Introduction

Regulation 20 of Infrastructure Investment trust regulations 2014 (InvIT regulations 2014) regulates borrowing of funds by InvIT. Sub-reg (3)(b)(ii) of reg 20 prescribed that the funds borrowed in excess of 49% of total InvIT assets should be used only for acquisition or development of infrastructure projects. However, through an amendment dated 17^th April 2026, SEBI modified the language of the said sub-clause and as a result, SEBI was empowered to prescribe additional purposes for which the borrowed funds above 49% can be used.

In exercise of this power, SEBI has prescribed certain additional end uses of the borrowed funds in excess of 49% through a circular dated 15^th May 2026. In this write up we shall try to understand these end uses

Specified end uses

SEBI through Circular dated 15^th May 2026 has specified 2 purposes for which borrowed funds can be used. They are as under.

1. Capital expenditure made to enhance asset performance or for capacity augmentation;

2. Major maintenance expense in respect of Road Project,

3. Refinancing of debt, by the InvIT, SPV or Holdco, subject to the following conditions:

(a)the original debt which is being refinanced was utilized for the purposes permitted under Regulation 20(3)(b)(ii) of the InvIT Regulations;

(b)only the principal portion of debt is refinanced i.e. any accumulated interest or any charges or fees by whatever name called shall not be refinanced.

Other then this, the circular also clarifies the meaning of major maintenance expense and road project in following words.

“Major maintenance expense shall mean expenditure incurred on maintenance of road project which is not routine maintenance and is in accordance with the obligations and requirements specified in the concession agreement;”

“Road Project shall mean a project in the ‘Roads and bridges’ infrastructure sub-sector as mentioned in the notification of the Ministry of Finance dated September 19, 2025 and shall include any amendments or additions made thereto.

Effective date of amendment

The amendment dated 17^th April 2026 modifying reg 20(3)(b)(ii) has already become effective and the circular also clarifies that it shall come in to effect immediately hence the funds borrowed hence forth by InvITs can be used for undertaking major maintenance of road projects or refinance of existing borrowing etc.

Conclusion

The amendment and the subsequent circular are likely to provide greater operational and financial flexibility to InvITs, especially in sectors such as roads where periodic major maintenance is an important part of asset management. The express recognition of refinancing as a permitted end use may also help InvITs in better debt management and reduction of financing costs while conditions prescribed for refinancing ensure that the additional flexibility is not misused for purposes beyond those originally permitted under the regulations. Overall, the changes indicate a gradual expansion of the permitted utilization framework for InvIT borrowings while continuing to retain regulatory safeguards on the use of leveraged funds.

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Darwin says, ‘survivor of fittest’ and history tells us that civilisations and cultures sustain much longer than an individual or kingdom or religious supremacy. Survival is biology. Sustainability is strategy. Similarly, when we see if we see organisations / institutions, longevity and success in business is not luck; it is disciplined alignment with purpose. And Indian corporate laws provide that design which can facilitate and even push for strategy which will lead to sustainable success.

In last 2 decades number of companies which have successfully got listed have been increasing consistently viz. from 48 in 2007 to 372 in year 2026. Overall market capitalization of Indian corporates have increased from ~1,01,49,290 Crore in FY 14-15 to ~4,13,75,586 Crore in FY 24-25, so wealth creation engine via companies going for listing is amazing contributor for India Growth story. India’s growth story is not written in GDP numbers alone; it is written in listed companies. Our Prime Minister has kept goal of Vikasit Bharat by 2047 i.e. GDP of USD 30–35 trillion, this will need market cap of listed companies to minimum ~₹3,400 Lakh Crore which is 8-9 times more than today. There is no doubt in mind of anyone that if India has to grow, entrepreneurship and number of successful companies is the major lever for achieving this.

But growth is never a straight line; it is a battle between upward forces and downward pulls. Success depends on one equation: strengthen what lifts you, weaken what pulls you down.

Number of companies which were dragged in insolvency has also been significant 8833[1] and almost 8-10% top 500 companies went through IBC in last 10 years. Companies don’t fail in one moment, they drift away from discipline and markets don’t reward the biggest companies, they reward the most consistent ones.

