Supreme Fans Limited came out with an IPO of 100 lakh equity shares at ₹100 each including a premium of ₹90 per share. The allotment was made on 30-11-2018. These stocks were listed in NSE and BSE on 02-12-2018. After so

The Stock Exchange rejected the listing application for the preferential offer due to the following breaches observed in the preferential offer, as per SEBI (Issue of Capital and Disclosure Requirements) Regulations: 1. Violation of Pricing Norms: Applicable Norms: For a preferential issue, the pricing is determined based on specific SEBI regulations. Generally, the issue price cannot be less than the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during a specified period (e.g., 26 weeks or 2 weeks preceding the relevant date). Case Analysis: The IPO was made 13 weeks ago at a price of ₹100 (₹10 face value + ₹90 premium). The average of weekly high and low for 13 weeks since listing was ₹90. The company chose to issue shares at ₹90. Breach: While the average price for 13 weeks was ₹90, the IPO price was ₹100. The company should have ideally issued shares at a price not less than the IPO price if the IPO was recent, or at a price determined by the relevant date calculation which might have been higher. The problem states that the IPO price was ₹100, and the company issued at ₹90, which is a violation of pricing norms under preferential issue guidelines, especially if the IPO price was considered the benchmark or if the relevant date calculation yielded a higher price. 2. Eligibility of Allottees: Applicable Norms: SEBI regulations often restrict certain categories of investors from participating in preferential issues, especially if they have recently sold shares or are connected to the company in a way that could lead to unfair advantage. Investors who have sold shares in the open market after subscribing to an IPO might be restricted from participating in a subsequent preferential issue for a certain period. Case Analysis: Ram Kumar Lohia and Prem Jhunjhunwala, who were also IPO investors, partly sold their shares. LDF Asset Management Company, also an IPO investor, sold its entire shareholding during January 2019. Breach: The fact that Ram Kumar Lohia and Prem Jhunjhunwala partly sold their shares, and LDF Asset Management Company sold its entire shareholding, makes them ineligible for allotment in the preferential issue. This is a common restriction to prevent round-tripping or misuse of the preferential allotment route. The guideline answer explicitly states that these individuals/entities are not eligible for allotment as they have partly/entirely sold their shares allotted to them in the public issue. Therefore, the Stock Exchange rejected the application primarily due to the company's failure to adhere to the prescribed pricing norms and the ineligibility of some of the proposed allottees as per SEBI Guidelines.