Dividend rights

3. Further keep in mind that the aforesaid eligibility norms will not be applicable if your company is a banking company including a Local Area Bank or a corresponding new bank an infrastructure company whose project has been appraised by a Public Financial Institution or Infrastructure Development Finance Corporation or Infrastructure Leasing and Financing Services Ltd. and not less than 5% of the project cost is financed by any of the institutions referred above jointly or severally, irrespective of whether they appraise the project or not by way of loan or subscription to equity or a combination of both. [Clause 2.4 of the Guidelines].

4. Check whether the proposed public issue of equity shares will be within the authorised share capital, if not then your company should first increase the authorised share capital as per Topic 34.

5. Also keep in mind that your company being a company as mentioned in item 1 can freely price its equity shares to be issued to the public. If your company is an infrastructure company, you are allowed to freely price the offer subject to the compliance with the disclosure norms as specified by SEBI from time to time. [Clauses 3.2. 1. & 3.2.2. of the Guidelines].

6. Ensure that the issue price is uniformly applicable to all investors including promoters.

7. Bring in as promoters contribution at least 20% of the post issue capital. [Clause 4. 1. 1. of the Guidelines].

8. Do not make any private placement out of promoters' quota by solicitation from unrelated investors through any kind of market intermediaries. [Clause 4.6.6. of the Guidelines].

9. Ensure that the minimum contribution from each of the promoters is Rs. 25,000/- including contributions to be made by business associates such as dealers and distributors but in case of contributions made by firms of corporate bodies not being business associates like dealers and distributors the minimum contribution should be Rs. 1 lakh each. [Clause 4.6.5. of the Guidelines].

10. Please note that the promoters contribution is subject to the lock-in-period of 3 years from the date of allotment or from the date of commencement of commercial production whichever is later. [Clauses 4.11.1. and 4.11.2 of the Guidelines].

11. If the promoters contribution in the proposed issue exceeds the required minimum contribution, see that such excess contribution is also locked in for a period of 13 year. [Clause 4.12. 1. of the Guidelines].

12. Ensure that the promoters bring their full contribution including premium if any at least one day prior to the issue opening date of the public issue which should be kept in an escrow account with a Scheduled Commercial Bank and the said contribution/amount should be released to our company along with the public issue proceeds. [Clause 4.9.1 of Guidelines ]

13. If the promoters contribution is brought prior to your company's public issue and is already been deployed by your company then give the cash flow statement in the offer document disclosing the use of such funds received as promoters contribution. [Clause 4.9. Lfirst proviso of the Guidelines]

14. In case the promoters' contribution in the public issue of your company exceeds Rs. 100 crores the promoters will be permitted to bring in Rs. 100 crores before opening of the issue to the public and the balance can be brought in by them in advance pro rata basis before the calls of the public are made. [Clause 4.9.1. second proviso of the Guidelines].

15. Pass a Board Resolution alloting the shares to promoters against the moneys received and file the said Board Resolution alongwith a Chartered Accountants' Certificate certifying that the promoters' contribution has been brought in with SEBI before opening of the issue. [Clauses 4.9.2 & 4.9.3. of the Guidelines].

16. Prepare a list of names and addresses of friends and relatives and associates who are to contribute to the promoters' quota along with the amount of subscription made by each of them. This list will be required to be attached to the draft prospectus to be submitted to SEBI by the Merchant Banker. [Clause 4.9.4 of the Guidelines].

17. Decide the issue size of the proposed public issue.

18. Enter into a legally valid agreement with the following:

(i) Merchant Banker functioning as Lead Manager.

(ii) Registrars/Share Transfer Agents.

(iii) Bankers to the issue.

(iv) Underwriters to the issue.

(v) Collection Agents other than the Bankers to the issue.

(vi) Adviser to the issue.

(vii) Market makers for all Stock Exchanges where equity shares are proposed to be listed.

(viii) Depositories.

(ix) Compliance Officer, SEBI.

19. Obtain consent in writing from the above-mentioned persons for their appointments as such.

20. Ensure that the maximum number of such a Lead Manager should be 2 if the issue size is less than Rs. 50 crores and 3 if the issue size is more than Rs. 50 crores or less than Rs. 100 crores and 4 if the issue size is Rs. 100 crores but not less than Rs. 200 crores and 5 if the issue size is Rs. 200 crores or less than Rs. 400 crores and such number permitted by SEBI on merits of each case if the issue size is Rs. 400 crores and above. Separate Lead Managers can be appointed for pre-issue and post-issue activities. [Regulation 19 of the SEBI (Merchant Bankers) Regulations 1992].

21. If your company wants to make reservation/firm allotment to various persons/institutions out of your company's public offer ensure that they are free to do so for the remaining of the issue subject to the following categories indicated below to be computed after deducting the amount to be offered to the public and the promoters:

(i) Indian Mutual Fund.

(ii) Foreign Institutional Investors including Non-Resident Indians and Overseas Corporate Bodies.

(iii) Indian and multilateral development financial institutions and scheduled bank.

(iv) Lead Merchant Bankers to the extent of maximum 5%.

(v) Shareholders of the promoting companies to the extent of maximum 10% of the total proposed issue amount. [Clause 8.3.5 of the Guidelines].

(vi) Permanent employees of the promoting companies to the extent of 10% of the total proposed issue amount.

22. Ensure that the total holding by each Foreign Institutional Investor in your company on its own accounts or sub-account does not exceed 10% of the total issued capital of your company, and total holding of all them should not exceed 40%. [Regulation 15(5) and (6) of SEBI (Foreign Institutional Investors) Regulations, 1995].

23. Please keep in mind that unsubscribed portion in any reserve category mentioned above may be added to any other reserve category and the unsubscribed portion if any after inter se adjustments amongst the reserved categories should be added to the net offer to the public .[Clause 8.5(c) of the Guideliness].

24. Further ensure that prior approval of RBI under FEMA, 1999 has been obtained in case of Foreign Institutional Investors/Non-Resident Indians/Overseas Corporate Bodies except in the automatic route.

25. Ensure that the agreement executed between your company and the Registrars to the issue provides for retention of issue records atleast for a period of 6 months from the last date of despatch of letters of allotment/share certificates/refund orders to enable investors to approach the Registrar for redressal of their complaints.

26. Further ensure that bankers of your company's public issue are appointed in all the mandatory collection centres including places whereat stock exchanges are located. [Clause 5.4.3.2. of the Guidelines].

27. Further ensure that minimum number of collection centres are situated at the four Metropolitan centres namely, Mumbai, Delhi, Calcutta and Chennai and also at all such centres where stock exchanges are located in the region in which the Registered office of the company is situated. Your company is free to appoint as many collection centres as it may deem fit in addition to the above minimum requirement. [Clauses 5.9.1 & 5.9.2 of the GuidelineS].

28. Appoint Collection Agents other than Bankers to the issue in consultation with your company's Lead Merchant Bankers subject to necessary disclosures including the names and addresses of such agents made in the offer document. [Clause 5. 10. 1. of the Guidelines].

29. Ensure that the Collection Agents appointed, as above, are properly equipped for the purpose in terms of infrastructure and man power requirements. [Clause 5.10.3 of the Guidelines].

30. Have the following documents drafted by the Lead Managers of your company, so appointed, as above:

(i) Prospectus.

(ii) Memorandum containing salient features of the prospectus (abridged).

(iii) Application form for public issue of equity shares.

31. Convene a board meeting after giving notices to all the directors of the company as per section 286 and approve the drafts of all the agreements, abridged prospectus, application form and other related documents and papers for the public issue and for fixing up the date, time, place and agenda of a General Meeting to pass necessary resolutions for the public issue under section 816.

32. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1000/- [Section 286(2)].

33. Ensure that the issue of equity shares out of the public issue made on the basis of preferential/firm allotments is made by passing a special resolution under section 81 (1A) of the Act.

34. Issue notices in writing at least 21 days before the date of the General Meeting with suitable Explanatory Statement. [Section 171(1) read with section 173(2)].

35. Hold the General Meeting and pass the special resolutions by three fourths majority. [Section 189(2)].

36. File copies of Special Resolutions with Explanatory Statements with the concerned Registrars of Companies in Form No. 23 within 30 days of its passing. [Section 192(1) & (4)(a)]

37. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

38. Have the prospectus drafted in consultation with the Lead Managers which should state the matters specified in Part I of Schedule II to the Act and should also set out the reports specified in Part II and Parts I and II, as aforesaid, will have effect subject to the provisions of Part III of Schedule II. [Section 56(1)].

39. Ensure that the prospectus contains all material information which should be true and adequate so as to enable the investors to make informed decision on the investments in the issue and a basis of issue price as per Schedule XV of the Guidelines. [Clauses 6.1 and 613 of the Guidelines].

40. Ensure that the audited statement and unaudited statement contained in the prospectus are not more than 6 months old from the date of the opening of the issue. [Clause 8.12.1 of the Guidelines].

41. Please also ensure that the prospectus contains all the particulars/information in addition to the requirement of Schedule II to the Act as given in Section I of Chapter VI of the Guidelines. [Clause 61 to 6.19 of the Guidelines].

42. Ensure that the index to the contents of the prospectus is attached to the prospectus on the Front Inside cover page. [Clause 62.2.1 of the Guidelines].

43. Have the draft of abridged prospectus drawn in accordance with Form No. 2A which must not contain any material/matters extraneous to or not reflected in the full prospectus and any violation of this requirement will be punishable with fine of up to Rs. 50,000/-.[Section 56(3) Second Proviso].

44. Keep in mind that every application form for public issue must be accompanied by a copy of the abridged prospectus which can be printed with two application forms bearing separate numbers so that they can be detached along indicated perforated lines. [Section 56(3) read with Circular No. 1/92, dated 9-1-1992 and No. 1/6/88-(CL-V), dated 10-4-1992 issued by the Department of Company Affairs].

45. Ensure that the disclosures made in the abridged prospectus confirm to section II of chapter VI of the Guidelines' [Clause 620 to 637 of the Guidelines].

46. Also ensure that the abridged prospectus so drafted after it is approved by the Board of Directors of your company is printed at least in point seven (7) size with proper spacing. [Clause 5.13.1 (iv) of the Guidelines9].

47. Design the application form to be issued to the members of the public for the issue and also to be issued to the promoters as well as to the preferential/firm allottees of the issue and finalise the said application form in consultation with the Registrar to the issue.

48. Ensure that the aforesaid application forms conform to the requirements given in Clause 5.13.1 of the Guidelines.

49. Ensure that the applications are invited in units or multiple of 200 shares of the nominal value of Rs. 10/- each if the public issue is at par and if it is at a premium the minimum application money payable should not be less than Rs. 2,000/- irrespective of the size 6f premium subject to application being for a multi' le of tradeable lots. [Clauses 8.6.1 (i) & (ii) of the Guidelines].

50. Further ensure that the application forms have perforated acknowledgement slips which are stamped by the receiving banks over to the applicants on receipt of the applications and the acknowledgement slips must bear identification numbers which should also appear on the application forms.

51. In case the public issue is very large, your company may in consultation with Lead Manager associate one or more Registrars holding certificate of registration issued by SEBT for the limited purpose of collecting the application forms at different centres and for forwarding the same to the Registrar to the issue of your company. [Clause 5.4.3.4 of the Guidelines].

52. Draft and finalise the advertisement material for your company's public issue in consultation with Lead Managers of your company which should follow the guidelines given in Chapter IX of the Guidelines.

53. Keep in mind that no advertisement is released without giving 'Risk Factors' in respect of your public issue and ensure that the point size of 'Highlights' and 'Risk Factors' is not less than point seven (7) 12 size. [Clauses 9.1.12 & 9.1.13 of the Guidelines].

54. Ensure that the advertisements are truthful, fair and clear and does not contain any statement which is untrue or misleading. [Clause 9. 1. 1. of the Guidelines].

55. Do not issue any advertisement which reproduces or purports to reproduce any information contained in the prospectus unless the said information is repro,duced in full and discloses all relevant facts. [Clause 9.1.2 of the Guidelines].

56. Do not issue any advertisement on television in the form of crawlers that is the advertisement which run simultaneously with the programme in a narrow strip or any other form, at the bottom or elsewhere on the television screen. [Clause 9.1.3 of the Guidelines].

57. Ensure that the advertisement carries data for the past 3 years relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividend and the book values in case such advertisement carries financial data. [Clause 9. 1. 11 of'the Guidelines].

58. If there is any reservation for NRIs specify the same and indicate the source in India from where individual NRI applicants can obtain the application form. [Clause 9.1.19 of the Guidelines].

59. File a copy of the prospectus with the concerned Registrar of Companies" for registration after having it signed by every person who is named therein as a director or proposed director of your company or by his agents authorised in writing on or before the date of its publication. [Section 60(1)].

60. Ensure that every prospectus filed, as above, states on the face of it that a copy has been delivered for registration and allso specify documents which are required to be endorsed have been attached to the said copies so delivered [Section 60(2)].

61. Do not issue prospectus more than 90 days after the date on which a copy therefor is delivered for registration to the Registrar of Companies . [Section 60(4)].

62. If your company issues prospectus without a copy being delivered therein to the Registrar of Companies, then your company and every person who is knowingly operate to the issue of the prospectus will be punishable with fine of Rs. 50,000/-, [Section 60(5)].

63. Keep in mind civil liabilities and criminal liabilities for misstatements in prospectus given in sections 62 and 63.

64. Supply to the underwriters free of cost the agreed minimum number of copies of the application form, part of the abridged prospectus and copies of the prospectus for every lakh of rupees of underwriting accepted by the underwriters in term of the underwriting agreement.

65. Despatch 20 copies of the application forms and prospectus to the investors associations sufficiently in advance of the opening of the issue. [Clause 161.8. 1. (b) of the Guidelines].

66. If there is a reservation for NRIs in a public issue, ensure that the Lead Merchant Banker send directly from their end along with a suitable covering letter 10 copies of the prospectus together with 1000 application forms sufficiently in advance of the opening of the public issue, by name to:

Shri/Smt _________________

The Advisor (NRI)

India Investment Centre,

Jeevan Vihar Building,

Sansad Marg,

New Delhi- 110 001.

[Clause 161.8.1 (a) of the Guidelines]

67. Ensure that a draft prospectus containing disclosures as given in Section I of Chapter VI of the Guidelines is filed with SEBI through an eligible Merchant Banker at least 21 days prior to the filing of prospectus with the Registrar of Companies. [Clause 2.1.4 of the Guidelines].

68. Keep in mind that if within 21 days from the date of submission of draft prospectus with SEBI, it specifies changes therein your company or the Lead Merchant Banker should carry out such changes in the draft prospectus before filing it with the Registrar of Companies. [Clause 2.1.1 proviso of the Guidelines]

69. Ensure that not less than 10% or 25% as the case may be of the equity shares of your company's total issue is offered to the public, as per the listing requirement under Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957. If your company is an infrastructure company, you are exempted from the requirement of making a minimum public offer of 10% or 25% as the case may be of your company's securities. [Clauses 8.3. 1. & 8.3.3. of the Guidelines].

70. Further ensure that the minimum requirement of 90% subscription is received by your company for your public issue. If your company is an infrastructure company, you are exempted from the requirement of minimum subscription of 90% in case your company discloses its plans and ability to raise alternate source of funding. [Clauses 6.3.8.1., 6.3.8.2 & 6.3.8.5.1. of the Guidelines].

71. Open the subscription list for not more than 10 working days and keep the subscription list open of your company's public issue for at least 3 working days which should also be disclosed in the prospectus. If your company is an infrastructure company keep the issue open for a maximum period of 21 days. [Clause 8.8.1 of the Guidelines].

72. Ensure that the quantum of your company's public issue does not exceed the amounts specified in the prospectus provided that an oversubscription to the extent of 10% of the net offer to the public is permissible for the purpose of rounding off to the nearer multiple of 100% while finalising the allotment. [Clause 8.10.1 of the Guidelines].

73. Keep in mind that an application should be made by your company to one or more recognised stock exchanges before the public issue for listing of your company's shares and the names of such stock exchanges should be made in the prospectus. [Section 73(1) and (1A)]. For procedure see Topic 352.

74. Further keep in mind that no allotment of the shares should be made until the beginning of the fifth day after that on which the prospectus is first issued or such later time as may be specified in the prospectus. [Section 72]. For procedure see Topic 161.

75. Note that your unlisted company is free to make public issue of equity shares in any denomination determined by it in accordance with section 13(4) of the Companies Act, 1956 and in compliance with the norms as specified by SEBI in circular No. SMDRP/POLICY/CIR-16/99 dated June 14, 1999 and other norms as may be specified by SEBI from time to time. [Clause 3.7.1 of the Guidelines].

76. Also note that if your company has already issued shares in the denomination of Rs. 10/- or Rs. 100/- may change the standard denomination of the shares by splitting or consolidating the existing shares. [Clause 3.7.2. of the Guidelines].

77. Further note that if your company is proposing to issue shares in any denomination or changing the standard denomination as aforesaid, it should comply with the following:

(a) the shares should not be issued in the denomination of decimal of a rupee;

(b) the denomination of the existing shares should not be altered to a denomination of a decimal of a rupee;

(d) the companies seeking to change the standard denomination may do so after amending the Memorandum and Articles of Association.

(e) the company should adhere to the disclosure and accounting norms specified by SEBI from time to time. [Clause 3.7.3. of the Guidelines]

78. Keep in mind that if your company has issued shares prior to the public issue the entire pre-issue share capital should be locked in for a period of 1 year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later. This will not be applicable to the preissue share capital held by venture capital funds registered with the SEBI Board and to those who are holding it for a period of at least one year at the time of filing draft offer document with SEBI and being offered to the public for sale.[Clause 4.14 of the Guidelines].

79. Keep in mind that if your unlisted company having commercial operation of less than 2 years is proposing to issue securities to public resulting in post issue capital of Rs. 3 crores and not exceeding Rs. 5 crores then it will be eligible to apply for listing of its securities only on those stock exchanges where trading of securities is screen-based. [Clause 8.1.1 of the Guidelines]

80. Also keep in mind that your company must appoint market makers on all the stock exchanges where the securities are proposed to be listed. [Clause 8.1.2 of the Guidelines].

81. Ensure that the appointment of market members is subject to the following:

(i) at least one market maker undertakes to make market for a minimum period of 18 months and at least one additional market maker undertakes to make market for a minimum period of 12 months from the date on which the securities are admitted to dealing.

(ii) market makers undertake to offer buy and sell quota for a minimum depth of 3 marketable lots.

(iii) market makers undertake to ensure that the bidask apread (difference between quotations for sale and purchase) for their quotes should not at any time exceed 10%.

(iv) the inventory of the market makers on each of such stock exchanges, as on date of allotment of securities should be at least 5% of the proposed issue of the company. [Clause 8.1.3. of the Guidelines].

82. Note that unlisted companies whose capital after the proposed issue of securities is less than Rs. 3 crores will be eligible to be listed only on the Over the Counter Exchange of India. [Clause 8.1.4 of the Guidelines].

83. Further note that if your company is proposing to issue capital to public through the on-line system of the stock exchange for offer of securities then your company must comply with the requirements as contained in Chapter XIA of the Guidelines in addition to other requirements for public issues as given in the Guidelines.

84. Also note that if your company's paid-up share capital is less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) provisol

Topic 305

DO YOU WISH TO ISSUE SHARES OR ANY SECURITY CONVERTIBLE INTO EQUITY SHARES AT A LATER DATE TO THE PUBLIC FOR THE FIRST TIME BEING AN UNLISTED COMPANY CONVERTED FROM A PARTNERSHIP FIRM OR FORMED OUT OF DIVISION OF AN EXISTING COMPANY WITH TRACK RECORD OF CONSISTENT PROFITABILITY?

1. Check whether your company is an unlisted company and does not have any pre-issue net worth and track record of distributable profits.

2. Also keep in mind that the company, as aforesaid, to be set up by existing companies with track record of consistent profitability should be set up/promoted by one or more existing privatelclosely held/unlisted/listed companies each of which has shown profits after interest, depreciation and tax in its audited profit and loss account preceding the date of issue.

3. Keep in mind that if your unlisted company has been converted from a partnership firm then the track record of distributable profits of the firm will be considered only if the financial statements of the partnership business for the aforesaid years conform to and are revised in the format prescribed for companies under the Companies Act, 1956 and also comply with adequate disclosures are made in the financial statements as required to be made by the companies as per Schedule VI of the Act.

4. In the aforesaid case see that the financial statements are duly certified by a Chartered Accountant stating that the accounts are revised or otherwise and that the disclosures made therein are in accordance with the provisions of Schedule VI and that the accounting standards of the Institute of Chartered Accountants of India have been followed and that the financial statements present a true and fair picture of the firm's accounts.

5. Also keep in mind that if your unlisted company is formed out of the division of an existing company, the track record of distributed profits of the division spun off will be considered only if the requirements regarding financial statements as specified for a partnership firm as above are complied with. [clause 2.2.2. Explanation 1(iii) of the Guidelines]

6. Check whether the proposed public issue of equity shares will be within the authorised share capital, if not then your company should first increase the authorised share capital as per Topic 34.

7. Also keep in mind that your company being a company as mentioned above being set up, it is free to price its issue either at par or at a premium in consultation with Lead Managers to the issue and if it is an infrastructure company it can freely price the issue of shares subject to the companies with the disclosure norms as specified by SEBI from time to time. [Clauses 3.2.1 & 3.2.2 of the Guidelines]

8. Ensure that the issue price is uniformly applicable to all investors including promoters.

9. Give full justification and parameters for fixation of the premium in the prospectus of the said issue if the issue price is at premium.

10. Do not make any private placement out of promoters quota by solicitation from unrelated investors through any kind of market intermediaries. [Clause 4.6.6 of the Guidelines].

11. Ensure that the minimum contribution from each of the promoters is Rs. 25,000/including contributions to be made by business associates such as dealers and distributors but in case of contributions made by firms or corporate bodies not being business associates like dealers and distributors the minimum contribution should be Rs. 1 lakh eac. [Clause 4.65 of the Guidelines].

12. Please note that the promoters' contribution is subject to the lock-in-period of 3 years from the date of allotment or from the date of commencement of commercial production whichever is later. [Clauses 4.11.1 and 4.11.2 of the Guidelines].

13. Ensure that the promoters bring their full contribution including premium if any at least one day prior to the issue opening date of the public issue which should be kept in an escrow account with a Scheduled Commercial Bank and the said contribution/amount should be released to your company along with the public issue proceeds. [Clause 4.9.1 of the Guidelines]

14. If the promoters' contribution is brought prior to your company's public issue and is already been deployed by your company then give the cash flow statement in the offer document disclosing the use of such funds as promoters' contribution. [Clause 4.9.1 first proviso of the Guidelines].

15. In case the promoters' contribution in the public issue of your company exceeds Rs. 100 crores the promoters will be pen-nitted to bring in Rs. 100 crores before opening of the issue to the public and the balance can be brought in by them in advance pro rata basis before the calls of the public are made. [Clause 4.9.1 second proviso of the Guidelines].

16. Pass a Board Resolution alloting the shares to promoters against the moneys received and file the said Board Resolution along with a Chartered Accountants’ Certificate certifying that the promoters' contribution has been brought in with SEBI before opening of the issue. [Clause 4.9.2 and 4.9.3 of the Guidelines].

17. Prepare a list of names and addresses of friends and relatives and associates who are to contribute to the promoters quota along with the amount of subscription made by each of them. This list will be required to be attached to the draft prospectus to be submitted to SEBI. [Clause 4.9.4 of the Guidelines]

18. Decide the issue size of the proposed public issue.

19. Enter into a legally valid agreement with the following:

(i) Merchant Banker functioning as Lead Manager.

(ii) Registrars/Share Transfer Agents.

(iii) Bankers to the issue.

(iv) Underwriters to the issue.

(v) Collection Agents other than the Bankers to the issue.

(vi) Adviser to the issue.

(vii) Market makers for all Stock Exchanges where equity shares are proposed to be listed.

(viii) Depositories.

(ix) Compliance Officer.

20. Obtain consent in writing from the abovementioned persons for their appointments as such.

21. Ensure that the maximum number of such a Lead Manager should be 2 if the issue size is less than Rs. 50 crores and 3 if the issue size is more than Rs. 50 crores or less than Rs. 100 crores and 4 if the issue size is more than Rs. 100 crores but not less than Rs. 200 crores and 5 if the issue size is more than Rs. 200 crores or less than Rs. 400 crores and such number permitted by SEBI on merits of each case if the issue size is Rs. 400 crores and above. [Regulation 19 of the SEBI (Merchant Bankers) Regulations 1992].

22. If your company wants to make reservation/firm allotments out of your company's public offer, ensure that they are subject to the following ceiling indicated below and also ensure that unreserve offer of equity after such reservation/ firm allotment is not less than the minimum required for listing purposes:

(i) Permanent employees and working directors of the promoting companies to the extent of maximum 10% of the public issue.

(ii) Shareholders of the promoting companies to the extent of maximum 10% of the public issue.

(iii) Indian Mutual Fund.

(iv) Foreign Institutional Investors including Non-Resident Indians and Overseas Corporate Bodies.

(v) Indian and multilateral development financial institutions and scheduled bank.

(vi) Lead Merchant Bankers to the extent of maximum 5%. [Clause 8.3.5 of the Guidelines].

23. Keep in mind that except the ceiling of 10% applicable to employees as well as to the shareholders and the ceiling of 5% applicable to Lead Merchant Bankers, mentioned above your company is free to make reservations/firm allotments to various categories of persons mentioned above for the remaining of the issue save subject to other relevant provisions of the Guidelines. [Clause 8.3.5 of the guidelines].

24. Ensure that the total holding by each of the Foreign Institutional Investors in your company on their own accounts or sub-accounts does not exceed 10% of the total issued capital of your company, [Regulation 15(5) and (6) of SEBI (Foreign Institutional Investors) Regulation, 1995] and the total holding of all of them should not exceed 40%.

25. Please keep in mind that unsubscribed portion in any reserve category mentioned above may be added to any other reserve category and the unsubscribed portion if any after inter se adjustments amongst the reserved categories should be added back to the net offer to the public. [Clause 8.5(c) of the. Guidelines].

26. Further ensure that prior approval of RBI under FEMA, 1999 has been obtained in case of Foreign Institutional Investors/Non-Resident Indians/Overseas Corporate Bodies except in the automatic route.

27. Ensure that the agreement executed between your company and the Registrars to the issue provides for retention of issue records atleast for a period of 6 months from the last date of despatch of letters of allotment/share certificates/refund orders to enable investors to approach the Registrar for redressal of their complaints.

28. Further ensure that bankers of your company's public issue are appointed in all the mandatory collection centres including places whereat stock exchanges are located. [Clause 5.4.3.2 of the Guidelines].

29. Further ensure that minimum number of collection centres are situated at the four Metropolitan centres namely, Mumbai, Delhi, Calcutta and Chennai and also at all such centres where stock exchanges are located in the region in which the Registered office of the company is situated. Your company is free to appoint as many collection centres as it may deem fit in addition to the above minimum requirement. [Clauses 5.9.1 & 5.9.2 of the Guidelines].

30. Appoint Collection Agents other than Bankers to the issue in consultation with your company's Lead Merchant Bankers subject to necessary disclosures including the names and addresses of such agents made in the offer document. [Clause 5.10.1 of the Guidelines].

31. Ensure that the Collection Agents appointed, as above, are properly equipped for the purpose in terms of infrastructure and man power requirements. [Clause 5.10.3 of the Guidelines]

32. Have the following documents drafted by the Lead Managers of your company, so appointed, as above:

(i) Prospectus.

(ii) Memorandum containing salient features of the prospectus (abridged).

(iii) Application form for public issue of equity shares.

33. Convene a board meeting after giving noticest to all the directors of the company as per section 286 and approve the drafts of all the agreements, abridged prospectus, application form and other related documents and papers for the public issue and for fixing up the date, time, place and agenda of a General Meeting to pass necessary resolutions for the public issue under section 81.

34. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1000/-. [Section 286(2)].

35. Ensure that the issue of equity shares out.of the public issue made on the basis of preferential/firm allotments is made by passing a special resolution under section 81(1A) of the Act.

36. Issue noticest in writing at least 21 days before the date of the General Meeting with suitable Explanatory Statement. [Section 171(1) read with section 173(2)].

37. Hold the General Meeting and pass the special resolutions by majority. [Section 189(2)].

38. File copies of Special Resolutions with Explanatory Statements with the concerned Registrars of Companies in Form No. 23 within 30 days of As passing. [Section 192(1) & (4)(a)].

39. Please also keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

40. Have the prospectus drafted in consultation with the Lead Managers which should state the matter specified in Part I and Schedule R to the Act and should also set out the reports specified in Part 2 and Parts 1 and 2, as aforesaid, will have effect subject to the provisions of Part 3 of Schedule R. [Section 56(1)].

41. Ensure that the prospectus contains all material information which should be true and adequate so as to enable the investors to make informed decision on the investment and a basis of issue price as per Schedule XIV Guidelines. [Clauses 6.1 and 6.13 of the Guidelines].

42. Ensure that the audited statement and unaudited statement contained in the prospectus are not more than 6 months old from the date of the opening of the issue. [Clause 8.12.1 of the Guidelines].

43. Please also ensure that the prospectus contains all the particulars/information in addition to the requirement of Schedule II to the Act as given in Section I of Chapter VI of the Guidelines. [Clause 6.1 to 6.19 of the Guidelines].

44. Ensure that the index to the contents of the prospectus is attached to the prospectus on the Front inside cover page. [Clause 6.2.2.1 of the Guidelines].

45. Have the draft of abridged prospectus drawn in accordance with Form No. 2A which must not contain any material/matters extraneous to or not reflected in the full prospectus and any violation of this requirement will be punishable with fine of up to Rs. 50,000/-. [Section 56(3) Second Proviso].

46. Keep in mind that every application form for public issue must be accompanied by a copy of the abridged prospectus which can be printed with two application forms bearing separate numbers so that they can be detached along indicated perforated lines. [Section 56(3) read with Circular No. 1/92, dated 9-1-1992 and No. 1/6/88-(CL-V), dated 10-4-1992 issued by the Department of Company Affairs].

47. Ensure that the disclosures made in the abridged prospectus conform to section II of Chapter VI of the Guidelines. [Clause 620 to 637 of the Guidelines].

48. Also ensure that the abridged prospectus so drafted after it is approved by the Board of Directors of your company is printed at least in point seven (7) size with proper spacing. [Clause 5.13.1 (iv) of the Guidelines].

49. Design the application form to be issued to the members of the public for the issue and also to be issued to the promoters as well as to the preferential/firyn allottees of the issue and finalise the said application form in consultation with the Registrar to the issue.

50. Ensure that the aforesaid application forms confirm to the requirements given in Clause 5.13.1 of the Guidelines.

51. Ensure that the applications are invited in units or multiple of 200 shares of the nominal value of Rs. 10/- if the issue is at par and where the issue is at a premium the amount payable in all in respect of each shares i.e. on application, allotment and calls by each applicant should not be less than Rs. 2,000/- irrespective of size of the premium subject to applications being for a multiple of tradeable lots. [Clause 8.6.1 (i) & (iii) of the Guidelines].

52. Further ensure that the application forms have perforated acknowledgement slips which are stamped by the receiving banks over to the applicants on receipt of the applications and the acknowledgement slips must bear identification numbers which should also appear on the application forms.

53. In case the public issue is very large, your company may in consultation with Lead Manager associate one or more Registrars holding certificate of registration issued by SEBI for the limited purpose of collecting the application forms at different centres and for forwarding the same to the Registrar to the issue of your company. [Clause 5.4.3.4 of the Guidelines] .

54. Draft and finalise the advertisement material for your company's public issue in consultation with Lead Managers of your company which should follow the guidelines given in Chapter IX of the Guidelines. [Clause 9.1.1 of the Guidelines].

55. Keep in mind that no advertisement is released without giving 'Risk Factors' in respect of your public issue and ensure that the point size of 'Highlights' and 'Risk Factors' is not less than point seven (7) 12 size. [Clauses 9.1.12 & 9.1.13 of the Guidelines].

56. Ensure that the advertisements are truthful, fair and clear and does not contain any statement which is untrue or misleading. [Clause 9.1.1 of the Guidelines].

57. Do not issue any advertisement which reproduces or purports to reproduce any information contained in the prospectus unless the said information is reproduced in full and discloses all relevant facts. [Clause 9.1.2 of the Guidelines]

58. Do not issue any advertisement on television in the form of crawler that is the advertisement which run simultaneously with the programme in a narrow strip or any other form, at the bottom or elsewhere on the television screen. [Clause 9.1.8 of the Guidelines].

59. Ensure that the advertisement carries data for the past 3 years relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividend in case such advertisement carries financial data. [Clause 9.1.11 of the Guidelines]

60. If there is any reservation for NRIs specify the same and indicate the source in India from where individual NRI applicants can obtain the application form. [Clause 9.1.19 of the Guidelines].

61. File a copy of the prospectus with the concerned Registrar of Companies for registration after having it signed by every person who is named therein as a director or proposed director of your company or by his agents authorised in writing on or before the date of its publication. [Section 60(1)].

62. Ensure that every prospectus filed, as above, states on the face of it that a copy has been delivered for registration and also specify documents which are required to be endorsed have been attached to the said copies so delivered [Section 60(2)].

63. Do not issue prospectus more than 90 days after the date on which a copy therefor is delivered for registration to the Registrar of Companies . [Section 60(4)].

64. If your company issues prospectus without a copy being delivered therein to the Registrar of Companies, then your company and every person who is knowingly operate to the issue of the prospectus will be punishable with fine of upto Rs. 50,000/-.[Section 60(5)].

65. Keep in mind civil liabilities and criminal liabilities for misstatements in prospectus given in sections 62 and 63.

66. Supply to the underwriters free of cost the agreed minimum number of copies of the application form, part of the abridged prospectus and copies of the prospectus for every lakh of rupees of underwriting accepted by the underwriters in term of the underwriting agreement.

67. Despatch 20 copies of the application forms and prospectus to the investors associations sufficiently in advance of the opening of the issue. [Clause 16.1.8.1(b) of the Guidelines].

68. If there is a reservation for NRIs in a public issue, ensure that the Lead Merchant Bankers send directly from their end along with a suitable covering letter 10 copies of the prospectus together with 1000 application forms sufficiently in advance of the opening of the public issue, by name to:

Shri/Smt ______________

The Advisor (NRI)

India Investment Centre,

Jeevan Vihar Building,

Sansad Marg,

New Delhi- 110 001. [Clause 16.1.8. 1 (a) of the Guidelines].

69. Ensure that a draft prospectus containing disclosures as given in Section I of Chapter VI of the Guidelines 16 is filed with SEBI through an eligible Merchant Banker at least 21 days prior to the filing of prospectus with the Registrar of Companies. [Clause 2.1.1 of the Guidelines].

70. Ensure that not less than 10% or 25% as the case may be of the equity shares of your company's total issue is offered to the public, as per the listing requirement under Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957. If your company is an infrastructure company, you are exempted from the requirement of making a minimum public offer of 10% or 25% as the case may be of your company's securities. [Clauses 8.3.1 & 8.3.3 of the Guidelines ]

71. Further ensure that the rninimurn. requirement of 90% subscription is received by your company for your public issue. If your company is an infrastructure company, you are exempted from the requirement of minimum subscription of 90% in case the issue is not fully subscribed and your company discloses its plans and ability to raise alternate source of funding. [Clauses 6.3.8.1, 6.3.8.2 & 6.3.8.5.1 of the Guidelines].

72. Open the subscription list for not more than 10 working days and keep the subscription list open of your company's public issue for at least 3 working days which should also be disclosed in the prospectus. If your company is an infrastructure company keep the issue open for a maximum period of 21 days. [Clause 8.8.1 of the Guidelines].

73. Ensure that the quantum of your company's public issue does not exceed the amounts specified in the prospectus provided that an oversubscription to the extent of 10% of the net offer to the public is permissible for the purpose of rounding off to the nearer multiple of 100 while finalising the allotment. [Clause 8.10.1 of the Guidelines].

74. Keep in mind that an application should be made by your company to one or more recognised stock exchanges before the public issue for listing of your company's shares and the names of such stock exchanges should be made in the prospectus. [Section 73(1) and (1A)]. For procedure see Topic 352, 353.

75. Further keep in mind that no allotment of the shares should be made until the beginning of the fifth day after that on which the prospectus is first issued or such later time as may be specified in the prospectus. [Section 72]. For procedure see Topic 161.

76. Note that your unlisted company is free to make public issue of equity shares in any denomination determined by it in accordance with section 13(4) of the Companies Act, 1956 and in compliance with the norms as specified by SEBI in circular No. SMDRP/POLICY/CIR-16/99 dated June 14, 1999 and other norms as may be specified by SEBI from time to time. [Clause 3.7.1 of the Guidelines] .

77. Also note that if your company has already issued shares in the denomination of Rs. 10/- or Rs. 100/- may change the standard denomination of the shares by svilitting or consolidating the existing shares. [Clause 3.7.2. of the Guidelines].

78. Further note that if your company is proposing to issue shares in any denomination or changing the standard denomination as aforesaid, it should comply with the following:

(a) the shares should not be issued in the denomination of decimal of a rupee;

(b) the denomination of the existing shares should not be altered to a denomination of a decimal of a rupee;

(d) the companies seeking to change the standard denomination may do so after amending the Memorandum and Articles of Association.

(e) the company should adhere to the disclosure and accounting norms speci ied by SEBI from time to time. [Clause 3.73. of the Guidelines].

79. Keep in mind that if your company has issued. shares prior to the public issue the entire pre-issue share capital should be locked in for a period of 1 year from the date of commencement of commercial production or the date of allotment in the public issue whichever is later. This will not be applicable to the preissue share capital held by venture capital funds registered with the SEBI Board and to those who are holding it for a period of at least one year at the time of filing draft offer document with SEBI and being offered to the public for sale.[Clause 4.14 of the Guidelines].

80. Keep in mind that if your unlisted company having commercial operation of less than 2 years is proposing to issue securities to public resulting in post issue capital of Rs. 3 crores and not exceeding Rs. 5 crores then it will be eligible to apply for listing of its securities only on those stock exchanges where trading of securities is screen-based [Clause 8.1.1 of the Guidelines].

81. Also keep in mind that your company must appoint market makers on all the stock exchanges where the securities are proposed to be listed [Clause 8.1.2 of the Guidelines].

82. Ensure that the appointment of market members is subject to the following:

(ii) market makers undertake to offer buy and sell quotes for a minimum depth of 3 marketable lots.

(iii) market makers undertake to ensure that the bid ask spread (difference between quotations for sale and purchase) for their quotes should not at any time exceed 10%.

(iv) the inventory of the market makers on each of such stock exchanges, as on date of allotment of securities should be at least 5% of the proposed issue of the company. [Clause 8.1.3. of the Guidelines].

83. Note that unlisted companies whose capital after the proposed issue of securities is less than Rs. 3 crores will be eligible to be listed only on the Over the Counter Exchange of India. [Clause 8.1.4 of the Guidelines].

84. Further note that if your company is proposing to issue Capital to the public through the on-line system of the Stock Exchange for offer of securities then your company must comply with the requirements as contained in Chapter XIA of the Guidelines in addition to other requirements for public issues as given in the Guidelines .

85. Also Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

Topic 306

DO YOU WISH TO ISSUE SHARES TO THE PUBLIC FOR THE FIRST TIME BEING AN EXISTING UNLISTED COMPANY WITHOUT TRACK RECORD OF DISTRIBUTABLE PROFITS?

1. Check whether your company is an existing unlisted company without track record of distributable profits in terms of section 205 and also does not have a pre-issue net worth of Rs. 1 crore in 3 out of preceding five years with a minimum net worth to be met during immediately preceding 2 years and in such a case it can make a public issue only through the book building process. [Clauses 2.2.1 and 2.2.2 of the Guidelines]

2. Further keep in mind that the aforesaid condition will not be applicable to a banking company including a Local Area Bank or a corresponding new bank. [Clause 2.4.1. (i) & (ii)].

3. Also keep in mind that the aforesaid condition will not be applicable to an infrastructure company whose project has been appraised by a public Financial Institution or Infrastructure Development Corporation or infrastructure Leasing and Financing Services Ltd. and, not less than 5% of the project cost is financed by any of the institutions referred above jointly or severally irrespective of whether they appraise the project or not by way of loan or subscription to equity or a combination of both. [Clause 2.4. 1(iii) of the Guidelines]

4. Check whether the proposed public issue of equity shares will be within the authorised share capital, if not then your company should first increase the authorised share capital as per Topic 34.

5. Also keep in mind that your company being an existing unlisted company as mentioned in Item I can issue equity shares to the public for raising additional capital may freely price its equity shares provided that the net offer to the public should be at least 10% or 25% as the case may be of the post issue capital. If your company is an infrastructure company inviting subscription from public, you are exempted from the requirement of making a minimum public offer of 10 or 25% as the case may be of your company's securities. [Clauses 3.2.1, 8.3.1 and 8.3.3. of the Guidelines].

6. Further keep in mind that if your company is having any partly paid up shares, your company cannot go for the public issue unless all the existing partly paid-up shares have been fully paid up or forfeited in a manner specified in clause 8.6.2 of the Guidelines. [Clause 2.7 of the Guidelines].

7. Also keep in mind that if your company is having any outstanding financial instruments or any other right which would entitle the existing promoters or shareholders any option to receive equity shares capital after the initial public offer your company cannot make a public issue. [Clause 2.6 of the Guidelines].

8. In case your company is eligible to make a public issue it may freely price the equity shares of the public issue and if it is an infrastructure company it can freely price the issue of shares subject to the companies with the disclosure norms as specified by SEBI from time to time. [Clauses 3.2.1 & 3.2.2. of the Guidelines]

9. Ensure that the issue price is uniformly applicable to all investors including promoters.

10. Bring in as promoters contribution at least 20% of the total issued capital irrespective of your company's issue size. [Clause 4.1 of the Guidelines].

11. Do not make any private placement out of promoters quota by solicitation from unrelated investors through any kind of market intermediaries. [Clause 4.6.6 of the Guidelines].

12. Ensure that the minimum contribution from each of the promoters is Rs. 25,000/including contributions to be made by business associates such as dealers and distributors but in case of contributions made by firms or corporate bodies not being business associates like dealers and distributors the minimum contribution should be Rs. 1 lakh each. [Clause 4.6.5 of the Guidelines].

13. Please note that the promoters contribution is subject to the lock-in-period of 3 years from the date of allotment or from the date of commencement of commercial production whichever is later. [Clause 4.11.1 of the Guidelines].

14. Ensure that the promoters bring their full contribution including premium if any at least one day prior to the issue opening date of the public issue which should be kept in an escrow account with a scheduled commercial bank and the said contribution/amount should be released to the company along with the public issue proceeds. If the promoters' contribution is brought prior to your company's public issue and is already been deployed by your company then give the cash flow statement in the offer document disclosing the use of such funds as promoters' contribution. [Clause 4.9.1 first proviso of the Guidelines] In case the promoters contribution in the public issue of your company exceeds Rs. 100 crores the promoters will be permitted to bring in Rs. 100 crores before opening of the issue to the public and the balance can be brought in by them in advance pro rata basis before the calls of the public are made. [Clause 4.9.1 first and second proviso of the Guidelines].

15. Prepare a list of names and addresses of friends and relatives and associates who are to contribute to the promoters quota along with the amount of subscription made by each of them and obtain a certificate from a Chartered Accountant. This list long with the certificate from a Chartered Accountant will be required to be attached to the draft prospectus to be submitted to SEBI. [Clause 4.9.4 of the Guidelines].

16. Decide the issue size of the proposed public issue whether it will be within 5 times its pre-issue net worth if any or more than that and if it is more than 5 times of its pre-issue net worth, if any, then ensure that 60% of the issue size is allotted to the Qualified Institutional buyers.

17. Enter into a legally valid agreement with the following:

(i) Merchant Banker functioning as Lead Manager.

(ii) Registrars/Share Transfer Agents.

(iii) Bankers to the issue.

(iv) Underwriters to the issue.

(v) Collection Agents other than the Bankers to the issue.

(vi) Adviser to the issue.

(vii) Market makers for all Stock Exchanges where equity shares are proposed to be listed.

(viii) Depositories.

(ix) Compliance Officers.

18. Obtain consent in writing from the above-mentioned persons for their appointments as such.

19. Ensure that the maximum number of such a Lead Manager should be 2 if the issue size is less than Rs. 50 crores and 3 if the issue size is more than Rs 50 crores or less than Rs. 100 crores and 4 if the issue size is Rs. 100 crores but not less than Rs. 200 crores and 5 if the issue size is Rs. 200 crores or less than Rs. 400 crores and such number permitted by SEBI on merits of each case if the issue size is Rs. 400 crores and above. Separate Lead Managers can be appointed for pre-issue and post-issue activities. [Regulation 19 of the SEBI (Merchant Bankers) Regulations, 1992].

