This article is written by Madhavan Vasdev and pursuing a Diploma in General Corporate Practice: Transactions, Governance, and Disputes.  This article has been edited by Ruchika Mohapatra(Associate, Lawsikho). 

This article has been published by Sneha Mahawar.


It is a sight to behold for a promoter or startup founder to witness the shares of his company being traded at stock exchanges. But keeping aside the matter of pride, raising money from the public through stock exchanges involves the work of a lot of parties, and eligibility criteria is also a big concern.

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The primary legislation that governs the laws related to the listing are the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, as amended (the ICDR Regulations) and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, as amended (the Listing Regulations). In this article, the listing eligibility for NSE is discussed.

The listing requirements can be categorized under the following heads:

  1. Common conditions for public issue(Chapter 2 of SEBI ICDR)
  2. Eligibility requirements for getting listed(Chapter 3 Part 1 of SEBI ICDR)
  3. Mandatory Perquisites for NSE

Common conditions for public offering

There are some common conditions that should be considered if there is a public or rights issue. These conditions can be categorized into dos and don’ts and are as follows:

Don’ts for Public issue

  • The issuer should not be debarred from accessing the capital markets.
  • The issuer should not be a promoter, director of a company that is debarred from accessing the capital markets.
  • In relation to convertible debt instruments, the issuer should not be in the list of wilful defaulters published by RBI or in default of payment of interest(or principal amount) issued by it to the public for a period of more than 6 months.

Do’s for Public issue

  • The issuer should have made an application to at least one of the stock exchanges for a listing of the specified securities and has chosen one of them as a designated stock exchange.
  • The issuer should have entered into an agreement with a depository for dematerialization of specified securities already issued or proposed to be issued.
  • All the existing partly paid-up equity shares of the issuer should have either been fully paid up or forfeited.
  • There must be a firm arrangement of finance through verifiable means towards seventy-five percent of the stated means of finance excluding the amount to be raised through the proposed public (or rights) issue or through existing identifiable internal accruals.

Eligibility requirements for getting listed

The applicant who wants to get listed can take one of the two routes i.e Profitability or Non-Profitability route.

Profitability route

Under this route the applicant should satisfy the following conditions:

  • Net tangible assets of minimum three crore rupees in each of the preceding three full years(of twelve months each), of which not more than fifty percent are held in monetary assets.
  • Track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years.
  • The net worth of minimum of one crore rupees in each of the preceding three full years(of twelve months each).
  • The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding financial year.
  • If it has changed its name within the last one  year, at least fifty percent of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name.

Non-profitability route

In case the above conditions are not fulfilled, the entity can go for IPO by taking care of the following conditions:

  • The issue is made through the book-building process and the issuer undertakes to allot at least fifty percent. of the net offer to the public to qualified institutional buyers and to refund full subscription monies if it fails to make an allotment to the qualified institutional buyers; OR

At least fifteen percent. of the cost of the project is contributed by scheduled commercial banks or public financial institutions, of which not less than ten percent. shall come from the appraisers and the issuer undertakes to allot at least ten percent. of the net offer to the public to qualified institutional buyers and to refund full subscription monies if it fails to make the allotment to the qualified institutional buyers;

  • The minimum post-issue face value capital of the issuer is ten crore rupees; OR

The Issuer undertakes to provide market-making for at least two years from the date of listing of the specified securities, subject to the following:

  1. The market makers offer to buy and sell quotes for a minimum depth of three hundred specified securities and ensure that the bid-ask spread for their quotes does not, at any time, exceed ten percent.; 
  2. The inventory of the market makers, as on the date of allotment of the specified securities, shall be at least five percent. of the proposed issue.
  • An issuer may make an initial public offer of convertible debt instruments without making a prior public issue of its equity shares and listing thereof. 
  • An issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand. 
  • No issuer shall make an initial public offer if there are any outstanding convertible securities or any other right which would entitle any person any option to receive equity shares after the initial public offer: 

Exceptions to the above rule

  1. A public issue made during the currency of convertible debt instruments which were issued through an earlier initial public offer, if the conversion price of such convertible debt instruments was determined and disclosed in the prospectus of the earlier issue of convertible debt instruments.
  2. Outstanding options granted to employees pursuant to an employee stock option scheme framed in accordance with the relevant Guidance Note or Accounting Standards, if any, issued by the Institute of Chartered Accountants of India in this regard.
  • Subject to provisions of the Companies Act, 1956 and SEBI (ICDR) regulations, equity shares may be offered for sale to the public if such equity shares have been held by the sellers for a period of at least one year prior to the filing of the draft offer document with the Board in accordance with sub-regulation (1) of regulation 6 of SEBI (ICDR).
  • No issuer shall make an initial public offer unless as on the date of registering prospectus or red herring prospectus with the Registrar of Companies, the issuer has obtained grading for the initial public offer from at least one credit rating agency registered with the Board.

