India SEBI UNDERWRITERS - RULES - 2

CHAPTER IV
INSPECTION AND DISCIPLINARY PROCEEDINGS

Board's right to inspect

19. (1) Where it appears to the Board so to do, it may appoint one or more persons as inspecting authority to undertake the inspection of the books of accounts, other records and documents of the underwriter for any of the purposes specified in sub-regulation (2).

(2) The purposes referred to in sub-regulation (1) shall be as follows, namely:-

(a) to ensure that the books of accounts and other records and documents are being maintained in the manner required;
(b) that the provisions of the Act, rules and regulations are being complied with;

(c) to investigate into the complaints received from investors, other underwriters or any other person on any matter having a bearing on the activities of the underwriter; and

(d) to investigate suo-moto in the interest of securities business or investors' interest into the affairs of the underwriter.

Procedure for inspection
20. (1) Before undertaking an inspection under regulation 19 the Board shall give a reasonable notice to the underwriter, for that purpose.

(2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors or in the public interest no such notice should be given, it may by an order in writing direct that the inspection of the affairs of the underwriter be taken up without such notice.

(3) On being empowered by the Board, the inspecting authority shall undertake the inspection and the underwriter against whom an inspection is being carried out shall be bound to discharge his obligations as provided under regulation 21 .

Obligations of underwriter on inspection by the Board

21. (1) It shall be the duty of every director, proprietor, partner, officer and employee of the underwriter who is being inspected to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to an underwriter within such time as the inspecting authority may require.

(2) The underwriter shall allow the inspecting authority to have a reasonable access to the premises occupied by such underwriter or by any other person, on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the underwriter or any such other person on their behalf and also provide copies of documents or other material which in the opinion of the inspecting authority are relevant for the purposes of the inspection.

(3) The inspecting authority shall in the course of inspection, be entitled to examine or record statements of any principal officer, director, partner, proprietor and employee.

(4) It shall be the duty of every director, proprietor, partner, officer or employee of the underwriter to give to the inspecting authority all assistance in connection with the inspection which the underwriter may reasonably be expected to give.

Submission of report to the Board

22. The inspecting authority shall, as soon as may be possible, submit an inspection report to the Board.

Communication of findings, etc. to the underwriter

23. (1) The Board shall after consideration of the inspection report communicate the findings to the underwriter to give him an opportunity of being heard before any action is taken by the Board on the findings of the inspecting authority.

(2) On receipt of the explanation, if any, from the underwriter the Board may call upon the underwriter to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the Act, rules and regulations.

Appointment of Auditor

24. Notwithstanding anything contained above the Board may appoint a qualified auditor to investigate into the books of account of the affairs of the underwriter:

Provided that the auditor so appointed shall have the same powers of the inspecting authority as stated in regulation 19 and the obligation of the underwriter and his employees in regulation 21 shall be applicable to the investigation under this regulation.

Explanation: For the purposes of this regulation, the expression "qualified auditor" shall have the same meaning as given to it in section 226 of the Companies Act, 1956 (1 of 1956).





CHAPTER V
PROCEDURE FOR ACTION IN CASE OF DEFAULT

Liability for action in case of default
25. (1) An underwriter or a stock broker or a merchant banker entitled to carry on business of underwriting without obtaining a separate certificate under rule 3 who, -

(a) fails to comply with any conditions subject to which certificate has been granted;
(b) contravenes any of the provisions of the Act, rules or regulations; shall be liable to any of the penalties specified in sub- regulation (2).

(2) The penalties referred to in sub-regulation (1) may be either:
(a) suspension of registration 1*[under the grounds specified] in sub-regulation (1) of Regulation 26 after enquiry for a specified period; or
(b) cancellation of registration 2*[under the grounds specified] in sub-regulation (2) of Regulation 26.

Suspension, cancellation of certificate
26. (1) A penalty of suspension of certificate granted to an underwriter or a certificate of registration granted under section 12 of the Act to a stock broker or a merchant banker entitled to carry on business of underwriting without obtaining a certificate under rule 3, may be imposed where an underwriter or such stock broker or merchant banker -

(i) violates the provisions of the Act, rules or regulations;
(ii) does not follow the code of conduct specified at Schedule III;

(iii) (a) fails to furnish any information relating to his business as underwriter as required by the Board;

(b) furnishes wrong or false information,
(c) does not submit periodical returns as required by the Board;

(d) does not co-operate in any enquiry conducted by the Board;


(iv) indulges in manipulating or price rigging or cornering activities;
(v) is guilty of misconduct or improper or un-business like or unprofessional conduct;

(vi) fails to maintain the capital adequacy requirement in accordance with the provisions of regulation 7.