20. If your company wants to make reservations/firm allotments out of your company's public offer, ensure that they are subject to the following ceiling indicated below and also ensure that unreserve offer of equity after such reservation/ firm allotment is not less than the minimum required for listing purposes:

(i) Permanent employees and working directors of the promoting companies to the extent of maximum 10% of the public issue.

(ii) Shareholders of the promoting companies to the extent of maximum 10% of the public issue.

(iii) Indian Mutual Fund.

(iv) Foreign Institutional Investors including Non-Resident Indians and Overseas Corporate Bodies.

(v) Indian and multilateral development financial institutions and scheduled bank.

(vi) Lead Merchant Bankers to the extent of maximum 5%. [Clause 8.3.4 of the Guidelines].

21. Ensure that the total holding by each one of the Foreign Institutional Investors in your company on their own account or sub-account does not exceed 10% of the total issued capital of your company. [Regulation 15(5) and (6) of SEBI (Foreign Institutional Investors) Regulations, 1995].

22. Keep in mind that except the ceiling of 10% applicable to employees as well as to the shareholders and the ceiling of 5% applicable to Lead Merchant Bankers mentioned above, your company is free to make reservations/firm allotments to various categories of persons mentioned above for the remaining of the issue size subject to other relevant provisions of the Guidelines. [Clause 8.3.4. of the Guidelines].

23. Please keep in mind that unsubscribed portion in any reserve category mentioned above may be added to any other reserve category and the unsubscribed portion if any after inter se adjustments amongst the reserved categories should be added back to the net offer to the public. [Clause 8.5(c) of the Guidelines].

24. Further ensure that prior approval of RBI under FEMA, 1999 has been obtained in case of Foreign Institutional Investors/Non-Resident Indians/Overseas Corporate Bodies except in the automatic route.

26. Further ensure that bankers of your company's public issue are appointed in at least all the mandatory collection centres including places whereat stock exchanges are located. [Clause 5.4.3.2 of the Guidelines].

27. Further ensure that minimum number of collection centres are situated at the four Metropolitan centres namely, Murnbai, Delhi, Calcutta and Chennai and also at all such centres where stock exchanges are located in the region in which the Registered office of the company is situated. Your company is free to appoint as many collection centres as it may deem fit in addition to the above minimum requirement. [Clauses 5.9.1 & 5.9.2 of the Guidelines].

28. Appoint Collection Agents other than Bankers to the issue in consultation with your company's Lead Merchant Bankers subject to necessary disclosures including names and addresses of such agents made in the offer document. [Clause 5.10.1 of the Guidelines].

29. Ensure that the Collection Agents appointed, as above, are properly equipped for the purpose in terms of infrastructure and man power requirements. [Clause 5.10.3 of the Guidelines].

30. Have the following documents drafted by the Lead Managers of your company, so appointed, as above:

(i) Prospectus.

(ii) Memorandum containing salient features of the prospectus (abridged).

(iii) Application form for public issue of equity shares.

31. Convene a board meeting after giving notices$ to all the directors of the company as per section 286 and approve the drafts of all the agreements, abridged prospectus, application form and other related documents and papers for the public issue and for fixing up the date, time, place and agenda of a General Meeting to pass necessary resolutions for the public issue under section 81.

32. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-.' [Section 286(2)].

33. Ensure that the issue of equity shares out of the public issue made on the basis of preferential/firm allotments is made by passing a special resolution under section 81(1A) of the Act.

34. Issue notices in writing at least 21 days before the date of the General Meeting with suitable Explanatory Statement. [section 171(1) read with section 173(2)].

35. Hold the General Meeting and pass the special resolutions by 3/4th majority. [Section 189(2)].

36. File copies of Special Resolutions with Explanatory Statements with the concerned Registrars of Companies in Form No. 23 within 30 days of its passing. [Section 192(1) & (4)(a)].

37. Please also keep in mind that if default is made in complying with the aforesaid requirement of filing the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

38. Have the prospectus dated in consultation with the Lead Managers which should state the matter specified in Part I and Schedule II to the Act and should also set out the reports specified in Part II and Parts I and II, as aforesaid, will have effect subject to the provisions of Part III of Schedule II. [Section 56(1)].

39. Ensure that the prospectus contains all material information which should be true and adequate so as to enable the investors to make informed decision on the investments and a basis of issue price as per Schedule XV of the Guidelines. [Clauses 6.1 and 613 of the Guidelines].

40. Provide accounting ratios in support of basis of issue price to justify the said basis of issue price.

41. Ensure that the audited statement and unaudited statement contained in the prospectus are not more than 6 months old from the date of the opening of the issue. [Clause 8.12.1 of the Guidelines].

42. Please also ensure that the prospectus contains all the particulars/information in addition to the requirement of Schedule II to the Act as given in Section I of Chapter VI of the Guidelines. [Clauses 6.1 to 6.19 of the Guidelines].

43. Ensure that the index to the contents of the prospectus is attached to the prospectus on the Front inside cover page. [Clause 6.2.2.1 of the Guidelines].

44. Have the draft of abridged prospectus drawn in accordance with Form No. 2A which must not contain any material/matters extraneous to or not reflected in the full prospectus and any violation of this requirement will be punishable with fine of up to Rs. 50,000/-.[Section 56(3) Second Proviso].

45. Keep in mind that every application form for public issue must be accompanied by a copy of the abridged prospectus which can be printed with two application forms bearing separate numbers so that they can be detached along indicated perforated lines. [Section 56(3) read with Circular No. 1/92, dated 9-11992 and No. 1/6/88-(CL-V), dated 10-4-1992 issued by the Department of Company Affairs].

46. Ensure that the disclosures made in the abridged prospectus confirm to Section II of Chapter VI of the Guidelines . [Clauses 6.20 to 6.37 of the Guide lines].

47. Also ensure that the abridged prospectus so drafted after it is approved by the Board of Directors of your company is printed at least in point seven (7) size with proper spacing. [Clause 5.13.1 (iv) of the Guidelines].

48. Design the application form to be issued to the members of the public for the issue and also to be issued to the promoters as well as to the preferential/firm allottees of the issue and finalise the said application form in consultation with the Registrar to the issue.

49. Ensure that the aforesaid application forms confirm to the requirements given in clause 5.13.1 of the Guidelines.

50. Ensure that the applications are invited in units or multiple of 200 shares of the nominal value of Rs. 10/-, if the issue is at par and if the issue is at a premium the amount payable in all in respect of each shares i.e. on application, allotment and calls by each applicant should not be less than Rs. 2,000/- irrespective of size of the premium subject to applications being for a multiple of tradeable lots. [Clause 8.6 1. (i) of-the Guidelines].

51. Further ensure that the application forms have perforated acknowledgement slips which are stamped by the receiving banks over to the applicants on receipt of the applications and the acknowledgement slips must bear identification numbers which should also appear on the application forms.

52. In case the public issue is very large, your company may in consultation with Lead Manager associate one or more Registrars holding certificate of registration issued by SEBI for the limited purpose of collecting the application forms at different centres and for forwarding the same to the Registrar to the issue of your company. [Clause 5.4.3 of the Guidelines].

53. Draft and finalise the advertisement material for your company's public issue in consultation with Lead Managers of your company which should follow the Guidelines given in Chapter IX of the Guidelines

54. Keep in mind that no advertisement is released without giving 'Risk Factors' in respect of your public issue and ensure that the point size of 'Highlights' and 'Risk Factors' is not less than point seven (7) 14 size. [Clauses 9.1.12 & 9.1.13 of the Guidelines].

55. Ensure that the advertisements are truthful, fair and clear and does not contain any statement which is untrue or misleading. [Clause 9. 1. 1 of the Guidelines].

56. Do not issue any advertisement which reproduces or purports to reproduce any information contained in the prospectus unless the said information is reproduced in full and discloses all relevant facts. [Clause 9.1.2 of the Guidelines] .

57. Do not issue any advertisement on television in the form of crawler that is the advertisement which run simultaneously with the programme in a narrow strip or any other form, at the bottom or elsewhere on the television screen. [Clause 9.1.8 of the Guidelines].

58. Ensure that the advertisement carries data for the past 3 years relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividend in case such advertisement carries financial data. [Clause 9.1.11 of the Guidelines].

59. If there is any reservation for NRIs specify the same and indicate the source in India from where individual NRI applicants can obtain the application form. [Clause 9.1.19 of the Guidelines].

60. File a copy of the prospectus with the concerned Registrar of Companies for registration after having it signed by every person who is named therein as a director or proposed director of your company or by his agents authorised in writing on or before the date of its publication. [Section 60(1)].

61. Ensure that every prospectus filed, as above' states on the face of it that a copy has been delivered for registration and also specify documents which are required to be endorsed have been attached to the said copies so delivered [Section 60(2)].

62. Do not issue prospectus more than 90 days after the date on which a copy therefor is delivered for registration to the Registrar of Companies . [Section 60(4)].

63. If your company issues gospectus without a copy being delivered therein to the Registrar of Companies, then your company and every person who is knowingly operate to the issue of the prospectus will be punishable with fine of up to Rs. 50,000/-. [Section 60(5)].

64. Keep in mind civil liabilities and criminal liabilities for mis-statements in prospectus given in sections 62 and 63.

65. Supply to the underwriters free of cost the agreed minimum number of copies of the application form, part of the abridged prospectus and copies of the prospectus for every lakh of rupees of underwriting accepted by the underwriters in term of the underwriting agreement.

66. Despatch 20 copies of the application forms and prospectus to the investors associations sufficiently in advance of the opening of the issue. [Clause 16.1.83(b) of the Guidelines].

67. If there is a reservation for NRIs in a public issue, ensure that the Lead Merchant Banker send directly from their end along with a suitable covering letter 10 copies of the prospectus together with 1000 application forms sufficiently in advance of the opening of the public issue, by name to:

Shri/Smt _______________

The Advisor (NRI)

India Investment Centre,

Jeevan Vihar Building,

Sansad Marg,

New Delhi- 110 001. [Clause 16.1.8.1 (a) of the Guidelines].

68. Ensure that a draft prospectus containing disclosures as given in Section I of Chapter VI of the Guidelines is filed with SEBI though an eligible Merchant Banker at least 21 days prior to the filing of prospectus with the Registrar of Companies. [Clause 2.1.1 of the Guidelines].

69. Further ensure that the minimum requirement of 90% subscription is received by your company for your public issue. If your company is an infrastructure company, you are exempted from the requirement of minimum subscription of 90% in case the issue is not fully subscribed and your company discloses its plans and ability to raise alternate source of funding. [Clauses 6.3.8.1, 6.3.8.2 & 6.3.8.5.1 of the Guidelines].

70. Open the subscription list for not more than 10 working days and keep the subscription list open of your company's public issue for at least 3 working days which should also be disclosed in the prospectus. If your company is an infrastructure company keep the issue open for a maximum period of 21 days. [Clause 8.8. 1 of the Guidelines].

71. Ensure that the quantum of your company's public issue does not exceed the amounts specified in the prospectus provided that an oversubscription to the extent of 10% of the net offer to the public is permissible for the purpose of roudning off to the nearer multiple of 100% while finalising the allotment. [Clause 8.10.1 of the Guidelines].

72. Keep in mind that an application should be made by your company to one or more recognised stock exchanges before the public issue for listing of your company's shares and the names of such stock exchanges should be made in the prospectus. [Section 73(1) and (1A)]. For procedure see Topic 352, 353.

73. Further keep in mind that no allotment of the shares should be made until the beginning of the fifth day after that on which the prospectus is first issued or such later time as may be specified in the prospectus. [Section 72]. For procedure see Topic 161.

74. Note that your unlisted company is free to make public issue of equity shares in any denomination determined by it in accordance with section 13(4) of the Companies Act, 1956 and in compliance with the norms as specified by SEBI in circular No. SMDRP/POLICY/CIR-16/99 dated June 14, 1999 and other norms as may be specified by SEBI from time to time. [Clause 3.7.1 of the Guidelines].

75. Also note that if your company has already issued shares in the denomination of Rs. 10/- or Rs. 100/- may change the standard denomination of the shares by splitting or consolidating the existing shares. [Clause 3.7.2. of the Guidelines].

76. Further note that if your company is proposing to issue shares in any denomination or changing the standard denomination as aforesaid, it should comply with the following:

(a) the shares should not be issued in the denomination of decimal of a rupee;

(b) the denomination of the existing shares should not be altered to a denomination of a decimal of a rupee;

(d) the companies seeking to change the standard denomination may do so after amending the Memorandum and Articles of Association.

(e) the company should adhere to the disclosure and accounting norms specified by SEBI from time to time. [Clause 3.73. of the Guidelines].

77. Keep in mind that if your company has issued shares prior to the public issue the entire pre-issue share capital, other than that locked in as promoters' contribution should be locked-in for a period of 1 year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later. This will not be applicable to the pre-issue share capital held by venture capital funds registered with SEBI and to those. who are holding it for a period of at least 1 year at the time of filing draft offer document with SEBI and being offered to the public for sale. [Clause 4.14 of the Guidelines].

78. Also keep in mind that securities issued on firm allotment basis should be locked in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later [Clause 4.14A of the Guidelines].

79. Further keep in mind that if your company is proposing to issue capital to the public through the on-line system of the stock exchange for offer of securities then our company must comply with the requirements as contained in Chapter XIA of the Guidelines in addition to other requirements for public issues as given in the guidelines.

80. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

Topic 307

DO YOU WISH TO ISSUE SHARES TO THE PUBLIC FOR THE FIRST TIME BEING AN EXISTING UNLISTED COMPANY WITH 3 YEARS TRACK RECORD OF DISTRIBUTABLE PROFITS?

1. Keep in mind that to be an existing unlisted company with 3 years track record of distributable profits it has to be an unlisted company having a track record of distributable profits in terms of section 205 of the Companies Act, 1956 for at least 3 out of immediately 5 years provided that the issue size does not exceed 5 times its pre-issue networth as per the last available audited accounts, either at the time of filing draft offer document with SEBI or at the time of opening of the issue. [Clause 2.2.1 (ii) and its proviso of the Guidelines].

2. Also keep in mind that such an unlisted company should in addition to complying with the above requirement have a pre-issue networth of not less than Rs. 1 crore in 3 out of preceeding 5 years with minimum networth to be met during immediately preceding 2 years. [Clause 2.2.1 (i) of the Guidelines].

3. Note that for the purpose of the term 'track record' at least 3 audited accounts are to be available comprising not less than 36 months for determining the minimum track record of 3 years. [Clause 2.2.2 Explanation 2(i) of the Guidelines].

4. Further note that if your company is in the information technology sector, the track record of distributable profits will be considered for the purpose of eligibility requirement only if the profits are emanating from the information technology business or activities. [Clause 2.2.2 Explanation 1(i) of the Guidelines].

5. In case your company does not comply with the aforesaid conditions, it can make a public issue only through book building process.

6. Check whether the proposed public issue of equity shares will be within the authorised share capital, if not then your company should first increase the authorised share capital as per Topic 34.

7. Also check whether your company has any outstanding financial instruments or any other right which would entitle the existing promoters or shareholders any option to receive equity share capital after the initial public offering. [Clause 2.6.1 of the Guidelines]

8. Keep in Mind that your company being an existing private/closely held/unlisted company with 3 years track record of consistent profitability your company can either make a first public issue by issue of additional shares to the public or by disinvestment i.e. by offer for sale of existing shareholding to the public without issue of additional shares.

9. Turther keep in mind that if your company was incorporated by conversion of partnership firm the track record of partnership firm which was converted will be considered if the relative financial statements pertaining to the partnership business confirm to or are revised in a format identical to that required for companies and if such financial statements make adequate disclosures similar to that required of companies as specified in Schedule VI of the Companies Act, 1956. [Clause 2.2.2 Explanation 1(ii)(a) of the Guidelines].

10. The financial statements mentioned above should also be duly certified by a Chartered Accountant stating unequivocally that the accounts as revised or otherwise and disclosures made are in lines with the provisions of Schedule VI of the said Act and the accounting standards of the Institute of Chartered Accountants of India have been followed and that the financial statements present as true and fair pictures of the firm's accounts as in the case of the companies. [Clause 2.2.2 Explanation 1(ii) of the Guidelines].

11. Keep in mind that in case your company has been formed as a separate company by spinning of a division of another company then the track record of consistent profitability of the division will be considered for the purpose of eligibility criteria if the requirements regarding financial statements as specified for partnership firms above are complied with. [Clause 2.2.2 Explanation 1(iii) of the Guidelines].

12. Further keep in mind that if your company is having any partly paid up shares, your company cannot go for the public issue unless all the existing partly paid-up shares have been fully paid up or forfeited in a manner specified in clause 8.6.2 of the Guidelines. [Clause 2.7 of the Guidelines].

13. Also keep in mind that if your company is eligible to make a public issue it may freely price the issue and list its securities on the Stock Exchanges and if it is an infrastructure company it can freely price the issue of shares subject to the compliance with the disclosure norms as specified by SEBI from time to time. [Clauses 3.2. 1. & 3.2.2. of the Guidelines].

14. Determine the pricing of the issue in consultation with the Lead Managers of your company's public issue subject to specified disclosure requirements as given in Schedule XV of the Guidelines including disclosure of the net asset value of your company as per the last audited balance sheet and justification for the issue price. [Clause 6.13.1 of the Guidelines].

15. Ensure that not less than 10% or 25% as the case may be of the post-issue capital of your company is offered to the public. [Clause 8.3.1 of the Guidelines].

16. Keep in mind that if your company is in the infrastructure sector or media or telecom sector you are not required to offer to the public at least 10% or 25% as the case may be of your securities. [Clause 8.3.3 of the Guidelines].

17. Ensure that the issue price is uniformly applicable to all investors including promoters.

18. Bring in as promoters contribution at least 20% of the total issued capital irrespective of your company's issue size. [Clause 4.1 of the Guidelines].

19. Do not make any private placem. e*nt out of promoters quota by solicitation from unrelated investors through any kind of market intermediaries. [Clause 4.6.6 of the Guidelines].

20. Ensure that the minimum contribution from each of the promoters is Rs. 25,000/including contributions to be made by business associates such as dealers and distributors but in case of contributions made by firms or corporate bodies not being business associates like dealers and distributors the minimum contribution should be Rs. 1 lakh each. [Clause 4.6.5 of the Guidelines].

21. Please note that the promoters contribution is subject to the lock-in-period of 3 years from the date of allotment or from the date. of commencement of commercial production whichever is later. [Clause 4. 11. 1 of the Guidelines].

22. Ensure that the promoters bring their full contribution including premium if any at least one day prior to the issue opening date which should be kept in an escrow account with a Scheduled Commercial Bank and the said contribution/amount should be released to your company along with the public issue proceeds.

23. If the promoters' contribution is brought prior to your company's public issue and is already been deployed by your company then give the cash flow statement in the offer document disclosing the use of such funds as promoters' contribution. [Clause 4.9.1 first proviso of the Guidelines]

24. In case the promoters contribution in the public issue of your company exceeds Rs. 100 crores the promoters will be permitted to bring in Rs. 100 crores before opening of the issue to the public and the balance Rs. 100 crores can be brought in by them in advance pro rata basis before the calls of the public are made. [Clause 4.9.1 second proviso of the Guidelines].

25. Prepare a list of names and addresses of friends and relatives and associates who are to contribute to the promoters quota along with the amount of subscriptioh made by each of them and obtain a certificate from a Chartered Accountant. This list along with the said certificate will be required to be attached to the draft prospectus to be submitted to SEBI. [Clause 4.9.4 of the Guidelines].

26. Decide the issue size of the proposed public issue whether it will be within 5 times of its pre-issue net worth or more than that.]

27. If the issue size is more than 5 times of your company's pre-issue net worth then ensure that 60% of the issue size is allotted to Qualified Institutional Buyers.

28. Enter into a legally valid agreement with the following:-

(i) Merchant Banker functioning as Lead Manager.

(ii) Registrars/Share Transfer Agents.

(iii) Bankers to the issue.

(iv) Underwriters to the issue.

(v) Collection Agents other than the Bankers to the issue.

(vi) Adviser to the issue.

(vii) Market makers for all Stock Exchanges where equity shares are proposed to be listed.

(viii) Depositories.

(ix) Compliance Officers.

29. Obtain consent in writing from the above-mentioned persons for their appointments as such.

30. Ensure that the maximum number of such a Lead Manager should be 2 if the issue size is less than Rs. 50 crores and 3 if the issue size is more than Rs. 50 crores or less than Rs. 100 crores and 4 if the issue size is Rs. 100 crores but not less than Rs. 200 crores and 5 if the issue size is Rs. 200 crores or less than Rs. 400 crores and such number permitted by SEBI on merits of each case if the issue size is Rs. 400 crores and above. Separate Lead Managers can be appointed for pre-issue and post-issue activities. [Regulation 19 of the SEBI (Merchant Bankers) Regulations, 1992].

31. If your company wants to make reservations/firm allotments out of your company's public offer, ensure that they are subject to the following ceiling indicated below and also ensure that unreserve offer of equity after such reservations/firm allotment is not less than the minimum required for listing purposes:

(i) Permanent employees and working directors of the promoting companies to the extent of maximum 10% of the public issue.

(ii) Shareholders of the promoting companies to the extent of maximum 10% of the public issue.

(iii) Indian Mutual Fund.

(iv) Foreign Institutional Investors including Non-Resident Indians and Overseas Corporate Bodies.

(v) Indian and multilateral development financial institutions and scheduled bank.

(vi) Lead Merchant Bankers to the extent of maximum 5%. [Clause 8.3.4 of the Guidelines].

32. Keep in mind that except the ceiling of 10% applicable to employees as well as to the shareholders and.the ceiling of 5% applicable to Lead Merchant Bankers, mentioned above, your company is free to make reservations/firm allotments to various categories of persons mentioned above for the remaining of the issue size subject to other relevant provisions of the Guidelines. [Clause 8.3.4 of the Guidelines].

33. Ensure that the total holding by each one of the Foreign Institutional Investors in your company on their own account or sub-account does not exceed 10% of the total issued capital of your company. [Regulation 15(5) and (6) of SEBI (Foreign Institutional Investors) Regulations, 1995].

34. Please keep in mind that unsubscribed portion in any reserve category mentioned above may be added to any other reserve category and the unsubscribed portion if any after inter se adjustments amongst the reserved categories should be added back to the net offer to the public. [Clause &5(c) of the Guidelines] .

35. Further ensure that prior approval of RBI under FEMA, 1999 has been obtained in case of Foreign Institutional Investors/Non-Resident Indians/Overseas Corporate Bodies except in the automatic route.

36. Ensure that the agreement executed between your company and the Registrars to the issue provides for retention of issue records atleast for a period of 6 months from the last date of despatch of letters of allotment/share certificates/refund orders to enable investors to approach the Registrar for redressal of their complaints.

37. Further ensure that bankers of your company's public issue are appointed in at least all the mandatory collection centres including places whereat stock exchanges are located. [Clauses 5.9.1 & 5.9.2 of the Guidelines].

38. Further ensure that minimum number of collection centres are situated at the four Metropolitan centres namely, Mumbai, Delhi, Calcutta and Chennai and also at all such centres where stock exchanges are located in the region in which the Registered office of the company is situated. Your company is free to appoint as many collection centres as it may deem fit in addition to the above minimum requirement. [Clauses 5.9.1 & 5.9.2 of the Guidelines].

39. Appoint Collection Agents other than Bankers to the issue in consultation with your company's Lead Merchant Bankers subject to necessary disclosures including names and address of such agents made in the offer document. [Clause 5. 10.1 of the Guidelines]

40. Ensure that the Collection Agents appointed, as above, are properly equipped for the purpose in terms of infrastructure and man power requirements. [Clause 5.10.3 of the Guidelines].

41. Have the following documents drafted by the Lead Managers of your company, so appointed, as above:

(i) Prospectus.

(ii) Memorandum containing salient features of the prospectus (abridged).

(iii) Application form for public issue of equity shares.

42. Convene a board meeting after giving noticesl to all the directors of the company as per section 286 and approve the drafts of all the agreements, abridged prospectus, application form and other related documents and papers for the public issue and for fixing up the date, time, place and agenda of a General Meeting to pass necessary resolutions for the public issue under section 81.

43. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-. [Section 286(2)].

44. Ensure that the issue of equity shares out of the public issue made on the basis of preferential/firm allotments is made by passing a special resolution under section 81 (1A) of the Act.

45. Issue notices in writing at least 21 days before the date of the General Meeting with suitable Explanatory Statement. [Section 171(1) read with section 173(2)].

46. Hold the General Meeting and pass the special resolutions by three fourths majority. [Section 189(2)].

47. File copies of Special Resolutions with Explanatory Statements with the concemed Registrars of Companies in Form No. 23 within 30 days of its passing. [Section 192(1) & (4)(a)].

48. Please also keep in mind that if default is made in complying with the aforesaid requirement, the default will be punishable with fine upto Rs. 200/- for every day during which the default continues [Section 192(5)].

49. Have the prospectus drafted in consultation with the Lead Managers which should states the matter specified in Part I of Schedule II to the Act and should also set out the reports specified in Part II and Parts I and II, as aforesaid, will have effect subject to the provisions of Part III of Schedule II. [Section 56(1)].

50. Ensure that the prospectus contains all material information which should be true and adequate so as to enable the investors to make informed decision on the investment and a basis of issue price as per Schedule XV of the Guidelines. [Clauses 61 and 6.13 of the Guidelines].

51. Provide accounting ratios in support of basis of issue price to justify the said basis of issue price.

52. Ensure that the audited statement and unaudited statement contained in theprospectus are not more than 6 months old from the date of the opening of the issue. [Clause 8.12.1 of the Guidelines].

53. Please also ensure that the prospectus contains all the particulars/information in addition to the requirement of Schedule II to the Act as given in Section I of Chapter VI of the Guidelines. (Clauses 6.1 to 6.19 of the Guidelines].

54. Ensure that the index to the contents of the prospectus is attached to the prospectus on the Front inside cover page. [Clause 6.2.2.1 of the Guidelines].

55. Have the draft of abridged prospectus drawn in accordance with Form No. 2A which must not contain any material/matters extraneous to or not reflected in the full prospectus and any violation of this requirement will be punishable with fine of up to Rs. 50,000/- . [Section 56(3) Second Proviso].

56. Keep in mind that every application form for public issue must be accompanied by a copy of the abridged prospectus which can be printed with two application forms bearing separate numbers so that they can be detached along indicated perforated lines. [Section 56(3) read with Circular No. 1/92, dated 9-1-1992 and No. 1/6/88-(CL-V), dated 10-4-1992 issued by the Department of Company Affairs].

57. Ensure that the disclosures made in the abridged prospectus confirm to Section II of Chapter VI of the Guidelines. [Clauses 620 to 637 of the Guidelines].

58. Also ensure that the abridged prospectus so drafted after it is approved by the Board of Directors of your company is printed at least in point seven (7) size with proper spacing. [Clause 5.13.1 (iv) of the Guidelines].

59. Design the application form to be issued to the members of the public for the issue and also to be issued to the promoters as well as to the preferential/firm allottees of the issue and finalise the said application form in consultation with the Registrar to the issue.

60. Ensure that the aforesaid application forms conform to the requirements given in clause 5.13.1 of the Guidelines.

61. Ensure that the applications are invited in units or multiple of 200 shares of the nominal value of Rs. 10/- if the issue is at par and where the issue is at a premium the amount payable in all in respect of each share i.e. on application, allotment and calls by each applicant should not be less than Rs. 2,000/- iffespective of size of the premium subject to applications being for a multiple of tradeable lots. [Clause 8.6.1 (i) of the Guidelines].

62. Further ensure that the application forms have perforated acknowledgement slips which are stamped by the receiving banks over to the applicants on receipt of the applications and the acknowledgement slips must bear identification numbers which should also appear on the application forms.

63. In case the public issue is very large, your company may in consultation with Lead Manager associate one or more Registrars holding certificate of registration issued by SEBI for the limited purpose of collecting the application forms at different centres and for forwarding the same to the Registrar to the issue of your company. [Clause 5.4.3.4 of the Guidelines].

64. Draft and finalise the advertisement material for your company's public issue in consultation with Lead Managers of your company which should follow the guidelines given in Chapter IX of the Guidelines.

65. Keep in inind that no advertisement is released without giving 'Risk Factors' in respect of your public issue and ensure that the point size of 'Highlights' and 'Risk Factors' is not less than point seven (7)15 size. [Clauses 9.1.12 & 9.1.13 of the Guidelines].

66. Ensure that the advertisements are truthful, fair and clear and does not contain any statement which is untrue or misleading. [Clause 9.1.1 of the Guidelines]

67. Do not issue any advertisement which reproduce or purports to reproduce any information contained in the prospectus unless the said information is reproduced in full and discloses all relevant facts. [Clause 9.1.2 of the Guidelines] .

68. Do not issue any advertisement on television in the form of crawler that is the advertisement which run simultaneously with the programme in a narrow strip or any other form, at the bottom or elsewhere on the television screen. [Clause 9.1.8 of the Guidelines].

69. Ensure that the advertisement carries data for the past 3 years relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividend in case such advertisement carries financial data. [Clause 9. 1.11 of the Guidelines].

70. If there is any reservation for NRIs specify the same and indicate the source in India from where individual NRI applicants can obtain the application form. [Clause 9.1.19 of the Guidelines].

71. File a copy of the prospectus with the concerned Registrar of Companies for registration after having it signed by every person who is named therein as a director or proposed director of your company or by his agents authorised in writing on or before the date of its publication. [Section 60(1)].

72. Ensure that every prospectus filed, as above, states on the face of it that a copy has been delivered for registration and also specify documents which are required to be endorsed have been attached to the said copies so delivered [Section 60(2)].

73. Do not issue prospectus more than 90 days after the date on which a copy there for is delivered for registration to the Registrar of Companies. [Section 60(4)].

74. If your company issues prospectus without a copy being delivered therein to the Registrar of Companies, then your company and every person who is knowingly operate to the issue of the prospectus will be punishable with fine of up to Rs. 50,000/-,[Section 60(5)].

75. Keep in mind civil liabilities and criminal liabilitids for misstatements in prospectus given in sections 62 and 63.

76. Supply to the underwriters free of cost the agreed minimum number of copies of the application form, part of the abridged prospectus and copies of the prospectus for every lakh of rupees of underwriting accepted by the underwriters in terms of the underwriting agreement.

77. Despatch 20 copies of the application forms and prospectus to the investors associations sufficiently in advance of the opening of the issue. [Clause 16.1.8.1 (b) of the Guidelines].

78. If there is a reservation for NRIs in a public issue, ensure that the Lead Merchant Banker send directly from their end along with a suitable covering letter 10 copies of the prospectus together with 1000 application forms sufficiently in advance of the opening of the public issue, by name to:

Shri/Smt _________________

The Advisor (NRI)

India Investment Centre,

Jeevan Vihar Building,

Sansad Marg,

New Delhi- 110 001. [Clause 16.1.8.1 (a) of the Guidelines].

79. Ensure that a draft prospectus containing disclosures as given in section I of Chapter VI of the Guidelines is filed with SEBI through an digible Merchant Banker at least 21 days prior to the filing of prospectus with the Registrar of Companies. [Clause 2. 1.1 of the Guidelines].

80. Further ensure that the minimum requirement of 90% subscription is received by your company for your public issue in case of sale of shares to the public this requirement of 90% minimum subscription is not mandatory. If your company is an infrastructure company, you are exempted from the requirement of minimum subscription of 90% in case the issue is not fully subscribed and your company discloses its plans and ability to raise alternate source of funding. [Clauses 63.8.1, 63.8.2 and 63.8.5 of the Guidelines].

81. Open the subscription list for not more than 10 working days and keep the subscription list open of your company's public issue for at least 3.working days which should also be disclosed in the prospectus. If your company is an infrastructure company keep the issue open for a maximum period of 21 days. [Clause 8.8.1 of the Guidelines].

82. Ensure that the quantum of your company's public issue does not exceed the amounts specified in the prospectus provided that an oversubscription to the extent of 10% of the net offer to the public is permissible for the purpose of rounding off to the nearer multiple of 100 while finalising the allotment. [Clause 8.10.1 of the Guidelines].

83. Keep in mind that an application should be made by your company to one or more recognised stock exchanges before the public issue for listing of your company's shares and the names of such stock exchanges should be made in the prospectus. [Section 73(1) and (1A)]. For procedure see Topic 352, 353.

84. Further keep in mind that no allotment of the shares should be made until the beginning of the fifth day after that on which the prospectus is first issued or such later time as may be specified in the prospectus. [Section 72]. For procedure see Topic 161.

85. Note that your unlisted company is free to make public issue of equity shares in any denomination determined by it in accordance with section 13(4) of the Companies Act, 1956 nd in compliance with the norms as specified by SEBI in circular No. SMDRP/POLICY/CIR-16/99 dated June 14, 1999 and other norms as may be specified by SEBI from time to time. [Clause 3.71 of the Guidelines].

86. Also note that if your company has already issued shares in the denomination of Rs. 10/or Rs. 100/- may change the standard denomination of the shares by splitting or consolidating the existing shares. [Clause 3.7.2. of the Guidelines].

87. Further note that if your company is proposing to issue shares in any denomination or changing the standard denomination as aforesaid, it should comply with the following:

(a) the shares should not be issued in the denomination of decimal of a rupee;

(b) the denomination of the existing shares should not be altered to a denomination of a decimal of a rupee;

(d) the companies seeking to change the standard denomination may do so after amending the Memorandum and Articles of Association.

(e) the company should adhere to the disclosure and accounting norms specfied by SEBI from time to time. [Clause 3.7.3. of the Guidelines].

88. Keep in mind that if your company has issued shares to any person within 6 months prior to the public issue the entire pre-issue share capital other than that locked-in as promoter's contribution should be locked-in for a period of 1 year from the date of commencement of commercial production or the date of allotment in the public issue whichever is later. This will not be applicable to the preissue share capital held by venture capital funds registered with SEBI and to those who are holding it for a period of at least 1 year at the time of filing draft offer document with SEBI and being offered to the public for sale .21 [Clause 4.14 of the Guidelines].

89. Also keep in mind that securities issued on firm allotment basis should be locked-in for a period of 1 year from the date of commencement of commercial production or the date of allotment, in the public issue, whichever is later. [Clause 4.14A of the Guidelines].

90. Further keep in mind that if your company is proposing to issue capital to the public through the on-line system of the stock exchange for offer of securities then your company must comply with the requirements as contained in Chapter XIA of the Guidelines in addition to other requirements for public issues as given in the Guidelines.

91. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.[Section 383-A(1) proviso].

Topic 308

DO YOU WISH TO ISSUE SHARES TO THE PUBLIC FOR THE FIRST TIME BEING AN EXISTING COMPANY WITHOUT 3 YEARS TRACK RECORD BUT PROMOTED BY EXISTING COMPANIES WITH TRACK RECORD OF CONSISTENT PROFITABILITY?

1. Keep in mind that to be an existing company which may be private/closely held/unlisted company and its audited operative results are available but it does, not have 3 years track record of distributable profits in terms of section 205 of the Companies Act, 1956 for at least 3 out of immediately preceding 5 years. [Clauses 2.2.1 (i) of the Guidelines].

2. Also keep in mind that if the existing company, as aforesaid, is promoted by one or more existing private/closely held/listed/unlisted company each of Which has shown profits after interest, depreciation and tax in its audited profit and loss account in preceding the date of the issue.

3. Further, keep in mind that such an unlisted company going for a public issue for the first time can do so provided it makes the public issue only through book-building process if it does not comply with the requirements, of pre-issue net worth of not less than Rs. 1 crore and a minimum period of track-record of distributable profits for at least 3 out of immediately proceeding 5 years as mentioned in clause 2.2 of the Guidelines and if the proposed issue size exceeds 5 times the company's pre-issue net worth, if any, 60% of the issue size should be allotted to the qualified institutional buyers (QIB). [Clause 2.2.1 and 2.2.2 of this Guidelines].

4. Remember that QIB will mean public financial institutions, Scheduled Commercial banks, mutual funds, foreign institutional investors registered with SEBI, multilateral and bilateral development financial institutions and venture capital funds and Foreign Venture Capital funds registered with SEBI and also State Industrial Development Corporations. [Clause 2.2.2 Explanation 2(ii) of the Guidelines].

5. Remember that the above conditions will not be applicable if your company is a banking company including a local area bank and having license from the RBI or a corresponding new bank, an infrastructure company whose project has been appraised by a Public Financial Institution or Infrastructure Development Finance Corporation or Infrastructure Leasing and Financing Services Ltd., and not less than 5% of the project cost is financed by any of the above institutions, jointly or severally, irrespective of whether they appraised the project or not, by way of loan or subscription to equity or a combination of both [Clause 2.4.1 of the Guidelines]

6. Note that if your company is having any partly paid-up shares, your company cannot go for the public issue unless all the existing partly paid-up shares have been fully paid up or forfeited in a manner specified in clause 8.6.2 of the Guidelines. [Clause 2.7 of the Guidelines].

7. Check whether the proposed public issue of equity shares will be within the authorised share capital, if not then your company should first increase the authorised share capital as per Topic 34.

8. Also check whether your company has any outstanding financial instruments or any other right which would entitle the existing promoters or shareholders any option to receive equity share capital after the initial public offer if yes then your company cannot make a public issue. [Clause 2.6 of the Guidelines].

9. Keep in mind that the existing company without 3 years track record but promoted by existing companies with 5 years track record of consistent profitability can issue shares to the public and freely price the issue and fix the price in consultation with Lead Managers to the issue and if it is an infrastructure company it can freely price its issue subject to the compliance with the disclosure norms as specified by SEBI from time to time. [Clauses 3.2.1 & 3.2.2 of the Guidelines].

10. Ensure that the issue price is uniformly applicable to all investors including promoters.

11. Bring in as promoters contribution 20% of the total issued capital irrespective of your companys issue size. [Clause 4.1. of the Guidelines].

12. Give full justification and parameters for fixation of the premium in the prospectus of the said issue if the issue price is at premium.

13. Do not make any private placement out of promoters quota by solicitation from unrelated investors through any kind of market intermediaries. [Clause 4.6.6 of the Guidelines].

14. Ensure that not less than 10% or 25% as the case may be of the post-issue capital of your company is offered to the public. [Clause 8.3.1 of the Guidelines].

15. Keep in mind that if your company is in the infrastructure sector or media entertainment or telecom sector your.are not required to offer to the public at least 10% or 25% as the case may be of your securities. [Clause 8.3.3 of the Guidelines].

16. Ensure that the minimum contribution from each of the promoters is Rs. 25,000/including contributions to be made by business associates such as dealers and distributors but in case of contributions made by firms or corporate bodies not being business associates like dealers and distributors the minimum contribution should be Rs. 1 lakh each. [Clause 4.65 of the Guidelines].

17. Please note that the promoters contribution is subject to the lock-in-period of 3 years from the date of allotment or from the date of commencement, of commercial production whichever is later. [Clause 4. 11. 1 of the Guidelines].

18. Ensure that the promoters bring their full contribution including premium if any at least one day prior to the issue opening date which should be kept in an escrow account with a Scheduled Commercial Bank and the said contribution/amount should be released to your company along with the public issue proceeds.

19. If the promoters' contribution is brought prior to your company's public issue and is already been deployed by your company then give the cash flow statement in the offer document disclosing the sue of such funds as promoters' contribution. [Clause 4.9.1 first proviso of the Guidelines]

20. In case the promoters contribution in the public issue of your company exceeds Rs. 100 crores the promoters will be perrnitted to bring in Rs. 100 crores before opening of the issue to the public and the balance can be brought in by them in advance pro rata before the calls of the public are made. [Clause 4.9.1 second proviso of the Guidelines].

21. Prepare a list of names and addresses of friends and relatives and associates who are to contribute to the promoters quota along with the amount of subscription made by each of them and obtain a Certificate from a Chartered Accountant. This list along with the said certificate will be required to be attached to the draft prospectus to be submitted to SEBI. [Clause 4.9.4 of the Guidelines].

22. Decide the issue size of the proposed public issue whether it will be within 5 times of its pre-issue net worth or more than that.

23. Enter into a legally valid agreement with the, following:-

(i) Merchant Banker functioning as Lead Manager.

(ii) Registrars/Share Transfer Agents.

(iii) Bankers to the issue.

(iv) Underwriters to the issue.

(v) Collection Agents other than the Bankers to the issue.

(vi) Adviser to the issue.

(vii) Market makers for all Stock Exchanges where equity shares are proposed to be listed.

(viii) Depositories.

(ix) Compliance officers.

24. Obtain consent in writing from the above-mentioned persons for-their appointments as such.

25. Ensure that the maximum number of such a Lead Manager should be 2 if the issue size is less than Rs. 50 crores and 3 if the issue size is more than Rs. 50 crores or less than Rs. 100 crores and 4 if the issue size is Rs. 100 crores but not less than Rs. 200 crores and 5 if the issue size is Rs. 200 crores or less than Rs. 400 crores and such number permitted by SEBI on merits of each case if the issue size is Rs. 400 crores and above. [Regulation 19 of the SEBI (Merchant Bankers) Regulations, 1992].

26. If your company wants to make reservations/firm allotments out of your company's public offer, ensure that they are subject to the following ceiling indicated below and also ensure that unreserve offer of equity after such reservations/firm allotment is not less than the minimum required for listing purposes:

(i) Permanent employees and working directors of the promoting companies to the extent of maximum 10% of the public issue.

(ii) Shareholders of the promoting companies to the extent of maximum 10% of the public issue.

(iii) Indian Mutual Fund.

(iv) Foreign Institutional Investors including Non-Resident Indians and Overseas Corporate Bodies.

(v) Indian and multilateral development financial institutions and scheduled bank.

(vi) Lead Merchant Bankers to the extent of maximum 5%. [Clause 8.3.4 of the Guidelines].

27. Keep in mind that except the ceiling of 10% applicable to employees as well as to the shareholders and the ceiling of 5% applicable to Lead Merchant Bankers, mentioned above, your company is free to make reservations/firm allotments to various categories of persons mentioned above for the remaining of the issue size subject to other relevant provisions of the Guidelines. [Clause 8.3.4 of the Guidelines].

28. Ensure that the total holding by each one of the Foreign Institutional Investors in your company on their own accounts or sub-accounts does not exceed 10% of the total issued capital of your company. [Regulation 15(5) and (6) of SEBI (Foreign Institutional Investors) Regulations, 1995].

29. Please keep in mind that unsubscribed portion in any reserve category mentioned above may be added to any other reserve category and the unsubscribed portion if any after inter se adjustments amongst the reserved categories should be added back to the net offer to the public. [Clause 8.5 (c) of the Guidelines].

30. Further ensure that prior approval of RBI under FEMA, 1999 has been obtained in case of Foreign Institutional Investors/Non-Resident Indians/Overseas Corporate Bodies except in the automatic route.

31. Ensure that the agreement executed between your company and the Registrars to the issue provides for retention of issue records atleast for a period of 6 months from the last date of despatch of letters of allotment/share certificates/refund orders to enable investors to approach the Registrar for redressal of their complaints.

32. Further ensure that bankers of your company's public issue are appointed in at least all the mandatory collection centres including places whereat stock exchanges are located. [Clauses 5.9.1 & 5.9.2 of the Guidelines].

33. Further ensure that minimum number of collection centres are situated at the four Metropolitan centres namely, Mumbai, Delhi, Calcutta and Chennai and also at all such centres where stock exchanges are located in the region in which the Registered office of the company is situated. Your company is free to appoint as many collection centres as it may deem fit in addition to the above minimum requirement. [Clauses 5.9.1 & 5.9.2 of the Guidelines].

34. Appoint Collection Agents other than Bankers to the issue in consultation with your company's Lead Merchant Bankers subject to necessary disclosures including names and addresses of such agents made in the offer document. [Clause 5.10.1 of the Guidelines].

35. Ensure that the Collection Agents appointed, as above, are properly equipped for the purpose in terms of infrastructure and man power requirements. [Clause 5.10.3 of the Guidelines].

36. Have the following documents drafted by the Lead Managers of your company, so appointed, as above:-

(i) Prospectus.

(ii) Memorandum containing salient features of the prospectus (abridged).

(iii) Application form for public issue of equity shares.

37. Convene a board meeting after giving noticesl to all the directors of the company as per section 286 and approve the drafts of all the agreements, abridged prospectus, application form and other related documents and papers for the public issue and for fixing up the date, time, place and agenda of a General Meeting to pass necessary resolutions for the public issue under section 81.

38. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and wh fails to do so will be punishable with fine of up to Rs. 1,000/-. [Section 286(2)].

39. Ensure that the issue of equity shares out of the public issue made on the basis of preferential/firm allotments is made by passing a special resolution under section 81(1A) of the Act.

40. Issue notices in writing at least 21 days before the date of the General Meeting with suitable Explanatory Statement. [Section 171(1) read with section 173(2)].

41. Hold the General Meeting and pass the special resolutions by 3/4th majority. [Section 189(2)].

42. File copies of Special Resolutions with Explanatory Statements with the concerned Registrars of Companies in Form No. 23 within 30 days of its passing. [Section 192(1) & (4) (a)].

