Appointment of Intermediaries
Part IV. Appointment of Intermediaries
Regulation 69. Intermediary Appointment
69(1). Omitted.
69(2). Omitted.
69(3). Omitted.
69(4).
Appointment of Registered Intermediaries
The issuer must appoint intermediaries for the rights issue.
The intermediaries appointed must be registered with SEBI.
Before appointing them, the issuer must assess whether they are capable of properly performing their assigned obligations.
The issuer therefore cannot appoint an intermediary merely because it is SEBI-registered.
The issuer must also consider the intermediary’s capability to carry out its responsibilities effectively.
69(5).
Agreement with Intermediaries
The issuer must enter into an agreement with the relevant intermediaries appointed for the issue.
The agreement must be made in accordance with the regulations applicable to that particular intermediary.
Different intermediaries may be governed by different SEBI regulations.
Therefore, the agreement must satisfy the specific requirements prescribed for each intermediary under its respective regulations.
The agreement formally sets out the intermediary’s responsibilities and obligations in relation to the issue.
Additional Clauses in the Agreement
The issuer and intermediaries may include additional clauses in their agreement if they consider them appropriate.
These additional clauses can cover matters beyond the minimum requirements prescribed under the applicable regulations.
However, such clauses cannot reduce, restrict, remove or limit the legal liabilities and obligations of the issuer or intermediaries.
Their statutory responsibilities continue to apply even if the agreement contains different or additional contractual terms.
The agreement cannot be used as a way to escape obligations imposed under the following laws:
SEBI Act, 1992
Companies Act, 2013
Securities Contracts (Regulation) Act, 1956
Depositories Act, 1996
Rules and regulations made under these Acts
Any statutory modification or re-enactment of these laws
Deemed Agreement with Self-Certified Syndicate Banks in ASBA
This proviso applies where the rights issue follows the ASBA process.
Under ASBA, investors submit their applications through self-certified syndicate banks (SCSBs).
The issuer must treat the ASBA arrangement as creating a deemed agreement between the issuer and the SCSBs.
Therefore, a separate physical or written agreement between the issuer and every SCSB is not necessarily required for this purpose.
The issuer must recognise and take into account the obligations and responsibilities arising from this deemed agreement.
The SCSB is responsible for performing the ASBA-related functions assigned to it under the applicable SEBI framework.
Example:
An investor applies for ₹50,000 worth of rights shares through an SCSB.
The SCSB blocks ₹50,000 in the investor’s bank account under ASBA.
Even though the issuer may not have entered into an individual written agreement with that SCSB, the regulatory framework treats an agreement as deemed to exist between them.
The issuer must take this deemed agreement into account while carrying out the rights issue.
69(6).
Appointment of Bankers to the Issue
The issuer must appoint bankers to the issue for the rights issue.
These bankers handle the banking-related activities connected with the issue.
The bankers must be appointed at the centres specified in Schedule XII.
Therefore, the issuer cannot freely choose any locations; the required centres must be covered as prescribed in Schedule XII.
69(7).
Appointment of Registrar to the Issue
The issuer must appoint a Registrar to the Issue for the rights issue.
The Registrar must be registered with SEBI.
The Registrar must have connectivity with all the depositories.
The issuer must appoint an independent eligible Registrar; it cannot simply perform the Registrar's role itself where it is itself a Registrar.
Restriction Where Issuer Is Itself a Registrar
If the issuer itself is registered as a Registrar, it cannot appoint itself as the Registrar to its own issue.
The issuer must appoint another eligible Registrar to the Issue.
This avoids a situation where the issuer performs both the role of issuer and Registrar for the same issue.
69(8).
Omitted.
PART V: DISCLOSURES IN AND FILING OF LETTERS OF OFFER
Regulation 70. Material Disclosures
70(1).
Material Disclosures in the Letter of Offer
The draft letter of offer and the final letter of offer must contain all material disclosures relating to the rights issue.
