Securities Law

PREFACE
Securities Law and Capital Market in the course of Company Secretaryship provides the
framework for understanding of the laws which govern the listed companies in India.
For academic point of view, this book covers Executive level important aspects of the module of
the subject, as published by the Institute of Company Secretaries of India as well as detailed
explanations of concepts, flow charts, learning techniques, relevant judicial pronouncements as to
make the subject material more understanding.
The main features of the book are as under –
• The entire syllabus has been covered in a single book.
• It provides comprehensive and critical study of Securities Law.
• All important and relevant judicial pronouncements, circulars, notifications, clarifications,

explanations etc have been incorporated.
• This book is incomplete without the notes of the students on the blank pages left for them. The
same is done with a purpose of helping the students stay attentive, alert and to pen down concepts,
charts and short forms in the way they can best learn and memorize.
The author craves the indulgence of the students/ readers of any error or imperfection which might
have, despite the best possible endeavors, crept in this work. Any suggestion for improvement of
this book could be emailed at sukhlecha.shubham@gmail.com, and the same shall be great fully
welcomed.
With best wishes-
Author-
Mr. Shubhamm Sukhlecha

(CA, CS, LLM)
Email - Sukhlecha.shubham@gmail.com
(8554883071)
Securities Law and
Capital Market
S.no. CONTENT
1. Securities Contracts (regulations) act, 1956
2. Securities and exchange Board of india act, 1992
3. depositories act, 1996
4. SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018
5. SEBI (Listing Obligations and Disclosure
6. SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011
7. SEBI (Buy-Back of Securities) Regulations 2018
8. SEBI (Delisting of Equity Shares) Regulations,
2021
9. Overview of Share Based Employee Benefits
Regulation. (Separate Sheet)
10. Overview of Sweat Equity shares regulation.
(Separate Sheet)
11. SEBI (Prohibition of Insider Trading)
Regulations, 2015
12. SEBI (Mutual Fund) Regulations, 1996
13. SEBI (Collective Investment Schemes)
Regulations, 1999
14. SEBI (Ombudsman) Regulations, 2003
15. Capital Market Institutions
16. Capital Market Instruments
17. Important Aspects of Primary Market
18. Stock Exchange Mechanism
19. Securities Market Intermediaries
Basics of Securities Law
1. Applicability of securities Law
2. What is a listed company?
0.1 Shubhamm Sukhlecha INSPIRE ACADEMY

3. What is SEBI?

4. What is a depository?

Overview of the syllabus of
Securities Law and Capital Market
Part A Part B
Securities Law Capital Market
(70 marks) (30 marks)
3 Acts 11 Regulations

Chapter 1
Securities Contract (Regulation) Act, 1956
1.1 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

INTRODUCTION
The stock exchanges suffer from certain limitations and require strict control over their
activities in order to ensure safety in dealings thereon. Hence, in 1956, the Securities Contracts
(Regulation) Act was passed which provided for recognition of stock exchanges by the Central
Government.
Securities Contracts (Regulation) Act, 1956

The Securities Contracts (Regulation) Act, 1956, extends to the whole of India and came into
force in February, 1957. The Act defines various terms in relation to securities and provides the
detailed procedure the stock exchanges to get recognition from Government/SEBI, procedure
for listing of securities of companies and operations of the brokers in relation to purchase and
sale of securities on behalf of investors.
DEFINITIONS
Corporatisation “Corporatisation” means the succession of a recognised stock exchange,
being a body of individuals or a society registered under the Societies
Registration Act, 1860 (21 of 1860), by another stock exchange, being a
company incorporated for the purpose of assisting, regulating or
controlling the business of buying, selling or dealing in securities carried
on by such individuals or society.
Demutualisation “Demutualisation” means the segregation of ownership and management
from the trading rights of the members of a recognised stock exchange in
accordance with a scheme approved by the Securities and Exchange
Board of India.
Spot delivery Spot delivery contract means a contract which provides for –
contract (a) actual delivery of securities and the payment of a price therefore
either on the same day as the date of the contract or on the next day,
(the actual period taken for the dispatch of the securities or the remittance
of money therefore through the post being excluded from the computation
of the period aforesaid if the parties to the contract do not reside in the
same town or locality);
(b) transfer of the securities by the depository from the account of a
beneficial owner to the account of another beneficial owner when such
securities are dealt with by a depository.
Stock Exchange Stock Exchange means –
(a) any body of individuals, whether incorporated or not, constituted
before corporatisation and demutualisation, or
(b) a body corporate incorporated under the Companies Act, 2013
whether under a scheme of corporatisation and demutualisation or
otherwise,
for the purpose of assisting, regulating or controlling the business of
buying, selling or dealing in securities.

Recognised Recognised Stock Exchange means a stock exchange which is for the time
Stock Exchange being recognised by the Central Government.
Government Government security means a security created and issued whether before
security or after the commencement of this Act, by the Central Government or a
State Government for the purpose of raising a public loan.
(also known as Gilt edged securities)
Derivative A derivative includes –
(a) a security derived from a debt instrument, share, loan, whether
secured or unsecured, risk instrument or contract for differences or any
other form of security and;
(b) a contract which derives its value from the prices or index of prices, of
underlying securities.
(c) Commodity derivatives; and
(d) such other instruments as may be declared by the Central Government
to be derivatives.
RECOGNITION OF STOCK EXCHANGES

 Section 3 lays down that any stock exchange, desirous of being recognized for the purposes of
this Act may make an application in the prescribed manner to the Central Government. Every
application shall contain such particulars as may be prescribed, and shall be accompanied by a
copy of the bye-laws of the stock exchange for the regulation and control of contracts and also
a copy of the rules relating in general to the constitution of the stock exchange and in particular
to –
(a) the governing body of such stock exchange, its constitution and powers of
management and the manner in which its business is to be transacted;
(b) the powers and duties of the office bearers of the stock exchange;
(c) the admission into the stock exchange of various classes of members, the qualifications,
for membership, and the exclusion, suspension, expulsion and re-admission of members
therefrom or thereinto;
(d) the procedure for the registration of partnerships as members of the stock exchange in
cases where the rules provide for such membership; and the nomination and appointment
of authorized representatives and clerks.
 Section 4 lays down that if the Central Government is satisfied (powers are exercisable by SEBI
also) after making such inquiry as may be necessary in this behalf and after obtaining such
further information, if any, as it may require;

(a) that the rules and bye-laws of a stock exchange applying for registration are in
conformity with such conditions as may be prescribed with a view to ensure fair dealing
and to protect investors;
(b) that the stock exchange is willing to comply with any other conditions which the
Central Government, may impose; and
(c) that it would be in the interest of the trade and also in the public interest to grant
recognition to the stock exchange;
 It may grant recognition to the stock exchange subject to the conditions imposed upon it as
aforesaid and in such form as may be prescribed.
 Every grant of recognition to a stock exchange under this section shall be published in the
Gazette of India and also in the Official Gazette of the State in which the principal office of the
stock exchange is situated, and such recognition shall have effect as from the date of its
publication in the Gazette of India.
WITHDRAWAL OF RECOGNITION
If the Central Government is of opinion that the recognition granted to a stock exchange should
in the interest of the trade or in the public interest, be withdrawn, the Central Government
may serve on the governing body of the stock exchange a written notice that the Central
Government is considering the withdrawal of the recognition for the reasons stated in the
notice and after giving an opportunity to the governing body to be heard in the matter, the
Central Government may withdraw, by notification in the Official Gazette, the recognition
granted to the stock exchange;
Application
Stock Central
exchange Government
Recognition

POWER OF CENTRAL GOVERNMENT, RECOGNISED STOCK ECHANGE AND SEBI UNDER
SCRA, 1956
To call for periodical returns and make direct enquiries
To direct rules or make rules
To Supersede Companies of Stock Exchanges

Powers of the CG
To Suspend Business of Recognised Stock Exchange
To Issue Directions
To prohibit contracts in certain cases
To grant Immunity
To delegate or to make rules
Make Rules Restricting Voting Rights Etc.

Powers
of RSE
To Make Bye-laws

Powers of SEBI
To Make or Amend Bye-

To make Regulations Power To Adjudicate
Laws of any RSE
PUBLIC ISSUE AND LISTING OF SECURITIES

Every issuer intending to offer the certificates or instruments referred therein to the public shall
make an application, before issuing the offer document to the public, to one or more
recognized stock exchanges for permission for such certificates or instruments to be listed on
the stock exchange or each such stock exchange.
If permission is not granted:

Where the permission applied for listing has not been granted or refused by the recognized
stock exchanges or any of them, the issuer shall forthwith repay all moneys within eight days
(excluding public holidays, eg. If there is one public holiday within 8 days, the company shall get
9 days to refund), if any, received from applicants in pursuance of the offer document.
If any such money is not repaid within eight days after the issuer becomes liable to repay it, the
issuer and every director or trustee thereof, as the case may be, who is in default shall, on and
from the expiry of the eighth day, be jointly and severally liable to repay that money with
interest at the rate of fifteen percent per annum.
Once the securities are listed on the application of any person in any recognised stock
exchange, such person shall comply with the conditions of the listing agreement with that stock
exchange.

RIGHT OF APPEAL TO SAT AGAINST REFUSAL TO LIST SECURITIES BY STOCK EXCHANGES
Where a recognised stock exchange, refuses to list the securities of any company, the company
shall be entitled to appeal to SAT (Securities appellate tribunal).
The appeal has to be filed within 15 days from the date of refusal. (If the stock exchange has
not communicated within the specified time, appeal can be filed within 15 days from the end of
specified time)
After hearing the appeal, the SAT may vary or set aside the decision of the stock exchange.
Every appeal shall be in such form and be accompanied by such fee as may be prescribed. The
Securities Appellate Tribunal shall send a copy of every order made by it to SEBI and parties to
the appeal. The appeal filed before the Securities Appellate Tribunal shall be dealt with by it as
expeditiously as possible and endeavour shall be made by it to dispose off the appeal finally
within six months from the date of receipt of the appeal.
Appeal

PENALTIES
Defaults Punishment
Penalty for failure to furnish periodical 5 lakh – 25 crores
returns, etc
Penalty for contravention where no separate 1 lakh – 1 crores
penalty has been provided
Penalty for failure to furnish information, 1 lakh/day (upto max. 1 crores)
return etc.
Penalty for failure by any person to enter into 1 lakh/day (upto max. 1 crores)
agreement with client
Penalty for failure to address investors 1 lakh/day (upto max. 1 crores)
grievances
Penalty for failure to segregate securities or 1 lakh – 1 crores
money of clients
Penalty for failure to comply with listing 5 lakh – 25 crores
conditions or delisting conditions
Penalty for excess dematerialization or 5 lakh – 25 crores
delivery of unlisted securities
(All sums realised by way of penalties under this Act shall be credited to the Consolidated Fund of India.)
Factors to be taken in account by the Adjudicating officer while imposing the amount of Penalty
1. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made

as a result of the default;
2. the amount of loss caused to an investor or group of investors as a result of the default;
3. the repetitive nature of the default.
Recovery of amount by Adjudicating officer if any person fails to pay the penalty
Recover from such person the amount by one or more of the following modes, namely:-
(a) attachment and sale of the person’s movable property;
(b) attachment of the person’s bank accounts;
(c) attachment and sale of the person’s immovable property;
(d) arrest of the person and his detention in prison;
(e) appointing a receiver for the management of the person’s movable and immovable
properties.

Special Courts
 The Central Government may, for the purpose of providing speedy trial of offences
under this Act, by notification, establish or designate as many Special Courts as may be
necessary.
 A Special Court shall consist of a single judge who shall be appointed by the Central
Government with the concurrence of the Chief Justice of the High Court within whose
jurisdiction the judge to be appointed is working.
 Qualification for appointment as a judge of a Special Court is, holding the office of a
Sessions Judge or an Additional Sessions Judge, as the case may be.
 The Code of Criminal Procedure, 1973 shall apply to the proceeding before a special
court
Right to Receive Income or Dividend from Collective Investment Scheme/Mutual

Fund or Company
It shall be lawful for the holder of any securities, whose name appears on the books of the issuer, to
receive and retain any income in respect of units or other instruments issued.
If any person has transferred the security but the transferee has not yet registered the security in his
name, despite of the fact that transferors name appear in the books of accounts, transferee can claim
the income or dividend if he makes application within 15 days from declaration of the income or
dividend.
The period specified (i.e. 15 days) shall be extended –
In case of death of transferee by the actual period taken by his legal representative to
establish his claim
in case of loss of the transfer deed by the actual period taken for the replacement
due to causes connected with the post by the actual period of the delay.

SECURITIES CONTRACTS (REGULATIONS) RULES, 1957
Requirements of Listing of Securities with recognised Stock Exchanges

A public company desirous of getting its securities listed on a recognised stock exchange, shall
apply to the stock exchange and forward along with its application the following documents:
 MOA and AOA,

 Copies of all prospectuses or statements in lieu of prospectuses,
 Copies of balance sheets and audited accounts for the last five years,
 Particulars of shares forfeited.
 Particulars of shares or debentures for which permission to deal is applied for;
 Certified copies of agreements or other documents relating to arrangements with or

between –
i. vendors and/or promoters,
ii. underwriters and sub-underwriters,
iii. brokers and sub-brokers.
 Certified copies of agreements with –

i. managing agents and secretaries and treasurers,
ii. selling agents,
iii. managing directors and technical directors,
iv. general manager, sales manager, managers or secretary.
Stock Exchange shall be satisfied that-

1) The AOA of the company should include all the required clauses,
2) The company should satisfy provisions relating to Minimum offer and allotment to
public.
Minimum offer and allotment to public

(also known as compliance of Continuous listing agreement)
Post issue capital
(calculated at offer price) Minimum allotment to Public
Less than or equal to 1600 crore 25 %
1600 – 4000 crore 400 crore
More than 4000 crore 10 %

Delisting of securities
A recognized stock exchange may, delist any securities listed thereon on any of the following
grounds :—
(a) the company has incurred losses during the preceding three consecutive years and it has
negative networth;
(b) trading in the securities of the company has remained suspended for a period of more than
six months;
(c) the securities of the company have remained infrequently traded during the preceding
three years;
(d) the company or any of its promoters or any of its director has been convicted for failure to
comply with any of the provisions of the Act or SEBI Act, 1992 or the Depositories Act, 1996 or
rules, regulations, agreements made thereunder, as the case may be and awarded a penalty of
not less than rupees one crore or imprisonment of not less than three years;
(e) the addresses of the company or any of its promoter or any of its directors, are not known
or false addresses have been furnished or the company has changed its registered office in
contravention of the provisions of the Companies Act, 2013, or;
(f) shareholding of the company held by the public has come below the minimum level
required.
(However, no securities shall be delisted unless the company concerned has been given a
reasonable opportunity of being heard )

Lesson 2
Securities and Exchange Board of India Act, 1992

1. INTRODUCTION
SEBI is a body corporate having perpetual succession and a common seal with power to
acquire, hold and dispose off property, both movable and immovable and to contract, sue and
be sued in its own name. SEBI has its Head Office at Mumbai and has powers to establish its
offices at other places in India.
2. OBJECTIVE OF SEBI
• To protect the interests of investors in securities,
• To promote the development of, and
• To regulate the securities market and for matters connected therewith or incidental thereto.
3. COMPOSITION OF SEBI
Chairman
Two members from amongst the officials of the Ministry of

the Central Government dealing with Finance and
administration of the Companies Act, 2013
One member from amongst the officials of the Reserve Bank
Five other members of whom at least three shall be the whole

time members, to be appointed by the Central Government.
4. FUNCTIONS AND POWERS OF SEBI

 It shall be the duty of SEBI to protect the interests of the investors in securities and to
promote the development of, and to regulate the securities markets by such measures
as it thinks fit.
 SEBI may take measures to undertake inspection of any book, or register, or other
document or record of any listed public company.

 SEBI has been vested with the same powers as are available to a Civil Court under the
Code of Civil Procedure, 1908 for trying a suit in respect of the following matters:
(i) the discovery and production of books of account and other documents at such place
and such time indicated by SEBI.
(ii) summoning and enforcing the attendance of persons and examining them on oath.
(iii) inspection of any books, registers and other documents of any person listed in
section 12 of the Act.
(iv) inspection of any book or register or other document or record of any listed
company or a public company which intends to get its securities listed on any
recognized stock exchange.
(v) issuing commissions for the examination of witnesses or documents.
 To Regulate or Prohibit Issue of Prospectus, Offer Document or Advertisement Soliciting

Money for Issue of Securities
 To Regulate Collective Investment Schemes
 Power to Issue Directions and order Investigation
 To order Cease and Desist Proceedings Section
5. REGISTRATION OF INTERMEDIARIES
Act provides that the following intermediaries are required to obtain a registration certificate
from SEBI to buy, sell or deal in securities:
– Stock-Broker
– Sub-Broker
– Share Transfer Agent
– Banker to an issue different market policy,
– Trustee of Trust Deed
– Registrar to an Issue
– Merchant Banker
– Underwriter
– Portfolio Manager
– Investment Adviser
– Depository
– Depository Participant
– Custodian of Securities
– Foreign Institutional Investor
– Credit Rating Agency
– Such other intermediary

Every application for registration would in such manner and on payment of such fees as may be
determined by SEBI Regulations. SEBI may, by order, suspend or cancel a certificate of
registration in such manner as may be determined by SEBI Regulations. However, no such order
shall be made unless the person concerned has been given a reasonable opportunity of being
heard.
6. PENALTIES AND ADJUDICATION

A. Penalties:
Offence Punishment
Failure to furnish information, return, etc.
Failure by any person to enter into

agreement with clients
Failure to redress investors’ grievances
Default in case of Mutual Funds
Failure to observe rules and regulations by

an asset management company
Failure to comply with regulations or

directions of SEBI by alternative investment
funds, infrastructure investment trusts and
real estate investment trusts
Failure to comply with regulations or

directions of SEBI by investment adviser
and research analyst
Default in case of stock broker
Insider Trading
Non-Disclosure of Acquisition of Shares and

Takeovers

Fraudulent and unfair trade practices
Alteration, destruction, etc., of records and

failure to protect the electronic database of
Board
Contravention where no separate penalty

has been provided
B. Adjudications:
SEBI appoints any of its officers not below the rank of Division Chief
to be an adjudicating officer for holding an inquiry in the prescribed
manner after giving any person concerned a reasonable opportunity
of being heard for the purpose of imposing any penalty.
The adjudicating officer has powers to summon and enforce the

attendance of any person acquainted with the facts and
circumstances of the case to give evidence or to produce any
document which in the opinion of the adjudicating officer, may be
relevant to the subject matter of the inquiry and if, on such inquiry,
he is satisfied that the person has failed to comply with the
provisions, he may impose such penalty as he thinks fit.
SEBI may call for and examine the record of any proceedings under
this section and if it considers that the order passed by the
adjudicating officer is erroneous, it may, after inquiry as it deems
necessary, pass a fresh order.
However, no such order shall be passed unless the person concerned

has been given an opportunity of being heard. Further, nothing
contained in this section shall be applicable after an expiry of a period
of three months from the date of the order passed by the adjudicating
officer or disposal of the appeal under section 15-T, whichever is
earlier.
Factors to be taken into Account by the Adjudicating Officer while adjudging the amount of penalty:
1. The amount of loss caused to an investor or group of investors as a result of the default;
2. The amount of loss caused to an investor or group of investors as a result of the default;
3. The repetitive nature of the default.

7. SECURITIES APPELLATE TRIBUNAL
In order to afford proper appellate remedies, SEBI Act provides for the establishment of the
Securities Appellate Tribunals to consider appeals against SEBI’s orders.
The Central Government is empowered to establish a Tribunal by notification, to be known as
the Securities Appellate Tribunal to exercise the jurisdiction, power and authorities conferred
on it or under the Act or any other law for the time being in force. The Central Government
shall also specify the matters and places in relation to which the Securities Appellate Tribunal
may exercise jurisdiction.
A. Composition
The Securities Appellate Tribunals shall consist of a Presiding Officer and such number of
Judicial Members and Technical Members as the Central Government may determine.
Presiding Officer Judicial member Technical member

# He is, or has been, a # He is, or has been, a # He is, or has been, a Secretary or an
Judge of the Supreme Judge of High Court for Additional Secretary in the Ministry or
Court at least five years; and Department of the Central Government or
OR any equivalent post in the Central/ State
a Chief Justice of a High Government; OR
Court
OR # He is a person of proven ability, integrity
a Judge of High Court and standing having special knowledge and
for at least seven years; professional experience, of not less than
fifteen years, in financial sector including
securities market or pension funds or
commodity derivatives or insurance.
# Appointed by the Central Government in # Appointed by Central Government on

consultation with Chief Justice of India or his recommendation of a Search-cum-Selection
nominee. Committee consisting of:
Chairman: Presiding Officer, SAT
Members:
-Secretary, Department of Economic Affairs;
-Secretary, Department of Financial Services;
-Secretary, Legislative Department or
Secretary, Department of Legal Affairs
# hold office for a term of five years and is eligible # hold office for a term of five years and is
for reappointment for another term of maximum eligible for reappointment for another term
five years. of maximum five years.
# Maximum age limit : 70 years. # Maximum age limit : 70 years.

B. Requirements for Appeal to the Tribunal
Any person aggrieved by the decision of SEBI or adjudicating officer

may appeal to SAT
Within 45 days from the date of receipt of order

(appeal after the expiry of the said period of 45 days if it is
satisfied that there was sufficient cause for not filing it within that period)
On receipt of appeal and after giving the parties to opportunity of

being heard, pass order as thinks fit, confirming, modifying or setting
aside the order.
C. Procedure
Securities Appellate Tribunal shall not be bound by the procedure laid down by the Code
of Civil Procedure, 1908, but shall be guided by the principles of natural justice.
D. Powers of SAT
The Securities Appellate Tribunals shall have, for the purposes of discharging their
functions under this Act, the same powers as are vested in a Civil Court under the Code
of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) issuing commissions for the examination of witnesses or documents;
(e) reviewing its decisions;
(f) dismissing an application for default or deciding it ex parte;
(g) setting aside any order of dismissal of any application for default or any order passed
by it ex parte;
(h) any other matter which may be prescribed.

E. Appeal to Supreme Court
Any person aggrieved by any decision or order of the Securities Appellate Tribunal may
file an appeal to the Supreme Court within 60 days from the date of communication of
the decision or order of the Securities Appellate Tribunal to him on any question of law
arising out of such order. It has been provided that the Supreme Court may, if it is
satisfied that the applicant was prevented by sufficient cause from filing the appeal
within the said period, allow it to be filed within a further period not exceeding 60 days.
8. SPECIAL COURT
Central Government for providing speedy trial of offences under this Act, by notification, establish or
designate as many Special Courts as may be necessary.
A Special Court shall consist of a single judge who shall be appointed by the Central Government with
the concurrence of the Chief Justice of the High Court.
A person shall not be qualified for appointment as a judge of a Special Court unless he is,
immediately before such appointment, holding the office of a Sessions Judge or an Additional
Sessions Judge, as the case may be.
Appeal against the special court lies to the High court.
The provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a
Special Court

9. RECOVERY OF AMOUNTS
If a person:
 Fails to pay the penalty imposed under this Act or
 Fails to comply with any direction of SEBI for refund of monies or
 Fails to comply with a direction of disgorgement order issued under section 11B or
 Fails to pay any fees due to SEBI.
The Recovery Officer may draw up under his signature a statement in the specified form
specifying the amount due from the person (such statement being hereafter in this Chapter
referred to as certificate) and shall proceed to recover from such person the amount specified
in the certificate.
The Recovery Officer can proceed to recover amount by the following modes:-
(a) attachment and sale of the person’s movable property;
(b) attachment of the person’s bank accounts;
(c) attachment and sale of the person’s immovable property;
(d) arrest of the person and his detention in prison;
(e)appointing a receiver for the management of the person’s movable and immovable
properties.
10. ROLE OF COMPANY SECRETARY

• Right to Legal Representation: Any person aggrieved (the appellant) may either appear in
person or authorize one or more chartered accountants or company secretaries (PCS) or cost
accountants or legal practitioners or any of its officers to present his or its case before the
Securities Appellate Tribunal (SAT).

Lesson 3
Depositories Act, 1996

INTRODUCTION
 A Depository is an organization like a Central Bank where the securities of a shareholder are held in
the electronic form at the request of the shareholder through the medium of a Depository
Participant. To utilize the services offered by a Depository, the investor has to open an account with
the Depository through a Depository Participant.
 Depository and depository participant both are regulated by SEBI.
 According to Section 2(e) of the Depositories Act, 1996 “Depository means a company formed and
registered under the Companies Act, 2013 and which has been granted a certificate of registration
under Section 12(1A) of the SEBI Act, 1992”.
 A depository cannot act as a depository unless it obtains a certificate of commencement of business

from SEBI.
 There are two Depositories functioning in India, namely the National Securities Depository Limited
(NSDL) and the Central Depository Services (India) Limited (CDSL).
 In the depository system, share certificates belonging to the investors are to be dematerialized and
their names are required to be entered in the records of depository as beneficial owners. Consequent
to these changes, the investors’ names in the companies’ register are replaced by the name of
depository as the registered owner of the securities. The depository, however, does not have any
voting rights or other economic rights in respect of the shares as a registered owner. The beneficial
owner continues to enjoy all the rights and benefits and is subject to all the liabilities in respect of the
securities held by a depository. Shares in the depository mode are fungible and cease to have
distinctive numbers. The transfer of ownership changes in the depository is done automatically on the
basis of delivery vs. payment.
Understanding Depository
What is the What are the Who is issuer and How corporate
function of models of its functions? actions such as
depository? depository? dividend, bonus, Right
issue are given in
What are the Depository mode?
benefits of Who is Depository Can company issue
depository? Participants and what securities directly in
are its characteristics? depository form?

