Introduction

As per U.K.Sinha (SEBI Chairman), in India, technological start-ups have crossed 3,000 and the way the new start-ups are coming up at the rate of almost 800-1,000 per year, it is expected that the number of technological start-ups would cross 10,000 start-ups by 2020. A large number of start-ups will be looking to raise funds. In order to encourage the Indian start-ups and entrepreneurs to remain within the country rather than moving abroad for funds, SEBI has introduced changes in the existing norms for listing on Institutional Trading Platform (”ITP”). The existing Chapter XC of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 – “Listing and Issue of Capital by Small and Medium Enterprises on Institutional Trading Platform without Initial Public Offering” which was introduced in October, 2013, has been replaced by new Chapter XC named “Listing on Institutional Trading Platform”.

The existing regulations already allowed SMEs to list themselves on ITP without a public issue. Amongst many other advantages, these new norms have done away with various eligibility criterion which laid restrictions on the turnover, paid-up capital, years the company has been in existence, etc. The new regulations provide the option for listing on ITP with or without a public offer. This article shall provide you with a summary of these newly introduced regulations.

Applicability

These provisions shall apply to entities which seek listing of their securities exclusively on the ITP either pursuant to a public issue or otherwise.

Provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 that shall not apply to such entities

1. Provisions relating to minimum public shareholding would not be applicable to entities listed on institutional trading platform without making a public issue.
2. A cap on the money spent by companies on publicity and advertisements as start-ups need to spend much more for such purposes.

Accessibility of ITP

ITP shall be accessible to institutional investors as well as non-institutional investors

Eligibility criteria for listing on ITP

1. The entity fulfills one of the following criterion
   • an entity
     • which intensively uses technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition and
     • where at least 25% of its pre-issue capital is held by QIBs on the date of filing of draft information document or draft offer document with SEBI
   • any other entity where at least 50% of the pre-issue capital is held by QIB as on the date of filing of draft information document or draft offer document with SEBI
2. No person, individually or collectively with persons acting in concert, shall hold 25% or more of the post-issue share capital in such an entity.

Listing without public issue

1. The entity will file a draft information document, along with necessary documents as disclosures as specified, with SEBI alongwith prescribed fees.
2. Regulations relating to the following shall not apply in case of listing without public issue
   • Allotment;
   • Issue opening / closing;
   • Advertisement;
   • Underwriting;
   • Provision that no IPO shall be done if there are any outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares;
   • Pricing;
   • Dispatch of issue material;
   • Other such provisions related to offer of securities to public.
3. The entity will get an in-principle approval from recognized stock exchanges on which it proposes to get its securities listed
4. The entity will list securities within 30 days from
   • the date of issuance of observations by SEBI
   • expiry of 30 days from the later of the following dates, if SEBI has not issued any such observations
     • the date of receipt of the draft offer document
     • the date of receipt of satisfactory reply, where SEBI has sought any clarification or additional information
       • from the lead merchant bankers
       • from any regulator or agency
     • the date of receipt of a copy of in-principle approval letter issued by the recognised stock exchanges.

5. The entity which has received in-principle approval from the recognised stock exchange for listing of its securities on the ITP, without making a public issue, shall be deemed to have been waived by SEBI from the requirement of satisfying the stock exchange of compliance certain conditions as listed in Rule 19(2)(b) of Securities Contract (Regulations) Rules, 1957 for the limited purpose of listing on the ITP.
6. Provisions relating to minimum public shareholding shall not apply to such entities that get listed on ITP without making a public issue
7. The draft and final information document shall be approved by the board of directors of the entity and shall be signed by all directors, the CEO and the CFO. The signatories shall certify that all disclosures made in the information document are true and correct.

