- Capital Control Act

- Cement
- Elimination of financial repression

Relationship b/w Financial & Economic Development:

- Financial Development: process through which the country’s financial system evolves, transforms &
advance over a period of time. It includes the expansion of financial institutions, financial markets
(securities market, commodity market, stock exchanges etc.) and also provides more types of financial
instruments. With all these aspects, it can be said that financial development takes place.
- Economic Development: increase in production of economic goods & services in one period of time
compared to another period of time. It is measured primarily through GDP.

India’s financial system (history)

- CRR, repo rate, reverse repo rate, SLR, base rate

- Payment and Settlement System Act, 2017
- Momentum in economic growth
- Financial inclusion
- Financial exclusion
- Demonetisation

Analysis of situation: important from the perspective of exam. Conceptual clarity is needed (for exam).

FINANCIAL MARKETS: MONEY MARKET FUNCTIONS

- Financial markets
- Money market funds
- Call money market
- Call money market in US
o Federal funds market
o Call money market proper
- Call money market in UK
- Securities Market
- Money market mutual funds

SESSION 8

Indian Depository Receipts (IDR)

- It enables the foreign company to raise funds from Indian Market

- Sec. 2(48) Companies Act
- Indian company approached a domestic custodian bank. That domestic custodian bank will hold the
shares of the Indian company & it is having the collaboration with the overseas depository bank
(situated in the US). This US bank receives a confirmation from the domestic custodian situated in
India, and they acknowledge that they hold the shares of the Indian company. This overseas US bank
acknowledges the investor, and this acknowledgement is known as the American depository receipt.
- S. 390 companies act
- Companies (registration of foreign companies) rules 2014 –
o Rule 13: provides for issue of IDRs (read what is given from the internet)
- Procedure for making an issue of IDRs-
o Issue company shall, where req., obtain the necessary approvals from the authorities
o Need to file the prospectus certified by the 2 signatories
o Shall appoint an overseas custodian bank
o Deliver the underlying equity shares or cause them to be
 o SEBI LODR Regulations: 65-80 applicable
- LODR for IDR –
o Correspondence in English
o To company with laws of country of origin
o Indian court, tribunal and regulatory bodied to have jurisdiction
o Info. Req. by SE to be forwarded
o Investor dispute resolution as per SEBI procedure
o Immediate disclosure of all material events SEs
o Shareholding pattern – within 15 days of end of each quarter
o Financial results to be filed with SE when filed with their respective country
o Annual report submission to SE

Global Depository Receipt (GDR)

- S. 2(44) of Companies Act.

- S. 41 of Companies act deals with GDR
- Conditions for Issue of Depository Receipt –
o Companies (Issue of Global Depository Receipt) Rules 2014:
▪ Board Resolution
▪ Prior approval of shareholders
▪ DRs shall be issued by an overseas depository bank appointed by the company and the
underlying shares shall be kept in the custody of a domestic custodian bank
▪ As per RBI guidelines

Issue of Securities to Public

- S. 2(h) SCRA: definition of securities

- Sahara Indian Real Estate Corporation v. SEBI [2013] 1 SCC 1
- Why companies prefer to come up with public issue?
o No fixed interest
o Repayment of amount is not required other than winding up
o Easy transferability of the shares
o Liquidity
o Available market
o Increase the goodwill of the company
- Regulatory Framework-
o Companies act
o SEBI LODR 2018
o SEBI LODR 2015
o ICDR
o SCRA
- S. 23 Companies Act: Public Offer & Private Placement
- S. 24 Companies Act: power of SEBI to regulate issue and transfer of securities
- S. 40 Companies Act: Securities to be dealt with in stock exchanges

Initial Public Offer

- Public issue and listing of securities: S. 17A, SCRA, 1956

o Securities shall be offered to the public or listed on SE after complying with SEBI regulations
o An application shall be made to the SE before issue of offer document to the public
o The application is made for listing on the SE
o If permission is not received from the SE, the issuer shall repay all the money received from
the applicants
o If money is not repaid in 8 days after the issuer became liable to repay, the issuer and every
director who is in default shall be liable to repay money with 15% interest
- Conditions for listing (S. 21 SCRA)
- Right of appeal against refusal of stock exchanges to the list securities of public companies (S. 22
SCRA)
- S. 22A SCRA
- Rule 19 of SCRR, 1957