Depository Functions
– Account opening
– Dematerialisation
– Rematerialisation
– Settlement
– Initial Public Offers (IPO’s), corporate benefits
– Creation of encumbrance
BENEFITS OF DEPOSITORY SYSTEM

What are the benefits of depository?
 Elimination of bad deliveries

 Elimination of all risks associated with physical certificates
 Immediate transfer and registration of securities
 Faster disbursement of non-cash corporate benefits like rights, bonus,
etc.
 Reduction in brokerage by many brokers for trading in dematerialized
securities
 Elimination of problems related to change of address of investor,
transmission, etc.
 Elimination of problems related to selling securities on behalf of a minor
MODELS OF DEPOSITORY
What are the models of depository?
Immobilisation – Where physical share certificates are kept in vaults with the depository for
safe custody and all subsequent transactions in these securities take place in book entry
form. The actual owner has the right to withdraw his physical securities as and when
desired. The immobilization of fresh issue may be achieved by issuing a jumbo certificate
representing the entire issue in the name of depository, as nominee of the beneficial
owners.
Dematerialisation – No Physical scrip in existence, only electronic records maintained by
depository. This type of system is cost effective and simple and has been adopted in India.

DEMATERIALISATION
Dematerialization is a process by which the physical share certificates of an investor are

taken back by the Company and an equivalent number of securities are credited his
account in electronic form at the request of the investor. An investor will have to first
open an account with a Depository Participant and then request for the dematerialization
of his share certificates through the Depository Participant so that the dematerialized
holdings can be credited into that account. This is very similar to opening a Bank Account.
Dematerialization of shares is optional and an investor can still hold shares in physical form.
However, he/she has to demat the shares if he/she wishes to sell the same through the
Stock Exchanges, as physical shares are to be sold through a separate session and are sold at
a big discount to the market prices. Similarly, if an investor purchases shares from the Stock
Exchange, he/she will get delivery of the shares in demat form. Odd lot share certificates
can also be dematerialized. Similarly, in Public Issues/Right Issues, shares are issued only in
demat form.
8. Depository credits
1. Investor opens account investor a/c
with DP Depository
Shareholder
2. Fills DRF Participant
4. DP intimates Depository
3. Lodges DRF and
share certificate to DP the Depository
7. Issuer confirms 5.
demat request to Depository
6. DP sends intimates
certificates and Depository
Issuer
DRF to Issuer
Issuer

REMATERIALISATION
Rematerialisation is the process of converting securities held in electronic form in a demat

account back in physical certificate form. For the purpose of rematerialisation, the client has
to submit the rematerialisation request to the DP with whom he has an account. A client can
rematerialise his dematerialised holdings at any point of time. The securities sent for
rematerialisation cannot be traded on stock exchange.
2. DP enters the
request in its system
which blocks the
client's holdings. 6. Client's account
with DP debited
Depository
Shareholder
1. Client submits Participant
3. DP intimates Depository
Rematerialisation
Request Form (RRF) to DP the Depository
3. DP sends the 5.Issuer

RRF to the electronically
4. Issuer prints
Issuer. confirms
certificates and
remat to
dispatch to the client.
Depository
Issuer

DEPOSITORY PARTICIPANT
Who is Depository Participant and what are its characteristics?
Just as a brokers act an agent of the investor at the Stock Exchange; a Depository Participant (DP) is
the representative (agent) of the investor in the depository system providing the link between the
Company and investor through the Depository. The Depository Participant maintains securities’
account balances and intimates the status of holding to the account holder from time to time.
Public financial institutions, scheduled commercial banks, foreign banks operating in India with the
approval of the RBI, state financial corporations, custodians, stock-brokers, clearing corporations /
clearing houses, NBFCs and registrar to an issue or share transfer agent complying with the
requirements prescribed by SEBI can be registered as DP.
A DP is one with whom an investor needs to open an account to deal in shares in electronic form.
While the Depository can be compared to a Bank, DP is like a branch of that bank with which an
account can be opened.
– Acts as an Agent of Depository
– Customer interface of Depository
– Account opening
CHARACTERISTICS OF – Transmission requests/nomination

DP
– Facilitates dematerialisation/rematerialisation
– Settles trades in electronic segment
– Pledge/enforcement of pledge etc.
– Functions like Securities Bank
REGISTRAR/ISSUER
Who is issuer and its functions?
“Issuer” means any entity such as a corporate / state or central government organizations
issuing securities which can be held by depository in electronic form.
FUNCTIONS OF ISSUER Dematerialisation
Confirmation of Beneficiary Holdings
Corporate Action – Rights, Bonus, etc.
Reconciliation of Depository Holdings
Rematerialisation

ELECTRONIC CREDIT IN NEW ISSUES
Can company issue securities directly in depository form?
 Investor opens account with DP

 Submits application with option to hold securities in depository giving DP-Id and
Client-Id
 Registrar uploads list of allottees to Depository
 Depository credits allottee’s account with DP
 Refunds sent by Registrar as usual
CORPORATE ACTIONS
How corporate actions such as dividend, bonus, Right issue are given in Depository mode?
 Dividends/cash benefits, these benefits are directly forwarded to the investors by

the company or its registrar and transfer agent.
 Non-cash benefits, viz. Bonus, Rights Issue, etc. these benefits are electronically
credited to the beneficial owner’s account through Depository.
Difference between Depository and Custodian

Both depository and custodial services are responsible for safe keeping of securities but
they are different in the sense that the Depository can legally transfer beneficial
ownership, while a custodian cannot. The main objective of a Depository is to minimize
the paper work involved with the ownership, trading and transfer of securities.

Part B – Depositories Act, 1996
Legal Framework of Depositories

The depository business in India is regulated by the following laws:
Legal Framework of depositories
The Depositories The SEBI Bye-laws of Business Rules of Other laws:

Act, 1996 (Depositories and Depository Depository
– The Companies Act, 2013
Participants)
– The Indian Stamp Act, 1899
Regulations, 2018
– Securities and Exchange Board of
India Act, 1992
– Securities Contracts (Regulation)
Act, 1956
– Benami Transaction (Prohibition)
Act, 1988
– Income Tax Act, 1961
– Bankers’ Books Evidence Act,
1891
1. DEPOSITORIES ACT, 1996

A. Eligibility Condition for Depository Services:
Any company or other institution to be eligible to provide depository services must:
– has a net worth of not less than rupees one hundred crores.
– be formed and registered as a company under the Companies Act, 2013.
– be registered with SEBI as a depository under SEBI Act, 1992.
– has framed bye-laws with the previous approval of SEBI.
– has one or more participants to render depository services on its behalf.
– has adequate systems and safeguards to prevent manipulation of records and
transactions to the satisfaction of SEBI.
– complies with Depositories Act, 1996 and SEBI (Depositories and Participants)
Regulations, 2018.
– meets eligibility criteria in terms of constitution, network, etc.

B. Fungibility (Section 9)
Section 9 states that securities in depositories shall be in fungible form. The Act
envisages that all securities held in depository shall be fungible i.e. all certificates of
the same security shall become interchangeable in the sense that investor loses the
right to obtain the exact certificate he surrenders at the time of entry into
depository. It is like withdrawing money from the bank without bothering about the
distinctive numbers of the currencies.
C. Penalties
failure to furnish information /return etc
failure to enter into agreement
failure to redress investor's Grievances
Delay in dematerialisation or issue of
certificate of securities
failure to reconcile record
failure to comply with directions issued by SEBI
contravention where no separate penalty has
been provided
Failure to conduct business in a fair manner
2. SEBI (DEPOSITORIES AND PARTICIPANTS) REGULATIONS, 2018

A. AUDIT UNDER REGULATION 76 SEBI (DEPOSITORIES AND PARTICIPANTS)
REGULATIONS, 2018
 Regulation 76 of SEBI (Depositories and Participants) Regulations, 2018
provides that every issuer shall submit audit report on a quarterly basis to the
concerned stock exchanges audited by a practising Company Secretary or a
qualified Chartered Accountant, for the purposes of reconciliation of the total
issued capital, listed capital and capital held by depositories in dematerialized
form, the details of changes in share capital during the quarter and the in-
principle approval obtained by the issuer from all the stock exchanges where it
is listed in respect of such further issued capital.
 The audit report is required to give the updated status of the register of
members of the issuer and confirm that securities have been dematerialized as
per requests within 21 days from the date of receipt of requests by the issuer
and where the dematerialization has not been effected within the said
stipulated period, the report would disclose the reasons for such delay.
 The issuer is under an obligation to immediately bring to the notice of the

depositories and the stock exchanges, any difference observed in its issued,
listed, and the capital held by depositories in dematerialized form.

B. INTERNAL AUDIT OF OPERATIONS OF DEPOSITORY PARTICIPANTS
 The two Depository service providers in India, viz., National Securities
Depository Ltd. (NSDL) and Central Depository Services (India) Limited (CDSL)
have allowed Company Secretaries in Whole-time Practice to undertake
internal audit of the operations of Depository Participants.
(It can also be undertaken by a Practicing CA or CMA)
 The internal audit shall be conducted at intervals of not more than six months.
 A copy of the internal audit report shall be furnished to NSDL and CDSL
Checklist of Internal Audit of Operations of Depository Participants:

– Account opening
– Reporting to BOs
– Dematerialisation of Securities
– Rematerialisation of Securities
– Market Trades
– Off Market Trades
– Transmission
– Returns to Depository
– Grievance Redressal Mechanism
– Collateral Security
– Assignment of Business
– Freezing of Account
– Closure of Account
– Pledge and Hypothecation
– Invocation of Pledge/Hypothecation by Pledgee
– Lending and Borrowing of Securities
– Records to be Maintained by DPs
– Disclosure and Publication of Information
– Supervision by DP
– Code of Ethics for DPs
– Branch of Depository Participants

C. CONCURRENT AUDIT OF DP of NSDL
 National Securities Depository Limited vide its Circular No. NSDL/POLICY/
2006/0021 dated June 24, 2006 provides for concurrent audit of the
Depository Participants. The Circular provides that w.e.f. August 1, 2006, the
process of demat account opening, control and verification of Delivery
Instruction Slips (DIS) is subject to Concurrent Audit.
 Depository Participants have been advised to appoint a firm of qualified

Chartered Accountant(s) or Company Secretary(ies) holding a certificate of
practice for conducting the concurrent audit. However, the participants in case
they so desire, may entrust the concurrent audit to their Internal Auditors. In
respect of account opening, the auditor should verify all the documents
including KYC documents furnished by the Clients and verified by the officials
of the Participants.
Role of CS
 Right to Legal Representation : In case of any decision of SEBI, the aggrieved entity/
company (the appellant) may either appear in person or authorise one or more
chartered accountants or company secretaries (PCS) or cost accountants or legal
practitioners or any of its officers to present his or its case before the Securities
Appellate Tribunal (SAT).
 Internal Audit of Depository Participants: The 2 (two) Depository services providers

in India, viz., National Securities Depository Ltd. (NSDL) and Central Depository
Services (India) Limited (CDSL) have allowed Company Secretaries in Whole-time
Practice to undertake internal audit of the operations of Depository Participants
(DPs).
 Reconciliation of Share Capital Audit: Company Secretary is authorised to issue

quarterly certificate with regard to reconciliation of the total issued capital, listed
capital and capital held by depositories in dematerialized form, details of changes in
share capital during the quarter, and in principle approval obtained by the issuer
from all the stock exchanges where it is listed in respect of such further issued
capital under SEBI (Depositories and Participants) Regulations, 2018.
 Concurrent Audit of Depository Participants: Practising Company Secretary is

authorized to carry out concurrent audit of Depository Participants which covers
audit of the process of demit account opening, control and verification of Delivery
Instruction Slips (DIS).

Lesson 4
An Overview of SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2018

1. Applicability of the SEBI (ICDR) Regulations, 2018
IPO by an unlisted issuer

FPO by a listed issuer
Rights issue of a listed issuer, where the aggregate value of the issue is Rs. 50 Crore or more
Bonus Issue by a listed issuer
Preferential issue by a listed issuer
Qualified Institutions Placement by a listed issuer
Listing on Innovators Growth Platform through an issue or without an issue
IPO by an small and medium enterprise
IPO of Indian Depository Receipts
Right issue of IDR
2. ELIGIBILITY NORMS FOR PUBLIC ISSUE

A. For IPO:
(a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full
years (of 12 months each), of which not more than 50% is held in monetary assets.
However, if more than 50% of the net tangible assets are held in monetary assets, the issuer
has utilized or made firm commitments to utilize such excess monetary assets in its business
or project. This limit of 50% shall not apply if IPO is made entirely through an offer for sale.
(b) The company has a minimum average operating profit of Rs. 15 crores, during the
preceding 3 years, with operating profit in each of the 3 preceding years.
(c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years
(of 12 months each);
(d) In case the company has changed its name within the last one year, at least 50% of the
revenue for the preceding 1 full year is earned by the company from the activity suggested
by the new name;
B. For FPO:
(a) In case the company has changed its name within the last one year, at least 50% of the
revenue for the preceding 1 full year is earned by the company from the activity suggested
by the new name;
(NOTE: In case the issuer was earlier a partnership firm or LLP or a division of a company, the track
record as Partnership, LLP, or of the division will be considered if the financial statements are
prepared for such partnership or LLP or such division as per Companies Act and duly certified by CA)
Alternative Eligibility Norms: An issuer not satisfying the condition stipulated above may make an
IPO or FPO, as the case may be, if the issue is made through the book-building process and the issuer
undertakes to allot, at least 75% of the net offer to public, to qualified institutional buyers and to
refund full subscription money if it fails to make the said minimum allotment to qualified
institutional buyers.

3. TYPES OF ISSUE
A company can raise funds from the primary market through different method:
(a) Public issue: When an issue/offer of securities is made to public it is called a public issue. Public
issue can be further classified into Initial public offer (IPO) and Further public offer (FPO).
(i) Initial public offer (IPO) : When an unlisted company makes either a fresh issue of securities or
offers their existing securities for sale or both for the first time to the public, it is called an IPO.
(ii) Further public offer (FPO) or follow on offer : When an already listed company makes a fresh
issue of securities to the public, it is called a FPO.
(b) Right issue (RI): When an issue of securities is made by an issuer to its existing shareholders as
on a particular date fixed by the issuer (i.e. record date), it is called a Rights issue.
(c) Bonus issue: When an issuer makes an issue of securities to its existing shareholders in
proportion to their paid up capital held as on a record date, without any consideration from them, it
is called a bonus issue.
(d) Private placement : When an issuer makes an issue of securities to a select group of persons not
exceeding 49 (200 in a financial year), and which is neither a rights issue nor a public issue, it is called
a private placement.
(i) Preferential Allotment
(ii) Qualified Institutions Placement (QIP)
(iii) Innovators Growth Platform (IGP)

4. DRAFT OFFER DOCUMENT, LETTER OF OFFER AND RED HERRING PROSPECTUS
Draft Offer Documents
 “Draft Offer document” means the offer document in draft stage. The draft
offer documents are filed with SEBI, at least 30 days prior to the filing of the
Offer Document with ROC/SEs.
 SEBI may specify changes/ its observations, if any, in the Draft Offer
Document and the Issuer or the Lead Merchant banker shall carry out such
changes in the draft offer document before filing the Offer Document with
ROC/SEs.
 The Draft Offer document is available on SEBI’s website for public comments
for a period of 21 days from the filing of the Draft Offer Document with the
SEBI.
Offer Document
 “Offer document” means Prospectus in case of a public issue and Letter of

Offer in case of a right issue, which is filed with Registrar of Companies (ROC)
and Stock Exchanges.
 An offer document covers all the relevant information to help an investor to
make his/ her investment decision.
Red Herring Prospectus (RHP)
 “Red Herring Prospectus” is a prospectus, which does not have details of

either price or number of shares being offered, or the amount of issue.
 The upper and lower price bands are disclosed.
 An RHP for an FPO can be filed with the ROC without the price band and the
issuer, in such a case will notify the floor price or a price band by way of an
advertisement one day prior to the opening of the issue.
 In the case of book-built issues, it is a process of price discovery and the price
cannot be determined until the bidding process is completed.
 Only on completion of the bidding process, the details of the final price are
included in the offer document. The offer document filed thereafter with ROC
is called a prospectus.

5. Differential Pricing
An issuer can offer specified securities at different prices, subject to the following:
(a) retail individual investors or retail individual shareholders or employees entitled

for reservation making an application for a value of not more than two lakh rupees,
can be offered specified securities at a price lower than the price at which net offer is
made to other categories of applicants.
However, such difference shall not be more than 10% of the price at which specified
securities are offered to other categories of applicants.
(b) in case of a book built issue, the price of the specified securities offered to an
anchor investor should not be lower than the price offered to other applicants; If the
issuer opts for alternate method of book building, the issuer can offer specified
securities to its employees at a price, lower than floor price and the difference
between such price and floor price shall not be more than 10%.
(c) in case of a composite issue, the price of the specified securities offered in the
public issue can be different from the price offered in rights issue and justification for
such price difference should be given in the offer document; and discount, if any
shall be expressed in rupee terms in the offer document.
6. Price and Price Band

(1) The issuer can mention a price in the prospectus (in case of a fixed price issue)
and floor price or price band in the red herring prospectus (in case of a book built
issue) and determine the price at a later date before filing the prospectus with the
Registrar of Companies.
(2) The issuer should announce the floor price or price band at least 2 working days
before the opening of the bid (in case of an initial public offer) and at least 1 working
day before the opening of the bid (in case of a further public offer), in all the
newspapers in which the pre issue advertisement was released.
(3) The cap on the price band shall be less than or equal to one hundred and twenty
percent of the floor price.
(4) However, the cap of the price band shall be at least one hundred and five percent
of the floor price.
(4) The floor price or the final price shall not be less than the face value of the
specified securities.

7. PROMOTERS’ CONTRIBUTION
A. Promoters minimum contribution:
Unlisted company Public issue Not less than 20% of the post-issue capital
Listed company Public issue To the extent of 20% of the proposed issue
or 20% of the post-issue capital
Listed company Composite issue 20% of the proposed public issue or 20% of
the post-issue capital
B. Exemption from requirement of promoters’ Contribution:

The requirements of minimum promoters’ contribution shall not apply in case of:
No identifiable promoter
Where the equity shares are frequently traded for a period of at least 3 years
immediately preceding the reference date, and:
• the issuer has redressed at least 95% of the investor complaints received till the
end of the quarter immediately preceding the month of reference date, and
• the issuer has been in compliance with the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 for a minimum period of 3 years
immediately preceding the reference date
Right issue
Promoters shall bring in the full amount of the promoters’ contribution including premium at
least one day prior to the issue opening date which shall be kept in an escrow account with a
Scheduled Commercial Bank and the said contribution/ amount shall be released to the
company along with the public issue proceeds.
If the promoters’ minimum contribution exceeds Rs.100 crores, the promoters shall bring in
Rs.100 crores before the opening of the issue and the remaining contribution shall be brought
in by the promoters in advance on pro-rata basis before the calls are made on public.
C. Lock in period for promoter contribution:

In a public issue, the specified securities held by promoters shall be locked-in
for the period stipulated hereunder:
(a) The promoters contribution including contribution made by AIFs or
FVCIs or scheduled commercial banks or PFIs or insurance companies
registered with IRDA, is subject to lock-in-period of eighteen months
from the date of allotment in the initial public offer.
However, in case the majority of the issue proceeds excluding the
portion of offer for sale is proposed to be utilized for capital
expenditure, then the lock-in period shall be three years from the date
of allotment in the initial public offer

(b) Any contribution made by promoters over and above the minimum
contribution shall be subject to a lock-in-period of 6 months in case of
all the companies.
However, in case the majority of the issue proceeds excluding the
portion of offer for sale is proposed to be utilized for capital
expenditure, then the lock-in period shall be one year from the date of
allotment in the initial public offer
(c) The SR equity shares shall be under lock-in until conversion into equity
shares having voting rights same as that of ordinary shares or shall be
locked-in for a period specified in sub-regulations (1), whichever is
later.
8. ISSUE OPENING DATE

 A public issue may be opened within 12 months from the date of issuance of
the observations by SEBI.
 In case of a fast-track issue, the issue shall open within the period specified
under the Companies Act, 2013.
 In case the issuer has filed a shelf prospectus, the first issue may be opened
within 3 months of the issuance of observations by SEBI.
 An IPO and an FPO shall be opened after at least 3 working days from the date
of filing the red herring prospectus in case of a book built issue or the
prospectus in case of a fixed price issue with the ROC.
9. PERIOD OF SUBSCRIPTION
 A public issue must be kept open for at least 3 working days but not more than
10 working days including the days for which the issue is kept open in case of
revision in price band.
 In case the price band in a public issue made through the book building process
is revised, the bidding (issue) period disclosed in the red herring prospectus
should be extended for a minimum period of 3 working days. However, the
total bidding period should not exceed 10 working days.
 In case of force majeure, banking strike or similar circumstances, the issuer
may, for reasons recorded in writing, extend the bidding (issue) period
disclosed in the red herring prospectus (in case of book built issue) or in the
prospectus (in case of fixed price issue), for a minimum period of 3 working
days.

10. MINIMUM NUMBER OF SHARE APPLICATIONS AND APPLICATION MONEY
The minimum application value shall be within the range of Rs.10,000 to Rs. 15,000.
The issuer company, in consultation with the merchant banker, shall stipulate the
minimum application value.
11. ISSUE OF ADVERTISEMENTS

Pre-issue advertisement
The issuer company shall after filing the red herring prospectus (in case of a book
built issue) or prospectus (in case of fixed price issue) with the Registrar of
Companies, make an advertisement in an English National daily with wide circulation,
one Hindi National newspaper with wide circulation and a regional language
newspaper with wide circulation at the place where the registered office of the
issuer is situated.
Post-issue Advertisements
The post-issue Merchant Banker is required to ensure that in all issues,
advertisement giving details relating to subscription, basis of allotment, number,
value and percentage of successful allottees for all application including ASBA, date
of completion of despatch of refund orders, date of credit of specified securities and
date of filing of listing application, etc., is released within 10 days from the date of
completion of the various activities at least in an English National Daily with wide
circulation, one Hindi National Paper and a Regional language daily circulated at the
place where registered office of the issuer company is situated.
12. MINIMUM SUBSCRIPTION

The minimum subscription to be received in an issue shall not be less than ninety
percent of the offer through offer document.
In the event of non-receipt of minimum subscription, all application moneys received

shall be refunded to the applicants forthwith, but not later than four days of the
closure of the issue, in case of the issue.
Note: In case the issuing company fails to refund the entire subscription amount
within stipulated time, then it is liable to pay the entire amount along with interest
of 15% per annum for the period of delay.

13. NET OFFER TO PUBLIC THROUGH BOOK BUILDING PROCESS
In case of an issue made through the not less than 35 % to retail individual investors;
book building process as per not less than 15 % to non-institutional investors;
regulation 6 (1) and 103 (1), then the not more than 50% to qualified institutional buyers,
allocation in the net offer to public 5 % of which shall be allocated to mutual fund
category shall be as follows:
In case of an issue made through the not more than 10% to retail individual investors
book building process under not more than 15% to non-institutional investors;
regulation 6(2) and 103(2), the not less than 75% to qualified institutional buyers,
allocation in the net offer to public 5% of which shall be allocated to mutual fund.
category shall be as follows:
In an issue made through book 1/3rd of the portion available to non-institutional
building process, the allocation in the investors shall be reserved for applicants with
non-institutional investors’ category application size of more than two lakh rupees and up
shall be as follows to ten lakh rupees
2/3rd of the portion available to non-institutional
investors shall be reserved for applicants with
application size of more than ten lakh rupees
In an issue made other than through Minimum 50% to retail individual investors; and
the book building process, allocation Remaining to:
in the net offer to public category (i) individual applicants other than RII and
shall be made as follows: (ii) other investors including corporate bodies or
institutions, irrespective of the number of specified
securities applied for;
The unsubscribed portion in either of the categories
specified above may be allocated to applicants in the
other category.
14. RESERVATION ON COMPETITIVE BASIS

Reservation on competitive basis means reservation wherein specified securities are
allotted in portion of the number of specified securities applied for in respect of a
particular reserved category to the number of specified securities reserved for that
category.
According to the SEBI (ICDR) Regulations, 2018, there are certain persons eligible for
reservation on competitive basis.
(1) The issuer may make reservation on a competitive basis out of the issue size
excluding promoters’ contribution in favour of the following categories of persons:
 Employees;

 shareholders (other than promoters and promoter group) of listed subsidiaries or
listed promoter companies.
However, the issuer shall not make any reservation for the lead manager(s),
registrar, syndicate member(s), their promoters, directors and employees and for
the group or associate companies (as defined under the Companies Act, 2013) of
the lead manager(s), registrar and syndicate member(s) and their promoters,
directors and employees.
(2) In case of an FPO, other than in a composite issue, the issuer may make a
reservation on a competitive basis out of the issue size excluding promoters’
contribution for the existing retail individual shareholders of the issuer.
(3) The reservation on competitive basis shall be subject to following conditions:
• the aggregate of reservations for employees shall not exceed 5% of the post issue
capital of the issuer and the value of allotment to any employee shall not exceed Rs.
2 Lakh. However, in the event of under-subscription in the employee reservation
portion, the unsubscribed portion may be allotted on a proportionate basis, for a
value in excess of Rs. 2 Lakh, subject to the total allotment to an employee not
exceeding Rs. 5 Lakh.
• reservation for shareholders shall not exceed 10% of the issue size;
• no further application for subscription in the net offer can be made by persons
(except an employee and retail individual shareholder of the listed issuer and retail
individual shareholders of listed subsidiaries of listed promoter companies) in favour
of whom reservation on a competitive basis is made;
• any unsubscribed portion in any reserved category may be added to any other
reserved category and the unsubscribed portion, if any, after such inter-se
adjustments among the reserved categories shall be added to the net offer category;
• in case of under-subscription in the net offer category, spill-over to the extent of

under-subscription shall be permitted from the reserved category to the net public
offer category.
(4) An applicant in any reserved category may make an application for any member
of specified securities, but not exceeding the reserved portion for that category.

