The ICDR Overlay
A scheme that provides for the issuance of shares to a select group—rather than to all shareholders on a proportionate basis—may constitute a preferential allotment under Chapter V of the SEBI (ICDR) Regulations. The preferential allotment must comply with the pricing formula, the lock-in requirements, the shareholders’ approval, and the disclosure obligations. The NCLT’s scheme jurisdiction does not displace the ICDR compliance.
The Pricing Formula
The ICDR pricing formula for a preferential allotment to persons other than promoters is based on the higher of the average of the weekly high and low of the closing prices for the twenty-six weeks preceding the relevant date, or the average of the daily high and low for the two weeks preceding the relevant date. For a preferential allotment to promoters, the price is the higher of the two averages, and the relevant date is the date thirty days before the shareholders’ resolution.
The Lock-In
The ICDR Regulations prescribe a lock-in for the preferentially allotted shares: three years for promoter allotment and one year for non-promoter allotment, subject to the exceptions. The scheme should record the lock-in, and the transferee should ensure that the shares are credited with the appropriate lock-in marker in the depository system.
The Shareholders’ Approval
The preferential allotment requires the shareholders’ approval by special resolution, and the notice must contain the prescribed disclosures. The related parties cannot vote on the resolution. The scheme’s shareholder approval and the preferential allotment approval may be combined, but the notice must separately address each item.
The Documentation
The file should contain: the pricing computation; the special resolution; the lock-in undertaking; the ICDR disclosure; and the allotment resolution. A scheme that issues preferential shares without the ICDR compliance is exposed to a SEBI enforcement action and a potential unwinding of the allotment.
Call to Action: For ICDR preferential allotment analysis in a scheme, pricing computation, or lock-in documentation, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.