2.0 Conditions for issue of securities

The companies issuing securities offered through an offer document, shall, satisfy the following:

2.1 Filing of offer document
2.1.1 No company shall make any issue of a public issue of securities, unless a draft prospectus has been filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of Prospectus with the Registrar of Companies (ROCs).

 
Provided that if, within 21 days from the date of submission of draft Prospectus, the Board specifies changes, if any, in the draft Prospectus, (without being under any obligation to do so) issuer or the Lead Merchant banker shall carry out such changes in the draft prospectus before filing the prospectus with ROCs.

 
Provided that if, within 21 days from the date of filing of draft letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes before filing the draft letter of offer with RSE.

2.1.4 Application for listing

No company shall make any public issue of securities unless it has made an application for listing of those securities in the stock exchange (s).

2.1.5 Issue of securities in dematerialised form

2.1.5.1 No company shall make public or rights issue or an offer for sale of securities, unless -

1. the company enters into an agreement with a depository for dematerialisation of securities already issued or proposed to be issued to the public or existing shareholders; and
2. the company gives an option to subscribers/shareholders/investors to receive the security certificates or hold securities in dematerialised form with a depository.

A 'depository' shall mean a depository registered with the Board under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.

2.2 Public Issue by Unlisted Companies

2.2.1 No unlisted company shall make a public issue of any equity share or any security convertible at a later date into equity share unless the company has;-

1. a track record of distributable profits in terms of section 205 of Companies Act, for at least three (3) out of immediately preceding five (5) years; and
2. a pre-issue networth of not less than Rupees One crore in three (3) out of preceding five (5) years, with the minimum networth to be met during immediately preceding two (2) years.

a) has appraised the project to be financed through the proposed offer to the public; and ;

2. not less than 10% of the project cost is financed by the said appraising bank or institution by way of loan, equity, participation in the issue of security in the proposed issue or combination of any of them.
3. the appraising bank or institution shall bring in the minimum specified contribution at least one day before the opening of the public issue.

For the purpose of the term 'track record':

1. At least three (3) audited accounts shall be available comprising not less than thirty six (36) months for determining the minimum track record of three (3) years,

C    In case of partnership firms which have since been converted into companies, the track record of distributable profits of the firm shall be considered for the purpose of eligibility requirements if, the financial statements for the respective years pertaining to partnership business conform to and are revised in a format identical to that required for companies and also comply with the following:

(i) Adequate disclosures are made in the financial statements similar to that of companies as specified in Schedule VI of the Companies Act, 1956, and the financial statements shall be duly certified by a Chartered Accountant stating unequivocally that:

1. the accounts as revised or otherwise and disclosures made are in line with the provision of Schedule VI of the Companies Act, 1956; and

b        the accounting standards of the Institute of Chartered Accountants of India (ICAI) have been followed and that the financial statements present a true and fair picture of the firm's accounts,
ii)the lead merchant banker shall also conform that the financial statements furnished on behalf of the Partnership firms are in accordance with accounting standards prescribed by the ICAI.

2.2.3 Offer for sale

A company, whose equity share or any security convertible at later date into equity shares are offered through an offer for sale, has to comply with the provisions of Clause 2.2.1 or Clause 2.2.2.

2.3.1 A listed company shall be eligible to make a public issue of equity shares or any security convertible at later date into equity share.

Provided that, if as a result of the proposed issue, networth of the company becomes more than five times the networth prior to the issue, the company shall satisfy either the provisions of Clause 2.2.1 or Clause 2.2.2, before it can make the proposed public issue.

2.3.2 Public issue by listed companies which has changed its name to indicate as if it was engaged in the business / activities in information technology sector during a period of three years prior to filing of offer document with the Board, shall be eligible to make a public issue of equity share or securities convertible at a later date into equity share, if;

1. (i) it has a track record of distributable profits in terms of Section 205 of Companies Act, for at least three (3) out of immediately preceding five (5) years from the information technology business / activities, and

(ii)it has a pre-issue networth of not less than Rs.One Crore in three (3) out of preceding        five     (5) years, with the minimum networth to be met during immediately preceding two (2) years.

2.4 Exemption from Eligibility Norms

2.4.1 The provisions of clauses 2.2.1, 2.2.2 and 2.3.1 shall not be applicable in case of ;

i)    a banking company including a Local Area Bank (hereinafter referred to as Private Sector Banks) set up under sub-section (c) of Section 5 of the Banking Regulation Act, 1949 and which has received license from the Reserve Bank of India, or

ii)    a corresponding new bank set up under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980, State Bank of India Act 1955 and State Bank of India (Subsidiary Banks) Act, 1959 (hereinafter referred to as "public sector banks").

iii)    an infrastructure company

1. whose project has been appraised by a Public Financial Institution or Infrastructure Development Finance Corporation (IDFC) or Infrastructure Leasing and Financing Services Ltd. (IL&FS) and

iv) rights issue by a listed company

Explanation -

i)    For the purposes of Clauses 2.2.1 and 2.3.1, "networth" shall mean aggregate of value of the paid up Equity capital and Free Reserves (excluding reserves created out of revaluation) reduced by the aggregate value of accumulated losses and deferred Expenditure not written off including miscellaneous expenses not written off).

2.5 Credit Rating for Debt Instruments

2.5.1  No public or rights issue of debt instrument (including convertible instruments) irrespective of their maturity or conversion period shall be made unless credit rating from a credit rating agency is obtained and disclosed in the offer document.

2.5.2 Where credit rating is obtained from more than one credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, shall be disclosed.

2.5.3 For a public and rights issue of debt-securities of issue size greater than or equal to Rs.100 crores, two ratings from two different credit rating agencies shall be obtained.

2.5.4 All the credit ratings obtained during the three (3) years preceding the pubic or rights issue of debt instrument (including convertible instruments) for any listed security of the issuer company shall be disclosed in the offer document.

2.6    Outstanding Warrants or Financial Instruments

2.6.1 No unlisted company shall make a public issue of equity share or any security convertible at later date into equity share, if there are 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.

2.7 Partly Paid-up Shares

2.7.1 No company shall make a public or rights issue of equity share or any security convertible at later date into equity share, unless all the existing partly paid-up shares have been fully paid or forfeited in a manner specified in clause 8.6.2.