15. Allotment of Securities
The company agrees that as far as possible allotment of securities offered to the
public shall be made within 15 days of the closure of public issue. The company
further agrees that it shall pay interest @15% per annum if the allotment letters/
refund orders have not been despatched to the applicants.
16. PROCEDURE FOR ISSUE OF SECURITIES

1. Compliance with SEBI Regulations
2. Holding of general meeting
3. Appointment of managers to the issue
4. Appointment of various other agencies
5. Drafting of prospectus
6. Intimation to Stock Exchange
7. Approval of prospectus
8. Approval of board of directors to prospectus and other documents
9. Making application to Stock Exchange(s) for permission to listing
10. Printing and distribution of prospectus and application forms
11. Pricing
12. Promoters contribution and lock-in-period
13. Underwriting
14. Mandatory Collection Centres
15. Certificate relating to promoters’ contribution
16. Coordination with the bankers to the issue
17. Minimum subscription
18. Allotment of shares
19. Refund orders

Additional Topics
Topic no.1:
Entities not eligible to make an initial public offer
An issuer shall not make an initial public offer:
a) If the issuer, any of its promoters, promoter group, selling shareholders are debarred from
accessing the capital market by SEBI.
b) If any of the promoters or directors of the issuer is a promoter or a director of any other
company which is debarred from accessing the capital market by SEBI.
c) If the issuer or any of its promoters or directors is a willful defaulter or a fraudulent
borrower.
d) If any of the promoters or directors of the issuer is a fugitive offender.
e) If there are any outstanding convertible securities or any other right which would entitle any
person with any option to receive equity shares of the issuer except outstanding options
granted to the employees under an employee stock option scheme and fully paid-up
outstanding convertible securities which are required to be converted on or before the date
of filing of the Red Herring Prospectus or the Prospectus.
Note :The restrictions under (a) and (b) above shall not apply to the persons or entities
mentioned therein, who were debarred in the past by SEBI and the period of debarment is
already over as on the date of filing of the draft offer document with SEBI.
Topic no.2
Conditions for making IPO
An issuer making an initial public offer shall ensure that:
a. it has made an application to one or more stock exchanges to seek an in-principle approval
for listing of its specified securities on such stock exchanges and has chosen one of them as
the designated stock exchange;
b. it has entered into an agreement with a depository for dematerialisation of the specified
securities already issued and proposed to be issued;
c. all its specified securities held by the promoters are in dematerialised form prior to filing of
the offer document;
d. all its existing partly paid-up equity shares have either been fully paid-up or have been
forfeited;
e. it has made firm arrangements of finance through verifiable means towards 75% of the
stated means of finance for a specific project proposed to be funded from the issue
proceeds, excluding the amount to be raised through the proposed public issue or through
existing identifiable internal accruals.
The amount for general corporate purposes, as mentioned in objects of the issue in the draft offer
document and the offer document shall not exceed 25% of the amount being raised by the issuer.
The amount for general corporate purposes, and such objects where the issuer company has not
identified acquisition or investment target, as mentioned in objects of the issue in the draft offer

document and the offer document, shall not exceed thirty five per cent. of the amount being raised
by the issuer. However, the amount raised for such objects where the issuer company has not
identified acquisition or investment target, as mentioned in objects of the issue in the draft offer
document and the offer document, shall not exceed twenty five per cent. of the amount being raised
by the issuer.
Further, such limits shall not apply if the proposed acquisition or strategic investment object has
been identified and suitable specific disclosures about such acquisitions or investments are made in
the draft offer document and the offer document at the time of filing of offer documents.
Topic no.3
Conditions for FPO
An issuer making an FPO shall ensure that:
a. An application is made for listing of the specified securities to one or more of the recognized
stock exchanges and choose one of the exchanges as the designated stock exchange.
b. An agreement is entered into with a depository for dematerialization of specified securities
already issued or proposed to be issued.
c. All its existing partly paid up equity shares have either been fully paid up or have been
forfeited. In other words, if a company has partly paid up equity shares, they shall not be
permitted to make a public issue.
d. The issuer should make firm arrangements of finance through verifiable means towards 75%
of the stated means of finance excluding the amount to be raised through the proposed
public issue or through existing identifiable internal accruals.
e. The amount for General Corporate Purposes as mentioned in objects of the issue in the draft
offer document and the offer document shall not exceed 25% of the amount being raised by
the issuer.
f. The amount for general corporate purposes, and such objects where the issuer company has
not identified acquisition / investment target, as mentioned in objects of the issue in the
draft offer document and the offer document, shall not exceed thirty five per cent. of the
amount being raised by the issuer.
However, the amount raised for such objects where the issuer company has not identified
acquisition or investment target, as mentioned in objects of the issue in the draft offer
document and the offer document, shall not exceed twenty five per cent. of the amount
being raised by the issuer:
Further, such limits shall not apply if the proposed acquisition or strategic investment object
has been identified and suitable specific disclosures about such acquisitions or investments
are made in the draft offer document and the offer document at the time of filing of offer
documents.
Topic no. 4
ISSUE OF WARRANTS
An issuer shall be eligible to issue warrants in an initial public offer subject to the following:
a) the tenure of such warrants shall not exceed eighteen months from the date of their
allotment in the initial public offer;
b) a specified security may have one or more warrants attached to it;

c) the price or formula for determination of exercise price of the warrants shall be determined
upfront and disclosed in the offer document and at least 25% of the consideration amount
based on the exercise price shall also be received upfront; However, in case the exercise
price of warrants is based on a formula, 25% consideration amount based on the cap price of
the price band determined for the linked equity shares or convertible securities shall be
received upfront.
d) in case the warrant holder does not exercise the option to take equity shares against any of
the warrants held by the warrant holder, within three months from the date of payment of
consideration, such consideration made in respect of such warrants shall be forfeited by the
issuer.
Topic no. 5
FILING OF OFFER DOCUMENT
 Prior to making an IPO/FPO, the issuer shall file three copies of the draft offer document
with the SEBI, through the lead manager(s).
 The lead manager(s) shall submit the following to the SEBI along with the draft offer
document:
 a certificate, confirming that an agreement has been entered into between the issuer
and the lead manager(s);
 a due diligence certificate;
 in case of an issue of convertible debt instruments, a due diligence certificate from the
debenture trustee.
 The issuer shall also file the draft offer document with the stock exchange(s) where the
specified securities are proposed to be listed, and submit to the stock exchange(s), the
Permanent Account Number, bank account number and passport number of its promoters
where they are individuals, and Permanent Account Number, bank account number,
company registration number or equivalent and the address of the Registrar of Companies
(ROC) with which the promoter is registered, where the ROC promoter is a body corporate.
 SEBI may specify changes or issue observations, on the draft offer document filed with it
within a period of 30 days from the later of the following dates:
a) the date of receipt of the draft offer document filed with SEBI; or
b) the date of receipt of satisfactory reply from the lead merchant bankers, where SEBI has
sought any clarification or additional information from them; or
c) the date of receipt of clarification or information from any regulator or agency, where
SEBI has sought any clarification or information from such regulator or agency; or
d) the date of receipt of a copy of in-principle approval letter issued by the recognised
stock exchanges.
 If SEBI specifies any changes or issues observations on the draft offer document filed with it,
the issuer and the lead merchant banker shall carry out such changers and shall submit
updated draft offer document complying with the observations and highlighting all changes
made in the draft offer document and before filing the offer documents with the Registrar of
Companies or an appropriate authority, as applicable.
 If there are any changes in the draft offer document in relation to the matters specified in
these regulations, an updated offer document or a fresh draft offer document, as the case
may be, shall be filed with SEBI.

Topic no. 6
Underwriting
 If an issuer makes a IPO/FPO other than through the book building process, desires to have
the issue underwritten, it shall appoint merchant bankers or stock brokers, registered with
the Board, to act as underwriters.
 If the issuer makes a public issue through a book building process,
a) the issue shall be underwritten by lead managers and syndicate members.
However, at least 75% of the net offer to the public is proposed to be compulsorily
allotted to the QIBs, and such portion cannot be underwritten.
b) the issuer shall, prior to filing the prospectus, enter into an underwriting agreement with
the lead manager(s) and syndicate member(s) which shall indicate the number of
specified securities which they shall subscribe to at the predetermined price in the event
of under-subscription in the issue.
c) if the syndicate member(s) fail to fulfill their underwriting obligations, the lead
manager(s) shall fulfill the underwriting obligations.
d) the lead manager(s) and syndicate member(s) shall not subscribe to the issue in any
manner except for fulfilling their underwriting obligations.
e) in case of every underwriting issue, the lead manager(s) shall undertake minimum
underwriting obligation as specified in the SEBI (Merchant Bankers) Regulations, 1992;
f) where the issue is required to be underwritten, the underwriting obligations should at
least to the extent if minimum subscription.
Topic no. 7
Monitoring Agency
If the issue size excluding the size of offer for sale by selling shareholders, exceeds Rs.100 crores, the
issuer shall ensure that the use of the proceeds of the issue is monitored by credit rating agency
registered with the Board.
The monitoring agency shall submit its report to the issuer in the format specified in the ICDR
Regulations, 2016 on a quarterly basis, till at least 100% of the proceeds of the issue, have been
utilized.
The issuer shall, within forty-five days from the end of each quarter, publicly disseminate the report
of the monitoring agency by uploading the same on its website as well as submitting the same to the
stock exchange(s) on which its equity shares are listed.
Topic no. 8
Manner of Calls
If the issuer proposes to receive subscription monies in calls, it shall ensure that the outstanding
subscription money is called within twelve months from the date of allotment in the issue and if any
applicant fails to pay the call money within the said twelve months, the equity shares on which there
are calls in arrear along with the subscription money already paid on such shares shall be forfeited.
In case the issuer has appointed a monitoring agency, the issuer shall not be required to call the
outstanding subscription money within twelve months.

Topic no. 9
Allotment Procedure and Basis of Allotment
 The issuer shall not make an allotment pursuant to a public issue if the number of prospective
allottees is less than 1,000.
 The issuer shall not make any allotment in excess of the specified securities offered through the
offer document except in case of oversubscription for the purpose of rounding off to make
allotment, in consultation with the designated stock exchange.
 The allotment of specified securities to applicants other than to the retail individual investors,
non-institutional investors and anchor investors shall be on a proportionate basis within the
respective investor categories and the number of securities allotted shall be rounded off to the
nearest integer, subject to minimum allotment being equal to the minimum application size as
determined and disclosed in the offer document. However, the value of specified securities
allotted to any person, except in case of employees, in pursuance of reservation made under
these regulations, shall not exceed Rs. 2 Lakh for retail investors or up to Rs. 5 Lakh for eligible
employees.
 The allotment of specified securities to each retail individual investor shall not be less than the
minimum bid lot, subject to the availability of shares in retail individual investor category, and
the remaining available shares, if any, shall be allotted on a proportionate basis.
 The allotment of specified securities to each non-institutional investor shall not be less than the
minimum application size, subject to the availability of shares in non-institutional investors’
category, and the remaining shares, if any, shall be allotted on a proportionate basis
 The authorised employees of the designated stock exchange, along with the lead manager(s)
and registrars to the issue, shall ensure that the basis of allotment is finalised in a fair and proper
manner in accordance with the procedure as specified.
Topic no. 10
FAST TRACK FPO
An Issuer Company need not file the draft offer document with SEBI and obtain observations from
SEBI, if it satisfies the following conditions:
(a) the equity shares of the issuer have been listed on any stock exchange for a period of at least
three years immediately preceding the reference date;
(b) entire shareholding of the promoter group of the issuer is held in dematerialised form on the
reference date;
(c) the average market capitalisation of public shareholding of the issuer is at least Rs. 1000 crores in
case of public issue;
(d) the annualised trading turnover of the equity shares of the issuer during six calendar months
immediately preceding the month of the reference date has been at least 2% of the weighted
average number of equity shares listed during such six months’ period. However if the public
shareholding is less than fifteen per cent of its issued equity capital, the annualised trading turnover
of its equity shares has been at least 2% of the weighted average number of equity shares available
as free float during such six months’ period;
(e) annualized delivery-based trading turnover of the equity shares during six calendar months
immediately preceding the month of the reference date has been at least 10% of the annualised
trading turnover of the equity shares during such six months‘ period;

(f) The issuer has been in compliance with the equity listing agreement or Securities and Exchange
Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, for
a period of at least three years immediately preceding the reference date.
However, if the issuer has not complied with the provisions relating to composition of board of
directors, for any quarter during the last three years immediately preceding the reference date, but
is compliant with such provisions at the time of filing of the red herring prospectus with the Registrar
of Companies, and adequate disclosures are made in the red herring prospectus about such non-
compliances, it shall be deemed as compliance with the condition. Further, imposition of monetary
fines by stock exchange on the issuer shall not be a ground for ineligibility for undertaking issuances
under these regulations
(g) the issuer has redressed at least 95% of the complaints received from the investors till the end of
the quarter immediately preceding the month of the reference date;
(h) that no show-cause notices, excluding proceedings for imposition of penalty, have been issued by
the Board and pending against the issuer or its promoters or whole time directors as on the
reference date. In cases where against the issuer or its promoters or whole time directors,
(i) show-cause notice(s) has been issued by the Board or the Adjudicating Officer, in a
proceeding for imposition of penalty; or
(ii) prosecution proceedings have been initiated by the Board;
necessary disclosures in respect of such action(s) along with its potential adverse impact on the
issuer shall be made in the offer document;
(i) if the issuer or the promoter or the promoter group or the director of the issuer has settled any
alleged violations of securities laws through the settlement mechanism of the Board in the past
three years immediately preceding the reference date, then the disclosure of such compliance of the
settlement order, shall be made in the offer document;
(j) equity shares of the issuer have not been suspended from trading as a disciplinary measure during
last three years immediately preceding the reference date;
(k) There shall be no conflict of interest between the lead merchant banker(s) and the issuer or its
group or associate company in accordance with applicable regulations.
(l) for audit qualifications, if any, in respect of any of the financial years for which accounts are
disclosed in the offer document, the issuer shall provide the restated financial statements adjusting
for the impact of the audit qualifications.
Further, for the qualifications wherein impact on the financials cannot be ascertained, the same shall
be disclosed appropriately in the offer document.
“Average Market Capitalisation of Public Shareholding” means the sum of daily market
capitalisation of public shareholding for a period of one year up to the end of the quarter preceding
the month in which the proposed issue was approved by the shareholders or the board of the issuer,
as the case may be, divided by the number of trading days.

Topic no. 11
EXIT OPPORTUNITY TO DISSENTING SHAREHOLDERS
A. Conditions for Exit Offer
The promoters or shareholders in control shall make the exit offer in to the dissenting shareholders,
in cases only if a public issue has opened after April 1, 2014; if :
 the proposal for change in objects or variation in terms of a contract, referred to in the offer
document is dissented by at least 10% of the shareholders who voted in the general
meeting; and
 the amount to be utilized for the objects for which the offer document was issued is less
than 75 % of the amount raised (including the amount earmarked for general corporate
purposes as disclosed in the offer document).
B. Eligibility of shareholders for availing the exit offer

Only those dissenting shareholders of the issuer who are holding shares as on the relevant date shall
be eligible to avail the exit offer.
C. Exit Offer Price

The ‘exit price’ payable to the dissenting shareholders shall be the highest of the following:
a) the volume-weighted average price paid or payable for acquisitions, whether by the promoters or
shareholders having control or by any person acting in concert with them, during the fifty-two weeks
immediately preceding the relevant date;
b) the highest price paid or payable for any acquisition, whether by the promoters or shareholders
having control or by any person acting in concert with them, during the twenty-six weeks
immediately preceding the relevant date;
c) the volume-weighted average market price of such shares for a period of sixty trading days
immediately preceding the relevant date as traded on the recognised stock exchange where the
maximum volume of trading in the shares of the issuer are recorded during such period, provided
such shares are frequently traded;
d) where the shares are not frequently traded, the price determined by the promoters or
shareholders having control and the merchant banker taking into account valuation parameters
including book value, comparable trading multiples, and such other parameters as are customary for
valuation of shares of such issuers.

D. Manner of providing exit opportunity
 The notice proposing the passing of special resolution for changing the objects of the issue and
varying the terms of contract, referred to in the prospectus shall also contain information about
the exit offer to the dissenting shareholders.
 In addition to the disclosures required under the provisions of the Companies Act, 2013 and
rules thereunder, a statement to the effect that the promoters or the shareholders having
control shall provide an exit opportunity to the dissenting shareholders shall also be included in
the explanatory statement to the notice for passing special resolution.
 After passing of the special resolution, the issuer shall submit the voting results to the
recognised stock exchange(s)
 The issuer shall also submit the list of dissenting shareholders, as certified by its compliance
officer, to the recognised stock exchange(s).
 The promoters or shareholders in control, shall appoint a merchant banker registered with SEBI
and finalize the exit offer price in accordance with these regulations.
 The issuer shall intimate the recognised stock exchange(s) about the exit offer to dissenting
shareholders and the price at which such offer is being given.
 The stock exchange(s) shall immediately on receipt of such intimation disseminate the same to
public within one working day.
 To ensure security for performance of their obligations, the promoters or shareholders having
control, as applicable, shall create an escrow account which may be interest bearing and deposit
the aggregate consideration in the account at least two working days prior to opening of the
tendering period.
 The tendering period shall start not later than seven working days from the passing of the
special resolution and shall remain open for ten working days.
 The dissenting shareholders who have tendered their shares in acceptance of the exit offer shall
have the option to withdraw such acceptance till the date of closure of the tendering period.
 The promoters or shareholders having control shall facilitate tendering of shares by the
shareholders and settlement of the same through the recognised stock exchange mechanism as
specified by SEBI for the purpose of takeover, buy-back and delisting.
 The promoters or shareholders having control shall, within a period of ten working days from
the last date of the tendering period, make payment of consideration to the dissenting
shareholders who have accepted the exit offer.
 Within a period of two working days from the payment of consideration, the issuer shall furnish
to the recognised stock exchange(s), disclosures giving details of aggregate number of shares
tendered, accepted, payment of consideration and the post-offer shareholding pattern of the
issuer and a report by the merchant banker that the payment has been duly made to all the
dissenting shareholders whose shares have been accepted in the exit offer.

Lesson 5
An Overview of SEBI (Listing Obligations and Disclosure

1. INTRODUCTION
SEBI has notified SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
(‘Listing Regulations’) on September 2, 2015 which came into force w.e.f. December 1, 2015
with two objectives, firstly , to align clauses of the listing agreement with Companies Act, 2013
and secondly to consolidate the conditions under different securities listing agreements in one
single regulation.
2. COMPLIANCES UNDER SEBI LISTING REGULATIONS

The Listed entity shall comply with the following compliances under the Listing Regulations :-
 One Time Compliances

 Quarterly Compliances
 Half yearly Compliances
 Yearly Compliances
 Event based Compliances
A. One-time Compliances
A listed entity shall appoint a Company Secretary as the Compliance Officer
The listed entity shall appoint a share transfer agent
Constitution of Committees
– Audit Committee (Regulation 18)
– Nomination and Remuneration Committee (Regulation 19)
– Stakeholders Relationship Committee (Regulation 20)
– Risk Management Committee (Regulation 21)
– Vigil Mechanism (Regulation 22)
B. Quarterly Compliances
The listed entity shall file with the recognized stock within 21 days from end of
exchange, a statement giving the number of investor quarter
complaints pending at the beginning of the quarter, those
received during the quarter, disposed of during the quarter
and those remaining unresolved at the end of the quarter
The listed entity shall submit a quarterly compliance report within 21 days from close of
on corporate governance the quarter
The listed entity shall submit to the stock exchange(s) a within 21 days from the end
statement showing holding of securities and shareholding of each quarter
pattern

Where the listed entity has appointed a monitoring agency within 45 days from the
to monitor utilisation of proceeds of a public or rights issue end of each quarter
or preferential issue or qualified institutions placement
, the listed entity shall submit to the stock exchange(s) any
comments or report received from the monitoring agency
The listed entity shall submit quarterly and year-to-date within 45 days of end of each
financial results to the stock exchange quarter.
Advertisements in Newspapers Within 48 hours of
conclusion of the Board
meeting at which the
financial results were
approved
C. Half Yearly Compliances

The listed entity shall submit to the stock exchange, within 15 days from date of
disclosures of related party transactions publication of its financial
results for the half year
(On the date of publication of
its financial results with
effect from April 1, 2023)
The listed entity shall also submit as part of its standalone or half-yearly basis
consolidated financial results for the half year a statement of
assets and liabilities and a statement of cash flows by way of
a note
D. Yearly Compliances
The listed entity shall submit a compliance certificate to the Within 30 from the end of
exchange, duly signed by both the compliance officer of the the financial year
listed entity and the authorised representative of the share
transfer agent
The listed entity shall pay all such fees or charges, as within 30 days of the end of
applicable, to the recognised stock exchange(s) financial year
The listed entity shall submit annual audited standalone within 60 days from the end
financial results with audit report of the financial year
The listed entity shall send a copy of the annual report to the along with the notice of the
shareholders annual general meeting

The listed entity shall submit to the stock exchange and not later than the day of
publish on its website a copy of the annual report sent to the commencement of dispatch
shareholders along with the notice of the annual general to its shareholders
meeting
In case any changes to the annual report, revised copy along within 48 hours after the
with the details and explanation for changes shall be sent annual general meeting
The listed entity shall ensure that the share transfer agent within 30 days from the end
and/or the in-house share transfer facility, as the case may of the financial year
be, produces a certificate from a practicing company
secretary
E. Event Based Compliances

The listed entity shall intimate the appointment of Share Within 7 days of Agreement
Transfer Agent, to the stock exchange(s) with RTA
The listed entity shall obtain In-principle approval from Prior to issuance of Security
recognised stock exchange
Prior Intimations of Board Meeting for financial Result viz. At least 5 clear days in
quarterly, half yearly or annual, to the stock exchange(s) advance
Disclosure of Price Sensitive Information to the stock Not later than twenty four
exchange(s) hours
The listed entity shall file draft Scheme of Arrangement to Prior approval before filing
the stock exchange(s) with Court or Tribunal
The listed entity shall submit information with respect to loss Within 2 days of getting
of share certificates and issue of the duplicate certificates to information
the stock exchange
The listed entity shall intimate the record date or date of At least 7 clear working days
closure of transfer books to all the stock exchange(s) in advance (for Rights issue -
At least 3 clear working days
in advance)
The listed entity shall submit to the stock exchange details Within 2 working days of
regarding voting results by Shareholders conclusion of its General
Meeting

3. CORPORATE GOVERNANCE UNDER SEBI (LODR) REGULATIONS, 2015
Good Governance in capital market has always been high on the agenda of SEBI. Corporate
Governance is looked upon as a distinctive brand and benchmark in the profile of Corporate
Excellence. This is evident from the continuous updation of guidelines, rules and regulations by
SEBI for ensuring transparency and accountability.
REGULATION CONTENT
18 Constitution of Audit Committee
Constitution of Nomination & Remuneration Committee

19
20 Constitution of Stakeholders Relationship
21 Constitution of Risk management Committee
22 Vigil mechanism

Lesson 6
SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011

1. INTRODUCTION
The SEBI Takeover code prescribes a systematic framework for acquisition of stake in listed
companies. By these laws the regulatory system ensures that the interests of the
shareholders of listed companies are not compromised in case of an acquisition or takeover.
It also protect the interests of minority shareholders, which is also a fundamental attribute
of corporate governance principle.
2. IMPORTANT DEFINITIONS
Acquirer “Acquirer” means any person who, directly or indirectly, acquires or
agrees to acquire whether by himself, or through, or with persons
acting in concert with him, shares or voting rights in, or control over
a target company.
Frequently traded Frequently traded shares means shares of a target company, in
shares which the traded turnover on any stock exchange during the twelve
calendar months preceding the calendar month in which the public
announcement is made, is at least ten percent of the total number
of shares of such class of the target company. However, where the
share capital of a particular class of shares of the target company is
not identical throughout such period, the weighted average number
of total shares of such class of the target company shall represent
the total number of shares.
Target company Target Company means a company and includes a body corporate or
corporation established under a Central legislation, State legislation
or Provincial legislation for the time being in force, whose shares are
listed on a stock exchange.
3. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

These regulations shall apply to direct and indirect acquisition of shares or voting rights, in
or control over Target Company. However, these regulations shall not apply to direct and
indirect acquisition of shares or voting rights in, or control over a company listed without
making a public issue, on the Innovators Growth Platform of a recognized stock exchange.
These regulation requires the acquirer to give an open offer to the shareholders of the
target company so as to give them an opportunity to sell their share.
OPEN OFFER
Mandatory Voluntary
open offer open offer

A. Mandatory Open Offer
 TRIGGER POINT FOR MAKING AN OPEN OFFER BY AN ACQUIRER
An acquirer, along with Persons acting in concert (PAC), if any, who intends to acquire
shares which along with his existing shareholding would entitle him to exercise 25% or
more voting rights, can acquire such additional shares only after making a Public
Announcement (PA) to acquire minimum twenty six percent shares of the Target
Company from the shareholders through an Open Offer.
A person already holds 25% or more shares in target company, intends to acquire
more than 5 % shares in the target company in any financial year, also has to give an
open offer.
(means any Acquirer who holds shares between 25%-75%, together with PACs can
acquire further 5% shares as creeping acquisition without giving an Open Offer to the
shareholders of the Target Company upto a maximum of 75%: CREEPING
ACQUISITION)
What is the basis of computation of the creeping acquisitions limit under

Takeover Regulations 2011?
For computing acquisitions limits for creeping acquisition specified under regulation
3(2), gross acquisitions/ purchases shall be taken in to account thereby ignoring any
intermittent fall in shareholding or voting rights whether owing to disposal of shares or
dilution of voting rights on account of fresh issue of shares by the target company.
B. Voluntary Open Offer

Voluntary Open Offer means the Open Offer given by the Acquirer voluntarily without
triggering the mandatory Open Offer obligations as envisaged under the regulations.
Conditions for voluntary open offer:
 Eligibility-Prior holding of at least 25% shares

To be eligible for making a Voluntary Open Offer, the regulations mandates the
prior holding of at least 25% stake in the Target Company by the Acquirer along
with the PACs.
Further for the purpose of this regulation, any reference to “25%” in case of
entity listed on Innovators Growth Platform shall be read as “49%”.
 Prohibition on the acquisition of shares during the Offer Period

SEBI Takeover Regulations, 2011 prohibits the acquirer who has made a
Voluntary Open Offer from further acquiring the shares during the Offer Period
otherwise than under the Open Offer.

