Appendix 75
REGISTERED UNDERWRITERS‑OPERATIONAL GUIDELINES/
INSTRUCTIO- NS WITH MODEL UNDERWRITING AGREEMENT
With the passing of the
Securities and Exchange Board of India Act, 1992 and notification of SEBI
(Underwriters) Rules and Regulations, 1993 no person shall carry on any
activity as an Underwriter unless he is registered with SEBI under section 12
of the Act. SEBI has started processing of applications which are already
received for the purposes of granting Certificate of Registration to certain
underwriters in terms of rule 4 and regulation 8 of SEBI (Underwriters) Rules
& Regulation, 1993. Besides this, every stock broker and merchant bankers
in Category I, II and III holding a valid Certificate of Registration under
section 12 of the Act shall be entitled to act as an underwriter in terms of
proviso to rule 3 of SEBI (Underwriters) Rules, 1993. All such persons acting
as underwriters, whether as a registered underwriter or as registered stock broker
or as a registered merchant banker, will hereinafter be referred to as
Registered Underwriters (RUW).
In terms of powers conferred
on it under section 11 of SEBI Act, 1992, SEBI shall from time to time issue
operational guidelines/instructions to the Registered Underwriters by means of
circulars. This is the first circular in the series. Further circulars would
bear continuous serial numbers valid for the relevant financial year. All RUW
should ensure compliance with instructions contained in such circulars besides
SEBI (Underwriters) Rules and Regulations, 1993.
A. Registration
1. The
registration granted pursuant to Chapter II of the Securities and Exchange
Board of India (Underwriters) Regulations, 1993 (hereinafter referred to as the
"Regulations"), will be for the principal as well as for the branch
officers in India of the underwriters.
2. The
registration number contained in the certificate of registration should be
quoted in all the correspondence with SEBI, Government authorities, Stock
Exchanges and its clients.
B. General
1. Correspondence relating to registration
and clarification on Guidelines/ Circulars issued by SEBI shall be made only by
the principal office of the underwriter and not by the branch offices.
2. Regulation 26 provides for penalty for
suspension/cancellation of registration for persistent defaults by the
Underwriters. However, in order to give an opportunity to the Underwriters to
make up the deficiencies in their functioning and to strengthen their
machinery, SEBI may issue warning letters or penalty point advices by which
underwriter would be forewarned in respect of their omissions. An underwriter
who, despite the receipt of three warning letters of penalty point advices,
does not show improvement or fails to make up the deficiencies, may be
subjected to action for default in terms of regulation 26, as the case may be.
3. Underwriting agreement‑In terms
of regulation 14, the underwriters are required to enter into a legally binding
underwriting agreement with the issuers. Accordingly, SEBI has evolved a model
underwriting agreement (Annexure A) after ascertaining the views of the
merchant bankers, underwriters, etc. The draft has been formulated with a view
to bring about standardisation in the legal relationship between the issuer
company and the underwriters. While the issuer company and the underwriters are
free to suitably modify the agreement depending upon the circumstances of each
case, they should, as far as possible, observe the spirit behind various
clauses contained in the model agreement. While doing so, it must also be
ensured that neither party should reserve for itself any rights, which would
have the effect of diminishing in any way its liabilities and obligations under
the Companies Act, 1956 and SEBI (Underwriters) Rules and Regulations, 1993.
4. Underwriting obligations‑Attention
of the Registered Underwriters is drawn to regulation 15(2) in terms of which
the total underwriting obligations under all the agreements shall not exceed
twenty times the net worth referred to in Regulation 7, ibid.
ANNEXURE A
The Board of Directors
____________ Ltd.
____________
____________
Dear Sirs,
Reg.: Forthcoming Public Issue of _______
Shares/debentures of Rs ______ each for cash at par/premium aggregating to Rs
_______ ("the public issue")
1. We hereby record that we (hereinafter
referred to as "the Underwriter") have agreed to under write/ procure
subscription to shares/debentures of Rs. ________ each for cash at par/premium
agregating to Rs. _______ (Rupees ________ only) (hereinafter referred to as
"the underwriting obligation") for the captioned public issue by
_______ Ltd. (hereinafter referred to as "the Company") on the
following terms and conditions:
2. Opening
of the subscription list.‑ The subscription list for the public issue shall
open not later than three months from the date of this agreement or such
extended period(s) as the underwriter may agree to in writing. The subscription
list shall, unless the issue is fully subscribed, be kept open by the company
for a maximum period of 10 calender days failing which the underwriter shall
not be bound to discharge the underwriting obligations under this agreement.
3. To
make available final copy of the prospectus.‑ The company shall before
delivering to the Registrar of Companies (hereinafter referred to as
"ROC") make available lo the underwriter a copy of the prospectus,
which shall be as modified in the light of the observations made by SEBI while
issuing the acknowledgement card. Ile underwriter shall before executing this
agreement satisfy himself with the terms of the issue and other information and
disclosures contained therein.
4. Delivery
of prospectus to the Registrar Companies.‑ The prospectus in respect
of the public issue shall be delivered by the company to the ROC for
registration in accordance with the provisions of the Companies Act, 1956 not
later than 30 days from the date of this Agreement or such extended period(s)
as the underwriter may approve in writing, the time being the essence of this
Agreement.
