Few questions in primary-market law are as deceptively simple as what price should an issuer charge the public for its shares? The SEBI (ICDR) Regulations, 2018 answer it not by dictating a figure but by disciplining the process of arriving at one. The regime abolished the era of administrative price control under the Controller of Capital Issues and replaced it with free pricing tempered by disclosure, a capped price band, a market-driven book building mechanism and carefully fenced exceptions for differential and anchor pricing. For the judiciary and CLAT-PG aspirant, the cluster of Regulations 27 to 33 (for an IPO) and their mirror in Regulations 125 to 130 (for an FPO) is where corporate finance, investor protection and the prohibition on issuing shares at a discount meet. This chapter dissects each lever - face value, the floor, the cap, the two-day window, the ten-per-cent retail discount and the anchor book - against the bare text and the disclosure architecture of the ‘basis for issue price’ section.
From administrative price control to free pricing
Until 1992 the price of every public issue in India was fixed not by the issuer but by the Controller of Capital Issues under the Capital Issues (Control) Act, 1947. Companies could not charge a premium without the Controller's sanction, and the formula-driven valuation kept issue prices artificially low and listing gains artificially high. The abolition of that office and the enactment of the SEBI Act, 1992 inaugurated the era of free pricing: an issuer and its lead manager(s) may now decide the price themselves, in consultation or through book building, subject only to disclosure and the structural limits in the ICDR Regulations.
Free pricing is not a licence for arbitrariness. The Supreme Court's framing of SEBI's mandate in Sahara India Real Estate Corporation Ltd. v. SEBI, (2012) 10 SCC 603, is the doctrinal anchor: the moment securities are offered to the public - there, optionally fully convertible debentures to roughly three crore subscribers - the protective machinery of securities law, including the disclosure and pricing discipline, is attracted irrespective of how the issuer labels the offer. Pricing law is therefore best read as one wing of the larger investor-protection scheme described in our introduction and object chapter, not as a standalone valuation rulebook.
The statutory scheme: Regulations 27-30 (IPO) and 125-128 (FPO)
Pricing for an initial public offer on the main board lives in Part VII of Chapter II. Regulation 27 requires the face value to be disclosed in the draft offer document, offer document, advertisements and application forms in identical font size alongside the price band or issue price - a presentation safeguard so investors are never shown a glossy price without its par anchor. Regulation 28(1) is the empowering provision: the issuer may determine the price (and, for convertibles, the coupon and conversion price) in consultation with the lead manager(s) or through the book building process, with Regulation 28(2) routing book building through Schedule XIII.
Regulation 29 governs the price and price band, Regulation 30 governs differential pricing, and Regulation 31 ties the minimum offer to the public to rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957. For a further public offer the identical scheme is reproduced verbatim in Regulations 125 to 128, with one calibrated difference in the announcement timeline discussed below. The eligibility gateways that an issuer must clear before it ever reaches pricing are covered separately in eligibility for an IPO and eligibility for an FPO.
Face value, the par floor and the discount prohibition
The architecture has a hard floor that is easy to forget under exam pressure. Regulation 29(3) states that the floor price or the final price shall not be less than the face value of the specified securities. This is the ICDR echo of Section 53 of the Companies Act, 2013, which prohibits the issue of shares at a discount and renders any such issue void, exposing the company and officers in default to refund with interest at twelve per cent per annum and a penalty. Read together, the two provisions mean an issue can command any premium the market will bear but can never be priced below par.
The premium itself is not free money. Section 52 of the Companies Act channels every rupee of premium received into a securities premium account whose application is statutorily restricted. The face-value rule also interacts with eligibility: a company with a track record may issue at any face value, but a company without it faces the special face-value and disclosure restrictions discussed in eligibility for an IPO. The practical takeaway is that the ‘floor’ in book building and the ‘face value’ floor are two distinct concepts: the former is the bottom of the discovered band, the latter is the absolute statutory minimum below which neither can fall.
Two routes to a number: fixed price versus book building
The Regulations recognise two pricing mechanisms. In a fixed price issue, Regulation 29(1) permits the issuer to mention a price or a price band in the offer document itself; the prospectus filed with the Registrar of Companies must, by the proviso to Regulation 29(1), contain only one price. The investor knows the exact price before applying and the entire application money is paid up front. Allocation in a non-book-built issue is governed by Regulation 32(4): a minimum of fifty per cent to retail individual investors, the remainder to other individuals and to corporate or institutional applicants.
