has issued the Disclosure & Investor Protection Guidelines, 2000, comprising 22 Chapters and 31 Schedules and further clarifications issued from time to time, to regulate the issue of capital by companies as shares or debentures or other securities like convertibles by public issue through a Prospectus, or Offer for Sale (by existing shareholders), or Letter of Offer in case of rights issue [section 81(1)] by unlisted and listed companies, excepting the rights shares issues of the aggregate value not exceeding Rs. 50 lakhs including the premium, in an attempt to provide an elaborate procedure code parallel to and more detailed than in Schedule II to the Companies Act. An issue may also be a composite issue, that is, an issue of securities by a listed company in a public-cum-rights basis offered through a single offer document wherein the allotment for both public and rights components of the issue is proposed to be made simultaneously. The SEBI Guidelines also cover offer of IDRs by foreign companies (see Chapter 6 of this Book) and Preferential allotment, that is, an issue of capital made by a company pursuant to a resolution passed under section 81(1A) of the Companies Act. Under the SEBI Guidelines, Retail individual Investor means an investor who applies or bids for securities of or for a value of not more than Rs. 1,00,000, effective from 25.2.2005. Informal Guidance by SEBI - SEBI Press Note No. 12, dated 22.1.2004 provides for Informal Guidance by SEBI: a person can seek guidance about the applicability of the Acts, Rules, Regulations and Circulars, if the guidance seeker is an intermediary or a company intending to get its securities listed after filing the listing application with the Central Listing Authority or the draft offer document with the SEBI, or a mutual fund trustee of the asset management company or an acquirer under the Takeover Regulations. The Informal Guidance is to some extent similar to the Advance Ruling procedure under the Tax Laws, and it may be in two forms: (a) a No action Letter from the SEBI signifying that the proposed programme is permitted, or (b) Interpretative Lettersbeing the interpretation of any legal provision administered by SEBI, and the fee is Rs. 25,000. Such Letters issued by the SEBI are binding on it in the absence of any mala fides or fraud attributable to the guidance seeker-issuer in the manner of his acting on their basis. Contents of prospectus as per SEBI Guidelines - Chapter 6 20.3-11 As revised by SEBI by DIP Circular No. 14, dated 25.1.2005, effective from 25.2.2005 and as amended with effect from 31-3-2006: The offer document in the nature of a Prospectus shall contain all material information which shall be true and adequate (in addition to and as an elaboration of Schedule II of the Companies Act incorporating additionally of SEBI mandated disclosures) so as to enable the investors to make an informed decision on their investments in the issue. All the information and statements specified in Chapter VI of the SEBI Guidelines have to be given printed on 100 gsm paper (as summarised in Schedule VIIA to the Guidelines). Public issues by listed companies need not disclose some details as given in the proviso to Para 6.3 of the Guidelines. Front outside and inside, back inside and outside cover pages - The front outside and inside cover pages shall be white, and the front outside cover page shall contain the following details only and no patterns or pictures: (a) the word Prospectus; (b) name of the issuer company past and present, its logo, address of the registered office, telephone and fax numbers, contact person and the e-mail and website address; (c) the nature, number, price and amount of the instruments offered and the issue size, as

applicable; (d) the following Clause on Risks in relation to the first issue, displayed in a box item in respect of an IPO should appear-This being the first issue of the company, there has been no formal market for the securities of the company. The face value of the shares is . and the issue price/floor price/price band is X-times of the face value. The issue price/floor price/price band (has been determined and justified by the Lead Merchant Banker and the issuer company as stated under Justification of Premium paragraph-in the case of premium issue) should not be taken as indicative of the market price of the equity shares after the shares are listed. No assurance can be given regarding an active or sustained trading in the shares of the company nor regarding the price at which the equity shares will be traded after listing; (e) the following on general risk should appear-Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in this offer unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision, investors must rely on their own examination of the issuer and the offer including the risk involved. The securities have not been recommended or approved by the Securities and Exchange Board of India (SEBI) nor does the SEBI guarantee the accuracy of this document. Here, specific attention of the investors should be invited to the statement of Risk factors under General Risks by giving the relevant page number(s); (f) the following Clause on Issuers Absolute Responsibility should appear-The issuer, having made all reasonable enquiries, accepts responsibility for and confirms that this offer document contains all information with regard to the issuer and the issue, which is material in the context of the issue, that the information contained in the offer document is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this document as a whole or any of such information or the expression of any such opinion or intentions misleading in any material respect; (g) the names, logos and addresses of all the Lead Merchant Bankers with their titles who file the Prospectus with SEBI along with their telephone and fax numbers and the e-mail and website address; (h) similar particulars of the Registrar to the issue; (i) issue Schedule: date of opening, closing and the earliest closing of the issue; (j) credit Rating, if applicable; (k) names of the SEs where listing of the securities is proposed, together with the details of in-principle approval for listing obtained. The back inside and outside cover pages shall be white. Table of contents, definitions and abbreviations and risk factors - The Table of Contents shall appear immediately after the front inside cover page, followed by the Definitions and Abbreviations usedconventional/general, offering-related terms and Abbreviations. Next should appear the Risk Factors printed in clear readable form in minimum point 10 size, classified as those which are specific to the project and internal to the issuer company and those which are external and beyond its control, determined on the basis of their materiality having regard to: that (a) some events may not be material individually but may be found material collectively, (b) some events may have material impact qualitatively instead of quantitatively, and (c) some events may not be material at present but may be having material impacts in

future; and in the order of (i) Risks envisaged by Management, (ii) Proposals, if any, to address the same, and (iii) Notes required to be printed immediately after the Risk Factors. Then follow the Introduction, Summary of the industry and business of the issuer company, offering details and the consolidated financial, operating and other data. General Information : The information to be given includes name and address of the issuer company, its registration number and the address of the Registrar of Companies by whom the issuer company is registered; particulars of the Board of Directors; brief details of the Chairman, Managing/Whole-time Directors; names and addresses of the Company Secretary, Legal Advisor and Bankers to the company, the Compliance Officer, Merchant Bankers, Co-Managers, Registrars to the Issue, Bankers to the Issue, Brokers to the issue Syndicate members, Auditors of the company and the debenture-trustee; the statement of inter se allocation of responsibilities among the Lead Managers; Credit Rating for debentures and details of transfers; and credit grading for IPOs; name of the monitoring agency, if applicable; name and address of the project appraiser. The book building process in brief has to be indicated. The names and address of the Underwriters and the amounts underwritten coupled with the declaration of the Board of Directors that the resources of the Underwriters are sufficient to discharge the amounts underwritten by them, have to be given. Capital structure - Next follows the capital structure to be presented as: authorized, issued, subscribed and paid-up, giving under each the number, description and the aggregate nominal value; size of the present issue-giving separately the promoters contribution, firm allotment reservation for specified categories (names of the Group companies to be given if such reservation is made to the shareholders of such companies, and the applicable percentages to be given in the case of book built issue) and the net offer to public giving the number of instruments, description, aggregate nominal value and the issue amount; paid-up capitalafter the issue and after conversion of securities, if any; and the Share Premium Account, before and after the issue; followed by following Notes : Particulars of the share capital issues made detailing whether for cash as rights issue or for non-cash as bonus issues, with prices for each issue; share splits and the issue of shares, if any, otherwise than for cash; Promoter contribution, when fully paid and lock-in dates, in absolute figures and as percentages to total issued capital; (Schedule VIII to the Guidelines); Percentage of contribution by the promoters named in the prospectus and the date upto which the shares are locked-in; (Schedule IX to the Guidelines); Statement that the promoters contribution has been brought in to the extent of not less than the specified minimum lot and from the persons defined as promoters under the Guidelines; Statement that the promoters undertake to accept full conversion at par with the obligation of public in the case where an option is attached; Details of all buy-back and stand-by and similar arrangements for purchase of securities by promoters, directors and lead merchant bankers; Statement that an over-subscription to the extent of 10% of the net offer to public can be retained for the purpose of rounding off to the nearest multiple of minimum allotment lot;

Disclosure of the condition that the securities offered are subject to being made fully paid-up within 12 months of allotment and un-paid calls entail forfeiture; A statement thatthe unsubscribed portion in any reserved category may be added to any other reserved category; that the unsubscribed portion, if any, after such adjustment inter se amongst the reserved categories shall be added back to the net offer to the public; and that in the case of under-subscription in the net offer to the public portion spillover to the extent of the under-subscription shall be permitted from the reserved category to the net public offer portion; Details regarding major shareholders: names of ten largest sharehol-ders as on the date of filing the prospectus with the Registrar of Companies; number of shares held by shareholders in the foregoing category including the number of shares which they would be entitled to upon exercise of warrant, option, rights to convert a debenture, loan or other instrument; particulars of the foregoing nature as on a date two years prior to the date of filing the prospectus with the Registrar of Companies; similar particulars as on a date ten days prior to the date of filing the prospectus with the Registrar of Companies; and if the issuer company has made an IPO within the immediately preceding 2 years, the foregoing information shall be given separately indicating the names of the persons who acquired shares by subscription to the public issue and those who acquired the shares by allotment on a firm allotment basis or by private placement; Details of the aggregate shareholding of the promoter group and the directors of the promoters in the case of companies being promoters; aggregate number of securities purchased or sold by the promoter group and the directors of the promoter during a period of six months preceding the date on which the draft prospectus is filed with SEBI, which should be up-dated till the time of filing the prospectus with the Registrar of Companies; maximum and minimum price at which purchases and sales referred to in the preceding item were made along with the relevant dates; and if the foregoing information be not possible to obtain in respect of the sales and purchases made by any relative of the promoters, a statement to that effect shall be made in the prospectus on the basis of the transfers recorded in the books of the issuer company; (Notes : 1. for purposes of this item, promoter includes the person or persons who are in overall control of the company, or those instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public, and the persons named in the prospectus as promoters excluding a director/officer of the issuer company who acted in their professional capacity; 2. promoter group shall include the promoter, an immediate relative who is a spouse, parent, brother, sister or child of the person or of the spouse; 3. in the case of a company being a promoter it includes its subsidiary or holding company or any company in which the promoter holds 10% or more of the equity capital and the company holding 10% equity capital in the promoter company, or any company in which a group of individuals or companies or combinations thereof who hold 20% or more of the equity capital in that company also hold 20% or more of the equity capital of the issuer company; 4. if the promoter is an individual, any company in which 10% or more of the share capital is held by the promoter or an immediate relative of his or a firm or HUF in which the promoter or any one or more of his immediate relative is a member; any company in which a company specified first in this item holds 10% or more of the share capital; any HUF or firm in which the aggregate share of the promoter and his immediate relative is equal to or more than 10% of the total; and 5. all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus under the heading shareholdings of the promoter group, (excluding FIs, scheduled banks, FIIs and Mutual Funds, but those bodies excluding MFs shall count as promoters or promoter group for the subsidiaries or the companies promoted by them or for the mutual funds sponsored by them); Details of option granted or shares issued under any ESOPS/ESPS of the issuer company.

Objects of the Offering : The object of raising funds through the issue-whether for fixed asset creation and/or for working capital or any other purpose, shall be disclosed clearly in the Prospectus : Funds Requirement: the quantum of the funds proposed to be raised through the issue; if it involves multi-activity like diversification, modernization, expansion etc., the activity-wise component of the total cost to be given; if the project is proposed to be implemented in phases, the cost of each phase including the phase, if any, already completed should be given separately; Funding Plan or Means of Finance: an undertaking by the issuer companny confirming the firm arrangements of finance it made through verifiable means towards 75% of the stated means of finance excluding the proposed issue amount, giving the balance amount of the means of finance not so arranged without specification, should be included; Appraisal: There should be a disclosure on the scope of the appraisal of the project, if any, carried out giving the date and the cost of the project and the means of finance envisaged in it, the revisions made and the weaknesses and threats, if any, identified in the appraisal report as part of the risk factors; Schedule of Implementation: the schedule of implementation of the project and the progress made so far, giving the details of land acquired, civil works, installation of plant and machinery, trial production, date of commencement of production etc. should be given; Funds Deployed: Actual expenditure incurred on the project upto a date not earlier two months from the date of filing the prospectus with the Registrar of Companies, as certified by a Chartered Accountant, should be given; Sources of Financing of the Funds already deployed: the sources of financing the funds already deployed on the project, including any bridge loan or other financial arrangement to be repaid out of the proposed issue proceeds, should be given; Details of balance deployment: the year-wise break-up of the expenditure proposed to be incurred in the project to be given; Interim use of the Funds: the investment avenues in which the management proposes to deply the issue proceeds pending utilization for the project, to be given; Basic terms of Issue: the basis for the issue price/floor price/price band shall be disclosed and justified by giving (a) EPS for the last three years, P/E pre-issue, average return on net worth in the last three years, minimum return on increased net worth required to maintain the pre-issue EPS, net asset value per share based on the last balance sheet, net asset value per share after the issue and its comparison with the issue price, should be given on the pattern of the illustrative format provided in Schedule XV to the Guidelines, setting out all the accounting ratios of the issuer company mentioned in the foregoing compared with the industry average and with the accounting ratios of the peer group, that is, the companies of comparable size in the same industry specifying the source of the data taken; the face value of the shares and the issue price/floor price/price band specifying it being X times of the face value, but the project earnings shall not be used as a justification for the issue price in the Prospectus and the accounting ratios disclosed in support of the price-basis shall be calculated after giving effect to the consequent increase in capital due to compulsory conversions outstanding assuming that the outstanding options to subscribe for the additional capital will be fully exercised; (b) the Lead Merchant Banker shall not proceed with the issue in case the accounting ratios mentioned in the foregoing do not justify the issue price; (c) in the case of book built issues, the red herring prospectus shall state that the final price would be determined on the basis of the demand from

the investors; (d) Tax benefits to the issuer company and its shareholders, to be given; About the Issuer Company, the Industry Overview and Business Overview should be given; as part of the details of the business of the issuer company the disclosure should cover (a) disclosure of the location of the project, (b) and its plant, machinery, technology, process etc. additionally specifying in a tabular form the machines required to be bought, their cost, name of the suppliers, date of placement of order and the date of supply, and if the machines are yet to be delivered, the date of quotations relied upon for the cost estimates given shall be specified together with the details of the plant and machinery for which orders are yet to be placed in percentage and value terms as a risk factor; details of second-hand machinery bought/proposed to be bought giving their age and the balance life-span as estimated; (c) collaborations, specifying any performance guarantee or assistance in marketing available from them, giving the names of the persons/entities with whom technical/financial agreements have been entered into, the place of their registration and year of incorporation, paid-up share capital, turnover of the last financial year of operation and other general information relevant to the issuer; (d) infrastructure facilities available for raw materials and utilities like water, power etc; (e) details of the product/services of the issuer company as to their nature whether industrial/consumer giving the end-users; market position giving the competition, past production figures for the industry, existing installed capacity, past trends and future prospects on exports, demand and supply forecasts specifying the assumptions and/or sources of the data, approach to marketing and the proposed marketing set-up as also the export possibilities and obligations, if any, if the issuer company is a service provider; Business Strategy: a brief statement about the business strategy, future prospects including capacity and its utilization presented in a table on the existing installed capacity for each product, capacity utilization in the previous three years, proposed capacities for existing and proposed products and the assumptions relied upon in estimating capacity utilization in future for the next three years from the date of commencement of commercial production for both-if the projected rate of capa-city utilization is higher by more than 25% than the actual average in the previous three years, the manner how the issuer company proposes to achieve it; projections: no forecast of projections relating to financial performance of the issuer company shall be given in the prospectus ; Property and Purchase of Property: (a) Details of the property purchased or acquired, or proposed, by the issuer company which is to be paid for wholly or partly out of the proceeds of the issue, or the property the purchase or acquisition of which has not been completed at the date of issue of the prospectus (other than the property the contract for the purchase or acquisition of which was entered into in the ordinary course of business, it being not made in contemplation of the issue or the issue being a consequence of the contract, OR the property as respects which the amount of the purchase money is not material), specifying: the names, addresses, descriptions and occupations of the vendors; the amount paid or payable in cash or in shares/debentures to the vendor, and in case where the vendors are more than one or the issuer company bought the property as a sub-purchaser, the amounts paid or payable vendor-wise separately to be given (if the vendor is a firm, the members of the firm being not treated as separate vendors), showing the amount paid, if any, towards goodwill; (b) the nature of the title or interest in such property acquired or to be acquired by the issuer company; and the short particulars of every transaction relating to the property completed within the two preceding years, in which any vendor of the property to the company or any person who is, or was at the time of the transaction, a promoter, or a director or proposed director of the company had any interest-direct or indirect-specifying the date of the transaction and the name of such promoter, director or proposed director, stating the amount payable by or to such vendor, promoter,

director or proposed director in respect of the transaction; (c) if the issuer company proposes to acquire a business which has been carried on for less than three years, the length of the time during which the business has been carried on to the specified; Key Industry Regulation, if any; History and corporate structure of the Issuer Company; History of Major Events; Main Objects; Subsidiaries of the issuer company, if any, and their business; Subsisting Shareholders Agreements, giving the key terms, even if the issuer company is not a party but is aware of it; all such agreements form part of the material contracts that should be made available for inspection of prospective shareholders; Other Agreements: material contracts, not being contracts entered into in the ordinary course of business carried on or intended to be carried on by the issuer company: details of the dates, parties to and general nature, entered into within two years prior to the date of the prospectus; Strategic Partners; Financial Partners; Management: Board of Directorsnames, address and occupation of Manager, Managing/Whole-time Director and other Directors including nominee directors, giving their directorships in other companies; details of borrowing powers; compensation of managing/Whole-time Directorsthe dates, parties to and general nature of every contract appointing or fixing the remuneration of a Director/Whole-time/Managing Director/Manager whenever entered into in the past; such contracts shall be material contracts for inspection; compliance with Corporate Governance requirements; shareholding of Directors, including details of qualification shares held; interest of Directorsfull particulars of the nature and extent of the interest of every Director in the promotion of the company or in any property acquired by the issuer company within two years of the date of the prospectus or proposed to be acquired; if the director is interested as a member of a firm or company, the nature and extent of the interest of the firm or company, with a statement of all sums paid or agreed to be paid to him/firm/company in cash or shares or otherwise by any person either to induce him to become, or to qualify him, as a director, or otherwise for services rendered by him or by the firm or company, in connection with the promotion or formation of the issuer company; the changes in the directors during the last three years and reasons for the same; organization structure of the management; Key Management Personnel: giving full details of the personnel recruited as on the date of filing of the prospectus with SEBI giving name, date of joining, qualification, details of previous employment etc.it is the responsibility of the Lead Merchant Banker to verify and ensure that the persons whose names appear in the prospectus are in the employment of the issuer company as permanent employees; the shareholding of the Key Managerial Personnel; changes in the Key Managerial Personnel particularly in charge of production, planning, finance and marketing, otherwise than by way of retirement in the normal course within one year prior to the date of filing the prospectus with SEBI to be disclosed; Employees-details of ESOPs/ESPS of the issuer company; non-salary-related payment or benefit to Officers of the issuer company within the two preceding years or intended to be paid or given and the consideration for the same; Promoters/Principal Shareholders: Individuals - complete profile, their age, educational qualifications, experience in the business or employment or in the line of business proposed in

the prospectus, their business and financial activities, photograph, voter ID number, driving licence number, to be disclosed together with a declaration that the PAN, Bank Account Number and Passport Number of the promoters have been submitted to the SE on which securities are proposed to be listed, at the time of filing the draft prospectus with them; Companies - history of the company and its promoters, details of change in the management including details of the persons who are holding controlling interest together with the applicability of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, together with a declaration that the PAN, Bank Account Numbers, Company Registration Number and the address of the Registrar of Companies who registered have been given to the SE as in the previous item; Common Pursuits: full particulars of the nature and extent of the interest of every promoter in the promotion of the issuer company or in any property acquired by it within two years of the date of the prospectus or proposed to be acquired by it - if the promoter is a member of a firm or company, the nature and extent of interest of the firm or company together with a statement of all sums paid or agreed to be paid to him or the firm or company in cash or shares or otherwise by any person either to induce him to become, or to qualify him as, a director, or otherwise for services rendered by him or by the firm or company, in connection with the promotion or formation of the issuer company; all payments or benefits to promoters of the issuer company made or given within the two preceding years, or those intended to be made or given, and the consideration for the same; related party transactions as per the Financial Statements; Currency of presentation - only one standard financial unit shall be used in the Prospectus; Dividend Policy; Financial Statements - Selected Consolidated Financial and Operating data-Financial Information of the issuer company, if it has no subsidia-ries: (1) a report by the auditors of the issuer company with respect to (a) its profits and losses, distinguishing items of a non-recurring nature, for each of the five financial years immediately preceding the issue of the Prospectus, and (b) its assets and liabilities at the last date to which the accounts were made up; and if the issuer company has subsidiaries (2) a report by the auditors of the issuer company with respect to (A) the profits and losses of its subsidiaries separately, so far as regards profits and losses of the issuer company, distinguishing items of a non-recurring nature, for each of the five financial years immediately preceding the issue of the prospectus, and in addition either (i) as a whole with the combined profits or losses of its subsidiaries, so far as they concern the members of the issuer company, or (ii) individually with the profits or losses of each subsidiary, so far as they concern the members of the issuer company, or as a whole with the profits and losses of the issuer company, and, so far as they concern the members of the issuer company, with the combined profits or losses of its subsidiaries, (B) the assets and liabilities of the subsidiaries separately with the issuer companys assets and liabilities, and in addition, either (i) as a whole with the combined assets and liabilities, with or without the issuer companys assets and liabilities, or (ii) individually with the assets and liabilities of the subsidiaries, the allowance to be made for the persons other than the members of the issuer company; Purchase of Business: if the proceeds or any part of it of the issue of shares/debentures is to be applied directly or indirectly (a) in the purchase of any business, or (b) in the purchase of any interest in any business - and by reason of such purchase or anything to be done in consequence thereof, or in connection therewith, the issuer company will become entitled to an interest as respects either the capital or profits and losses, or both, in such business exceeding 50% thereof - A report made by the accountants who shall benamed in the prospectus, upon (i) the profits or losses of the business of each of the five financial years immediately preceding the issue of the prospectus, and (ii) the assets and liabilities of the business at the last date to which

