1. ICDR REGULATIONS
HISTORY & BACKGROUND
“The More You Know About The Past, The Better You Are Prepared
For The Future”
-Theodore Roosevelt
2. WHAT ARE ICDR REGULATIONS?
SEBI (ICDR) Regulations deals with Issue of Specified
Securities by a new Issuer or a Listed Issuer.
The Regulations came into force on 26th August, 2009.
The Regulations were formulated to promote the
development of a healthy capital market and to protect the
interests of investors in securities.
3. HOW DID THE REGULATIONS COME INTO
FORCE?
SEBI (Disclosure and Investor Protection) Guidelines, 2000
Parliament’s mandate to SEBI to make regulations for specifying
“matters relating to issue of capital, transfer of securities and other
matters incidental thereto and the manner in which such matters
shall be disclosed by the companies” through insertion of section
11A(1)(a) in the SEBI Act.
Section 11A(1)(a) over the DIP Guidelines.
SEBI embarked upon the drafting of the ICDR Regulations.
In order to provide a focused impetus, the task of preparing the ICDR
Regulations by suitably incorporating the provisions of the DIP
Guidelines was assigned to an internal group, comprising the officers
from Operational and Legal Department of SEBI.
4. Recommendations made by the Malegam Committee of Disclosures in its Report:
Review of the contents of abridged prospectus
Review of the contents of issue advertisements
Review of standard observations issued by SEBI
Order of presentation of disclosures in offer document
The recommendations of the Malegam Committee remaining to be implemented
were to be taken up while converting the DIP Guidelines into regulations.
The recommendations of the Malegam Committee which required further
deliberations and the recommendations which had lost their relevance due to
changed market conditions were not included in the ICDR Regulations.
The draft Memorandum of the proposed SEBI (ICDR) Regulations was then placed
before the Board. The Regulations with modifications were then adapted.
6. ICDR DOES NOT REGULATE THE
FOLLOWING-
Public Issue of Debt Securities
Issue of ADRs / GDRs
Issue of FCCBs
Issue of shares pursuant to ESOPs
7. PUBLIC ISSUE
• Public issue means an IPO or FPO.
• Conditions for IPO:
a) Net Tangible Assets of 3 crore in each preceding 3 full
years.
b) Track record of distributable profits.
c) Net Worth of at least 1 crore.
d) Aggregate of proposed and previous issue does not
exceed its pre- issue net worth.
e) Change of name.
• Conditions for FPO:
a) Aggregate of proposed and previous issue does not
exceed its pre- issue net worth.
b) Change of name.
8. RIGHTS ISSUE
Offer of specified securities by a listed issuer to its
shareholders.
Conditions for Rights issue:
No issuer can make a Public or Rights issue if-
a) Debarred from accessing the capital market.
b) If promoter is a promoter of other company which is
debarred from accessing capital markets.
c) If the issuer is in the list of willful defaulters.
d) Unless it has made an application to any recognized stock
exchange.
e) Unless it has entered into an agreement with a depository.
f) Unless all shares are fully paid.
9. PREFERENTIAL ISSUE
Issue of specified securities by a listed issuer to
a select person or group of persons on a private
placement basis.
Conditions for Preferential Issue:
a) Special resolution.
b) Shares in dematerialized form.
c) Continuous listing of Equity Shares.
d) Issuer has obtained PAN of proposed
allottees.
10. BONUS ISSUE
An offer of free additional shares to existing
shareholders
Conditions for Bonus issue:
a) Authorized by AOA.
b) Has not defaulted in payment of interest or
principal in respect of fixed deposits.
c) Not defaulted in respect of the payment of statutory
dues of the employees.
d) Shares should be fully paid-up.
11. QUALIFIED
INSTITUTIONAL
PLACEMENT
QIP means allotment of eligible securities to
QIB’s on Private Placement basis
Conditions for QIP:
a) Special resolution.
b) The equity shares of the same class are
listed on a recognized Stock Exchange.
c) It has minimum Public Shareholding.
12. INDIAN DEPOSITORY
RECEIPTS
IDR is financial instrument which enables foreign
companies to raise funds from the Indian Securities
market.