Listing pursuant to public issue

1. The entity will file a draft offer document, along with necessary documents as disclosures as specified, with SEBI alongwith prescribed fees
2. Minimum application size : Rs 10 lakhs
3. of allottees > 200
4. Allocation in the net offer to public category shall be as follows:
   • 75% to Institutional Investors (There shall be no separate allocation for Anchor Investors)
     • Mode of allotment: on a discretionary basis or proportionate basis
     • Mode of allotment will be disclosed at the time of filing of the Red Herring Prospectus
     • In case of discretionary allotment maximum allotment to an institutional <= 10% of the issue size.
   • 25% to non-institutional investors
     • Mode of allotment: on proportionate basis
     • Any under-subscription in the non-institutional investor category shall be available for subscription under the institutional investors’ category.

5. Offer document shall disclose the broad objects of the issue
6. The basis of issue price may include disclosures, except projections, as deemed fit by the issuers in order to enable investors to take informed decisions and the disclosures shall suitably caution the investors about basis of valuation.

Lock-in

1. The entire pre-issue capital of the shareholders shall be locked-in for 6 months
   • from the date of allotment in case of listing pursuant to public issue or
   • date of listing in case of listing without public issue
2. The lock-in period will not apply to the following
   • Equity shares allotted to employees under an ESOP or ESPS of the entity prior to the IPO, if the entity has made full disclosures with respect to such options or scheme;
   • Equity shares held by a venture capital fund (“VC Fund”) or alternative investment fund of Category I (“AIF Category-I”) or a foreign venture capital investor (“Foreign VC”). However, such shares shall be locked-in atleast for 1 year from the date of purchase by the VC Fund or AIF Category-I or Foreign VC;
   • Equity shares held by persons other than promoters, continuously for a period of at least 1 year prior to the date of listing in case of listing without public issue.
   • For the purpose of the above two clauses, in case such equity shares have been a result of conversion of fully paid-up compulsorily convertible securities (“CCS”), the holding period of such CCS as well as that of resultant equity shares together shall be considered for the purpose of calculation of the 1 year period and the CCS shall be deemed to be fully paid-up, if the entire consideration payable thereon has been paid at the time of their conversion.

3. The locked-in securities of promoters may be pledged with any scheduled commercial bank or public financial institution as collateral security for loan granted.
4. Transfer of locked-in securities
   • The locked-in securities may be transferred to another promoter or any person of the promoter group or a new promoter or a person in control of the issuer
   • The locked-in securities held by persons other than promoters may be transferred to any other person holding such locked-in specified securities as are proposed to be transferred
   • Lock-in on such specified securities shall continue for the remaining period with the transferee and such transferee shall not be eligible to transfer them till the lock-in period has expired.
5. All specified securities allotted on a discretionary basis shall be locked-in for 30 days from the date of allotment in the public issue.

Trading Lot

Trading lot >= Rs 10 lakhs

Exit of entities listed without making a public issue

1. An entity whose securities are listed on the ITP without making a public issue may exit from that platform, on fulfilling the following conditions:
   • Approval of shareholders by a special resolution through postal ballot where atleast 90% of the total votes and atleast 51% of the non-promoter votes are cast in favour of such exit
   • Approval of recognized stock exchange, where such securities are listed
2. Recognised stock exchange may delist the securities of an entity listed without making a public issue upon non-compliance of the conditions of listing.
3. In case the company is delisted due to the reasons listed in point 9.2 above, no company promoted by the promoters and directors (other than independent directors) of such delisted company shall be permitted to be listed in ITP for a period of 5 years from such delisting.

Migration to main board

An entity that has listed its securities on a recognised stock exchange in accordance with the above provisions may at its option migrate to the main board of that recognised stock exchange after expiry of 3 years from the date of listing subject to compliance with the eligibility requirements of the stock exchange.

Miscellaneous

1. The SEBI (Delisting of Equity Shares) Regulations, 2009 shall not apply to securities listed without making a public issue, on the institutional trading platform of a recognised stock exchange.
2. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2015 shall not apply to direct and indirect acquisition of shares or voting rights in, or control over a company listed without making a public issue, on the institutional trading platform of a recognised stock exchange.
3. Certain disclosures need to be made in all publicity material issued during the period commencing from the date of filing of draft offer document with the Board till the date of allotment of securities offered, by a company proposing to make a public issue or a right issue (“Issuer”). However, such condition shall not apply to product advertisements of the issuer.