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Underwriting agreements in consonance with the 2013 Companies act.


Underwriting Agreements-Including Guidelines By SEBISubmitted ToMr. Shyamtanu Pal.[Faculty of Law]Submitted ByAunnesha DeySemester V Sec CRoll No- 38Sociology MajorsSubmitted On- 10th October, 2014Hidayatullah National Law UniversityUparwara, Post Abhanpur, Raipur (C.G.)

Table of Contents1. Acknowledgment.III2. Research MethodologyIV3. Review of Literature.IV4. Sources of DataIV5. Scope.IV6. Nature of Study.IV7. Objectives of StudyIV8. Research QuestionsIV9. Introduction.V10. Underwriting .VI What is underwriting How it works/Example: Why it Matters: Types of Underwriting Types of underwriters Advantages of Underwriting Disadvantages of Underwriting Securities underwriting11. Risk, exclusivity, and reward...XV Marked and Unmarked Applications 12. Role of SEBI Registered Intermediaries UnderwritersXVI Conditions for Registration (Rule 4) Consideration of Application/Eligibility Criteria (Regulation 6) Capital Adequacy Requirement (Regulation 7) General Obligations and Responsibilities General Responsibilities of an Underwriter (Regulation 15 to 17)13. Conclusion...XX14. BibliographyXXI


I feel highly elated to work on the topic Underwriting Agreements. The practical realization of this project has obligated the assistance of many persons. I express my deepest regard and gratitude to my teacher Mr. Shyamtanu Pal for his unstinted support. His consistent supervision, constant inspiration and invaluable guidance have been of immense help in understanding and carrying out the nuances of the project report.I would like to thank my family and friends without whose support and encouragement, this project would not have been a reality. I take this opportunity to also thank the University and the Vice Chancellor for providing extensive database resources in the Library and through Internet.My gratitude also goes out to the staff and administration of HNLU for the infrastructure in the form of our library and IT Lab that was a source of great help for the completion of this projectSome printing errors might have crept in, which are deeply regretted. I would be grateful to receive comments and suggestions to further improve this project report.

Aunnesha DeySemester VRoll no 38Section CResearch MethodologyThis research project is largely based on secondary & electronic sources of data. Books, case laws, journals & other reference as guided by faculty of Jurisprudence are primarily helpful for the completion of this project.

Research Questions Who are underwriters? What is the role of underwriters? Why and when do Corporations need underwriters?

Objectives of Study To study the concept of underwriters To discuss the work undertaken by the underwriters To discuss as to why underwriting agreements are entered upon by the Corporations

Nature of StudyThis research project is Theoretical in nature since it is largely based on secondary & electronic sources of data and also since there is no field work involved while producing this research and it largely involves study of various articles and comparison from different books, journal and other online sources thus not being empirical in nature.

Sources of DataData that were used for the completion of this research project are all secondary sources of data ranging from books, journal, articles and other online sources and as far as case laws are concerned these cannot be said to be primary sources since they are not first-hand information or judgment reports but a modified form found in books or journals.

Review of Literature The New Company Law by Dr. N.V. Paranjape, 6th Edition, 2014 This book dealt with providing an insight to the concept of underwriters.

Underwriting - Abdul Nasserhttp://easyaccountingandfinance.blogspot.in/2013/02/underwriting-of-shares-and-debentures.htmlThe technical concept of underwriting has been provided by the author The Free MBA resource- http://www.freemba.in/articlesread.php?artcode=463&substcode=28&stcode=10Provided the advantages of underwriting Underwriting of shares byRuby Sharma onJun 26, 2013 http://www.slideshare.net/rubysharma5667/underwriting-ofshares Provided the disadvantages of underwriting. Underwriting byAvkris onJan 29, 2013http://www.slideshare.net/Avkris/underwriting-16245384Discussed the concept of Securities underwriting

ScopeThe research topic about the Underwriting Agreements and Regulatory Guidelines by SEBI is an informative & enlightening topic and it is important as well because it deals with such a profound concept which is often used by the Corporations for raising Capital. The research paper also deals with the topics relevance in the Corporate World.