43. Please keep in mind that if default is made in complying with the aforesaid requirement the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

44. Have the prospectus drafted in consultation with the Lead Managers which should state the matter specified in Part II of Schedule II to the Act and should also set out the reports specified in Part II and Parts I and II, as aforesaid, will have effect subject to the provisions of Part III of Schedule II. [Section 56(1)].

45. Ensure that the prospectus contains all material information which should be true and adequate so as to enable the investors to make informed decision on the investment and a basis of issue price as per Schedule XV of the Guidelines. [Clauses 61 and 61.3 of the Guidelines].

46. Provide accounting ratios in support of basis of issue price to justify the said basis of issue price.

47. Ensure that the audited statement and unaudited statement contained in the prospectus are not more than 6 months old from the date of the opening of the issue. [Clause 8.12.1 of the Guidelines].

48. Please also ensure that the prospectus contains all the particulars/information in addition to the requirement of Schedule II to the Act as given in Section II of Chapter VI of the Guidelines. [Clauses 6.1 to 6.19 of the Guidelines].

49. Ensure that the index to the contents of the prospectus is attached to the prospectus on the front inside cover page. [Clauses 6.2.2.1 of the Guidelines].

50. Have the draft of abridged prospectus drawn in accordance with Form No. 2A which must not contain any material/matters extraneous to or not reflected in the full prospectus and any violation of this requirement will be punishable with fine of up to Rs. 50,000/-,[Section 56(3) Second Proviso].

51. Keep in mind that every application form for public issue must be accompanied by a copy of the abridged prospectus which can be printed with two application forms bearing separate numbers so that they can be detached along indicated perforated lines. [Section 56(3) read with Circular No. 1/92, dated 9-1-1992 and No. 1/6/88-(CL-V), dated 10-4-1992 issued by the Department of Company Affairs].

52. Ensure that the disclosures made in the abridged prospectus conform to Section II of Chapter VI of the Guidelines. [Clause 6.20 to 6.37 of the Guidelines].

53. Also ensure that the abridged prospectus so drafted after it is approved by the Board of Directors of your company is printed at least in point seven (7) size with proper spacing. [Clause 5.13.1 (iv) of the Guidelines].

54. Design the application form to be issued to the members of the public for the issue and also to be issued to the promoters as well as to the preferential/firm allottees of the issue and finalise the said application form in consultation with the Registrar to the issue.

55. Ensure that the aforesaid application forms conform to the requirements given in clause 5.13.1 of the Guidelines.

56. Ensure that the applications are invited in units or multiple of 200 shares of the nominal value of Rs. 10/- if the issue is at par and where the issue is at a premium the amount payable in all in respect of each shared i.e. on application, allotment and calls by each applicant should not be less than Rs. 2,000/- irrespective of size of the premium sub ect to applications being for a multiple of tradeable lots. [Clause 8.6.1 (i) of the Guidelines].

57. Further ensure that the application forms have perforated acknowledgement slips which are stamped by the receiving banks over to the applicants on receipt of the applications and the acknowledgement slips must bear identification numbers which should also appear on the application forms.

58. In case the public issue is very large, your company may in consultation with Lead Manager associate one or more Registrars holding certificate of registration issued by SEBI for the limited purpose of collecting the application forms at different centres and for forwarding the same to the Registrar to the issue of your company. [Clause 5.4.3.4 of the Guidelines].

59. Draft and finalise the advertisement material for your company's public issue in consultation with Lead Managers of your company which should follow the Guidelines given in Chapter IX of the Guidelines.

60. Keep in mind that no advertisement is released without giving 'Risk Factors' in respect of your public issue and ensure that the point size of 'Highlights, and 'Risk Factors' is not less than point seven (7) size. [Clauses 9.1.12 & 9.1.13 of the Guidelines].

61. Ensure that the advertisements are truthful, fair and clear and does not contain any statement which is untrue or misleading. [Clause 9.1.1 of the Guidelines].

62. Do not issue any advertisement which reproduces or purports to reproduce any information contained in the prospectus unless the said information is reproduced in full and discloses all relevant facts. [Clause 9.1.2 of the Guidelines] .

63. Do not issue any advertisement on television in the form of crawler that is the advertisement which run simultaneously with the programme in a narrow strip or any other form, at the bottom or elsewhere on the television screen. [Clause 9.1.8 of the Guidelines].

64. Ensure that the advertisement carries data for the past 3 years relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividend in case such advertisement carries financial data. [Clause 9.1.11 of the Guidelines].

65. If there is any reservation for NRIs specify the same and indicate the source in India from where individual NRI applicants can obtain the application form. [Clause 9.1.19 of the Guidelines].

66. File a copy of the prospectus with the concerned Registrar of Companies for registration after having it signed by every person who is named therein as a director or proposed director of your company or by his agents authorised in writing on or before the date of its publication. [Section 60(1)].

67. Ensure that every prospectus filed, as above, states on the face of it that a copy has been delivered for registration and also specify documents which are required to be endorsed have been attached to the said copies so delivered [Section 60(2)].

68. Do not issue prospectus more than 90 days after the date on which a copy therefor is delivered for registration to the Registrar of Companies.

69. If your company issues prospectus without a copy being delivered therein to the Registrar of Companies, then your company and every person who is knowingly operate to the issue of the prospectus will be punishable with fine of Rs. 50,000/-. [Section 60(5)].

70. Keep in mind civil liabilities and criminal liabilities for misstatements in prospectus given in sections 62 and 63.

71. Supply to the underwriters free of cost the agreed minimum number of copies of the application form, part of the abridged prospectus and copies of the prospectus for every lakh of rupees of underwriting accepted by the underwriters in terms of the underwriting agreement.

72. Despatch 20 copies of the application forms and prospectus to the investors associations sufficiently in advance of the opening of the issue. [Clause 16.1.8.1 (6) of the Guidelines].

73. If there is a reservation for NRIs in a public issue, ensure that the Lead Manager send directly from their end along with a suitable covering letter 10 copies of the prospectus together with 1000 application forms sufficiently in advance of the opening of the public issue, by name to:

Shri/Smt __________________

The Advisor (NRI)

India Investment Centre,

Jeevan Vihar Building,

Sansad Marg,

New Delhi- 110 001. [ Clause 16.1.8.1 (a) of the Guidelines].

74. Ensure that a draft prospectus containing disclosures as given in Section I of Chapter VI of the Guidelines is filed with SEBI through an eligible Merchant Banker at least 21 days prior to the filing of prospectus with the Registrar of Companies. [Clause 2. 1. 1 of the Guidelines]

75. Further ensure that the minimum requirement of 90% subscription is received by your company for your public issue. If your company is an infrastructure company, you are exempted from the requirement of minimum subscription of 90% in case the issue is not fully subscribed and your company discloses its plans and ability to raise alternate source of funding. [Clauses 6.3.8.1, 6.3.8.2 and 6.3.8.5.1 of the Guidelines].

76. Open the subscription list for not more than 10 working days and keep the subscription list open of your company's public issue for at least 3 working days which should also be disclosed in the prospectus. If your company is an infrastructure company keep the issue open for a maximum period of 21 days. [Clause 8.8.1 of the Guidelines].

77. Ensure that the quantum of your company's public issue does not exceed the amounts specified in the prospectus provided that an oversubscription to the extent of 10% of the net offer to public is permissible for the purpose of rounding off to the nearer multiple of 100 while finalising the allotment. [Clause 8.10.1 of the Guidelines].

78. Keep in mind that an application should be made by your company to one or more recognised stock exchanges before the public issue for listing of your company's shares and the names of such stock exchanges should be made in the prospectus. [Section 73(1) and (1A)]. For procedure see Topic 352, 353.

79. Further keep in mind that no allotment of the shares should be made until the beginning of the fifth day after that on which the prospectus is first issued or such later time as may be specified in the prospectus. [Section 72]. For procedure see Topic 161.

80. Note that your unlisted company is free to make public issue of equity shares in any denomination determined by it in accordance with section 13(4) of the Companies Act, 1956 and in compliance with the norms as specified by SEBI in circular No. SMDRP/POLICY/CIR-16/99 dated June 14, 1999 and other norms as may be specified by SEBI from time to time. [Clause 3.7.1 of the Guidelines].

81. Also note that if your company has already issued shares in the denomination of Rs. 10/or Rs. 100/- may change the standard denomination of the shares by splitting or consolidating the existing shares. [Clause 3.7.2. of the Guidelines].

82. Further note that if your company is proposing to issue shares in any denomination or changing the standard denomination as aforesaid, it should comply with the following:

(a) theshares should not be issued in the denomination of decimal of a rupee;

(b) the denomination of the existing shares should not be altered to a denomination of a decimal of a rupee;

(d) the companies seeking to change the standard denomination may do so after amending the Memorandum; and

(e) the company should adhere to the disclosure and accounting norms specified by SEBI from time to time. [Clause 3.7.3. of the Guidelines].

83. Keep in mind that if your company has issued shares to any person within 6 months prior to the public issue the entire pre-issue capital other than that locked in as promoters' contribution should be locked-in for a period of 1 year from the date of commencement of commercial production or the date of allotment in the public issue whichever is later. This will not be applicable to the preissue share capital held by venture capital funds registered with SEBI and to those who are holding it for a period of at least 1 year at the time of filing draft offer document with SEBI and being offered to the public for sale. [Clause 4.14 of the Guidelines].

84. Also keep in mind that securities issued on firm allotment basis should be locked-in for a period of 1 year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later. 23 [Clause 4.14A of the Guidelines]

85. Further keep in mind that if your company is proposing to issue capital to the public through the on-line system of the stock exchange for offer of securities then your company Must Comply with the requirements as contained in Chapter XIA of the Guidelines in addition to other requirements for public issues as given in the Guidelines.

86. Note that if your company's paid-up share capital is less than Rs. 50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules,2001. [Section 383-A(1) proviso].

II. Further Public Issues

Topic 309

DO YOU WISH TO ISSUE FURTHER EQUITY SHARES TO THE PUBLIC BEING A LISTED COMPANY?

1. See that the issue is within the authorised share capital of the company; otherwise complete proceedings to increase the same suitably, vide Topic 34.

2. Also see that the issue size that is offer through offer document and firm allotment and promoters' contribution through the offer document of the proposed issue, does not exceed 5 times of your company's pre-issue networth as per the last available audited accounts either at the time of filing draft offer document with SEBI or at_the time of opening of the issue. [Clause 2.3.1 proviso of the Guidelines].

3. Note that in case your company does not fulfil the condition given above, it will be eligible to make a public issue only through the book building process provided that 60% of the issue size is allotted to the qualified institutional buyers (QlBs). [Clause 2.3.2. and its proviso of the Guidelines]

4. Further note that if your company has changed its name so as to indicate that it is a company in the information technology sector as defined in clause (iii) of Explanation 2 of Clause 2.2.1 of the Guidelines during a period of 3 years prior to filing of offer document with SEBI, your company must comply with the requirements of clause 2.2 of the guidelines for unlisted companies, before it can make a public issue of equity shares.[Clause 2.3.3 of the Guidelines]

5. Remember that the above conditions will not be applicable if your company is a banking company including a local area bank and having licence from the RBI or a corresponding new bank, an infrastructure company whose project has been appraised by a Public Financial Institution or infrastructure Development Finance Corporation or Infrastructure Leasing and Financing Services Ltd., and not less than 5% of the project cost is financed by any of the above institutions, jointly or severally, irrespective of whether they appraise the project or not, by way of loan or subscription to equity or a combination of both. [Clause 2.4.1 of the Guidelines]

6. Keep in mind at least 10% or 25% as the case may be of total public issue of capital issued by the company should be offered to the public for subscription, [Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 read with clause 8.3.2 of the Guidelines].

7. In case your company is an infrastructure company the above requirement of offering at least 10% or 25% as the case may be to public for subscription need not be followed. [SEBI Clause 8.3.3 (Disclosure & Investor Protective) Guidelines].

8. Keep in mind that your company being an existing listed company can freely price its further issues for raising fresh capital. [Clause 3.1.1 of the Guidelines].

9. Further keep in mind that your company can issue securities to applicants in the firm allotment category of a price different from the price at which the net offer to the public is made provided that the price at which the shares are being offered to the applicants in firm allotment category is higher than the price at which shares are offered to the public. [Clause 3.4.1 of the Guidelines].

10. Ensure that before going for public issue existing partly paid-up shares if any are fully paid or forefeited in a manner specified in clause 8.6.2. [Clause 2.7 of the Guidelines].

11. Determine the issue price of the shares in consultation with the Lead Manager(s) to the issue and the pricing norms given in Chapter III of the Guidelines.

12. If your company opts for book-building process, follow the guidelines given in Chapter XI of the Guidelines.

13. Every company making public issue should get the shares enlisted on recognised stock exchange. You are not eligible for enlistment for a minimum period of 12 months from the Record Date (and, consequently, to go in for a public issue), if you had earlier proposed rights issue and had withdrawn that rights issue after the announcement of the record date for that purpose. [Clause 8.7.3(b) of the Guidelines].

14. Please note that in the case of issues exceeding Rs. 500 crores-

(a) the utilisation of the proceeds of the issue will be monitored by financial institution;

(b) you are required to disclose the arrangement made for utilisation of the proceeds of the issue and arrangement made to have the issue monitored by financial institution;

(c) the monitoring institution should file a copy of the monitoring report with SEBI as per the format specified at Schedule XIX of the guidelines on a half yearly basis till the completion of project, for the purposes of record. [Clauses 8.17.1 & &17.2 of the Guidelines].

(d) the amount to be called up on application or allotment and on various calls need not be completed within 12 months. [Clause 8.62 (c) of the Guidelines].

15. Take into consideration the following:-

(i) the proceeds of the issue can be used strictly for the requirements of the project/activities mentioned in the offer documents and not for any other purpose;

(ii) the proceeds can, however, be invested only in fixed duration deposits/instruments with co-operative/nationalised banks, UTI, financial institutions, public sector undertakings (other than public sector bonds), till the deployment of the proceeds in the proposed project/activities.

16. Bring in as promoters contribution at least 20% of the proposed issue or 20% of the post issue capital. [Clause 4.3.1 of the Guidelines].

17. If your company is going for a composite issue, ensure that the promoters contribution is at the option of the promoters either 20% of the proposed public issue or 20% of the post issue capital and while calculating the post-issue capital exchange the right issue component of the composite issue. [Clauses 4.4.1 and 4.4.2 of the Guidelines].

18. Do not make any private placement out of promoters quota by solicitation from unrelated persons either directly or through any intermediary. [Clause 4.6.6 of the Guidelines].

19. Ensure that the minimum contribution from each of the. promoters is Rs. 25,000/including contributions to be made by business associates such as dealers and distributors but in case of contributions made by firms or corporate bodies not being business associates like dealers and distributors the minimum contribution should be Rs. 1 lakh each. [Clause 4.6.5 of the Guideliness].

20. Please note that the promoters contribution is subject to the lock-in-period of 3 years from the date of allotment in the proposed public issue and the last date of the lock-in should be reckoned as 3 years from the date of commencement of commercial production or date of allotment whichever is later. [Clauses 4.11.1 and 4.11.2 of the Guidelines].

21. Please further note that the mandatory requirement of minimum promoters contribution is not to be followed if your company is a listed company for atleast 3 years and has a track record of dividend payment for at least 3 immediately preceding years. However if your company does not have an identifiable promoter or if no promoter group exists, then guidelines for minimum promoters' contribution and lock-in of promoters' shares will not apply. [Clause 4.10.1 of the Guidelines]

22. Ensure that the promoters bring their full con tribution including premium if any at least one day prior to the issue opening date and keep that amount in an escrow account with a Scheduled Commercial Bank and release the said contribution/amount along with the public issue proceeds. [Clause 4.9.1 of the Guidelines]

24. In case the promoters minimum contribution in the public issue of your company exceeds Rs. 100 crores the promoters should bring in Rs. 100 crores before opening of the issue to the public and the remaining contribution can be brought in by them in advance on pro rata before the calls of the public are made. [Clause 4.9.1 secondproviso of the Guidelines].

25. Prepare a list of names and addresses of friends and relatives and associates who are to contribute to the promoters quota along with the amount of subscription made by each of them and obtain a certificate from a Chartered Accountant. This list along with the said certificate will be required to be attached to the draft prospectus to be submitted to SEBI.

26. Decide the issue size of the proposed public issue.

27. Enter into a legally valid agreement with the following:

(i) Merchant Banker functioning as Lead Manager.

(ii) Registrars/Share Transfer Agents.

(iii) Bankers to the issue.

(iv) Underwriters to the issue.

(v) Collection Agents other than the Bankers to the issue.

(vi) Adviser to the issue.

(vii) Market makers for all Stock Exchanges where equity shares are proposed to be listed.

(viii) Depositories.

(ix) Compliance Officer.

28. Ensure that Memorandum of Understanding (MOU) entered between your company and the lead merchant banker contains clauses as specified in Schedule I to the Guidelines, and such other clauses as considered necessary by the lead merchant banker and your company. [Clauses 5.3.1, 5.3.1.1 & 5.3.1.2 of the Guidelines].

29. Obtain consent in writing from the above-mentioned persons for their appointments as such.

30. Ensure that the maximum number of such a Lead Manager should be 2 if the issue size is less than Rs. 50 crores and 3 if the issue size is more than Rs. 50 crores or less than Rs. 100 crores and 4 if the issue size is Rs. 100 crores but not less than Rs. 200 crores and 5 if the issue size is Rs. 200 crores or less than Rs. 400 crores and such number permitted by SEBI on merits of each case if the issue size is Rs. 400 crores and above. Separate Lead Managers can be appointed for pre-issue and post issue activities. [Regulation 19 of the SEBI (Merchant Bankers) Regulations, 1992].

31. If your company wants to make preferential/firm allotment to various persons/ institutions out of your company's public offer ensure that they are free to do so for the remaining of the issue size to the following categories indicated below to be computed after deducting the amount.to be offered to the public and the promoters:

(i) Permanent employees including working directors to the extent of maximum 10% of the public issue.

(ii) Shareholders of group companies to the extent of maximum 10% of the public issue.

(iii) Indian Mutual Fund.

(iv) Foreign Institutional investors including Non-Resident Indians and Overseas Corporate Bodies.

(v) Indian and multilateral development financial institutions and scheduled bank.

(vi) Lead Merchant Bankers to the extent of maximum 5%.

32. Ensure that the total holding by the Foreign Institutional Investors in your company on their own accounts or sub-accounts does not exceed 10% of the total issued capital of your company. [Regulation 15(5) and (6) of SEBI (Foreign Institutional Investors) Regulations, 1995].

33. If your company is opting for, Book Building facility your company will only be permitted to offer capital on reservation or firm allotment basis to permanent employees of your company and to the shareholders of group companies. [Clause 11.3.1 (iii) of the Guidelines].

37. Further ensure that bankers of your company's public issue are appointed in all the mandatory collection centres. [Clause 5.4.3.2 of the Guidelines]

38. Further ensure that minimum number of collection centres are situated at the four Metropolitan centres namely, Mumbai, Delhi, Calcutta and Chennai and also at all such centres where stock exchanges are located in the region in which the Registered office of the company is situated. Your company is free to appoint as many collection centres, as it may deem fit in addition to the above minirnum requirement. [Clauses 5.9.1 & 5.9.2 of the Guidelines].

39. Appoint Collection Agents other than Bankers to the issue in consultation with your company's Lead Managers. Ensure that necessary disclosures including the names and addresses of collection agents are mentioned in the offer documents. [Clause 5.10.1 of the Guidelines].

40. Ensure that the Collection Agents appointed, as above, are properly equipped for the purpose in terms of infrastructure and man power requirements. [Clause 5.10.3 (c) of the Guidelines].

41. Have the following offer documents drafted by the Lead Managers of your company, so appointed, as above:

(i) Prospectus.

(ii) Memorandum containing salient features of the prospectus (abridged).

(iii) Application form for public issue of equity shares.

42. Convene a board meeting after giving notices to all the directors of the company as per section 286 and approve the drafts of all the agreements, abridged prospectus, application form and other related documents and papers for the public issue and for fixing up the date, time, place and agenda of a General Meeting to pass necessary resolutions for the public issue under section 81 .

44. Please note that the Resolution should inter alia, provide for the following in accordance with the SEBI Guidelines:

(a) reservations made for firm allotment, preferential allotment and for making final allotment upto 110% of the size of issue to facilitate the process of rounding off to the nearer multiple of 100 shares. [Clause 8.10.1 Proviso of the Guidelines].

(b) To approve the Draft Prospectus, Abridged Prospectus and application forms and allied matters. [Sections 55 to 68].

(c) To make an application to the Stock Exchange. The application will be in the prescribed form accompanied by the supporting documents and appropriate Analysis Form and a new Issues Statement [Section 73] and should be made before filing of the prospectus with the Registrar of Companies.

(d) To pass a resolution for appointing the Lead Manager(s) and Bankers, Underwriters, Brokers, Advisors, Registrars and Depositories to the issue and in consultation with Lead Manager.

(e) To pass a resolution authorising director(s)/Principal Officers to obtain consents from, and to execute necessary agreements with the persons mentioned at (d) above.

(f) To pass a resolution authorising Registrars to the Issue to sign on behalf of the company to realise the proceeds of STOCK INVEST from the issuing bank or to affix Non-allotment advice on the instrument, or to cancel the STOCK INVEST of the non-allottees, or partiall successful allottees who had sent more than one STOCK INVEST.

45. Ensure that the issue of equity shares out of the public issue made on the basis of preferential/firm allotments is made by passing a special resolution under section 81 (1A) of the Act.

46. Inform the concerned stock exchange(s) where the shares are already listed regarding the Board meeting at which further issue is to be considered, at least 48 hours before the meeting.

47. Issue notices in writing at least 21 days before the date of the General Meeting with suitable Explanatory Statement. [Section 17](1) read with section 173(2)].

48. Hold the General Meeting and pass the special resolutionsf by three fourths majority. [Section 189(2)].

49. File copies of Special Resolutions with Explanatory Statements with the concerned Registrars of Companies 12 in Form No. 23 within 30 days of its passing. [Section 192(1) & (4)(a)].

50. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

51. Have the prospectus drafted in consultation with the Lead Managers which should state the matter specified in Part I of Schedule II to the Act and should also set out the reports specified in Part II and Parts I and II, as aforesaid, will have effect subject to the provisions of Part III of Schedule II. [Section 56(1)].

52. Ensure that the prospectus contains all material information which shall be true and adequate so as to enable the investors to make informed decision on the investments in the issue and a justification for the price of the issue as per Schedule XV to the Guidelines. [Clauses 6.1 and 6.13 of the Guidelines].

53. Provide accounting ratios in support of issue price to justify the said bais of issue price.

54. Ensure that the audited statement and unaudited statement contained in the prospectus are not more than 6 months old from the date of the opening of the issue. [Clause 8.12.1 of the Guidelines].

55. Ensure that offer documents of size upto Rs. 20 crores are filed by lead merchant banker with the concerned regional office of the SEBI Board under the jurisdiction of which the registered office of your company falls which is given in Schedule XXII of the guidelines. [Clause 16.1.1 of the Guidelines].

56. Send a copy of the draft prospectus/abridged prospectus to Legal Advisors, Directors, Lead financial institutions, underwriters for approval.

57. Ensure that the Lead Manager while submitting the Draft Prospectus to SEBI should also hand over not less than 10 copies of the draft to SEBI and also 25 copies of the draft to the Stock Exchange(s) where the issue is proposed to be listed. [Clause 16.1.2 (b) of the Guidelines].

58. The Lead Manager should also submit to SEBI the Draft Prospectus in a com~uter floppy as per the format specified in Schedule XXIII to the Guidelines [Clauses 16.1.3 of the Guidelines].

59. Please also ensure that the prospectus contains all the particulars/information in addition to the requirement of Schedule II to the Act as given in Section I of Chapter VI of the Guidelines. [Clause 6.1 to 6.19 of the Guidelines].

60. Ensure that the index to the contents of the prospectus is attached to the prospectus on the Front Inside Cover Page. [Clause 6.2.2.1 of the Guidelines].

61. Have the draft of abridged prospectus drawn in accordance with Form No. 2A which must not contain any material/matters extraneous to or not reflected in the full prospectus and any violation of this requirement will be punishable with fine of up to Rs. 50,000/-. [Section 56(3) Second Proviso].

62. Keep in mind that every application form for public issue must be accompanied by a copy of the abridged prospectus which can be printed with two application forms bearing separate numbers so that they can be detached along indicated perforated lines. [Section 56(3) read with Circular No. 1/92, dated 9-1-1992 and No. 1/6/88-(CL-V), dated 10-4-1992 issued by the Department of Company Affairs].

63. Ensure that the disclosures made in the abridged prospectus conform to Section II of Chapter VI of the Guidelines.

64. Also ensure that the abridged prospectus so drafted after it is approved by the Board of Directors of your company is printed at least in point seven (7) size with proper spacing. [Clause 5.13.1 (iv) of the Guidelines].

65. Design the application form to be issued to the members of the public for the issue and also to be issued to the promoters as well as to the preferential/firm allottees of the issue and finalise the said application form in consultation with the Registrar to the issue.

66. Ensure that the aforesaid application forms conform to the requirements given in clause 5.13.1 of the Guidelines.

67. Ensure that the applications are invited in units or multiple of 200 shares of the nominal value of Rs. 10/-, if the issue is at par and if the issue is at premium the amount payable in all in respect of each share including application allotment and calls by each applicant should not be less than Rs. 2,000/- irrespective of the size of the premium subject to applications being for a multiple of tradeable lots. [Clause 8.6.1 (i) & (ii) of the Guidelines].

68. Further ensure that the application forms have perforated acknowledgement slips which are stamped by the receiving banks over to the applicants on receipt of the applications and the acknowledgement slips must bear identification numbers which should also appear on the application forms.

69. After a period of 21 days from the date the draft prospectus was made public, ensure that the Lead Manager files with SEBI a statement:

(i) giving a list of complaints received by it,

(ii) a statement by it whether it is proposed to amend the Draft Prospectus or not, and

(iii) highlight the amendments. [Clause 5.8.1 of the Guidelines]

70. Have the draft prospectus finalised by the Lead Manager on the basis of the modifications/ suggestions made by SEBI and submit the revised draft to SEBI and the observation letter issued by SEBI will be valid for a period of 365 days from the date of its issuance within which time only the issue can be open for subscription. The period of 365 days should be reckoned from the 22nd day of filing of the draft offer document with SEBI in cases where no observation letter is issued. [Clause 8.21.1 of the Guidelines].

71. Forward to the Stock Exchange with which your company is enlisted six copies of all notices, resolutions and circulars relating to the new issue of capital, prior to their despatch to the shareholders. [Clause 31(b) of the Standard Listing Agreement].

72. Forward promptly to the Stock Exchange with which your company is enlisted three copies of the notice and a copy of the proceedings of the General Meeting. [Clause 31(c) and (d) of the Standard Listing Agreement].

73. In case the public issue is very large, your company may in consultation with Lead Manager associate one or more Registrars holding certificate of registration issued by SEBI for the limited purpose of collecting the application forms at different centres and for forwarding the same to the Registrar to the issue of your company. [Clause 5.4.3.4 of the Guidelines].

74. Draft and finalise the advertisement material for your company's public issue in consultation with Lead Managers of your company which should follow the guidelines given in Chapter IX of the Guidelines.

75. Keep in mind that no advertisement is released without giving 'Risk Factors' in respect of your public issue and ensure that the point size of 'Highlights' and 'Risk Factors' is not less than point seven (7) size. [Clauses 9.1.12 & 9.1.13 of the Guidelines]

76. Ensure that the advertisements are truthful, fair and clear. Your company may issue corporate advertisement after 21 days from the date of filing of the offer document with SEBI till the closure of the issue provided the corporate advertisement contains all the risk, factors as required to be mentioned in the offer document. The product advertisement of your company should not contain any reference directly or indirectly to the performance of your company during the said period. [Clauses 9.1.1, 9.1.14 and 9.1.15 of the Guidelines].

77. Do not issue any advertisement which reproduces or purports to reproduce any inforination contained in the prospectus unless the said information is reproduced in full and discloses all relevant facts. [Clause 9.1.2 of the Guidelines].

78. Do not issue any advertisement on television in the form of crawler that is the advertisement which run simultaneously with the programme in a narrow strip or any other form, at the bottom or elsewhere on the television screen. [Clause 9.1.8 of the Guidelines].

79. Ensure that the advertisement carries data for the past 3 years relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividend and the book values in case such advertisement carries financial data. [Clause 9. 1. 11 of the Guidelines].

80. If there is any reservation for NRIs specify the same and indicate the source in India from where individual NRI applicants can obtain the application form. [Clause 9.1.19 of the Guidelines].

81. File a copy of the prospectus with the concerned Registrar of Cornpanies for registration after having it signed by every person who is named therein as a director or proposed director of your company or by his agents authorised in writing on or before the date of its publication. [Section 60(1)].

82. Ensure that every prospectus filed, as above, states on the face of it that a copy has been delivered for registration and also specify documents which are required to be endorsed have been attached to the said copies so delivered [Section 60(2)].

83. Do not issue prospectus more than 90 days after the date on which a copy therefor is delivered for registration to the Registrar of Companies.

84. If your company issues gospectus without a copy being delivered therein to the Registrar of Companies, then your company and every person who is knowingly o erate to the issue of the prospectus will be punishable with fine of Rs. 50,000/-. [Section 60(5)].

85. Ensure that the quantum of your company's public issue does not exceed the amounts specified in the prospectus. Provided that an oversubscription to the extent of 10% of the net offer to the public is permissible for the purpose of rounding off to the nearer multiple of 100 while finalising the allotment. [Clause 8.10.1 of the Guidelines].

86. Keep in mind civil liabilities and criminal liabilities for misstatements in prospectus given in sections 62 and 63.

87. Supply to the underwriters free of cost the agreed minimum number of copies of the application form, part of the abridged prospectus and copies of the prospectus for every lakh of rupees of underwriting accepted by the underwriters in terms of the underwriting agreement.

88. Despatch 20 copies of the application forms and prospectus to the investors associations sufficiently in advance of the opening of the issue. [Clause 16.1.8.1 (b) of the Guidelines].

89. If there is a reservation for NRIs in a public issue, ensure that the Lead Merchant Banker send directly from their end along with a suitable covering letter 10 copies of the prospectus together with 1000 application forms sufficiently in advance of the opening of the public issue, by name to:

Shri/Smt _________________

The Advisor (NRI)

India Investment Centre,

Jeevan Vihar Building,

Sansad Marg,

New Delhi- 110 001.

[Clause 16.1.8.1(a) of the Guidelines].

90. Ensure that a draft prospectus containing disclosures as given in Section I of Chapter VI of the Guidelines is filed with SEBI through an eligible Merchant Banker at least 21 days prior to the filinj of prospectus with the Registrar of Companies. [Clause 2.1.1 of the Guidelines].

91. Further ensure that if within 21 days from the date of submission of draft prospectus, the SEBI specifies any changes therein, your company or the Lead Merchant Banker carries out the changes in the draft prospectus before filing the prospectus with the Registrar of Companies. [Clause 2. 1. 1 Proviso of the Guidelines].

92. Keep in mind that an application should be made by your company to one or more recognised stock exchanges before the public issue for listing of your company's shares and the names of such stock exchanges should be made in the prospectus. [Section 73(1) and (1A)]. For procedure see Topic 352, 353.

93. Further keep in mind that no allotment of the shares should be made until the beginning of the fifth day after that on which the prospectus is first issued or such later time as may be specified in the prospectus. [Section 72]. For procedure see Topic 161.

94. Further ensure that the minimum requirement of 90% subscription is received by your company for your public issue.

95. Open the subscription list after 10 days from the date of expiry of filing the prospectus with the Registrar of Companies and keep the subscription list open of your company’s public issue for at least 3 working days and not more than 10 working days which should also be disclosed in the prospectus. If your company is an infrastructure company keep the issue open for a maximum period of 21 days. [Clause 8.8.1 of the Guidelines].

96. Close taking applications on the date announced for closing but, if the issue is not subscribed at least to the minimum extent of 90% of the issue by that date, extend it further for a period not exceeding 10 days from the date of opening by the issue.

97. Forward to SEBI within 45 days of the closure of your company's public issue a report in a prescribed with a compliance certificate from the Chartered Accountant who can be either your company’s statutory auditor or any practising Chartered Accountant or by a Company Secretary in practice.

98. Lead Manager responsible for post-issue activities is required to maintain close co-ordination with the Registrars to the issue and arrange to depute its officers at regular intervals after the closure of the issue to monitor the flow of applications from collecting bank branches, processing of the applications including those accompanied by stock invest and other matters till the basis of allotment is decided, despatch completed and listing done. Any act of omission or commission on the part of Registrars noticed during such inspections should be duly reported to SEBI. [Clause 7.4 of the Guidelines].

99.

(a) Please note that if you have received minimum subscription of 90% of the issue, including devolvement of obligation of underwriters, within 60 days from the date of closure of the issue, a certificate to the said effect duly signed by the Lead Manager(s) and the Chief Executive or Secretary of your company should be submitted by the Lead Manager(s) to the concerned Regional and other stock exchanges for obtaining their approval for allotment of shares.

(b) A copy of the Certificate mentioned, at (a) above should be sent to SEBI also.

100. The Stock Exchange, on being satisfied on the basis of an auditor's certificate that the allotment had been properly made, will issue the permission for enlistment and dealing. Provisions of Section 73 should be noted in this regard.

101. In case of undersubscription

(i) inform the underwriters to subscribe for the shares devolved upon them;

(ii) give intimation to the Regional Stock Exchange as regards (i) above and also about the response of the underwriters to discharge their obligations. [Clause 5.3.2.2 of the Guidelines].

102. If your company is following book building process then in case of undersubscription in the net offer to the public spillover to the extent of under subscription is permitted from the placement portion to the net offer to the public portion subject to the condition that preference should be given to the individual investors. In case of under subscription in the placement portion, spillover is permitted from the net offer to the public to the placement portion. [Clause 11.2 (xxi) of the Guidelines].

103. Proceed to complete the formalities such as issue of allotment letters, filing of allotment return, issue of share certificates, refund orders, making entries in various registers, etc.

104. Complete as far as possible the allotment of securities within 30 days of the closure of the issue. [Clause 6.5.1.1 of the Guidelines].

105. Please note you are liable to pay interest @ 15% if refund of application money and allotment is not made within the said period of 30 days. [Clause 6.5.1.1 of the Guidelines].

106.

(1) Please ensure that Lead Managers advise SEBI, within 10 days of the time stipulated for completion of each of the following activities:

(a) date of closure of the issue;

(b) date of allotment;

(d) date of listing at the concerned stock exchange(s).

107. In case of any extension granted by appropriate authority, the measures taken or initiated for completion of the activity within due time should be reported to SEBI by Lead Manager(s) within 10 days of the original stipulated time.

108. Ensure that only the post-issue Lead Merchant Bankers Publishes, within 10 days from the date of completion of the various activities in at least an English National Daily with wide circulation, one ffindi National Paper and a Regional Language daily circulated at the place where registered office of your company is situated

- over subscription;

- basis of allotment number, value and percentage of applications received with stockinvest and of successful allottees;

- completion of despatch of cancelled stockinvests directly to investors by the Registrars to the issue;

- date of completion of despatch of the refund orders;

- date of despatch of share/debenture certificates;

- date of filing of listing application;

[Clauses 75.1 of the Guidelines].

109. Give information about the above fact to the concerned stock exchange(s) and to SEBI together with copies of the newspaper publications.

110. Ensure that the Lead Managers responsible for post-issue activities submit to SEBI the periodical reports as per formats specified in Schedule XVI of the Guidelines within 3 working dates from the due dates:

3-Days Monitoring Report in the case of issue through book building route for book built portion and the due date of the report should be the third 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 and also three day monitoring report in other cases, including fixed price of book built issue and the due date for the report should be the third day from the date of closure of the issue.

Final Post-issue Monitoring Report for all issues and the due date will be the third day from the date of listing of 78 days from the date of closure of subscription of the issue whichever is earlier. [Clauses 7.2 and 7.2.1.1 of the Guidelines].

111. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

112. Note that your company cannot make further issue of capital in any manner whether by way of issue of bonus shares, preferential allotment, rights issue or public issue or otherwise during the period commencing from the submission of the prospectus to the SEBI till the securities referred to therein have been listed on application moneys refunded on account of non-listing or undersubscription etc. [Clause 8.7.1 of the Guidelines].

113. Note that your listed company is free to make public issue of equity shares in any denomination determined by it in accordance with section 13(4) of the Companies Act, 1956 and in compliance with the norms as specified by SEBI in circular No. SMDRP/POLICY/CIR-16/99, dated June 14, 1999 and other norms as may be specified by SEBI from time to time. [Clause 3.7.1 of the Guidelines].

114. Also note that if your company has already issued shares in the denomination of Rs. 10/- or Rs. 100/- may change the standard denomination of the shares by splitting or consolidating the existing shares. [Clause 3.7.2. of the Guidelines].

115. Further note that if your company is proposing to issue shares in any denomination or changing the standard denomination as aforesaid, it should comply with the following:

(a) the shares should not be issued in the denomination of decimal of a rupee;

(b) the denomination of the existing shares should not be altered to a denomination of a decimal of a rupee;

(d) the companies seeking to change the standard denomination may do so after amending the Memorandum and Articles of Association.

(e) the company should adhere to the disclosure and accounting norms specified by SEBI from time to time. [Clause 3.7.3. of the Guidelines].

116. Keep in mind that if your company is proposing to issue capital to the public through the on-line system of the stock exchange for offer of securities then your company must comply with the requirements as contained in Chapter XIA of the Guidelines in addition to other requirements for public issues as given in the Guidelines.

117. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.[Section 383-A(1) proviso].

III. Book Building

Topic 310

DO YOU WISH TO GO FOR BOOK BUILDING PROCESS?

1. Note that book building process has been dealt with in detail in Chapter XI of the Guidelines and also in SEBI Clari cation XXVII dated 26-11-1999 which is not incorporated in the Guidelines.

2. Keep in mind that 'book building' means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information me m.oranda or offer document. [Clause 1.2.1 (v) of the Guidelines].

3. Further note that SEBI had introduced the facility of book building in the capital issuance process to provide the issuer company and the lead merchant banker the flexibility of price and demand discovery.

4. Further note that 100% book building process or 75% of net offer to the public through book building process and 25% at the price determined through book building can be availed of by all companies who are going for a public issue. [Clause 11.3 and 11.31(i) of the Guidelines].

5. Also note that if your company is opting for 75% of net public offer for bidding then make the balance 25% of the net public offer at the fixed price determined by the book building exercise. [SEBI Clarification XXVII dated 26-11-1999 Part B 1.(a) & (b)].

6. Further keep in mind that book building process is a process by which the price of shares to be offered to the public is determined'after observing the market response.

7. Appoint a merchant banker holding a valid certificate of registration from SEB1.

8. For the above purpose your company should enter into an agreement with the merchant banker and havi that agreement approved by the Board of Directors or any Committee of the Board of your company.

9. Ensure that a confidentiality clause is incorporated in the Memorandum of Undertaking entered into between the Merchant Banker and your company so that the book may not be assessable to anyone except the issuer and the lead book-runner. [SEBI Clarification XXVII Part B 3(ii)].

10. See that the merchant banker drafts the prospectus giving all the disclosures required by SEBI without giving the offer price of the shares and files it with SEBI. [Clause 11.2 (vi) of the Guidelines].

11. Keep in mind that the book building facility available as an alternative to and to the extent of the percentage of the issue which can be reserved for formal allotment under the Guidelines' and therefore your company will have the option of either reserving the securities for firm allotment or issuini the securities through book building process. [Clause 11.2 (ii) of the Guidelines ].

12. Further keep in mind that the securities available to the public should be separately identified as net offer to the public and the offer through book building process which will be separately identified as placement portion category in the prospectus. [Clauses 11.2 (iii) and (iv)(a) of the Guidelines].

13. See that the underwriter is appointed for the securities issued to the extent of the net offer to the public. [Clause 11.2 (v) of the Guidelines].

14. Ensure that the requirement of minimum 25% of the securities to be offered to the public is followed. [Clause 11.2 (iv) (b) of the Guidelines].

15. Have one of the lead merchant bankers nominated as a Book Runner whose name should be mentioned in the draft prospectus filed with SEBI. [Clause 11.2 (vii) of the Guidelines].

16. Ensure that the Book Runner circulates the aforesaid draft prospectus to the Institutional Buyers who are eligible for firm allotment and to intermediaries eligible to act as underwriters inviting offers for subscribing to the securities. [Clause 11.2 (viii) (a) of the Guidelines].

17. Further ensure that the prospectus circulated among the Institutional Buyers and the underwriters, as mentioned above, indicates the price band within which the securities are being offered for subscription. [Clause 11.2 (viii)(b) of the Guidelines].

18. Ensure that the Book Runner nominated by your company maintains a record of the names and number of securities ordered and the price at which the Institutional Buyers and the underwriters are willing to subscribe to the securities under the placement portion. [Clause 11.2 (ix) of the Guidelines].

19. Note that on receipt of the offers from the Institutional Buyers and the underwriters by the Book Runner in consultation with your company determine the price at which the securities will be offered to the public on the basis of orders received by the Book Runner. [Clause 11.2 (xii) of the Guidelines].

20. While determining the price of the securities to be offered to the public keep in mind that the issue price for the placement portion and offer to the public must be the same. [Clause 11.2(xiii) of the Guidelines].

21. Enter into an underwriting agreement with the underwriter immediately after determination of the price of the securities indicating therein the number of securities as well as price at which the underwriter would subscribe to the securities. [Clause 11.2(xiv) of the Guidelines].

22. Note that the Book Runner nominated by your company will always have an option of requiring the underwriters to the net offer to the public to pay in advance all monies required to be paid in respect of their underwriting comitment. [Clause 11.2(xiv) Proviso of the Guidelines].

23. Further note that in this book building process on determination of the issue price have the prospectus filed with the Registrar of Companies not later than two days from the determination of the issue price. [Clause 11.2(xv) of the Guidelines].

24. Open two different accounts for collection of application money of the securities one for the private placement portion and the other for the public subscription. [Clause 11.2(xvi) of the Guidelines].

25. Ensure that the Book Runner collects from the Institutional Buyers and the underwriters the application forms with the application monies to the extent of the securities proposed to be allotted to them or subscribed by them just a day prior to the opening of the issue to the public. [Clause 11.2 (xvii) of the Guidelines].

26. Make the allotment for the private placement portion on the second day from the closure of the issue. [Clause 11.2(xviii)(a) of the Guidelines].

27. Your company to ensure that the securities allotted under placement portion and public portion are pari passu in all respects may at its discretion have one date of allotment for the placement portion as well as for the public portion which will be the deemed date of allotment for the issue of securities through book building process. [Clause 11.2(xvii)(b) of the Guidelines].

28. In case there is undersubscription in the net offer to the public keep in mind that spillover to the extent of undersubscription will be penrnitted from the placement portion to the net offer to the public portion subject to the condition that preferences should be given to the individual investors. [Clause 11.2(xxi)(a) of the Guidelines].

29. In case of under subscription in the placement portion, keep in mind that the spillover to the extent of under subscription will be permitted from the net offer to the public to the placement portion. [Clause 11.2(xxi)(b) of the Guidelines].

30. Note that your company is allowed to pay interest on the application money till the date of allotment or the deemed date of allotment provided that payment of interest is uniformly given to all the applicants. [Clause 11.2 (XXii) (a) of the Guidelines].

31. Keep in mind that book building should be for the portion other than the promoters contribution and the allocation made to permanent employees of your company and if your company is a new company then the permanent employees of the promoting companies, and the allocation made to shareholders of the promoting companies if your company is a new company and shareholders of group companies of your company. [Clause 11.3.1(iii) of the Guidelines].

32. The above allocation will be made to the extent of percentage specified by SEBI either on a competitive basis or on a firm allotment basis and reservation other than to the categories mentioned in item 28 above will not be permitted. [Clause 11.3.1 (ii) & (iii) of the Guidelines].

33. See that in addition to the appointment of an eligible merchant banker as a book runner as mentioned in item 15 above who will act as the lead book runner, other eligible merchant bankers are appointed to be termed as co-book runners. [Clause 11.3.1(iv) & (v) of the Guidelines].

34. Keep in mind that in case the issuer company appoints more than one book runner, the names of all such book runners who have submitted the due diligence certificate to SEBI may be mentioned on the front cover page of the prospectus and a disclosure to the effect that the investors may contact any of such book runners for any complaint pertaining to the issue should be made in the prospectus after the risk factors. [Clause 11.3.1(v)(a) of the Guidelines]

35. Ensure that the primary responsibility of building the book is with the lead Book Runner and the Book Runner may appoint "Syndicate Members" who will be those intermediaries who are registered with SEBI and who are permitted to carry on the activity as an underwriter. [Clause 11.3.1(vi) and (vii) of the Guidelines].