Conditions for issue of IDR:
a) Issue size shall not be less than 50 Crore.
b) Procedure to be followed by the applicant must be
mentioned in the prospectus.
c) Minimum application – 20 thousand rupees.
d) Shares in dematerialized form.
e) 50% of the IDR shall be allotted to QIB’s.
f) Balance 50% - NII’s, RII’s including employees.
g)There shall be only one denomination of IDR.
14. THE BEGINNING..
SAHARA GROUP
Raised
Sahara India Real Estate
Corporation Limited
(SIRECL)
Sahara Housing Investment
Corporation Limited (SHIC)
Raised 19000 crores
By issuance of Optionally Fully Convertible Debentures
(OFCDS)
15. Filed RHPs to the concerned ROC and mentioned
therein that the company did not intend to list the shares
on any stock exchanges.
Sahara Prime City Limited intends to raise funds through
listing of its shares filed Prospectus to SEBI.
SEBI received complaint from Mr. Roshan Lal alleging
that Sahara group was issuing Housing Bonds without
complying with Rule/Regulation/Guideline by RBI/MCA.
16. SAHARA’S CONTENTION
The raising of funds through issue of OFCDs adhered all
regulatory compliances and is legal.
The raising of funds through OFCDs was by way of private
& is not a public issue.
SEBI has no locus standi to administer compliances of
Unlisted public Companies in view of Section 55A of
companies 1956.
Bonds issued by Sahara's were never shares and
Debentures but the “hybrids”.
The bonds are convertible bonds and falls within the scope
of Section 28(1)(b) of the SCRA.
SEBI’s jurisdiction in the matter of unlisted company is
erroneous and has no credible evidence to show that
Sahara had attempted to deceive or collect money from
fictitious sources.
17. SEBI’S CONTENTION
Sahara Group was issuing housing bonds without
complying with rules and regulations.
The issue of OFCDs was public issue.
Issuance of OFCD was made to more than 50 investors and
therefore securities were liable to be listed on a Recognized
Stock Exchange.
SEBI analyzed and concluded that OFCDs are indeed
securities.
Sahara's violated DIP Guidelines & SCRA regulations.
None of the disclosure requirements by the SEBI not
followed.
Investor protection measures prescribed for under ICDR
2009 had not been adhered.
Sahara had not executed any Debenture Trust Deed nor
appointed any Debenture Trustee also not created any
Debenture Redemption Reserve.
18. BASED ON DIP GUIDELINES AND ICDR
REGULATIONS, SEBI FOUND THAT THE
APPELLANTS HAD…
- Failed to file the Draft Offer Documents with SEBI.
- Failed to give the adequate disclosures.
- Failure to lock-in the minimum promoters contribution.
- Failure to open and close the issue within stipulated
time.
- Failure to obtain the credit rating.
- Failure to appoint a debenture trustee.
- Failure to create a charge on the assets of the
company, etc.
19. OBSERVATION BY
SUPREME COURT
Issue of OFCDs is not a private placement.
When the above securities are offered to more than
50 persons it to be considered as Public Issue
accordingly SEBI has jurisdiction as per section 55A
in the matter of unlisted public companies.
Supreme Court concluded that the appellants
companies knowingly issued securities by way of
private placement in order to diminish various laws
and regulation.
20. CONCLUSION
SEBI concluded that the appellants cannot in one
breath claim that their issues are private placements
and at the same time proceed to use a route
exclusively designed for Public Issues.
SEBI while analyzing the RHPs filed by the appellants
companies noticed that investors who had been
issued a variety of bonds were absolutely insecure.
Such diversion in the case of Debentures would not
have been permissible under ICDR Regulations.
22. THE BEGINNING..
11.05.2006- filed the first Draft Red Herring
Prospectus.
The first DRHP was withdrawn by the company.
02.01.2007- Second DRHP was filed with SEBI.
