Initial Public Offer on Main Board (Copy)

CHAPTER IIA INITIAL PUBLIC OFFER ON MAIN BOARD THROUGH PRE-FILING OF DRAFT OFFER DOCUMENT

Regulation 59A. Definitions

• In this Chapter, unless the context otherwise requires:

• (a).

  1. “Pre-filed draft offer document” means the draft offer document that is filed with SEBI under this Chapter.

  2. It is called “pre-filed” because the draft is submitted to the Board before the subsequent stages of the public issue process.

  3. The term specifically refers to a draft offer document filed under the requirements of this Chapter.

• (b).

  1. “Pre-filed offer document” is a broader term than “pre-filed draft offer document.”

  2. It includes a pre-filed draft offer document.

  3. It also includes the updated draft red herring prospectus-I (UDRHP-I).

  4. It also includes the updated draft red herring prospectus-II (UDRHP-II).

  5. These documents must be filed with the Board under this Chapter.

  6. Therefore, whenever the regulations use the term “pre-filed offer document,” it can refer to any of these three documents.

• (c).

  1. “Updated draft red herring prospectus-I” means an updated version of the pre-filed draft offer document.

  2. The issuer prepares this updated document after complying with the observations issued by SEBI on the pre-filed draft offer document.

     1. The updated document must be filed with the Board.

     2. Therefore, UDRHP-I comes after the Board has reviewed the pre-filed draft offer document and issued its observations.

     3. The issuer incorporates the required changes based on those observations and files the updated document as UDRHP-I.

  3. Example:

     1. Issuer files a pre-filed draft offer document with SEBI.

     2. SEBI reviews it and issues certain observations.

     3. The issuer makes the required changes.

     4. The revised document is filed with SEBI as the “updated draft red herring prospectus-I”.

• (d).

  1. Updated draft red herring prospectus-II” means the updated version of UDRHP-I.

  2. UDRHP-I is made available to the public for their comments.

     1. The issuer considers and incorporates the relevant comments received from the public.

     2. After incorporating those public comments, the issuer files the revised document with SEBI.

     3. This revised document is called UDRHP-II.

  3. Example:

     1. SEBI issues observations on the pre-filed draft offer document.

     2. The issuer incorporates those observations and files UDRHP-I.

        1. UDRHP-I is then made available to the public for comments.

        2. The issuer incorporates the relevant public comments.

        3. The revised document filed with SEBI becomes UDRHP-II.

Regulation 59B. Application of this Chapter

59B(1).

• Alternative Route for Initial Public Offer

  1. An issuer that wants to make an IPO of specified securities on the Main Board has two routes.

  2. It may make the IPO under the normal provisions of Chapter II.

     1. Alternatively, instead of following Chapter II, it may make the IPO under the provisions of this Chapter.

     2. Therefore, this Chapter provides an alternative regulatory route for a Main Board IPO.

     3. The issuer must follow all the requirements prescribed under this Chapter if it chooses this route.

• Example:

  1. An issuer plans to make a Main Board IPO.

  2. It can proceed under Chapter II.

  3. Alternatively, it can choose to make the IPO under this Chapter and comply with its specific requirements.

59B(2).

• Application of Chapter II to This IPO

  1. The provisions of Chapter II will also apply to an IPO made under this Chapter.

  2. They will apply mutatis mutandis, meaning with the necessary changes required to suit the context.

     1. However, if this Chapter contains a provision that is contrary to Chapter II, the provision of this Chapter will prevail.

     2. Therefore, Chapter II acts as the general framework, while this Chapter provides the specific rules for this type of IPO.

     3. Only the provisions of Chapter II that are not inconsistent with this Chapter will apply.

• Application of Regulations 8 and 15 at UDRHP-I Stage

  1. Regulations 8 and 15 normally form part of Chapter II requirements.

  2. For an IPO under this Chapter, Regulations 8 and 15 specifically apply when the issuer files the updated draft red herring prospectus-I (UDRHP-I).

     1. Therefore, compliance with Regulations 8 and 15 is required at the UDRHP-I filing stage.

     2. The issuer must satisfy these requirements before or while filing UDRHP-I with SEBI.

• Example:

  1. The issuer first files the pre-filed draft offer document.

  2. SEBI issues its observations.

  3. The issuer incorporates the required changes and prepares UDRHP-I.

  4. At the UDRHP-I filing stage, Regulations 8 and 15 must be complied with.

Regulation 59C. Pre-filing of draft offer document with the Board and Stock Exchanges

59C(1).

