Promoters Contribution in a Public Issue by Unlisted Companies

In a public issue by an unlisted company, the promoters shall contribute not less than 20% of the post issue capital. The promoters shareholding after offer for sale shall not be less than 20% of the post issue capital.

In case of public issues by listed companies, the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital

In case of composite issues of a listed company, the promoters contribution shall at the option of the promoter(s) be either 20% of the proposed public issue or 20% of the post-issue capital. Rights issue component of the composite issue shall be excluded while calculating the post-issue capital.

Where the promoters of any company making an issue of securities have acquired equity during the preceding three years, before filing the offer documents with the Board, such equity shall not be considered for computation of promoters contribution if it is; acquired for consideration other than cash and revaluation of assets or capitalisation of intangible assets is involved in such transaction(s); or resulting from a bonus issue, out of revaluation reserves or reserves without accrual of cash resources;

In case of public issue by unlisted companies, securities which have been issued to the promoters during the preceding one year, at a price lower than the price at which equity is being offered to public shall not be eligible for computation of promoters contribution.

Provided that the shares for which the difference between the offer price and the issue price for these shares is brought in by the promoters shall be considered eligible subject to issuer company complying with the applicable provisions of the Companies Act, 1956 (such as passing of revised resolution by shareholders or issuer's Board, filing of revised return of allotment with ROC, etc.)

In respect of companies formed by conversion of partnership firms, where the partners of the erstwhile partnership firm and the promoters of the converted company are the same and there is no change in management, the shares allotted to the promoters during previous one year out of the funds brought in during that period shall not be considered eligible for computation of promoters contribution unless such shares have been issued at the same price at which the public offer is made. Provided that if the partners capital existed in the firm for a period of more than one year on a continuous basis, the shares allotted to promoters against such capital shall be considered eligible.

However in all cases such ineligible shares acquired in pursuance to a scheme of merger or amalgamation approved by a High Court shall be eligible for computation of promoters contribution.

For the purposes of computing the promoters contribution referred to above, minimum contribution of Rs.25000 per application from each individual and minimum contribution of Rs.1 lac from firms and companies (not being business associates like dealers and distributors), shall be eligible to be considered towards promoters' contribution. No securities forming part of promoters contribution shall consist of any private placement made by solicitation of subscription from unrelated persons either directly or through any intermediary. The securities for which a specific written consent has not been obtained from the respective shareholders for inclusion of their subscription in the minimum promoters contribution subject to lock-in shall not be eligible for promoters contribution.

In case of any issue of convertible security by a company, the promoters shall have an option to bring in their subscription by way of equity or by way of subscription to the convertible security being offered through the proposed issue so that the total promoters contribution shall not be less than the required minimum contribution referred in earlier cases. Provided that, if the conversion price of emerging equity is not pre-determined and the same has not been specified in the offer document (instead a formula for conversion price is indicated), the promoters shall not have the said option and shall contribute by subscribing to the same instrument. In case of any issue of security convertible in stages either at par or premium (conversion price being predetermined), the promoters contribution in terms of equity share capital shall not be at a price lower than the weighted average price of the share capital arising out of conversion.

`weights' means the number of equity shares arising out of conversion of security into equity at various stages. 'price' means the price of equity shares on conversion arrived at after taking into account predetermined conversion price at various stages.

The promoters contribution shall be computed on the basis of post-issue capital assuming full proposed conversion of such convertible security into equity. Provided that where the promoter is contributing through the same optional convertible security as is being offered to the public, such contribution shall be eligible as promoters contribution only if the promoter(s) undertakes in writing to accept full conversion.

In case of a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage shall attract the pricing provisions of Guidelines on preferential allotment, if the issue price is lower than the price as determined on the basis of said preferential allotment guidelines.

Promoters shall bring in the full amount of the promoters contribution including premium at least one day prior to the issue opening date, which shall be kept in an escrow account with a Scheduled Commercial Bank and the said contribution / amount shall be released to the company along with the public issue proceeds. Provided that, where the promoters' contribution has been brought prior to the public issue and has already been deployed by the company, the company shall give the cash flow statement in the offer document disclosing the use of such funds received as promoters' contribution. Provided (further) that where the promoters minimum contribution exceeds Rs.100 crores, the promoters shall bring in Rs.100 crores before the opening of the issue and the remaining contribution shall be brought in by the promoters in advance on pro-rata (basis) before the calls are made on public.

A copy of the resolution along with a Chartered Accountants' Certificate certifying that the promoters contribution has been brought in shall be filed with the Board before opening of the issue. The certificate of the Chartered Accountants shall also be accompanied by a list of names and addresses of friends, relatives and associates who have contributed to the promoters' quota along with the amount of subscription made by each of them.

The requirement of promoters contribution shall not be applicable -

1. in case of public issue of securities by a company which has been listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 immediately preceding years. Provided that if the promoters participate in the proposed issue to the extent greater than higher of the two options referred earlier, the subscription in excess of such percentage shall attract pricing guidelines on preferential issue, if the issue price is lower than the price as determined on the basis of said guidelines on preferential issue.

2. in case of companies where no identifiable promoter or promoter group exists.

3. in case of rights issues.

Provided, in case of (a) and (c) above, the promoters shall disclose their existing shareholding and the extent to which they are participating in the proposed issue, in the offer document.

In case of any issue of capital to the public the minimum promoters contribution shall be locked in for a period of 3 years. The lock-in shall start from the date of allotment in the proposed public issue and the last date of the lock-in shall be reckoned as three years from the date of commencement of commercial production or the date of allotment in the public issue whichever is later.

In case of a public issue by unlisted company, if the promoters contribution in the proposed issue exceeds the required minimum contribution, such excess contribution shall also be locked in for a period of(one year). In case of a public issue by a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage shall also be locked-in for a period of (one year) as per the lock-in provisions as specified in Guidelines on Preferential issue.

Provided that excess promoters contribution shall not be subject to lock-in in case of public issue of securities by a company which has been listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 immediately preceding years.

In case shortfall in the firm allotment category is met by the promoter such subscription shall be locked in for a period of (one year).

The securities forming part of promoters contribution and issued last to the promoters shall be locked in first for the specified period. Provided that the securities issued to the financial institutions appearing as promoters, if issued last, shall not be locked-in before the shares allotted to the other promoters.

The entire pre-issue share capital, other than that locked-in as promoters' contribution, shall be locked-in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later. However pre-issue share capital held by Venture Capital Funds and Foreign Venture Capital Investors registered with the Board shall not be locked-in. The same shall, however, be locked-in as per the provisions of the SEBI (Venture Capital Funds) Regulations, 1996 and SEBI (Foreign Venture Capital Investors) Regulations, 2000 and any amendments thereto held for a period of at least one year at the time of filing draft offer document with the Board and being offered to the public through offer for sale."

Securities issued on firm allotment basis shall be locked-in for a period of one year from the date of commencement of commercial production or the date of allotment in the public issue, whichever is later.

Locked-in Securities held by promoters may be pledged only with banks or financial institutions as collateral security for loans granted by such banks or financial institutions, provided the pledge of shares is one of the terms of sanction of loan.

Transfer of locked-in securities amongst promoters as named in the offer document, can be made subject to the lock-in being applicable to the transferees for the remaining period of lock in.

The securities which are subject to lock-in shall carry inscription `non transferable' along with duration of specified non-transferable period mentioned in the face of the security certificate.