Background
Chapter III of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 governs rights issues, enabling listed companies to raise capital by offering securities proportionately to existing shareholders. The framework is based on the principle of protecting shareholders from dilution by granting them a pre-emptive right to subscribe to new issues. These regulations streamline eligibility conditions, disclosures, timelines, and procedural safeguards to ensure transparency and fairness. Overall, the provisions aim to balance efficient capital raising with investor protection and market integrity.
Applicability
These Regulations shall be applicable to:
Compliance Requirements under the Regulations
An issuer offering specified securities through a rights issue shall satisfy the conditions of Chapter III of ICDR at the time of filing draft letter of offer with the stock exchange(s), and at the time of filing the letter of offer with the Board and the stock exchange(s)
Issuer is ineligible for rights issue if:
a) Issuer/promoter/promoter group/directors are banned by SEBI
b) Promoter/director is also promoter/director of another company that is barred by SEBI
c) Promoter/director is a fugitive economic offender
d) Eq. shares suspended from trading on reference date
The restrictions under (a) and (b) above will not apply to the persons or entities mentioned therein who were debarred in the past by the Board and the period of debarment is already over as on the date of filing of the draft letter of offer with the Stock Exchange(s)
Issuer making Rights Issue to:
a) Amount for general corporate purposes, as mentioned in objects of issue in draft letter of offer (LOO) and LOO, shall not exceed 25% of amount raised by issuer.
b) Amount raised for general corporate purposes, and unspecified acquisitions/investments, shall not exceed 35% of total raised amount. For unspecified acquisitions, it’s capped at 25%, Where the acquisition or investment is identified, with proper disclosures, in the Letter of Offer documents, such limits shall not apply
c) If the issuer, its promoters, or directors are wilful defaulters or fraudulent borrowers, the promoters or promoter group cannot renounce their rights, except within the promoter group or to the specific investor(s) as disclosed by the issuer in terms of these regulations
d) If the issuer has issued SR equity shares to promoters, the SR shareholder cannot renounce their rights, and the SR shares will remain locked-in until converted into voting equity shares.
4. Additional requirements to be fulfilled for issue of convertible debt instruments (Regulation 63)
In addition compliances under Regulation 61-63, an issuer making a rights issue of convertible debt instruments shall also comply with following conditions:
a) obtain credit rating from at least one CRA
b) appoint at least one debenture trustee as per Companies Act 2013 & SEBI(Debenture Trustees) Reg,1993
Further conditions to be complied are:
a) create debenture redemption reserve as per Companies Act, 2013 and rules made thereunder
b) if the issuer proposes to create a charge or security on its assets in respect of secured convertible debt instruments, it shall ensure that:
i)such assets are sufficient to discharge the principal amount at all times;
ii)such assets are free from any encumbrance
iii) If security exists on assets in favor of a lender, trustee, or lessor, consent for a second or pari passu charge must be obtained and submitted to the debenture trustee before the issue opens.
iv)The security or asset cover will be calculated after deducting liabilities with a first or prior charge, if the convertible debt is secured by a second or subsequent charge.
c) The issuer shall redeem the convertible debt instruments in terms of the letter of offer
5. Compliance for rolling over of non-convertible portion of partly convertible debt instruments (Regulation 64)
The non-convertible portion of partly convertible debt instruments exceeding ₹10 crore may be rolled over if:
a) Credit rating is obtained within a month before redemption and communicated to holders
b) Creating fresh security or a trust deed is not mandatory if the existing documents allow for continuance until redemption, as decided by the debenture trustee.
6. Conditions for conversion of optionally convertible debt instruments into equity shares (Regulation 65)
An issuer cannot convert optionally convertible debt instruments into equity unless holders provide explicit consent. Non-receipt of a response to any notice is not considered consent for conversion.
a) If the convertible portion of listed convertible debt instruments exceeds ₹10 crore and the conversion price is not determined at issuance, holders must be given the option not to convert. However, if the upper limit of the conversion price is disclosed, the option to not convert is not required.
b) If holders are given the option to convert convertible debt instruments and choose not to, the issuer must redeem the unconverted portion within one month at no less than face value. This does not apply if the redemption terms were disclosed in the offer document.
7. Convertible debt instruments not to be issued for financing, providing loans, etc (Regulation 66)
An issuer shall not issue convertible debt instruments for financing or for providing loans to or for acquiring shares of any person who is part of the promoter group or group companies
An issuer shall be eligible to issue fully convertible debt instruments for these purposes if the period of conversion of such debt instruments is less than eighteen months from the date of issue of such debt instruments.