• Filing of Draft Offer Document Before IPO

  1. Before making an IPO, the issuer may file the draft offer document with SEBI.

  2. Three copies of the draft offer document must be filed with the Board.

  3. The draft offer document must be prepared in accordance with Schedule IV.

     1. The issuer must pay the prescribed fees specified in Schedule III.

     2. The filing and submission of the draft offer document must be made through the lead manager(s).

     3. Therefore, the lead manager(s) act as the channel through which the issuer files the draft offer document with SEBI.

• Example:

  1. An issuer plans to make an IPO.

  2. Before the IPO, it prepares the draft offer document as per Schedule IV.

  3. It submits 3 copies to SEBI through the lead manager(s).

  4. The issuer also pays the fees prescribed in Schedule III.

59C(2).

• Filing with Stock Exchange and Promoter Details

  1. The issuer must also file the pre-filed draft offer document with the stock exchange(s) where the specified securities are proposed to be listed.

  2. Along with the filing, the issuer must submit specified identification and registration details of its promoters.

  3. Where the promoter is an individual, the issuer must submit:

     1. Permanent Account Number (PAN).

     2. Bank account number.

     3. Passport number.

  4. Where the promoter is a body corporate, the issuer must submit:

     1. PAN.

     2. Bank account number.

     3. Company registration number or equivalent.

     4. Address of the Registrar of Companies (RoC) with which the promoter is registered.

• Example:

  1. Promoter A is an individual: PAN, bank account number and passport number must be submitted.

  2. Promoter B is a company: PAN, bank account number, company registration number and RoC address must be submitted.

  3. These details are submitted to the stock exchange(s) along with the pre-filed draft offer document.

59C(3).

• Confidentiality of Pre-filed Draft Offer Document

  1. The pre-filed draft offer document filed under 59C(1) must not be made available in the public domain.

  2. Therefore, the document is not publicly accessible at this stage.

     1. The issuer files it with the Board and the proposed stock exchange(s), but it is not published for general public access.

     2. This confidentiality applies specifically to the pre-filed draft offer document at this stage of the IPO process.

59C(4).

• Documents to be Submitted with the Pre-filed Draft Offer Document

  1. The lead manager(s) must submit certain documents to SEBI along with the pre-filed draft offer document.

  2. (a). Agreement with Lead Manager(s)

     1. A certificate must be submitted confirming that an agreement has been entered into between the issuer and the lead manager(s).

  3. (b). Due Diligence Certificate

     1. A due diligence certificate must be submitted in the format prescribed in Form AA of Schedule V.

  4. (c). Convertible Debt Instruments

     1. If the issue involves convertible debt instruments, a due diligence certificate from the debenture trustee is also required.

     2. The certificate must follow Form B of Schedule V.

  5. (d). Undertaking Against Marketing/Advertisement:

     1. The issuer and lead manager(s) must give an undertaking that they will not conduct marketing or advertising for the intended issue.

     2. The undertaking must follow the format specified by SEBI from time to time.

• Example:

  1. An issuer files its pre-filed draft offer document through the lead manager(s).

  2. The lead manager submits the agreement certificate and Form AA due diligence certificate.

     1. If convertible debt instruments are involved, the debenture trustee also provides Form B.

     2. The issuer and lead manager(s) additionally submit an undertaking not to market or advertise the intended issue.

Consistency in Public Communications

• From the date the issuer’s Board approves the public issue until UDRHP-I is filed or the pre-filed draft offer document is withdrawn:

  1. All public communications must follow the issuer’s past practices.

  2. This applies to communications issued or published through any media.

  3. The communication should remain consistent with the issuer’s usual manner, style and practices followed before the public issue process.

• The issuer should not suddenly change its communication pattern or use unusual publicity during this period.

• The period ends on the earlier of:

  1. Filing of the updated draft red herring prospectus-I (UDRHP-I).

  2. Withdrawal of the pre-filed draft offer document.

59C(5).

• From the date the issuer’s Board approves the public issue until UDRHP-I is filed or the pre-filed draft offer document is withdrawn:

• All public communications must follow the issuer’s past practices.

• This applies to communications issued or published through any media.