the accounts of the business were made up, such date being not more than one hundred and twenty days before the date of the Prospectus; Acquisition of shares: if the proceeds or part of it of the issue of shares or debentures is to be applied directly or indirectly in the acquisition of shares in any other body corporate, and by reason of that acquisition or anything to be done in consequence thereof or in connection therewith, that body corporate will become a subsidiary of the issuer company - a report made by the accountants, who shall be named in the prospectus, upon: (i) the profits or losses of the other body corporate for each of the five financial years immediately preceding the issue of the prospectus, and (ii) the assets and liabilities of the other body corporate at the last date to which its accounts were made up - indicating how the profits or losses of the other body corporate covered in the report would, in respect of the shares to be acquired, have concerned members of the issuer company and what allowance would have fallen to be made, in relation to assets and liabilities of the other body corporate for holders of other shares, if the issuer company had at all material times held the shares to be acquired; and where the other body corporate has subsidiaries, the report shall deal with the profits or losses and the assets and liabilities of the other body corporate and its subsidiaries as in (ii) above in relation to the issuer company and its subsidiaries; principal terms of loan and assets charged as security; Other provisions relating to accounts of the issuer company: (a) all significant accounting policies and standards followed in the preparation of the financial statements shall be disclosed and the same drawn up subject to the following (b) adjustments wherever quantification is possible, namely, (i) adjustments/rectification for all incorrect accounting practices or failures to make provisions or other adjustments which resulted in audit qualification, (ii) material accounts relating to adjustments for previous years shall be identified and adjusted in arriving at the profits of the years to which they relate irrespective of the year in which the event triggering the profit or loss occurred, (iii) where there has been a change in the accounting policy, the profits or losses of the earlier years (required to be shown in the Prospectus) and of the year in which the change in the accounting policy has taken place shall be recomputed to reflect what the profits or losses of those years would have been of a uniform accounting policy was followed in each of these years, (iv) if an incorrect accounting policy was followed, then re-computation of the financial statements shall be in accordance with correct accounting policies, (v) statement of profit or loss shall disclose both the profit or loss arrived at before considering extraordinary items and after considering the profit or loss from extraordinary items on the lines of the illustrative format provided in Schedule X to the Guidelines, (vi) the statement of assets and liabilities shall be prepared after deducting the balance outstanding on revaluation reserve account from both fixed assets and reserves and the net worth arrived at after such deductions, on the lines of the illustrative format provided in Schedule XI to the Guidelines, (c) the turnover disclosed in the profit and loss statement shall be bifurcated into: turnover of products manufactured by the issuer company, those traded in by the issuer company, and the turnover in respect of products not normally dealt in by the issuer company but included in the preceding turnover, separately, (d) the Prospectus shall disclose details of Other income in all cases where such income net of related expenses exceeds 20% of the net profit before tax, including - the source and other particulars of such income, and an indication as to whether such income is recurring or non-recurring, or has arisen out of business activities other than the normal business activities, (e) changes, with quantification wherever possible, in the activities of the issuer company which may have had a material effect on the statement of profit/loss for the five years, specifying

discontinuace of the line of business/loss of agencies/market etc. factors, (f) accounting and other ratios for each of the years: EPS calculated after excluding extraordinary items, Return on Net Worth calculated after excluding revaluation reserves, NAV per share based on the financial statements prepared on the basis of Indian Accounting Standards, (g) a capitalization statement showing total debt, net worth, and debt/equity ratios before and after the issue on the lines of the illustrative format provided in Schedule XIII to the Guidelines; if there has been any change in the share capital since the date of the financial information disclosed in the prospectus, a note explaining the nature of the change, (h) a break-up of the total unsecured loans taken by the issuer company from promoter/group companies/associate companies and others, giving the terms and conditions, interest rates and repayment schedule, disclosing whether the loan can be recalled by the lenders at any time as a risk factor, (i) a proper disclosure of the factors affecting the future tax incidence, namely, tax shelters, whether permanent, limited to any tax holiday or other, available to arrive at the profits after tax, and the effect of timing differences on reversible tax provisions in the accounts, on the lines of the illustrative format provided in Schedule XII to the Guidelines; it is open to the issuer company to have the financial statements prepared on the basis of more than one accounting practice and include in the Prospectus, subject to disclosing the material differences arising thereby. Financial Information of Group Companies: Disclosures based on the audited financial statements in respect of all companies, firms, ventures etc. promoted by the promoters, irrespective their coverage under section 370(1B) of the Companies Act, are required to be made consisting of the information: date of incorporation, nature of activities, equity capital, reserves excluding revaluation reserves, sales, profit after tax, earnings per share, net asset value, the highest and lowest market price of shares in the preceding 6 months with suitable disclosures for changes in the capital structure in the period and the market value on the date of filing the Prospectus with the ROC, if any of those entities made any public or rights issue in the preceding three years - the issue price of the security and the current market price disclosing the changes in the capital structure since the date of issue and a statement regarding the cost and progress of implementation of the project compared to the projections given in the relevant prospectus, information regarding adverse factors related to the entities and in particular whether any of the entities has become a sick industrial company under SICA or is under winding up or has made a loss in the immediately preceding year in which case the profit or loss figures for the immediately preceding three years have to be disclosed. In case the issuer company has more than five listed group companies, the financial information may be restricted to the five largest listed companies to be determined on the basis of the market capitalization one month before the date of filing draft prospectus with SEBI, subject to the financial information regarding company which has become a sick industrial company or is under winding up or has a negative net worth being disclosed. If the promoters have disassociated themselves from any of the said entities during the three preceding years, the reasons for doing so and the circumstances leading to it shall disclosed together with the terms of such disassociation. In case there are common pursuits among the said entities, the reasons and the justification for the same should be disclosed bringing out the conflicting of interest situations and the related business transactions within the group and the significance of those on the financial performance of the issuer company and those entities inter se. Sales or purchase between the entities in the promoter group in excess of 10% of the total sales or purchases of the issuer company, and the material items of income or expenditure arising out of the transactions in the promoter group have to be disclosed;

Changes in accounting policies made in the last three years Managements Discussion: The Managements Discussion and Analysis of Financial Condition and Results of Operations as reflected in the Financial Statements prepared on the basis of Indian Accounting Practices, and optionally those prepared on the basis of other Accounting Practices in addition, should cover: overview of the business of the issuer company; significant developments subsequent to the last financial year - comprised in a statement by the directors whether in their opinion there have arisen any circumstances since the date of the last financial statements as disclosed in the prospectus and which materially and adversely affect or is likely to affect the trading or profitability of the issuer company, or the value of its assets, or its ability to pay its liabilities within the next twelve months; factors that may affect results of the operations; a discussion on the results of operations giving a summary of past financial results after adjustments as given in the auditors report for the past three years disclosing the significant items of income and expenditure contained in the results; a comparison of the recent financial year with the previous three financial years on the major heads of the profit and loss account should be given, together with the analysis of the reasons for the changes in significant items of income and expenditure covering: unusual and infrequent events or transactions, significant economic changes that materially affected or are likely to affect income from continuing operations, known trends or uncertainties that have had or are expected to have a material adverse impact on sales/revenue/income from continuing operations, future changes in relationship between costs and revenue in the event of future increase in labour or material costs/prices that are known to cause the same, the extent to which material increases in net sales/revenue are due to increased sales volume/introduction of new products/increased sales prices, total turnover of each major industry segment in which the issuer company operated, status of any publicly announced new products/business segment, the extent to which business is seasonal, any significant dependence on a single or few suppliers or customers, and competitive conditions; Legal and other information : (1) Outstanding litigations involving the (a) issuer company and (b) its subsidiaries and material developments, to be disclosed compriselitigations against the issuer company or any other the outcome of which could have a materially adverse effect on the position of the issuer company; all litigations against the directors involving violation of statutory regulations or alleging criminal offence; pending proceedings initiated for economic offences against the issuer company or its directors, indicating present status; details of the past cases in which penalties were imposed by the concerned authorities on the issuer company or its directors; outstanding litigations, defaults etc. pertaining to matters likely to affect operations and finances of the issuer company, including disputed tax liabilities, prosecution under any enactment in respect of Schedule XIII (appointment of managerial personnel and payment of remuneration without Central Governments approval); the names of small scale undertakings or any other creditors to whom the issuer company owes a sum exceeding one lakh rupees remaining outstanding for more than 30 days. It is the responsibility of the Lead Merchant Banker to ensure appropriate disclosure in respect of the foregoing as also of any disciplinary action taken by SEBI/SEs against the issuer company or its Directors, as a risk factor. (2) Outstanding litigations involving the promoter and group companies to be disclosed comprise: all pending litigations in which the promoters are involved - defaults to the financial institutions/banks, non-payment of statutory dues and dues towards instrument holders like debenture-holders, holders of fixed deposits and arrears on cumulative preference shares, specifying the amounts involved and the present status as well as the likely adverse effect on the performance of the issuer company; the cases of pending litigations, defaults etc. in respect of

companies/firms/ventures with which the promoters were associated in the past but are no longer associated in case their names continue to be associated with particular litigation(s); all the litigations against the promoter involving violation of statutory regulations or alleging criminal offence; pending proceedings for economic offences against the promoters, companies and firms promoted by the promoters giving their present status; details of past cases in which penalties were imposed by the concerned authorities. It is the responsibility of the Lead Merchant Banker to ensure appropriate disclosure in respect of the foregoing as also of any disciplinary action taken by SEBI/SEs against the promoters and their other business ventures irrespective of whether they fall under the definition of companies under the same management given in section 370(1B) of the Companies Act, as a risk factor. (3) If any of the foregoing litigations arise after filing of the prospectus, those shall be appropriately incorporated in the prospectus as risk factors. In case there are no such cases, a distinct negative statement is required to be made in this regard in the prospectus; Material developments since the last balance sheet date; Government approvals/Licensing Arrangements/disclaimers required to be disclosed include: investment approvals from FIPB/RBI etc., all other related Government approvals, technical approvals, Letter of Intent/Industrial Licence and declaration of the Central Government/RBI about non-responsibility for the financial soundness or correctness of the statements in the Prospectus; Other Regulatory and Statutory Disclosures to be made in the Prospectus include: authority for the issue and the resolutions passed for the issue; prohibition by SEBI, if any; eligibility of the issuer company to enter the capital market; Disclaimer Clause of SEBI to be printed in bold capital letters: It is to be distinctly understood that submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. SEBI does not take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made or for the correctness of the statements made or opinions expressed in the offer document. Lead Merchant Banker, .has certified that the disclosures made in the offer document are generally adequate and are in conformity with SEBI (Disclosures and Investor Protection) Guidelines in force for the time being. This requirement is to facilitate investors to take an informed decision for making investments in the proposed issue. It should be clearly understood that while the issuer company is primarily responsible for the correctness, adequacy and disclosure of all relevant information in the offer document, the Lead Merchant Banker is expected to exercise Due Diligence to ensure that the Company discharges its responsibility adequately in this behalf and towards this purpose, the Lead Merchant Bankerhas furnished to SEBI a Due Diligence Certificate dated in accordance with SEBI (Merchant Bankers) Regulations, 1992 which reads as follows: (i) We have examined various documents including those relating to litigation like commercial disputes, patents disputes, disputes with collaborators etc. and other materials in connection with the finalisation of the offer document pertaining to the said issue; (ii) On the basis of such examination and the discussions with the company, its Directors and other officers, other agencies, independent verification of the statements concerning the objects of the issue, projected profitability, price justification and the contents of the documents mentioned in the Annexure and other papers furnished by the company. We confirm that: (a) the offer document forwarded to SEBI is in conformity with the documents, materials and paper relevant to the issue;

(b) all the legal requirements connected with the said issue, as also the guidelines, instructions etc. issued by SEBI, the Government and any other competent authority in this behalf have been duly complied with; and (c) the disclosures made in the offer document are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue; (d) besides ourselves, all the intermediaries named in the prospectus are registered with SEBI and till date such registration is valid. (e) We have satisfied ourselves about the worth of the underwriters to fulfil their underwriting commitments. The filing of the offer document does not, however, absolve the company from any liabilities under section 63 or 68 of the Companies Act, 1956 or from the requirement of obtaining such statutory or other clearances as may be required for the purpose of the proposed issue. SEBI further reserves the right to take up, at any point of time, with lead merchant banker(s) any irregularities or lapses in the offer document. A Disclaimer Statement from the Issuer and the Lead Manager : A statement to the effect that the issuer company and the Lead Manager accept no responsibility for statements made otherwise than in the Prospectus or in the advertisement or any other material issued by or at the instance of the issuer and that anyone placing reliance on any other source of information would be doing so at his own risk should be incorporated in the Prospectus : Caution; Disclaimer in respect of jurisdiction; Disclaimer Clause of the SEs; Disclaimer Clause of RBI, if applicable; Filing of Prospectus with SEBI and ROC: information specifying the Office of SEBI where the prospectus has been filed as well as the address of the ROC where a copy of the prospectus with the material contracts and other requisite documents attached has been filed, to be given; Listing: Names of the designated SE and other SEs where application has been made for listing of the present issue, to be given; Consents of the Directors, auditors, solicitors/advocates, Managers to the issue, Registrar to the Issue, Bankers to the company, Bankers to the Issue and of the experts having been obtained, to be confirmed, and expert opinion obtained, if any, to be given; expenses of the issue to be given; Details of fees payable to (both in amount as a percentage of total issue expenses and as a percentage of the total issue size) Lead Managers, Co- Lead Managers, other Merchant Bankers, Registrars to the Issue, Advisors, Trustees for the debenture-holders, underwriting commission, brokerage and selling commission; Previous public/rights issues, if any, made during the last five years: The amounts for which issued, Closing Date; Date of allotment; Date of refunds, Date of Listing on the SEs, and if the issues were made at a premium or discount, the amount thereof; the amount paid or payable by way of premium, if any, on each share which had been issued within two years preceding the date of the prospectus or is to be issued, stating the dates or proposed dates of issue and, where some shares have been or are to be issued at a premium and other shares of the same class at a lower premium, or at par or at a discount, the reasons for the differentiation and how any premium received have been or are to be disposed of, to be given; Previous issues of shares

otherwise than for cash; Commission or brokerage paid on previous issues; Particulars in regard to the issuer company and other companies falling under the same management as defined under section 370(1B) which made any capital issue during the last three years: Name, year of issue, type of issue whether public/rights/composite, amount of issue, date of closure of issue, date of completion of delivery of share/debenture certificates, date of completion of project, if any, for which the issue was made, rate of dividend paid; Promise vis--vis Performance: Both for (a) Issuer company, under a separate heading Promise v. Performance Last three issues to indicate whether all the objects mentioned in the respective offer document relating the earlier issues were met and whether all projections made were achieved, and if not, the non-achievements/shortfall shall be brought out and the delays shall be quantified, and (b) Listed Ventures of Promoters-similar information as in (a) for the last one issue of the group/associate companies; Outstanding debentures or bonds and redeemable preference shares and other instruments issued by the company and outstanding as on the date of the prospectus and the terms of issue, to be given; Stock market data for equity shares of the Issuer Company, if listed: particulars of (a) high, low and average market prices of the shares during the three years, (b) monthly high and low prices for the six months preceding the date of filing the draft prospectus with SEBI which shall be updated till the time of filing the prospectus with ROC/SEs; (c) number of shares traded on the days when the high and low prices were recorded in the relevant stock exchanges during the periods given in (a) and (b); the said data should be shown separately for periods marked by a change in the capital structure, with such period commencing from the date the concerned stock exchange recognizes the change, for example, when the rights have become ex-rights or ex-bonus; the market price immediately after the date on which the resolution of the Board of Directors approving the issue was approved; the volume of securities transacted along with high, low and average prices of shares of the issuer company shall also be stated for the respective periods; Mechanism evolved for the redressal of investors grievances, the time normally taken by it for disposal of various types of investor grievances, for issuer company and for the companies under the same management, for the period of three years prior to the date of the prospectus with the ROC/SEs; Change, if any, in the auditors during the last three years with reasons for the same; Revaluation of assets, if any, done in the last five years; Offer Information: Terms of issue, ranking of equity shares, mode of payment of dividend, face value and issue price/floor price/price band, rights of the instruments holders, market lot, nomination facility to the investors; Minimum Subscription: (a) for non-underwritten public issues: the Statement to appear is-if the company does not receive the minimum subscription of 90% of the issued amount on the date of closure of the issue, or if the subscription falls below 90% after the closure of the issue on account of cheques having been returned un-paid or withdrawal of applications, the company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest as per section 73 of the Companies Act, 1956. (b) For Underwritten public Issues: the Statement to appear is -If the company does not receive the minimum subscription of 90% of the net offer to public including devolvement of Underwriters within 60 days from the date of closure of the issue, the company shall forthwith refund the entire subscription amount received.

If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest prescribed under section 73 of the Companies Act, 1956. (c) For Composite Issues: (i) It is the responsibility of the Lead Merchant Banker to ensure that the requirement of minimum subscription is satisfied both jointly and severally, that is, independently for both rights and public issues; (ii) If the issuer company does not receive the minimum subscription in either of the issues the issuer company shall refund the entire subscription received. In the case of offer for sale - the requirement of minimum subscription shall not apply. Public issues by infrastructure companies-the requirement of minimum subscription shall not be applicable to an eligible infrastructure company, provided the disclosures regarding the alternate source of funding are made in the Prospectus. Arrangement for the Disposal of Odd Lots: In issues of rights, bonus, conversion of debentures or warrants etc. any arrangement made by the issuer company for providing liquidity for and consolidation of the shares held in odd lots, shall be intimated to the holders/investors. The issuer company is free to make arrangements for the purpose through any investment or finance company, broking firms or through any other agency, and the particulars of such arrangement made may be disclosed in the Prospectus related to the issue. The Lead Merchant Banker shall ascertain whether the issuer company coming for fresh issue of capital proposes to set up trusts in order to provide service to the investors in the matter of disposal of odd lot shares held by them and if so, the disclosures relating to the setting up of and operation of the trusts shall be made in the Prospectus. Whenever any issue results in issue of shares in odd lots, the issuer company shall as far as possible issue certificates in the denomination of 1-2-5-10-20-50 shares. Restrictions, if any, on transfer and transmission of shares/debentures and on their consolidation/splitting should be disclosed; Issue Procedure: Fixed price issue or Book Building Procedure, as may be applicable, including details regarding bid form/application form, who can bid/apply, maximum and minimum bid/application size, bidding process, bidding, bids at different price levels etc. Option to subscribe for the securities to be dealt with in a depository should be detailed. The Lead Merchant Banker shall incorporate a statement in the prospectus and in the application form to the effect that the investor shall have an option either to receive the security certificates or to hold the securities in dematerialized form with a depository. How to Apply - availability of forms, prospectus and mode of payment: (a) Application by Mutual Funds: The Lead Merchant Banker shall clearly incorporate necessary disclosures under the heads Procedure for applications by Mutual Funds and Multiple Applications to indicate that a separate application can be made in respect of each scheme of an Indian Mutual Fund registered with SEBI and that such applications shall not be treated as multiple applications. The applications made by AMCs or Custodians of Mutual Fund shall clearly indicate the name of the concerned Scheme for which application is made. Application by NRIs: The Lead Merchant Banker shall ensure the following disclosures: (a) the name and address of at least one place in India from where individual NRI applicants can obtain the application forms; and (b) the Statement-NRI applicants may please note that only such applications as are accompanied by payment in free foreign exchange shall be considered for allotment under the reserved category. The NRIs who intend to make payment through Non-Resident Ordinary (NRO) accounts shall use the form meant for Resident Indians and shall not use the forms meant for reserved category. Escrow Mechanism-details to be given include: Escrow A/c of the Issuer Company, Escrow A/c of the Syndicate member, terms of payment and payment into the Escrow Collection Account. Build-up of the book and revision of bids, Electronic registration of bids, price discovery

and allocation - to be specified. Steps: signing of underwriting agreements, filing of Prospectus with the ROC, Announcement of Pre-Issue Advertisement, Issuance of Confirmation of Allotment Note (CAN) and Allotment in the Issue, and Designated Date. General instructions include: Dos and Donts, instructions for completing the bid form, bidders bank account details, bids by NRIs or FIIs on a repatriation basis. Payment instructions include payment into Escrow A/c of the issuer company and the payment into Escrow A/c of the syndicate member, and submission of the bid form. Other instructions include: joint bids in the case of individuals, multiple bids, PAN or GIR number, issuer companys right to reject bids, equity shares in demat form with NSDL or CDSL. Compliance Officer to attend to the pre-issue/post-issue related problems of investors such as non-receipt of letters of allotment/share certificate/refund orders etc.; disposal of applications and application moneys, highlighting the provisions of section 68A of the Companies Act relating to punishment for fictitious applications, interest on refund of excess bid amount, basis of allotment or allocation, procedure and time of schedule for allotment and issue of certificates, method of proportionate allotment, letters of allotment or refund orders, dispatch of refund orders specified through the Statement-The Company shall ensure dispatch of refund orders of value over Rs. 1,500 and share/debenture certificates by Registered Post only and adequate funds for the purpose shall be made available to the Registrars by the Issuer Company. Interest for Delay in Dispatch of Allotment Letters/Refund Orders in Public Issues: Where it is a fixed price issue the Statement to appear is -The company agrees that as far as possible allotment of securities offered to the public shall be made within 30 days of the closure of public issue. The company further agrees that it shall pay interest @ 15% per annum if the allotment letters/refund orders have not been dispatched to the applicants 1 within 30 days from the date of the closure of the issue. However, applications received after the closure of issue in fulfilment of underwriting obligations to meet the minimum subscription requirement shall not be entitled for the said interest. Where it is a book-built issue the Statement to appear is-The company agrees that allotment of securities offered to the public shall be made not later than 15 days of the closure of public issue. The company further agrees that it shall pay interest @ 15% per annum if the allotment letters/refund orders have not been dispatched to the applicants 1 within 15 days from the date of the closure of the issue. Undertakings by the Issuer Company to be stated are : For Shares: that the complaints received in respect of the issue shall be attended to expeditiously and satisfactorily; that all steps for completion of the necessary formalities for listing and commencement of trading at all SEs where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment; that the issuer company shall apply in advance for the listing of equities on the conversion of debentures/bonds; that the funds required for dispatch of refund orders/allotment letters/certificates by registered post shall be made available to the Registrars to the issue by the issuer Company; that the promoters contribution in full, wherever required, shall be brought in advance before the issue opens for public subscription and the balance, if any, shall be brought in pro rata basis before the calls are made on public; that the certificates of the securities/refund orders to the NRIs shall be dispatched within specified time; that no further issue of securities shall be made till the securities offered through this prospectus are listed or till the application moneys are refunded on account of non-listing, undersubscription etc. For debentures issue : that the issuer company shall forward the details of utilization of the funds raised through the debentures duly certified by the statutory auditors to the debenture-trustees at the end of each half-year; that the issuer company shall disclose the

complete name and address of the debenture trustee in the annual report; that the issuer company shall provide a compliance certificate to the debenture-holders (on yearly basis) in respect of compliance with the terms and conditions of issue of debentures in the prospectus, duly certified by the debenture-trustee; that the issuer company shall furnish a confirmation certificate that the security created by the company in favour of the debenture-holders is properly maintained and is adequate enough to meet the payment obligations towards the debentures-holders in the event of default; that necessary co-operation with the credit rating agencies shall be extended in providing true and adequate information till the debt obligations in respect of the instrument are outstanding; Utilisation of issue proceeds : the Prospectus should carry a Statement by the Board of Directors of the issuer company to the effect: (i) that all monies received out of issue of shares or debentures to the public shall be transferred to separate bank account other than the bank account referred to in sub-section (3) of section 73 of the Companies Act, 1956; details of all moneys utilized out of the issue referred to in (i) shall be disclosed under an appropriate separate head in the balance sheet of the issuer compny indicating the purpose for which such moneys had been utilized; and (ii) that the details of all unutilized moneys out of the issue of shares or debentures, if any, referred to in (i) shall be disclosed under an appropriate separate head in the balance sheet of the issuer company indicating the form in which such unutilized moneys have been invested; A statement of the Board of Directors : to the effect that: (i) utilization of moneys received under promoters contribution and from firm allotments and reservations shall be disclosed under an appropriate head in the balance sheet of the issuer company, indicating the purpose for which such moneys have been utilized; and (ii) the details of all unutilized moneys out of the funds received under promoters contribution and firm allotments and reservations shall be disclosed under a separate head in the balance sheet of the issuer company, indicating the form in which such unutilized moneys have been invested; Restrictions on foreign ownership of securities, if any: investment by NRIs; investments by FIIs; Terms of the articles regarding equities and their division into classes: rights of members regarding voting, dividend, lien on shares and the process of modification of such rights and forfeiture of shares, and the main provisions of the Articles in general; Other Information: List of material contracts and documents and the time and place at which those will be available for inspection from the date of Prospectus until the date of closing of the subscription list; Declaration: That all the relevant provisions of the Companies Act, 1956 and the guidelines issued by the Government or the guidelines issued by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992, as the case may be, have been complied with and no statement made in prospectus is contrary to the provisions of the Companies Act, 1956 or the Securities and Exchange Board of India Act, 1992 or rules made thereunder or guidelines issued, as the case may be. Approval and Signatures: The draft prospectus and final prospectus shall be approved by the Board of Directors of the issuer company and shall be signed by all the Directors (including the Managing Director), Chief Executive Officer, and Chief Financial Officer of the issuer company; they shall also certify that the disclosures made in the prospectus are and correct. Conditions of Issue of Securities: Eligibility NormsSEBI Guidelines [Chapter 2] 20.3-12 Unlisted public companies intending to issue securities through any offer document,

