June 18, 1992

All Authorised Merchant Bankers

Dear Sirs,

Clarifications on some of the points – Guidelines for Disclosures and Investor Protection

Please refer to our Circular No.PMD/Cir.4545/92 dated June 11, 1992 forwarding therewith “Guidelines for Disclosure and Investor Protection”. Pursuant to our issue of the aforesaid guidelines, we have received some queries which are clarified as under. The references to the sections are as per Sections in the original guidelines.

Preamble to the guidelines – The guidelines “not inconsistent” with the terms and conditions of the CCI consent.

If the company prefers to abide by the terms and conditions mentioned in the consent order already issued by the CCI, the same will hold good. Accordingly, if the company intends to retain 15% oversubscription, the same is permissible only if it has been noted as such by the CCI. In such cases, all conditions including pricing of CCI consent will apply.

A. First Issue of new companies

– Existing company mentioned in Section A (a) (para 2) is to be interpreted as existing private/unlisted closely held/listed companies.

– The issue price stated therein is applicable uniformly to all investors in new companies including promoters and the promoters contribution being subject to lock-in period of five years as already mentioned in Section “L” of the guidelines.

B. First issue by existing private/closely held companies.

– The provisions will not apply to rights issues of any amount by existing private companies and rights issues without right of renunciation of any amount by unlisted closely held companies.

– Three year track record [item B(i)] means three years record of which atleast two should be completed years of 12 months each and one should be not less than 6 months.

C. Public Issue by existing listed companies

– Companies wishing to enhance their foreign shareholding upto 51% or more as permissible under the relevant guidelines of Government/Reserve Bank of India can make issues at the price determined by the shareholders in a special resolution under Section 81(1)(A) of the Companies Act. This will also apply to issue of shares to foreign investors by closely held companies and also by other companies where there is no foreign shareholding at present.

D. Underwriting

– Underwriting should be only for issue to the public which will exclude reserved/preferential allotment to reserved categories. In other words, underwriting is mandatory only to the extent of net offer to the public.

– Minimum subscription clause is applicable for both public and rights issue with a right of renunciation.

E. New Financial Instruments

– In regard to new financial instruments, whether issued by way of rights or otherwise, the disclosure requirements shall be vetted by SEBI. The debt instruments having maturity beyond 18 months will require credit rating.

F. Reservation in Issues

– Reservation for employees shall mean “Regular/permanent employees and not casual/daily wage employees”.

G. Minimum interval time between issues.

– Issue of bonus shares after 12 months of any public/rights issue is subject to Section M(o) of the guidelines.

– Capital issue should be made fully paid up within 12 months from date of issue except in cases which are subject to monitoring requirements under section I.

H. Employee Stock Option Schemes

– “New Issues” would mean first public issue by new companies as defined in Section “A”. Limit of maximum 200 shares per employee will apply to all cases.

I. Promoters’ contribution and lock-in period.

– The term “Promoters contribution” will mean contribution by promoters, directors, friends, relatives and associates. For the first issue, promoters’ contribution shall not be less than 25% or 20% of the total issue of equity capital as the case may be, with five year lock-in period.

– In respect of further issues, if there are no promoters, the “promoters contribution” will mean contribution by directors, friends, relatives, associates and contribution from them shall not be less than 25% or 20% of the total issue of equity capital as the case may be, with lock-in period of five years.

– In the case of FCDs, the intention is that over and above the proposed issue amount of FCDs, the promoters, directors, friends, relatives and associates should bring in by way of contribution to equity, amount equivalent to one third of the amount proposed to be issued as FCDs.

– Likewise in case of PCDs, one third amount of equity should be with reference to convertible portion of PCDs.

– Alternatively out of total issue of FCD or total issue of PCD, they can take promoters’ quota of 25% or 20% as the case may be at the time of issue, with the same conversion price as stipulated for public.

J. General

Letter of offer for rights issue containing disclosures will be vetted by SEBI as hitherto.

Yours faithfully,

M.D. Patel
Division Chief – PMD

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