36. Further ensure that the lead merchant banker files the draft prospectus with SEBI as mentioned in item 10 above containing all the disclosures laid down in Chapter VI of the Guidelines except that of price and the number of securities to be offered to the public. [Clause 11.3.1 (viii) of the Guidelines].

37. Also ensure that the red herring prospectus discloses only the floor price of the securities offered through it does not mention the maximum price or the indicative price brand. [Clause 11.3.1 (viii)(a) of the Guidelines]

38. Further ensure that the Book Runner carries out the modifications/final observations made by SEBI and incorporates them in the draft prospectus after receipt of the draft prospectus from SEBI suggesting modifications to it within twenty one days of filing of the same. [Clause 11.3.1 (x) of the Guidelines].

39. Make an advertisement immediately after receiving the final observation, if any, on the prospectus, in an English National daily with wide circulation, one Hindi National newspaper and a Regional language newspaper with wide circulation at the place where the registered office of your company is situated. [Clause 11.3.1 (xi)(a) of the Guidelines].

40. Ensure that the advertisement as above is issued for a continuous period of three days in the papers mentioned above. The said advertisement must be issued before filing with the Registrar of Companies and there should be a minimum time gap of five days between the statutory public advertisement and the issue opening date. [Schedule XXI 2nd paragraph of the Guidelines].

41. Ensure that the statutory public advertisement contains inter alia the price as well as a table showing the number of securities and the amount payable by investors based on the price determined. [Schedule XXI 2nd paragraph of the Guidelines].

42. Ensure that the advertisement issued, as above, contains the salient features of the final offer document as specified in Form 2A circulated with the application form and must contain the following:-

(i) the date of opening and closing of the bidding (not less than 5 days);

(ii) the method of process of bidding;

(iii) the names and addresses of the syndicate members as well as the bidding terminals for accepting the bids. [Clauses 11.3.1 (xi)(b) and 11.3.4.1 (ii) of the Guidelines].

43. Keep the bid open for atleast 5 days. [Clause 11.3.4.1 (i) of the Guidelines].

44. On the basis of the bids received through syndicate members the Book Runner of your company will determine the issue price of the securities and subsequent to the determination of the issue price, the number of securities to be offered should be determined by dividing issue size by the price which has been determined. [Clause 11.3.1 (xiv) & (xv) of the Guidelines].

45. Note that once the final price is determined of those bidders whose bids have been found to be successful at and above the final price or the cut off price will be entitled for allotment of securities. [Clause 11.3.1(xvi) of the Guidelines].

46. Do not pay any incentive whether in cash or in kind who have become entitled for allotment of securities. [Clause 11.3.1 (xvii) of the Guidelines].

47. Ensure that the bids for sepurities beyond the investment limit prescribed under relevant laws shall not be accepted by the syndicate members from any category of investors. [Clause 11.3.1(xvii)(a) of the Guidelines]

48. Do not forget to have the entire offer fully underwritten by the syndicate members/Book Runner except to the categories mentioned in item 28 above and in the event of the syndicate members not fulfilling their underwriting obligations the Book Runner will be responsible for bringing in the amount devolved. [Clauses 11.3.3 (i) and (iii) of the Guidelines].

49. On determination of the entitlement as mentioned in item 43 above intimate to the investors who are entitled to get the allotment of securities about the number of securities which they are entitled to get the allotment. [Clause 11.3.1 (xviii) of the Guidelines.]

50. File the final prospectus containing all disclosures as per the Guidelines including the price and the number of securities proposed to be issued with the concerned Registrar of Companies. [Clause 11.3.1 (xix) of the Guidelines].

51. If your company has made an issue of 75% of the net offer to public through book building process and 25% at the price determined through book building then keep the offer of 25% of the net offer to the public made at a price determined through book building process open within 15 days from the date of closure of bidding and keep the offer for subscription to the public open for a period of at least 3 working days after completing all the requirements of advertisement and despatch of issue material to all the stock exchanges. [Clause 11.3.5 (ix) (a)(b) of the Guidelines].

52. Keep in mind that during the time when the offer is opened the investors who have received an intimation of entitlement of securities mentioned in item 41 submit the application forms along with the application monies. [Clause 11.3.5 (ix) (c) of the Guidelines].

53. Further keep in mind that other retail individual investors who have not participated in the bidding process or have not received intimation of entitlement of securities as above also make an application. [Clause 11.3.1 (Xxi) and clause 11.3.5 (ix)(d) of the Guidelines].

54. Arrange for collection of the applications by appointing mandatory collection centres depending upon the size of the issue as per the Guidelines [Clause 11.3.1 (xx) of the Guidelines].

55. Make the online, real time graphical display of demand and bid prices at the bidding terminals and see that the book running lead manager ensures the availability of adequate infrastructure for data entry of the bids on a real time basis. [Clause 11.3.1(xx)(a) of the Guidelines]

56. In case your company makes an issue under 100% book-building process then ensure that not less than 25% of the net offer to the public is available for allocation to retail individual investors that is investors applying for up to 1000 securities and not less than 15% of the net offer to the public is available for allocation to non-institutional investors that is investors applying for more than 1000 securities and not more than 60% of the net offer to the public is available for allocation to qualified institutional investors. [Clause 11.3.5(i) of the Guidelines].

57. If there is oversubscription then your company will be allowed to spill over excess subscription from the fixed price portion to the book built portion reserved for allocation to individual investors bidding for tradeable lots to the extent of shortfall in the latter.

58. In case your company makes an issue under 75% book building process and 25% at the price determined through book building then make available in the book built portion not less than 15% of the net offer to the public for allocation to non-institutional investors and not more than 60% of the net offer to the public or allocation to qualified institutional buyers and the balance 25% of the net offer to the public offered at a price predetermined through book building for allocation only to retail individual investors who have either not participated or have not received any allocation in the book built portion. [Clause 11.3.5 (ii) of the Guidelines].

59. In case of undersubscription in any category as above allocate the undersubscribed portion to the bidders in the other categories provided that the undersubscribed portion in the qualified institutional buyer category should not be available for subscription to other categories in case your company has made the issue under clause 2.2.2 or clause 2.2.3 of the Guidelines. [Clause 11.3.5(iv) of the Guidelines]

60. Make the allotment to retail individual and non-institutional investors mentioned in items 52 & 54 on the basis of the proportionate allotment system as laid down in Schedule XVIII of the Guidelines. [Clause 11.3.5 (iii) of the Guidelines].

61. Do not forget to make the allotment within 15 days from the closure of the issue failing which interest @ 15% should be paid to the investors. [Clause 11.3.5 (vi) of the Guidelines].

62. Ensure that the Book Runner maintains the final book of demand showing the result of the allocation process and also maintain records of the book building prices. [Clause 11.3.6 (i) of the Guidelines].

63. Follow the following conditions while carrying out the method and process of bidding in your company's book building process:

(i) Bidding will be permitted only if an electronically linked transparent facility is used. [Clause 11.3.4.1 (iii) of the Guidelines].

(ii) The 'syndicate members' appointed by the Book Runner or the Book Runner himself or Book Runners themselves should be present at the bidding centres so that atleast one electronically linked computer terminal at all the bidding centres is available for the purpose of bidding. [Clause 11.3.4.1 (iv) of the Guidelines].

(iii) The number of bidding centres in case of 75% book building process should not be less than the number of mandatory collection centres specified in clause 5.9 of the Guidelines and in cases of 100% book building process they should be at all the places where the recognised stock exchanges are situated and the norms which are applicable for collection centres will be applicable for the bidding centers also. [Clauses 11.3.4.1 (v)(a) & (b) of the Guidelines].

(iv) Individual as well as qualified institutional investors will place their bids only through the syndicate members who will have the right to vet the bids. [Clause 11.3.4.1 (vi) of the Guidelines].

(v) There should be a standard bidding form to ensure uniformity in bidding and accuracy. [Clause 11.3.4.1 (viii)(a) of the Guidelines].

(vi) The bidding forms should contain information about investors, the price and the number of securities that the investor wishes to bid. [Clause 11.3.4.1 (viii) (b) of the Guidelines].

(vii) The bidding form should be serially numbered at the bidding centres and the date and time should be stamped on it before being issued to the bidder. [Clause 11.3.4.1 (viii)(c) of the Guidelines].

(viii) The number to be stamped on the bidding form could be system generated or stamped with an automatic numbering machine. [Clause 11.3.4.1 (viii) (d) of the Guidelines]

(ix) The bidding form should be issued in duplicate and signed by the investor and countersigned by the syndicate member with one form for the investor and the other for the syndicate member or the Book Runner. [Clause 11.3.4.1 (viii)(e) of the Guidelines].

(x) At the end of each day of the bidding period the demand should be graphically shown on the terminals for information of the syndicate members as well as the investors. [Clause 11.3.4.1 (ix) of the Guidelines].

64. If your company is opting for 75% of net public offer for bidding then it may do the following:

(i) graphically display the demand as aforesaid;

(ii) use electronically linked facility for bidding;

(iii) decide the number of bidding centres;

(iv) fix a minimum bid size for the book built portion."

65. If your company is opting for the same as above then make the allotment in respect of the book built portion in dernaterialised form only.

66. Do not forget to send a minimum of 200 application forms to active member of the Stock Exchange for the securities of your company which are proposed to be listed and 10,000 forms each to every Stock Exchanges should be despatched with Form 2-A and offer document containing the final observations received from SEBI with the issue opening and closing date mentioned in the application form. [Schedule XXI of the Guideliness].

67. Do not forget to send minimum 1,000 offer documents containing the final observations received from SEBI, to each Stock Exchange where the securities of your company are proposed to be listed and minimum 200 offer documents containing the final observations received from SEBI each to every Stock Exchanges. [Schedule XXI of the Guidelines].

68. Ensure that the application forms and offer documents are despatched as aforesaid subject to the condition that a minimum gap of 14 days is maintained between the receipt of these applications and the issue opening date. [Schedule XXI of the Guidelines].

69. Disclose in the offer document either the issue size or the number of securities to be offered to the public subject to compliance with the requirement of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 as modified from time to time.

70. Make additional disclosures in the offer document with respect to the arrangements made for meeting the deficit in the means of financing and the pattern of deployment of excess funds.

71. Fix a minimum bid size for the book built portion.

72. Fix a date of allotment for book-built portion which may be prior to the date of allotment for fixed price portion provided that the date of allotment for book built portion should be deemed to be the date of allotment for fixed price portion for the purposes of dividend and other corporate benefits and the same should be disclosed in the offer document.

73. Ensure that the entire issue is compulsorily underwritten by the syndicate members/book runners irrespective of whether your company is going for 100% or 75% book-building process provided that 60% of the net offer to the public should be mandatorily allotted to the qualified institutional buyers under proviso to clause 2.2.2 or clause 2.2.3 of the Guidelines.[Clause 11.3.3(i) of the Guideiines]

IV. Dematerialisation of Shares

Topic 311

DO YOU WISH TO DEMATERIALISE THE SHARES OF YOUR COMPANY?

1. While going for dernaterialisation of shares one has to keep in mind the following:

(i) The Depositories Act, 1996;

(ii) SEBI (Depositories and Participants) Regulations, 1996;

(iii) SEBI (Custodian of Securities) Regulations, 1996.

2. Determine the number and value of securities to be dematerialise.

3. Keep in mind that the SEBI Guidelines 2000' has made it mandatory for a company to make public or rights issue or an offer for sale of securities in a dematerialised fon-n but allows an option to be given to subscribers/shareholders/investors to receive the security certificates or hold securities in dernaterialised form with a depository. [Clause 2.1.5.1 of the Guidelines].

4. Select a depository and a participant who are holding certificate of registration from SEBI under section 12(1A) of the SEBI Act, 1992.

5. Enter into an agreement with a depository if your company wants to exercise the option to hold its securities, in dernaterialised form, to enable the investor to dematerialise the securities.

6. Adopt the form of such agreement specified in the bye-laws of the depository.

7. Where your company has appointed a Registrar to the Issue or Share Transfer Agent, enter into a tripartite agreement with the Registrar to the Issue or the Share Transfer Agent and the depository in respect of the securities to be declared by the depository as eligible to be held in dernaterialised form.

8. Adopt the form of such agreement given in the bye-laws of the depository.

9. Convene a Board Meeting by giving notices to all the directors of the company as per Section 286 and have above mentioned forms approved before execution by passing necessary resolutions.

10. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-. [Section 286(2)].

11. The Investor who wants to keep his securities in dernaterialised form should also enter into an agreement with the depository through the participant who acts as an agent of the depository and open an account with the depository participant.

12. Adopt the form of the agreement given in the bye-laws of the depository.

13. Before doing so ensure that the depository and the participant has entered into agreement with each other for their respective services.

14. Ensure that the beneficial owner who has entered into an agreement with a participant informs the participant of the details of the certificates of securities which are to be dernaterialised and surrenders those certificates to the participant.

15. Note that where the beneficial owner has appointed a custodian of securities, like Stock Holding Corporation of India Limited then the certificates of securities should be surrendered to the participant through the custodian of securities.

16. On receipt of information as above the participant on its turn will forward the details received from the beneficial owner to the depository and should also confirm to the depository that an agreement has been entered into between the participant and the beneficial owner.

17. Keep in mind that the participant is required to maintain records indicating the names of the beneficial owners of the securities surrendered, the number of securities and other details of the certificate of securities received.

18. Obtain from the participant details of the securities surrendered by beneficial owners along with the certificates of those securities.

19. On receipt of the certificates of securities from the participant, immediately mutilate and cancel them and substitute in your company's records being Register of Members etc., the name of the depository as the registered owner.

20. Send a certificate as to receipt, mutilation and cancellation of certificates of securities to the depository and also to every Stock Exchange where the security is listed.

21. Note that the securities held by a depository will be dematerialised and will be in a fungibfe form.

22. Further note that nothing contained in Sections 153, 153A, 153B , 187B , 187C and 372 will apply to a depository in respect of securities held by it on behalf of the beneficial owners.

23. Further note that a depository will be deemed to be the registered owner for the purposes of effecting transfer of ownership of securities on behalf of a beneficial owner.

24. Also note that the depository as a registered owner will not have any voting rights in respect of securities held by it.

25. Keep in mind that the beneficial owners will be entitled to all the rights and benefits and will be subjected to all the liabilities in respect of their securities held by a depository.

26. Keep in mind that on receipt of a certificate from your company as mentioned in item 19 above, the depository will enter in its records the name of the person who has surrendered the certificate of security as the beneficial owner as well as the name of the participant from whom the depository has received the intimation about the details of the securities surrendered and send an intimation of the same to the participant.

27. Maintain a record of certificate of securities of your company which have been dematerialised.

28. Reconcile the records of dematerialised securities will all the securities issued by your company on a daily basis.

29. Establish continuous electronic means of communication with which your company has entered into an agreement.

30. Give information to the depository about book closures, record dates, dates for the payment of interest or dividend, dates for annual general meetings and other meetings, dates for redemption of debentures, dates for conversion of debentures and warrants, call money dates and such other information at the time and in the manner as may be specified by the depository in its bye-laws or agreement.

31. Obtain information from the depository about the transfer of securities in the name of beneficial owners at such intervals and in such manner as may be specified by the bye-laws of the depository.

32. Make available to the depository copies of the relevant records in respect of securities held by such depository.

33. Note that SEBI issues lists of scrips from time to time for compulsory dematerialised trading which form part of Sensex and Nifty indices.

34. Further note that the choice of scrips is decided on the basis of five parameters being, trading volume of the scrips, institutional holdings, extent of dernaterialisation, incidence of bad delivery problems and the distribution of registrars.

35. Even the Registrar or the Share Transfer Agent of your company may act as a depository participant for your companies shares. [SEBI. (Depositories and Participants) Third Amendment Regulations 1999, dated 21-9-1999 deleted the proviso to sub-clause (x) of clause (b) of regulation 19].

V. Rights Issue

Topic 312

DO YOU WISH TO ISSUE RIGHTS SHARES?

1. See that the rights issue is within the authorised share capital of the company; otherwise complete proceedings to increase the same suitably by following the procedure given in Topic 34.

2. If the rights shares are to be issued out of 'unclassified shares', take steps to amend the capital clause to classify "unclassified" shares as equity/preference shares proposed to be issued.

3. See that such issue is contemplated either after the expiry of two years from the formation of the company or after the expiry of one year from the allotment of shares in that company made for the first time after its formation. [Section 81(1)].

4. Ensure that you have completed/fulfilled the following requirements in respect of your previous issues of the capital:

(i) all refund orders against the previous issues have been despatched to the applicants;

(ii) all shares/debentures certificates have been despatched to the allottees;

(iii) the instrument(s) has/have been listed on the stock exchange(s) mentioned in the letter of offer;

(iv) all the partly paid-up shares have been fully paid or forfeited in manner specified in clause 8.6.2 of the Guidelines.[Clause 2.7.1 of the Guidelines].

5. Please note that no retention of over subscription is permissible. [Clause 8.10.1 of the Guidelines].

6. Ensure that the rights issue is kept open for at least 30 days and is not kept open for more than 60 days. [Clause 8.8.2.1 of the Guidelines].

7. In the case of composite issue, the gap between closure dates of rights issue and public issue, should not exceed thirty (30) days.

8. Note that your company need not make any preferential allotment to any identified person or employee along with rights issue.

9. Your company may, if it so desires make preferential offers to employees or persons who are identified like group companies, their shareholders, financial institutions, etc. independent of rights issue by complying with the provisions of section 81(1A).

10. In the case of composite issue note that reservation to permanent employees/workers and other categories should be computed with reference to the amount of public issue and not the total amount of composite issue.

11. Please note that in the case of rights issues of a listed company, upto Rs. 50 lakhs, including premium if any the issuing company has the option to manage the issue either by itself or by an authorised Merchant Banker and no letter of offer will required to be filed with SEBI.[Clause 2.1.2 of the Guidelines].

12. For rights issue of a listed company above Rs. 50 lakhs at least appoint one Merchant Banker and file the letter of offer through him at least 21 days prior to the filing of the letter of offer with the regional stock exchange. [Clause 2.1.2 of the Guidelines].

13. The maximum number of Lead Managers that could be appointed by your company will depend on the size of the rights issue given in Regulation 19 of the SEBI (Merchant Bankers) Regulations, 1992.

14. Fix the premium, if any, on rights issue in consultation with the Lead Manager(s) to the issue. [See Topic 328].

15. In case your company is an existing listed company and intends to make a composite issue that is, involving rights-cum-public issue, the issue to the public can be priced differentially as compared to issues to the shareholders on rights basis. [Clause 3.4.1 of the Guidelines].

16. Notify to the Stock Exchange(s) with which your company is enlisted without delay the date of the Board Meeting at which the rights issue is due to be considered. [Clause 22(a) of the Standard Listing Agreement].

17. Convene a Board Meeting after giving notice to all the directors of your company as per section 286 and consider the proposal, in principle, for rights issue and the proportion in which and the 'premium, if any, at which the same should be issued.

18. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-. [Section 286(2)].

19. Keep in mind that if the rights shares are to be issued to the members registered on a particular date, then the resolution should be a Special Resolution as under Section 81, as the words "holders of equity shares" have been used to mean not only the registered equity. shareholders of the company but all the holders of the equity shares of the company, whether registered or not.

20. Further note that if, for increase of capital, permission of the General Meeting is required under Articles of Association, then fix up the date, time, place and agenda for the General Meeting at the above-mentioned Board Meeting.

21. Immediately after the Board Meeting, intimate to the Stock Exchange by letter (or if the meeting be held outside the city in which the Stock Exchange is situated, (by telegram) short particulars of any increase of capital by issue of rights shares including the ratio, premium, if any. [Clause 22(a) of the Standard Listing Agreement].

22. Please note that in case you withdraw the rights issue after the announcement of the record date, the regional stock exchange will not permit you to make application for listing of your shares for a minimum period of 12 months from the record date. That is, you cannot make rights/public issue within that period. [Clause 8.7.3 of the Guidelines].

23. Inform Share Transfer Agents and other bodies about the record date and give sufficient time to Transfer Agents to effect all transfers and update the records.

24. Issue notices of the General Meeting with suitable Explanatory Statement, if necessary, not less than 21 days before the date of the General Meeting. [Section 171(1) read with section 173(2)].

25. Hold the General Meeting and pass the resolution.

26. Forward promptly to the Stock Exchange with which your company is enlisted three copies of the notice and a copy of the proceedings of the General Meeting. [Clause 31(c) and (d) of the Standard Listing Agreement].

27. If the resolution passed is a Special Resolution, file the same with Explanatory Statement with the Registrar in Form No. 23 within thirty days of the passing [Section 192] after paying the requisite fee prescribed under Schedule X to the Act.

28. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

29. Fix the date for closure of Transfer Books or fix the record date in consultation with the stock exchanges where your shares are enlisted.

30. If your company is listed on a Stock Exchange, forward draft of proposed letter. of offer (LOO), together with Composite Application Form consisting of form of acceptance for shares offered and application for additional shares, form of renunciation, form of application by renouncee(s) and request for split forms of additional shares, to the Regional Stock Exchange and get it approved before it is finalised in the Board Meeting.

31. File the draft LOO with the concerned Regional Office of SEBI if the issue exceeds Rs. 50 lakhs (including premium, if any) and if the issue does not exceed Rs. 50 lakhs, send the draft LOO for information to Regional Office of SEBI within whose jurisdiction the registered office of your company is situated.

32. If your company is a listed company and the rights issue exceed Rs. 50, lakhs (including premium, if any), the LOO be submitted with SEBI in respect of that right issue provided the guidelines specified below are complied with.

33. Appoint a merchant banker holding a valid certificate of registration issued by SEBI to manage the issue. [Clause 2.1.2 of the Guidelines].

34. Ensure that the said Merchant Banker being the Lead Manager submits LOO to SEBI.

35. See that the Lead Manager, ensures that the letter of offer contains all the matters specified in Section III of Chapter VI of the Guidelines.

36. Ensure that the Lead Manager submits the draft of the Letter of Offer to SEBI six weeks before the issue is scheduled to open for subscription, and the observations/comments, if any are made and modifications, if any, suggested by SEBI within 3 weeks of receipt of such draft are incorporated/complied with by the Lead Manager before filing a copy of the letter of offer to SEBI two weeks before the issue opens for subscription.

37. If no Clarification is asked for within 21 days of filing of LOO, your Company and the Lead Manager can go ahead with the proposed issue. [Clause 2.1.2 proviso of the Guidelines].

38. Further ensure that the Lead Manager submits along with the letter of offer a due diligence certificate to SEBI in the form specified by SEBI in Schedule III of the Guidelines [Clause 5.3.3.1 o the Guidelines].

39. Keep in mind that the Lead Manager submitting the letter of offer is responsible for ensuring compliance with SEBI Rules, Regulations and Guidelines and requirements of other laws, for the time being in force.

40. Please note the provisions of the guidelines above will be in addition to the provisions of the Companies Act, 1956 and the SEBI (Merchant Bankers) Rules and Regulations.

41. Further, these guidelines are in addition to the guidelines, circulars and: Clarifications issued by the Board with regard to rights issue and do not dispense with compliance thereof, save and except those which require the submission of. an offer document, for an issue of securities, on a rights basis, to SEBI.

42. Ensure that the Lead Manager submits to SEBI/Regional Office the draft, LOO before approaching the Stock Exchange for fixing the Record Date for the proposed issue, along with Due Diligence Certificate as specified in Regulation 23 of SEBI (Merchant Bankers) Regulations, 1992 and in Form 'C' of Schedule I thereto.

43. Convene another Board Meeting by giving notice to all the directors of your company as per section 286 and consider and approve the final draft letter of rights and the composite application form and matters in respect thereof, and the date of closing the Register of Members and share transfer books if they are to be closed.

44. Ensure that the date of closing the Register of Members and share transfer books is at least three weeks after the company has obtained the sanction of the shareholders and if your company has decided to close the books, then complete the proceedings in respect thereof vide Topic 230.

45. Forward immediately to the Stock Exchange, if the company is a listed company, a specimen of the letter of offer and make a formal request in writing for admission of the letters of renunciation and coupons, if any, for official dealings on the Stock Exchange along with a copy of the letter from SEBI indicating the observations on the LOO and a certificate from the merchant banker reporting positive compliance of the SEBI guidelines. [Clauses 23 and 24 of the Standard Listing Agreement].

46. Publish in the newspapers the record date fixed for the purpose of the rights issue.

47. Furnish 6 sets of the LOO and composite application form to the concemed stock exchanges prior to their despatch to the shareholders. [Clause 31(b) of the Standard Listing Agreement].

48. Publish advertisement in at least an English National Daily with wide circulation, one Hindi National Paper and a Regional language daily circulated at the place where registered office of your company is situated at least 7 days before the date of opening of the subscription list giving the date of completion of despatch of letters of offer. [Clause 5. 11.1 of the Guidelines].

49. See that the said advertisement indicates the centres other than the registered office of your company where the shareholders who do not receive the same may obtain duplicate copies of application forms. [Clause 5.11.2 of the Guidelines].

50. Where the shareholders have neither received the original composite application forms nor are they in a position to obtain the duplicate forms, they may make the applications to subscribe to the rights on a plain paper. [Clause 5.11.3 of the Guidelines].

51. Ensure that the advertisement contains a format to enable the shareholders to make the application on a plain paper containing necessary particulars like name, address, ratio of right issue, issue price, number of shares held, ledger folio numbers, number of shares entitled and applied for, additional shares if any, amount to be paid along with application, particulars of cheque etc. to be drawn in favour of the company Account-Rights issue. [Clause 5.11.4 of the Guidelines].

52. See that the said advertisement also mentions that such applications should be signed by shareholder/all the joint shareholders and be directly sent by Registered Post together with the application moneys to the company's designated office/Registrars to the Issue at the address given in the advertisement. [Clause 5.11.5 of the Guidelines].

53. Also see that the said application mentions that the shareholders making the applications otherwise than on the standard form shall not be entitled to renounce their rights and should not utilise the standard form for any purpose including renunciation even if it is received subsequently. [Clause 5.11.6 of the Guidelines].

54. The said advertisement should also mention that if he violates any of these requirements he shall face the risk of rejection of both the applications. [Clause 5.11.7 of the Guidelines].

55. Issue letters of rights along with composite application Forms within six weeks of the record date, or the date or reopening of the transfer books after their closure, to all the members entitled to rights shares. [Clause 23(f) of the Standard Listing Agreement].

56. Please note that bulk mailing of registered LORs can be done through Corporate Post Offices (Mumbai and Delhi).

MUMBAI:

(i) Murnbai G.P.O.

(ii) Kalbadevi P.O.

(iii) Dadar P.O.

DELHI:

Corporate Post Office,

Foreign Post Office Building.

57. Ensure that the Registrars to the Issues tender bulk registered mail to the designated post offices.

58. If your company is listed on a recognised Stock Exchange then the shareholders will have four weeks' time from the date of opening of the rights issue to record their interest and exercise their rights. [Clause 23(e) of the Standard Listing Agreement].

59. Keep in mind that if the Articles do not provide otherwise, the offer shall be a renounceable one and the said letter shall mention this fact also. [Section 81(1)(c)]. A person cannot exercise the right of renunciation a second time. [Section 81(2)].

60. Make arrangements for acceptance of the application moneys with your bankers and stock exchanges at the notified centres.

61. Open a specific bank account for keeping subscription received against rights issue.

62. Ensure that the Lead Managers submit 3-Day Post Issue monitoring report and 50-Day Post Issue monitoring report in the Formats prescribed by the guidelines [Clause 7.2.1.2 of the Guidelines]. See Topic 314.

63. Please note that the above Report(s) is/are to be submitted to SEBI in duplicate within 3 working days from the due date either by Registered Post or by delivery at the counter of SEBI on any working day between 2.30 p.m. and 5.30 p.m.

64. Further ensure that the Lead Managers send a copy of the Reports as aforesaid to SEBI Head Office in Mumbai even in case the offer document is dealt with any of the regional offices of SEBI. [Clause 16.2.3.1 (c) of the Guidelines].

65. Please note that your company cannot utilise the money deposited in the said account, nor allot shares, until and unless you have received from the concemed Regional Stock Exchange(s), (or if proposed to be listed on more than one stock exchange) from each of the stock exchanges concerned, approval for utilisation and allotment.

66. Note that utilisation of funds collected against rights issue will be permitted by the Regional Stock Exchange on being satisfied that the minimum 90% subscription has been received. [Clause 8.19.1 of the Guidelines].

67. Complete other formalities such as refund of excess application money, issue of allotment letters, filing of allotment return, issue of share certificates, making of entries in various registers, etc.

68. If your company is listed on a recognised Stock Exchange, make an application in the prescribed form to the Stock Exchange for listing the new securities which must be accompanied by the supporting documents, an appropriate Analysis Form and a New Issues Statement.

69. Please note that if the instrument of transfer of shares has been delivered to the company but the same was not registered till the date of closure of register of members, the company should keep in abeyance the offer of rights shares relating to the shares involved in the transfer.

70. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)]

71. Keep in mind that your company cannot make any further issue of capital in any manner during the period commencing from the submission of offer document to SEBI for rights issue, till the securities referred to in the offer document have been listed or application moneys refunded on account of nonlisting or undersubscription, etc. [Clause 8.7.1 of the Guidelines]

72. Do not issue rights shares if your company has any conversion FCDs or PCDs pending unless your company extends similar benefits to the holders of FCDs or PCDs through reservation of shares in proportion to such convertible part of FCDs or PCDs [Clause 8.7.2 of the Guidelines].

73. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 and has kept in abeyance if any rights shares as per paragraph 22 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso).

Topic 313

DO YOU WISH TO DRAFT LETTER OF OFFER FOR RIGHTS ISSUE?

1. Please note that while the issuer company is primarily responsible for the correctness, adequacy and disclosure of all information in the Letter of Offer (LOO), the Lead Manager is expected to ensure that your company discharges the responsibility adequately.

2. Draft the LOO in consultation with the concerned Lead Manager. It should fulfil the requirements and should contain disclosures as specified under Section I of Chapter VI of the Guidelines. [Clause 63.8 of the Guidelines].

3. Ensure that the LOO contains as for as possible disclosures given in Section III of Chapter VI of the Guidelines and the front outer cover page should contain the following details:

(i) The words 'Letter of Offer'.

(ii) Name of the company and registered office address, along with telephone number and fax number and E. mail address.

(iii) The nature, number, price and amount of the instruments offered.

(iv) Highlights of the Risk Factors.

(v) Issue opening date.

(vi) Name and address of only the Lead Merchant Banker who files the document with SEBI along with the telephone number and fax number and E. mail address.

(vii) Issuer's absolute responsibility clause;

(viii) Credit rating if applicable.

(ix) Names of the stock exchanges where listing of the rights shares will be done. [Clause 6.39.1 read with 6.2 of the Guidelines]

4. Ensure that front cover page of the letter of offer of rights issue is white and no patterns or pictures are printed on this page and the back inside cover page and back outside cover page is in white and black. [Clauses 6.2.1.1(a) and 6.2.4.1 of the Guidelines].

5. Ensure further that the cover page paper of the letter of offer is of adequate thickness, preferably minimum 100 gm, quality in pursuance of international practice. [Clause 6.2.1.1 (b) of the Guidelines].

6. Ensure further that the index to the letter of offer appears on its front inside cover page. [Clause 6.2.2.1 of the Guidelines].

7. Ensure that in inner cover pages other the "risk factors" are printed in clear readable font, preferably of minimum point 10 size on page i and, if need be should continue on subsequent pages ii, iii, etc., as distinct from the page numbers of the offer document proper which would run as 1, 2, 3, etc. in addition to forming part of the offer document. [Clause 6.2.3.1 of the Guidelines].

8. Keep in mind that any 'notes' required to be given prominence should appear immediately after the "Risk Factors" wherever they appear. [Clause 6.2.4.2 of the Guidelines].

9. Ensure that models celebrities fictional characters, landmarkers, or caricatures or the like are not displayed or form part of the LOO. [Clause 9.1.7 of the Guidelines].

10. The format of the LOO should conform to the disclosures prescribed in Form 2A of the Companies (Central Government's) General Rules and Forms, 1956. [Form 2A lay down the format of 'Abridged Prospectus'].

11. If the issue exceeds Rs. 50 lakhs including premium, the LOO should be in the format specified in section III of Chapter VI of the Guidelines .

12. Also furnish the following items as are specified in Schedule II of the Companies Act, 1956:

Clause 1(d) Provisions of sub-section (1) of section 68A of'the Companies Act, 1956 relating to punishment for fictitious applications. [Clause 6.40.7 of the Guidelines].

Clause l(f) Declaration about the issue of allotment letters/refunds within a period of 7 weeks and interest in case of delay in refund at the prescribed rate under section 73(2)/(2A). [Clause 6.40.8 of the Guidelines].

Clause l(l) a statement by the board of directors stating that

(i) all monies received out of issue of shares, or debentures to public shall be transferred to a separate bank account other than the bank account referred to in sub-section (3) of section 73; [Clause 640.9 of the GuidelineS3].

(ii) details of all monies utilised out of issue referred to in subitem (i) shall be disclosed under an appropriate separate head in the Balance Sheet of the company indicating the purpose for which such monies had been utilised; and

(iii) details of all unutilised monies out of issue of shares or debentures, if any, referred to in sub-item (i) shall be disclosed under an appropriate separate head in the Balance Sheet of the company indicating the form in which such unutilised monies have been invested.

Clause V(d) Names, addresses and occupation of non-whole-time directors (giving their directorship in other companies).

Clause VII(a) Outstanding litigation. [Clause 649 of the Guidelines].

Clause VII(c) Any material development after the date of the latest balance sheet and its impact on perfomance and propects of the company. [Clause 6.48.1 of the Guidelines].

Part II of Schedule II:

Clause A.2 Expert opinion obtained if any. [Clause 6.50 of the Guidelines].

Clause A.3 Change, if any, in directors and auditors during the last three years and reasons thereof. [Clause 6.44. 10 of the Guidelines] .

Clause C.9 Option to subscribe. [Clause 6.51.1 of the Guidelines].

Clause C.15 Material contracts and time and place of inspection. [Clause 6.51.2 of the Guidelines].

13. Incorporate the minimum subscription clause in the LOO for non underwritten rights issue as per clause 6.40.11 and for underwritten rights issue as per clause 6.40.12 of the guidelines. [Clause 6.40.10 of the Guidelines].

14. Mention in the LOO the following also:

(i) Capital structure of your company;

(ii) Terms of the present rights issue;

(iii) Particulars of the rights issue;

(iv) Details of your company its management and the project;

(v) Financial performance of the company for the last 5 years; and

(vi) Working results of the company under specific heads mentioned in the Guidelines. [Clauses 6.41, 6.42, 6.43, 6.44, 6.45, 6.46 and 6.47 of the Guidelines].

(vii) Particulars in regard to the listed companies under the same management which made any capital issues in the last 3 years;

15. Ensure that the directors of your company gives an undertaking in the LOO as per clause 6.52 of the Guidelines.

16. Keep in mind that general permission has been granted by the Reserve Bank of India for allotting rights shares to non-resident Indian or overseas corporate bodies shareholders, under section 6(3)(b) of the Foreign Exchange Management Act, 1999 subject to certain conditions and the right shares so acquired will also be subject to same conditions regarding repatriability as are applicable to original shares. [Para 10.6 of the Foreign Exchange Management Manual].

Topic 314

DO YOU WISH TO SUBMIT PERIODICAL REPORTS TO SEBI ON RIGHTS ISSUE?

1. Please note that the post issue Lead Merchant Banker to the issue is responsible for submitting to SEBI the following two post-issue reports irrespective of the level of subscription as per formats specified in Schedule XVI of the Guidelines:

(a) 3-Day Post-Issue Monitoring report;

(b) 50-Day Post-Issue Monitoring report,

[Clause 7.2.1.2 of the Guidelines].

2. Ensure that the Lead Merchant Banker responsible for post-issue enclose certificate from the refund banker stating that the amount of refund due from the company to investors is deposited in separate account giving details of the total amount deposited in the account and date of deposit. [Schedule XVI of the Guidelines]

3. Further ensure that the Lead Manager(s), giving the information furnished in the report are correct after verifying the same from your own company and the Registrars to the issue. [Schedule XVI of the Guidelines].

4. Have the reports (in duplicate) submitted by Lead Manager within 3 working days from the due dates to SEBI at its Regional Office where the offer document has been dealt with and also at its Head Office, Mumbai. [Clause 16.2.3.1 (b) of the Guidelines].

5. Keep in mind that the due date for the 3-Day Post Issue Monitoring Report will be the 3rd day from the date of closure of subscription of the issue and the due date for the 50-Day Post Issue Monitoring Report will be the 50th day from the date of closure of subscription of the issue. [Clause 7.2.1.2 of the Guidelines].

6. Ensure that the reports are submitted either by registered post, or delivered at the counter of SEBI on any working day between 2.30 p.m. and 5.30 p.m. at respective regional offices/head office at the addresses given in Schedule XXII to the Guidelines. [Clause 16.2.3.1 (a) of the Guidelines].

7. Please note that failure to surnit the reports within the stipulated time limits would entail appropriate action under the SEBI (Merchant Bankers) Rules/Regulations, 1992.

8. Further note that one penalty point advice would be issued for delayed submission/non-receipt of one post-issue report and action would be taken under the Regulations for awarding of 4 or more penalty points. [Clause 16.5.1 (a) & (b) of the Guidelines].

VI. Bonus Share

Topic 315

DO YOU (AN EXJSTING LISTED COMPANY) WISH TO ISSUE BONUS SHARES?

1. Ensure that there is a provision in the Articles permitting issue of bonus shares by capitalisation of reserves, etc. If there is no such provision, alter them suitably vide Topic 26. [Clause 15.1.7 of the Guidelines].

2. See that the expanded capital after the issue is within the authorised share capital of the company. Otherwise, complete the proceedings to increase the authorised capital suitably vide Topic 34. [Clause 15.1.8 of the Guidelines].

3. Ensure that there is no default in payment of interest or principal in respect of (i) fixed deposits; and (ii) interest on existing debentures or principal on redemption thereof. [Clause 15.1.5 (a) of the Guidelines].

4. Ensure that there is no default in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus wagcs including minimum wages, compensation to workmen, contract labour payments, etc. and that you have sufficient reason to believe so. [Clause 15.1.5 (b) of the Guidelines].

5. In case the share capital of the company consists of any partly paid-up shares, make them fully paid-up before issue of bonus shares. [Clause 15.1.4 of the Guidelines].

6. Ensure that the bonus issue is not made within 12 months of your public issue or rights issue, if any.

7. Ensure strict compliance with the following financial parameters for determining the quantum of the bonus issue:

(i) that the Bonus issue is made out of free reserve built out of the genuine profits or share premium collected in cash only; [Clause 15.1.1 of the Guidelines].

(ii) that Reserves created by revaluation of fixed assets or without accrual of cash resources are not capitalised; [Clause 15.1.2 of the Guidelines].

8. In the case of unlisted companies going public for the first time, issue bonus shares to the promoters out of free reserves built out of the genuine profits or share premium collected in cash as this is only allowed to be included for the purposes of reckoning minimum promoters' contribution; in other words, where such bonus shares have been issued out of revaluation reserves or reserves with out accrual of cash resources during the preceding 3 accounting years, the same will not be considered eligible for reckoning promoters' contribution.

9. Ensure that the bonus issue after any public/rights issue does not dilute the value or rights of the holders of fully or partly convertible debentures.

10. For the aforesaid purpose make adequate provisions to extend similar benefit to the holders of such FCDs/PCDs through reservation of shares in proportion to such convertible part of FCDs or PCDs. SEBI [Clause 15.1 (a) of the Guidelines].

11. Ensure that shares so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the bonus issues were made. [Clause 15.1 (b) of the Guidelines].

12. Department of Company Affairs vide Circular No. 9/94, dated 6-9-1994 has advised existing private/closely held and unlisted companies not to issue bonus shares out of reserves created by revaluation of fixed assets.

13. Convene a Board Meeting after giving notice to all the directors of the company as per Section 286 to consider the issue of bonus shares and for taking necessary steps in that regard, including fixing the date of closure of books, in consultation with Regional Stock Exchange. [Clause 16 of the Standard Listing Agreement].

14. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-.' [Section 286(2)].

15. Please note that the bonus issue should be made within a period of 6 months from the date of approval of the Board of Directors thereof and your comgany has no option of changing that decision. [Clause 15.1.6 of the Guidelines ].

16. Issue notice of closure of register of members in at least one English newspaper and one in the principal language of the district/region in which the company's registered office is situate. [Section 154].

17. Keep in mind that permission of RBI if any required under section 6(3)(b) of FEMA 1999 should be obtained to allot bonus shares to NonResident Indians.

18. Convene another Board Meeting by giving notice to all the directors of your company as per section 286 to fix up the date, time, place and agenda for holding a General Meeting to pass an Ordinary Resolution, or a Special Resolution, if the Articles so require, to issue bonus shares, taking care to specify the manner of consolidation of fractional shares, if any.

19. Ensure that the management's intention regarding the rate of dividend to be declared in the year immediately after the bonus issue is indicated in the resolution.

20. Because of the use of the words 'Holders of equity shares' used in Section 81, it would be advisable to always pass a Special Resolution for issuing them to the members registered as on a particular date, proportionately.

21. Issue notices in writing at least twenty-one days before the date of the General Meeting with suitable Explanatory Statement. [Section 171(1) read with section 173(2)].

22. Hold the General Meeting and pass the resolution.

23. If the resolution passed in a Special Resolution, file the same with the Registrar of Companies in Form No. 23 within thirty days. [Section 192].

24. Please keep in mind that if default is made in complying with the aforesaid requirement, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

25. Publish a notice of Record Date for the purpose of determining the eligibility of members for bonus shares.

26. Convene again a Board Meeting by giving notice to all the directors of your company as per section 286 and complete proceeding regarding allotment of the bonus shares in the proportion and in the manner as mentioned in the resolution, and as approved by the Stock Exchange.

27. Complete all other proceedings for the issue of share certificates [vide Topic 365] making necessary entries in various registers.

28. Please note that share certificates to be issued pursuant to bonus issue should be issued as far as possible, in marketable lots and, in respect of the balance, in denominations of 1, 2, 5, 10, 20-50 shares. [Clause 6.5.2.3 of the Guidelines].

29. File within thirty days of the date of allotment of bonus shares with the Registrar of Companies a return in Form No. 2 after paying the requisite fee prescribed under Schedule X to the Companies Act, 1956 and in accordance with rule 22(1) of the Companies General Rules & Forms, 1956. Also attach with this form a certified true copy of the General Meeting Resolution. [Section 75(1)(e)(i)].

30. Inform the Stock Exchange immediately after a formal decision is taken to issue bonus shares, the date of the Board Meeting at which the bonus issue w in be recommended should also be intimated. [Clause 19 of the Standard Listing Agreement].

31. Immediately after the Board Meeting, do the following:

(i) the Stock Exchange should be apprised of the decision of the Board about the bonus issues;

(ii) intimate to the Stock Exchange short particulars of the increase of capital by issue of bonus shares. [Clause 22(a) of the Standard Listing Agreement].

32. Promptly forward to the Stock Exchange three copies of notices sent to the shareholders a copy of the proceedings of the General Meeting if the company is listed on a recogpised Stock Exchange. [Clause 31(c) and (d) of the Standard Listing Agreement].

33. The Stock Exchange should be given a notice of 42 days informing it about the closure of share transfer books and the recording date. Before allotment, a prescribed form duly filled in, should be filed with the Stock Exchange. [Clause 16 of the Standard Listing Agreement].

34. Please note that all notices and resolutions of the Board and General Meetings relating to the issue of bonus shares should be forwarded to the Stock Exchange. [Clause 31 of the Standard Listing Agreement].

35. Apply to the Stock Exchange for enlistment of bonus shares together with provisional documents relating thereto. [Clause 24(a) of the Standard Listing Agreement].

36. Please note that under clause (b) of Section 206A if the instrument of transfer of shares has been delivered to the company but the same was not registered by it till the date of closure of register of members, the Company should keep in abeyance the offer of bonus shares relating to the shares involved in the transfer.

37. Forward to SEBI compliance report to the effect that the Guidelines laid down by it have been duly complied with. The compliance report should be signed by the company and the statutory auditors or company secretary in practice.

38. Do not issue bonus shares during the period commencing from the submission of offer document to SEBI for public or rights issue till the securities referred to in the said offer document have been listed or application money's refunded on account of non-listing or undersubscription, etc. [Clause 8.7.1 of the Guidelines].

39. Note that if your company's paid-up share capital is less than Rs. 50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 and has kept in abeyance if any bonus shares pending registration of transfer of shares in compliance with the provisions of the Act, as per paragraph 22 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.[Section 383-A(1) proviso].

Topic 316

DO YOU WISH TO ISSUE BONUS SHARES WITH DIFFERENTIAL VOTING RIGHTS ?

1. Keep in mind that as per section 86(a) (ii) share capital of a company limited by shares can consists of equity share capital with differential rights as to dividend, voting or otherwise in accordance with the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001.