whether a prospectus or offer for sale/IPO, should satisfy the prescribed conditions of issue. At least 21 days before filing the Prospectus with the Registrar, the draft of it, whether it is for a public issue or offer for sale or a composite issue, should be filed through an eligible merchant banker with SEBI, and though the SEBI is not under any obligation so to do as the Guidelines put it, it may specify changes in it which the issuer company and the lead manager shall be bound to carry out in the Prospectus before filing it with the Registrar. Listed companies intending to issue rights shares of the aggregate value exceeding Rs. 50 lakhs including the premium, if any, should file the Letter of Offer with SEBI through an eligible merchant banker at least 21 days before filing it with the regional stock exchange, which is liable to changes that may be specified by SEBI as in the case of the Prospectus and which should be carried out before filing it with the regional stock exchange. Rights issues of less than Rs. 50 lakh may be made on the basis of the letter of offer prepared in accordance with the disclosure requirements of the Guidelines and filing the same with SEBI for its information and for being put on the its website. No company shall make an issue against SEBI prohibition to do so, or, without an application for listing and otherwise than in dematerialised form giving an option to subscribers/shareholders/investors to receive the security certificates or to hold the securities in dematerialized form with a depository (section 68B of Companies Act says with a non obstante opening clause that every listed company, making initial public offer of any security for a sum of Rs. 10 crore or more, shall issue the same only in dematerialized form by complying with the requisite provisions of the Depositories Act, 1996 and the regulations made under it) (Clause 2.1.5.1). IPO (Initial Public Offering): An unlisted public company in order to be eligible to make a public issue of equity shares or any other securities convertible into or exchangeable against equity shares at a later date or to make an offer for sale, should have a networth of not less than 1 crore rupees and net tangible assets (net assets minus intangible assets) of at least 3 crore rupees of which not more than half is held in uncommitted monetary assets in three out of five preceding years of which two years should be the immediately preceding years, and the company should have a track record of distributing profits as dividends in at least three out of the immediately preceding five years, subject to the issue size comprising the aggregate of the proposed issue plus all previous issues made in the same financial year, including the amounts set apart towards firm allotment and the promoters contribution through the offer document, not exceeding five times of the companys pre-issue networth as per the last audited balance sheet [Clause 2.2.1]. Unlisted public companies - Unlisted public companies not satisfying the foregoing condition, can make an initial public offering (IPO) of equity shares or any other securities convertible into or exchangeable with equity shares at a later date only through the bookbuilding process, provided that (a) 50% of the net offer to public being allotted to the Qualified Institutional Buyers (QIBs), [that is, public financial institutions as per section 4A of Companies Act, scheduled commercial banks, mutual funds, FIIs or FCVIs or VCFs registered with SEBI, multilateral/bilateral development financial institutions and the State Industrial Development Corporations, insurance companies registered with Insurance Regulatory and Development Authority (IRDA), and PFs/Pension Funds with a minimum corpus of Rs. 25 crore]; or the project/object of the issue has at least 15% participation by FIs/Scheduled Commercial Banks of which 10% of the issue size has been allotted to QIBs (failing which the full subscription moneys shall be refundable) and the minimum post-issue face value capital of the company is 10 crore rupees or there have been appointed Market Makers (MMs) for at least 2 years from the date of listing of the shares, subject to the MMs undertaking to offer the buy and sell quotes for a minimum depth of 300 shares with the difference between the two (called bid-ask spread) being

not more than 10% at any time and the inventory of the MMs on each stock exchange being at least 5% of the proposed issue (Clause 2.2.2); and in all cases the prospective allottees are not less than 1,000 in number (Clause 2.2.2A). If the companies have come into being as a result of conversion from partnerships or demerger of existing companies, the earlier track record of distributable profits are liable to be considered only if the statements of accounts for the specified years have been re-drawn in the format of Schedule VI to the Companies Act duly certified by a chartered accountant. Listed companies are eligible to make a public issue of equity shares or convertible securities upto an issue size of five times their pre-issue networth, that is, the amount on offer to the public plus the amounts ear-marked for firm allotment and the promoters quota through the issue, as per the audited balance sheet of the last financial year. A listed company that has changed its name within the last one year reckoned from the date of filing of the offer document with SEBI, the revenue accounted for by the activity suggested by the new name should be not less than half of the companys total revenue in the preceding one full year. A listed company not fulfilling the foregoing conditions is equated to an unlisted company for its eligibility for issue of securities as discussed above (under Clause 2.2.2 only). Ineligibility - No unlisted company with a back-log of outstanding financial instruments or unsettled right or entitlement to any option to receive equity shares in favour of existing promoters or shareholders in point of time after the initial public offering, and no company the shares of which are partly paid-up have been fully paid-up or not forfeited for non-payment of calls that are required to be made within 12 months of allotment under the Guidelines (unless the issue size was above Rs. 500 crore and subject to monitoring of the use of the proceeds of the issue by a financial institution), is eligible to make a public issue of equity shares or convertible securities. No company shall make a public or rights issue of securities unless firm arrangements of finance through verifiable means of 75% of the stated means of finance excluding the amount of the proposed issue have been made and disclosed. Exemption - The conditions stated above for unlisted and listed companies do not apply to rights issue by a listed company, or to banking companies including local area banks (Private Sector Banks) set up under the Banking Regulation Act, 1949 and licensed by RBI or the Nationalised Banks or an infrastructure company whose project has been appraised by public financial institutions (PFI)/IDFC/IL & FS or a bank which was earlier a PFI and not less than half of the cost of which is funded by them jointly or severally whether as equity or loan. Credit rating and no default, conditions for issue of debt instruments - Credit Rating of not less than investment grade obtained from two Credit Rating Agencies for issue of all debt instruments and convertibles irrespective of their maturity is a must, which should be disclosed, along with all credit ratings obtained from more than two credit rating agencies whether accepted or not, in the offer document. The company should not have figured in the list of wilful defaulters of RBI, and it should not have defaulted in payment of interest or repayment of principal for more than 6 months in respect of debentures issued to public. Pricing - SEBI Guidelines [Chapter 3] 20.3-13 Free pricing of equity shares or securities convertible into equity shares is allowed for listed companies, unlisted companies, infrastructure companies and for initial public issue by banks with RBIs approval. As to differential pricing, the firm allotment category of applicants may be offered a price different, that is, higher than the price at which the net offer to the Indian

public is made, provided the justification for the price difference is given in the offer document. The choice of a price band up to 20% more than the floor price is available to the issuer company at the stage of filing the offer document with SEBI, the actual price being determinable by the Board of Directors of the issuer company, if authorized to do so by the general body resolution, before filing the offer document with the Registrar and the lead merchant banker ensuring a 48 hour notice prior to the Board meeting fixed for the purpose being given to the designated Stock Exchange in the case of listed companies. Payment of discounts/commissions/allowance to the persons who have received firm allotment in a public issue by the issuer company or its promoters is prohibited. 20.3-13a Standard denomination - All companies eligible to make public or rights issues of equity shares are free to make the issue in any denomination it being not less than one rupee per share with freedom to change the standard denomination of the shares already issued at Rs. 10 or Rs. 100 per share uniformly as determined by the company pursuant to section 13(4) of the Companies Act by splitting or consolidating the existing shares, duly amending the memorandum and articles, subject to disclosing the same in the offer document, advertisement and in the application forms printed in identical font size as that of the issue price or price band. In IPOs by unlisted companies, if the issue price is less than Rs. 500 per share, the face value shall be Rs. 10 per share. At any given time there shall only be one denomination for the shares of the company. At present, about 150 listed companies have opted for the denomination of shares other than Rs. 10 paid-up, many of Rs. 2 or Rs. 5 and a few of Rs. 100 per share. In the Marutis offer of sale to the public of the Governments stake made in 2003, which was a thumping success after a long lull in the capital market, there have been complaints that most individual investors took the Rs. 5 a share to be of Rs. 10 each in their run up, and as a consequence SEBI has since restricted the splitting of shares below Rs. 10, as above. Promoters Contribution - SEBI Guidelines [Chapter 4] 20.3-14 Both for unlisted and listed companies promoters contribution in respect of a public issue or offer for sale has to be not less than 20% of the post-issue capital. In the case of companies making a composite issue, the contribution of promoters at their option may either be 20% of the proposed public issue or 20% of the post-issue capital less the rights issue component. 20.3-14a Prior acquisitions : Exclusion - In the computation of promoters contribution, the equity acquired during the three years period preceding the filing of the issue document with SEBI, for non-cash or revaluation of assets or capitalization of intangible assets or out of any bonus issue made from out of non-cash resourced reserves shall be excluded in the case of listed companies. 20.3-14b Unlisted companies - In respect of public issue proposed to be made by unlisted companies, the promoters equity acquired within a year preceding, at a price lower than the price at which the equity is being offered to the public is excluded in the computation of promoters equity, unless the promoters bring in the difference and the company duly complies with the passing of the revised resolution by the shareholders/Board of Directors and filing of the revised return of allotment with the Registrar. 20.3-14c Partnerships converted into companies - Where companies are formed by conversion of partnership firms with the erstwhile partners remaining as promoters and no change in the management, the shares allotted to the promoters during the period of one year

previous to the issue will count as promoters equity only if such shares were issued at the same price at which the public offer is made, provided such holding is for more than a year on a continuous basis. 20.3-14d Amalgamation cases - If such shares were acquired by the promo-ters in a scheme of merger or amalgamation approved by a High Court/Tribunal, they count in the computation as promoters equity. 20.3-14e Promoters minimum contributions - For the purpose of promoters equity computation in all cases, the minimum contribution per individual and partnership firm/company application (other than business associates like dealers and distributors) should be Rs. 25, 000 and Rs. 1,00,000, respectively, all consenting in writing to be so counted, provided such applications did not form part of any private placement made with unrelated persons either directly or through intermediaries. 20.3-14f Promoters equity computation - In respect of the promoters equity computation in the case of an issue of any convertible security, the promoters have an option either to bring in their subscription money as equity or by way of subscribing to the convertible security on offer to the public to the required minimum specified above, if the conversion price of the emerging equity is pre-determined and specified in the offer document, and if not, no such option is available. If the convertibility is in stages, whether at par or at a premium, it being pre-determined, the price applicable to the promoters contribution in terms of equity shall not be lower than the weighted average price of the share capital on conversion at each stage. 20.3-14g Post-issue capital is the basis - The computation of promoters contribution is on the basis of the post-issue capital, and in the case of stage-conversion scheme of issue it is subject to the promoters undertaking in writing to accept full conversion for it being counted. In the case of a listed company, if the promoters desire to participate in excess of their minimum contribution required, it will be treated as Preferential Allotment attracting the pricing that goes with it under the SEBI Guidelines but not at a price lower. 20.3-14h Deposit in escrow account - In all cases, promoters contribution in full including the premium has to be brought in and deposited in an escrow account in any scheduled commercial bank at least a day before the issue opening date subject to its release along with the public issue proceeds, and if it was previously paid to the company and also spent away, a cash-flow statement of its utilization has to be given in the offer document. However, if the promoters minimum contribution exceeds Rs. 100 crores, the promoters should bring in Rs. 100 crores before the opening of the issue and the balance may be brought in pro rata but in advance before the calls are made on public. 20.3-14i SEBI promoters contributions norms and Companies Act provisions - As regards the promoters contribution, the issuer companys Board of directors are under obligation to pass the resolution of allotment of shares or convertible instruments to the promoters against the monies received from them and to file its copy supported by a chartered accountants certificate to the effect that the promoters contribution has been brought in together with a list of the names and addresses of friends, relatives and associates who had contributed to make up the promoters quota of the contribution giving the amount contributed by each, with the SEBI before opening of the issue. This requirement specified by SEBI in the Guidelines runs counter to the prohibition of allotment of shares until the beginning of the fifth day after the date of first issue of

the prospectus contained in section 72(1) of Companies Act. However, sub-section (3) of the said section declares that the validity of an allotment made in contravention of the prohibition is not affected but the defaulting company shall be liable to be punished with a fine up to Rs. 50,000. This requirement of promoters contribution does not apply to rights issues or a public issue of securities by companies that are listed for three years with a continuous track record of payment of dividends for three years at the least preceding the issue, though the promoters are free to participate to the extent of 20%, any excess over it being treated as Preferential Allotment subject to disclosure of their shareholding and the extent of participation in the proposed issue. 20.3-14j Where promoter groups do not exist - The requirement of promoters contribution has no application in the case of companies where no identifiable promoter group exists. Lock-in - There is a mandatory lock-in requirement of three years or one year, which may account for more than that, stipulated by SEBI in the Guidelines in respect of promoters contribution of the minimum of 20% and their contribution in excess of it, respectively. The 3 year lock-in commences from the date of allotment following the public issue (here, it is to be noted that the date of allotment of promoters quota of shares arising out of the public issue is required to be made before the filing of the offer document with the SEBI and the count of the lock-in period does not relate to it) and the last date of the lock-in shall be reckoned as three years from the last date of the month of start of commercial production as declared in the offer document or the date of allotment in the public issue, whichever is later. The one year lock-in applies to the contribution in excess of 20% in an IPO made by the promoters in a public issue by unlisted companies as well as listed companies, in the case of the latter as if it is a preferential issue unless such contribution by the promoters has been made where the issue made by the listed company itself is exempt from the requirement of promoters contribution under Clause 4.10.1(a), that is, it being a company listed for three years with a track record of payment of dividends over the three years preceding the issue, but the one-year lock-in applies to the short-fall in the firm-allotment category made good by the promoters as well as the shares taken up against firm allotment reservation basis. 20.3-14k Escape route to promoters of revocation in section 72(5) blocked by SEBI Guidelines - In this connection, it may be seen that section 72(3) of the Companies Act enables an applicant for securities in a public issue made through a Prospectus to revoke only after the expiration of the fifth day after the time of the opening of the subscription lists, or the giving of a notice of disclaimer of his responsibility for the Prospectus by any person given in terms of section 62 of the Act before that date of the fifth day; and, there have been several instances of avoidance of the compulsory contribution by the promoters after issue of the Prospectus by this route of revocation in a blatant abuse of the law resulting in misleading the investing public unawares, and a bar against such revocations by the promoters was proposed to be inserted in section 72 in the Amendment Bill, 2003 (Bill since withdrawn). As noted earlier in the discussion, SEBI Guidelines have blocked this escape route for the promoters insofar as the Guidelines require the allotment to be done prior to the issue opening to the public irrespective of the Companies Act provision in that behalf. In mitigation of this mischief in the related area of firm allotment, the SEBI Guidelines require that such revocations made partially or wholly must be made good by the promoters and their contributions in that behalf should be made latest by a day before the date of opening of the issue (though this is inconsistent with the freedom of revocation allowed by section 72(5) of the Act in point of time) and shall also be subject to the lock-in, additionally.

20.3-14-l Lock-in of pre-issue capital - Further, the entire portion of the pre-issue capital including the shares issued on firm allotment basis other than that locked-in as promoters contribution, shall be locked-in for a period of one year from the date of allotment in the public issue or the date of commencement of commercial production, whichever is later. But this lock-in does not apply to the shares held by promoters but lent to the Stabilizing Agent in a Green Shoe Option for the period of such lending, or to the shares held as promoters by VCFs, FVCIs registered with SEBI (though the shares have to remain locked-in in accordance with and for the duration specified in VCF Regulations, 1996 and FCVIs Regulations, 2000, respectively), or to the pre-issue share capital held by anyone for a period of one year and the pre-IPO shares held by employees other than promoters against ESOPs subject their issue complying with Clause 22.4 of the SEBI-ESOPs & ESPS Guidelines, 1999 as on the date of filing of the draft Prospectus with SEBI. 20.3-14m Shares issued last locked in first - One important aspect of the lock-in requirement is that the securities issued last in point of time to the promoters shall be locked-in first for the specified period, but the securities issued to financial institutions appearing as promoters, if issued last, shall not be locked-in before the shares allotted to the other promoters are locked-in. Pledge of promoters shares subject to lock-in - Promoters shares subject to any kind of lock-in may be pledged only with banks or financial institutions as a collateral security for any loan granted by them if such is a condition of the loan, and there is absolutely no bar against transfer of the locked-in securities between the promoters named in the offer document or to a new promoter or persons in control of the company without prejudice to the lock-in period and subject to compliance with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as applicable. The certificates issued in respect of locked-in securities shall carry an imprint shares non-transferable until (the last date as applicable, specified). 20.3-15 Pre-Issue Obligations : SEBI Guidelines [Chapter 5] 20.3-15a Lead Merchant Bankers MOU with issuer company - For the issuer company, the foremost thing to do is to engage one or more merchant bankers and selecting one out of them as the Lead Merchant Banker to the issue clearly specifying as between the issuer company and the merchant bankers their respective rights, liabilities and obligations relating to the issue in a MOU (Memorandum of Understanding), a format of which has been provided in the SEBI Guidelines in Schedule I specifying comprehensively the dos and donts as between the issuer company and the lead merchant banker to the issue, with nothing added to diminish their respective responsibilities according to the Companies Act and the Merchant Bankers Rules and Regulations, 1992; and, it is the Lead Merchant Banker who is assumed to be responsible to draft the offer document. It is that Lead Merchant Banker who is required to file a copy of the MOU together with the draft offer document with the SEBI. No company shall make a public or rights issue without such engagement. The MOU covers facts and declarations including those on compliances relating to the issue being complete and true, covenants to cooperate and consult each other in the future compliance on all matters related to the issue and an undertaking by the issuer company not to access the monies to be collected before completion of the offer formalities, nor to resort to legal proceedings in any way behind the merchant bankers engaged, with the addition of a clause on the consequences of breach. 20.3-15b Allocation of merchant bankers responsibilities - The most important aspect in this behalf relates to the documented allocation of responsibilities of each one of the lead merchant bankers, as listed in Schedule II to the Guidelines, inter se under intimation to SEBI

before opening of the issue. Each of the nine specified sets of activities/sub-activities given below are required to be listed and allocated clearly with a coordinator named where there is a joint and several responsibility : (a) Capital structuring with the relative components and formalities such as composition of debt and equity, type of instruments; (b) Drafting and designing of the offer document and of advertisement/publicity material including newspaper advertisements and brochure/memorandum containing salient features of the offer document; (c) The designated lead merchant banker being made responsible to ensure compliance with the SEBI Guidelines for disclosure and investor protection and other stipulated requirements and completion of prescribed formalities with the stock exchange, Registrar of Companies and SEBI; (d) Marketing of the issue, particularly marketing strategies, preparation of publicity budget, arrangements for selection of ad-media, centers of holding conferences of brokers and investers etc., bankers to the issue, collection centers, brokers to the issue and underwriters and the underwriting arrangement, distribution of publicity and issue materials including application form, prospectus and brochure, and deciding on the quantum of issue material; (e) Selection of various agencies connected with the issue like Registrars to the issue, printers and advertising agencies; (f) Follow-up with bankers to the issue to get quick estimates of collection and advising the issuer about the closure of the issue, based on the correct figures; (g) The post-issue activities like finalisation of basis of allotment/weeding out of multiple applications, listing of instruments and dispatch of certificates and refunds, and the required follow up with the various agencies like the registrars to the issue, bankers to the issue and the processing of the refunds; (h) Tie-up of the many agencies and intermediaries involved through suitable agreements with the issuer company with the view to enable the designated lead merchant banker for ensuring the fulfilment of its respective functions and to discharge its responsibility; (i) Ordinarily, one lead merchant banker shall be responsible for the post-issue activities. 20.3-15c Underwriting arrangements and drawing up due diligence certi-ficates - It is the responsibility of the designated lead merchant banker for making the underwriting arrangements for the issue and in the event of under-subscription to invoke underwriting obligation and ensure collection of the devolvement. This should be specified in the allocated responsibilities for identified group of activities of lead merchant bankers, and that lead merchant banker designated is responsible to draw up the Due Diligence Certificate in accordance with Schedule III to the Guidelines as well as obtain the due diligence certificate in the format provided in Schedule IIIA and furnish it to SEBI in the case of debenture issue from the debenture-trustee, and annex to it the list of the allocated responsibilities as between the lead merchant bankers engaged by the issuer company as also file the same along with the draft offer document with SEBI. Schedule IIIA mandates the debenture-trustee to examine the relevant and various documents pertaining to the security to be created for the debenture issue, and on that basis, to confirm that the company has made adequate provision for and/or taken steps to create adequate security for the debentures to be issued, obtained all the necessary permissions for creating security on the properties, made all the relevant disclosures about the security and the companys continued obligations to the debenture-holders and that such disclosures made are

true, fair and adequate to enable the investors to make a well informed decision on investment in the issue; and that the debenture-trustee is satisfied about the ability of the company to service the debentures. 20.3-15d Due Diligence Certificates (4) - Schedule III format of the lead merchant bankers due diligence certificate is in the nature of a confirmation signed under its seal on its examination of 22 documents, letters, certificates and reports listed below (forming an annexure to it), evidencing the independent verification of the contents thereof besides the statements of directors, officers and other agencies of the issuer company made concerning the objects of the issue, projected profitability, price justification as well as the other papers furnished by the company, coupled with a confirmation that: (a) the draft prospectus/letter of offer forwarded to SEBI is in conformity with the documents, materials and papers relevant to the issue, (b) all the legal requirements connected with the said issue as also the guidelines, instructions etc. issued by SEBI, the Government and any other competent authority in this behalf have been duly complied with, (c) the disclosures made in the draft prospectus/letter of offer are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue. Further, it also seeks the confirmation by the lead merchant banker, of the validity of its own registration with SEBI besides that of the other intermediaries named in the prospectus/letter of offer and its satisfaction about the worth of the underwriters to fulfil their underwriting commitments. Finally, the lead merchant banker has to certify that the written consent from shareholders had been obtained for inclusion of their securities as part of the promoters contribution subject to lock-in, non-disposal/sale/transfer by the holders as promoters during the period starting from the date of filing the draft prospectus with SEBI till the date of commencement of lock-in period as stated in the draft prospectus. The annexure comprises : (1) Memorandum and Articles of Association of the Company; (2) Letter of Intent/SIA Registration (whether Carry-On-Business or other)/Foreign Collaboration Approval/Approval for import of plant and machinery, if applicable; (3) Necessary clearance from governmental, statutory, municipal authorities etc. for implementation of the project, as applicable; (4) Documents in support of the track record and experience of the promoters and their professional competence; (5) Listing agreement of the company for existing securities on the stock exchanges; (6) Consent letters from companys auditors, bankers to the issue, bankers to the company, lead merchant bankers, brokers and where applicable proposed trustees (for debt securities); (7) Applications made by the company to the financial institutions/banks for financial assistance as per the objects of the issue, and copies of the relative sanction letters; (8) Underwriting letters from the proposed underwriters to the issue; (9) Audited balance sheets of the company/promoter companies for relevant periods; (10) Auditors certificate regarding tax-benefits available to the company, shareholders and debenture-holders; (11) Certificate from architects or any other competent authority on project implementation schedule furnished by the company, if applicable; (12) Reports from Government agencies/expert agencies/consultants/company regarding market demand and supply for the product, industry scenario, standing of the foreign

collaborators etc. (13) Documents in support of the infrastructual facilities, raw material availability etc. (14) Auditors report indicating summary of audited accounts for the period including that of the subsidiaries of the company; (15) Stock Exchange quotations of the last three years duly certified by the regional stock exchange in case of an existing company, if applicable; (16) Applications to RBI and its approval for allotment of shares to non-residents, if any, as also for collaboration terms and conditions; (17) Minutes of Board and general body meetings of the company for matters which are in the prospectus (and relevant); (18) Declarations from directors for particulars of their directorships as required to be given in Form 32, or the Company Secretarys certificate in this regard; (19) Revaluation certificate of companys assets given by Government Valuer or any other approved valuer; (20) Environmental clearance as given by the Pollution Control Board of the State Government or the Central Government, as applicable; (21) Certificate from companys solicitors in regard to compliance with legal provisions of the Prospectus as also applicability of FEMA/Competition Act provisions to the company; (22) Other documents, reports, etc., as are relevant/necessary for true, fair and adequate disclosures in the draft prospectus/letter of offer, listing and detailing them. Additionally, the lead merchant banker shall sign the Due Diligence Certificate and further certify under intimation to SEBI that all amendments, suggestions or observations made by SEBI on the draft offer document have been incorporated in it. Second due diligence certificate At the time of filing the Prospectus with the Registrar of Companies, the lead merchant banker is required to file a fresh (that is, second) Due Diligence Certificate (as specified in Schedule IV to the Guidelines) confirming, the up-dating of the Prospectus (as intimated earlier to SEBI) and stating that the Prospectus contains all the material disclosures as on the date of filing it with the Registrar giving the date of filing, that the registration of all intermediaries named in the Prospectus are valid as on that date without any debarring by any regulatory authority, that the consents in writing of the shareholders forming part of the promoters contribution subject to lock-in were obtained, and that those securities were not disposed/sold/transferred by them during the period between the date of filing the draft Prospectus and the date of the Second Due Diligence Certificate. Third due diligence certificate The lead merchant banker is required to file a fresh (that is, third) and similar to the previous Due Diligence Certificate with the SEBI, with the addition that the Abridged Prospectus contains all the disclosures as required by the SEBI Guidelines and that no corrective action is needed on its part, immediately before the opening of the issue (Schedule V to the Guidelines). Fourth due diligence certificate

