Offer of Sale of Shares by Certain Members of Company

Offer purchasable of Shares by certain members (Sec 28) Legislative background The notes on clauses to the businesses Bill, 2011 read as follows:

*1“Clause 28. This is often a replacement clause and seeks to supply for that member or members of a corporation , in consultation with Board of Directors, may offer a neighborhood of their holding of shares to the general public. Documents by which offers to sale to the public is formed shall be treated as prospectus issued by company.”

*2. Rationale behind the supply 
This is new provision introduced under the Act. Offer for Sale means the suggestion of securities by the existing members to entire overall public for such subscription through an offer document. It extends to all or any securities. Even the prevailing members of a listed company offers securities to the overall public through a suggestion document. 

In the past few years, high investor sentiment has thrown up several good opportunities for Indian companies via private equity investments. Such deals have witnessed exponential growth particularly in unlisted public companies. These Private Equity (PE) funds or financial institutions may need stipulated a condition based on their investment agreements for investing money into the corporate or subscribing to the shares of the corporate through private placement,

That the company promoters need to give an exit choice to these funds or institutions via listing. Sometimes, the businesses may desire to possess the shares listed and also might not be in need of further capital. In these situations the prevailing members like promoters or funds or institutions offer of securities to the overall public. 

*3. Meaning of ‘in consultation with the board’
The process of consultation with the board may be a key aspect. This issue being strategic decision of the corporate and which can affect the operations of the company in future, whether the board will have a prerogative to simply accept the proposal or not? to guage this scenario, there are various judgements of the Supreme Court in other laws which require to be considered.

While considering the word ‘consultation’ as mentioned in rules of Indian Administrative Service (Regulation of Seniority) (First Amendment) Rules 1989, Supreme Court considered a catena of cases and formulated certain general principles for determining what's ‘consultation’ in Indian Administrative Service (S.C.S.) Association, U.P. et al. v. Union Of India And Ors [1993 Supp (1) SCC 730]:

*4. Key points for creating offer purchasable 
The following points got to be noted for creating offer for sale:

  1.  Such offer must be during a prescribed manner.
  2. Such shareholders got to authorise the corporate to require all actions on their behalf and reimburse the corporate for all expenses incurred by the corporate .Therefore, it might not be possible for the corporate in touch the expenses incurred for securities exclusively offered by the prevailing shareholders.
  3. The provisions of part-I of chapter-III aren't applicable with reference to minimum subscription, minimum application value and provisions requiring any statement to be made by the board of directors in respect of utilisation of money.
  4. The other information which can't be gathered by the offeror with justification for not having the ability to suits such information.
  5. Prospectus shall also mention the name of the person or persons or entity bearing the value of the offer along side the explanations .

*5. Offer purchasable through stock market mechanism
Offer purchasable (OFS), introduced by SEBI, in February 2012, helps promoters of listed companies to dilute their stake through an exchange platform. The promoters 
© ICSI  Reproduction to any material, content shall also be only with the prior permission to ICSI are sellers.

The bidders may include market participants like individuals, companies, qualified institutional buyers (QIBs) and foreign institutional investors (FII). the power is out there on the BSE Limited (BSE) and National stock market of India Limited (NSE).
Size of the offer purchasable of shares 

  1. The dimensions of the offer shall be a minimum of Rs. 25 crores. However, size of offer are often but Rs. 25 crores so on achieve minimum public shareholding during a single tranche.
  2. Minimum 10 percentage for the offer size shall also be reserved or secured for retail investors. For this purpose, retail investor shall mean a private investor who places bids for shares of total value of less than Rs. 2 lakhs aggregated across the exchanges.

Eligible Buyer(s) 
I. All investors in market that is registered with trading member of exchanges aside from promoter(s), promoter group entities.

II. just in case a non-promoter shareholder offers shares through the OFS promoters or promoter group and entities of such companies may also participate with in the OFS to get shares i.e subject to compliance with the Applicable provisions for issued under SEBI, Issue of Capital and Disclosure Requirements,  with Regulations, 2009 and SEBI Substantial Acquisition of Shares and Takeover Regulation 2011. 

*6. Distinction between OFS, FPO and IPO
An IPO, an that is unlisted with company issues to fresh shares and goes public. during a follow-on public offer (FPO), an already listed company issues fresh shares to new investors or existing shareholders. Companies take the FPO route after they need been through the IPO process. But Also OFS, As to be previously mentioned, is also for diluting promoter to stake during the listed company.

No new shares are created. In IPOs and FPOs, the process to boost funds is lengthy because it involves issuing a prospectus then wait for receiving applications and allotting shares to investors. OFS doesn't involve any income to the corporate .

*7. Punishment and Compoundability
This section doesn't prescribe any penal provision for contravention of the section.

Hence, section 450 of the Act are going to be applicable. Accordingly, for contravention, the company in each officer of corporate who is in default shall be punishable with a fine upto Rs. 10,000, where the contravention may be a continuing one then the fine shall be Rs. 1,000 for each day of contravention. The offence, being punishable only with fine, is compoundable under section 441 of the Act.