2. Consult the Articles of Association of your company to ascertain whether they permit issue of bonus shares with differential rights and if not then complete proceedings to alter them accordingly vide Topic 26.

3. See that the expanded capital after the issue is within the authorised share capital of your company. Otherwise, complete proceedings to increase the authorised share capital suitably vide Topic 34.

4. Before issuing bonus shares with differential rights as to dividend, voting or otherwise check the following:

(i) your company must be a company limited by shares;

(ii) your company must have distributable profits in terms of section 205 for the three financial years preceding the year in which it decides to issue such shares;

(iii) your company has not defaulted in filing annual accounts and annual returns for the three financial years immediately preceding the financial year in which it decides to issue such shares;

(iv) your company has not failed to repay its deposits or interest thereon on due date or redeem its debentures on due date or pay dividend;

(v) your company has not been convicted of any 6ftence arising under the SEBI Act,1992, the Securities Contracts (Regulation) Act, 1956, the Foreign Exchange Management Act, 1999;

(vi) your company has not defaulted in meeting investors' grievances. [Rule 3(1) to (6)].

(vii) shares to be issued with such differential rights must be equity shares only.

5. Before issue of bonus shares with differential voting rights, ensure that there is no default in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus, wages, including minimum wages, compensation to workmen, contract labour payments etc.

6. Also ensure strict compliance with the following financial parameters for determining the quantum of the issue of bonus shares with differential voting rights:

(a) that the bonus issue of shares with differential voting rights is made out of free reserves of your company built out of the genuiiie profits or share premium collected in cash only;

(b) that reserves created by revaluation of fixed assets are not utilised for this purpose.

7. Convene a Board Meeting after issuing notices to the directors of the company as per Section 286 to decide about the issue of bonus shares with differential rights as to voting, dividend or otherwise and to fix up the date, time, place and agenda for convening a General Meeting and to pass an Ordinary or Special Resolution as the case may be for the same. [Section 94(1)(a) &(2)].

8. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine upto Rs.1000/-. [Section 286(2)].

9. If the shares of your company are listed with any of the recognised Stock Exchange, then immediately after the aforesaid Board Meeting intimate to the concerned,Stock Exchange by letter or telegram short particulars of the proposed increase of paid-up share capital of your company. [Clause 22(c) of the Standard Listing Agreement].

10. Please note that the bonus issue of shares with differential voting rights should be made within a period of 6 months from the date of approval of your company's Board of Directors.

11. Issue notices of closure of register of members in at least one English newspaper and one in the principal language of the district/region in which the company's registered office is situated. [Section 154].

12. Keep in mind that permission of RBI if any required under section 6(3)(b) of FEMA 1999, should be obtained to allot bonus shares with differential voting rights to Non-Resident Indians.

13. Issue notices in writing at least twenty-one days before the date of the General Meeting [Section 171(1)] with suitable Explanatory Statement. [Section 173(2)].

14. If your company is a listed public company then ensure that it obtains the approval of its shareholders through postal ballot. [Rule 3(8)].

15. Ensure that the aforesaid notice of the General Meeting at which the resolution is proposed to be passed is accompanied by an Explanatory Statement stating in particular the following:

(a) the rate of voting which the equity share capital with differential voting right shall carry;

(b) the scale in proportion to which the voting rights of such class or type of shares will vary;

(c) the company shall not convert its equity share capital with voting rights into equity share capital with differential voting rights and the shares with differential voting rights into equity share capital with voting rights;

(d) the shares with differential voting rights shall not exceed 25% of the total share capital issued;

(e) that a member of the company holding any equity share with differential voting rights shall be entitled to bonus shares, rights shares of the same class;

(f) the holders of the equity shares with differential voting rights shall enjoy all other rights to which the holder is entitled to excepting right to vote as indicated in (a) above. [Rule 3(9)]

16. Hold the General Meeting and pass the Ordinary Resolution by simple majority or the Special Resolution by three fourths majority [Section 189] as the case may be.

17. If the shares of your company are listed with any of the recognised Stock Exchange, then forward three copies of the notice and a copy of the proceedings of the General Meeting to the Stock Exchange. [Clause 31(c) and (d) of the Standard Listing Agreement].

18. File the Special Resolution,j with the relative Explanatory Statement with the concerned Registrar of Companies in Form No.23 within thirty days, [Section 192(4) (a)], after paying the requisite fee prescribed under Schedule X of the Companies Act, 1956, either by cash, demand draft or treasury challan. [Rule 22].

19. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine of up to Rs.200/- for every day during which the default continues. [Section 192(5)].

20. Publish a notice of Record Date for the purpose of determining the eligibility of members for bonus shares with differential voting rights.

21. If the shares of your company are listed with any of the recognised Stock Exchange, then give notice to the Stock Exchange 42 days in advance informing about the closure of share transfer books and the recording date. Before allotment, a prescribed form duly filled in should be filed with the Stock Exchange. [Clause 16 of the Standard Listing Agreement].

22. Convene another Board Meeting by giving notice to all the directors of your company as per section 286 and complete proceeding regarding allotment of the bonus shares in the proportion and in the manner as mentioned in the resolution and as approved by the Stock Exchange where your company's shares are listed.

23. Complete all other proceedings for the issue of certificates of shares with differential voting rights making necessary entries in various registers.

24. Make necessary changes in every copy of the Memorandum and Articles of Association and in all other papers and documents immediately after the paidup share capital is increased.

25. Please keep in mind that if at any time the company issues any copies of the Memorandum and Articles of Association without making the necessary changes therein, the company and every officer of the company who is in default will be punishable with fine up to Rs.1000/- for each copy so issued. [Section 40(2)].

26. Maintain a register as required under section 150 containing the particulars of differential rights to which the holder is entitled. [Rule 4].

27. Note that if your company's paid-up share capital is less than Rs. 50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued bonus shares with differential voting rights during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

VII. Preferential Issue to Select Group

Topic 317

DO YOU WISH TO MAKE PREFERENTIAL ISSUE OF SHARES OTHER THAN OUT OF PUBLIC ISSUE TO ANY SELECT GROUP OF PERSONS?

1. Note that the norms set out hereinbelow are applicable to allotment of shares on preferential basis other than out ofpublic issue by a listed company.

2. Fix the price of shares at a price not less than the higher of the following:

(i) The average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the six months preceding the relevant date:

(ii) the average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date. [Clause 13.1.1.1 of the Guidelines].

3. Note that "Relevant date" means the date thirty days prior to the date of which the meeting of the general body of shareholders is convened, in terms of section 81(1A) of the Companies Act, 1956 to consider the proposed issue. [Clause 13.1. 1.1 Explanation (a) of the Guidelines]

4. Further note that "Stock exchange" means any of the stock exchanges on which the shares are listed and on which the higheit trading volume in respect of the shares the company has been recorded during the preceding six months prior to the relevant date. [Clause 13.1.1.1 Explanation (b) of the Guidelines].

5. Please note that for the purpose of item 2 above, the high and low prices quoted at the stock exchange in which the highest trading volume in respect of your shares was recorded should be taken into account. [Clause 13.1.1.1 Eaplanation (c) of the Guidelines].

6. If preferential allotment is to be made to Foreign Institutional Investors/OCBs/NRIs ensure that -

(a) the holding of single FII does not exceed 10% of your total equity share capital;

(b) the aggregate holdings of all the FIIs do not exceed 40% of your total equity share capital;

(c) the aggregate holdings of OCBs, PIOs and NRIs do not exceed 10% of your total equity share capital as the case may be. [Clause 13.6.1 of the Guidelines].

7. Obtain the prior approval of the Reserve Bank of India under FERA for allotment of shares on the basis mentioned at item 6 above by making an application to

The Controller

Exchange Control Department

Foreign Investment Division II

Reserve Bank of India

Central Office

Mumbai-400 023.

8. Obtain a certificate from your statutory auditors to the effect that the preferential issue is made in accordance with the requirements of the relevant Guidelines. [Clause 13.5.1 (a) of the Guidelines].

9. Lay copies of the auditors certificate before the meeting of the shareholders at which the proposal is to be considered. [Clause 13.5.1 (b) of the Guidelines].

10. Convene a Board Meeting after giving notice to all the Directors of the company as per section 286 to decide about the issue of shares to select group on a preferential basis in terms of section 81(1A) and to fix up the date, time, place and agenda for calling a General Meeting to pass a Special Resolution.

11. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-.[Section 286(2)].

12. If the shares of your company are listed with any of the recognised Stock Exchanges, then immediately after the Board Meeting intimate to the concerned Stock Exchange by letter or by telegram short particulars of such alteration of share capital. [Clause 22(a) of the Standard Listing Agreement].

13. Issue notices in writing at least twenty-one days before the date of the General Meeting proposing Special Resolution with suitable Explanatory Statement. [Section 171(1) read with Section 173(2)].

14. Ensure that the aforesaid Explanatory Statement contains the objects of the issue through preferential offer, intention of promoters/directors/key management persons to subscribe to the offer, shareholding pattern before and after the offer, proposed time within which the allotment will be complete and the identity of the proposed allottees and the percentage of post-preferential issue capital that may be held by them. [Clause 13.1A of the Guidelines]

15. Hold the General Meeting and pass the Special Resolution by three fourths majority.

16. Forward three copies of the notice and a copy of the proceedings of the General Meeting to the Stock Exchange with which the shares of pur company are listed. [Clause 31(c) and (d) of the Standard Listing Agreement].

17. If the resolution passed is a Special Resolution, file the same with concemed Registrar of Companies in Form No. 23 within thirty days of the passing [Section 1921 after paying the requisite fee prescribed under Schedule X to the Companies Act, 1956, either in cash, demand draft or treasury challan. [Rule 22].

18. Please keep in mind that if default is made in complying with the aforesaid requirement, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

19. Ensure that action on the general body resolution of Designated Financial Institution is completed within 3 months of the date of passing that resolution and the equity. shares and securities convertible into equity shares at a later date, allotted in terms of the aforesaid resolution should be made fully paid up at the time of allotment provided that payment in case of warrants should be made in terms of clause 13.1.2.3 of the Guidelines mentioned above. [Clauses 13.4.1 & 13.4.2 of the Guidelines].

20. Please note that if the resolution is not acted upon within the said period of 3 months, a fresh consent of the shareholders is required to be obtained for making the preferential issue. [Clause 13.4. 1(b) of the Guidelines].

21. Keep in mind that the shares allotted on preferential basis to promoters or promoter group only are subject to lock-in-period of 3 years from the date of allotment. [Clause 13.3.1 (a) of the Guidelines].

22. Also keep in mind that not more than 20% of the total capital of your company including capital brought in by way of preferential issue should be subject to lock-in of 3 years from the date of allotment. [Clause 13.3.1 (b) of the Guidelines].

23. Further keep in mind that in addition to aforesaid instruments allotted on preferential basis to any person including promoters/promoters group should be locked-in for a period of 1 year from the date of their allotment except for such allotments on preferential basis which involve swap of equity shares/securities convertible into equity shares at a later date for acquisition.r, [Clause 13.3.1(c) of the Guidelines]

24. Note that the Shares so allotted should be superscribed with the words "NOT TRANSFERABLE FOR THREE YEARS WITH EFFECT FROM _____________ [Clause 4.17.1 (a) of the Guidelines].

25. Please note that the locked in shares can be transferred to and amongst promoter/promoter group subject to compliance of lock-in in the hands of transferees for the remaining period. [Clause 13.3.2 of the Guidelines].

26. Further note that in the event of the initial public offer being at a premium, and if the rights under warrants or other instruments have been exercised within the twelve months prior to such offer, the resultant shares will not be taken into account for reckoning the minimum promoter's contribution and further, the same will also be subject to lock-in, as per the existing guidelines.

27. File a return of allotment made to a select group on preferential basis in Form No. 2 within 30 days from the date of allotment, with necessary details and enclosures [Section 75] with the concerned Registrar of Companies after paying the requisite fee" as prescribed under Schedule X to the Companies Act, 1956 either in cash, or treasury challan. [Rule 22].

28. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

29. Note that the re(pirement of preferential issue to select group as mentioned in the Guidelines will not be applicable in the following cases:

(i) where further shares are allotted in pursuance to the merger and amalgamation scheme approved by the High Court.

(ii) where further shares are allotted to a person/group of persons in accordance with the provisions of rehabilitation packages approved by BIFR.

(iii) where further shares are allotted to All India Public Financial Institutions in accordance with the provision of the loan agreements signed prior to August 4, 1994. [Clause 13.7.1 of the Guidelines].

30. Obtain certificate from your company's statutory auditors' to the effect that the preferential issue is being made in accordance with the requirements contained in the Guidelines 17 and lay before the general meeting convened to consider the proposed issue copies of the said auditors' certificate. [Clause 13.5 of the Guidelines]

31. Disclose under an appropriate head in the balance sheet of your company the details of all monies utilized out of the preferential issue proceeds indicating the purpose for which such monies have been utilised. [Clause 13.5A of the Guidelines]

32. Disclose also under a separate head in the balance sheet of your company the details of unutilised monies indicating the form in which such unutilised monies have been invested. [Clause 13.5A of the Guidelines]

33. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

Topic 318

DO YOU WISH TO MAKE PREFERENTIAL ISSUE OF WARRANTS/CONVERTIBLE DEBENTURES OTHER THAN OUT OF PUBLIC ISSUE TO ANY SELECT GROUP OF PERSONS?

1. Note that the norms set out hereinbelow are applicable to preferential allotment of fully convertible debentures (FCDs) or partly convertible debentures (PCDs) or any other instruments which would be converted into or exchanged with equity shares at later date, other than out ofpub.lic issue by a listed company on private placement basis. [Clause 13. 0 of the Guidelines]

2. Please note that your company has two alternatives set out at items 3 and 4 below for pricing of the issue.

(a) Fix the price of shares arising out of warrants issued on preferential basis with an option to apply for and be allotted shares at a price not less than higher of the following:

The average of the weekly high and low of the closing prices quoted on the stock exchange during the 6 months, OR during the 2 weeks, preceding 30 days of the date of the general meeting in which consent of the shareholders to the proposed preferential issue is to be obtained.

(b) For the purpose of (a) above you should take into account the high and low prices quoted on the stock exchange in which the highest trading volume in respect of your shares was recorded during the relevant period. [Clause 13.1.2.1 of the Guidelines].

4. As an alternative to fixing the price as at item 3 above, you can fix the price of the resultant shares to be allotted at a future date (arising out of conversion of debentures or other convertible instruments) at a price not less than the higher of the following:

The average of the weekly high and low of closing prices quoted on the relevant stock exchange [as in 2 (b) above] during the 6 months OR during the 2 weeks preceding 30 days of the date on which the holder of warrant or convertible debenture becomes entitled to apply. [Clause 13.1.3.1 of the Guidelines].

5. If the price of shares arising out of warrants is fixed in terms of 3 above, obtain at least 10% of the price so fixed from the allottees on the date of allotment of the warrants. [Clause 13.1.2.3(a) of the Guidelines].

6. Adjust the amount so obtained against the price payable on acquisition of shares by exercising the option in this behalf [Clause 13.1.2.3(b) of the Guidelines].

7. Forfeit the amount obtained in advance as at item 5 above, if the option to acquire shares is not exercised. [Clause 13.1.2.3 (c) of the Guidelines].

8. Please note that the resultant shares arising out of warrants or on conversion of debentures should be allotted before the expiry of 18 months from the date of issue of the relevant instruments. [Clause 13.2.1 of the Guidelines].

9. Ensure that the general body resolution/terms of the preferential issue contain(s) appropriate provisions in respect of matters referred to at 5, 6 and 7 above.

10. Follow the procedure set out in Topic 317 taking care to ensure that the relevant general body resolution specifies the relevant date on the basis of which price of the resultant shares are to be calculated. [Clause 13.1.2.2 of the Guidelines].

11. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

12. Keep in mind that credit rating for debt instruments is compulsory for public and rights issues and not for preferential issues. [Clause 10.1.1 of the Guidelines].

13. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued debentures during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.[Section 383-A(1) proviso].

VIII. Issue of shares other than cash

Topic 319

DO YOU WISH TO ISSUE SHARES FOR CONSIDERATION OTHER THAN CASH? [SECTION 75(1)(b)]

1. See that the issue of shares for consideration other than cash is in the Articles of Association of the company. Though such authorisation iv the Articles is not required by the Act, such a provision will safeguard the company's interest.

2. Issue of shares may be made by any of the following ways:-

(a) for exchange of assets of the company;

(b) for transfer of plant and machinery;

3. If shares are being issued against shares acquired from another company, then, hold a Board Meeting after giving notice to all the directors of the company as per section 286 and decide the exchange ratio for such issue of shares in kind and make the allotment by passing necessary resolutions.

4. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-.[Section 286(2)].

5. If the issue of shares is in exchange of the assets of the other company, then do the following:

(a) See that such a provision is included in the resolution of the other company whose assets are taken over by issuing shares to the existing shareholders of that other company.

(b) See that the other company has passed the resolution in a general meeting under Section 293(1)(a) if such transfer of assets amounts to the transfer of the whole or substantially the whole of the undertaking of a public company or a subsidiary of a public company.

6. File a return of allotment in Form No. 2 with the concerned Registrar of Companies within 30 days of allotment of shares for consideration other than cash. [Section 75(2)].

7. Please keep in mind that if default is made in complying with the aforesaid requirement then every officer of your company who is in default will be punishable with fine upto Rs. 5,000/- for every day during which the default continues. [Section 75(4)].

8. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

9. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

IX. Employees Stock Option Scheme

Topic 320

DO YOU AS A LISTED COMPANY WISH TO OFFER SECURITIES TO YOUR EMPLOYEES THROUGH "EMPLOYEES STOCK OPTION SCHEME" OR EMPLOYEES STOCK PURCHASE SCHEME?

I. Employees Stock Option Scheme

1. Do not issue securities to promoters under the Employees Stock Option Scheme (ESOS) even if the promoters are employees of the company or belong to the promoters group of the company. [Clause 4(2) of the Guidelines].

2. Keep in mind that a director who is not a promoter but is an employee is entitled to receive securities under the scheme provided that he either by himself or through his relative or through any body corporate directly or indirectly does not hold more than 10% of the outstanding equity shares of the company. [Clause 4(3) of the Guidelines].

3. Further keep in mind that under ESOS an employee means a permanent employee of the company working in India or out of India or a director of the company whether a whole-time director or not or a permanent employee or a director of a subsidiary in India or out of India or of a holding company of the company. [Clause 2.1 (1) of the Guidelines].

4. Constitute a Compensation Committee for administrative and superintendence of the ESOS which should be a Committee of the Board of Directors consisting of a majority of independent directors by passing a Board Resolution. [Clause 5(1) & (2) of the Guidelines].

5. Ensure that the said compensation formulates the detailed terms and conditions of the ESOS including:-

(a) the quantum of option to be granted under an ESOS per employee and in aggregate;

(b) the conditions under which option vested in employees may lapse in case of termination of employment for misconduct;

(c) the exercise period within which the employee should exercise the option and that option would lapse on failure to exercise the option within the exercise period;

(d) the specified time period within which the employee shall exercise the vested options in the event of termination or resignation of an employee;

(e) the right of an employee to exercise all the options vested in him at one time or at various points if time within the exercise period;

(f) the procedure for making a fair and reasonable adjustment to the number of options and to the exercise price in case of rights issue, bonus issues and other corporate actions;

(g) the grant, vest and exercise of option in case of employees who are on long leave;and

(h) the procedure for cashless exercise of options. [Clause 5(3) of the Guidelines].

6. Further ensure that the said Compensation Committee frames suitable policies and systems to ensure that there is no violation of the SEBI (Insider Trading) Regulations, 1992 and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995 by any employee. [Clause 5(4) of the Guidelines].

7. Your company will have freedom to determine the exercise price subject to conforming to the accounting policies specified in Schedule I to ESOS. [Clauses 8(1) and 13(1) of the Guidelines].

8. See that there is a minimum period of one year between the grant of options and vesting of options. [Clause 9(1) of the Guidelines].

9. Keep in mind that your company has the freedom to specify the lock-inperiod for the shares issued pursuant to exercise of option. [Clause 9(2) of the Guidelines].

10. Further keep in mind that the employee has no right to receive any dividend or to vote or in any manner en oy the benefits of a shareholder in respect of option granted to him, till shares are issued on exercise of option. [Clause 9(3) of the Guidelines].

11. Convene a Board Meeting after giving notice to all the directors of the company as per section 286 to fix the date, time, place and agenda of the General Meeting to pass a special resolution under section 81(1A).

12. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-. [Section 286(2)].

13. Prepare the Explanatory Statement to be accompanied with the notice of the General Meeting and see that it contains the following information:

(a) the total number of options to be granted;

(b) identification of classes of employees entitled to participate in the ESOS;

(d) maximum period within which the options shall be vested;

(e) exercise price or pricing formula;

(f) exercise period and process of exercise;

(g) the appraisal process for determining the eligibility of employees to the ESOS;

(h) maximum number of options to be issued per employee and in aggregate;

(i) a statement to the effect that the company shall conform to the accounting policies as specified in Schedule I to the ESOS. [Clause 6(2) of the Guidelines].

14. Issue notices at least twenty-one days before the date of the General Meeting proposing the Special Resolution with suitable Explanatory statement. [Section 171(1) read with section 173 (2)].

15. Obtain approval of shareholders by way of separate resolution in case of grant of option to employees of subsidiary or holding company and also in case of grant of option to identified employees, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option. [Clause 6(3) of the Guidelines].

16. Hold the General Meeting and pass the Special R6solutiont by three fourths majority under section 81(1A) authorising issue of securities to employees under the Scheme spelling out the terms of the issue, keeping in view item 4 above. [Clause 6(1) of the Guidelines].

17. Send three copies of the notice and a copy of the proceedings of the General Meeting to the Stock Exchange. [Clause 31(c) and (d) of the Standard Listing Agreement].

18. File with the concerned Registrar of Companies a certified true copy of the Special Resolution with Explanatory Statement in Form No. 23 within thirty days of passing of the resolution [Section 192] after paying the requisite fees prescribed under Schedule X to the Act either in cash, demand draft or treasury challan. [Rule 22(1)].

19. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

20. File with the concerned Registrar of Companies a return of allotment in Form No. 2 within thirty days of passing of the Special Resolution [Section 75] after paying the requisite fee as above.

21. Note that Ministry of Industry has also announced "Employees Stock Option Scheme"for employees of public sector enterprises in case of disinvestment and fresh issue of shares by them. [Press Note, dated 16-12-1997].

22. Further note that there will be no restriction on the maximum number of shares to be issued to a single employee, but if an employee is offered more than 1% share, specific disclosure and approval would be necessary in the annual general meeting by passing a special resolution. [Clause 6(3)(b) of the Guidelines].

23. Further note that companies can issue share to their permanent employees at a discount to the market price and this will not be covered by the pricing policy of SEBI's preferential allotment guidelines.

24. Do not vary the terms of the ESOS in any manner which may be detrimental to the interests of the employees. [Clause 6(3)(b) of the Guidelines].

25. Your company may by passing a special resolution again in a general meeting vary the terms of ESOS offered pursuant to an earlier resolution of a general body but not yet exercised by the employee provided such variation is not prejudicial to the interests of the option holders. [Clause 7(2) of the Guidelines].

26. See that the notice for passing the special resolution for variation of terms of ESOS discloses full details of the variation, the rationale therefor and the details of the employees who are beneficiary of such variation. [Clause 7(4) of the Guidelines].

27. Forefeit the amount payable by the employee if any, at the time of grant of option, if the option is not exercised by the employee within the exercise period. [Clause 10(1)(a) of the Guidelines].

28. Refund the amount to the employee if the options are not vested due to non-fulfilment of condition relating to vesting of option as per the ESOS. [Clause 10(1)(b) of the Guidelines].

29. See that the option granted to an employee is not transferable to any person. [Clause 11(1) of the Guidelines].

30. Also see that no person other than the employee to whom the option is granted is entitled to exercise the option. [Clause 11(2)(a) of the Guidelines].

31. Note that under the cashless system of exercise your company may itself fund or permit the empanelled stock brokers to fund the payment of exercise price which is to be adjusted against the sale proceeds of some or all the shares, subject to the provision of the Act. [Clause 11(2)(b) of the Guidelines].

32. See that the option granted to the employee is not pledged, hypothecated, mortgaged or otherwise alienated in any other manner. [Clause 11(3) of the Guidelines].

33. Ensure that in the event of the death of employee while in employment, all the options granted to him till such date are vested in the legal heirs or nominees of the deceased employee. [Clause 11(4) of the Guidelines].

34. See that in case the employee suffers a permanent incapacity while in employment, all the options granted to him as on the date of permanent incapacitation are vested in him on that day. [Clause 11(5) of the Guidelines].

35. Also see that in the event of resignation or termination of the employee, all options which have not vested as on that day expire. [Clause 11(6) of the Guidelines].

36. Ensure that the Board of Directors, discloses either, in the Directors Report or in the Annexure to the Directors' Report, the following details of ESOS:

(a) options granted, options vested, options exercised and options lapsed;

(b) the pricing formula;

(d) variation of terms of options;

(e) money realised by exercise of options;

(f) total number of options in force;

(g) employee wise details of options granted to:

(i) senior managerial personnel;

(ii) any other employee who receives a grant in any one year of option amounting to 5% or more of option granted during that year;

(iii) identified employees who were granted option during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversion) of the company at the time of grant;

(h) diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of option calculated in accordance with International Accounting Standard (IAS) 33. [Clause 12(1) of the Guidelines].

37. Further ensure that the Board of Directors of your company place before the shareholders of each annual general meeting, a certificate from the auditors of your company that the Scheme has been implemented in accordance with these guidelines and in accordance with the resolution passed at your company's general meeting. [Clause 14(1) of the Guidelines].

38. Note that the provisions of SEBI (Disclosure and Investor Protection) Guidelines prohibiting initial public offering by companies having outstanding warrants and financial instruments are not applicable in case of outstanding option Aranted to employees in pursuance of ESOS. [Clause 15(1) of the Guidelines].

39. Ensure that if any option is outstanding at the time of an initial public offering by your company the promoters' contribution is calculated with reference to the enlarged capital which would arise on exercise of all vested options. [Clause 15(2) of the Guidelines].

40. Further ensure that if any options granted to employees in pursuance of ESOS are outstanding at the time of initial public offering, the offer document of your company discloses all the information specified in item 34 above. [Clause 15(3) of the Guidelines].

II. Employees Stock Purchase Scheme (ESPS)

41. Follow items 1 and 2 of ESOS.

42. Keep in mind that under ESPS an employee means a permanent employee of the company working in India or out of India or a director of the company whether a whole-time director or not or a permanent employee of a subsidiary in India or out of India or of a holding company of the company.

43. Also keep in mind that your company has freedom to determine the price of shares to be issued under an ESPS provided it conforms to the accounting policies as specified in Schedule II of these Guidelines. [Clause 18(1) of the Guidelines].

44. Ensure that shares issued under an ESPS are locked in for a minimum period of one year from the date of allotment. [Clause 18(2) of the Guidelines].

45. Keep in mind that shares issued to employees pursuant to ESPS will not be subject to any lock-in if the ESPS is part of a public issue and the shares are issued to employees at the same price as in the public issue. [Clause 18(3) of the Guidelines].

46. Follow item 11 of ESOP.

47. Prepare the Explanatory Statement to be accompanied with the notice of the General Meeting and see that it contains the following information:

(a) the price of the shares and also the number of shares to be offered to each employees;

(b) the appraisal process for determining the eligibility of employees for ESPS. [Clause 17(2) of the Guidelines].

48. Keep in mind that the number of shares offered may be different for different categories of employees. [Clause 17(3) of the Guidelines].

49. Ensure that the Special Resolution proposed to be passed for ESPS conforms to the accounting policies as specified in Schedule II to these Guidelines. [Clause 19(2) of the Guidelines].

50. Follow items 13, 14, 15, 16, 17, 18, 19, 20, and 21 of ESOS.

51. Ensure that the Board of Directors of your company, discloses either in its Directors' Report or in the Annexure to it, the following:

(a) the details of the number of shares issued in ESPS;

(b) the price at which such shares are issued;

(i) senior managerial personnel;

(ii) any other employee who is issued shares in any one year amounting to 5% or more shares issued during that year;

(iii) identified employees who were issued shares during any one year equal to or exceeding 1% of the issued capital of the company at the time of issuance;

(d) diluted Earnings Per Share (EPS) pursuant to issuance of shares under ESPS; and

(e) consideration received against the issuance of shares. [Clause 19(1) of the Guidelines].

III. General

52. Keep in mind that nothing of these Guidelines will apply to shares issued to employees of your company in compliance with SEBI Guidelines on Preferential Allotment. [Clause 20(1) of the Guidelines].

53. Also keep in mind that Part D of the SEBI Clarification XIV dated 1-3-1996 will not be applicable to your company's ESOS or ESPS made under these Guidelines. [Clause 21(1) of the Guidelines].

54. Note that the shares arising pursuant to an ESOS and shares issued under an ESPS will be eligible for listing in any recognised Stock Exchange only if such schemes are in accordance with these Guidelines. [Clause 22 of the Guidelines].

55. Further note that if your company wants to issue shares to its employees or employees of its joint venture/subsidiary abroad who are resident outside India under ESOS either directly to such employees or through a Trust, your company is permitted by the RBI under FEMA Act, 1999 to do so subject to the following conditions:

(i) the scheme has been drawn in terms of regulations issued under the SEBI Act, 1992;

(ii) face value of the shares to be allotted under the scheme to the nonresident employees does not exceed 5% of the paid-up capital of your company;

(iii) the Trust if any and your company should ensure that value of shares held by persons resident outside India under the scheme does not exceed the prescribed limit. [Paragraph 10.8 of the Foreign Exchange Management Manual]

56. In the aforesaid case, furnish to the RBI within 30 days from the date of issue of shares under the scheme, a report giving the following particulars/documents:

(i) names of persons to whom shares are issued under the scheme and number of shares issued to each of them;

(ii) a certificate from the Company Secretary of your company that the value of shares issued under the scheme does not exceed 5% of the paid-up capital of your company and that the shares are issued in compliance with the SEBI (ESOP & ESPS) Guidelines, 1999 [Paragraph 10.8 of the Foreign Exchange Management Manual].

57. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.[Section 383-A(1) proviso].

X. Issue of Preference Share

Topic 321

DO YOU WISH TO ISSUE REDEEMABLE PREFERENCE SHARES UNDER SECTION 80?

1. Verify whether your company is limited by shares.

2. Consult your Articles of Association to ascertain whether they permit issue of redeemable preference shares; if not, complete proceedings to alter them accordingly vide Topic 26. [Section 80(1)].

3. Obtain 'credit rating' from any of the approved credit rating agencies.

4. Call a Board Meeting by giving notice to all the directors of the company as per section 286 and take the decision of issuing redeemable preference shares and fix up the date, time, place and agenda for calling a General Meeting to pass an Ordinary Resolution (Special Resolution, if the Articles so require) for such issue. [Section 94(1)(a) & (2) read with Section 81(1A)].

5. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-.[Section 286(2)].

6. Please ensure that the issue is such that it is redeemable within 20 years from the date of issue. [Section 80(5A)].

7. Issue notices in writing at least twenty-one days before the date of the General Meeting proposing the resolution with suitable Explanatory Statement. [Section 17](1) read with section 173(2)].

8. Inform the Stock Exchange with which your company is enlisted of such proposed issue of redeemable preference shares. [Standard Listing Agreemen].

9. Hold the General Meeting and pass the resolution.

10. If the resolution passed is a Special Resolution, file the same with the Registrar of Companies'in Form No. 23 within thirty days of its passing. [Section 192] after paying the requisite fee prescribed under Schedule X to the Act either in cash, demand draft, treasury challan or postal order. [Rule 22] Postal order is accepted upto Rs. 50/-. [Rule 22(3) Proviso].

11. Please keep in mind that if default is made in complying with the aforesaid requirement of filing the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

12. If the issue of redeemable preference shares is to be made by issue of Prospectus, then prepare a draft Prospectus in consultation with the Lead Manager responsible for such drafting. Follow the procedure laid down in Topics 304 to 310 on Public Issue of Shares.

13. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of subsection (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

14. Please keep in mind that if default is made in complying with the provisions of section 80, the company and every officer of the company will be punishable with fine upto Rs. 10,000/- [Section 80(6)].

15. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar, of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules,2001. [Section 383-A (1) proviso].

Topic 322

DO YOU WISH TO REDEEM REDEEMABLE PREFERENCE SHARES?

1. Verify the following points before taking the decision of redeeming redeemable preference shares:

(i) They must be redeemed only out of distributable profits of the company or out of the proceeds of a fresh issue of shares, made for the purpose of redemption. [Section 80(1), Proviso (a)];

(ii) They must be fully paid-up. [Section 80(1), Proviso (b)];

(iii) The premium, if any, on such redemption, must be provided out of the profits or out of the security premium account of the company, before the shares are redeemed. [Section 80(1), Proviso (c)];

(iv) If they are redeemed out of distributable profits of the company, then, before such redemption, a sum equal to the nominal amount of shares to be so redeemed must be transferred to a reserve fund called the "Capital Redemption Reserve Account" from the distributable profits of the company.. [Section 80(1), Proviso (d)].

2. Hold a Board Meeting by giving notice to all the directors of the company as per section 286 and decide about the number of preference shares to be redeemed, and the date of such redemption.

3. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-.[Section 286(2)].

4. As soon as the decision is taken, pass a resolution in the same Board Meeting approving the redemption of redeemable preference shares.

5. If the redemption is to be made out of the proceeds of a fresh issue of shares, then:

(i) Hold a Board Meeting by giving notice to all the directors of the company- as per section 286 and approve the issue of fresh shares up to the nominal amount of the shares to be redeemed by passing a resolutionj;

(ii) Pass another resolutionf in the same Board Meeting approving the redemption of preference shares out of the proceeds of a fresh issue of shares;

(iii) Pass another Board resolution to issue fresh shares to the existing shareholders;

(iv) Redeem the preference shares within one month of the issue of the new shares. [Section 80(4), Proviso].

6. Carry out the redemption of preference shares in both the cases on such terms and in such manner as provided in the Articles of your company. [Section 80(2)].

7. If the Articles are silent on this aspect, then follow Regulation 2 of Table A of Schedule I to the Act.

8. If your company's shares are listed on a recognised Stock Exchange, inform it about such redemption at least 21 days in advance and forward a copy of the Board resolution to them. [Clause 21 of the Standard Listing Agreement].

9. Inform the preference shareholders individually and also through a public notice in the newspapers about the proposed redemption.

10. Please also keep in mind that if default is made in complying with the provisions of section 80, the company and every officer of the company who is in default, will be punishable with fine upto Rs. 10,000/- [Section 80(6)].

11. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your'company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 21 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

Topic 323

DO YOU WISH TO REDEEM EXISTING PREFERENCE SHARES?

1. Study the terms of issue of the preference shares proposed to be redeemed, whether irredeemable or redeemable and in case they are redeemable, the period within which these shares are to be redeemed.

2. Note that the preference shares which were irredeemable should have been redeemed by 14-6-1993 (that is, within a period of 5 years from 15-6-1988 being the date of the commencement of section 80A of the Act). Also note that these shares, if they are redeemable, then they must be redeemed by 14-6-1998 (that is, within a period of 10 years from the commencement of section 80A of the Act) or within the period fixed for redemption by the terms of issue of such redeemable preferences shares, whichever is earlier.

3. Further note that provisions of section 80 would not apply to the redemption of irredeemable, preference shares pursuant to the provisions of section 80A. This is because section 80 deals with redemption only of those preference shares which are liable to be redeemed by the terms of issue of such shares.

4. In case your company desires to keep the capital intact, you may, however, follow any of the options laid down in the proviso to sub-section (1) of section 80, purely on voluntary basis.

5. In case your company desires not to keep the capital intact, it is open to you to follow the procedure for reduction of capital laid down in section 100 of the Act.

6. In case the preference shares are liable to be redeemed within a period of 10 years from the date of commencement of section 80A of the Act by the very terms of the issue of such preference shares, you may follow the procedure for redemption of preference shares laid down in section 80A of the Act.

7. In case the preference shares are not liable to be redeemed within 10 years in terms of the provisions of section 80A and yet they are liable to be redeemed within 10 years from the commencement of section 80A by virtue of the special provisions made in clause (b) of sub-section (1) of Section 80A the procedure for redemption of shares laid down in Section 80 shall not apply and your company may voluntarily adopt any of the options for redemption laid down in the proviso to sub-section (1) of section 80 or go for reduction of capital by following the procedure laid down in Section 100.

8. See if the terms of issue of the existing preference shares are such as to call for payment of arrears of preference dividend on the date of compulsory repayment of redemption, as per the provisions of sub-clause (i) of clause (b) of sub-section (1) of Section 85. All preference shares need not have such preferential right to the payment of arrears of preference dividends at the time of payment of capital. Note that the requirement in the proviso to sub-section (1) of Section 80A, "to pay the dividend if any" has to be understood accordingly.

9. In case your company desires to keep the capital intact and yet you find that you are not in a position to redeem the preference shares by reason of insufficiency of funds, make an application to the Company Law Board for issue of further redeemable preference shares in Form No. 1 in Annexure II to the Company Law Board Regulations, 1991 together with the following documents as set out against S. No. 8 of Annexure III thereto:

(1) Certified true copy of the Memorandum and Articles of Association.

(2) Certified true copy of the documents showing the terms of issue of the existing preference shares.

(3) Certified true copy of the Board Resolution and resolution of general meeting for issue of further redeemable preference shares.

(4) Certified true copy of the latest audited balance-sheet and profit and loss account with auditor's report and directors' report.

(5) Affidavit verifying the petition.

(6) Bank draft evidencing payment of fee of Rs. 1000/- as prescribed in Company Law Board (Fees on Applications and Petitions) Rules, 1991.

(7) Memorandum of appearance with a copy of the Board Resolution or the executed Vakalatnama.

10. In the application to the Company Law Board, see that your company gives the particulars of the preference shares to be redeemed, as per the terms of the issue of such shares, the amount of redemption including arrears of dividend, if any (where applicable) and must state that the new preference shares proposed to be issued shall be redeemable within a period of 20 years from the date of

issue as enjoined by sub-section (5A) of Section 80 of the Act which was enforced from 1^st March, 1997.

11. As soon as decision is taken to,redeem the preference shares in any of the manner aforesaid, call a Board Meeting after giving notice to all the directors of the company as per section 286 and pass a resolution in that Board Meeting approving the redemption of redeemable preference shares by specifying the manner of redemption.

12. In case the redemption is in accordance with the provisions made in Section 80, whether or not such procedure is adopted optionally or compulsorily, follow the procedure laid down in Topic 322, mutatis mutandis.

13. For issue of new redeemable preference shares, after obtaining the consent of the Company Law Board for purpose of redemption of the existing preference shares, follow the procedure mutatis mutandis, as laid down in Topic 321.

15. Please also keep in mind that if default is made in complying with the provisions of 80A the company making such default will be punishable with fine upto Rs. 10,000/- for every day during which the default continues and every officer of the company who is in default will be punishable with imprisonment for a term upto 3 years and will also be liable to fine. [Section 80-A (3)].

16. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued further redeemable preference shares or redeemed preference shares during the financial year and complied with the provisions of the Act as per paragraphs 19 and 21 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

Topic 324

DO YOU WISH TO ISSUE EQUITY SHARES ON CON VERSION OF PREFERENCE SHARES?

1. Note that the methods of redemption laid down in proviso to sub-section (1) of Section 80 include issue of equity shares the proceeds of which may be utilised for redemption of preference shares.

2. Further note that where equity shares are issued in lieu of preference shares to be redeemed, there are really no proceeds out of which preference shares are redeemed.

3. Keep in mind that the methods laid down in the proviso to sub-section (1) are only optionally available for purpose of effecting redemption enjoined by Section 80A.

4. Further keep in mind that equity shares can be issued in lieu of preference shares to be redeemed only by following the procedure laid down in Section 106 or by following the procedure laid down in Sections 391 to 395 or 396.

5. Further keep in mind that sub-section (2) of Section 80A prohibits the adoption of any of the schemes of procedure laid down in these sections of the Act for the purpose of compulsory redemption of preference shares referred to in that section.

6. Note, however, that issue of equity shares in lieu of preference shares issued after the commencement of Section 80A, at the time of redemption of such preference shares, will not attract the prohibition contained in sub-section (2) of Section 80A.

7. The prohibition as aforesaid is only against the redemption of existing irredeemable preference shares or existing redeemable preference shares referred to in Section 80A.

8. Make an applicationj to the Company Law Board for issue of redeemable preference shares in lieu of preference shares liable to be redeemed under Section 80A as per Topic 323 item 9.

9. Issue preference shares in lieu of preference shares redeemed under Section 80A after your company obtains an order from the Company Law Board.

10. Issue equity shares in lieu of preference shares issued in lieu of preference shares so redeemed by following the procedure laid. down in Section 106 or in Sections 391 to 395 or by adopting a scheme to be approved by the Government under Section 396.

11. Fix Record Date with the approval of the Stock Exchange for determining the eligibility of preference shareholders for allotment of equity shares. Issue a public notice in this regard.

12. For issue of equity shares in lieu of freshly issued redeemable preference shares in lieu of preference shares redeemed by following the procedure laid down in Section 106, take the steps mentioned under Topic 43.

13. If your company wishes to follow the procedure laid down in Section 391 for the aforesaid purpose, follow the procedure laid down in Topic 49.

14. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the. Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1)proivso].

Topic 325

DO YOU WISH TO ISSUE CUMULATIVE CONVERTIBLE, PREFERENCE (CCP) SHARES?

1. See whether your company is a public limited company.

2. See that the object of issue of CCP shares by your public limited company is one of the following:

(i) Setting up of new projects;

(ii) Expansion or diversification of existing projects;

(iii) Normal capital expenditure for modernisation;

(iv) Working capital requirements.

3. See that the quantum of the issue of CCP shares is to the extent of your offering equity shares to the public for subscription.

4. If the project to be financed by the issue of CCP shares is also assisted by any financial institutions then see that the quantum of the issue is approved by the concerned financial institution(s).

5. See that the denomination of CCP shares is Rs. 100/- each.

6. See that the whole issue of CCP shares is listed with one or more Stock Exchanges in the country.

7. See that the Articles of Association of your company contain a provision for the issue of CCP shares, if not, then alter the Articles as per Topic 26.

8. See that the debt-equity ratio is 2 : 1 including the issue of CCP shares.

[Please note that CCP is deemed to be equity for the purpose of calculating debt-equity ratio.]

9. See that the CCP shares are convertible into equity shares between the end of three years and five years.

10. See that the rate of dividend on CCP shares till they are converted into equity shares is not more than 10%.

11. The conversion of the CCP shares into equity shares would be deemed as being one resulting from the process of redemption of preference shares out of the proceeds of a fresh issue of shares made for the purpose of redemption.

12. The CCP shares will have voting rights as applicable to preference shares under the Act.

If the CCP shares are to be issued on Right basis fix the Record Date to determine the rights entitlement, and issue a notice in this regard.

13. Before issue of CCP shares, pass a Special Resolution as per Topic 150 under Section 81(1A) of the Act.

14. See that the aforesaid Special Resolution approving the issue of CCP shares provide for compulsory conversion of the preference shares between the 3rd to 5th year.

15. If the issue of CCP shares amounts to increase of authorise share capital then follow the procedure as per Topic 34.

16. Follow the guidelines for Issue of Cumulative Convertible Preference Shares.

17. Inform the CCP shareholders individually and through public notice, the conversion CCP shares into equity shares at appropriate time.

18. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotmeni of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months. except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

19. If your company is an existing listed then also follow the SEBI (Disclosure and Investor Protection) Guidelines 2000.

20. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

Topic 326

DO YOU WISH TO ISSUE BONUS PREFERENCE SHARES ?

1. Verify whether your company is limited by shares or not.

2. Consult the Articles of Association of your company to ascertain whether they permit issue of bonus preference shares and if not then complete proceedings to alter them accordingly vide Topic 26.

4. Determine in advance of such issue of bonus preference shares the following:

(i) the rate of interest;

(ii) period of redemption which should not be more than 20 years from the date of issue; [Section 80(5A)]

(iii) credit rating;

5. Before issue of bonus debentures ensure the following

(i) there is no default in payment of interest or principal in respect of fixed deposits of your company or in payment of principal or interest on existing debentures ;

(ii) there is no default in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus, wages, including minimum wages, compensation to workmen, contract labour payments etc.;

6. Also ensure strict compliance with the following financial parameters for determining the quantum of the bonus issue of preference shares :

(a) that the bonus issue of preference shares is made out of free reserves of your company built out of the genuine profits or share premium collected in cash only;

(b) that reserves created by revaluation of fixed assets are not utilised for this purpose.

7. Convene a Board Meeting after issuing notices to the directors of the company as per Section 286 to consider the issue of bonus preference shares and also for taking necessary steps in that regard, including fixing the date of closure of books in consultation with the regional stock exchange and to fix up the date, time, place and agenda for convening a.General Meeting and to pass a Special Resolution for the same.

