Module: | Specialized Audits, Tech & ESG Disclosures
Q84: Consider the following statements regarding the lock-in requirements for Promoters' Contribution under the SEBI (Issue of Capital and Disclosure Requirements) Regulations in 2025:
1. The minimum promoters' contribution (20 percent of the post-issue capital) in an Initial Public Offering (IPO) is generally locked in for a period of 18 months, reduced from the historical 3 years.
2. The lock-in period remains 3 years if the objective of the public issue involves project financing or capital expenditure for a new initiative.
3. Promoters are strictly prohibited from pledging their locked-in shares with any scheduled commercial bank under any circumstances.
Which of the above statements is/are incorrect?
2. The lock-in period remains 3 years if the objective of the public issue involves project financing or capital expenditure for a new initiative.
3. Promoters are strictly prohibited from pledging their locked-in shares with any scheduled commercial bank under any circumstances.
Which of the above statements is/are incorrect?
✅ Correct Answer: C
🎯 Quick Answer:
C. Only 3 is incorrect.Structural Breakdown: Statement 1 is correct; SEBI recently reduced the lock-in from 3 years to 18 months for companies where the IPO funds are used for general corporate purposes or debt repayment (not for new projects). Statement 2 is correct; if the public is funding a new project (Capex), the promoter must remain locked in for the full 3 years to ensure project completion.
Statement 3 is incorrect; promoters ARE permitted to pledge locked-in shares with a scheduled commercial bank or public financial institution as collateral for a loan granted to the company.
Historical/Related Context: The reduction to 18 months was a major reform driven by the startup ecosystem.
Founders of tech unicorns (which rarely have heavy physical Capex projects) argued that locking up their entire net worth for three years stifled wealth creation and restricted private equity exit routes.
Causal Reasoning: Allowing promoters to pledge locked-in shares for a corporate bank loan is permitted because it directly benefits the company's liquidity, whereas selling the shares on the open market would simply enrich the promoter while crashing the stock price for retail investors.