SEBI Master Circular for Issue of Capital and Disclosure Requirements

Introduction

Securities and Exchange Board of India (“SEBI”) notified the Issue of Capital and Disclosure Requirements (“ICDR”) Regulations in 2009 which serves as a comprehensive framework governing the issuance of securities in the primary market. These regulations consolidated and simplified the rules regarding various types of capital issues, right issues, preferential issues, initial public offerings, and qualified institutional placements. These regulations were revised in 2018 to match the standards of the Companies Act, 2013 and evolving market practices.

SEBI has issued a Master Circular dated June 21, 2023 consolidating all relevant circulars issues till that date. Recently, SEBI issued a Master Circular for ICDR dated November 11, 2024 which supersedes the previous master circular. With the issuance of this circular, all directions/ instructions contained in the circular listed out in the Appendix to this Master Circular shall stand rescinded to the extent they relate to ICDR Regulations.

Key provisions of the circular

Chapter 1: Non-compliance with certain provisions

Regulations 297 and 298 provide for liability of listed entities for contraventions, detailing actions that stock exchanges can take, including imposing fines for non-compliance. The circular under this chapter also specifies fines for various violations. Fines collected will be credited to Investor Protection Fund. Further, stock exchanges are required to publish details of non-compliant entities on their website. If fines are not paid, stock exchanges may initiate enforcement actions as per Regulation 298.

Chapter 2: Streamlining process of Rights Issues

This chapter focuses on streamlining the process of rights issues by providing for (1) advance notice to stock exchanges (2) requiring issues to publish an advertisement detailing the completion date of dispatching rights issue materials and informing stock exchanges at least 2 days before opening the issue (3) certain rules for Dematerialised Rights Entitlement including procedure for crediting Right Entitlements.

Chapter 3: Disclosures in Offer Documents

This chapter mandates the issuers must provide comprehensive information to investors. Key requirements include detailed financial statements, risk factors, and management discussions. This emphasizes for clear and accurate disclosure relating to use of proceeds, terms of issue, and other legal proceedings involving the issuer.

Chapter 4: Online Filing System, Guidelines for returning of draft offer document and resubmission and Audiovisual (AV) presentation of Disclosures.

This chapter outlines the online filing system and guidelines for submitting draft offer documents. It emphasizes on electronic filing through designated platforms. It specifies procedures for returning and resubmitting these documents for timely compliance. It also mandates issuers to conduct audiovisual presentations disclose key information to stakeholders, enhancing transparency and investor understanding. 

Chapter 5: Compensation to Retail Individual Investors (RIIs) in an Initial Public Offering (IPO) 

This chapter lays down the compensation framework under which RIIs are eligible for compensation in case of delay or non-allotment of shares during IPO. It specifies certain criteria to be met to claim compensation and detailed procedure for submitting compensation claims is provided. This will ensure fair treatment in the IPO process.

Chapter 6: Non-Convertible Debt Instruments (NCDs) with warrants

This chapter provides for guidelines on issuance of NCDs with warrants. It outlines procedures for Qualified Institutional Placements (QIPs), including eligibility criteria, disclosure requirements, and the pricing mechanism for such instruments. The chapter emphasizes compliance with regulatory norms to ensure transparency and protect investor interests during the issuance process.

Chapter 7: Recognition of Investors for Innovators Growth Platform (IGP)

It outlines criteria for investor eligibility, emphasizing the need for due diligence in assessing investor qualifications. The chapter also details the processes for onboarding investors and ensuring compliance with regulatory requirements, aiming to facilitate a structured approach for innovative companies seeking to raise capital while protecting investor interests and enhancing market integrity.

Chapter 8: Issue Summary Document (ISD)

This chapter focuses on ISD and dissemination of issue advertisements. It outlines requirements for issuers to prepare an ISD summarizing key information about the issue. Additionally, it mandates that issuers publish advertisements in newspapers and on their websites to inform potential investors about the offering, ensuring transparency and accessibility of information regarding the terms and conditions of the issue.

Chapter 9: Application Supported by Blocked Amount (ASBA) facility

This chapter outlines the ASBA process, allowing investors to apply for public issues while blocking the application amount in their bank accounts instead of making an upfront payment. It also highlights the role of SCBs, entities eligible for accepting ASBA application, ASBA process in Public Issue and Rights Issue, manner of disclosure, role and responsibilities of intermediaries and other additional payment mechanisms. The chapter aims to enhance investor convenience and streamline capital raising activities while ensuring compliance with regulatory requirements to protect investor interests.

Chapter 10: Use of Unified Payment Interface (UPI) in Public Issues

This chapter outlines the framework for utilizing UPI as a payment method for applications in public offerings, enhancing convenience for retail investors. This provides for role of Self-Certified Syndicate Banks (SCSBs), instructions for investors, and regulatory compliance with SEBI regulations. This chapter aims to modernise payment process in public issues and make it more user-friendly.

Chapter 11: Timelines for listing in Public Issues.

The chapter specifies that shares must be listed on the stock exchange within a stipulated timeframe following the closure of the public issue. This ensures timely access for investors to trade their shares. It also highlights that delays in listing could lead to penalties or enforcement actions.

Apart from 11 chapters, the circular also has 23 annexures for various compliances mentioned in the chapters.

Conclusion

The circular is significant for various stakeholders as it consolidates multiple circulars into a single document providing for a more comprehensive framework. By specifying fines for non-compliances, the circular promotes accountability among the listed entities. The circular aims to compensate RIIs and ensure timely communication about public issue for investor protection. It also aims to streamline the process of rights issues and use of digital payments for easier investor participation. Overall, the Master Circular is designed to create a more robust regulatory environment that fosters transparency, accountability, and investor confidence in India’s capital markets.