My belief and experience is if regulations are followed in spirit, it gives strength and will lift the company up. From this context, successful IPO is not just capital raising, but character revealing. Listing is not an event; it is a transformation.And preparing for IPO and adopting regulations in right manner plays a very strategic role for corporates to assure sustainable success for corporate and every stakeholder. This is need of nation. In this article we are sharing some elements which contribute to sustainable success.

1. Investor engagement/ making yourself attractive for investors

Stock market works on future pricing. Stock Market likes consistency. Stock market like transparency[2], stock market expects respect[3], stock market expect best in class, stock market likes evolved corporates[4]. Stock market expects discipline. The stock market doesn’t just price your business, it judges your behaviour.

Management has to mature to a role and to a mindset where they appreciate that they cannot assume public shareholders and they need to be disclosed whatever is necessary to take them informed decision. Whatever needs their approval cannot be circumvented. Once listed, the company stops belonging to the promoter and starts belonging to trust.

Investors needs sustainable growth either through promoter or someone who is most appropriate at that pace for the company. And therefore, after listing, corporation cannot be considered as alter ego of a promoter but a separate identity. Ego builds companies, but governance sustains them. Therefore ability to have meaningful engagement with investors and to earn qualities, culture, practices, processes, systems and performance that will keep attracting investors at attractive pricing is essential.

2. Resource mobilisation and Deployment

Those companies who go for road show learn so much about their business which they would otherwise not learn even if they spend years in their business. Roadshows don’t just attract investors, they expose blind spots.

Capital markets are not just funding platforms, they are capital allocation judges. If we see distribution of capital across industries has been changing

Table 1: Capital Deployment across industries[5]

Listing and capital market provides continuously evolving framework for effective capital deployment and discipline in its utilisation. Smart capital flows to clear thinking and you will sustained companies have adopted to these expectations and maintained their share in capital market. Success of fund raise is directly proportional to objects of the issue and therefore smartest people on earth decide the capital allocation and retail market follows that. Further, it requires quarterly monitoring and reporting to public about utilisation[6].

One of the reasons why Indian capital market lagged globally is because of multiple factors, but few important factor are our inability to create alternate source for energy and lack of speed and focus on AI[7]. In short, if you want to be ahead of curve in business you need to invest funds at right source and Your investors are your most honest performance dashboard.

3. Discipline

“Success is nothing more than a few simple disciplines, practiced every day.” – Jim Rohn

In fact, being compliant is nothing but being disciplined. Many corporates avoid listing because they are afraid about compliance and compliance cost. Undisciplined success is temporary. Disciplined systems create permanence. Listing forces discipline, resisting it invites decline.

Being listed requires complete mapping of business with confidentiality, disclosure and monitoring conflict of interest across width and breadth. This puts very high level of engagement, alignment and discipline. This one virtue requires to be acquired by any corporation which wants to list. Without this virtue even if any entity lists, it runs a risk of heavy non-compliance which can even put the survival at stake and if mastered, this can guarantee long term and sustainable success.

Be it compliance of related party transactions[8], or related to senior management[9] on boarding or mapping of price sensitive information across organisation[10], putting perfect systems for seamless flow of information across organisation and putting adequate controls and levers to ensure speed of decision with adequate risk mitigation[11] is so critical for successful organisation and listed compliances exactly expect this. These processes and discipline to follow this requires compliance/ regulatory teams, embedding these aspects in every job descriptions and evaluations, investment in systems / processes and review. And while recognising and rewarding the performers any non-performance needs to be tracked and punished ruthlessly. In last 20 years ~13000[12] companies/ individuals got penalised by stock exchange or by SEBI and there are ~7,500+ number of listed companies, this proportion speaks volume about expected disciplined by a listed company in India. Ultimately, we are not running a proprietary concern but a large corporate. What you don’t monitor will eventually control you.

4. Risk

Between success and sustainable success there is one fulcrum which decides the direction, that is risk identification, management and mitigation.

