SEBI’s New Rights Issue Framework: Faster, Flexible, And Automated

Posted On - 27 March, 2025 • By - Nivedita Bhardwaj

Introduction

SEBI has recently introduced a new circular which aims to speed up the process of rights issue and make it more flexible for listed companies.[1] The new framework provides for revised timelines, automated bid validation, and the option for targeted allotments. This is designed in such a way so as to enhance efficiency and transparency in raising capital. It is expected that revisions will benefit both issuers and investors, while also streamlining the overall process.

Introduction of the New Framework

SEBI recently introduced the new framework for Rights Issues through the SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2025 on March 08, 2025.[2] This amendment highlights yet another effort by the SEBI to enhance efficiency and transparency in the process of raising capital, specifically for listed entities.

Key Changes in the Rights Issue Process

  • Under the new framework, SEBI has revised Regulation 85 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (SEBI ICDR Regulations).
  • As per the amendment, the entire Rights Issue process has to be completed within 23 working days from the date on which the Board of Directors of the issuer approves such Rights issue. This substantially reduced the previous timelines, which thus ensures faster mobilization of capital.
  • The revised activity-wise timeline for completing the Rights Issue process is detailed in Annexure I of the circular.

Revised Timelines for Convertible Debt Instruments

  • The timeline will be adjusted accordingly for Rights Issues which involve convertible debt instruments which require approval from the shareholders.
  • The extension in timeline will account for the period required to obtain shareholders’ approval, as specified in Annexure I.

Subscription Period for Rights Issues

  • SEBI has specified a new timeline for the subscription window. The Rights Issue shall remain open for a minimum of seven days, while the maximum subscription period is thirty days.
  • This ensures that there is a sufficient window for investors to participate while prevent unnecessarily prolonged fundraising periods.

Validation of Bids and Basis of Allotment

  • The revised bid validation system introduced by the SEBI is more robust. It aims to prevent errors and ensure accuracy in the Rights Issue process. The system is as follows:
    • The validation of the application bids that are received for subscription will be handled by stock exchanges and depositories in coordination with the Registrar to the Issue.
    • The same authorities will finalize the basis of allotment. This will ensure transparency and accuracy in the allocation process.

Automated Validation System by Stock Exchanges and Depositories

  • SEBI has mandated the creation of an automated system for bid validation:
    • This system must be developed by stock exchanges and depositories within six months from the date of this circular becoming applicable.
    • This automated validation system has been introduced with an aim to reduce human errors in verifying bids and ensure a faster and more accurate validation process.

Modifications in the Master Circular

The introduction of the new framework makes certain modifications necessary in SEBI’s Master Circular on Rights Issues, issued on November 11, 2024.[3] The relevant changes include:

Disclosure in the Letter of Offer

Para 1.3.1 of Chapter 2 of the Master Circular has been revised:

  • The issuer is now required to disclose the process of crediting the Rights Entitlements (REs) to the investors’ demat accounts.
  • The issuer must also specify the renunciation process of the REs in the Letter of Offer.

Application Form Accessibility

Sub-para (d) of para (A) of Annexure I of Chapter 2 has been modified:

  • Investors can now use the application forms from:
    • The website of the registrar to the issue.
    • Printed forms sourced from either the issuer or the registrar.

This enhances the convenience and accessibility for investors to participate in the Rights Issue.

Correction of Bid Data

Sub-para (a) of para (E) of Annexure I of Chapter 2 has been revised:

  • The correction of bid data by the Self-Certified Syndicate Banks (SCSBs) must now be completed on the issue closure date itself.
  • This ensures that data finalization is done in a timely and accurate manner, thereby preventing delays in the post-issue process.

Implementation Timeline

  • The new framework will come into effect immediately upon its issuance. Stock exchanges, depositories, registrars, and other market intermediaries are required to align their processes with the new framework in a prompt manner.
  • The automated validation system, however, has a six-month implementation window.

Key Takeaways for Market Participants

  • Faster Access to Capital: Companies will now be able to raise funds much faster since the entire rights issue process will wrap up within 23 working days from board approval. This streamlined timeline avoids lengthy procedural delays and helps issuers access capital when they need it most.
  • Greater Liquidity Options for Investors: The new framework offers issuers the freedom to allocate shares to specific investors, making it easier to bring in strategic partners or high-value shareholders. This flexibility could boost share value and market confidence, especially during uncertain market conditions.
  • More Transparency and Accuracy: Automated bid validation by stock exchanges and depositories will make the process much simpler and more efficient. Faster error detection and real-time validation will also reduce discrepancies, thereby making allotments fairer and more reliable.
  • Flexible Issue Period: Issuers now have the option to keep the rights issue open for up to 30 days. This gives them room to strategize keeping in mind the market conditions. This flexibility is likely to attract more investor participation, especially from those who need more time to decide.
  • Simplified Application Process: Investors can now access standardized application forms directly from the registrar’s website. This makes the process more convenient and accessible, particularly for retail investors.
  • Global Alignment: By modernizing the rights issue process, SEBI is bringing Indian markets closer to international standards, making them more appealing to both domestic and foreign investors.

Conclusion

These updated rules pertaining to Rights Issue aim to make the process of raising capital faster and more precise. The accelerated timelines and automated processes require that market players swiftly adapt to it. While the shift offers clear benefits in efficiency and investor access, its success will lie in proper and seamless implementation. These changes reflect a clear intent to modernize and push for a more robust and transparent market that serves both issuers and investors better.

[1] https://www.sebi.gov.in/legal/circulars/mar-2025/faster-rights-issue-with-a-flexibility-of-allotment-to-specific-investor-s-_92622.html.

[2] https://www.sebi.gov.in/legal/regulations/mar-2025/securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-amendment-regulations-2025_92539.html.

[3] https://www.sebi.gov.in/legal/master-circulars/nov-2024/master-circular-for-issue-of-capital-and-disclosure-requirements_88398.html.

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