Finally, the lead merchant banker is required to file a fresh (that is, fourth) Due Diligence Certificate certifying that all the material disclosures in respect of the issuer company as on the date of the certificate were made through the offer document filed with the Registrar of Companies (giving the date of filing), and subsequent amendments/advertisements (if applicable) (giving the dates); and confirming the facts about the intermediaries and the promoters contribution as in the previous Due Diligence Certificate. Three more certificates from Company Secretary/Chartered Accountant Additionally, the lead merchant banker should file with SEBI along with the offer document three certificates signed by the company secretary or chartered accountant, on the companys compliance in regard to the previous issues that all refund orders were dispatched, all the certificates for the securities were dispatched to the allottees, within the time and manner prescribed and that the securities were listed on the stock exchange as specified in the offer documents. It is the responsibility of the lead merchant banker to obtain the in-principle approval of the stock exchanges for listing of the securities within 15 days of filing of the draft offer document with the stock exchanges, and furnish the same to SEBI. List of promoters The issuer has to submit to SEBI a list of the persons who constitute the promoters group giving their individual shareholdings, together with an undertaking that the transactions in such securities carried out by them or their immediate relatives during the period between the date of filing the offer document with the Registrar of Companies or Stock Exchange and the date of the closure of the issue, shall be reported to the Stock Exchange concerned within 24 hours of the transaction(s), and submit to the stock exchange the PAN, bank account number and Passport number of the promoters together with the draft offer document. 20.3-15e Engagement of lead merchant banker and other Intermediaries - Lead Merchant Banker - First of all, in the selection of the lead merchant banker, the issuer company has to ensure that it is not associate of its own as a promoter or a director and that it shall not act as a Registrar to the Issue if it is entrusted with handling the post-issue responsibilities; and, in case the lead merchant banker holds the securities of the issuer company, it may lead manage the issue if only the securities of the issuer company are listed or proposed to be listed on the Over the Counter Exchange of India (OTCEI), and the market makers have either been appointed or are proposed to be appointed as per the offer document. If the lead merchant banker is itself the issuer, it has to appoint another as its lead merchant banker to the issue. 20.3-15f Intermediaries - Once the lead merchant banker has been appointed properly, it becomes the responsibility of that lead merchant banker to ensure that all the other intermediaries (including the Registrar to the issue who should not be an associate of the issuer company whether as a promoter or director), being appointed are duly registered with SEBI and to independently assess their capability and capacity before advising the issuer company on their appointment subject to the issuer company entering into MOU with each one of them as required. 20.3-15g Registrars - Where a large number of applications are expected, the issuer company may in consultation with the lead merchant banker associate one or more Registrars registered with SEBI just for collecting the application forms at different centers and forward them to the

designated Registrar to the issue who shall be primarily and solely responsible for all the activities as assigned for the issue management. As regards the bankers to the issue, the lead merchant banker should ensure that the issuer company appoints the bankers in all the mandatory collection centers as prescribed under the SEBI Guidelines. The restriction on the number of Co-managers and Advisors has been removed by the omission of Clause 5.4.2.1 by DIP Circular No. 14, dated 25.1.2005. 20.3-15h Underwriting - It is for the lead merchant banker to satisfy itself about the capacity of the underwriters appointed for the issue being adequate and include a statement in the offer document that in its opinion it is so, and obtain the written consent of the underwriters before including their names and the relevant details in the final offer document. In respect of every underwritten issue, the lead merchant banker itself shall undertake a minimum underwriting obligation of 5% of the total underwriting commitment or Rs. 25 lakhs, whichever is less, subject to the restriction that the outstanding underwriting commitments of a merchant banker shall not exceed 20 times its networth at any point of time. 20.3-15i Offer Document to be made public - The draft offer document filed with SEBI/SE(s) where listing is proposed in the offer shall be made public for a period of 21 days from the date of filing, by making copies and available to the public and hosting it on the websites of all the lead managers/syndicate members associated with the issue ensuring accuracy of the contents. 20.3-15j Pre-Issue Advertisement - Soon after the receipt of SEBIs final observations, if any, the issuer company shall make an advertisement in one English/Hindi/Regional language newspaper in the format of Part A of Schedule XXA to the Guidelines. The Pre-issue Advertisement is considered crucial and has been made mandatory for all public issues, fixed or book-built, whereas the issue advertisements like issue opening and closing are optional but if issued they should contain the minimum details prescribed in the formats specified in the Guidelines. 20.3-15k No Complaints Certificate - At the lapse of 21 days after the draft offer document has been made public, the lead merchant banker shall file a statement with SEBI giving a list of complaints received and stating whether any amendment is proposed to be made to the draft offer document and if so highlighting the same. 20.3-15-l Dispatch of Issue Material - The lead merchant banker shall ensure the dispatch of the issue materials to the SEs/brokers/underwriters/bankers to the issue and the investors associations; and in the case of rights issue the offer letters to all the shareholders at least one week before the date of opening of the issue. 20.3-15m Security Branding - According the Guidelines, securities may be branded describing their nature but not the quality. 20.3-15n Collection Centres - Organising collection centres at the four metros and the other cities and towns as prescribed by SEBI under the Guidelines, is mandatory. 20.3-15-o Authorised Collection Agents - Any issuer company is free to appoint collection agents to collect the applications accompanied by cheques, or drafts in consultation with and subject to the modalities of their selection having regard to their being equipped with the required infrastructure and manpower set by the lead merchant banker and disclosures like the names

and addresses of the authorized collection agents appointed made in the offer document. The offer document and the application forms should specifically indicate that the acknowledgement of receipt of application moneys given by the collection agents shall be valid and binding on the issuer company. The authorized collection agents should be made responsible to deposit the applications, that is the instruments evidencing payment of application monies at a named scheduled bank in the special share application account of the issuer company the same or the next day, and in no case they should be authorized to collect application monies in cash. They should send the paid application forms as well as the application forms along with duly reconciled schedules to the Registrars to the issue on realization of the proceeds of the instruments deposited with the bank and after weeding out the unrealized applications, within two weeks of closure of the public issue. Investors from places other than the mandatory collection centres, are free to send their applications accompanied by stock invests directly to the Registrars to the issue by RPAD. However, the stockinvests scheme has since been withdrawn by the RBI. Application moneys : Realised application monies to be deposited in a separate account with a scheduled bank, section 73(3) & (3A) [also see sections 47 & 2(e) of RBI Act, 1934 about scheduled bank]. 20.3-15p Agreements with Depositories - The lead merchant banker should ensure that the issuer company enters into the required agreements with all the depositories engaged by it for dematerialisation of securities, with an option given to the investors to receive allotments of securities in dematerialized form through any of the depositories. 20.3-15q Compliance Officer - Every issuer company should appoint a Com-pliance Officer to directly liaise with SEBI on all matters connected with a public issue. Abridged Prospectus [Section 2(1)] 20.3-16 Every application form distributed by the issuer company or anyone else on its behalf should be accompanied by a copy of the Abridged Prospectus, printed in at least point 10 size with proper spacing, and it is the responsibility of the lead merchant banker to ensure this being complied with. Contents of Abridged Prospectus - Earlier, the Abridged Prospectus was to contain the disclosures specified in Part I of the Contents of Prospectus discussed above in a manner combined with Form No. 2A prescribed under the Companies Act. This has since been revised by SEBI to contain the information specified in Clauses 6.16 to 6.34 by DIP Circular No. 14, dated 25.1.2005. According to the said Circular, information under the heads given below shall form the contents of the Abridged Prospectus elaborated as in the corresponding clauses applicable to the Prospectus under Part I of Chapter 6 of the Guidelines, discussed above, except when specified otherwise. The disclosures in the Abridged Prospectus are the same as in Form 2A of General Rules and Forms under the Companies Act, 1956, supplemented by such information as is considered most relevant for the prospective retail investors. The document shall be printed in font size Times New Roman 10, and in the order in which the items appear in the Prospectus. The application form shall be so positioned in the printing lay-out that on the tearing-off of the application form, no part of the information given in the Abridged Prospectus is mutilated. 20.3-16a Heads of contents - The information to be given includes: General Information,

Capital Structure of the Issuer Company, Terms of the Present Issue, Instructions for Applicants (under this item, information of practical use in the application form format - which otherwise has not been prescribed, like declaration of nationality and residentship, instruction to the applicants regarding : (a) noting the application number on the back of the instruments evidencing application money payment attached to the application, (b) provision of space for inserting bank account number and the name of the bank branch of the applicant to enable refunds through Electronic Refund System, (c) disclosure of the applicants PAN/GIR number, and (d) space to specify the applicants option the securities subscribed for in demat or physical form, has been included), Particulars of the Issue, Company-Management-and-Project, particulars of the listed companies under the same management which made any capital issue in the last three years, Outstanding Litigations and Defaults (in a summarized tabular form), Material Development, Expert Opinion, Changes in the Directors and Auditors in the last three years with the reasons, Time and Place of Inspection of material contracts (list not required to be printed), Financial Performance of the Company for the last five years, including Management Discussion (in a tabular form), Listed Ventures of the Promoters, Previous public or rights issues in the last 5 years, Disclosure on Investor Grievances and Redressal System, Statements regarding Minimum Subscription, and Signatories to the Offer Document. 20.3-16-1 PUBLICATION (1) : ABRIDGED PROSPECTUS - IMPORTANCE OF ABRIDGED PROSPECTUS - A form of application issued by a company that accompanies the Abridged Prospectus (as a substitute for the full document of Prospectus) as prescribed, is valid, which it will be void otherwise; section 56(3) provides for abridged prospectus (dealt by Form 2A of the General Forms and SEBI Guidelines) for general circulation subject to the entire document being supplied on demand. The term issued generally means, in relation to a prospectus, issued to persons irrespective of their being members/debenture-holders (of the company) [Section 2(22)]. 20.3-16b Publication by circulation - Publication by abridged prospectus means circulation generally of the memorandum containing the salient features of the Prospectus as have been prescribed by rule 4CC and Form No. 2A of the Companies General Rules and Forms, [in terms of section 56(3) as amended by the Amending Act, 1988 to contain costs of issuer companies], that is, the abridged prospectus, defined in section 2(1), should contain general information; capital structure of the company; terms of the proposed issue; particulars of the issue; company management and the project; financial performance of the company for the last five years; whether all payments/refunds, debentures, fixed deposits, debenture interest, institutional dues have been paid up to date, and if not details of the arrears, to be stated; particulars regarding listed companies under the same management within the meaning of section 370(1B) which made capital issues in the last three years and stock market data; management perceptions of the risk factors; and the undertaking regarding refund and payment of interest in case of delay in refunding in case the minimum subscription is not received, the abridged prospectus has to be signed by the directors with date. The substitution of the abridged prospectus is conditional that a copy of the prospectus shall, on a request being made by any person before the closing of the subscription list, be furnished to him. 20.3-16c Share application form - Share application form should accompany the abridged prospectus attached to it along with a perforated line bearing separate printed numbers, printed in an easily readable format - DCA Letter No. 1/66/88-CL-V of 10.4.1992. Publication (2) Newspaper Announcement - This aspect is now governed by Ch. 9 of SEBI

Guidelines, 2000, discussed below. However, under the earlier set-up of monitoring the newspaper advertisement or announcement by companies of the prospectus, the DCA had clarified that the newspaper advertisement as an announcement of the proposed prospectus should be in the proforma suggested by DCA, but there is no bar to the terms of payment being included in it, and such inclusion does not offend section 56, Circular No. 5 (5)-CL-VI/68 of 23.3.1968. But, companies shall not publish by themselves or through their Issue Houses etc. any material relating to the public issue between the date of announcement and the date of closing of the subscription list - Circular No. 12/74 of 5.7.1974; unsigned and undated circulars issued by brokers come within the mischief of the penal provisions of the Act - Circular No. 2/10/730/64 of 22.9.1954. Advertisement : SEBI Guidelines [Chapter 9] 20.3-17 It is the responsibility of the Lead Merchant Banker, again, to ensure the compliance of the Guidelines on advertisement by the issuer company, primarily, in that it shall be truthful, fair and clear with no statement contained in it that is untrue or misleading and it conforms to Sch. XXA to the Guidelines. He should see that the issue of advertisements carrying the highlights should also carry the risk-factors. Such advertisements should be consistent with the issuers past practice, and if not, the issuer should display prominently that it proposes to make a public or rights issue of securities in the near future and is in the process of filing of the draft offer document with SEBI. Next to the filing of the offer document with SEBI or the Red Herring Prospectus with ROC or the offer letter of rights with the SE - that fact should be put across prominently in such advertisements, adding that the same has been hosted on the SEBI web-site; but the same should contain no information extraneous to the said offer documents. Further, all material developments during the following periods, touching upon the business or securities of the issuer or its subsidiaries or group companies, should be disclosed promptly and fully by public notices issued in the same newspapers which carried the pre-issue advertisement: fixed price public issues - the period between the date of filing the final prospectus with ROC till the date of allotment. book-built issues - the period between the date of filing the Red Herring Prospectus with ROC till the date of allotment. rights issue - the period between the date of filing the letter of offer with the SE till the date of allotment. No product advertisement of the issuer during the above periods shall make a direct or indirect reference to its performance. 20.3-17a Financial data in the advertisement - If any financial data is carried in the advertisement, it should cover data for the past three years with the particulars of sales, gross profit, net profit, share capital, reserves, earnings per share, dividends and the book values, included. Highlights in all issue advertisements should also contain risk factors with equal prominence of not less than point seven print size, in addition to the issuer companys name, address of its registered office, names of the lead merchant bankers and the registrars to the issue, particularly those issued in the name of product advertisements of the issuer company after 21 days of the filing of the offer document with SEBI till closure of the issue, except the advertisements announcing the issue opening and closing but without the highlights. 20.3-17b Curbs on further advertisement - During the period that the issue is open, the only

advertisement that can appear is about its opening and closing [containing the minimum disclosures relevant as given in Sch. XXA to the Guidelines] and none about it being fully subscribed or oversubscribed, and the advertisement on the issue closure should appear only on the date of closure as stated in the offer document or if the issue is fully subscribed earlier than that date it should be made only after the issue is fully subscribed on the date on which the issue is closed after the Lead Merchant Banker is satisfied that at least 90% of the issue has been subscribed and the Registrar to the issue gave his certificate to that effect. Other than the permissible underwriting commission and brokerage, no extra incentives shall be offered or advertised to any one associated with marketing the issue. 20.3-17c Underwriting commission - In case the issue provides a reservation to NRIs, the advertisement shall carry it giving the place in India where the individual NRI applicant can procure application forms. 20.3-17d Research reports - As regards research reports* that may find a place in the offer document, it is the responsibility of the Lead Merchant Banker to see that they are based on published information with no selective or additional information extraneous to the offer document is put out by the issuer company, any of its management team/syndicate to any one section of the investors in any manner whatsoever whether at road shows, presentations, or in research reports, sales reports or at bidding centers, etc., without the risk factors reproduced. 20.3-17e Clause in MoU against release of any material as advertisement by issuer company - The Lead Merchant Banker should see to the inclusion of a clause in the MOU entered into with the issuer company, and its compliance, that it shall not directly or indirectly release any material or information that is not contained in the offer documents during any conference or at any other time, and that it shall not cause the issue of any advertisement and publicity material without the approval of the Lead Merchant Banker who is responsible for marketing the issue and also to make available copies of all issue-related material with the Lead Merchant Banker at least till the allotment is completed. Registration of Prospectus [Section 60] 20.3-18 Under section 60(1) of the Act, no prospectuswhether full length or abridgedshall be issued by or on behalf of the company or in relation to an intended company unless, on or before the date of its publication, that is, the day on which it is datedunless the contrary is provedtaken as its date of publication; according to section 55, there has been delivered to the Registrar for registration a copy signed by every person named in it as a director or proposed director of the company by himself or by his agent authorized in writing, having endorsed on or attached with it the following documents: (a) consents of experts referred to in section 58, (b) a copy of every contract required to be specified in the prospectus in clause 16 of Schedule II and a memorandum giving full particulars of the oral contracts, if any, so required to be specified and (c) the adjustments referred to in clause 32 (this should be clause 20) of Schedule II to the Act. The registrar shall not register the prospectus unless the requirements of sections 55, 56, 57, 58 and 60(1) and (2) have been complied with and the prospectus has with it attached with the consents given in writing by the auditor, legal advisor, attorney, solicitor, banker named in the prospectus. The prospectus has to be issued for subscription strictly within 90 days after the date on which it is delivered to the registrar for registration [section 60(4)]. If a prospectus is issued without delivering a copy thereof to the Registrar as above, it attracts fine up to fifty thousand rupees for the company and every one of its officers in default [section 60(5)].

20.3-19 Post-Issue Obligations : SEBI Guidelines [Chapter 7] 20.3-19a Post-issue monitoring reports - One of the most important issue obligations cast on the Lead Merchant Banker is the submission of the post-issue monitoring reports, as per the formats specified in Schedule XVI to the Guidelines, to the SEBI irrespective of the level of subscription: (1) the 3-Day Monitoring Report from the closure of the public issue or rights issue; (2) 50-Day monitoring Report for rights issue, within 50th day of closure of the issue. 20.3-19b Allotment, refunds and dispatch - The Lead Merchant Banker shall be bound to actively associate himself with all the Resource Personnel in regard to the entire post-issue activities, namely, allotment, refunds and dispatch and the redressal of the attendant investor grievances, by co-ordinating with the concerned intermediaries at regular intervals to monitor the flow of applications from the collecting bank branches and their processing till the finalisation of the basis of allotment and completion of dispatch of the security certificates/refund orders and the listing formalities. As regards stockinvests, the Lead Merchant Banker should ensure that the RBI instructions are complied with. 20.3-19c Earliest closure - In the case of earliest closure, the Lead Merchant Banker should satisfy himself about the subscription received being full before the announcement is made, and in the absence of definite information the issue should be kept open for the required number of days to avoid any dispute on devolvement on the underwriters. If the issue is undersubscribed, the Lead Merchant Banker should ensure honouring of the consequent devolvements within 60 days from the date of closure of the issue, and should there arise any failure in that behalf a further report should be submitted to the SEBI in the format specified in Schedule XVII to the Guidelines. 20.3-19d Application monies - Deposit in separate account - The Lead Merchant Banker should ensure that the monies received as subscription are kept in a separate bank account as required by section 73(3) of the Companies Act and that it is released only after the listing permission has been received from all the stock exchanges named in the offer document. 20.3-19e Advertisement about over-subscription - All post-issue-advertisements relating to oversubscription, basis of allotment, number, value and percentage of applications; number, value and percentage of successful allottees; date of completion of dispatch of refund orders; date of dispatch of certificates and the date of filing of listing application, are required to be ensured by the Post-issue Lead Merchant Banker to be released in the national dailies in English and Hindi and in a regional language daily and such advertisements should be released only by the Lead Merchant Banker responsible for the post-issue obligations and not by the others connected with the issue. The notice of closure of the issue must be issued only after the actual closure. 20.3-19f Basis of allotment - The basis of allotment should be finalized fairly and properly on the responsibility of the Executive Director/Managing Director of the Stock Exchange and the Lead Merchant Banker (except in the case of the book-building portion of a book built public issue, in which case Clause 11.3.5 of Ch. XI of the Guidelines shall apply) and the Registrar to the issue. The allotment shall be on a proportionate basis within the specified categories rounded off to the nearest integer subject to a minimum allotment being equal to the minimum application size as fixed and disclosed by the issuer (in line with the illustrated forms given in Schedules XVIII and XVIIIA to the Guidelines).

