Thoughts on the ASBA process – Part I

(The following post comes to us from Prerak Ved, an advocate with Crawford Bayley & Co.)

SEBI has introduced the system of ASBA (Applications Supported by Blocked Amount) vide its circulars dated July 30, 2008 and operationalised the same vide its circular dated August 29, 2008 (“ASBA Circulars”). It is applicable only to book built public issues and not yet applicable to rights issues in general, although it was implemented on pilot basis in a couple of them. While the system has been successfully implemented in its initial stages, this write-up raises certain concerns which may arise in subsequent issues going forward:

(1) Minimal changes have been effected in the umbrella regulation governing public/rights issues, that is, the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 (“DIP Guidelines”), while the main and operational set of instructions are contained in the ASBA Circulars. It is desirable that all relevant instructions and changes (including indicative ASBA timelines and the responsibilities of the intermediaries concerned) contained in the ASBA Circulars be incorporated in the DIP Guidelines by way of suitable amendments to those guidelines and the insertion of necessary schedules. Legislation by circulars is never a desirable option, and has the potential for legal wrangles in case of any actual or perceived conflict or interpretational issues with the umbrella regulation (the DIP Guidelines) or any other SEBI regulations.

(2) (Downward) revision of the price band has been seen in certain public issues. Neither the DIP Guidelines nor the ASBA Circulars have any provisions for enabling the release of excess blocked amount in case of downward revision of the price band. In effect, while revision of bids has been banned for the ASBA investors, a deemed revision of bid on account of price band revision has not been provided for.

(3) Some legal issues may arise, on account of the time limit between the date on which funds are blocked and the date of allotment. For example, if a competent civil court passes an order for attachment of a bank account (whose funds are frozen in relation to an ASBA application), or if a garnishee order is passed in relation to such account(s), it may lead to legal complications for the self-certified syndicate banks (SCSBs), especially if the aggrieved party intimates the SCSB that it is appealing/intends to appeal (being within the limitation period), making the SCSB’s (unwilling) parties to litigation. Certain enactments also empower authorities to direct banks to deposit, with such person(s) as they may direct, monies lying in bank accounts of certain person(s). In this context, it is desirable to have appropriate legal clarification that whether the blocking of funds under ASBA is subject to, or is nothwithstanding any other laws or any court orders being in force.

(4) The Companies Act, 1956 and the DIP Guidelines provide for a strict liability on the issuer and its directors in relation to the 15-day time period to complete the allotment/refund process. Strikes in the banking system in India are not uncommon, and what would be the recourse for the issuer and its directors if the allotment process for one or more SCSB’s held up due to banking strikes?

(5) In case if the SCSB does not transfer the requisite funds after the finalisation of the basis of allotment in relation to any prospective allottee for any reason, can the basis of allotment as finalised with the designated stock exchange be revised? What would be the way out in such a scenario?

By Prerak Ved
Views expressed in this article are personal
© reserved with author

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

Add comment

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Top Posts & Pages


Recent Comments


web analytics

Social Media