India SEBI UNDERWRITERS - RULES - 1

MINISTRY OF FINANCE
(DEPARTMENT OF ECONOMIC AFFAIRS)
NOTIFICATION
NEW DELHI 8TH OCTOBER 1993
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) RULES, 1993

S O 766 (E) In exercise of the powers conferred by section 29 of the Securities and Exchange Board of India, Act 1992, (15 of 1992) the Central Government hereby makes the following regulations, namely:-

Short title and commencement

1. (1) These regulations may be called the Securities and Exchange Board of India (Underwriters) Rules, 1993.

(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions

2. In these regulations, unless the context otherwise requires -

(a) "Act" means the Securities and Exchange Board of India, Act 1992 (15 of 1992);
(b) "body corporate" means a body corporate as defined in clause (7) of section 2 of the Companies Act, 1956 (1 of 1956);

(c) "certificate" means a certificate of registration granted or renewed by the Board under the regulations;

(d) "issue" means an offer of sale of securities by any body corporate or by any other person or group of persons on its or his or their behalf, as the case may be, to the public or the holders of securities of such body corporate or person or group of persons;

(e) "regulations" means the Securities and Exchange Board of India (Underwriters) Regulations 1993;

(f) "underwriter" means a person, who engages in the business of underwriting of an issue of securities of a body corporate;

(g) "underwriting" means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them.

Not to act as underwriter without certificate
3. (1) No person shall act as underwriter unless he holds a certificate granted by the Board under the regulations

Provided that such person, who was engaged as underwriter prior to the coming into force of the Act, may continue to carry on activity as underwriter if he has made an application for such registration under the proviso to sub-section (1) of Section 12 of the Act till the disposal of such application

(2) Notwithstanding anything contained in sub-rule (1), every stock broker or merchant banker holding a valid certificate of registration under Section 12 of the Act, shall be entitled to act as an underwriter without obtaining a separate certificate for underwriting activities which shall be governed by these rules and regulations.

Conditions for grant or renewal of certificate to underwriter

4. The Board may grant or renew a certificate to an underwriter subject to the following conditions namely;

(a) in case of any change in the status and constitution, the underwriter shall obtain prior permission of the Board to continue to act as underwriter;
(b) without prejudice to the obligations under any other, the underwriter shall enter into a valid agreement with the body corporate on whose behalf he is acting as underwriter and the said agreement amongst other things may define the allocation of duties and responsibilities between him and such body corporate and;

(c) he shall pay the amount of fees of registration in the manner provided in the regulations;

(d) he shall abide by the rules and regulations made under the Act in respect of the activities carried on by him as an underwriter.

Period of validity of the certificate
5. The certificate of registration or its renewal, as the case may be, shall be valid for a period of three years from the date of its issue to the underwriter.







SECURITIES AND EXCHANGE BOARD OF INDIA (UNDERWRITERS)
REGULATIONS 1993



CHAPTER I
PRELIMINARY

Short title and commencement

1. (1) These regulations may be called the Securities and Exchange Board of India (Underwriters) Regulations, 1993.

(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions

2. (1) In these regulations, unless the context otherwise requires :-

(a) "enquiry officer" means any officer of the Board, or any other person, having experience in dealing with the problems relating to the securities market, who is appointed by the Board under Chapter V;
(b) "form" means a form specified in Schedule I;

(c) "inspecting authority" means one or more persons appointed by the Board to exercise powers conferred under Chapter IV;

(d) "principal officer" means, -

(i) in relation to a proprietary concern, the proprietor himself;
(ii) in relation to a firm or an association of persons or any body of individuals or a body corporate, a secretary, treasurer, partner, manager or director of the firm, association, or body corporate;

(iii) any person connected with the management or administration of the firm, association or the body corporate upon whom the Board has served a notice of its intention of treating him as the principal officer thereof;

(e) regulations" means Securities and Exchange Board of India (Underwriters) Regulations, 1993;
(f) rules" means Securities and Exchange Board of India (Underwriters) Rules 1993;

(2) All other words and expressions used in these regulations but not defined, and defined in the Act and the rules shall have the same meanings respectively assigned to them in the Act or the rules, as the case may be.






CHAPTER II
REGISTRATION OF UNDERWRITERS

Application for grant of certificate

3. (1) An application by an underwriter for grant of a certificate shall be made to the Board in form A.

(2) Notwithstanding anything contained in sub-regulation (1), any application made by an underwriter prior to coming into force of these regulations containing such particulars or as near thereto as mentioned in form A shall be treated as an application made in pursuance of sub-regulation (1) and dealt with accordingly.

Furnishing of further information, clarification, etc.

4. (1) The Board may require the applicant to furnish further information or clarification regarding matters relevant to underwriting to consider the application for grant of a certificate.