20.3-19g Oversubscription and reservation to RIIs - In oversubscribed issues, there is a requirement of reservation as the minimum to the retail individual investor applicants, that is, half of the net offer to the public shall initially be made available to the retail individual investors. The balance net offer of securities to the public shall be made available for allotment to individual applicants other than retail individual investors, and the other investors including corporate applicants irrespective of the number of securities applied for. Any unsubscribed portion of the net offer in either category is available to be swapped between the two, if required. The procedure is subject to the condition that if on the proportionate basis formula the retail individual investors are entitled to get 70% of the public offer they should so get the 70%, and if it is 30%, their entitlement is not at that 30% but at 50% of the net public offer. 20.3-19h Drawal of lots - The drawal of lots, where required, to finalise the basis of allotment shall be done in the presence of a public representative on the Governing Board of the designated stock exchange. 20.3-19i Signing of basis of allotment - The basis of allotment shall be signed as correct by the Executive/Managing Director of the designated stock exchange and the public representative (where applicable) in addition to the Lead Merchant Banker responsible for the post-issue activities and the Registrar to the issue. The designated stock exchange shall invite the public representative on a rotation basis from out of the various public representatives on its Governing Board. 20.3-19j Completion of issue formalities - The other responsibilities include completion of the issue formalities of dispatch of certificates/refund orders, completion of demat credit and submission of the allotment and listing documents to the SE within two working days of finalisation of the basis of allotment, completion of listing formalities within 7 working days from the said date, posting of refund orders/allotment letters/share certificates by RPAD etc. It is mandatory in case of all issues that an advertisement giving details relating to oversubscription, basis of allotment, value and percentage of applications received; number, value and percentage of successful allottees; date of completion of dispatch of refund orders/certificates and date of filing of listing application, to be released within 10 days from the date of completion of the various activities. The responsibility of the post-issue lead merchant banker survives after the release of the said advertisement till the receipt of the entitlements of the subscribers, the listing agreement is concluded and the listing/trading permission is obtained. Other Issue Requirements : SEBI Guidelines [Chapter 8] 20.3-20 It is the responsibility of the Lead Merchant Banker to ensure compliance with the following: An unlisted company making a public issue of non-convertible debt securities (NCDS) may do so subject to complying with the other requirements as applicable and get the securities listed, without making a public issue of its equity and its listing, if the following conditions are satisfied: (a) The NCDS shall carry a credit rating not below investment grade at least from one Credit Rating Agency and from two, if the issue volume is Rs. 100 crore or more, registered with SEBI; (b) The promoters contribution of at least 20% of the project cost, that is, objects proposed to be inter alia financed through the issue, in the form of equity out of his own funds or from other sources. (c) The issuer company shall comply with the requirements of continuing disclosures as specified under the listing agreement applicable for listing of equity shares; (d) The issuer company should obtain the prior consent of the holders of the NCDS through a

special resolution at a general meeting of such holders for change in the terms of issue, change in capital structure and change in the shareholder pattern; (e) There shall be no partly paid up shares/other securities at the time of filing of the draft offer document with SEBI; (f) The issuer company may come out with a public issue of equity/security convertible into equity after allotment during the currency of the NCDS or thereafter, only after complying with the guidelines applicable for an initial public offering of such securities; (g) The equity held by the promoters or others at the time of issue of NCDS may be listed only when an initial public offer of equity/securities convertible into equity after allotment is made after complying with the applicable provisions of the Guidelines. Note: A Municipal Corporation (which is not a company and having no share capital) may issue NCDS subject to the conditions (a) to (c). An unlisted company may similarly issue debt securities convertible into equity (DSCE) after allotment and get the securities listed, subject to complying with the other requirements as applicable, without making a prior public issue of its equity and its listing, if the following conditions are satisfied: (i) (a) to (e) of the preceding clause are complied with; (ii) An issuer company making an initial public offer of DSCE may come out with a subsequent public issue of equity/security convertible into equity after allotment during the currency of DSCE only after complying with the applicable guidelines for an initial public offering of such securities (in relaxation of the prohibition otherwise against doing so under Guideline 2.6) if the floor price for conversion of DSCE is determined and disclosed in the offer document for issue of DSCE; (iii) The equity held by the promoters and others may be listed along with the listing of equity in the public offering of equity/securities convertible into equity after allotment or at the time of listing of equity arising on conversion of the DSCE; (iv) If the equity shares held by the promoters is proposed to be listed on conversion of DSCE, it shall be ensured that the number of equity shares allotted to the public (after excluding the allotment of equity shares to holders of DSCE issued on firm allotment/reservation basis) as a percentage of the total paid up equity capital after conversion and listing of the promoters equity, is not less than the percentage specified in rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957. The price band available is 20% over the floor coupon rate/price which the Lead Merchant Banker can specify in the offer document initially filed with SEBI subject to the issuer company in consultation with the Lead Merchant Banker determining the specific coupon rate subsequently but before filing the offer document with the Registrar of Companies. This option is available through book building process for the ascertainment and determination of the coupon rate and price/conversion price. Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957 (dealing with listing requirements of public holding and relaxation [see para 18.12-2)] : A public issue is ordinarily bound to make a net offer to the public of at least 10% or 25% of the post issue capital or of the issue size according as it is an unlisted or listed company, respectively, and an infrastructure company is free from this requirement in either case. In all cases, the issuer company is free to make reservations (that is, reservations on competitive basis wherein allotment of shares is made in proportion to the shares applied for) and/or firm allotments to various categories of persons out of the balance of the issue size as follows : - Allotment is subject to other applicable provisions of SEBI Guidelines and the conditions specified by Government and regulatory authorities. - Categories for reservation: (a) employees of the company; (b) Shareholders of the promoting companies other than designated FIs/Govt. bodies, in the case of a new company and shareholders of group companies in the case of an existing company; (c) Indian Mutual Funds; (d) Foreign Institutional Investors (including non-resident Indians and overseas corporate bodies); (e) Indian and Multilateral Development Institutions, and (f) Scheduled

Banks. In a public issue other than a composite issue by a listed company, this reservation is limited to those holding shares upto Rs. 50,000 as on record date determined on the basis of the closing price as on the day, on the proportionate basis as in the case of allotment to public category. Categories for firm allotment: (a) Indian and Multilateral Development Financial Institutions; (b) Indian Mutual Funds; (c) Foreign Institutional Investors (including non-resident Indians and overseas corporate bodies); (d) Permanent/regular employees of the issuer company, subject to the aggregate of reservations and firm allotment for employees and shareholders in an issue being limited to 10% each category of the total issue amount; (e) Scheduled Banks, including the Lead Merchant Bankers, subject to an aggregate maximum ceiling of 5% of the proposed issue of securities. Power is vested in SEBI to grant relaxation from the applicability of rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957, and SEBI allows an unlisted company for listing of its shares without making an IPO, if, pursuant to a sanctioned scheme of reconstruction or amalgamation by the High Court/NCLT, the transferee company making an application to SEBI through the regional stock exchange (with its recommendation with reasons) where the shares of the transferor company are proposed to be listed and simultaneously to be listed on all stock exchanges where the shares of the transferor-company are/were listed within 30 days of the order of the High Court/NCLT such that the formalities for commencement of trading shall have been completed within 45 days from that date, provided the following conditions are satisfied : (i) Shares have been allotted by the unlisted company (transferee-company) to the holders of securities of a listed company (transferor company) pursuant to a scheme of reconstruction/amalgamation sanctioned by the High Court/NCLT under the Companies Act; (ii) The listing of the shares of the unlisted transferee-company is in terms of the scheme of arrangement sanctioned by the High Court/NCLT; (iii) At least 25% of the paid-up share capital, post the scheme, of the unlisted transferee company seeking listing comprises shares allotted to the public holders of shares in the listed transferor-company; (iv) The unlisted company has not issued/reissued any shares, not covered under the scheme; (v) There are no outstanding warrants/instruments/agreements which give right to any person to take shares in the unlisted transferee-company at any future date, and if they be there existing, then, the 25% public holding shall be computed on the basis of the consequent increase of capital on the assumption that the options are firm; (vi) The share certificates have been dispatched to the allottees pursuant to the scheme of arrangement or their names have been entered as beneficial owners in the records of the depositories; (vii) The shares of the transferee-company issued in lieu of the locked-in shares of the transferor-company are subjected to the lock-in for the remaining period; (viii) There is no requirement of additional lock-in, if the paid-up capital of company B (say, a newly formed company or existing company, unlisted, with which) a Division of company A (say, the listed company hiving off the Division) is merged under such a scheme, if the paid-up share capital of company B is only to the extent of the requirement for its incorporation; but, if the paid-up capital of company B is more than that requirement, the promoters shares shall be locked-in to the extent of 20% of the post-merger paid-up capital of the unlisted company B for a period of 3 years from the date of listing of its shares.

Before commencement of trading, the company shall insert an advertisement in one English and one Hindi dailies with nationwide circulation and a regional newspaper giving the details as specified in Schedule XXVIII to the Guidelines. In the presentation of the issuer companys capital structure, the Lead Merchant Banker shall see to the proposed issue amount being equal to the aggregate of the promoters contribution in the proposed issue plus the firm allotment plus the offer through the offer document, that is, the net offer to the public - the offer made to the Indian public - and the reservations to the permitted reserve categories. Applicants from out of the categories for whom reservations and firm allotments have been made are not eligible to apply for shares against the net offer to the public, and the applicants against the shares of net offer to the public cannot apply for shares larger in number than those comprised in the net offer to the public whereas the applicants from out of each of the reserved categories can apply for more number of shares than those reserved for each such categories. These are subject to inter se adjustments and any short fall being made good by the promoters as laid down in clause 8.5 of the Guidelines. The terms of issue comprising the minimum application value in a public issue shall be fixed within the range of Rs. 5,000 to Rs. 7,000 of the number of shares as specified in the offer document with reference to the issue price; and the applications may be made in multiples thereof, the application money made payable being not less than 25%, while it is 100% in the case of an offer for sale. If the subscription money is receivable in calls to be made, the calls should be completed within 12 months from the date of allotment subject to the condition that if any investor fails to pay up the call moneys within the 12 months the subscription money already paid may be forfeited. This condition does not apply to issues of the size above Rs. 500 crores. During the period between the date of submission of the offer document to SEBI and the date of listing or the refund of application monies owing to non-listing/undersubscription etc., no company shall make any further issue of capital in any manner whatsoever. Similarly, no company shall issue any shares, bonus or rights, unless and until the conversion of convertible securities whether in part or full unless the same benefit is extended to the holders of such securities proportionate to the convertible portion with the option of the further issue of shares being available to be made simultaneously with the conversion. After the announcement of the record date for issue of rights shares, no company shall withdraw the rights issue, and if it is done that company shall not be eligible for listing of any securities for a period of 12 months counted from the record date announced. This prohibition does not apply to shares on conversion made prior to the record date. Public issues shall be kept open for not less than 3 nor more than 10 working days, unless it is an issue by an infrastructure company for which it is 21 working days that may be kept open; and, the period of subscription shall invariably be disclosed in the Prospectus [section 72(1) of the Companies Act limits the minimum period to 4 days or the beginning of the fifth day after the opening of the issue for all companies]. Rights issues shall be kept open for not less than 30 days nor more than 60 days [section 81(1)(b) of Companies Act lays down a minimum period of 15 days notice to the shareholders entitled]. No incentives like medical insurance/lucky draw/prizes, etc., to the prospective investors should be held out. In case of issue of any new financial instruments like Deep Discount Bonds, Debentures with Warrants, Secured Premium Notes etc. the Lead Merchant Banker should ensure adequate disclosure in the offer document of the terms and conditions of issue, redemption, security, conversion etc.

If fully convertible debentures (FCDs) are issued at an interest rate lower than the Bank Rate, the offer document should disclose the notional cost-price to the investor including the interest loss for the period from the date of allotment to the date(s) of conversion(s). Any safety net/buy-back arrangement of the shares proposed in a public issue should be firstly finalized in advance with the Lead Merchant Banker, and secondly disclosed in the Prospectus. It should be made available only to all the original resident individual allottees limited to a maximum of 1000 shares per allottee with the validity of the offer being for six months from the date of dispatch of securities, subject to the financial capacity of the person providing the buy-back/safety net facility being disclosed in the draft prospectus (filed with SEBI). The time-limit for the issue opening date is three months from the date of dispatch of SEBI letter of observations or in its absence three months counted from the 22nd day after filing the draft offer document with SEBI [It is 90 days from the date of filing the Prospectus with the Registrar under section 60(4) of the Companies Act]. In case of change in the standard denomination of equity shares, the offer document should disclose all the financial data affected thereby, and in particular the comparison of financial ratios representing the value per share and the comparison of stock market data in respect of price and volume of securities as well as the capital structure data. Green Shoe Option (GSO) : SEBI Guidelines [Chapter 8A]

20.3-21 GSO means an option of borrowing equity shares, in excess of the equity shares included in the public issue from the promoters or the pre-issue shareholders or both to the extent of over-allotment, and operating a post-listing price stabilization mechanism, exercisable through a Stabilising Agent (SA). This concept, introduced for the first time in India, has since been extended to all public issues in addition to IPO with effect from 28.5.2004. The basic purpose of GSO is not to make available additional share capital to the company, but to act as a stabilizing force if the issue is oversubscribed. The modus operandi consists of the promoters holding more than 5% shares of the issue size, pro rata, lending their shares to the extent of 15% of the issue size to the SA in dematerialized form, those shares being returnable to the promoters after the purpose is over, importantly, with no profit in the transaction accruing to the promoters and others. It is a device to check market price from shooting upon listing the issue by providing additional supply of the shares in the market. However, in the event of the market price being dipped below the issue price, the SA will buy the shares from the market such that the price rises to the desired level. SA has no role to buy the shares in a rising market scenario. GSO is an option available to a company making a public offer of equity shares through the book building process, and any company desirous of exercising the option has to obtain the sanction of general meeting as part of the resolution authorizing the public issue indicating the possibility of allotment of further shares to the Stabilising Agent to the extent at the maximum of 15% of the issue size. Modus operandi - For the purpose, the company has to appoint one of the merchant bankers or book runners engaged for the issue as its Stabilising Agent making him responsible to effectuate the price stabilization process and fixing the length of the time for which it would be available not exceeding 30 days from the date of trading permission given by the stock exchanges, if required, by entering into an agreement with him prior to the filing of the offer document with SEBI. Nextly, the SA will enter into an agreement with the Promoter(s) pre-issue shareholders to have their shares lent for the purpose specifying the maximum limit not exceeding 15% of the issue size. The actual extent of the shares thus to be borrowed is determinable by the Lead Merchant Banker or the Lead Book Runner in consultation with the SA. The agreements constitute part of

the material documents for public inspection, and the particulars are required to be disclosed in the draft Red Herring Prospectus, its final version and the final prospectus should disclose the maximum number of shares to be over-allotted and their allocation being pro rata to all applicants in the case of an IPO. The stabilizing mechanism consists of the SA opening a special account as a GSO bank account, and a special account for the securities with a depository participant in the shape of a GSO demat account. The money received from the applicants against the over-allotment in the given Green Shoe Option shall remain deposited in the GSO bank account, and the amount shall be solely used for the purpose of the SA buying the shares from the market during the stabilization period with the credit going to the GSO demat account, as required. The shares thus bought from the market are required to be returned to the promoters by the SA latest within two working days after the close of the stabilization period. The prime responsibility of SA is to stabilize post-listing price of the shares by determining the timing of the buying, the quantity and the price. At the expiry of the stabilization period, if the SA did not buy any shares over and above the number of shares over-allotted by the company from the market, the issuer company shall allot the shares to the extent of the short-fall in the dematerialized form to the GSO demat account within five days of the closure of the stabilization period, which the SA shall return to the promoters and others in lieu of their shares borrowed, and the GSO demat account closed. Thereafter, the company shall make a final listing application in respect of those shares to all the stock exchanges where the shares allotted in the public issue are listed to which allotment the preferential issue procedure under Chapter XIII of SEBI Guidelines shall not apply. The SA shall remit to issuer company an amount worked out at the issue price of the shares thus allotted by the issuer company in excess of the issue-size to the public from the GSO bank account. Any balance amount left in the said account after such remittance, net of the expenses incurred by the SA in putting the price-stabilisation process, shall be transferred to the investor protection fund(s) accounts of the stock exchange(s), equally, and the GSO bank account closed. The SA has to submit a daily report to the stock exchanges during the stabilization period and a final report to the SEBI, on the basis of a register maintained by him in respect of each issue having the GSO separately, and the register retained for three years from the closure of the stabilizing period. The quantum of the shares held by the promoters and thus lent to the SA and returned to the promoters shall be subject to lock-in for the remaining period as applicable. For purpose of GSO, the term promoter has the same meaning as defined for prospectus in SEBI Guidelines and over-allotment means the allotment or allocation made by SA out of the shares borrowed. Book Building - Two kinds: SEBI Guidelines [Chapter 11] 20.3-22 The process of public offer through Book Building is of two kinds: (A) 75% Book Building Process, and (B) 100% of the net offer to the public in either of 100% or 75% of the net offer to the public through book building process plus 25% at the price determined through book building.

(A) Conditions for the option of 75% Book Building Process - The option of 75% Book Building process is available to all bodies corporate which are otherwise eligible to make an issue of capital to the public, subject to the following conditions : It is an alternative to the extent of the percentage of the issue open to reservation for firm allotment; The issue of securities through book building process shall be separately identified/indicated as placement portion category in the prospectus; The securities available to the public, that is, the minimum of 25% of the securities on offer, shall be separately identified as net offer to the public; Underwriting shall be mandatory to the extent of the net offer to the public; The draft prospectus complete in every respect except the price shall be filed with SEBI; One of the lead merchant bankers to the issue shall be nominated by the issuer company as a Book Runner and his name shall be mentioned in the prospectus; Copies of the draft prospectus filed with SEBI, indicating the floor price or price band within which the securities are being offered as applicable, may be circulated by the Book Runner to the institutional buyers who are eligible for firm allotment as also the intermediaries eligible to act as underwriters inviting offers for subscribing to the securities; The Book Runner on receipt of the offers shall maintain a record of the names and number of securities ordered and the price at which the institutional buyer or underwriter is willing to subscribe to the securities under the placement portion; Each underwriter shall maintain a record of the orders received by him for subscribing to the issue out of the placement portion; The underwriter(s) shall aggregate the offers received and intimate the Book Runner; so also the institutional investors shall do; On receipt of the intimations as above, the Book Runner and the issuer company shall determine the price at which the securities shall be offered to the public; The issue price for the placement portion and the offer to the public shall be the same; On the price having been so determined, the underwriter(s) shall enter into an underwriting agreement with the issuer company specifying the number of securities and the price at which the underwriter shall subscribe to the securities; the Book Runner has the option to demand that the underwriters to the net offer to the public pay in advance all monies required to be paid towards their underwriting commitments; Within two days after the determination of the price, the prospectus shall be filed with the Registrar of Companies; The issuer company shall open two different accounts for collection of application moneys: one for private placement portion and the other for the public subscription; One day prior to the opening of the issue to the public, the Book Runner shall collect from the institutional buyers and the underwriters the application forms along with the application moneys to the extent of the securities proposed to be allotted to them/subscribed by them; Allotments for the placement portion shall be made on the second day from the closure of the issue; in order to ensure that the securities allotted under placement portion and the public portion are pari passu in all respects, the issuer company has the option to have one date of allotment - which it shall be a deemed date of allotment - for the issue of securities through book building process;

In the case of the Book Runner exercising the option of requiring the underwriters to the net offer to the public to pay in advance all moneys required to be paid towards the underwriting commitments by the eleventh day of the closure of the issue, the shares allotted as per the private placement category shall be eligible to be listed; Allotment of the securities under the public category has to be in accordance with the Guidelines, and the securities thus allotted shall be eligible to be listed; In case of undersubscription in the net offer to the public, spillover to that extent is permissible to the placement portion subject to the condition that preference shall be given to the individual investors; similarly, in the case of undersubscription in the placement portion, spillover is permissible to the net offer to the public portion; On the basis of it being given uniformly to all applicants, the issuer company is free to pay interest on the application moneys till the date of allotment/deemed allotment (in issues related to long gestation construction works and buildings, obviously, after complying with the requirement of section 208 of the Companies Act, that is, having a provision to do so in the Articles or passing a special resolution coupled with Central Government approval for payment of interest and its rate, if such payment is not to operate as unauthorized reduction of share capital); The Book Runner and other intermediaries associated with the book building process shall maintain records of the process, which shall be open to SEBI inspection.

(B) Conditions for 100% - Offer to public through Book Building Process/Red Herring Prospectus: In this mode the issue may be for 100% or 75% of the net offer to the public plus 25% at the price determined through book building, subject to the following conditions: Reservation or firm allotment to the extent permissible under the Guidelines is forbidden to be made through book building to the promoters, permanent employees of the issuer company and in the case of a new company the permanent employees of the promoter companies as well as the shareholders of the promoter companies in the case of a new company/shareholders of group companies in the case of an existing company either on a competitive basis or on a firm allotment basis, and the Book Building shall be only for the portion other than those. The issuer company shall appoint an eligible Merchant Banker(s) as Book Runner(s) and give their names in the draft prospectus. The Lead Merchant Banker shall act as the Lead Book Runner, while the others appointed by the issuer company shall be termed as Co-Book Runners, and the names of those of them who have submitted the Due Diligence Certificate to SEBI may be printed on the front cover page of the prospectus, with the addition of the sentence to the effect that the investors may contact any of such book runners, for any complaint pertaining to the issuer appearing after the risk factors, in the prospectus. Building the book is the primary responsibility of the Lead Book Runner while it is open to form a syndicate of intermediaries as underwriters who are registered with SEBI and permitted to carry on such activity, subject to the rights, obligations and responsibilities of each determined incorporating the inter se allocation of their responsibility in the event of undersubscription for making it good which it is mandatory, as given in Schedule II to the Guidelines. The draft prospectus, complete in all respects as per the Guidelines except giving the price but giving the total size of the issue, shall be filed with SEBI, by the Lead Merchant Banker. The red herring prospectus shall disclose either the floor price of the securities offered or

price band along with the range within which the price can move, if any, unless it is a further issue of a class of securities already listed and the same is announced one day before the opening of the bid in all newspapers where pre-issue advertisement was released, and in that case, the additional disclosures to be made in the red-herring prospectus are-(i) a statement that the floor-price or price-band, as the case may be, shall be disclosed one day before the opening of the bid, (ii) a statement that meanwhile the investors may be guided by the secondary market prices, (iii) the names and editions of the newspapers where the said announcement would be made, and (iv) the names of the websites, journals and media with their addresses, where also the said announcement would be made. SEBI has 21 days time to suggest modifications to the draft prospectus, and on receipt of the same with the final observations of SEBI it is the responsibility of the Lead Merchant Banker to incorporate the same in the Prospectus. The issuer company shall thereupon release an advertisement in one English and one Hindi National Dailies and a regional language newspaper, containing the salient features of the final offer document in terms of Form 2A of the Companies (Central Governments) General Rules & Forms, 1956 prescribed under the Companies Act, along with the application form format. The Pre-Issue Obligations as set out in the Guidelines shall apply. The Book Runners and the issuer company shall determine the issue price based on the bids received through the syndicate members. On the determination of the price, the number of securities to be offered shall be arrived at by dividing the issue size by the price factor. Once the final price/cut-off price is determined, all those bidders found to be successful, that is, bids made at and above the final price shall become entitled for allotment of securities at that price, and they must be intimated immediately. No incentive, whether in cash or kind, shall be paid to the investors who became so entitled. The margin collected from categories other than Qualified Institutional Buyers shall be uniform across the Book Runners/syndicate members, for each such category. The margin may be upto 100% of the price bid but is commonly registered to 10%. Bids received beyond the investment limits under the applicable laws shall not be accepted in any category. The final prospectus containing all disclosures as per the Guidelines including the price and the number of securities proposed to be issued shall be filed with the Registrar of Companies. Arrangements shall be made by the issuer company, for collection of the applications by appointing mandatory collection centers as per the Guidelines. The on-line, real time graphical display of demand and bid price at the bidding terminals, shall be made. The running lead manager shall ensure the availability of adequate infrastructure for data entry of the bids on a real time basis. The investors who had not participated in the bidding process or have not received intimation of entitlement may also make an application. Disclosure of basis for issue price - The additional disclosures to be made include the particulars of the syndicate members, and under the heading basis for issue price a statement

to the effect that the issue price has been determined by the issuer in consultation with the Book Runners, on the basis of the assessment of the market demand for the offered securities by way of book-building, followed by the accounting ratios: 1. EPS, pre-issue, for the last three years (as adjusted for changes in capital). 2. P/E, pre-issue and its comparison with industry P/E, where available, specifying the source. 3. Average return on net-worth in the last three years. 4. Net asset value per share based on the last balance sheet. 5. Comparison of all accounting ratios of the issuer company as above with industry average/peer group. 6. The accounting ratios shall be calculated after giving effect to increase of capital consequent to compulsory conversions/options (to subscribe for additional capital), if any, outstanding, assuming that those are firm. The broad parameters on which allocation is proposed to be made to the QIBs and the manner of allocation among respective categories of investors in the event of under-subscription shall also be disclosed. Mandatory underwriting of issue - Underwriting of the issue in any case is mandatory, with the exception of 50% of the net offer to the public, which it is mandatory to allot to the Qualified Institutional Buyers, in respect of issue of equity shares by an unlisted/listed company in terms of Guidelines 2.2.2/2.3.2 (for issue by unlisted companies that do not have a pre-issue net-worth of not less than Rs. 1 crore and no track record of distributable profits in the three years prior to the issue; and for issue by listed companies in a size in excess of five times of its pre-issue net-worth) - the Book Runners are bound to enter into underwriting agreements with the syndicate members on the one hand binding them and with the issuer company on the other to bind themselves, to make good any undersubscription and in the event of any default in fulfilling the underwriting commitments by the syndicate members. Bidding procedure - As to the bidding procedure, it is subject to the following conditions : The bid shall be open for at least 5 days; The advertisement released in this behalf shall give (a) the date of opening and closing of the bidding, it being not less than 5 days; (b) the names and addresses of the syndicate members as well as the bidding terminals for accepting the bids; (c) the method and process of bidding; Bidding is permissible only if the electronically linked and transparent facility is used; The syndicate members shall be present at the bidding centers so that at least one electronically linked computer terminal at all the bidding centers is available for the purpose of bidding; The number of bidding centers shall be equal to the number of mandatory collection centers in the case of 75% of the net offer to the public through book building, and those shall be at all the places where the recognized stock exchanges are registered in the case of 100% of the net offer to public through book building; and the same norms as are applicable for the collection centers shall apply to the bidding centers; Individual as well as the qualified institutional buyers shall place their bids only through the syndicate members, who shall have the right to vet the bids; The investors shall have the right to revise their bids;

As to the bidding format, there shall be a standard bidding form to ensure uniformity in bidding and accuracy, serially numbered before issuing at the bidding centers with the date and time of issue stamped automatically, and issued in duplicate signed by the investor and the syndicate member and containing information about the investor, the price and the number of securities for which the bid is made; one form for the investor and the other for the syndicate member(s)/Book Runner(s); At the end of each day of the bidding period, the demand shall be shown graphically on the terminals for information of the syndicate members as well as the investors.