• The communication should remain consistent with the issuer’s usual manner, style and practices followed before the public issue process.

• The issuer should not suddenly change its communication pattern or use unusual publicity during this period.

• The period ends on the earlier of:

  1. Filing of the updated draft red herring prospectus-I (UDRHP-I) or

  2. Withdrawal of the pre-filed draft offer document.

Example:

• Board approves the IPO on 1 January.

• UDRHP-I is filed on 20 February.

• All public communications from 1 January to 20 February must remain consistent with the issuer’s past practices.

• Disclaimer in the Public Announcement

  1. The issuer must include a specific statement in the public announcement.

  2. The statement must clarify that pre-filing the offer document does not necessarily mean that the issuer will proceed with the IPO.

  3. In other words, pre-filing only indicates that the issuer has started the regulatory process.

  4. The issuer may still decide not to undertake the initial public offering.

• Example:

  1. An issuer pre-files its draft offer document with SEBI.

  2. This does not guarantee that the IPO will actually be launched.

  3. The public announcement must clearly mention this possibility.

59C(6).

• SEBI Observations on the Pre-filed Draft Offer Document

  1. SEBI may recommend changes or issue observations on the pre-filed draft offer document

  2. SEBI has 30 days to do so.

  3. The 30-day period starts from the latest date among the following:

     1. (a). Receipt of the pre-filed draft offer document:

        1. The date on which SEBI receives the pre-filed draft offer document under 59C(1).

     2. (b) Satisfactory reply from lead manager(s):

        1. If SEBI asks the lead manager(s) for clarification or additional information, the period starts from the date SEBI receives a satisfactory reply.

     3. (c). Information from regulator/agency:

        1. If SEBI seeks clarification or information from another regulator or agency, the period starts when SEBI receives that information.

     4. (d) In-principle approval from stock exchange(s)

        1. The period starts when SEBI receives a copy of the stock exchange’s in-principle approval letter.

     5. (e). Completion of QIB interaction:

        1. The period starts from the date the issuer informs SEBI that its interaction with qualified institutional buyers has been completed under Regulation 59D.

     6. (f). Conversion/exercise of rights:

        1. The issuer must intimate the Board about the conversion of any outstanding convertible securities.

        2. The issuer must also intimate the Board about the exercise of any other right that gives a person an option to receive equity shares.

        3. The relevant date is the date on which the issuer gives this intimation to the Board.

        4. This date is considered while calculating the 30-day period for SEBI to issue observations on the pre-filed draft offer document.

        5. Under Regulation 59E, SEBI’s 30-day observation period takes into account the date on which the issuer informs the Board about such conversion or exercise of rights.

• How the 30-day period works

  1. SEBI does not necessarily count 30 days from the initial filing date.

  2. SEBI first waits until all the relevant requirements above are completed.

  3. The 30-day period begins from whichever of these dates occurs last.

  4. Example:

     1. Draft offer document received by SEBI: 1 January.

     2. Satisfactory clarification received: 8 January.

     3. Stock exchange in-principle approval received: 12 January.

     4. QIB interaction completed: 15 January.

     5. Information regarding convertible securities received: 18 January.

     6. The latest date is 18 January.

     7. Therefore, SEBI’s 30-day period starts from 18 January.

59C(7).

• If the Board recommends any changes or issues observations on the pre-filed draft offer document, the issuer and lead manager(s) must make those changes.

  1. The required changes must be incorporated into the pre-filed draft offer document.

  2. After incorporating the changes, the issuer and lead manager(s) must submit an updated draft red herring prospectus-I (UDRHP-I) to the Board.

  3. The UDRHP-I must comply with all observations issued by the Board.

• Example:

  1. SEBI observes that certain disclosures need to be modified.

  2. The issuer and lead manager(s) make those changes in the pre-filed draft offer document.

  3. The revised document is then submitted to SEBI as UDRHP-I.

• Minimum Gap Between QIB Interaction and UDRHP-I Filing

  1. The issuer must inform the Board after completing its interaction with qualified institutional buyers (QIBs) under Regulation 59D.