In a book built issue, the issuer mentions a floor price or a price band in the red herring prospectus and discovers the final price later through bidding. ‘Book building’ is defined in Regulation 2(1)(g) as a process undertaken to elicit demand and to assess the price for determination of the quantum or value or coupon of the securities. Bids are collected across the band, demand is aggregated, and the cut-off price emerges where the book is built. Because the discovered price feeds the prospectus, the proviso again bites - the document finally filed with the Registrar carries only one price. The choice between the two routes is not cosmetic: it dictates the disclosure document (prospectus versus red herring prospectus, examined in our draft red herring prospectus chapter), the allocation buckets and the role of anchor investors.
The price band and the 120% cap
The single most tested numerical rule is the cap. Regulation 29(2) provides that the cap on the price band - and the coupon rate for convertible debt instruments - shall be less than or equal to one hundred and twenty per cent of the floor price. In other words, the top of the band can never exceed 1.2 times the bottom. If the floor is set at Rs 100, the cap cannot be more than Rs 120. Schedule XIII restates the same arithmetic from the opposite direction: the cap of the price band shall not be higher by more than twenty per cent of the floor.
The cap serves a market-integrity purpose. A wide, open-ended band would defeat genuine price discovery and let issuers anchor expectations dishonestly; a tight band keeps the discovered price meaningfully constrained. SEBI has also, by circular, prescribed a minimum band width - the cap must be at least five per cent above the floor - so that the band is neither a fiction at the bottom nor a runaway at the top. For convertible debt instruments the same 120 per cent ceiling applies to the coupon, preventing issuers from disguising an excessive return as a pricing variable. The cap is therefore doing double duty: it constrains the equity price band and, simultaneously, the reward attached to debt that may later convert into equity, keeping both within a single, predictable proportional limit that an investor can verify against the floor disclosed in the offer document.
The floor-price disclosure window: two days for an IPO, one for an FPO
An issuer need not commit to a floor or band in the red herring prospectus itself. Regulation 29(4) permits deferral, but with a strict timing condition: where the issuer opts not to disclose the floor price or price band in the red herring prospectus, it must announce them at least two working days before the opening of the issue in the same newspapers carrying the pre-issue advertisement (or together with that advertisement) in the Schedule X Part A format. This is one of the few places where the FPO regime deliberately diverges: Regulation 127(4) shortens the window to at least one working day before the opening of the bid, on the logic that a listed company already has a discoverable market price guiding investors.
The announcement is not bare. Regulation 29(5) requires it to carry the relevant financial ratios computed for both the upper and lower ends of the band and a statement drawing investor attention to the ‘basis for issue price’ section of the offer document. Regulation 29(6) then mandates that the announcement and ratios be disclosed on the stock exchange websites and pre-filled into the application forms hosted there. The mechanism ensures that even a last-minute price is accompanied by the comparative metrics an investor needs. The two-day cushion for an IPO is deliberate: a first-time issuer has no prior traded price, so investors are given a clear forty-eight working hours to absorb the announced band, compute the implied valuation and decide whether to bid before the window closes.
Revising the band during bidding and extending the issue
A price band is not frozen once bidding opens. Schedule XIII permits revision during the bidding period, but caged within the same proportionality the cap rule imposes. The maximum revision on either side shall not exceed twenty per cent - the floor of the band can move up or down by up to twenty per cent of the floor disclosed in the red herring prospectus, and the cap of the revised band is then re-fixed at no more than 120 per cent of the revised floor. Any revision must be widely disseminated by informing the stock exchanges, issuing a public notice and updating the relevant website and syndicate terminals.
A revision triggers a time consequence. Under Schedule XIII, on a revision in the price band the issuer must extend the bidding period by a minimum of three working days, subject to the total bidding period not exceeding ten working days. The same outer limit governs extensions for force majeure, banking strikes or similar circumstances, for reasons recorded in writing. Crucially, where lowering the band creates a shortfall in project financing, the red herring prospectus or public notice must disclose how that shortfall will be met, and allotment cannot proceed until the financing is tied up - a direct guard against an under-priced issue leaving a project half-funded.
