SLCM Question Answer Book CS Vikas Vohra, YES Academy, Pune

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Page 1
Securities Laws & Capital Markets In Karma, I Believe…. Case Book 1
CHAPTER 1- SECURITIES CONTRACT (REGULATION) ACT, 1956
Q) What are the provisions for continuous listing requirement under Securities
Contracts (Regulation) Rules, 1957? List any six methods for achieving minimum
public shareholding by a listed company.
Answer-
The provisions relating to continuous listing requirement under Securities Contracts
(Regulation) Rules, 1957 are as follows:
1) The minimum offer and allotment to public in terms of an offer document shall be-at least
twenty five per cent, if the post issue capital of the company calculated at offer price is less
than or equal to one thousand six hundred crore rupees;
2) at least such percentage of each class equivalent to the value of four hundred crore
rupees, if the post issue capital of the company calculated at offer price is more than one
thousand six hundred crore rupees but less than or equal to four thousand crore rupees;
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3) at least ten percent of each class, if the post issue capital of the company calculated at
offer price is above four thousand crore rupees but less than or equal to one lakh crore
rupees.
4) at least such percentage of each class equivalent to the value of five thousand crore rupees
and at least five per cent of each post issue capital of the company calculated at offer price
is above one lakh crore rupees.
However, the company referred to in sub-clause (ii) or sub-clause (iii), shall increase its public
shareholding to at least twenty five per cent within a period of three years from the date of
listing of the securities.
The company referred to in this sub-clause (iv) shall increase its public shareholding to at
least ten per cent within a period of two years and at least twenty-five per cent within a period
of five years, from the date of listing of the securities.
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Methods for achieving minimum public shareholding are as follows:
i. Issuance of shares to public through prospectus;
ii. Offer for sale of shares held by promoters to public through prospectus;
iii. Sale of shares held by promoters through the secondary market.
iv. Institutional Placement Programme (IPP)
v. Rights Issue to public shareholders, with promoter/promoter group shareholders
forgoing their entitlement to equity shares that may arise from such issue;
vi. Bonus Issues to public shareholders, with promoter/promoter group shareholders
forgoing their entitlement to equity shares that may arise from such issue;
vii. Allotment of eligible securities under Qualified Institutions Placement.
viii. Any other method as may be approved by the Board on a case to case basis.
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Q) ‘‘Every listed company other than public sector company shall maintain public
shareholding of at least 25 percent’’.
Answer-
5) The minimum offer and allotment to public in terms of an offer document shall be-at least
twenty five per cent, if the post issue capital of the company calculated at offer price is less
than or equal to one thousand six hundred crore rupees;
6) at least such percentage of each class equivalent to the value of four hundred crore
rupees, if the post issue capital of the company calculated at offer price is more than one
thousand six hundred crore rupees but less than or equal to four thousand crore rupees;
7) at least ten percent of each class, if the post issue capital of the company calculated at
offer price is above four thousand crore rupees but less than or equal to one lakh crore
rupees.
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8) at least such percentage of each class equivalent to the value of five thousand crore rupees
and at least five per cent of each post issue capital of the company calculated at offer price
is above one lakh crore rupees.
However, the company referred to in sub-clause (ii) or sub-clause (iii), shall increase its public
shareholding to at least twenty five per cent within a period of three years from the date of
listing of the securities.
The company referred to in this sub-clause (iv) shall increase its public shareholding to at
least ten per cent within a period of two years and at least twenty-five per cent within a period
of five years, from the date of listing of the securities.
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CHAPTER 2 - OVERVIEW OF CAPITAL MARKETS & SEBI
Q) Differentiate between Primary Market and Secondary Market. (2 marks)

Answer-
Sr. PRIMARY MARKET SECONDRY MARKET
No.
(i) Where the securities are offered for Where the existing securities already issued
the first time to the investors, it is exchange hands, it is termed as secondary
termed as primary market. market.
(ii) Primary markets serve as a fund The participants include the investors i.e., the
raising activity for the issuer Company has no role to play in such market.
companies.
(iii) Ex- IPO, FPO, ESOP Ex – Stock Exchange Trading.
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Q) The securities market has two inter-dependent and inseparable segments –
Comment. (4 marks)
Answer-
1) Securities market is a sub component of capital market. It deals with 2 specific categories
i.e., primary market and secondary market.
2) Primary market is a market where issue of sec. takes place for the first time. Example : A
company coming up with IPO or rights issues.
3) Secondary market is a market where exchange listed securities take place i.e. buying and
selling of securities at stock exchanges.
4) Though both the market’s are separate from each other, but they are inter-dependent
way that only those securities which are issued in the primary market are available for
trading in secondary market. Thus it can be stated that securities market has 2 inter-
dependent and inseparable segments.
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Q) What are the functions of SEBI in the capital markets? (5 marks)
Answer-
The functions include the following:
(i) Regulating the business in Stock Exchanges;
(ii) Registration and regulating the work of various intermediaries such as Brokers, Sub-
brokers, Registrar and Share Transfer Agents, Merchant Bankers, Underwriters,
Portfolio Managers, etc.;
(iii) Registration and regulating the work of Depositories and Depositories Participants;
(iv) Registration and regulating the work of Foreign Institutional Investors, Credit Rating
Agencies, etc.
(v) Registration and regulating the work of Venture Capital Funds, Mutual Funds, Collective
Investment Schemes;
(vi) Promoting Investors’ education;
(vii) Prohibiting insider trading in securities;
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(viii) Prohibiting fraudulent practices and unfair trading practices;
(ix) Regulating substantial acquisition of shares and takeover of companies;
(x) Undertaking inspection, conduction inquiries and audits of the Stock Exchanges, Mutual
Funds and other persons associated with the securities market.
Q) The financial markets have 2 major components – money market and capital
market. Discuss. (4 marks)
Answer-
 Money market refers to the market where short-term funds are borrowed and exchange
to solve their liquidity needs MM is regulated by RBI and Ministry of Finance. The tenure of
instruments of MM is 1 year. These instruments usually have low default, risk and high
marketability.
 Capital Market – The market from where the companies arrange long term funds for
carrying on business activities is known as Capital Market. It is wider than securities market
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of includes all forms of lending and borrowing capital market comprises of securities market
and debt market.
 In securities market funds are arranged by issuing different kinds of securities such as
shares debentures, bonds etc.
 In debt market funds are arranged by taking long term and other forms of borrowings.
Q) List out the regulations as are applicable to an issuer company in the capital
markets. (2 marks)
Answer-
1. SEBI Act, 1992
2. Securities Contracts (Regulation) Act, 1956
3. Depositories Act, 1996
4. Companies Act, 2013
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Q) Write a short note on SAT. (5 marks)
Answer-
Composition of SAT
SAT shall comprise of the following :
a) One Presiding Officer; and
Two or more Judicial or Technical Members as he may deem fit.
The Presiding Officer and the Members shall be appointed by the Central Government.
Presiding Officer
 The Presiding Officer of SAT shall be appointed by the Central Govt. in consultation with
the Chief Justice of India.
 The person to be appointed as the Presiding Officer must be a sitting or retired Judge of
the Supreme Court or a sitting or a retired Chief Justice of a High Court or a Judge of High
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Court for at least seven years. The Presiding Officer shall hold his office for a period of five
years or up to the age of 70 years, whichever is earlier.
Members
 The two Members of SAT shall be appointed by the Central Government.
 A person shall not be qualified for appointment as Member of SAT, unless he is a person
of ability, integrity and standing who has shown capacity in dealing with problems relating
to securities market and has qualification and experience of corporate law, securities laws,
finance, economics or accountancy. The Members shall hold their office for a period of five
years or up to the age of 70 years, whichever is earlier.
Appeal to SAT (Sec.15T)
Any person aggrieved-----
a) By an order of the SEBI, under SEBI Act, 1992 or the rules or regulations made
thereunder; or
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b) By an order made by an adjudicating officer under SEBI Act, 1992, may prefer an appeal
to Securities Appellate Tribunal.
 The appeal to SAT shall be filed within a period of 45 days from the date of receiving the
copy of the order of SEBI or adjudicating officer, as the case may be. However, SAT may
entertain an appeal after the expiry of 45 days, if it is satisfied that there was sufficient
cause for not filling it within that period.
 On receipt of an appeal, SAT may confirm, modify or set aside the order appealed against
after giving an opportunity of being heard.
Q) Short notes on powers of SAT. (4 marks)

Answer-
Powers of SAT (Sec. 15U)
The SAT shall have the same powers as are given to a Civil Court under the Code of Civil
Procedure, 1908, while trying a suit, in respect of the following matters, namely:
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(i) Summoning and enforcing the attendance of any person and examining him on oath;
(ii) Requiring the discovery and production of documents;
(iii) Receiving evidence on affidavits;
(iv) Issuing commissions of the examination of witnesses or documents;
(v) Reviewing its decisions;
(vi) Dismissing an application for default or deciding it ex parte;
(vii) Setting aside any order of dismissal of any application for default or any order
passed by it ex parte;
(viii) Any other matter which may be prescribed.
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Q) SEBI has been given necessary autonomy and authority to regulate and develop an
orderly market. Elucidate the statement in the light of statutory powers vested with
SEBI. (4 marks)
Answer-
Statutory powers vested with SEBI are as follows :
i. Regulating the business of stock exchanges and any other securities market.
ii. Registering and regulating the working of intermediaries.
iii. Registering and regulating the working of venture capital funds, CIS, MF.
iv. Powers to impose monetary penalties on capital market intermediaries and other
participants.
v. Prohibiting fraudulent and unfair trade practices.
vi. Prohibiting insider trading in securities.
vii. Calling for information, undertaking inspection, conducting enquires and audit of stock
exchanges, mutual funds, and other persons associated with securities market.
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Q) ‘‘The Securities Appellate Tribunals shall have, for the purposes of discharging their
functions under Securities and Exchange Board of India Act, 1992. The same power as
are vested in a Civil Court under the Code of Civil Procedure, 1908, while trying a suit’’.
Answer-
Powers with SAT are
 Summoning the attendance of any person and examining him on oath.
 Requiring the discovery and production of documents.
 Receiving evidence on affidavits.
 Issuing commissions for the examination of documents or witnesses.
 Reviewing its own decision.
 Dismissing an application for default or deciding it ex-parte.
 Setting aside any order of dismissal of any application on default or order passed by it ex
parte.
 Any other matter as may be prescribed.
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Q) Hon’ble Justice A, a retired Chief Justice of a High Court, attained the age 62 years on
December 31, 2017. The Central Government had appointed him as the Presiding
Officer of the Securities Appellate Tribunal (SAT) with effect from January l, 2018. You
are required to state with reference to SEBI Act, 1992, (a) the term for which he may be
appointed as Presiding Officer of the SAT (b) Whether he can be re-appointed as such
and remains as Presiding Officer of the Securities Appellate Tribunal ? (5 marks)
Answer-
i) The Presiding Officer and every other member of Securities Appellate Tribunal shall hold
office for a term of five years from the date he enters upon his office and is eligible for
reappointment.
ii) It has also been provided that the person attaining the age of 70 years cannot hold office
as the presiding officer of Securities Appellate Tribunal.
iii) By applying the above provisions to the given cases:
a) Presiding Officer can be appointed for a term of up to 5 years.
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b) Justice A cannot be re-appointed as he will attain the age of 70 Years after completion
of 1st Term..
Q) “SEBI has been established with objective of protecting the interest of investors and
to promote the development of and to regulate the securities market (SEBI Act, 1992)”.
Discuss its composition and initiatives taken by SEBI for development and regulation
of securities market. (4 marks)
Answer-
The composition of SEBI includes:
The Board of securities & Exchange Board of India (SEBI) is comprised of 9 members,
excluding the chairman. It is managed by the members, in the following manner –
a. A chairman is nominated by the central Govt.
b. 2 members from amongst the officials of the Ministry of the central Govt dealing with
Finance.
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c. One member from amongst the officials of RBI.
d. Five other members out of which 3 shall be whole time members.
Initiatives taken by SEBI for development and regulation of securities market are:
1. Screen based trading system: It is a system where a member can put the qty of shares and
the price at which he want to transact. The transaction is executed as soon the rate quoted by
the seller matches the rate quoted by buyer.
2. Settlement guarantee: A variety of measures were taken to address the risk in the market.
Clearing corporations emerged to assume counter party risk . Trades are done on a particular
day and are settled on T+2 basis. Thus the stock exchange within the time period checks the
authenticity of the transaction.
3. Green shoe option: It allows companies to intervene in the market to stabilize share
prices during the 30 day stabilization period immediately after listing.
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4. SLBM: Short selling means selling of a stock that the seller does not own at the time of the
trade. The securities lending and borrowing mechanism allows short sellers to borrow
securities for making delivery.
5. IPO Grading: It is a service for facilitating the assessment of equity shares offered to
public for the first time, where there is no track record of their market performance.
6. Fast track issue: It is a faster and cost effective method of raising capital by listed
companies, where they need not to file draft offer document with SEBI.
7. Mandatory requirement of PAN: PAN is mandatory for trading in securities market.
Q) Explain the role of securities market in economic growth. (4 marks)

Answer-
The securities market fosters economic growth to the extent that it-
a) augments the quantities of real savings and capital formation from any given level of
national income,
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b) Increases net capital inflow from abroad,
c) raises the productivity of investment by improving allocation of investible funds, and
d) reduces the cost of capital.
For the economy as a whole, productive investment may thus fall short of its potential level.
In these circumstances, the securities market provides a bridge between ultimate savers
and ultimate investors and creates the opportunity to put the savings of the cautious at the
disposal of the enterprising, thus promising to raise the total level of investment and hence
of growth.
Q) Explain the factors to be considered by SEBI to arrive at the settlement terms. (4

marks)
Answer-
Regulation 9 deals with the factors to be considered by SEBI while arriving at the settlement
terms, including but not limited to the following:
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a) Conduct of the applicant in the investigation;
b) The role played by the applicant in case the alleged default is committed by a group of
persons
c) Nature, gravity and impact of alleged defaults;
d) Whether any other proceeding against the applicant for non-compliance of securities
laws is pending or concluded;
e) Whether the alleged default is minor or major in nature;
f) The extent of amount of harm and/or loss to investors‟ and/or gain by the applicant;
g) processes which have been introduced since the alleged default to minimize future
defaults or lapses;
h) Compliance schedule proposed by the applicant;
i) Economic benefits accruing to any person from the non-compliance or delayed
compliance;
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j) Conditions which are necessary to deter future non-compliance by the same or another
person;
k) Satisfaction of claim of investors regarding payment of money due to them or delivery
of securities to them;
l) Whether the applicant has undergone any other enforcement action for the same
violation;
m) Any other factors necessary in the facts and circumstances of the case.
Q) SEBI expects the investors to make investments with their eyes & ears open.
Comment. (5 marks)
Answer-
 As an investor there is a basic understanding that before making any investments in the
market, the investor must have gone through the offer document of the said company
and also must have been sure of making such investments.
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 SEBI from time to time organizes various seminars, symposia, various TV programmes
& investors meet in order to educate the investors regarding their rights & duties.
 The sole idea behind conducting such programme is that an investor is not misguided by
any intermediary or the issuer company & he has made his rational decision before
making such investments.
 Thus it is stated that SEBI expects the investors to make investments with their eyes &
ears open.
Q) “SEBI may take any of the measures either pending investigation or inquiry or on
completion of such investigation.” Enumerate such measures in the light of the
provisions of the SEBI Act. (4 marks)
Answer-
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The SEBI may, by an order or for reasons to be recorded in writing, in the interest of
investors or securities market take any of the following measures either pending
investigation or inquiry or on completion of such investigation or inquiry namely:
1) suspend the trading of any security in a recognised Stock Exchange
2) restrain persons from accessing the securities market and prohibit any person
associated with securities market to buy, sell or deal in securities.
3) suspend any office-bearer of any stock exchange or self-regulatory organisation from
holding such position.
4) impound and retain the proceeds or securities in respect of any transaction which is
under investigation.
5) attach, for a period not exceeding 90 days, bank accounts for other property of any
intermediary or any person associated with the securities market in any manner
involved in violation of any of the provisions of this Act.
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Q) SEBI has imposed a penalty of Rs 25 crore on Sunset Company Ltd. However, due
to problem of liquidity, the company is unable to pay the amount of penalty. Explain,
how the amount can be recovered under the provisions of SEBI Act, 1992. (4 marks)
Answer-
Recovery of amount by Adjudicating officer if any person fails to pay the penalty Recover
from such person the amount by one or more of the following modes, namely:
(a) attachment and sale of the person’s movable property;
(b) attachment of the person’s bank accounts;
(c) attachment and sale of the person’s immovable property;
(d) arrest of the person and his detention in prison;
(e) appointing a receiver for the management of the person’s movable and immovable
properties.
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Q) Under what circumstances and how the recovery officer will proceed to recover
the amount of penalty etc. imposed by adjudicating officer under the SEBI Act, 1992?
(4 marks)
Answer-
1) The SEBI Act, 1992 deals with recovery of the amount of Penalty by a Recovery Officer.
If a person-
 fails to pay the penalty imposed under this act, or
 fails to comply with any direction of SEBI for refund of monies, or
 fails to comply with a direction of disgorgement order issued under Section 11B, or
 fails to pay any fees due to SEBI, the Recovery Officer may draw up under his signature
a statement in the specified form specifying the amount due from the person.
2) The Recovery Officer shall proceed to recover from such person the amount specified in
the certificate by one or more of the following modes, namely:
a) attachment and sale of the person's movable property;
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b) attachment of the person's bank accounts;
c) attachment and sale of the person's immovable property;
d) arrest of the person and his detention in prison;
e) appointing a receiver for the management of the person's movable and immovable
properties.
Q) M/s. XYZ company Ltd. aggrieved by the decision of Adjudicating Officer under the
SEBI Act, 1992 moved to civil court to contest the case. Is the action of the company
correct in light of SEBI provisions? Give your views and suggest to the management
the action to be initiated by XYZ Ltd. (4 marks)
Answer-
The SEBI Act provides that no civil court shall have jurisdiction to entertain a suit or
proceeding in respect of any matter in which an adjudicating officer is appointed under the
Act or SAT is empowered by or under the Act to determine and no injunction shall be
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granted by any court or other authority in respect of any action taken or to be taken in
pursuance of any power conferred by or under the SEBI Act, 1992. Therefore, the action
taken by XYZ Company Limited isn’t correct as it has to move the case before SAT and not
civil court.
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CHAPTER 3 - DEPOSITORIES
Q) Differentiate between Dematerialization of Rematerialization. (2 marks)

Answer-
No. Dematerialization Rematerialization
1) Conversion from physical form to Conversion from electronic form to physical
Demat form is known as form is known as rematerialization.
dematerialization.
2) An application in form DRF is made to An application in form RRF is made to DP.
DP.
3) Existing physical certificates are New physical certificates are created & issued
cancelled. to investors.
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Q) Depository system works much like a banking system. Comment. (4 marks)
Answer-
 Like a bank holds money on behalf of its customer, a depositary holds securities on
behalf of the investors.
 A bank apart from holding the money on behalf of the customers also deals with funds
transfer & other instructions related to banking services. Likewise, a depository not only
holds securities but also assists the investors in transferring the same.
 All the benefits as it becomes due to the investors are collected by the depositories on
behalf of the investors.
 Like a bank, a depository also maintains a record of its client on daily basis and generates
various reports as are required in this regard.
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Q) Write a note on reconciliation of share capital under SEBI (Depositories &
Participants) Regulations, 2018. (4 marks)
Answer-
 As per SEBI regulations, every listed company is obligated to get an audit known as
Reconciliation of Share Capital Audit.
 Such audit is conducted by a practicing CA or a CS at the end of every quarter.
 The Auditor submits his report with the Company and the company then submits the
same with the stock exchanges where the shares of the company are listed within 21
days from the end of the quarter.
 Such audit is carried out in order to reconcile the shares of a company in physical &
demat form.
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Q) Briefly explain the role of a CS in concurrent audit of depository participant. (5
marks)
Answer-
1. The Practising Company Secretary is responsible for carrying out an audit of all the
depository participants registered with SEBI.
2. The Audit Report is required to be submitted with the depository at quarterly rests.
However, the Audit activity goes on a daily basis. Even if the audit process is
accumulated, is cannot be extended for a period more than 7 days.
3. Amongst others, the auditor shall be responsible for :
KYC of all the clients
Issuance of DIS
Utilisation of DIS
Transfer of securities within the stipulated time
Verification of DIS with actual transaction.
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Q) Dematerialization is the process by which the shares in physical form are held &
converted in the electronic form & are maintained on a highly secured system at the
depository. Comment. (2 marks)
Answer-
Ever since the inception of Depositories Act, 1996, investors started to convert their holding
in demat form. Both NSDL and CDSL have sound proof systems, wherein, all the data is
recorded in secured system. No Physical scrip in existence, only electronic records
maintained by depository. This type of system is cost effective and simple and has been
adopted in India. Thus it is rightly stated that Dematerialization is the process by which the
shares in physical form are held & converted in the electronic form & are maintained on a
highly secured system at the depository.
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Q) Online trading of corporate securities has originated the depository service in
capital market. (4 marks)
Answer-
Previously trading in the market used to be in physical form. With the advent in technology,
physical form of trading was transformed into electronic form of trading, which is called as
online trading and the need was felt to see the same transformation from physical form of
securities into electronic form & thats how depository services were introduced in the Act.
At present more than 90% securities of listed Companies are traded in electronic form.
Q) ‘‘Depository is to indemnify loss caused to the beneficial owner due to the negligence
of the depository or the depository participant’’.
Answer-
1. As per Sec 16 of Depositories Act 1996, it is the liability of the depository to make good the
loss caused to the beneficial owner due to negligence of the depository.
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2. Where the loss due to negligence of DP, it has to be indemnified by the depository, the
depository shall have a right to recover the same from DP.
Q) Write notes on the following :

i. Dematerialization
ii. Clearing Corporation (4 marks)
Answer-
i. Dematerialization
a. Dematerialization is a process by which a client can get physical certificates converted
into electronic form.
b. An investor intending to dematerialize its securities needs to have an account with DP.
c. The client has to deface and surrender the certificates registered in its name to DP.
d. After intimating to depository, the DP sends the securities to the RTA/Company.
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e. The company checks the authenticity of request and communicates the same to
depository.
f. Depository credits the investor’s account with DP and the same is communicated to
the client.
ii. Clearing Corporations
a) A Clearing corporations fulfill the main obligation of ensuring transactions are made
in a prompt and efficient manner.
b) It is an organization associated with the exchange to handle the confirmation, delivery
and settlement of transactions.
For example – IF A & B agrees to enter into a financial transaction of sale and purchase
of securities, a clearing corporation will act as a middle man facilitating the purchase on
one hand and the sale on the other.
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Q) Explain the following :
(i) Dematerialization
(ii) Fungibility (4 marks)
Answer-
i. Dematerialization :
 It is a process of conversion of physical share certificates into electronic form.
 The investors can dematerialize only those shares certificate that are already registered
in their name and belong to the list of securities admitted for dematerialized at the
depositories.
 An Investor will have to first open an account with a Depository Participant and then
request for Dematerialization of his share certificate through the Depository Participant
so that the dematerialized holdings can be credited into that account.
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ii. Fungibility:
 Fungibility means interchangeable or exchangeability. All securities held in
depository shall be fungible i. e. all certificates of the same security shall become
interchangeable & that investor loses the right to obtain the exact certificate he
surrendered at the time of entry into depository.
 If a security or commodity is fungible it is perfectly interchangeable with any other of
the same type and class securities or commodities. Most financial securities are
fungible. A share in a particular company is exactly the same as another share in the
same company. Fungibility is the property of a good or a commodity whose individual
units are capable of mutual substitution.

i. Concurrent Audit
ii. Models of Depository (4 marks)
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Answer-
i. Concurrent Audit:
 It is applicable on the depository of NSDL.
 The audit is performed by practicing CA, CS or internal auditor.
 The concurrent auditor should conduct the audit in respect of all accounts opened, DIS
issued and control and verification of DIS.
 The audit shall be completed within the next working day and if not then within a week.
ii. Models of depository:

 Dematerialization, wherein, there is no physical scrip in existence as neither the
individual owns the shares nor the depository keeps scrips. The depository maintains the
electronic ledger of the securities under his control.
 Immobilization, wherein the physical scrips are held in depository vaults, supporting the
book entry records kept on the computer.
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Q) In depositories establishment of connectivity with NSDL and CDSL is there. (4
marks)
Answer-Establishment of connectivity with both the depositories NSDL and CDSL is there in
depositories-
1) SEBI has been issuing circulars regularly giving the list of companies which have
established connectivity with both the depositories and have become eligible for shifting
from Trade to trade settlement (TFTS) to Normal rolling settlement.
2) It has now been decided that henceforth the following procedure shall be followed for the
purpose of shifting of trading in securities from TFTS to normal rolling settlement.-
 A company after establishment of connectivity with both the depositories, shall
approach the stock exchanges having nation wide terminals for shifting the trading of
its securities from TFTS to rolling settlement.
 The stock exchanges shall verify the establishment of connectivity of the company of
the company with both the depositories.
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3) Stock exchanges are directed to bring the provisions of this circular to the notice of the
companies listed on the stock exchange and also disseminates the same on the website.