Allocation procedure - As regards the allocation procedure, in the case of 100% of the net offer to public through 100% book building: (i) not less than 35% of it should be allocated to retail individual investors applying for 1,000 securities or less, 15% of it should be allocated to non-institutional investors applying for more than 1,000 securities, and the balance 50% of it should be available for allocation to qualified institutional buyers, and (ii) in respect of issues made under rule 19(2)(b) of SC(R) Rules, 1957 with 60% allocation to QIBs, the percentage shall be 30% to retail investors and 10% to non-institutional investors. In the case of 75% of the net offer to public through book building and 25% at the price determined under it, 25% should be to non-institutional investors and 50% of it to qualified institutional buyers while the balance 25% of the net offer to the public earmarked to go by the price determined through book building should be allocated only to individual investors who have either not participated or have not received any allocation in the book built portion, such that 50% of the issue size shall have been allotted to the qualified institutional buyers in the case of unlisted or listed companies which do not satisfy the basic eligibility norm for a public issue and adopt the exceptional route provided under the Guidelines, out of which 5% shall be allotted to mutual funds proportionately as illustrated in Sch. XIXA to the Guidelines. [The allocation procedure was substituted for clauses (vi) to (viii) of guideline 11.3-5 given above by new clauses (vi) to (xxiii) by SEBI/CFD/DIL/DIP/Circular No. 11 dated 14-8-2003, but the same was deferred by Press release No. 246/2003, dated 13-10-2003]. A final book of demand, showing the result of the allocation, shall be maintained by the book runners. This and all the other records maintained by the book runners and other intermediaries associated with the book building process shall be open to inspection by SEBI. Allotment : The allotment to retail individual and non-institutional investors shall be on the basis of the proportionate allotment specified in Schedule XVIII to the Guidelines. In the event of under-subscription, the under subscribed portion shall be allocated to the bidders as announced in the prospectus such that the under subscribed portion in the category of qualified institutional buyers cannot be shifted to any other category in respect of unlisted or listed companies which do not satisfy the basic eligibility norm for a public issue and adopt the exceptional route provided under the Guidelines. The allocation, as between the qualified institutional buyers, should be determined by the Book Runner(s), based on their prior commitment, investor quality, price aggression and the priority of the bids received in point of time etc. Allotment should be made not later than 15 days from the closure of the issue and a failure to do so attracts interest payment to the investors @ 15% p.a. Clarificatory examples have been given in Schedule XX to the Guidelines. A model time frame has been provided in Schedule XXI to the Guidelines. If the issue comprises 75%+25% option, the offer of 25% of the net offer to the public shall open within 15 days from the date of closure of the bidding and kept open for at least 3 working days after completing all the requirements of advertisement and dispatch of issue material to all the stock exchanges. During the time that the offer is open, the investors who have received an intimation

of their respective entitlement to the securities shall submit the application forms along with the application moneys. The other retail individual investors who had not participated in the bidding process or have not received the intimation of entitlement, may also make an application. IPOs through On-Line System: SEBI Guidelines [Chapter 11A] 20.3-23 The requirements discussed here are additional to the other requirements for public issues and become applicable when a company proposes to make a public issue of securities through the on-line system of the stock exchange. It starts with the issuer company entering into an agreement with the Stock Exchange(s) having the system of on-line offer of securities, apart from the Regional Stock Exchange, setting out the rights, duties, responsibilities and obligations of the issuer company and the stock exchanges inter se, with the mechanism of resolution of disputes provided. Next, the Stock Exchange has to appoint Brokers with SEBI registration and having terminals at the mandatory collection centers as specified under the Guidelines, financially sound to honour their commitments in default of their clients to act as collection centers for accepting applications and moneys from their clients, subject to the Brokers being liable to pay up themselves if the clients fail to pay, and for placing orders with the issuer company. The Brokers are expected to receive from the issuer company their permissible brokerage/commission/fee for their services with no extra payment or charge levied from the clients on that account. The issuer company should appoint a Registrar to the issue having electronic connectivity with the Stock Exchange through which the securities are offered on-line. The names of the Brokers, Lead Managers and the Registrar to the issue shall be disclosed in the Prospectus and the application forms. It is the responsibility of the Lead Manager to co-ordinate all of the activities amongst the various intermediaries connected with the issue. The listing of the securities should be on a Stock Exchange other than the one through which the offer on-line has been arranged and the Regional Stock Exchange in addition, if desired. Modus operandi - The modus operandi is as follows: following the filing of the draft offer document with SEBI and after receipt of the final observations of SEBI on it, the minimum number of application forms accompanied by the abridged prospectus in Form No.2A and the offer document containing the final observations received from SEBIwithout mentioning the final priceand after filing the Prospectus (offer document) with the Registrar of Companies, copies thereof shall be dispatched to the members of the Stock Exchanges. On the application form, the issue opening and closing dates shall be mentioned. A minimum of say 200 application forms per active member of the Stock Exchange and 200 copies of the offer document to the other Stock Exchanges where the issue is proposed to be listed, and say 10,000 forms and a 1,000 copies of the offer document to each of the Stock Exchanges, shall be dispatched allowing 14 clear days before the issue opening date. 20.3-23a Release of advertisement - The issuer company shall meanwhile, after filing the offer document with the Registrar of Companies and before the opening date of the issue, release an advertisement about the issue in one English and one Hindi National Dailies and a regional language daily, of Companies Rules & Forms, 1956 containing the salient features of the offer document as specified in Form 2A of Companies General Rules & Forms, 1956 and giving the date of opening and closing of the issue, the method and process of application and allotment, and the names and addresses etc. of the Stock Brokers deemed as the collection centers for accepting the applications. 20.3-23b Placement of orders by applicants - During the period the issue is open, the applicants may place an order for subscription of the securities through the brokers of the

respective stock exchanges which they are bound to accept, or send their applications together with the cheque/draft towards the application money directly to the Registrar to the issue, or place their orders through a stock broker under the on-line system. For issues of the size of Rs. 10 crore or more, the Registrar to the issue is required to open the centers for collection of the direct application at the four Metros. The broker should collect the client registration form duly filled in and signed from the applicants before placing the order in the system as per know your client rule of SEBI as modified from time to time. Thereafter, the broker shall enter the buy order in the system on behalf of the clients and enter their details like name, address, category, number of shares applied for, beneficiary, ID, DP code etc., and give an order number/order confirmation slip to the applicant. It is open to the applicant to withdraw his application as provided in the Companies Act. The broker may collect the full amount towards the application money as margin money from the clients before he places an order subject to his depositing the same in a separate bank account (escrow account) with the Clearing House bank for primary market issues, and at the end of each day during the period that the issue is open downloading/forwarding the order data to the Registrar to the issue for the valid orders followed by forwarding the final status of the orders received on the date of closure of the issue. 20.3-23c Basis of allocation to be fair and proper - The RSE along with the Lead Merchant Banker and the Registrar to the issue shall, on the closure of the issue, together ensure that the basis of allocation is finalized fairly and properly as specified in Ch. 7 of the Guidelines. As a follow up, the Registrar to the issue/company shall send the computer file containing the allocation numbers, allocated quantity etc., of the successful applicants to the SE, which in turn shall process and generate the broker-wise funds pay-in obligation and send the file with details to the member brokers. The brokers shall immediately on its receipt intimate the fact of allocation to their clients/applicants and see to each of them submitting the duly filled-in and signed application form to him along with the amount payable towards the application money less the margin money already paid, and on receipt of the same hand over the application forms to the SE for passing them on to the Registrar to the issue/company for records. The broker is under obligation to refund the margin money to the applicants who did not receive allocation, within three days. He has to give the details of the amounts received client-wise as well as the names of those who did not pay the application money to the SE together with a soft copy of the data. On the pay-in-day, the broker shall deposit the amount collected from the clients in the separate bank account for primary issues opened with the Clearing House bank, and the bank shall debit the primary issue account of each broker and credit the amount to the Issue Account. The concerned brokers should make good the shortfall, if any, on account of default of their clients, and if any broker fails to do so he shall be declared as a defaulter by the SE and proceeded against. As a result of such default(s) if it transpires that the minimum subscription is not received, the issue proceeds shall be refunded to the applicants. 20.3-23d Certificates in physical form - The subscriber has an option to receive the certificates of the securities physically or in a dematerialized form. 20.3-23e Prohibition against use of Trade Guarantee Fund by SE - The SE is forbidden from using its Settlement/Trade Guarantee Fund for honouring brokers commitments in case of their failure to bring in the funds. On receipt of the amount towards the minimum subsciption, the issuer company is required to allot the shares to the applicants, within 15 days of the closure of the issue to avoid payment of interest @ 15% p.a., as per the normal procedure set out in the Guidelines, and the Registrar to the issue has to arrange either the posting of the share certificates or instruct the depository to credit the depository account of each investor, as the

case may be. 20.3-23f Direct applications to registrar - In the cases of the applicants who had applied directly to the Registrar to the issue and have received no allocation, the Registrar shall arrange to refund their application moneys within 15 days from the closure of the issue. The brokers and the related intermediaries involved in the process of offering the shares on-line system are required to maintain the records for five years, namely, the orders received, applications received, details of allocation and allotment, details of margin money collected and refunded and the details of the refund of application money, which shall be open to SEBI inspection. Issue of capital by Designated FIs (DFIs) - SEBI Guidelines [Chapter 12] 20.3-24 The requirements to be complied with by the DFIs (statutory Designated Financial Institutions) in accessing the capital markets are different. There is no requirement of minimum promoters contribution in respect of any issue, and if there be any, such contribution has to come from the actual promoters but not from the directors, friends, relatives, associates etc. The reservation to permanent employees including the Managing Director(s)/whole-time director(s) is restricted to those employees who are permanent on the pay rolls as on the date of the offer document and the Managing/whole-time director(s) being unrelated to the promoters, each multiplied by 200 shares of Rs. 10 each or 20 shares of Rs. 100 each, to a maximum of 5% of the issue size, subject to a lock-in for three years, and the unsubscribed portion, if any, in a public issue being liable to be added back to the public offer, while in the case of a rights issue, it lapsing. Free pricing of the issue is subject to the DFI disclosing all the factors taken into account, and satisfying the conditions: the DFI having a 3 years track record of consistent profitability, after interest, tax and depreciation in 3 out of the 5 years, with profit during the last 2 years, preceding the issue; in reckoning the net profit, interest charged and credited to the profit and loss account on debts outstanding for more than 3 years shall be excluded; the price should be determined in consultation with the lead manager, it being authorized by a resolution of the general body/companys Board; if the price determined is at a premium, the offer document should contain the justification for it, including in particular, the mode of calculation of the parameters including the capitalization rate and the reasons for selecting a particular mode; in case of revaluation reserves entering the computation of the book value, the date of revaluation and whether it was done by an approved valuer and certified by the auditors should be disclosed; any revaluation done within 3 years prior to the close of the previous financial year shall be excluded; past performance with reference to the earnings per share and book value for the past 5 years, and the projected earning per share/book value for the next 3 years as per the DFIs own assessment should be disclosed; stock-market data covering average high and low price of the share for the last 2 years and monthly high and low for the last six months, whenever applicable, should be disclosed. Special requirements with regard to FCDs/PCDs - Disclosures - The offer document should contain specific disclosures: in respect of the present equity and the equity after conversion in the case of FCDs/PCDs and the actual Debt Equity Ratio (DER) vis-a-vis the one desirable of 12:1; Notional Debt Service Coverage Ratio (NDSCR) vis--vis the desirable minimum ratio to be maintained for each year, that is, the ratio of net profit after tax plus interest on loans plus non-cash profits like depreciation plus repayments received out of re-lending as the numerator, while the denominator being the sum of interest on borrowings, principal instalments on loans to be repaid and the apportioned principal instalments during the year on debentures, (that is, the

yearly apportionment being not less than 10% at the minimum in the case of debentures) or, in the case of PCDs/FCDs convertible beyond 18 months and optional at the hands of the debenture holders - at least 50% of the debenture value deemed as the probable amount of the debt to be redeemed; the facts about the servicing on existing debentures/term loans/bonds/fixed deposits towards payment of interest and re-payment of the principal on due dates; outstanding principal or interest on lease rentals etc., due from borrowing companies; the four-fold asset classification as specified by the RBI into those representing loan and other assistance portfolios divided into Standard Assets, Sub-standard Assets, Doubtful Assets and Loss Assets, and the provisions made accordingly, duly certified by the statutory auditors; the accounting policies and the aggregate of provisions made for bad and doubtful debts. Credit rating - In respect of issue of debentures including bonds, credit rating shall be compulsory, if conversion or redemption falls after 18 months. Premium amount on conversion, time of conversion in stages, if any, and in the case of PCDs/NCDs the redemption amount, period of maturity and the yield on redemption, should be given in the offer document. 20.3-24a Unsecured debentures - If the debentures/bonds are unsecured, the issuing DFIs which are companies registered under the Companies Act should ensure compliance with the provisions of the Companies (Acceptance of Deposits) Rules, 1975 as such securities are treated as deposits for purposes of those Rules. 20.3-24b Secured debentures - If the securities issued are secured, the name of the trustee/agent has to be stated in the offer document and the trust deed executed within six months of the close of the issue. 20.3-24c Conversion of debentures - Any conversion in part or whole of the debentures shall be optional at the hands of the holders, if the conversion is after 18 months from the date of allotment; and in the case of the conversion period going beyond 36 months, the issuer DFI may exercise call option provided it is specifically disclosed in the offer document. The interest rate is freely determinable by the DFI. The discount on the non-convertible portion of the PCDs, allowable where their buy-back has been provided for in the terms of issue, the procedure for their purchase on spot trading basis shall be disclosed in the offer document. 20.3-24d Non-convertible PCDs - Roll-over - Roll-over with or without change in the interest rate, in the case of non-convertible portion of the PCDs or Non-convertible Bonds, an option shall be given to those holders who desire to withdraw from the scheme by a letter as prescribed duly filed with SEBI, and the roll-over given effect to only in cases where the holders have sent in their positive consent but not on the basis of the non-receipt of their negative reply and after obtaining fresh credit rating within a period of six months prior to the date of redemption and communicated to the holders before the roll-over. 20.3-24e Debenture trust deed - Protection of the interest of the debenture/bond holders will be specified in the trust deed, where the issue is secured, as in the case of issue of debentures generally except that the nomination of a director on the Board of directors may not be insisted upon in cases where the composition of the Board is determined in the statute incorporating the DFI. However, the trustees have to obtain a certificate annually from the DFIs auditors in respect of the maintenance of DER and NDSCR and provisioning towards the redemption value discussed earlier, and in the event the DFI fails in it, no dividend shall be declared for the relevant year except with the approval of the trustees at any rate more than 10%.

20.3-24f New financial instruments - In the event of the DFI issuing any new financial instruments such as Deep Discount Bonds, Debentures with Warrants, Secured Premium Notes etc., it shall make adequate disclosures, particularly relating to the terms and conditions, redemption, security, conversion and any other relevant features of such instruments. Other requirements - If the merchant bankers holding shares in the DFI are proposed to be appointed as the lead merchant bankers for the issue, it should be done on the basis of least holding. The subscription list for public issues should be kept open for a minimum of at least 3 with a maximum of 21 working days and the same disclosed in the offer document; while the corresponding minimum and maximum periods for a rights issue are 15 and 60 days, respectively. The DFI should specify the minimum and maximum target amount proposed to be raised through the issue (this requirement not applicable to shelf prospectus), subject to a cap on the maximum amount at twice of the minimum target amount, this being a condition in lieu of the minimum subscription of 90% applicable to issues made by companies with freedom to retain any amount received even when it is less than the minimum target amount, (this is inconsistent with the requirement of Schedule II to the Companies Act). The provisions of the Companies Act, other applicable laws/listing requirements of the stock exchange etc., have to be complied with, in connection with the issue of securities, by the DFI. As regards utilization of moneys realized out of the public issue of debt instruments before allotment and/or listing, the DFIs are free to do so on complying with the provisions of the Companies Act wherever applicable, subject to the conditions that interest to the investors is paid from a date not later than the date of permission therefor is granted by SEBI and the DFIs undertaking to refund the entire moneys to the investors in the event of their inability to obtain listing permission from any of the stock exchanges where application for listing had been made. Requirement with regard to issue of bonus shares by DFIs - For issue of bonus shares, A DFI shall firstly make out a certificate on its behalf duly counter-signed by its statutory auditors or by a company secretary in practice on the fulfilment of the terms and conditions, and filed with SEBI: that (a) the issue will be made out of free reserves built out of genuine profits or share premium collected in cash, (b) it involves no capitalization of revaluation reserve of or sale of fixed assets, (c) drawing upon any special or capital reserve created as a result of sale of assets or without accrual of cash resources in the nature of general reserves not available for capitalization, can be considered as free reserves only for the purpose of calculation of residual reserves, (d) all contingent liabilities disclosed in the audited accounts having a bearing on net profits shall be taken into account in the calculation of residual reserves, (e) the residual reserve thus arrived at shall be at least 40% of the increased paid-up capital after the proposed bonus issue, (f) 30% of the average profits before tax of the DFI for the previous three years shall yield a rate of dividend on the expanded capital base at 10%, (g) there has been no failure by the DFI in the maintenance of DER and NDSCR during the previous three years, (h) the bonus issue is not in lieu of dividend, the partly-paid shares, if any, have been fully paid-up, there has been no default in payment of interest or re-payment of principal in respect of fixed deposits or in the payment of interest in respect of existing debentures or bonds or their redemption, and there is no default in the payment of the statutory dues on account of employees such as contribution to PF, gratuity, bonus etc., (i) the bonus issue falls within the period of six months from the date of approval of SEBI or of the general body, whichever is later, (j) the DFI undertakes to inform the shareholders about its ability of payment of the estimated rate of dividend during the year or the year following next after the bonus issue, (k) DFIs are prohibited to issue any shares by way of rights or bonus pending conversion of FCDs/PCDs unless similar benefit is extended to the

holders of the FCDs/PCDs through reservation proportionate to the convertible part of the FCDs/PCDs falling due for conversion within a period of 12 months from the date of rights/bonus issue; and, the shares so reserved may be issued at the time of the conversion on the same terms on which the rights or bonus issues were made. 20.3-24g Shelf prospectus : See para 20.2 above. Rights Issue 20.3-25 The Act has provided a pre-emptive right to maintain parity and ensure no dilution in the proportion of the equity holdings in particular in favour of the existing equity-holders of shares in the company under section 81(1). This procedure is not applicable to private companies unless the articles provide for it. It does not also apply to the automatic increase of capital consequent to the exercise of the option to seek conversion of debentures or loans into shares by the holders according to the terms of their issue and irrespective of such option if the debentures are issued to or loans obtained from the Central or State Governments at their choice in public interest and subject to there being a term for such conversion in the issue terms or those being subject to proclaimed rules in respect of such loans. 20.3-25a Rights issue procedure applies after time lapse - The rights issue procedure applies to further issues of shares made by companies after the expiry of two years from the date of formation of the company or if in the meantime the company made any allotment of shares for the first time, then, after one year from the date of such allotment, whichever date is earlier. The requirement of section 81 is that such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion to the capital paid-up on those shares at that date or as nearly thereto as the circumstances admit. The offer should be made by a notice specifying the number of shares offered giving fifteen days time to accept it, failing which it will be deemed as having been declined. 20.3-25b Right of renunciation - What is most striking about this offer is, unless the articles of the company otherwise provide, that the offer is deemed to include a right exercisable by the persons to whom it is made to renounce the shares offered in full or in part in favour of any other person, and the notice is required to contain a statement of this right prominently. For this purpose it is usual to provide a detachable strip coupon to the notice sheet with identical machine numbers printed on both for use of the members in case they wish to renounce the right in favour of any person named by them in the strip. Again, unless the articles permit, there is no right of such renunciation available for the members for a second time on the ground that the person in whose favour the renunciation was first made has declined to take the shares comprised in the renunciation. This renunciation first made usually yields a price to the renouncing member and the strip is detached and delivered blank to the buyer who either fills it up and uses for himself or if he sells it to any other person it is he who does that. 20.3-25c Other disposal - After the expiry of the time specified in the notice or the earlier receipt by the company of intimations declining to accept the shares offered, for which provision is made by another detachable strip annexed to the notice, the Board of directors may dispose of the shares in such manner as they think most beneficial to the company. 20.3-25d Rights held in abeyance [Section 206A] - When the instrument of transfer has been delivered to the company but the transfer is not registered, such delivery shall keep in abeyance in relation to the shares to which it relates any offer of rights shares made meanwhile, section