Corporate laws are so vocal about risk[13]. In fact, if there is frequent movement or instability in chief risk officers, price and trust on that corporate impacts. One biggest risk for any corporate is about having weak financial controls and low engagement of auditor vis a vis board of directors. NFRA has been empowered in recent time to come out with more directions on this[14]. Whistle blower, vigil mechanism and protection of whistle blowers has been agenda of regulators and for a evolved corporate it requires strong structure around this[15]. For being listed mastering these aspects is so crucial. Risk based approach of working is so crucial for sustainable success that risk is a subject in almost every graduation and post-graduation. If we want to reduce power of forces which will pull performance of company down, focus on risk is crucial. In recent time when there was accident in one manufacturing facility there was discussion about role of risk committee of that company[16], if corporates are able to invest and prioritise and manage risk appropriately, it will definitely create sustainable wealth for investors. Risk ignored doesn’t disappear, it compounds silently. A weak control environment is a delayed crisis.

5. Conflict of interest

“All great empires die from within.” — Terry Bradshaw

In history we will see several examples of decline of any business or any empire is because of conflict of interest of the ruler/ decision maker. Lack of discipline in handling any conflict of interest is biggest spoiler.

Corporate law has mechanism to map every conflict of interest be at supplier level or customer level[17], or at senior management level[18] or at director level or at investor level[19]. LODR very nicely balances material and non-material conflict of interest. While every transaction with entity where there is some conflict of interest is required to be approved by independent directors only[20] that too only after receiving full and relevant details[21], when it comes to high value transactions involving conflict of interest it can be approved by shareholders who do not have any conflict of interest[22]. This is so strict that out of all such approvals 20% transactions were recommended to be voted against by proxy advisors and 2% transaction could not go through because of this framework in last 5 years. This framework gives so much confidence about robust mechanism to regulate conflict of interest. In last 9 years there are 4 to 5 amendments in regulations which deal with conflict of interest.

Such discipline makes it clear that regulator is very alert and strict about these aspects. In fact, if not followed properly it can trigger debarment of directors from acting as director in that and other companies for five years[23].

This encourages corporate to devise structures which does not have conflict of interest or transactions should be convincible for investors to vote in favour of such transactions. The market forgives mistakes not misalignment.

6. Inclusiveness

Jesse Jackson says “Inclusion is not a matter of political correctness. It is the key to growth.” And Magic Johnson says “The way to be successful is find a way to be inclusive of everybody…” In short without being inclusive, success and sustainable success is not possible and LODR exactly expects this from listed companies. Any culture which is exclusive cannot sustain long.

In fact, LODR not only insists corporates to adopt policies which will facilitate inclusiveness[24], it also insist disclosure of inclusiveness in its annual report[25]. ESG rating declared by ESG Rating agencies indicate how inclusive an organisation is. More and more money, more aware customers and more talented manpower and government subsidies and recognition is not possible without corporation being inclusive. These frameworks requires adopting best practices and because of overall push and pull from investors and regulators corporates will have to become inclusive and they have to ensure that perception is also matching with this. Talent, capital, and trust flow towards inclusive organisations. Exclusivity limits scale: inclusivity multiplies it.

7. Confidentiality, Transparency and Communication

“Don’t speak until its done” this is the simple thumb rule of SEBI Prohibition of Insider Trading Regulations, 2015. Once you are listed a company and its every connected person has to master this science of maintaining confidentiality till event occurs and then complete transparency upon happening of event. This is a habit changer for many corporates. But it is sign of evolved business and person. In last 7 years ~40 companies and ~100 individuals have been penalised by regulator for this violation and total penalty levied is ~36 Crore Rupees.

If any news is published before the formal disclosure done by the company then company has to respond to this immediately[26]. While communication with companies may want to talk liberally about good news, tendency is to speak less about bad news. Once you are listed, you are supposed to be like सुखदुःखे समे कृत्वा लाभालाभौ जयाजयौ II2.38II of Bhagwat Gita. This means whether news is good or bad we should be indifferent and we should see both from equal distance. This is sign of very evolved, fearless and detached persona. When it comes to peace and excellence this is a sign of epitome. Corporates have to earn this before going for listing. Listed companies will have to develop mechanisms to engage and communicate effectively with stakeholders so that news/ announcements are not interpreted to create dis proportionate consequences. Company needs to invest well in communication and investor / public relations.