Differential pricing: the ten-per-cent retail concession
The default rule is one price for all, but Regulation 30 carves out controlled departures. Under Regulation 30(1)(a), retail individual investors, retail individual shareholders or employees entitled to reservation under Regulation 33 may be offered securities at a price not lower by more than ten per cent of the price at which the net offer is made to other categories, excluding anchor investors. This is the statutory basis for the familiar ‘retail discount’ in IPOs - capped at ten per cent and benefiting only the small investor, the eligible shareholder and the employee.
Two further limbs complete the scheme. Regulation 30(1)(b) provides that in a book built issue the price offered to anchor investors shall not be lower than the price offered to other applicants - anchors get no discount and may in fact pay more once the book is built. Regulation 30(1)(c) permits, where the issuer adopts the alternate book building method under Part D of Schedule XIII, an offer to employees at a price not lower by more than ten per cent of the floor price. Regulation 30(2) insists that any discount be expressed in rupee terms in the offer document, so it cannot be obscured as a vague percentage. The FPO mirror in Regulation 128 adds one extra limb - clause (c) - allowing the public-issue price in a composite issue to differ from the rights-issue price, with justification disclosed; composite issues are touched on in the definitions and scope chapter.
Anchor investors: pricing, the upward true-up and lock-in
The anchor investor is a creature of book building designed to lend credibility to an issue by committing a marquee qualified institutional buyer a day early. An ‘anchor investor’ is defined in Regulation 2(1)(c) as a QIB applying for at least ten crore rupees in a main-board book built issue (two crore rupees for an SME exchange issue under Chapter IX). Schedule XIII permits up to sixty per cent of the QIB portion to be allotted to anchors on a discretionary basis, with one-third of the anchor portion reserved for domestic mutual funds, and anchor bidding opening one day before the issue opening date.
The pricing mechanics are exam-favourites. Under Schedule XIII, if the price discovered through book building is higher than the anchor allocation price, the anchor investor must pay the additional amount; but if the discovered price is lower, the excess is not refunded and the anchor is simply allotted at its original price. The asymmetry rewards the anchor for committing early while ensuring it never benefits from a lower public price. The lock-in, originally a flat thirty days, was amended with effect from 1 April 2022: lock-in of thirty days continues for fifty per cent of the anchor portion and ninety days applies to the remaining fifty per cent - tightening the incentive against quick exits that distort post-listing price.
Justifying the number: the 'basis for issue price' disclosure
Free pricing is policed not by a ceiling but by a duty to explain. The offer document must carry a dedicated ‘basis for issue price’ section under Schedule VI, requiring the issuer to justify the price by reference to qualitative and quantitative factors. The quantitative limb traditionally demands disclosure of earnings per share, the price-to-earnings ratio, return on net worth and net asset value, each benchmarked against listed peers of comparable size in the same industry.
Recognising that profit-based ratios are meaningless for new-age loss-making issuers, SEBI now requires, in addition, the disclosure of key performance indicators (KPIs) - the operational and financial measures management itself tracks - together with the price per share at which the company raised capital in recent secondary transactions or fund-raises. KPIs must be certified by senior management and validated by an independent practising professional such as the statutory auditor. The effect is to convert the ‘basis for issue price’ section from boilerplate into a substantive, auditable justification, reinforcing the disclosure logic running through the draft red herring prospectus.
Where pricing meets allocation
Pricing cannot be understood in isolation from how the discovered price is distributed. Regulation 32 sets the net-offer allocation in a book built IPO depending on which eligibility route under Regulation 6 the issuer takes. Under the profitability route in Regulation 6(1): not less than thirty-five per cent to retail individual investors, not less than fifteen per cent to non-institutional investors and not more than fifty per cent to QIBs (with five per cent of the QIB slice for mutual funds). Under the alternative QIB route in Regulation 6(2): not more than ten per cent retail, not more than fifteen per cent non-institutional and not less than seventy-five per cent to QIBs.
This interplay matters for pricing because a heavily QIB-weighted book disciplines the price differently from a retail-heavy one: institutional bids drive genuine discovery, while the retail and anchor buckets are priced off, or in deliberate concession to, that discovery. The anchor allocation - up to sixty per cent of the QIB portion - is carved out of this same matrix. The eligibility routes themselves are unpacked in eligibility for an IPO, and the entire pricing-allocation machinery sits within the broader scheme mapped in the SEBI ICDR hub.