9. Obtain credit rating from a credit rating agency and in case the issue of bonus preference shares is equal to or more than Rs. 100 crores, obtain two credit ratings from different agencies.

10. Please note that the bonus issue of preference shares should be made within a period of 6 months from the date of approval of your company's Board of Directors.

12. Keep in mind that permission of RBI if any required under section 6(3)(b) of FEMA 1999, should be obtained to allot bonus preference shares to Non Resident Indians.

13. Issue notice in writing at least twenty-one days before the date of the General Meeting [Section 171(1)] with suitable Explanatory Statement. [Section 173(2)].

14. Hold the General Meeting and pass the Special Resolution by three fourths majority. [Section 189(2)].

15. If the shares of your company are listed with any of the recognised Stock Exchange, then forward three copies of the notice and a copy of the proceedings of the General Meeting to the Stock Exchange. [Clause 31(c) and (d) of the Standard Listing Agreement].

16. File the Special Resolution, with the relative Explanatory Statement with the concerned Registrar of Companies. in Form No.23 within thirty days, [Section 192(4) (a)], after paying the requisite fee prescribed under Schedule X of the Companies Act, 1956, either by cash, demand draft or treasury challan. [Rule 22].

17. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine of up to Rs. 200/- for every day during which the default continues. [Section 192(5)].

18. Publish a notice of Record Date for the purpose of determining the eligibility of members for bonus preference shares.

19. If the shares of your company are listed with any of the recognised Stock Exchange, then give notice to the Stock Exchange 42 days in advance informing about the closure of share transfer books and the recording date. Before allotment, a prescribed form duly filled in should be filed with the Stock Exchange. [Clause 16 of the Standard Listing Agreement].

20. Convene another Board Meeting by giving notice to all the directors of your company as per section 286 and complete proceeding regarding allotment of the bonus preference shares in the proportion and in the manner as mentioned in the resolution and as approved by the Stock Exchange where your company's shares are listed.

21. Complete all other proceedings for the issue of debenture certificates making necessary entries in various registers.

22. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued bonus preference shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383A(1) proviso].

XI. Issue of Shares at Discount/Premium/Privately

Topic 327

DO YOU WISH TO ISSUE SHARES AT A DISCOUNT?

1. Verify the following points before taking the decision of issuing shares at a discount:

(i) Not less than one year has elapsed since the date your company was entitled to commence business. [Section 79(2)(iii)];

(ii) Shares to be issued at a discount are of a class already issued. [Section 79(2)].

2. Hold a Board Meeting after giving notice to all the directors of the company as per section 286 to decide the number of shares to be issued at a discount, the rate of discount and to fix up the date, time, place and agenda of the General Meeting, to pass an ordinary resolution.

4. Immediately after the Board Meeting intimate to the Stock Exchange with which your company is enlisted by letter or by telegram short particulars of issue of shares at discount. [Clause 22(c) of the Standard Listing Agreement].

5. Forward promptly to the Stock Exchange with which your company is enlisted six copies of all notices, resolutions and circulars relating to new issue of capital prior to their despatch to the shareholders. [Clause 31(b) of the Standard Listing Agreement].

6. Issue notices in writing at least twenty-one days before the date of the General Meeting proposing the Ordinary Resolution subject to the sanction of the Company Law Board along with suitable Explanatory Statement. [Section 171(1) read with section 173(2) ].

7. Hold the General Meeting and pass the Ordinary Resolution giving authority to issue shares at a discount by simple majority.

8. See that the resolution specifies the maximum rate of discount at which shares are to be issued.

9. If your company is listed on a recognised Stock Exchange, forward promptly to the Stock Exchange three copies of the notice and a copy of the proceedings of the General Meeting. [Standard Listing Agreement].

10. Make an application pursuant to Section 79 to the concerned Bench of the Company Law Board in the form of a petition in Form No. 1 in Annexure II to the Company Law Board Regulations, 1991 together with the documents specified in S.No, 7 of Annexure III thereto [See Regulations 13 to 18].

11. Ensure that a fee of Rs. 1,000/- is paid on the petition in accordance with the Company Law Board (Fees on Applications and Petitions) Rules, 1991 by way of demand draft favouring "Pay and Accounts Officer, Department of Company Affairs, New Delhi" or "Mumbai" or "Kolkata" or "Chennai" depending on the Regional Bench of the Company Law Board with which the aforesaid petition is filed.

12. Send the petition along with the following documents:

(i) Certified true copy of the Memorandum and Articles of Association of your company;

(ii) Certified true copy of the notice calling for the General Meeting with Explanatory Statement of the resolution sanctioning issue;

(iii) Certified true copy of the minutes of the meeting at which the resolution was passed;

(iv) Certified true copy of the last three years' audited balance sheets, profit and loss accounts, auditors' reports and directors' reports;

(v) Affidavit verifying the petition;

(vi) Demand draft evidencing payment of fee of Rs. 1,000/-;

(vii) Memorandum of appearance (in Form No. 5 of Annexure I to the Regulations) with copy of the Board Resolution or the executed Vakalatnama, as the case may be.

13. Ensure that the aforesaid affidavit mentioned in 11(v) above is prepared on non-judicial stamp paper of the requisite value 7 and after obtaining the signature of the Deponent thereon have the said affidavit either not arised by the Notary Public with notarial stamps affixed on it or have it sworn before the Oath Commissioner.

14. Affix court fee stamps of the requisite value' on the petition before filing.

15. On receipt of the copy of the order of the Company Law Board give notice of the order to the Registrar in Form No. 21 along with a certified copy of the order to the Registrar for registration within one month from the date of the order after payment of requisite filing fee in cash as per Schedule X.

16. Keep in mind that time taken in supplying a copy of the order by the Company Law Board will be excluded in computing the period of one month. [Section 640A].

17. If a Prospectus is to be issued, then issue it on receipt of the Company Law Board's order.

18. See that the Prospectus contains particulars of the discount allowed on the issue of shares or of so much of that discount as has not been written off at the date of the issue of the Prospectus.

19. If a Prospectus is issued, then deliver a copy of it to the Registrar for registration. [Section 60]. If no Prospectus is issued, then deliver a statement in lieu of Prospectus at least three days before the allotment of shar es. [Section 70(1)].

20. If your company wants to have these shares to be quoted on a recognised Stock Exchange, then make an application for listing to the Stock Exchange vide Topic 353.

21. File with the Registrar of Companies a return in Form No. 2 within thirty days of allotment of shares issued at a discount along with the following documents:

(i) a certified true copy of the resolution of the General Meeting authorising such issue;

(ii) a certified true copy of the order of the Company Law Board sanctioning the issue; and

(iii) a receipted treasury challan evidencing the payment of requisite feelo prescribed under Schedule X to the Companies Act, 1956 and in accordance with rule 22(1) of the Companies General Rules & Forms, 1956. [Section 75(1)(c)(ii)].

22. Your company can also pay the filing fee in cash as per Schedule X to the Registrar of Companies instead of receipted treasury challan.

23. Please keep in mind that if default is made to comply with the aforesaid requirement of filing, every officer of the company who is in default will be punishable with fine upto Rs. 5,000/- for every day during which the default continues. [Section 75(4)].

24. Ensure that every prospectus if issued relating to the issue of shares at a discount contains particulars of the discount allowed on the issue of the shares or of so much of that discount as has not been written off at the date of the issue of the prospectus. [Section 79(4)].

25. Please also keep in mind that if default is made in complying with the aforesaid requirement, the company and every officer of the company who is in default will be punishable with fine upto Rs. 500/-[Section 79(4)].

26. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

27. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.[Section 383-A(1) proviso].

Topic 328

DO YOU WISH TO ISSUE SHARES AT A PREMIUM?

1. Please note that the following companies only can issue shares to the public at a premium (subject, of course, to the compliance of requirements relating to promoters' contribution, etc.):

(i) First public issue by existing unlisted companies which has a pre-issue net worth of not less than Rs. 1 crore in 3 out of preceeding 5 years with a minimum net worth to be met during immediately preceding 2 years and the issue size does not exceed 5 times its pre-issue networth with three years track record of distributable profits out of immediately preceding five years;

(ii) First public issue by existing company which does not have three year track record of distributable profits out of immediately preceding five years issuing shares only through book-building process and 60% of the issue size to be allotted to Qualified Institutional Buyers;

(iii) First public issue by existing private/clpsely-held and other unlisted companies with three year track record of consistent profitability out of immediately preceding 5 years and the issue size exceeds 5 times its pre-issue net worth and is issuing shares through book building process;

(iv) an infrastructure company whose project has b een appraised by a Public Financial Institution or Infrastructure Development Finance Corporation or Infrastructure Leasing and Financing Services Ltd., and not less than 5% of the project cost is finanded by any of the institutions referred above jointly or severally irrespective of whether they appraise the project or not by way of loan or subscription to equity or a combination of both.

(v) Public issue by existing listed companies.

2. In case a division of an existing company is spun off into a separate company, the track record of distributable profits of that division would be considered in determining the issue of shares at premium. [Clause 2.2.2 Explanation 1(iii) of the Guidelines].

3. Keep in mind that initial public issues of banks may be freely priced subject to approval by the RBI. [Clause 3.3.1 of the Guidelines]

4. Check up whether your company falls under any of the categories mentioned above.

5. If your company is a listed company and intends to make composite issue (that is right-cum-public issue) the issue to the public can be priced differentially as compared to the issue to the shareholders on rights basis. [Clause 3.4.1 of the Guidelines].

6. Keep in mind that in the aforesaid case the premium on firm allotment category is higher than the premium on the public issue. [Clause 3.4.1 of the Guidelines].

7. Please note that such differential premia should be within the 20% price band. [Clause 3.5.1 of the Guidelines].

8. If your company wishes to issue shares at premium for preferential allotment to foreign investors for raising their equity holding in your equity share capital, follow the procedure laid down in Topic 351.

9. Please note that your company is allowed to mention a price band of 20% (that is the ceiling or cap price should not be more than 20% of the (LOO price) in the draft offer document required to be submitted to SEBI. [Clause 3.5.1 of the Guidelines].

10. Include suitable explanatory 'notes indicating the financial implications if the price were to be fixed at different levels within the price band approved by the Board of Directors orGeneral Body of Shareholders. [Clause 3.5.2 o the Guidelines].

11. Keep in mind that if the Board of Directors has been authorised to determine the offer price within a specified price band, such price should be determined by a resolution to be passed by the Board of Directors at a meeting of the Board, for which 48 hours notice has been given to the Stock Exchange. [Clause 3.5.3 of the Guidelines].

12. Determine the actual price at the time of filing the final offer document with Registrar of Companies/Stock Exchange, ensuring that such actual price is within the price band. [Clause, 3.5.1 of the Guidelines].

13. Please ensure that the final offer document indicates only one price (that is the actual price determined as per 6 above) and one set of financial projections. [Clause 3.5.4 of the Guidelines].

14. Detenrnine the premium in consultation with the Lead Merchant Banker to the public/rights issue.

15. Mention in the offer document that the company and the Lead Merchant Banker, with whose consultation the premium was decided, are of the opinion that the premium is justified.

16. Indicate in the offer document full justification and parameters for fixation of the premium amount, and disclose precisely how the amount of premium has been arrived at. [Clause 3.4.4 of the Guidelines].

17. Ensure the basic financial information and the basis of arriving at the premium amount are clearly spelt out, and avoid giving vague statements relating to promoters' background, industry's future prospects, etc.

18. Give justification of the price fixed with reference to the past performance and future projections.

19. Mention in the offer documents specifically whether the future projections are based on your own estimates or on an independent appraisal made by financial institutions, banks, etc.

20. Give justification of differential pricing in the case of composite issue.

21. Disclose the market prices inu-nediately before the issue to enable the investors to ascertain whether prices are fair or rigged market prices. [Clause 6.7.13.1 (e) of the Guidelines].

22. Indicate for the above purpose the net asset value and 'High', 'Low' and 'Average' market prices of shares for the last three years, and also monthly 'High' and 'Low' prices for the last 6 months prior to the date of filing of the offer document with Registrar of Companies/concerned Stock Exchange. [Clause 6.7.13.1 (a) & (b) of the Guidelines].

23. Also disclose volume of trading in the shares on the day(s) when the 'High' and 'Low' prices were recorded during the aforesaid period of 6 months. Some abridged prospectuses disclose volume of trading under the following heads: [Clauses 6.7.13.1 (c) & (f) of the Guidelines].

Settlement ending (Dates)	No. of Deals	No. of Shares.	Value(Rs. Lakhs)

24. Also state that your company is eligible to make an issue at premium as per the GuidelineS2 and that the premium has been decided in consultation with the Lead Merchant Banker of the issue who are of the opinion that the premium is justified and reasonable.

25. Disclose in the prospectus or offer document the basis for issue price giving an illustrative format of disclosure in respect of it as per Schedule XV of the Guidelines providing accounting ratios to justify the basis of issue price. [Clause 6.13 of the Guidelines].

26. Indicate the financial performance of the company for the last five years as also the projections as appraised by the lead financial institutions for the next three/five years under the above heads. [For a new company, the parameters can be suitably modified indicating projections for the next three/five years.].

27. Furnish details to show as to how your current and projected performance compares favourably with the financial parameters of the relevant industry as a whole.

28. You may also refer to other qualitative factors like the financial soundness and track record of the promoters, R&D to ensure supply of improved quality, technological availability to perform at high level and efficiency, minimum/short gestation period, established product with wide spread marketing network, 'trade mark', consumer factor etc.

29. Hold a Board Meeting after issuing notices$ to all the directors of the company as per section 286 and pass a resolution stating the rate and amount of premium on shares and whether such premium will be paid in cash or otherwise.

30. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of upto Rs. 1000/- [Section 286(2)].

31. If your company has completed a buy-back of its shares or other specified securities under section 77A, it.cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

32. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

Topic 329

DO YOU WISH TO ISSUE SHARE CAPITAL PRIVATELY?

Note.- Please note offer or invitation to subscribe for shares or debentures made by companies (other than NBFCs or PFIs) to 50 persons or more will be treated as 'public issue' [Provisos to sub-sec. (3) of sec. 67'].

1. See that the issue is within the authorised share capital of the company; otherwise complete proceedings to increase the same suitably, vide Topic 34.

2. Call a Board Meeting after giving notice to all the directors of the company as per section 286 to fix up the date, time, place and agenda for a General Meeting to pass an Ordinary or Special Resolution as the case may be.

4. In case of a public company, a Special Resolution or an Ordinary Resolutionf followed by the Central Government's approval under Section 81 should be passed unless the allotment is made within two years from the formation of company or within one year from the allotment of shares made for the first time after formation, whichever is earlier.

5. In case of first allotment, the provisions of Section 70 should also be noted and complied with.

6. In case of a private company, to pass an Ordinary or a Special Resolution if the Articles so require; otherwise the Board can issue the shares.

7. Issue notices in writing at least twenty-one days before the date of the General Meeting proposing the Special or Ordinary Resolution as the case may be with suitable Explanatory Statement. [Section 171 (1) read with section 173(2)].

8. Hold the General Meeting and pass the resolutionsf. If an Ordinary Resolution under Section 81 is passed, proceed to obtain the Central Government's approval in accordance with that section.

9. If any Special Resolution is passed, file the same with the concerned Registrar of Companies' in Form No. 23 within thirty days of the passing [Section 192] after paying the requisite fee prescribed under Schedule X to the Companies Act, 1956 in cash.

10. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

11. Receive applications by private negotiations and complete proceedings regarding allotment of shares.

12. If shares are to be allotted on direct/private placement to Central/State Government, their agencies, public financial institutions and Mutual Funds, obtain their agreement to the proposed investment.

13. In case your company wishes to issue equity shares to foreign collaborators for increasing their holding to 51 % or more of your equity share capital, as per the sectorial cap allowed by the Central Government follow the procedure laid down in Topic 351.

14. Proceed to complete other formalities such as issue of allotment letters, share certificates, filing of allotment return, making entries in various registers etc.

15. File return of allotment in Form No. 2t within thirty days from the date of allotment with necessary details and enclosures [Section 75] with the concerned, Registrar of Companies after paying the requisite fee as prescribed under Schedule X to the Companies Act, 1956, either in cash, postal order or treasury challan. [Rule 22] Postal order is accepted upto Rs. 50/-. [Rule 22(3), Proviso].

16. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, every officer of the company who is in default will be punishable with fine upto Rs. 5,000/- for every day during which the default continues. [Section 75(4)].

17. Send allotment letters or share certificates as the case may be within three months from the date of allotment to the allottees. [Section 113(1)].

18. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue, or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

19. If your company is a listed company then follow the provisions of Chapter XIII of the SEBI (Disclosure & Investor Protection) Guidelines 2000, in addition to the aforesaid requirements.

XII. Issue of Sweat Equity

Topic 330

DO YOU WISH TO ISSUE SWEAT EQUITY SHARES? [SECTION 79A]

1. Note that Sweat Equity Shares mean equity shares either issued at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions or by whatever name called. [Section 79A(1) Explanation II].

2. Check whether at least 1 year has elapsed since the date on which your company was entitled to commence business. [Section 79A(1)(c)].

3. Decide before convening a Board Meeting, the number of shares, their current market price and consideration, if any, and the class or classes of directors or employees to whom such of Sweat Equity Shares are proposed to be issued. [Section 79A(1)(b)].

4. Convene a Board Meeting after giving noticel to all the directors of your company as per section 286 to consider the proposal of issue of Sweat Equity Shares and to fix up the date, time, place and agenda for the General Meeting and to pass an Special Resolution for the same. [Section 79A(1)(a)].

6. Issue notices in writing at least twenty one days before the date of the meeting. [Section 171(1)] for the General Meeting with suitable explanatory statement. [Section 173(2)].

7. Ensure that the proposed Special Resolution contained in the Aforesaid notice specifies the number of shares, their current market price and consideration, if any and the class or classes of directors or employees to whom such Sweat Equity Shares are to be issued. [Section 79A(1)(b)].

8. Hold the General Meeting and pass the Special Resolution by three foruths majority [Section 189(2)] as required under item 4.

9. File the Special Resolution with the concerned Registrar of Companies 3 with explanatory statement in Form No. 23 within thirty days [Section 192(4)(a)] after paying the requisite fee prescribed under Schedule X of the Companies Act, 1956, either by cash, demand draft or treasury challan [Rule 22].

10. Please also keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

11. If paid by way of treasury/challan then obtain three copies of the treasury challan from any of the specified branches of the Punjab National Bank and fill the details and deposit all the three copies along with the registration fee in cash to the said branch of the bank.

12. The description of the Head of account of the treasury challan should be as prescribed under Rule 22(1) of the Companies (Central Government's) General Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21-6-1996 (w.e.f. 21-6-1996). For account head and code please see Rule 22(1) in Appendix 1.

13. Two copies of the challan will be given back to the depositor, the original copy should be sent to the concerned Registrar of Companies along with Form No. 23 mentioned in item 9.

14. If the shares of your company are listed with any of the recognised Stock Exchange, then forward three copies of the notice and a copy of the proceedings of the General Meeting to the Stock Exchange. [Clause 31(c) and (d) of the Standard Listing Agreement].

15. If the shares of your company are listed with any of the recognised Stock Exchange then issue the Sweat Equity Shares in accordance with the regulations made by the Securities Exchange Board of India in this behalf [Section 79A(1)(d)].

16. If your company's equity shares are not listed on any recognised Stock Exchange then issue the Sweat Equity Shares in accordance with the guidelines as may be prescribed by the Department of Company Affairs. [Section 79A(1)(d) proviso].

17. If your company is issuing Sweat Equity Shares for consideration other than cash then follow the procedure given in Topic 319.

18. Note that for sub-section (1) of section 79A, a company means the company incorporated, formed and registered under the Companies Act, 1956 and includes its subsidiary company incorporated in a country outside India. [Section 79A(1) Explanation 1].

19. Further note that all limitations, restrictions and provisions relating to equity shares will be applicable to such Sweat Equity Shares issued under sub-section (1) of section 79A. [Section 79A(2)].

20. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

XIII. Offer for Sale of Shares to Public

Topic 331

DO YOU WISH TO MAKE AN OFFER FOR SALE OF SHARES TO THE PUBLIC?

1. Follow the procedure set out below if-

(a) your company is an unlisted company and is having a pre-issue net worth of not less than Rs. 1 crore in 3 out of preceding 5 years, with a minimum net worth to be met during immediately preceding 2 years; and

(b) your company is an unlisted company and has a track record of distributable profits in terms of 205 of the Companies Act, 1956 for at least 3 out of immediately preceding 5 years;

(c) if your company does not comply with the above conditions it can only offer shares for sale only through book building process.

2. Keep in mind that "offer for sale" means offer of securities by existing shareholders of a company to the public for subscription through an offer document. [Clause 1.2(xxi) of the Guidelines]

3. Offer at least 25% of the existing issued equity capital of the company to the public. [Clauses 8.3.1 & 8.3.2 of the Guidelines].

4. Maintain minimum stake of 20% of the total issued capital of the company after the public offer, by the promoters.

5. You are free to determine the issue price, which can be either at par or at premium determined in consultation with the Lead Merchant Banker to the offer for sale.

6. Disclose in the prospectus the details given in Chapter VI section I of the Guidelines.

7. Ensure that the promoters shareholding after offer for sale is not less than 20% of the post issue capital. [Clause 4.2.1 of the Guidelines].

8. The promoters' stake is subject to lock-in-period of 3 years from the date of allotment in public offer. [Clause 4.11.1 of the Guidelines].

9. The share certificates relating to public offer should be inscribed with the words "NOT TRANSFERABLE FOR TBREE YEARS". [Clause 4.16.1 of the Guidelines].

10. If the. offer for sale attracts Section 64 or Section 56(1)(b), then issue the prospectus in the like manner as in case of a public issue, except that in case of an offer for sale under Section 64 certain modifications will apply as mentioned in sub-sections (3), (4) and (5) of that Section.

11. In any other case, make the offer in any manner, keeping in view, of course, the provisions of Section 68.

12. Your company can offer shares for sale to the public either at par or at premium.

13. If the company is listed on a recognised Stock Exchange, then ensure the following:

(i) The offer is made in a form approved by the concerned Stock Exchange and should comply with the conditions relating to public advertisement, opening of the subscription list, allotment, etc.; that are applicable when a company offers its shares for public subscription through a Prospectus in accordance with the prescribed listing requirements.

(ii) The offer for sale must give all material particulars relating to the company as if it were a Prospectus issued, particularly it should include the following information regarding:

(a) shares on offer and terms of sale;

(b) capital structure of the company;

(d) any revaluation of assets or schemes of arrangement or reorganisation;

(e) last five years' profit and loss account summarised under principal heads;

(f) contingent and tax liabilities, etc.

(iii) The offer contains in bold types a statement on the following lines:

(a) The offerers collectively and individually accept full responsibility for the accuracy of the information given in this offer for sale and confirm that to the best of their knowledge and belief there are no other facts the omission of which would make any statement in the Offer for Sale misleading and they, further confirm that they have made all reasonable inquiries to ascertain such facts;

(b) The offerers hereby declare that the Stock Exchange to which an application for official quotation is proposed to be made does not accept any responsibility for the financial soundness of this offer, or the price at which the Offer for Sale is made, or for the correctness of the statements made or opinions expressed in this Offer for Sale.

14. Prepare the scheme of distribution of shares in response to the applications received and get the same approved by the Stock Exchange concerned, if the shares offered are proposed to be enlisted.

15. Execute the proper transfer deeds as per the above scheme and lodge the same with the company enclosing related share certificates.

16. The Company will then register the transfers, enter the transferees as the members of the company and will complete all other formalities in this regard such as endorsement on share certificates, entries in various registers, etc., etc.

17. Note that the requirement of 90% minimurn subscription will not be mandatory in case of sale of securities. [Clause 6.3.8.4.1 of the Guidelines].

18. Further note that in an offer for sale, the entire amount payable on each instrument should be brought in at the time of application. [Clause 8.6.1(vii) of the Guidelines]

XIV. Allotment in Over subscription

Topic 332

DO YOU WISH TO KNOW THE BASIS OF PROPORTIONATE ALLOTMENT IN THE EVENT OF OVER-SUBSCRIPTION OF PUBLIC ISSUE?

1. Please note that in a public issue of securities the Executive Director/Managing Director of the Regional Stock Exchange along with the post issue Lead Merchant banker and the Registrar to an issue is responsible to ensure that the basis of allotment is finalised in a fair and proper manner in accordance with the guidelines given in clause 7.6.1.1 of the guidelines but in the book building portion of a book built. Public issue notwithstanding the aforesaid clause, clause 11.3.5 of the guidelines should also be applicable. [Clause 7.6.1 of the Guidelines as amended by RMB (compendium) Series Circular No. 2 (1999-2000) dated 16-2-2000].

2. While making the proportionate allotment system do the following : (a) allocate a minimum 50 per cent of the net offer to the public out of the public issue amount for individual investors applying for securities including shares equal to or less than 10 marketable lots; (b) set apart the remaining 50 per cent of the offer to the public for individuals applying for more than 10 marketable lots including institutions and corporate bodies irrespective of the number of shares; (c) make available the uhsubscribed portion of the net offer to any one of the above two categories for allotment to applicants in the other category, if required. [Clause 7.6.1.2.1 (a) (b) (c) of the Guidelines].

3. Keep in mind that "a minimum of 50% of the public offer" means that if the category of individual applicants up to 10 marketable lots would have got 70 per cent of the public offer in accordance with proportionate formula, they would get 70 per cent and if they are eligible for only 30% of the public offer in accordance with the formula, a reservation of a minimum of 50 per cent of the net public offer should be made. [Clause 7.6.1.2.1 Explanation of the Guidelines].

4. Ensure that there are at least 5 shareholders for every Rs. 1 lakh of net capital offer made to the public [Press Release, dated 28-5-1996 issued by Bombay Stock Exchange. I [Press Note No. 60/95, dated 22-5-1995 issued by SEBI].

5. Keep in mind that the allotment on oversubscription calculated and explained as below is subject to allotment in marketable lots on a proportionate basis. [Clause 7.6 1.1 of the Guidelines].

6. Categorise applicants according to the number of shares applied for. [Clause 7.6 1. 1. (a) of the Guidelines].

7. Determine the number of shares to be allotted to each category as a whole on a proportionate basis i.e. the total number of shares applied for in that category (number of applicants in the category x number of shares applied for) multiplied by the inverse of the oversubscription ratio as illustrated below:

Total number of applicants in category of 100s - 1,500

Total number of shares applied for - 1,50,000

Number of times oversubscribed - 3

Proportionate allotment to category - 1,50,000 x 1/3

= 50,000

[Clause 7.6.1.1 (b) of the Guidelines].

8. Calculate the number of the shares to be allotted to the successful allottees on a proportionate basis i.e. total number of shares applied for by each applicant in that category multiplied by the inverse of the oversubscription ratio. Schedule XVIII of the guidelineS2 of basis of allotment procedure may be referred:

Number of shares applied for by each applicant - 100

Number of times oversubscribed - 3

Proportionate allotment to each successful applicant - 100 x 1/3 = 33

(to be rounded off to 100)

[Clause 7.6.1.1 (c) of the Guidelines].

9. Please note that all the applications where the proportionate allotment works out to less than 100 shares per applicant the allotment shall be made as follows:

(i) Each successful applicant shall be allotted a minimum of 100 securities; and

(ii) The successful applicants out of the total applicants for that category shall be determined by drawal of lots in such a manner that the total number of shares allotted in that category is equal to the number of shares worked out as per (ii) above. [Clause 7.6.1.1 (d) of the Guidelines].

10. If the proportionate allotment to an applicant works out to a number that is more than 100 but is not a multiple of 100 (which is the marketable lot), the number in excess of the multiple of 100 would be rounded off to the higher multiple of 100 if that number is 50 or higher. [Clause 7.6.1.1 (e) of the Guidelines].

11. If the proportionate allotment to an applicant is lower than 50, it would be rounded off to the lower multiple of 100. As an illustration, if the proportionate allotment works out to 250, the applicant would be allotted 300 shares. If however the proportionate allotment works out to 240, the applicant will be allotted 200 shares. All applicants in such categories would be allotted after such rounding off. [Clause 7.6.1.1 (f), (g) and (h) of the Guidelines].

12. If the shares allocated on a proportionate basis to any category is more than the shares allotted to the applicants in that category adjust, the balance available shares for allotment against any other category, where the allocated shares are not sufficient for proportionate allotment to the successful applicants in that category. [Clause 7.6.1.1 (i) of the Guidelines].

13. Add the balance shares, if any, remaining after such adjustments to the category comprising of applicants applying for minimum number of shares. [Clause 7.6.1.1 (j) of the Guidelines].

14. As the process of rounding off to the nearer multiple of 100 may result in the actual allocation being higher than the shares offered, it would be necessary to allow a 10% margin i.e. the final allotment may be higher upto 110% of the size of the offering. [Clause 7.6.1.1 (k) of the Guidelines].

15. Ensure that the drawal of lots (where required) to finalise the basis of allotment is done in the presence of the public representative on the governing Body of the Regional Stock Exchange. [Clause 7.6.2 of the Guidelines added by RMB (Compendium) Series Circular No. 2 (1999-2000) dated 16-2-2000].

16. Also ensure that the basis of allotment is signed as correct by the Executive Director/Managing Director of the Stock Exchange and the public representative in addition to the Lead Merchant Banker responsible for post-issue activities and the Registrar to the Issue. [Clause 7.6.3 of the Guidelines added by RMB (Compendium) Series Circular No. 2 (1999-2000) dated 16-2-2000.]

XV. Acceptance of Unpaid Share Capital

Topic 333

DO YOU WISH TO ACCEPT UNPAID SHARE CAPITAL ALTHOUGH NOT CALLED UP?

1. See whether the Articles of Association of your company provide acceptance of unpaid share capital from any member before it is called up. [Section 92(1)].

2. If not, then alter the Articles by passing a special resolutionj vide Topic 26.

3. If you wish, you may provide in the Articles that dividend will be paid also on the amount paid-up, though not called. [Section 93].

4. See that the members from whom such unpaid share capital has been accepted do not exercise any voting rights in respect of the moneys so paid by them unless such payment becomes actually due when eventually called up. [Section 92(2)]. This is applicable only to companies limited by shares.

5. You may, if you so wish, also provide in the Articles for payment of interest on the sum so pre-paid by any member. [Regulation 18(b), Table A].

6. Note that the shareholders in general meeting may vary and enhance the rate of interest permitted by the Articles. [Deputy CIT v. Manipal Industries Ltd., (1997) 12 SCL 15 (ITAT-Bangalore)].

XVI. Issue of Share Warrants

Topic 334

DO YOU WISH TO ISSUE SHARE WARRANTS TO BEARERS IN RESPECT OF FULLY PAID-UP SHARES?

1. Share warrants may be issued after complying with the following conditions:

(i) Articles should provide for issue of warrants to bearers; if not, amend them suitably vide Topic 26;

(ii) Your company should be a public company limited by shares;

(iii) Shares regarding which share warrants will be issued must be fully paid-up;

(iv) Previous approval of Central Government should be obtained;

(v) Share warrants are to be issued under the common seal of your company;

(vi) Approval of the Reserve Bank of India.

2. Call a Board Meeting after giving notices to all the directors of your company as per section 286 and decide about the issue in response to applications received in that respect from the members holding fully paid-up shares, subject to the approval of the Central Government [Section 114] and the Reserve Bank of India.

4. See that the applicants have sent their respective share certificates and the amount of the stamp duty on the warrant and such fee as the Board may from time to time require. [Regulation 40 of Table A].

5. Make an applicationt in a letter form (as there is no prescribed form in this regard), to the Central Government giving therein or attaching thereto the following:

(i) Detailed reasons for such iss'ue;

(ii) List of members to whom and the manner in which the same will be issued and number and amount of shares held by each of them;

(iii) A certified true copy of the Memorandum and Articles of Association and the latest audited balance-sheet;

(iv) Certified true copy of relevant Board Meeting minutes;

(v) Treasury challan showing the requisite fees prescribed under Companies (Fees on Applications) Rules, 1999 having been deposited in accordance with rule 22(2) of the General Rules and Forms;

(vi) Certified true copy of approval letter from the Reserve Bank of India.

6. On receipt of the Government approval, prepare the share warrants and get the same stamped, sealed and signed, intimate to the members concerned, and deliver them the share warrants in exchange of the share certificates.

7. See that coupons are attached to the share warrants for the payment of the future dividends.

8. Strike out the names of the above members from the Register of Members and enter the following details in the same. [Section 115(1)]:

(a) the fact of the issue of warrant;

(b) a statement of the shares specified in the warrant, distinguishing each share by its number;

9. Keep in mind that the bearer of a share warrant will be entitled to have his name entered as a member in the Register of Members on surrendering the warrant for cancellation subject to any provisions in the Articles of your company. [Section 115(2)].

10. Further keep in mind that your company will be responsible for any loss incurred by any person for entering the name of a bearer of share warrant in the Register of Members of your company without the warrant being surrendered and cancelled. [Section 115(3)].

11. Once the share warrant is surrendered and cancelled, enter the date of surrender in the Register of Members in respect of the shares for which the share warrant is surrendered. [Section 115(4)].

12. Note that the bearer of a share warrant may be deemed to be a Member of your company if the Articles of your company so provide for any purposes defined in the Articles. [Section 115(5)].

13. Further note that for default in complying with any of the requirements of Section 115 your company and every officer of your company who is in default, will be punishable with fine up to Rs. 500/- for every day during which the default continues. [Section 115(6)].

14. Keep in mind that if your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

15. Note that if any person deceitfully personates an owner of any share warrant or coupon issued under the Companies Act, 1956 and thereby obtains or attempts to obtain any such share warrant or coupon or receives or attempts to receive any money due to any such owner, he will be punishable with imprisonment for a term which may extend to 3 years and will also be liable to fine. [Section 116].

XVII. Issue of Debentures

Topic 335

DO YOU WISH TO ISSUE DEBENTURES?

1. Note that debenture issue by group companies for financing acquisition of shares of, or for providing loan to, any company in the same group is allowed only if the debenture is fully convertible within a period of 18 months of the date of allotment and not otherwise. [Clause 10.8.3 of the Guidelines].

2. Further note that issue of fully convertible debentures having a conversion period of more than 36 months is not permissible unless the conversion is made optional with 'put' and 'call' option and if conversion takes place at or after 18 months from the date of allotment but before 36, any conversion in part or whole of the debentures should be optional at the hands of the debenture holder. [Clause 10.8.1 and 10.8.2 of the Guidelines].

3. File with the Registrar of Companies particulars of charge as per Topic 52 if your company proposes to create charge for debentures of maturity of less than 18 months. [Clause 10.6.5 of the Guidelines].

4. Keep in mind that where no charge is created on debentures, the issuing company should ensure compliance with the provisions of the Companies (Acceptance of Deposits) Rules, 1975, as, unsecured debentures/bonds are treated as "deposits" for purposes of these Rules. [Clause 10.6.5 Proviso of the Guidelines].

5. Keep in mind that if your company is proposing to issue convertible debentures, the promoters will have an option to bring in their subscription by way of equity or by way of subscription to the convertible security being offered through the proposed issue so that the total promoters contribution is not less than the required minimum contribution referred to in clauses 4.1.1, 4.1.2, 4.2.1, 4.3.1, 4.4.1 and 4.5.1 of the Guidelines. [Clause 4.7.1 of the Guidelines].

6. Further keep in mind that if the conversion price of emerging equity is not pre-determined and the same has not been specified in the offer document instead a formula for conversion price is indicated the promoters should not have the said option and should contribute by subscribing to the same instrument. [Clause 4.7.1 Proviso of the Guidelines].

7. Note that in case your company's issue of debentures is convertible at stages either at par or at premium, where conversion price is predetermined the promoters contribution in terms of equity share capital should not be at a price lower than the weighted average price of the share capital arising out of conversion. [Clause 4.7.2 of the Guidelines].

8. Keep in mind that weights means the number of equity shares arising out of conversion of security into equity at various stages and price in the above case means the price of equity shares on conversion arrived at after taking into account predetermined conversion price at various stages. [Clause 4.7.2 Explanation of the Guidelines].

9. Compute the promoters contribution on the basis of post-issue capital assuming full proposal conversion of your company's proposed issue of convertible debentures. [Clause 4.7.3 of the Guidelines].

10. Also keep in mind that where promoters are contributing through the same optional convertible debentures as are being offered to the public, such contribution will be eligible as promoters contribution only if the said promoters undertake in writing to accept full conversion. [Clause 4.7.3 Proviso of the Guidelines].

11. Also keep in mind that a company cannot issue bonus/rights shares pending conversion of fully or partly convertible debentures, unless similar benefit is extended to the debentureholders through reservation of shares in proportion to such convertible part of the fully/partly convertible debentures. [Clause 8.7.2 of the Guidelines].

12. Note that your company is free to determine the interest rate for debentures. [Clausc 10.8.5 of the Guidelines].

13. Also determine in addition to the interest rate as above, the premium amount and the time of conversion of the debentures. [Clause 10.8.4 of the Guidelines].

14. Also determine in advance whether the debentures proposed to be issued will be convertible debentures or partly convertible debentures or nonconvertible debentures.

15. Call a Board Meeting after giving notice to all the directors of the company as per section 286 to decide about the issue of debentures and the steps to be taken in that regard [Section 292], keeping in view the following matters:

(a) whether the debenture is non-convertible, or fully or partly convertible

(b) if convertible stage(s) and terms of conversion including premium

(d) rate of interest

(e) whether public/right issue

(f) credit rating

(g) appointment of trustee

(h) appointment of Lead Manager(s) and other intermediaries.

16. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-. [Section 286(2)].

17. Note that your company cannot make a public or rights issue of debentures irrespective of their maturity or conversion period unless your company obtains credit rating from a credit rating agency and disclose it in the offer document. [Clause 10.1.1 of the Guidelines].

18. In case the issue size of debt securities of your company is equal to or greater than Rs. 100 crores two credit ratings from different rating agencies should be obtained. [Clause 10.1.2 of the Guidelines].

19. In case your company is a public company or its subsidiary then obtain the permission of the General Meeting by Ordinary Resolution unless borrowing by issue of debentures is within the borrowing limits already sanctioned under Section 293(1)(d).

20. Also obtain the permission of the General Meeting by Ordinary Resolution under Section 293(1)(a), if the whole or substantially the whole of any of the company's undertaking is proposed to be charged against the debentures by usufructuary mortgage.

21. Also obtain the permission of General Meeting by Ordinary Resolution for issue of debentures partly/fully convertible into equity shares in terms of Section 81(1A).

22. In case your company is a public company and the debentures proposed to be issued are convertible ones, then obtain the permission of the Central Government for the issue of the convertible debentures, unless the terms are such as are in conformity with the Rules, framed by the Central Government in this behalf. [Section 81(3)].

23. In addition to the above, where the debentures are issued to Government or to any institution specified by the Central Government obtain also the approval of your General Meeting by Special Resolution before the issue.

24. Keep in mind that if these formalities are not observed before the issue of the convertible debentures, then when shares will be actually issued on conversion of the debentures, provisions of Section 81 must be complied with in regard to issue of shares to debentureholders not in proportion to the equity shares.

25. If there be any prior charge in favour of other over the assets to be charged against the debentures, take permission of those others for creating charge, pari passu or next to them in respect of the debentures.

26. Obtain consent of the proposed trustees if the debentures are proposed to be issued under a trust deed.

27. Please note that Debenture Redemption Reserve should be created of the Debentures if their conversion/maturity period is beyond 18 months from the date of allotment. [Section 117C read with Clause 10.3.1 of the Guidelines].

28. Also note the following:

(a) No DRR is required for debentures issued by All India Financial Institutions (AIFIs) regulated by Reserve Bank of India and Banking Companies for both public as well as privately placed debentures. For other FIs within the meaning of Section 4A, DRR will be as applicable to NBFCs registered with RBI.

(b) For NBFCs registered with the RBI under Section 45-IA of the RBI (Amendment) Act, 1997, 'the adequacy' of DRR will be 50% of the value of debenturcs issued through public issue as per present SEBI (Disclosure and Investor Protection) Guidelines 2000 and no DRR is required in the case of privately placed debentures.

(c) For manufacturing and infrastructure companies, the adequacy of DRR will be 50% of the value of debentures issued through public issue and 25% for privately placed debentures.

(d) Section 117C will apply to debentures issued and pending to be redeemed and as such DRR is required to be created for debentures issued prior to 13.12.2000 and pending redemption subject to clarifications issued herein.

(e) Section 117C will apply to non-convertible portion of debentures issued whether they are fully or partly convertible.

29. Create a debenture redemption reserve (DRR) fund in case of issue of debentures with maturity of more than 18 months. [Section 117C read with Clause 10.3.1 of the Guidelines].

30. Create the above-mentioned DRR in accordance with the provisions given below:- [Clause 10.3.2 of the Guidelines].

(a) A moratorium up to the date of commercial production can be provided for creation of the debenture redemption reserve in respect of debentures raised for project finance. [Clause 10.3.2 (a) of the Guidelines].

(b) The debenture redemption reserve may be created either in equal instalments for the remaining period or higher amounts if profits permit. [Clause 10.3.2 (b) of the Guidelines].

(d) Drawal from DRR is permissible for redemption purposes only after 10% of the debenture liability has been actually redeemed by the Company. [Clauses 10.3.2 (c), (a) & (b) of the Guidelines].

(e) In the case of partly convertible debentures DRR should be created in respect of non-convertible portion of debenture issue on the same lines as applicable for non-convertible debenture issue.

(f) In respect of convertible issues by new companies, the creation of DRR should commence from the year company earns profits for the remammig life of debentures. [Clauses 10.3.2 (b), (a) & (c) of the Guidelines].

(g) Companies may distribute dividends out of general reserves in certain years if residual profits after transfer to DRR are inadequate to distribute reasonable dividends. [Clause 10.4 (c) (ii) of the Guidelines].

(h) DRR will be treated as a part of General Reserve for consideration of bonus issue proposals and for price fixation related to post-tax return. [Clause 10.3.2 (c) of the Guidelines].

(i) In case of new companies distribution of dividend shall require approval of the trustees to the issue and lead institution, if any. [Clause 10.4 (a) of the Guidelines].

(j) In the case of existing companies prior permission of the lead institution for declaring dividend exceeding 20 per cent or as per the loan covenants is necessary if the company does not comply with institutional conditions regarding interest and debt service coverage ratio. [Clauses 10.4 (b) of the Guidelines].

(k) Companies may redeem debentures in greater number of instalments. The first instalment may start from 5th instead of 7th year.

31. If your company is an infrastructure company you need not required to create DRR for the debentures issued by your company. [Clause 10.3.2(c), (c) of the Guidelines].

32. Please note that Debenture Trustees must be appointed if your company is issuing non-convertible debentures, or partly/fully convertible debentures with conversion/ maturity after 18 months from the date of allotment. (Section 117B(1) read with Clause 10.2.1 of the Guidelines].

33. Appoint only such person as Debenture Trustee who has been authorised to act as such by SEBI [Section 117B(1) proviso].

34. Where there are trustees to the debenture issue, the debentureholder's interest is required to be protected in certain manner as indicated in the Guidelines.

35. For the above purpose please keep in mind that trustees to the debenture issue will be vested with the requisite powers for protecting the interests of debentureholders including a right to appoint a nominee director on the Board of the company in consultation with institutional 13 debentureholders. [12 Section 117B(2) read with Clause 10.2.4 of the Guidelines].

36. Further keep in mind that lead institution/investment institution will monitor the progress in respect of debentures for project finance/modernisation/ expansion/ diversification/normaI capital expenditure. The lead bank for the company will monitor debentures raised for working capital funds. [Clauses 10.2.6 (a) and (b) of the Guidelines].

37. Ensure that the institutional debenture holders and trustees obtains a certificate from the company's auditors in respect of utilisation of funds during the implementation period of projects. In the case of debentures for working capital purposes the auditor's certificate should be obtained at the end of each accounting year. [Clause 10.2.6 (c) (i) and (ii) of the Guidelines].

38. Keep in mind that debenture issues by companies belonging to the groups for financing/replenishing funds or acquiring shareholding in other companies will not be permitted. [Clause 10.2.6 (c) (iii) of the Guidelines].

39. State in the offer document specifically the assets on which security will be created and also state the ranking of charges and in case of second or residual charge or subordinated obligation ensure that your company's offer document clearly states the risks associated with such subsequent charge. Obtain relevant consent for creation of security such as pari passu letter, consent of the lessor of the land in case, of leasehold land, etc., and submit to the debenture trustee before opening of issue of debentures. [Clause 10.6.1 of the Guidelines]

40. Also state in the offer document the security/asset.cover to be maintained and disclose therein the basis for computation of the security/asset cover, the valuation methods and periodicity of such valuation and arrive at the security/asset cover after reduction of the liabilities having a first/prior charge, in case the debentures are secured by a second or subsequent charge. [Clause 10.6.2. of the Guidelines]

41. Create security within 6 month s but not later than 12 months from the date of issue of debentures. [Clause 10.6.3 of the Guidelines].