(vii) fails to pay the fees as specified in regulation 12;

(viii) violates the conditions of registration;

(ix) fails to fulfil his underwriting obligations.

Provided that the Board for reasons to be recorded in writing may in case of repeated defaults of the type mentioned above impose a penalty of cancellation of certificate on the underwriter or cancellation of certificate of registration granted under section 12 of the Act on a stock broker or a merchant banker.

(2) A penalty of cancellation of certificate granted to an underwriter or a certificate of registration granted under section 12 of the Act to a stock broker or a merchant banker entitled to carry on the business of underwriting under rule 3, may be imposed where they.
(i) indulge in deliberate manipulation or price rigging or cornering activities affecting the securities market and the investors interest;
(ii) fail to fulfil the capital adequacy referred to in regulation 7;

(iii) are guilty of fraud, or is convicted of a criminal offence;

(iv) violate any provision of Securities and Exchange Board of India (Insider Trading) Regulations, 1992; or

(v) violate the provisions of the Act, rules and regulations;

(vi) fails to fulfil more than once their underwriting obligations.

Manner of making order of suspension and cancellation of certificate
27. No order of penalty of suspension or cancellation shall be imposed except after holding an inquiry in accordance with the procedure specified in regulation 28 .

Manner of holding enquiry before suspension or cancellation

28. (1) For the purpose of holding an enquiry under regulation 27, the Board may appoint an enquiry officer.

(2) The enquiry officer shall issue to the underwriter a notice at the registered office or the principal place of business of the underwriter.

(3) The underwriter may, within thirty days from the date of receipt of such notice, furnish to the enquiry officer a reply together with copies of documentary or other evidence relied on by him or sought by the Board from the underwriter.

(4) The enquiry officer shall, give a reasonable opportunity of hearing to the underwriter to enable him to make submissions in support of his reply made under sub-regulation (3).

(5) Before the enquiry officer, the underwriter may either appear in person or through any person duly authorised by the underwriter:

Provided that no lawyer or advocate shall be permitted to represent the underwriter at the enquiry:

Provided further that where a lawyer or an advocate has been appointed by the Board as a presenting officer under sub-regulation (6), it shall be lawful for the underwriter to present its case through a lawyer or advocate.

(6) If it is considered necessary, the enquiry officer may ask the Board to appoint a presenting officer to present its case.

(7) The enquiry officer shall, after taking into account all relevant facts and submissions made by the underwriter, submit a report to the Board and recommend the penalty to be awarded as also the justification of the penalty proposed.

Show-cause notice and order

29. (1) On receipt of the report from the enquiry officer, the Board shall consider the same and issue a show-cause notice as to why the penalty as it considers appropriate should not be imposed.

(2) The underwriter shall within 3*[thirty days] of the date of the receipt of the show-cause notice send a reply to the Board.

(3) The Board after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than thirty days from the receipt of the reply, if any, pass such order as it deems fit.

(4) Every order passed under sub-regulation (3) shall be self- contained and give reasons for the conclusions stated therein including justification of the penalty imposed by that order.

(5) The Board shall send a copy of the order under sub-regulation (3) to the underwriter.

Effect of suspension and cancellation of certificate granted to underwriter

30. (1) On and from the date of the suspension of the certificate or certificate of registration granted to a stock broker or a merchant banker under section 12 of the Act, the underwriter shall cease to act as an underwriter during the period of suspension:

Provided that the Board may in the interest of the investors and securities market, permit the underwriter to complete his underwriting obligations specified in the agreement referred to in clause(b) of rule 4.

(2) On and from the date of cancellation of certificate or certificate of registration granted to a stock broker or a merchant banker under section 12 of the Act, the underwriter shall with immediate effect cease to act as an underwriter.

Publication of order of suspension

31. The order of the Board passed under sub-regulation (3) of regulation 29, shall be published in atleast two daily newspapers by the Board.

Appeal to the Securities Appellate Tribunal

32. 4*[Any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, (ie., after 16th December 1999), under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter



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

3. Substituted for "twenty one days" 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 earlier provision vide SEBI (Appeal to the Securities Appellate Tribunal) (Amendment) Regulations, 2000 vide S.O.278(E) dated March 28, 2000



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SCHEDULE I

FORM A
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) REGULATIONS 1993
( REGULATION 3)

APPLICATION FOR REGISTRATION AS UNDERWRITER

NAME OF APPLICANT AND ITS STATUS
(Whether proprietary concern/ firm/ association of persons/ body of persons/ body corporate)

NAME AND DESIGNATION OF PRINCIPAL

OFFICER

DESIGNATION:

TELEPHONE NO.