8. Conditions for Rights Issue of Share Warrants (Regulation 67)
An issuer shall be eligible to issue warrants subject to the following:
(a) the tenure of such warrants shall not exceed eighteen months from their date of allotment in the rights issue
(b) a specified security may have one or more warrants attached to it
(c) The exercise price or formula for warrants must be determined upfront and disclosed in the offer letter, with 25% of the consideration received upfront. If based on a formula, 25% is calculated as per the formula on the record date.
(d) If the warrant holder doesn’t exercise the option within three months, the consideration for those warrants will be forfeited.
9. Announcement of Record Date in the proposed Rights Issue (Regulation 68(1))
The issuer shall announce a record date for the purpose of determining the shareholders eligible to apply for specified securities in the proposed rights issue for such period as may be specified in the Securities and Exchange Board of India (LODR) Regulations, 2015
As per Regulation 42 of LODR-
i) The listed entity shall give notice in advance of at least seven working days (excluding the date of intimation and the record date) to stock exchange(s) of record date specifying the purpose of the record date for following events as specified in Regulation 42(1):
(a) issue of bonus shares;
(b) issue of shares for conversion of debentures or any other convertible security;
(c) shares arising out of rights attached to debentures or any other convertible security
(d) corporate actions like mergers, de-mergers, splits, etc;
(e) such other purposes as may be specified by the stock exchange(s)
ii) Listed entity shall give notice in advance of at least three working days (excluding the date of intimation and the record date) in case of rights issue. The listed entity shall ensure the time gap of at least thirty days between two record dates.
10. Rights Issue not to be withdrawn after announcement of Record Date (Regulation 68(2))
If the issuer withdraws the rights issue after announcing the record date, it shall not be eligible to make an application for listing of any of its specified securities on any stock exchange for a period of twelve months from the record date announced. Provided that the issuer may seek listing of its equity shares allotted pursuant to conversion or exchange of convertible securities, ESOPs or exercise of warrants issued prior to the announcement of the record date, on the stock exchange where its securities are listed.
The issuer shall appoint intermediaries which are registered with the Board after assessing the capability of intermediaries to carry out their obligations. The issuer shall enter into an agreement with other intermediaries as required under the respective regulations applicable to the intermediary concerned. In ASBA process, issuer shall take cognisance of deemed agreement of issuer with self-certified syndicate banks.
The issuer shall appoint bankers to an issue, at centres as specified in Schedule XII.
The issuer shall appoint a registrar to the issue registered with the Board, which has connectivity with all the depositories
i) Draft letter of offer & letter of offer shall contain all material disclosures which are true and adequate to enable applicants to take an informed investment decision. Draft letter of offer and letter of offer shall contain disclosures as specified in Part B of Schedule VI
ii) An issuer shall make disclosures in the draft letter of offer and letter of offer if the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower.
iii) In the letter of offer, the issuer shall disclose the process of credit of rights entitlements in the demat account and renunciation thereof
The Issuer(s) shall ensure that the information contained in the draft letter of offer and letter of offer and the particulars as per audited financial statements in the letter of offer are not more than six months old from the issue opening date.
Issuer shall file draft letter of offer with S.E (s) & shall submit to it PAN, bank A/c no.,passport no. of its promoters where they are individuals & PAN, bank A/c no., company reg. no.or equivalent, address of ROC with which promoter is registered, where promoter is a body corporate
a) Issuer shall file draft letter of offer with S.E (s) & shall submit to it a due diligence certificate from debenture trustee as per Form B of Schedule V,in case of issue of convertible debt instruments
b) The issuer shall file letter of offer with the stock exchanges/ the designated stock exchange.
c) The issuer shall file a letter of offer with the Board for information and dissemination on Board’s website along with fees specified in Schedule III
17. Draft letter of offer to be made available to the public (Regulation 72(1))
The draft letter of offer filed with the SEBI shall be made public for comments, if any, for a period of at least twenty one days from the date of filing, by hosting it on the websites of the issuer, the Board, stock exchanges where specified securities are proposed to be listed and the lead manager(s) associated with the issue.
The issuer must, within two days of filing draft letter of offer with SEBI, publish a public announcement in one English national daily, one Hindi national daily, and one regional language newspaper with wide circulation at a place where the registered office is situated. The announcement should inform the public about the filing and invite public to provide comments to Board, the issuer or to the lead manager(s) in respect of the disclosures made in the draft letter of offer.