  2. After giving this intimation, the issuer must wait at least 7 working days before filing UDRHP-I.

  3. Therefore, UDRHP-I cannot be filed immediately after the QIB interaction is completed.

  4. A minimum gap of 7 working days must exist between:

     1. Date of intimation to the Board about completion of QIB interaction; and

     2. Date of filing of UDRHP-I.

• Explanation:

  1. UDRHP-I means the updated draft red herring prospectus-I.

  2. UDRHP-I must be complete in all respects before it is filed.

     1. It must comply with all applicable provisions of the SEBI ICDR Regulations.

     2. It must also comply with other applicable laws, wherever relevant.

     3. Therefore, UDRHP-I cannot be incomplete or contain pending regulatory requirements.

59C(8).

• The lead manager(s) shall submit the following documents to the Board after issuance of observations by the Board:

• (a).

  1. Certification of Incorporation of Board’s Observations

     1. A statement must be included in the offer document certifying that all changes, suggestions and observations made by the Board have been incorporated.

     2. The certification covers all three:

        1. Changes suggested by the Board.

        2. Suggestions made by the Board.

        3. Observations issued by the Board.

     3. This confirms that the issuer has addressed all the points raised by the Board before filing the offer document.

• (b).

  1. Due Diligence Certificate at the Time of Filing

     1. At the time of filing the offer document, a due diligence certificate must be submitted.

        1. The certificate must be prepared in the format prescribed under Form CA of Schedule V.

        2. The certificate provides confirmation that the lead manager(s) have carried out the required due diligence in relation to the offer document.

     2. This certificate is required specifically at the stage of filing the offer document.

59C(9).

• Public Comments on UDRHP-I

  1. UDRHP-I must be made public so that the public can submit comments, if any.

  2. It must remain available for public comments for at least 21 days.

  3. The 21-day period is counted from the date of publication of the public announcement under sub-regulation (10).

  4. UDRHP-I must be hosted on the websites of:

     1. The issuer.

     2. SEBI.

     3. The stock exchanges where the specified securities are proposed to be listed.

     4. The lead manager(s) associated with the issue.

  5. This allows investors and other interested persons to examine UDRHP-I and provide their comments before the IPO proceeds further.

• Example:

  1. Public announcement is published on 1 August.

  2. UDRHP-I must be available for public comments for at least 21 days from 1 August.

  3. It must simultaneously be available on the issuer’s, SEBI’s, proposed stock exchanges’ and lead manager(s)’ websites.

Public Communications After Filing UDRHP-I

• Once UDRHP-I is filed, all public communications relating to the issue must comply with Schedule IX.

• This requirement covers:

  1. Public communications.

  2. Publicity materials.

  3. Advertisements.

  4. Research reports.

• Therefore, after filing UDRHP-I, the issuer and persons involved in the issue cannot make communications that violate the requirements of Schedule IX.

59C(9A).

• Draft Abridged Prospectus with UDRHP-I

  • The issuer must prepare a draft abridged prospectus as prescribed in Part E of Schedule VI.

  • The draft abridged prospectus must be submitted along with UDRHP-I to the Board.

  • It must also be made available on the websites of:

    1. The issuer.

    2. SEBI.

    3. The stock exchanges where the specified securities are proposed to be listed.

    4. The lead manager(s) associated with the issue.

59C(10).

• Public Announcement After Filing UDRHP-I

  1. The issuer must make a public announcement within 2 working days of filing UDRHP-I.

  2. The announcement must be published in:

     1. One English national daily newspaper with wide circulation.

     2. One Hindi national daily newspaper with wide circulation.

     3. One regional language newspaper with wide circulation at the place where the issuer’s registered office is situated.

  3. The announcement must disclose that UDRHP-I has been filed.

  4. It must also invite the public to provide comments on the disclosures contained in UDRHP-I.

  5. The public can submit their comments to:

     1. The Board (SEBI).

     2. The issuer.

     3. The lead manager(s).

• Example:

  1. UDRHP-I is filed on 1 August.

  2. The issuer must publish the public announcement within 2 working days.

  3. The announcement informs the public about the filing and invites comments on the disclosures made in UDRHP-I.

59C(11).

• Submission of Public Comments and Consequential Changes

  1. After the 21-day public comment period under sub-regulation (9) expires, the lead manager(s) must file certain details with the Board.

  2. The lead manager(s) must submit the comments received from the public on UDRHP-I.

  3. This includes comments received by:

     1. The lead manager(s).

     2. The issuer.

  4. The lead manager(s) must also identify the consequential changes, if any, required in UDRHP-I because of those public comments.