 Restriction of the acquisition of shares post completion of Voluntary Open
Offer
An acquirer and PACs who have made a Voluntary Open Offer shall not be
entitled to further acquire shares for a period of 6 months after completion of
the Open Offer except pursuant:
(a) To another Voluntary Open Offer.
(b) To Competing Open Offer to the Open Offer made by any other person for
acquiring shares of the Target Company.
 Offer size
The Voluntary Open Offer shall be made for the acquisition of at least ten per
cent (10%) of the voting rights in the Target Company and shall not exceed such
number of shares as would result in the post-acquisition holding of the acquirer
and PACs with him exceeding the maximum permissible non-public shareholding
applicable to such Target Company.
4. Other important concepts under Takeover Code:

I. CONDITIONAL OFFER
 An offer in which the acquirer has stipulated a minimum level of acceptance is
known as a conditional offer.
 Minimum level of acceptance implies minimum number of shares which the
acquirer desires under the said conditional offer.
 In a conditional offer, if the minimum level of acceptance is not reached, the
acquirer shall not acquire any shares in the target company under the open offer
or the Share Purchase Agreement which has triggered the open offer.
II. Offer price

Offer price is the price at which the acquirer announces to acquire shares from the
public shareholders under the open offer. The offer price shall not be less than the
price as calculated:
 If the target company’s shares are frequently traded then the open offer price
shall be highest of the following:
Highest negotiated price per share under the share purchase agreement
(“SPA”) triggering the offer
Volume weighted average price of shares acquired by the acquirer during 52
weeks preceding the public announcement (“PA”),
Highest price paid for any acquisition by the acquirer during 26 weeks
immediately preceding the PA
Volume weighted average market price for sixty trading days preceding the PA.

 If the target company’s shares are frequently traded then the open offer price
shall be highest of the following:
Highest negotiated price per share under the share purchase agreement
(“SPA”) triggering the offer
Volume weighted average price of shares acquired by the acquirer during 52
weeks preceding the public announcement (“PA”),
Highest price paid for any acquisition by the acquirer during 26 weeks
immediately preceding the PA
Highest price paid for any acquisition by the acquirer between the earlier of,
the date on which the primary acquisition is contracted, and the date on which
the intention or the decision to make the primary acquisition is announced in
the public domain, and the date of the public announcement of the open offer
Volume weighted average market price of the shares for a period of 60 trading
days immediately preceding the earlier of, the date on which the primary
acquisition is contracted, and the date on which the intention or the decision
to make the primary acquisition is announced in the public domain, provided
such shares are frequently traded; and
The price determined by the acquirer and the manager to the open offer after
taking into account valuation parameters including book value, comparable
trading multiples, and such other parameters that are customary for valuation
of shares of such companies.
III. Publication of Public Announcement and Detailed Public Statement
PARTICULAR TIME LIMIT TO WHOM

Public On the same day All the stock exchanges on which the shares of the target
announcement company are listed. The stock exchanges shall forthwith
disseminate such information to the public.
Public Within one The acquirer shall sent copy of Public announcement to SEBI and
announcement working day to the target company at its registered office.
from the date of
public
announcement
Detailed Public Within five Publication in the following newspaper:

announcement working day # One Hindi national language daily
from the date of # One English national language daily
public # One regional national language daily
announcement # One regional language daily with wide circulation at the place of
the stock exchange where the maximum volume of trading in the
shares of the target company is recorded during the sixty trading
days preceding the date of the public announcement.

Detailed Public Immediately A copy of Detailed Public Statement shall be sent to followings:
announcement # SEBI;
# All the stock exchanges in which the shares of the target
company are listed; and
# The target company at its registered office.
IV. PROVISION OF ESCROW
Not later than two working days prior to the date of the detailed public statement of the
open offer for acquiring shares, the acquirer shall create an escrow account towards
security for performance of his obligations under these regulations, and deposit in escrow
account such aggregate amount as per the following scale:
Consideration payable under the Open Escrow amount

Offer
On the first five hundred crore rupees An amount equal to 25% of the
consideration
On the balance consideration An additional amount equal to 10% of the
balance consideration
5. Procedure under Takeover code

SUBMISSION OF The Acquirer shall submit a draft letter of offer to SEBI within 5
DRAFT LETTER OF working days from the date of detailed public announcement along
OFFER with a non-refundable fee as applicable.
Simultaneously, a copy of the draft letter of offer shall be send to
the Target Company at its registered office and to all the Stock
Exchanges where the shares of the Company are listed.
DISPATCH OF The Acquirer shall ensure that the letter of offer is dispatched to
LETTER OF OFFER the shareholders whose names appear on the register of members
of the Target Company as of the identified date, not later than 7
working days from the date of receipt of communication of
comments from SEBI or where no comments are offered by SEBI,
within 7 working days from the expiry of 15 working days from the
date of receipt of draft letter of offer by SEBI.
OPENING OF THE shall remain open for 10 working days
OFFER
COMPLETION OF Within 10 working days from the last date of the tendering period,
REQUIREMENTS the acquirer shall complete all requirements as prescribed under
these regulations and other applicable law relating to the Open
Offer including payment of consideration to the shareholders who
have accepted the open offer.

6. Disclosures under Takeover code
EVENT BASED DISCLOSURES
Regulation Made Trigger Time Period Made to
29(1) Acquirer Acquirer + Persons 2 working days SE where
acting in concert (PAC) of the receipt of the shares
acquiring 5% or more intimation of are listed
shares of the target allotment of and the
company. shares, or the target
Further in case of entity acquisition or company
listed on Innovators disposal of
Growth Platform, any shares or
reference to “5%” shall voting rights
be read as “10%”.
29(2) Acquirer The number of shares or 2 working days SE where
voting rights held and of the receipt of the shares
change in shareholding intimation of are listed
or voting rights, even if allotment or and the
such change results in disposal of target
shareholding falling shares, or the company
below five percent and acquisition of
such change exceed 2% shares or
of total shareholding or voting rights
voting rights in the
target company by the
Acquirer + PAC holding
5% or more shares, of
the target company or
voting rights.
Further in case of entity
listed on Innovators
Growth Platform, any
reference to “5%” shall
be read as “10%” and
any reference to “2%”
shall be read as “5%”.
CONTINUAL DISCLOSURES
30(1) Any Person + PAC Within 7 SE where
holding more than 25% working days the shares
shares or voting rights in from the are listed
the target to disclose financial year and target
their aggregate ending 31st company
shareholding and voting March every
rights year
30(2) Promoter +PAC disclose Within 7 SE where
their aggregate working days the shares
shareholding and voting from the are listed
rights irrespective of financial year and target
their holding. ending 31st company
March every
year

DISCLOSURES OF PLEDGED/ENCUMBERED SHARES
31(1) Promoter Promoter + PAC Within 7 Stock
pledging or creating working days exchange
encumbrance on the from the where the
shares of the target creation, shares are
company invocation or listed and
release of target
pledge company
31(2) Acquirer Invocation or release of Within 7 Stock
the pledge or working days exchange
encumbrance on the from the where the
shares of the target creation, shares are
company invocation or listed and
release of target
pledge company
31(4) Promoter Promoter + PAC shall Within 7 Stock
declare that he, along working days exchange
with PAC, has not made from the where the
any encumbrance, financial year shares are
directly or indirectly, ending 31st listed and
other than those March every the Audit
already disclosed during year Committee
the financial year. of target
company

Lesson 7
SEBI (Buy-Back of Securities) Regulations 2018

1. INTRODUCTION
 The corporates adopts various tools, viz., mergers, amalgamations and takeovers for
restructuring the business. All these activities, in turn, impacted the functioning of the
capital market, more particularly the movement of share prices.
 As the shares of companies are held by different segments of society, viz.,

entrepreneurs, institutional investors and individual shareholders including small
investors, it is reasonable that there should be equality of treatment and opportunities
to all shareholders, transparency, proper disclosure and above all protection of interests
of small and minority shareholders.
 Similarly, buy-back of securities is a corporate financial strategy which involves

repurchase of its outstanding shares by a company.
 Companies generally buyback shares in order to reorganize its capital structure, return
cash to shareholders and enhance overall shareholders’ value. Buyback leads to
reduction in outstanding number of equity shares, which may lead to improvement in
earnings per equity share and enhance return on net worth and create long term value
for continuing shareholders.
 Buy-back is a process whereby a company purchases its own shares or other specified
securities from the holders thereof:
 to improve earnings per share;

 to improve return on capital, return on net worth and to enhance the long-term
shareholder value;
 to provide an additional exit route to shareholders when shares are under valued
or are thinly traded;
 to enhance consolidation of stake in the company;
 to prevent unwelcome takeover bids;
 to return surplus cash to shareholders;
 to achieve optimum capital structure;

2. Applicability of SEBI (Buy-back of Securities) Regulations, 2018
The SEBI (Buy-back of Securities) Regulations, 2018 shall apply to buy-back of shares or other
specified securities of a company listed on a stock exchange.
3. Provision for buy back under Companies Act, 2013

 A company, authorized by a resolution passed by the Board of Directors at its meeting
to buy back its shares or other specified securities shall file a copy of the resolution, with
SEBI and the stock exchanges, where the shares or other specified securities of the
company are listed, within two working days of the date of the passing of the resolution.
 By passing a resolution, the Board can authorize the buy-back of securities not
exceeding 10% of the total paid-up equity capital and free reserves of the company.
(The aforesaid limit is to be applied not to the number of securities to be bought back
but to the amount required for buy-back of such securities.)
 If the company wishes to buy back exceeding the limit of 10%, Special resolution is
required to be passed, A company can buy back upto maximum 25 % of its paid-up
capital and free reserve.
 For the purposes of passing a special resolution the explanatory statement to be

annexed to the notice for the general meeting shall contain the required disclosures. A
copy of the above resolution shall be filed with SEBI and the stock exchanges where the
shares or other specified securities of the company are listed, within seven days from
the date of passing of the resolution.
 The notice of the meeting at which the special resolution is proposed to be passed shall
be accompanied by an explanatory statement stating –
(a) a full and complete disclosure of all material facts;
(b) the necessity for the buy-back;
(c) the class of shares or securities intended to be purchased under the buy-back;
(d) the amount to be invested under the buy-back; and
(e) the time-limit for completion of buy-back.

4. METHODS OF BUY-BACK
From the existing or From the open market

From odd-lot holders
security holders on a
proportionate basis
(BB through tender

offer) through through
book-building process stock exchange
(However, no offer of buy-back for fifteen per cent or more of the paid up capital and free
reserves of the company shall be made from the open market.)
(A company shall not buy-back its shares or other specified securities from any person through
negotiated deals, whether on or of the stock exchange or through spot transactions or through
any private arrangement.)
(A company shall not make any offer of buy-back within a period of one year reckoned from the
date of closure of the preceding offer of buy-back, if any.)
A. BUY-BACK FROM EXISTING SECURITY-HOLDERS THROUGH TENDER OFFER

A company may buy back its securities from its existing security-holders on a proportionate
basis in accordance with the provisions of the Regulations
The company which has been authorised by a special resolution or a resolution passed by
the Board of Directors at its meeting shall make a public announcement within two
working days from the date of resolution in at least one English National Daily, one Hindi
National Daily and a Regional language daily all with wide circulation at the place where
the Registered office of the company is situated.
A copy of the public announcement along with the soft copy, shall also be submitted to
SEBI simultaneously through a merchant banker.
The company shall within five working days of the public announcement file with SEBI a
draft-letter of offer,
SEBI may give its comments on the draft letter of offer not later than seven working days
of the receipt of the draft letter of offer. In the event SEBI has sought clarifications or
additional information from the merchant banker to the buyback offer, the period of
issuance of comments shall be extended to the seventh working day from the date of
receipt of satisfactory reply to the clarification or additional information sought.

In the event, SEBI specifies any changes, the merchant banker to the buyback offer and
the company shall carryout such changes in the letter of offer before it is dispatched to
the shareholders.
The company shall file along with the draft letter of offer, a declaration of solvency
A company making a buy-back offer shall announce a record date for the purpose of
determining the entitlement and the names of the security holders, who are eligible to
participate in the proposed buy-back offer.
The letter of offer along with the tender form shall be dispatched to the security holders
who are eligible to participate in the buy-back offer, not later than five working days from
the receipt of communication of comments from SEBI
The date of the opening of the offer shall be not later than five working days from the
date of dispatch of letter of offer.
The offer for buy back shall remain open for a period of ten working days.
The shares proposed to be bought back shall be divided into two categories;
(a) reserved category for small shareholders and
(b) the general category for other shareholders
The company should as and by way of security for performance of its obligations under
the Regulations, on or before the opening of the offer, deposit in an escrow account the
sum as specified:
(i) if the consideration payable does not exceed Rs 100 crores – 25 per cent of
the consideration payable;
(ii) if the consideration payable exceeds Rs 100 crores – 25 per cent upto Rs 100
crores and 10 per cent thereafter;
On payment of consideration to all the security-holders who have accepted the offer and
after completion of all the formalities of buy-back, the amount, guarantee and securities
in the escrow, if any, should be released to the company.
The company shall immediately after the date of closure of the offer, open a special
account with a SEBI registered banker to an issue and deposit therein, such sum as would,
together with ninety percent of the amount lying in the escrow account make up the
entire sum due and payable as consideration for the buy-back and for this purpose, may
transfer the funds from the escrow account.
The company shall complete the verifications of offers received and make payment of
consideration to those security holders whose offer has been accepted and return the
remaining securities to the securities holders within 7 working days of closure of offer.
The company shall extinguish and physically destroy the security certificates so bought
back in the presence of a Registrar to issue or the Merchant Banker and the Statutory
Auditor within fifteen days of the date of acceptance of the shares.

B. BUY-BACK FROM OPEN MARKET
buy-back of shares or other specified securities from the open market may be in any one of
the following methods:
(i) Through stock exchange.
(ii) Book-building process
Buy-back from open market through the stock exchange

The special resolution/ board resolution, should specify the maximum price at which the buy-
back will be made;
The buy-back of securities should not be from the promoters or persons in control of the
company;
The company should appoint a merchant banker and make a public announcement within
two days from the date of passing the resolution;
Simultaneously with the issue of such public announcement, the company shall file a copy of
the public announcement with SEBI.
The company shall submit the information regarding the shares or other specified securities
bought back, to the stock exchange on a daily basis in such form as may be specified by SEBI
and the stock exchange shall upload the same on its official website immediately;
The company shall upload the information regarding the shares or other specified securities
bought back on its website on a daily basis;
The buy-back offer shall open not later than seven working days from the date of public
announcement and shall close within six months from the date of opening of the offer;
The buy-back should be made only on stock exchanges having Nationwide Trading Terminal
facility and only through the order matching mechanism.
The identity of the company as a purchaser would appear on the electronic screen when the
order is placed.
The Company shall, before opening of the offer, create an escrow account.
An amount equal to 25 % of the total proposed buy back has to be deposited in escrow
account.
The escrow amount may be released for making payment to the shareholders subject to
atleast 2.5% of the total amount for buy-back remaining in the escrow account at all points of
time.
The company shall extinguish and physically destroy the security certificates so bought back
during the month in the presence of a Merchant Banker and the Statutory Auditor, on or
before the fifteenth day of the succeeding month:
the company shall ensure that all the securities bought-back are extinguished within seven
days of the last date of completion of buyback.

Buy–back of physical shares or other specified securities
A company shall buy-back its shares or other specified securities in physical form through
open market method as provided hereunder:
(a) a separate window shall be created by the stock exchange, which shall remain open
during the buyback period, for buy-back of shares or other specified securities in physical
form.
(b) the company shall buy-back shares or other specified securities from eligible
shareholders holding physical shares through the separate windows, only after verification
of the identity proof and address proof by the broker.
(c) the price at which the shares or other specified securities are bought back shall be the
volume weighted average price of the shares or other specified securities bought-back, other
than in the physical form, during the calendar week in which such shares or other specified
securities were received by the broker.
However, the price of shares or other specified securities tendered during the first calendar
week of the buy-back shall be the volume weighted average market price of the shares or
other specified securities of the company during the preceding calendar week.
Note: In case no shares or other specified securities were bought back in the normal market
during calendar week, the preceding week when the company has last bought back the
shares or other specified securities may be considered.
Buy-back through book-building

The resolution, should specify the maximum price at which the buy-back will be made.
The company should appoint a merchant banker.
A public announcement shall be made at least seven days prior to the commencement of the
buyback.
The deposit in the escrow account should be made before the date of the public
announcement.
(The amount to be deposited in the escrow account should be determined with reference to
the maximum price as specified in the public announcement)
A copy of the public announcement must be filed with SEBI within two days of the
announcement.
The book-building process should be made through an electronically linked transparent
facility
The number of bidding centres should not be less than thirty and there should be at least one
electronically linked computer terminal at all the bidding centres.
The offer for buy-back should be kept open to the security-holders for a period of not less
than fifteen days and not exceeding thirty days.

The merchant banker and the company should determine the buy-back price based on the
acceptances received and the final buy-back price, which should be the highest price
accepted should be paid to all holders whose securities have been accepted for the buy-back.
The company shall extinguish and physically destroy the security certificates so bought back
during the month in the presence of a Merchant Banker and the Statutory Auditor, on or
before the fifteenth day of the succeeding month:
the company shall ensure that all the securities bought-back are extinguished within seven
days of the last date of completion of buyback.
C. ODD-LOT BUY-BACK
The provisions pertaining to buy-back through tender offer as specified in this Lesson shall
be applicable mutatis mutandis to buy-back of odd-lot shares or other specified securities

Lesson 8
SEBI (Delisting of Equity Shares) Regulations, 2021

1INTRODUCTION
 Delisting denotes removal of the listing of the securities of a listed company
from the Stock Exchange.
 Delisting differs from suspension or withdrawal of admission to dealings of
listed securities, which is for a limited period.
 ‘Suspension’ of trading in securities means that no trade can take place in the
securities of the company suspended for a temporary period. Suspension is not
done at the instance of company but it is action taken by the Stock Exchanges
against the company, generally for non-compliance of listing conditions as
stipulated under SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 (LODR Regulations).
 On the other hand, ‘delisting’ of securities means removal of the name of the
company from the stock exchange and no trade can take place in the securities
of the company delisted. Delisting of securities can be done either by company
voluntarily or by the stock exchange, compulsorily. Generally stock exchange,
in order to impose severe punishment on companies compulsorily delists
securities of any company, as a last resort. Compulsory delisting affects
reputation of company and to the extent of liquidity in trading those shares.
 Delisting of securities may be of two types, namely, voluntary delisting and
compulsory delisting. In the case of voluntary delisting, a listed company seeks
of its own volition for the delisting of its securities; while in case of compulsory
delisting, the Stock Exchange itself delists the securities of such Company.
AGENCIES INVOLVED IN DELISTING PROCESS AND THEIR ROLE

Agencies Functions
Merchant banker  Determine exit price.
 Makes public announcements.
 Determines biding centres.
 Appoints trading members.
 Determines and announces final trading price.
 Overseas settlement process.
Professionals  Intimates stock exchange
involved  Gets special resolution approved and filed at ROC.
 Determines exit price.
 Finalizes schedule of delisting.
 Overseas book building process.
 Opens escrow account.
 Prepare Public announcement.
 Determines and announces final trading price.
 Overseas settlement process.

Circumstances where delisting is not permissible
Pursuant to Buy back of equity shares by the company; or
Pursuant to Preferential allotment made by the company; or
Unless a period of three years has elapsed since the listing of that class of equity
shares; or
Instruments which are convertible into the same class of equity shares that are
sought to be delisted are outstanding;
Delisting of convertible securities.
No acquirer shall directly or indirectly employ the funds of the company to finance
an exit opportunity or an acquisition of shares made pursuant to be provided under
these regulation.
An acquirer shall not propose delisting of equity shares of a company, if the acquirer
had sold equity shares of the company during a period of six months prior to the
date of the initial public announcement.
No acquirer shall, directly or indirectly-
-Employ any device, scheme or artifice to defraud any shareholder or other person; or
-Engage in any transaction or practice that operates as a fraud or deceit upon any
shareholder or other person; or
-Engage in any act or practice that is fraudulent, deceptive or manipulative in
connection with such delisting.
VOLUNTARY DELISTING
 In voluntary delisting, a listed company decides on its own to permanently
remove its securities from a stock exchange.
 Chapter III of SEBI (Delisting of Shares) Regulations 2021 gives an option to the
listed company to either get itself delisted from all the recognised stock
exchanges where it is listed or only from some of the few stock exchanges and
continue to be listed on the exchange(s) having nation wide terminals.
 The difference between two options is that of giving ‘exit opportunity’ to the
shareholders. This is described as under:
Option I No ‘exit opportunity’ required to be given : In this option, if after the

proposed delisting from any one or more recognised stock exchanges, the
equity shares still remain listed on any recognised stock exchange which
has nation-wide trading terminals, no exit opportunity needs to be given
to the public shareholders. The procedure for such delisting of shares
can be through a board resolution, public notice and application to the
concerned exchange.
Option II Exit opportunity’ must be given : This option requires that if after the
proposed delisting, the equity shares do not remain listed on any
recognised stock exchange having nation-wide trading terminals, exit
opportunity shall be given to all the public shareholders holding the
equity shares sought to be delisted, through reverse book building.

So, Different modes of Voluntary Delisting
 Voluntary delisting from all the stock exchanges
 Voluntary delisting from few stock exchanges subject to listing at atleast
one stock exchange having nation wide terminals
 Voluntary delisting for Small Companies
1. Procedure for voluntary delisting from all the stock exchanges
Convene a Board Meeting

Intimation of Board Meeting to Stock Exchange
Special Resolution Through postal Ballot
(Note – The special resolution shall be acted upon if and only if the votes cast by
public shareholders in favour of the proposal, amount to at least two times the
number of votes cast by public shareholders against it.)
Appointment of Merchant Banker
Application for In Principal Approval to Concerned Stock Exchange
(along with Audit Report of the company for last 6 months)
In principal Approval by the Exchange
(The recognized stock exchange shall dispose off the Application of the in-Principal
approval complete in all respects within a period not exceeding five working days
from the date of receipt of such application.)
Public Announcement
The acquirer or promoters of the company within one working day from the date of
receipt of in- principle approval for delisting from the recognized stock exchange,
make a public announcement in at least one English national daily with wide
circulation, one Hindi national daily with wide circulation and one regional language
newspaper of the region where the concerned recognized stock exchange is located.
Dispatch of Letter of offer
The acquirer or promoter shall dispatch the letter of offer to the public shareholders
of equity shares, not later than two working days from the date of the public
announcement.
Opening of Escrow account
The acquirer or promoter open an escrow account and deposit therein the total
estimated amount of consideration calculated on the basis of floor price and number
of equity shares outstanding with public shareholders. The escrow account shall
consist of either cash deposited with a scheduled commercial bank, or a bank
guarantee in favour of the merchant banker, or a combination of both.
Duration of the Bidding period [Regulation13]
The date of opening of the offer shall not be later than seven working days from the
date of the public announcement and shall remain open for a period of five working
days during which the public shareholders may tender their bids.
Determination of Offer Price
The offer price shall be determined through book building process after fixation of
floor price and disclosure of the same in the public announcement and the letter of
offer.