Lead manager(s) shall, after the expiry of 21-day period the draft letter of offer was made available to public to comment from date of filing with SEBI, submit to the Board a summary of the comments received and consequential changes, if any, that are required to be made in the draft offer document
Issuer shall ensure that the draft letter of offer and letter of offer are hosted on the websites as required under the regulations and its contents are the same as the versions filed with the Board and the stock exchanges, as applicable. The stock exchanges shall provide copies of the draft letter of offer to the public as and when requested and may charge a reasonable sum for providing a copy of the same
a) The issue price shall not be less than the face value of the specified securities.
b) The issuer shall disclose the issue price in the letter of offer filed with the Board and the stock exchange(s).
The issuer shall make a rights issue of equity shares only if it has made reservation of equity shares of the same class in favour of the holders of outstanding compulsorily convertible debt instruments, if any, in proportion to the convertible part thereof.
Every application form distributed by the issuer or any other person in relation to the issue shall be accompanied by a copy of the letter of offer.
An applicant to the rights issue shall apply only through the ASBA facility, which facility shall be provided by the issuer in the manner specified by the SEBI
The payment through any other electronic banking mode shall be permitted in respect of an application made for any reserved portion outside the issue period
The Issuer shall ensure availability of the letter of offer and other issue material including application forms with stock exchanges, registrar to issue, registrar and share transfer agents, depository participants, stock brokers, underwriters, bankers to the issue, investors’ associations and self certified syndicate banks before the opening of the issue.
a) The letter of offer, along with application form, shall be despatched through registered post or speed post or by courier service or by electronic transmission to all the existing shareholders at least three days before the date of opening of the issue.
b) The letter of offer shall also be provided by the issuer to any existing shareholder who makes a request in this regard.
26. Credit of rights entitlements and allotment of specified securities (Regulation 77A)
The rights entitlements shall be credited to the demat account of the shareholders before the date of opening of the issue. Allotment of specified securities shall be made in the dematerialised form only
Regulation 77B deals with allotment to Specific Investors
Specific investor would mean any investor who is eligible to participate in rights issue of issuer and –
a) whose name has been disclosed by issuer in terms of sub-clause (i) of clause (f) of Regulation 84(1) of these regulations
b) whose name has been disclosed by the issuer in terms of sub-clause (ii) of clause (f) of Regulation 84(1) of these regulations.
Shareholders who have not received application form may make application in writing on plain paper, along with requisite application money. SCSBs shall accept such application forms only if all details required for making application as per these regulations are specified in plain paper application
i) Shareholders making an application on plain paper shall not be entitled to renounce their rights and shall not utilise the application form for any purpose including renunciation even if it is received subsequently.
ii) If a shareholder makes an application both in an application form as well as on a plain paper, both applications are liable to be rejected.
29. Prohibition on payment of incentives (Regulation 79)
Any person connected with the issue, shall not offer any incentive, whether direct or indirect, in any manner, whether in cash or kind or services or otherwise to any person for making an application in the rights issue, except for fees or commission for services rendered in relation to the issue
If the issuer desires to have the issue underwritten, it shall appoint merchant bankers or stock brokers, registered with the Board, to act as underwriters. The issue can be underwritten only to the extent of entitlement of shareholders other than the promoters and promoter group.
The issuer shall make arrangements for the use of proceeds of the issue to be monitored by a credit rating agency registered with the Board. This clause shall not apply to an issue of specified securities made by a bank or public financial institution or an insurance company.
i) The monitoring agency shall submit its report to the issuer in format specified in Schedule XI on a quarterly basis, till 100% of the proceeds of the issue actually raised have been utilised.
ii) The board of directors and the management of the issuer shall provide their comments on the findings of the monitoring agency as specified in Schedule XI.
32. Publishing & submission of the Report of Monitoring Agency (Regulation 82(4))
The issuer shall, within forty five days from the end of each quarter, publicly disseminate the report of the monitoring agency by uploading the same on its website as well as submitting the same to the stock exchange(s) on which its equity shares are listed.
All public communication, publicity materials, advertisements and research reports shall comply with the provisions of Schedule IX
During the period the issue is open for subscription, no advertisement shall be released giving an impression that the issue has been fully subscribed or oversubscribed, or indicating investors’ response to the issue
An announcement regarding closure of issue shall be made only after the Issuer is satisfied that at least ninety per cent. of the offer through letter of offer has been subscribed and a certificate has been obtained to that effect from the registrar to the issue
Such an announcement shall not be made before the date on which the issue is to be closed except for issue closing advertisement made in the format prescribed in these regulations.
