SEBI Guidelines: Pre-issue Formalities- Disclosure Standards

SOME pre-issue obligations are detailed below:

5.1 The lead merchant banker shall exercise due diligence.

5.1.1  The standard of due diligence shall be such that the merchant banker shall satisfy himself about all the aspects of offering, veracity and adequacy of disclosure in the offer documents.

5.1.2  The liability of the merchant banker as referred to clause 5.1.1 shall continue even after the completion of issue process.

5.2  The lead merchant banker, shall pay requisite fee in accordance with regulation 24A of Securities and Exchange Board of India (Merchant Bankers) Rules and Regulations, 1992 along with draft offer document filed with the Board.

5.3 Documents to be Submitted alongwith the Offer Document by the Lead Manager

5.3.1 Memorandum of Understanding (MOU)  No company shall make an issue of security through a public or rights issue unless a Memorandum of Understanding has been entered into between a lead merchant banker and the issuer company specifying their mutual rights, liabilities and obligations relating to the issue.  The MOU shall contain such clauses as are specified at Schedule I and such other clauses as considered necessary by the lead merchant banker and the issuer company.

Provided that the MOU shall not contain any clause whereby the liabilities and obligations of the lead merchant banker and issuer company under the Companies Act, 1956 and Securities and Exchange Board of India (Merchant Bankers) Rules and Regulations, 1992 are diminished in any way. . The Lead Merchant Banker responsible for drafting of the offer documents shall ensure that a copy of the MOU entered into with the issuer company is submitted to the Board along with the draft offer document.

  1. 3.2 Inter-se Allocation of Responsibilities  In case a public or rights issue is managed by more than one merchant bankers the rights, obligations and responsibilities of each merchant banker shall be demarcated as specified in Schedule II.  In case of under subscription at an issue, the Lead Merchant Banker responsible for underwriting arrangements shall invoke underwriting obligations and ensure that the underwriters pay the amount of devolvement and the same shall be incorporated in the inter-se allocation of responsibilities (Schedule II) accompanying the due diligence certificate submitted by the Lead Merchant Banker to the Board .


If a company wants to offer securities to the public, it has the options of either an initial public offer or a follow public offer. A public offer is defined as an offer of securities by a public company through issue of a prospectus. The Companies Act 2013, further specifies that an offer to more than 200 persons (excluding qualified institutional buyer and those employees who have been offered employee stock option company) in the aggregate in a financial year will constitute a public offer.


An offer of securities by an unlisted company to the public for a subscription which also includes an offer for sale of securities to the public by any existing holder is called initial public offer.


This refers to an offer of securities by a listed company to the public for subscription and includes an offer for sale of such securities to the public by existing holders.


SEBI possesses the power to regulate the issue and the transfer of securities by listed or to be listed companies. SEBI (Issuance of Capital and Disclosure Requirements) Regulations, 2009 provides the framework for securities-issuance and are applicable to all public issues.


Regulation 4 of SEBI (IDCR) prescribes the condition for the public issue of securities. All of these conditions need to be satisfied when the draft offer document is filled with SEBI and when filling the final offer document with the registrar of companies. Regulation 26 lists down the eligibility conditions which should be met by unlisted companies for making a public offer of securities.


The disclosures made in the offer document should be in accordance with SEBI (IDCR) Regulations, 2009. These disclosures can be of certain information regarding the company, inter alia, its capital structure, details of directors, promoters, certain auditor reports, details of financial performance, objects of the public offer and details of litigation. Conditions related to pricing of securities, the filing of offer documents, promoters’ contribution, lock-in requirements, minimum subscription and allotment of securities have to be complied with by companies who wish to make a public offer.


Issuers who wish to list their securities on a stock exchange have to comply with the listing conditions and requirements under the Listing Obligations Regulations. These regulations have come into effect on Dec 01, 2015. Prior to this, any listed entity had to comply with the conditions of the listing agreement with that particular stock exchange where it’s listed its securities.

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