SESSION 9

Issue of Securities to Public

- Offer of securities by Private companies

- Applicant Co. shall satisfy the SE (Stock Exchange) for following matters –
o Common form of transfer
o Fully paid shares will be free from all lien
o Amount paid-up in advance of calls of any share may carry interest but shall not entitle the
holder of the share to
o (see from slide)
- Listing application to be made for
o IPO
o FPO
- Continuous Listing Requirement (Rule 19A) SRR Rules, 1957
o Listed company other than public sector company shall maintain public shareholding of at least
25%
- Listing of Securities
o S. 2(52) of Companies Act, 2013 defined the Listed Company as a company which has any of
its securities listed on any recognised stick exchange
o Why Listing is required?
▪ Creates Liquidity
▪ Transparency
▪ Common trading platform
▪ International image improves
▪ Bring capital into the company from the pockets of the people
- Legal Provisions under Comapnaies Act
o S. 23 Companies Act: Public Offer and Private Placement
▪ “Public offer” includes
o S. 24: Power of SEBI to regulate issue and transfer of securities
o S. 14: Securities to be dealt with in Stock Exchange

Direct Listing Scheme

- S. 23(3): provides for issue of securities by companies in the foreign jurisdictions

- Direct Listing of Equity Shares of Companies Incorporated in India Scheme
- LEAP Rules 2024
o Permitted stock exchanges: India International Exchange, NSE International Exchange
o In case whenever there is outbound merger, the FEMA regulations are applicable, but also the
regulations of that jurisdiction would apply in that case.
o Inbound Merger v. Inbound Merger
▪ A (Indian company) + B (foreign company) = A (inbound merger)
▪ A + B = B (outbound merger)
o Regular IPO and FPO is completely separate
o Indian companies are permitted to issue their securities in the above-given foreign stock
exchanges – in the 6-7 permitted currencies

Listing of “Equity shares” on permitted stock exchanges in permissible jurisdictions

- (See from slide)

- Companies not eligible under this rule
 o (see from slide)

Initial Public Offer (V. Imp. Topic) (question from this topic in exam)

- Entities not eligible to make an IPO [Reg. 5 of SEBI (ICDR) Regulations, 2018]
o (See from slides)
o Memorise the requirements (from slides) for exam
- General Conditions [Reg. 7]
o (see slides)
- Qualification for IPO
o (See slides)
- Documents to be submitted
o (See Slide)
- Listing Process
o (See slide)

Further Public Offer (read yourself, topic skipped by sir in class)

Green Shoe Option

- Price Stabilisation through Green Shoe Option – Conditions – Reg. 57

o (See Slides)
- IPO though different processes (not discussed by sir in class)
o Book Building method
o Fixed Price Method
- Book Building Process
o It is process of price discovery
- Private Placement (S. 42 Companies Act, 2013)
o (see Slides)

SESSION 10

PRIVATE PLACEMENT

- S. 42 Companies Act
- (See slides)

CONDITIONS FOR PRIVATE PLACEMENT

- (See Slides)
- SR
- Notice to shareholders

DERIVATIVES

- Contracts which derive their value from an underlying asset

- Commodity derivative or financial derivative
- F&O – put, call, forward, swaps
- SEBI regulates the derivatives
- Underlying asset can be value of any commodity, index or any other asset
- Hedging of risk through derivative
- Provides market efficiency
- Financial contract
- Put option and Call option? Explain.

DERIVATIVE MARKET (potential question in exam)

 - Contract b/w parties
- Pre determined price, Pre determined rate, Pre determined time

WHETHER HEDGING RISK THROUGH DERIVATIVE IS A SPECULATION?

- Legally, no. Hedging of risk is only to reduce your risk, and it is not permitted legally.

