Cracking down on flagrant misuse of share issue funds by promoters, market regulator Securities and Exchange Board of India (SEBI) on Monday listed fresh guidelines for companies filing for an initial public offerings (IPO).
SEBI said it could reject IPO applications if companies do not meet these criteria.
The regulator has also set out criteria for strict monitoring of the use of issue proceeds, as well as for better disclosure by companies and a fixed allotment of shares to retail investors.
SEBI said it would reject the draft red herring prospectus (DRHP) if the ultimate promoters of the company were unidentifiable, and if the promoters' contribution was not in compliance of earlier guidelines.
As per the notification, a company, while applying for an IPO, needs to state the purpose for the IPO clearly and not doing so would lead to rejection.
Other points for which an IPO may be rejected include "sudden spurt in business just before filing the draft offer and reply to clarification sought not clear. Change in the accounting policy with a view to show enhanced prospects, majority of the business is with the related parties or where circular transactions with connected group entities."
SEBI clarified that an IPO may be withdrawn only once.
The SEBI statement said it would reject an IPO "where there exists litigation including regulatory action; which is so major that the issuer's survivor is dependent on the outcome and which is wilfully concealed."
Consequences of rejection of draft offer documents are also listed out. "Companies whose draft offer documents have been rejected would not be allowed to access the capital market for at least one year," it said. There shall be no refund of filing fees if the board rejects the draft offer document of a company.
SEBI has clarified that it would be transparent about the reason for rejecting a draft offer document, which would be put up on its Web site.