INSTRUCTIONS :-

1. Applicants must submit a completed application form together with supporting documents to the Securities and Exchange Board of India.
2. All columns of the application should be filled in. In case a column is not relevant then `NOT APPLICABLE' should be specified.

3. Information which needs to be supplied in more details may be written on separate sheets which should be attached to the application form.

4. Original copy of form duly signed should be submitted for registration.



PART - I
GENERAL INFORMATION

1. APPLICANTS DETAILS

1.1 Name of the Applicant:

1.2 Address of Applicant:

Pin code: _____________________ Telephone No:_____________

Telex No: _____________________ Fax No: _________________

1.3 Address of the applicant for Correspondence:


Pin code: _____________________ Telephone No:_____________
Telex No: _____________________ Fax No: _________________

1.4 Address of Branch Offices (in India) of the applicant, if any:
1.5 Whether any other application under Securities and Exchange Board of India Act, 1992 has been made for grant of Certificate, if so, details thereof

2. ORGANISATION STRUCTURE :

2.1 Objects of the organisation of the applicant. (Attach extracts from relevant documents like, Partnership deed/Charter/Memorandum of Association/Articles of Association etc) in support of objects of the organisation.

2.2 Date and Place of Incorporation/Establishment of the organisation of the applicant.

Day Month Year Place

2.3 Status of the applicant (specify whether proprietary, partnership, association of persons, body of individuals, limited company - public/private, others. If listed, name the stock exchange and latest share price:-high and low.)

2.4 Organisation Chart stating the functional responsibility at various levels

2.5 Particulars of all Proprietors/ Partners/ Managers/ Officers/ Directors.
[Name, Qualification, Experience, Date of Appointment, Other directorship, (Name and ate of Appointment), Previous positions held.]

2.6 Number of employees

2.7 Name and activities of associate companies/ concerns.
Name Address/Phone number/ Type of activity/ Ownership details /Nature and Quantum of financial trading.

2.8 In case the applicant is a body corporate, please give list of major share holders (holding 5% or more voting rights)

3.0 DETAILS OF INFRASTRUCTURAL FACILITIES

3.1 Office Space (mention the extent of area and ownership details available).

3.2 Office Equipment (mention the details of electronic office equipment, typewriters, telecommunication equipment, Furniture & Fixtures, other communication facilities etc.)

4.0 BUSINESS PLAN ( FOR THREE YEARS)

4.1 History, Major achievements and present activity

5.0 FINANCIAL INFORMATION

5.1 Capital Structure (Rs. in lakhs)
Current Year Last Year Previous Year Second Year Third Year
a) Paid-up capital
b) Free reserves (excluding revaluation reserves)
c) Total (a) + (b)
d) Loans (Details)
e) Net profit (i) General
(ii)Specific


Note:- In case of partnership or proprietary concerns, please indicate capital minus drawings.

5.2 Deployment of Resources

a) Fixed Assets

b) Plant & Machinery and office equipment

c) Investments (Details should be given separately)

d) Others

5.3 Major Source of Estimated Profit from various sources (Rs. in lakhs)
Current Year Last Year Previous Year Second Year Third Year



5.4 Please enclose three years of audited annual accounts and where unaudited reports are submitted, give reasons.

5.5 Name and Address of the Principal Bankers

5.6 Name and Address of the Auditors (Internal, External & Tax auditor, if any, as applicable)

6.0 OTHER INFORMATION

6.1 Indicate involvement in any offence relating to moral turpitude/economic offenses in the last three years.

6.2 Any other information considered relevant to the nature of services rendered by the company.

PART-II

7.0 BUSINESS INFORMATION
7.1 Indicate marketing capability for Capital Issues.

7.2 Indicate How decision on Underwriting is usually taken.

7.3 Indicate various research & database facilities available.

7.4 Enclose a copy of typical contract entered with the issuer for Underwriting activity.

8.0 EXPERIENCE :

8.1 Experience in Underwriting activities. (Indicate Name of the company, Particulars of the issue, Amount of underwriting done in last three years)

8.2 Experience in other financial services rendered:- (Period, Area and Date of Commencement of Activity).

8.3 Details of all Un-settled and pending devolvement/disputes regarding Underwriting:
Nature of dispute Name of the party Pending/settled.