23. NAMES OF SHAREHOLDERS AND THEIR
SHAREHOLDING, BEFORE AND AFTER
THE TRANSFER OF SHARES IN THREE
COMPANIES:
24. POST TRANSFER OF SHARES, THE
SHAREHOLDING OF SUDIPTI, SHALIKA AND
FELICITE:
25. SO, HOW DID SEBI FIND OUT THAT DLF
WAS COLLECTING PUBLIC MONEY?
One Mr. Kimsuk Sinha ("Mr. Sinha") had filed complaints with SEBI
on June 4, 2007 alleging the Sudipti Estates Private Limited
("Sudipti") and certain other persons had defrauded him of 34 crore
in relation to a transaction between them for purchase of land
(“Complaint”) and also filed FIR dated April 26, 2007 alleging that
two of DLF’s wholly owned subsidiaries were the only shareholders
of the Sudipti and requesting to disallow the listing of DLF pursuant
to the IPO and for immediate action.
Pursuant to the inaction of SEBI in relation to Complaint against DLF,
Mr. Sinha filed a Writ Petition before the Delhi High Court.
26. WHAT DID DLF DO IN
RESPONSE?
DLF’s arguments before SEBI:
SEBI has transgressed its authority by not limiting its investigation to
Complaint as directed in Order and extended its authority without
jurisdiction.
SEBI has violated the principles of natural justice by denying request for
inspection of documents.
At the relevant point of time, Mr. Sinha was neither an investor nor a
subscriber to the shares of DLF or related to the securities market and
therefore had no legitimate cause to take recourse to the jurisdiction vested
in SEBI.
The RHP/Prospectus also fairly disclosed the developmental rights in the
land owned by Sudipti and the risk relating to the said development rights.
FIR is neither a litigation nor one which could affect the operations and
finances of DLF, as required to be disclosed of DIP Guidelines.
27. CHARGES LEVIED BY SEBI
1. Non-disclosure of material information in relation to
alleged subsidiaries by DLF in RHP/Prospectus.
2. Non-disclosure of related party transactions by DLF in
RHP/Prospectus. (violated clause 6.9.6.6 of the DIP
Guidelines)
3. Non-disclosure of outstanding litigation relating to
Alleged Subsidiaries by DLF in RHP/Prospectus.
4. Violations of DIP guidelines by five directors and CFO
of DLF.
5. Deliberate and active suppression of material
information amounting to Fraud in terms of PFUTP
Regulations, 1995.
28. SO, WHAT DID SEBI DO WHEN THEY
FOUND OUT?
In its order dated October 10, 2014, the “SEBI” has
restrained DLF Limited (“DLF”), its 5 directors and CFO,
from accessing the securities market and prohibited them
from dealing in securities for the period of 3 years on the
ground of active and deliberate suppression of material
information in its red herring prospectus (“RHP”)/
Prospectus so as to mislead and defraud the investors in
the securities market in connection with the issue of
shares of DLF in its IPO…
29. THEREBY VIOLATING THE PROVISIONS OF THE SEBI
ACT..
the SEBI (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Market) Regulations, 2003 (“PFUTP
Regulations”),
the SEBI (Disclosure and Investor Protection) Guidelines, 2000
("DIP Guidelines") and
the SEBI (Issuance of Capital and Disclosure Requirements)
Regulations, 2009 ("ICDR Regulations").
31. 11TH DECEMBER, 2009
INSERTION OF REGULATION 55A:
Reservation of Employees along with Rights Issue
subject to the condition that value of allotment to any
employee shall not exceed one lakh rupees.
INTRODUCTION TO PART-D (SCHEDULE XI):
Alternate method of Book-building in case of Further
Public offers.
32. 13TH APRIL, 2010
INSERTION OF CHAPTER XA:
Issue of specified securities for Small and Medium
Enterprises in accordance with:
Applicability criteria,
Filing of offer document and due diligence certificate,
Underwriting,
Minimum Apllication Value, (not less than Rs. 1 lakh
per application)
Minimum number of Allottees, (not less than 50)
Market Making, etc.
