CHAPTER IV

PROMOTERS CONTRIBUTION AND LOCK-IN REQUIREMENTS

PART I - PROMOTERS CONTRIBUTION

4.0 Promoters contribution in any public issue shall be in accordance with the following provisions :

4.1    Promoters Contribution in a Public Issue by Unlisted Companies

4.1.1 In a public issue by an unlisted company, the promoters shall contribute not less than 20% of the post issue capital.

4.1.21  [Deleted]

4.2 Promoters Shareholding in Case of Offers for Sale

4.2.1    The promoters shareholding after offer for sale shall not be less than 20% of the post issue capital.

4.3 Promoters Contribution in Case of Public Issues by Listed Companies

4.3.1 In case of public issues by listed companies, the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital.

4.4    Promoters Contribution in Case of Composite Issues

4.4.1 In case of composite issues of a listed company, the promoters contribution shall at the option of the promoter(s) be either 20% of the proposed public issue or 20% of the post-issue capital.

4.4.2  Rights issue component of the composite issue shall be excluded while calculating the post-issue capital.

4.52 [Deleted]

4.6 Securities Ineligible for Computation of Promoters Contribution

4.6.1 Where the promoters of any company making an issue of securities have acquired equity during the preceding three years, before filing the offer documents with the Board, such equity shall not be considered for computation of promoters contribution if it is;

    i)    acquired for consideration other than cash and revaluation of assets or capitalisation of intangible assets is involved in such transaction(s); or
        ii) resulting from a bonus issue, out of revaluation reserves or reserves without accrual of cash  resources;

4.6.2  In case of public issue by unlisted companies, securities which have been issued to the promoters during the preceding one year, at a price lower than the price at which equity is being offered to public shall not be eligible for computation of promoters contribution.

Provided that the shares for which the difference between the offer price and the issue price for these shares is brought in by the promoters shall be considered eligible subject to issuer company complying with the applicable provisions of the Companies Act, 1956 (such as passing of revised resolution by shareholders or issuer’s Board, filing of revised return of allotment with ROC, etc.)

4.6.3 In respect of companies formed by conversion of partnership firms, where the partners of the erstwhile partnership firm and the promoters of the converted company are the same and there is no change in management, the shares allotted to the promoters during previous one year out of the funds brought in during that period shall not be considered eligible for computation of promoters contribution unless such shares have been issued at the same price at which the public offer is made.

Provided that if the partners capital existed in the firm for a period of more than one year on a continuous basis, the shares allotted to promoters against such capital shall be considered eligible.

4.6.4 In respect of Clauses 4.6.1, 4.6.2 and 4.6.3, such ineligible shares acquired in pursuance to a scheme of merger or amalgamation approved by a High Court shall be eligible for computation of promoters contribution.

4.6.5 For the purposes of computing the promoters contribution referred to in Clauses 4.1.1, 4.1.2, 4.2.1, 4.3.1, 4.4.1 & 4.5.1 above, minimum contribution of Rs.25000 per application from each individual and minimum contribution of Rs.1 lac from firms and companies (not being business associates like dealers and distributors), shall be eligible to be considered towards promoters’ contribution.

4.6.6 No securities forming part of promoters contribution shall consist of any private placement made by solicitation of subscription from unrelated persons either directly or through any intermediary.

4.6.7 The securities for which a specific written consent has not been obtained from the respective shareholders for inclusion of their subscription in the minimum promoters contribution subject to lock-in shall not be eligible for promoters contribution.

4.7 Computation of Promoters Contribution in Case of Issue of Convertible Security

4.7.1In case of any issue of convertible security by a company, the promoters shall 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 shall not be 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 & 4.5.1 above.

Provided 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 shall not have the said option and shall contribute by subscribing to the same instrument.

4.7.2 In case of any issue of security convertible in stages either at par or premium (conversion price being predetermined), the promoters contribution in terms of equity share capital shall not be at a price lower than the weighted average price of the share capital arising out of conversion.

Explanation: For the purposes of clause 4.7.2,

    (a) `weights' means the number of equity shares arising out of conversion of security into equity at various stages.

    (b) 'price' means the price of equity shares on conversion arrived at after taking into account predetermined conversion price at various stages.

4.7.3  The promoters contribution shall be computed on the basis of post-issue capital assuming full proposed conversion of such convertible security into equity.

Provided that where the promoter is contributing through the same optional convertible security as is being offered to the public, such contribution shall be eligible as promoters contribution only if the promoter(s) undertakes in writing to accept full conversion.

4.8 Promoters Participation in Excess of the Required Minimum Contribution to be Treated as Preferential Allotment

4.8.1 In case of a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage referred in Clauses 4.3.1 and 4.4.1 shall attract the pricing provisions of Guidelines on preferential allotment, if the issue price is lower than the price as determined on the basis of said preferential allotment guidelines.

4.9 Promoters Contribution to be brought in before Public Issue Opens

4.9.1 Promoters shall bring in the full amount of the promoters contribution including premium at least one day prior to the issue opening date.

Provided that where the promoters minimum contribution exceeds Rs.100 crores, the promoters shall bring in Rs.100 crores before the opening of the issue and the remaining contribution shall be brought in by the promoters in advance on pro-rata before the calls are made on public.

4.9.2  The company’s board shall pass a resolution allotting the shares or convertible instruments to promoters against the moneys received.

