This article delves into the legal intricacies and secretarial due diligence involved in Small and Medium Enterprises’ (SME) Initial Public Offerings (IPOs), focusing on the drafting of litigation affidavits.
Research papers on drafting of litigation affidavit in respect of initial public offer (IPO) of small and medium enterprises (SME) IPO
The Capital Markets is a significant tool of economy through which a business entity can raise funds from the market to run its business in smooth way. Such business entity must follow the guidelines and directions enumerated by market regulator for raising the fund from the public. The legal and secretarial due diligence of the business entity, intending to raise fund from the public, is executed on 360-degree level. There are number of documents prepared and preserved in data room of a Merchant Banker in support of filing and preparing of Draft Red Herring Prospectus either in SEBI or Stock Exchange Platform.
Some legal documents play an important role for the registered intermediaries under Securities and Exchange Board of India Act, 1992 and such documents are required for the purpose of reporting to the Securities and Exchange Board of India.
The Business Entity raising the fund from the public has to disclose its outstanding litigation lis-pendence on judicial and quasi-judicial authorities. Even an undertaking or affidavit is required to be taken from the Promoter, Directors, Members of the Promoter Group, Group Companies, Issuer, Subsidiary of issuer, Material Subsidiary of Issuer.
The followings are the proper road map to draft the affidavit which has not expressly been specifically provided by the Securities and Exchange Board of India but impliedly some of points can be seen in the Schedule VI of SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2018 (as amended and modification thereof)
A. The affidavits, in respect of the following persons, are required in support of filing of Draft Red Herring Prospectus and Prospectus: –
1. Issuer
2. Promoter
3. Director (Other than Promoter)
4. Subsidiary or Material Subsidiary
5. Promoter Group
i Individual Promoter Group
ii. Company Promoter Group (Indian Company or section 8 company)
iii. Body Corporate Promoter Group (Foreign Company)
iv. Limited Liability Partnership Promoter Group
v. Partnership Firm Promoter Group
vi. Proprietor Promoter Group
vii. Trust Promoter Group
6. Group Companies
B. The following are the requirement of Schedule VI and other regulation of SEBI (Issue of Capital and Disclosure Requirements), Regulation 2018 (Regulations) in respect of Litigation Affidavit of an SME Initial Public Offer: –
1. Sub para (L) of Entry number 4 of the Schedule VI of the Regulations.
2. Sub clause (d) of clause 8 of sub entry (A) of Entry number 9 of the Schedule VI of Regulations.
3. Sub clause (i) of clause (d) of sub entry (F) of Entry number 10 of the Schedule VI of Regulations.
4. Sub clause (ii) of clause (d) of sub entry (F) of Entry number 10 of the Schedule VI of Regulations.
5. Sub clause (i) of clause (h) of sub entry (G) of Entry number 10 of the Schedule VI of Regulations.
6. Sub clause (ii) of clause (h) of sub entry (G) of Entry number 10 of the Schedule VI of Regulations.
7. Sub clause (iii) of clause (h) of sub entry (G) of Entry number 10 of the Schedule VI of Regulations.
8. Sub clause (iv) of clause (h) of sub entry (G) of Entry number 10 of the Schedule VI of Regulations.
9. Sub clause (I) of clause (1) of sub entry (A) of Entry number 12 of the Schedule VI of Regulations.
10. Sub clause (II) of clause (1) of sub entry (A) of Entry number 12 of the Schedule VI of Regulations.
11. Sub clause (III) of clause (1) of sub entry (A) of Entry number 12 of the Schedule VI of Regulations.
12. Sub clause (Iv) of clause (1) of sub entry (A) of Entry number 12 of the Schedule VI of Regulations.
13. Clause (D) of entry number 13 of the Schedule VI of the Regulations.
14. Sub entry (B) of entry number 14 of the Schedule VI of Regulations.
15. Sub entry (C) of entry number 14 of the Schedule VI of Regulations.
16. Sub entry (D) of entry number 14 of the Schedule VI of Regulations.
17. Requirement of regulation 228 of the Regulations.
C. In practical approach and in reference to the PARA B above, the following are the chapters of Draft Red Herring Prospect or Red Herring Prospectus to be acknowledged before drafting of affidavit pertaining to the Litigation of an SME IPO :-
1. Summary of the Issue Document
2. Objects of the issue (if the acquisition of the property is involved in the object of an IPO)
3. Our Management
4. Our Promoter and Promoter Group
5. Out Standing Litigaiton and Material Development
6. Other Regulatory and Statutory Approval
D. The reference of the following websites and subscription of the portal of, Government of wherever required, are to be considered: –