Minimum number of equity shares to be acquired
An offer made shall be deemed to be successful only if, –
 the post offer promoter shareholding (along with the persons acting in concert
with the promoter) taken together with the shares accepted through eligible bids
at the final price determined, reaches 90% of the total issued shares of that
class excluding the following:
o shares which are held by a custodian and against which depository receipts
have been issued overseas; and
o shares held by a Trust set up for implementing an Employee Benefit scheme
under the SEBI (Share Based Employee Benefits) Regulations, 2014;
o shares held by inactive shareholders such as vanishing companies and
struck off companies, shares transferred to the IEPF’s account and shares
held in terms of regulation 39 (4) read with Schedule VI of the SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015
However, such shareholders shall be certified by the Peer Review Company
Secretary appointed by the Board of Directors of the company for due-diligence.
Explanation- The cut-off date for determination of inactive shareholders shall be the
date on which the in-principle approval of the Stock Exchange is received, which shall
be adequately disclosed in the public announcement
Payment of consideration
Final Application to Stock Exchange
Right of remaining shareholders to tender equity shares [Regulation 21]
Remaining public shareholder holding such equity shares may tender their shares
to the promoter upto a period of at least one year from the date of delisting and, in
such a case, the promoter shall accept the shares tendered at the same final price at
which the earlier acceptance of shares was made. The payment of consideration for
shares accepted shall be made out of the balance amount lying in the escrow
account.
2. Procedure for Voluntary delisting from few stock exchanges subject to listing
at atleast one stock exchange having nationwide terminals

Intimation of Board Meeting to Stock Exchange
Public notice
The company to give a public notice of the proposed delisting in at least one English
national daily with wide circulation, one Hindi national daily with wide circulation
and one regional language newspaper of the region where the concerned recognized
stock exchanges are located.
Application to the concerned recognized stock exchange
Delisting order by the Exchange
Disclosure of fact of delisting in the first annual report post delisting

3. Voluntary Delisting by Small Companies
Small Company means
 A company has a paid up capital not exceeding ten crore rupees and net
worth not exceeding twenty five crore rupees as on the last date of
preceding financial year;
 The number of equity shares of the company traded on each such recognised
stock exchange during the twelve calendar months immediately preceding the
date of board meeting is less than ten per cent of the total number of shares of
such company.
 the company has not been suspended by any of the recognised stock exchanges
having nationwide trading terminals for any non-compliance in the preceding
one year;
Special Resolution Through postal Ballot
(Note – The special resolution shall be acted upon if and only if the votes cast by
public shareholders in favour of the proposal amount to at least two times the
number of votes cast by public shareholders against it.)
Appointment of Merchant Banker
Determination of Exit Price
Application for In Principal Approval to Concerned Stock Exchange
(along with Audit Report of the company for last 6 months)
In principal Approval by the Exchange
Public notice
The company shall give a public notice of the proposed delisting in at least one
English national daily with wide circulation, one Hindi national daily with wide
circulation and one regional language newspaper of the region where the concerned
recognized stock exchanges are located.
Letter to all public Shareholders
contains the following particulars:
 Intention of delisting the shares.
 Exit price and justification of the exit price.
 Seeking the consent of the shareholders for delisting proposal.
Consent of the Public Shareholders
Atleast 90% of the public shareholders shall give their positive consent in writing for
the delisting of the shares and the shareholders shall have the option to surrender
their shares at the exit price determined or to remain the shareholders even if the
shares get delisted.
The process of inviting the positive consent and finalisation of the proposal for
delisting of shares to be made within 75 working days of dispatching the Letter to all
the shareholder .
Payment to shareholders
The promoters shall make the payment in cash to the public shareholders who have
tendered their shares within 15 working days from the date of expiry of 75 working
days as mentioned above.
Final Application to Stock Exchange
Delisting Order

COMPULSORY DELISTING
 Compulsory delisting refers to permanent removal of securities of a listed
company from a stock exchange as a penalizing measure at the behest of the
stock exchange for not making submissions/comply with various requirements
set out in the Listing agreement within the time frames prescribed.
Constitution of Panel
The decision regarding compulsory delisting shall be taken by a panel to be
constituted by the recognized stock exchange consisting of -
 Two directors of the recognized stock exchange (one of whom shall be a public
representative);
 One representative of an investor association recognised by the SEBI;
 One representative of the Ministry of Corporate Affairs or Registrar of
Companies; and
 The Executive Director or Secretary of the recognized stock exchange.
Public notice before delisting order [Regulation 22 (3)]
Before making a delisting order the recognized stock exchange shall give a notice in
one English national daily with wide circulation, one Hindi national newspaper with
wide circulation and one regional language newspaper of the region where the
concerned recognized stock exchange is located and shall also display such notice
on its trading systems and website.
Time period of making representation
(not less than fifteen working days from the notice)
Delisting Order by the Recognised Stock Exchange
Public notice after Delisting Order [Regulation 22 (6)]
Where the recognized stock exchange passes the delisting order, it shall, -
 Forthwith publish a notice in one English national daily with wide circulation,
one Hindi national newspaper with wide circulation and one regional
language newspaper of the region where the concerned recognized stock
exchange is located.
 Inform all other stock exchanges where the equity shares of the company are
listed, about such delisting and the surrounding circumstances.
Exit Price Determination by an Independent Valuer (Regulation 23 (1))
The recognized stock exchange shall form a panel of expert valuers from whom the
valuer or valuers shall be appointed.

Lesson 11
SEBI (Prohibition of Insider Trading)
Regulations, 2015

INTRODUCTION
SEBI issued and notified the SEBI (Prohibition of Insider Trading) Regulations, 2015 on 15th
January, 2015 based on recommendations of Sodhi committee and became effective from
15th May, 2015, by repealing SEBI (Prohibition of Insider Trading) Regulations 1992.
Definitions
Insider “Insider” means any person who is:
i) a connected person; or
ii) in possession of or having access to unpublished price sensitive information.
Trading “Trading” means and includes subscribing, buying, selling, dealing, or agreeing
to subscribe, buy, sell, deal in any securities, and “trade” shall be construed
accordingly
Unpublished “Unpublished price sensitive information” means any information, relating to
price a company or its securities, directly or indirectly, that is not generally available
sensitive which upon becoming generally available, is likely to materially affect the price
information of the securities and shall, ordinarily including but not restricted to,
information relating to the following–
(i) Financial results;
(ii) Dividends;
(iii) Change in capital structure;
(iv) Mergers, de-mergers, acquisitions, delisting, disposals and expansion of
business and such other transactions;
(v) Changes in key managerial personnel.
COMMUNICATION OR PROCUREMENT OF UNPUBLISHED PRICE SENSITIVE INFORMATION
Regulation 3 provides that any person shall not : – communicate, provide, or allow access to
any unpublished price sensitive information or – procure from or cause the communication
by any insider of unpublished price sensitive information, relating to a company or securities
listed or proposed to be listed or proposed to be listed except in furtherance of legitimate
purposes, performance of duties or discharge of legal obligations.
The board of directors of a listed company shall make a policy for determination of
“legitimate purposes” as a part of “Codes of Fair Disclosure and Conduct” formulated under
regulation 8. [For the purpose of illustration, the term “legitimate purpose” shall include
sharing of UPSI in the ordinary course of business by an insider with partners, collaborators,
lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency
professionals or other advisors or consultants, provided that such sharing has not been
carried out to evade or circumvent the prohibitions of these regulations.]
Any person in receipt of UPSI pursuant to a “legitimate purpose” shall be considered an

“insider” for purposes of these regulations and due notice shall be given to such persons to
maintain confidentiality of such UPSI in compliance with these regulations.

TRADING WHEN IN POSSESSION OF UNPUBLISHED PRICE SENSITIVE INFORMATION (UPSI)
Regulation 4 prescribes that an insider shall not trade in securities, which are listed or
proposed to be listed on stock exchange when in possession of unpublished price sensitive
information. However there are certain exemptions:
1. When there is an off-market transfer between insiders or the transaction was

carried through the block deal window mechanism between persons-
• who were in the possession of the UPSI;
• Both parties had made a conscious and informed trade decision;
• there should be no breach of Regulation 3;
• UPSI should not have been obtained under Regulation (3).
2. the transaction in question, was carried out pursuant to a statutory or regulatory
obligation to carry out a bona-fide transaction,
3. the transaction in question, was undertaken pursuant to exercise of stock options
in respect of which the exercise price was pre-determined in compliance of with
applicable regulations,
4. In the case of non-individual insiders
• The individuals who were in possession of such unpublished price sensitive
information were different from the individuals taking trading decisions and
• Such decision-making individuals were not in possession of such unpublished
price sensitive information when they took the decision to trade; and
• Appropriate and adequate arrangements were in place to ensure that these
regulations are not violated and
• There is no evidence of such arrangements having been breached;
5. The trades were pursuant to a trading plan set up in accordance these regulations.
TRADING PLANS
Regulation 5 states that an insider would be required to submit trading plan in advance to
the compliance officer for his approval. The compliance officer is also empowered to take
additional undertakings from the insiders for approval of the trading plan. Such trading plan
on approval will also be disclosed to the stock Exchanges, where the securities of the
company are listed.
However, pre-clearance of trades shall not be required for a trade executed as per an
approved trading plan. Further, trading window norms and restrictions on contra trade shall
not be applicable for trades carried out in accordance with an approved trading plan.
The trading plan shall comply with requirements as follows:
• It shall be submitted for a minimum period of 12 months.
• No overlapping of plan with the existing plan submitted by Insider
• Compliance officer to approve the plan.

• It shall set out either the value of trades to be effected or the number of securities to be
traded along with: – the nature of the trade and – the intervals at, or – dates on which such
trades shall be effected.
• Trading can only commence only after 6 months from public disclosure of plan. No trading
between 20th day prior to closure of financial period and 2nd trading day after disclosure of
financial results.
• The trading plan once approved shall be irrevocable and the insider shall mandatorily have
to implement the plan, without being entitled to either deviate from it or to execute any
trade in the securities outside the scope of the trading plan. (Except in few case like where
insider is in possession of price sensitive information at the time of formulation of the plan
and such information has not become generally available at the time of the commencement
of implementation)
• Upon approval of the trading plan, the compliance officer shall notify the plan to the stock
exchanges on which the securities are listed.
DISCLOSURES
INITIAL DISCLOSURE:
Every person on Shall disclose his holding of
appointment as KMP or securities of the company as on
director of a company or the date of appointment or (Within 7 days of such
upon becoming a promoter becoming a promoter or appointment or
or member of promoter member of promoter group, to
becoming a promoter)
group the company
CONTINUAL DISCLOSURE:
Every promoter, member of If the value of the securities

promoter group, designated traded, exceed Rs 10 lakh with
person or director of every single or series of transaction in (Within 2 days of such
company shall disclose to any calendar quarter transaction)
the company the number of
securities acquired
PENALTY
If any insider who, violates any provision of the SEBI (Prohibition of Insider Trading)
Regulation, 2015
 shall be liable to a penalty of twenty-five crore rupees or three times the amount of
profits made out of insider trading, whichever is higher
 Imprisonment upto 10 years.

Lesson 12
Mutual Funds

1. INTRODUCTION
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and
investing funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread across a wide cross-section of industries and sectors
and thus the risk is reduced. Diversification reduces the risk because all stocks may not
move in the same direction in the same proportion at the same time.
2. STRUCTURE OF A MUTUAL FUND

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset
management company (“AMC”) and a custodian. The trust is established by a sponsor or
more than one sponsor who is like a promoter of a company. The trustees of the mutual
fund hold its property for the benefit of the unit-holders. The AMC, approved by SEBI,
manages the funds by making investments in various types of securities. The custodian, who
is registered with SEBI, holds the securities of various schemes of the fund in its custody.
The trustees are vested with the general power of superintendence and direction over AMC.
They monitor the performance and compliance of SEBI Regulations by the mutual fund.
3. ANALYSIS OF MUTUAL FUNDS

ADVANTAGES RISK INVOLVED
Professional Management  Excessive diversification of portfolio, losing focus
Diversification on the securities of the key segments.
Convenient Administration  Too much concentration on blue-chip securities
Return Potential which are high priced and which do not offer more
than average return.
Low Costs  Fund managers being unaccountable for poor
results.
Liquidity  Poor planning
Transparency  Large payments of brokerage and commission.
4. TYPES OF MUTUAL FUND

Open Ended Close Ended
Can be purchased on any transaction day Can be purchased only during NFO
Can be redeemed on any transaction day Can be redeemed only at maturity
High liquidity Low on liquidity
5. TYPES OF MUTUAL FUND PLANS

Regular Plans Direct Plans
Sold through a distributor Sold directly by the AMC
Higher Expense Ratio (Due to commissions Lower Expense Ratio (No commission paid
paid to distributor) to distributor)
Potentially lower returns to the investor Potentially higher returns (Due to lower
(Due to higher expenses) expenses)

6. SCHEMES OF MUTUAL FUND
Income Oriented The fund primarily offer fixed income to investors. Naturally
Schemes enough, the main securities in which investments are made by such
funds are the fixed income yielding ones like bonds, corporate
debentures, Government securities and money market
instruments, etc.
Growth Oriented These funds offer growth potentialities associated with investment
Schemes in capital market namely:
(i) high source of income by way of dividend and
(ii) rapid capital appreciation, both from holding of good quality
scrips.
These funds, with a view to satisfying the growth needs of
investors, primarily concentrate on the low risk and high yielding
spectrum of equity scrips of the corporate sector.
Hybrid Schemes These funds cater to both the investment needs of the prospective
investors – namely fixed income as well as growth orientation.
Therefore, investment targets of these mutual funds are judicious
mix of both the fixed income securities like bonds and debentures
and also sound equity scrips. In fact, these funds utilise the concept
of balanced investment management. These funds are, thus, also
known as “balanced funds”.
High Growth As the nomenclature depicts, these funds primarily invest in high
Schemes risk and high return volatile securities in the market and induce the
investors with a high degree of capital appreciation.
Capital Protection It is a scheme which protects the capial invested in the mutual fund
Oriented Scheme through suitable orientation of is portfolio structure.
Tax Saving Schemes These schemes offer tax rebates to the investors under tax laws as
prescribed from time to time. This is made possible because the
Government offers tax incentive for investment in specified
avenues. For example, Equity Linked Saving Schemes (ELSS) and
pensions schemes.
Special Schemes This category includes index schemes that attempt to replicate the
performance of particular index such as the BSE, Sensex or the NSE-
50 or industry specific schemes (which invest in specific industries)
or sectoral schemes (which invest exclusively in segment such as ‘A’
Group or initial public offering).
Index fund schemes are ideal for investors who are satisfied with a
return approximately equal to that of an index. Sectoral fund
schemes are ideal for investors who have already decided to invest
in particular sector or segment.
Real Estate Funds These are close ended mutual funds which invest predominantly in
real estate and properties.
Off-shore Funds Such funds invest in securities of foreign companies with RBI
permission.

Leverage Funds Such funds, also known as borrowed funds, increase the size and
value of portfolio and offer benefits to members from out of the
excess of gains over cost of borrowed funds. They tend to indulge
in speculative trading and risky investments.
Hedge Funds They employ their funds for speculative trading, i.e. for buying
shares whose prices are likely to rise and for selling shares whose
prices are likely to fall.
Fund of Funds They invest only in units of other mutual funds. Such funds do not
operate at present in India.
New Direction They invest in companies engaged in scientific and technological
Funds research such as birth control, anti-pollution, oceanography etc.
Exchange Trade ETFs are a new variety of mutual funds that first introduced in
Funds (ETFs) 1993. ETFs are sometimes described as mere “tax efficient” than
traditional equity mutual funds, since in recent years, some large
ETFs have made smaller distribution of realized and taxable capital
gains than most mutual funds.
Money Market These funds invest in short- term debt securities in the money
Mutual Funds market like certificates of deposits, commercial papers,
government treasury bills etc. Owing to their large size, the funds
normally get a higher yield on such short term investments than an
individual investor.
Infrastructure Debt They invest primarily in the debt securities or securitized debt
Fund investment of infrastructure companies.
7. MUTUAL FUND TERMINOLOGY
A. Offer Document
– AMC raises money in new schemes through New Fund Offer (NFO)
– Offer document contains key details about the NFO – open and close dates, scheme
objective, nature of the scheme, etc.
– Filed with SEBI
Issued in two parts:
1. Scheme Information Document (SID) - A document that contains the details of the
scheme. SID has to be updated every year
Key Contents:
– Scheme name on the cover page, along with scheme structure (open / closed-ended)
and expected scheme nature (equity / debt / balanced / liquid / ETF)
– Highlights of the scheme
– Risk factors
 Standard
 Scheme specific

– Due diligence certificate issued by the AMC
– Fees and expenses
– Rights of unit holders
– Penalties, litigations, etc.
2. Statement of Additional Information - A document that contains statutory information

about the fund house offering the scheme. SAI has to be updated the end of every quarter.
Key Contents:
– Information about sponsor, mutual fund, trustees, custodian and registrar & transfer agents
– Condensed financial information for schemes launched in the last three financial years
– Information on how to apply
– Rights of unit holders
– Details of the fund managers
– Tax, legal and other general information
B. Key Information Memorandum (KIM)

– Essentially a summary of SID & SAI
– As per SEBI regulations, every application form should be accompanied by the KIM
– The KIM has to be updated at least once a year
Key Contents:
– Name of the AMC, Mutual Fund Trust, Trustee, Fund Manager(s) and Scheme details
– Open and close dates of the issue
– Issue price of the scheme
– Plans and options available in the scheme
– Risk profile of the scheme
– Benchmark
– Dividend policy
– Performance of the scheme and benchmark over last 1, 3, 5 years and since inception
– Loads and expenses
– Contact information and registrars.
C. Fact Sheets
Usually provided on a monthly basis by AMCs. Contains the following:
– NAV and AUM
– Expense ratio, exit loads, average maturity, YTM, modified duration
– Benchmark & Fund manager details
– Past performance
– Scheme’s allocation & portfolios
– Style box
– Other scheme attributes – like risk category, minimum investment amount, scheme
objective, etc.

D. Net Asset Value (NAV)
– The value of one unit of a mutual fund scheme on a given date
– It has to be declared by fund houses on every business day
– on AMC website and AMFI website
– It has to be published on 2 national newspapers
E. Expense ratio
The fees charged by the scheme to manage investors’ money.
What does it contain?

– Fees paid to service providers like trustees, Registrar & Transfer Agents, Custodian,
Auditor, etc.
– Asset management expenses
– Commissions paid to distributors
– Other selling expenses including advertising expenses
– Expenses on investor communication, account statements, dividend / redemption
cheques / warrants
– Listing fees and Depository fees
– Service tax.
Under SEBI (Mutual Funds) Regulations, 1996, Mutual Funds are permitted to incur/ charge
certain operating expenses for managing a mutual fund scheme – such as sales &
marketing/ advertising expenses, administrative expenses, transaction costs, investment
management fees, registrar fees, custodian fees, audit fees – as a percentage of the fund’s
daily net assets.
This is commonly referred to as ‘Expense Ratio’. In short, Expense ratio is the cost of running
and managing a mutual fund which is charged to the scheme. All expenses incurred by a
Mutual Fund, AMC will have to be managed within the limits specified under Regulation
52(6) & (6A) of the SEBI Mutual Funds Regulations.
The expense ratio is calculated as a percentage of the Scheme’s average Net Asset Value
(NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses. Thus, the
expense ratio has a direct bearing on a scheme’s NAV – the lower the expense ratio of a
scheme, the higher the NAV.
F. Holding period return
Holding period return is the total return received from holding an asset or portfolio of assets
over a period of time, generally expressed as a percentage. Holding period return is
calculated on the basis of total returns from the asset or portfolio – i.e. income plus changes
in value. It is particularly useful for comparing returns between investments held for
different periods of time.

8. SEBI (MUTUAL FUND) REGULATIONS, 1996
SEBI (Mutual Fund) Regulations, 1996 has been notified on 9th December, 1996 with
objective to improve the working and regulation of the mutual fund industry, so that mutual
funds could provide a better performance and service to all categories of investors and offer
a range of innovative products in a competitive manner to match investor needs and
preferences across various investor segments. SEBI (Mutual Funds) Regulations, 1996 deals
with 10 Chapters and 12 schedules. The key provisions of these regulations include:
 All the schemes to be launched by the AMC needs to be approved by the Board of
Trustees and copies of offer documents of such schemes are to be filed with SEBI.
 The offer documents shall contain adequate disclosures to enable the investors to
make informed decisions.
 The sponsor or AMC shall invest not less than 1% of the amount which would be
raised in the new fund offer or Rs. 50 Lakh, whichever is less, and such investment
shall not be redeemed unless the scheme is wound up. However the investment by
the sponsor or AMC shall be made in such option of the scheme, as may be specified
by SEBI.
 The mutual fund, which intends to list units of its scheme on the recognised stock
exchange(s), shall obtain ‘in-principle’ approval from recognised stock exchange(s).
 Units of a close-ended scheme can be opened for sale or redemption at a pre-
determined fixed interval if the minimum and maximum amount of sale, redemption
and periodicity is disclosed in the offer document.
 Units of a close-ended scheme can be converted into an open-ended scheme if the
offer document of such scheme discloses the option and period of such conversion
or the unitholders are provided with an option to redeem their units in full.
 Units of close-ended scheme may be rolled over in the case of those unitholders who
express their consent in writing and the unitholders who do not opt for the roll over
or have not given written consent shall be allowed to redeem their holdings in full at
net asset value based price.
 No scheme other than equity-linked saving scheme can be opened for subscription
for more than 15 days. Further, the minimum subscription and the extent of over
subscription that is intended to be retained should be specified in the offer
document. In the case of over-subscription, all applicants applying up to 5,000 units
must be given full allotment subject to over subscription.
 The AMC is required to refund the application money if minimum subscription is not
received, and also the excess over subscription within five working days of closure of
subscription.
 A close-ended scheme shall be wound up on redemption date, unless it is rolled
over, or if 75% of the unit-holders of a scheme pass a resolution for winding up of
the scheme; if the trustees on the happening of any event require the scheme to be
wound up; or if SEBI, so directs in the interest of investors.

Lesson 13
SEBI (Collective Investment Schemes)
Regulation, 1999

INTRODUCTION
A collective investment scheme is a trust based scheme that comprises a pool of assets that is
managed by a collective investment scheme manager and is governed by the Collective Investment
Schemes Regulations given by SEBI. Section 11AA of the SEBI Act was amended to include a new
proviso which gave SEBI the power to regulate all pooling of funds under any scheme or
arrangement in excess of Rs. 100 crores not regulated by any other law, thus slipping into the net of
a CIS.
Collective Investment Schemes (CIS) are a popular form of investment, and they are accessible to all.
Each investor has a proportional stake in the CIS portfolio based on how much money he or she
contributed. The word ‘unit’ refers to the portion or part of the CIS portfolio that is owned by the
investor.
The trust enables financial experts to invest the money on behalf of the CIS investor.
A unit certificate issued under the scheme should be freely transferable, and must be listed.
Collective Investment Scheme - refers to any scheme under which,—

(i) the contributions are pooled and utilized for the purposes of the scheme or
arrangement;
(ii) the contributions are made to such scheme by the investors with a view to receive
profits, income, produce or property, whether movable or immovable;
(iii) the property, contribution or investment forming part of scheme, is managed on behalf
of the investors;
(iv) the investors do not have day-to-day control over the management of the scheme.
EXCLUSIONS-
 made or offered by a co-operative society.
 being a contract of insurance.
 providing for any Scheme, Pension Scheme or the Insurance Scheme.
 under which deposits are accepted by NBFC.
 under which deposits are accepted under section 74 of the Companies Act, 2013.
 under which deposits are accepted by a company declared as a Nidhi or a mutual benefit
society
 falling within the meaning of Chit business.
 under which contributions made are in the nature of subscription to a mutual fund.
RESTRICTIONS ON BUSINESS ACTIVITIES

The Collective Investment Management Company should not:
(i) undertake any activity other than that of managing the scheme;
(ii) act as a trustee of any scheme;
(iii) launch any scheme for the purpose of investing in securities;
(iv) invest in any schemes floated by it.
(However, it has been provided that a CIMC may invest in its own scheme)

OBLIGATIONS OF COLLECTIVE INVESTMENT MANAGEMENT COMPANY
Every Collective Investment Management Company should:
 be responsible for managing the funds or properties of the scheme.
 exercise due diligence and care in managing assets and funds of the scheme.
 remain liable to the unit holders for its acts of commission or omissions.
 appoint registrar and share transfer agents.
 give receipts for all monies received and report of the receipts and payments to SEBI, on
monthly basis.
 hold a meeting of Board of Directors to consider the affairs of scheme, at least twice in every
three months.
 obtain adequate insurance against the properties of the schemes.

