Companies to face one-year ban,penalty for rejected IPO papers: Sebi

Companies will not be able to access the capital market for at least one year if their Initial Public Offer (IPO) documents are rejected by market regulator Securities and Exchange Board of India (Sebi),while managers of such public issues would also face penal action. Besides,Sebi has also decided to make public the details of such companies and their issue managers,along with the reasons of rejection. After Sebi’s last board meeting on August 16,Sebi chairman UK Sinha had announced that the regulator had decided to put in place a detailed set of criteria for rejection of IPO documents to safeguard the interest of investors. As per the details finalised by Sebi,in consultation with its Primary Market Advisory Committee (PMAC),the companies and the book-running lead managers (BRLMs) should be penalised for filing offer documents that are not in conformity with the pre-defined eligibility criteria in this regard. Consequently,the companies whose offer documents are rejected would not not be allowed to access capital markets for at least one year and the same may be increased depending upon the materiality of the omissions and commissions. The BRLMs of such issues would also be liable for penal action and the list of such offer documents rejected by Sebi,along with the details of issuers and lead managers and the reasons for rejection,would be disseminated in public domain. The criteria for rejection of offer documents include any circular transactions for building up the capital or net worth of the company,the ultimate promoters being unidentifiable and promoters’ contribution not being in compliance to regulations “in letter and in spirit”.