Eligibility for Depository Services (4 marks)
Answer-
Eligibility for Depository Services:
Any company or other institution to be eligible to provide depository services must:
 be formed and registered as a company under the Companies Act, 2013
 be registered with SEBI as a depository under SEBI Act, 1992.
 has framed bye-laws with the previous approval of SEBI.
 has one or more participants to render depository services on its behalf.
 has adequate systems and safeguards to prevent manipulation of records and
transactions to the satisfaction of SEBI.
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 complies with Depositories Act, 1996 and SEBI (Depositories and Participants)
Regulations, 2018
 meets eligibility criteria in terms of constitution, network, etc.
Q) “The holding of securities in dematerialise form is not mandatory”. Explain the

relevant provisions with reference to the Depositories Act. (4 marks)
Answer-
1) Depositories Act, 1996 gives the option to investors to receive securities in physical form
or in the dematerialized mode.
2) In case of fresh issue of securities, all securities issued have to be in dematerialized form.
3) According to the Depositories Act, 1996, an investor has the option to hold securities either
in physical or electronic form. Part of holding can be in physical form and part in demat
form. However, SEBI has notified that settlement of market trades in listing securities
should take place only in the demat mode.
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Q) Briefly explain the procedures followed by the Depository Participants with regard
to issuance of Delivery Instruction Slips (DIS) and verification of the same. (4 marks)
Answer-
1. Issuance of Delivery Instruction Slips (DIS)
The procedure followed by the Participants with respect to:
a) Issuance of DIS booklets including loose slips.

b) Existence of controls on DIS issued to Clients including pre-stamping of Client ID
and unique pre-printed serial numbers.
c) Record maintenance for issuance of DIS booklets (including loose slips) in the back
office.
2. Verification of Delivery Instruction Slips (DIS)
The procedure followed by the Participants with respect to:
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a) Date and time stamping (including late stamping) on instruction slips.
b) Blocking of used/reported lost/stolen instruction slips in back office system/
manual record.
c) Blocking of slips in the back office system/manual record which are executed in
DPM directly.
d) Two step verification for a transaction for more than `5 lakh, especially in case of off
market transactions.
e) Instructions received from dormant accounts.
Q) X, a shareholder of a listed company holding 1,000 equity shares of ₹100 each on

1st January, 2019 in physical form, wants to transfer to another shareholder Y on 1st
May, 2019. X is also holding commercial paper & certificate of deposits of ₹50,000 &
₹20,000 respectively. As a company secretary of a company, write a note on:
1)Whether X can transfer his shares to Y in physical form?
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2)Are commercial paper & certificate of deposits available for dematerialisation
at depository? (3+2=5 marks)
Answer-
1) As per the mandate of market regulator SEBI, only shares in the electronic form can be
sold or transferred at the stock market with effect from 1 April 2019. Therefore, in the
given case X cannot transfer his shares to Y in physical form.
2) Investments in shares and debentures can be held in dematerialised form in a
depository. All types of equity shares, preference shares, bonds, debentures, commercial
papers, certificate of deposit, government securities, etc can now be converted into demat
form on an application to the DP for conversion of such securities.
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Q) The stock exchange wants to transfer the duties and functions of a clearing house to
a clearing corporation. Is it possible to do so? Explain the purpose if any, it serves. (4
marks)
Answer-
1) The stock exchange may, with the prior approval of SEBI, transfer the duties and functions
of a clearing house to clearing corporation, for the purpose of –
>The periodical settlement of contracts and differences thereunder;
>The delivery of and payment for securities;
>Any other matter incidental to, or connected with, such transfer.
2) Every clearing corporation shall, for the purpose of transfer of duties and functions of a
clearing house to a clearing corporation make bye-laws and submit the same to the SEBI.
3) SEBI on being satisfied that it is in the interest of the trade and also in the public interest
to transfer the duties and function of a clearing house to a clearing corporation shall grant
the approval to the byelaws sent to it.
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Q) Ratina Ltd., a listed company has to submit the audit report to the Stock Exchange
under SEBI (Depositories and Participants) Regulations, 2018. You being a practicing
company secretary narrate the activities to be covered in the Audit Report. (5 marks)
Answer-
The following are the activities to be covered in an Audit Report:
>The scope and Objectives
>Results of Audit
>Recommendations and Action plans
>Conclusions
>Opinions
>Acknowledgment of satisfactory performance.
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CHAPTER 4 - SEBI (ICDR) REGULATIONS, 2018
Q) Short a note on Market Capitalisation. (3 marks)

Answer-
Market capitalization means the total value or worth of a listed company. It is calculated by
multiplying total number of shares offered by company with its current market price. It
helps an investor in identifying how much % of equity he holds in a company. It may be
arrived by the following formula.
Market Capitalization = Total no. of shares X listed price per share
Q) Book building process of determining price of a public issue is preferred in case of

100% while fixed price process is used for FPO. Comment. (4 marks)
Answer-
In case of an IPO under book building method, the investors are given an opportunity to
decide the price of securities. Such method is preferable because the investors are the ones
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who invest money in the shares of the company. So the value they think appropriate, they
make an application for. Thus, for an IPO, book-building method is more preferred.
In case of FPO, the Company’s shares are already quoted at a stock exchange. Therefore,
there is no need for price discovery. Thus, mostly in case of FPO, an issuer company prefers
issuing shares at a fixed price.
Q) Public issue aims at selling & marketing of shares to the public. Comment.
(4 marks)
Answer-
SEBI (ICDR) Regulations, 2018 requires every unlisted company to issue and approve its
draft offer document from SEBI & ROC. As a part of the issue, the Company holds various
seminars, investors meet, print & electronic media tools to create awareness about the
company & its shares. This in turn helps the investors to connect to the brand equity of the
company & therefore, public issue aims at selling and marketing of shares to the public.
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Q) Explain promoters contribution and lock-in period under SEBI (ICDR) Regulations,
2018. (4 marks)
Answer-
1. In case of a public issue of unlisted company as per SEBI (ICDR) Regulations, 2018
promoters shall subscribe to a minimum of 20% of post issue paid up share capital of
the company.
2. In case of public issue of listed company as per SEBI (ICDR) Regulations, 2018
promoters shall subscribe to the extent of 20% of the proposed issue or 20% of the
post issue capital.
3. In case of a composite issue of listed company as per SEBI (ICDR) Regulations, 2018
promoters shall subscribe 20% of the proposed public issue or 20% of the post-issue
capital.
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4. Any subscription made upto 20% shall be locked in for a period of 18 months & any
subscription beyond 20% shall be locked in for a period of 6 months beginning from
the date of allotment.
5. During lock-in period, inter-se transfer of shares amongst the promoters is allowed.
Q) Write a short note on Draft offer Document (4 marks)

Answer-
“Draft Offer document” means the offer document in draft stage. The
draft offer documents are filed with SEBI, atleast 30 days prior to the filing of the Offer
Document with ROC/SEs. SEBI may specifies changes, if any, in the Draft Offer Document
and the Issuer or the Lead Merchant banker shall carry out such changes in the draft offer
document before filing the Offer Document with ROC/SEs. The Draft Offer document is
available on the SEBI website for public comments for a period of 21 days from the filing of
the Draft Offer Document with SEBI.
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Q) Pricing under SEBI (ICDR) Regulations, 2018. (4 marks)
Answer-
(1) There are two types of price i.e., Fixed Price and Floor Price/Price Band. The issuer can
mention a price in the prospectus (in case of a fixed price issue) and floor price or price
band in the red herring prospectus (in case of a book built issue) and determine the price
at a later date before registering the prospectus with the Registrar of Companies.
(2) The issuer should announce the floor price or price band at least 5 working days before
the opening of the bid (in case of an initial public offer) and at least 1 working day before
the opening of the bid (in case of a further public offer), in all the newspapers in which
the pre issue advertisement was released.
(3) The cap on the price band shall be less than or equal to one hundred and twenty percent
of the floor price.
4) The company and the lead merchant banker, however, are required to give full disclosure
of the parameters which they had considered while deciding the issue price.
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Q) Write a short note on due diligence certificate. (4 marks)
Answer-
- Due Diligence includes all the activities that are connected with evaluating a proposal. In
relation to public issue of securities, due diligence is carried out by a merchant banker.
- The Lead Merchant Banker is responsible for verification of the contents of a prospectus
or the letter of offer in respect of an issue of securities and reasonableness
- He submits to SEBI at least 2 weeks prior to the opening of issue for subscription, a due
diligence certificate in the prescribed form.
- In process of due diligence, the Merchant Banker examines various documents including
those relating to litigation like commercial disputes, patent disputes, disputes with
collaborators etc. and also discuss with the company its directors and other officers and
other agencies on matters including objects of the issue, projected profitability, price
justification etc. before giving the Due Diligence Certificate.
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Q) Short note on Basis of Allotment. (4 marks)
Answer-
As per SEBI (ICDR) Regulations, 2018, the company does the allotment against application
only.
1) In case if the issue is under subscribed but it has attracted application upto 90% full
allotment shall be done to all the applicants.
2) In case if the issue is over subscribed, the allotment shall be done on a proportionate
basis.
3) In case of an IPO under book building route, the investors are bound to make an
application within the range of Rs. 10,000 to 15,000.
4) The company while giving offer shall ensure that the application has been submitted in
lots and the size of each lot shall range between Rs. 10,000 to 15,000
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Example : If the price bank in case of IPO is Rs. 80 to 100 then the size of one lot may be 150
shares i.e. on the lower band its value is Rs. 12,000 and on the upper side, its value is Rs.
15,000.
Q) Short note on issue opening date. (3 marks)

Answer-
1) In case of fixed price issue the issue shall be completed within a period of 12 months
from the date of issuance of observation letter by SEBI.
2) In case of book building method the issue shall be completed within 3 months
succeeding the month in which draft offer document was approved by SEBI.
3) If the company fails to begin the issue within stipulated time period, it shall have to file
fresh offer document with SEBI for approval.
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Q) PAN has to be the sole identifier number for all the transactions in securities
market. (2 marks)
Answer-
While opening a demat an investor has to fulfill KYC norms which includes submission of
PAN Card. Now since 100% securities are issued in demat form it is mandatory for an
investor in have PAN. Thus it has become the sole identifier number for all the transactions
in securities market.
Q) What is Book Building? What is the difference between fixed price and book
building issue. (5 marks)
Answer-
Book building in case of public issue means the price discovery of the issue price be done by
investors himself in such issues the company offers price bank instead of fixed price.
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No. Fixed Price Book Building
1) The prices are fixed by company Prices are decided by investors
2) Only one price is offered to the investors Price band is offered to investors
3) Money is called in installments Money is called at once.
4) There is no categorization of investors Investors falls in the following
categories QIB’s, HNI’s RII’s.
Q) M/s Highspeed Ltd. manufacturing a car components for leading car manufacturer.
Its public issue of ` 500 crore was fully subscribed. The public issue money ought to be
utilized for setup an assembly-line for the existing business. Out of ` 500 crore, the
company spent ` 400 crore for assembly-line. The management consultant, hired for
business Process re-engineering has suggested to invest balance amount to setup bike
components manufacturing unit. You, being company secretary of the company, advise
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on the opinion of management consultant by referring provisions of SEBI Guidelines.
(5 marks)
Answer-
a. A Company shall not, vary the objects for which the prospectus was issued, except subject
to approval of shareholders in GM by way of special resolution.
b. The dissenting shareholders who have not agreed to the proposal to vary the terms or
objects of contract shall be given an exit opportunity.
c. By applying the above provisions to the given case, the company can use funds as
suggested by the management consultant provided they take the approval of shareholders
by SR & give exit opportunity to dissenting shareholders.
Q) The financial data of Natural Energy Limited as on 31st March, 2018 are as under :
i. Authorised Share Capital : ` 700 crore
ii. Paid-up Capital : ` 300 crore
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iii. Free Reserves : ` 800 crore
The company has pending convertible debenture of ` 150 crore, due for conversion in
financial year 2018-19. The company proposes to issue bonus shares in the ratio of 1:
1 after conversion of debenture. You being a company secretary, advise on the
procedure to be followed by referring SEBI regulations. (5 marks)
Answer-
The procedure for issue of bonus shares by a listed company is as follows:
i. No company shall, pending conversions of fcds/partly convertible debentures, issue any
shares by way of bonus unless similar benefit is extended to the holders of fcds/pcds,
through reservation of shares in proportion to such convertible part of fcds or pcds.
ii. Bonus issue is capitalization of profit. Bonus shares should be issued from free reserves
created out of genuine profits or share premiums collected.
iii. Any reserve created through revaluation of fixed assets cannot be capitalized.
iv. At the time of issuing bonus shares, there should not be partly paid up shares
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v. There should not be any default on the part of the company in payment of statutory
dues to employees such as provident fund, gratuity, bonus, etc. Similarly, there should
not be default in payment of interest on fixed deposits or interest or principal amount
thereof.
vi. Hold a board meeting and get the proposal approved by the BOD.
vii. The resolution to be passed at the GM should also be approved by the BOD in BM.
viii. Hold a GM and get the resolution for issue of bonus shares passed by the members.
ix. Fix the record date and prepare the list of members entitled to bonus shares on basis of
ROM.
x. Ensure that the allotment is made within 15 days of the date on which BOD approved
the bonus issue.
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Q) ‘‘Fixed price process is different from book building process as regards to issue of
securities’’. (4 marks)
Answer-
1. In fixed price issue price at which securities are offered is known in advance to the investor.
2. Demand for the securities offered is known only after closure of the issue.
3. Payment is usually made at the time of subscription wherein refund is given after allocation.
Q) Girdhar (Retail Individual Investor) had applied for Initial Public Offer of Six Sigma
Ltd. through Applications Supported By Block Amount (ASBA) process. The Self
Certified Syndicate Banks (SCSBs) failed to make bids in the Stock Exchange system
even after the amount has been blocked. The issue was oversubscribed. Based on the
SEBI guidelines/circulars, answer the following :
(i) What are the factors that have been taken into account by SEBI for finalization of
uniform policy for calculation of the minimum fair compensation ? (4 marks)
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Answer-
i) A need has been felt to have a uniform policy for calculation of minimum compensation
payable to investors. While doing so, the following factors have been taken into account:
a) The opportunity loss suffered by the investor due to non-allotment of shares;
b) The number of times the issue was oversubscribed in the relevant category;
c) The probability of allotment; and
d) The listing gains if any on the day of listing.
Q) Define “Dissenting shareholders”. What are the conditions for applicability of Exit
offers by dissenting shareholders according to SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018? (4 marks)
Answer-
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i. “Dissenting shareholders” means those shareholders who have voted against the
resolution for change in objects or variation in terms of a contract, referred to in the
prospectus of the issuer;
ii. It is presumed that investors in the secondary market take an informed decision of
investing in the equity shares of the company after doing a full background check on the
same. This includes the objects of the company for which the company has raised money
from the market. Thus, investors who invested in the company through secondary market
should also be given a fair opportunity of exiting the company in case they do not agree
to the change in objects of the company. Therefore investors who are holding shares as
on the date on which the proposal to change the objects becomes public should be
allowed to exit under this provision.
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Q) Startups companies have now come up with an Initial Public offer with relaxation of
many conditions applicable for Initial Public Offer. In this context, briefly, explain
about the “Institutional Trading Platform (ITP)” and eligibility for listing. (4 marks)
Answer-
1. The institutional trading platform (ITP) is a new window on stock exchanges where e-
commerce, data analytics, bio-technology and other startups can list and trade on their
shares.
2. To encourage early-stage ventures to list here, SEBI has relaxed many of the more
stringent rules governing IPOs. On the ITP, promoters‟ capital will be locked in only for
six months, against the three year lock-in for normal IPOs. There is also no need to make
elaborate disclosures on how IPO funds will be used.
3. Following is the eligibility criteria for listing on Innovators Growth Platform:
(1) An issuer which is intensive in the use of technology, information technology,
intellectual property, data analytics, bio-technology or nano-technology to provide
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products, services or business platforms with substantial value addition shall be
eligible for listing on the innovators growth platform, provided that as on the date of
filing of draft information document or draft offer document with the Board, as the
case may be, twenty five per cent of the pre-issue capital of the Issuer Company for
at least a period of two years, should have been held by:
i. Qualified Institutional Buyers;
ii. Family trust with net-worth of more than five hundred crores rupees, as per the
last audited financial statements;
iii. Accredited Investors for the purpose of Innovators Growth Platform; IV. The
following regulated entities:
a) Category III Foreign Portfolio Investor;
b) An entity meeting all the following criteria:
i. It is a pooled investment fund with minimum assets under management
of one hundred and fifty million USD;
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ii. It is registered with a financial sector regulator in the jurisdiction of
which it is a resident;
iii. It is resident of a country whose securities market regulator is a signatory
to the International Organization of Securities Commission’s Multilateral
Memorandum of Understanding or a signatory to Bilateral Memorandum
of Understanding with the Board;
iv. It is not resident in a country identified in the public statement of
Financial Action Task Force as:
a) A jurisdiction having a strategic Anti-Money Laundering or
Combating the Financing of Terrorism deficiencies to which counter
measures apply; or
b) A jurisdiction that has not made sufficient progress in addressing the
deficiencies or has not committed to an action plan developed with
the Financial Action Task Force to address the deficiencies.
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(2) An issuer shall be eligible for listing on the institutional trading platform if none of the
promoters or directors of the issuer company is a fugitive economic offender.
Q) “A company can raise funds from the primary market through different methods,
different types of issues and by means of offer document and red herring prospectus”.
Enumerate. (4 marks)
Answer-
A primary market is where a companies issue a new security, not previously traded on any
exchange directly to investors. A company offers securities to the general public to raise funds
to finance its long term goals.
 Methods of raising funds from primary market are:
1. Public issue
2. Rights issue
3. Preferential allotment
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 Types of issues :
1. IPO - It is the initial public offering of shares by an unlisted company.
2. FPO – Follow on public offering is the public issue of shares to investors at large by a
publicly listed company.
 Prospectus:
A prospectus is a document issued by the company inviting the public and investors for
the subscription of its securities.
Types of prospectus:
i. Deemed prospectus: documents containing offer for sale of shares or debentures
shall be included within the definition of term prospectus and shall be deemed as
prospectus by implication of law.
ii. Abridged prospectus: it means a memorandum containing such salient features of a
prospectus as specified by SEBI. It go together with the application form of public
issues.
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iii. Shelf prospectus : prospectus issued by banks , financial institutions by issuing one
prospectus they can go for multiple issue of shares.
iv. Red Herring prospectus: it is a prospectus that does not have details of either price
or quantum of shares being offered. This means instead of price the upper and lower
band are disclosed.

Fast Track Issue (4 marks)
Answer-
Fast Track issue:
 The fast track route of fund raising is an alternative available for companies to access
public funds by way of further capital offerings.
 Such companies are not required to file draft offer document with SEBI and Stock
Exchanges.
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 Already Listed companies are fully complaint and all the requisite information about such
companies is available in public domain.
 The equity shares of the issuer have been listed on any stock exchange for a period of at
least three years immediately preceding the reference date;
 Entire shareholding of the promoter group of the issuer is held in dematerialised form on
the reference date;
 The average market capitalisation of public shareholding of the issuer is at least one
thousand crore rupees in case of public issue and two hundred and fifty crore rupees in
case of rights issue;
Q) Promoter’s contribution to be brought in before public issue opens. (4 marks)

Answer-
i. Promoter’s contribution to be brought in before public issue opens. Promoters shall
bring in the full amount of the promoters‟ contribution including premium at least one
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day prior to the issue opening date which shall be kept in an escrow account with a
Scheduled Commercial Bank and the said contribution/ amount shall be released to the
company along with the public issue proceeds.
ii. However, where the promoters’ contribution has been brought prior to the public issue
and has company, the company shall give the cash flow statement in the offer document
disclosing the use of such funds received as promoters‟ contribution.
iii. If the promoters minimum contribution exceeds `100 crores, the promoters shall bring
in 100 crores before the opening of the issue and the remaining contribution shall be
brought in by the promoters in advance on pro-rata basis before the calls are made on
public.
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Q) Hope Ltd. makes an issue worth ₹125 crore to the public, out of which ₹20 crore
was for sale to existing shareholders. Explain the provisions regarding the utilisation
of proceeds and state whether any exception is available. (5 marks)
Answer-
1) SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, if the issue size
excluding the size of offer for sale if the issue size excluding the size of offer for sale. In
the given case, the issue exceeds ₹100 crore i.e ₹5 crore excluding ₹20 crore by selling
shareholders. Hence, a monitoring agency should be appointed to track the issue
proceeds.
2) Further the monitoring agency shall submit its report to the issuer in the format specified
in the ICDR Regulations, 2018 on a quarterly basis, till at least 95% of the proceeds of the
issue excluding the proceeds raised for general corporate purposes, have been utilised.
3) The Board of Directors and the management of the issues shall provide their comments
on the findings of the monitoring agency.
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4) The issuer shall, within 45 days from the end of each quarter, publicly disseminate the
report of the monitoring agency by uploading the same on its website as well as
submitting the same to the stock exchange(s) on which its equity shares are listed.
5) However, the above mentioned rule is not applicable if the issuer is a bank or a public
financial institution or an insurance company.
Q) Actnow Edge Limited, an unlisted company, is in the process of expanding its

business. For expansion, it needs funds of Rs 200 crore. For raising Rs 200 crore, a
company has decided to bring an initial public offer through book building
mechanism. It has fixed a price band of Rs 500 – Rs 600. Referring to the provisions
of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, advise the
company on the following matters:
(i) What should be minimum application value and minimum number of equity
shares in one application?
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(ii) What will be minimum sum payable on application?
(iii) What should be minimum time period for which issue should remain open for
subscription? (5 marks)
Answer-
1. Application and Minimum Application Value
i) The issuer shall stipulate in the offer document the minimum application size in terms
of number of specified securities which shall fall within the range of minimum
application value of ten thousand rupees to fifteen thousand rupees.
ii) Thus, in the given case Actnow Edge Limited should fix the minimum number of
shares in one application in such a manner that minimum application value should be
between the limit of Rs 10,000 to Rs 15,000. Hence, minimum number of shares in one
application will be:
- At lower level of price band: 20 Shares (Rs 10000 / Rs 500) & 30 Shares ( Rs 15000
/ Rs 500)
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- At higher level of price band: 17 Shares (Rs 10000 / Rs 600) & 25 Shares (Rs 15000
/ Rs 600)
2. The minimum sum payable on application per specified security shall be at least twenty-
five per cent of the issue price.
3. Period of Subscription:
i) An IPO shall be kept open for at least three working days and not more than ten
working days.
ii) In case of a revision in the price band, the issuer shall extend the bidding (issue)
period disclosed in the red herring prospectus, for a minimum period of three
working days.
iii) In case of force majeure, banking strike or similar circumstances, the issuer may, for
reasons to be recorded in writing, extend the bidding (issue) period disclosed in the
red herring prospectus (in case of a book building issue) or the issue period disclosed
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in the prospectus (in case of a fixed price issue), for a minimum period of three
working days.
Q) Karuna Ltd made an Initial Public Offer (IPO) of equity shares in March, 2020 and
was granted listing on stock exchange. Soon, thereafter, the promoters of the
company started contemplating a change in the objects clause mentioned in the offer
document. To give effect to the same, the company convened an extra-ordinary
general meeting of shareholders in April 2020. Though the requisite resolution was
passed by the company, there were, nevertheless, the dissenting shareholders too.
The promoters decided to provide an exit opportunity to the dissenting shareholders.
In light of the above, Answer the following:
(i) Who are the dissenting shareholders?
(ii) What is the eligibility of shareholders for availing the exit offer?
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(iii) Enumerate the conditions required to be complied with to give effect to this
recourse which was availed by the promoters.
(iv) How the exit offer price will be determined? (7 marks)
Answer-
(i) “Dissenting Shareholders” means- those shareholders who have voted against the
resolution for change in objects or variation in terms of a contract, referred to in the
offer document of the issuer.
(ii) Only those dissenting shareholders of the issuer who are holding shares as on the
relevant date shall be eligible to avail the exit offer.
(iii) Conditions for Exit Offer: The promoters or shareholders in control of Karuna Ltd shall
make the exit offer to the dissenting shareholders, in cases only if a public issue has
opened after April 1, 2014:
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a. The proposal for change in objects or variation in terms of a contract, referred to in
the offer document is dissented by at least 10 per cent of the shareholders who
voted in the general meeting; and
b. The amount to be utilized for the objects for which the offer document was issued
is less than 75 % of the amount raised (including the amount earmarked for general
corporate purposes as disclosed in the offer document).
(iv) The “exit price' payable to the dissenting shareholders shall be the highest of the
following:
a. The volume-weighted average price paid or payable for acquisitions, whether by the
promoters or by any person acting in concert with them, during the fifty-two weeks
immediately preceding the relevant date;
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b. The highest price paid or payable for any acquisition, whether by the promoters or
by any person acting in concert with them, during the twenty-six weeks immediately
preceding the relevant date;
c. the volume-weighted average market price of such shares for a period of sixty
trading days immediately preceding the relevant date as traded on the recognised
stock exchange where the maximum volume of trading in the shares of the issuer are
recorded during such period, provided such shares are frequently traded;
d. where the shares are not frequently traded, the price determined by the promoters
or shareholders having control and the lead manager(s) taking into account
valuation parameters including book value, comparable trading multiples, and such
other parameters as are customary for valuation of shares of such issuers.
Q) Turnkey Ltd. is a listed company, manufacturing auto ancillary components one of

the Director of the company is a fugitive offender. The company wants to bring
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further public offer (FPO). You being the company secretary of the company, advise
whether the company can issue FPO. State the general conditions and the eligibility
requirements for FPO under SEBI Regulations. (8 marks)
Answer-
1) An issuer shall not make a further public offer:
>If the issuer, any of its promoter or promoter group is debarred from accessing the
capital market by SEBI.
>If any of the promoter or director of the issuer is promoter or director of any other
company which is debarred.
>if the issuer or any of its promoter or director is a wilful defaulter
>if any promoter or director of the issuer is a fugitive offender.
>if there are any outstanding convertible securities.
Therefore, applying the above provision to the given case, Turnkey Ltd. whose One of the
Director of the company is a fugitive offender, shall not make a further public offer.
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2) General conditions for FPO as per the SEBI (ICDR) Regulations:
> An application is made for listing of specified securities to one or more RSE & Choose
one of the Stock Exchange as designated stock exchange.
>an agreement is entered into with a depository for dematerialization of specified
securities already issued.
>all the specified securities held by the promoters are in dematerialized form prior to
the filing of the offer document.
>all its existing partly paid-up shares have either been fully paid up or have been
forfeited.
>The issuer should make firm arrangements of finance through verifiable means
towards 75% of the stated means of finance excluding the amount to be raised through
the proposed public issue.
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>The amount for general corporate purposes as mentioned in objects of the issue in the
draft offer document and the offer document shall not exceed 25% of the amount being
raised by the issuer.
3)Eligibility norm for FPO: In case the company has changed its name within the last one
year, at least 50% of the revenue for the preceding 1 full year is earned by the company from
the activity suggested by the new name.
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CHAPTER 5 - SEBI (LODR) REGULATIONS, 2015
Q) Write a detailed note on clause 33 of the listing agreement. (10 marks)

Answer-
Clause 33 of Listing Agreement :
1) Clause 33 deals with approval & publication of Audited / unaudited financial results on
a quarterly basis.
2) Every company shall within 30 days before the end of financial year shall decide,
whether to publish audited / unaudited financial statements and the company having
subsidiaries or associates may also have a choice between standalone or consolidated
financial results.
3) The company shall publish Financial Results as at the end of the quarter, previous
quarter, corresponding quarter of the last FY, year to date financial results upto current
quarter & that of the last year & audited results of the last financial year.
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4) The said financial results are to be published within 45 days & 60 days from the end of
the quarter for the first 3 quarters & the last quarter respectively.
5) Every company shall publish a notice in English & vernacular language in newspaper &
a copy of the same be filed with the SE’s atleast 7 days prior to such Board Meeting in
which the financial results are to be considered.
6) Within 15 minutes from the conclusion of the meeting, the fact of approval of financial
results should be intimated to the SE’s & the same should be published in English &
Vernacular Language newspapers within 48 hours of the meeting.
7) Such financial results will be reviewed by the audit committee, approved by the board
& be signed by the MD or WTD of the company.
8) At the end of every 6 months a statement of assets & liabilities shall also be published.
9) Any variation in the Net profits or extra-ordinary items to an extent of Rs. 10 lakhs or
10%, whichever is higher between the accounts prepared by the company & the one
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subject to limited review by the auditors be intimated to the stock exchanges alongwith
reasons for such deviation.
10) Limited Review Report in case of unaudited financial results shall be submitted with the
SE’s within 60 days from the end of each quarter.
Q) Discuss briefly the composition, role & responsibilities of Audit Committee under
listing agreement. (8 marks)
Answer-
All listed companies shall constitute a Committee of Directors to be known as ‘Audit
Committee of Directors’ to look into accounting, financial and audit aspects of a company.
Audit Committee of Directors shall consist of at least three directors, out of which at least
2/3rd shall be independent directors. All members of Audit Committee shall be financially
literate and at least one member shall have accounting or related financial management
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expertise. The Chairman of the Audit Committee shall be an independent director and he
shall present himself at the AGM to answer the shareholders’ queries.
The role of the audit committee shall include the following:

