Amendments to the SEBI (Disclosure and Investor Protection) Guidelines, 2000 - SEBI - RMB (Compendium) Series Circular No. 1 (2001- 2002)

SECURITIES AND EXCHANGE BOARD OF INDIA PRIMARY MARKET DEPARTMENT Mittal Court, A Wing, Ground Floor Nariman Point, MUMBAI - 400 021. TEL NO. : 2850451- 56/ 2880962-70 FAX NO. :204 5633 RMB (Compendium) Series Circular No. 1 (2001- 2002) July 17, 2001 To All Registered Category I Merchant Bankers Dear Sirs, Sub: Amendments to the SEBI (Disclosure and Investor Protection) Guidelines, 2000 The Board in its meeting held on December 22, 2000 considered the recommendations of the Primary Market Advisory Committee in respect of the modifications/ amendments to the SEBI (Disclosure and Investor Protection) Guidelines, 2000. The Board approved certain amendments to the said Guidelines. Earlier, in the meeting held on September 14, 2000, the Board had also decided to include the Foreign Venture Capital Investors registered with the Board, in the definition of Qualified Institutional Buyers under the Guidelines. The Board, in its meeting held on July 9, 2001 approved inclusion of State Industrial Development Corporations in the definition of Qualified Institutional Buyers . Accordingly, the following amendments have been made in the Guidelines, which are : Section A : Foreign Venture Capital Investors registered with the Board and State Industrial Development Corporations have been included in the definition of Qualified Institutional Buyers in Explanation 2 (ii) to clause 2.2.2 of Chapter II. Thus the Foreign Venture Capital Investors registered with the Board and State Industrial Development Corporations shall also be eligible to participate in public issues through the book building route as Qualified Institutional Buyers. Section B : This section provides for the exemption to Foreign Venture Capital Investors registered with the Board from lock in requirements as specified in clause 4.14 of the Guidelines. Therefore, pre- issue share capital of an unlisted company held by Venture Capital Funds and Foreign Venture Capital Investors registered with the Board shall not be subject to lock in as per the Guidelines. However, the provisions of the SEBI (Venture Capital Funds) Regulations, 1996 and the SEBI (Foreign Venture Capital Investors), Regulations 2000 and any amendment thereto, in this regard, shall be applicable. Section C : This section lays down the revised requirements for filing the post issue monitoring reports with the Board for both book built portion and fixed price portion. Section D : Clause (b) to sub-rule (2) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957 has been amended vide Government notification no. G.S.R. 415(E) dated June 7, 2001, providing for public offer of atleast 10% instead of 25% subject to certain conditions. Hence clause 8.3.4 granting sector wise exemption stands deleted. Further, unlisted companies which have allotted shares to holders of securities in a listed company pursuant to a scheme of reconstruction or amalgamation sanctioned by the appropriate High Court, have been approaching the Board for seeking exemption from making a public offer for listing their shares. Exemptions, subject to fulfillment of certain conditions are already being granted by way of communication to the Stock Exchanges. For the sake of greater transparency, the requirements in this regard are stated in this section. Section E The requirements related to issue of research reports by an issuer company in respect of public issues and rights issues have been laid down. Section F : The restriction of a minimum public issue size of ₹ 25 crore in case of an Initial Public Offer through the book building route has been removed. It is again clarified that in terms of clause 11.3.5 (iv) of the Guidelines, for the under-subscribed portion of the fixed price portion in a book building issue, the issuer company has the option to allocate it to any category as it deems fit. Alternately, the issuer company has the option to let the under-subscribed portion lapse. Section G: The requirement of documents to be submitted to the Board for issue of No Objection Certificate for the release of 1% security deposit kept with the regional stock exchange have been modified. The amendments related to offer documents shall come into force for the offer documents filed with the Board after July 17, 2001 except Section C regarding post issue reporting requirement which would be applicable for all issues opening on or after July 17, 2001. Please acknowledge receipt. Yours faithfully, R.M. Joshi Executive Director SECTION A : CHAPTER II - ELIGIBILITY NORMS FOR COMPANIES ISSUING SECURITIES 1. In clause (ii) of Explanation 2 to clause 2.2-2, after item (f), new items (g) and (h) shall be added as under : (g) Foreign Venture Capital Investors registered with