8.4 Indicate underwriting defaulted with any company and reasons for the same.





DECLARATION

THIS DECLARATION MUST BE SIGNED BYPRINCIPAL OFFICER/S.

I/We hereby apply for GRANT OF CERTIFICATE OF ____________________________________ REGISTRATION by the Board. I/We warrant that I/We will carry out my/our duties in accordance with the Act, Rules and Regulations. I/We warrant that I/We have truthfully and fully answered the questions above and provided all the information which might reasonably be considered relevant for the purposes of my/our grant of certificate for registration and I/We will promptly notify the Board of any changes in the information during the period that my/our registration is being considered and if my/our registration is accepted, thereafter.

I/We understand that misleading or attempting to mislead the Board shall render the applicant liable to disciplinary proceedings.

I/We certify that the above information and information supplied in the application form is true, complete and correct.

For and on behalf of

(Name of Applicant)

(Name of Applicant)

PLACE :

Date :

SCHEDULE I - FORMS
FORM B
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) REGULATIONS, 1993
( Regulation 8)

CERTIFICATE OF REGISTRATION
I. In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992, read with the rules and regulations made thereunder for the underwriters, the Board hereby grants a certificate of registration to ________________________ as an underwriter subject to the conditions in the rules and in accordance with the regulations.

II. Registration Code for the underwriter is __________

III. Unless renewed, the certificate of registration is valid from ________ to _________.

Place :

Date :

By Order

For and on behalf of

Security Exchange Board of India





SCHEDULE II
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) REGULATIONS, 1993
( REGULATION 12 )
FEES
1*[1. Every underwriter shall pay a sum of Rs.5 lakhs as registration fees at the time of grant of certificate by the Board:

2. Every underwriter to keep registration in force shall pay renewal fee of Rs.2 lakhs every three years from the fourth year from the date of initial registration.

3. (a) The fee referred to in paragraph 1 shall be paid by the underwriter within fifteen days from the date of receipt of intimation from the Board under regulation 8.

(b) The fee referred to in paragraph 2 shall be paid by the underwriter within fifteen days of receipt of intimation from the Board disposing of the application for renewal made under sub-regulation (1) of regulation 9.
4. The fees specified in paragraphs 1 and 2 shall be payable by the underwriter by a demand draft in favour of "Securities and Exchange Board Of India" payable at Mumbai or at the respective regional office.]


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1. Substituted by SEBI(Underwriters) Amendment Regulations, 1999 w.e.f. 30-9-1999. Earlier paragraph 4 was substituted by the SEBI (Payment of Fees) (Amendment) Regulations, 1995, w.e.f 28.11.1995





SCHEDULE III
SECURITIES AND EXCHANGE BOARD OF INDIA
(UNDERWRITERS) REGULATIONS, 1993
CODE OF CONDUCT
[REGULATION 13]
1. Every underwriter shall maintain high standards of integrity, dignity and fairness in all his dealings with his clients and other Underwriters in the conduct of his business.

2. An underwriter shall ensure that he and his personnel will act in an ethical manner in all his dealings with a body corporate making an issue of securities (hereinafter referred to in the schedule as "the issuer").

3. Every underwriter shall, at all times, render high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement.

4. Every underwriter shall disclose to the Issuer Company his possible source or potential areas of conflict of duties and interest while providing underwriting services.

5. Underwriter shall not indulge in any unfair competition, which is likely to be harmful to the interest of other underwriters carrying on the business of underwriting or likely to place such other underwriters in a disadvantageous position in relation to the underwriter while competing for, or carrying out any assignment.

6. No underwriter shall make any statement, either oral or written, which would misrepresent -

(a) the services that the underwriter is capable of performing for the, or has rendered to other Issuer Company;
(b) his underwriting commitment.

7. No underwriter shall divulge to other Issuer, Press or any party any confidential information about his Issuer Company, which has come to his knowledge and deal in securities of any Issuer Company without making disclosure to the Board as required under the regulations and also to the Board of Directors of the Issuer Company.
8. No underwriter shall willfully make untrue statement or suppress any material fact in any documents, reports, papers or information furnished to the Board.

1*[9 (a) [An underwriter or any of his employees shall not render, directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including his long or short position in the said security has been made, while rendering such advice.

(b) In case, an employee of the underwriter is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice].

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1. Inserted by SEBI (Investment Advice by Intermediaries) (Amendment) Regulations, 2002. w.e.f. 29.5.2001.