 Oversight of the company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.
 Recommending to the Board, the appointment, re-appointment and, if required, the
replacement or removal of the statutory auditor and the fixation of audit fees.
 Approval of payment to statutory auditors for any other services rendered by the
statutory auditors.
 Reviewing, with the management, the annual financial statements before submission to
the board for approval, with particular reference to :
a) Matters to be included in the Director’s Responsibility Statement to be included in the
Board’s report;
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b) Changes, if any, in accounting policies and practices and reasons for the same;
c) Major accounting entries involving estimates based on the exercise of judgement by
management.
d) Significant adjustments made in the financial statements arising out of audit findings;
e) Compliance with listing and other legal requirements relating to financial statements;
f) Disclosure of any related party transactions;
g) Qualifications in the draft audit report.
 Reviewing, with the management, the quarterly financial statements before submission
to the board for approval.
 Reviewing, with the management, the statement of uses / application of funds raised
through an issue (public issue, rights issue, preferential issue, etc.), the statement of
funds utilized for purposes other than those stated in the offer document / prospectus /
notice and the report submitted by the monitoring agency monitoring the utilization of
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proceeds of a public or rights issue, and making appropriate recommendations to the
Board to take up steps in this matter.
 Review and monitor the auditor’s independence and performance, and effectiveness of
audit process.
 Approval or any subsequent modification of transactions of the company with related
parties.
 Scrutiny of inter-corporate loans and investments.
 Valuation of undertakings or assets of the company, wherever it is necessary.
 Evaluation of internal financial contracts and risk management systems.
Q) Comment on Corporate Governance in relation to securities reforms &

development in our country. (4 marks)
Answer-
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The listed entities which has listed its specified securities on any recognised stock
exchange(s) either on the main board or on SME Exchange or on institutional trading
platform has to comply with certain corporate governance provisions which are specified
in Regulations 17 to 27 & 34(3) of the Listing Regulations. Corporate Governance provisions
were introduced under listing agreement. The main focus of these regulations was to
enhance disclosure norms so that the investors could take sound decisions before investing
in a Company. The second main area was to strengthen the accountability principles i.e, all
those responsible for the affairs of the company shall be answerable to the shareholders for
all the wrongs done. The said measures were taken by introducing independent directors
to the Board of the company.
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Q) Corporate Governance Compliance Certificate. (3 marks)
Answer-
The provisions of Compliance Certificate are covered under listing agreement. The clause
provides that the company shall obtain a certificate from either the auditors or practicing
company secretary regarding compliance of conditions of corporate governance as
stipulated in this clause and annex the certificate with the directors’ report.
Q) Briefly explain the committee positions held by individual under listing

agreement. (5 marks)
Answer-
Under listing agreement contains following committee positions:
1) In identifying the committee position of individual, he can hold upto maximum of 10
committee positions, out of which chairmanships shall not exceed 5.
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2) While considering such position only audit committee and stakeholder relationship
committee shall be taken into consideration.
3) In terms of companies, Pvt. Ltd. Companies, Section 8 Companies, Foreign Company,
committee positions shall be excluded.
Q) A listed company can apply to stock exchange for re-classification of the Promoter’s
holdings as public shareholders under SEBI regulations. Whether following promoters
can apply for re-classification with reference to SEBI regulations ?
a. Promoter is declared as willful defaulter as per RBI guidelines.
b. Promoter is holding 12% of total voting rights in the listed entity.
c. Promoter is acting as CEO of the listed entity.
d. The promoter company has outstanding listing fees only for one year. (5 marks)
Answer-
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As per SEBI (LODR) 2015; Conditions applicable for promoters/ persons belonging to
promoter group to be eligible for reclassification as public:
i. In all cases of promoter reclassification, the promoters seeking reclassification and
persons related to him shall not:
 Together hold more than 10% of the total voting power in the listed entity.
 Exercise control over the affairs of the listed entity directly or indirectly;
 Have any special rights with respect to the listed entity through formal or informal
arrangements including through any shareholder agreement;
 Be represented on the board of directors (including nominee director ) of the listed
entity for a period of 3 years from the date of reclassification ;
 Act as key managerial persons in the listed entity for a period of 3 years from the date
of reclassification;
 Be willful defaulters as defined by RBI
 Be a fugitive economic offender.
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The listed entity shall:
1. Be complaint with the requirement for minimum public shareholding as required under
these regulations.
2. Not have trading in its shares suspended by the stock exchanges.
3. Not have any outstanding dues to the board, stock exchanges or the depositories.
By applying the above conditions to the given cases:
a. Promoters declared as willful defaulters by RBI cannot apply for reclassification.
b. Promoters holding 12% of total voting rights which is more than 10% cannot apply.
c. Promoter is acting as CEO (a key managerial person) cannot apply for reclassification of
their holdings as public shareholders.
d. Promoter Company having outstanding listing fees from 1 year cannot apply.
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Q) For ensuring independence in the spirit of Independent Directors and their active
participation in functioning of the company, SEBI has accepted many
recommendations of Committee setup under the Chairmanship of Shri Uday Kotak and
made amendments in the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015. Explain any four amended provisions related to Independent
Directors. (4 marks)
Answer-
Following are the provisions related to Independent Directors:
1. At least one independent director on the board of directors of the listed entity shall be a
director on the board of directors of an unlisted material subsidiary, whether incorporated
in India or not.
2. The evaluation of independent directors shall be done by the entire board of
directors which shall include –
(a) Performance of the directors; and
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(b) Fulfillment of the independence criteria as specified in these regulations and their
independence from the management
3. Two-thirds of the members of audit committee shall be independent directors.
4. The quorum for a meeting of the nomination and remuneration committee shall be either
two members or one third of the members of the committee, whichever is greater,
including at least one independent director in attendance.
Q) You are the Company Secretary of Sunglow Ltd., which being listed on the Stock
Exchange after an IPO is made by the company. The Managing Director desires to know
about quarterly compliance requirements under listing agreement. Prepare a list of
quarterly compliances as per the listing regulations. (5 marks)
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Answer-
Following are the quarterly compliances for a listed company as per SEBI (LODR):
1. The listed entity shall file with the recognized stock exchange, a statement giving the
number of investor complaints pending at the beginning of the quarter, those received
during the quarter, disposed of during the quarter and those remaining unresolved at the
end of the quarter , within 21 days from end of quarter.
2. The listed entity shall submit a quarterly compliance report on corporate governance in
the format as specified by SEBI from time to time to the recognized stock exchanges, within
15 days from end of quarter
3. The listed entity shall submit to the stock exchanges, a statement showing holding of
securities and shareholding pattern separately for each class of securities, in the format
specified by SEBI from time to time, within 21 days from end of quarter
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4. The listed entity shall submit to the stock exchange a statement of deviation or variation.
The listed entity shall submit quarterly and year-to-date financial results to the stock
exchange, within forty-five days of end of each quarter, other than the last quarter
Q) MCS Ltd. is a listed company with Bombay Stock Exchange Ltd. The Company enters
into related party transactions frequently with MAP Ltd. in which one of director of
MCS Ltd. holds 3% paid up capital of MAP Ltd. MCS Ltd. feels that getting the approval
of Audit Committee for each transaction is time-consuming and delaying the
operational plan. You, being a Company Secretary of MCS Ltd., advise the management
with reference to SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015 for approval of the related party transactions from the Audit Committee for next
one year. Will your answer be different if MAP Ltd. is wholly owned subsidiary of MCS
Ltd. ? (4 marks)
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Answer-
All related party transactions shall require prior approval of the audit committee. Audit
committee shall grant approval subject to the following conditions:
i. The audit committee shall lay down the criteria for granting approval in line with the
policy on related party transactions of the listed entity and such approval shall be
applicable in respect of transactions which are repetitive in nature;
ii. The audit committee shall satisfy itself regarding the need for such approval and that such
approval is in the interest of the listed entity;
iii. The approval shall specify:
a) the names of the related party, nature of transaction, period of transaction, maximum
amount of transactions that shall be entered into,
b) the indicative base price / current contracted price and the formula for variation in
the price if any; and
c) Such other conditions as the audit committee may deem fit:
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iv. The audit committee shall review, at least on a quarterly basis, the details of related party
transactions entered into by the listed entity pursuant to each of the approvals given.
v. Such approvals shall be valid for a period not exceeding one year and shall require fresh
approvals after the expiry of one year.
vi. However, the above provisions shall not be applicable in the following cases where
transactions are entered between a holding company and its wholly owned subsidiary
whose accounts are consolidated with such holding company and placed before the
shareholders at the general meeting for approval.
vii. Hence, if MAP Ltd is wholly owned subsidiary then no approval of audit committee is
required.
Q) Diamond Company Ltd. entered into listing agreement on 21st May, 2018 as per
SEBI (LODR) Regulations, 2015 with Bombay Stock Exchange (BSE). The Company is
planning to conduct a Board Meeting of its Directors on 28th June, 2018 for
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consideration of its Annual Financial Results. Whether the company needs to give prior
intimation to the BSE? Explain the matters for which prior intimation of the Board
Meeting shall be given to the BSE under SEBI Regulations. (4 marks)
Answer-
The matters for which the prior intimation of the Board Meeting shall be given to the BSE
are as follows:
a) Financial Result viz. quarterly, half yearly or annual;
b) Proposal for Buy-back of Securities
c) Proposal for Voluntary delisting by the listed entity from the stock exchange(s)
d) Fund raising by way of FPO, Right Issue, ADR, GDR, QIP, FCCB, Preferential Issue, debt
issue or any other method and for determination of issue price.
e) Declaration/recommendation of dividend
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f) Proposal for declaration of Bonus securities etc.
Q) ‘‘Audit committee may grant omnibus approval for related party transactions.’’
Elucidate the statement. (5 marks)
Answer-
Yes, the Audit Committee may grant omnibus approval for related party transactions
proposed to be entered into by the listed entity subject to the following conditions:
a) the Audit Committee shall lay down the criteria for granting the omnibus approval in
line with the policy on related party transactions of the listed entity and such approval
shall be applicable in respect of transactions which are repetitive in nature;
b) the Audit Committee shall satisfy itself regarding the need for such omnibus approval
and that such approval is in the interest of the listed entity;
c) the omnibus approval shall specify:
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i. the name(s) of the related party, nature of transactions, period of transactions,
maximum amount of transactions that shall be entered into;
ii. the indicative base price / current contracted price and the formula for variation in
the price if any; and
iii. such other conditions as the audit committee may deem fit.
However, where the need for related party transaction cannot be foreseen and
aforesaid details are not available, Audit Committee may grant omnibus approval for
such transactions subject to their value not exceeding rupees one crore per transaction.
d) the Audit Committee shall review, at least on a quarterly basis, the details of related
party transactions entered into by the listed entity pursuant to each of the omnibus
approvals given;
e) such omnibus approvals shall be valid for a period not exceeding one year and shall
require fresh approvals after the expiry of one year.
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Q) You are the Company Secretary of Fortune India Limited, a listed company on the
leading Stock Exchange. Your Managing Directors desires a list of yearly compliances
under the listing regulations. Briefly list-out the yearly compliances. (5 marks)
Answer-
Yearly compliances as per the SEBI(LODR) Regulations, 2015:
1. REGULATION 14- ANNUAL LISTING FEES: The listed entity shall pay all such fees or
charges as applicable to recognised stock exchange in the manner specified by SEBI
within 30 days from the end of FY.
2. REGULATION 33(3)- FINANCIAL RESULTS: The listed entity shall submit annual audited
standalone financial results along with audit report and statement on impact of audit
qualifications applicable only for audit report with modified option to the stock exchange
within 60 days from the end of the FY.
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3. REGULATION 34- ANNUAL REPORT: The listed entity shall submit the annual report
along with the notice of the annual general meeting to the stock exchange not later than
the day of commencement of dispatch to its shareholders.
4. REGULATION 34(1)(b)- CHANGES TO THE ANNUAL REPORT: In case any changes to the
annual report, the revised copy along with the details of and explanation for the changes
shall be sent within 48 hours after the general meeting.
5. REGULATION 36- ANNUAL REPORT TO THE SECUTITIES HOLDERS: The listed entity
shall send annual report to the holders of securities not less than 21 days before the
Annual general meeting.
Q) Suzan Limited is in top 1000 listed companies. Referring to provisions of SEBI

(Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of
directors seeks your advice as a company secretary regarding the following two
matters:
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1. Quorum in Board meeting
2. Maximum number of Directorship in a listed entity by a director. (4 marks)
Answer-
1. The quorum for every meeting of the board of directors of the top 1000 listed entities with
effect from April 1, 2019 and of the top 2000 listed entities with effect from April 1, 2020
shall be one-third of its total strength or three directors, whichever is higher, including at
least one independent director. Thus, keeping in mind the above provisions, Suzan
Limited is required to comply with above provisions with respect to quorum in board
meeting with effect from 1st April, 2019.
2. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 provides that
the directors of listed entities shall comply with the following conditions with respect to
the maximum number of directorships, including any alternate directorships that can be
held by them at any point of time:
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 A person shall not be a director in more than eight listed entities with effect from April
1, 2019 and in not more than seven listed entities with effect from April 1, 2020.
However, a person shall not serve as an independent director in more than seven listed
entities.
 Further, any person who is serving as a whole-time director / managing director in any
listed entity shall serve as an independent director in not more than three listed entities.
 For the purpose of this sub-regulation, the count for the number of listed entities on
which a person is a director / independent director shall be only those whose equity
shares are listed on a stock exchange.
Q) SEBI (LODR) Regulations, 2015 as amended imposes an obligation on every listed

company to constitute Nomination & Remuneration Committee and Risk
Management Committee. Briefly explain the constitution and role of these
committees. (4 marks)
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Answer-
1) Nomination and remuneration committee [Regulation 19 of SEBI (LODR) Regulations,
2015]
• The Nomination and Remuneration committee shall comprise of at least three directors;
• All directors of the committee shall be non-executive directors;
• At least fifty percent of the directors shall be independent directors and in case of a listed
entity having outstanding SR equity shares, two thirds of the nomination and remuneration
committee shall comprise of independent directors;
• The Chairperson shall be an independent director;
• The quorum for a meeting of the nomination and remuneration committee shall be either
two members or one third of the members of the committee, whichever is greater, including
at least one independent director in attendance;
• Nomination and Remuneration Committee plays a key role in formulation of the criteria
for determining qualifications, positive attributes and independence of a director and
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recommend to the Board of directors a policy relating to, the remuneration of the directors,
key managerial personnel and other employees.
2) Risk Management Committee [Regulation 21 of SEBI (LODR) Regulations, 2015]
• Applicable to top 1000 listed entities determined on the basis of market capitalization, as
at the end of the immediate previous financial year;
• The majority of members shall consist of members of the Board of directors.
However, in case of a listed entity having outstanding SR equity shares, at least two thirds
of the Risk Management Committee shall comprise of independent directors;
• The Chairperson of the Risk management committee shall be a member of the Board of
directors and senior executives of the listed entity may be members of the committee;
• The committee shall meet at least once in a year;
• The Board of directors shall define the role and responsibility of the Risk Management
Committee and may delegate monitoring and reviewing of the risk management plan to the
committee and such other functions as it may deem fit.
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Q) What are the recognitions given to Company Secretary in Practice for providing
various certifications/reports as required under SEBI (LODR) Regulations? Explain
briefly. (4 marks)
Answer-
The SEBI (LODR) Regulations, 2015 has given the following recognitions to Company
Secretary in practice:
1. Certificate regarding Transfer of Securities
Certification to the effect that all transfers have been completed within the stipulated
time.
2. Secretarial Audit Report
Every listed entity and its material unlisted subsidiaries incorporated in India shall
undertake Secretarial Audit and shall annex with its Annual Report, a Secretarial Audit
Report, given by a Company Secretary in Practice, in such form as may be specified with
effect from the year ended March 31, 2019.
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3. Certificate Regarding Compliance of Conditions of Corporate Governance under SEBI
(LODR) Regulations
The Regulations authorize Company Secretary in Practice to issue certificate regarding
compliance of conditions of Corporate Governance.
4. Certification regarding Director's Disqualification
A certificate from a Company Secretary in Practice that none of the directors on the Board
of the company have been debarred or disqualified from being appointed or continuing
as Directors of Companies by the Board/ Ministry of Corporate Affairs or any such
Statutory Authority.
Q) Home Technology Ltd. has recently listed on the leading stock exchanges. Advice
the company on the compliance of corporate governance regulation for holding of
maximum number of Directorship by a director of the company. If the company is
having paid up capital and reserve and surplus of ₹8 crore & ₹12 crore respectively.
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Are there any exceptions in the compliances with the corporate governance under
the SEBI Regulations? (4 marks)
Answer-
1) According to the compliances of corporate governance regulation, the maximum
number of Directorship a director can hold in any listed entity is 7. Moreover, a person
acting as WTD/MD can act as an ID in maximum of 3 listed entities.
2) The listed entity having-
a. paid up equity share capital not exceeding rupees ten crore, and net worth not
exceeding rupees twenty-five crore, as on the last day of PFY.
Provided that where the provisions of the regulations specified in this regulation
becomes applicable at a later date, such listed entity shall comply with those
requirements within six months from the date on which the provisions became
applicable to the listed entity.
b. the listed entity which has specified securities on the SME Exchange.
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3) Therefore, in the light of the above provisions, the company having paid up capital and
reserve and surplus ₹8 crore & ₹12 crore respectively, is not required to comply the
provisions of corporate governance under SEBI Regulations.
However, if it becomes applicable at a later date, then it shall comply with those
requirements within six months from the date on which the provisions became
applicable to the listed entity.
Q) X is a managing director of ABC Ltd. and awarded title of best CEO of the country.
Four leading listed companies invited him to join their Board as an Independent
Director for sharing his knowledge. Can X join as an Independent Director on the offer
made by four listed entities? Give your answer with reason. After superannuation, X
is planning to join as an independent director of ten listed companies. Do you agree
with the planning of X? (5 marks)
Answer-
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1) A person acting was WTD/MD can act as an ID in maximum of 3 listed entities. Therefore,
X a Managing Director of ABC Ltd. can act as an Independent Director in maximum of 3
listed entities according to SEBI (LODR) Regulations, 2015.
2) Since, X is a MD of ABC Ltd, he cannot join more than 3 companies as an ID.
3) After his retirement, he can act as an ID of not more than 7 companies when he isn’t acting
as a MD of ABC Ltd.
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CHAPTER 6 - TAKEOVER CODE
Q) What should be the minimum price for creeping acquisition? (5 marks)

Answer-
Creeping acquisition means slow and gradual acquisition of shares form the open market.
Creeping acquisition starts when the acquirer holds 25% of more shares in the target
company and as such there is no minimum price criteria for such creeping acquisition,
however, if the acquirer plans to come up with open offer of securities, then minimum price
criteria is as follows:
In case of frequently and infrequently traded shares:
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Frequent traded shares
52W volume weighted 60 days volume Highest price paid Negotiated price.
average price weighted average price by the acquirer in
past 26W
Infrequently traded shares

52W volume weighted Pricing based upon Highest price paid Negotiated price.
average price various financial by the acquirer in
parameters like EPS, past 26W
Book Value etc.
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Q) Kind Ltd. has decided to acquire stock upto 25% of the paid-up share capital of
Excel Ltd. which is a listed company & wants to proceed with the public offer pursuant
to the provisions of SEBI (SAST) Regulations, 2011. Prepare a Board Note highlighting
the general obligations of Kind Ltd. (10 marks)
Answer-
13th October 2015
To
The Board of Directors,
Sub. : Obligations of Kind Ltd. (Company) / Acquirer under SEBI (SAST)

Regulations, 2011.
Dear Sir/Madam,
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With reference to the captioned subject, we hereby explain the obligations of the acquirer
as follows :
1. As soon as the open offer is triggered, the acquirer has to appoint a MB under the said
regulations.
2. The acquirer has to release a newspaper advertisement in 4 newspapers which includes
Hindi, English, language where the registered office is situated and language of the state
where the SEs are situated by way of a short public announcement.
3. In the same newspapers, the Company must within 5 working days of SPA is required
to publish a detailed public settlement.
4. Before releasing such DPS, the company shall ensure that it has opened an escrow
account & deposited the necessary sum as provided under the regulations.
5. Within 5 working days from the date of DPS, the company shall file a draft letter of offer
with SEBI to be sent to the shareholders for its approval.
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6. Within 7 working days from the date of receipt of observation letter from SEBI, the
Company shall obtain a list of shareholders of the target company & dispatch final copy of
the letter of offer.
7. The company shall ensure that within 12 working days from the date of receipt of
observation letter, it has begun with the open offer period.
8. As per the said regulations open offer remains open for a period of 10 days & after its
completion necessary payment is made within 10 working days.
9. After the payment is made the acquirer shall release a newspaper advertisement in the
same newspapers enlisted above regarding the success or failure of the takeover offer
within 5 working days.
10. A copy of all the newspaper advertisement as mentioned above shall be submitted with
the Board, SEs & the Target Company.
Thanking you,
Yours faithfully,
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Sd/
(Name of the officer)
(Designation)
Q) The disclosure requirement of the acquisition of shares of a listed target Company

beyond certain units are only of the acquirer & not of the target company. Comment.
Answer-
SEBI (SAST) Regulations, 2011 provide that whenever an acquirer acquires shares or voting
rights in a company, he has to disclose the details of such acquisition to the target Company
& SEs where its shares are listed under regulations 29 and 30.
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Reg. 29(1) – If an acquires 5% or more shares or voting rights in a target company he shall
disclose the same to such target company & SEs within 2 working days of such acquisition
or allotment.
Reg. 29(2) – Any change in shareholding of the acquirer by + 2% shall be disclosed to the
target company & the SEs within 2 days of such change.
Reg. 30(1) – Any person who holds 25% or more shares or voting rights in a target company
shall disclose his holding to such target company & SEs within 7 days from the end of F.Y.
Reg. 30(2) – Any person belonging to promoter or promoter group shall disclose his holding
to target company & SEs within 7 days from the end of F.Y.
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Q) Define the word ‘persons acting in concert’ as per SEBI (SAST) Regulations, 2011.
Answer-
"Person acting in concert" means.—
Persons who, with a common objective or purpose of acquisition of shares or voting rights
in, or exercising control over a target company, pursuant to an agreement or understanding,
formal or informal, directly or indirectly co-operate for acquisition of shares or voting
rights" in, or exercise of control over the target company.
Without prejudice to the generality of the foregoing, the persons falling within the following
categories shall be deemed to be persons acting in concert with other persons within the
same category, unless the contrary is established,-
 A company, its holding company, subsidiary company and any company under the same
management or control;
 A company, its directors, and any person entrusted with the management of the
company;
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 Directors of companies referred to in items (i) and (ii) of this sub-clause and associates
of such directors;
 Promoters and members of the promoter group;
 A mutual fund, its sponsor, trustees, trustee company, and asset management company;
 A collective investment scheme and its collective investment management company,
trustees and trustee company;
 A venture capital fund and its sponsor, trustees, .trustee company and asset
management company;
 A foreign institutional investor and its subaccounts;
 A merchant banker and its client, who is an acquirer;
 A portfolio manager and its client, who is an acquirer;
 Banks, financial advisors and stock brokers of the acquirer, or of any company which is
a holding company or subsidiary of the acquirer, and where the acquirer is an individual,
of the immediate relative of such individual:
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Q) Short note on frequently traded shares under Takeover Code. (4 marks)

Answer-
"Frequently Traded Shares" means shares of a target company, in which the traded turnover
on any stock exchange during the twelve calendar months preceding the * calendar month
in which the public announcement is made, is at least ten per cent of the total number of
shares of such class of the target company:
Provided that where the share capital of a particular class of shares of the target company
is not identical throughout such period, the weighted average number of total shares of such
class of the target company shall represent the total number of shares.
Q) SEBI (SAST) Regulations, 2011 are applicable even if the acquirer is a person
resident outside India. (4 marks)
Answer-
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SEBI (SAST) Regulations, 2011 are applicable to every Acquirer, who wishes to acquire
shares or voting rights in a listed target company. Even he is based outside India, it shall be
applicable in the same way as it would apply to an Indian Acquirer.
Q) Explain the Modes of Payment to the shareholders of the Target Company on

acquisition of shares by the acquirer under SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011.
Answer-
The offer price may be paid –
i. In cash;
ii. By issue of listed shares in the equity share capital of the acquirer or of any PAC.
iii. By issue of listed secured debt instruments issued by the acquirer or any PAC with a
rating not inferior to investment grade as rated by a CRA.
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iv. By issue of convertible debt securities entitling the holder thereof to acquire listed shares
in the equity share capital of the acquirer or PAC.
v. A combination of the mode of payment of consideration as stated above.
Q) An acquirer, holding 25% or more but less than maximum permissible non-public
shareholding of the Target Company can acquire such additional shares as would
entitle him to exercise more than 5% of the voting rights in any financial year. Explain
the statement indicating the creeping acquisition limit for making an open offer by an
acquirer. (5 marks)
Answer-
i. These provisions apply to those existing shareholders who hold more than 25% of the
shares or the voting rights. Such acquirers can increase their stake to the extent of 5% in
any FY up to the maximum permissible non public shareholding (75%). This is known as
Creeping Acquisitions.
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ii. Acquisitions of shares or voting rights in excess of the said limit (5%) would trigger an
open offer. Hence the acquirer is required to make a public announcement to acquire
minimum 26% shares of Target Company.
Q) An unlisted public company (“Acquirer”) doing business of exporting steel and it is

a part of the Promoter Group of Maurya Hotels (India) Ltd. (MHIL), a company listed on
stock exchange. In view of improving its efficiency, MHIL is planning to restructure its
group. The Acquirer has agreed to enter into a scheme of arrangement where the
shares held by the promoter group companies (eight companies) will be transferred to
it. Post-merger, the shareholding of the Acquirer in the Company will increase from 2%
to 24%. However, the overall promoter shareholding will remain unchanged. You,
being practicing company secretary, appointed as consultant by the Acquirer, answer
the following :
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i. Will the transfer of shares trigger an obligation to make an open offer under the
SEBI (SAST) Regulations on the Acquirer ?
ii. What are the disclosure requirements under the SAST Regulations, if any, that the
parties to the scheme will have to comply with ? (5 marks)
Answer-
i. As per SEBI Takeover Regulations, 2011, an acquirer is required to give an open offer to
the shareholders of the target company on acquisitions of shares or voting rights as would
enable him along with PACs to exercise 25% or more voting rights in the Target company.
ii. In the above case, shareholding post merger will be 24%. Hence the acquirer is not
required to give an open offer.
iii. Disclosure requirement is as follows:
Any acquisition of shares more than 5%, the acquirer is required to intimate the details of
purchase of shares to the stock exchange and the Target Company within 2 working days
of acquisition or allotment of shares.
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Mandatory Open Offer
Answer-
Mandatory Open Offer
a) The SEBI takeover regulations, 2011 provides a threshold for a binding open offer. It says
when an acquirer along with PACs intends to acquire such no. of shares in a Target
company that aggregate holding will amount to 25% or more of the total share capital of
the target company; an open offer shall be given of at least 26% of share capital of Target
Company.
b) Any Acquirer along with his PACs , who already holds 25% or more of voting rights in the
target company but less than the maximum permissible limit , intends to acquire more
than 5% shares or voting rights in one F.Y in that target company Company, he shall first
give an open offer for at least 26% share capital of Target Company
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i. Public Announcement
ii. Creeping Acquisition Limit.
Answer-
Public Announcement
Regulation 14 of the SEBI Takeover Regulations, 2011 prescribe the manner of public
announcements in connection with mandatory and voluntary open offer:
 Short Public Announcement: Short public announcement shall be made on the same day
or as prescribed as on the date of transaction which triggered the Open Offer to all the
stock exchanges where the shares of the Target Company are listed for the purpose of
dissemination of the information to the public. Further, a copy of the public
announcement shall be sent to SEBI and to the Target Company at its registered office
within 1 working day of the date of short public announcement.
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 Detailed Public Announcement: After the short Public Announcement, a detailed Public
Announcement shall be made by the Acquirer within 5 working days from the date of
short Public Announcement. Such public announcement is required to be published in all
editions of any one English national daily with wide circulation, any one Hindi national
daily with wide circulation, and any one regional language daily with wide circulation at
the place where the registered office of the Target Company is situated and one regional
language daily at the place of the stock exchange where the maximum volume of trading
in the shares of the Target Company are recorded during the sixty trading days preceding
the date of the public announcement.
Creeping Acquisition Limit:

 These provisions apply to those existing shareholders who hold more than 25% of the
shares or voting rights. For such acquires to increase their stake, they are allowed to
acquire shares or voting rights to the extent of 5% in any financial year up to the maximum
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permissible non – public shareholding limit (i. e. 75%). This setting is termed as Creeping
Acquisition. Acquisition of shares or voting rights in excess of the said limit (i. e. 5%) would
trigger an open offer.
 In other words, if an acquirer who holds 25% or more but less than maximum permissible
non – public shareholding (i. e. 75%) of the Target Company, can acquire such additional
shares as would entitle him to exercise more than 5% of the voting rights in any financial
year ending March 31 only after making a Public Announcement to acquire minimum 26%
shares of Target Company from the shareholders through an Open Offer.
Q) Romeo International Limited, an Indian public limited company, is listed on BSE. On