8. Wealth creation models

Your ability to run business and make profit gives you X and stock listing can give you 10/20/30/50 X for the same profit[27]. Business creates profits. Markets create wealth. Listing converts performance into multiples. The biggest wealth creation engine is not earnings, it is valuation. Shares of a good listed entity is amazing wealth which you can pass on to your successor.

Likewise for employees also ESOP is amazing wealth creation enabler. In fact, ESOPs are no longer merely incentive tools but have become meaningful wealth creators e.g. Vedanta Ltd. alone has reported over ₹2,500 crore of employee wealth creation through ESOPs over a five-year period, reflecting the scale at which value can be shared with employees. Plus, best part is compensation is done by the market and not by the company. ESOPs don’t just compensate employees, they align destinies.  And therefore, coming out with ESOP scheme for employees before listing OR aligning family for share ownership and distribution post demise of founder promoter is very crucial. Many promoters keep their successor tied together via family trusts. As per Prime Database, as on October 2025, among the 2,757 companies listed on the NSE, promoters of ~880 of these companies hold their shares through different trust structures- private, public or Family Trust. This is a great enabler for keeping company control intact while retaining economic benefits for successors. This needs to be mapped before listing and post listing this can create wealth for everyone.

9. Proprietary /Arbitrary approach to Policy based Approach

Put together Companies Act and LODR requires listed companies to adopt ~26 policies ranging from policy related to manpower – compensation – reward – succession – diversity TO policies monitoring conflict of interest or policies on investment and risk mitigations etc. This speaks volumes. This insists corporates to be able to frame long term views and positioning and to be thoughtful about their choices.

Proper framed policies develop culture, give autonomy, cultivates speed with thoughtfulness and alerts about expectations of various stakeholders.

Policies help corporates to maintain alignment of every stakeholders towards corporate vision-mission-goal-values. Policies also provide framework which will make job of executors seamless and increases accountability of every stakeholder.

Policies if weaved properly can be effective replacement of most brilliant and evolved human beings with a very common man at execution level. This is amazing tool and corporate laws expect migration of corporates from arbitrary/ proprietary decision making to policy-based functioning. Number of courses available on policy making in management schools are increasing and this clearly indicates need of Indian corporate world.

10. Moving towards evolved and responsible corporate

GOAL of any organisation is to make profit today and all the time in future and LODR and companies act if implemented in letter and spirit actually promises this. It is a role of company secretary not just to ensure the compliances are done but also to ensure that it is implemented in a manner which transforms company into very evolved corporate.

Conclusion

Whether you list or don’t list, imbibing these highest level of polices, practice, processes, culture and attitude makes any company and its ecosystem a very matured, efficient, effective and sustainable. Listing is optional. Maturity is not.  Sustainable success is not achieved by chance, but by design. Regulation is not a burden; it is a blueprint for excellence. Great companies don’t comply with laws; they evolve through them. Role of company secretary is not just to ensure compliance but to ensure that true benefit of these regulatory expectations transform those companies into a evolved organisation which sustains for hundreds of years

[1] Care ratings IBBI data .

[2] There are almost 37 TYPES of disclosures required under reg. 30 and approx. 61 types of disclosures under LODR

[3] Listed cos generally quarterly calls after publication of fin. Results. They also conduct quarterly calls post disclosure of significant events.

[4] There are some index such as ESG ratings by NSE (https://www.nse-esgrating.com/esg-ratings ), BSE 100 ESG Index, S&P ESG India Index etc, which  and S&P BSE 100 ESG Index. These indices help investors identify ethical firms, promote better corporate governance, and attract sustainable capital.

[5] IBEF 

[6] Reg 32 of LODR provides for quarterly updates on statement of utilisation of funds raised through public issue. Monitoring agency report is also provided if fund raising exceeds

[7] India’s crude oil import dependence (~87–88%), coupled with a fossil fuel–dominated energy mix, underscores a structural reliance on external energy sources despite ongoing transition efforts.
(Source: Energy Statistics India 2026, MoSPI) .

https://www.niti.gov.in/sites/default/files/2023-03/National-Strategy-for-Artificial-Intelligence.pdf

[8] Regulation 23(4) of SEBI (LODR) Regulations, 2015

[9] Regulation 17A (1) of SEBI (LODR) Regulations, 2015

[10] Regulation 3(5) of SEBI (PIT) Regulations, 2015

[11] Regulation 21(4) of SEBI (LODR) Regulations, 2015

[12] Orders of SEBI chairperson/members, orders of SEBI AO and Quasi-Judicial Authorities from 1 January 2020 to 22 April 2026

[13] section 134 of cos act, 2013 and Reg 21 of LODR, Reg 34 of LODR

[14] Corporate Laws Bill 2026 arms NFRA with sweeping enforcement powers, penalties

[15] Reg 22 of LODR provides for listed entity to formulate a vigil mechanism / whistle blower policy for directors and employees to report genuine concerns.

