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CHAPTER III

GENERAL OBLIGATIONS AND RESPONSIBILITIES

Code of Conduct

13. Every merchant banker shall abide by the Code of Conduct as specified in Schedule III.

¹⁴[Merchant banker not to associate with any business other than that of the securities market-

13A � No merchant banker, other than a bank or a public financial institution, who has been granted a certificate of registration under these regulations shall ¹⁵[after June 30^th, 1998] carry on any business other than that in the securities market.

Notwithstanding anything contained above, a merchant banker who prior to the date of notification of the securities and exchange board of India (Merchant Bankers) Amendment Regulations, 1997, has entered into a contract in respect of a business other than that of the securities market, may, if he so desires, discharge his obligations under such contract .

¹⁶[Provided that a merchant banker who has been granted certificate of registration to act as primary or satellite dealer by Reserve Bank of India, may carry on such business as may be permitted by Reserve Bank of India]

Explanation - for the purposes of this regulation:

A "bank" shall mean a banking company as defined under section 5 of the Banking Regulation Act, 1949 (10 of 1949) and the corresponding new bank set up under the Banking Companies (Acquisition and Transfer of Undertaking ) Act, 1970 (5 of 1970) and Banking Companies (Acquisition and Transfer of Undertaking ) Act, 1980 (40 of 1980), State Bank of India Act, 1955 (23 of 1955) and State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959)
A "public financial institution" shall have the same meaning as assigned to the term under Section 4A of the Companies Act, 1956 (1 of 1956) and shall include Industrial Development Corporations and Financial Corporations established by the Central Government or State Governments as the case may be]

Maintenance of books of accounts, records etc.

14. (1) Every merchant banker shall keep and maintain the following books of accounts, records and documents namely :- (a) a copy of balance sheet as at the end of each accounting period;
(b) a copy of profit and loss account for that period;
(c) a copy of the auditor's report on the accounts for that period; and
(d) a statement of financial position.

(2) Every merchant banker shall intimate to the Board the place where the books of accounts, records and documents are maintained.

(3) Without prejudice to sub- regulation (1), every merchant banker shall, after the end of each accounting period furnish to the Board copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting years when required by the Board.

Submission of Half-yearly results

15. Every merchant banker shall furnish to the Board half-yearly unaudited financial results when required by the Board with a view to monitor the capital adequacy of the merchant banker.

Maintenance of books of account, records and other documents

16. The merchant banker shall preserve the books of accounts and other records and documents maintained under regulation 14 for a minimum period of five years.

Report on steps taken on Auditor's report

17. Every merchant banker shall within two months from the date of the auditors' report take steps to rectify the deficiencies, made out in the auditor's report.

Appointment of lead merchant bankers

18. (1) All issues should be managed by atleast one merchant banker functioning as the lead merchant banker:

Provided that, in an issue of offer of rights to the existing members with or without the right of renunciation the amount of the issue of the body corporate does not exceed rupees fifty lakhs, the appointment of a lead merchant banker shall not be essential.

(2) Every lead merchant banker shall before taking up the assignment relating to an issue, enter into an agreement with such body corporate setting out their mutual rights, liabilities and obligations relating to such issue and in particular to disclosures, allotment and refund.

Restriction on appointment of lead managers

19. The number of lead merchant bankers may not, exceed in case of any issue of �

Size of issue	No. of Merchant Bankers
(a)Less than rupees fifty crores	Two
(b)Rupees fifty crores but less than rupees one hundred crores	Three
(c)Rupees one hundred crores but less than rupees two hundred crores	Four
(d)Rupees two hundred crores but less than rupees four hundred crores	Five
(e)Above Rupees four hundred crores	five or more as may be agreed by the board.

Responsibilities of lead managers

20.(1) No lead manager shall agree to manage or be associated with any issue unless his responsibilities relating to the issue mainly, those of disclosures, allotment and refund are clearly defined, allocated and determined and a statement specifying such responsibilities is furnished to the Board atleast one month before the opening of the issue for subscription:

Provided that, where there are more than one lead merchant bankers to the issue the responsibilities of each of such lead merchant banker shall clearly be demarcated and a statement specifying such responsibilities shall be furnished to the Board atleast one month before the opening of the issue for subscription.

(2) No lead merchant banker shall, agree to manage the issue made by any body corporate, if such body corporate is an associate of the lead merchant banker.