Subject to the compliance with the provisions of the Companies Act, 2013, a rights issue may be opened within such period as may be specified by the Board from time to time
The minimum subscription to be received in the issue shall be at least ninety per cent of the offer through the offer document.
38. Minimum subscription criteria shall not be applicable to an issuer if:
i) the object of the issue involves financing other than financing of capital expenditure for a project; and
ii) the promoters and the promoter group of the issuer undertake to subscribe fully to their portion of rights entitlement and do not renounce their rights except to the extent of renunciation within the promoter group or to the specific investor(s) as disclosed by the issuer in terms of these regulations
39. Refund of application monies due to non-receipt of subscription amount (Regulation 86)
In the event of non-receipt of minimum subscription, all application monies received shall be refunded to the applicants forthwith, within four days from the closure of the issue
40. Period of subscription (Regulation 87)
The rights issue shall be kept open for subscription for such period as may be specified by the Board from time to time and no withdrawal of application shall be permitted after the issue closing date
41. Payment options to be provided to shareholders (Regulation 88)
The issuer shall give one of the following payment options to all the shareholders for each type of instrument:
a) part payment on application with balance money to be paid in calls; or
b) full payment on application
42. Manner in which the calls to be made (Regulation 89)
If the issuer proposes to receive subscription monies in calls, it shall ensure that the outstanding subscription money is called within twelve months from the date of allotment in the issue and if any applicant fails to pay the call money within the said twelve months, the equity shares on which there are calls in arrear along with the subscription money already paid on such shares shall be forfeited. It shall however not be necessary to call the outstanding subscription money within twelve months, if the issuer has appointed a monitoring agency in terms of regulation 82.
43. Allotment not to be made in excess of specified securities offered through Letter of Offer (Regulation 90(1))
The issuer shall not make any allotment in excess of the specified securities offered through the letter of offer, except as provided in regulation 74(1) and (2)
Regulation 74(1) & (2) deals with:
(1) The issuer shall make a rights issue of equity shares only if it has made reservation of equity shares of the same class in favour of the holders of outstanding compulsorily convertible debt instruments, if any, in proportion to the convertible part thereof.
(2) The equity shares so reserved for the holders of fully or partly compulsorily convertible debt instruments shall be issued to the holder of such convertible debt instruments at the time of conversion of such convertible debt instruments, on the same terms at which the equity shares offered in the rights issue were issued.
44. Manner of allotment of Rights Shares (Regulation 90(2))
Allotment of shares offered through Rights Issue shall be made in the manner specified in Regulation 90(2) of ICDR
Reg. 90(2):
a) Full allotment to eligible shareholders who have applied for rights either in full/part & to renounce (s), who have applied for specified securities renounced in their favour in full/part, as adjusted for fractional entitlement
b) Allotment to shareholders who applied for specified securities in full and also for additional securities will be made equitably based on the number of securities held on the record date, provided there is an undersubscription after the allotment in (a)
c) Allotment to renouncees, who having applied for specified securities renounced in their favour & also applied for addl. specified securities, provided there is undersubscribed portion after making full allotment in (a) & (b). Allotment of addl. securities to be made proportionately
d) Allotment to specific investor(s) disclosed by issuer before opening of issue, provided that there is an under-subscribed portion after making full allotment as per a, b and c
45. Allotment of securities or refund of application monies (Regulation 91(1))
The issuer shall ensure that the specified securities are allotted and/or application monies are refunded or unblocked within such period as may be specified by the Board
i) Issuer shall ensure that the allotment, credit of dematerialised securities, refunding or unblocking of application monies, as may be applicable, are done electronically
ii) Where the specified securities are not allotted and/or application monies are not refunded or unblocked within the period stipulated by SEBI, the issuer shall undertake to pay interest at the rate of fifteen per cent. per annum to the shareholders within such time as disclosed in the draft letter of offer and the letter of offer
45. Post issue advertisements to be issued (Regulation 92)
Issuer must ensure that advertisement is released within 10 days of completing relevant activities detailing subscription info, allotment basis, application data (incl. ASBA), successful allottee statistics, refund dispatch dates, certificate/securities credit dates & listing appl. filing date
i) This advertisement should appear in at least one English, one Hindi, and one regional language national daily newspaper with wide circulation, in the area where the issuer’s registered office is located.
ii) The details must also be posted on the websites of the stock exchanges where the securities are listed.