“Material disclosures” means important information that could reasonably affect an investor’s decision to invest.
The information provided must be true and accurate.
The disclosures must also be adequate, meaning they should provide enough information for investors to properly understand the issue.
The purpose is to enable applicants to make an informed investment decision.
The issuer should therefore not omit important information that could influence an investor’s decision.
The requirement applies to both: Draft Letter of Offer & Letter of Offer
The information should allow investors to understand the relevant risks, financial position, terms of the issue and other important factors before applying.
70(2).
Disclosures Under Part B of Schedule VI
The draft letter of offer and the letter of offer must contain the disclosures specified in Part B of Schedule VI.
This requirement is in addition to the general requirement under sub-regulation (1) to provide all material, true and adequate disclosures.
“Without prejudice to the generality of sub-regulation (1)” means that sub-regulation (2) does not replace or reduce the general disclosure requirement under sub-regulation (1).
The issuer must therefore satisfy both requirements:
Provide all material disclosures necessary for an informed investment decision; and
Specifically provide the disclosures prescribed in Part B of Schedule VI.
Part B of Schedule VI acts as a prescribed checklist of information that must be included in the draft letter of offer and letter of offer.
The issuer cannot omit a prescribed disclosure merely because it believes that the general material-disclosure requirement has already been satisfied.
70(3). Omitted.
70(4). Omitted.
70(5).
Age of Information in the Offer Documents
The issuer must ensure that the information contained in the draft letter of offer and letter of offer is not more than 6 months old as on the issue opening date.
This means the information disclosed to investors must be reasonably current when the rights issue opens.
The same 6-month requirement specifically applies to the particulars taken from the issuer’s audited financial statements in the letter of offer.
The reference point for calculating the 6-month period is the issue opening date.
Therefore, the issuer cannot rely on information or audited financial statement particulars that are more than 6 months old from the date the issue opens.
70(6).
Disclosure of Wilful Defaulter or Fraudulent Borrower Status
The issuer must make specific disclosures in both the draft letter of offer and the letter of offer if the issuer itself is a wilful defaulter or fraudulent borrower.
The same disclosure requirement applies if any promoter of the issuer is a wilful defaulter or fraudulent borrower.
It also applies if any director of the issuer has such a status.
Therefore, the status of the issuer, promoters and directors must be checked for this purpose.
If any of them falls within either category, the relevant information must be disclosed to investors in the offer documents.
“Wilful defaulter” and “fraudulent borrower” are distinct categories, and the disclosure requirement covers both.
70(7).
The issuer must disclose in the letter of offer how the rights entitlements will be credited to investors’ demat accounts.
It must explain the process through which eligible shareholders will receive their rights entitlements electronically.
The letter of offer must also explain how these rights entitlements can be renounced.
Renunciation means an eligible shareholder transfers or gives up their right to subscribe to the specified securities in favour of another eligible person, subject to the applicable rules.
Therefore, investors should be able to understand:
how the rights entitlement will be credited to their demat account;
when it will be credited; and
how they can renounce or transfer the entitlement.
These details must be clearly disclosed in the letter of offer so that eligible shareholders know how to exercise or renounce their rights.
Regulation 71. Filing of the draft letter of offer and letter of offer
71(1).
The issuer shall file the draft letter of offer with the stock exchange(s).
The issuer shall also submit the required documents/information to such stock exchange(s).
It is as follows:
(a).
Identification Details of Promoters
The letter of offer must contain specified identification and registration details of the promoters, depending on whether the promoter is an individual or a body corporate.
If the Promoter Is an Individual
The issuer must disclose the Permanent Account Number (PAN) of each individual promoter.
The bank account number of the individual promoter must also be disclosed.
The passport number of the individual promoter must also be disclosed.
Therefore, for an individual promoter, three identification details are required:
PAN
Bank account number
Passport number
Where the Promoter Is a Body Corporate
Where the promoter is a body corporate, different identification and registration details must be disclosed.