5. Material
disclosures after filing of prospectus.‑ The company agrees that, if
after filing of the propectus with the ROC any additional disclosures are
required to be made in the interest of the investors in regard to any matter
relevant to the issue, the company shall comply with such requirements as may
be stipulated by SEBI or the lead manager and compliance of such requirements
shall be binding on the underwriter; provided that such disclosures shall not
give a right to the underwriter to avoid underwriting obligations unless such
subsequent disclosures are certified by SEBI as being material in nature and
essential for the contract of underwriting; the question whether or not such
subsequent disclosures are material in nature, the decision of SEBI shall be
final and binding on both the parties.
6. Making
available copies of prospectus and application form, etc‑ The company shall make
available to the underwriter minimum of ___________ (No. of application forms
forming part of abridged prospectus) and ________ (number of copies of the
prospectus) for every lakh of rupees of underwriting accepted by the
underwriter. If the underwriter desires to have more application forms and
propectus than specified he must state his requirements which would then be
considered as condition for acceptance of this underwriting Agreement.
Thereafter, it is responsibility of the company to deliver to the underwriter
the accepted quantity of application forms and prospectus as soon as the
prospectus is filed with the ROC but in any case not later than 21 days prior
to the date of opening of the public issue, proof of which, should be retained
by the company.
7. Warranty
as to statutory and other approvals.‑ The company warrants that all consents,
sanctions, clearances, approvals, permissions, licences, etc., in connection
with the public issue as detailed in the prospectus or required for completing
the prospectus have been obtained or will be obtained and the same shall remain
effective and in force until the allotment of all the shares/debentures are
completed.
8. Sub‑underwriting
arrangements.‑ The underwriter shall be entitled to arrange for sub underwriting of
its underwriting obligation on his own account with any person or persons on
terms to be agreed upon between them. Notwithstanding such arrangement, the
underwriter shall be primarily responsible for sub‑underwriting and any
failure or default on the part of the sub underwriters to discharge their
respective sub‑underwriting obligations, shall not exempt or discharge
the underwriter of his underwriting obligation under this agreement.
9. Treatment
of applications made with underwriters/sub‑underwriters stamp for the
purpose of allotment.‑ The application bearing the stamp of the
underwriter or, as the case may be, the sub‑underwriter whether made on
their own behalf or otherwise shall be treated in the same manner as the
applications received directly from the members of the public and, in the event
of the issue being oversubscribed, such applications shall be treated on par
with those received from the public and under no circumstances, the
applications bearing the stamp of the underwriter or the sub‑underwriter
shall be given any preference or priority in the matter of allottment of shares
/debentures.
10. Computation
of underwriter's obligation.‑
(1) If the issue is under sub scribed, the
underwriting obligation, shall be determined in the manner set out hereunder,
provided that under no circumstances, the underwriter's obligation to
subscribe/procure subscription to shares/debentures shall exceed the amount
mentioned in clause 1 above.
(2) The following applications for
shares/debentures shall be treated pro tanto in or towards satisfaction of the
underwriter's obligations under this Agreement, namely
(a) applications which have been accepted
excluding those withdrawn before allotment; and
(b) applications received from the
underwriter or any of his sub‑underwriters including those applications
which bear the stamp of the underwriter or any of the sub underwriters.
(3) After making adjustments as Provided in
sub‑clause (2) above the underwriting obligation of the underwriter and
other underwriters shall be, subject to following further adjustments:-
(a) The application received from the public
independently, i.e., those applications not covered under sub‑clause (2)
above shall be apportioned amongst all the underwriters. Where underwriting
obligations have not been fully satisfied after adjustments under sub‑clause
(2) above in proportion to their respective underwriting obligations and to
that extent their respective under writing obligation shall stand reduced.
(b) If, after the adjustments made under sub‑clauses
(2) and (3)(a) above, it is found that the shares/debentures available for
adjustment are in excess of the shares/debentures required to. be subscribed in
fulfillment of the underwriting obligations of one or more individual
underwriters, then such excessn amount required to meet the underwriting
obligations of any underwriter shall be further apportioned amongst such other
underwriters, whose underwriting obligations have not been fully discharged, in
proportion to their respective underwriting obligations.
11. Procedure
for effecting/discharge of underwriting obligations.‑ The underwriting
obligations as determined under clause 10 shall be discharged in the manner
mentioned below:
(a) the company shall within 30 days after
the date of closure of subscription list communicate in writing to the
underwriter, the total number of shares/debentures remaining unsubscribed, the
number of shares/debentures required to be taken up by the underwriter or
subsciiption to be procured there for by the underwriter,
(b) the company shall make available to the
Underwriter, the manner of computation of underwriting obligation and also
furnish a certificate in suppoprt of such computation from the company's
auditors,
(c) the underwriter on being satisfied about
the extent of devolvement of the underwriting obligation, shall immediately and
in any case not later than 30 days after receipt of the communication under sub‑
clause (a) above, make or procure the applications to sub scribe to the
share/debentures and submit the same together with the application moneys to be
company.