206A(b). Waiver - Alternatively, it is open to the company to issue the further shares to any persons whether or not those persons are the existing equity holders of shares in the company in any manner whatsoever if a special resolution to that effect is passed by the company in general meeting, or, where the resolution passed is an ordinary resolution, then, additionally if the Central Government is satisfied, on an application made by the Board of Directors in that behalf, that the proposal is most beneficial to the company, section 81(1A). 20.3-25e Rights issue, private or public issue? - Generally, a rights issue is a matter between the company and its existing equity-holders as of the date of issue and whether the issue is a private and domestic concern or not depends on its reach to outsiders in exercise of the right of renunciation of the offerees. There is no cross-referencing of section 67(3) and section 81(1), nor is there any non obstante clause in section 81(1) and accordingly provisions of both the Act operate and it is for the Court to harmonize them in the interpretation but no ruling seems to have been occasioned. However, the question arises with respect to public companies, listed or unlisted, insofar as the number of members is within or beyond fifty, the sole criterion of a private issue. DCA has clarified in Letter No. 8/81/PR, dated 4.11.1957 that a rights issue does not require the filing of a prospectus, but the correctness of this conclusion should be doubted in the light of SEBI Guidelines to the effect that only right issues without the right of renunciation annexed of any amount by unlisted closely held public companies may be made without the offer letter having to be vetted by the SEBI. Listed public companies can make rights issues only subject to SEBI vetting the offer letter and the composite application form. Further, public companies are not free to combine any preferential firm allotment of other shares to promoters or others or employee stock options with a rights issue as the procedures differ. 20.3-25f Offer to be made public followed by advertisement - Within 21 days from the date of filing the draft letter of offer with SEBI, it is the responsibility of the lead merchant banker to make it public, that is, to make copies available to the public on demand and against payment of any charge fixed, and within 15 days secure the in-principle approval of the stock exchanges for listing of the securities covered by the rights issue. Further, the lead merchant banker should arrange the dispatch (of the printed offer document and other issue material in all cases of offers to the various stock exchanges, brokers, underwriters, bankers to the issue, investors associations in advance) in the case of rights issue, of the letters of offer to all the shareholders at least one week before the opening of the issue, and on completion of the dispatch to ensure the release of an advertisement in at least one English and one Hindi National Daily and a regional language Daily in circulation at the place of situation of the issuer companys registered office, giving the date of completion of the dispatch of the letters of offer to the shareholders, at least 7 days before the date of opening of the issue. 20.3-25g Duplicate copies of composite application forms availability - The advertisement should notify the Centres other than the issuer companys registered office where the shareholders or the persons entitled to the rights may obtain duplicate copies of the composite application forms in case they do not receive the original application form, and if they fail to get either, they may apply on plain paper according to a format given in the advertisement covering the necessary particulars, and requiring it to be sent by Registered Post to the issuer companys designated official at the address given in the advertisement subject to the condition: shareholders making applications otherwise than on standard form shall not be entitled to renounce their rights and shall not utilize the standard form for any purpose including

renunciation even if it is received subsequently, and if any shareholder makes an application on plain paper and also in the standard form, he may face the risk of rejection of both the applications. 20.3-25-1 LETTER OF OFFER (RIGHTS ISSUE) [SEBI GUIDELINES CH. 6] - In the case of Rights Issue no prospectus is required to be issued under the Companies Act, and the SEBI Guidelines also exempt such issues below the size of Rs. 50 lakhs, including the premium, if any, but in other cases the letter of offer has to be made in accordance with the disclosure requirements specified in the Guidelines and the same filed with SEBI for its information and it should also be put on the SEBI website. For listed companies, all rights issues have to conform to the requirements of the listing agreement clauses in their issuing the letters of offer and duly notified at various stages to the stock exchanges concerned. If the Rights Issue size is more than Rs. 50 lakhs, the offer letter (called offer document in SEBI Guidelines, which is a common term covering the prospectus and the offer for sale also) in its draft form is required to be filed simultaneously with SEBI when it is filed with the stock exchanges. 20.3-25-2 LETTER OF OFFER (RIGHTS ISSUE), CONTENTS OF [SEBI GUIDELINES CH. 6] Section 81(1)(b) to (d) of Companies Act state that the Offer shall be made by notice of not less than fifteen days from the date of issue specifying the number of shares offered before expiry of which if not accepted by the shareholders entitled it will be deemed to have been declined, and unless the articles of the company provide otherwise, the offer shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person and the notice shall contain a statement of this right (in virtue of which the shares have come to be known as rights shares); and after expiry of the notice period or on receipt of earlier information from the persons concerned intimating that they decline to take the shares offered, the companys Board may dispose of the shares in such manner as they think most beneficial to the company. Section 64 equates an Offer for sale of shares (by an Issue House or otherwise made by or on behalf of the company) to a Prospectus, but not the rights offer. Disclosures - SEBI Guidelines provide that the requirements and disclosures of the Letter of Offer in case of a rights issue shall be those specified in Section I of Chapter VI as for the Prospectus including the layout with the only change that wherever Registrar of Companies occurs it shall be taken as the reference to the Stock Exchanges. The heads covered include: General Information, Capital Structure of the Company, Terms of the Present Issue, Particulars of the Issue, Company-Management-and-Project, Financial Performance of the Company for the last 5 years, stock market quotations giving the high/low prices in the previous 3 years and the monthly high/low prices in the previous six months, Risk Factors and Management Perception of the Risk Factors, particulars of listed companies under the same management, management discussion and analysis, material development after the date of the last balance sheet, Outstanding Litigations, Expert Opinions, Statutory and other Information, Option to subscribe in demat or physical form, Material Contracts and the time and place of their inspection and Undertaking by the Directors. The Letter of Offer mode (which under SEBI Guidelines is not linked to rights equity shares alone) requires the appointment of a lead merchant banker, obtaining credit rating in the case of debentures/preference shares, naming the debenture-trustees in the case of debentures and the minimum subscription condition etc. as required in respect of a Prospectus. As regards Minimum Subscription, the Clauses to the used have been modified as follows uniformly for (a) for non-underwritten Rights Issue and for (b) underwritten Rights Issue including the devolvement of underwriters-If the company does not

receive the minimum subscription of 90% of the issue the entire subscription shall be refunded to the applicants within forty-two days from the date of closure of the issue. At the end of the document, the directors should subscribe to an undertaking worded as: No statement in this Form shall contravene any of the provisions of the Companies Act, 1956, and the rules made thereunder. All the legal requirements connected with the said issue as also the guidelines, instructions etc. issued by SEBI, Government and any other competent authority in this behalf have been complied with. Letter of offer for sale of shares 20.3-26 The format is same as for the rights issue as covered by Ch. VI of SEBI Guidelines; and according to section 64 of the Act, it is a deemed prospectus, discussed at para 20.3-8. Issue of Debt Instruments : SEBI Guidelines [Chapter 10] 20.3-27 Debenture issues by companies belonging to groups are not permitted if the object of the issues is financing replenishing funds or acquiring shareholding in other companies of the same group, but issues of equity shares or fully convertible debentures providing conversion within 18 months for such a purpose are not barred. 20.3-27a Unsecured debentures - In cases where no charge is to be created to secure the debentures, such unsecured debentures/bonds are equated to deposits for purposes of the Companies (Acceptance of Deposits) Rules, 1975, and accordingly the issuer company has to ensure compliance with the said Rules additionally. In this connection, Guideline 10.6.5 carries that if the issuer company proposes to create a charge to secure debentures of maturity of less than 18 months, the company shall file with the Registrar of Companies the particulars of the charge created on the companys assets as required under the Companies Act, obviously under section 125. This is rather misleading. Section 125(1) and (4)(a) clearly purport to require that the particulars of all charges created by the company on its assets and not just that the one particularized by the Guideline should be registered with the Registrar of Companies to avoid the charges being void against the liquidator and any creditor of the company. 20.3-27b Compliance - A company offering convertible/non-convertible debt instruments through a public offer or on rights basis has to comply with these requirements and obtain credit rating in respect of their maturity or conversion period and disclose it, whether accepted or not, in addition to the credit ratings obtained during the three years preceding the issue for any listed security of the issuer company, in the offer documentone for less than and two if it is equal to or greater than Rs. 100 crores in size. 20.3-27c Debenture trustee - In case of debentures with maturity of more than 18 months, the issuer company has to appoint debenture trustees and under the debenture trust-deed the trustees to the debenture issue shall be vested with the required powers for protecting the interest of debenture holders including a right to appoint a nominee director on the companys Board in consultation with the institutional debenture holders. 20.3-27d No encumbrance certificate from bank - A certificate from the companys bankers that the assets on which the security is to be created are unencumbered, and in the case of a pari passu or a second or subsequent charge the no-objection certificate from the prior charge-holder, should be obtained and filed along with the draft offer document with SEBI and the details, that is, whether the debentures are secured or not and if secured the security/asset

cover to be maintained, the basis of computation (in case of second or subsequent charge, the security/asset cover being arrived at after reduction of the liabilities of the first/prior charge) of the security/asset cover, the valuation methods and the periodicity of the valuation, and the names and particulars of the debenture trustees appointed, disclosed in the offer document. 20.3-27e Monitoring by debenture trustee - The debenture trustees have to ensure compliance by the lead financial/investment institution in monitoring the progress in respect of the debentures raised for project finance/modernization/expansion/diversification/normal capital expenditure; and if the debentures issued are for working capital that the lead bank for the company monitors it. Further, the trustees have to secure a certificate from the companys auditors regarding the utilization of the funds raised by the company through the debentures during the period of the project implementation or at the end of each accounting year in the case of working capital use; and, it is their duty to supervise the creation of the security for the debentures within six months from the date of issue of the debentures, failing which, in a maximum period of 12 months, it attracts 2% penal interest payment to the debenture holders, while the issue proceeds are required to be kept deposited in an escrow account until the documents for creation of the security are executed. If 18 months or more elapse without creation of the security, within 21 days of such expiration a meeting of the debenture holders has to be called to explain the reasons for the failure. 20.3-27f Creation of DRR - The debenture trustees are also responsible to oversee the creation of the Debenture Redemption Reserve (DRR) by the issuer company, if the maturity of the debentures is more than 18 months, as follows: (a) If debentures are issued for project finance, the DRR can be created upto the date of commercial production; (b) The DRR in respect of debentures issued for project finance may be created either in equal instalments or higher amounts if profits so permit; (c) In the case of partly convertible debentures, the DRR shall be created in respect of the non-convertible portion of the debenture issue at par with fully non-convertible debenture issue; (d) In respect of convertible issues by new companies, the creation of DRR shall commence from the year the company earns profits for the remaining life of debentures; (e) The DRR shall be treated as a part of General Reserve for consideration of bonus issue proposals and the price fixation related to post-tax return; (f) The company shall create a DRR equivalent to 50% of the amount of debenture issue before debenture redemption commences; (g) Drawal from the DRR is permissible only after 10% of the debenture liability has actually been redeemed by the company. 20.3-27g Exemption - The requirement of creation of DRR shall not be applicable in case of issue of debt instruments by infrastructure companies. 20.3-27h Curb on dividend - New companies require prior approval of the debenture trustees to the issue and the lead institution, if any, for distribution of dividend; and existing companies require the prior permission of the lead institution for declaring dividend in excess of 20%, or as per the loan covenants, if they fail to comply the conditions regarding interest and debt service coverage ratio. In all cases, distribution of dividend should be out of the profits of the year left after setting apart the amount required towards DRR, and in the event of inadequacy to

distribute reasonable dividends, out of the general reserve. 20.3-27i Redemption - The issuer company shall redeem the debentures as per the terms of the offer document. Filing of letter of option with SEBI in certain cases - In the following cases of debenture issues each of over Rs. 50 lakhs size, there is a requirement for filing a letter of option with SEBI, through an eligible Merchant Banker, containing disclosures with regard to credit rating, debenture-holders resolution, option for conversion, justification for conversion price etc., as prescribed by SEBI from time to time : (1) In case of Roll Over of Non-Convertible Debentures (NCDs), the Roll Over is permissible without change in the interest rate subject to the conditions : (a) An option shall be compulsorily given to debenture holders to redeem the debentures as per the terms of the offer document; (b) Roll Over shall be done only in cases where the debenture-holders have sent their positive consent and not on the basis of the non-receipt of their negative reply; (c) Before Roll Over of any NCDs or non-convertible portion of the Partly Convertible Debentures (PCDs), a fresh credit rating shall be obtained within a period of six months prior to the due date of redemption and communicated to the debenture-holders before the Roll Over; (d) A fresh trust deed shall be executed at the time of such Roll Over; (e) A fresh security shall be created in respect of such debentures to be Rolled Over, unless the existing trust deed or the security documents provide a term for the continuance of the security till redemption of debentures; (2) In case of conversion of the debt instruments [PCDs/Fully Convertible Debentures (FCDs)] into equity capital: (i) In case the convertible portion exceeds Rs. 50 lakhs in value and the conversion price was not fixed at the time of issue, the holders of such instruments shall be given a compulsory option of not converting into equity capital; (ii) Conversion is subject to receipt of the positive consent of the instrument-holders for it, unless the cap price with justification had been fixed beforehand by the issuer and disclosed to the investors before the issue and the conversion is within the cap price; (iii) In cases where an option is to be given to such instrument-holders, and if any of the instruments-holders does not exercise the option to convert into equity at a price determined in the general meeting of the shareholders, the company shall be bound to redeem that part of the debentures at a price which shall be not less than its face value within one month from the last date by which the option was to be exercised, unless such redemption is to be made in accordance with the terms of the issue originally stated; (3) In case of conversion of debentures issued under Consent of Controller of Capital Issues (CCI) : (A) In cases where the convertible portion of the debt instruments issued by a listed company excceds Rs. 50 lakhs in value : (i) Where by the terms of the consent of the CCI the price of the conversion is to be determined at a later date by the CCI, such price and the timing of the conversion shall be determined at a general meeting of the shareholders, subject to (a) the consent of the instruments-holders for the conversion terms being obtained individually, and the conversion will be given effect to only then and not on the basis of non-receipt of their negative reply; and (b) such of the holders of the debentures who do not give such consent for the conversion shall be given an option to get the convertible portion redeemed or re-purchased by the company at a

price which shall not be less than the face value of the debentures; (c) where the consent of the CCI stipulates a cap price for conversion, the Board of directors of the company determining the price for the conversion, unless the cap price for conversion stipulated by the CCI had been disclosed to the investors before subscription was made; (ii) In the case of issue of debentures fully or partly convertible made in the past, where the conversion was stipulated to be made at a price to be determined by the CCI at a later date, the price and the time of conversion shall be determined by the issuer company in a meeting of the debenture-holders, subject to: (a) the decision at the said meeting is ratified by the shareholders at a meeting of theirs; (b) such a conversion being optional for acceptance on the part of the individual debenture holders; and (c) the dissenting debenture holders having the right to continue as debenture holders if the terms of conversion are not acceptable to them; (iii) Where the issue of the PCDs/FCDs was made pursuant to the consent of the CCI and the consent had specified the timing of the conversion subject to the price of conversion being determinable at a later date, the following shall be complied with: (a) the consent of the shareholders should be obtained only for the purposes of fixing the price of conversion and not for pre-poning/postponing the timing of the conversion as had been approved by the CCI; (b) the conversion price shall be reasonablecompared to the previous price, if the terms of issue provide for more than one conversionnot exceeding the face value of that part of the convertible debenture sought to be converted; (c) in cases where an option is to be given to the debenture holders and, if any of them does not exercise the option of conversion into equity at a price determined in the general meeting of the shareholders, the company shall be bound to redeem that part of the debenture at a price which shall not be less than its face value within one month from the last date by which the option was to be exercised, unless the redemption is to be made in accordance with the original terms of the offer; (B) In cases of debentures fully or partly convertibleregardless of their valueissued in the past where the conversion price was to be determined by the CCI and the consent order did not contain a specific premium or a cap price for the conversion, the draft letter of option to the debenture holders filed with SEBI shall contain justification for the conversion price mentioned therein. Unsecured debt instruments to Qualified Institutional Buyers - Companies are free to issue unsecured/subordinated debt instruments/obligations not amounting to public deposits under section 58A of the Companies Act/other notifications, guidelines, circulars etc. issued by the RBI/DCA or other authorities, subject to the condition that such issues are subscribed by Qualified Institutional Buyers or other investors who gave positive consent for subscribing thereto. Other requirements - No company shall issue FCDs convertible over more than 36 months unless the conversion is made optional with put and call option, and the conversion after 18 months but before 36 months from the date of allotment shall also be optional at the hands of the debenture holder. The premium, the time of conversion and the rate of interest are required to be determined by the issuer company and disclosed in the offer document. The additional disclosure requirements include: the premium amount on conversion, the time of conversion; in case of PCDs/NCDs their redemption amount, period of maturity and the yield on redemption; full information about the terms of offer/purchase including the name(s) of the party offering to purchase the khokhas, that is, the non-convertible portion of the PCDs and the discount at which such offer is made;

the existing and the future equity and long-term debt ratio; the companys record of servicing the payment of interest on the due dates in respect of existing debentures and term-loans; and the disclosure confirming the receipt of no-objection certificate from the prior charge holder in case of a pari passu or second or subsequent charge creation proposed to secure the issue. Issue of Indian Depository Receipts (IDRs) : SEBI Guidelines [Chapter 6A]

20.3-28 This is discussed in Ch. 6 of this book, see para 6.15. Preferential Issues - In case of listed companies : SEBI Guidelines [Chapter 13] 20.3-29 Listed companies, whose equity share capital has been listed on any stock exchange, intending to make any preferential issue of equity shares/FCDs/PCDs or any other financial instruments which would be converted into or exchanged with equity shares at a later date to any select group of persons under section 81(1A) of the Companies Act on private placement basis, have to follow these guidelines. 20.3-29a Issue price - Firstly, regarding pricing of the issue, it has to be at a price not less than the higher of the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange(s), (that is at the one at which the highest trading volume has been recorded in the preceding six months), during the six months or two weeks preceding the date thirty days prior to the date on which the meeting of the general body of shareholders is held to consider the proposed issue in terms of section 81(1A) of the Companies Act. In the case of issue of warrants on a preferential basis with an option to the holder of the warrants to apply for and be allotted shares, the basis for determination of the price by the issuer company is the same with the relevant date being optional to the issuer company between the date mentioned before or a date 30 days prior to the date on which the holder of the warrants becomes entitled to apply for the said shares, provided that the relevant date is specified in the general body resolution, and at least an amount equivalent to 10% of the price determined is paid for the warrants on the date of their allotment subject to its adjustment against the price payable subsequently or its forfeiture if the option is not exercised by the holder of the warrants. The pricing of the shares on conversion of PCDs/FCDs/other convertible instruments issued on preferential basis and convertible at a future date, is determinable as for the warrants. 20.3-29b Disclosures in meeting notice - The explanatory statement annexed to the notice of the general meeting under section 173 of the Companies Act shall contain the object of the issue through the preferential offer, the intention of promoters/key management persons to subscribe to the offer, the shareholding pattern before and after the offer, proposed time within which the allotment shall be complete and the identity of the proposed allottees as well as the percentage of post preferential issue capital that may be held by them. 20.3-29c Auditors Certificate to be laid before the meeting - A certificate obtained from the statutory auditors to the effect that the proposed issue is in accordance with the SEBI Guidelines shall be laid before the meeting of the shareholders. 20.3-29d Period of currency - Secondly, the period of currency of the con-vertible instruments shall not exceed 18 months from the date of issue.