  5. Therefore, SEBI receives both:

     1. The public comments received during the 21-day period.

     2. The changes that may need to be made to UDRHP-I as a result of those comments.

59C(12).

• Filing of UDRHP-II

  1. The issuer and lead manager(s) must make the required changes in UDRHP-I.

  2. These changes are made based on:

     1. The Board’s observations.

     2. The consequential changes arising from public comments, wherever applicable.

  3. After incorporating the changes, they must prepare UDRHP-II.

  4. UDRHP-II must be submitted to the Board before filing the final offer document.

  5. The final offer document is then filed with:

     1. The Registrar of Companies (RoC) or

     2. The appropriate authority, where applicable.

• Example:

  1. UDRHP-I is made available for public comments.

  2. Public comments result in certain changes being required.

     1. The issuer and lead manager(s) incorporate those changes into UDRHP-I.

     2. The revised document becomes UDRHP-II and is submitted to SEBI.

  3. Only after this can the offer document be filed with the RoC or appropriate authority.

59C(13).

• The lead manager(s) shall submit the following documents to the Board before filing the offer document with the Registrar of Companies::

• (a).

  1. Certification of Incorporation of Board’s Observations

     1. The offer document must contain a statement certifying that all changes, suggestions and observations made by the Board have been incorporated.

     2. This certification confirms that the issuer has addressed every point raised by the Board.

     3. It covers:

        1. Changes made as required by the Board.

        2. Suggestions made by the Board.

        3. Observations issued by the Board.

     4. The certification is included in the final offer document before it is filed with the relevant authority.

• (b).

  1. Due Diligence Certificate at Filing of Offer Document

     1. At the time of filing the offer document, a due diligence certificate must be submitted.

     2. The certificate must be in the format prescribed under Form CA of Schedule V.

     3. The certificate is submitted along with the offer document at the time of its filing.

     4. This confirms that the required due diligence has been carried out in relation to the offer document.

• (c).

  1. Board Resolution for Allotment to Promoters

     1. Before the issue opens, a copy of the Board of Directors’ resolution must be submitted.

     2. The resolution must authorise the allotment of specified securities to the promoter(s).

     3. The allotment is made against the amount received from the promoter(s) towards promoters’ contribution.

• (d).

  1. Auditor Certificate for Promoters’ Contribution

     1. Before the issue opens, a certificate from the statutory auditor must be obtained.

     2. The statutory auditor must certify that the promoters’ contribution has been received in accordance with the ICDR Regulations.

        1. The certificate must also contain the names and addresses of the promoters who have contributed.

        2. It must specify the amount paid by each promoter towards the promoters’ contribution.

        3. It must confirm that the amount paid by each promoter has been credited to the issuer’s bank account.

  2. Example:

     1. Promoter A contributes ₹5 crore and Promoter B contributes ₹3 crore.

     2. The statutory auditor certifies that the contributions have been received as required.

     3. The certificate mentions:

        1. Name and address of Promoter A: ₹5 crore credited to the issuer’s bank account.

        2. Name and address of Promoter B: ₹3 crore credited to the issuer’s bank account.

• (e).

  1. A due diligence certificate in Form DA of Schedule V is required if the issuer makes a public disclosure of any material development.

     1. The public disclosure must have been made through a public notice under paragraph 4 of Schedule IX.

     2. In such a case, the lead manager(s) must submit the Form DA due diligence certificate.

  2. The certificate is required because the issuer has disclosed a material development after the offer document process has progressed.

59C(14).

• Filing of the Offer Document After RoC Filing

  1. After filing the offer document with the Registrar of Companies (RoC), a copy of the offer document must also be filed promptly with the Board and the stock exchange(s).

  2. The copy filed must be accompanied by the abridged prospectus.

  3. The filing with the Board and stock exchange(s) must be done through the lead manager(s).

  4. Therefore, the sequence is:

     1. Offer document is filed with the RoC.

     2. A copy of the offer document along with the abridged prospectus is promptly filed with SEBI and the stock exchange(s).

     3. The lead manager(s) make these filings.

59C(15).

• Submission of Documents in Soft Copy

  1. The following documents must also be furnished to the Board in soft copy:

     1. Pre-filed draft offer document.

     2. Offer document.

     3. Draft abridged prospectus.

     4. Abridged prospectus.

  2. Therefore, these documents must be provided to the Board not only in the prescribed filing form but also in electronic/soft-copy form.

