A company has multiple sources to increase its capital, one of the ways is being
the issuance of securities. It can be done in three ways: Public Issue, Right
Issue &Private Placement. But the process of issuing securities in the market is
not as easy as it sounds, it is very complex in nature. The company first has to
manage its issue which it does on the advice of merchant bankers.
management includes management of equity, debentures, share, and bonds at the
right size, time, and market condition. Therefore, managing issues is complex
and should be done carefully. In this research paper, we are going to discuss
the role of SEBI guidelines in the issue management of a company. Section 24 of
the Companies Act, 2013 deals with power delegated to SEBI in the case of
regulation of issues and securities transfer. It also covers all the types of
companies including listed and unlisted companies.
Guidelines for Issue Manager 
The Issue Managers are required to register themselves under SEBI. So that they
can have valid issue management activities.
Following are the requirements for
them for registration:
- According to RBI only a corporate body can become an issue manager but
not the non-financial banking companies.
- The issue manager should have all the necessities to carry out
activities like offices, machines, and manpower.
- In the corporate body two persons are required to have adequate
experience of the business of Merchant Banking.
- He is required to have adequate capital.
- He is also required to have qualifications from institutes in Law and
As per the SEBI provision, no company can carry issues in the market without a
Merchant Banker. As issue management is very complex, it deals with capital
structuring, capital gearing and financial planning for the company. A Merchant
Banker deals with the control and architecture of such cases. Merchant Banker is
required to have due diligence and give a certificate to SEBI.
Public Issue Management
The public issue is done by a public company with the help of a prospectus in
which the funds are raised in public, for a number of shares that are fixed. In
the case of management of the public issue, the Merchant Bankers play a big
role, they are involved in the formation of a prospectus, issue pricing,
controlling other agencies for coordination in process, etc.
SEBI has divided
these activities into two parts the pre-issue activities(which includes MOU,
Appraisal of notes, etc) and Post issue activities (which includes
advertisements, finalization of BOA, etc).
Post issue obligations:
The companies are also required to comply with SEBI guidelines after the
issuance of securities following are the requirements:
- The manager is required to give information to the registrar regarding
the flow of applications from various bank branches at the regular interval
after the closure. It includes applications of stock investment till the
finalization of allotment and after the listing of shares. Any act or
omissions should be reported to SBI.
- The responsibility of resolution of issues faced by investors is on
Merchant Banker, according to the SEBI guidelines. It is therefore compulsory for them to
allocate and refund to investors on time. Therefore the merchant banker has the
interrelationship between the issuer and registrar of an issue and he has to
maintain it for a quick resolution.
- The lead manager shall also pay interest in the case of delay according
to the provision of the company act 2013
- Certain post-issue reports are required to be recorded and sent to SEBI by
the lead manager. It includes a 78-day post-issue monitoring report and a 3-day
post-issue monitoring report. The manager is also required to report any change
that occurred during the report.
- As per guidelines, the position of Compliance Officer shall be formed by
Merchant Banker so that there is inter compliance with the SEBI guidelines and
government notices in the company. He shall also direct authorities for
compliance and ensure no deficiencies occur in an organization.
Inter Trading Avoidance
Insider Trading occurs when there is stock trading on the basis of information
received from the company which was not available in public. This type of
trading is misconduct of securities as it is undertaken on the basis of
connection to the company. Earlier SEBI (Prohibition of Insider Trading)
Regulation, 1992 used to regulate this conduct but it is now replaced with SEBI
(Prohibition of Insider Trading) Regulation, 2015. The act defines the insider
more briefly, it includes any persons connected to the company or deemed to have
a connection, or when a person is connected to the company indirectly.
Guidelines for Public Issue entrance
SEBI has laid down the issue norms in a market. The issue norm means the
different ways for an issuer to gain capital market. Following are the
requirements to be fulfilled by the market:
In the case of the unlisted issuer, if they want to follow Profitability Route,
they have to fulfill the requirements like issuer company who has Rs.3 crore of
net tangible assets for three proceeding years, of which 50 percent of assets
shall not be in monetary form can be eligible for such norm.
The condition of 50
percent is not applicable in the case of the sale of a public offer. Also, they
should have at least 15 crores of pre-taxation profit in the minimum three of
preceding five years, and have to fulfill other requirements as mentioned in the
guidelines of SEBI.
However, this will not stop genuine companies from raising their funds. SEBI has
provided alternative routes for accessing the primary markets. They can follow
the QIB route, which is the issuance through the building book route. Companies
that are ready to give 75% of the net offer to the public can apply for this
route. But the company has to return the subscription money if the given
requirement is not fulfilled.
In the case of listed issuer applying through FPO route is the best option, but
in case a company has changed its name in last year, it is needed to receive
total revenue of 50 percent in the activities performed under the new name in
the preceding year. The companies are also required to have the sum of present
and previous issues in a financial year, which should not exceed 5 times of
pre-issue worth, on fulfillment of which the company shall be applicable for the
mentioned route. If a listed company couldn't follow any of the above-mentioned
conditions it can go for the QIB route and follow the above-mentioned procedure.
Pricing of issue:
SEBI had not laid any guidelines for the pricing of issues; the companies are
free to choose a price. The pricing is further divided into fixed price sharing
and book-built issues. In the fixed price issue, the price is decided by the
issuer on the onset and is mentioned in the offer document. In the case of the
book-built issue, the price is decided on the basis of demand received on the
prospectus. From the collection of investors, the price is decided after the
closing date of the bid. In most cases, the company engages the Merchant Banker
in the case of finalization of price. After drafting the offer document, he has
to send it to SEBI.
Before SEBI, the Controller of Capital was in authority to check and decide
about the entrance of the company. It is also used to decide about the prices of
shares to be issued by the company. But after SEBI, the companies were free to
take advantage of market force and determine the issue price without any
interruption. The preliminary issuance is governed under SEBI (ICDR)
Regulations, 2009, and ICDR Regulations.
SEBI observes over the company who are going to formulate issues of about 50
lakh rupees. A company before issuance of security has to draft a document for
an offer and send it to SEBI. The observance letter will be sent to SEBI for a
period of 12 months. This condition is not valid in the case of QIP and
SEBI plays an important in regulations of issues management, for which it has
released guidelines in the year 2000 (it was also updated in the year 2009). It
consists of guidelines for eligibility norms, pricing for issuing securities,
post-issue obligations, etc. The company can issue shares under the Public
Issue, Rights Issue &Private Placement. The issues are managed by merchant
bankers who architect the capital plan of a company.
A company cannot carry on issues without the Merchant Banker. They may select
the issue manager on the basis of their needs and qualifications of which they
want. SEBI has also time to time brought changes in the regulations and
guidelines, one of the popular changes was book building through which prices
were controlled by the issuer. Therefore, one cannot ignore the role and
importance of SEBI it covers every stage of issuance from the entrance of
issuance to closure report.
- Indian Companies Act, 2013
- Securities and Exchange Board of India (sebi.gov.in)
- Aparajita, S., & Rhudra, R. (2013). Insider Trading Regulation 2015.
GNLU Law Review, 4(2), 69-88.
- Sabarinathan, G. (2010). SEBI's regulation of the Indian securities
market: a critical review of the major developments. Vikalpa, 35(4), 13-26.