The PAN of the corporate promoter must be disclosed.
Its bank account number must also be disclosed.
Its company registration number or equivalent registration number must be disclosed.
The address of the Registrar of Companies (RoC) with which the promoter is registered must also be disclosed.
(b).
Due Diligence Certificate for Convertible Debt Instruments
When an issuer makes an issue of convertible debt instruments, a due diligence certificate must be obtained from the debenture trustee.
The certificate confirms that the debenture trustee has carried out the required due diligence in relation to the issue.
The certificate must be given in the specific format prescribed under Form B of Schedule V.
71(2).
Filing of Letter of Offer
The issuer must file the letter of offer with the stock exchange(s).
Where a designated stock exchange has been identified, the letter of offer must also be filed with the designated stock exchange.
The filing ensures that the stock exchange(s) receive the final offer document relating to the rights issue.
The stock exchange can therefore examine the letter of offer in accordance with the applicable regulatory requirements.
The letter of offer contains the information and disclosures on the basis of which existing shareholders can decide whether to participate in the rights issue.
71(3).
Filing of Letter of Offer with SEBI
The issuer must file the letter of offer with SEBI.
The filing is made to SEBI for information and dissemination on SEBI’s website.
“For information” means SEBI receives the document for regulatory information and record.
“Dissemination” means the letter of offer is made available to the public through SEBI’s website.
This allows investors and other stakeholders to access the offer document from SEBI’s website.
The issuer must also pay the fees prescribed under Schedule III.
Regulation 72. Draft letter of offer and letter of offer to be available to the public
72(1). Omitted.
72(2). Omitted.
72(3). Omitted.
72(4).
Hosting and Consistency of Offer Documents
The issuer must ensure that the draft letter of offer and the letter of offer are hosted on the websites prescribed under the SEBI ICDR Regulations.
The documents must be made available on the websites required by the regulations.
The version uploaded on these websites must contain the same information as the version filed with SEBI and the stock exchange(s), wherever applicable.
The issuer cannot upload a modified, incomplete, or different version of the offer document on its website.
Any changes made to the version filed with SEBI or the stock exchange(s) must be properly reflected in the version hosted online, where such changes are permitted and applicable.
72(5).
Availability of Draft Letter of Offer to the Public
The stock exchanges must provide copies of the draft letter of offer to the public whenever requested.
Any person can request a copy of the draft letter of offer from the stock exchange.
The stock exchange is required to make the document available upon such request.
The stock exchange may charge a reasonable amount for providing the copy.
The charge is intended to cover the cost of providing the document and should not be excessive.
This requirement promotes transparency by allowing investors and other interested persons to access the draft letter of offer.
Example:
An investor wishes to review the draft letter of offer before deciding whether to participate in the rights issue.
The investor requests a copy from the stock exchange.
The stock exchange provides the copy and may collect a reasonable fee for doing so.
PART IV. PRICING
Regulation 73. Pricing
73(1).
Determination of Issue Price Before Record Date
The issuer must decide the issue price before determining the record date.
The issue price is the price at which the specified securities will be offered to eligible shareholders in the rights issue.
The issuer must therefore know the issue price first and only then determine the record date.
The record date is the date used to identify the shareholders who will be eligible to receive rights entitlements.
The issuer must determine the record date in consultation with the designated stock exchange.
This means the issuer cannot independently fix the record date without consulting the designated stock exchange.
The sequence is therefore:
First, decide the issue price.
Then, in consultation with the designated stock exchange, determine the record date.
The record date then identifies the shareholders eligible to participate in the rights issue.
Example:
Company A plans a rights issue.
It first decides that the issue price will be ₹150 per share.
After deciding the issue price, Company A consults the designated stock exchange.
In consultation with the stock exchange, it determines 10 January as the record date.
Shareholders eligible as on the record date will then be entitled to participate in the rights issue at the predetermined issue price.
73(2).
Minimum Issue Price
The issue price of the specified securities cannot be lower than their face value.