59C(16).

• The issuer and lead manager(s) must ensure that the offer documents are hosted on the websites as required under the ICDR Regulations.

• The versions uploaded on the websites must contain the same contents as the versions officially filed with:

  1. Registrar of Companies (RoC).

  2. Board (SEBI).

  3. Stock exchange(s), wherever applicable.

• No different or modified version of the offer document can be hosted on the website.

• This ensures that investors have access to the exact version that was officially filed with the relevant authorities.

Example:

• The issuer files an offer document with SEBI, RoC and the stock exchanges.

• The issuer uploads the offer document on its website.

• The uploaded version must be identical in content to the version filed with these authorities.

59C(17).

• Providing Copies of the Offer Document to the Public

  1. The lead manager(s) and stock exchange(s) must provide copies of the offer document to the public when requested.

  2. The public can request a copy of the offer document from:

     1. The lead manager(s) or

     2. The stock exchange(s).

  3. A reasonable amount may be charged for providing the copy.

  4. The amount charged should be reasonable and should only cover the cost of providing the document.

• Example:

  1. An investor requests a physical copy of the offer document from the lead manager.

  2. The lead manager must provide the copy.

  3. A reasonable fee may be charged for supplying it.

Regulation 59D. Interaction with qualified institutional buyers

59D(1).

• Limited Marketing to Qualified Institutional Buyers

  1. The issuer is allowed to interact with qualified institutional buyers (QIBs) for limited marketing of the proposed issue.

  2. This permission applies notwithstanding anything contrary contained elsewhere in this Chapter.

     1. The interaction can begin from the time the draft offer document is pre-filed with SEBI.

     2. It can continue until SEBI issues its observations on the pre-filed draft offer document.

     3. The interaction is limited to QIBs; it does not permit general marketing to all investors.

     4. The purpose is only limited marketing of the intended issue during this specific period.

• Example:

  1. The issuer pre-files its draft offer document with SEBI.

  2. Before SEBI issues its observations, the issuer may interact with QIBs to conduct limited marketing of the proposed IPO.

  3. Once SEBI issues its observations, this specific permission period ends.

59D(2).

• Restriction on Information Shared with QIBs

  1. The issuer may interact with QIBs for limited marketing under the preceding provision.

  2. During these interactions, the issuer can share only information contained in the pre-filed draft offer document.

  3. The issuer cannot provide QIBs with additional information that is not included in the pre-filed draft offer document.

  4. Therefore, the interaction must remain strictly within the information already disclosed in the pre-filed draft offer document.

• Example:

  1. The pre-filed draft offer document contains details about the issuer, issue size, objects of the issue and financial information.

  2. The issuer may discuss these disclosed details with QIBs.

  3. It cannot provide additional unpublished information or projections that are not contained in the pre-filed draft offer document.

59D(3).

• Record of QIBs Participating in the Interaction

  1. If the issuer interacts with QIBs for limited marketing, a record of those QIBs must be prepared.

  2. The issuer and the lead manager(s) are jointly responsible for preparing this list.

  3. The list must contain the names/details of the QIBs who participated in the interaction.

     1. This requirement applies to interactions carried out under both 59D(1) and 59D(2).

     2. Therefore, every QIB participating in such limited marketing interactions must be identified and recorded.

• Example:

  1. The issuer conducts limited marketing interactions with 20 QIBs.

  2. The issuer and lead manager(s) must prepare a list identifying those 20 participating QIBs.

  3. The list serves as a record of who participated in the pre-issue interactions.

59D(4).

• Confirmation of Closure of QIB Interactions

  1. The issuer and the lead manager(s) must provide confirmation to SEBI regarding the closure of the QIB interactions.

  2. This relates to the limited marketing interactions permitted with qualified institutional buyers.

     1. The confirmation must be submitted to the Board after the interactions have been completed.

     2. Therefore, SEBI must be informed that the permitted QIB interaction process has been concluded.

Regulation 59E. General Conditions

59E(1).

• Permitted Actions Before SEBI’s Observations

  1. The following provision overrides anything contrary contained elsewhere in the ICDR Regulations.

  2. An issuer choosing the IPO route through pre-filing of the draft offer document under this Chapter gets certain special permissions.

