An IPO is the most regulated capital-raising event in Indian corporate life. The ICDR Regulations decide who may come to market, how much promoters must keep locked, who gets what share of the book — and how fast the stock must list.
Main-board eligibility (Reg 6(1)): net tangible assets ≥ ₹3 crore, average operating profit ≥ ₹15 crore, and net worth ≥ ₹1 crore across the preceding three years — or take the Reg 6(2) route with at least 75% of the issue reserved for QIBs.
An Initial Public Offering is a company's first sale of shares to the public, converting a private (or unlisted public) company into a listed one. It can be a fresh issue (new shares, money to the company), an offer for sale (existing holders exit, money to sellers), or both. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 govern every step — eligibility, disclosures in the offer documents, promoter skin-in-the-game, allocation between investor categories, and post-issue obligations.
Miss a condition and the consequences are not academic: SEBI can keep a draft offer document in abeyance, direct refunds, restrain intermediaries — and mis-statements in a prospectus invite civil and criminal liability under the Companies Act, 2013.
BOTTOM LINE
- Two doors in: the profitability track (Reg 6(1)) or the QIB-heavy book-building track (Reg 6(2), ≥75% to QIBs).
- Promoter contribution: minimum 20% of post-issue capital, locked in for 18 months (3 years where the majority of the fresh issue funds capital expenditure); excess promoter holding locked for 6 months.
- Allocation (profit track): retail ≥35%, non-institutional ≥15%, QIBs ≤50% (with up to 60% of the QIB portion to anchor investors).
- Speed: listing on T+3 — three working days from issue closure.
Am I even eligible? The two tracks
Governs this section: Regulation 6, SEBI (ICDR) Regulations, 2018
Track 1 — Regulation 6(1), the profitability route. The issuer must have, for the preceding three full years:
- net tangible assets of at least ₹3 crore in each year (with restrictions on how much sits in monetary assets where the issue includes an offer for sale);
- average operating profit of at least ₹15 crore during the preceding three years, with operating profit in each of those years; and
- net worth of at least ₹1 crore in each of the preceding three years;
- if the company changed its name in the last year, at least 50% of revenue must come from the activity indicated by the new name.
Track 2 — Regulation 6(2), the alternative route. A company failing any of the above may still IPO through book building if it allots at least 75% of the net offer to qualified institutional buyers — and refunds the full subscription if that minimum isn't met. This is how loss-making new-age companies have listed.
General disqualifications (Reg 5): the issuer, promoters, promoter group or directors must not be debarred by SEBI; promoters/directors must not be promoters/directors of another debarred company; no promoter or director may be a fugitive economic offender; and any outstanding convertible securities must be dealt with before filing.
Promoter contribution and lock-in
Governs this section: Regulations 14–17, SEBI (ICDR) Regulations, 2018
Promoters must hold at least 20% of the post-issue capital — the market's assurance that the people selling the story stay invested in it. The lock-in on this 20% is 18 months from allotment where the issue is predominantly an offer for sale or the proceeds are not for capital expenditure; it stretches to 3 years where a majority of the fresh issue funds capex. Promoter holding above 20% is locked for 6 months, and pre-IPO shares held by non-promoters are generally locked for 6 months as well.
CAUTION — ineligible shares
Shares acquired in the preceding year at a price below the issue price, or against non-cash consideration, generally cannot count toward the minimum promoter contribution. Audit the promoter's share history before filing the DRHP, not while responding to SEBI's observations.
The process — from DRHP to T+3
Governs this section: Regulations 25, 32 & Schedule XIII, SEBI (ICDR) Regulations, 2018
- Appoint intermediaries — merchant bankers, registrar, legal counsel; conduct due diligence.
- File the Draft Red Herring Prospectus (DRHP) with SEBI and the exchanges; respond to SEBI's observations (a confidential pre-filing route also exists).
- File the RHP, announce the price band (book-built issues) and open the anchor book one day before the issue.
- Issue period — typically 3 working days; all applications through ASBA (funds blocked, not debited), with UPI for retail.