The issuer can issue the specified securities at their face value or at a price higher than their face value.
The issuer cannot fix an issue price below the face value.
“Face value” is the nominal value assigned to the security, such as ₹10 per equity share.
“Issue price” is the actual price at which the specified securities are offered to investors in the rights issue.
73(3).
Disclosure of Issue Price
The issuer must disclose the issue price in the letter of offer.
The issue price is the price at which the specified securities are offered to eligible shareholders in the rights issue.
The issue price must be clearly mentioned in the letter of offer so that investors know how much they have to pay for each specified security.
The letter of offer containing the issue price must be filed with the Board and the stock exchange(s).
PART VII: ISSUANCE CONDITIONS AND PROCEDURE
Regulation 74. Reservations
74(1).
Reservation for Holders of Convertible Debt Instruments
The issuer can make a rights issue of equity shares only after making the required reservation for certain existing security holders.
The reservation is required for holders of outstanding compulsorily convertible debt instruments (CCDs).
The reservation must be for equity shares of the same class as the equity shares being offered in the rights issue.
The number of equity shares reserved must correspond to the convertible portion of the outstanding compulsorily convertible debt instruments.
The reservation is made in proportion to the convertible part of the debt instruments.
This ensures that CCD holders are protected because their debt instruments are compulsorily convertible into equity shares.
The issuer therefore cannot make the rights issue without first taking their future conversion into equity shares into account.
Example:
An issuer has 1,000 outstanding compulsorily convertible debt instruments.
The convertible portion of these instruments entitles the holders to receive 200 equity shares.
If the issuer now makes a rights issue of equity shares, it must reserve the corresponding 200 equity shares of the same class for the CCD holders.
The reservation is therefore linked to the proportion of the debt instruments that is compulsorily convertible into equity.
74(2).
Issue of Reserved Equity Shares on Conversion
Equity shares reserved for holders of fully or partly compulsorily convertible debt instruments must be issued when those debt instruments are converted.
The shares are issued to the holders of the convertible debt instruments at the time of conversion.
The holders receive the equity shares on the same terms on which equity shares were offered in the rights issue.
Therefore, the CCD holders are given the benefit of the same rights issue terms, even though their equity shares are issued later upon conversion.
The issuer cannot issue these reserved shares to the CCD holders on different or less favourable terms.
The number of shares reserved is linked to the convertible portion of the debt instruments.
Example:
A company makes a rights issue at ₹100 per equity share.
It has outstanding compulsorily convertible debt instruments whose conversion entitles the holders to 1,000 equity shares.
The company reserves 1,000 equity shares for those holders.
When the debt instruments are converted, the holders receive those 1,000 equity shares on the same terms as the ₹100 rights issue.
The fact that the shares are actually issued later, at the time of conversion, does not change the terms applicable to them.
74(3). Omitted.
Regulation 75. Letter of Offer
75(1). Omitted.
75(2).
Application Forms Must Accompany the Letter of Offer
Every application form issued in connection with the rights issue must be accompanied by a copy of the letter of offer.
This requirement applies whether the application form is distributed by the issuer or by any other person.
Therefore, an intermediary or other authorised person distributing the application form must also provide the letter of offer with it.
The applicant should receive the relevant information about the rights issue along with the application form.
Regulation 76. ASBA
Application Through ASBA
An applicant for a rights issue must make the application only through the ASBA facility.
ASBA stands for Application Supported by Blocked Amount.
Under ASBA, the application money is blocked in the applicant’s bank account instead of being immediately transferred to the issuer.
The issuer must provide the ASBA facility in the manner specified by SEBI.
Therefore, during the normal rights issue period, an applicant cannot use other payment methods for the rights issue application.
The ASBA requirement ensures that the applicant’s funds remain in the bank account until they are required to be used for the allotment.
Exception for Reserved Portion
A different payment method is permitted for an application relating to a reserved portion.
This exception applies when the application is made outside the issue period.
