Given the recent surge in Initial Public Offer (“IPO”), driven by strong domestic demand and rising investor awareness, the Indian securities market is witnessing significant capital mobilisation. In June 2025 alone, the fund mobilisation through IPOs, inclusive of both Main Board and SME IPO, stood at INR 9,526 crores. While this indicates growing investor confidence in capital markets, it also leaves many investors in a state of uncertainty, as they often lack understanding of the intricacies involved in an extensive offer document. This article seeks to simplify and explain the fundamentals pertaining to the offer structure and procedure, thereby facilitating an informed investment decisions by the prospective investors/bidders.
Background
When an unlisted company (“Issuer”) intends to restructure itself into a public listed company and proposes to offer its equity shares to the public (“Issue/Offer”) on a recognized stock exchange through book building process (i.e., price discovery mechanism), it is mandatorily required to file a draft offer document or Draft Red Herring Prospectus (“DRHP”) with Securities Exchange Board of India (“SEBI”) in accordance with the Companies Act, 2013 and rules made thereunder (collectively referred to as “Companies Act”) and Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended (“ICDR Regulations”). This exercise initiates the process of inviting bid applications to determine the floor price or price band from different categories of investors, namely Retail Individual Investors (“RII”), Non-institutional Investors (“NII”) and Qualified Institutional Buyers (“QIB”).
Offer Structure
Every DRHP has a designated chapter titled ‘Offer Structure’ under section “Offer Related Information”. This chapter outlines the allocation rules w.r.t. total Offer size by the Issuer across different categories of investors, read in consonance with different provisions of ICDR Regulations and Securities Contracts (Regulation) Rules, 1957 (“SCR Rules”).
| RELEVANT PROVISIONS | ||||||
| ICDR Regulations | ||||||
| Reg. 6 (Issuer Eligibility for IPO) | Reg. 32 (Net Offer Allocation) | |||||
| Reg. 6(1) | Reg. 6(2) | Reg. 32(1) | Reg. 32(2) | Reg. 32(3) | ||
| Net tangible assets ≥ INR 3 cr in each preceding 3 years*, and not more than 50% held in monetary assets^
Average operating profit of 3 years is INR 15 cr* Net worth ≥ 1 cr in each preceding 3 years* (*calculated on restated & consolidated basis) (^this condition is relaxed for Offer for Sale (“OFS”) made entirely through an IPO) When there’s a change in its name- 50% of the revenue earned in last 1 year shall be from the activity under the new name |
If the Issuer fails to fulfil the conditions set out in Reg. 6(1), then the Issuer is allowed to go for an IPO only
1. through book-building process 2. If it allots 75% of the net Offer to QIBs 3. undertakes to refund full subscription money if it fails to meet the above conditions |
Issue made through book-building process under Reg. 6(1):
1. 50% – QIB [5% – Mutual Funds] 2. 35% – RII 3. 15% – NII Note: · Unsubscribed portion in categories 2 and 3 may be allotted to applicants in any other category, not vice-versa. · Other than 5% reserved for mutual funds, allocation can also be made from the remaining portion of QIBs |
Issue made through book-building process under Reg. 6(2):
1. 75% – QIB [5% – Mutual Funds] 2. 10% – RII 3. 15% – NII Note: Same as that under Reg. 32(1) In case of under-subscription, no spill-over is allowed from other categories in QIB portion |
Issue when made through book-building process:
60% of the QIB portion is designated to anchor investors in accordance with Schedule XIII. [Anchor Investors – a special category of QIB that makes an investment of ≥ 10 cr.] Reg. 32 (3A): It further bifurcates NII category of investors into 2 types: Application size b/w 2-10 lakhs & Application size more than 10 lakhs. Note: In case of under subscription, allocation may be made in either of the sub-category. |
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| SCR Rules | ||||||
| Rule 19(2)(b) | ||||||
| The aforementioned rule sets out the limits in the offer document with regards to the Offer price and the minimum required public allotment in the Offer. | ||||||
| S.No. | Post Issue Capital | Mandatory Minimum Public Shareholding | ||||
| i. | ≤ INR 1600 cr | 25% | ||||
| ii. | INR 1600 cr to INR 4000 cr | ≤ INR 400 cr | ||||
| iii. | INR 4000 cr to INR 1 lakh cr | 10% | ||||
| iv. | > INR 1 lakh cr | 5% / equivalent to 5000 cr | ||||
| Note 1: Companies in category ii. & iii. shall increase its public shareholding to 25% within 3 years from the date of listing in accordance with SEBI requirements.
