SEBI Framework for Rejection of Offer Documents

Securities and Exchange Board of India
Market regulator SEBI vide General Order No. 1 of 2012 dated October 9, 2012 has issued “SEBI (Framework for Rejection of Draft Offer Documents) Order, 2012” wherein it has listed various criterion which could lead to rejection of offer documents filed for the purpose of raising funds from the public. The offer documents may be rejected if SEBI feels that the interest of the investors is prejudiced or inadequate disclosures are made in the offer document or quality of the disclosures are not reasonable or where the risk associated with the issue is high.

Rejection Criteria

Some of the major criteria for rejection of the offer document stated in the order are as follows:
  • Existence of circular transactions for building up the capital / net worth of the issuer.
  • Ultimate promoters of the Issuer are not identifiable.
  • Promoter’s contribution is not in compliance with SEBI ICDR Regulations in letter or in spirit.
  • The object of the issue is Vague; or where the object is repayment of loan and the reason for taking loan was not disclosed;
  • If the major portion of the issue proceeds is to be utilized for brand building, advertisement etc. and there is not enough justification for the same;
  • If the object is to set up a plant and the issuer has not received clearances/licence/approval and due to such non-receipt, the issue proceeds might not be utilized for the stated objects.
  • The time gap between raising the funds and proposed utilization of the same is unreasonably long;
  • If the business model of the issuer is exaggerated, complex or misleading and the investors are not exposed to the risk associated.
  • If there is sudden spurt in the business just before filing the draft offer document and reply to clarifications sought is not satisfactory;
  • The auditors have raised doubts over accounting policies of the issuer including its subsidiaries, joint ventures and associate business which significantly contributes to issuer business.
  • Pending litigations which are so major that the issuer’s survival is dependent on the outcome of the pending litigation or litigations which are willfully concealed.
However, the market regulator has provided one-month time to issuers for withdrawal of draft offer documents pending with the Board, if the issuer falls under any of the criterion specified in the order.
Those entities whose draft offer documents are rejected will not be allowed to access capital markets for at least one year from the date of such rejection.Further there will be no refund of filing fees if the offer document is rejected or withdrawn.
The list of offer documents that are rejected would be made public by SEBI by hosting it on its website.

For any related queries, do contanct:

Ms. Ruchi Hans/ Ms. Divya Vijay


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