Following the various relaxations provided by SEBI owing to covid-19 pandemic and lockdown extension, temporary relaxation has been granted by SEBI with respect to Rights Issue and public issue of shares under by issuing 2 circulars dated April 21, 2020 relaxing requirements of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations).

1. RIGHTS ISSUE

a. Relaxation of eligibility conditions related to Fast Track Rights Issues:

Regulation 99 of ICDR Regulations deals with the eligibility conditions for making a rights issue through the fast track route. The said regulation exempts compliance of sub-regulations (1), (2), (4) and (5) of Regulation 71, subject to the issuer satisfies the few conditions while making a Rights Issue through the fast track route. Following eligibility criterions are temporarily relaxed by SEBI:

Regulation Eligibility Criteria with respect to Existing provision Revised provision
99(a) Listing of equity shares of issuer on any stock exchange for a period of at least three (3) years immediately preceding the reference date* for a period of at least eighteen (18) months immediately preceding the reference date*
99(c ) Average market capitalization of public shareholding of the issuer at  least  two  hundred and fifty crore rupees at  least  one hundred crores
99(f) & Proviso Compliance/non-compliance with the equity listing agreement/ SEBI LODR Regulations, 2015, as applicable for a period of at least three (3) years immediately preceding the reference date* for a period of at least eighteen (18) months immediately preceding the reference date*
99(h) Issuance of show cause notices/initiation of prosecution proceedings no show-cause notices have been issued or prosecution proceedings have been initiated by the Board and pending against the issuer or its promoters or whole-time directors as on the reference date* no show-cause notices, excluding under adjudication proceedings, have been issued by the Board and pending against the issuer or its promoters or whole-time directors as on the reference date*;

However, in cases where against the issuer or its promoters/ directors/ group companies:

i) a show cause notice(s) has been issued by the Board in an adjudication proceeding or

ii)prosecution proceedings have been initiated by the Board;

necessary disclosures in respect of such action (s) along-with its potential adverse impact on the issuer shall be made in the letter of offer.

99(i) Settlement of any alleged violation of securities laws The issuer or promoter or promoter group or director of the issuer has not settled any alleged violation of securities laws through the consent or settlement mechanism with the Board during three years immediately preceding the reference date* The issuer or promoter or promoter group or director of the issuer has fulfilled the settlement terms or adhered to directions of the settlement order(s) in cases where it has settled any alleged violation of securities laws through the consent or settlement mechanism with the Board”
99(j) Suspension of equity shares from trading The equity shares of the issuer have not been suspended from trading as a disciplinary measure during last three (3) years immediately preceding the reference date* The equity shares of the issuer have not been suspended from trading as a disciplinary measure during last eighteen (18) months immediately preceding the reference date*
99(m) Audit qualifications on the audited accounts no audit qualifications on the audited accounts of the issuer in respect of those financial years for which such accounts are disclosed in the letter of offer For audit qualifications, if any, in respect of any of the financial years for which accounts are disclosed in the letter of offer, the issuer shall provide the restated financial statements adjusting for the impact of the audit qualifications.

Further, that for the qualifications wherein impact on the financials cannot be ascertained the same shall be disclosed appropriately in the letter of offer.”

*Reference Date: Regulation 60 of ICDR Regulations: “Unless otherwise provided in this Chapter, an issuer offering specified securities of aggregate value of ten crore rupees or more, through a rights issue shall satisfy the conditions of this Chapter at the time of filing the draft letter of offer  with the Board and also at the time of filing the final letter of offer with the stock exchanges, as the case may be.”

Also, the limit of Rupees ten Crore is increased to Rupees Twenty-Five crores vide this circular.

1. Relaxation with respect to Minimum Subscription:

Reg. No. Regulation Existing provision Revised provision
86(1) Minimum subscription to be received At least ninety per cent of the offer through the offer document. At least seventy-five per cent of the offer through the offer document.

Provided that if the issue is subscribed between 75% to 90%, issue will be considered successful subject to the condition that out of the funds raised, atleast 75% of the issue size shall be utilized for the objects of the issue other than general corporate purpose.

2. Relaxation with respect to the minimum threshold required for not filing draft letter of offer with SEBI:

The limit mentioned in Regulation 3(b), proviso to Regulation 3 and Regulation 60 of the SEBI ICDR Regulations, 2018 is increased from Rupees ten Crore to Rupees Twenty-Five crores.

A. Few important points:

i. The eligibility and general conditions as specified in Regulation 61 & 62 remains unchanged and shall continue to apply as before.

ii. The above relaxations are not applicable for Issuance of Warrants.

B. One Time Relaxation in time period for Rights Issue/Public Issue

Regulation No. Existing Provision Amendment
44(1), 85 and 14 Public Issue and Rights Issue should be opened with 12 months from the date of observation letter issued to the Issuer Company. For the validity of observation letter expiring between March1, 2020 and September 30, 2020, time period extended by 6 months.
Schedule XVI (1) (f)(i) Any increase or decrease in fresh issue size by 20% are required to issue Fresh Draft offer documents. Any increase or decrease in issue size is permitted up to 50% of original issue size, subject to the following conditions:

(a) There has been no change in the objects of the issue;

(b) The lead manager undertakes that the draft offer document is in compliance with provisions of Regulation 7(1)(e);

(c) The lead manager shall ensure that all appropriate changes are made to the relevant section of DRHP and an addendum, in this regard, shall be made public.

The one time relaxation is applicable only for IPO/Rights Issue/ FPO intended to open before December 31, 2020.

These steps taken by SEBI towards relaxing the conditions will definitely help issuer companies  and/ or market participants in the times of Covid-19 pandemic.

Disclaimer: This material and the information contained herein are prepared by JMJA & Associates LLP, Practising Company Secretaries (JMJA) is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of JMJA, its associate firms, or its members/employees is, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. JMJA shall not be responsible for any loss whatsoever sustained by any person who relies on this material.

SEBI relaxes ICDR Regulations for Right Issues Opened till 31.03.2020 Circular No. SEBI/HO/CFD/CIR/CFD/DIL/67/2020 21/04/2020
One-time relaxation with respect to validity of SEBI Observations Circular No. SEBI/HO/CFD/CIR/DIL/CIR/P/2020/66 21/04/2020

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