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Emergence And Efficacy Of SEBI As The Super Boss In Issue Management In India

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.

The issue 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[1] 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 [2]
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:
  1. According to RBI only a corporate body can become an issue manager but not the non-financial banking companies.
  2. The issue manager should have all the necessities to carry out activities like offices, machines, and manpower.
  3. In the corporate body two persons are required to have adequate experience of the business of Merchant Banking.
  4. He is required to have adequate capital.
  5. He is also required to have qualifications from institutes in Law and Business Management.
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:
  1. 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.
  2. 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.
  3. The lead manager shall also pay interest in the case of delay according to the provision of the company act 2013
  4. 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.
  5. 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[3]

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:[4]
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.

SEBI Role:

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 preferential allotment.

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.

  1. Indian Companies Act, 2013
  2. Securities and Exchange Board of India (
  3. Aparajita, S., & Rhudra, R. (2013). Insider Trading Regulation 2015. GNLU Law Review, 4(2), 69-88.
  4. Sabarinathan, G. (2010). SEBI's regulation of the Indian securities market: a critical review of the major developments. Vikalpa, 35(4), 13-26.

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