SEBI issued an Order on 9 October 2012 laying down general criteria for rejection of draft offer documents filed with SEBI. The major ones are as follows:

  • There exist circular transactions for building up of capital/net worth of the issuer.
  • The objects of the issue are vague (including cases where proceeds are utilized for purposes that do not create any tangible asset for the issuer).
  • The business model of the issuer is complex, misleading or exaggerated.
  • There is sudden increase in the business of the issuer immediately before filing of the draft offer document.
  • The prospects of the issuer are dependent upon the outcome of a pending litigation.
  • There is failure to resolve any conflict of interest between the issuer and merchant banker.

A company whose draft offer document is rejected will not be allowed to access the capital markets for at least one year from the date of rejection.

The Order also allows companies which have already filed a draft offer document with SEBI, to withdraw such documents within one month.