Lesson 14
Resolution of Complaints and Guidance

INTRODUCTION
SCORES (SEBI Complaints Redress System) is an online platform designed to help investors
to lodge their complaints, pertaining to securities market, online with SEBI against listed
companies and SEBI registered intermediaries. All complaints received by SEBI against listed
companies and SEBI registered intermediaries are dealt through SCORES.
SCORES (SEBI COMPLAINTS REDRESS SYSTEM)

SCORES is a web based centralized grievance redress system of SEBI (http://scores.gov.in).
The salient features of SCORES are:
– Centralised database of investor complaints

– Online movement of complaints to the concerned listed company or SEBI registered
intermediary
– Online upload of Action Taken Reports (ATRs) by the concerned listed company or SEBI
registered intermediary
– Online viewing by investors of actions taken on the complaint and its current status
– SCORES is web enabled and provides online access 24 x 7;
– Complaints and reminders thereon can be lodged online at the above website at
anytime from anywhere;
– An email is generated instantaneously acknowledging the receipt of complaint and
allotting a unique complaint registration number to the complainant for future
reference and tracking;
– The complaint forwarded online to the entity concerned for its redressal;
MATTERS NOT CONSIDERED AS COMPLAINTS IN SCORES

• Complaint not pertaining to investment in securities market.
• Anonymous Complaints (except whistle blower complaints).
• Incomplete or un-specific complaints.
• Allegations without supporting documents.
• Suggestions or seeking guidance/explanation.
• Not satisfied with trading price of the shares of the companies.
• Non-listing of shares of private offer.
• Disputes arising out of private agreement with companies/intermediaries.
• Matter involving fake/forged documents.
• Complaints on matters not in SEBI purview.
• Complaints about any unregistered/ un-regulated activity.

TYPE OF COMPANIES NOT COVERED UNDER SCORES
Complaints against the following companies cannot be dealt through SCORES even though
the complaint may be against a listed entity/ SEBI registered intermediary:-
• Complaints against the companies which are unlisted/delisted, placed on the

Dissemination Board of Stock Exchange.
• Complaints against a sick company or a company where a moratorium order is passed in
winding up/ insolvency proceedings.
• Complaints against the companies where the name of company is struck off from
Registrar of Companies (RoC) or a Vanishing Company as per list published by Ministry of
Corporate Affairs (MCA). Suspended companies, companies under liquidation, BIFR etc.
• Complaints that are sub-judice i.e. relating to cases which are under consideration by
court of law, quasi-judicial proceedings etc.
• Complaints against companies, falling under the purview of other regulatory bodies viz.
The Reserve Bank of India (RBI), The Insurance Regulatory and Development Authority of
India (IRDAI), the Pension Funds Regulatory and Development Authority (PFRDA),
Competition Commission of India (CCI), etc., or under the purview of other ministries
viz., MCA, etc.
TIME LINE FOR LODGING COMPLAINT ON SCORES

An investor may lodge a complaint on SCORES within three years from the date of cause of
complaint, where;
• Investor has approached the listed company or registered intermediary for redressal of
the complaint and,
• The concerned listed company or registered intermediary rejected the complaint or,
• The complainant does not receive any communication from the listed company or
intermediary concerned or,
• The complainant is not satisfied with the reply given to him or redressal action taken by
the listed company or an intermediary.
In case investor fails to lodge a complaint within the stipulated time of three years, he may
directly take up the complaint with the entity concerned or approach appropriate court of
law.
PROCESS FOR LODGING COMPLAINT ONLINE ON SCORE BY INVESTORS

To register a complaint online on SCORES portal, (http://www.scores.gov.in/) click on
“Register Here” under “Investor Corner”.
Press submit to complete the registration. An Email/SMS informing User ID and Password
will be sent to investor.

Login to SCORES and Click on "Complaint Registration"
Enter details like Period of cause of event, Date of grievance taken up with the entity,
address of direct complaint to the entity, Share certificate number/ folio number etc.
Type Complaint details in brief (1000 Characters)
Upload supporting documents (upto 2 MB in PDF format). Click on “Add”
Enter the Character shown in image. Click on “Submit”
Complaint Registration Number is generated and sent to email id and to mobile number
of the complainant.
HANDLING OF THE COMPLAINTS BY LISTED ENTITIES AND SEBI REGISTERED INTERMEDIARIES

Has the investor lodged a complaint with the
concerned intermediary / listed company for redressal
NO YES
• The complaint will be routed directly to the • The complainant has to provide the date
concerned entity. Since this is the first time the of taking up the complaint and also the
issue will be raised with the concerned entity, address where the communication was
such “Direct complaints” will be addressed by last made.
the concerned entity and the response will come
• The complaint will be routed to SEBI.
to the investor without any interference of SEBI
When the complaint comes to SEBI, the
officials.
complaint is examined and its decided
• The concerned entity is required to send a whether the subject matter falls under
response to the investor directly within 30 days. the purview of SEBI and whether it needs
to be referred to concerned entity. After
• If the concerned entity fails to send a response examination, SEBI forwards the complaint
within 30 days to the investor, then the to the concerned entity with an advice to
complaint will be routed to SEBI automatically. send a written reply to the investor and
Thereafter, the complaint will have a new file an action taken report in SORES.
SCORES registration number.
• In case the investor is dissatisfied with the

redressal of the complaint, the investor has to
indicate the same against the complaint and
then the complaint will come to SEBI. If the
investor does not indicate the same within 15
days of receipt of reply from the company, it will
be assumed that the investor is satisfied with the
redressal and the complaint will be closed.

HANDLING OF SCORES COMPLAINTS BY STOCK EXCHANGE
• Non updation of address /Signature or Corrections etc
• Non-receipt of Bonus
• Non receipt of Dividend
• Non-receipt of duplicate share certificate
• Non receipt of interest for delay in dividend
• Non receipt of interest for delay in payment of interest on debt security
• Non receipt of interest for delay in refunds
• Non receipt of interest on securities
• Non receipt of redemption amount of debt securities
• Non receipt of refund in Public/ Rights issue
• Non receipt of securities after transfer
• Non receipt of securities in public/ rights issue
• Non-receipt of interest for delay in dispatch/credit of securities
• Receipt of shares in physical mode instead of electronic mode
• Demat/Remat
Procedure for handling complaints by the stock exchanges

Investors are encouraged to initially take up their grievances for redressal with the
concerned listed company directly. SCORES platform can also be used to submit
grievances directly to the company for resolution, if the complainant has not approached
the company earlier.
In case the company does not redress the complaint within 30 days from the date of
receipt of the complaint, such direct complaints shall be forwarded to Designated Stock
Exchange (DSE) through SCORES.
At the time of lodging the complaint through SCORES platform, if the complainant had
approached the company earlier, complainant shall submit all details of the complaint i.e.,
period of cause of event, date of grievance taken up with the entity, address of the
company corresponded earlier, etc. Such complaints shall be forwarded to the DSE.
Upon receipt of the complaint through SCORES platform, the DSE shall take up the
complaint with the company. The company is required to redress the complaint and
submit an Action Taken Report (ATR) within 30 days from date of receipt of complaint.
In case the ATR is not submitted by the company within 30 days or DSE is of the opinion
that the complaint is not adequately redressed and the complaint remains pending
beyond 30 days, a reminder shall be issued by DSE to the listed company through SCORES
directing expeditious redressal of the grievance within another 30 days.
On being adequately satisfied with the response of the company with respect to the
complaint, the stock exchange shall submit an ATR to SEBI.
For any failure to redress investor grievances pending beyond 60 days by listed
companies, stock exchange shall initiate appropriate action against the listed company.

Action of Stock Exchange for Failure to Redress Investor Complaints
In terms of SEBI circular dated 22 January, 2020, Stock Exchanges shall, having regard to the
interest of investors and the securities market, inter alia take action against listed
companies for non- compliance with the provisions of the Listing Regulations and
circulars/guidelines issued thereunder, including failure to ensure expeditious redressal of
investor complaints under Regulation 13 of the Listing Regulations.
Stock exchanges shall levy a fine of Rs. 1000 per day per complaint on the listed entity for
violation of Regulation 13 (1) of SEBI (LODR) Regulations, 2015 read with the SEBI circular.
Fines shall also be levied on companies which are suspended from trading.
Timelines for handling of complaints and actions in case of non compliances

Sr Activity No of calendar
No. days
1. Complaint handling:
a. Complaint received in SCORES by the listed company T
b. Response to be obtained from Listed Company Within T+30
c. If no response received, alert to Listed Company in the form of T+31
reminder for non-redressal of complaint
d. Response to be obtained from Listed Company Within T+60
2. Action in case of non-compliances:
a. Notice to Listed company intimating the fine @ Rs. 1000/- per day, per T+61
complaint to be levied for not resolving the complaints within 60 days
b. Notice to Promoters for non-resolution of complaints and non-payment T+76
of fine to the stock exchange.
c. Freezing of promoters shareholdings (i.e. entire shareholding of the T+86
promoters in listed company as well as all other securities held in the
demat account of the promoters) in demat account.
d. Stock exchanges may take any other actions, as deemed appropriate.
e. Once Stock exchange has exhausted all options and if number of
pending complaints exceed 20 or the value involved is more than Rs. 10
lakhs, the Exchange to forward the details of such Listed companies to
SEBI for further action, if any
WHEN ARE INVESTOR COMPLAINTS DISPOSED OF?

Complaints are disposed of by SEBI
a. On receipt of satisfactory action taken report along with supporting documents, if any,
from the concerned entity responsible for resolving the complaint.
b. On failure by the investor/complainant to give complete details/documents required for
redressal of their complaint within the prescribed time.
c. When the concerned entity’s case is pending with court/ other judicial authority.

WHEN CAN SEBI TAKE ACTION FOR NON-RESOLUTION OF INVESTOR COMPLAINTS?
For listed companies: SEBI has empowered stock exchanges to levy fine for non-redressal of
investor complaints in terms of the relevant provisions of SEBI (Listing and Disclosure
Requirements) Regulations, 2015 to be read with SEBI circulars.
If the complaint is not redressed/ fine is not paid, the stock exchanges can direct the
depositories to freeze the entire shareholding of the promoter and promoter group in such
entity as well as all other securities held in the demat account of the promoter and
promoter group. If non-compliance continues, the stock exchanges may refer such cases to
SEBI for enforcement actions, if any.
Notwithstanding the above, while the entity is directly responsible for redressal of investor
complaints, SEBI can initiate action against recalcitrant entities including registered
intermediaries and listed companies on the grounds of their failure to redress investor
complaints.
WHEN CAN A CASE BE REFERRED FOR ARBITRATION?
If there is any dispute (claims, complaints, differences, etc.) between a client and a member
of Stock Exchange (i.e. Stock Broker, Trading Member and Clearing Member) / a member of
Depository [i.e. depository participant (DP)] which has not been resolved to their
satisfaction, either party can prefer for an arbitration proceedings for settlement of their
disputes.
Arbitration is a quasi-judicial process for settlement of disputes. Stock Exchanges/

Depositories provide an arbitration mechanism for settlement of disputes between a client
and a member/depositories participant (DP) through arbitration proceedings in accordance
with the provisions of SEBI Act/ Regulations/ Circulars/ guidelines read with Section 2(4) of
the Arbitration and Conciliation, Act, 1996.
The limitation period for filing an arbitration reference is governed by the law of limitation,
i.e., The Limitation Act, 1963.
SEBI MOBILE APPLICATION: RECENT DEVELOPMENT

In its efforts to improve the ease of doing business, SEBI dated March 5, 2020, launched a
Mobile Application for the convenience of investors to lodge their grievances in SEBI
Complaints Redress System (SCORES).
SCORES mobile app will make it easier for investors to lodge their grievances with SEBI, as
they can now access SCORES at their convenience of a smart phone. The App has all the
features of SCORES which is presently available electronically where investors have to lodge
their complaints by using internet medium. After mandatory registration on the App, for

each grievance lodged, investors will get an acknowledgement via SMS and e-mail on their
registered mobile numbers and e-mail ID respectively.
Investors can, not only file their grievances but also track the status of their complaint
redressal. Investors can also key in reminders for their pending grievances.
SCORES is a platform designed to help investors to lodge their complaints online with SEBI,
pertaining to securities market, against listed companies, SEBI registered intermediaries and
SEBI recognized Market Infrastructure Institutions. As per SEBI norms, entities against whom
complaints are lodged are required to file an Action Taken Report with SEBI within 30 days
of receipt of complaints.
The Mobile App “SEBI SCORES” is available on both iOS and Android platforms.
SEBI (Ombudsman) Regulations, 2003

Ombudsman in its literal sense is an independent person appointed to hear and act upon
citizen’s complaint about government services. This concept was invented in Sweden and
the idea has been widely adopted. For example, various banks, insurance companies have
appointed Ombudsman to attend to the complaints of their customers.
SEBI has issued SEBI (Ombudsman) Regulations, 2003.
A. Powers and Functions of Ombudsman

• To receive complaints specified in regulation 13 against any intermediary or a listed
company or both;
• To consider such complaints and facilitate resolution thereof by amicable
settlement;
• To approve a friendly or amicable settlement of the dispute between the parties;
• To adjudicate such complaints in the event of failure of settlement thereof by
friendly or amicable settlement.
B. Procedure for filing a complaint
Make a complaint against a listed company or an intermediary to the Ombudsman

within whose jurisdiction the registered or corporate office of such listed company
or intermediary is located.
If SEBI has not notified any Ombudsman for a particular locality or territorial
jurisdiction, the complainant may request the Ombudsman located at the Head
Office of the SEBI for forwarding his complaint to the Ombudsman of competent
jurisdiction.

The complaint is required to be in writing duly signed by the complainant or his
authorised representative (not being a legal practitioner) in the Form specified in
the Schedule to the regulations and supported by documents, if any.
The Ombudsman may dismiss a complaint on any of the grounds specified under
the Regulations or when such complaint is frivolous in his opinion.
C. Power to call for information

• An Ombudsman may require the listed company or the intermediary named in the
complaint or any other person, institution or authority to provide any information or
furnish certified copy of any document relating to the subject matter of the
complaint which is or is alleged to be in its or his possession.
• In the event of the failure of a listed company or the intermediary to comply with the
requisition made without any sufficient cause, the Ombudsman may, if he deems fit,
draw the inference that the information, if provided or copies if furnished, would be
unfavourable to the listed company or intermediary.
• The Ombudsman is required to maintain confidentiality of any information or
document coming to his knowledge or possession in the course of discharging his
duties and shall not disclose such information or document to any person except and
as otherwise required by law or with the consent of the person furnishing such
information or document.
• The Ombudsman has been empowered to disclose information or document
furnished by a party in a complaint to the other party or parties, to the extent
considered by him to be reasonably required to comply with the principles of natural
justice and fair play in the proceedings.
• However, these provisions shall not apply in relation to the disclosures made or
information furnished by the Ombudsman SEBI or to the publication of
Ombudsman’s award in any journal or newspaper or filing thereof before any Court,
Forum or Authority.
D. Settlement by Mutual Agreement

• Ombudsman shall endeavour to promote a settlement of the complaint by
agreement or mediation between the complainant and the listed company or
intermediary named in the complaint.
E. Award and Adjudication

• In case the matter is not resolved by mutually acceptable agreement within a period
of one month of the receipt of the complaint or such extended period as may be
permitted by the Ombudsman.

• He may, based upon the material placed before him and after giving opportunity of
being heard to the parties, give his award in writing or pass any other directions or
orders as he may consider appropriate.
• Such award shall be made within a period of three months from the date of the filing
of the complaint.
• The Ombudsman should send his award to the parties to the adjudication to perform
their obligations under the award.
• Within fifteen days from the receipt of the award a party, with notice to the other
party, may request the Ombudsman to correct any computation errors, any clerical
or typographical errors or any other errors of a similar nature occurring in the award.
• If the Ombudsman considers the request made above to be justified, he shall make
the correction within fifteen days from the receipt of the request which shall form
part of the award.
F. Finality of Award
 An award given by the Ombudsman shall be final and binding on the parties and
persons claiming under them respectively.
 Any party aggrieved by the award on adjudication may file a petition before SEBI
within one month from the receipt of the award or corrected award setting out the
grounds for review of the award.
G. Display of the Particulars of the Ombudsman

• Every listed company or intermediary is required to display the name and address of
the Ombudsman as specified by SEBI to whom the complaints are to be made by any
aggrieved person in its office premises in such manner and at such place, so that it is
put to notice of the shareholders or investors or unit holders visiting the office
premises of the listed company or intermediary.
• The listed company or intermediary is required to give full disclosure about the
grievance redressal mechanism through Ombudsman in its offer document or client
agreement.
• Any failure to disclose the grievance redressal mechanism through Ombudsman or
any failure to display the particulars would attract the penal provisions contained in
Section 15A of SEBI Act.

SEBI (INFORMAL GUIDANCE) SCHEME, 2003
 In the interests of better regulation of and orderly development of the Securities
market, SEBI has issued SEBI (Informal Guidance) Scheme 2003 w.e.f. 24.6.2003. The
following persons may make a request for informal Guidance under the scheme:
(a) any intermediary registered with the SEBI.
(b) any listed company.
(c) any company which intends to get any of its securities listed and which has filed
either a listing application with any stock exchange or a draft offer document with
the SEBI or the Central Listing authority.
(d) any mutual fund trustee company or asset management company.
(e) any acquirer or prospective acquirer under the SEBI (Substantial Acquisition of
Shares & Takeovers) Regulations, 1997. (Now SEBI Takeover Regulation, 2011).
 The Guidance Scheme, further deals with various aspects such as the nature of request,
fees to be accompanied along with request letter, disposal of requests, SEBI’s discretion
not to respond certain types of requests and confidentiality of requests etc.
 The informal guidance may be sought for and given in two forms:
No-action letters Interpretive letters
SEBI indicates that the Department would or SEBI provides an interpretation of a

would not recommend any action under any specific provision of any Act, Rules,
Act, Rules, Regulations, Guidelines, Circulars Regulations, Guidelines, Circulars or
or other legal provisions administered by other legal provision being
SEBI to the Board if the proposed transaction administered by SEBI in the context of
described in a request made under this a proposed transaction in securities
provision. or a specific factual situation.
 The request seeking informal guidance should state that it is being made under this
scheme and also state whether it is a request for a no-action letter or an interpretive
letter and should be accompanied with prescribed fees and addressed to the concerned
Department of SEBI.
 It should also describe the request, disclose and analyse all material facts and
circumstances involved and mention all applicable legal provisions. The SEBI may
dispose off the request as early as possible and in any case not later than 60 days after
the receipt of the request.
 The Department may give a hearing or conduct an interview if it feels necessary to do

so. The request or shall be entitled only to the reply. The internal records or views of the
SEBI shall be confidential.

Lesson 15
CAPITAL MARKET INSTITUTIONS

INTRODUCTION
In any economy, financial Institutions play an important role because all the financial dealings and
matters are handled and monitored by such Institutions. The major components of financial
Institutions are banks, insurance companies, investment companies, consumer finance companies,
and other specialized financial institutes. These institutions provide a variety of financial products
and services to fulfil the varied needs of the commercial sector.
NATIONAL LEVEL INSTITUTIONS
A wide variety of financial institutions have been set up at the national level. These institutions cater
to the diverse financial requirements of the entrepreneurs. They include development banks like
IDBI, SIDBI, FIs like IFCI, IIBI; TFCI and Insurance Companies like LIC, GIC, UTI; etc.
1. All-India Development Banks (AIDBs):- Includes those development banks which provide
institutional credit not only to large and medium scale enterprises but also help in promotion and
development of small scale industrial units. Following are the banks which caters to the need for the
growth of different sectors on India :
Industrial Development Bank of India (IDBI)
Industrial Finance Corporation of India (IFCI)
Small Industries Development Bank of India (SIDBI)
Industrial Investment Bank of India Ltd (IIBI)
2. Specialised Financial Institutions (SFIs):- These are the institutions which have been set up to
serve the increasing financial needs of trade and commerce in the area of venture capital, credit
rating and leasing, etc. Following institutions are considered as SFIs in our country:
IFCI Venture Capital Funds Ltd (IVCF)

ICICI Venture Funds Ltd
Tourism Finance Corporation of India Ltd. (TFCI)
3. Investment Institutions:- These are the most popular form of financial intermediaries, which
particularly catering to the needs of small savers and investors. They deploy their assets largely in
marketable securities. Following are the Investment Institutions established by the Government :
Life Insurance Corporation of India (LIC)
Unit Trust of India (UTI)
General Insurance Corporation of India (GIC)
STATE LEVEL INSTITUTIONS
Several financial institutions have been set up at the State level which supplement the financial
assistance provided by the all India institutions. They act as a catalyst for promotion of investment
and industrial development in the respective States. They broadly consist of ‘State financial
corporations’ and ‘State industrial development corporations’.
State Financial Corporations (SFCs)
State Industrial Development Corporations (SIDCs)

QUALIFIED INSTITUTIONAL BUYERS
QIBs are investment institutions who buy the shares of a company on a large scale. Qualified
Institutional Buyers are those Institutional investors who are generally perceived to possess
expertise and the financial proficiency to evaluate and to invest in the Capital Markets
According to Regulation 2(1) of Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2018, Qualified Institutional Investors comprises of —
(i) a mutual fund, venture capital fund, Alternative Investment Fund and foreign venture
capital investor registered with SEBI;
(ii) a foreign portfolio investor other than individuals, corporate bodies and family offices;
(iii) a public financial institution;
(iv) a scheduled commercial bank;
(v) a multilateral and bilateral development financial institution;
(vi) a state industrial development corporation;
(vii) an insurance company registered with the Insurance Regulatory and Development
Authority;
(viii) a provident fund with minimum corpus of twenty five crore rupees;
(ix) a pension fund with minimum corpus of twenty five crore rupees;
(x) National Investment Fund set up by Government of India;
(xi) insurance funds set up and managed by army, navy or air force of the Union of India;
(xii) insurance funds set up and managed by the Department of Posts, India;
(xiii) Systemically important non-banking financial companies.
FOREIGN PORTFOLIO INVESTOR
Foreign Portfolio Investor (FPI) means a person who satisfies the eligibility criteria prescribed under
SEBI (Foreign Portfolio Investors) Regulations, 2019 which shall be deemed to be an intermediary in
terms of the provisions of the SEBI Act, 1992.
Categories of FPI
• Category I FPIs include:
(i) Government and Government related investors such as central banks, sovereign wealth funds,
international or multilateral organizations or agencies including entities controlled or at least 75%
directly or indirectly owned by such Government and Government related investor(s);
(ii) Pension funds and university funds;
(iii) Appropriately regulated entities such as insurance or reinsurance entities, banks, asset
management companies, investment managers, investment advisors, portfolio managers, broker
dealers and swap dealers;
(iv) Entities from the Financial Action Task Force member countries, or from any country specified
by the Central Government by an order or by way of an agreement or treaty with other sovereign
Governments, which are–
I. appropriately regulated funds;
II. unregulated funds whose investment manager is appropriately regulated and registered as
a Category I foreign portfolio investor. However the investment manager undertakes the
responsibility of all the acts of commission or omission of such unregulated fund;

III. university related endowments of such universities that have been in existence for more
than five years;
(v) An entity (A) whose investment manager is from the Financial Action Task Force member
country and such an investment manager is registered as a Category I foreign portfolio investor;
or (B) which is at least 75% owned, directly or indirectly by another entity, eligible under sub-
clause (ii), (iii) and (iv) of clause (a) of this regulation and such an eligible entity is from a Financial
Action Task Force member country. However such an investment manager or eligible entity
undertakes the responsibility of all the acts of commission or omission of the applicants seeking
registration under this sub-clause.
• Category II FPIs include all the investors not eligible under Category I foreign portfolio
investors such as –
(i) appropriately regulated funds not eligible as Category-I foreign portfolio investor;
(ii) endowments and foundations;
(iii) charitable organisations;
(iv) corporate bodies;
(v) family offices;
(vi) individuals;
(vii) appropriately regulated entities investing on behalf of their client, as per conditions specified
by the Board from time to time;
(viii) Unregulated funds in the form of limited partnership and trusts.
Explanation: An applicant incorporated or established in an International Financial Services Centre
shall be deemed to be appropriately regulated.
ALTERNATIVE INVESTMENT FUNDS
According to SEBI (AIF) Regulations, 2012, “Alternative Investment Fund” means any fund
established or incorporated in India in the form of a trust or a company or a limited liability
partnership or a body corporate which,
(i) is a privately pooled investment vehicle which collects funds from investors, whether
Indian or foreign, for investing it in accordance with a defined investment policy for the
benefit of its investors; and
(ii) is not covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective
Investment Schemes) Regulations, 1999 or any other regulations of SEBI to regulate fund
management activities.
Categories of AIF:
Category 1
Category 2
Category 3

PRIVATE EQUITY
Private equity is a type of equity (finance) and one of the asset classes who takes securities and debt
in operating companies that are not publicly traded on a stock exchange. Private equity is essentially
a way to invest in some assets that isn’t publicly traded, or to invest in a publicly traded asset with
the intention of taking it private. Unlike stocks, mutual funds, and bonds, private equity funds
usually invest in more illiquid assets, i.e. companies. By purchasing companies, the firms gain access
to those assets and revenue sources of the company, which can lead to very high returns on
investments. Another feature of private equity transactions is their extensive use of debt in the form
of high-yield bonds. By using debt to finance acquisitions, private equity firms can substantially
increase their financial returns.
Private equity consists of investors and funds that make investments directly into private companies
or conduct buyouts of public companies. Capital for private equity is raised from retail and
institutional investors, and can be used to fund new technologies, expand working capital within an
owned company, make acquisitions, or to strengthen a balance sheet. The major of private equity
consists of institutional investors and accredited investors who can commit large sums of money for
long periods of time. Private equity investments often demand long holding periods to allow for a
turn around of a distressed company or a liquidity event such as IPO or sale to a public company.
Generally, the private equity fund raise money from investors like Angel investors, Institutions with
diversified investment portfolio like – pension funds, insurance companies, banks, funds of funds
etc.
Types of Private Equity

Private equity investments can be divided into the following categories:
Leveraged This refers to a strategy of making equity investments as part of a transaction in
Buyout (LBO): which a company, business unit or business assets is acquired from the current
shareholders typically with the use of financial leverage. The companies involved
in these type of transactions that are typically more mature and generate
operating cash flows.
Venture It is a broad sub-category of private equity that refers to equity investments
Capital made, typically in less mature companies, for the launch, early development, or
expansion of a business.
Growth This refers to equity investments, mostly minority investments, in the companies
Capital that are looking for capital to expand or restructure operations, enter new
markets or finance a major acquisition without a change of control of the
business.
ANGEL FUND
An angel investor or angel (also known as a business angel, informal investor, angel funder, private
investor, or seed investor) is an affluent individual who provides capital for a business start-up,
usually in exchange for convertible debt or ownership equity. A small but increasing number of angel
investors invest online through equity crowd funding or organize themselves into angel groups or
angel networks to share research and pool their investment capital, as well as to provide advice to
their portfolio companies.