In such a case, payment through another electronic banking mode is permitted.
Therefore, ASBA is the general rule, while electronic banking payment is allowed as an exception for reserved portion applications made outside the issue period.
Example:
Investor A applies for rights shares during the normal issue period.
Investor A must use ASBA, and the application amount is blocked in the bank account.
Investor B is applying for a reserved portion outside the issue period.
Investor B may make the payment through another permitted electronic banking mode.
Regulation 77. Availability of letter of offer and other issue materials
77(1).
Availability of Issue Material Before Opening
The issuer must ensure that the letter of offer and other issue material are available before the rights issue opens.
The issue material includes application forms and other documents relating to the issue.
These documents must be made available to all the specified intermediaries and organisations involved in the rights issue.
The purpose is to ensure that these parties have the necessary documents ready when the issue opens.
The issuer must ensure availability with:
Stock exchanges
Registrar to the Issue
Registrar and Share Transfer Agents
Depository Participants
Stock brokers
Underwriters
Bankers to the Issue
Investors’ associations
Self-Certified Syndicate Banks (SCSBs)
Timing Requirement
The letter of offer, application forms and other issue material must be available with these parties before the opening of the issue.
Therefore, the issuer must complete this distribution in advance rather than arranging the documents after the issue has already opened.
77(2).
The letter of offer must be sent to all existing shareholders along with the application form.
The issuer must ensure that both documents reach the existing shareholders before the rights issue opens.
The documents must be dispatched at least 3 days before the issue opening date.
The issuer can use any of the following permitted methods:
Speed Post with Registration
Speed Post
Courier service
Electronic transmission
The requirement applies to all existing shareholders who are entitled to receive the offer.
The purpose is to give shareholders sufficient time to read the offer document and decide whether to participate in the rights issue.
The 3-day period is counted backwards from the date on which the rights issue opens.
77(3).
Letter of Offer on Request
The issuer must provide the letter of offer to any existing shareholder who requests a copy.
This is an additional requirement apart from the issuer’s duty to dispatch the letter of offer to existing shareholders before the issue opens.
Therefore, even if a shareholder did not receive the letter of offer through the normal dispatch process, they can request it from the issuer.
The issuer must provide the letter of offer when such a request is made.
The shareholder does not have to wait for the issuer to send the document through the regular dispatch process.
Regulation 77A. Credit of rights entitlements and allotment of specified securities.
77A(1).
Credit of Rights Entitlements Before Issue Opening
The issuer must ensure that the rights entitlements are credited to the demat accounts of eligible shareholders.
The credit must take place before the date on which the rights issue opens.
Rights entitlements represent the shareholder’s right to apply for the specified securities offered through the rights issue.
The entitlement is credited electronically to the shareholder’s demat account rather than being issued as a physical document.
This allows shareholders to see their entitlement in their demat account before the issue opens.
The shareholder can then use the credited rights entitlements to apply for the rights issue or renounce them, subject to the applicable provisions.
The credit must happen before the issue opening date so that shareholders have the entitlement available when the application period begins.
Example:
Company A announces a rights issue opening on 10 January.
Eligible shareholder X is entitled to 500 rights entitlements.
The 500 rights entitlements must be credited to X’s demat account before 10 January.
X can then use those entitlements when applying for the rights issue.
77A(2).
Allotment Only in Dematerialised Form
The specified securities issued through the rights issue must be allotted only in dematerialised form.
“Dematerialised form” means the securities are held electronically in the investor’s demat account.
Physical certificates cannot be issued for the specified securities allotted under the rights issue.
The securities are credited electronically to the demat account of the successful applicant.
This ensures that the rights issue securities are issued and held through the depository system.
The requirement applies at the time of allotment, so the issuer cannot choose to allot some securities physically and others in dematerialised form.
Example:
Investor A is allotted 1,000 equity shares in the rights issue.
The 1,000 shares must be credited electronically to Investor A’s demat account.