1*[(2) If the Board, on receipt of further information, is of the opinion that the information so furnished is not sufficient to decide on the application and seeking further information through correspondence is likely to delay the matter, it may require the applicant or its principal officer to appear before the Board in order to give an opportunity to the applicant to give further clarifications on the application made under Regulation 3].

Application to conform to the requirements -

5. Subject to the provisions of sub-regulation (2) of regulation 3 , any application, which is not complete in all respects and does not conform to the instructions specified in the form, shall be rejected:

Provided that, before rejecting any such application, the applicant shall be given an opportunity to remove within 2*[one month] such objections as may be indicated by the Board.

3*[Provided further that the Board may, on sufficient reasons being shown extend the time by another one month in order to enable the applicant to comply with the requirements of the Board].

Consideration of application

6. The Board shall take into account for considering the grant of a certificate, all matters which are relevant to or relating to underwriting and in particular the following, namely, whether the applicant -

(a) has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities;
(b) has any past experience in underwriting or has in his employment minimum two persons who had the experience in underwriting;

(c) or any person, directly or indirectly connected with the applicant has not been granted registration by the Board under the Act;

4*[Explanation :- For the purposes of this clause the Board shall take into account whether a previous application for a certificate of any person directly or indirectly connected with the applicant has been rejected by the Board or any disciplinary action has been taken against such person under the Act or any of the Rules or any of the Regulations made under the Act]

(d) fulfils the capital adequacy requirements specified in regulation 7 ;

(e) or any of its director, partner or principal officer is or has at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence.

5*[(f) is a fit and proper person."]

Capital Adequacy Requirement
7. (1) The capital adequacy requirement referred to in sub- regulation (d) of regulation 6 shall not be less than the networth of rupees twenty lakhs;

(2) Notwithstanding anything contained in sub-regulation (1),-

(a) every stock broker, who acts as an underwriter shall fulfil the capital adequacy requirements specified by the stock exchange of which he is a member;
(b) every merchant banker, who acts as an underwriter shall fulfil the capital adequacy requirements specified in regulation 7 of the Securities and Exchange Board of India (Merchant Banker) Regulations 1992.

Explanation: For the purposes of this regulation, "networth" means -
(a) in the case of an applicant being a proprietary concern or a firm or an association of persons or any body of individuals, the value of capital contributed to such business by the applicant and the free reserves of any kind belonging to the business of the applicant; and
(b) in the case of a body corporate, the value of the paid- up capital and the free reserves as disclosed in the books of accounts of the applicant at the time of making the application under sub-regulation (1) of regulation 3 .

Procedure for registration
8. The Board on being satisfied that the applicant is eligible, shall send an intimation 6*[within one month of such satisfaction] of the applicant mentioning that he has been found eligible for the grant of certificate and grant a certificate in form B subject to payment of fees as specified in regulation 12 .

Renewal of certificate

9. (1) An underwriter may, if he so desires, make an application in form A for renewal of certificate before three months of the expiry of the period of certificate.

(2) The application for renewal of certificate under sub-regulation (1) shall be dealt with in the same manner as if it were an application for grant of a certificate made under regulation 3.

Procedure where registration is not granted

10. (1) Where an application for grant of a certificate under regulation 3 or of renewal under regulation 9 does not fulfil the requirements set out in regulation 6 , the Board may reject the application, after giving an opportunity of being heard.

(2) 7*[The decision shall be communicated by the Board within thirty days of such decision stating therein the grounds on which the application has been rejected].

(3) Any applicant may, being aggrieved by the decision of the Board under sub-regulation (2), apply within a period of thirty days from the date of receipt of such intimation, to the Board for reconsideration of its decision.

(4) On receipt of the application made under sub-regulation (3), the Board shall reconsider its decision and communicate its findings thereon as soon as possible in writing to the applicant.

Effect of refusal to grant or renew certificate

11. Any underwriter whose application for grant or renewal of a certificate has been refused by the Board shall on and from the date of the receipt of the communication under sub - regulation (2) of regulation 10 cease to act as an underwriter.

8*[Provided that if the Board is satisfied that it is in the interest of the investors, it may permit the underwriter to undertake the underwriting commitments already entered into by him during the validity period of the certificate.]

Payment of fees and the consequences of failure to pay fees

12. (1) Every applicant eligible for grant or renewal of a certificate shall pay fees in such manner and within the period specified in Schedule II:

9*[***]

Provided 10*[***] that a stock broker or a merchant banker who, has been granted a certificate under Section 12 of the Act and pays fees under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 or Securities and Exchange Board of India (Merchant Bankers) Regulations 1992, shall not be required to pay fees under sub- regulation (1).

(2) Where an underwriter fails to pay the fees as provided in sub- regulation (1), the Board may suspend the certificate, whereupon the underwriter shall forthwith cease to act as an underwriter.



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1. Substituted for "The applicant or, its principal officer shall, if so required, appear before the Board for personal representation. Application to conform to the requirements" by Securities and Exchange Board of India (Underwriters) Amendment Regulations 1997 vide notification No . S.O.46(E) dated 17th January 1997 .