Friday i.e. 14th December, 2018 one of the shareholders of the Company, Ganesh, who
was already holding 30% stake in the company, made a public announcement for an
open offer for the acquisition of 13 crore equity shares (Face value `10 each),
constituting 26% of the equity share capital of the Romeo International Limited. The
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offer price per share according to Takeover Regulations is arrived at `500 per share.
Explain the following with reference to SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011:
(a) What is the time limit for depositing amount in escrow account and explain with the
relevant provisions, what amount should be deposited in escrow account in this case?
(b) Explain the forms of maintaining the escrow account. (5 marks)
Answer-
(a) The acquirer shall create an escrow account towards security for performance of his
obligations under SEBI (SAST) Regulations, 2011, not later than 2 working days prior to
the date of the detailed public statement of the open offer for acquiring shares.
(b) The escrow account may be in the form of:
(1) Cash deposited with any scheduled commercial bank;
(2) Bank guarantee issued in favour of the manager to the open offer by any scheduled
commercial bank; or
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(3) Deposit of frequently traded and freely transferable equity shares or other freely
transferable securities with appropriate margin.
Q) Nova Industries Ltd. (‘Nova’) is an Indian company engaged in the business of

manufacturing of Automotive Equipments. The equity shares of the ‘Nova’ are listed on
NSE. Star Investment Ventures Ltd. (‘Star’) owns 16% stake in the Nova. Moon
Investment Company Pvt. Ltd. (‘Moon’) owns 14% stake in the Nova. Star and Moon
have also been classified as promoters of the Nova in its shareholding pattern for over
5 years. As decided by the management of Star and Moon, it is proposed that Moon will
be absorbed by Star through a scheme of arrangement, pursuant to which Star’s
shareholding in the Nova will increase from 16% to 30% as the shares held by Moon
will be transferred to Star and vested in Star and their shareholders will become
shareholders of Star. The entire consideration for the amalgamation would be
discharged by Star by the issue of its shares. The scheme is likely to be completed and
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approved by the National Company Law Tribunal sometime during the financial year
2019-2020.
(i) Explain the provisions and conditions given under regulation 10(1)(d)(iii) of SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 for availing the
exemption.
(ii) Would the transfer and vesting of shares of the Nova in Star, be exempt from open
offer obligations? (5 marks)
Answer-
(i) The acquisition of shares of the Target company pursuant to a scheme of arrangement
sanctioned by the National Company Law Tribunal provides an exemption to an acquirer
from making an open offer subject to the following conditions:
c. The consideration paid in terms of cash and cash equivalents is less than 25% of the
consideration paid under the scheme; and
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d. Post implementation of the scheme, the persons holding at least 33% of voting rights
in the combined entity are the same as the persons who held the entire voting rights
before the implementation of the scheme.
(ii) Star is eligible to avail this exemption under the SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011 since:
a. The acquisition of shares of the Target Company is being made pursuant to a scheme of
arrangement sanctioned by the NCLT.
(iii) The entire consideration is being discharged by Star by issue of its shares, there is no
portion of the consideration being paid in terms of cash and cash equivalents.
Q) ‘‘An open offer for acquiring shares once made shall not be withdrawn.’’ Comment
on the statement. (5 marks)
Answer-
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As per the SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 2011, an open
offer for acquiring shares once made can be withdrawn under any of the following
circumstances:-
a) Statutory approvals required for the open offer or for effecting the acquisitions attracting
the obligation to make an open offer under these regulations having been finally refused,
subject to such requirements for approval having been specifically disclosed in the
detailed public statement and the letter of offer;
b) The acquirer, being a natural person, has died;
c) Any condition stipulated in the agreement for acquisition attracting the obligation to
make the open offer is not met for reasons outside the reasonable control of the acquirer,
then it should be disclosed in the detailed public statement and the letter of offer;
However, an acquirer shall not withdraw an open offer pursuant to a public
announcement, even if the proposed acquisition through the preferential issue is not
successful.
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d) Such circumstances as in the opinion of the SEBI, merit withdrawal. SEBI shall pass a
reasoned order permitting withdrawal and such order shall be listed by SEBI on its
official website.
Therefore, the given statement is not correct.
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CHAPTER 7 – SEBI (BUYBACK OF SECURITIES) REGULATIONS, 2018
Q) Can a Company buy-back its own shares or any specified securities through
negotiated deals or through any private arrangements ? Comment with methods
allowed for buy-back. (4 marks)
Answer-
The conditions for buy back are as follows:
1. A company may buy back its shares or other specified securities through any of the
following methods:
a. From existing shareholders or security holders on a proportionate basis;
b. From the open market;
c. By purchasing the securities issued to employees of the company pursuant to the
scheme of stock option or sweat equity.
2. A company shall not buy back its shares or specified securities from any person through
negotiated deals
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 Whether on or of the stock exchange or ;
 Through spot transactions or ;
 Through private arrangement.
3. Any person or an insider shall not deal in securities of the company on the basis of
unpublished price sensitive information relating to buyback of shares or specified
securities of the company.
Q) The financial data of a listed company as on 31st March, 2018 are as follows :
Authorized equity share capital ` 10 crore
(1 crore shares of ` 10 each)
Paid-up equity share capital ` 5 crore
General reserve ` 3 crore
Debenture redemption reserve ` 2 crore
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The Board of directors of your company passed resolution by circulation for buy-back
of shares to the extent of 9% of the company’s paid-up share capital and free reserves.
You are required to examine the validity of the proposal with reference to the
provisions of the SEBI Regulations. (4 marks)
Answer-
a. As per SEBI buyback regulations, the board of directors can buy back up to 10% of total
paid up equity share capital & free reserves of the company by passing a board Resolution.
Such resolution should be passed at the meeting of the board.
b. If the buyback exceeds the above said limit, then shareholders approval by way of SR will
be required.
c. In the given case, BOD wants to buy back 9%, hence only BR is required. However, board’s
approval has to be taken in a board meeting & cannot be taken by circulation. Hence,
resolution passed by circulation is not valid in this case.
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Q) PQR Limited, a listed company, is intending to make buy-back of its equity shares.
Referring to SEBI Buy-back Regulations, explain the following:
(i) The manner of deposit of amount in Escrow account.
(ii) How can an unregistered shareholder tender his shares for buy-back?
(iii) What is time limit for completing buy-back process? (4 marks)
Answer-
(i) The company shall as and by way of security for performance of its obligations under the
SEBI (Buy back of Securities) Regulations, on or before the opening of the offer, deposit in
an escrow account such sum as specified under the Regulations. The amount in the escrow
shall be deposited in the following manner:
AMOUNT OF CONSIDERATION PERCENTAGE OF AMT TO BE DEPOSITED
Consideration not more than ₹25 percent of the consideration payable:
100 crores
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Consideration exceeds ₹ 100 25 percent up to ₹ 100 crores and 10%
crores thereafter.
(ii) The unregistered shareholder may also tender his shares for buy-back by submitting the
duly executed Transfer Deed for transfer of shares in his name, along with the offer form
and other relevant documents as required for transfer, if any.
(iii) Every buy back shall be completed within a period of one year from the date of passing of
the special resolution passed at the general meeting, or the resolution passed by the Board
of directors of the company, as the case may be.
Q) Answer the following with reasons, with reference to SEBI Buyback Regulations,
whether these buy-back are as per the provisions of the Regulations?
1) The company can directly or indirectly purchase its own shares through any
subsidiary including its own subsidiaries.
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2) The company has made buy-back of shares out of proceeds of an earlier issue of the
same kind of shares.
3) The company secretary of the company advised not to allow buyback of shares
unless the consequent reduction of share capital is affected.
4) The company has prohibited from buyback whose default is remedied and a period
of two years has elapsed after such default ceased to subsist.
5) The Board of Directors has denied the offer of buyback of shares for 16% of paid up
capital and free reserves to be made from the open market. (5 marks)
Answer-
1) The company cannot directly or indirectly purchase its own shares or other specified
securities;
>through any subsidiary company including its own subsidiary companies;
>through any investment company or group of investment companies; or
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>if a default is made by the company in the repayment of deposits accepted either before
or after the commencement of the Companies Act, interest thereon.
2)A company may buyback shares or other securities out of:
> its free reserves
>the securities premium account, or
>the proceeds of the issue of any shares or other specified securities.
3) No company limited by shares or by guarantee and having a share capital shall have power
to buy its own shares unless the consequent reduction of share capital is affected under the
provisions of this Act.
4) The buyback is not prohibited, if the default is remedied and a period of three years has
lapsed after such default ceased to subsist.
5) The board can authorize the buyback of securities not exceeding 10% of the total paid up
equity capital and free reserves of the company. If the company wishes to buyback exceeding
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the limit of 10%, special resolution is required to be passed. Therefore, for the offer of
buyback of shares for 16%, shareholder’s approval by passing special resolution is required.
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CHAPTER 8 - SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2021
Q) Difference between Voluntary Delisting and compulsory delisting. (4 marks)

Answer-
Voluntary Delisting :
When a company on its own delists itself from a SE it is called as Voluntary Delisting. This
is normally done by promoters raising their holding to such an extent that it breaches
minimum public shareholding requirements.
Compulsory Delisting :
When a SE on its own without the permission of listed company delists its stocks it is called
as compulsory delisting. Compulsory Delisting is normally done in cases of any non-
compliances or non payment of listing fees.
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Q) ‘A stock exchange on its own can delist any security thereon’. Explain how
Recognized Stock Exchange delists any securities listed thereon under Securities
Contracts (Regulations) Rules, 1957. (4 marks)
Answer-
Compulsory delisting refers to permanent removal of securities of a listed company from a
stock exchange as a penalizing measure by the stock exchange for not complying with various
requirements in the listing agreement within the time frames specified.
Procedure for compulsory delisting:
 Constitution of panel by recognized stock exchange to take decision regarding the
compulsory delisting by the exchange.
 Public notice of compulsory delisting by recognized stock exchange in English and
regional language newspaper of the region where the concerned recognized stock
exchange is located.
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 Within 15 days, representation by any person who may be aggrieved by the proposed
delisting.
 Stock exchange confirms the order of delisting.
 Public notice is required to be given by the company after delisting order has been passed
in English and regional language newspaper where the stock exchanges is located &
information to all the stock exchanges where the shares of the company were listed.
 Appoint an independent valuer who will determine the fair value of shares.
 Acquisition of shares by the promoters at determined fair value.
 Company’s promoters / PAC/Directors can neither access securities market nor seek
listing for a period of 10 years.

On-line surveillance
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Answer-
Online Surveillance
1. Online surveillance is an important tool to detect potential market abuse by the
participants.
2. It reduces the ability of the market participants to influence the price and volume of scrips
traded at the stock exchange.
3. The other objects were to improve the risk management system & strengthen the self
regulatory mechanism at the exchange.
Q) ‘‘Compulsory delisting is different from voluntary delisting’’. (4 marks)

Answer- Conditions for delisting:-
Neither any company shall apply for nor any recognised stock exchange shall permit delisting
of equity shares of a company:-
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(a) unless a period of three years has elapsed since the listing of that class of equity
shares on any recognised stock exchange;
(b) if any instrument issued by the company, which is convertible into the same class of equity
share(s) that is sought to be delisted, is outstanding;
(c) pursuant to a buyback of equity shares by the company, including a buyback
pursuant to consolidation or division of all or part of the equity share capital of
the company, unless a period of six months has elapsed from the date of completion of
such buyback;
(d) pursuant to a preferential allotment made by the company unless a period of six
months has elapsed from the date of such allotment
Q) Bombay Stock Exchange Ltd. had suspended trading in shares of XYZ Ltd. for
violating conditions of listing agreement. The company has now complied with the
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listing regulations requirements. By referring to SEBI circular/regulations, discuss the
criteria for suspension of the trading in the shares of the listed entities.
Answer-
Criteria for suspension of the trading in the shares of the listed entities:
a) failure to comply with regulation 17(1) with respect to board composition including
appointment of woman director for two consecutive quarters;
b) failure to comply with regulation 18(1) with respect to constitution of audit committee
for two consecutive quarters;
c) failure to comply with regulation 27(2) with respect to submission of corporate
governance compliance report for two consecutive quarters;
d) failure to comply with regulation 31 with respect to submission of shareholding
pattern for two consecutive quarters;
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e) failure to comply with regulation 33 with respect to submission of financial results for
two consecutive quarters;
f) failure to comply with regulation 34 with respect to submission of Annual Report for
two consecutive financial years;
g) failure to submit information on the reconciliation of shares and capital audit report, for
two consecutive quarters;
h) receipt of the notice of suspension of trading of that entity by any other recognized
stock exchange on any or all of the above grounds.
Q) The equity share of Ashina Buildcon Ltd., was listed on National Stock Exchange Ltd.
(NSE). NSE delisted its shares by complying SEBI guidelines on delisting. The order of
delisting was passed on March 05, 2017. Kunj, one of the shareholder has not
participated in the bidding process due to ill health, He wanted to tender shares on
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January 01, 2018. Analyze the problem in the light of the SEBI (Delisting of Equity
Shares) Regulations, 2021. (4 marks)
Answer-
i. As per SEBI (Delisting of Equity Shares) Regulations, 2021
a.Where, pursuant to acceptance of equity shares tendered in terms of these regulations, the
equity shares are delisted, any remaining public shareholder holding such equity shares
may tender his shares to the promoter up to a period of minimum one year from the date of
delisting and, in such a case, the promoter shall accept the shares tendered at the same final
price at which the earlier acceptance of shares was made.
b. The payment of consideration for shares accepted shall be made out of the balance
amount lying in the escrow account.
c. The amount in the escrow account or the bank guarantee shall not be released to the
promoter unless all payments are made in respect of shares tendered.
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d. By applying the above provisions, it is clear that Kunj can tender his shares within one
year from date of delisting & company has to accept it at the same final price. Kunj has in
fact within one year from date of delisting has tendered the shares and hence, he can take
the benefit of above provision.
Q) Delisting is not permissible under certain circumstances. (4 marks)

Answer-
 In case of buy back of equity shares by the company; or
 In case of preferential allotment made by the company; or
 Unless a period of three years has elapsed since the listing of that class of equity shares
on any recognized stock exchange; or
 Instruments which are convertible into the same class of equity shares that are sought
to be delisted are outstanding.
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 No promoter or promoter group shall propose delisting of equity shares of company, if
any entity belonging to the promoter or promoter group has sold equity shares of the
company during a period of six month prior to the date of the Board meeting in which
the delisting proposal was approved.
 Delisting of convertible securities.
 No promoter shall directly or indirectly employ the funds of the company to finance an
exit opportunity or an acquisition of shares made pursuant to provided under these
regulation.
 No acquirer or promoter or promoter group or their related entities shall.
 Employ any device, scheme or artifice to defraud any shareholder or other person; or
 Engage in any transaction or practice that operates as a fraud or deceit upon any
shareholder or other person; or
 Engage in any act or practice that is fraudulent, deceptive or manipulative in connection
with such delisting.
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Q) Who are dissenting shareholders? Elucidate the conditions of any to provide exit
opportunity to them. (5 marks)
Answer-
“Dissenting Shareholders” mean those shareholders who have voted against the resolution
for change in objects or variation in terms of a contract, referred to in the prospectus of the
issuer;
The promoters or shareholders in control shall make the exit offer in accordance with the
provisions to the dissenting shareholders, if:
 The proposal for change in objects or variation in terms of a contract, referred to in the
prospectus is dissented by at least 10 per cent of the shareholders who voted in the
general meeting; and
 The amount to be utilized for the objects for which the prospectus was issued is less than
75 % of the amount raised.
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Q) The following is an extract of Balance Sheet of Alpha Ltd.:
Equity Shares Capital — 50,000 Equity Share of `10 each.
10% Debenture Capital — 20,000 Debenture of `10 each.
On 21st April, 2018, the Board of directors decided to buy-back 5,000 equity shares
for which they would call Extra-ordinary General Meeting. In the year 2016, the
company has defaulted in payment of interest on secured loan to Bank amounted to
`25 crore, which was remedied in the year 2017. Comment on the above situation. (5
marks)
Answer-
1) As per SEBI (Buy-Back of Securities) Regulations, 2018, the Company shall not directly
or indirectly purchase its own shares or other specified securities if a default is made by
the company in the repayment of deposits accepted either before or after the
commencement of the Companies Act, interest payment thereon, redemption of
debentures or preference shares or payment of dividend to any shareholder, or
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repayment of any term loan or interest payable thereon to any financial institution or
banking company.
2) However, the buy-back is not prohibited if the default is remedied and a period of three
years has lapsed after such default ceased to subsist.
3) In the given case, Alpha Ltd, defaulted the payment of interest on secured loan to Bank
in the year 2016. Although the company has made good the default in year 2017 but the
statutory period of three years has not lapsed. Hence, the company cannot proceed to
buy-back the shares.
Q) Increase in voting rights in a target company by any shareholder pursuant to

buyback is exempted from the obligation to make an open offer subject to certain
conditions”. In the light of the statement, you are required to enumerate these
conditions. (4 marks)
Answer-
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Increase in voting rights in a target company by any shareholder pursuant to buy-back is
exempted from the obligation to make an open offer subject to the following conditions:
 Such shareholder has not voted in favour of the resolution authorising the buyback of
securities.
 In the case of shareholder resolution, voting is by way of postal ballot;
Where a resolution of shareholders is not required for the buy-back, such shareholder in
his capacity as a director, or any other interested director has not voted in favour of the
resolution of the board of directors of the target company authorising the buyback of
securities the increase in voting rights does not result in an acquisition of control by such
shareholder over the target company.
However, where the aforesaid conditions are not met, in the event such shareholder reduces
his shareholding such that his voting rights fall below the level at which the obligation to
make an open offer would be attracted within 90 days from the date of closure of the buy-
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back offer by the target company, the shareholder shall be exempt from the obligation to
make an Open offer.
Q) SAARC Ltd., a company listed on nationwide two stock exchanges. It decided to

delist its securities from both the stock exchanges. By complying all delisting
regulations, the promoters have made an open offer to buy shares from public
shareholders. Referring to the SEBI Delisting Regulations, advise the company
with respect to the following matters:
(a) How the payment of consideration will be made to the successful shareholders
who have tendered their shares in an open offer?
(b) What are the rights of remaining shareholder who have not tendered their shares
during open offer? (4 marks)
Answer-
1) Payment of consideration
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(i) The promoter of SAARC Ltd. shall immediately upon success of the offer, open, a
special account with a SEBI registered banker to an issue and transfer thereto, the
entire amount due and payable as consideration in respect of equity shares tendered
in the offer, from the escrow account.
(ii) All the shareholders whose equity shares are verified to be genuine shall be paid
the final price stated in the public announcement within ten working days from the
closure of the offer.
2) Right of remaining shareholders to tender equity shares
(i) Remaining public shareholder holding such equity shares may tender their shares to
the promoter up to a period of minimum one year from the date of delisting and, in such a
case, the promoter shall accept the shares tendered at the same final price at which the
earlier acceptance of shares was made.
(ii) The payment of consideration for shares accepted shall be made out of the balance
amount lying in the escrow account.
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(iii) The amount in the escrow account or the bank guarantee shall not be released to the
promoter unless all payments are made in respect of shares tendered.
Q) Pinki Ltd. being a listed company has not complied the requirements of listing
agreements with stock exchange. The stock exchange decided for compulsory
delisting of the securities from its trading platform. Answer the following:
a) Whether once listed, stock exchange can go for compulsory delisting of securities
of Pinki Ltd.?
b) What are the provisions for constitution of panel?
c) What time period will be given for representation to Pinki Ltd.? (4 marks)
Answer-
a) Once listed, the stock exchange can go for compulsory delisting if a listed company has not
complied the requirements of listing agreements with stock exchange.
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b) Constitution of panel: The decision regarding compulsory delisting shall be taken by a
panel to be constituted by the recognized stock exchange consisting of-
> Two directors of the recognized stock exchange (one of whom shall be a public
representative);
> One representative of the investors;
> One representative of the Ministry of Corporate Affairs or Registrar of companies;
> The Executive Director or Secretary of the recognized stock exchange;
c) The time period given for making representation shall not be less than fifteen working
days from the notice.
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CHAPTER 9 - SEBI (SHARE BASED EMPLOYEE BENEFITS & SWEAT EQUITY)

REGULATIONS, 2021
Q) Your Board of directors is contemplating to take-up the agenda to issue ESOS in next
meeting. Being a Company Secretary, advise your Board of directors about brief
procedure for issuing of securities under SEBI Employees Stock Option Scheme (ESOS)
by a listed Company.
Answer-
Procedure for issuing of securities under SEBI ESOS by a listed company:
 Hold a Board meeting to consider & approve ESOP and formation of compensation
committee.
 Compensation committee shall plan and draft the scheme of ESOP.
 Hold board meeting to adopt the final scheme, appoint the merchant banker & approve the
notice of GM for shareholders approval.
 Hold GM for shareholders approval.
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 Make an application to the stock exchange for obtaining in principle approval of the stock
exchange.
 Issue of letter of grant of option to the eligible employees along with the letter of
acceptance of option.
 On receipt of letter of acceptance of option along with upfront payment {if any} from the
employee.
 After expiry of vesting period, not less than 1 year the options shall vest in the employee.
The company shall issue a letter of vesting along with the letter of exercise of options.
 Hold a BM at the suitable interval during the exercise period for allotment of shares on
options exercised by the employees.
 Dispatch of letter of allotment along with the share certificates or credit the shares so
allotted with the depositories.
 Make an application to the stock exchange for listing of Shares so allotted.
 The stock exchange provides the receipt of listing of shares.
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Employee Stock Purchase Scheme. (4 marks)
Answer-
Employee Stock Purchase Scheme.
i. An employee stock purchase scheme means a scheme under which employees
participates and purchase shares of the company at a discounted price.
ii. At the purchase date the employees have a right to exercise the options granted to them.
iii. Lock in period shall be 1 year from the date of allotment and if these were offered at the
same price as in public issue there is no lock in period.
Q) Explain the Stock Appreciation Rights Scheme (SARS). (4 marks)

Answer-
i) The SAR scheme shall contain the details of the manner in which the scheme will be
implemented and operated. The company shall have the freedom to implement cash
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settled or equity settled SAR scheme. However, in case of equity settled SAR scheme, if the
settlement results in fractional shares, then the consideration for fractional shares should
be settled in cash.
ii) SAR shall not be offered unless the disclosures, as specified by SEBI in this regard, are
made by the company to the prospective SAR grantees.
iii) There shall be a minimum vesting period of one year in case of SAR scheme. However, in
a case where SAR is granted by a company under a SAR scheme in lieu of SAR held by the
same person under a SAR scheme in another company which has merged or amalgamated
with the first mentioned company, the period during which the SAR granted by the
transferor company were held by the employee shall be adjusted against the minimum
vesting period.
iv) The employee shall not have right to receive dividend or to vote or in any manner enjoy
the benefits of a shareholder in respect of SAR granted to him.
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Q) Answer the following with reference to the Companies (Share Capital and
Debentures) Rules, 2014, as to whether these are the eligible employees under
Employee Stock Option ? (Yes/No with reasons)
i. Ankit is a permanent employee deputed in USA for a specific project.
ii. Smart Ltd. is an independent company.
iii. Anil is a promoter and employee.
iv. Aneesh is a director holding 11% of outstanding equity shares of the company.
v. If it is a startup company, will the situation be the same in (iii) & (iv) above ? (5
marks)
Answer-
1. “Employee”, except in relation to issue of sweat equity shares, means, —
- an employee as designated by the company, who is exclusively working in India or

outside India; or
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- a director of the company, whether a whole time director or not, including a nonexecutive
director who is not a promoter or member of the promoter group, but excluding an
independent director; or
- an employee as defined in sub-clauses (i) or (ii), of a group company including subsidiary
or its associate company, in India or outside India, or of a holding company of the
company, but does not include—
o an employee who is a promoter or a person belonging to the promoter group; or
o a director who, either himself or through his relative or through any body corporate,
directly or indirectly, holds more than ten per cent of the outstanding equity shares
of the company.
2. By applying the above provisions to the given case:

(i) Yes, Ankit is eligible as he is permanent employee and even if he is outside India still he
is eligible
(ii)
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(iii) No, Anil is not eligible as he is promoter as well as employee.
(iv) No, Aneesh is not eligible as he is holding equity shares more than 10%
(v) If it is a startup company then, they will be eligible for five years from the date of its
incorporation as per the provisions defined.
Q) Differentiate between ‘‘Direct Route for ESOP’’ and ‘‘Trust Route for ESOP’’. (4
marks)
Answer-
A) Direct Route for ESOPs
1. Company forms a compensation committee and define the eligibility criteria of ESOPs.
2. Company issue fresh shares for ESOPs.
3. After vesting period employees can exercise the option.
4. On exercise of an option company issues the shares to the eligible employees.
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B) Trust Route for ESOPs
1. Company forms an Employee Welfare Trust.
2. Company grants loan to the trust for subscribing shares.
3. Company issues fresh shares to the Trust and option to the Eligible Employees.
4. Employees exercise the options.
5. Trust transfers the Shares to the employee upon receipt of exercise price.
6. Trust repays the loan to the company.
Q) “SEBI Share Based Employee Benefits Regulations shall apply to any company,
whether listed or not on any recognized stock exchanges in India and has a scheme”.
Comment on the statement. Discuss the scheme or purpose of the regulation. (4 marks)
Answer-
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1) The provisions of these regulations shall apply to any company whose shares are listed
on a recognised stock exchange in India, and has a scheme:
i) For direct or indirect benefits of
ii) Involving dealing in or subscribing to or purchasing securities of the company, directly

or indirectly and
iii) Satisfying, directly or indirectly, any of the following conditions:
 The scheme is set up by the company or any other company in its group;
 The scheme is controlled or managed by the company or guaranteed by the company
or any other company in its group;
 The scheme is controlled or managed by the company or any other company in its
group.
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Q) Explain the provisions of pricing, vesting period and consequence of failure to
exercise Employee Stock Option Scheme [ESOS]. (4 marks)
Answer-
1) Pricing: The company granting option to its employees pursuant to ESOS will have the
freedom to determine the exercise price subject to conforming to the accounting policies as
specified in these regulations.
2)Vesting Period: There shall be a minimum vesting period of one year in case of ESOS.
However, in case where options are granted by a company under an ESOS in lieu of options
held by a person under an ESOS in another company which has merged or amalgamated with
that company, the period during which the options granted by the transfer or company were
held by him shall be adjusted against the minimum vesting period required under this sub-
regulation. The company may specify the lock-in period for the shares issued pursuant to
exercise of option.
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3) Consequence of failure to exercise option: The amount payable by the employee, if any, at
the time of grant of option,
a) may be forfeited by the company if the option is not exercised by the employee within the
exercise period; or
b) may be refunded to the employee if the options are not vested due to non-fulfilment of
conditions relating to vesting of option as per the ESOS.
Q) Z Ltd. has issued Sweat Equity Shares for a non-cash consideration. What are the
possible accounting treatments in the books of Z Ltd. ?
Answer-
Where the sweat equity shares are issued for a non cash consideration, such non cash
consideration shall be treated in the following manner in the books of accounts of the
company:
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1. Where the non cash consideration takes the form of a depreciable or amortizable asset,
it shall be carried to the balance sheet of the company in accordance with the relevant
accounting standards or
2. Where the above clause is not applicable, it shall be expensed as provided in the relevant
accounting standards.
Q) A listed NBFC has been granted licence to run as small finance bank by the Reserve
Bank of India under recently announced policy to improve the financial inclusion of the
country. During the last three years, the attrition rate for top level management
employees was not too high As, RBI has granted licences to many small banks,
therefore, the promoters of the Bank feels that attrition rate will be high in coming
period. The Board of directors wishes to allot Sweat Equity shares to employees. You,
being compliance officer of the Bank, advise the Board about pricing of the Sweat
Equity shares.
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Answer-
Pricing guidelines related to sweat equity shares are as under:
1. The price of sweat equity shares shall not be less than the higher of the following:
 The average of the weekly high and low of the closing prices of the related equity shares
during last six months preceding the relevant date.
 The average of the weekly high and low of the closing prices of the related equity shares
during the two weeks preceding the relevant date.
2. If the shares are listed on more than one stock exchange, but quoted only on one stock
exchange on the given date, then the price on the stock exchange shall be considered.
3. If the share price is quoted on more than one stock exchange, then the stock exchange
where there is highest trading volume during that day shall be considered.
4. If the shares are not quoted on the given date, then the share price on the next trading
day shall be considered.
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Q) “The accounting treatment of an issue of sweat equity shares is different than the
public offer of shares.” Elucidate briefly. Is there any requirement of Auditor’s
certificate after issue of sweat equity shares? When such shares are treated as part
of managerial remuneration? (7 marks)
Answer-
1) Where the sweat equity shares are issued for a non-cash consideration, such non cash
consideration shall be treated in the following manner in the books of account of the
company:
 Where the non-cash consideration takes the form of a depreciable or amortizable asset,
it shall be carried to the balance sheet of the company in accordance with the relevant
accounting standards; or
 Where the above clause is not applicable, it shall be expensed as provided in the
relevant accounting standards.
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2) The amount of Sweat Equity shares issued shall be treated as part of managerial
remuneration, if the following conditions are fulfilled:
(i) the Sweat Equity shares are issued to any director or manager; and
(ii) they are issued for non-cash consideration, which does not take the form of an asset
which can be carried to the balance sheet of the company in accordance with the relevant
accounting standards.
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CHAPTER 11- INSIDER TRADING- AN OVERVIEW
Q) A Company shall specify a trading period for trading in its securities. (4 marks)
Answer-
 Pursuant to SEBI (Prohibition to Insider Trading) Regulations, 2015, a person who is
declared to be an insider shall not deal in the securities of the company during its trading
windows closure period.
 Trading window closure means that time period during which the company is to discuss
some price – sensitive information.
 Such beginning of the closure period shall be decided by the company itself. However the
closure period ends after 24 hours from the date on which the information is made public.
 During such window closure period, no insider of the company is allowed to deal in the
securities of the company. Subject to this period, an insider may trade in the securities of
the company after obtaining pre-clearance from its compliance officer.
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Q) Insider trading normally means trading in shares of a Company by the persons
who are in the management of the company or close to them on the basis of price
sensitive information, which they possess but others not. In the light of this, state
whether the following information is price sensitive :
(i) The CEO of a company met with an accident & had been hospitalized.
(ii) Intended declaration of rights issue in near future.
(iii) RBI has increased repo rate by 25 basis points.
(iv) The company is going to have another plant at Rudrapur, Uttarakhand.
(v) The Chairman of the Company has submitted his resignation to the Board under
protest for selling a particular brand to another company. (5 marks)
Answer-
The following information is considered to be price sensitive information under SEBI
(Prohibition of Insider trading) Regulations, 1992. Any information which falls within any
of these conditions is considered to be price sensitive.
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(i) The CEO of a company met with an accident & had been hospitalized – This information
is not price sensitive because it has no material impact on the stock prices of the
company.
(ii) Intended declaration of rights issue in near future – Rights issue leads to increased
share capital of the company & thus it has an impact on the prices of the company. It is
price sensitive.
(iii) RBI has increased repo rate by 25 basis points - Change in RBI policy is declared openly
by RBI & it is for all the businesses & not any specific company. Hence it is not price
sensitive.
(iv) The Company is going to have another plant at Rudrapur, Uttarakhand – Any expansion
plans about the company is price sensitive information.
(v) The Chairman of the company has submitted his resignation to the Board under protest
for selling a particular brand to another company - Any sale of grant leads to disposal
of part of undertaking of the company which is price sensitive.
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Q) Raghav, General Manager (Accounts) of X Ltd. was found to be indulging in insider