The issuer cannot issue a physical share certificate for those 1,000 shares.
Regulation 77B. Allotment to Specific Investors
77B(1).
Specific Investor
For this chapter, a “specific investor” means an investor who is eligible to participate in the issuer’s rights issue.
However, eligibility alone is not enough to qualify as a specific investor.
The investor’s name must also have been disclosed by the issuer in accordance with Regulation 84(1)(f).
The definition therefore connects two requirements: eligibility to participate in the rights issue and specific disclosure of the investor’s name.
(a). Investor Disclosed Under Regulation 84(1)(f)(i)
An investor qualifies as a specific investor if their name has been disclosed by the issuer under Regulation 84(1)(f)(i).
The issuer must have specifically identified that investor in the disclosure required under Regulation 84(1)(f)(i).
The investor must also be eligible to participate in the rights issue.
Thus, the investor becomes a “specific investor” because they are both eligible and specifically named under this provision.
Example:
Company A is making a rights issue.
Investor X is eligible to participate in the rights issue.
Company A discloses Investor X’s name under Regulation 84(1)(f)(i).
Investor X will therefore be treated as a specific investor for this chapter.
(b). Investor Disclosed Under Regulation 84(1)(f)(ii)
An investor also qualifies as a specific investor if their name has been disclosed by the issuer under Regulation 84(1)(f)(ii).
Again, the investor must be eligible to participate in the rights issue.
The difference is only the particular category of disclosure under Regulation 84(1)(f): here, the investor’s name is disclosed under sub-clause (ii).
Therefore, investors falling under either (i) or (ii) can qualify as specific investors.
Example:
Investor Y is eligible to participate in Company A’s rights issue.
Company A discloses Investor Y’s name under Regulation 84(1)(f)(ii).
Investor Y will also be treated as a specific investor.
77B(2).
Application by Specific Investors on the First Day
The specific investor(s) identified under clause (a) must make their application on the first day on which the rights issue opens.
Their application must be made before 11:00 A.M. on that first day.
This creates a very specific time limit for the specific investors: they cannot wait until later in the day to make the application.
After receiving the applications, the issuer must determine whether the specific investor(s) have actually made the required application.
The issuer must then disclose this information to the stock exchange(s).
The disclosure must clearly indicate whether the specific investor(s) have made the application or have not made the application.
The stock exchange(s) will disseminate this information to the public.
This disclosure must be made on the first day of the issue opening itself.
The issuer must ensure that the information is available for dissemination by 11:30 A.M.
77B(3).
No Withdrawal by Specific Investors
Once a specific investor makes an application under clause (a), the application cannot be withdrawn.
The restriction applies only after the application has been received by the issuer.
Therefore, the specific investor cannot change their mind and cancel the application after submitting it.
The application becomes binding once it is received in accordance with clause (a).
This ensures that the specific investor’s application provides a firm indication of participation in the rights issue.
The issuer can therefore rely on the application when assessing the participation of the specific investor(s).
77B(4).
Application by Specific Investors Before Finalisation of Allotment
The specific investor(s) covered under clause (b) must make their application before the basis of allotment is finalised.
The specific investor must submit the application along with the required application money.
Therefore, the investor cannot wait until after the basis of allotment has been finalised to make the application.
The application and the application money must both be received before finalisation of the basis of allotment.
Regulation 78. Conditions for making applications on plain paper
78(1).
Application Without Receiving the Application Form
An eligible shareholder may apply for the rights issue even if they have not received the application form.
The shareholder can make the application in writing on plain paper.
The shareholder must also submit the required application money along with the written application.
Therefore, non-receipt of the physical application form does not by itself prevent an eligible shareholder from applying.
The shareholder must provide the necessary details required for the rights issue in the written application.
The application must still comply with the other applicable requirements of the rights issue.
Example:
Company A sends application forms to its eligible shareholders.
Shareholder X does not receive the application form.
X can still apply by submitting a written application on plain paper along with the required application money.