2. Substituted for "the time specified" by Securities and Exchange Board of India Amendment Regulations 1997 vide Notification No. S.O.46(E) dated 17th January, 1997.

3. Inserted by Securities and Exchange Board of India (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

4. Substituted for "The applicant or, its principal officer shall, if so required, appear before the Board for personal representation. Application to conform to the requirements" by Securities and Exchange Board of India (Underwriters) Amendment Regulations 1997 vide notification No . S.O.46(E) dated 17th January 1997 .

5. Inserted by SEBI (underwriters) Amendment Regulations, 1998 w.e.f. 5-1-1998

6. Inserted by Securities and Exchange Board of India (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

7. Substituted for, " The refusal to grant or renew the certificate shall be communicated by the Board within thirty days of such refusal to the applicant stating therein the grounds on which the application has been rejected" by Securities and Exchange Board of India (Underwriters) Amendment Regulations 1997 vide Notification No. S.O.46(E) dated 17th January, 1997.

8. Inserted by Securities and Exchange Board of India (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

9. The proviso "Provided that the Board may on sufficient cause being shown permit the underwriter to pay such fees at any time before the expiry of six months from the date on which such fees become due;" omitted by SEBI (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

10. The word "further" omitted by SEBI (Underwriters) Amendment Regulations, 1997 vide Notification No. S.O.46 (E) dated January 17, 1997.

CHAPTER III
GENERAL OBLIGATIONS AND RESPONSIBILITIES

To abide by the Code of Conduct

13. Every underwriter shall at all times abide by the Code of Conduct as specified in Schedule III.

Agreement with clients

14. Every underwriter shall enter into an agreement referred to in clause (b) of rule 4 with each body corporate on whose behalf he is acting as underwriter and the said agreement shall, amongst other things, provide for the following, namely :-

(i) the period for which the agreement shall be in force;
(ii) the amount of underwriting obligations;

(iii) the period, within which the underwriter has to subscribe to the issue after being intimated by or on behalf of such body corporate;

(iv) the amount of commission or brokerage payable to the underwriter;

(v) details of arrangements, if any, made by the underwriter for fulfilling the underwriting obligations.

General responsibilities of an underwriter
15. (1) The underwriter shall not derive any direct or indirect benefit from underwriting the issue other than the commission or brokerage payable under an agreement for underwriting.

(2) The total underwriting obligations under all the agreements referred to in clause (b) of rule 4 shall not exceed twenty times the networth referred to in regulation 7.

(3) Every underwriter, in the event of being called upon to subscribe for securities of a body corporate pursuant to an agreement referred to in clause (b) of rule 4 shall subscribe to such securities within 45 days of the receipt of such intimation from such body corporate.

To maintain proper books of accounts and records, etc.

16. (1) Subject to the provisions of any other law, every underwriter shall keep and maintain the following books of accounts and documents, namely :-

(a) in relation to underwriter being a body corporate -
(i) a copy of the balance sheet and profit and loss account as specified in sections 211 and 212 of the Companies Act, 1956 (1 of 1956);
(ii) a copy of the auditor's report referred to in section 227 of the Companies Act, 1956 (1 of 1956).

(b) in relation to an underwriter not being a body corporate -
(i) records in respect of all sums of money received and expended by them and the matters in respect of which the receipt and expenditure take place; and
(ii) their assets and liabilities.

(2) Without prejudice to sub-regulation (1), every underwriter shall, after the close of each financial year as soon as possible but not later than six months from the close of the said period furnish to the Board if so required copies of the balance sheet, profit and loss account, statement of capital adequacy requirement and such other documents as may be required by the Board under regulation 16 .
(3) Every underwriter shall also maintain the following records with respect to -

(i) details of all agreements referred to in clause (b) of rule 4;
(ii) total amount of securities of each body corporate subscribed to in pursuance of an agreement referred to in clause (b) of rule 4;

(iii) statement of capital adequacy requirements as specified in regulation 7 ;

(iv) such other records as may be specified by the Board for underwriting.

(4) Every underwriter shall intimate to the Board the place where the books of accounts, records and documents are maintained.
Period of maintenance of books of accounts, records and other documents

17. Every underwriter shall preserve the books of account and other records and documents mentioned under this chapter for a minimum period of five years.

1*[Appointment of Compliance Officer

17 A (1) Every underwriter shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc. issued by the Board or the Central Government and for redressal of investors’ grievances.

(2) The compliance officer shall immediately and independently report to the Board any non-compliance observed by him]

Power to call for information

18. (1) The Board may at any time call for any information from an underwriter with respect to any matter relating to underwriting business.

(2) Where any information is called for under sub-regulation (1) it shall be the duty of the underwriter to furnish such information.



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1. Inserted by SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2002, w.e.f. 29.05.2001.