Lead merchant banker not to associate with a merchant banker without registration

21. A lead merchant banker shall not be associated with any issue if a merchant banker who is not holding a certificate is associated with the issue.

underwriting obligations

22. (1) In respect of every issue to be managed, the lead merchant banker holding a certificate under Category I shall accept a minimum Underwriting obligation of five percent of the total underwriting commitment or rupees twenty-five lacs, whichever is less:

Provided that, if the lead merchant banker is unable to accept the minimum underwriting obligation,that lead merchant banker shall make arrangement for having the issue underwritten to that extent by a merchant banker associated with the issue and shall keep the Board informed of such arrangement.

Submission of due diligence certificate

23. The lead merchant banker, who is responsible for verification of the contents of a prospectus or the Letter of Offer in respect of an issue and the reasonableness of the views expressed therein, shall submit to the Board atleast two weeks prior to the opening of the issue for subscription, a due diligence certificate in Form C .

Documents to be furnished to the Board

24. (1) The lead manager responsible for the issue shall furnish to the Board, the following documents, namely:- (i) particulars of the issue;
(ii) draft prospectus or where there is an offer to the existing shareholders, the draft letter of offer;
(iii) any other literature intended to be circulated to the investors, including the shareholders; and
(iv) such other documents relating to prospectus or letter of offer as the case may be. (2) The documents referred to in sub-regulation (1) shall be furnished atleast two weeks prior to date of filing of the draft prospectus or the letter of offer, as the case may be, with the Registrar of Companies or with the Regional Stock Exchanges, or with both.

(3) The lead manager shall ensure that the modifications and suggestions, if any, made by the Board on the draft prospectus or the Letter of Offer as the case may be, with respect to information to be given to the investors are incorporated therein.

¹⁷[Payment of fees to the Board

24A. The draft prospectus or draft letter of offer referred to in regulation 24 shall be submitted along with such fees and in such manner as may be specified in Schedule IV].

Continuance of association of lead manager with an issue

25. The lead manager undertaking the responsibility for refunds or allotment of securities in respect of any issue shall continue to be associated with the issue till the subscribers have received the share or debenture certificates or refund of excess application money;

Provided that where a person other than the lead manager is entrusted with the refund or allotment of securities in respect of any issue, the lead manager shall continue to be responsible for ensuring that such other person discharges the requisite responsibilities in accordance with the provisions of the Companies Act and the listing agreement entered into by the body corporate with the stock- exchange.

Acquisition of shares prohibited

26. No merchant banker or any of its directors, partner or manager or principal officer shall either on their respective accounts or through their associates or relatives enter into any transaction in securities of bodies corporate on the basis of unpublished price sensitive information obtained by them during the course of any professional assignment either from the clients or otherwise.

Information to the Board

27. Every merchant banker shall submit to the Board complete particulars of any transaction for acquisition of securities of any body corporate whose issue is being managed by that merchant banker within fifteen days from the date of entering into such transaction.

Disclosures to the Board

28. A merchant banker shall disclose to the Board as and when required, the following information, namely:-

(i) his responsibilities with regard to the management of the issue;
(ii) any change in the information or particulars previously furnished, which have a bearing on the certificate granted to it;
(iii)the names of the body corporate whose issues he has managed or has been associated with;
(iv)the particulars relating to breach of the capital adequacy requirement as specified in regulation 7;
(v) relating to his activities as a manager, underwriter, consultant or adviser to an issue as the case may be.

¹⁴Inserted by the Securities and Exchange Board of India (Merchant Bankers) Amendment Regulations, 1997 w.e.f 9^th December, 1997 vide S.O.837 (E), read with Corrigendum vide S.O.869(E) dated 15^th December, 1997.
¹⁵Inserted by the Securities and Exchange Board of India (Merchant Bankers) Amendment Regulations, 1998 w.e.f January 21, 1998 vide S.O.74(E)
¹⁶Inserted by the Securities and Exchange Board of India (Merchant Bankers)(Second Amendment) Regulations, 1999 w.e.f. November, 17, 1999 vide S.O.1119(E).
¹⁷Inserted by Securities and Exchange Board of India (Merchant Bankers) Amendment Regulations,1996 w.e.f June 6, 1996 vide S. O. NO. 396 (E)

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