New measures to stimulate capital markets

On 24 February, the Securities and Exchange Board of India (SEBI) amended the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (DIP guidelines), which govern initial public offerings and preferential allotments by Indian companies. While some changes are consequential to other recent changes, the overall objective appears to be to resuscitate India’s capital markets. The key amendments are as follows:

1) The deadline for opening an issue has been extended from three months to 12 months following the date of SEBI’s letter of observations (on the draft offer documents). Indian companies that stalled their filing of draft offer documents owing to the previous three-month deadline may now proceed with their issues.

2) The listing of equity shares carrying differential rights (voting or otherwise) in relation dividends, will now be possible, subject to the fulfilment of certain conditions, by making an application to SEBI for the relaxation of rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957. Although few listed companies have used this option to issue shares with differential rights, owing to the stringent Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001, this amendment provides an incentive for companies to list on the stock exchanges without using the arduous IPO route.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.