33. 29TH APRIL, 2011
SEBI (ICDR) REGULATIONS, 2009, REGULATION
58:
In regulation 58, after sub-regulation (5), the following
proviso shall be inserted, namely:-
“Provided that in case of qualified institutional buyers
and non-institutional investors the issuer shall accept
bids using ASBA facility only.”
Note: ASBA (Applications supported by blocked amount)
is a process developed by India’s stock market regulator
SEBI for applying to IPO.
34. 30TH JANUARY, 2012
INTRODUCTION TO INSTITUTIONAL PLACEMENT
PROGRAMME:
Chapter VIII-A of SEBI (ICDR) Regulations, 2009 introduced,
Institutional Placement Programme, which shall apply to issuance of
fresh shares and or offer for sale of shares in a listed issuer for the
purpose of achieving minimum public shareholding in terms of Rule
19(2)(b) and 19A of the Securities Contracts (Regulation) Rules, 1957.
Conditions for IPP:
A special resolution has to be passed for approving the IPP.
No partly paid-up securities shall be offered.
The issuer shall obtain an in-principle approval from the SE.
35. 12TH OCTOBER, 2012
ANNUAL UPDATION OF OFFER DOCUMENTS:
After Regulation 51, Regulation 51A has been
inserted for Annual updation of offer document. The
following new provision is as follows:
51A. “The disclosures made in the red herring
prospectus while making an initial public offer, shall be
updated on an annual basis by the issuer and shall be
made publicly accessible in the manner specified by the
Board."
36. 27TH FEBRUARY, 2013
SUBSTITUTION OF REGULATION 100:
FUNGIBILITY:
The Indian Depository Receipts shall be fungible into
underlying equity shares of the issuing company in the
manner specified by the Board and Reserve Bank of India,
from time to time.
Note: The SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009 were published in the
Gazette of India on 26th August, 2009 vide No. LAD-
NRO/GN/2009-10/15/174471.
37. 4TH FEBRUARY, 2014
GRADING FOR INITIAL PUBLIC OFFER:
In the Securities and Exchange Board of India (Issue of
Capital and Disclosure Requirements) Regulations,
2009, an issuer while making an initial public offer (IPO)
may obtain grading for such offer from one or more
credit rating agencies registered with the Board.
38. 14TH AUGUST, 2015
4th Amendment:
Chapter XC introduces Listing on Institutional Trading Platform which apply
to entities which seek listing of their specified securities exclusively on the
institutional trading platform either pursuant to a public issue or otherwise.
5th Amendment:
In regulation 58(5), in Public issues, the issuer shall accept bids using only
ASBA facility in the manner specified by the Board and in Rights issues, where
not more than one payment option is given, the issuer shall provide the facility
of ASBA in accordance with the procedure and eligibility criteria specified by the
Board:
Provided that in case of qualified institutional buyers and non-institutional
investors the issuer shall accept bids using ASBA facility only.
39. 10TH SEPTEMBER, 2015
6th Amendment:
In the SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009, in Schedule XI, in
Part A, sub-clause (iii), has been substituted with the
following:-
(iii) In case of allocation above Rs. 250 crores; a
minimum of 5 such investors and a maximum of 15 such
investors for allocation up to Rs. 250 crore and an
additional 10 such investors for every additional Rs. 250
crore or part thereof, shall be permitted, subject to a
minimum allotment of Rs. 5 crore per such investor.
41. CAPITAL RAISING PROSPECTS
FOR STARTUPS: INDIA AND US
COMPARED
• Two capital market regulators
• frameworks to enable start-ups
• Source
• easing regulatory requirements
• Safeguards the interest of investors
• good track record companies
• professionally managed start-ups
42. RULES SET UP BY THE TWO ACTS
Final Rules - Regulation A+, under
Jumpstart Our Business Start-ups (JOBS)
Act, 2012
Regulation A+ mandated by JOBS Act to
revive framework of Regulation A
Regulation A exempted from registration to
raise $5 mn by selling securities in a 12-
month period.
Under Reg A filing of prospectus and
registration under state securities laws
“blue sky laws” mandatory.
Costs of compliance combined with $5 mn
limitation on offering size made Regulation
A unattractive.
