SEBI issued a Consultation Paper on January 11, 2024 and an addendum thereto on February 2, 2024 (collectively, the ‘Consultation Paper’), on the interim recommendations of the expert committee (‘Expert Committee’) for facilitating ease of doing business and harmonization of the provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘SEBI ICDR Regulations’) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR Regulations’).

The key recommendations of the Expert Committee with respect to amendments required to the SEBI ICDR Regulations are set out below:

i.    Inclusion of Equity Shares Received on Conversion or Exchange of Fully Paid-up Compulsorily Convertible Securities and Depository Receipts for MPC: The Expert Committee has proposed to amend Regulation 15 of the SEBI ICDR Regulations in order to permit equity shares arising pursuant to the conversion of fully paid-up, compulsorily convertible securities that have been held for a period of at least one year prior to the filing of the draft red herring prospectus (‘DRHP’ and such equity shares, the ‘Converted Shares’) to be considered as eligible for Minimum Promoters’ Contribution (‘MPC’). This is based on the rationale similar to Regulation 8 which permits the Converted Shares to be offered for sale in an Initial Public Offer (‘IPO’), considering that the capital had been in existence and held for a period of at least one year prior to the filing of the DRHP.

ii.   Non-individual Shareholders to be Permitted to Contribute towards MPC without Being Identified as a Promoter: Considering that the promoters’ holding may fall short of MPC, in light of rounds of investor funding conducted by issuers prior to listing, the Expert Committee recommended that further flexibility should be provided to the existing categories of shareholders who are permitted to contribute to the shortfall of MPC without being identified as a promoter, under Regulation 14 of the SEBI ICDR Regulations. The Expert Committee has, accordingly, recommended that any public non-individual shareholder who continues to hold at least five percent of the post-offer equity share capital should be permitted to meet the shortfall in MPC, subject to the existing maximum of 10 percent, without being identified as a promoter.

iii.  Thresholds for Increase or Decrease in Issue Size Triggering Re-filing of Draft Offer Documents: The Expert Committee recommended that the current thresholds for fresh filing of offer documents under Schedule XVI of the SEBI ICDR Regulations, with respect to change by more than 50 percent and 20 percent in offer for sale and fresh issue respectively, should be amended in order to provide ease of doing business and to provide greater flexibility. Accordingly, it proposed that:

a. the ‘estimated size of the issue’ for a fresh issue should be based on the Rupee value of the size of the issue, as disclosed in either the DRHP or the cover letter filed with the SEBI at the time of filing the DRHP; and

b. the offer for sale size should be based on either the estimated issue size (in Rupee value) or the number of shares, as disclosed in the DRHP, and not on both criteria.

iv.   Flexibility to Extend Bid/Offer Closing Date on Account of Force Majeure Events: The Expert Committee recommended that Regulation 46 of the SEBI ICDR Regulations should be amended such that in the event of any force majeure events, banking strikes or similar circumstances, issuers should be permitted to extend the bidding period by a minimum of one working day, as opposed to the present provision of a minimum of at least three working days. Since there is no change in price band in case of force majeure/ banking strike and mandating extension for minimum three working days in such scenarios would result in locking substantial funds for additional time, the Expert Committee has recommended shortening the timeline to one working day.

v.    Review of Requirement of One Percent Security Deposit in Public/Rights Issue of Equity Shares: The Expert Committee recommended deletion of Regulations 38, 80, 135, 197 and 259 of the SEBI ICDR Regulations, which require issuers to deposit an amount calculated at the rate of one percent of the issue size available for subscription to the public with the designated stock exchange. This requirement was in place earlier for resolution of investor complaints relating to refund of application monies, allotment of securities and dispatch of certificates. However, this has subsequently been covered by recent circulars and frameworks issued by SEBI for Application Supported by Blocked Amount (‘ASBA’) application, Unified Payment Interface (‘UPI’) mode of payment, mandatory allotment in demat, etc., Consequently SEBI has recommended removal of requirement of security deposit for ease of doing business for issuers accessing the primary market.