Understand Chapter XA of SEBI ICDR Amendment 2010 as to SME Exchange and listing upto 25 crores of capital like Fast track route for small & medium companies

Download the Updated Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 as on date. 

In order to lay down the policy for issue, listing and trading of the securities issued by the SMEs, necessary amendments have been made in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and consequent amendments were made int he following regulations as given below.

• SEBI (Merchant Bankers) Regulations, 1992,
• SEBI (Foreign Institutional Investors) Regulations, 1995,
• SEBI (Venture Capital Funds) Regulations, 1996,
• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and
• SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.

SEBI ICDR Third Amendment Regulations 2010, in addition to the amendments made under various clauses, the following updates were made.

After CHAPTER X, the following Chapter shall be inserted, namely:-
“CHAPTER XA
ISSUE OF SPECIFIED SECURITIES BY SMALL AND MEDIUM
ENTERPRISES (SME) – Regulation 106A to 106J

An issuer whose post-issue face value capital does not exceed ten crore rupees shall issue its specified securities in accordance with provisions of this
Chapter.  Kindly note, there is also Micro, Small & Medium Enterprises Development Act which classifies Industries but for such classification, only the investment made in plant & machinery are taken into account whereas under SEBI ICDR the whole capital of the company should be Rs. 10 crores or less. 

In some cases, even upto Rs. 25 crores [ie, 10 crores to 25 crores] may be considered under this chapter where shareholders agree to Migrate by passing a Special Resolution through postal ballot and can be acted upon if and only if the votes cast by shareholders other than promoters in favour of the proposal amount to at least two times the number of votes cast by shareholders other than promoter shareholders against the proposal. [R:106H].  Kindly note even such companies, if already in SME Exchange have the option to migrate to Main board on satisfaction of the above said conditions. [R:106I]

In cases where companies in SME Exchange [upto 25 crores] is likely to exceed the same due to further issue of shares, then prior to such issue the company shall pass Special Resolution (similar way as mentioned above) and to get in-principle approval for listing in the Main board by complying with all the conditions.

The sub-regulations (1), (2) and (3) of regulation 6 (filing of offer document), regulation 7 (in-principle approval), regulation 8 (documents to be submitted before opening the issue), regulation 9 (draft offer document to be made public), regulation 10 (Fast track issue), regulation 25, 26 & 27 (eligibity requirements for IPO & FPO) and sub-regulation (1) of regulation 49 (Minimum application value between Rs.5000 & 7000) of these regulations shall not apply to an issue of specified securities made under this Chapter.  That means, all other regulation will apply as such with such modifications as necessary, what we call legally as “mutatis mutandis”.

Main Board = Stock Exchanges other than SME Exchange

Nominated Investor = QIB/PE fund who undertakes the under-subscription portion or receive/deliver (which requires prior approval of SME exchanges) during Market making (for 3 years) with the market makers inventory of atleast 5%. Market Maker shall not buy from promoter or persons belonging to promoter group.  [R 106J]  Also, a promoter can offer only such shares which are not locked-in for market making with the prior approval of SME Exchange.

Similar to Fast track Issues (FTI), there is no need to file draft offer documents, instead the final offer documents shall be filed simultaneously with SME Exchanges, RoC and SEBI alongwith  due-diligence certificate as per Form A of Schedule VI including additional confirmations as provided in Form H of Schedule VI.

1. 100% of offer through offer document shall be underwritten, out of which,
   • 15% shall be underwritten by Merchantbankers
2. Underwriter shall undertake in case of under-subscritpion and not more than that as mentioned in the agreement.
3. Nominee Investor shall undertake in case of under-subscription.
4. Merchant banker is responsible for underwriting & shall give an Undertaking 1 day before opening of issue.
5. Minimum Application size = atleast Rs. 1 lakh per application.
6. Minimum Allottees = 50 nos.

In Schedule VI, after Form G, the following form shall be inserted, namely:-
“FORM H
[See regulation 106C(2)]

ADDITIONAL CONFIRMATIONS/ CERTIFICATION TO BE GIVEN BY MERCHANT BANKER IN DUE DILIGENCE CERTIFICATE TO BE GIVEN ALONG WITH OFFER DOCUMENT REGARDING SME EXCHANGE.