20.3-29e Lock-in - Thirdly, the instruments allotted on a preferential basis to the promoters/promoters group shall be subject to a lock-in of three years from the date of their allotment, such that in any case the proportion of further issue of capital, including the capital brought in by way of preferential issue, being limited to not more than 20% of the total capital (including the equity shares emerging at a later date on conversion of the convertible securities/exercise of warrants covered by the proposed issue or those issued earlier on a preferential basis, but excluding the minimum promoters contribution that became free from the earlier lock-in at the time of the proposed preferential issue). The instruments allotted on preferential basis to any person including promoters/promoters group have to be subject to lock-in for a period of one year from the date of their allotment, excluding that portion of such allotment which involves swap of equity shares/securities convertible into equity shares at a later date for acquisition, the lock-in on shares acquired by conversion of the convertible instrument/exercise of warrants being less to the extent of lock-in to which the convertible instrument-warrants had already been locked-in. The shares/instruments thus locked-in are transferable without prejudice to the lock-in amongst the promoters/promoters group subject to the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, if applicable. 20.3-29f Validity of general meeting resolution - Fourthly, the shareholders resolution passed under section 81(1A) is valid only for a period of three months from the date of passing, and it should provide for the emerging shares out of the convertible instruments being liable to be fully paid-up on the date of their allotment, while the payment in respect of issue of warrants being up-front at the date of their allotment in an amount equal to 10% of the value of the resultant shares; and, if the allotment of the instruments and dispatch of the certificates is not completed within three months from the date of passing of the resolution, a fresh shareholders resolution is required and the relavant date then is the date of passing of the fresh resolution. 20.3-29g Disclosure in the balance sheet - Fifthly, the details of all monies utilized out of the proceeds of the issue and the purpose of utilisation as well as the balance remaining unutilized and the form in which it is invested shall be disclosed in the balance sheet of the issuer company under appropriate heads. Preferential allotments to FIIs - Preferential allotments to FIIs are also subject to these and other guidelines, if any, issued by SEBI and the guidelines issued by RBI and the Government of India. The Guidelines do not apply to the allotment of further shares made pursuant to a merger or amalgamation scheme approved by the High Court in furtherance of the rehabilitation package approved by BIFR, including the requirement of lock-in of the shares allotted to promoters unless otherwise stated in the BIFR Order. The Guidelines are not applicable to the further shares allotted to All India Public Financial Institutions, if made under the clauses of loan agreements signed prior to 4th August, 1994. In case of unlisted public companies - According to Unlisted Public Companies (Preferential Allotment) Rules, 2003, the following requirements should be complied with for issue/allotment of shares on preferential basis through private placement under section 81(1A) and issue of shares to promoters and their relatives either in public issue or otherwise by unlisted public companies : Special Resolution - No issue of shares on a preferential basis can be made by a company unless authorized by its articles of association and unless a special resolution is passed by the members in a General Meeting authorizing the Board of Directors to issue the same. The special

resolution shall be acted upon within a period of 12 months. Pricing - Where warrants are issued on a preferential basis with an option to apply for and get the shares allotted, the issuing company shall determine beforehand the price of the resultant shares. Disclosures - The explanatory statement to the notice for the general meeting as required by section 173 of the Companies Act, 1956 shall contain the following particulars : (a) the price or price band at which the allotment is proposed; (b) the relevant date on the basis of which price has been arrived at; (c) the object/s of the issue through preferential offer; (d) the class or classes of persons to whom the allotment is proposed to be made; (e) intention of promoters/directors/key management persons to subscribe to the offer; (f) shareholding pattern of promoters and others classes of shares before and after the offer; (g) proposed time within which the allotment shall be completed; (h) whether a change in control is intended or expected. Audit Certificate - In case of every issue of shares/warrants/fully convertible debentures/partly convertible debentures or other financial instruments with conversion option, the statutory auditors of the issuing company/company secretary in practice shall certify that the issue of the said instruments is being made in accordance with these Rules. Such certificate shall be laid before the meeting of the shareholders convened to consider the proposed issue. Private Placement - Qualified Institutions Placement (QIP): SEBI Guidelines [Chapter 13A] 20.3-29-1 A company that has listed its equity shares on a SE having nationwide trading terminals is eligible to make a QIP to a value of 5 times its net worth as per the audited balance sheet of the previous financial year. The QIP should be for equity shares of the same class as had been listed or FCDs/PCDs/ any convertibles other than warrants into the same class of equity shares. The QIP should be only to QIBs and MFs are eligible upto 10 per cent - the total number being two for an issue size of Rs. 250 crore and five for more with no single allottee getting more than 50 per cent of the issue volume. The conversion period is five years at the maximum. Both the issue and conversion price shall be higher of the weekly average of high/low of the prices quoted on the SE in 6 months or two weeks proceeding the relevant date, that is the date 30 days prior to the date of the general meeting approving the issue or the date of entitlement of the holder for conversion as fixed by the general body resolution, respectively. At allotment, the shares should be fully paid-up, subject to appropriate adjustment for any bonus issue made etc. If the general body resolution approves more than one such placement, the interval between two placements should be at least 6 months. The placement document should be as per Sch. XXIA to the SEBI Guidelines. OTCEI Issues : SEBI Guidelines [Chapter 14] 20.3-30 Any public company not fulfilling the eligibility norms contained in Clause 2.2 of Ch.2 of the Guidelines is free to make an IPO of equity shares or any other security convertible at a later date into equity shares if it results from out of a Bought Out Deal registered with OTCEI and proposes to list them on the OTCEI (Over the Counter Exchange of India), subject to its fulfilling the listing criteria laid down by OTCEI and refraining from delisting for a period of three years

from the date of listing, namely: (i) the IPO is sponsored by a member of the OTCEI, and (ii) the company has appointed at least two market makers, one compulsory and one additional market maker. Such an issue is exempted from the pricing norms under the Guidelines, subject to the conditions that: (a) the promoters after such issue shall retain at least 20% of the total issued capital with the lock-in of three years from the date of allotment of securities in the proposed issue, and (b) at least two market makers are appointed as stated before. The projections based on the appraisal done by the sponsor who undertakes to do market making activity in the securities offered in the proposed issue can be included in the offer document, as an exception to the ban contained in Clause 6.12 of the Guidelines. Bonus Issues : SEBI Guidelines [Chapter 15] 20.3-31 A bonus issue by a listed company, pending conversion of FCDs/PCDs, is prohibited, unless similar benefit is extended to the holders of FCDs/PCDs and reserved in proportion to the convertible part of PCDs, and the shares issued at the time of conversion(s) on the same terms on which the bonus issues were made. In all cases, bonus issue has to be made out of free reserves built out of genuine profits or share premium account collected in cash, excluding revaluation of fixed assets and reserves created out of it, and not being in lieu of dividend and no partly-paid shares being in existence. Further, the company should not have defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or their redemption, or on account of the statutory dues to the employees. The proposal for the bonus issue, once approved by the Board of Directors in pursuance of a provision in the Articles for capitalization of reserves and within the limit of the authorized share capital, it must be implemented within six months and the decision is irreversible. Compliance with SEBI Guidelines is limited to a certificate signed by the issuer company and counter-signed by the statutory auditor that the bonus issue is sourced as stated above, being sent to SEBI. Operational Guidelines : SEBI Guidelines [Chapter 16] 20.3-32 The operational Guidelines require the Lead Merchant Banker to follow a step by step procedure in the set time-frame in the submission of the draft and final offer document to SEBI at its Head Office/Regional Offices in operation as per Schedule XXII to the Guidelines and it being made public to facilitate smooth progress in the timely completion of the issue formalities, duly complying with the requirements of the Guidelines in respect of underwriting, post-issue obligations, redressal of investor grievances, submission of post-issue monitoring reports as also regarding the registration and renewal of registration of merchant bankers and reports on their merchant banking activities including their registration with the Association of Merchant Bankers of India (AMBI). One other important aspect covered in this Chapter is about the issue of the No Objection Certificate (NOC) by SEBI to the issuer company to have the release of the security deposit of 1% of the amount of securities offered to the public and/or to the holders of the existing securities required to be made with the Regional Stock Exchange as per the Listing Agreement, against the application submitted by the issuer company in the format provided in Schedule XXIV to the Guidelines. The NOC is not a must in cases where issues fail and the investors moneys have been fully refunded to the satisfaction of the Regional Stock Exchange on its proper verification. Otherwise, it is required, and the application can be submitted only after lapse of 4 months from the date of the listing permission given by the Regional Stock Exchange or the last date when the listing permission was obtained from any of the other stock exchanges where the securities were to be listed according to the offer document, whichever is later, subject to the following conditions : SEBI is satisfied about the redressal of investor complaints received by SEBI, and a certificate is issued to the issuer company by the Regional Stock Exchange confirming that the underwriting/brokerage commission and the fees to the

Registrars/Lead Merchant Bankers were duly paid, as it is the responsibility of the Regional Stock Exchange to settle the complaints in that behalf. SEBIs power to issue directions : SEBI Guidelines [Chapter 17] 20.3-33 The Chapter gives the powers of SEBI to pass Directions in terms of section 11B of the SEBI Act: (a) directing the person concerned to refund any money collected under an issue to the investors with or without requisite interest; (b) directing the persons concerned not to access the capital market for a particular period; (c) directing the stock exchange concerned not to list or permit trading in the securities; (d) directing the stock exchange concerned to forfeit the security deposit deposited by the issuer company; (e) issuing any other direction which SEBI may deem fit and proper in the circumstances of the case, in all cases with an opportunity of being heard given either before or after the issue of the direction. SEBI may initiate action including suspension or cancellation of the certificate of registration of any intermediary who fails to exercise due diligence or who fails to comply with the obligations entrusted under the Guidelines or who is alleged to have violated any of the Guidelines, after giving an opportunity of being heard. Retail Individual Investor and Reservation 20.3-34 According to SEBI Circular of 14.8.2003, a retail individual investor is one who applies or bids for securities of or for a value of not more than Rs. 50,000, in lots of multiples of a minimum amount payable in the range of Rs. 5,000 to Rs. 7,000 per lot, it being not less than 25% of the issue price with the balance amount being payable against calls made within 12 months. Upto a maximum of 75% of an issue can be reserved for: (a) employees-permanent employees of the company working in India, directors of the company, whether whole-time or part-time, and the permanent employees or directors of the subsidiaries or of a holding company of the issuer company-up to a maximum of 10%; (b) shareholders of promoting companies in case of a new company and the shareholders of group companies in the case of an existing company - up to a maximum of 10%; (c) Lead Merchant Bankers up to a maximum of 5%; (d) Indian Mutual Funds, FIIs, NRIs, OCBs, Indian and Multinational financial institutions, Indian scheduled banks, and (e) Retail Individual Investors having holding of value less than Rs. 50,000 on the basis of the closing price of the previous day. Employees Stock Option Scheme/Purchase Scheme (ESOPs/ESPS) : SEBI Guidelines, 1999 20.3-35 Section 2(15A) of the Companies Act states that employee stock option means the option given to the whole-time directors, officers or employees of a company, giving them the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determined price. In ESPS, shares are offered on the spot purchase basis at a discounted price to the employees. The objective is securing employee loyalty and participation. Grant of options to permanent employees/officers/directors ESOS, also referred to as ESOP and ESPS are schemes under which a company grants option to permanent employees officers or directors of the company or its subsidiary in or out of India, if they are not promoters and in the case of directors if they do not hold more than 10% of the outstanding equity shares of the company, to take shares, with the involvement of a Merchant Banker engaged for implementation. It can be formed as a Trust and administered separately subject to consolidation with the companys accounts according to AS-21. The grant is subject to a special resolution passed in general meeting for which the details of the option specifying the

price and vesting period, the employees who will be the beneficiaries and the percentage of reservation in the explanatory statement appended to the notice of the meeting. It confers only a right on the grantee employee with no obligation to take it compulsorily, with no restriction on the number of shares per single employee except that any single employee receiving the offer for more than 1% of the shares would need specific disclosure and approval at the annual general meeting. 20.3-35a Vesting option - Vesting of option means the process by which the employee is given the right to apply for shares and vesting period means the period in which the vesting takes place. The option requires its exercise by the employees, that is, applying for the shares in exercise of the right granted within the period of its validity. A gap of one year is required between the grant of the option and its vesting, except in the case of the shares of the amalgamated company which may be reduced to the extent of the lapse of the option in force at the time of amalgamation given by the transferor company; and after the period of one year, the period of vesting during which the option can be exercised will be determined by the company. In the meanwhile if there is a fall in the market price of the shares, a re-pricing of the shares is permissible, if necessary, without it being detrimental to the employees interests subject to approval in general meeting. The option may be cashless, that is the shares being funded either by the company or by any empanelled stock-broker, adjustable against the sale proceeds of all the shares. 20.3-35b Option lapsable and not transferable - If the employee does not exercise the option or the employment is terminated before exercise of the option, the option lapses. Option is not transferable nor can it be hypothecated or pledged, but if the employee dies they vest in his nominee or legal representative. No voting or dividend rights accrue to the employees till shares are issued against the exercise of options. At the time of grant of option, the employees may have to pay certain amount, which is liable to be forfeited for failure to exercise the option within the exercise period or refundable if the option is not vested in him for want of fulfilment of the required conditions. All vested options remain valid even if the employee resigns or otherwise his employment is terminated. Accounting value of options - The accounting value of the options granted during an accounting period for ESOS is at par with another form of employee compensation in the balance sheet, at the intrinsic or fair value (determined in terms of Sch. III to the Guidelines) of the option: intrinsic value is the excess of the market price over the exercise price per share including the upfront payment, if any, stipulated, and market price is the latest closing price available prior to the Board meeting in which the options are granted or shares are issued. At the time of the grant of the option, deferred employee compensation expense account will be debited and the employee stock option outstanding account will be credited by the amount equal to the accounting value of the option, and the amount amortised over the vesting period on straight line basis that is, in equal instalments over the vesting period, subject to reversal of the amounts of the option that lapsed by a debit to employees stock option outstanding account to the extent of the amortised portion of the accounting value of the lapsed portion and a corresponding credit to the deferred employee compensation expense account. On the exercise of the options by the employees, cash account will be debited to the extent of cash received and the paid-up equity capital account increased to the extent of the face value of the shares and the share premium account will be credited by the amount of the share premium calculated on the basis of the market price on the date of the grant of the option. In the case of ESPS, the accounting value of the shares issued will be treated as another form of employee

compensation in the balance sheet. ESPS can be priced at a price equal to the aggregate of price discount of all shares issued under ESPS in the accounting period, the price discount being the excess of market price over the issue price per share (Schs. I & II to the Guidelines). Lock-in period - The shares issued under the ESPS will have a lock-in period of a minimum of one year, that is, not available for sale within a year from the date of allotment, unless those shares form part of a public issue given at the same price. In the case of amalgamation, against the shares allotted by the amalgamating company, the lock-in period will be adjustable for the portion of the period that elapsed before the amalgamation against the shares given by the transferor company. As an alternative, companies are free to make a preferential allotment of shares to its employees in a public issue at the normal price instead of the two Schemes to which no lock-in applies. In the case of Public Sector employees, at the point of the Government divesting its holding each employee can be offered 200 shares or up to 5% of the paid-up capital of the company, whichever is less, at 15% discounted price, with a lock-in period of three years, through a trust created for the purpose, and the price discount being the difference between the market price and the price at which the shares issued to the employees will be accounting value. In the IT Sector, ADR/GDR-linked stock option schemes can be extended to the non-resident and resident employees including India-based or the overseas working directors, DEA Notification No. 764 (E) of 10.11.1999 and RBI Circular dated 2.12.1998 allowing remittance from India up to US $ 10,000 per employee in a block of five years. A disclosure in the Boards report giving the details of the option, pricing, employee-wise details, employee compensation cost, exercise price and fair value of the option, and at each annual general meeting a certificate obtained from the auditor to the effect that the option has been implemented in accordance with the SEBI Guidelines will have to be made. The shares will be listed if issued according to the SEBI Guidelines and the Schemes are administered through a compensation committee or a trust-constituted by the company. Prospectus and Companies Act : General 20.3-36 The golden rule of making a prospectus, as laid down in New Burnswick Etc. Co. v. Muggeridge (1860) 30 LJ Ch 242 and described as such in Henderson v. Lacon (1867) LR Eq 249, 262 and cited with approval by the Supreme Court in N. Parthasarathy v. CCI (1991) 2 Comp LJ 1, states: Those who issue a pros-pectus, holding out to the public the great advantage which will accrue to a person who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the nature, or extent, or quality, of the privileges and advantages which the prospectus holds out as inducements to take shares. 20.3-36a Delivery of Prospectus to ROC - In terms of section 60, no prospectus shall be issued by or on behalf of a company or in relation to an intended company unless, on or before the date of its publication, there has been delivered to the Registrar for registration a copy of it signed by every person who is named in it as a director or proposed director or by his attorney agent. Either of the original or the alternate director (appointed pursuant to section 313) signing the prospectus will suffice, according to DCA letter No. 5 (59)-CLV/65 dated 1.12.1965. 20.3-36b Prospectus in Hindi - It would appear that if the company proposes to issue the prospectus in English and Hindi or any other Indian language, each one of the language versions have to be filed in addition to the one in English with the Registrar-which the issuer

companies do not generally do and only stick to publishing the English version even in the regional language press to satisfy the requirement of the law for the simple reason that it is no easy matter to create a language version. This one single impediment guarantees the untranslatability or inattemptability of an indigenous version of the prospectus, in spite of Hindi being the Official Language as enshrined in the Constitution and regional languages enjoying similar status in the respective State boundaries. In fact, this forms a great barrier in our country in respect of all financial market security paper and the insurance sector and not limited to just company-security offer documents, contributing to distancing the familiarity of the equity cult, while it seems to be the mantra for the largest common prosperity of our countrymen in the present day economy. 20.3-36c Experts - The prospectus should carry an endorsement of or be attached to it with the consent to the issue given by any person acting as an expert (who should be independent and not a person engaged or interested in the formation or promotion or management of the company [section 57]), with a statement additionally to say that such consent has not been withdrawn, section 58. 20.3-36d Copies of contracts and report to be annexed - In the case of a prospectus intended to be issued generally, it should carry a copy of every contract mentioned in Clause 15 of Schedule II or if such contract was not in writing a memorandum giving full particulars of the contract(s) (that is, material contracts) and the reports of the auditors together with the statement of adjustments made, giving the reasons, as have been referred to in Clauses 20 and 21 of the Schedule. 20.3-36e Statement about delivery to ROC - Every prospectus should carry a statement that a copy of it has been delivered for registration to the Registrar specifying the documents endorsed in or attached to it or the reference to the statements included in it about those documents. 20.3-36f Registrars duty - A duty is cast upon the Registrar to ensure compliance with the requirements of sections 55 to 58 and 60 of the Act before registration of the prospectus filed before him, and to see whether it is accompanied by the consent in writing of the persons named in it as the auditor, legal adviser, attorney, solicitor, banker or broker to the issue. 20.3-36g Dating of prospectus - A prospectus is required to be dated, and that date is the date of its publication that counts for the various time limits mentioned in the Act, unless the contrary is proved, section 55. The matters to be stated and the reports to be set out as dealt with by section 56 and Schedule II and the other Sections applicable to the prospectus under the Act, including the disclosures to be made under SEBI Guidelines, have been discussed earlier in this Chapter. Any issue of a prospectus without a copy delivered for registration to the Registrar is illegal, section 60(1). 20.3-36h Prospectus to be issued within 90 days of filing with ROC - The time available to issue a prospectus is ninety days from the date of its delivery to the Registrar for registration, and its issue beyond that period renders it illegal, section 60(4), and if for any reason more time is required, it may mean that the prospectus itself to be filed afresh with the Registrarand this may call for a re-appraisal of the document itself in many respects to satisfy the law. 20.3-36i ROCs power to refuse registration - It would appear that the Registrars power to refuse registration of a prospectus cannot go beyond the limits set in section 60(3) on any

ground that the company is directly or indirectly contravening the policy of the Act or that its business is sought to be carried on in a manner contrary to law, though he is free to point out the defects to the company according to the Report of the Company Law Amendment Committee, 1960, but SEBI can now by its direction stop the issue under such circumstances. 20.3-36j Posterior dating of prospectus - Same Report also mentions that there is nothing objectionable in a prospectus if it bears a date posterior to the date of presentation for registration to the Registrar, to give the required time for printing and distribution of the prospectus (abridged one) as it is in practice difficult for the issuer company to synchronise by the date of its presentation for registration, having regard to the wording of section 72(1)(a) of the Act. 20.3-36k Copy of prospectus to be sent to RBI - DCA has instructed the Registrars in its Circular No. 17/75 of 31st July, 1975 to advise companies filing prospectus to send its copy (as well as any circular sent to shareholders for rights issue) to RBI in order to assist in its periodical survey of public response to capital issues. 20.3-36-l Experts consents - The provisions relating to consents of experts and others named in the prospectus like the auditor or legal advisor is intended to serve as a caveat to those professionals concerned, because those persons are likely to be well-known and respected and to their names the public attaches importance, and therefore they should not allow their names being associated with unfamiliar enterprises. 20.3-36m 90 days time limit - The 90 days limit for the issue of the prospectus from the date of its presentation for registration was newly introduced in our 1956 Act in a deviation from the English Act in order to curb long delays during which drastic changes may occur in the conditions assumed in the prospectus. Material contract, meaning of 20.3-37 The term material contract is not defined in the Act, and in general, it should be pertinent to consider that every contract, whether executed or executory, the knowledge of the particulars of which has a bearing reasonably in influencing the subscribers choice on the investment ought to be material, obviously depending upon the facts of each case. One indicator about the immateriality of a contract by value is it being of a value of 5% or less of the sum of the account head it relates to but not the issue size, on the footing of the audit standard of materiality, unless it happens to be one that is required to be compulsorily disclosed in or annexed as a report to a prospectus under the requirements of the Act/SEBI Guidelines or otherwise under any law; but, omissions made on the basis of small value alone may turn out to be risky. Again, it is a question depending on the facts in each case whether a contract pre-or-post-incorporation is or is not made in the ordinary course of business carried on or intended to be carried on by the issuer company. According to section 61, the terms of a contract referred to in a prospectus or a statement in lieu of prospectus shall not be varied except on the authority given by the company in general meeting. Position of changes suggested by ROC after SEBI vetting 20.3-38 Section 60 of the Act is silent on the question of insertion of the addi-tions and carrying out of the changes made or suggested by the Registrar in the text of the prospectus on its scrutiny, and if those are ignored it will be against the provisions of the Section. It is true that the prospectus in its entirety is in no case published as a newspaper advertisement, often made to

coincide with the date of its presentation for registration to the Registrar, and only certain salient portions or excerpts selected out of it as prescribed are advertised in the newspapers; but, in case the Registrar detects any false statement or suppression of fact resulting in corrections to the text, it will no doubt be carried out in the copy presented to him. The question, however, remains on how it should be dealt with in respect of the press announcement already released or to ensure that such corrections or changes are duly reflected in any press advertisement that is to follow the filing of the prospectus with the Registrar. It appears, there is no fool-proof method laid down in the Act, whether in section 60 or otherwise, and it is left to the greater vigilance or good offices of the Registrar to persuade the company managements to publish a corrigendum with a veiled threat of prosecution in general provided under section 628 or 629A of the Act for failure to give requisite publicity to the Registrars corrections to the text of the prospectus, though prosecution in such circumstances is hardly resorted to. As against this, any revision of the text of the prospectus before its registration will be valid only with the unanimous approval of all the companys directors, and if it becomes necessary after the registration of the prospectus by the Registrar, it will be possible only by its presentation de novo. Under the SEBI Guidelines, the burden of updating the prospectus from its draft stage to its finality prior to its presentation for registration to the Registrar duly incorporating the observations of SEBI on the draft is totally cast on the Lead Merchant Banker to the issue. But, as to the corrections that may further be suggested by the Registrar, the position continues as before and there is nothing in SEBI Guidelines said about corrections to the text of the prospectus once it is final from the SEBI side made at the instance of the Registrar. This appears to be a material lacuna. Abridged press announcements 20.3-39 On the press announcement of the public issue through a prospectus, section 66 declares that it shall not be necessary to specify the contents of the companys memorandum or the signatories thereto or the number of shares subscribed for by them. DCA has in its circular letters No. 5 (13)-CL-IV/62 of 6th February and 21st May, 1962 (included in its publication Clarifications & Circulars on Company Law) set out the premises in its efforts to evolving a suitable form of announcement in the newspapers and other publications regarding the proposed issue of capital by a company intended to serve a three-fold purpose, of inducing the prospective investors to get to the prospectus, to prevent the unwary from mistaking the press announcement for the prospectus itself, and its conformance to the disclosure requirements specified in section 56 in particular apart from other Sections applicable in the Actin the context of the general non-conformance to the same found in actual practice as adopted by issuer companies. The abridged press announcements have, for all practical purposes, come to pass as the prospectuses so far as the common investors are concerned, notwithstanding the statement this is only an announcement and not a prospectus printed in bold letters invariably owing to the distinction between the two being quite blurred in the minds of the public. The abridgement is the product of cost saving for the issuer companies, the prospectus being considerably a bulky document loaded with a large number of reports and matters to be published in its entirety whether it would be purposeful to do or not in fact, accepted by the Regulators as sufficient cause to brush aside the strict compliance with the law. In the result, the prospectus is doomed to remain a capsuled monument created by our Company Law, unvisited and unread, but packed to capacity with explosive deterrence for the company promoters if and when the need arises for the investors or the Regulators, with absolutely no say whatsoever in the matter to the non-investing members of public even if they

come to see a wolf in the attempt, legally, unless some investor association is roped in to move. The abridged announcement of a public issue independent of the prospectus was informal, amenable to the administrative control of the DCA till the Amendment Act, 1988, with effect from 31st May, 1991, which inserted the first Proviso to section 56(1) providing for a memorandum containing such salient features of a prospectus as may be prescribed or the abridged prospectus and followed by the prescription of rule 4CC and Form 2A of the Companies General Rules & Forms, about its form and contents statutorily. In principle, this does not derogate from the liabilities of the issuer company and the persons associated in the public issue through the prospectus as laid down under the Act and the other applicable rules of law. Thus, it is the memorandum containing the salient features of a prospectus as prescribed by the Government from time to time or the abridged prospectus, that should accompany the application forms distributed in connection with a public offer in terms of mandatory section 56(3) of the Act, subject to making available a copy of the prospectus on demand by any intending investor, any contravention attracting punishment with fine of Rs. 50,000, a small sacrifice to the Exchequer.

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