HIGH NET WORTH INDIVIDUALS
HNIs or high net worth individuals is a class of individuals who are distinguished from other retail
segment based on their net wealth, assets and investible surplus. While there is no standard put
forth for the classification, the definition of HNIs varies with the geographical area as well as
financial markets and institutions.
Though there is no specific definition, generally in the Indian context, individuals with over Rs. 2
crore investible surplus may be considered to be HNIs while those with investible wealth in the
range of Rs. 25 lac - Rs. 2 crore may be deemed as Emerging HNIs.
If you are applying for a IPO of equity shares in an Indian company, generally, if you apply for
amounts in excess of Rs. 2 lakhs, you fall under the HNI category. On the other hand, if you apply for
amounts under Rs. 2 lakhs, you are considered as a retail investor. There may be so many ways in
which HNIs are categorized and defined, there is no single bracket that could put them under.
VENTURE CAPITAL
Venture Capital is one of the innovative financing resource for a company in which the promoter has
to give up some level of ownership and control of business in exchange for capital for a limited
period, say, 3-5 years. Venture Capital is generally equity investments made by Venture Capital
funds, at an early stage in privately held companies, having potential to provide a high rate of return
on their investments.
PENSION FUND
Pension Fund means a fund established by an employer to facilitate and organize the investment of
employees’ retirement funds which is contributed by the employer and employees. The pension
fund is a common asset pool meant to generate stable growth over the long term, and provide
pensions for employees when they reach the end of their working years and commence retirement.
Pensions broadly divided into two sector:

A-Formal sector Pensions
B-Informal sector Pensions
Formal Sector Pensions Formal sector pensions in India can be divided into three categories; viz
pensions under an Act or Statute, Government pensions and voluntary pensions.
There are three defining Acts for pensions in India.

1. Pensions under the EPF & MP Act 1952
2. Pensions under the Coal mines PF & MP Act 1948
3. Gratuity under the Payment of Gratuity Act, 1972

Lesson 16
CAPITAL MARKET INSTRUMENTS

EQUITY SHARES
Equity shares, commonly referred to as ordinary share also represents the form of fractional
ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial
risk associated with a business venture. The holder of such shares is the member of the company
and has voting rights.
SHARES WITH DIFFERENTIAL VOTING RIGHTS
Shares with differential voting rights (“DVR”) refer to equity shares holding differential rights as to
dividend and/or voting. Section 43 (a) (ii) of the Companies Act, 2013 allows a company limited by
shares to issue DVRs as part of its share capital. Section 43(2) of the Companies Act 2013 read with
Companies (Share Capital & Debenture) Rules, 2013 prescribes the following conditions for issue of
equity shares with DVRs:
• Articles of association of the company must authorize the issue;
• The voting power in respect of shares with differential rights of the Company shall not exceed
74% of total voting power including voting power in respect of equity shares with differential
rights issued at any point of time;
• Approval of shareholders by passing ordinary resolution in General Meeting;
• The Company should not have defaulted in:
• filing annual returns and financial statements for the last three years;
• repayment of matured deposits or declared dividend;
• redemption of its preference shares/debentures which are due for redemption;
• repayment of term loan taken from any public financial institution or state level financial
institution or from a scheduled bank that has become due and payable;
• statutory dues of the employees of the company.
PREFERENCE SHARES
Preference shares are that part of a company’s share capital which carry a preferential right to:
• dividend at a fixed rate or amount; and

• repayment of capital in case of winding-up of the company.
Preference shares enjoy a preferential right to dividend and repayment of capital in case of winding-
up of the company. Governed by the provisions of Section 55 of the Companies Act, the main
drawback of preference shares is that they carry limited voting rights. Generally, an equity share
confers on its holder a right to vote on all resolutions that require shareholder approval under the
Act, any other law, or the articles of association of the company. A preference share carries voting
rights only with respect of matters which directly affect the rights of the preference shareholders.

DEBENTURES
Section 2(30) of the Companies Act, 2013 defines debentures. “Debenture” includes debenture
stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge
on the assets of the company or not;
BONDS
Bonds are the debt security where an issuer is bound to pay a specific rate of interest agreed as per
the terms of payment and repay principal amount at a later time. The bond holders are generally like
a creditor where a company is obliged to pay the amount. The amount is paid on the maturity of the
bond period. Generally these bonds duration would be for 5 to 10 years.
Characteristics of a Bond
1. Bond has a fixed face value, which is the amount to be returned to the investor upon maturity.
2. Fixed maturity date, which can range from a few days to 20-30 years or even more.
3. All bonds repay the principal amount after the maturity date.
4. Provides regular payment of interest, semi-annually or annually.
5. Interest is calculated as a certain percentage of the face value known as a ‘coupon payment’.
6. Generally considered as less risky investment as compared to equity.
7. It helps to diversify and grow investor’s money.
Types of Bond
Government Bonds These are the bonds issued either directly by Government of India or
by the Public Sector Units (PSU’s) in India. These bonds are secured as
they are backed up with security from Government. These are
generally offered with low rate of interest compared to other types of
bonds.
Corporate Bonds These are the bonds issued by the private corporate companies.
Indian corporates issue secured or non-secured bonds. However care
to be taken to consider the credit rating given by Credit Rating
Agencies before investing in these bonds.
Banks and other These bonds are issued by banks or any financial institution. The
financial institutions financial market is well regulated and the majority of the bond
bonds markets are from this segment.
Tax saving bonds In India, the tax saving bonds are issued by the Government of India
for providing benefit to investors in the form of tax savings. Along
with getting normal interest, the bond holder would also get tax
benefit. In India, all these bonds are listed in National Stock Exchange
and Bombay Stock Exchange in India, hence they can be easily
liquidated and sold in the open market.

FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBs)
The FCCB is used to raise funds from the international markets against the security and convertibility
of shares of the company. Foreign Currency Convertibility Bond (FCEB) means –
(i) A bond expressed in foreign currency.
(ii) The principal and the interest in respect of which is payable in foreign currency.
(iii) Issued by an issuing company, being an Indian company.
(iv) Subscribed by a person resident outside India.
(v) Convertible into equity shares of the company.
FOREIGN CURRENCY EXCHANGEABLE BONDS (FCEBs)
The FCEB is used to raise funds from the international markets against the security and
exchangeability of shares of another company. Foreign Currency Exchangeable Bond (FCEB) means –
(i) A bond expressed in foreign currency.
(ii) The principal and the interest in respect of which is payable in foreign currency.
(iii) Issued by an issuing company, being an Indian company.
(iv) Subscribed by a person resident outside India.
(v) Exchangeable into equity shares of another company, being offered company which is an Indian
company.
INDIAN DEPOSITORY RECEIPTS
According to Section 2(48) of the Companies Act, 2013 “Indian Depository Receipt” means any
instrument in the form of a depository receipt created by a domestic depository in India and
authorised by a company incorporated outside India making an issue of such depository receipts.
In an IDR, foreign companies would issue shares, to a domestic (Indian) depository, which would in
turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be
held by an Overseas Custodian, which shall authorize the Indian depository to issue the IDRs. To that
extent, IDRs are derivative instruments because they derive their value from the underlying shares.
Standard Chartered PLC is only company to offer IDR in the Indian market.
The foreign company issuing IDRs need to comply with the requirements of rules prescribed under
Companies Act, SEBI Regulations and RBI notifications/circulars.
DERIVATIVES
A derivative is a financial instrument that derives its value from an underlying asset. This underlying
asset can be stocks, bonds, currency, commodities, metals and even intangible, assets like stock
indices. Derivatives can be of different types like futures, options, swaps, caps, floor, collars etc. The
most popular derivative instruments are futures and options.

FUTURE
Future refers to a future contract which means an exchange traded forward contract to buy or sell a
predetermined quantity of an asset on a predetermined future date at a predetermined price.
Contracts are standardized and there’s centralized trading ensuring liquidity.
There are two positions that one can take in a future contract:
• Long Position-This is when a futures contact is purchased and the buyer agrees to receive delivery
of the underlying asset. (Stock/Indices/Commodities).
• Short Position-This is when a futures contract is sold and the seller agrees to make delivery of the
underlying asset. (stock/Indices/Commodities)
OPTIONS
Options Contract give its holder the right, but not the obligation, to take or make delivery on or
before a specified date at a stated price. But this option is given to only one party in the transaction
while the other party has an obligation to take or make delivery. Since the other party has an
obligation and a risk associated with making the good the obligation, he receives a payment for that.
This payment is called as option premium.
Option contracts are classified into two types on the basis of which party has the option:
• Call option - A call option is with the buyer and gives the holder a right to take delivery.
• Put option - The put option is with the seller and the option gives the right to take delivery.
Option Contracts are classified into two types on the basis of time at which the option can be
exercised: –
• European Option – European style options are those contacts where the option can be exercised
only on the expiration date. Options traded on Indian stock exchanges are of European Style.
• American Option – American style options are those contacts where the option can be exercised
on or before the expiration date.
WARRANT
Warrant means an option issued by a company whereby the buyer is granted the right to purchase a
number of shares (usually one) of its equity share capital at a given exercise price during a given
period.
The holder of a warrant has the right but not the obligation to convert them into equity shares. Thus
in the true sense, a warrant signifies optional conversion. In case the investor benefits by conversion
of warrant, then he will convert the warrants, else he may simply let the warrant lapse. The
companies listed on the Exchange can issue warrants in accordance with SEBI (ICDR) Regulations,
2018.
For example if the conversion price of the warrant is Rs. 70/-and the current market price is Rs.110/-
then the investor will convert the warrant and enjoy the capital gain of Rs.40/-. In case the
conversion is at Rs.70/- and the current market price is Rs.40/-, then the investor will simply let the
warrant lapse without conversion.

Lesson 17
IMP. ASPECTS OF PRIMARY MARKET

BOOK BUILDING

ANCHOR INVESTORS
Anchor investor means a Qualified Institutional Buyer (QIB) who makes an application for a value of
at least 10 crore rupees in a public issue on the main board made through the book building process
or makes an application for a value of at least Rs. 2 crore for an public issue on the SME exchange
made in accordance with Chapter IX of the SEBI (ICDR) Regulations, 2018.
Allocation to anchor investors shall be on a discretionary basis and subject to the following:
(I) In case of public issue on the main board, though the book building process:
– Maximum of 2 such investors shall be permitted for allocation upto Rs.2 crore.
– Minimum of 2 and maximum of 15 such investors shall be permitted for allocation above Rs.2
crore and upto Rs. 25 crore, subject to minimum allotment of Rs.1 crore per such investor.
– In case of allocation above Rs.25 crore; a minimum of 5 such investors and a maximum of 15
such investors for allocation upto Rs.25 crore and an additional 10 such investors for every
additional Rs.25 crore or part thereof, shall be permitted, subject to a minimum allotment of
Rs.1 crore per such investor.
(II) In case of public issue on the SME exchange, through the book building process:
– Maximum of 2 such investors shall be permitted for allocation up to two crore rupees;
– Minimum of 2 and maximum of 15 such investors shall be permitted for allocation above 2 crore
rupees and up to 25 crore rupees, subject to minimum allotment of 1 crore rupees per such
investor;
– In case of allocation above 25 crore rupees; a minimum of 5 such investors and a maximum of 15
such investors for allocation up to 25 crore rupees and an additional 10 such investors for every
additional 25 crore rupees or part thereof, shall be permitted, subject to a minimum allotment
of 1 crore rupees per such investor.
The bidding for anchor investors shall open one day before the issue opening date. Allocation to
Anchor Investors shall be completed on the day of bidding by Anchor Investors.
Shares allotted to the Anchor Investor shall be locked-in for 30 days from the date of allotment in
the public issue.
(Upto 60% of the portion available for allocation to QIB shall be available to anchor investor(s) for
allocation/ allotment (“anchor investor portion”) and one-third of the anchor investor portion shall
be reserved for domestic mutual funds.)

APPLICATION SUPPORTED BY BLOCK AMOUNT (ASBA)
ASBA is an application by an investor containing an authorization to Self-Certified Syndicate Bank

(SCSB) to block the application money in the bank account, for subscribing to an issue.
ASBA means “Application Supported by Blocked Amount”. If an investor is applying through ASBA,
his application money shall be debited from the bank account only if his/her application is selected
for allotment after the basis of allotment is finalized.
Self-Certified Syndicate Bank
Self-Certified Syndicate Bank (SCSB) is a bank which offers the facility of applying through the ASBA
process. A bank desirous of offering ASBA facility shall submit a certificate to SEBI as per the
prescribed format for inclusion of its name in SEBI’s list of SCSBs.
A SCSB shall identify its Designated Branches (DBs) at which an ASBA investor shall submit ASBA and
shall also identify the Controlling Branch (CB) which shall act as a coordinating branch for the
Registrar of the issue Stock Exchanges and Merchant Bankers.
ASBA Process
An ASBA investor submits an ASBA physically or electronically through the internet banking facility,
to the SCSB with whom the bank account to be blocked is maintained, then the SCSB blocks the
application money in the bank account specified in the ASBA, on the basis of an authorization to this
effect given by the account holder in the ASBA. The application money remains blocked in the bank
account till finalisation of the basis of allotment in the issue or till withdrawal/failure of the issue or
till withdrawal/rejection of the application, as the case may be.
The application data shall thereafter be uploaded by the SCSB in the electronic bidding system
through a web enabled interface provided by the Stock Exchanges. Once the basis of allotment of
finalized, the Registrar to the Issue sends an appropriate request to the SCSB for unblocking the
relevant bank accounts and for transferring the requisite amount to the issuer’s account.
A retail investor has the option of making application through ASBA or through cheque. However,
non-retail investors i.e. Qualified Institutional Buyers and Non-Institutional Investors, shall
mandatorily make use of ASBA facility for making application in public/rights issue.
GREEN SHOE OPTION
Green Shoe Option means an option of allocating shares in excess of the shares included in the
public issue and operating a post-listing price stabilizing mechanism in accordance with the
provisions of Regulation 45 of SEBI (ICDR) Regulations, 2018.
ICICI bank was the first to use Green Shoe Option in its public issue through book building
mechanism in India.

ILLUSTRATION
Consider a company planning an IPO of say, 100,000 shares, at a book-built price of Rs. 100/-,
resulting in an IPO size of Rs. 100,00,000. As per the ICDR Regulations, the over-allotment
component under the Green Shoe mechanism could be up to 15% of the IPO, i.e. up to 15,000
shares, i.e. Green Shoe shares. Prior to the IPO, the stabilising agent would borrow such number of
shares to the extent of the proposed Green Shoe shares from the preissue shareholders. These
shares are then allotted to investors along with the IPO shares. The total shares issued in the IPO
therefore stands at 115,000 shares. IPO proceeds received from the investors for the IPO shares, i.e.
Rs.100,00,000–100,000 shares at the rate of Rs.100 each, are remitted to the Issuer Company, while
the proceeds from the Green Shoe Shares (Rs.15,00,000/-, being 15,000 shares x Rs.100/-) are
parked in a special escrow bank account, i.e. Green Shoe Escrow Account. During the price
stabilisation period, if the share price drops below Rs.100, the stabilising agent would utilise the
funds lying in the Green Shoe Escrow Account to buy these back shares from the open market. This
gives rise to the following three situations:
– Situation #1 - where the stabilising agent manages to buyback all of the Green Shoe Shares,
i.e.,15,000 shares;
– Situation #2 - where the stabilising agent manages to buyback none of the Green Shoe Shares;
– Situation #3 - where the stabilising agent manages to buy-back some of the Green Shoe Shares, say
10,000 shares.
Let us examine each of these situations separately:
Situation #1 – Where all Green Shoe Shares are bought back: In this situation, funds in the Green
Shoe Escrow Account (Rs.15,00,000, in this case) would be deployed by the stabilising agent towards
buying up shares from the open market. Given that the prices prevalent in the market would be less
than the issue price of Rs. 100, the stabilising agent would have sufficient funds lying at his disposal
to complete this operation. Having bought back all of the 15,000 shares, these shares would be
temporarily held in a special depository account with the depository participant (Green Shoe Demat
Account), and would then be returned back to the lender shareholders, within a maximum period of
two days after the stabilisation period.
Situation #2 – Where none of the Green Shoe Shares are bought back: This situation would arise in
the (very unlikely) event that the share prices have fallen below the Issue Price, but the stabilising
agent is unable to find any sellers in the open market, or in an event where the share prices continue
to trade above the listing price, and therefore there is no need for the stabilising agent to indulge in
price stabilisation activities.
In either of the above-said situations, the stabilising agent is under a contractual obligation to return
the 15,000 shares that had initially been borrowed from the lending shareholder(s). Towards
meeting this obligation, the issuer company would allot 15,000 shares to the stabilising agent into
the Green Shoe Demat Account (the consideration being the funds lying the Green Shoe Escrow
Account), and these shares would then be returned by the stabilising agent to the lending
shareholder(s), thereby squaring off his responsibilities.

Situation #3 – Where some of the Green Shoe Shares are bought back, say 10,000 shares: This
situation could arise in an event where the share prices witness a drop in the initial stages of the
price stabilisation period, but recover towards the latter stages.
In this situation, the stabilising agent has a responsibility to return 15,000 shares to the lending
shareholder(s), whereas the stabilising activities have yielded only 10,000 shares.
Similar to the instance mentioned in Situation #2 above, the issuer company would allot the
differential 5,000 shares into the Green Shoe Demat Account to cover up the shortfall, and the
Stabilising Agent would discharge his obligation to the lending shareholder(s) by returning the
15,000 shares that had been borrowed from them.
Both in Situation #2 and #3, the issuer company would need to apply to the exchanges for obtaining
listing/ trading permissions for the incremental shares allotted by them, pursuant to the Green Shoe
mechanism.
Any surplus lying in the Green Shoe Escrow Account would then be transferred to the Investor
Protection and Education Fund established by SEBI, as required under Regulation 45(9) of the ICDR
Regulations and the account shall be closed thereafter.

Lesson 18
STOCK EXCHANGE MECHANISM

TRADING MECHANISM IN INDIA
In the Indian securities market various products trade like equity shares, warrants, debenture, etc.
The trading in the securities of the company takes place in dematerialised form in India.
Dematerialization is the process by which physical certificates of an investor are converted to an
equivalent number of securities in electronic form and credited to the investor’s account with his
Depository Participant (DP). Trading in the securities of the company takes place on the screen
based platforms provided by the Exchanges. Currently for equity shares the settlement cycle is (T+2
days) (T means trading day/Transaction day). Any shares which are traded on the Exchange is
required to be settled by the clearing corporation of the exchange on 2 working day.
TYPES OF SECURITIES
Types of Securities
 Listed Securities: The securities of companies, which have signed the listing agreement with
a stock exchange, are traded as “Listed Securities” in that exchange.
 Permitted Securities: To facilitate the market participants to trade in securities of such
companies, which are actively traded at other stock exchanges in India but are not listed on
an exchange, trading in such securities is facilitated as “permitted securities” provided they
meet the relevant norms specified by the stock exchange.
MARGINS
An advance payment of a portion of the value of a stock transaction. The amount of credit a broker
or lender extends to a customer for stock purchase.
“Initial margin” in this context means the minimum amount, calculated as a percentage of the
transaction value, to be placed by the client, with the broker, before the actual purchase. The broker
may advance the balance amount to meet full settlement obligations.
“Maintenance margin” means the minimum amount, calculated as a percentage of market value of
the securities, calculated with respect to last trading day’s closing price, to be maintained by client
with the broker.
BOOK CLOSURE AND RECORD DATE
Book closure is the periodic closure of the Register of Members and Transfer Books of the company,
to take a record of the shareholders to determine their entitlement to dividends or to bonus or right
shares or any other rights pertaining to shares.
Record date is the date on which the records of a company are closed for the purpose of
determining the stock holders to whom dividends, proxy rights etc. are to be sent.
In accordance with Section 91 of the Companies Act, 2013 a company may close the register of
members for a maximum of 45 days in a year and for not more than 30 days at any one time. Book

closure/record date is necessary for the purpose of paying dividend, rights issue ,bonus issue, etc.
For the companies whose securities are listed on the Exchange are required to comply with the SEBI
(LODR) Regulation 2015. As per SEBI (LODR) Regulation 2015 the companies are required to give 7
working days advance notice of book closure or record date to stock exchange where the securities
of the companies are listed.
BLOCK DEAL
The SEBI vide letter MRD/DoP/SE/Cir - 19/05 dated September 02, 2005 and CIR/MRD/DP/118/2017
dated October 26, 2017 guidelines outlining a facility of allowing Stock Exchanges to provide
separate trading window to facilitate execution of large trades. The Exchanges have introduced new
block window mechanism for the block trades from January 01, 2018.
• Session Timings:
a) Morning Block Deal Window: This window shall operate between 08:45 AM to 09:00 AM.
b) Afternoon Block Deal Window: This window shall operate between 02:05 PM to 2:20 PM.
• In the block deal the minimum order size for execution of trades in the Block deal window shall be
Rs.10 Crore.
• The stock exchanges disseminates the information on block deals such as the name of the scrip,
name of the client, quantity of shares bought/sold, traded price, etc to the general public on the
same day, after the market hours.
BULK DEAL
Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number of equity
shares of a listed company.
Bulk deal can be transacted by the normal trading window provided by brokers throughout the
trading hours in a day. Bulk deals are market driven and take place throughout the trading day.
The stock broker, who facilitates the trade, is required to reveal to the stock exchange about the
bulk deals on a daily basis.
Bulk orders are visible to everyone. If the bulk deal happens through a single trade, it should be
notified to the exchange immediately upon the execution of the order. If it happens through
multiple trades, it should be notified to the exchange within one hour from the closure of the
trading.
NIFTY AND SENSEX
National Stock Exchange Fifty or Nifty is the market indicator of NSE. It is a collection of 50 stocks. It
is also referred to as Nifty 50 .it is owned and managed by India Index Services and Products Ltd.
(IISL).

Sensitive Index or Sensex is the stock market index indicator for the BSE. It is also sometimes
referred to as BSE S&P Sensex. It was first published in 1986 and is based on the market weighed
stock index of 30 companies based on the financial performance. The large, established companies
that represent various industrial sectors are a part of this.
MARKET SURVEILLANCE
Market surveillance plays a vital role in ensuring market integrity which is the core objective of
regulators. Market integrity is achieved through combination of surveillance, inspection,
investigation and enforcement of relevant laws and rules.
Millions of Orders are transmitted electronically every minute and therefore surveillance
mechanisms to detect any irregularities must also be equally developed. Exchanges adopt
automated surveillance tools that analyse trading patterns and are installed with a comprehensive
alerts management system.
Market Surveillance is broadly categorised in 2 parts viz, Preventive Surveillance and Post trade
Surveillance
A. Preventive Surveillance –
 Stringent On boarding norms for Trading Members - Stringent net worth, back ground,
viability etc. checks while on boarding Trading Members.
 Index circuit filters - It brings coordinated trading halt in all equity and equity derivative
markets at 3 stages of the index movement, either way viz., at 10%, 15% and 20% based on
previous day closing index value.
 Trade Execution Range - Orders are matched and trades take place only if the trade price is
within the reference price and execution range.
 Order Value Limitation - Maximum Order Value limit allowed per order.
 Cancel on logout - All outstanding orders are cancelled, if the enabled user logs out.
 Kill switch - All outstanding orders of that trading member are cancelled if trading member
executes kill switch.
 Risk reduction mode - Limits beyond which orders level risk management shall be initiated
instead of trade level.
 Compulsory close out - Incoming order, if it results in member crossing the margins
available with the exchange, such order will be partially or fully cancelled, as the case may
be, and further disallow the trading member to create fresh positions.
 Capital adequacy check - Refers to monitoring of trading member’s performance and track
record, stringent margin requirements, position limits based on capital, online monitoring of
member positions and automatic disablement from trading when limits are breached.
 Fixed Price Band / Dynamic Price band - Limits applied within which securities shall move;
so that volatility is curbed orderliness is bought about. For non-derivative securities price
band is 5%, 10% & 20%. For Derivative products an operating range of 10% is set and
subsequently flexed based on market conditions.
 Trade for Trade Settlement - The settlement of scrip’s available in this segment is done on a
trade for trade basis and no netting off is allowed.