[16] The National Green Tribunal, in In re: Gas Leak at LG Polymers (2020), found prima facie failure of safety systems and imposed strict and absolute liability on the company, directing deposit of ₹50 crore and constituting a high-level committee to examine lapses and preventive measures.

[17] 2(1)(zc)(ii) of LODR defines related party transactions to mean a transaction between listed entity and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries.

[18] Reg. 26 (3) and (5) of LODR

[19] Reg 26 (1), (2) and (3) of LODR

[20] Members of audit committee who are independent director shall approve related party transactions.

[21] RPT ISF June 2025: management of listed entity shall provide information in format specified in RPT Industry Standards.

[22] Regulation 23(4) of LODR: no related party shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not

[23] Section 164 of the Companies Act, 2013

[24] Regulation 17(1)(a) of SEBI (LODR) Regulations, 2015

[25] Regulation 34(2)(f) of SEBI (LODR) Regulations, 2015

[26] Regulation 30(11) of SEBI (LODR) Regulations, 2015 read with Point 4 of Sch A of SEBI PIT Regulations: Prompt dissemination of UPSI that gets selectively disclosed.

[27] P.E of Sensex is 21.63 – BSE website

This article is published on taxmann link below.

https://www.taxmann.com/research/company-and-sebi/top-story/105010000000028367/positioning-ipos-strategically-long-term-success-mantra-opinion

The post Positioning IPOs strategically: Long Term Success Mantra first appeared on MMJC.

Introduction  

Securities and Exchange board of India (SEBI) had amended the Infrastructure Investment Trust Regulations 2014 (InvIT regulations) through an amendment notification dated 17^th April 2026. Through this amendment, SEBI had clarified that the Special Purpose Vehicles (SPV) with expired or terminated concession agreements would also be considered as SPVs subject to certain conditions. However, the said conditions were not specified in the said amendment notification.  

Hence SEBI has now come out with the said conditions through a separate circular dated 15^th May 2026. This circular prescribes 2 conditions for treating companies/LLP with expired concession agreement as SPV. In this article we shall understand these conditions and implications thereof.  

Conditions prescribed under circular  

Through amendment dated 17^th April 2026, a proviso was inserted in the definition of SPV prescribed under reg 2(1)(zy) of InvIT regulations. As per this proviso, a SPV who has no infrastructure project  due to termination or expiry of concession agreement can also be treated as SPV subject to certain conditions specified by SEBI.  

The SEBI has specified following 2 conditions through circular dated 15^th May 2026.  

1. “The Investment Manager shall either exit investment in such SPV by way of sale / liquidation / winding-up / merger of such SPV, or acquire any new infrastructure project in such SPV, within one year from –  

(a) completion/termination of concession agreement or such other agreement of similar nature, or  

(b) conclusion of all pending claims/litigations/tax assessments and related appeals, or  

(c) completion of defect liability period,  

whichever is later.”  

AND  

2. “Till the time investment in such SPV is held by the InvIT, adequate disclosures shall be made in the annual report of the InvIT including the following –  

(a) InvIT Level: The Investment Manager shall disclose a detailed breakup of the value of investments (gross and net basis) in the SPV(s) wherein the concession agreement or such other agreement of similar nature has ended/terminated.  

(b) SPV Level: The Investment Manager shall provide additional disclosures pertaining to each SPV wherein the concession agreement or such other agreement of similar nature has ended/terminated, which shall include the following information:  

(1) Brief details of the project, date when such agreement ended and status of vesting certificate or any other document issued by the concessioning authority upon successful completion of handover of the project to the said authority.  