In case of public limited companies the minimum subscription must be received to get the certificate of commencement of business. There is always a risk of under subscription so, to overcome this risk the companies resort to underwriting. Underwriting is a sort of contract whereby some individuals, firms or companies give guarantee to the company, that in case the issue of shares or debentures is undersubscribed, they will take up that unsubscribed portion on the same terms as applicable to the public. Thus the underwriting is like a guarantee or insurance given by the underwriters to the company that the shares or debentures offered to the public will be fully subscribed, being they also charge some commission mostly calculated on the issue price of shares and debentures. In India, the business of the underwriting is usually done by some specialized institutions, the most important of which are Industrial Development Bank Of India(IDBI), Industrial Credit And Investment Corporation Of India(ICICI), Industrial Finance Corporation Of India(IFBI), Life Insurance Corporation Of India(LIC). The financial agency is known as the underwriter and it agrees to buy that part of the company issues which are not subscribed to by the public in consideration of a specified underwriting commission. The underwriting agreement, among others, must provide for the period during which the agreement is in force, the amount of underwriting obligations, the period within which the underwriter has to subscribe to the issue after being intimated by the issuer, the amount of commission and details of arrangements, if any, made by the underwriter for fulfilling the underwriting obligations. The underwriting commission may not exceed 5 percent on shares and 2.5 percent in case of debentures. Underwriters get their commission irrespective of whether they have to buy a single security or not.


In order to get certificate to commence business, public limited companies have to get minimum subscription. For ensuring minimum subscription, public companies enter into underwriting agreement. According to section 76 of the Companies Act underwriting is an agreement whereby the underwriter ensures the company that in case the shares and debentures offered to the public are not subscribed by the public to the extent, the balance of shares and debentures will be taken up by the underwriter. For guaranteeing the sale of shares and debentures, the underwriter charges an agreed commission usually calculated on the issue price of shares or debentures. According to section 76 of the Companies Act underwriting commission can be paid only subject to the following conditions. 1. The payment of commission must be authorized by the Articles of Association. 2. The rate of commission should not exceed 5% if the price at which the shares are issued or any lesser amount prescribed by the Articles. In case of debentures, it should not exceed 2.5% 3. The rate of commission and number of shares/debentures which persons have agreed to subscribe absolutely or conditionally should be disclosed in the prospectus or statement in lieu of prospectus. 4. A copy of the underwriting contract should be delivered to the Register along with the prospectus.[footnoteRef:1] [1: UNDERWRITING-ABDUL NASER KODAMPUZHA http://easyaccountingandfinance.blogspot.in/2013/02/underwriting-of-shares-and-debentures.html]

What is underwritingIn the securities industry anunderwriteris a company, usually aninvestment bank, which helps companies introduce their new securities to themarket. Underwriting is an agreement whereby the underwriters ensure the company that in case the shares and debentures offered to the public are not subscribed by the public to the extent, the balance of shares and debentures will be taken up by the underwriters. The firms or persons who are engaged in underwriting are calledunderwriters. The commission payable to underwriters for underwriting is known asunderwriting commission.How it works/Example:When a company wants toissuestock,bonds, or other publicly traded securities, it hires an underwriter to manage what is often a long and complex process.To begin theofferingprocess, the underwriter and theissuerfirst determine the kind of offering the issuer needs. Sometimes the issuer wants to sellsharesvia aninitial public offering (IPO)cashproceeds return to the issuing company ascapitaltofundits projects. Other offerings, such as secondary offerings, funnel the proceeds to a shareholder who is selling some or all of his or her shares. Split offerings occur when a portion of the offering go to the company while the rest of the proceeds goes to an existing shareholder.Shelf offeringsallow the issuer to sell shares over a two-year period.After determining the offering structure, the underwriter usually assembles what is called asyndicateto get help manage the minutiae (and risk) of large offerings. A syndicate is a group ofinvestmentbanks and brokerage firms that commit to sell a certain percentage of the offering. (This is called a guaranteed offering because the underwriters agree to pay the issuer for 100% of the shares, even if all the


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