trading & as a consequence, the company terminated his services. The SEBI also took
cognizance of the matter & initiated proceedings against him under the SEBI
(Prohibition of Insider Trading) Regulations, 2015. Raghav pleaded that since X Ltd.
had already penalized him by terminating his services, SEBI could not initiate any
proceedings against him. As per the SEBI Regulations & decided case laws, suggest
whether the SEBI has a right to take any action against Raghav in this case of insider
trading. (8 marks)
Answer
 In terms of SEBI (Prohibition of Insider Trading) Regulations, 2015, no insider shall deal
in the securities of the company without fulfilling the requirements as provided under
the said regulations.
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 Even in cases where an action against such officers or employees has been initiated by the
company, it certainly does not take away the rights of SEBI to initiate any legal
prosecution.
 In the given case, the Company terminated the services of Raghav on grounds of insider
trading. However, as a market regulator & in order to curb the practices of such act, SEBI
has suo moto powers to initiate action against the wrong does. In such a case, SEBI may
initiate prosecution against Raghav & the fine may go up to Rs. 25 crores or 3 times of the
profits, whichever is higher, or imprisonment or with both. Thus the contention of
Raghav is incorrect.
Q) Sunil, a Company Secretary & Executive Director of a company had bought shares
of that company on behalf of his family members on the basis of unpublished price
sensitive information, which was not known to general public but to him as an
employee of the company. Family members later on tendered the said shares in an
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open offer announced by some acquiring company at a higher price, thereby making
huge gains. The SEBI found Sunil guilty of misconduct of insider trading & imposed
penalty. Sunil admitted that he had made a mistake but contested the penalty. He,
however, was willingly to pay back the profit earned by sale of shares.
Considering the facts of the case, you are required to suggest whether as per the
relevant legal provisions relating to insider trading, the SEBI should waive the
penalty considering the fact that Sunil admits indulgence in insider trading & is
willing to pay back the whole profit earned. (8 marks)
Answer-
The provisions of SEBI (Prohibition of Insider Trading) 2015, states that no insider shall
indulge into an act of insider trading without obtaining pre-clearance of the compliance
officer of the company. SEBI has explicit powers to look into the matters of insider trading
alongwith the powers to impose fine which may go upto 25 crs or 3 times of the profit,
whichever is higher or imprisonment or both.
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By referring to the said provisions, Sunil admitted the fact that he was involved in an act of
insider trading & accordingly he decided to surrender the amount of profits. However, the
powers of SEBI to impose fine or initiate legal proceedings against him are not taken off.
SEBI in such cases have discretionary powers to decide the punishment to be given to such
insiders.
Q) The price of equity share of a listed company viz. NextDial Ltd. (NDL) increased from
` 10 to high of ` 50 i.e. a rise of 500% during the period 1st April, 2018 to 30th Sept.,
2018. NDL had entered into a Share Purchase Agreement (SPA) with the proposed
acquirer(s) to acquire 40% of the subscribed equity share capital as of 31st Aug., 2018
which would result in change of management. This initial discussion on the deal was
made on 1st April, 2018 but SPA was signed on 25th April, 2018. During 1st April, 2018
to 30th Sept., 2018, the promoter and his wife dealt in the script of Next Dial Ltd.
Referring to the provisions of SEBI (PIT) Regulations, answer the following :
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i. Define Unpublished Price Sensitive Information.
ii. Whether there was any Unpublished Price Sensitive Information (UPSI) ?
iii. What will be the date of UPSI ?
iv. What are the factors to be taken into account by the adjudicating officer while
imposing penalty for the act ? (8 marks)
Answer-
i. Unpublished price sensitive information means any information relating to a company or
its securities, directly or indirectly, that is not generally available, which upon being generally
available is likely to affect the price of the securities and includes :
 Financial results
 Dividends
 Change in capital structure
 Mergers, demergers, acquisitions, disposals of business & such other transactions.
 Changes in KMP
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 Material events in accordance with the listing agreement.
ii. change in management is an unpublished price sensitive information.
iii. date of UPSI shall be 25th April, 2018 when the share purchase agreement was signed.
iv. The following factors shall be considered by an adjudicating officer:
 The amount of disproportionate gain or unfair advantage, wherever quantifiable
made as a result of default.
 The amount of loss caused to an investor or a group of investor as a result of default
 The repetitive nature of the default.
Q) Give exemptions under Regulation 4 of SEBI (Prohibition of Insider Trading)

Regulations 2015 which prescribes that an insider shall not trade in securities which
are listed or proposed to be listed on stock exchange when in possession of
unpublished price sensitive information. (4 marks)
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Answer-
The exemptions are :
 Off market transfers between promoters who are aware of price sensitive info and both
parties had made a conscious and informed trade decision.
 The trades were pursuant to trading plans.
 No price sensitive information was communicated by the individuals possessing the
information to the individuals taking trade decisions.
Q) What is Trading Plan under SEBI (Prohibition of Insider Trading) Regulations,

2015? State the requirements to be complied with in this regard.
Answer-
It is a mechanism which facilitates monetizing of securities by insiders on a regular basis who
may otherwise be unable to trade in securities of company. Trading plans provides
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opportunity to such persons to trade in securities of the company without compromising the
prohibitions imposed by the regulations.
Following are the requirements to be complied with:
i. An insider shall be entitled to formulate a trading plan and present it to the compliance
officer for approval and public disclosure pursuant to which trades may be carried out on
his behalf in accordance with such plan.
ii. Such trading plan shall:
 Not entail commencement of trading on behalf of the insider earlier than six months
from the public disclosure of the plan;
 Not entail trading for the period between the twentieth trading day prior to the last day
of any financial period for which results are required to be announced by the issuer of
the securities and the second trading day after the disclosure of such financial results;
 Entail trading for a period of not less than 12 months;
 Not entail overlap of any period for which another trading plan is already in existence;
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 Set out either the value of trades to be effected or the number of securities to be traded
along with the nature of the trade and the intervals at, or dates on which such trades
shall be effected; an
 Not entail trading in securities for market abuse.
iii. The compliance officer shall review the trading plan to assess whether the plan would
have any potential for violation of these regulations and shall be entitled to seek such
express undertakings as may be necessary to enable such assessment and to approve and
monitor the implementation of the plan.
iv. The trading plan once approved shall be irrevocable and the insider shall mandatorily
have to implement the plan, without being entitled to either deviate from it or to execute
any trade in the securities outside the scope of the trading plan.
v. Upon approval of the trading plan, the compliance officer shall notify the plan to the stock
exchanges on which the securities are listed.
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Q) You are working as the Company Secretary of a listed company viz. Mindspare Ltd.
The company is in advance stage of negotiation with a buyer, who will drastically
improve the profitability and financial position of the company. You have got some
information that one of the employees of the company, who is involved in the
negotiation may indulge in trading of shares of the company. Being a compliance
officer, you are required to formulate a code of conduct to regulate, monitor and report
trading by employees and other connected persons towards achieving compliance with
the SEBI (Prohibition of Insider Trading) Regulations, 2015. (5 marks)
Answer-
Code of conduct
1. Prompt public disclosure of unpublished price sensitive information that would impact
price discovery no sooner than credible and concrete information comes into being in
order to make such information generally available.
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2. Uniform and universal dissemination of unpublished price sensitive information to
avoid selective disclosure.
3. Designation of a senior officer as a chief investor relations officer to deal
with dissemination of information and disclosure of unpublished price sensitive
information.
4. Prompt dissemination of unpublished price sensitive information that gets
disclosed selectively, inadvertently or otherwise to make such information generally
available.
5. Appropriate and fair response to queries on news reports and requests for verification
of market rumors by regulatory authorities.
6. Ensuring that information shared with analysts and research personnel is not
unpublished price sensitive information.
7. Developing best practices to make transcripts or records of proceedings of meetings with
analysts and other investor relations conferences on the official website to ensure official
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confirmation and documentation of disclosures made. Handling of all unpublished price
sensitive information on a need-to-know basis.
Q) Schedule A of Insider Trading Regulations lays down the principles and

procedures of fair disclosure. (5 marks)
Answer-
Schedule A of these regulations lays down the following principles of fair disclosure for
purposes of Code of Practices and Procedures for Fair Disclosure of Unpublished Price
Sensitive Information:-
1. Prompt public disclosure of unpublished price sensitive information that would impact
price discovery no sooner than credible and concrete information comes into being in
order to make such information generally available.
2. Uniform and universal dissemination of unpublished price sensitive unpublished price
sensitive information to avoid selective disclosure.
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3. Designation of a senior officer as a chief investor relations officer to deal with
dissemination of information and disclosure of unpublished price sensitive information.
4. Prompt dissemination of unpublished price sensitive information that gets disclosed
selectively, inadvertently or otherwise to make such information generally available.
5. Appropriate and fair response to queries on news reports and requests for verification
of market rumors by regulatory authorities.
6. Ensuring that information shared with analysts and research personnel is not
unpublished price sensitive information.
7. Developing best practices to make transcripts or records of proceedings of meetings with
analysts and other investor relations conferences on the official website to ensure official
confirmation and documentation of disclosures made.
8. Handling of all unpublished price sensitive information on a need-to-know basis.
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Q) As a Company Secretary in employment of Delux Ltd., a listed company, what will
be your role in monitoring trading window under SEBI (Prohibition of Insider
Trading) Regulations, 2015. (4 marks)
Answer-
1) Role of Company Secretary in monitoring trading window under SEBI (Prohibition of
Insider Trading) Regulations, 2015 is as under:
 To ensure that the trading window shall be closed when a designated person or class of
designated persons can reasonably be expected to have possession of unpublished price
sensitive information. Such closure shall be imposed in relation to such securities to
which such unpublished price sensitive information relates.
 To ensure that the trading window is closed at the time of-
a) declaration of financial results
b) declaration of dividends;
c) change in capital structure;
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d) mergers, de-mergers, acquisitions, de-listings, disposals and expansion of business
and such other transactions;
e)changes in key managerial personnel
2) To ensure that designated persons and their immediate relatives shall not trade in
securities when the trading window is closed.
3) To ensure that no trading shall between 20th day prior to closer of financial period and
2nd trading day after disclosure of financial results.
4) To approve the trading plan and after the approval of trading plan, as compliance officer
shall notify the plan to the stock exchanges on which the securities are listed.
5) To keep records of period specified as ‘close period’ and the ‘trading window’.
Q. ‘‘Trading plan is an exception to the general rule that an insider should not trade
when in possession of unpublished price sensitive information’’. In the light of this
statement, explain the concept of trading plan and its essential elements. (4 marks)
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Answer-
1) An insider shall be entitled to formulate a trading plan and present it to the compliance
officer for approval and public disclosure pursuant to which trades may be carried out
on his behalf in accordance with such plan.
2) The trading plan shall:
i. not entail commencement of trading on behalf of the insider earlier than six months
from the public disclosure of the plan;
ii. not entail trading for the period between the twentieth trading day prior to the last
day of any financial period for which results are required to be announced by the
issuer of the securities and the second trading day after the disclosure of such
financial results;
iii. entail trading for a period of not less than twelve months;
iv. not entail overlap of any period for which another trading plan is already in
existence;
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v. set out either the value of trades to be effected or the number of securities to be
traded along with the nature of the trade and the intervals at, or dates on which such
trades shall be effected; and
vi. not entail trading in securities for market abuse.
Q. Referring to the SEBI Insider Trading Regulations, Answer-wer the following:

(a) What is ‘unpublished price sensitive information’?
(b) State with reasons whether the following information is price sensitive:
(i) RBI has increased its Statutory Liquidity Ratio (SLR) by 15 basis points.
(ii) The company is increasing its authorized share capital. (4 marks)
Answer-
(a) Unpublished price sensitive information
“Unpublished price sensitive information” means any information, relating to a
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company or its securities, directly or indirectly, that is not generally available which upon
becoming generally available, is likely to materially affect the price of the securities and
shall, ordinarily including but not restricted to, information relating to the following:
i. Financial results;
ii. Dividends;
iii. Change in capital structure;
iv. Mergers, de-mergers, acquisitions, delisting, disposals and expansion of business and
such other transactions;
v. Changes in key managerial personnel.
(b) (i) RBI has increased its Statutory Liquidity Ratio (SLR) by 15 basis points. It is not an
unpublished price sensitive information as it does not relate to any of the events defined
under “Unpublished Price Sensitive Information”.
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(ii) The company is increasing its authorized capital: It is unpublished price sensitive
information as it is related to change in capital structure which is defined under
“Unpublished Price Sensitive Information”.
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CHAPTER 12- MUTUAL FUNDS
Q) What are the advantages and disadvantages of fund of funds? (5 marks)

Answer-
Advantages of fund of funds
Diversification
As a fund of funds invests in the schemes of other funds, it provides a greater degree of
diversification.
Uncomplicated
Instead of investing in different stocks/units of mutual funds and keeping a track record of
all of them, it will be much easier to invest in and track only one fund, which in turn invests
in other mutual funds.
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Cheap
While entering into the capital markets it is difficult to diversify because of limited funds.
Fund of funds provide an opportunity to go for diversification with comparatively limited
amounts.
Risk
Investors can trim down the risk by choosing this route. Because of diversification, even if
one stock/scheme is not performing well risk level comes down.
Expertise of Various Managers

As in the case of schemes of mutual funds, fund of funds scheme also work under the due
diligence of a fund manager. This gives the scheme additional expertise as compared to
other mutual funds schemes.
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Disadvantages of fund of funds
Additional Fees
The more diversified the fund is, the greater the likelihood that the investor will incur an
incentive fee on one or more of the constituent managers, regardless of overall FoF
performance.
Associated Risks
Risks associated with all the underlying funds get added at this level, which includes
amongst others Management Risks, Operational Risks, Qualitative Risks
Regulations in India
The fund of funds scheme was introduced in the Indian market by making suitable
amendments in SEBI (Mutual Funds) (Amendment) Regulations, 2003.
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Q) An investor wishes to invest a certain sum of money in the securities market.
However, he is not aware of the opportunities available to him. He approaches you to
seek advice on the benefits of investing in mutual funds & the risks associated
therewith. Kindly advice. (8 marks)
Answer-
The advantages of investing in a mutual fund are:
1. Professional Management: Mutual funds are managed by a team of skilled professionals,
who are expert in their areas. They also have a research team, which constantly analyses
the performance and prospects of companies and selects suitable investments to achieve
the objectives of the scheme.
2. Diversification: There is a very famous proverb in english, it says: “Do not lay all your
eggs in one basket”. Mutual funds work on an exact similar concept. Mutual funds invest in a
number of companies across sectors. Even if one particular sector collapses, the losses are
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covered by some other investment, which is doing well. Investors achieve this
diversification through a Mutual Fund with far less money than one can do on his own.
3. Convenient Administration: Investing in a mutual fund reduces paper work and helps
investors to avoid many problems such as bad deliveries, deliveries, delayed payments, and
unnecessary follow up with brokers and companies. Mutual funds save investors time and
make investing easy and convenient.
4. Return Potential: Over a medium to long term, mutual funds have the potential to
provide a higher return as they invest in a diversified basket of selected securities.
5. Low Costs: Mutual funds invest huge sums of money and hence the cost of brokerage is
less as compared to a direct investment made by any investor. So the overall brokerage,
custodial and other fees translate into lower costs for investors.
6. Liquidity: Liquidity means readiness to convert investments into cash. In open-ended
schemes, investors can get their money back promptly at net asset value related prices from
the mutual fund itself. With close-ended schemes, investors can sell their units on a stock
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exchange at the prevailing market price or avail of the facility of direct repurchase at net
asset value (NAV) related prices.
7. Transparency: As per SEBI Regulations, all the mutual funds are compulsorily required
to disclose the details of the investments made by them from time to time to all its investors.
Mutual funds may face the following risks:

1) Excessive diversification of portfolio, losing focus on the securities of the key segments
2) Too much concentration on blue chip securities which are high priced and which do not
offer more than average return
3) Necessity to effect high turnover through liquidation of portfolio resulting in large
payments of brokerage and commission
4) Poor planning of investment with minimum returns
5) Unresearched forecast on income, profits and Government policies
6) Fund managers being unaccountable for poor results
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7) Failure to identify clearly the risk of the scheme as distinct from risk of the market
Q) Differentiate between open ended & close ended schemes. (4 marks)

Answer-
Sr.
Close ended schemes Open ended schemes
No.
1. Fixed corpus : no new units can be offered Variable corpus due to ongoing purchase
beyond the limit and redemption
2. Listed on stock exchange for buying and No listing on exchange, transactions done
selling directly with the fund
3. Two values available namely NAV and the Only one price namely NAV
Market Trading Price
4. Mostly liquid Highly liquid
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Q) Differentiate between top down & bottom up investment strategies. (2 marks)
Answer-
Top Down Investing: This is an investment strategy which first takes a view on the
economy and then looks at the industry scenario to assess the potential performance of a
company.
Bottom Up Investing: This is an investment strategy which considers the fundamental
factors driving individual stock performance before considering the economic prospects
which affect the industry and within which the company operates.
Q) Explain any 5 schemes offered by a mutual fund. (5 marks)

Answer-
Income oriented mutual funds: the fund primarily offers fixed income to investors.
Naturally, the main securities in which investments are made by such funds are the fixed
yielding ones like bonds.
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Growth oriented mutual funds: These funds offer growth potentialities associated with
investment in capital market namely:
 High source of income by way of dividend and
 Rapid capital appreciation, both from holding of good quality scrips
These funds, with a view to satisfying the growth needs of investors, primarily concentrate
on the low risk and high yielding spectrum of equity scrips of the corporate sector.
High Growth Schemes: An investment in high risk and high return with a high degree of
capital appreciation generating securities in which aggressive investors are willing.
Tax Saving Schemes: These schemes offer tax rebates to the investors under tax laws as
prescribed from time to time. The Government offers tax incentives for investment in
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specified avenues e.g. Equity Linked Saving Schemes (ELSS) and Pensions Schemes. It may
be noted that Equity Linked Saving Schemes (ELSS) have the lock-in period of three years.
Hybrid mutual funds: These funds cater to both the investment needs of the prospective
investors – namely fixed income as well as growth orientation. Therefore, investment
targets of these mutual funds are judicious mix of both the fixed income securities like bonds
and debentures and also sound equity scrips. In fact, these funds utilize the concept of
balanced investment management. These funds are, thus also known as “balanced funds.”
Q) Mutual Funds investments in India are fraudulent with multiple risks in India.
Comment. (4 marks)
Answer-
It is very rightly stated that mutual fund investments are subjected to various market risks
like :
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i) Excessive diversification by the fund manager.
ii) Too much concentration on blue chip securities.
iii) Fund manager not accountable for the fund losses.
iv) Poor planning in terms of the equity & debt exposure.
Q) Define NAV & offer price. (3 marks)

Answer-
NAV means Net Asset Value. NAV is nothing but a value at which an investor enters or exists
a fund. It can be calculated by the following formula :
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠−𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏−𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝.
NAV =
𝑁𝑜.𝑜𝑓 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑢𝑛𝑖𝑡𝑠.
Offer price means a price at which the units are offered to the investors at the launch of a
scheme.
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Q) Hedge Funds are similar to Mutual Funds. Comment. (5 marks)
Answer-
Both Mutual Funds & Hedge Funds raise money from the investor, the only difference being
that MF raises it from large number of investors in small amount while hedge funds raise it
from limited number of investors in large amount. Also, a MF derives profit from investing
activities while a hedge fund derives it from complex trading activities.
Q) The Mutual Funds have emerged as one of the important class of financial
intermediaries which cater to the needs of retail investors. Discuss. (5 marks)
Answer-
 A MF works on a very simple concept of pooling money from a large set of Investors,
investing in different securities & providing best possible returns to their investors.
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 As an investor a person is served with various investment options which are available
in the market & hence it becomes difficult for him to analyse which are the best
securities & which are not.
 MFs are led by a team of financial experts who have a strong knowhow of the market
based upon which they invest in the market.
 Therefore, for these investors who do not have direct access or knowledge of the market
can invest through a MF.
Q) Life-Changing Assets Management Ltd., a mutual funds company desires to engage a

Bollywood celebrity to popularize its schemes. Explain the SEBI provisions with regard
to celebrity endorsements of Mutual Funds at industry level.
Answer-
Celebrity endorsement of mutual funds is allowed subject to the following conditions:
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 Celebrity endorsements are allowed only at industry level, for the purpose of increasing
awareness of mutual funds as financial product category. Such endorsement shall not
promote a scheme of a particular mutual fund or be used as a branding exercise of a mutual
fund or AMC.
 Expenses towards such celebrity endorsement for increasing awareness of mutual funds
shall be limited to the amounts that are aggregated by mutual funds at industry level (two
basis points of daily net assets) for conducting investor education and awareness.
 Prior approval of SEBI would be required for issuance of such advertisements.
Q) “Expense Ratio for a mutual fund should be as low as possible.” Explain how increase
or decrease in Total Expense Ratio (TER) shall be disclosed by Asset Management
Company under SEBI (Mutual Funds) Regulations, 1996? (4 marks)
Answer-
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i. Under SEBI (Mutual Funds) Regulations, 1996, Mutual Funds are permitted to charge
certain operating expenses for managing a mutual fund scheme such as advertising
expenses, administrative expenses, transaction costs, investment management fees,
registrar fees, custodian fees, audit fees as a percentage of the funds daily net assets. This
is commonly referred to as Expense Ratio.
ii. Expense ratio is the cost of running and managing a mutual fund which is charged to the
scheme. All expenses incurred by a Mutual Fund, AMC will have to be managed within the
limits specified under Regulation 52 of SEBI Mutual Fund Regulations.
iii. For actively managed equity schemes, the total expense ratio (TER) allowed under
the regulations is:
 2.5 % for the first ₹100 crores of average weekly net assets;
 2.25 % for the next ₹300 crores,
 2 % for the subsequent ₹300 crores and
 1.75 % for the balance AUM.
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iv. For debt schemes, the expense ratio permitted is 0.25 % lower than that allowed for equity
funds.
v. However, while expense ratio is important, it should be borne in mind that it is not the
only criterion while selecting mutual fund scheme. A scheme with a consistently decent
track record, but a higher expense ratio may be better than the one which lower expense
ratio, but gives poor returns.

Hedge Funds (4 marks)
Answer-
Hedge funds:
1. Hedge funds are organized as private investment partnership or offshore investment
corporations’ funds that uses complex strategies to generate returns.
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2. The investors of hedge funds include high net worth individuals, insurance companies,
banks etc.
3. They need not to be registered with SEBI nor do they need to disclose their NAV
periodically like mutual funds.
Q) Define the fund of funds scheme and state the benefits of the scheme. (2+3=5
marks
Answer-
It is a mutual fund scheme which invests in the schemes of same or other mutual funds
present in the market instead of investing in securities.
These funds can be broadly classified into:
 Sector Specific Funds: These funds invest in the various sectors of the economy and
protect themselves by not investing the whole amount in only one sector.
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 Asset Allocation Funds: They diversify the investments by holding several different
kinds of assets at the same time. They are also known as life cycle funds.
Benefits of FOFs are:
1. Diversified investments: As a fund of funds invests in the schemes of other funds, it
provides a greater degree of diversification.
2. Uncomplicated scheme: instead of investing in different stocks and keeping track
record of all of them, it will be much easier to invest in and track only one fund, which in
turn invests in other mutual funds.
3. Cheap: while entering into the capital markets it is difficult to diversify because of
limited funds. Fund of funds provide an opportunity to go for diversification with
comparatively limited amounts.
4. Risk to the extent possible is eliminated.
5. Expertise of various managers proves to be beneficial.
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Q) Are mutual funds permitted to make overseas investment? Describe. (4 marks)
Answer-
Mutual Funds are permitted to make investment in:
a. ADRs/GDRs issued by Indian or foreign companies.
b. Equity shares of companies listed on overseas stock exchanges.
c. Initial (IPO) and follow on public offerings (FPO) for listing at overseas stock exchanges
d. Foreign debt securities in the countries with fully convertible currencies.
e. Money market instruments rated not below investment grade.
f. Government securities where the countries are rated not below investment grade
g. Derivatives traded on recognized stock exchanges overseas only for hedging and
portfolio balancing with underlying as securities.
h. Short term deposits with banks overseas where the issuer is rated not below investment
grade.
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i. Units/ securities issued by oversees mutual fund or UTI Registered with oversees
regulator & investing in aforesaid securities or REITs listed in recognized stock
exchange oversees or unlisted oversees securities [not exceeding 10% of their net
assets.]
Q) While evaluating the performance of a mutual fund, one must not be led by the
mutual fund return in isolation”. In this context, elucidate how performance of
mutual fund is evaluated? (4 marks)
Answer-
1) While looking at a mutual fund scheme’s performance, one must not be led by the
scheme’s return in isolation. A scheme may have generated 10% annualised return in the
last couple of years. But then, even the market indices would have gone up in similar way
during the same period.
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2) Under-performance in a falling market, i.e., when the NAV of the scheme falls more than
its benchmark (or the market), is the time when one must review his/her investment.
3) One must compare the scheme’s return as against its benchmark return. It is better to get
rid of the scheme that consistently under-performs as compared to its benchmark.
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CHAPTER 13 - COLLECTIVE INVESTMENT SCEHEMES
Q) Collective Investment Scheme is constituted as a Trust. Comment. (4 marks)

Answer-
 A collective investment scheme is a trust based scheme that comprises a pool of assets
that is managed by a collective investment scheme managed and is governed by the SEBI
(Collective Investment Schemes) Regulations, 1999, given by SEBI.
 The ‘trust’ is the financial instrument that is created in order to manage the investment.
 The trust enables financial exports to invest the money on behalf of CIS investors.
 A scheme should be constituted in the form of a trust and the instrument of trust should
be formed in the form of a deed duly registered under the provisions of Indian
Registration Act, 1908 executed by CIMC in favour of the trustee named in such an
instrument.
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Q) What is a Collective Investment Scheme? What are the restrictions on their
business activity. (5 marks
Answer-
A Collective Investment Schemes (CIS) is an extension of Mutual Fund wherein an
investment is done in installments. In Collective Investment Schemes investors do not have
day to day control over the management and operation of the scheme.
A CIS comprises a pool of assets that is managed by a Collective Investment Schemes

manager as is governed by Collective Investment Schemes Regulations given by SEBI.
Collective Investment Schemes provides a relatively secure means of investing on the SE.
Collective Investment Management Company cannot undertake :
 Any activity other than managing the scheme
 Act or a trustee of any scheme
 Launch any scheme for the purpose of investing in securities
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 Invest in any scheme floated by it.
Q) Discuss the schemes and arrangements which are not coming under the ambit of
collective investment scheme.
Answer-
Business restrictions For CIMC:
1. The CIMC shall not undertake any activity other than of managing the scheme.
2. The CIMC shall not act as a trustee for the purpose of investing in securities.
3. The CIMC shall not launch any scheme for the purpose of investing in securities.
4. The CIMC shall not invest in any schemes floated by it.
Q) “Co-ordination of Trustee and Collective Investment Management Company is

absolutely necessary for success of a Collective Investment Scheme.” Explain in this
context, the rights available to the trustee. (4 marks)
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Answer-
The trustees have a right to obtain from Collective Investment Management Company
(CIMC) such information as is considered necessary by the trustee and to inspect the books
of accounts and other records relating to the Scheme. The trustee should ensure that the
CIMC has:
i. The necessary office infrastructure;
ii. appointed all key personnel including managers for the schemes and submitted their bio-
data which shall contain the educational qualifications and past experiences in the areas
relevant for fulfilling the objectives of the schemes;
iii. appointed auditors from the list of auditors approved by SEBI to audit the accounts of
the scheme;
iv. appointed a compliance officer to comply with the provisions of the Act and these
regulations and to redress investor grievances;
v. appointed registrars to an issue and share transfer agent;
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Q) What do you understand by the word “Ponzi Scheme”? Who regulate the Collective
Investment Scheme? List any four key aspects for launching a Collective Investment
Scheme. (4 marks)
Answer-
1) A Ponzi scheme is an investment from where clients are promised a large profit in short
term at little or no risk at all.
2) Collective Investment Schemes falls under the purview of the SEBI. SEBI regulates it
through the SEBI Act, 1992 and CIS Regulation, 1999. There are four main participants in
the scheme- Collective Investment Management Company, Trustee, Shareholder and Fund
Manager.
3) Collective Investment Scheme - refers to any scheme under which-
(i) the contributions are pooled and utilized for the purposes of the scheme or arrangement;
(ii) the contributions are made to such scheme by the investors with a view to receive
profits, income, produce or property, whether movable or immovable;
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(iii) the property, contribution or investment forming part of scheme, is managed on behalf
of the investors;
(iv) the investors do not have day-to-day control over the management of the scheme.
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CHAPTER 14 - RESOLUTION OF COMPLAINTS AND GUIDANCE
Q) Short notes on SCORES. (5 marks)