(2) Assets and Liabilities of the SPV (including specific reserves, if any): Provide the nature and amount of respective carrying value of assets and liabilities (including specific reserves, if any) on broad/grouped basis as determined in the annual audited financial statements of the SPV.  

(3) Contingent Liabilities: Details of Contingent Liabilities of the SPV as set out in its annual audited financial statements.  

(4) Debt Repayment: Brief details of outstanding debt of the SPV, if any, along with repayment schedule.  

(5) Whether SPV has sufficient assets to meet its liabilities (including contingent liabilities). If not, how such liabilities are planned to be met.  

(6) Exit Strategy and Timeline: A clear plan of action detailing how and when the InvIT intends to exit its investment in the SPV or plans to acquire new infrastructure project, along with the brief details of steps taken so far and expected timeline for completion.  

(7) Other Material Details: Other material details related to such SPV including details related to pending claims, pending litigations, pending assessments, pending statutory/contractual obligations, balance period of defect liability period, etc.”  

Analysis of conditions  

The first condition aims at solving the practical difficulty faced by InvITs in immediately exiting the investment in SPV due to pending claims, litigations, and other such matters. This condition prescribes a timeline within which the investment must be exited post settlement of all such contingent matters. Also, the condition provides multiple options for exiting investment and the circular also clarifies that the time taken in obtaining regulatory approvals in mergers/winding up/liquidation etc. would not be counted in the period of one year.  

Second condition provides a mechanism to ensure transparency through appropriate reporting to unit holders about the financial impact of holding investment in SPV with expired concession agreement and the exit plan for withdrawing such investment. This condition aims to ensure investor protection in the backdrop of practical changes made to bring ease of doing business.  

Points to be considered  

As per the second condition, the InvITs have to give detailed information relating to SPV with expired concession agreement in the annual report of InvIT. Since the circular is effective immediately, this information needs to be given in the annual report of Financial Year (FY) 2026 which is now in the process of finalization.  

As per regulation 23 of InvIT regulations, the annual report must be submitted till 30^th June. Now we are already standing in the month of May. Hence InvITs are in the process of finalizing their reports. In such a situation, if any InvIT has investment in any such SPV whose concession agreement has expired, it will have to first collate all the information listed in the circular and then will have to include the same in the annual report. Considering the shortage of time due to approaching last date, this may prove to be a tedious task. Also, the InvITs through their investment managers will have to finalize an exit plan with specified timelines as it has to be disclosed in the annual report as per the circular.

Conclusion  

The conditions prescribed by SEBI through the circular are not a total surprise, as they were already proposed through consultation paper dated 5^th February 2026, which proposed amendments to Invit regulations. Further, considering the ease of functioning this amendment and the subsequent circular is expected to bring, there should not arise any difficulty in its compliance.

The post Compliance Pertaining to Status of SPV with Expired Concession Agreements – SEBI Circular dt: May 15, 2026  first appeared on MMJC.

Who influenced rather than dictated?
Who owned the outcome and not just the process?
Who leveraged fear, anger, pride, ego, loyalty, and every human emotion for an ultimate, pre-determined outcome?

We all know who that was.

When you look closely, Lord Krishna stands out as perhaps the finest project manager of all time.

So, what were those timeless leadership, stakeholder management, risk anticipation, narrative-building, and execution attributes in Krishna that continue to stand the test of time?

This carousel is a reflection on exactly that.

Click here to read more!

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When things from opposite side keep throwing bright and stark force on your mind, don’t try to look through that pressure, rather keep looking at horizon [left side bonnet]. If you keep focus on horizon and you will sail through easily. This is more like psychological tool to tackle such situations. Just focus on corner [or horizon] where you can see comfortably and your mind, body will get strength, it will get direction, it will adjust to opposite forces without looking at it and you will keep driving. Such a simple formula!

In today’s VUCA (Volatile, Uncertainty Complexity, Ambiguity) world, just keep looking at left side bonnet of your own car and keep driving! What does it mean?