Mandatory prerequisites For NSE

An applicant who desires listing of its securities with NSE must fulfill the following prerequisites:

Paid-up equity capital

The paid-up equity capital of the issuer should not be less than 10 crores and the capitalization of the equity should not be less than 25 crores.

Conditions precedent to listing

The issuer should follow all the laws inter alia of Securities Contracts (Regulations) Act 1956, Companies Act 1956/2013, Securities and Exchange Board of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also any circular, clarifications, guidelines issued by the appropriate authority under foregoing statutes.

Three years track record

At least three years of track record of either the applicant or promoters or a partnership firm and subsequently converted into a company.
For this purpose, the applicant or the promoting company shall submit annual reports of three preceding financial years to NSE and also provide a certificate to the Exchange in respect of the following: 

  1. That the company has not referred to the Board of Industrial & Financial Reconstruction (BIFR) and No proceedings have been admitted under Insolvency and Bankruptcy Code against the issuer and Promoting companies.
  2. The company has not received any winding-up petition admitted by a NCLT.
  3. The net worth of the company should be positive. (Provided this criterion shall not be applicable to companies whose proposed issue size is more than Rs.500 crores).


The applicant desirous of listing its securities should satisfy the exchange on the following:

  1. Redressal Mechanism of Investor grievance

The points taken for consideration are:

  • Details of pending investor grievances against Issuer, listed subsidiaries, and top 5 listed group companies by Market Cap. 
  • Arrangements or mechanisms evolved for redressal of  investor grievances including through the SEBI Complaints Redress System.
  1. Defaults in payment

Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders by the applicant, promoters/promoting company(ies), group companies, Subsidiary Companies shall also be considered while evaluating a company’s application for listing. The securities of the applicant company may not be listed till such time it has cleared all pending obligations relating to the payment of interest and/or principal.

Failures of recent IPOs

The year 2021 was a historic year for the Indian capital markets as 59 companies went for IPO. One of these 59 companies was Paytm which set the record for the largest IPO in India by raising Rs. 18,300 CR. Though Paytm’s IPO got subscribed 1.89 times, it made a disastrous debut at the stock market crashing 27 percent from its issue price ( ₹2,150 per share) on the first day due to lofty valuation and skepticism about its business model.

One of the reasons which can be attributed to the IPO failures of such startups is their Non-profitability. According to the normal route these startups won’t have been able to see the light of the stock market because of their low profitability. But the QIB route(Non-Profitability Route) of SEBI has made the day for these loss-making startups. Finding a QIB or a scheduled commercial bank for investment is not difficult for them. But the challenge comes when their shares post listing is made to stand the wrath of the market. 

These startups also put a very high valuation. The majority of companies going for IPO are technology companies. The majority of these companies are at losses or have some level of profits. Despite this fact, they seek gigantic valuations than other traditional listing companies. Investment bankers frequently assign a high valuation for the company, leaving no room for regular investors.

What should the retail investors watch out for

Capital markets have started to penetrate deep into the economy. As a result, retail investors are also growing. The majority of them are inexperienced. With frequent IPOs in the market, retail investors should be careful of the following things.

Don’t believe everything

Most of the common media is manipulated. They want you to believe that every IPO will give you listing gains, every new tech company is the apple of the 80s, etc. Don’t believe everything the media portrays.

Focus on management and vision of the company

Retail investors should inter alia focus on the vision of the company. Most startups start strong and after reaching a competitive valuation they lose their focus. Consequently, they lose sight of their long-term vision. They start deviating from their core competency. As a result, their stock nose dives in the market.

Be Patient

Sometimes due to some temporary market sentiments, the stock of a company is not able to achieve the desired result. Stocks of some well-reputed companies may also not be able to gain momentum after the initial days of listing. Thus investors should patiently observe the market and not haste their decisions. For example, in the case of MTAR technologies, the stock almost doubled on a listing day. But after that, the stock performed average and did not achieve the necessary momentum. After about a year from its listing, the stock has quadrupled its offer price and doubled the listing day price.


India possesses a lot of potential for upcoming startups. It has the 3rd largest startup ecosystem in the world; expected to witness YoY growth of consistent annual growth of 12-15%. The startups should focus on their competitive edge and problem solving rather than getting sky-high valuations. The startups should not rush for listing. If the idea is great but the business model outlook is hazy, they should consider raising funds through private placement(like CRED did) and avoid listing as non-performance post listing can impact the market in a significant way. 


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