Note 2: Companies in category iv. shall increase its public shareholding to 10% within 2 years and 25% within 5 years from listing in accordance with SEBI requirements. Note 3: If the company has issued SR equity shares to its promoters or founders, then the said company shall list such shares along with ordinary shares offered to public at the same recognized stock exchange, read in accordance with the Reg. 6 (3) of the ICDR Regulations. |
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Offer Procedure
In furtherance of the detailed Offer Structure outlined hereinabove, certain guidelines are followed in a public Issue/Offer, which are comprehensively incorporated in the chapter titled “Offer Procedure” in every DRHP.
- The mode of allotment of shares is mandatorily dematerialised form.
- The public Issues are made in accordance with the timeline of “T+3 days” for the allotment of shares.”
- All bidders shall submit their bids using the Application Supported by Blocked Amount (“ASBA”) Under this mechanism, the bid amount will be blocked in the bidder’s bank account by either a Self-Certified Syndicate Bank (“SCSB”) or through the UPI mechanism via a sponsor bank, as indicated in the ASBA Form at the time of submission. However, Anchor Investors shall pay the entire bid amount upfront when submitting their bids.
- Since 2021, SEBI has allowed individual investors to apply for IPOs through bidding platforms using the UPI-based ASBA process for bids not exceeding INR 5 lakhs.
- Shareholders intending to transfer pre-Offer shares can request assistance from the company and registrar to process the transfer of shares held under a suspended or frozen ISIN. This can be undertaken by submitting the necessary documents to the company or registrar, who will then carry out the aforesaid transfer through a corporate action.
- The Prospective bidders, other than Anchor Investors, must submit their bids using the Bid-cum-Application Form, which can be obtained from the designated intermediaries at the bidding centre or from the company’s registered office or can be accessed and downloaded from the website of National Stock Exchange (“NSE”) and Bombay Stock Exchange (“BSE”). Additionally, Anchor Investor Application form will be made available with Book Running Lead Managers (“BRLMs”)one day prior to the IPO opening date.
- Further, it outlines the procedure of the payment of processing fees to the SCSBs. It provides for the payment of processing fee only after (i) unblocking of application amounts for each application received by the SCSB has been fully completed, and (ii) applicable compensation relating to investor complaints has been paid by the SCSB.
- During the Offer procedure, National Payments Corporation of India (“NPCI”) coordinates with issuer banks and Sponsor Banks on a continuous basis.
- QIBs and NIBs are not allowed to revise their bids downwards nor cancel/withdraw their bids. However, RIIs does not have such restrictions placed on them. Moreover, bids are modified by designated intermediaries on the stock exchange platform till 5:00 p.m.on the Offer closing date after which the stock exchange(s) send the bid information to the ‘Registrar to the Offer’ for further processing.
- The BRLMs and syndicate membersare prohibited from purchasing equity shares in the Offer, except to meet their underwriting obligations. However, their associates and affiliates are allowed to bid for equity shares in QIB and NII portion. Although, any associate or affiliate of BRLMs or syndicate members are not allowed to bid in the portion reserved for Anchor Investors.
- Under the said chapter, bids are allowed from wide catena of investors that are listed below:
| 1. Bids by Mutual Funds | 2. Bids by SCSBs |
| 3. Bids by HUFs | 4. Bids by banking companies |
| 5. Bids by eligible NRIs | 6. Bids by insurance companies |
| 7. Bids by FPIs | 8. Bids under power of attorney |
| 9. Bids by Anchor Investors | 10. Bids by provident funds/pension funds |
| 11. Bids by Limited Liability Partnerships | 12. Bids by Systemically Important NBFCs |
| 13. Bids by SEBI registered AIFs, VCFs and FVCIs |
- ‘Pre-Offer Advertisement’ and ‘Allotment Advertisement’ shall be published in accordance with the provisions of Section 30 of the Companies Act and shall be in the format prescribed in Part A of Schedule X of the SEBI ICDR Regulations.
- Impersonation is an offence punishable with minimum 6 months to 10 years and fines up to 3 times the fraud amount.
- Utilization of Issue proceeds: All the monies shall be transferred to a separate bank account subject to the provisions of Section 40(3) of the Companies Act. The use of funds from the fresh Issue shall be disclosed clearly in the separate head in the balance sheet of the company and the promoters shall confirm the compliance of such exercise under the provisions set out in the aforementioned section of the Companies Act.
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