1. Just focus on what drives you [Your Light House]: Life and situation, many times put you in a spot where our mind may get zapped or influenced by outside forces and may get freeze or scared. But if we are somehow able to maintain focus on that one thing which keep driving you. It can be someone near to you for whom you want to work, or purpose for which you get up early morning, some motivational personality to whom you look up to, your own past performances, your faith in some energy …. Anything that drives you. Just focus on that and keep walking on the path. Just focus on corner which gives you direction and helps you focus and which is aligned to your goal. During freedom fight, it was charkha and khadi. Whether by wearing khadi it was possible for to throw British out ?! but it worked. For professional like me it can be my own firm or my domain or my people or clients or my skills, knowledge…
2. Just focus on where you are heading towards [Direction]: Just ensure your google map is working and your direction is correct, if your direction is correct, even if speed goes up and down doesn’t really matter. What matters is direction and consistency. And in that situation just be mindful about direction in which we are moving, don’t change direction because of strong opposition or resistance. Your vehicle may change, your speed may get adjusted, gear in which you are moving may get adjusted, but keep driving. For a consultancy firm like ours new clients may get added, new offices may get opened or may get slowed down, but so long as we keep walking towards vision, mission it is alright.
3. Trust UNIVERSE no one will hit you if your mind is focused [Trust / faith]: Noise around you, content around you, people around you may share something out of their nature or concern or otherwise what they feel appropriate or as per their motivation, but trust, faith is THE thing which will save you in this time. Trust Universe, GOD, Energy … nothing bad will happen. Just focus on your direction, your light house [left side bonnet of your car] and nothing else you will have to worry about. The rest of the universe will take care. Focus alone has power to build faith by default, but if you additionally practice faith it can give you double protection.
4. Don’t try to penetrate strong opposite forces and just focus on your CORE [focus on your CORE]: When you are not at your best or outside situation is not at best, don’t try to penetrate strong opposite forces, conserve energy. Focus on what matters to you, focus on your core, focus on your inner calling, ignore everything else. This is not a time to fight outside forces by taking them head on, rather this is the time to ensure you keep moving towards your direction, without bothering much about external forces. Your focus alone will keep them away from you. Your focus on your own core will make them dis interested in your journey! This may appear very poetic but this works. I am sure each of us have many testimonials on these lines. This is time to recall all those experiences and have faith.

This works for the individual, for society, for the community and even for nation.

Our Prime Minister – Shri Narendra Modi, has made appeal not to be miser, he has not appealed to spend less in general, he has requested to conserve foreign exchange spending only. This doesn’t mean we should slow down, bog down, stop. This only means: focus on our core, focus on what we can do, focus on conserving energy, ignore outside noise, keep looking at your lighthouse, have faith, maintain direction and momentum towards your goal while conserving energy. This dark night will be over, there will be sunlight and there will be clarity soon, but till then, if we maintain this simple formula [keep looking at the horizon or left corner of the bonnet of your car], we have adequate clarity required to move in our direction.

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Facts of the case

A Ltd, an unlisted company, is going for Initial Public Offer [‘IPO’] of equity shares. Its IPO will open in two days. There is one individual [‘Mr. A’] who is a designated person of A Ltd. This designated person wants to subscribe to equity shares in the IPO. SEBI (Prohibition of Insider Trading) Regulations, 2015 [‘SEBI PIT’] states that if you have access to UPSI you cannot trade in shares of a company that is listed on a recognized stock exchange. Ideally this is applicable to trading in equity shares capital of companies which are listed. [1]As mentioned above, IPO of A Ltd will open in two days. So, can the designated person subscribe to equity shares in the IPO of the company?

I.  Background: Proposed to Be Listed under the purview of SEBI PIT

Proposed to be Listed companies were brought under the purview of SEBI PIT on the recommendation of The High-Level Committee to Review the SEBI (Prohibition of Insider Trading) Regulations, 1992 [Sodhi Committee]. Sodhi Committee stated that ICDR Regulation provides for disclosure of material information necessary for making an informed decision in an IPO and hence insider trading could occur in the process of book building. It was further stated that in case of offer for sale an insider could take advantage of his access to UPSI and trade with investors in IPO without making such UPSI generally available in the prospectus of company.

