Key Takeaways

SEBI (ICDR) Regulations, 2018 are the primary legal framework governing all public issues of securities in India.
Two routes exist for mainboard eligibility — the Profitability Route (Regulation 6(1)) and the QIB Route (Regulation 6(2)).
Minimum promoter contribution of 20% with an 18-month lock-in is mandatory for all IPOs.
Pricing is determined through the Book Building process (price band) or Fixed Price method.
SEBI has progressively tightened disclosure norms, especially around related-party transactions, objects of the issue, and risk factors.

What Are the SEBI ICDR Regulations?

The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 — commonly called ICDR — replaced the earlier 2009 regulations and serve as the comprehensive rulebook for:

Initial Public Offerings (IPOs)
Follow-on Public Offers (FPOs)
Rights Issues
Preferential Allotments
Qualified Institutional Placements (QIPs)

Every company planning to raise capital from the public markets must comply with ICDR provisions. These regulations are administered by SEBI and are periodically amended through circulars and notifications.

Mainboard IPO Eligibility: Two Routes

Route 1 — Profitability Route (Regulation 6(1))

The company must satisfy ALL of the following conditions:

Net tangible assets of at least Rs 3 crore in each of the preceding 3 full years, of which not more than 50% is held in monetary assets (unless the monetary assets represent issue proceeds from prior capital raises).
Distributable profits (as per Section 123 of Companies Act, 2013) in at least 3 out of the immediately preceding 5 years.
Net worth of at least Rs 1 crore in each of the preceding 3 full years.
Average pre-tax operating profit of at least Rs 15 crore during any 3 out of the preceding 5 years.
If the company name has changed in the last 1 year, at least 50% of revenue in the preceding 1 full year must come from the activity indicated by the new name.

Route 2 — QIB Route (Regulation 6(2))

For companies that do not meet the profitability route (common for tech and new-age companies):

The issue must be made through the Book Building process only.
At least 75% of the net offer must be allotted to Qualified Institutional Buyers (QIBs).
The issuer must refund the full subscription amount if the minimum QIB subscription of 75% is not achieved.

This route was notably used by companies like Paytm (One97 Communications) for its Rs 18,300 crore IPO in November 2021 — the largest Indian IPO at the time. Paytm did not meet the profitability criteria but secured massive QIB participation to satisfy Regulation 6(2).

Key ICDR Provisions Every Issuer Must Know

Promoter Contribution & Lock-In (Regulation 14-16)

| Requirement | Details | |---|---| | Minimum Promoter Contribution | 20% of post-issue paid-up capital | | Lock-in on Minimum Contribution | 18 months from date of allotment | | Lock-in on Excess Promoter Holding | 6 months from date of allotment | | Ineligible Shares | Shares acquired in preceding 3 years at a price lower than IPO price (with exceptions) |

Pricing Mechanisms (Regulation 28-30)

Book Building — The issuer sets a price band (e.g., Rs 150-160). Investors bid within this band. The final price is discovered based on demand. This is the most common method.

Fixed Price — The issuer fixes the offer price. Investors apply at that price. This method is permitted for SME IPOs and smaller issues.

Allotment Categories

| Category | Mainboard Allocation | SME Allocation | |---|---|---| | QIB (Mutual Funds, FPIs, Insurance) | Not less than 75% (QIB route) or 50% (profitability route) | Not applicable | | Non-Institutional Investors (HNIs) | Not less than 15% | Not less than 15% | | Retail Individual Investors | Not less than 35% (profitability route) | Not less than 35% |

Objects of the Issue (Regulation 26)

SEBI requires detailed disclosure of how IPO proceeds will be used. Vague objects like "general corporate purposes" are scrutinised heavily. The offer document must quantify:

Capital expenditure plans with specific project details
Debt repayment schedules with lender details
Working capital requirements backed by projections
Acquisition plans (if any) with identified targets
General Corporate Purposes (limited to 25% of gross proceeds)

Worked Example: Eligibility Self-Assessment

Company Profile: ABC Manufacturing Pvt Ltd, Ahmedabad

| Parameter | Company Data | Profitability Route Requirement | Met? | |---|---|---|---| | Net Tangible Assets (3 years) | FY23: Rs 8 Cr, FY24: Rs 11 Cr, FY25: Rs 14 Cr | ≥ Rs 3 Cr each year | Yes | | Distributable Profits | Profitable in FY22, FY23, FY25 (3 of 5 years) | ≥ 3 of 5 years | Yes | | Net Worth (3 years) | FY23: Rs 5 Cr, FY24: Rs 7 Cr, FY25: Rs 10 Cr | ≥ Rs 1 Cr each year | Yes | | Avg Pre-tax Operating Profit | Rs 12 Cr (best 3 of 5 years) | ≥ Rs 15 Cr | No |

Result: ABC Manufacturing does not qualify under the Profitability Route but can explore the QIB Route (Regulation 6(2)) or consider the SME platform.

Expert Tip: Do not assume your company qualifies simply because it is profitable. The eligibility test under Regulation 6(1) is multi-dimensional. Our CAs recommend running a formal eligibility self-assessment at least 18 months before the target IPO date — many companies discover gaps that can be closed with proper planning.

Recent SEBI Amendments to Watch

SEBI continuously refines ICDR provisions. Key recent changes include:

Enhanced disclosure of KPIs used by companies in their investor presentations (applicable to issues post-2022)
Tighter norms on Offer for Sale — restrictions on promoter dilution beyond certain thresholds
Anchor investor lock-in extended to 90 days for 50% of anchor allocation
Price band width must be at least 5% of the floor price
T+3 listing timeline — SEBI has mandated shorter timelines from allotment to listing

Section Interconnect

Previous: Chapter 3 — Pre-IPO Preparation
Next: Chapter 5 — DRHP Explained
Related: Chapter 6 — IPO Process Timeline
Related: Chapter 2 — SME vs Mainboard IPO

Frequently Asked Questions

Can a company with foreign promoters file for an IPO in India?

Yes. SEBI ICDR Regulations do not restrict foreign promoters from filing for an Indian IPO. However, FEMA regulations and RBI guidelines regarding Foreign Direct Investment (FDI) sectoral caps, pricing guidelines, and reporting requirements must be complied with. Qualified CAs and legal counsel should review the FDI structure before filing.

What happens if SEBI rejects the DRHP?

SEBI does not formally "reject" a DRHP. Instead, SEBI issues observations — which may include requests for additional disclosures, modifications, or clarifications. The company must address all observations before proceeding. If observations are not adequately addressed, SEBI may withhold its observation letter, effectively preventing the IPO from proceeding.

Is there a validity period for SEBI's observation letter?

Yes. SEBI's observation letter is valid for 12 months from the date of issuance. If the company does not open its IPO within this period, it must refile the DRHP and obtain fresh observations.

Disclaimer: This article is for educational and informational purposes only. It does not constitute financial, legal, or investment advice. SEBI regulations are subject to amendments. Always consult qualified professionals and refer to the latest SEBI circulars for current provisions.

Need clarity on whether your company meets SEBI ICDR eligibility? Our qualified CAs can run a comprehensive eligibility assessment. WhatsApp us for a free consultation →

SEBI ICDR Regulations: IPO Eligibility Criteria Explained