  3. Before using these permissions, the issuer must intimate:

     1. The Board (SEBI).

     2. The stock exchange(s).

  4. These permissions are available only until the Board recommends changes or issues observations on the pre-filed draft offer document.

  5. Once SEBI recommends changes or issues observations, these special permissions under this provision no longer remain available.

  6. The specific activities permitted during this period are then listed in the following clauses/sub-regulations.

• (a).

  1. Outstanding Convertible Securities or Rights to Receive Equity Shares

     1. The issuer is permitted to have outstanding convertible securities or other rights that may result in a person receiving equity shares.

     2. “Outstanding convertible securities” means securities that have already been issued but have not yet been converted into equity shares.

     3. “Any other right” covers a right or option that can entitle a person to receive equity shares of the issuer.

     4. Therefore, the existence of such securities or rights does not prevent the issuer from using the pre-filing IPO route.

  2. Example:

     1. An issuer has outstanding convertible debentures.

     2. The debentures can later be converted into the issuer’s equity shares.

     3. The issuer can still proceed with the pre-filing IPO route, subject to the requirements of Regulation 59E.

  3. Mandatory Conversion Before SEBI’s Observations

     1. If the issuer has outstanding convertible securities or any other right that can give a person an option to receive equity shares then:

     2. The issuer must mandatorily deal with them before SEBI issues observations.

     3. The issuer must:

        1. Convert the outstanding convertible securities; or

        2. Exercise the other right that can entitle a person to receive equity shares.

     4. This conversion or exercise must happen before the Board recommends any changes or issues observations on the pre-filed draft offer document.

     5. After the conversion or exercise, the issuer must intimate the Board about it.

     6. Therefore, the issuer cannot wait until after SEBI has issued observations to complete this conversion or exercise.

     Example:

     1. The issuer has outstanding convertible debentures that can be converted into equity shares.

     2. Before SEBI issues observations on the pre-filed draft offer document, the issuer must convert those debentures.

     3. The issuer must then inform SEBI about the conversion.

  4. Activities Permitted Even After SEBI’s Observations

     1. The earlier restriction applies until SEBI issues observations on the pre-filed draft offer document.

     2. However, this further proviso creates an exception.

        1. Certain specified activities are still permitted even after SEBI has issued observations.

        2. Therefore, receiving SEBI’s observations does not completely stop the issuer from undertaking every activity.

        3. The specific activities that remain permitted are listed in the clauses that follow.

  5. Example:

     1. Issuer pre-files the draft offer document.

     2. SEBI subsequently issues observations.

     3. Even after those observations, the issuer can continue with the activities specifically permitted under the following provisions.

• (i).

  1. Outstanding Employee Stock Options

     1. The issuer is permitted to have outstanding employee stock options even after SEBI has issued observations on the pre-filed draft offer document.

        1. These options may have been granted to employees who are currently working with the issuer.

        2. They may also have been granted to persons who were employees earlier but are no longer employees.

        3. The employee stock option scheme must comply with the Companies Act, 2013.

        4. The scheme must also comply with any relevant Guidance Note or accounting standards issued by the Institute of Chartered Accountants of India (ICAI), where applicable.

     2. Therefore, the mere existence of such outstanding employee stock options does not prevent the issuer from proceeding with the IPO.

  2. Example:

     1. An employee received stock options under a valid ESOP scheme.

     2. The employee later leaves the company, but the options remain outstanding.

     3. The issuer can still proceed with the IPO, provided the ESOP scheme complies with the applicable requirements.

• (ii).

  1. Outstanding Stock Appreciation Rights (SARs)

     1. The issuer may have outstanding Stock Appreciation Rights (SARs) granted to employees under a SAR scheme.

     2. These SARs must be fully exercised for equity shares before filing the relevant final-stage document:

        1. Red herring prospectus (RHP) for a book-built issue.

        2. Prospectus for a fixed-price issue.

     3. The draft offer document must disclose details regarding:

        1. The outstanding SARs.

        2. The SAR scheme.

        3. The total number of equity shares resulting from exercise of the SARs.

     4. The same disclosures must also be made in the final offer document.

     Example:

     1. Employees hold SARs under the issuer’s SAR scheme.

     2. Before filing the RHP, all such SARs are exercised and converted into equity shares.

     3. The draft offer document and final offer document disclose the SARs, the scheme and the number of equity shares issued on exercise.