4.9.3  A copy of the resolution alongwith a Chartered Accountants’ Certificate certifying that the promoters contribution has been brought in shall be filed with the Board before opening of the issue.

4.9.4  The certificate of the Chartered Accountants shall also be accompanied by a list of names and addresses of friends, relatives and associates who have contributed to the promoters’ quota along with the amount of subscription made by each of them.

4.10 Exemption from Requirement of Promoters Contribution

4.10.1 The requirement of promoters contribution shall not be applicable -

a) in case of public issue of securities by a company which has been listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 immediately preceding years.

Provided that if the promoters participate in the proposed issue to the extent greater than higher of the two options available as per Clause 4.3.1 and 4.4.1 above, the subscription in excess of such percentage shall attract pricing guidelines on preferential issue, if the issue price is lower than the price as determined on the basis of said guidelines on preferential issue.

b) in case of companies where no identifiable promoter or promoter group exists.

c)  in case of rights issues.

Provided, in case of (a) and (c) above, the promoters shall disclose their existing shareholding and the extent to which they are participating in the proposed issue, in the offer document.

PART II - LOCK-IN REQUIREMENTS

4.11 Lock in of Minimum Specified Promoters Contribution in Public Issues

4.12.1 In case of any issue of capital to the public the minimum promoters contribution (as per clause 4.1, 4.2,4.3, 4.4 & 4.5) shall be locked in for a period of 3 years.

4.11.2  The lock-in shall start from the date of allotment in the proposed public issue and the last date of the lock-in shall be reckoned as three years from the date of commencement of commercial production or the date of allotment in the public issue whichever is later.

Explanation:

The expression "Date of commencement of commercial production" means the last date of the month in which commercial production in a manufacturing company is expected to commence as stated in the offer document.

4.12 Lock-in of Excess Promoters’ Contribution

4.12.1 In case of a public issue by unlisted company, if the promoters contribution in the proposed issue exceeds the required minimum contribution, such excess contribution shall also be locked in for a period of 3 years.

4.12.2 In case of a public issue by a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage shall also be locked-in for a period of three years as per the lock-in provisions as specified in Guidelines on Preferential issue.

Provided that excess promoters contribution as per Clause 4.10.1(a) of Part I of this Chapter shall not be subject to lock-in.

4.12.3  In case shortfall in the firm allotment category is met by the promoter as specified in clause 8.5(e), such subscription shall be locked in for a period of three years.

4.13 Securities Issued Last to be Locked-in First

4.13.1 The securities forming part of promoters contribution as specified in Clauses 4.1.1, 4.1.2, 4.2.1, 4.3.1 , 4.4.1 & 4.5.1 of Part I of this Chapter and issued last to the promoters shall be locked in first for the specified period.

Provided that the securities issued to the financial institutions appearing as promoters, if issued last, shall not be locked-in before the shares allotted to the other promoters.

4.14 Lock-in of Shares Ineligible for Promoters Contribution

4.14.1 Any security issued to promoters or other shareholders, out of revaluation of assets or capitalisation of intangible assets, within a period of 3 preceding years from the date of filing of offer documents with the Board, shall be locked-in for a period of 3 years from the date of allotment of the proposed issue of capital.

4.14.2 Any security to promoters or other shareholders, issued by way of bonus out of revaluation reserves, within a period of 3 preceding years, shall be locked-in for a period of 3 years from the date of allotment of the proposed issue of capital.

4.14.3 In case of unlisted companies, any security issued to promoter or to any other shareholder, during the preceding one year, at a price lower than the price at which equity is being offered to public shall be locked-in for a period of 3 years from the date of allotment of the proposed issue of capital.

34.14 (A) Lock-in of pre issue share capital of an unlisted company

Where an unlisted company eligible to make a public issue and desirous of getting its securities listed on a recognised stock exchange pursuant to a public issue has issued shares to any person within six (6) months prior to the date of opening of the public issue at a price lower than the price at which equity is being offered/issued to public, the entire share capital (except shares issued to venture capitalists and employees of the company) existing prior to public issue shall be locked in for a period of six (6) months from the date of trading of the shares on the regional stock exchange.

Provided, the lock-in would not apply to the shares (other than shares issued to promoters, friends, relatives and associates) if the same were issued more than 6 months prior to the date of opening of the public issue and are offered under offer for sale."
 

PART III - OTHER REQUIREMENTS IN RESPECT OF LOCK-IN

4.15 Pledge of Securities Forming Part of Promoters Contribution

4.15.1 Locked-in Securities held by promoters may be pledged only with banks or financial institutions as collateral security for loans granted by such banks or financial institutions, provided the pledge of shares is one of the terms of sanction of loan.

4.16 Inter-se Transfer of Securities Amongst Promoters

4.16.1 Transfer of locked-in securities amongst promoters as named in the offer

document, can be made subject to the lock-in being applicable to the transferees for the remaining period of lock in.

4.17 Inscription of Non-Transferability

4.17.1 The securities which are subject to lock-in shall carry inscription `non transferable’ along with duration of specified non-transferable period mentioned in the face of the security certificate.



1 Deleted vide RMB (Compendium) Series Circular No.2 dated February 16, 2000
2 Deleted vide RMB (Compendium) Series Circular No.2 dated February 16, 2000
3 Inserted vide RMB (Compendium) Series Circular No.2 dated February 16, 2000

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