II. Analysis – Literal rule of interpretation.

Regulation 4(1) of SEBI PIT states: “No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information.” This prohibition applies universally to all insiders, not just designated persons. An insider is defined as any person who is a connected person or who possesses or has access to UPSI[2]. As per regulation 4(1) of SEBI PIT an insider cannot trade in securities of a proposed to be listed entity. Reg. 2(1)(l) defines ‘Trading’ under SEBI PIT[3]. Trading includes subscribing or agreeing to subscribe to securities. So, subscription or agreeing to subscribe to IPOs is also considered as Trading. Hence reading reg. 4(1) jointly with reg. 2(1)(l) an Insider cannot subscribe to IPO of a proposed to be listed entity.

Regulation 3(5) of SEBI PIT states that any entity required to handle UPSI shall a structured digital database in place. Structured Digital Database [‘SDD’] is record of persons having access to USPI. If any insider has access to UPSI then he cannot trade in securities of any company. So, if an insider has access to UPSI, his name would be entered in SDD then he cannot trade in securities of proposed to be listed entity. Further entities that are proposed to be listed are required to maintain SDD from the date of filing of prospectus.[4]

Now the question arises is whether this prohibition is still relevant in SEBI PIT? It also raises the question whether subscription to IPO by designated person is allowed in spirit of law?

III. Analysis – Purposive Interpretation.

Regulatory framework for a proposed to be listed entity

A Proposed to be Listed Company also follows the procedure/provision prescribed for listing under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. A proposed to be listed entity files its DRHP with SEBI or stock exchange as the case may be. In case of proposed to be listed entity, SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2018 [SEBI ICDR] mandates disclosure of updated material information in the draft offer document[5].

SEBI or stock exchange then gives its observation which are to be incorporated in DRHP. DRHP is also made available in public domain for comments. After incorporating observation and public comments the proposed to be listed entity files updated offer document/ RHP[6] with SEBI / SE. SEBI ICDR states that all the material information should be made available to proposed investors through RHP[7]. Accordingly, all material information is made available in public domain.

SEBI ICDR provides for reservation on competitive basis for employees of IPO bound companies[8]. SEBI ICDR states that retail investors can apply in IPO only at cut off price and hence they are not allowed to bid on price of shares[9]. As the shares are not listed on a recognized stock exchange and all material information is available in public domain, the purpose of SEBI PIT is not defeated in case an insider subscribes to IPO (i.e. trades in securities).   

Conclusion

The current intersection of SEBI (PIT) and SEBI (ICDR) Regulations creates a unique regulatory paradox for “proposed to be listed” entities. While a literal reading of Regulation 4(1) of the PIT Regulations suggests an absolute embargo on insiders subscribing to an IPO, a purposive analysis reveals that the safeguards intended by the Sodhi Committee are now largely subsumed within the robust disclosure mandates of the ICDR framework. The regulator may consider re-evaluating the absolute prohibition of IPO subscriptions by Designated Persons (DPs) who are not in possession of UPSI. Just as the law has evolved to mandate the Structured Digital Database (SDD) to track the flow of information, the enforcement of PIT could shift from a blanket ban on the “act” of subscription to a compliance-based approach.

[1] If securities are not listed, they would not be amenable to price discovery – pg 19 Sodhi Committee report

[2] Reg. 2(1)(g)

[3] Trading”  means  and  includes  subscribing, 10[redeeming,  switching,]  buying, selling,  dealing,  or  agreeing  to  subscribe, 11[redeem,  switch,]buy,  sell,  deal  in  any securities, and “trade” shall be construed accordingly

[4] BSE and NSE circular October 18, 2024 – Certification of SDD maintenance

[5] Reg 24(5) of ICDR : Lead manager shall ensure that the information contained in DRHP and offer document and particulars as per restated audited financial statements in the offer document are not more than six months old from the issue opening date.

[6] Regulation 25(5), Regulation 26(3) of ICDR

[7] Regulation 24(1) of ICDR

[8] Reg. 33(1)(a) read with Reg. 33(2) of ICDR.

[9] Schedule XIII, Part A, Clause 12(o)

This article is published on Taxmann link below.

https://www.taxmann.com/research/company-and-sebi/top-story/105010000000028301/whether-a-designated-person-can-subscribe-to-the-initial-public-offer-experts-opinion

The post Whether a Designated Person Can Subscribe to the Initial Public Offer? first appeared on MMJC.