(d) in the event of failure of the
underwriter to make the application to subscribe to the shares as required
under clause (c) above, the company shall be free to make arrangement(s) with
one or more persons to subscribe to such shares without prejudice to the rights
of the company to take such measures and proceedings as may be available to it
against the underwriter including the right to claim damages for any loss
suffered by the company by reason of failure on the part of the underwriter to
subscribe to the shares as aforesaid.
Note : The company is free to quantify the damages
being multiple of the value of the shares/debentures not subscribed by the
underwriter.
12. Right
to receive underwriting commission/ brokerage.‑ Subject to the underwriter
fulfilling his underwriting obligations, he shall be entitled to receive
commission in respect of the underwriting obligation undertaken by him and
brokerage in respect of the shares/debentures procured by him at the rates set
out in clause 13 hereunder. The underwriting commission shall be only if his
underwriting commitment is fully subscribed.
13. Underwriting commission.‑
(1) In consideration of the underwriter
agreeing to underwrites/ debentures as mentioned in clause 1 above, the company
shall pay to the underwriter a commission at the following rates:
Note: The rates as mutually negotiated between the company and the
underwriter may be inserted. Needless to say that the rates so agreed upon
shall be subject to the provisions of section 76 Companies Act, 1956.
(2) The underwriting commission shall be
payable by the company within 15 days from the date of finalisation of
allotment and proof of such payment within the specified time should be
available with the company. The obligation to pay underwriting commission shall
arise only upon the underwriter fulfilling his underwriting obligation and duly
subscribing to the shares/debentures, if any devolved on him.
14. Obligations
of the company.‑ (1) The company shall immediately after the closure of the
subscription list, take expeditious steps for processing the applications and
complete the allotment he time limit prescribed under the Companies Act, 1956
and also comply with other listing requirements.
(2) the company fails to receive 90% of the
issue amongst including the amount received from Underwriters towards
devolvement, within 60 days from the date of closure of subscription list,
company shall refund the amount paid by the underwriter in fulfillment of his underwriting
obligations. The obligation to refund the moneys shall be without prejudice to
the disputes, if any, in the underwriting obligation to the underwriter.
15. Time
is the essence of the agreement.‑ All obligations of the company and the under writer
subject to the condition that time wherever stipulated, shall be of the essence
of the agreement. Consequently any failure on the part of the company or the
underwriter to adhere to the As shall unless otherwise agreed to between the
company and the underwriter, discharge the underwriter or company of his/their
obligations under the underwriting agreement.
16. Right
of termination under special circumstances.‑ Notwithstanding anything
contained he underwriter shall have the option to be exercised by at him any
time prior to opening of as notified in the prospectus of terminating this
agreement under any or all of the follow instances:
(i) If any of the
representations/statements made by the company to the underwriter and/or in the
application forms, negotiations, correspondence, the prospectus or in this
letter are or are found to be incorrect;
(ii) a complete breakdown or dislocation of
business in the major financial markets, affecting the cities of Calcutta,
Bombay, Madras or New Delhi;
(iii) declaration of war or occurrence of
insurrection, civil commotion or any other serious or sustained financial,
political or industrial emergency or disturbance affecting the major financial
markets of Calcutta, Bombay, Madras or New Delhi.
17. Notice
of termination to the company‑ Notwithstanding anything contained in clause 16 the
event of the company failing to perform all or any of the covenants within time
limits specified wherever applicable under this letter of underwriting, the
underwriter shall inform the company with adequate documentary evidence of the
breach/non-performance by Registered post/Speed post and acknowledgement
obtained therefore, whereupon the underwriter shall be released from all or any
of the obligations required to the performed by him.
18. Networth
of the underwriter.‑ The underwriter, hereby declares that he satisfies the networth/
capital adequacy requirements specified under the SEBI (Underwriters) Rules and
Regulations, 1993 or the bye‑laws of the stock exchange of which the underwriter
is a member and that he is competent to undertake the underwriting obligations
nmentioned in clause 1 hereinabove.
19. Registration
with the SEBI.‑ The underwriter hereby declares that SEBI has granted to him a
certificate of registration to act as an underwriter in accordance with the
SEBI (Underwriters) Rules and Regulations, 1993 or, he has applied for
registration to SEBI within the time stipulated under sub‑section (1) of
section 12 of the Securities and Exchange Board of India Act, 1992 and is
entitled to carry on the business as an underwriter under the SEBI Act.
20. Reference
to arbitration.‑ Any dispute arising out of this agreement between the under writer
and the company shall be referred to the Arbitration Committee constituted by
the Regional Stock Exchange in which the shares/ debentures are to be listed
and the decision of the Arbitration Committee shall be final and binding on
both the parties.
Yours
faithfully,
For ____________
(Signature of the underwriter)
We, the company
________ Ltd. the above named do hereby accept your offer for underwriting on
the abovementioned terms and conditions.
Authorised
signatory ____________
For ___________________ Ltd.
Designation
______________
Authorised by a
resolution passed at the meeting of the Board of Directors held on the
____________ day of ______ 19 ___