Derivative Section – 2(AC)

- Derivative – includes (see slide)

Contracts in Derivative – S. 18A SCRA

- (See Slides)
- clearing house in stock exchange explain
- Contract – S. 2(a) SCRA

Option in Securities – S. 2(D) SCRA

PARTICIPANTS OF THE DERIVATIVE MARKET

- Hedgers
- Speculators
- Arbitrageurs

TYPES OF DERIVATIVE CONTRACTS

- Forward Contract: not regulated like the future contracts

o Traded over the counter
o No initial margin for the same
o Generally used to hedge against the price fluctuation in the commodities
o Contracts are negotiated b/w the parties
o Many times, becomes problematic to implement these contracts
o No requirement of margin money
- Future Contracts: standardised agreement
o More obligation in case of these
o Obligate the buyer to purchase and seller to sell the asset at pre-determined price at future date
o Used in financial market for trading various assets, but forward contracts are used for hedging
of the risk of price fluctuation in the commodities
o Margin money needs to be deposited, for the security
o It is exchange traded contract
o Future contracts: may be long call or short call
▪ Short call: seller sells the trade
▪ Long call: buyer buys the trade
- (Also see slides, read thoroughly)
- OPTIONS
o Gives holder a right, but not an obligation to take or make the delivery on or before the
specified date at specified price. (important)
o The other party has the obligation to take or make a delivery
o (see slides)
o Call option: option with the buyer: gives the holder the right to take the delivery
o Put option: to sell, gives the holder a right to deliver
o Strike price: price at which the option is exercised
- SWAP
o Swap Derivatives are an agreement that occur b/w 2 parties with the goal to exchange a
sequence of cash flows over a certain duration
 o Available in over-the-counter transaction
o Not available in the stock exchange – a shortcoming of Swap derivatives
o Commodity swap, currency swap, debt equity swap
o One cash flow here is variable – dependent on the floating rates: exchange rates, index rates
o Edelweiss Financial Services Ltd. v. Percept Finserve Pvt. Ltd.
▪ (See slides)

DEPOSITORY AND STOCK EXCHANGES

DEPOSITORY

- Earlier, if the transaction of shares was taking place, there were physical share certificates. Physical
share certificates + transfer deeds were handed over by the seller to the buyer. After receiving the same,
the receiving person sent it to the Company / Share Transfer Agency (STA), and this Company / STA
was verifying the signature on the share certificate. After verification, the companies were conducting
the meeting of the Share transfer committee, and after that were issuing / transferring shares, and then
sending physical shares to the transferee. This process took 1 month (approx.). Many times the share
certificates also got lost / damaged. To overcome this issue, govt. came up with the process of
“Dematerialisation of Securities.” Here, the physical share certificates were converted to demats
(dematerialised form). The Depositories keep these demats.
- Depositories: currently 2 in India – CDSL & NSDL
- Depository participants: act as a link b/w the investor and the depositor.

NSDL

- Primary securities repository in India

- (See slides)

CDSL

- (see slides, just read through)

NSE

- (see slides)

BSE

- (see slides)

STOCK EXCHANGE

- Governed by SCRA 1956

- (see slides)
- Regulated by SEBI
- S. 2(j) SCRA

NYSE

- (see slides)

NASDAQ

- (see slides)

FEDERAL RESERVE BANKBANK OF UK

- (see slides)
BANK OF JAPAN

- (see slides)

SEBI AND INVESTER PROTECTION

- SEBI: protection of interest of investors, regulation of market, promotion of market