Answer-
1) SCORES is a web based centralized grievance redress system of SEBI (http://scores,
Gov.in).
2) SCORES enables investors to lodge and follow up the complaints of track the status of
redressal of such complaints online from the above website from anywhere.
3) This enables the market intermediaries and listed companies to receive the complaints
online from investors, redress such complaints and report redressal online.
4) All the activities from lodging of a complaint till its closure by SEBI would be online in
an automated environment and the complaint can view the status of his complaint online.
5) An E-mail is generated instantaneously acknowledging, the receipt of complaint and
allotting a unique complaint registration number to the complaint for future reference and
tracking.
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6) The entity concerned uploads an Action taken Report (ATR) on the complaint.
7) SEBI peruses the ATR and closes the complaint if it is satisfied that the complaint has
been redressed adequately.
8) The concerned investor can view the status of the complaint online from the above
website lodging in the unique complaint registration number.
Q) Explain what is Informal Guidance under SEBI (Informal Guidance) Scheme, 2013
and who can seek guidance from SEBI ? (5 marks)
Answer-
SEBI has issued (Informal guidance) scheme 2013, for better regulation and orderly
development of the securities market. The following persons may make request for informal
guidance under the scheme:
 Any intermediary registered with SEBI.
 Any listed company.
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 Any company which intends to get any of its securities listed & has filed a listing
application with stock exchange or draft offer document with the SEBI.
 Any mutual fund or AMC
 Any acquirer or prospective acquirer under SEBI [SAST] Regulations, 1987.
Q) Prateek applied in the IPO of Maxgrow Ltd. for 100 Equity Shares. He was not eligible
to get any shares according to the allotment schedule and also has not received the
refund amount within the time stipulated under the Companies Act, 2013. Prateek
approached the Company through written representation on January 10, 2018. The
company neither replied nor processed the refund claim. In the light of the SEBI
Regulations, answer the following :
i. How much time should elapse before approaching Ombudsman from the date of
written representation ?
ii. State the grounds and the procedure for filing a complaint before Ombudsman.
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iii. Whether Prateek can hire services of a legal practitioner to plead his case before
Ombudsman ? (5 marks)
Answer-
As per Ombudsman Regulations, 2003:
i. One month should have elapsed before approaching Ombudsman from the date of written
representation. (ii) (You can write any five points)
ii. A person may lodge a complaint on any one or more of the following grounds either to
SEBI or to the Ombudsman concerned:
a. Non-receipt of refund orders, allotment letters in respect of a public issue of securities
of companies or units of mutual funds or collective investments schemes
b. Non-receipt of share certificates, unit certificates, debenture certificates, bonus shares;
c. Non-receipt of dividend by shareholders or unit-holders;
d. Non-receipt of interest on debentures, redemption amount of debentures or interest on
delayed payment of interest on debentures;
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e. Non-receipt of interest on delayed refund of application monies.
iii. Ombudsman shall decide whether to hold oral hearings for the presentation of evidence
or for oral argument or whether the proceeding shall be conducted on the basis of
documents and other materials.
iv. However, it shall not be necessary for an investor to be present at the oral hearing of
proceedings under these regulations and the Ombudsman may proceed on the basis of the
documentary evidence submitted before him.
v. No legal practitioner shall be permitted to represent the defendants or respondents at the
proceedings before the Ombudsman except where a legal practitioner has been permitted
to represent the complainants by the Ombudsman.
vi. Hence, if permitted by ombudsman, Prateek can appoint a Legal Practitioner.
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Q) “SEBI complaints redress system (SCORES) is efficient system of investor grievance
redressal mechanism of SEBI”. Discuss the statement and salient features of scores. (5
marks)
Answer-
1. SCORES is a web based centralized grievance redress system of SEBI.
2. SCORES enables investors to lodge and follow up their complaints and track the status of
redressal of such complaints online.
3. This enables the market intermediaries &listed companies to receive the complaints
online from investors, redress such complaints and report redressal online.
4. All the activities starting from lodging of a complaint till its closure by SEBI would be
online in an automated environment and the complainant can view the status of his
complaint online.
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5. An email is generated instantaneously acknowledging the receipt of complaint and
allotting a unique complaint registration number to the complainant for future reference
and tracking.
6. The entity concerned uploads an Action Taken Report (ATR) on the complaint.
7. SEBI pursues the ATR &closes the complaint if it is satisfied that the complaint has been
redressed adequately.
8. The concerned investor can view the status of the complaint online from the above
website by logging in the unique complaint registration number.
Q) An Ombudsman has issued an award in a complaint proceeding to your Company.

Aggrieved by the award of Ombudsman, directors of your company have decided to
file petition before the SEBI. As a company secretary, advise the Board of directors of
your company regarding provisions and procedures to be adopted for filing such
petition under the SEBI (Ombudsman) Regulations, 2003. (8 marks)
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Answer-
1) SEBI (Ombudsman) Regulations, 2003 provides that in case the matter is not resolved
by mutually acceptable agreement within a period of one month of the receipt of the
complaint or such extended period as may be permitted by the Ombudsman, he may,
based upon the material placed before him and after giving opportunity of being heard
to the parties, give his award in writing or pass any other directions or orders as he may
consider appropriate.
2) Such award shall be made within a period of three months from date of the filing of the
complaint.
3) The Ombudsman should send his award to the parties to the adjudication to perform
their obligations under the award.
4) An award given by the Ombudsman shall be final and binding on the parties and persons
claiming under them respectively.
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5) Any party aggrieved by the award on adjudication may file a petition before SEBI within
one month from the receipt of the award or corrected award setting out the grounds for
review of the award.
6) The SEBI may review the award if there is substantial mis-carriage of justice, or there is
an error apparent on the face of the award.
7) Where a petition for review of the award, such petition shall not be entertained by the
SEBI unless the party filing the petition has deposited with SEBI seventy-five percent of
the amount mentioned in the award
8) The SEBI may review the award and pass such order as it may deem appropriate, within
a period of forty-five days of the filing of the petition for review.
Q) Wadhwani Enterprises Limited, an unlisted company, has decided to bring an initial

public offer and filed a draft offer document with SEBI. The company is not able to
correctly interpret a circular issued by SEBI. The managing director of the Company
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wants to seek informal guidance under SEBI Informal Guidance Scheme. Ramesh,
director of the company is of a view that since the company is not yet listed so company
cannot seek informal guidance from SEBI. Being a company secretary, advise on the
following matters:
(i) Who can apply for informal guidance? Whether company can apply for informal
guidance in the given situation?
(ii) What are the matters on which informal guidance cannot be sought? (5 marks)
Answer-
1) The following persons may make a request for informal Guidance under the SEBI (Informal
Guidance) Scheme, 2003:
a) Any intermediary registered with the SEBI;
b) Any listed company;
c) Any company which intends to get any of its securities listed and which has filed either
a listing application with any stock exchange;
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d) Any mutual fund trustee company or asset management company;
e) Any acquirer or prospective acquirer under the SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011;
2) In the given case, since Wadhwani Enterprises Limited is an unlisted company and filed
draft offer document with SEBI, therefore, it can apply to SEBI under informal guidance
scheme.
3) With respect to following matter informal guidance cannot be sought:
a) Those which are general and those which do not completely and sufficiently describe
the factual situation;
b) Those which involve hypothetical situations;
c) Those requests in which the requestor has no direct or proximate interest;
d) Where the applicable legal provisions are not cited;
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e) Where a no-action or interpretive letter has already been issued by that or any other
Department on a substantially similar question involving substantially similar facts, as
that to which the request relates;
f) Those cases in which investigation, enquiry or other enforcement action has already
been initiated;
g) Those cases where connected issues are pending before any Tribunal or Court and on
issues which are sub-judice; and
h) Those cases where policy concerns require that the Department does not respond.
Q) Sarvbhom Ltd. Issued 2000 equity shares of Rs. 100 each on 1st May, 2019. The
amount payable was Rs. 30 on application and Rs.70 on allotment of shares. The
company had received applications for 3000 equity shares and shares were allotted on
pro-rata basis on 31st August, 2019. Dakshin, had applied for 120 shares on 15th May,
2019. The excess application money was refunded to him on 29th February, 2020.
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(i) Can Dakshin lodge the complaint to Ombudsman for interest on delayed refund of
application money?
(ii) What is the procedure for filing a complaint?
(iii) What is the duration for making the complaint to Ombudsman?
(5 marks)
Answer-
1) According to the ombudsman regulations, 2003 Dakshin can lodge the complaint to
Ombudsman for interest on delayed refund of application money.
2) Any person who has a grievance against a listed company or an intermediary relating to
any of the matters specified above may himself or through his authorised representative
or any investors association recognised by the SEBI:
> make a complaint against a listed company or an intermediary to the ombudsman within
whose jurisdiction the registered or corporate office of such listed company or
intermediary is located.
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> If SEBI has not notified any ombudsman for a particular locality or territorial jurisdiction,
the complaint may request the ombudsman located at the head office of the SEBI for
forwarding his complaint to the ombudsman of competent jurisdiction.
> The compliant is required to be duly signed by the complainant or his authorized
representative in a form specified by SEBI.
> The ombudsman may dismiss a complaint on any of the grounds specified under the
regulations or when such complaint is frivolous in his opinion.
3) The complaint is to be made to Ombudsman within six months from the date of the
receipt of communication of rejection of his complaint by the complainant or within
seven months after the receipt of complaint by the listed company or intermediary.
Q) “In the proceedings before the Ombudsman under SEBI regulations, strict rules of
evidence under the Indian Evidence Act shall apply”. Comment on the statement.
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Enumerate the particulars to be display by the company with regards to Ombudsman.
(4 marks)
Answer-
1) In proceedings before the Ombudsman strict rules of evidence under the Evidence Act
shall not apply and the Ombudsman may determine his own procedure consistent with
the principles of natural justice.
2) Ombudsman shall decide whether to hold oral hearings for the presentation of evidence
or for oral argument or whether the proceeding shall be conducted on the basis of
documents and other materials.
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CHAPTER 15 - STRUCTURE OF CAPITAL MARKET
Q) Differentiate between futures and options? (4 marks)
Answer-
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Q) Differentiate between call option and put option? (2 marks)
Answer-
In call option, an investor has a right to buy. An investor takes a call option, if he expects that
the market price will be higher than the strike price to earn the difference as his profit.
In put option, an investor has a right to sell. An investor takes a put option if he expects that
the market price will be lower than the strike price. The lower the market price than the
strike price, the higher will be the profit for the investor.
Q) Explain various investment strategies under derivatives trading. (3 marks)

Answer-
Investment Strategies
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Straddle: Combination of one put and two call option is known as straddle. Here, the
investor is insured against any movement on either side and has opportunity to gain from
upward move and down move.
Strap: Combination of one put and two call option is known as strap. Here, the investor is
confident that scrip price will change, but it is more likely to go up.
Strip: Combination of two puts and one call option is known as strip. Here, the investor is
confident that scrip price will change, but it is more likely to go down.
Q) Distinguish between Initial Margin & Maintenance Margin. (2 marks)

Answer-
Sr. INITIAL MARGIN MAINTENANCE MARGIN
No.
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(i) The margin provided by the member It is provided by the broker on mark to
broker on initial amount invested is market loss of an investor.
called initial margin.
(ii) The intention of providing initial margin It is recovered from the investor in order
is to increase trading volume by an to maintained his initial margin position.
investor.
Q) Distinguish between funds pay-in & funds pay out. (2 marks)

Answer-
Sr. FUNDS PAY-IN FUNDS PAY-OUT
No.
(i) It means the shares from the seller’s It means the shares from NSCCL are
demat account are transferred to transferred to the buyer’s demat account.
NSCCL Account.
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(ii) The consideration against the said The consideration against the said value of
value of shares are transferred from shares are transferred from NSCCL account’s
buyers bank account to NSCCL’s to buyer’s bank account.
Q) Stock Exchanges are virtually the nerve centre of the Capital Market. Comment. (3
marks)
Answer-
 Stock Exchanges provide a platform for issuer companies to raise funds & for the
investors to seek an investment opportunity. Thus it helps in introducing capital &
providing various investment options for the investors.
 Trading activities helps investors in getting liquidity in their investment & therefore
they act as the nerve centre of the capital market.
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Q) Distinguish between Bull & Bear Market. (2 marks)
Answer-
BULLISH TREND BEARISH TREND
An upside movement in the market is A downside movement the market is called
called bullish trend. bearish trend.
Large number of buyers & heavy buying Large number of sellers & heavy selling orders
orders are the characteristics of bullish are the characteristics of bearish trend.
trend
Q) Write a brief note on market making. (5 marks)

Answer-
Though there are 14000 companies listed on the Stock Exchanges in India, only a few of
them are being actively traded in the market. Thus, the market sentiment is not
representative of a wide range of industries or companies, but of a few selected scrips (listed
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shares). This leads to the conclusion that mere listing of securities does not provide liquidity
to scrips. A process known as market making was clearly needed to build up liquidity. The
market maker by offering two way quote not only increases the supply of scrips but also
triggers of a demand in the scrips. SEBI has taken the view that market making will go on a
long way in reducing the bane of concentration and thus eliminating the influence of the
unbalanced Sensitive Index.
Object:
 To curb speculative trading & price volatility
 Also curbs short selling & buying
 Prevent clients from placing order without adequate money
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Q) What is algorithmic trading? Enumerate the guidelines prescribed by SEBI for
stock brokers in this behalf. (8 marks)
Answer-
 Any order that is generated using automated execution logic shall be known as
algorithmic trading.
 SEBI has provided following Guidelines by way of directions to Stock Exchanges:
o To have arrangements, procedures and systems to adequately manage the trade load
of algorithm orders.
o To put in place effective economic disincentives with regard to high daily order to
trade ratio of algorithm orders.
o To ensure all trades are routed through servers of stock brokers located in India only.
o To have appropriate risk control mechanisms covering price band check and quantity
limit check.
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o To report algorithmic trading details in the Monthly Development Report submitted
to SEBI.
o To ensure that the stock brokers provide the facility of algorithmic trading only after
obtaining prior permission of the stock exchanges.
Q) Short note on Rolling Settlement. (4 marks)

Answer-
Rolling Settlement is a system of settlement of transactions on the stock exchange on a daily
basis. It means everyday there is trade & everyday there is a settlement at stock exchange.
The trades in securities at present is done on T + 2 basis excluding the public holidays which
comes in settlement.
M T W T F
T 1 2
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T 1 2
T 1 2
2 T 1
1 2 T
Q) Both FCEB’s & FCCB’s are convertible into equity shares. Since both are convertible
into equity shares. You are required to highlight the advantages of FCEB’s over FCCB’s
(4 marks)
Answer-
FCEB’s differ from FCCB’s in the following ways :
FCCB FCEB
FCCBs are optionally convertible. FCEBs are compulsorily convertible.
FCCBs may either be converted or redeemed They are compulsorily converted into
at the end of the tenure. equities of some other company.
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It involves only one company i.e., the issuer It involves two companies i.e. issuing
company. company & offering company.
FCCBs if not converted, doesnot attract FDI FCEBs at the time of issue requires
limits. adherence to FDI limits.
Q) Write a short note on QIBs (3 marks)

Answer-
Qualified Institutional Buyers (QIBs) shall mean the following:
a) Public Financial Institutions;
b) Scheduled Commercial Banks;
c) Mutual Funds;
d) Foreign Institutional Investors;
e) Multilateral and Bilateral Development Financial Institutions;
f) State Industrial Development Financial Institutions;
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g) Insurance Companies;
h) Provident Funds with minimum corpus of Rs 25 Crores;
i) Pension Funds with minimum corpus of Rs 25 Crores; and
j) National Investment Fund;
k) Insurance Funds set up and managed by Army, Navy and Air Force; and
l) Insurance Funds set up and managed by Department of Posts.
Q) Write a short note on on SCSBs. (4 marks)

Answer-
An issuer Company in case of public issue through book building method, provides a facility
called Application Supported by Blocked Amount (ASBA). In such facility, the applicant’s
money is not transferred to Company’s Escrow Account but it is locked in the Bank Account
of the investor itself. After the Company has decided the allotment criteria, excess
application money is unlocked in the investors account & the value of money against issue
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of shares is transferred to Company’s Escrow Account. Such facility can only be provided
by Self Certified Syndicate Banks as approved by & SEBI.
Q) A detailed note on Anchor Investors. (5 marks)

Answer-
Anchor Investor means a Qualified Institutional Buyer who makes an application for a value
of ten crore rupees or more in a public issue made through the book-building process in
accordance with SEBI (ICDR) Regulations, 2009.
Out of the portion available for allocation to QIBs, allocation to Anchor Investors may be
made subject to following conditions:
a) An Anchor Investor shall make an application of a value of at least Rs. 10 crore in the
public issue;
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b) Allocation to Anchor Investors shall be on a discretionary basis and subject to a
minimum number of 2 such investors for allocation of upto Rs. 250 crore and 5 such
investors for allocation of more than Rs. 250 crore;
c) Upto 30% of the portion available for allocation to qualified institutional buyers shall
be available to anchor investor(s) for allocation/allotment (“anchor investor portion”);
d) One-third of the anchor investor portion shall be reserved for domestic mutual funds;
e) The bidding for Anchor Investors shall open one day before the issue opening date;
f) Anchor Investors shall pay on application the same margin which is payable by other
categories of investors, the balance, if any, shall be paid within two days of the date of
closure of the issue;
g) Allocation to Anchor Investors shall be completed on the day of bidding by Anchor
Investors;
h) If the price fixed as a result of book building is higher than the price at which the
allocation is made to Anchor Investor, the Anchor Investor shall bring in the additional
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amount. However, if the price fixed as a result of book building is lower than the price
at which the allocation is made to Anchor Investor, the excess amount shall not be
refunded to the Anchor Investor and the Anchor Investor shall take allotment at the
price at which allocation was made to it;
i) The number of shares allocated to Anchor Investors and the price at which the
allocation is made, shall be made available in public domain but ye merchant banker
before opening of the issue.
There shall be a lock-in of 30 days on the shares allotted to the Anchor Investor from the
date of allotment in the public issue.
Q) Short note on Application supported by Blocked Amount (ASBA). (5 marks)

Answer-
1) ASBA stands for Application Supported by Blocked Amount.
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2) ASBA is a facility provided by Banks or Financial Institutions which are registered with
SEBI as Self Certified Syndicate Banks (SCSB).
3) Under this mechanism, instead of the bank transferring money to companies Escrow
account, it blocks the value of application money in the investor’s bank account only.
4) Once the company finalizes allotment criteria the value of which the company has issued
shares is transferred to companies escrow account and the remaining balance is
unfreezed in the account of the investors.
5) ASBA facility was introduced in order to avoid unnecessary delays in refunding the
excess application money to the investors and loss of interest over it.
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Q) Explain the concept of Green Shoe Option. (8 marks)
Answer-
Meaning: Green shoe option means an option given in order to stabilize the post listing
prices of company. It is done in order to bring stability in the stock price and avoid price
fluctuations.
Eligibility: A MB is appointed as a GSO agent who is appointed by way of a SR passed at GM
of the company.
GSO Allotment: A MB is allotted certain additional shares in excess of IPO limit or else he is
given the shares out of locked in shares of promoters upto a maximum limit of 15% of the
total issue size.
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GSO Requirements and time period: The GSO Agent is required to open a GSO demat A/c.
and GSO Bank A/c. In order to trade in securities of company, GSO activity is carried out for
a period of 30 days from the date of listing of its securities.
Settlement: At the expiry of 30 days all the share and cash value is settled and the shares
borrowed from promoters are returned back to him. Any excess profit if made by the GSO
agent is transferred to IEPF.
Q) “Prior information of open position of any share during market hours can easily
fluctuate the price of the share”. How Preventive Surveillance helps to reduce the
fraudulent price variation in the shares in a day? (5 marks)
Answer-
Exchanges have adopted automated surveillance tools that analyze trading patterns and are
installed with a comprehensive alerts management system. Preventive surveillance includes:
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 Circuit filters: The circuit filters are reduced in case of illiquid scrips or as a price
containment measure in low volume scrips. The circuit filters are reduced to 10% 15% or
2% as the case may be, based on the criteria decided by the exchange.
 Kill switch: all outstanding orders of that trading member are cancelled if the trading
member executes a kill switch.
 Rumor verification: any unannounced news about the listed companies is tracked online
and letter seeking clarification is sent to the companies and reply received is disseminated.
 Trade to trade: if scrip is shifted on a trade to trade settlement basis, selling/ buying of
shares in that scrip would result into giving / taking of delivery of shares at the gross level
and no intraday settlement /netting off facility would be permitted.
 Circuit breakers: price limits have been imposed by BSE to control price volatility &
prescribes daily and weekly limit for every stock.
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Q) Write short notes on the following :
a. Key difference between WPI & CPI
b. Basis of SENSEX
c. High Net Worth Individuals
d. Bulk Deal. (3 marks each)
Answer-
a. Key difference Between WPI and CPI
i. WPI is based on wholesale prices for primary articles, administered prices for fuel items
and ex-factory prices for manufactured products whereas CPI is based on retail prices,
which include all distribution costs and taxes.
ii. Prices for WPI are calculated on voluntary basis while price data for CPI are collected by
investigators by visiting markets.
iii. WPI covers all goods while CPI covers only consumer goods & services.
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iv. Primary use of WPI is to have inflationary trend in the economy as a whole. However CPI
is used for adjusting income & expenditures & change in cost in living.
b. Basis of sensex:
i. Sensitive index or Sensex is the stock market index indicator for BSE. It was first
published in 1986 and is based on the market weighed stock index of 30 companies
based on financial performance. The large, established companies that represent various
industrial sectors are part of this.
ii. The calculation of sensex is done by a free- float method that came into existence from 1
sept, 2003.
iii. The free float method takes into account the proportion of the shares that can be readily
traded in the market. This does not include the ones held by various shareholders &
promoters or other locked in shares not available in the market.
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Steps to calculate sensex:
 The market capitalization is taken into account. This is done by multiplying all the shares
issued by the company with the price of its stock.
 BSE determines a free float factor that is a multiple of the market capitalization of the
company. This helps in determining the free float market capitalization based on the
details submitted by the company.
 Ratio and proportion are used based on the base index of 100. This helps to determine the
sensex.
c. High net worth individuals:

i. HNIs is a class of individuals who are distinguished from other retail segment based
on their net assets, wealth & investible surplus.
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ii. Generally individuals with over Rs. 2 crores investible surplus may be considered to
be HNI s while those with investible wealth in the range of Rs. 25 lac – Rs. 2 crores
may be deemed as Emerging HNIs.
iii. While applying for an IPO of equity shares in an Indian company, the application for
amount in excess of Rs. 2lac falls under HNI category.
d. Bulk deal:
i. Bulk deal is a trade, where total qty bought or sold is more than 0.5% of the no. of
equity shares of listed company.
ii. Bulk deal can be transacted by the normal trading window provided by brokers
throughout the trading hours in a day.
iii. The stock broker who facilitates the trades is required to reveal to the stock exchange
about the bulk deals on a daily basis.
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iv. Bulk orders are visible to everyone. If the bulk deal happens through a single trade, it
should be notified to the exchange immediately upon the execution of the order. If it
happens through multiple trades, it should be notified to the exchange within 1 hour
from the closure of trading.
Q) “An Alternative Investment Fund which has been granted registration under a
particular category cannot change its category subsequent to registration, except with
the approval of the SEBI”. Enumerate the conditions for approval of SEBI. (5 marks)
Answer-
The conditions are as follows:
 Only AIFs that have not made any investment under their existing category would be
allowed to apply for changing their classification.
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 Any AIF proposing to change its category is required to make an application to the SEBI for
the same along with the application fees of rs 1 lakh. They are also required to intimate
rationale behind the change.
 In case the AIF has raised funds prior to the application for change in category, the AIF
would be required to inform all its investors providing them an option to withdraw their
funds raised without any penalties.
 Any fees collected from investors seeking to withdraw funds shall be returned to them.
Partial withdrawal may be allowed subject to compliance with the minimum investment
amount required under the AIF Regulations.
 The AIF would not make any investments other than in liquid funds/banks deposits until
approval for the change in category is granted by SEBI.
 On approval of the request from SEBI, the AIF shall send a copy of the revised placement
memorandum & other relevant information to all its investors.
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Q) “SEBI has amended the provisions related to registration of Sub-Broker to act as a
market intermediary”. Elucidate the statement and discuss the migration path for
existing registered Sub-Brokers. (5 marks)
Answer-
a. Under the current framework , sub brokers need to seek registration from the regulator
under SEBI (stock broker & sub broker) regulations, while authorized person need to seek
registration from the concerned exchange.
b. The board approved a proposal in June, to discontinue with sub broker as an intermediary
to be registered with the regulator. Hence the need for the category of sub broker is no
longer required.
c. No fresh registration shall be granted to any person as sub broker.
d. The registered sub brokers will have time till march 31, 2019 in order to migrate to act as
an AP or trading member & those who do not choose to migrate will be deemed to have
surrendered their registration with SEBI from march 31, 2019.
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e. Upon migration, the certificate of registration granted to the sub brokers by SEBI shall
stand withdrawn.
Q) Ramesh and Mahesh are the partners of the firm which carries various financial
advisory services. (other than investment advisory services). The firm has net worth of
` 10 crore. The firm desires to engage in providing credit rating services. Advise the
firm, whether it can apply to the SEBI for grant of certificate of registration under the
SEBI (Credit Rating Agencies) Regulations, 1999 ? (5 marks)
Answer-
i. As per SEBI(Credit Rating Agencies)Regulations,1999, an application for grant of
certificate shall be considered if –
1) The Applicant is set up and registered as a company under companies Act, 2013.
2) The Applicant has minimum net worth of 5cr.
3) The Applicant has in its Memorandum, Rating activity as one of its main objects.
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4) There are no Pending litigations against the company.
5) The Applicant is a fit and proper person.
ii. Therefore, in terms of the above provisions, the firm, not being a body corporate shall not
apply to SEBI for Grant of Certificate of Registration.

a. Categories of AIF
b. Foreign Portfolio Investor. (3 marks each)
Answer-
a. Categories of AIF
 Category 1 : Funds that invest in startups or social ventures or small medium
enterprises(SMEs) or other sectors ehich govt thi consider as socially or
economically desirable.
Example: VCF, INFRA FUNDS.
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 Category 2 : funds that do not fall in category 1 and 3 AIF and those that do not
undertake borrowing.
Example: PVT EQUITY FUNDS.
 Category 3 : Funds that employ complex trading strategies & may employ leverage
through investment in listed and unlisted derivatives.
Example: HEDGE FUNDS.
b. Foreign portfolio investor :
1. FPI means a person who satisfies the eligibility criteria and has been registered under
FPI regulations, which shall be deemed to be an intermediary.
2. This class has been formed by merging the existing classes of investors such as FIIs &
QIBs
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Q) What is meant by Anchor Investor ? What are the limitations of allocation to anchor
investors in the Book building process ?
Answer-
1. “Anchor investor" means a qualified institutional buyer who makes an application for a
value of ten crores rupees or more in a public issue made through the book building
process in accordance with these regulations.
2. Anchor investor means a qualified institutional buyer who makes an application for a value
of Rs.10 crores or more in a public issue made through the book building process subject
to the following regulations:-
(i) Allocation to Anchor Investors shall be on a discretionary basis and subject to the
following:
(a) Maximum of 2 such investors shall be permitted for allocation up to 10 crores;
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(b) Minimum of 2 and maximum of 15 such investors shall be permitted for allocation
above Rs.10 crores and up to Rs.250 crores, subject to minimum allotment of Rs.5
crores per such investor;
(c) Minimum of 5 and maximum of 25 such investors shall be permitted for allocation
above Rs.250 crores, subject to minimum allotment of Rs.5 crores per such
investor.
(ii) Up to 60% of the portion available for allocation to QIB shall be available to anchor
investor(s) for allocation/allotment.
(iii) One – third of the anchor investor portion shall be reserved for domestic mutual
funds.
Q) A listed company, Nishan Hitech Ltd. issued 10 lakh equity shares at a price of ` 150
per share. The company provided Green shoe option for stabilizing the post listing
price of the shares. On the day of listing of shares, the news of trade war between the
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two developed countries flashes and the price of shares of company fall to ` 110. Decide
how many shares can be purchased by the stabilizing agent to control the price ? State
the provisions for balance money lying in the special account for green shoe option. (5
marks)
Answer-
1. Green shoe option (GSO) provides the option of allotting equity shares in excess of the
equity shares offered in the public issue as a post – listing price stabilizing mechanism.
2. The Job of the stabilizing agent begins only after commencement of trading of share:
(i) In case the shares are trading at a price lower than the offer price, the stabilizing agent
starts buying the shares by using the money lying in the separate bank account. In this
manner, by buying the shares when others are selling, the stabilizing agent tries to put the
brakes on falling prices. The shares so bought from the market are handed over to the
promoters from whom they were borrowed.
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(ii) In case the newly listed shares start trading at a price higher than the offer price, the
stabilizing agent does not buy any shares. At this point, the company by exercising the green
shoe option issues new shares to the stabilizing agent, which are in turn handed over to the
promoters from whom the shares were borrowed. The promoters or promoters‟ group shall
not lend in excess of 15% of the total issue size.
(iii) The stabilizing agent shall open a special account, distinct from the issue account, with a
bank for crediting the monies received from the applicants against the over-allotment and a
special account with a depository participant for crediting specified securities to be bought
from the market during the stabilization period out of the monies credited in the special bank
account.
 Amount available to stabilizing agent = 15%*(10,00,000*150)
= 1500lakhs
Number of Shares that can be bought = 1500 / 110
= 13.63 lakhs Equity shares.
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 The balance left in the Special Bank Account if any shall be transferred to Investor
Education & Protection Fund.

