Explained: Eligibility Norms for Making Capital Issues

The Issuer of Initial Public Offering (IPO) should be a company incorporated under the Companies Act 1956 / 2013 in India. A company with a profitable track record (in the last 3 financial years), a net worth of Rs. 3 crore, a debt-to-equity ratio below 2:1, and a pre-IPO market cap of Rs. 100 crore, is eligible for an IPO.

A listed company shall not make any issue of security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lakh, unless the letter of offer is filed with the Board, through an eligible Merchant Banker, at least 21 days before the filing of the Letter of Offer with Regional Stock Exchange (RSE)

Filing of offer document:

No company shall make any issue of a public issue of securities, unless a draft prospectus has been filed with the Board, through an eligible Merchant Banker, at least 21 days before the filing of the Prospectus with the Registrar of Companies (ROCs). Provided that if, within 21 days from the date of filing of the draft letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes before filing the draft letter of offer with Recognised Stock Exchange (RSE).

Companies barred not to issuing security:

No company shall make an issue of securities if the company has been prohibited from accessing the capital market under any order or direction passed by the Board.

No company shall make any public issue of securities unless it has made an application for listing of those securities in the stock exchange (s).

Issue of securities in dematerialised form:

No company shall make a public or rights issue or an offer for the sale of securities, unless – the company agrees with a depository for dematerialisation of securities already issued or proposed to be issued to the public or existing shareholders. The company gives an option to subscribers/shareholders/investors to receive the security certificates or hold securities in dematerialised form with a depository.

The following matters should be disclosed in the offer document:

Any material regulatory or disciplinary action by a stock exchange or regulatory authority in the past one year in respect of promoters/promoting company(ies), group companies, or companies promoted by the promoters/promoting company(ies) of the applicant company.

Defaults in respect of payment of interest and principal to the debenture/bond/fixed deposit holders, banks, FIs by the applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) during the past three years.

The applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) litigation record, the nature of litigation, and litigation status.

In respect of the track record of the directors, the status of criminal cases filed, or the nature of the investigation being undertaken about the alleged commission of any offence by any of its directors and its effect on the business of the company, where all or any of the directors of the issuer have or has been charge-sheeted with serious crimes like murder, rape, forgery, economic offences.