1.1 Introduction to ICDR Regulations
The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 form the cornerstone of primary market regulation in India. These regulations govern all public issues, rights issues, preferential allotments, and QIPs by listed and unlisted companies.
Historical Evolution
The ICDR Regulations have evolved significantly over the years:
Structure of ICDR Regulations, 2018
The regulations are organized into distinct chapters covering different aspects of capital raising:
| Chapter | Subject Matter | Key Regulations |
|---|---|---|
| Chapter I | Preliminary | Definitions, applicability |
| Chapter II | Public Issue | Eligibility, general conditions |
| Chapter III | Book Built Issue | Price discovery, anchor investors |
| Chapter IV | Fixed Price Issue | Alternative mechanism |
| Chapter V | Rights Issue | Listed company rights |
| Chapter VI | Preferential Issue | Private placement norms |
| Chapter VII | QIP | Institutional placement |
| Chapter VIII | Bonus Issue | Bonus share guidelines |
| Chapter IX | Offer Document | Disclosure requirements |
1.2 Eligibility Norms for IPO
SEBI prescribes specific eligibility criteria for companies seeking to make an Initial Public Offer. These ensure only companies with proven track records and financial stability can access public markets.
Profitability Route (Regulation 6(1))
An issuer is eligible if it has:
- Net Tangible Assets: At least Rs. 3 crore in each of preceding 3 full years
- Operating Profit (EBITDA): Positive in each of preceding 3 years
- Net Worth: At least Rs. 1 crore in each of preceding 3 full years
- No Name Change: If name changed in last 1 year, 50% revenue from new activity
QIB Route (Regulation 6(2))
Companies not meeting the profitability route can still list through the QIB Route:
75% of the net offer must be mandatorily allotted to QIBs
- Issue size through offer document - minimum Rs. 250 crore
- OR Issue size through offer document - minimum Rs. 10 crore AND issuer undertakes to provide market making for 3 years
Innovators Growth Platform (IGP) - Regulation 283
For technology-intensive companies and startups:
- Pre-issue capital: 25% held by QIBs for at least 2 years OR Rs. 50 crore from AIVC/AIF
- Issue Size: Minimum Rs. 10 crore
- Minimum Application: Rs. 2 lakh
- Market Making: Mandatory for 3 years
An issuer shall NOT be eligible to make a public issue if:
- Issuer/promoters/directors are debarred by SEBI
- Any promoter/director is a wilful defaulter
- Any promoter/director is a fugitive economic offender
- Outstanding convertible securities exist (except ESOP/ESPS)
1.3 Due Diligence Requirements
Due diligence is the backbone of any public issue. SEBI mandates comprehensive verification processes to protect investors and ensure disclosure accuracy.
Lead Manager Due Diligence Certificate
The Book Running Lead Manager (BRLM) must submit a due diligence certificate confirming:
- Disclosure Verification: All statements in offer document are true and correct
- Document Review: All documents referred to in offer document have been verified
- SEBI Guidelines: Issue complies with all applicable SEBI regulations
- No Suppression: Nothing material has been suppressed or withheld
- Risk Factors: All risk factors have been adequately disclosed
Areas of Due Diligence
| Area | Key Verifications | Documents Required |
|---|---|---|
| Corporate | Incorporation, authorizations, board resolutions | MOA, AOA, Board Minutes, Shareholder Resolutions |
| Financial | Restated financials, auditor qualifications | Audited Accounts, Restated Financial Statements |
| Legal | Litigation, regulatory compliance, material contracts | Legal Audit Report, Contract Review |
| Business | Business model, competition, industry analysis | Industry Reports, Market Research |
| Title | Property ownership, leases | Title Search Reports, Lease Deeds |
| IP | Trademarks, patents, licenses | IP Registration Certificates |
Create a comprehensive due diligence checklist covering all Schedule VI requirements. Use a data room with proper version control and access logs for all document verification.
1.4 Regulation Applicability Matrix
Understanding which regulations apply to different types of issues is crucial for compliance. This matrix provides a quick reference for practitioners.
Issue Type vs. Applicable Chapters
| Issue Type | Applicable Chapters | Key Requirements |
|---|---|---|
| IPO (Book Built) | II, III, IX | Eligibility + Book Building + Disclosures |
| IPO (Fixed Price) | II, IV, IX | Eligibility + Fixed Price + Disclosures |
| FPO | II, III/IV, IX | Similar to IPO for listed companies |
| Rights Issue | V, IX | Rights Issue specific + Disclosures |
| Preferential Issue | VI | Chapter VI standalone |
| QIP | VII | Chapter VII standalone |
| Bonus Issue | VIII | Chapter VIII standalone |
Thresholds and Limits
- Minimum Issue Size (Main Board): Rs. 10 crore
- Minimum Public Shareholding Post-Issue: 25% (or 10% for large caps exceeding Rs. 4000 crore)
- Minimum Promoter Contribution: 20% post-issue
- Lock-in Period (Promoter): 18 months (reduced from 3 years)
- Lock-in Period (Others): 6 months (reduced from 1 year)
- Anchor Investor Minimum: Rs. 10 crore per investor
1.5 Recent Amendments (2021-2024)
SEBI has been actively modernizing the ICDR framework through frequent amendments. Understanding recent changes is essential for current practice.
Key Amendments Summary
2024 Amendments
- ASBA Mandatory: Application Supported by Blocked Amount mandatory for all investors
- Price Band Flexibility: Price band can be revised during issue period
- Anchor Investor Lock-in: Reduced to 30 days from T+1
- UPI Payment Enhancement: UPI limit increased to Rs. 5 lakh
2023 Amendments
- Technology Company Norms: Special framework for tech startups
- DVR Shares: Differential Voting Rights issue framework clarified
- ESG Disclosures: Enhanced sustainability disclosures required
2022 Amendments
- Lock-in Reduction: Promoter lock-in reduced from 3 years to 18 months
- Pre-IPO Placement: No lock-in if held for 1 year pre-filing
- OFS in IPO: Enhanced limits for OFS component
Always check the SEBI website for the latest consolidated regulations. SEBI frequently issues circulars that modify or clarify ICDR requirements without formal amendment to the regulations.
"The ICDR Regulations must be read along with all applicable SEBI circulars, FAQs, and informal guidance. The letter of the regulation is only the starting point." SEBI Circular on ICDR Compliance, 2023
Key Takeaways
- ICDR 2018 governs all public issues, rights issues, preferential allotments, and QIPs
- Profitability Route: 3 years positive EBITDA + Rs. 3 cr NTA + Rs. 1 cr NW
- QIB Route: 75% to QIBs if profitability norms not met
- Due diligence certificate is mandatory from Lead Manager (Schedule VI format)
- Recent amendments have reduced lock-in periods and introduced technology company norms
- Always verify current position with latest SEBI circulars