(a) Private Equity
(b) Book Closure and Record Date
(c) Bankers to an issue
(d) Venture capital
(e) Pension Fund. (3 marks each)
Answer-
(a) Private Equity:
 Private equity is a type of equity and one of the asset classes who takes securities and
debt in operating companies that are not publicly traded on a stock exchange.
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 Private equity is essentially a way to invest in some assets that aren’t publicly traded,
or to invest in a publicly traded asset with the intention of taking it private.
 Unlike stocks, mutual funds, and bonds, private equity funds usually invest in more
illiquid assets, i.e. companies. By purchasing companies, the firms gain access to those
assets and revenue sources of the company, which can lead to very high returns on
investments.
 Another feature of private equity transactions is their extensive use of debt in the
form of high-yield bonds. By using debt to finance acquisitions, private equity firms
can substantially increase their financial returns.
 The major of private equity consists of institutional investors and accredited
investors who can commit large sums of money for long periods of
time. Generally, the private equity fund raise money from investors like Angel
investors, Institutions with diversified investment portfolio like – pension funds,
insurance companies, banks, funds of funds etc.
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(b) Book Closure and Record Date
 Book closure is the periodic closure of the Register of Members and Transfer Books
of the company, to take a record of the shareholders to determine their entitlement
to dividends or to bonus or right shares or any other rights pertaining to shares.
 Record date is the date on which the records of a company are closed for the purpose
of determining the stock holders to whom dividends, proxy’s rights etc. are to be sent.
 In accordance with Section 91 of the Companies Act, 2013 a company may close the
register of members for a maximum of 45 days in a year and for not more than 30
days at any one time.
 Book closure/record date is necessary for the purpose of paying dividend, rights
issue, bonus issue, etc for the companies whose securities are listed on the Exchange
are required to comply with the SEBI (LODR) Regulation 2015. As per SEBI (LODR)
Regulation 2015 the companies are required to give 7 working days advance notice
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of book closure or record date to stock exchange where the securities of the
companies are listed
(c) Bankers to an issue

1. Banker to an Issue means a scheduled bank carrying on all or any of the following
activities:
(i) Acceptance of application and application monies;
(ii) Acceptance of allotment or call monies;
(iii) Refund of application monies;
(iv)Payment of dividend or interest warrants.
2. Bankers to the issue, carries out all the activities of ensuring that the funds are
collected and transferred to the Escrow accounts. While one or more banks may
function as Bankers to the Issue as well as collection banks, others may do the limited
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work of collecting the applications for securities along with the remittance in their
numerous branches in different centers.
(d) Venture capital

1. Venture Capital is one of the innovative financing resource for a company in which
the promoter has to give up some level of ownership and control of business in
exchange for capital for a limited period, say, 3-5 years.
2. Venture Capital is generally equity investments made by Venture Capital funds, at an
early stage in privately held companies, having potential to provide a high rate of
return on their investments. It is a resource for supporting innovation, knowledge
based ideas and technology and human capital intensive enterprises.
3. Essentially, a venture capital company is a group of investors who pool investments
focused within certain parameters. The participants in venture capital firms can be
institutional investors like pension funds, insurance companies, foundations,
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corporations or individuals but these are high risk investments which may give high
returns or high loss.
(e) Pension Fund

1. Pension Fund means a fund established by an employer to facilitate and organize the
investment of employees retirement funds which is contributed by the employer and
employees.
2. The pension fund is a common asset pool meant to generate stable growth over the
long term, and provide pensions for employees when they reach the end of their
working years and commence retirement.
3. Pension funds are commonly run by some sort of financial intermediary for the
company and its employees like N.P.S. scheme is managed by UTIAMC (Retirement
Solutions), although some larger corporations operate their pension funds in- house.
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Pension funds control relatively large amounts of capital and represent the largest
institutional investors in many nations.
Q) What is meant by Block deal ? How is it being executed in the Stock Exchange ? (5
marks)
Answer-
Session Timings:
a) Morning Block Deal Window: This window shall operate between 08:45 AM to 09:00 AM.
b) Afternoon Block Deal Window: This window shall operate between 02:05 PM to 2:20 PM.
• In the block deal the minimum order size for execution of trades in the Block deal
window shall be Rs.10 Crores.
• The orders placed shall be within ±1% of the applicable reference price in the
respective windows as stated above.
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• The stock exchanges disseminates the information on block deals such as the name of
the scrip, name of the client, quantity of shares bought/sold, traded price, etc to the
general public on the same day, after the market hours.

a. Option Contract
b. Futures
c. Global Depository Receipts. (5 marks each)
Answer-
a. Option contract
1. An options contract is an agreement between two parties to facilitate a transaction
involving an asset at a present price and date.
2. Buying an option offers the right, but not the obligation to purchase or sell the underlying
asset.
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3. Options contracts are an important tool which gives traders the opportunity to hedge their
stock positions.
b. Futures
1. Futures are financial contracts that obligate the parties to transact an asset at a
predetermined future date & price regardless of the current market price.
2. A futures contract allows an investor to speculate on the direction of a security,
commodity, or a financial instrument.
3. Futures are used to hedge the price movement of the underlying asset to help prevent
losses from unfavorable price movements.
c. Global Depository Receipt:

1. GDR is a negotiable instrument created by Oversees Depository & issued to foreign
investors on behalf of the Issuer Company.
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2. They entitle the shareholders to all associated dividends and gains and can be bought and
sold like any other securities.
3. GDRs enable the issuer company to access foreign capital markets and increase the
shareholder base of the company.
Q) What do you understand by “Application Supported by Blocked Amount (ASBA)”?

How does it work in Initial Public Offer (IPO) ? Describe. (5 marks)
Answer-
a) ASBA means “Application supported by blocked amount “. It is an application containing
an authorization to block the application money in the bank account, for subscribing to an
issue.
Procedure:
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1. Investor submits the ASBA form available at the designated branches of the banks acting
as SCSB, after filling the details like name, bid qty, price etc by giving an instruction to
block the amount in their account.
2. The bank will upload the details of the application in the bidding platform.
3. If in the allotment list , shares are allotted to the investor , the bank transfers the blocked
amount to company.
Q) SEBI has classified Alternative Investment Fund (AIF) into three broad categories
i.e. Category I, Category II and Category III. Discuss key features of AIF categories. (5
marks)
Answer-
Features of AIF categories:
 Minimum investment from an individual shall be rs 1cr.
 The overall corpus of the AIF should be at least rs 20cr
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 There should not be more than 1000 investors at any point in time.
 The fund manager or the promoter should have contributed at least 2.4% or rs 5 crores,
to the initial capital.
Q) “The judgement is qualitative in nature and the role of the quantitative analysis is
to help make the best possible overall qualitative judgement or opinion. The reliability
of the rating depends on the validity of the criteria and the quality of analysis.” Discuss
the statement in context of SEBI (Credit Rating Agencies) Regulations, 1999.
Answer-
a. A CRA provides quality information on credit risk which is more authenticate and reliable
because it has highly trained & professional staff which have better ability to access risk.
They have access to lot of information, which may not be publicly available.
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b. Rating is based on the information & financial statements provided by the issuer company.
Therefore if any material information, if not disclosed by the issuer company, will affect
the rating.
c. Thus, CRA only provide opinion after analyzing all available information. The rating
agencies are expected to maintain highest level of analytical competence & integrity.
Q) “The book building process is very transparent. All investors including small
investors can see on an hourly basis where the book is being built before applying”.
Explain the offer to public through Book Building Process. (5 marks)
Answer-
Book building is basically a process used in initial public offer [IPO] for efficient price
discovery. The process comprises of these following steps –
 The issuing company appoints an underwriter who is tasked with determining the price
range the security can be sold for and for drafting a prospectus.
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 Invites investors, normally large scale buyers, to submit bids on the no. of shares that they
are interested in buying & the prices they would be willing to pay.
 The book is built by listing & evaluating the aggregate demand for the issue from the
submitted bids.
 The underwriter analyzes the information then uses a weighted average to arrive at a
final price for the security, which is termed as ‘cut off’ price.
 The underwriter has to, for the sake of transparency; publicize the details of all the bids
that were submitted.
 Finally, allocate the shares to the accepted bidders.

i. Portfolio Managers and Custodian
ii. Registrar and Share Transfer Agents. (3 marks each)
Answer-
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Portfolio Managers and Custodian.
 A Portfolio manager is a professional responsible for making investment decisions and
carrying out investment activities on behalf of his clients.
 He studies the market and adjusts the investment mix for his client on a continuing basis
to ensure safety of investment and reasonable returns.
 A custodian is a financial institution that holds customer’s securities for safekeeping in
order to minimize the risk of their theft or loss.
 A custodian holds securities &other assets in electronic or physical form.
Registrar & share Transfer Agents:

 SEBI guidelines make it mandatory to appoint RTA and STA, in relation to the
management of public offer introduced by the body corporate.
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 The registrar to an issue is an intermediary that collects applications from investors with
respect to an issue. They keep a proper record of applications and monies received from
investors.
 STA is an agent who on behalf of body corporate, maintains records of holders of
securities issued by such body corporate & deals with the process of transfer and
redemption of securities.
Q) A transaction of the dematerialised equity share took place on the 9th October,
2018 at BSE. According to the Compulsory Rolling Settlement, complete the following
table with timeline of the settlement cycle:
Activity Day and Date
Rolling Settlement
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Custodial Confirmation and Delivery Generation
Securities and Funds Pay-in and Pay-out
Auction
Bad Delivery Reporting
Auction Settlement
Rectified Bad Delivery Pay-in and Pay-out
Re-Bad Delivery Reporting and Pick-up
Close out of Re-Bad Delivery and Funds Pay-in and Pay-out
Answer-
Activity Day & Time
Rolling settlement T
Custodial confirmation and delivery generation T+1 Working day
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Securities & funds Pay in pay out T+2 Working day
Auction T+3 Working day
Bad delivery reporting T+4 Working day
Auction settlement T+5 working day
Rectified bad delivery pay in & pay out T+6 working day
Re bad delivery reporting & pick up T+8 Working day
Close out of re bad delivery & funds pay in and pay out T+9 working day
Q) What is market abuse? Explain the functioning of price monitoring. (5 marks)

Answer-
a) Market abuse means abnormal price/volume movement, artificial transactions, false or
misleading impression and insider trading etc.
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b) To stop such practices in the stock market, the stock exchange has introduced the
system of surveillance. The following action can be taken by the stock exchanges to
control market abuses:
(i) Imposition of Special Margin
(ii) Reduction of Circuit Filters
(iii) Suspension, and
(iv)Deactivation of Terminal of Broker
PRICE MONITORING
 On – line surveillance: Online surveillance system has facility to generate the alerts on
– line, in real time, based on certain preset parameters like price & volume variations in
scrips, members taking unduly large positions not commensurate with their financial
position in one or two scrips. It alerts immediately to the officials of Stock Exchange
about the abnormal behavior of members.
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 Off – line surveillance: The Off – Line Surveillance system is based on various reports
like High/Low Difference in prices, Percentage change in prices over a
week/fortnight/month, trading in infrequently traded scrips and scrips hitting New
High/Low.
 Derivative market surveillance: Under this category, the focus areas are like abnormal
fluctuation in the prices of a Series, Market Movement, Member Concentration and
Closing Price Manipulation.
 Investigation: The Exchange conducts in – depth investigations based on preliminary
enquiries/analysis made into trading of the scrip and also at the instance of SEBI.
Q) “All Alternative Investment Funds shall ensure transparency and disclosure of

information to investors.” Comment. (4 marks)
Answer-
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All Alternative Investment Funds shall ensure transparency and disclosure of information
to investors on the following:
a) Financial, risk management, operational, portfolio, and transactional information
regarding fund investments shall be disclosed periodically to the investors;
b) Any fees prescribed to the Manager or Sponsor; and any fees charged to the Alternative
Investment Fund or any investee company by an associate of the Manager or Sponsor
shall be disclosed periodically to the investors;
c) Any inquiries/ legal actions by legal or regulatory bodies in any jurisdiction, as and when
occurred;
d) Any material liability arising during the Alternative Investment Fund’s tenure shall be
disclosed, as and when occurred;
e) Any breach of a provision of the placement memorandum or agreement made with the
investor or any other fund documents, if any, as and when occurred;
f) Change in control of the Sponsor or Manager or Investee Company;
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g) Alternative Investment Fund shall provide at least on an annual basis, within 180 days
from the year end, reports to investors including the following information, as may be
applicable to the Alternative Investment Fund:-
A. financial information of investee companies.
B. material risks and how they are managed which may include:
1. Concentration risk at fund level;
2. Foreign exchange risk at fund level;
3. Leverage risk at fund and investee company levels;
4. Realization risk (i.e. change in exit environment) at fund and investee company
levels;
5. Strategy risk (i.e. change in or divergence from business strategy) at investee
company level;
6. Reputation risk at investee company level;
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7. Extra-financial risks, including environmental, social and corporate governance
risks, at fund and investee company level.
h) Category III Alternative Investment Fund shall provide quarterly reports to investors in
respect of clause
i) Within 60 days of end of the quarter;
j) Any significant change in the key investment team shall be intimated to all investors;
k) Alternative Investment Funds shall provide, when required by SEBI, information for
systemic risk purposes (including the identification, analysis and mitigation of systemic
risks).
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CHAPTER 16 - CAPITAL MARKET INTERMEDIARIES
Q) List out all the credit rating agencies in India. (3 marks)

Answer-
Following are the important Credit Rating Agencies in India:
1) Credit Analysis and Research Limited (CARE)
2) Investment Information and Credit Rating Agency of India Limited (ICRA)
3) Credit rating and Information Services (India) Limited (CRISIL)
4) India Ratings and Research Private Limited
5) Brickworks Rating Private Limited
6) SME Rating Agency of India Limited (SMERA)
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Q) Credit Rating is a powerful marketing for a company. Explain. (4 marks)
Answer-
 In case of any public issue, it is mandatory for an issuer company to obtain rating from
one such credit rating agency.
 Credit Rating Agency understands the financials & business of the company & it allocates
a suitable rating on a scale of 5 to such company.
 Such ratings help the investors in identifying the risk factors associated with such
investments.
 From the issuer company point of view, it becomes easy to reach out to the investors if a
company has good ratings & attract better investments.
 Since it eases the job of the company as the ratings are published in all the offer
documents of the company, a good rating acts as a marketing tool for such companies.
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Q) Credit rating is a one time job on the part of credit rating agencies. Comment. (4
marks)
Answer-
 Credit Rating means analyzing the credits, based upon its financial position, business
standing & its credit worthiness.
 Any company which comes up with any primary market is compulsorily required to
obtain credit rating from one of the credit rating agency.
 In case of debt instruments, the validity of the instrument remains for more than a year.
And also the financial position of the company may change over this period.
 Therefore, a rating agency not only rates the company at the time of its public issue but
also in cases of change in such rating it is required to intimate the issuer company about
such change.
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 Over the tenure of the instrument rating can be upgraded or downgraded & the same
change is required to be informed to the issuer company. It is therefore an ongoing
activity.
Q) Priyanka Ltd. is planning to come up with an IPO. For this purpose, it has obtain
IPO grading from 3 agencies which are IPO-3, IPO-4 & IPO-5. Explain the meaning of
IPO grading. Advice which IPO grading should be reported by the company in its
prospectus. (6 marks)
Answer-
 IPO Grading means grading of the instrument issued by a company in case of an IPO.
 As per SEBI Regulations, it is mandatory for all the companies to obtain & publish CR
from atleast one of the CRAs in India.
 The CRAs rate the issuer company on a scale of 5 after considering the financial strength
of the company.
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 Such ratings help the investors in taking a better investment decision in the shares of a
company.
 A company has a choice to obtain ratings from more than one CRAs. However, it is not
necessary to disclose all the ratings obtained by it. It is the discretion of the Board to
decide which ratings to publish in the offer document.
 In the given case, Priyanka Ltd. obtained ratings from 3 CRAs which were IPO-3, IPO-4
& IPO-5. It may either publish all of them or any one at its discretion.
Q) Briefly discuss the code of conduct for credit rating agencies. (8 marks)
Answer-
(1) A credit rating agency should observe high standards of integrity and fairness in all its
dealings.
(2) A credit rating agency should fulfill its obligations in an ethical manner.
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(3) A credit rating agency should render high standards of service, exercise due diligence,
ensure proper care and exercise independent professional judgement.
(4) The credit rating agency should avoid any conflict of interest of any member of its rating
committee.
(5) A credit rating agency should not indulge in unfair competition nor they should solicit
client of any other rating agency on assurance of higher rating.
(6) A credit rating agency should not make any exaggerated statement, whether oral or
written, to the client either about its qualification or its capability.
(7) A credit rating agency should always endeavour to ensure that all professional dealings
are effected in a prompt and efficient manner.
(8) A credit rating agency should not divulge to other clients, press or any other party any
confidential information about its client, which has come to its knowledge, without
making disclosure to the concerned person of the rated company/client.
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Q) What do you understand by Registrar to an Issue? State various activities carried
out by the registrar. (4 marks)
Answer-
 Registrar to an Issue means a person authorized by a body corporate to carry on the
following activities on its behalf :
(i) Collecting applications from investors in respect of an issue.
(ii) Keeping a proper record of applications & money received from investors.
(iii) Assisting body corporate in the following :
a) Determining the basis of allotment of securities.
b) Finalizing the list of persons entitled to allotment of securities, and
c) Processing & dispatching allotment letters & refund etc.
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Q) Capital market intermediaries are a vital link between SEBI and Investors in a
public issue. Comment. (4 marks)
Answer-
 SEBI was formed & enacted in order to protect the interest of the investors. Moreover,
SEBI also regulates the trading activities in the market.
 All the intermediaries in the market are registered with SEBI. They act as a link
between the issuer company & the investors.
 Investors while investing expects that their money is saved & it grows as the companies
earn profits.
 Intermediaries ensure that the issuer company discloses all the material facts before
issuing securities to the public. This helps the investors take a sound decision before
investing their money.
 Thus, intermediaries make the job of SEBI easy by ensuring compliance of all the
applicable laws.
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Q) Enumerate the provisions related to underwriting obligations of a Merchant
Banker. (4 marks)
Answer-
 Underwriting means a commitment to subscribe to the securities of a company in case
of a public issue if the securities are not fully subscribed.
 Underwriting commitment by an underwriter cannot go beyond 10% of the total issue
size.
 However, as per SEBI (ICDR) Regulations, 2009, a Merchant Banker shall also subscribe
to a portion of the underwriting commitment i.e., he must subscribe to the shares to
the extent of 15% of the total issue size.
 As per SEBI (Merchant Banker) Regulations, 1992, a Merchant Banker must subscribe
to the extent of 5% of the total underwriting commitment or Rs. 25 lakhs whichever is
less.
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Q) SEBI noticed a spurt in the volume of trading of the script of ABC Ltd. both at NSE
& BSE during May 2013 – July 2013. Though the script was not very liquid, it was
observed that during the said period, the price of script ranged between Rs. 25 – Rs.
125. It was found on an investigation that a stock broker of BSE himself got registered
as a client with a NSE broker & placed order in large quantities in the script of ABC
Ltd. On the basis of these facts, examine whether SEBI can initiate any action against
the said BSE broker. (5 marks)
Answer-
 SEBI as an authority has a right to carry on investigations in cases where they think that
some fraudulent transactions here done in the shares of some company. A stock broker
apart from acting in his capacity as a broker may also invest in the securities of any
company provides, it does not breach any SEBI regulations.
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 In the given case, the stock broker opened demat account with a NSE broker & dealt in
the shares of ABC Ltd. During the period from May – July 2013, the stock saw an upside
in its prices & consequently SEBI conducted investigations proceedings.
 As an investor, if the broker has not contravened any SEBI regulations, SEBI has no right
to punish such broker, however, as a regulatory body, it can always conduct
investigations, proceedings against the said broker.
Q) Mr. X, a practicing CS while carrying out his professional duties on behalf of his
clients also started advising them on investments in securities markets. The
adjudicating officer on a complaint made by an investor started investigation
proceedings in the said matter & levied a fine of Rs. 50 lakhs for breaching the code
of conduct as a capital market intermediary. Mr. X approaches you to seek advice on
the said matter. (5 marks)
Answer-
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1. Any person engaged in the business of providing investment advice to the clients or
other persons for consideration is called an investment advisor.
2. As per SEBI Regulations, any person carrying out such activities is required to be
registered as an investment advisor.
3. In the given case the person doing such advisory business is a Practicing Company
Secretary whose office is exempt from obtaining certificate of registration from SEBI
because giving investment advice is very incidental to his professional practice.
4. Therefore, the fine imposed by the adjudicating officer is unjustified & unreasonable.
Format of Advice Answers :
Name of the Firm
Address ………………………………………………………………
Tel: ……………………. Fax: ……………………… Email: ……………………
19th Sept 2015
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Mr. X. (Name)
Sub: Advice on Registration as an Investment Advisor
Dear Sir,
……………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………
…
Thanking you,
Yours faithfully,
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Sd/-
(Name)
(Designation)
Q) Investment advisor provide guidance about firms dealings and investments.

Comment on this statement of State the role of investment advisor in financial
market. (5 marks)
Answer-
 Investment advisor means any person who for consideration, is engaged in the business
providing investment advice to clients or other persons or group of persons of includes
any person, who holds out himself as an investment adviser, by whatever name called.
 Investment Advisors have a great role to play in the financial market as they facilitate
the retail investors to invest their money in the markets directly.
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 While fulfilling their duties they shall ensure that they are acting in good faith and in the
interest of such investors.
 They shall act diligently and work towards best interest of clients. As such there is no
eligibility criteria for becoming an investment adviser and any person with sound
financial knowledge may act as an adviser after obtaining due regulation from SEBI.
Q) Comment on the role of Stock Brokers & Sub-Brokers in the Indian Stock Market.
(5 marks)
Answer-
 Both Stock brokers & Sub-brokers act as a vital link between investors.
 From the issuer company point of view, they build a demand in the securities of the
Company.
 They help & assist the investors in executing appropriate trades in the market.
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 From the Regulators point of view, they ensure compliance with the necessary trade
transactions.
 They assist the depositories in settlement of trade on a daily basis.
Q) What do you mean by ‘Research Analysts’ ? Elucidate the net worth requirements,
and role and responsibilities of Research Analyst as per SEBI (Research Analyst)
Regulations, 2014.
Answer-
“Research analyst” means a person who is primarily responsible for,-
1.preparation or publication of the content of the research report; or
2.providing research report; or iii. making ‘buy/sell/hold’ recommendation; or iv. giving price
target;
3. offering an opinion concerning public offer, with respect to securities that are listed or to
be listed in a stock exchange, whether or not any such person has the job title of ‘research
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analyst’ and includes any other entities engaged in issuance of research report or research
analysis.
The net worth of Research Analyst is :
• Body corporate or limited liability partnership firm – not less than Rs. 25 Lakh
• Individual or partnership firm shall have net tangible assets of value not less than Rs. 1 Lakh
ROLE & RESPONSIBILITY: They study Companies and industries, analyse raw data, and
make forecasts or recommendations about whether to buy, hold or sell securities. They
analyse information to provide recommendations about investments in securities to their
clients. Investors often view analysts as experts and important sources of information about
the securities they review and often rely on their advice. There are basically three broad
types of analysts, viz. sell-side analysts, buy-side analysts and independent analysts.
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Custodian of Securities (4 marks)
Answer-
Custodian of securities:
i. A custodian is a person who carries on the business of providing custodial services to the
client.
ii. The custodian also provides incidental services such as maintaining the accounts of
securities of the client, collecting the benefits or rights accruing thereto.
iii. Every custodian should have adequate facilities, sufficient capital and financial strength to
manage the custodial services.
Q) i. Define the debenture trustee.

ii. Describe responsibilities and obligations of debenture trustees. (5 marks)
Answer-
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(i) Debenture trustee means a trustee of a Trust Deed for securing any issue of debentures of
a body corporate. The following persons can act as a debenture trustee:
a) A scheduled bank carrying on commercial activity.
b) A public financial institution.
c) An insurance company.
d) A body corporate.
(ii) Responsibilities and obligations of Debenture trustee are :
a) Protect the interest of debenture holders.
b) Exercise due diligence to ensure compliance by the body corporate with all the
applicable acts.
c) To ascertain that debentures have been converted or redeemed in accordance with
the provisions.
d) Ensure creation of debenture redemption reserve.
e) Ensure disclosure of all material events to SEBI.
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Share Transfer Agent Services (3 marks)
Answer-
Share Transfer Agent
A share transfer agent is an agent who, on behalf of the body corporate, maintains records of
holders of securities issued by such body corporate and deals with the process of transfer and
redemption of securities.
The activities performed by a share transfer agent are:
 Endorsement of certificates for allotment.
 Transmission, consolidation and sub division of securities.
 Cancel the name and certificate of the shareholder who had sold the shares.
 Enter the name of the new shareholder in the register of members.
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Q) Credit Rating Agencies may not be taking cognizance of information for delays in
servicing debt obligations while reviewing of its ratings. What are the material events
requiring a review by the Credit Rating Agencies as per SEBI’s circular ? (4 marks)
Answer-
1. CRAs shall carry out a review of the ratings upon the occurrence of or announcement/
news of material events including, but not restricted to, the following:
i. Quarterly/ Half-yearly/ annual results
ii. Merger/ Demerger/ Amalgamation/ Acquisition
iii. Corporate debt restructuring, reference to BIFR and winding-up petition filed by any
party /creditors.
iv. Significant decline in share prices/bond prices of the issuer or group companies
which is not linked to overall market movement
v. Significant increase in debt level or cost of debt of the issuer company
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vi. Losses, sharp revenue de-growth etc. based on publicly disclosed financial
statements, which are not in line with CRA‟s earlier estimates vii. Granting,
withdrawal, surrender, cancellation or suspension of key licenses or regulatory
approvals.
vii. Disruption/ commencement/ postponement of operations of any unit or division of
the listed entity.
viii. Any attachment or prohibitory orders against the Issuer
ix. Any rating action taken by an International Rating Agency with respect to rating
assigned to the Issuer/ Instruments issued by the Issuer.
Q) Explain the provisions for compulsory internal audit of Registrars to an Issue/Share

Transfer Agents (RTAs). (4 marks)
Answer-
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• All RTAs are required to carry out internal audit on annual basis by independent qualified
Chartered Accountants or Company Secretaries or Cost and Management Accountants
and Certified Information Systems Auditor (CISA) who don’t have any conflict of interest.
• Eligibility of auditors for conducting the Internal Audit of the RTA
i. The audit firm shall have a minimum experience of three years in the financial sector.
ii. An auditor shall be appointed for a maximum term of five years, with a cooling-off
period of two years.
• The audit shall cover all aspects of RTA operations including investor grievance redressal
mechanism and compliance with the requirements stipulated in the SEBI Act, Rules and
Regulations made there under, and guidelines/circulars issued by SEBI from time to
time..
• The report shall state the methodology adopted, deficiencies observed, and consideration
of response of the management on the deficiencies.
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• The report shall include a summary of operations and of the audit, covering the size of
operations, number of transactions audited and the number of instances where violations
/ deviations were observed while making observations on the compliance of any
regulatory requirement.
• The report shall comment on the adequacy of systems adopted by the RTAs for
compliance with the requirements of regulations and guidelines issued by SEBI and
investor grievance redressal.
• The RTA shall submit a copy of report of the internal audit to Issuer Company within
three months from the end of the financial year. Copy of the same shall also be preserved
by the RTA.
• The Governing Council (i.e. Board of Directors, Board of Partners, proprietor etc. as
applicable) of the RTA shall consider the report of the internal auditor and take steps
to rectify the deficiencies, if any. The RTA shall send the Action Taken Report to Issuer
Company within next one month and a copy thereof shall be maintained by the RTA.
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• The audit observations along with the corrective steps taken by the RTA shall be placed
before the Board of Directors of the Issuer Company.
Q) Explain the services rendered by Share Transfer Agent. (4 marks)