1. Securities and Exchange Board of India
2. Transunion (suite filed case status of director)
3. Department of Revenue in respect of Money Laundering, FEMA other black money transactions.
4. Insolvency and Bankruptcy Board of India
5. Watch out Investors
6. CB FIR Details
E. In reference to the Para A and Para B above, the following are the table containing prerequisite scrutiny check requirements before the drafting of any affidavit pertaining to litigation in support of the filing of the Draft Red Herring Prospectus or Red Herring Prospectus-
|
LEGAL PROVISION |
DRHP CHAPTER | CONTENT | FOR WHOM |
| Sub para (L) of Entry number 4 of the Schedule VI of the Regulations | Summary of offer Document | Financial Arrangement to any other person for purchase of securities during the period of six months immediately preceding the date of the draft offer document. | 1. Promoter
2. Promoter Group 3. The directors of the company which is the promoter of the issuer. |
| Sub clause (d) of clause 8 of sub entry (A) of Entry number 9 of the Schedule VI of Regulations. | Object of the Issue | Short Particular of every transaction relating to the property completed within the preceding two years. |
If the vendor of the property mentioned in content column who is at the time of transaction in preceding two year, is or was: –
1. Promoter 2. Director 3. Was about to become the director before taking the place of such transaction |
| Sub clause (i) of clause (d) of sub entry (F) of Entry number 10 of the Schedule VI of Regulations. | Our Management | 1. Nature and extent of interest of the director in any thing including property acquired or proposed to be acquired of the issuer.
2. Nature and extent of interest of the director in the promotion and formation of the issuer |
Directors only |
| Sub clause (ii) of clause (d) of sub entry (F) of Entry number 10 of the Schedule VI of Regulations. | Our Management | Interest of director consist of being a member of firm of company | Only Director |
| Sub clause (i), (ii), (iii), (iv) of clause (h) of sub entry (G) of Entry number 10 of the Schedule VI of Regulations
|
Our Promoter and Promoter Group
|
Nature and Extent of Interest in-
1. Promotion of the 2. Property acquired by the issuer in preceding three years. 3. Property Proposed 4. Interest of the promoter consist of being a member of firm 5. In any transaction in acquisition of land, construction of building and supply of machinery etch. |
1. Promoter
2. Director 3. Group Company
|
| Sub clause (I), sub clause(ii), Sub clause (iii) and sub clause (iv ) of clause (1) of sub entry (A) of Entry number 12 of the Schedule VI of Regulations |
Out Standing Litigation and Material Developments | Action taken by judicial, quasi-judicial, regulatory and statutory authorities | 1. Issuer
2. Director 3. Promoter 4. Subsidiaries |
| Clause (D) of entry number 13 of the Schedule VI of the Regulations. |
Out standing litigation of Group Companies | Action taken by judicial, quasi-judicial, regulatory, and statutory authorities | Group Companies only |
| Clause (B) of entry number of 14 of the Schedule VI of the Regulations read with regulation 228(a) of Regulations. |
Other Statutory and Regulatory Disclosure
|
No prohibition from accessing of capital markets or debarred from buying, selling or dealing of securities under any order passed by SEBI or other market regulator |
1. Issuer
2. Promoters 3. Promoters Group 4. Directors 5. Person in control of the promoter 6. Person in control of the issuer 7. Selling shareholder |
| Clause (C) of entry number of 14 of the Schedule VI of the Regulations. | Other Statutory and Regulatory Disclosure | Compliance with the Companies (Significant Beneficial Ownership) Rules, 2018 |
1. Promoter
2. Promoter Group 3. Selling Shareholder |
| Clause (D) of entry number of 14 of the Schedule VI of the Regulations. | Other Statutory and Regulatory Disclosure | 1. Association with securities market2. Outstanding action by board in past five years against director if he is in association with securities market |
Directors only |
| Regulation 228 (b) of the Regulations | – | Eligibility to make an IPO: If promoter or directors of the issuer is promoter or the director of any other company which is debarred from accessing the capital market. |
1. Promoter
2 Director of the |
| Regulation 228 (c) of the Regulations | – | Willful defaulter and fraudulent borrower | 1. Promoter
2. Director |
| Regulation 228 (d) of the Regulations | – | Fugitive Economic Offender | 1. Promoter
2. Director |
Conclusion: Navigating the legal landscape of SME IPOs requires meticulous attention to regulatory requirements. The comprehensive scrutiny outlined in this article provides a guide for drafting litigation affidavits. Adhering to Schedule VI and other relevant regulations ensures transparency, mitigates risks, and promotes a robust IPO process.
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