42. If for any reason you are not in a position to create security within 12 months period, you will be liable to pay 2% penal interest to debentureholders. [Clause 10.6.3 1^st proviso of the Guidelines].

43. If security is not created even after 18 months a meeting of the debentureholders, should be called within 21 days to explain the reasons thereof and the date by which the security would be created. [Clause 10.6.3 2^nd proviso of the Guidelines].

44. Note that the trustees to the debentureholders will supervise the implementation of the conditions regarding creation of security for the debentures and regarding the debenture redemption reserve. [Clause 10.2.6 Explanation (a) of the Guidelines].

45. Ensure that the Merchant Banker files with SEBI alongwith draft offer document for issue of debentures certificates from your Bankers that the assets on which security is to be created are free from any encumbrances and the necessary pen-nissions to mortgage the assets have been obtained or a 'No Objection Certificate' has been obtained from the financial institution or banks for a second or pari passu charge in cases where assets are encumbered. [Clause 10.2.5 of the Guidelines].

46. Forward promptly to the Stock Exchange with which your company is enlisted, three copies of the notice and a copy of the proceedings of the General Meeting. [Clause 31(c) and (d) of the Standard Listing Agreement].

47. Prepare the draft trust deed and get the same approved by your Board authorising some one to execute the same [Section 117A].

48. Execute the trust deed within 6 months of the date of closure of the issue after proper stamping and get the same registered with the registration authorities of the appropriate State. [Clause 10.2.3 of the Guidelines].

49. In case of a public offer, issue the debenture Prospectus in similar manner as in the case of public offer of shares, as discussed in Topics 304 to 309.

50. If the offer document is not for the issue of debt instruments along with any other security; or if the proposed debt instrument does not have convertibility clause; or if the proposed debt instruments are not attached with warrants with an option to convert into equity shares then follow the procedure given in Topic 318.

51. Ensure that the following matters are indicated in the prospectus letter of offer to the extent applicable:

(i) Premium amount on conversion and the time of conversion.

(ii) Redemption amount for partly convertible and non-bonvertible debentures

(iii) Period of maturity for partly convertible and non-bonvertible debentures

(iv) Yield on redemption for partly convertible and non-bonvertible debentures

(v) Discount on non-convertible portion in case they are traded

(vi) Procedure for purchase on spot trading basis

(vii) The existing and future equity

(viii) Long term debt ratio

(ix) Servicing behaviour on existing debentures

(x) Payment of due interest on due dates on term loans and debentures

(xi) Certificate has been obtained from a financial institution or bankers about their no objection for a second or pari passu charge being created in favour of the trustees to the proposed debenture issues

(xii) Proposal to create or not to create charge for debentures

(xiii) If the investors exercise their option to sell the entire non-convertible portion of the Debentures to the agency specified in buy-back arrangement, payment may not be required to be made by them on allotment. [Clause 10.9 of the Guidelines].

(xiv) In the case of issue of fully convertible debentures, at a,rate less than the Bank rate, the ultimate price that would work-out to the investor taking into account the notional interest loss on the investments from the date of allotment of such debentures to the date of conversion. [Clause 8.16.1 of the Guidelines].

52. In case the debentures to be issued are bearer debentures, check up that your Articles authorise you to do so and obtain the permission of the Reserve Bank of India before the issue.

53. In case of a private offer, obtain applications by private negotiations.

54. On receipt of applications, complete proceeding regarding allotment. If the debentures are to be enlisted, get the allotment scheme first approved by the Stock Exchange concerned.

55. Within a period of thirty days generally from the creation of charge or such time as extended by the Registrar of Companies concerned not beyond thirty days next following the expiry of the said period of thirty days on payment of such additional fee not exceeding ten times the amount of fee specified in Schedule X register the particulars thereof in Form No. 8 in triplicate along with the copy of the instrument creating charge or a verified copy thereof [Section 125 read with rule 6] after paying the requisite fee prescribed under Schedule X to the Act, either in cash or by demand draft, treasury challan or postal order [Rule 22]. Postal order is accepted upto Rs. 50/-. [Rule 22 (3) Proviso].

56. File Form No. 13 also in triplicate along with Form No. 8 with the concerned Registrar of Companies.

57. The Registrar will issue the certificate of registration which shall be endorsed on every debenture certificate.

58. Please keep in mind if default is made in complying with the aforesaid requirement of registration, unless the registration is effected on the application of some other person, the company and every officer of the company or other person who is in default will be punishable with fine upto Rs. 5,000/- for every day during which the default continues. [Section 142(1)].

59. Complete all other proceedings such as issuing letters of allotment, debenture certificates, making entries in various registers, etc., etc.

60. Transfer the amount of matured debentures of your company along with interest accrued thereon remaining unclaimed and unpaid for a period of five years from the date they became due for payment to the Investor Education and Protection Fund established under section 205C. [Section 205C(2)(d),(e) and read with its proviso].

61. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

62. If your company is an unlisted Company, then your company should follow the provisions of sections 117A, 117B and 117C vide Topic 233.

63. Note that if your company’s paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued debenture during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

Topic 336

DO YOU WISH TO ISSUE BONUS DEBENTURES ?

1. Check whether the Articles of Association of your company authorise the company to issue bonus debentures and if it does not then complete proceedings to alter them accordingly, vide Topic 26.

2. Determine in advance of such issue of bonus debentures the following:

(i) the rate of interest;

(ii) whether to be non-convertible or convertible, and if convertible whether fully or partly convertible;

(iii) whether redeemable within 18 months of the issue or more than that time period;

(iv) maturity period of non-convertible debentures or non-convertible portion of partly convertible debentures;

(v) if convertible then the stages and terms of conversion;

(vi) credit rating;

(vii) appointment of trustee where the redemption period is more than 18 months.

3. Where the debentures are fully convertible or partly convertible then see that the expanded capital after conversion will be within the authorised share capital of your company. Otherwise complete proceedings to increase the authorised share capital suitably before conversion vide Topic 34.

4. Before issue of bonus debentures ensure the following :

(i) there is no default in payment of interest or principal in respect of fixed deposits of your company or in payment of principal or interest on existing debentures

(iii) the bonus issue of debentures is not made within 12 months of your public issue or rights issue, if any;

(iv) the proposed bonus issue of debentures if done after any public or rights issue does not dilute the value or rights of the holders of fully or partly convertible debentures of your company;

5. Also ensure strict compliance with the following financial parameters for determining the quantum of the bonus issue:

(i) that the bonus issue of debentures is made out of free reserve built out of the genuine profits or share premium collected in cash only;

(ii) that reserves created by revaluation of fixed assets are not utilised for this purpose.

6. Convene a Board Meeting after issuing notices to the directors of the company as per Section 286 to consider the issue of bonus debentures and also for taking necessary steps in that regard, including fixing the date of closure of books in consultation with the regional stock exchange and to frix up the date, time, place and agenda for convening a General Meeting and to pass a Special Resolution for the same.

7. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine up to Rs.1000/-. [Section 286(2)].

8. Obtain credit rating from a credit rating agency and in case the issue of bonus debentures is equal to or more than Rs. 100 crores, obtain two credit ratings from different agencies.

9. Please note that the bonus issue of debentures should be made within a period of 6 months from the date of approval of your company's Board of Directors.

10. Issue notices of closure of register of members in at least one English newspaper and one in the principal language of the district/region in which the company's registered office is situated. [Section 154].

11. Keep in mind that permission of RBI if any required under section 6(3)(b) of FEMA 1999, should be obtained to allot bonus debentures to Non-Resident Indians.

12. Issue notice in writing at least twenty-one days before the date of the General Meeting [Section 171(1)] with suitable Explanatory Statement. [Section 173(2)].

13. Hold the General Meeting and pass the Special Resolutionj by three fourths majority [Section 189(2)].

15. File the Special Resolution, with the relative Explanatory Statement with the concerned Registrar of Companies in Form No.23 within thirty days,[Section 192(4) (a)], after paying the requisite fee prescribed under Schedule X of the Companies Act, 1956, either by cash, demand draft or treasury challan. [Rule 22].

16. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine, of up to Rs. 200/- for every day during which the default continues. [Section 192(5)].

17. Publish a noticef of Record Date for the purpose of determining the eligibility of members for bonus debentures.

18. If the shares of your company are listed with any of the recognised Stock Exchange, then give notice to the Stock Exchange 42 days in advance informing about the closure of share transfer books and the recording date. Before allotment, a prescribed form duly filled in should be filed with the Stock Exchange. [Clause 16 of the Standard Listing Agreement].

19. Convene another Board Meeting by giving notice to all the directors of your company as per section 286 and complete proceding regarding allotment of the bonus debentures in the proportion and in the manner as mentioned in the resolution and as approved by the Stock Exchange where your company's shares are listed.

20. Complete all other proceedings for the issue of debenture certificates making necessary entries in various registers.

21. If the shares of your company are listed with any of the recognised Stock Exchange, then apply to the Stock Exchange for enlistment of bonus debentures together with provisional documents relating thereto.

22. Create a debenture redemption reserve for redemption of bonus debentures on the expiry of their maturity period and credit adequate amount to it out of the profits of your company every year until such debentures are redeemed. [Section 117C(1)]

23. Do not utilise the amounts credited to the debenture redemption reserve as aforesaid except for the purpose of redemption of debentures. [Section 117C(2)].

24. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued bonus debentures during the financial year and cornplied with the provisions of the Act as per paragraph 19 of the Form of Compliance 6 Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383 A(1) proviso].

Topic 337

DO YOU WISH TO SUBMIT TO SEBI OFFER DOCUMENT RELATING TO CERTAIN DEBT INSTRUMENTS (Eg. NON-CONVERTIBLE DEBENTURES)?

1. Please note that the procedure set out are applicable to any issue of debt instruments made through an offer document by a company whose securities are already listed on any stock exchange, and by a company who has obtained at least an 'adequately safe' credit rating, for its issue of debt instruments from a credit rating agency permitted to carry on credit rating activities under section 12C of SEBI Act.

2. Further note that the procedures set out below are not applicable to issue of debt instruments when the offer documents are for the issue of debt instruments along with any other security, or when the proposed debt instruments have a clause of convertibility into equity, or when the proposed debt instruments are. attached with warrants with an option to convert into equity shares.

3. Draft offer document (Letter of offer/prospectus) need not be submitted to SEBI for vetting or for obtaining Acknowledgement Card in respect of debt instruments not exempted under 2 above.

4. Appoint a Merchant Banker, holding a valid certificate of registration issued by SEBI to manage the issue.

5. Please note that it is the duty and responsibility of the Merchant Banker acting as Lead Manager to ensure that the offer document for the issue of debt instruments contains the disclosure requirements as specified by SEBI from time to time for issue of securities, e.g., disclosure requirements for rights issue will apply in case the issue of debt instruments is through a rights issue and that for a public issue will apply in case issue of debt instruments is through a prospectus.

6. Further ensure that the offer document drafted in consultation with Lead Manager provides a true, correct and fair view of the state of affairs of the company which are adequate for the investors to arrive at a well informed investment decision.

7. Further ensure that the Lead Manager submits the draft of the offer document to SEBI six weeks before the issue is scheduled to open for subscription.

8. Ensure that the Lead Manager incorporates the observations or comments or modifications, if any, made by SEBI within 3 weeks of receipt of such draft.

9. Further ensure that the Lead Manager re-submits to SEBI the offer document containing the modifications suggested by SEBI.

10. Also see that the Lead Manager submits along with the draft of the offer document a due diligence certificate to SEBI in the form specified.

11. Ensure compliance, with SEBI Rules, Regulations and Guidelines and requirements of other laws, for the time being in force.

12. Please note that the provisions of these guidelines shall be in addition to the provisions of the Companies Act, 1956 and the SEBI (Merchant Bankers) Rules and Regulations, 1992.

13. Further note that, these guidelines are in addition to the guidelines, circulars and Clarifications issued by SEBI and do not dispense with compliance thereof, save and except those which require the submission of an offer document, for an issue of debt instruments to SEBI for vetting an issue of acknowledgement card by SEBI.

14. Further note that disclosure requirements as specified by SEBI from time to time for rights issue will apply in case the issue of debt instrument is through a right issue and that for a public issue will apply in case the issue of debt instruments is through a prospectus.

Topic 338

DO YOU WISH TO ISSUE RIGHT DEBENTURES TO YOUR SHAREHOLDERS?

1. Hold a Board Meeting after giving notice to all the directors of the company as per section 286 and pass a resolution stating the total amount and number of debentures to be issued and the rate of interest to be given on them and of the period within which they will be redeemed by the company and the maturity period of those debentures.

2. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of upto Rs. 1,000/-. [Section 286(2)].

3. Draft the letter of offer as in the case of rights issue of shares discussed in Topic 313 and include the particulars.

4. See that the amount of debentures issued along with the outstanding loans are covered within the borrowing powers of the directors under Section 293(1)(d).

5. Offer the debentures to the existing shareholders of your company on a pro rata basis, by sending each one of them a letter of offer along with the application form.

6. Issue the Letter of offer in similar manner as in the case of Right offer of shares as discussed in Topic 313.

7. Please follow the procedure set out in Topic 318-

(a) if the offer document is not for the issue of debt instrument along with any other security; or

(b) if the proposed instrument does not have convertibility clause; or

8. Keep the offer open for a period of atleast 30 day and not more than 60 days. [Clause 8.8.2.1 of the Guidelines].

9. If there are any unsubscribed debentures, offer them to those shareholders of your company who are willing to take up additional allotment, to the depositors of your company and to the employees and business associates of your company.

10. If any portion of the issue still remains unsubscribed, Board of Directors of your company will then dispose them of in the manner they deem fit.

11. Do not allot the debentures unless and until a minimum subscription of ninety per cent of the amount of the debentures has been secured.

12. Make an application to the recognised Stock Exchange for listing the right debenture vide Topic 353.

13. See that Directors' Report states that the funds raised through the debentures have been utilised for the purpose for which they were raised till the debentures are outstanding.

14. For post-monitoring reports to be submitted to SEBI, see Topic 314.

15. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

16. Do not make any issue of rights debentures whether convertible or not unless credit rating from a credit rating agency is obtained and disclosed in the offer document. [Clause 2.5.1 of the Guidelines].

17. If your company has obtained credit rating from more than one credit rating agencies disclose in the offer document all the credit ratings including the unaccepted credit ratings. [Clause 2.5.2 of the Guidelines].

18. Keep in mind that if the issue of rights debentures of your company is greater than or equal to Rs. 100 crores, obtaining two ratings from two different credit rating agencies is a must. [Clause 2.5.3 of the Guidelines].

19. Make all the existing partly paid-up shares of your company if any into fully paid-up shares or forfeit them in accordance with clause 8.6.2 of the Guidelines before issuing rights debentures. [Clause 2.7 of the Guidelines].

20. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued debentures during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2000 [Section 383-A(1) proViso].

Topic 339

DO YOU WISH TO ISSUE FULLY/PARTLY CONVERTIBLE DEBENTURES OR LOANS?

1. Ensure that the conversion is made optional, with 'put' and 'call' option, if your company proposes to issue Fully Convertible Debentures (FCDs) with conversion period beyond 36 months. [Clause 10.8.1 of the Guidelines].

2. If the conversion is to be made within or after 18 months from the date of allotment, apply to a recognised credit rating agency and obtain credit rating. [Clause 10.1.1 of the Guidelines]. In case the issue size of debt securities of your company is equal to a greater than Rs. 100 crores to credit ratings from different rating agencies should be obtained. [Clause 10.1.2 of the Guidelines].

3. Please note that your company is free to determine the rate of interest on debentures till their conversion. [Clause 10.8.5 of the Guidelines].

4. If your company proposes to issue non-interest (Zero interest) bearing Fully Convertible Debentures disclose in the offer document, the ultimate price that would work out to the investor, taking into account the notional interest loss on the investments made in such FCDs from the date(s) of allotment to the date(s) of conversion.

5. Ensure that premium amount on conversion and time/stage of conversions are pre-determined and mentioned in the prospectus. Redemption amount, period of maturity, yield on redemption for the partly convertible debentures should be indicated in the prospectus. [Clause 10.8.4 and 10.9 (b) of the Guidelines].

6. If your company proposes to issue debentures which are convertible at or after 18 months from the date of allotment but before 36 months, give the debentureholders the option of conversion. [Clause 10.8.2 of the Guidelines].

7. Keep in mind that where "cap price" with justification thereon is fixed beforehand and is disclosed to the investors before issue, it will not be necessary to give option to the debentureholders for converting the debentures into equity within the "cap price". [Clause 10. 7.1.2 (ii) proviso of the Guidelines].

8. Have the letter of option filed with SEBI through an eligible merchant banker containing disclosed with regard to credit rating, debenture holder resolution, option for conversion, justification for conversion price and such other terms which SEBI may prescribe from time to time, in the cases given below. [Clause 10.7.1 of the Guidelines].

9. In case of roll over of non-convertible portions of partly convertible debentures (PCDs) and non-convertible debentures (NCDs) and also in case of conversion of PCDs and fully convertible debentures (FCDs) into equity capital. [Clauses 10.7.1.1 and 10.7.1.2 of the Guidelines].

10. If your company is a listed company and you have issued PCDs and NCDs and the value of the non-convertible portions of those PCDs and NCDs exceeds Rs. 50 lakhs, they can be rolled over without change in their interest rate subject to the conditions mentioned below. [Clause 10.7.1.1 (i) of the Guidelines].

11. Give an option to debenture holder compulsorfly to redeem the debentures as per the terms of the offer document. [Clause 10.7.1 (i)(a) of the Guidelines].

12. Ensure that the roll over is done only in cases where debenture holders have sent their positive consent and not on the basis of the non-receipt of their negative reply. [Clause 10.7.1 (i)(b) of the Guidelines].

13. Obtain a fresh credit rating before roll over of any NCDs or nonconvertible portion of the PCDs within a period of 6 months prior to the due date of redemption and communicate to debenture holders before roll over. [Clause 10.7.1 (i)(c) of the Guidelines].

14. Execute a fresh trust deed at the time of such roll over. [Clause 10.7.1 (i)(d)of the Guidelines].

15. Create fresh security in respect of such debentures to be rolled over. [Clause 10.7.1 (i)(e) of the Guidelines].

16. Do not create fresh security if the existing trust deed or the security documents provide for continuance of the security till redemption of debentures. [Clause 10.7 (i)(e) proviso of the Guidelines]

17. If your company is a listed company and you have issued PCDs and FCDs and the value of the convertible portion of those PCDs and FCDs exceeds Rs. 50 lakhs and their conversion price was not fixed at the time of issue, give the holders of such PCDs and FCDs a compulsory option of not converting into equity capital. [Clause 10.7.1.2(i) of the Guidelines].

18. Do not do the conversion only in cases where instrument holders have sent their positive consent and not on the basis of the non-receipt of their negative reply. [Clause 10.7.1.2(ii) of the Guidelines].

19. Redeem that part of debentures, where any of the debenture holders even after getting the option do not exercise their option to convert the debentures into equity at a price determined in the general meeting of the shareholders of your company, at a price which should not be less than its face value within one month from the last date by which option is to be exercised. [Clause 10.7.1.2(iii) of the Guidelines].

20. Ensure that your company does not follow the aforesaid action if such redemption is to be made in accordance with the terms of the issue originally stated. [Clause 10.7.1.2(iv) of the Guidelines].

21. Please note that promoters' contribution should be computed on the basis of post-issue capital assuming full proposed conversion of such convertible security into equity. [Clause 4.7.3 of the Guidelines].

22. Further note that where the promoter is contributing through the same optional convertible security as is being offered to the public, such contribution will be eligible as promoters contribution only if the promoter undertakes in writing to accept full conversion. [Clause 4.7.3 proviso of the Guidelines].

23. If your company is issuing Fully Convertible Debentures (FCDs) or Partly Convertible Debentures (PCDs) to the public, the promoters can bring in their contribution either by way of equity or by way of subscription to FCDs/PCDs so as to ensure that the promoters' stake in the company is maintained at the requisite minimum level of equity capital even after conversion of the debentures into equity. [Clause 4.7.1 of the Guidelines].

24. Note that if the conversion price of emerging equity is not predetermined and the same has not been specified in the offer document (instead a formula for conversion price is indicated) the promoters will not have the said option and will contribute by subscribing to the same instrument [Clause 4.7.1 proviso of the Guidelines].

25. If your company is required to bring in promoters' contribution by way of equity share capital and if your company proposes to issue to the public FCDs/PCDs which are convertible either at par or premium in more than one stage, bring in promoters contributions at the same price as payable by the debentureholders on conversion into equity on the basis of weighted average equity payable on conversion by the public, taking into account the pre-determined conversion prices at various stages and not lower than that. [Clause 4.7.2 of the Guidelines].

26. Please note that, pending conversion of FCDs/PCDs, your company cannot make any bonus or rights issue unless your company extends similar benefits to the holders of such FCDs/PCDs through reservation of shares in proportion to such convertible part of FCDs or PCI)s falling dud for conversion. [Clause 8.7.2 (a) of the Guidelines].

27. Keep in mind that the shares so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the rights or bonus issues were made. [Clause 8.7.2 (b) of the Guidelines].

28. Call a Board Meeting after giving notice to all the directors of your company as per section 286 and take the decision of issuing convertible debentures or loans and fix the date, time, place and agenda of the General Meeting to pass an Ordinary/Special Resolution.

29. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1000/- [Section 286(2)].

30. If the decision taken in the Board Meeting confirms the issue of debentures or loans with an option attached to them to convert them into shares, then undertake the procedure given below.

31. See that the terms of the issue are in accordance with rule 3 of the Public Companies (Terms of Issue of Debentures and of Raising Loans with an Option to Convert such Debentures or Loans into Shares) Rules, 1977. [Section 81(3)(b), Proviso (a)].

32. If the convertible debentures are not issued to or convertible loans not obtained from Government or any institution specified by the Central Government in this behalf, then hold a General Meeting and approve such issue by passing a Special Resolution. [Section 81(3)(b), Proviso (b)]; (If they are issued to Govemment or any such institution, then no General Meeting Resolution is required.)

33. If the terms of the issue are not in accordance with the above rules, obtain approval from the Central Government.

34. For the above purpose make an applicationt to the Central Government addressed to "The Secretary, Department of Company Affairs, Ministry of Industry, Shastri Bhavan, New Delhi-110 001", on a plain paper giving details of the issue, that is, the terms and conditions of the issue, the total amount, period within which the option is to be exercised, the interest rates, etc. as there is no prescribed form for this application.

35. Attach the following documents along with this application:

(a) A certified true copy of the Memorandum and Articles of Association;

(b) A certified true copy of the latest audited balance-sheet and profit and loss account of your company;

(d) A Treasury Challan or a demand draft evidencing the payment of prescribed fees as per the Companies (Fees on Applications) Rules, 1999 and Rule 22(2) of the General Rules and Forms.

36. If the decision taken in the Board Meeting refers to the issue of loans or debentures without any option attached to them to be converted into shares, that is, if they are straightway to be converted into shares after some years, then undertaken the procedure as mentioned below.

37. Hold a General Meeting to pass a Special Resolution approving such issue of convertible debentures or loans without any option attached to them [Section 81(1A)(a)]; or to pass an Ordinary Resolutionj subject to the approval of the Central Government [Section 81(1A)(b)]

38. Apply to the Central Government on plain paper (as there is no prescribed form for this) as mentioned in item 34 above.

39. If the resolution passed is a special resolution, file the same with the concerned Registrar of Companies in Form No. 23 within thirty days of its passing [Section 1921 after paying requisite fee in cash or demand draft or treasury challan or postal order as prescribed under Schedule X to the Act [Rule 22]. Postal order is accepted upto Rs. 50/-. [Rule 22(3) Proviso].

40. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine upto Rs. 200/- for every day during which the default continues. [Section 192(5)].

41. Forward to the Stock Exchange three copies of the notices and a copy of the proceedings of the General Meeting if your company is listed on it.

42. If your company is issuing convertible debentures with conversion to take place after 18 months from the date of allotment of debentures

(a) appoint a Debenture Trustee and execute the Trust Deed within a period of 6 months of the closure of the issue; [Section 117A and 117B read with Clauses 10.2.1 and 10.2.3 of the Guidelines].

(b) create Debenture Redemption Reserve. [Section 117C read with Clause 10.3.1 of the Guidelines].

43. Also note the following:

(b) For NBFCs registered with the RBI under Section 45-IA of the RBI (Amendment) Act, 1997, 'the adequacy' of DRR will, be 50% of the value of debentures issued through public issue as per present SEBI (Disclosure and Investor Protection) Guidelines 2000 and no DRR is required in the case of privately placed debentures.

(c) For manufacturing and infrastructure companies, the adequacy of DRR will be 50% of the value of debentures issued through public issue and 25% for privately placed debentures.

(e) Section 117C will apply to non-convertible portion of debentures issued whether they are fully or partly convertible.

44. Take steps to enlist the debentures with stock exchange(s). [See Topic 353].

45. In case your company proposes to issue convertible debentures, apply to the stock exchange(s) in advance for the listing of shares which would be generated by conversion of the convertible debentures, either with the application for the listing of the convertible debentures, if the terms of conversion are known, or within 10 days of the finalisation of the terms of conversions, if such terms are to be decided subsequently.

46. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued debentures during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.[Section 383-A(1) proviso].

Topic 340

DO YOU WISH TO ISSUE SHARES ON CONVERSION OF DEBENTURES OR LOANS?

1. Call a Board Meeting after giving notice to all the directors of the company as per section 286 to consider the terms and conditions of the Debentures or Loans giving option for conversion into shares and the number of debentureholders who have exercised the option, by passing necessary resolutions.

3. Such issue of shares caused by the exercise of an option attached to debentures issued or loans raised by the company need not comply with the provisions of Section 81 provided their issue complied with the following conditions:

(i) The issue had been made with the previous approval of the Central Government; or

(ii) The issue conforms to the following conditions of rule 3 of the Public Companies (Terms of Issue of Debentures and of raising of Loans with Option to Convert such Debentures or Loans into Shares) Rules, 1977:

(a) if the debentures or loans are issued or raised either through private subscription or through the issue of a prospectus to the public;

(b) a public financial institution either underwrites or subscribes to or sanctions the whole or part of the issue of such debentures or loans;

(iii) Having regard to the financial position of the company, the terms of issue of the debentures or the terms of the loans, the rate of interest payable on them, the capital of the company, its loans, liabilities, its reserves, its profits during the immediate five years and the current market price of the shares of the company, the financial institutions provide for a term that an option will be there to convert those debentures or loans or any part thereof into shares in the company or to subscribe for shares therein either at par or at a premium not exceeding twenty-five per cent of the face-value of the shares.

4. If the issue was made to or loans obtained from any person other than the Government or any institution specified by it then in addition to complying with either of the requirements mentioned in above item 3, the issue had been approved by a Special Resolution before it was made. [Section 81(3) Proviso (b)].

5. Where the option to convert has been exercised, call a Board Meeting after giving notice to all the directors of the company as per section 286 and allot shares, on conversion of debentures or loans by passing necessary resolutions.

6. File the Return of Allotment with the Registrar of Companies within thirty days of such allotment [Section 75(1)] in Form No. 2 after paying the requisite fee prescribed under Schedule X to the Act, either in cash or by treasury challan or demand draft or postal order. [Rule 22] Postal order is accepted upto Rs. 50/(Rule 22(3) Proviso].

7. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, every officer of the company who is in default will be punishable with fine upto Rs. 5,000/- for every day during which the continues. [Section 75(4)].

8. Keep in mind that share certificates to be issued on conversion of debentures are as far as possible, in marketable lots and, in respect of the balance which is in odd lots, in denominations of 1-2-5-10-20-50 shares. [Clause 6.5.2.3 of the Guidelines].

9. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

10. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs. 10 lakhs, your company is required to obtain a Compliance Certificat6 froma secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued shares during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.[Section 383-A(1) proviso].

Topic 341

DO YOU WISH TO RE-ISSUE REDEEMED DEBENTURES UNDER SECTION 121?

1. Before proceeding to re-issue redeemed debentures, check up whether it is prohibited by any of the following:

(i) Articles of Association; if prohibited, then amend them suitably as per Topic 26;

(ii) Conditions of the previous issue of the redeemed debentures;

(iii) Any contract entered into by the company.

2. Follow the whole procedure of issuing debentures as per Topic 335.

3. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

4. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued debentures during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proViso].

Topic 342

DO YOU WISH TO "ROLL OVER" NON-CONVERTIBLE PORTION OF PARTLY CONVERTIBLE DEBENTURES OR NONCONVERTIBLE DEBENTURES?

1. Please note that the interest rate on roll-over may be the same where the value of the non-convertible portion of partly convertible debentures (PCDs) and non-convertible debentures exceeds Rs. 50 lakhs and your company is a liable company. [Clause 10.7.1.1 (i) of the Guidelines]. Inform the debentureholders suitably.

2. Give option to debentureholders to redeem the debentures as per the terms of the offer document. [Clause 10.7.1.1 (i)(a)].

3. Ensure that roll-over is done only on receipt of positive consent of a debentureholder and not on the basis of non-receipt of a negative reply. That is, if the debentureholders do not consent to roll-over in writing, they are entitled to encashment. [Clause 10.7.1.1 (i)(b) of the Guidelines].

4. Obtain a fresh credit rating within a period of six months from the due date of redemption. [Clause 10.7.1.1 (i)(c) of the Guidelines].

5. Communicate the fresh credit rating to the debentureholders. [Clause 10.7.1.1 (i)(e) of the Guidelines].

6. Get letter of option regarding roll-over containing, inter alia, the following particulars filed with SEBI:

(i) The fresh credit rating;

(ii) Resolution of the debentureholders. [Clause 10.7.1. of the Guidelines].

7. Execute a fresh trust deed. [Section 117A read with Clause 10.7.1.1 (i)(d) of the Guidelines].

8. Keep in mind that a fresh security need not be, however, created if the existing trust deed or the security documents provide for continuance of the security till redemption of debentures. [Clause 10.7.1.1 (i)(e) proviso of the Guidelines].

Topic 343

DO YOU WISH TO SECURITISE THE DEBTS OF YOUR COMPANY ?

1. Check whether the Articles of Association of your company authorise it to securitise the debts of your company and in case it do not authorise you to do so then first complete proceedings to alter them accordingly, vide Topic 26

2. Also check the following before starting the process of securitising the debts of your company:

(1) whether the issuing of the debentures or raising of the loans being your company's debts had the provision of exercising the option to convert them into shares or to subscribe for shares in your company; and

(2) whether the terms of issue of such debentures or the terms of such loans include a term providing for such option and such term has been approved by the Central Government before the issue of debentures or the raising of the loans; or

(3) they are in conformity with the Public Companies (Terms of Issue of Debentures and Raising of Loans with option to convert such debentures and Loans into Shares) Rules, 1977; and

(4) whether the debentures or loans other than debentures issued to or loans obtained from the Government or any institution specified by the Central Government in this behalf, has also been approved by a Special Resolution passed by your company in General Meeting before the issue of the debentures or the raising of the loans;

(5) whether the debentures have been issued to, or loans have been obtained from the Government by your company and the Central Govemment has by order directed in public interest that such debentures or loans or any part thereof shall be converted into shares in your company.

3. Convene a Board Meeting after issuing notices to the directors of the company as per Section 286 to decide about the securitisation of your company's debts and to fix up the date, time, place and agenda for convening a General Meeting and to pass a Special Resolution for the same. [Section 94(1)(a) &(2)].

4. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meetin as aforesaid and who fails to do so will be punishable with fine upto Rs.1000/-. [Section 286(2)].

5. If the shares of your company are listed with any of the recognised Stock Exchange, then immediately after the aforesaid Board Meeting intimate to the concerned Stock Exchange by letter or telegram short particulars of the proposed increase of paid-up share capital of your company. [Clause 22(c) of the Standard Listing Agreement]

6. Issue noticesf in writing at least twenty-one days before the date of the General Meeting [Section 171(1)] with suitable Explanatory Statement. [Section 173(2)].

7. Hold the General Meeting and pass the Special Resolution by three fourths majority [Section 189(2)] .

8. If the shares of your company are listed with any of the recognised Stock Exchange, then forward three copies of the notice and a copy of the proceedings of the General Meeting to the Stock Exchange. [Clause 31(c) and (d) of the Standard Listing Agreement].

9. File the Special Resolution, with the relative Explanatory Statement with the concerned Registrar of Companies in Form No.23 within thirty days, [Section 192(4) (a)], after paying the requisite fee prescribed under Schedule X of the Companies Act, 1956, either by cash, demand draft or treasury challan. [Rule 22].

10. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine of Rs.200/- for every day during which the default continues. [Section 192(5)].

11. If paid by way of treasury challan then obtain three copies of the treasury challan from any of the specified branches of the Punjab National Bank, and fill the details and deposit all the three copies along with the filing fee in cash to the said branch of the bank.

12. The description of the head of account of the treasury challan should be as prescribed under Rule 22(1) of the Companies (Central Government's) General Rules and Forms, 1956 and as amended vide GSR 251(E), dated 21-6-1996 (w.e.f 21-6-1996). For account head and code please see Rule 22(1) in Appendix 1.

13. Two copies of the challan will be given back to the depositor, the original copy should be sent to the concerned Registrar of Companies along with Form No. 23 mentioned in item 9.

14. Make necessary changes in every copy of the Memorandum and Articles of Association and in all other papers and documents immediately after the debts of your company are securitised.

15. Please keep in mind that if at any time the company issues any copies of the Memorandum and Articles of Association without making the necessary changes therein, the company and every officer of the company who is in default will be punishable with fine up to Rs. 1000/- for each copy so issued. [Section 40(2)].

XVIII. Issue of Public Sector Bonds

Topic 344

DO YOU WISH TO FLOAT PUBLIC SECTOR BONDS?

(See "Guidelines for Floatation of Public Sector Bonds", dated 6-1-1992 issued by Ministry of Finance, Department of Economic Affairs).

1. Please note that bonds can be issued only by public sector undertakings whose equity capital is wholly owned by the Central Government.

2. Further note that bonds can be issued for any of the following objects:

(a) setting up of new projects;

(b) expansion or diversification of existing projects;

(d) augmenting the long-term resources of the company for working capital requirements.

3. Make an application to the Ministry of Finance, Department of Economic Affairs, setting out complete details of the scheme in terms of the parameters set out herein below.

4. Keep in mind that Ministry of Finance will consider the application on the recommendation of the administrative Ministry controlling your undertaking and that administrative Ministry will make its recommendation after obtaining Presidential sanction and concurrence of Planning Commission.

5. Do not forget to submit adequate number of copies of the application, preferably with advance copies to the administrative Ministry and Planning Commission so that they can send their recommendations to the Ministry of Finance well in time.

6. Determine the quantum of issue after ensuring that debt-equity ratio does not exceed 4:1.

7. Decide whether you propose to issue taxable bonds or tax-free bonds and their period of maturity.

8. Adopt the rate of interest as per Table below:

Alternative-1	Taxable Bonds	Alternative-II		Tax-free Bonds
1. Maturity	7 to 14 years	Maturity	10 years upto 9% p.a.
2. Rate of Interest	As may be decided between the issuing corporation and the sub scribing public sector investment institutions	Rate of interest	9% p.a.

9. Keep in mind that you can adopt either or both the alternatives with the approval of the Ministry of Finance.

10. Obtain specific approval of Department of Economic Affairs and CBDT for the rate of interest on the bonds, and for the mode and mechanism for payment of interest to the investors.

11. Issue bonds in denominations of Rs. 1,000/- , Rs. 5,000/- or Rs. 10,000/-.

12. Please note that Tax-free bonds are subject to lock-in period of 3 years, and taxable bonds are subject to lock-in period of one year, from the date of allotment.

13. Make arrangements for buy-back of bonds on the expiry of the lock-in period, upto a face value of Rs. 40,000/- from any individual investor.

14. If you propose to place bonds with public sector investment institutions, obtain prior approval of Ministry of Finance for such placement.

15. Please note that NRI is permitted to invest in the bonds on non-repatriation basis only.

16. Consult Ministry of Finance as to the timing of the issue.

17. Appoint one or more nationalised banks or all-India financial institutions (depending upon the quantum of the issue) as Manager(s) to the issue and and to post-issue activities.

18. Obtain the approval of CBDT, prior to the issuing of bonds to the public, for tax exemptions:

(i) The income by way of interest on the taxable bonds will be entitled to exemption under Section 80L of the Income-tax Act, 1961.

(ii) The income by way of interest, from bonds with interest rate upto 9 per cent will be entitled to exemption from Income-tax Act, 1961, without limits.

(iii) These bonds will be exempt from wealth-tax within the overall limit specified under Section 5(IA) of the Wealth-tax Act.

19. Please note that the bonds are transferable as indicated below:

(i) In the case of taxable bonds, the boads van beiransfaued by endorsement or delivery only if the transferor informs the public sector enterprises by registered post within a period of sixty days of such transfers.

(ii) In the case of tax-free bonds, the bonds can be transferred and the exemption from tax will be available to the holders of such bonds only if he registers his name and the holding with that public sector enterprise.

20. Make an application to the Stock Exchange(s) for enlistment of the bonds.

Topic 345

DO YOU WISH TO ISSUE BONUS BONDS ?

1. Please note that bonds can be issued only by public sector undertakings whose equity share capital is wholly owned by the Central Goverment.

2. Check whether the Articles of Association of your company authorise the company to issue bonus bonds and if it does not then complete proceedings to alter them accordingly, vide Topic 26.

3. Determine in advance of such issue of bonus bonds the following:

(i) the rate of interest;

(ii) whether to be convertible or non-convertible;

(iii) the maturity period of the bonds;

(iv) the quantum of issue keeping in mind the required debt-equity ratio;

4. Ensure that your undertaking has enough free reserves built out of the genuine profits or share premium collected in cash only to issue bonus bonds to your undertakings' existing members.

5. Further ensure that reserves created by revaluation of fixed assets of your undertaking are not utilised for this purpose.

6. Make an application to the Ministry of Finance, Department of Economic Affairs, setting out complete details of such issue of bonus bonds.

7. Keep in mind that the Ministry of Finance will consider the application on the recommendation of the administrative Ministry controlling your undertaking.

8. Convene a Board Meeting after issuing notices to the directors of the company as per Section 286 to consider the issue of bonus bonds and also for taking necessary steps in that regard, including fixing the date of closure of books in consultation with the regional stock exchange and to fix up the date, time, place and agenda for convening a General Meeting and to pass a Special Resolution for the same.

9. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine up to Rs. 1000/-. [Section 286(2)].

10. Obtain credit rating from a credit rating agency and in case the issue of bonus debentures is equal to or more than Rs. 100 crores, obtain two credit ratings from different agencies.

11. Please note that the bonus issue of bonds should be made within a period of 6 months from the date of approval of your company's Board of Directors.

12. Issue notices of closure of register of members in at least one English newspaper and one in the principal language of the district/region in which the company's registered office is situated. [Section 154].

13. Issue notice in writing at least twenty-one days before the date of the General Meeting [Section 171(1)] with suitable Explanatory Statement. [Section 173(2)].

14. Hold the General Meeting and pass the Special Resolutionj by three fourths majority [Section 189(2)].

16. File the Special Resolution, with the relative Explanatory Statement with the concerned Registrar of Companies' in Form No.23 within thirty days, [Section 192(4)(a)], after paying the requisite fee prescribed under Schedule X of the Companies Act, 1956, either by cash, demand draft or treasury challan. [Rule 22].

17. Please keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine of up to Rs.200/-' for every day during which the default continues. [Section 192(5)].

18. Publish a notice of Record Date for the purpose of determining the eligibility of members for bonus bonds.

20. Convene another Board Meeting by giving notice to all the directors of your company as per section 286 and complete proceeding regarding allotment of the bonus bonds in the proportion and in the manner as mentioned in the resolution and as approved by the Stock Exchange where your company's shares are listed.

21. Complete all other proceedings for the issue of bond certificates making necessary entries in various registers.

22. If the shares of your company are listed with any of the recognised Stock Exchange, then apply to the Stock Exchange for enlistment of bonus bonds together with provisional documents relating thereto.

23. Note that if your company's paid-up share capital is less than Rs.50 lakhs but is equal to or more than Rs.10 lakhs, your company is required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued bonus bonds during the financial year and complied with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001. [Section 383-A(1) proviso].

XIX. Euro Issue

Topic 346

DO YOU WISH TO MAKE EURO ISSUE (FOREIGN CURRENCY CONVERTIBLE BONDS) (FCCBs) AND ORDINARY SHARES?

1. ‘Foreign Currency Convertible Bonds' (FCCBs) means bonds wholly or partly convertible bonds into ordinary shares of the company on the basis of any equity related warrants attached to debt instruments. [Para 2(b)].

2. Please note that companies are not permitted to issue warrants alongwith their Euro-issue. [Para 3].

3. Please further note the following

(1) FCCBs and ordinary shares are treated as direct foreign investment. [Para 4].

(2) The aggregate of foreign investments (excluding investments through Offshore Funds or by Foreign Institutional Investors) made directly or indirectly through Global Depository Receipts (GDRs) American Depository receipts (ADRs) should not exceed 51 % of the issued and subscribed capital of the issuer company. [Para 4].

(3) A company which is implementing projects not predominantly contained in Annexure-III of the New Industrial Policy of 1991, or a company which undertakes a project contained in Annexure-III but whose direct foreign investment after the proposed Euro-issue is likely to exceed 51 per cent of the post issue subscribed capital, will need to obtain prior FIPB clearance before final approval to the Euro-issue is given by the Finance Ministry.] [Para (b) of Press Note dated 11-5-1994].

(4) There is no restriction on the number of Euro-issues floated by a company or a group of companies in a financial year. [Para 6 of Press Note dated 20-6-1996].

4. Ensure that the proceeds of Global Depository Receipts (GDR) American Depository receipts (ADRs) are to be utilised for any purposes except on investment in real estate and stock markets. [Para III of Press Note dated 22-5-1998].

5. The total proceeds can be utilised for other general corporate restructuring uses including working capital requirements. [Para 10 of Press Note dated 20-6-1996 read with Para III of Press Note dated 22-5-1998].

6. If your company is having a minimum of 3-year consistent track record of good performance (financial or otherwise), you are eligible to issue GDRs/ADRs. [Para 3(2)].

7. Please note that the 3-year track record will be relaxed if the GDR Issue is for financing investments in infrastructure industries such as power generation, telecommunication, petroleum exploration and refining, ports, airports and roads. [Para (iii) of Press Note dated 25-11-1995 and Para 4 of Press Note dated 20-6-1996].

8. Banks, FIs, and Non-Banking Finance Companies (NBFCs) registered with RBI are eligible for GDR/ADRs issues with the restriction that investments in stock markets and real estate will not be permitted.

9. Further note that Indian Companies engaged in Information Technology Software and Information Technology Service are eligible to offer to their nonresident/ resident permanent employes (including Indian and overseas working directors) and also to their subsidiary companies incorporated in India or abroad and engafed in Information Technology Software and Information Technology Services, GDRs against the issue of ordinary shares under the scheme subject to the operational guidelines/conditions issued from time to time by the Government. [Para.3B].

10. Also note that if your company is engaged in the following sectors/areas where 80% of turnover is from these sectors/areas of operation of business of your company in the 3 previous financial years then your company is eligible to offer Global Depository Receipts against the issue of ordinary shares under the scheme to its non-resident/resident permanent employees including Indian and overseas working directors and also of their subsidiary companies, incorporated in India or abroad subject to the eligibility conditions and operational guidelines/ conditionalities announced from time to time by the Government

(i) Information technology;

(ii) Pharmaceuticals;

(iii) Biotechnology;

(iv) Any other activities within the knowledge based sector as notified by the Government from time to time. [Para 3C]

11. Keep in mind that the aforesaid norms would also be available for multi product diversified companies which do not conform to the criteria of 80% turnover as mentioned above but having an average annual export earnings of Rs. 100 crores from sectors mentioned above in the 3 previous financial years. [Para 3C]

12. You are required to specify the proposed end-uses of the issue proceeds at the time of making your application, and to submit quarterly statement of utilisation of funds for the approved end-uses, duly certified by your auditors.

13. Ensure that the issue structure of GDRs/ADRs conforms to the following requirements:

(1) GDR/ADRs is issued for one or more underlying shares or bonds held with Domestic Custodian Bank (that is a banking company which acts as a custodian for the ordinary shares or FCCBs which are issued against GDRs/ADRs or Certificates). [Para 5(1) read with Para 2(9)].

(2) FCCBs and GDRs/ADRs are denominated in freely convertible foreign currency. [Para 5(2)].

(3) The ordinary shares underlying GDRs/ADRs and the shares issued upon conversion of FCCBs are denominated only in Indian currency. [Para 5(3)].