Answer-
Services by a share transfer agent are as follows:
1. Processing of transfer of Securities in physical form.
2. Processing Transmission / Transposition / Consolidation of holdings.
3. Processing of Demat requests and converting physical holding into electronic
holding (Dematerialization).
4. Processing of Remat requests and converting electronic holding into physical
holding (Rematerialization)
5. Recording of specimen signatures in electronic media.
6. Undelivered returned security documents and other Registers and Returns.
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7. Processing of Call payments and Endorsements.
8. Investor Services including providing investor related information, across counters
9. Through written communication and through telephone and via e-mail.
10. Integrating electronic beneficiary positions with the physical shareholding.
11. Redress Investor Complaints which appears in SEBI Complaints Redress
System (SCORES).
12. Assisting Client Companies in the redressing investor grievances which appears in
their ID.
Q) “Debenture Trustee should exercise due diligence to ensure compliances with the
provisions of the Companies Act, listing agreement of stock exchange and the trust
deed.” In the light of the above statement, enumerate the various responsibilities of
Debenture trustee as per SEBI (Debenture Trustees) Regulations, 1993. (5 marks)
Answer-
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Debenture Trustee’ means a trustee of a trust deed for securing any issue of debentures of
a body corporate. The various responsibilities of Debenture trustee as per SEBI (Debenture
Trustees) Regulations, 1993 are as follow:
- Call for periodical reports from the body corporate, i.e., issuer of debentures.
- Take possession of trust property in accordance with the provisions of the trust deed.
- Enforce security in the interest of the debenture holders.
- Ensure on a continuous basis that the property charged to the debenture is available and
adequate at all times to discharge the interest and principal amount payable in respect
of the debentures and that such property is free from any other encumbrances except
those which are specifically agreed with the debenture trustee.
- Exercise due diligence to ensure compliance by the body corporate with the provisions
of the Companies Act, the listing agreement of the stock exchange or the trust deed.
- To take appropriate measures for protecting the interest of the debenture holders as
soon as any breach of the trust deed or law comes to his notice.
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- To ascertain that the debentures have been converted or redeemed in accordance with
the provisions and conditions under which they are offered to the debenture holders.
- Inform the SEBI immediately of any breach of trust deed or provision of any law.
- Appoint a nominee director on the board of the body corporate when required.
Q. Write short notes on the following:

(a) Bankers to an issue
(b) Custodians of Securities
(c) Foreign Currency Convertible Bonds
(d) Indian Depository Receipts
(e) Self-Certified Syndicate Bank. (3 marks each)
Answer-
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a) Bankers to an Issue
1) Banker to an issue means a scheduled bank carrying on all or any of the following
activities:
(i) Acceptance of application and application monies;
(ii) Acceptance of allotment or call monies;
(iii) Refund of application monies;
(iv) Payment of dividend or interest warrants.
2) Bankers to the issue, as the name suggests, carries out all the activities of ensuring that
the funds are collected and transferred to the Escrow accounts.
3) 3) While one or more banks may function as Bankers to the issue as well as collection
banks, others may do the limited work of collecting the applications for securities
along with the remittance in their numerous branches in different centres.
4) The banks are expected to furnish prompt information and records to the company as
well as to the lead manager for monitoring and progressing the issue work.
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b) Custodians of Securities
1) A custodian is a person who carries on or propose to carry on the business of providing
custodial services to the client.
2) The custodian keeps the custody of the securities of the client. The custodian also
provides incidental services such as maintaining the accounts of securities of the client,
collecting the benefits or rights accruing to the client in respect of securities.
3) Custodians of Securities carrying the following activities:
• Administrate and protect the assets of the clients.
• Open a separate custody account and deposit account in the name of each client.
• Record assets.
• Conduct registration of securities.
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c) Foreign Currency Convertible Bonds (FCCBs)
1) The FCCBs are unsecured instruments which carry a fixed rate of interest and an
option for conversion into a fixed number of equity shares of the issuer company.
2) Interest and redemption price (if conversion option is not exercised) is payable in
dollars. FCCBs shall be denominated in any freely convertible Foreign Currency.
3) However, it must be kept in mind that FCCB, issue proceeds need to conform to ECB
end use requirements.
4) Foreign investors also prefer FCCBs because of the Dollar denominated servicing, the
conversion option and, the arbitrage opportunities presented by conversion of the
FCCBs into equity shares at a discount on prevailing Indian market price. In addition,
25% of the FCCB proceeds can be used for general corporate restructuring.
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d) Indian Depository Receipts
1) Indian Depository Receipt means any instrument in the form of a depository receipt
created by a domestic depository in India and authorised by a company
incorporated outside India making an issue of such depository receipts.
2) An IDR is an instrument denominated in Indian Rupee in the form of a depository
receipt created by a domestic depository (Custodian of securities registered with
SEBI) against the underlying equity of issuing company to enable foreign companies
to raise funds from Indian Securities Markets.
3) In an IDR, foreign companies would issue shares, to a domestic (Indian) depository,
which would in turn issue depository receipts to investors in India.
4) The actual shares underlying the IDRs would be held by an Overseas Custodian,
which shall authorize the Indian depository to issue the IDRs.
5) To that extent, IDRs are derivative instruments because they derive their value from
the underlying shares.
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e) Self-Certified Syndicate Bank
1) Self-Certified Syndicate Bank (SCSB) is a bank which offers the facility of applying
through the ASBA process. A bank desirous of offering ASBA facility shall submit a
certificate to SEBI as per the prescribed format for inclusion of its name in SEBI's list of
SCSBs.
2) A SCSB shall identify its Designated Branches (DBs) at which an ASBA investor shall
submit ASBA and shall also identify the Controlling Branch (CB) which shall act as a
coordinating branch for the Registrar of the issue, Stock Exchanges and Merchant
Bankers.
3) The SCSB, its DBs and CB shall continue to act as such, for all issues it to which ASBA
process is applicable.
4) The SCSB may identify new DBs for the purpose of ASBA process and intimate details
of the same to SEBI, after which SEBI will add the DB to the list of SCSBs maintained by
it.
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5) The SCSB shall communicate the following details to Stock Exchanges for making it
available on their respective websites; these details shall also be made available by the
SCSB on its website:
(i) Name and address of all the SCSB.
(ii) Addresses of DBs and CB and other details such as telephone number, fax number
and email ids.
(iii) Name and contacts details of a nodal officer at a senior level from the CB.
Q) What do you know about Market Surveillance? Enumerate different ways of

Preventive Surveillance. (5 marks)
Answer-
1. Market Surveillance plays a vital role in ensuring market integrity which is the core
objective of regulators.
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2. Market integrity is achieved through combination of surveillance, inspection,
investigation and enforcement of relevant laws and rules.
3. Exchange adopt automated surveillance tools that analyse trading patterns and are
installed with a comparative alert management system.
4. Preventive Surveillance –
 Trade Execution Range - Orders are matched and trades take place only if the
 trade price is within the reference price and execution range.
 Order Value Limitation - Maximum Order Value limit allowed per order.
 Cancel on logout - All outstanding orders are cancelled, if the enabled user logs
 out.
 Kill switch - All outstanding orders of that trading member are cancelled if trading
 member executes kill switch.
 Risk reduction mode - Limits beyond which orders level risk management shall
 be initiated instead of trade level.
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Q) The Registrar to an Issue and Share Transfer Agents constitute an important
category of intermediaries in the securities market. List out the ‘pre-issue’ and ‘post-
issue’ work undertaken by them. (5 marks)
Answer-
The Registrar to an Issue and Share Transfer Agents undertake the following activities with
respect to issue:
Pre-Issue Work
 Sending instructions to Banks for reporting of collection figures and collection of
applications.
 Providing Practical inputs to the Lead Manager and Printers regarding the design
 of the Bid cum-application form.
 Facilitate and establish information flow system between clients, Banks and Managers
to the issue.
 Liaison with Regulatory Authorities such as SEBI & Stock Exchanges.
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 Post-Issue Work
 Data capturing & validation
 Reconciliation
 Provide Allotment Alternatives in consultation with Client / Merchant Banker and Stock
Exchanges
 Facilitating Listing
 Uploading of data to the Depositories for crediting of securities electronically
Q) The Companies Act, 2013 has authorised equity share capital with differential
rights as to dividend, voting or otherwise read with rules under Companies (Share
Capital and Debentures) Rules, 2014. Briefly explain the conditions for issue of shares
with differential voting rights under the Act. (5 marks)
Answer-
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1. the articles of association of the company authorizes the issue of shares with differential
rights;
2. the issue of shares is authorized by ordinary resolution passed at a general meeting of
the shareholders. Where the equity shares of a company are listed on a recognized stock
exchange, the issue of such shares shall be approved by the shareholders through postal
ballot at a general meeting;
3. the voting power in respect of shares with differential rights of the company shall not
exceed seventy-four per cent of total voting power including voting power in respect of
equity shares with differential rights issued at any point of time;
4. the company has not defaulted in filing financial statements and annual returns for three
financial years immediately preceding the financial year in which it is decided to issue
such shares;
5. the company has no subsisting default in the payment of a declared dividend to its
shareholders.
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6. the company has not defaulted in payment of the dividend on preference shares.
7. the company has not been penalized by Court or Tribunal during the last three years of
any offence
8. The explanatory statement to be annexed to the notice of the general meeting.
9. The company shall not convert its existing share capital with voting rights into equity
share capital carrying differential voting rights and vice-versa;
10.The Board of Directors shall disclose in the Board’s Report for the financial year in which
the issue of equity shares with differential rights was completed.

(a) Key features of Preventive Surveillance
(b) Debenture Trustee
(c) Margins
(d) Trading Mechanism
Page 339
(e) Foreign Portfolio Investor. (3 marks each)
Answer-
Key features of Preventive Surveillance
Following are some important features or ingredients of preventive surveillance:
1. Stringent On boarding norms for Trading Members - Stringent net worth, back ground,
viability etc. checks while on boarding Trading Members.
2. Index circuit filters - It brings coordinated trading halt in all equity and equity derivative
markets at 3 stages of the index movement, either way viz., at 10%, 15% and 20% based
on previous day closing index value.
3. Trade Execution Range - Orders are matched and trades take place only if the trade price
is within the reference price and execution range.
4. Order Value Limitation - Maximum Order Value limit allowed per order.
5. Cancel on logout - All outstanding orders are cancelled, if the enabled user logs out.
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6. Kill switch - All outstanding orders of that trading member are cancelled if trading member
executes kill switch.
b) ‘Debenture Trustee’
1. means- a trustee appointed in respect of any issue of debentures of a body
corporate.
2. Duties of Debenture Trustee:
 It shall be the duty of every debenture trustee too satisfy itself that the
prospectus or letter of offer does not contain any matter which is inconsistent
with the terms of the issue of debentures or with the trust deed;
 satisfy itself that the covenants in the trust deed are not prejudicial to the
interest of the debenture holders;
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 call for periodical status/performance reports from the issuer company within
7 days of the relevant board meeting or within 45 days of the respective
quarter whichever is earlier;
 communicate promptly to the debenture holders defaults, if any, with regard
to payment of interest or redemption of debentures and action taken by the
trustee therefore;
 call for reports on the utilization of funds raised by the issue of debentures;
 Take possession of trust property in accordance with the provisions of the
trust deed
 Appoint a nominee director on the board of the body corporate when required.
c) Margins:
An advance payment of a portion of the value of a stock transaction. The amount of credit
a broker or lender extends to a customer for stock purchase.
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Margin is of two types:
1. “Initial margin” in this context means the minimum amount, calculated as a percentage
of the transaction value, to be placed by the client, with the broker, before the actual
purchase. The broker may advance the balance amount to meet full settlement
obligations.
2. “Maintenance margin” means the minimum amount, calculated as a percentage of
market value of the securities, calculated with respect to last trading day's closing price,
to be maintained by client with the broker.
d)
1. In the Indian securities market, various products are traded like equity shares,
warrants, debenture, etc.
2. The trading in the securities of the company takes place in dematerialised form in India.
Page 343
3. Dematerialization is the process by which physical certificates of an investor are
converted to an equivalent number of securities in electronic form and credited to the
investor's account with his Depository Participant (DP).
4. Trading in the securities of the company takes place on the screen-based platforms
provided by the Exchanges. Currently for equity shares the settlement cycle is (T+2
days)
5. Any shares which are traded on the Exchange are required to be settled by the clearing
corporation of the exchange on 2 working day.
6. In electronic trading order received are matched electronically on a strict price/time
priority and hence cuts down on time, cost and risk of error, as well as on fraud
resulting in improved operational efficiency.
7. It enables market participants, irrespective of their geographical locations, to trade
with one another simultaneously.
Page 344
e) “Foreign Portfolio Investor" means a person who has been registered under Chapter II of
SEBI (Foreign Portfolio Investors) Regulations, 2019 and shall be deemed to be an
intermediary in terms of the provisions of the SEBI Act, 1992.
General Obligations and Responsibilities
The foreign portfolio investor shall –
1) comply with the provisions of Foreign Portfolio Investors Regulations, as far as they may
apply, circulars issued thereunder and any other terms and conditions specified by the
SEBI from time to time;
2) forthwith inform the Board and designated depository participant in writing, if any
information or particulars previously submitted to the SEBI or designated depository
participant are found to be false or misleading, in any material respect;
3) forthwith inform the SEBI and designated depository participant in writing, if there is any
material change in the information including any direct or indirect change in its structure
Page 345
or ownership or control, previously furnished by him to the SEBI or designated depository
participant;
4) as and when required by the SEBI or any other Government agency in India, submit any
information, record or documents in relation to its activities as a foreign portfolio
investor;
5) forthwith inform the SEBI and the designated depository participant, in case of any
penalty, pending litigation or proceedings, findings of inspections or investigations for
which action may have been taken or is in the process of being taken by an overseas
regulator against it;
6) obtain a Permanent Account Number from the Income Tax Department;
Q) What is bulk deal? State the difference between block deal and bulk deal? (5 marks)
Answer-
Page 346
1. Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number
of equity shares of a listed company,
2. Bulk deal can be transacted by the normal trading window provided by brokers
throughout the trading hours in a day.
3. Bulk deals are market driven and take place throughout the trading day.
4. The stock broker, who facilitates the trade, is required to reveal to the stock exchange
about the bulk deals on a daily basis.
5. If the bulk deal happens through a single trade, it should be notified to the exchange
immediately upon the execution of the order.
6. If it happens through multiple trades, it should be notified to the exchange within one
hour from the closure of the trading.
Page 347
BASIS OF DIFFERENCE BULK DEAL BLOCK DEAL
Quantity/value of security Total quantity bought or sold is more than 0.5 percent of the
number of equity shares of a listed company. In the block deal, the minimum order size for
execution of trades shall be of ₹10 crore.
Trading window Normal trading window Separate trading window.
Visibility Bulk deal is visible to everyone. The stock exchanges disseminate the
information on block deals
Q) What is inflation index? State the difference between wholesale price index (WPI)
and consumer price index (CPI). (5 marks)
Answer-
1. An inflation index is an economic tool used to measure the rate of inflation in an economy.
There are several different ways to measure inflation. In India, Consumer Price Index (CPI)
Page 348
and Wholesale Price Index (WPI) are two major indices for measuring inflation. In United
States, CPI and PPI (Producer Price Index) are two major indices.
2. The Wholesale Price Index (WPI) was main index for measurement of inflation in India till
April 2014, when RBI adopted new Consumer Price Index (CPI) (combined) as the key
measure of inflation.
3. Key differences between WPI & CPI
• Primary use of WPI is to have inflationary trend in the economy as a whole. However,
CPI is used for adjusting income and expenditure streams for changes in the cost of
living.
• WPI is based on wholesale prices for primary articles, administered prices for fuel items
and ex-factory prices for manufactured products. On the other hand, CPI is based on
retail prices, which include all distribution costs and taxes.
• Prices for WPI are collected on voluntary basis while price data for CPI are collected by
Investigators by visiting markets.
Page 349
• CPI covers only consumer goods and consumer services while WPI covers all goods
including goods transacted in the economy.
• WPI weights primarily based on national accounts and enterprise survey data and CPI
weights are derived from consumer expenditure survey data.
Q) What is the option contract? how the option contract is classified on the basis of
party who exercise the option and time at which the option can be exercised? (5 marks)
Answer-
1) Options Contract give its holder the right, but not the obligation, take or make delivery on
or before a specified date at a stated price.
2) But this option is given to only one party in the transaction while the other party has an
obligation to take or make delivery.
3) Since the other party has an obligation and a risk associated with making the good the
obligation, he receives a payment for that. This payment is called as option premium.
Page 350
4) Option contracts are classified into two types on the basis of which party has the option:
• Call option - A call option is with the buyer and gives the holder a right to take delivery.
• Put option - The put option is with the seller and the option gives the right to take delivery.
Q) What do you mean by Unified Payments Interface [UPI]? Whether use of UPI, as a
payment mechanism in public issues is mandatory? What is the limit one can apply for
a public issue through UPI? (5 marks)
Answer-
1) Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a
single mobile application, merging several banking features, seamless fund routing &
merchant payments into one hood.
2) It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per
requirement and convenience.
Page 351
3) Public issue application using UPI is a step towards digitizing the offline processes
involved in the application process by moving the same online. This requires you to have
to create a UPI ID and PIN using any of the UPI enabled mobile application. The UPI ID can
be used for blocking of funds and making payment in the public issue process.
4) The UPI mechanism for retail individual investors through intermediaries will be made
effective along with the existing process and existing timeline of T+6 days. The same will
continue, for a period of 3 months or floating of 5 main board public issues, whichever is
later.
Q) Write short notes on the following:

a) Leveraged Buyout {LBO]
b) Repo & Reverse Repo Rate
c) Characteristics of Bond
d) Inflation Index
Page 352
e) Internal Audit of Intermediaries (3 marks each)
Answer-
a) Leveraged Buyout (LBO): This refers to a strategy of making equity investments as part of
a transaction in which a company, business unit or business assets is acquired from the
current shareholders typically with the use of financial leverage. The companies involved in
these types of transactions that are typically more mature and generate operating cash flows.
b) 1. Repo rate is the rate at which the central bank gives loans to commercial banks against
government securities.
2. Reverse repo rate is the interest that RBI pays to banks for the funds that the banks deposit
with it.
3. If the repo rate increases, it means banks are getting funds from RBI at a higher cost. This,
in turn, will mean that banks will also lend to others at a higher cost. So, if you take a loan
from a bank when the repo rate is high, you will have to pay a higher interest rate.
Page 353
4. Reverse repo rate is when RBI borrows money from banks. Sometimes, there is excess
liquidity in the market. To absorb this excess liquidity, the central bank takes out money from
the overall system by borrowing the money from banks. The banks benefit from this as they
earn interest for their holdings with the central bank.
c) Characteristics of Bond:
1. Bond has a fixed face value, which is the amount to be returned to the investor upon
maturity.
2. Fixed maturity date, which can range from a few days to 20-30 years or even more.
3. All bonds repay the principal amount after the maturity date.
4. Provides regular payment of interest, semi-annually or annually.
5. Interest is calculated as a certain percentage of the face value known as a ‘coupon payment’.
6. Generally considered as less risky investment as compared to equity.
7. It helps to diversify and grow investor’s money.
Page 354
d) 1. Inflation Index An index is just a collection of data that serves as a baseline for future
reference.
2. We use the index model in all areas of life, from the stock market, to inflation.
3.We index wage levels, corporate profits as a percentage of GDP, and almost anything else
that can be measured.
4. We do this to compare where we are now to where we have been in the past.
5. An inflation index is an economic tool used to measure the rate of inflation in an economy.
6.There are several different ways to measure inflation, leading to more than one inflation
index with different economists and investors preferring one method to another,
sometimes strongly.
e) Internal Audit of Intermediaries

1. Efficient internal control systems and processes are pre-requisite for good governance.
Page 355
2. In this direction SEBI has authorised Practising Company Secretaries to undertake internal
audit of various capital market intermediaries and issue quarterly certificate with respect
to reconciliation of share capital audit.
3. Every market intermediary shall appoint a company secretary as a compliance officer who
shall be responsible for monitoring the compliance of the Act, rules and regulations,
notifications, guidelines, instructions etc. issued by SEBI or the Central Government and for
redressal of investors’ grievances.
4. The compliance officer shall immediately and independently report to SEBI for any non-
compliance observed by him.
5. A portfolio manager with professional experience and expertise in the field, studies the
market and adjusts the investment mix for his client on a continuing basis to ensure safety
of investment and reasonable returns therefrom.
Page 356
Q) What do you mean by discretionary portfolio manager “How portfolio manager
plays a pivotal role in deciding the best investment plan for an individual? (5 marks)
Answer-
1. “Discretionary portfolio manager” means a portfolio manager who under a contract
relating to portfolio management, exercises or may exercise, any degree of discretion as to
the investment of funds or management of the portfolio of securities of the client, as the
case may be.
2. A portfolio manager plays a pivotal role in deciding the best investment plan for an
individual as per his income, age as well as ability to undertake risks.
3. A portfolio manager is responsible for making an individual aware of the various
investment tools available in the market and benefits associated with each plan.
4. Make an individual realize why he actually needs to invest and which plan would be the
best for him. A portfolio manager is responsible for designing customized investment
solutions for the clients according to their financial needs.
Page 357
Q) What do you mean by FED policy? Briefly state how change in US fed rate can impact
India? (5 marks)
Answer-
1. The Federal Reserve System is the central bank of the United States. It performs five
general functions to promote the effective operation of the U.S. economy and, more
generally, the public interest.
2. The Fed Funds Rate is the interest rate at which the top US banks borrow overnight money
from common reserves. All American banks are required to park a portion of their deposits
with the Federal Reserve in cash, as a statutory requirement.
3. fed fund rate gives the direction in which US interest rates should be heading at any given
point of time. If the Fed is increasing the interest rates, lending rates for companies and
retail borrowers will go up and vice versa.
Page 358
Q) Venture Capital is one of the innovative financing resources for an enterprise.
Explain briefly and indicate the areas of investment of Venture Capital. (5 marks)
Answer-
1) “Venture Capital Fund” means an Alternative Investment Fund which invests primarily in
unlisted securities of start-ups, emerging or early-stage venture capital undertakings
mainly involved in new products, new services, technology or intellectual property right
based activities or a new business model and shall include an angel fund.
2) Venture Capital is one of the innovative financing resources for a company in which the
promoter has to give up some level of ownership and control of business in exchange for
capital for a limited period, say, 3-5 years.
3) Venture Capital is generally equity investments made by Venture Capital funds, at an early
stage in privately held companies, having potential to provide a high rate of return on
their investments.
Page 359
4) It is a resource for supporting innovation, knowledge-based ideas and technology and
human capital-intensive enterprises.
5) Essentially, a venture capital company is a group of investors who pool investments
focused within certain parameters.
6) The participants in venture capital firms can be institutional investors like pension funds,
insurance companies, foundations, corporations or individuals but these are high risk
investments which may give high returns or high loss.
Page 360
Hope, this small effort made your journey of Securities Laws & Capital Markets a bit easy
and interesting….
You are born to shine. Stay distinguished always.
Good luck and god bless you!!
Prayers and best wishes,
Vikas Vohra – Corporate Baba
DIRECT
(Theory with MCQ'S)
TAX
CS-Professional
(Module-I)
Volume-2
Transparency
Reporting Sustaina
bility
Value
,
Stakeholders
Gove rnance,
Society
Disclosures
RISK MANAGEMENT,
Compliances
AND ETHIC S
Compliances
Relevant
for June’22/Dec’22
Adv. Chirag Chot rani

CS Vikas Vohra, Founder - YES Academy
Vikas is a Commerce and Law Graduate and a Company Secretary by profession.

He has to his credit, few other Certications and specialisations in Corporate and
Securities Laws. On the teaching side, he has taught more than 10,000 students.
He is also a speaker at various Management Institutes and ICSI on various

Corporate matters and Entrepreneurship. In his previous assignments, he worked
as an Associate Vice President with LexValueAdd Consulting Private Limited, an
Investment Banking rm based out of Mumbai.
He has signicant hands on experience in Mergers and Acquisitions, Public

Offerings and consequent listing of the Shares and GDR’s on the Bourses, fund
raising and Deal Structuring. Before that he also worked with Kirloskar Brothers
Investments Limited & Bajaj Auto Limited wherein, he was deeply involved in
various M&A activities.
Vikas is presently the Founder of YES Academy for CS, Pune He is also a Co-
Founder of PapaZapata (Mexican food chain) & GujjuKhakhra (Indian Breads). He
enjoys writing poetry and doing meditation in his free time.
st
Office 30A, 1 Floor, Gate No. 1, Kumar Prestige Point, yesacademy.co.in
Behind BSNL Office, Bajirao Road, Shukrawar Peth, Pune - 411 002 /yesacademyforcs
8888 235 235, 8888 545 545, 8888 569 569, 8888 280 280 /yesacademyforcs
[email protected] /yesacademyforcs

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Applicable for June 22

ANSWERS TO 250+ PAST ICSI QUESTIONS

CHAPTER 1- SECURITIES CONTRACT (REGULATION) ACT, 1956

CHAPTER 2 - OVERVIEW OF CAPITAL MARKETS & SEBI

Q) Differentiate between Primary Market and Secondary Market. (2 marks)

Q) Short notes on powers of SAT. (4 marks)

Q) Explain the role of securities market in economic growth. (4 marks)

Q) Explain the factors to be considered by SEBI to arrive at the settlement terms. (4

Q) Differentiate between Dematerialization of Rematerialization. (2 marks)

Q) Write notes on the following :

Q) Write notes on the following :

ii. Models of depository:

Q) Write notes on the following :

Q) “The holding of securities in dematerialise form is not mandatory”. Explain the

a) Issuance of DIS booklets including loose slips.

2. Verification of Delivery Instruction Slips (DIS)

The procedure followed by the Participants with respect to:

Q) X, a shareholder of a listed company holding 1,000 equity shares of ₹100 each on

1)Whether X can transfer his shares to Y in physical form?

at depository? (3+2=5 marks)

CHAPTER 4 - SEBI (ICDR) REGULATIONS, 2018

Q) Short a note on Market Capitalisation. (3 marks)

Q) Book building process of determining price of a public issue is preferred in case of

Q) Write a short note on Draft offer Document (4 marks)

Q) Short note on issue opening date. (3 marks)

Q) Write notes on the following :

Q) Promoter’s contribution to be brought in before public issue opens. (4 marks)

Q) Actnow Edge Limited, an unlisted company, is in the process of expanding its

Q) Turnkey Ltd. is a listed company, manufacturing auto ancillary components one of

CHAPTER 5 - SEBI (LODR) REGULATIONS, 2015

Q) Write a detailed note on clause 33 of the listing agreement. (10 marks)

The role of the audit committee shall include the following:

Q) Comment on Corporate Governance in relation to securities reforms &

Q) Briefly explain the committee positions held by individual under listing

b) Proposal for Buy-back of Securities

Q) Suzan Limited is in top 1000 listed companies. Referring to provisions of SEBI

Q) SEBI (LODR) Regulations, 2015 as amended imposes an obligation on every listed

CHAPTER 6 - TAKEOVER CODE

Q) What should be the minimum price for creeping acquisition? (5 marks)

In case of frequently and infrequently traded shares:

Infrequently traded shares

Sub. : Obligations of Kind Ltd. (Company) / Acquirer under SEBI (SAST)

Q) The disclosure requirement of the acquisition of shares of a listed target Company

Q) Short note on frequently traded shares under Takeover Code. (4 marks)

Q) Explain the Modes of Payment to the shareholders of the Target Company on

Q) An unlisted public company (“Acquirer”) doing business of exporting steel and it is

Creeping Acquisition Limit:

Q) Romeo International Limited, an Indian public limited company, is listed on BSE. On

Q) Nova Industries Ltd. (‘Nova’) is an Indian company engaged in the business of

CHAPTER 7 – SEBI (BUYBACK OF SECURITIES) REGULATIONS, 2018

CHAPTER 8 - SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2021

Q) Difference between Voluntary Delisting and compulsory delisting. (4 marks)

Q) Explain the following :

Q) ‘‘Compulsory delisting is different from voluntary delisting’’. (4 marks)

Q) Delisting is not permissible under certain circumstances. (4 marks)

Q) Increase in voting rights in a target company by any shareholder pursuant to

Q) SAARC Ltd., a company listed on nationwide two stock exchanges. It decided to

CHAPTER 9 - SEBI (SHARE BASED EMPLOYEE BENEFITS & SWEAT EQUITY)

Q) Explain the Stock Appreciation Rights Scheme (SARS). (4 marks)

- an employee as designated by the company, who is exclusively working in India or

2. By applying the above provisions to the given case:

i) For direct or indirect benefits of