SESSION 11

TAKEOVER

- Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011
- takeover is the purchase of one company (the target) by another (the acquirer or bidder)
- Takeover Code provides the mechanism by which –
o Interest of shareholders & company can be protected
▪ Suppose RIL is taken over by X, and I own 1 lakh shares of RIL. I believe that RIL
under Mukesh Ambani will prosper, but I’m not sure with X. So X, while acquiring
RIL, has to give me (a shareholder) the option to exit.
o Providing an opportunity to the acquirer to take over he affairs of the company
- Public announcement of an open offer: Made by a company when it acquires another listed company
and intends to give existing shareholders the option to buy more shares.
- Acquisition may be –
o Direct
o Indirect
- Takeover includes–
o Shares
o Voting Rights
o Control
- Whenever acquirer along with person acting in concert acquire 25% or more of the shares, in that case,
the acquirer is required to make public announcement of the open offer. And here, the min. size is 26%
of the shares.
- If at any point of time, an acquirer already has 25%-75% of the shares of the company, and plans to
acquire more than 5% of the shares of the company in that year, then in that case also, the acquirer has
to make another open offer. In that case also, that person cannot exceed the limit of 75% of the total
shares in the company.
- Acquisition of shares by Lord Swaraj Paul Group companies, exceeding that of the promoters in
Escorts company and MDI.
- Types of takeover –
o Friendly takeover: takeover happens with consensus & agreement b/w parties
o Hostile takeover: parties are not aware that shares are being taken over
▪ E.g. Mindtree takeover by L&T
o Bail out takeover
- Acquisition Reg. 2(1)(b)
o “acquisition” means directly or indirectly to acquiring or agreeing to acquire shares or voting
rights in, or control over, a target company.
o Acquirer Company and Target Company
- Types of acquisition
o Direct Acquisition
o Regulation 3 & 4
o Initial Acquisition, Creeping Acquisition and Acquisition of Control
o Indirect Acquisition
o Regulation 5
- Acquirer Reg 2(1)(a)
 o “Acquirer” is any person who directly or indirectly acquires or agrees to acquire shares, voting
rights, or control over a target company, does so by themselves or with others acting in concert
with them
- Person acting in concert Reg. 2(1)(q)
o Regulation 2(1)(q)(1) of the Takeover Code defines persons acting in concert (“PAC”) as
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.
o Second part dels with “deemed persons” (see list in slides)
- Control Reg. 2(1)(e)
o “control” includes the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting individually or
in concert, directly or indirectly, including by virtue of their shareholding or management
rights or shareholders agreements or voting agreements or in any other manner: Provided that
a director or officer of a target company shall not be considered to be in control over such target
company, merely by virtue of holding such position.
o E.g. Narayan Murthy not happy with the performance of Vishal Sikka, CEO, Infosys; Vishal
Sikka resigns
- Subhkam Ventures (India) Pvt. Ltd. v. SEBI (2010)
- In respect of Tailwinds Limited, Mr. Naresh Goyal, Ms. Anita Naresh Goyal and Etihad Airways PJSC

SESSION 12

Maximum permissible non-public shareholding Reg. 2(1)(o)

Promoter Reg. 2(1)(s)

Promoter – SEBI (ICDR) Regulations, 2018 – Reg. 2(1)(oo) –

- defines a promoter as someone who has control over the affairs of an issuer:
- A person who is in control of the issuer
- A person who is instrumental in formulating a plan or program for offering securities to the public
- A person named as a promoter in the offer document
- A person who has control over the issuer's affairs, directly or indirectly, as a shareholder, director, or
otherwise
- (See slides)

Shares – Reg. 2(1)(v)

Initial Threshold – Reg. 3(1)

- (see slide)
- Need to memorise this very thoroughly
- Sometimes maybe ‘conditional open offer’

Proviso to Reg. 3

Conditions

- Only increase (gross acquisitions) will be taken into account, irrespective of the intermittent nature.
Only the additions are taken into account, the reductions are not taken into account, and you have to
find if it breaches the limit of 5% or not. In case it breaches the limit of 5%, then the party has to make
a public offer. This rule is applicable only for the category of the people falling under the 25%-75% of
the shareholding.
- (Potential question from here in exam.)
 - Sometimes, the company issue the shares on preferential basis.
- Example:
Company “XYZ Ltd.” had 1,00,000 total shares.
“A” had 10% shares of company XYZ initially (i.e., 10,000 shares).
“B” (A’s wife) had 16% shares initially (i.e., 16,000 shares).
Hence, A & B held 26% of the shares of XYZ (i.e., 26000 shares). Since they hold >25% of the shares
cumulatively, they fulfil the first criteria (that they have to fall in the category of shareholders having
25%-75% of shares)
Now the company was allotting 50,000 shares on a preferential basis.
In the preferential basis, A+B got allotted 25,000 shares, and the rest of the 25,000 shares on a
preferential basis were allotted to someone else.
So, pre allotment, A+ B had 10000+16000 = 26000 shares.
Post allotment, total number of shares of XYZ = 100000 + 50000 = 150000
Post allotment, total number of shares of A & B = 26000 + 25000 = 51000
So now, A & B have shares = 51000/150000 = 34%
Since initial holding was 26%, and new holding is 34%, the difference is 8%. Since they breach the
limit of 5%, they (A & B) have to come up with a new public offer.
Not: A & B are taken together since B, being A’s wife, is a Person Acting in Concert for A.

