Lock-In of Shares Under SEBI (Issue of Capital And Disclosure Requirements) Regulations, 2018

Summary: The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 establish different lock-in periods for promoters’ minimum contribution, promoters’ excess shareholding and pre-issue capital held by other investors. For Main Board initial public offers, Regulations 16 and 17 distinguish between promoter holdings and other pre-issue capital. The applicable promoter lock-in periods depend on whether the prescribed capital expenditure threshold is met in relation to fresh issue proceeds, excluding the offer-for-sale portion. Ordinarily, minimum promoters’ contribution is locked in for 18 months and excess promoter holdings for six months from allotment. For qualifying capital-expenditure issues, the corresponding periods are three years and one year. Non-promoter pre-issue capital is generally locked in for six months, subject to exceptions for specified employee benefit shares and eligible institutional investors. SME initial public offers follow a separate regime under Regulations 238 and 239. Minimum promoters’ contribution is ordinarily subject to a three-year lock-in, with a commercial-production commencement rule relevant where applicable. Following the 2025 amendment, half of the promoters’ excess holding is locked in for two years and the remaining half for one year. Other SME pre-issue holdings generally carry a one-year lock-in, subject to specified exceptions. The distinction between the Main Board and SME regimes matters for promoters, venture capital funds, alternative investment funds, employees and merchant bankers planning listing transactions. The applicable rules should also be read alongside provisions on pledging, permitted transfers and depository recording of restrictions. This article sets out the main periods, statutory references, exemptions and abbreviations, with particular attention to the changes made through 2025 and March 2026.

Lock-in of Shares under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018
Freezing of pre-issue capital post-allotment: listing stability and promoter alignment

Part I: Main Board IPO

Chapter II of the ICDR Regulations applies. The distinction between capital expenditure and other issue objects affects promoter lock-in periods. The relevant calculation concerns fresh issue proceeds, excluding the offer-for-sale (OFS) portion.

Case A: Object of Issue Is Other than Capital Expenditure

Capital expenditure does not exceed 50% of the relevant fresh issue proceeds. Reference: Regulation 16(1)(a) and (b).

1. Minimum Promoters’ Contribution (MPC) [Reg. 16(1)(a)]

• Generally, 20% of post-issue capital, subject to the eligibility and contribution requirements.
• Lock-in: 18 months from the date of allotment.

2. Excess Promoter Holding [Reg. 16(1)(b)]

• Promoters’ holding in excess of the minimum contribution.
• Lock-in: six months from allotment.
• The longer capital-expenditure proviso does not apply merely because some proceeds are allocated to capital expenditure.

3. Pre-IPO Non-Promoter Capital [Reg. 17(1)]

• Entire pre-issue capital held by persons other than promoters, subject to the statutory exceptions.
• Lock-in: six months from allotment.

Exemptions under Regulation 17(1)

• Qualifying pre-IPO employee stock option, employee stock purchase and stock appreciation right shares, subject to the relevant disclosure and employee-benefit conditions.
• Qualifying holdings of venture capital funds, Category I or II alternative investment funds and foreign venture capital investors, subject to the prescribed holding-period and other conditions under Regulation 17.

Case B: Object of Issue Is Capital Expenditure

Capital expenditure exceeds 50% of the relevant fresh issue proceeds, excluding OFS. Reference: the capital-expenditure provisos to Regulation 16(1)(a) and (b). Classification of issue objects must follow the applicable regulatory definition, not merely the issuer’s description.

1. Minimum Promoters’ Contribution (MPC) [Reg. 16(1)(a)]

• Generally, 20% of post-issue capital, subject to applicable requirements.
• Lock-in: three years from allotment.

2. Excess Promoter Holding [Reg. 16(1)(b)]

• Holding above the minimum promoters’ contribution.
• Lock-in: one year from allotment.
• This is longer than the ordinary six-month lock-in, not shorter.

3. Pre-IPO Non-Promoter Capital [Reg. 17(1)]

• Other pre-issue holders are generally subject to six months’ lock-in from allotment.
• The classification of the issue as capital expenditure does not itself extend this Regulation 17(1) period.

Exemptions under Regulation 17(1)

• Qualifying pre-IPO ESOP, employee stock purchase and SAR shares, subject to applicable conditions.
• Eligible VCF, Category I and II AIF and FVCI holdings satisfying the applicable conditions under Regulation 17.

Part II: SME IPO

Chapter IX of the ICDR Regulations prescribes a separate regime. The Main Board’s capital-expenditure versus non-capital-expenditure split does not determine the SME promoter lock-in periods. Relevant provisions are Regulations 238 and 239.

1. Minimum Promoters’ Contribution (MPC) [Reg. 238(a)]

• Generally, 20% of post-issue capital, subject to the minimum contribution requirements.
• Lock-in: three years from commencement of commercial production or the IPO allotment date, whichever is later, where the commercial-production trigger applies.
• The relevant commercial-production date is determined in accordance with the explanation to Regulation 238; it should not be assumed to apply identically to every operating issuer.

2. Excess Promoter Holding [Reg. 238(b)]

• Promoters’ holding exceeding the minimum contribution.
• 50% of the excess holding: two years from IPO allotment.
• Remaining 50% of the excess holding: one year from IPO allotment.
• This phased lock-in was introduced by the 2025 ICDR amendment.

3. Pre-IPO Non-Promoter Capital [Reg. 239]

• Pre-issue capital held by persons other than promoters is generally locked in for one year from allotment.
• Qualifying pre-IPO employee benefit shares under ESOP, employee stock purchase or SAR schemes are excluded subject to prescribed conditions.
• Qualifying VCF, Category I or II AIF and FVCI holdings are subject to the prescribed one-year period reckoned from purchase, with applicable conversion and holding-period rules.

Part III: Comparison of Lock-in Periods

Periods are measured from IPO allotment unless the applicable provision specifies another commencement or holding date. All entries are subject to statutory exceptions and transitional provisions.

Part IV: Pledged Shares and Depository Lock-in

The SEBI ICDR amendment dated 21 March 2026 introduced a mechanism under which specified securities for which lock-in cannot be created may be recorded as non-transferable by the depository for the applicable period. SEBI’s circular dated 8 April 2026 requires issuers, stock exchanges, depositories and merchant bankers to follow the operational framework for pledged shares, including applicable articles-of-association provisions, lender or pledgee intimation and offer-document disclosure. This mechanism does not itself shorten the substantive lock-in periods.

Abbreviations

MPC = Minimum Promoters’ Contribution; OFS = Offer for Sale; ESOP = Employee Stock Option Plan; SAR = Stock Appreciation Rights; VCF = Venture Capital Fund; AIF = Alternative Investment Fund; FVCI = Foreign Venture Capital Investor; RHP = Red Herring Prospectus.

Relevant TaxGuru Regulatory Coverage

• SEBI ICDR Regulations, 2018 – TaxGuru coverage.
• SEBI ICDR Amendment Regulations, 2025.
• SEBI pledged-share lock-in mechanism – TaxGuru coverage.

Disclaimer: This article is based on the applicable provisions and information available when it was prepared, as well as the best of the author’s knowledge. It is intended for general informational purposes only and should not be considered or relied upon as professional advice. Readers should check the current law and obtain independent professional advice tailored to their specific facts. The author does not accept any responsibility or liability for actions taken based on this general discussion.