Authority: Nodal Co-ordination Cell, Securities and Exchange Board of India (SEBI)

Order Date: July 31, 2026

Case Overview

This informal guidance was issued by SEBI's Nodal Co-ordination Cell in response to an application from IDBI Bank Limited dated May 13, 2026. The Bank sought clarification on the regulatory permissibility of its proposed sale of equity shares in various unlisted companies. These shares were acquired by IDBI through three primary means: as part of loan account restructuring/resolution or pledge invocation; through direct investment; or via in-specie distribution from Venture Capital Funds (VCFs) or Alternative Investment Funds (AIFs) at the end of their tenure.

The query was prompted by an advisory dated January 15, 2026, from the Department of Financial Services (DFS), Ministry of Finance, which advised Public Sector Banks, including IDBI, that sales of unlisted equity shares should be restricted to Qualified Institutional Buyers (QIBs) to ensure regulatory compliance and avoid classification as public issues. IDBI proposed to sell these shares through bilateral, negotiated transactions to identified investors (including non-QIBs like individuals, corporate entities, and company promoters) without any public advertisement, request for proposal (RFP), expression of interest (EOI), or general solicitation.

IDBI posed three specific queries seeking interpretation of the Companies Act, 2013, and the Companies (Prospectus and Allotment of Securities) Rules, 2014:

1. Whether such a private sale to non-QIBs could be construed as a deemed public issue.

2. Whether the Companies Act mandates that such transactions be restricted exclusively to QIBs.

3. Whether the Bank is entitled to transfer shares to a company's promoters pursuant to contractual rights of first refusal (ROFR) or first right to purchase.

Final Outcome

SEBI provided the following clarifications on each query:

For Query 1, SEBI clarified that a sale of unlisted shares through a non-advertised, privately negotiated transaction to identified investors, including non-QIBs, would not be construed as a deemed public issue, provided the total number of transferees for the shares of each individual company does not exceed 200 persons in a financial year. This is in accordance with Explanation III to Section 42(3) of the Companies Act, 2013, and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

For Query 2, SEBI clarified that the Companies Act does not mandate that such transactions be restricted exclusively to QIBs. While placements to QIBs are excluded from the calculation of the 200-person limit (as per Section 42(2)), the law does not prohibit sales to non-QIB investors. A privately negotiated transaction with identified non-QIB investors is permissible, subject to adherence to the overall limit of 200 allottees/transferees per company per financial year.

For Query 3, SEBI clarified that IDBI Bank is entitled to transfer unlisted shares to a company's promoters pursuant to pre-existing contractual arrangements conferring a right of first refusal (ROFR) or a first right to purchase. Such a transfer to an identified promoter is permissible, provided it is counted within the prescribed limit of 200 transferees for that company in the financial year. The contractual terms are for the parties to decide, subject to applicable law.

The guidance is based solely on the representations made by IDBI Bank in its application and expresses the department's position on enforcement action only. It does not constitute a decision of the SEBI Board and is subject to different outcomes if facts or conditions change.

Topics: Securities Regulation, Banking Compliance