Discussion Paper on Alternative Capital
Raising Platform
Listing of Specified securities under
Institutional Trading Platform Regulations,
2013
SMEs and start-ups were allowed to get
their securities listed on the ITP without
carrying out an IPO
Could raise capital through private
placements and right issues.
Discussion paper proposed professionally
managed start-ups could bring an IPO to
get their securities listed.
Securities Exchange Commission Securities Exchange Board of
India
43. INTEREST OF RETAIL INVESTORS
Exemptions
Establishment of final rules
referred as Regulation A+.
Work System.
Fund raising
Time period
Approval
Invest
Unaccredited Investors fund
Framework
Minimum application size
Parties Eligible
Restricted Parties
Securities Exchange Commission Securities Exchange Board of
India
44. ELIGIBLE ISSUERS
SECURITIES EXCHANGE
COMMISSION
Not restricted only to the knowledge
based technology sector
Development stage companies with
a specific plan are eligible issuers
SECURITIES EXCHANGE BOARD
OF INDIA
Professionally managed start-ups
Does not hold 25% or more of the
pre-issue share capital
Promoters whose funding comes
down to below 25%
45. LOCK-IN REQUIREMENTS
SECURITIES EXCHANGE
COMMISSION
At the time of an offer and within the
following 12 months all existing
shareholders cannot sell securities worth
more than $6 mn under Tier 1 and not more
than $15 mn under Tier 2
Secondary sales after the expiration of the
first year is also limited to not more than $6
mn, in the case of Tier 1 and not more than
$15 mn, in the case of Tier 2 offerings
Existing shareholders are allowed to make
secondary sales of securities but the
promoters must remain invested at least for
two years i.e. they cannot make secondary
sales for two years.
SECURITIES EXCHANGE BOARD OF
INDIA
At least 20% of post issue capital should be
locked in for three years post public issue
Entire pre-issue share capital should be
locked in for six months
The ICDR Regulations have exempted
Venture Capitals from lock in requirements
VCs will be able to sell their stake only after
the cooling off period of six months
Existing shareholders can offload their
holding only through trading on ITP after the
expiration of six month.
46. DISCLOSURE REQUIREMENTS
SECURITIES EXCHANGE
COMMISSION
Need to file form 1-A with the
SEC for its approval.
The form should have three
parts: notification, offering
circular, and exhibits
Companies cannot use an
offering circular for sales until
the SEC approves
Two years of financial
statements are also required
SECURITIES EXCHANGE BOARD
OF INDIA
Prospectus needs to be in compliance
with the various ICDR Regulations.
SEBI has provided relaxation in the
matters of objects of the issue, pricing of
the issue, disclosure on litigation,
disclosure on creditors etc.
General corporate purposes can be
disclosed as the object in the offer
document.
There cannot be any forward looking
statement while disclosing the basis of
the pricing of the issue.
47. TO SUM UP……
Though in the first reading, the ICDR Regulations may
appear to be a mere reshuffle of the old provisions, these
Regulations appear to remove the fissures in the erstwhile
DIP Guidelines to protect investors.
The ICDR Regulations represent a leaner and more
contemporary set of rules, which should stand the test of
time in the vibrant world of capital markets.
A level playing field is necessary so that the same
information is available to all prospective investors. SEBI is
yet to decide on the suitability of this change. A good via
media may be to publish such projections in the public
domain rather than restrict such disclosures to certain
investors.
Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHIC) , appellants herein are the companies controlled by the Saharas group. The two appellants companies have raised about 19000 crores rupees from investors by issuance of Optionally Fully Convertible Debentures (OFCDS) by passing Special resolution U/S 81(1A)
Subsequently they filed RHPs to the concerned ROC and specifically mentioned therein that the company did not intend to list the shares on any stock exchanges
One of the group company
While reviewing the prospectus filed by sahara prime city,….
What did Sahara do in Response?
The usual – whatever large corporates do in our country
Sahara rushed to the Lucknow bench of the Allahabad High Court,
3 SEBI also held that the parliament has conferred powers on it under Section 55A to administer issues of securities to public.
4 Transferable hence marketable