- Allocation (profit-track issues): QIBs up to 50% (of which up to 60% to anchor investors, one-third of the anchor portion reserved for domestic mutual funds), non-institutional investors at least 15%, retail at least 35%. Under the Reg 6(2) route the split inverts: QIBs ≥75%, NII ≤15%, retail ≤10%.
- Basis of allotment, refunds/unblocking and listing within T+3 working days of closure.
- Post-issue: minimum public shareholding trajectory under the SCRR, monitoring-agency reports on the use of proceeds (mandatory where the fresh issue exceeds ₹100 crore), and quarterly disclosure of deviations.
Worked example
Mini-case — a ₹900 crore IPO on the profitability track
A specialty-chemicals company with three years of audited operating profits averaging ₹22 crore, net worth of ₹80 crore and net tangible assets well above ₹3 crore plans a ₹900 crore IPO — ₹600 crore fresh (for a new plant: capex) and ₹300 crore OFS. It qualifies under Reg 6(1). Because the majority of the fresh issue funds capex, the promoters' 20% post-issue contribution locks for 3 years, the balance of their holding for 6 months. The book allocates 50% to QIBs (anchor book placed a day early, a third of it to mutual funds), 15% to NIIs, 35% to retail via UPI-ASBA. The issue closes Thursday; allotment is finalised, funds unblocked and the stock lists the following Tuesday — T+3. A monitoring agency reports quarterly on the ₹600 crore until the plant spend is complete.
Common mistakes
- Testing eligibility on standalone numbers where restated consolidated financials govern.
- Counting ineligible shares toward the 20% promoter contribution.
- Assuming the 3-year lock-in always applies. It is 18 months unless the majority of the fresh issue funds capex.
- Ignoring outstanding convertibles at filing — a Reg 5 blocker.
- Treating the Reg 6(2) route as a lighter option. The 75% QIB condition is a hard floor; failure means full refund.
- Forgetting the monitoring agency for fresh issues above ₹100 crore.
Checklist
- Run Reg 5 disqualification checks on the issuer, promoters, promoter group and directors.
- Confirm the eligibility track: Reg 6(1) financial tests or Reg 6(2) with ≥75% QIB allotment.
- Reconstruct the promoter share history; ring-fence eligible shares for the 20% contribution.
- Map lock-ins: 18 months / 3 years (capex) for minimum contribution; 6 months for the excess and pre-IPO holders.
- Sequence DRHP → SEBI observations → RHP → price band → anchor book → 3-day issue.
- Ensure ASBA/UPI mechanics, T+3 listing readiness and monitoring-agency appointment (> ₹100 crore fresh issue).
FAQ
Can a loss-making company do an IPO? Yes — through Regulation 6(2), by allotting at least 75% of the net offer to QIBs.
What is the minimum promoter contribution? 20% of post-issue paid-up capital, locked in for 18 months — or 3 years where the majority of the fresh issue is for capital expenditure.
How is an IPO different from an OFS within it? Fresh issue proceeds go to the company; offer-for-sale proceeds go to the selling shareholders. Most large IPOs combine both.
How fast must the shares list? Within three working days of issue closure (T+3).
What quota do retail investors get? At least 35% in profitability-track issues; up to 10% in Reg 6(2) issues.
Who watches how the money is spent? A monitoring agency must be appointed where the fresh issue exceeds ₹100 crore, reporting on the use of proceeds against the objects.
Primary sources
- Regulations 5, 6, 14–17, 25, 32 & Schedule XIII, SEBI (ICDR) Regulations, 2018
- Rule 19(2)(b), Securities Contracts (Regulation) Rules, 1957 — minimum public offer/shareholding
- SEBI circulars on T+3 listing and UPI-ASBA
- Sections 26, 34 & 35, Companies Act, 2013 — prospectus liability
Disclaimer: This article is general information on a fast-changing area of securities law, current at the time of writing. Thresholds and timelines change with SEBI amendments and circulars. It is not legal advice — verify against the live ICDR Regulations and consult your merchant banker and counsel before filing.