Indirect Acquisition of Shares or Control – Reg. 5

When Indirect Acquisition shall be deemed to be direct

- (see slides)
- Market cap
- Gross turnover
- Net asset value
- More than 80% of gross turnover

Voluntary Offer (Reg. 6)

- Can be made by any person falling in the category of 25%-75%

- Voluntary Offer – Reg. 6(1)
- Is that offer which is made voluntarily which is made by any person who has at least 25% of voting
rights, control of the target company. Condition is that this person has not initiated the creeping
acquisition.
- Competing offer / competitive offer: offer made by 1 party against which a better offer is made by
another party.
- (see slides)
- Conditions (see slides)

SESSION 13

Voluntary Offer (continued)

- Cannot be put in the category of ‘friendly takeover.’

- Offer made voluntary by a shareholder falling in the category of 25%-75%, provided he has not made
a creeping acquisition in the last 52 weeks.
- His share cannot go beyond 75% after completion of the voluntary offer.
- Difference b/w mandatory bid & voluntary bid
o Min. size of mandatory bid is 26% while that of voluntary bid is 10%.
o Mandatory bid comes when there is an initial trigger, an indirect acquisition, or a creeping
acquisition. In case of voluntary offer, the offer size is at least 10%.
- Such person cannot come up with any other kind of acquisition in the next 6 months after the
completion of the voluntary offer.
- Open offer: offer made to the existing shareholders of the company.
 - Restrictions shall not prohibit such a person to make competing/competitive offer.
o Case of Bharti Shipyard & ABG Shipyard
▪ Great Offshore: into the business of shipping, docks, maintenance, repair, etc. Bharti
shipyard took over control of 14.89% of shares in Great Offshore, and later on they
opened the offer to consolidate the shares. Very interestingly, ABG shipyard also
jumped into and make the competitive offer/competing offer. So, the initial offer made
by Bharti shipyard was to purchase each share for Rs. 344, but his went on to the long
extent when ABG made another competing offer, the bar of this price rise continued to
a long extent till the price reached to Rs. 590. And, due to this competition b/w the two
companies, Bharti shipyard paid an additional amount of Rs. 450 Crores. And finally,
Bharti Shipyard also went into liquidation (lol).

Offer Size – Reg. 7

- W.r.t. Reg 3 & 4, at least 26%.

o Tender period is part of the offer period.
o Tendering period: period when the shareholders of the company can tender their shares,
Generally, this period is for 10 days.
- Better offer: both, the price pf each share, also the total percentage of the takeover, has to be more than
the previous offer (in a competing offer, its mandatory). In this case, it will be known as a ‘direct offer.’

Categorisation of the Exemptions under the Takeover Code

- (see slides)

General Exemptions – Reg. 10

Exemptions by the Board – Reg. 11

- (see slides, not done in great detail)

Competing Offer – Reg. 20

- (see slides)
- During the existence of a voluntary offer, a competitive offer can be made by any person, whenever
the competitive offer is made, the original party (original acquirer) also has the option to provide
another offer, but must keep in mind that the new offer must be providing better price to the
shareholders.
- Within 15 working days of the existing public announcement of the open offer,
- Every open offer made later shall be deemed to be competing offer

Conditional offer: that offer where the offeror imposes a condition as to min. level of acceptances, and in
case that min. level of acceptances is not reached, the acquirer is not bound to purchase the shares. In
competing offer, generally, the parties have to not come up with the conditional offer until and unless the
original offer was the conditional offer.

- Suppose X made an open offer to the shareholders that if X does not receive at least 5 lakh shares out
of X’s offer of 6 lakhs, then X shall not purchase even a single share.