SEBI. (h) State Industrial Development Corporations. SECTION B : CHAPTER IV 1. In Clause 4.14-2, the existing sub-clause (i) shall be substituted by the following : (i) held by Venture Capital Funds and Foreign Venture Capital Investors registered with the Board. However, the same shall be locked-in as per the provisions of the SEBI (Venture Capital Funds) Regulations, 1996 and SEBI (Foreign Venture Capital Investors) Regulations, 2000 and any amendments thereto SECTION C : CHAPTER VII 1. The existing clause 7.2.1-1 shall be substituted by the following :- 7.2.1-1 - The due date for submitting Post-Issue Monitoring report in case of public issues by listed and unlisted companies a. 3 day monitoring report in case of issue through book building route, for book built portion. The due date of the report shall be 3rd day from the date of allocation in the book built portion or one day prior to the opening of the fixed price portion whichever is earlier. b. 3 day monitoring report in other cases, including fixed price portion of book built issue. The due date for the report shall be the 3rd day from the date of closure of the issue. c. Final post-issue monitoring report for all issues. The due date for this report shall be the 3rd day from the date of listing or 78 days from the date of closure of the subscription of the issue, whichever is earlier . 1. The title of clause 7.2.1-2 shall be substituted by the following : 7.2.1-2 - The due dates for submitting post-issue monitoring report in case of Rights issues. SECTION D : CHAPTER VIII 1. Clause 8.3-1 and clause 8.3-2 shall stand modified as under : 8.3-1 - In case of a public issue by an unlisted company, the net offer to public shall be at least 10% or 25% as the case may be, of the post-issue capital. 8.3-2 - In case of a public issue by a listed company, the net offer to public shall be at least 10% or 25% as the case may be, of the issue size. 2. The existing clause 8.3-3 shall stand modified as under : An infrastructure company, satisfying the requirements in clause 2.4-1 (iii) of Chapter II, inviting subscription from public shall not attract the provisions of clauses 8.3-1 and 8.3-2 above. 3. The existing clause 8.3-4 shall be deleted. 4. Existing clause 8.3-5 shall be renumbered as clause 8.3-4. 5. A new clause 8.3-5 shall be added as under : 8.3-5 - Application to the Board for Relaxation from applicability of clause (b) to sub-rule (2) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957 by an unlisted company : 8.3.5-1 - An unlisted company may make an application to the Board for relaxation from applicability of clause (b) to sub-rule (2) of Rule 19 of the Securities Contracts (Regulation) Rules, 1957 for listing of its shares without making an initial public offer if it satisfies the following conditions : i. Shares have been allotted by the unlisted company (transferee-company) to the holders of securities of a listed company (transferor-company) pursuant to a scheme of reconstruction or amalgamation under the provision of the Companies Act, 1956 and such scheme has been sanctioned by the High Court/s of the Judicature. ii. The listing of the shares of the unlisted transferee-company is in terms of scheme of arrangement sanctioned by the High Court/s of the Judicature. iii. At least 25% of the paid-up share capital, post-scheme, of the unlisted transferee-company seeking listing comprises shares allotted to the public holders of shares in the listed transferor-company. iv. The unlisted company has not issued/reissued any shares, not covered under the scheme. v. There are no outstanding warrants/instruments/agreements which gives right to any person to take the shares in the unlisted transferee-company at any future date. If there are such instruments in the scheme sanctioned by the Court, the percentage referred to in point (iii) above, shall be computed after giving effect to the consequent increase of capital on account of compulsory conversions outstanding as well as on the assumption that the options outstanding, if any, to subscribe for additional capital will be exercised. vi. The share certificates have been despatched to the allottees pursuant to the scheme of arrangement or their names have been entered as beneficial owner in the records of the depositories. vii. That the shares of the transferee-company issued in lieu of the locked-in-shares of the transferor-company are subjected to the lock-in for the remaining period. viii. In addition to the requirements of clause (vii) above, the following conditions are also to be complied with : a. in case of a hiving off of a division of a listed company (say A ) and its merger with a newly formed company or existing company (say B ) there would not be any additional lock-in, if the paid-up share capital of company B is only to the extent of requirement for incorporation purposes. b. in case of merger where the paid-up share capital of the company seeking listing (company B ) is more than the requirement for incorporation; the promoters shares shall be locked-in to the extent 20% of the post-merger paid-up capital of the unlisted company, for a period of 3 years from the date of listing of the shares of the unlisted company. The balance of the entire pre-merger capital of the unlisted company shall also be locked-in for a period of 3 years from the date of listing of the shares of the unlisted company. 