FPO pricing: the same engine, two calibrations
A further public offer by an already-listed issuer reproduces the IPO pricing engine almost word for word in Regulations 125 to 128, but two calibrations reflect the issuer's existing market presence. First, as noted, Regulation 127(4) compresses the floor-price announcement window to one working day before the bid opens, against the two days for an IPO under Regulation 29(4) - the market price already informs investors. Second, Regulation 128(1)(c) adds a composite-issue limb absent from the IPO provision, permitting the public-issue price to differ from the rights-issue price in a composite issue, with justification disclosed in the offer document.
Everything else carries over intact: the identical-font face-value disclosure (Regulation 125), the consultation-or-book-building choice (Regulation 126), the 120 per cent cap and the par-value floor (Regulation 127(2) and 127(3)), the both-ends financial ratios in the announcement, the ten-per-cent differential for retail and employees, the no-discount rule for anchors and the rupee-terms discount disclosure (Regulation 128). For the FPO, secondary-market price acts as an informal external check absent in a maiden IPO, which is precisely why SEBI felt able to relax the announcement window without diluting investor protection.
Common exam pitfalls and quick takeaways
Several traps recur. Candidates conflate the face-value floor (Regulation 29(3), an absolute statutory minimum) with the floor of the price band (the bottom of the discovered range); they are distinct. They misremember the cap as ‘120 per cent of the cap’ rather than 120 per cent of the floor. They forget that the differential-pricing concession is capped at ten per cent and excludes anchor investors, and that anchors can never be priced below other applicants under Regulation 30(1)(b).
The reliable takeaways: pricing is free but disclosure-bound; the cap is 1.2 times the floor; the IPO announcement window is two working days and the FPO window one; band revision is limited to twenty per cent either side and forces a minimum three-working-day extension capped at a total of ten working days; the retail/employee discount is ten per cent and must be stated in rupees; anchors true up on a higher discovered price but are never refunded on a lower one, with a split thirty-day and ninety-day lock-in. Hold these against the bare text of Regulations 27 to 32 and 125 to 129 and the topic resolves into a small, memorable set of numbers anchored to the SEBI Act's investor-protection purpose affirmed in Sahara India Real Estate Corporation Ltd. v. SEBI.
Frequently asked questions
What is the maximum spread allowed in a price band under SEBI ICDR Regulations?
Under Regulation 29(2) (and the mirror in Regulation 127(2) for an FPO), the cap on the price band must be less than or equal to one hundred and twenty per cent of the floor price. So if the floor is Rs 100, the cap cannot exceed Rs 120. SEBI has separately prescribed a minimum band - the cap must be at least five per cent above the floor.
Can a public issue be priced below the face value of the shares?
No. Regulation 29(3) expressly provides that the floor price or final price shall not be less than the face value. This reinforces Section 53 of the Companies Act, 2013, which prohibits issuing shares at a discount and renders any such issue void, with refund at twelve per cent interest and a penalty on the company and officers in default.
How much earlier must the floor price be announced if it is not in the red herring prospectus?
For an IPO, Regulation 29(4) requires announcement at least two working days before the issue opens, in the same newspapers as the pre-issue advertisement and in the Schedule X Part A format. For an FPO, Regulation 127(4) shortens this to at least one working day before the bid opens, because a listed issuer already has a discoverable market price.
What discount may retail investors and employees be offered, and do anchor investors get a discount?
Under Regulation 30(1)(a), retail individual investors, retail individual shareholders and eligible employees may be offered a price not lower by more than ten per cent of the price offered to other categories (excluding anchors), and any discount must be stated in rupee terms. Anchor investors get no discount - Regulation 30(1)(b) bars pricing them below other applicants.
What happens to an anchor investor's price if the book-built price comes out higher or lower?
Under Schedule XIII, if the discovered price is higher than the anchor allocation price, the anchor must pay the additional amount. If it is lower, the excess is not refunded and the anchor is allotted at the original price. The anchor lock-in, amended from 1 April 2022, is thirty days for fifty per cent of the anchor portion and ninety days for the rest.
Is free pricing the same as unregulated pricing in Indian securities law?
No. Free pricing replaced administrative control by the Controller of Capital Issues, but it is policed by disclosure - chiefly the ‘basis for issue price’ section under Schedule VI requiring qualitative and quantitative factors plus KPIs. The Supreme Court in Sahara India Real Estate Corporation Ltd. v. SEBI, (2012) 10 SCC 603, confirmed that any public offer attracts SEBI's protective regime regardless of labelling.