46. Post issue responsibilities of the Issuer (Regulation 93(3),(4))
Issuer shall continue to be responsible for post-issue activities till the applicants have received credit to their demat account or refund of application monies and listing or trading permission is obtained
The Issuer shall be responsible for and co-ordinate with the registrars to the issue and with various intermediaries at regular intervals after the closure of the issue to monitor the flow of applications from self-certified syndicate banks, processing of the applications including application form for ASBA and other matters till the basis of allotment is finalised, credit of the specified securities to the dematerialised accounts of the allottees, as applicable and unblocking of ASBA accounts/ dispatch of refund orders are completed and securities are listed, as applicable
47. Post issue responsibilities of the Designated Stock Exchange (Regulation 93(2),(5),(6),(7))
The Designated Stock Exchange shall regularly monitor redressal of investor grievances arising from any issue related activities
(a) Any act of omission or commission on the part of any of the intermediaries noticed by the Designated Stock Exchange shall be duly reported by them to the Board.
(b) In case there is a devolvement on underwriters, the Designated Stock Exchange shall ensure that the notice for devolvement containing the obligation of the underwriters is issued within ten days from the date of closure of the issue.
(c) In case of undersubscribed issues that are underwritten, the Designated Stock Exchange shall furnish information to the Board in respect of underwriters who have failed to meet their underwriting devolvement in the format specified in Schedule XVIII.
48. Confirmation to be provided by the Issuer to the Bankers to Issue (Regulation 94(1),(3))
The Issuer shall confirm to the bankers to the issue by way of copies of listing and trading approvals that all formalities in connection with the issue have been completed and that the banker is free to release the money to the issuer or release the money for refund in case of failure of the issue. The Designated Stock Exchange shall ensure that the monies received in respect of the rights issue are released to the issuer in compliance with the provisions of sub-section (3) of section 40 of the Companies Act, 2013, as applicable.
49. Refund of subscription monies if the Issuer fails to obtain listing/trading permission (Regulation 94(2))
In case the issuer fails to obtain listing or trading permission from the stock exchanges where the specified securities were listed, it shall refund through verifiable means the entire monies received within four days of receipt of intimation from stock exchanges rejecting the application for listing of specified securities, and if any such money is not repaid within four days after the issuer becomes liable to repay it the issuer and every director of the company who is an officer in default shall, on and from the expiry of the fourth day, be jointly and severally liable to repay that money with interest at the rate of fifteen per cent. per annum
50. Reporting of transactions of the promoters and promoter group (Regulation 95 (1))
The issuer shall ensure that all transactions in securities by the promoters and promoter group between the date of filing of the draft letter of offer or letter of offer, as the case may be, and the date of closure of the issue shall be reported to the stock exchanges within twenty four hours of such transactions.
51. Reporting of other pre-issue transactions (Regulation 95 (2))
The issuer shall also ensure that any proposed pre-issue placement disclosed in the draft letter of offer shall be reported to the stock exchange(s), within twenty-four hours of such pre-issue transactions (in part or in entirety)
52. Submission of Initial Post Issue Report by Issuer to SEBI (Regulation 96(a))
The Issuer shall submit initial post-issue report to SEBI as specified in Part B of Schedule XVII, within three working days of closure of the issue
53. Submission of Final Post Issue Report by Issuer to SEBI (Regulation 96(b))
The Issuer shall submit final post-issue report as specified in Part C of Schedule XVII, within fifteen days of the date of finalization of basis of allotment or within fifteen days of refund of money in case of failure of the issue.
54. Restriction on further capital issues (Regulation 97)
An issuer shall not make any further issue of specified securities in any manner whether by way of public issue, rights issue, preferential issue, qualified institutions placement, issue of bonus shares or otherwise, except pursuant to an employee stock option scheme or a stock appreciation right scheme during the period between the date of filing the draft letter of offer with the stock exchange(s) and the listing of the specified securities offered through the letter of offer or refund of application monies; unless full disclosures regarding the total number of specified securities or amount proposed to be raised from such further issue are made in such draft letter of offer or letter of offer, as the case may be.
55. Alteration of rights of holders of specified securities (Regulation 98)
Issuer shall not alter terms (including the terms of issue) of specified securities which may adversely affect interests of the holders of those specified securities However, Issuer can do so except with the consent in writing of the holders of not less than three-fourths of the specified securities of that class or with the sanction of a special resolution passed at a meeting of the holders of the specified securities of that class
Penalty & Punishment
(a) imposition of fines;
(b) suspension of trading;
(c) freezing of promoter/promoter group holding of designated securities, as may be applicable in coordination with depositories;
(d) any other action as may be specified by the Board from time to time.
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