X does not have to wait for the original application form before applying.
Acceptance of Plain-Paper Applications by SCSBs
Self-Certified Syndicate Banks (SCSBs) can accept applications made on plain paper.
However, an SCSB can accept such an application only if the plain-paper application contains all the details required for making a valid rights issue application.
The applicant cannot simply submit a general request on plain paper without providing the necessary information.
All details required under the applicable SEBI regulations must be clearly mentioned in the plain-paper application.
The SCSB must check that the required information is present before accepting the application.
This ensures that a plain-paper application contains the same essential information needed to process a regular application form.
If any mandatory details are missing, the SCSB should not accept the plain-paper application.
78(2).
Restriction on Renunciation for Plain-Paper Applications
A shareholder who applies for the rights issue on plain paper cannot renounce their rights.
Once the shareholder chooses to apply through a plain-paper application, the right to renounce cannot be exercised.
The shareholder also cannot use the application form for any purpose relating to the rights issue, including renunciation.
This restriction continues even if the shareholder receives the official application form later.
Therefore, subsequent receipt of the application form does not restore the shareholder’s right to renounce.
The shareholder must continue with the plain-paper application route and cannot switch to the application form for renunciation purposes.
Example:
Shareholder A does not receive the application form and therefore applies on plain paper.
Later, the issuer sends the official application form to A.
A cannot use the subsequently received form to renounce the rights.
A’s original plain-paper application does not give A the right to renounce.
78(3).
Duplicate Application Through Two Modes
A shareholder must choose one method for making the rights issue application:
Through the prescribed application form or
Through an application made on plain paper.
The shareholder cannot submit applications through both methods for the same rights issue.
If the shareholder submits one application using the application form and another application on plain paper, both applications are liable to be rejected.
Therefore, submitting a second application does not provide an additional opportunity to subscribe.
Even if both applications contain correct information, the fact that they were submitted through both modes can result in rejection of both applications.
Regulation 79. Prohibition on payment of incentives
Prohibition on Incentives for Making Applications
Any person connected with the rights issue cannot offer an incentive to any person for making an application in the rights issue.
The prohibition covers incentives given directly or indirectly.
The incentive can be in any form, including:
Cash
Kind, i.e. goods or other benefits
Services
Any other form of benefit
The purpose is to prevent people connected with the issue from inducing investors to apply merely by offering them additional benefits.
The prohibition applies to incentives given for the purpose of encouraging or inducing a person to make an application in the rights issue.
However, genuine fees or commission for services actually rendered in relation to the issue are permitted.
Therefore, a legitimate payment for issue-related services is not treated as a prohibited incentive.
Example:
An intermediary connected with the issue offers an investor ₹5,000 if the investor applies for the rights issue.
This is a prohibited incentive because cash is being offered to induce an application.
Similarly, offering free goods, services or other benefits in return for applying would also be prohibited.
However, paying a Registrar its legitimate fee for performing services relating to the issue is permitted.
Regulation 80. Omitted
Regulation 81. Underwriting
81(1).
Underwriting of Rights Issue
The issuer has the option to get the rights issue underwritten.
If the issuer decides to underwrite the issue, it must appoint eligible underwriters.
The underwriters can be:
Merchant bankers registered with SEBI.
Stock brokers registered with SEBI.
Therefore, an unregistered merchant banker or stock broker cannot be appointed as an underwriter for this purpose.
Limit on Underwriting
The rights issue can be underwritten only to the extent of the entitlement of shareholders other than the promoters and promoter group.
The underwriting cannot cover the entitlement of promoters or promoter group members.
This means the portion of the rights issue belonging to promoters and promoter group cannot be included in the amount underwritten.
The underwriting is therefore intended to provide support for the rights entitlement of non-promoter shareholders.
Example:
Total rights issue = ₹100 crore.
Promoters and promoter group are entitled to ₹40 crore.
Other shareholders are entitled to ₹60 crore.
The issuer can underwrite the issue only up to ₹60 crore.