14. Decide the following matters with the Lead Managers to your Euro Issue:

(a) public/private placement;

(b) number of GDRs/ADRs to be issued;

(d) rate of interest payable on FCCBs;

(e) conversion price, coupon and the pricing of the conversion options of FCCBs. [Para 5(4)].

15. Please note that GDRs/ADRs are eligible for enlistment on any of the Overseas Stock Exchanges or through Book Entry Transfer systems prevalent abroad. [Para 6].

16. Further note that GDRs/ADRs can be purchased, possessed and are freely transferable by a person who is a 'Non-resident' within the meaning of section 2(q) of FERA, 1973. [Para 6].

17. Also note that GDRs/ADRs are not subject to any lock-in period. [Para 5(5)].

18. Apply to the Ministry of Finance (Department of Economic Affairs) seeking permission for the issue and for finalising the issue structure. (See items 10 to 14 above) [Para 3(1) and (2)].

19. Finalise the issue structure in consultation with the Lead Manager to the Issue. [Para 3(3)].

20. Obtain the final approval of the Ministry of Finance (Department of Economic Affairs) for proceeding ahead with the issue. [Para 3(3)].

21. Both in-principle and final approvals are valid without limit from the respective date of their issue. [Para 17 of Press Note, dated 19-6-1996 read with Para II of Press Note, dated 22-5-1998].

22. You have the option,

(i) to retain the proceeds of the issue abroad with foreign banks which are rated for short-term obligations as A1+ ('A' one plus) by Standard and Poor or as P1 by Moody's, or with the branches of Indian banks as deposits or invested in treasury bills or other monetary instruments with maturity not exceeding one year;

(ii) to remit funds into India in anticipation of their utilisation for the approved end-uses, [see item 4 above] and retain them in FCDs with banks with public financial institutions in India- for their conversion into Indian rupees as and when expenditure for the approved enduses are incurred.

23. Please note the Authorised Dealers (Banks)/Public Financial Institutions are authorised to accept foreign currency deposits subject to certain conditions. [See Topic 349].

24. Hold a Board Meeting after giving notice to all the directors of the company as per section 286 to approve the following:

(a) the Euro-Issue;

(b) the (draft of) special resolution under section 81 of the Companies Act, 1956 for the issue;

25. Please keep in mind that every officer of the company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine of up to Rs. 1,000/-. [Section 286(2)].

26. Please note that it would be appropriate that the Special Resolution mentions the ceiling or upper limit of the issue and not necessarily the exact amount.

27. Issue notices in writing at least twenty-one days before the date of the meeting for the General Meeting proposing the Special Resolution with suitable Explanatory Statement [Section 171 (1) read with section 173(2)].

28. Hold the general meeting and pass the special resolution by three fourths majority sanctioning the Euro Issue.

29. File the special resolution so passed with the Registrar of Companies in Form No. 23, within thirty days of its passing [Section 192 (1) & (4) (a)] after paying requisite fee as prescribed under Schedule X to the Act.

30. Please also keep in mind that if default is made in complying with the aforesaid requirement of filing, the company and every officer of the company who is in default will be punishable with fine of up to Rs. 200/- for every day during which the default continues. [Section 192(5)].

31. Apply to the Chief General Manager, Exchange Control Department [Foreign Investment Division (1)] Reserve Bank of India, Central Office, Mumbai, enclosing a copy of the application made to the Ministry of Finance and a copy of the final approval obtained from it for necessary permission under FERA, for issue/acquisition of shares to/by non-residents, remittance of issue expenses opening of foreign currency accounts. [Para 10B. 10 of E.C.M.].

32. Make arrangements for appointment of

- Merchant Bankers/Lead Managers

- Underwriters

- Depository

- Custodian (in consultation with Depository)

- Bankers to the Issue

- Solicitors.

33. Draft the prospectus in consultation with Merchant Bankers and Solicitors.

34. File the prospectus with ROC, together with copies of the requisite documents and material contracts.

35. Arrange for printing of prospectus and application forms.

36. Finalise the following matters

- Depository Agreement with Depository and the Company

- Custodian Agreement between the Custodian and the Depository

- Draft of subscription agreement between Investors and Depository

- Marketing technique (Road shows, etc.)/strategy

- Timing of the issue.

37. Announce the date of Issuing of the issue.

38. Hold a Board meeting and pass appropriate resolution

(a) for allotment of shares to Depository;

(b) for executing of Depositors Agreement;

39. Note that even unlisted companies can float GDR/ADR/FCCB issues provided they fulfil the 3 years track record eligibility requirement and also comply with the standard listing requirements which are normally needed for listing on the domestic stock exchange within 3 years of starting making profits. [Para 2 and 4 of Press Note, dated 22-5-1998].

40. If your company has completed a buy-back of its shares or other specified securities under section 77A, it cannot make further issue of the same kind of shares including allotment of further shares under clause (a) of sub-section (1) of section 81 or other specified securities within a period of twenty-four months except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes sweat equity or conversion of preference shares or debentures into equity shares. [Section 77A(8)].

41. Keep in mind that in case your company issues any rights shares or bonus shares to your ordinary shareholders, your company can also issue GDRs/ADRs to GDRs/ADR's holders with the approval of the Ministry of Finance, Department of Economic Affairs. [Para 2 of Press Note dated 17-8-1998].

42. Also keep in mind shares issued to ordinary shares due to merger and amalgamation of companies can also be issued to GDRs/ADR's holders in the same proportion with the approval of the Central Government. [Para 5 of Press Note dated 17-8-1998].

43. Furnish to the RBI full details of such issue within 30 days from the date of closing of the issue in the Form specified in Annexure C of RBI Notification No. FEMA 20/2000-RB dated 3-5-2000. [Para 10A.3(2) of Foreign Exchange Management Manual].

44. Also furnish to RBI a quarterly return within 15 days of the close of the calender year in the Form specified in Annexure D of RBI Notification No. FEMA 20/2000-RB dated 3-5-2000. [Para 10A.3(3) of Foreign Exchange Management Manual]

45. Keep in mind that a listed Indian company may sponsor an issue of ADRs/GDRs with an overseas depository against shares held by its shareholders.

46. Further keep in mind that the above facility would be available pali passu to all categories of shareholders of the company whose shares are being sold in the ADRs/GDRs market overseas.

47. Remember that the above issues should conform to the FDI policy and other mandatory statutory requirements.

48. Adhere to the provisions of paragraphs 4B of Schedule I to the Foreign Exchange Management (Transfer or Issue of Security by a Person Outside India) Regulations, 2000.

Topic 347

DO YOU WISH TO ISSUE GLOBAL DEPOSITORY RECEIPTS/ AMERICAN DEPOSITORY RECEIPTS?

1. Note that your company can make an international offering of rupee denominated equity shares of your company by way of issue of global depository receipts (GDRs)/American Depository Receipts (ADRs) to persons resident outside India and also to export the said securities to investors outside India under GSR 109(E) dated 20-1-2000 issued by the RBI.

2. Keep in mind that the above notification also permits the investors to acquire securities so offered.

3. Further note that your company can do so provided your company has the necessary approval from the Ministry of Finance, Government of India to issue such GDRs/ADRs or is eligible to issue GDRs/ADRs in terms of the relevant scheme or notification issued by the Ministry of Finance.

4. Also note that your company should be eligible to issue shares to foreign investors under the automatic route of RBI or has the necessary approval from Secretariat for Industrial Assistance (SIA)/Foreign Investment Promotion Board (FIPB) and the percentage of foreign equity does not exceed the limits specified under the automatic route or the limits specified by the SIA/F1PB.

5. Keep in mind that your company is also permitted to issue shares in the name of depository or its nominees and to place the share certificates in respect of the said shares in the physical custody of a custodian in India against which the depository will issue GDRs/ADRs outside India.

6. Note that your company issuing GDRs/ADRs is also permitted to remit dividends through an authorised dealer as and when due subject to payment of Indian taxes as applicable.

7. Also note that your company is permitted to issue rights or bonus shares that may accrue in respect of the GDRs/ADRs.

8. Further note that your company is permitted in incur issue related expenses as approved by the Ministry of Finance, Government of India or up to the limits laid down in the relevant guidelines issued by the Government.

9. Your company is also permitted to remit and pay for filing, listing, agency or other fees on ongoing basis in respect of international stock exchange where the GDRs/ADRs are listed.

10. Keep in mind that under the aforesaid scheme your company is permitted to maintain a foreign register of members, if required.

11. Your company is also permitted to open an account abroad to receive the subscription monies in foreign currency.

12. Your company is further permitted in connection with the GDR/ADR issue to pay any foreign tax in the nature of sales or value added tax in respect of services provided to issuing company and reimburse any out of pocket expenses.

13. Your company is also permitted to repatriate the proceeds of the issue to India for deployment for purposes permitted by the Government of India.

14. Your company is also permitted to do the following pending repatriation of issue proceeds to India:

(a) Invest the funds as an interim arrangement on short-term basis as deposits in foreign banks which are rated for short-term obligations A1+by Standard and Poor or P1 by Moody's or with the branches of Indian banks abroad.

(b) Invest in treasury bills and other monetary instruments with maturities not exceeding one year.

(d) Invest in certificate of deposit or other paper issued outside India by banks incorporated in India.

15. Furnish a statement to Exchange Control Department of Reserve Bank of India, Central Office, Mumbai, within 30 days from the date of closing of the issue providing full particulars of the issue such as amount of GDRs/ADRs issued, a number of underlying fresh equity shares issued, listing arrangements, total amount raised, amount retained abroad and other relevant details regarding launching and initial trading of the GDRs/ADRs.

16. Also furnish to RBI capital structure of your company before and after the issue within 30 days from the closure of the issue.

17. Inform RBI of any repatriation of issue proceeds held abroad immediately on such repatriation.

Topic 348

DO YOU WISH TO ISSUE GDR/ADR LINKED STOCK OPTION TO YOUR EMPLOYEES BEING AN INDIAN SOFTWARE COMPANY OR COMPANIES ENGAGED IN INFORMATION TECHNOLOGY SOFTWARE AND INFORMATION TECHNOLOGY SERVICES?

[Press Note No. dated 23^rd June, 1998 and 16-9-1998 issued by the Department of Economic Affairs, investment Division]

1. Keep in mind that the scheme is applicable only to software companies which has already floated ADR/GDR or a company which is proposing to float ADR/GDR.

2. In case your company is proposing to issue GDR/ADR linked stock option to your employees, your company should clearly include such proposal as part of your application for the said GDRs/ADRs to the Department of Economic Affairs.

3. After obtaining the approval from the Department of Economic Affairs which will give approval for the total issue size of GDRs/ADRs inclusive of stock option, issue the GDRs/ADRs to the employees upto specified limit as and when an employee exercises his stock option.

4. Do not exceed the approval level of GDRs/ADRs to be issued at any cost.

5. In case your company has already issued GDRs/ADRs, your company should seek permission for issue of stock option relating to the existing GDRs/ADRs issue from the Department of Economic Affairs keeping in mind the general pammeters of the guidelines.

6. Note that the aforesaid special stock option scheme to be availed by your company to retain your highly skilled professionals would be applicable to listed and unlisted software Indian companies which fulfil the performance track record eligibility and other requirements under ADR/GDR guidelines.

7. A software company would be defined as a company engaged in manufacture or production of software where not less than 80 per cent of the company's turnover is from software activities and information technology software and information technology services means the companies which deal with such activities as defined in reconunendation No. 19(a) 2 and (b) of the notification dated 25-7-1998 issued by the Planning Commission.

8. The software company applying for issue of GDR/ADR linked stock options shall be required to submit relevant documents certified by a chartered accountant, establishing that they are a software company conforming to the stipulation indicated above. The relevant documents shall also be submitted to the Reserve Bank of India ('RBI'), while applying for permission for remittance of foreign currency for acquisition of GDRs/ADRs in exercise of the stock option.

9. The stock options shall be available to non-resident and resident permanent employees (including Indian and overseas working directors) of the company. The stock options shall not be available to the promoters and their relatives (as defined under the Companies Act).

10. The general FERA permission for resident employees of software companies under the ADR/GDR linked stock option scheme shall be granted by RBI. Requisite notification for this purpose will be issued by RBI. This would entitle a resident employee to acquire and/or hold ADR/GDR linked stock option, acquire ADR/GDR on exercise of the option, remit funds up to a limit of $ 50,000 in a block of five years for acquisition of ADRs/GDRs and to retain or continue holding ADRs/GDRs so acquired. The resident employee upon liquidation of ADR/GDR holdings would need to repatriate the proceeds to India unless a general/specific permission from RBI is obtained for its retention or use abroad.

11. Issue of stock options shall require a special resolution as applicable for preferential allotment of shares. The allotment of stock options shall be done by a committee of the Board of directors of the company. The committee of directors shall have a minimum of two non-executive members of the Board as its members.

12. The issuing company would be entitled to issue options not exceeding 10 per cent of its issued and paid-up equity capital.

13. The stock options may be issued at a discount of not more than 10 per cent to the market price at the time of the issue of the stock option.

14. While GDRs/ADRs acquired in exercise of the stock option shall be freely transferable, the stock options themselves shall be non-transferable.

15. Full disclosure should be made in the directors' report or in an annexure to the directors' report of the details of the stock option scheme by the company.

16. ADRs/GDRs acquired on exercise of stock options would be eligible for concessional tax treatment under section 115AC of Income-tax Act, 1961.

17. Follow other procedures as given in Topic 346 for Euro-Issue in general.

Topic 349

DO YOU WISH TO KEEP THE ISSUE PROCEEDS OF EURO ISSUE IN FOREIGN CURRENCY WITH AUTHORISED DEALERS/PUBLIC FINANCIAL INSTITUTIONS?

1. Please keep in mind that the issue proceeds of your company's Euro Issue kept in foreign currency can be utilised for the following purposes:

(i) meeting the cost of expansion or diversification or acquisition or import of new plants and machinery;

(ii) repayment of foreign currency loans;

(iii) any other purpose approved by the Government.

2. Further keep in mind that pending deployment of funds for the aforesaid purposes, your company is allowed to keep the foreign currency funds abroad in deposits with or certificate of Deposits or other instruments of banks who have been rated not less than A1+ by Standard and Poor or P1 by Moody's for short term obligations, deposits with branch outside India of an authorised dealer in India and in treasury bills and other monetary instruments with maturity or unexpired maturity not exceeding one year.

3. Note that the authorised dealers or public financial institutions will-accept foreign currency deposits of your company's Euro Issue subject to the conditions given below.

4. Foreign Currency Deposits (FCDs) will carry interest at a rate not exceeding LIBOR for the respective period for which deposit is accepted.

5. FCDs are convertible into Indian Rupees only as and when expenditure for approved end-uses is incurred by the issuer company including upto a maximum of 15% of the proceeds earmarked for general corporate restructuring uses.

6. Note that concerned authorised dealers/public financial institutions, are not allowed to swap the foreign currency for rupees but can use the amount for lending in foreign currency to eligible clients;

7. Further note that the concerned authorised dealers/public financial institutions are eligible to charge interest @ not exceeding 2.5% over 6-months LIBOR for lending out such funds.

8. The authorised dealers can invest surplus foreign currency out of the Euro Issue Proceeds as permitted in paragraphs 5B-3 and 4 of Foreign Exchange Management Manual, subject to the condition at 6 above.

9. The authorised dealers are required to maintain a cash reserve ratio or statutory liquidity reserve as laid down by RBI from time to time while dealing with such foreign currency deposits.

10. Please note that the above conditions are in addition to the conditions as may be imposed by the Government of India in its approval letter for the Euro Issue.

11. Further note that retention of proceeds of GRRs or FCCBs abroad pending their utilisation and investing them, abroad for a period not exceeding 1 year also pending their utilisation is a temporary facility allowed by RBI for parking of funds and this facility should not be used as an arena for investment by investing such funds beyond the period of 1 year without RBI's approval.

Topic 350

DO YOU BEING A SOFTWARE COMPANY WISH TO ACQUIRE AN OVERSEAS SOFMARE COMPANY?

1. Note that Government has by Circular F. No. 15/22/99 - NRI dated 27th December, 1999 issued by the Ministry of Finance, Investment Division decided to liberalise the operational norms governing overseas investments and mode of financing acquisitions by software companies.

2. Further note that to provide a flexible and automatic route for Indian software companies to acquire overseas software companies as a part of their business strategy, funded through the issue of American Depository Receipts (ADRs) or Global Depository Receipts (GDRs) an automatic route has been allowed only for the purpose of acquisition of software companies abroad.

3. Keep in mind that for such acquisition your company will not require either the approval of the special committee for overseas investment or the Government of India for accessing the ADR/GDR route for such. purposes and upto 100% of ADR/GDR proceeds would be used for acquisition on a back to back basis.

4. Check whether your company has already floated ADR/GDRs and thus has your company's track record reviewed and is currently listed in the overseas exchange as the said automatic facility is only available to such companies.

5. If your company has not already floated ADR/GDRs then you have to obtain one time blanket approval from the special composite committee thereafter your company can be eligible to avail the automatic facility.

6. Keep the value limit for the said scheme upto US$ 100 million which will be an annual limit for your company for one or more acquisitions.

7. If your company's business acquisition exceeds US$ 100 million your company's case will be considered by a special composite committee as mentioned above and such a composite committee will be both for the purpose of overseas investments as well as for approving ADR/GDR floatation.

8. Keep in mind that the said committee would while examining the merits of the proposal, alsotake into account the confidentiality of the proposal and if necessary, would provide flexibility for negotiations within certain parameters.

9. Also keep in mind that ADR/GDRs to be issued by your company under the aforesaid scheme would be by way of expansion in the capital base that is by issue of fresh underlying shares of the company.

10. Acquire the shares of the foreign software company by giving adequate ADR/GDRs so as to cover the cost of acquisition.

11. Ensure that the said proposal conforms to the valuation norms as per the recommendations of an investment banker, which in the case of a listed overseas company will be based on the current market capitalisation of the overseas company (based on the monthly average trading on the overseas exchange, for the three months preceding the month in which the acquisition is committed to) and premium, if any, as per the recommendations of the investment banker in the due-diligence reports.

12. Note that for the purpose of the aforesaid scheme, an investment banker would be defined as an investment banker registered with the Securities and Exchange Commission in the USA or under the Financial Services Authority in UK, or the appropriate regulatory authority in Germany, France, Singapore or in Japan.

13. Ensure that the details of the transaction/acquisition including amount of ADRs/GDRs issued, percentage of foreign equity level in your company on account of such issue, name or names of the overseas company or companies acquired, cost of acquisition, percentage of holding of your company in the foreign company, details of its line of activity, country of location, etc., together with relevant documents like valuation report by the invest banker in furnished to the RBI Exchange Control Department, Overseas Investment Division, Mumbai and the Ministry of Finance Department of Economic Affairs within 30 days of completion of such transactions.

14. Keep in mind that on receipt of aforesaid particulars, RBI will issue specific identification number in respect of each overseas company acquired and your company will have to comply with the existing requirement regarding submission of annual performance reports, repatriation of entitlements from the overseas concerns, etc.

15. Note that the aforesaid flexibility in the regulatory framework has been provided to encourage the Indian software industry to fully exploit their inherent strengths to become global players.

16. Further note that under the existing guidelines for overseas investments by Indian companies, one of the automatic approval routes available without reference to the RBI/Government was where such overseas investments are funded upto a maximum of 50% out of proceeds of ADR/GDRs raised and floating of ADR/GDR issue has been approved by the Government.

17. Now although issue of ADR/GDR is still required to be approved by the Government in all cases the investment for acquiring the overseas software company through 100% proceeds of the said ADR/GDR a company has the automatic route.

18. Remember that for cases not confirming to the criteria stipulated above, application for consideration of the special composite committee have to be made to the RBI in the existing forms for overseas investment and for ADR/GDR together by an applicant, for the time who will have the option to supplement the information.

19. Also remember that the aforesaid liberalised norms will cover acquisition of overseas software companies only by Indian software companies which have been defined as those registered in India and engaged in manufacturing or production of software where 80% of the turnover is from software activities in the 3 previous financial years.

XX. Foreign Equity

Topic 351

DO YOU WISH TO RAISE FRESH FOREIGN EQUITY9 OR INCREASE EXISTING FOREIGN EQUITY HOLDING IN YOUR COMPANY?

1. Decide whether your company wants to raise fresh foreign equity or increase existing foreign equity in the company.

2. Keep in mind that foreign investment under the automatic route of RBI can be either for foreign investment by a company incorporated in India which is engaged or proposing to engage in any activity/manufacture of items except those sectors indicated in List 'A' mentioned after paragraph 10A.11 of the Foreign Exchange Management Manual.

3. Further keep in mind that automatic approval will also be given by the RBI to a company which is a Trading Company primarily engaged in export and is registered as an Export/Trading/Star Trading House with the Ministry of Commerce, Government of India.

4. Note that a company not engaged in the activity/manufacture of items as mentioned above will also be eligible if it embarks on expansion programme in the said eligible activities/manufacture of items subject to the condition that the capital raised by issue of shares to non-residents is unlisted for such expansion.

5. Also note that a newly set-up Trading company primarily engaged in exports will also be eligible for automatic approval by the Reserve Bank of India (RBI) subject to the condition that registration as an Export/Trading/Star Trading House is obtained before remittance of dividend to the foreign investor.

6. Further note that on a review of the policy on foreign direct investment with a view to further liberalising the FDI regime, government has decided to place all items/activities under the automatic route for FDI/NRI and OCB investment except the following

(i) All proposals that require an industrial licence such as (a) items requiring industrial licence under the Industrial (Development and Regulation) Act, 1951; (b) foreign investment being more than 24% in the equity capital of units manufacturing items reserved for small scale industries; (c) items which require an industrial licence in terms of the vocational policy notified by Government under the New Industrial Policy 1991.

(ii) All proposals in which the foreign collaborator has a previous venture lie up in India.

(iii) All proposals relating to acquisition of shares in an existing Indian company in favour of a foreign/NRI/OCB investor.

(iv) All proposals falling outside notified sectoral policy caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to FIPB and not to avail of the automatic route.

(v) All proposals exceeding Rs. 600 crores, FDI and NRI/OCB investments put together.

7. Keep in mind that all proposals for investment in public sector units as also for EOU/EPZ/ EHTP/STP units would qualify for automatic route subject to the above parameters.

8. Keep in mind that the general permission is given by the RBI for the "Automatic Route"' only when your company is issuing shares to non-resident investors and where shares are to be acquired from the existing shareholders, such proposals will require clearance from SIA/FIPB.

9. If your company is acquiring shares from existing non-resident investors then make an application in Form FNC-7 to the Chief General Manager, Exchange Control Department (Foreign Investment Division) RBI, Central Office Mumbai.

10. Also keep in mind that, it is the responsibility of your company being the investee Indian Company to ensure that FDI and NRI/OCB investment is eligible under the "Automatic Route of Reserve Bank and where there is a doubt or where it is clear that the proposal will not come under the "Automatic Route of Reserve Bank such proposal will require clearance from SIA/FIPB.

11. In order to simplify the procedure for seeking foreign investment under the automatic route as mentioned above RBI has granted general permission to Indian companies for issue and export of equity shares to foreign investors in respect of investments eligible under the automatic route. As a result of this general permission no prior clearance of RBI is required.

12. Just file a declaration to the RBI give description of your company's activities as per the National Industrial Classification of all Economic Activities (NIC) 1987 for discription of activities and classification for all matters relating to FD1/NRI/OCB investment.

13. Ensure that to qualify for automatic route of upto 100% your company satisfies the following:

(i) Your company is predominantly engaged in items/activities or is embarking upon expansion programme predominantly in items/activities not covered by List A or B of the Notification dated 22-3-2000, and the foreign equity raised by expanding the capital base will be utilised for such expenses.

(ii) Automatic route of RBI will not be available in respect of items in List A.

(iii) The additional foreign equity should be party of the financing of the expansion programme, if any, in high priority industry.

(iv) The foreign equity should cover the foreign exchange requirements for import of capital goods required for the expansion programme.

(v) The import of capital goods will be governed by the Import & Export Policy in force.

(vi) The additional foreign equity must be remitted in foreign exchange.

(vii) If the foreign equity is to be raised without any expansion programme, the same should result in expansion of capital base to that extent [that is, foreign equity is not to be raised by disinvestment of existing shareholdings by other shareholders in favour of the foreign investor].

(Viii) Payment of dividends to foreign investor should be balanced over a period of 7 years by export earnings only in the case of industries covered under 22 items relating to consumer goods vide Press Note, dated 26-6-1992 of the Ministry of Industry otherwise dividends can be remitted freely through an authorised dealer, and this would be reckoned in the case of an existing company from the date of issue of shares and in any other cases from the date of commencement of production.

14. File a declaration in Form FC-GPR within 30 days from the date of issue of equity shares to foreign investors/collaborators to the concerned Regional Office of the Reserve Bank under whose jurisdiction your company's registered office is situated along with the following:

(i) Original Foreign Inward Remittance Certificate (FIRC) evidencing receipt of funds from abroad or as the case may be from the eligible NRE/FCNR accounts of the investor;

(ii) Certified true copy of Memorandum and Articles of Association of the issues company;

(iii) Particulars of shares issued, date of issue number of shares and the issue price daily countersigned by a Chartered Accountant;

(iv) Certified true copy of Board Resolution, Special Resolution, Statutory Auditors Certificate, or the Chartered Accountants' calculation, refeffed to below;

(v) Such other particulars and documents as may be required or specified by the RBI from time to time.

15. If your company is an existing company and its issuing shares ensure that the following steps have been taken

(a) Board resolution has been passed in connection with preferential allotment of shares, if any to foreign investor, indicating the issue price.

(b) Special resolution under section 81(1A) of the Act has been passed in connection with preferential allotment, indicating the issue price or if that section is not applicable to the company a confirmation to that effect;

(c) If your company is a listed company a certificate from the statutory auditor of your company working out the price for the issue according to SEBI guidelines has been obtained;

(d) If your company is an unlisted company, a work-sheet giving calculations for fair value of the share (as per erstwhile CCI Guidelines) and certified by an independent chartered accountant has been obtained;

(e) If your company is an existing trading company, a copy of certificate of registration from Ministry of Commerce for the status of a trading/star trading house has been obtained.

16. Also file with the Regional Office of RBI not later than 30 days from the date of receipt of remittance, a report containing the following:

(i) Name of the foreign investor;

(ii) Country of residence or incorporation of the foreign investor;

(iii) Date of receipt of remittance and its rupee equivalent;

(iv) Name and address of the authorised dealer in India through whom the remittance is received.

17. If your company is a trading company see that non-resident investment therein does not exceed 51 % of your company's capital and in respect of activities/area specified in List B, observe the cap for non-resident shareholding indicated therein.

18. Take approval, whenever necessary from any authority, statutory or otherwise, required for the project or for issue of shares.

19. Ensure that the payment for the shares to be issued to the foreign investor has been received by remittance from abroad through normal banking channels and or from the NRE/FCNR accounts of eligible holders.

20. If your company is issuing convertible preference shares, ensure that the valuation procedure conforms to the guidelines issued by the RBI or SEBI as the case may be besides observing the equity cap prescribed after conversion.

21. See that the rate of dividend payable in respect of preference shares does not exceed SBI Prime Lending Rate (prevailing on the date of the Board Meeting in which issue of shares in recon-unended) plus 300 basis points.

22. Further note that proposals which do not satisfy the parameters prescribed for automatic approval by RBI will require clearance from Government of India (SIA/FIPB) and therefore should be lodged in Form FC(SIA) or in plain paper containing complete information regarding the proposals and addressed to SIA, Ministry of Industry, Department of Industrial Policy and Promotion, Udyog Bhavan, New Delhi- 110 001.

23. If your company is an 100% export oriented unit situated outside export promotion zones, your company should approach (SIA/FIPB) in connection with its foreign collaboration proposal.

24. If your company's unit is located in export promotion zones, (EPZ) approach concerned Development Commissioner of the EPZ for your company's foreign collaboration proposal.

25. If your company is making an application for technology transfer, that application need not be accompanied by any documents but on getting the approval, your company will be advised to file necessary documents with the authorised dealer or the concerned regional office of the RBI.

26. Keep in mind that RBI has delegated powers to authorised dealers for release of foreign exchange in case of hiring of foreign technicians, deputation of Indian personnel for training abroad or import of designs and drawings.

27. For payment of income-tax towards remittance of lumpsum/royalty, your company is free to pay a flat rate of 30% and make a request in writing to the receiving bank branch to forward a copy of the receipted certificate regarding payment of tax direct to the authorised dealer to enable him to make necessary remittance.

28. If your company is a non-banking financial company, your company's proposal for foreign equity investment will be considered by FIPB as no automatic route is available as it falls in List A.

29. In the above case, keep in mind that, foreign investment will be permitted in merchant banking, undertaking, portfolio management services, investment advisory services, financial consultancy, stock brokifig, asset management, venture capital, custodial services, factoring, credit reference agencies, credit rating agencies, leasing and finance, and housing finance, and forex broking credit card business and money changing business.

30. Note that the minimum capitalisation norms, for fund based NBFCs where foreign equity is less than 51 % or equal to 51 % should be US $ 0.5 million to be brought in upfront and where the foreign equity is more than 51 % but is less than or equal to 75% US $ 5 million to be brought in upfront and where the foreign equity is more than 75% and upto 100% it should be US $ 50 million. 100% foreign owned NBFCs should be acting as holding companies and specific activities should be undertaken by step-down subsidiaries with minimum 25% domestic equity.

31. Further note that the scheduling of capitalisation for foreign equity holding above 75% and upto 100% US $ 7.5 million should be brought upfront and balance to be brought in over 24 months.

32. Keep in mind that for non-fund based NBFC minimum capitalisation norms should be US $ 0.5 million and this is applicable to all-permitted non-fund based NBFCs with foreign investment.

33. Further note that domestic equity in the step-down subsidiaries of 100% foreign owned holding companies may also be scheduled by bringing 10% domestic equity upfront and the balance domestic equity over a period of 24 months.

34. Also note that foreign owned holding companies with a minimum capital of US $ 50 million is allowed to set up 100% down stream subsidiary to under- take specific NBFC activities, but such subsidiary must disinvest its equity to the minimum extent of 25% through a public offering only within a period of 3 years. [Press Note No. 6 (2000 Series), dated 31-3-2000 issued by the Department of Policy & Promotion].

35. Note that no FDI/NRI/OCB investment is permitted in the following sectors:-

(i) Defence and strategic industries;

(ii) Agriculture (including plantation);

(iii) Print media;

(iv) Broadcasting.

36. Keep in mind that defence industry sector has been opened up to 100% for private sector participation with FDI permissible up to 26% both subject to lilcensing.

37. Further note that 100% FDI is allowed in the following sectors:

(i) Power; (ii) Roads and Highways, Ports and Harbours; (iii) Hotels and Tourism; (iv) Mining, only for exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing; (v) Pollution control and management; (vi) Film industry that is for film financmig, production distribution, exhibition, marketing and associated activities subject to certain conditions.

38. Also note that in the following sectors 100% FDI is permitted :-

(i) For manufacture of drugs and pharmaceutical on the automatic route provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology, and specific cell/tissue targeted formulations and FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology and specific cell/tissue targeted formulations will require prior Government approval.

(ii) Airports with FDI above 74% requiring prior approval of the Government.

(iii) for development of integrated townships, including housing, commercial premises, hotels, resorts, city and regional level urban infrastructure facilities such as roads and bridges, mass rapid transit system and for manufacture of building materials.

(iv) Hotel and tourism on the automatic route.

(v) Courier services sub ect to existing laws and exclusion of activity relating to distribution of letters with prior approval of Government.

(vi) Mass Rapid Transport System in all metropolitan cities, including associated commercial development of real estate.

39. Keep in mind that FDI up to 74% is permitted in the following telecom services subject to licensing and security requirements

(i) Internet service providers with gateways;

(ii) Radio paging;

(iii) End-to-end bandwidth.

The proposals of FDI exceeding 49% in the above services will require prior approval of Government.

40. Further keep in mind that FDI up to 49% from all sources is permitted in the banking sector on the automatic route subject to conformity with Guidelines issued by RBI from time to time.

41. Note that payment of royalty up to 2% on exports and 1% on domestic sales under automatic route for use of trademark and brand name of the foreign collaborator without technology transfer as mentioned in paragraph III of Press Note No. 9 (2000 series), dated 8-9-2000 should be calculated as percentage of net sales namely gross sales less agents'/dealers' commission, transport cost, including ocean freight, insurance, duties, taxes, and other charges and cost of raw materials, parts, components imported from the foreign licensor or its subsidiary/affiliated company.

Review of existing sectoral policy and sectoral equity cap for Foreign

Direct Investment (FDI) and investment by Non-Resident

Indians (NRIs)/Overseas Corporate Bodies (OCBs)

[Press Note No. 9 (2000 Series), Dated 8-9-2000, issued by the SIA (FC Division), Department of Industrial Policy & Promotion]

In pursuance of Government's commitment to liberalising the FDI regime, Government, on review of the policy on FDI, has decided to bring about the following changes in the FDI policy:

I. FDI upto 100% is allowed through the automatic route for all manufacturing activities in Special Economic Zones (SEZs), except for the following activities:

a. arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships;

b. atomic substances;

c. narcotics and psychotropic substances and hazardous chemicals,

d. distillation and brewing of alcoholic drinks; and

e. cigarettes/cigars and manufactured tobacco substitutes.

II. FDI upto 100% is allowed for the following activities in the telecom sector:

a. ISPs not providing gateways (both for satellite and submarine cables);

b. Infrastructure Providers providing dark fibre (IP Categore I);

c. Electronic Mail; and

d. Voice Mail

The above would be subject to the following conditions:

a. FDI upto 100% is allowed subject to the condition that such companies would divest 26% of their equity in favour of Indian public in 5 years, if these companies are listed in other parts of the world.

b. The above services would be subject to licensing and security requirements, wherever required.

c. Proposals for FDI beyond 49% shall be considered by F1PB on case to case basis.

III. Payment of royalty upto 2% for exports and 1% for domestic sales is allowed under automatic route on use of trade marks and brand name of the foreign collaborator without technology transfer.

IV. Payment of royalty upto 8% on exports and 5% on domestic sales by wholly owned subsidiaries to offshore parent companies is allowed under the automatic route without any restriction on the duration of royalty payments.

V. Offshore Venture Capital Funds/Companies are allowed to invest in domestic venture capital undertakings as well as other companies through,the automatic route, subject only to SEBI Regulations and sector specific caps on FDI.

LIST A

1. Banking;

2. NBFC's activities in financial sector;

3. Civil aviation;

4. Petroleum including exploration/refinery/marketing;

5. Housing and real estate development sector for foreign investment, other than NRIs/OCBs.,

6. Venture capital fund and venture capital company;

7. Investing companies in infrastructure and service sector;

8. Atomic energy and related projects;

9. Defence and strategic industries;

10. Agriculture (including planatation);

11. Print media;

12. Broadcasting;

13. Postal services.

LIST B

1. Telecommunications

(i) In basic cellular mobile, paging and value added services, and global mobile personal communications by satellite, FDI is limited to 49 per cent subject to grant of licence from Department of Telecommunications and adherence by the companies (who are investing and the companies in which investment is being made) to the licence conditions for foreign equity cap and lock-in period for transfer and addition of equity and other licence provisions.

(ii) 100% FDI is applicable to manufacturing activities.

2. Housing and real estate

Only NRIs/0CBs are allowed to invest in the areas mentioned below:

(a) Development of serviced plots and construction of residential premises,

(b) Investment in real estate covering construction of residential and commercial premises including business centres and offices,

(d) City and regional level urban infimtructure facilities, including both roads and bridges,

(e) Investment in manufacture of building materials,

(f) Investment in participatory ventures in (a) to (e) above,

(g) Investment in housing finance institutions.

3. Coal and lignite

Upto 49 per cent in PSU, and

Upto 50 per cent in other cases as per the following terms and conditions prescribed by Government:

(i) Private Indian companies setting up or operating power projects as well as coal or lignite mines, for captive consumption;

(ii) For setting up coal processing plants subject to the condidion that the company shall not do coal mining and shall not sell washed coal or sized coal horn its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal procesing plants for washing or sizing;

(iii) For exploration or mining of coal or lignite for captive consumption.

4. Drugs and pharmaceuticals-

Upto 74 per cent in case of bulk drugs, their intermediaries and formulations (except those produced by the use of recombinant DNA technology).

5. Hotel and tourism

Upto 51 per cent.

The term hotels include restaurants, beach resorts, and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Tourism related industry includes travel agencies, tour operating agencies and tourist transp?rt operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment amusement, sports, and health units for tourists and convention/seminar units and organisations.

6. Mining

Upto 74 per cent for exploration and mining of diamonds and precious stones.

Upto 100 per cent exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing.

7. Advertising

Upto 74 per cent in advertising sector.

8. Films

Upto 100 per cent for in film industry (i.e., film financing, production, distribution, exhibition, marketing and associated activities relating to film industry) subject to the following:

I. Companies with an established track record in films, TV, music, finance and insurance.

II. The company should have a minimum paid-up capital of US $ 10 million if it is the single largest equity shareholder and at least US $ 5 million in other cases.

III. Nfinimum level of foreign equity investment would be US $ 2.5 million for the single largest equity shareholder andUS $ 1 million in other cases.

IV. Debt equity ratio of not more than 1:1, i.e., domestic borrowings shall not exceed equity.

V. Provisions of dividend balancing would apply.

9. Any other sector/activity (other than those indicated in Annexure A) upto 100%.

Explanation :

(a) A person (not being a citizen of Pakistan or Bangladesh or Sri Lanka) shall be deemed to be of "Indian origin",

(i) if he, at any time, held an Indian passport; or

(ii) he or either of his parents or his grandparents was citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

(b) "Overseas Corporate Body (OCB)" means any overseas company, partnership firm, society and other corporate body predominantly owned directly or indirectly to the extent of at least 60 percent by non-residents of Indian nationality or origin (NRIs).

FORM FC-GPA

We (Name of the Indian Company) __________________ declare that, being eligible to issue shares to non-residents under the automatic route of RBI, furnish to following information in connection with shares issued:

1. Name and address (Registered Office) of the Indian Company issuing shares to non-residents:

2. Whether existing company or New company recently formed:

3. Activities of the company

NIC Code: Description

4. Particulars of shares issued

(a) Name and country of the foreign investor:

(b) No. of shares issued: (Furnish equity & preference separately):

No. of shares Face value of shares Total face value

Issue price At par (Rs.)/premium of Rs. per share

Total inflow on account of issue of

shares to non-residents (including

premium, if any)

vide original FIBC from (Bank) _______ enclosed.

Declaration

We hereby certify that

1. We have carefully followed the procedure for issue of shares under the automatic route of RBI vide Notification FERA 215/2000-RB, dated 22nd March, 2000.

2. The foreign entity(ies) (other than individuals) to wkom we have issued shares does not have any previous joint venture or technical collaboration or trade mark agreement in India in the same or allied field.

3. We don't require an Industrial Licence under the Industries (Development and Regulation) Act, 1951 or in terms of locational policy notified by the Government under the New Industrial Policy of 1991.

4. We are an SSI unit and the inveonent limit of 24% has been observed OR

We are not an SSI unit.

(delete whichever is not applicable under signature)

5. Our proposal is within the sectoral policy/car permissible under the automatic route of RBI.

6. Our proposal does not fall under sector(s) in witich FDI is not permitted.

For ___________ (Name of the company/seal)

Signature

(Name) :

Designation

Date :

Place :

XXI. Listing

Topic 352

DO YOU ISH TO APPLY FOR INITIAL LISTING ON STOCK EXCHANGE?

1. Make an application to the stock exchange(s) in the Form given below:

LETTER OF APPLICATION

(By Companies not listed on the Exchange)

From _____________ Date: __________

To,

The Secretary,

The Stock Exchange,

__________________

Dear Sir,

In conformity with the listing requirements of the Stock Exchange, we hereby apply for admission of the following securities of the Company to dealings on the Exchange:

(1) ______________

(2) ______________

(3) ______________

(4) ______________

The securities mentioned at ( ) above are proposed to be issued by Prospectus/Offer for Sale/Circular after vetting of the same by SEBI (conversion, exchange, rights, open offer, capitalisation of reserves)/Placing full particulars of which are given in the statement sent herewith (together with the reasons for the procedure proposed when a Placing is intended).

It is intended to make an Offer for Sale/Placing of the securities mentioned at ( ) above which have been already issued. We enclose a statement giving full particulars of when, how and to whom the securities were issued and full details of the proposed Offer for Sale/Placing (together with the reasons for the procedure proposed when a Placing is intended).

We (send herewith)/(undertake to send) the Listing Application and Agreement Form and the Distribution Schedules duly completed. We also forward the documents (or drafts thereof) as per list attached and undertake to furnish such additional information and documents as may be required.

We further undertake to submit to the Exchange a copy of the Acknowledgement card or letter indicating the observation on draft prospectus/letter of offer/offer documents by SEBI, and a certificate from a Merchant Banker acting as a lead manager to the issue reporting positive compliance by our company of the requirements on disclosure and investor protection issued by SEBI.

We understand that in the event of our failure to submit the above documents or withdrawal of Acknowledgement card by SEBI, we shall forfeit the right of listing of the securities and shall be liable to refund the subscription money to the investors immediately.

Yours faithfully,

(Signature of Managing Director)

Please enumerate separately shares which are not identical in all respects. They are identical in all respects only if:

(i) they are of the same nominal value and the same amount per share has been called up;

(ii) they are entitled to dividend at the same rate and for the same period, so that at the next ensuing distribution the dividend payable on each share will amount to exactly the same sum net and gross; and

(iii) they carry the same rights in all other respects.

Applicable only when securities for which application for admission to dealings is made are proposed to be issued or having already been issued it is intended to make a placing or an offer for sale. Please strike out where not applicable.

Applicable to new companies only. Please strike out where not applicable.

2. Attach the following documents and paper to the application:-

(i) Certified true copy of the Memorandum and Articles of Association of the Company and in the case of a debenture issue, certified true copy of the trust deed.

(ii) Certified true copies of all prospectuses or statements in lieu of prospectuses issued by the company at any time.

(iii) Certified true copies of offers for sale and circulars or advertisements offering any securities for subscription or sale during the last five years.

(iv) Certified true copies of balance-sheet and audited accounts for the last five years, or in the case of new companies, for such shorter period for which accounts have been made up.

(v) A statement showing dividends and cash bonuses, if any, paid during the last ten years (or such shorter period as the company has been in existence, whether as a private or public company).

(vi) A statement showing dividends or interest in arrears, if any.

(vii) Certified true copies of agreements or other documents relating to arrangements with or between:

(a) vendors and/or promoters,

(b) underwriters and sub-underwriters,

(viii) Certified true copies of agreements with:

(a) selling agents,

(b) managing directors and technical directors,

(ix) Certified true copy of every letter, report, balance-sheet, valuation contract, court order or other document, part of which is reproduced or referred to in any prospectus, offer for sale, circular or advertisement offering securities for subscription or sale, during the last five years.

(x) A statement containing particulars of the dates of, and parties to all material contracts, agreements (including agreements for technical advice and collaboration), concessions and similar other documents (except those entered into in the ordinary course of business carried on or intended to be carried on by the company) together with a brief description of the terms, subject-matter and general nature of the documents.

(xi) A brief history of the company since its incorporation giving details of its activities including any reorganisation, reconstruction or amalgamation, changes in its capital structure, (authorised, issued and subscribed) and debenture borrowings, if any.

(xii) Particulars of shares and debentures issued – (i) for consideration other than cash, whether in whole or part, (ii) at a premium or discount, or (iii) in pursuance of an option.

(xiii) A statement containing particulars of any commission, brokerage, discount or other special terms including an option for the issue of any kind of the securities granted to any person.

(xiv) Certified true copies of the receipt of filing offer document with SEBI and agreements, if any, with the Industrial Finance Corporation, Industrial Credit and Investment Corporation and similar bodies.

(xv) Particulars of shares forfeited.

(xvi) A list of highest ten holders of each class or kind of securities of the company as on the date of application along with particulars as to the number of shares or debentures held by and the address of each such holder.

(xvii) Particulars of shares or debentures for which permission to deal is applied for.

(xviii) Certificate from an expert certifying the company's preparedness on Y2K compliance.

3. Keep in mind that a recognised stock exchange may either generally by its bye-laws or in any particular case call for such further particulars or documents as it deems proper.

4. Further keep in mind that your company must satisfy the stock exchange to whom the application is made that your company's articles of association provide for the following among others :

(i) that the company shall use a common form of transfer;

(ii) that the fully paid shares will be free from all lien, while in the case of partly paid shares, the company's lien, if any will be restricted to moneys called or payable at a fixed time in respect of such shares;

(iii) that any amount paid up in advance of calls on any share may carry interest but shall not entitle the holder of the share to participate in respect thereof, in a dividend subsequently declared;

(iv) that option or right to call of shares, shall not be given to any person except with the sanction of the company in general meeting.

5. Enclose demand draft or pay order in favour of the concerned stock exchange evidencing the requisite amount of initial listing fee of the securities applied for.