• (iii).

  1. Fully Paid-up Outstanding Convertible Securities

     1. The issuer may have fully paid-up outstanding convertible securities.

     2. These securities must be required to be converted into equity shares on or before the filing of the relevant document.

     3. For a book-built issue, conversion must take place on or before the filing of the red herring prospectus (RHP).

     4. For a fixed-price issue, conversion must take place on or before the filing of the prospectus.

     5. Therefore, the convertible securities can remain outstanding before this stage, but they must be converted by the time the RHP/prospectus is filed.

• (b).

  1. Issue of Specified Securities

     1. The issuer is permitted to issue specified securities even after SEBI has issued observations on the pre-filed draft offer document.

     2. “Specified securities” generally refers to equity shares and convertible securities, as covered under the ICDR Regulations.

     3. Therefore, the issuer can continue with the issue of specified securities during this stage, subject to the applicable regulatory requirements.

  2. Example:

     1. The issuer has received SEBI’s observations on its pre-filed draft offer document.

     2. The issuer subsequently issues specified securities as permitted under this provision.

• (c).

  1. Mandatory Convertible Securities

     1. The issuer is permitted to issue convertible securities even after SEBI has issued observations on the pre-filed draft offer document.

     2. These convertible securities must be mandatorily and compulsorily convertible into equity shares.

        1. The conversion must take place at the time of filing the offer document.

        2. The UDRHP-I must already contain the details of these convertible securities.

        3. The UDRHP-I must specifically disclose the maximum number of equity shares into which the convertible securities can be converted.

59E(2).

• Changes Relating to Schedule XVI-A Matters

  1. If changes are made to the pre-filed draft offer document after the Board has issued its observations, the issuer may need to file the document again with the Board.

  2. This requirement applies when the changes relate to matters specified in Schedule XVI-A.

  3. Depending on the circumstances, the issuer must file either:

     1. An updated pre-filed draft offer document or

     2. A fresh pre-filed draft offer document.

  4. The applicable fees specified in Schedule III must also be paid while making this filing.

  5. Therefore, changes relating to Schedule XVI-A matters cannot simply be made without informing the Board.

• Example:

  1. SEBI has already issued observations on the pre-filed draft offer document.

  2. The issuer subsequently makes a change concerning a matter covered under Schedule XVI-A.

  3. The issuer must file an updated or fresh pre-filed draft offer document with SEBI, as applicable.

  4. Schedule III fees must accompany the filing.

Explanation:

• Changes Made Before SEBI’s Observations

  1. Changes made in the pre-filed draft offer document before SEBI recommends changes or issues observations do not require fresh filing.

  2. This relaxation specifically applies to changes relating to matters mentioned in clause (1) of Schedule XVI-A.

  3. Therefore, the timing of the change is important:

     1. Before SEBI’s observations: no fresh filing is required.

     2. After SEBI’s observations: the requirement under the previous provision may apply.

59E(3).

• Changes in UDRHP-I Relating to Schedule XVI Matters

  1. If any changes are made in UDRHP-I relating to matters specified in Schedule XVI, the document must be filed again with the Board.

  2. Depending on the situation, one of the following must be filed:

     1. An updated pre-filed offer document; or

     2. A fresh draft offer document under Chapter II; or

     3. A fresh pre-filed draft offer document.

  3. The appropriate document depends on the IPO route and circumstances of the change.

  4. The required fees specified in Schedule III must also be paid along with the filing.

59E(4).

• Time Limit for Opening the Public Issue

  1. The issuer may open the public issue within 18 months from the date SEBI issues its observations under Regulation 59C.

  2. The 18-month period is counted from the date of issuance of observations by the Board.

  3. The issuer must also comply with the requirements of the Companies Act, 2013.

  4. Therefore, both conditions must be satisfied:

     1. The issue must be opened within 18 months of SEBI’s observations.

     2. The issue must comply with the Companies Act, 2013.

• 16-Month Limit for Filing UDRHP-I

  1. After SEBI issues its observations under Regulation 59C, the issuer must file UDRHP-I within 16 months.

  2. UDRHP-I must be filed with:

     1. The Board (SEBI).

     2. The stock exchange(s).

  3. The 16-month period is counted from the date on which SEBI issues its observations.

  4. This creates an earlier deadline than the 18-month period for opening the public issue.