The ₹40 crore promoter/promoter group entitlement cannot be underwritten.
Regulation 82. Monitoring agency
82(1).
Monitoring of Use of Issue Proceeds
The issuer must arrange for the proceeds raised through the rights issue to be monitored.
The monitoring must be carried out by a credit rating agency registered with SEBI.
Therefore, the issuer cannot independently decide whether the funds are being used for the stated objects without the required monitoring arrangement.
The credit rating agency monitors the utilisation of the money raised through the issue.
This helps ensure that the funds are used for the purposes disclosed by the issuer in the offer documents.
The monitoring requirement applies to an issuer making an issue of specified securities, subject to the stated exceptions.
Exception for Certain Financial Institutions
The monitoring requirement does not apply when the specified securities are issued by:
A bank.
A public financial institution.
An insurance company.
Example:
Company A raises ₹100 crore through a rights issue.
Company A must arrange for a SEBI-registered credit rating agency to monitor the use of the ₹100 crore.
If the issuer were a bank, public financial institution or insurance company, this particular monitoring requirement would not apply.
82(2).
Quarterly Report by Monitoring Agency
The monitoring agency must submit a report to the issuer on a quarterly basis.
The report must be prepared in the format prescribed under Schedule XI.
The monitoring agency continues submitting these reports until 100% of the issue proceeds actually raised have been utilised.
The relevant amount is the proceeds actually raised, not merely the amount that the issuer originally proposed to raise.
Therefore, if the issuer raises less than the targeted issue amount, the monitoring requirement is based on the amount actually received.
The monitoring agency tracks how the issue proceeds are being utilised and reports the position to the issuer every quarter.
Once the entire amount actually raised has been utilised, the requirement to submit further quarterly monitoring reports under this provision comes to an end.
Example:
The issuer proposes to raise ₹100 crore but actually raises only ₹80 crore.
The monitoring agency submits its report every quarter in the Schedule XI format.
It continues doing so until the entire ₹80 crore actually raised has been utilised.
Once 100% of the ₹80 crore has been utilised, the quarterly reporting requirement under this provision ends.
82(3).
Comments on Monitoring Agency’s Findings
The monitoring agency reviews how the issue proceeds are being utilised and reports its findings in the format prescribed under Schedule XI.
After receiving the monitoring agency’s report, the issuer’s Board of Directors and management must provide their comments on those findings.
Therefore, the Board and management cannot simply receive the monitoring report without responding to its observations.
Their comments must specifically address the findings made by the monitoring agency.
The comments are to be provided in accordance with the requirements of Schedule XI.
This creates a system of accountability where:
The monitoring agency independently reports its findings.
The management responds to those findings.
The Board of Directors also provides its comments.
This helps investors and regulators understand whether the issuer agrees with the monitoring agency’s observations and how it has addressed any issues identified.
Example:
The monitoring agency reports that ₹10 crore of the issue proceeds has not been utilised for the stated object within the expected period.
The management must provide its comments explaining the reason for the unutilised amount.
The Board of Directors must also provide its comments on the monitoring agency’s finding.
These comments are made in accordance with Schedule XI.
82(4).
Public Dissemination of Monitoring Agency’s Report
The issuer must publicly disseminate the monitoring agency’s report.
The report must be disseminated within 45 days from the end of each quarter.
The issuer must upload the report on its own website.
The issuer must also submit the report to the stock exchange(s) where its equity shares are listed.
Therefore, the report is made available through two channels:
Issuer’s website.
Stock exchange(s) where the issuer’s equity shares are listed.
This requirement applies to each quarterly monitoring report.
The purpose is to ensure that shareholders, investors and the market can access information about the utilisation of the issue proceeds.
Example:
Quarter ends on 30 June.
The issuer must publicly disseminate the monitoring agency’s report within 45 days from 30 June.
The issuer uploads the report on its website.
It also submits the same report to the stock exchange(s) where its equity shares are listed.