Disclosures – Reg. 28

- (see slides)

Disclosure of Acquisition and Disposal – Reg. 29

- (see slides)
Who are exempted –

- (see slides)

Disclosure of Encumbered Shares – Reg. 31

- (see slides)
- Reg. 28 provided for all kinds of disclosures, while Reg. 31 deals only with encumbrances.

Yearly Disclosure – Reg. 31

- (see slides)

SESSION 14

- Reg. 3(1) of SEBI Takeover Code

No acquirer shall acquire shares or voting rights in a target company which taken together with shares
or voting rights, if any, held by him and by persons acting in concert with him in such target company,
entitle them to exercise twenty-five per cent or more of the voting rights in such target company unless
the acquirer makes a public announcement of an open offer for acquiring shares of such target
company in accordance with these regulations.
- Reg. 3(3)
For the purposes of sub-regulation (1) and sub-regulation(2), acquisition of shares by any person,
such that the individual shareholding of such person acquiring shares exceeds the stipulated
thresholds, shall also be attracting the obligation to make an open offer for acquiring shares of the
target company irrespective of whether there is a change in the aggregate shareholding with
persons acting in concert.
- If individually, a person breaches the limit and 3(1) gets triggered, then the open offer for public
announcement needs to be made.

OFFER FOR SALE (“OFS”)

- (see slides)
- Introduced in 2012
- Option to the promoters that they can entirely withdraw the offer for sale.
- Min. 25% of the shares are reserved for MFs and Insurance companies.
- Min. 10% of the shares are reserved for retail investors (up to 2 lakhs).

Eligible buyers of OFS

-
- (see slides)
- All registers who are registered with the stock exchange, but excludes the promoter & the promoter
group.

Eligible Sellers for OFS

- (see slides)

Min. size of OFS, Floor Price & discount

- (see slides)

Withdrawal & Cancellation of PFS

- (see slides)
 BANKS IN INDIA

Banking Regulation Act, 1949

- (see slides)
- S. 5(1)(b) “banking”
- S. 5(1)(c) “banking company”
- (see slides)

Regulations of Banks in India

- (see slides)
- (not discussed in detail)

Classification of banks in India

- (see slides)
- (not discussed in detail)

Commercial Banks

- (see slides)
- (not discussed in detail)

Functions of a Commercial Bank

- (see slides)

Small Finance Banks

- (see slides)

Payment Banks

- (see slides)

Scheduled bank

- (see slides)
- (not discussed in detail)

Non Scheduled Banks

- (see slides)
- (not discussed in detail)

Whether Bank deposits are insured?

- (see slides)

PM Mudra Yojna

- (see slides)
- (not important)
For Exam: only functions and role of commercial banks is important. No data is discussed/important for exam,
neither LIC, GIC.

For exam: read IRDAI. Skip the LIC, GIC for exam.

For exam:

- Topics we have discussed as per curriculum.

- Takeover Code: will be part of exam
- Financial system: discussed in detail
o Its components: discussed in detail
o Financial market
o Fin. Product
o Fin. Institutions: discussed in detail
o Func. of financial system
o Qualified Institutional Buyers
o Foreign portfolio investors
o Alternative investment funds
- Financial Intermediaries: discussed in detail
- Financial Instruments:
o Equity,
o preference,
o debt,
o hybrid
- Capital markets
o Securities market
o Primary market
o Secondary market
- Money Market
- Func. Of securities market
- Commodity market
- Financial System & Economic Development
- Theories of Impact of Financial Development of Saving & Investment
o Classical
o Post saving
o Etc.
- Three phases of Indian Financial system
- Demonetisation
- Financial inclusion
- RBI
o Functions
o Powers
- Shares with DVR
- EDR, IDR, GDR
- IPO
- Green Shoe Option
- Book Building Process & Private placement
- Derivative market
- Different types of derivative contracts
- All cases discussed: go through them
- Depository & Stock Exchanges
- Skip completely: BSE, NSE, bank of England etc.
- Takeover Code (v.v. imp.)
- Offer for Sale
- Go through only the functions of banks
- IBC