Sebi puts in place stricter approval framework for draft offer papers

Markets regulator Sebi on Wednesday said draft offer documents filed by companies for sale of securities will be kept in abeyance whenever there is a case of probable investigation or a probe is already in progress against the entities. Similar approach would be taken in cases where showcause notices have been issued to the entities proposing a share sale or where proceedings have been initiated.

The draft offer papers would also be kept in abeyance where the entities concerned have not complied with any Sebi direction, including disgorgement of illegal gains, the regulator said in a general order. Sebi (Issuing Observations on Draft Offer Documents Pending Regulatory Actions) Order, 2020 comes into effect immediately.

The new order formalises the issuance of observations on draft offer documents filed with Sebi, where an investigation, enquiry, adjudication, prosecution, disgorgement, recovery or other regulatory action is pending against the issuer or its promoters, directors or group companies, the regulator said. With respect to cases where showcause notices have been issued to entities in an adjudication proceeding, Sebi can process the draft offer paper and issue observations. This would be done on the condition that the entities concerned make necessary disclosures and statements in respect of such proceedings and the possible adverse impact of an order on the entities, in the offer document.

In case of ongoing or potential investigations, issuance of observations by Sebi can be kept in abeyance for up to 30 days. If the regulator is unable to conclude such investigations within that time frame, then issuance of observations can be kept in abeyance for another 30 days. With regard to certain showcause notices, including those pertaining to fraudulent and unfair trading, Sebi can keep in abeyance the issuance of observations for 90 days. For instances where the regulator is unable to conclude its proceedings due to reasons beyond its control or due to the conduct of the parties other than the entities, the abeyance period can be increased by another 45 days.

As per the order, if Sebi is not able to conclude its probe due to the conduct of the entities, the observations can be kept in abeyance till the time such an investigation is completed. If no order is passed within a specified time period by Sebi, the draft offer document can be processed and observations issued. However, the entities would be required to make disclosures and statements in respect of such proceedings and the possible adverse impact in the offer document.

In case of Sebi having initiated proceedings for recovery against the entities or when an order for disgorgement or any direction is not complied with, the observations can be kept in abeyance till such proceedings are concluded or until the directions are complied with. "Issuance of observations on draft offer document when an investigation or enquiry is pending or when any regulatory action is pending, does not indicate that the party has been exonerated in such proceedings or that action may not ultimately result from such proceedings," it said.

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