 Periodic call auction - Shifting the security form continuous to call auction method
 Rumour Verification - Any unannounced news about listed companies is tracked on online
basis and letter seeking clarification is sent to the companies and the reply received is
disseminated.
B. Post trade surveillance -
• End of day alert – Alerts generated using statistical tools. The tool highlights stocks which
have behaved abnormally form its past behaviour.
• Pattern recognition model – Models designed using high end tools and trading patterns
which itself identifies suspects involving in unfair trading practise.
• Transaction alerts for member - As part of surveillance obligation of members the alerts are
downloaded to members under 14 different heads.
OTHER CONCEPTS:
Fed Policy
Repo Rate

Cash Reserve Ratio
Statutory Liquidity Ratio
Reverse Repo Rate
Inflation Index

Lesson 19
SECURITIES MARKET INTERMMEDIARIES

REGULATORY FRAMEWORK OF INTERMEDIARIES
Sl Intermediary SEBI Net worth

Name Definition Role and Responsibilities
No. Regulation Requirement
1. Merchant ‘Merchant Banker’ It is necessary for an SEBI Not less than
Banker means any person issuer to appoint a (Merchant Rs. 5 crore
engaged in the merchant banker for: Bankers)
business of issue (a) Managing of public Regulations,
management either issue of securities; 1992
by making (b) Underwriting
arrangements connected with the
regarding selling aforesaid public
buying or subscribing issue management
to securities or acting business;
as manager/ (c) Managing/Advising
consultant/advisoror
on international
rendering corporate
offerings of debt/
advisory services in
equity i.e. GDR,
relation to such issue
ADR, bonds and
management.
other instruments;
(d) Private placement
of securities;
(e) Primary or satellite
dealership of
government
securities;
(f) Corporate advisory
services related to
securities market
including takeovers,
acquisition and
disinvestment;
(g) Stock broking;
(h) Advisory services
for projects;
(i) Syndication of
rupee term loans;
(j) International
financial advisory
services.
GENERAL • Every merchant banker shall abide by the Code of
OBLIGATIONS AND Conduct.
RESPONSIBILITIES • No merchant banker, shall carry on any business other
than that in the securities market.
• Every merchant banker shall keep and maintain the
books of account, records and documents.
• Every merchant banker shall furnish to the SEBI half-
yearly unaudited financial results.

• The merchant banker shall preserve the books of
account and other records and documents for a minimum
period of five years.
• Every merchant banker acting as an underwriter shall
enter into an agreement with each body corporate on
whose behalf it is acting as an underwriter.
• Every merchant banker shall appoint a compliance
officer who shall be responsible for monitoring the
compliance of the Act, rules and regulations, notifications,
guidelines, instructions, etc., issued by the SEBI or the
Central Government and for redressal of investors’
grievances.
2. Registrars ‘‘Registrar to an Pre-issue Activities SEBI For category
and Share Issue” means the • Sending instructions to (Registrars I is Rs.
Transfer person appointed by Banks for reporting of to an Issue 50,00,000
Agents a body corporate or collection figures and and Share and category
any person or group collection of Transfer II is Rs.
of persons to carry applications. Agents) 25,00,000.
on the following • Providing Practical Regulations,
activities on its or his inputs to the Lead 1993
or their behalf : Manager and Printers
(i) collecting regarding the design of
application for the Bid cum-
investor in respect of Application form.
an issue; • Facilitate and establish
(ii) keeping a proper information flow
record of applications system between
and monies received clients, Banks and
from investors or Managers to the issue.
paid to the seller of  Liaisoning with
the securities; and Regulatory Authorities
(iii)assisting body such as SEBI & Stock
corporate or person Exchanges.
or group of persons
in – Activities during the Issue
(a) determining the • Collection and Reporting
basis of allotment of daily Collection figures.
of the securities • Collection of Data and
in consultation Forms from Banks.
with the stock • Liaisoning with clients
exchange and Intermediaries to the
(b) finalising the list Issue.
of person
entitled to Post Issue Activities
allotment of • Data capturing &
securities validation
(c) processing and • Reconciliation
dispatching of • Provide Allotment
allotment letters, Alternatives in
refund orders or consultation with Client /
certificates and

other related Merchant Banker and
documents in Stock Exchanges
respect of the • Facilitating Listing
issue • Uploading of data to the
Depositories for crediting
‘Share Transfer of securities electronically
Agent’ means: • Dispatch of Refund
(i) any person who on orders/ Share Certificates/
behalf of any body Credit Advise
corporate, maintains • Periodic Report
the records of submission to Regulatory
holders of securities Authorities
issued by such body • Reconciliation of Refund
corporate and deals payments
with all matters • Attending to post issue
connected with the Investor queries
transfer and • Web-based investor
redemption of its enquiry system for
securities; allotment / refund details
(ii) the department or
division, by whatever
name called, of a
body corporate
performing the
activities as share
transfer agents if at
any time the total
number of holders of
its securities issued
exceed one lakh.
GENERAL • Every registrar to an issue and share transfer agent
OBLIGATIONS AND holding a certificate shall at all times abide by the Code of
RESPONSIBILITIES Conduct.
• Registrar to an issue shall not to act as such registrar for
any issue of securities in case he or it is an associate of the
body corporate issuing the securities.
• Every registrar to an issue and share transfer agent
being a body corporate shall keep and maintain proper
books of accounts and records.
• The registrar to an issue or share transfer agent shall
preserve the books of accounts and other records and
documents maintained for a minimum period of eight
years.
• Every registrar to an issue and share transfer agent shall
appoint a compliance officer who shall be responsible for
monitoring the compliance of the Act, rules and
regulations, notifications, guidelines, instructions etc.
issued by the SEBI or the Central Government and for
redressal of investors’ grievances.
3. Bankers to 'Banker to an Issue' Bankers to the issue, as SEBI -
an issue means a scheduled the name suggests, carries (Bankers to

bank or such other out all the activities of an Issue)
banking company as ensuring that the funds Regulations,
may be specified by are collected and 1994
the SEBI from time to transferred to the Escrow
time, carrying on all accounts. While one or
or any of the more banks may function
following activities: as Bankers to the Issue as
(i) Acceptance of well as collection banks,
application and others may do the limited
application monies; work of collecting the
(ii) Acceptance of applications for securities
allotment or call along with the remittance
monies; in their numerous
(iii) Refund of branches in different
application monies; centres. The banks are
(iv) Payment of expected to furnish
dividend or interest prompt information and
warrants. records to the company
and to the lead manager
for monitoring and
progressing the issue
work.
GENERAL • Every banker to an issue shall maintain books of
OBLIGATIONS AND account, records and the documents.
RESPONSIBILITIES • Every banker to an issue shall furnish the information to
the SEBI when required.
• Every banker to an issue shall enter into an agreement
with the body corporate for whom it is acting as banker to
an issue.
• Every banker to an issue shall inform the SEBI forthwith
if any disciplinary action is taken by the Reserve Bank
against the banker to an issue only in relation to issue
payment work.
• Every banker to an issue shall abide by the code of
conduct.
• Every banker to an issue shall appoint a compliance
guidelines, instructions, etc., issued by the SEBI or the
Central Government and for redressal of investors’
grievances.
4. Debenture “Debenture Trustee” Duties of the debenture SEBI Not less than
Trustees means a trustee trustees are: - (Debenture Rs. 10 crore
appointed in respect • satisfy itself that the Trustees)
of any issue of prospectus or letter of Regulations,
debentures of a body offer does not contain any 1993
corporate. matter which is
inconsistent with the
terms of the issue of
debentures or with the
trust deed.

• satisfy itself that the
covenants in the trust
deed are not prejudicial to
the interest of the
debenture holders.
• call for periodical status/
performance reports from
the issuer company within
7 days of the relevant
board meeting or within
45 days of the respective
quarter whichever is
earlier.
• communicate promptly
to the debenture holders
defaults, if any, with
regard to payment of
interest or redemption of
debentures and action
taken by the trustee
therefor.
• ensure that the
company does not commit
any breach of the terms of
issue of debentures or
covenants of the trust
deed and take such
reasonable steps as may
be necessary to remedy
any such breach.
• inform the debenture
holders immediately of
any breach of the terms of
issue of debentures or
covenants of the trust
deed.
• ensure the
implementation of the
conditions regarding
creation of security for the
debentures.
• call for reports on the
utilization of funds raised
by the issue of
debentures.
• take steps to convene a
meeting of the holders of
debentures as and when
such meeting is required
to be held.

• ensure that the
debentures have been
converted or redeemed in
accordance with the terms
of the issue of
debentures.
• take possession of trust
property in accordance
with the provisions of the
trust deed.
5. Stockbrokers "Stock Broker" A stock broker plays a very SEBI (Stock As specified
means a person important role in the Brokers) in Schedule
having trading rights secondary market helping Regulations, VI of these
in any recognised both the seller and the 1992 Regulations.
stock exchange and buyer of the securities to
includes a trading enter into a transaction.
member. The buyer and seller may
be either a broker or a
client. When executing an
order, the stock broker
may on behalf of his client
buy or sell securities from
his own account i.e. as
principal or act as an
agent. For each
transaction he has to issue
necessary contract note
indicating whether the
transaction has been
entered into by him as a
principal or as an agent
for another. While buying
or selling securities as a
principal, the stock broker
has to obtain the consent
of his client and the prices
charged should be fair and
justify by the conditions of
the market. Stock broker
may also act as an
underwriter.
GENERAL • Every Stock Broker shall keep and maintain the proper
OBLIGATIONS AND books of account, records and documents.
RESPONSIBILITIES • Every stock broker shall preserve the books of account
and other records maintained for a minimum period of
five years.
• Every stock broker shall appoint a compliance officer
who shall be responsible for monitoring the compliance of
the Act, rules and regulations, notifications, guidelines,
instructions, etc., issued by the SEBI or the Central
Government and for redressal of investors’ grievances.

6. Portfolio "Portfolio manager” A portfolio manager plays SEBI Not less than
Managers means a body a pivotal role in deciding (Portfolio Rs. 5 crores.
corporate, which the best investment plan Managers)
pursuant to a for an individual as per his Regulations,
contract with a client, income, age as well as 2020
advises or directs or ability to undertake risks.
undertakes on behalf A portfolio manager is
of the client (whether responsible for making an
as a discretionary individual aware of the
portfolio manager or various investment tools
otherwise) the available in the market
management or and benefits associated
administration of a with each plan. Make an
portfolio of securities individual realize why he
or goods or funds of actually needs to invest
the client, as the case and which plan would be
may be: the best for him. A
portfolio manager is
Provided that the responsible for designing
Portfolio Manager customized investment
may deal in goods solutions for the clients
received in delivery according to their financial
against physical needs.
settlement of
commodity
derivatives.
“Discretionary
portfolio manager”
means a portfolio
manager who under
a contract relating to
portfolio
management,
exercises or may
exercise, any degree
of discretion as to the
investment of funds
or management of
the portfolio of
securities of the
client, as the case
may be.
GENERAL • Every portfolio manager shall abide by the Code of
OBLIGATIONS AND Conduct as specified Schedule III of SEBI (Portfolio
RESPONSIBILITIES Managers) Regulations, 2020.
• The portfolio manager shall, before taking up an
assignment of management of funds and portfolio on
behalf of a client, enter into an agreement in writing with
such client that clearly defines the inter se relationship
and sets out their mutual rights, liabilities and obligations

relating to management of portfolio containing the details
as specified in Schedule IV.
• The discretionary portfolio manager shall individually
and independently manage the funds of each client in
accordance with the needs of the client, in a manner
which does not partake character of a Mutual Fund,
whereas the non-discretionary portfolio manager shall
manage the funds in accordance with the directions of the
client.
• The portfolio manager shall not accept from the client,
funds or securities worth less than fifty lakh rupees.
However the minimum investment amount per client
shall be applicable for new clients and fresh investments
by existing clients
• The portfolio manager shall act in a fiduciary capacity
with regard to the client's funds.
• The portfolio manager shall segregate each client’s
holding in securities in separate accounts.
• The portfolio manager shall keep the funds of all clients
in a separate account to be maintained by it in a
Scheduled Commercial Bank.
• The portfolio manager shall transact in securities within
the limitation placed by the client himself with regard to
dealing in securities under the provisions of the Reserve
Bank of India Act, 1934.
• The portfolio manager shall not derive any direct or
indirect benefit out of the client's funds or securities.
• The portfolio manager shall not borrow funds or
securities on behalf of the client.
• Every portfolio manager shall furnish to the SEBI a net
worth certificate issued by a chartered accountant as and
when required by the SEBI.
• The portfolio manager shall preserve the books of
account and other records and documents mentioned
under this chapter for a minimum period of five years.
7. Custodians "Custodian" is a The custodian- SEBI Minimum of
person who carries • Administrate and (Custodian) Rs. 50 crores.
on or propose to protect the assets of the Regulations,
carry on the business clients. 1996
of providing custodial • Open a separate custody
services to the client. account and deposit
The custodian keeps account in the name of
the custody of the each client.
securities of the • Record assets.
client. The custodian • Conduct registration of
also provides securities.
incidental services
such as maintaining
the accounts of
securities of the
client, collecting the

benefits or rights
accruing to the client
in respect of
securities.
GENERAL • Every custodian shall abide by the Code of Conduct.
OBLIGATIONS AND • Where a custodian is carrying on any activity besides
RESPONSIBILITIES that of acting as custodian then the activities relating to
his business as custodian shall be separate and
segregated from all other activities.
• Every custodian shall have adequate mechanisms for
the purposes of reviewing, monitoring, evaluating and
inspection the custodian’s controls, systems, procedures
and safeguards.
• No custodian shall assign or delegate its functions as a
custodian to any other person unless such person is a
custodian.
• Every custodian shall open a separate custody account
for each client, in the name of the client whose securities
are in its custody and the assets of one client shall not be
mixed with those of another client.
• Every custodian shall enter into an agreement with each
client on whose behalf it is acting as custodian.
• Every custodian shall have adequate internal controls to
prevent any manipulation of records and documents
including audits for securities, goods and rights or
entitlements arising from the securities and goods held by
it on behalf of its client.
• Every custodian shall maintain the records and
documents.
• Every custodian shall appoint a compliance officer who
shall be responsible for monitoring the compliance of the
Act, rules and regulations, notifications, guidelines,
instructions, etc., issued by the SEBI or the Central
Government and for redressal of investors’ grievances.
• Where any information is called for by the SEBI, it shall
be the duly of the custodian to furnish such information
within such reasonable period as the SEBI may specify.
8. Investment “Investment Investment advisers are SEBI Investment
Advisers Adviser” means any those, who provide (Investment advisers who
person, who for investment advice. Advisers) are non-
consideration, is Regulations, individuals
engaged in the “Investment advice” 2013 shall have a
business of providing means advice relating to net worth of
investment advice to investing in, purchasing, not less than
clients or other selling or otherwise Rs. 50 lakh
persons or group of dealing in securities or Investment
persons and includes investment products, and advisers who
any person who advice on investment are
holds out himself as portfolio containing individuals
an investment securities or investment shall have
products, whether net tangible

adviser, by whatever written, oral or through assets of
name called. any other means of value not
communication for the less than Rs.
benefit of the client and 5 lakh
shall include financial
planning.
However, investment
advice given through
newspaper, magazines,
any electronic or
broadcasting or
telecommunications
medium, which is widely
available to the public
shall not be considered as
investment advice for the
purpose of these
regulations.
GENERAL • An investment adviser shall act in a fiduciary capacity
OBLIGATIONS AND towards its clients and shall disclose all conflicts of
RESPONSIBILITIES interests as and when they arise.
• An investment adviser shall not receive any
consideration by way of remuneration or compensation
or in any other form from any person other than the
client being advised, in respect of the underlying products
or securities for which advice is provided.
• An investment adviser shall maintain an arms-length
relationship between its activities as an investment
adviser and other activities.
• An investment adviser which is also engaged in activities
other than investment advisory services shall ensure that
its investment advisory services are clearly segregated
from all its other activities, in the manner as prescribed
hereunder.
• An investment adviser shall ensure that in case of any
conflict of interest of the investment advisory activities
with other activities, such conflict of interest shall be
disclosed to the client.
• An investment adviser shall not divulge any confidential
information about its client, which has come to its
knowledge, without taking prior permission of its clients,
except where such disclosures are required to be made in
compliance with any law for the time being in force.
• An investment advisor shall not enter into transactions
on its own account which is contrary to its advice given to
clients for a period of fifteen days from the day of such
advice.
• An investment advisor shall follow Know Your Client
procedure as specified by the SEBI from time to time.
• An investment adviser shall abide by Code of Conduct.

• An investment adviser shall not act on its own account,
knowingly to sell securities or investment products to or
purchase securities or investment product from a client.
• In case of change in control of the investment adviser,
prior approval from the SEBI shall be taken.
• Investment advisers shall furnish to the SEBI
information and reports as may be specified by the SEBI
from time to time.
• It shall be the responsibility of the investment adviser to
ensure compliance with the certification and qualification
requirements.
9. Research “Research analyst” Research analyst study SEBI • Body
Analysts means a person who Companies and industries, (Research corporate
is primarily analyse raw data, and Analysts) or limited
responsible for,- make forecasts or Regulations, liability
i. preparation or recommendations about 2014 partnership
publication of the whether to buy, hold or firm – not
content of the sell securities. They less than Rs.
research report; or analyse information to 25 Lakh.
ii. providing research provide recommendations • Individual
report; or about investments in or
iii. making securities to their clients. partnership
‘buy/sell/hold’ Investors often view firm shall
recommendation; or analysts as experts and have net
iv. giving price target; important sources of tangible
or information about the assets of
v. offering an opinion securities they review and value not
concerning public often rely on their advice. less than Rs.
offer, There are basically three 1 Lakh.
with respect to broad types of analysts,
securities that are viz. sell-side analysts, buy-
listed or to be listed side analysts and
in a stock exchange, independent analysts.
whether or not any
such person has the
job title of ‘research
analyst’ and includes
any other entities
engaged in issuance
of research report or
research analysis.
GENERAL • Research analyst or research entity shall maintain an
RESPONSIBILITIES arms-length relationship between its research activity and
other activities.
• Research analyst or research entity shall abide by Code
of Conduct.
• In case of change in control of the research analyst or
research entity, prior approval from the SEBI shall be
taken.

• Research analyst or research entity shall furnish to the
SEBI information and reports as may be specified by the
SEBI from time to time.
• It shall be the responsibility of the research analyst or
research entity to ensure that its employees or partners,
as may be applicable, comply with the certification and
qualification requirements at all times.
• Research analyst or research entity shall maintain the
records.
• All records shall be maintained either in physical or
electronic form and preserved for a minimum period of
five years.
• Research analyst or research entity shall conduct annual
audit in respect of compliance with these regulations
from a member of Institute of Chartered Accountants of
India or Institute of Company Secretaries of India.
• Research analyst or research entity which is a body
corporate or limited liability partnership firm shall appoint
a compliance officer who shall be responsible for
monitoring the compliance of the provisions of the Act,
these regulations and circulars issued by the SEBI.
10. Credit Rating “Credit rating Credit rating is extremely SEBI (Credit Minimum
Agencies agency” means a important as it not only Rating Rs. 25 crores
body corporate plays a role in investor Agencies)
which is engaged in, protection but also Regulations,
or proposes to be benefits industry as a 1999
engaged in, the whole in terms of direct
business of rating of mobilization of savings
securities that are from individuals. Rating
listed or proposed to also provide a marketing
be listed on a stock tool to the company and
exchange recognized its investment bankers in
by the SEBI. placing company’s debt
obligations with a investor
base that is aware of, and
comfortable with, the
level of risk. Ratings also
encourage discipline
amongst corporate
borrowers to improve
their financial structure
and operating risks to
obtain a better rating for
their debt obligations and
thereby lower the cost of
borrowing.
GENERAL • Every credit rating agency shall abide by the Code of
OBLIGATIONS Conduct.
• Every credit rating agency shall enter into a written
agreement with each client whose securities it proposes
to rate.

• Every credit rating agency shall, during the lifetime of
securities rated by it continuously monitor the rating of
such securities.
• Every credit rating agency shall disseminate information
regarding newly assigned ratings, and changes in earlier
rating promptly through press releases and websites, and,
in the case of securities issued by listed companies, such
information shall also be provided simultaneously to the
concerned regional stock exchange and to all the stock
exchanges where the said securities are listed.
• Every credit rating agency shall disclose Rating
Definitions and Rationale.
• Where any information is called for by the SEBI from a
credit rating agency for the purposes of these regulations,
including any report relating to its activities, the credit
rating agency shall furnish such information to the SEBI.
• Every credit rating agency shall comply with such
guidelines, directives, circulars and instructions as may be
issued by the SEBI from time to time.
• Every credit rating agency shall appoint a compliance
guidelines, instructions etc. issued by the SEBI or the
Central Government.
• Every credit rating agency shall keep and maintain
books of accounts, records and documents for a minimum
period of five years.
11. Depository A DP is an agent of Depository Participant SEBI Depository
Participant the depository (DP) is described as an (Depositories participant–
(DP) through which it Agent (law) of the and As specified
interfaces with the depository. They are the Participants) in Regulation
investor and provides intermediaries between Regulations, 35 to these
depository services. the depository and the 2018 Regulations.
investors.
They execute pledge

requests and off market
transfers and on
market transfer request of
the investors who hold
shares in demat form.
Further transmission
requests of investors shall
also be handled.
Demat/Remat requests
also handled in
consultation with RTI/
STAs.
12. Foreign “Foreign Portfolio (a) A foreign portfolio SEBI –
Portfolio Investor” means a investor shall, at all times, (Foreign

Investor person who has been abide by the code of Portfolio
registered under conduct; Investors)
Chapter II of (b) comply with the Regulation,
Securities and provisions of these 2019
Exchange Board of regulations, as far as they
India (Foreign may apply, circulars issued
Portfolio Investors) thereunder and any other
Regulations, 2019 terms and conditions
and shall be deemed specified by the SEBI from
to be an intermediary time to time;
in terms of the (c) forthwith inform the
provisions of the SEBI SEBI and designated
Act, 1992. depository participant in
writing, if any information
or particulars previously
submitted to the SEBI or
designated depository
participant are found to
be false or misleading, in
any material respect;
(d) forthwith inform the
SEBI and designated
depository participant in
writing, if there is any
material change in the
information including any
direct or indirect change
in its structure or
ownership or control,
previously furnished by
him to the SEBI or
designated depository
participant;
(e) as and when required
by the SEBI or any other
Government agency in
India, submit any
information, record or
documents in relation to
its activities as a foreign
portfolio investor;
(f) forthwith inform the
SEBI and the designated
depository participant, in
case of any penalty,
pending litigation or
proceedings, findings of
inspections or
investigations for which
action may have been
taken or is in the process

of being taken by an
overseas regulator against
it;
(g) obtain a Permanent
Account Number from the
Income Tax Department;
(h) in relation to its
activities as foreign
portfolio investor, at all
times, subject itself to the
extant Indian laws, rules,
regulations, guidelines
and circulars issued from
time to time;
(i) be a fit and proper
person based on the
criteria specified in
Schedule II of the
Securities and Exchange
Board of India
(Intermediaries)
Regulations, 2008;
(j) ensure that securities
held by foreign portfolio
investors are free from all
encumbrances.

Securities Law

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PREFACE

The main features of the book are as under –

• The entire syllabus has been covered in a single book.

• It provides comprehensive and critical study of Securities Law.

• All important and relevant judicial pronouncements, circulars, notifications, clarifications,

With best wishes-

Mr. Shubhamm Sukhlecha

2. What is a listed company?

0.1 Shubhamm Sukhlecha INSPIRE ACADEMY

0.2 Shubhamm Sukhlecha INSPIRE ACADEMY

0.3 Shubhamm Sukhlecha INSPIRE ACADEMY

Securities Law and Capital Market

0.5 Shubhamm Sukhlecha INSPIRE ACADEMY

Securities Contract (Regulation) Act, 1956

1.1 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

Securities Contracts (Regulation) Act, 1956

1.2 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

RECOGNITION OF STOCK EXCHANGES

1.4 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

1.6 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

To call for periodical returns and make direct enquiries

To direct rules or make rules

To Supersede Companies of Stock Exchanges

To Suspend Business of Recognised Stock Exchange

To prohibit contracts in certain cases

To delegate or to make rules

Make Rules Restricting Voting Rights Etc.

1.8 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

To Make or Amend Bye-

PUBLIC ISSUE AND LISTING OF SECURITIES

If permission is not granted:

1.10 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

1.12 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

1. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made

1.14 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

Right to Receive Income or Dividend from Collective Investment Scheme/Mutual

The period specified (i.e. 15 days) shall be extended –

1.16 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

Requirements of Listing of Securities with recognised Stock Exchanges

 MOA and AOA,

 Certified copies of agreements or other documents relating to arrangements with or

 Certified copies of agreements with –

Stock Exchange shall be satisfied that-

Minimum offer and allotment to public

1.18 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

1.20 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

2.1 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

Two members from amongst the officials of the Ministry of

One member from amongst the officials of the Reserve Bank

Five other members of whom at least three shall be the whole

4. FUNCTIONS AND POWERS OF SEBI

2.2 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

 To Regulate or Prohibit Issue of Prospectus, Offer Document or Advertisement Soliciting

2.4 Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

6. PENALTIES AND ADJUDICATION

Failure by any person to enter into

Failure to redress investors’ grievances

Default in case of Mutual Funds

Failure to observe rules and regulations by

Failure to comply with regulations or