8.3.5-2 - An application to the Board under clause 8.3.5-1 shall be made through the regional stock exchange of the listed company and the regional stock exchange may recommend the application giving the reason therefor. 8.3.5-3 - The unlisted company shall take steps for listing, simultaneously on all stock exchanges where the shares of the (transferor) listed company are/were listed, within 30 days of the date of the final order of the High Court/s approving the scheme. The formalities for commencing of trading shall be completed within 45 days of the date of final order of the High Court/s. 8.3.5-4 - Before commencement of trading, the company shall give an advertisement in one English and one Hindi newspaper with nationwide circulation and one regional newspaper with wide circulation at the place where the registered office of the company is situated, giving details as specified in schedule XXVIII. SECTION E : CHAPTER IX 1. After clause 9.2, a new clause 9.3 shall be added as under : 9.3 Research reports - 9.3-1 - The lead merchant banker shall ensure that the following are complied with in respect of research reports- i. the research report is prepared only on the basis of published information as contained in the offer document. ii. no selective or additional information or information extraneous to the offer document shall be made available by the issuer or any member of the issue management team/syndicate to only one section of the investors in any manner whatsoever including at road shows, presentations, in research or sales reports or at bidding centres etc. iii. no report or information, other than the contents of the draft offer document shall be circulated by the issuer or any member of the issue management team/syndicate or their associates, after the date of receipt of observations from SEBI. iv. the advertisement code is observed while circulating the research reports, and that the risk factors are reproduced wherever highlights are given, as in case of an advertisement. SECTION F : CHAPTER XI 1. Clause 11.3-1(i) shall be deleted. SECTION G : SCHEDULE XXIV 1. Item 1(i) in schedule XXIV shall be substituted with the following : i. First and last date of sending security certificates to NRIs (Enclose RBI acknowledgement letter. If acknowledgement is not received, date of filing the documents with RBI along with a copy of a letter forwarded to RBI) 1. Item 7 in schedule XXIV shall be substituted with the following; 7. Certificate from the Registrars countersigned by the post-issue lead manager that the certificates to the NRIs have been dispatched . 2. After schedule XXVII a new schedule XXVIII shall be added as under : SCHEDULE XXVIII [Clause 8.3-5] Contents of the advertisement to be issued in terms of clause 8.3.5-4 1. Name and address of registered office of the company. 2. Details of change of name and/or object clause. 3. Capital structure - Pre-and post-scheme of amalgamation. This shall provide details of the authorised, issued, subscribed and paid-up capital (Number of instruments, description, aggregate, nominal value) 4. Shareholding pattern giving details of promoter group shareholding, group companies. 5. Names of ten largest shareholders of the company - number and percentage of shares held by each of them, their interest, if any, in the company. 6. Details of promoters of the company - educational qualifications, experience, address. 7. Business of company and management. 8. Reason for the amalgamation. 9. Financial statement for the previous 3 years prior to the date of listing. 10. Latest audited financial statements along with notes to accounts and any audit qualifications. Change in accounting policies in the last 3 years and their effect on profits and reserves of the company [Financial statements should not be later than 6 months prior to the date of listing] 11. Details of other group companies including their capital structure and financial statements. 12. Outstanding litigations and defaults of the company, promoters, directors or any of the group companies. 13. Particulars of high, low and average prices of the shares of the listed company during the preceding 3 years. 14. Any material development after the date of the balance sheet. 15. Such other information as may be prescribed by SEBI from time to time.