Every public issue ends in one of two outcomes for an applicant: an allotment of shares or the return of money. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 convert that simple binary into a tightly engineered process governed by minimum-subscription floors, a mandatory basis of allotment, the ASBA-UPI blocking architecture and a strict refund clock that now compresses listing to T+3. This chapter maps Regulations 38, 45, 46, 47, 49 and 50, situates them against Sections 39 and 40 of the Companies Act, 2013, and explains why the Supreme Court's Sahara judgment remains the doctrinal anchor of the entire refund obligation. For the bigger picture, begin with the SEBI ICDR hub and the chapter on introduction and object.
The statutory architecture: ICDR riding on the Companies Act
Refund and allotment under a public issue are not creatures of the ICDR Regulations alone. They sit on a two-tier statutory base. The primary obligations flow from Sections 39 and 40 of the Companies Act, 2013; the ICDR Regulations then operationalise those duties for listed-issue purposes. Section 39 codifies the doctrine of minimum subscription — no allotment of securities offered to the public may be made unless the amount stated in the prospectus as the minimum subscription has been subscribed and the application money received. Section 39(3) fixes the outer time-limit for receiving that minimum at the period prescribed, and Section 39(4) requires the company to file a return of allotment with the Registrar. Section 40 layers on the listing imperative: every company making a public offer must, before making the offer, apply to one or more recognised stock exchanges and obtain permission for the securities to be listed; sub-section (3) compels that monies received be kept in a separate bank account and applied only towards allotment or repayment.
The ICDR Regulations, 2018 take these skeletal duties and clothe them with operational detail through Chapter II (initial public offer on the main board). The relevant cluster runs from Regulation 38 (minimum number of allottees) through Regulation 45 (minimum subscription), Regulation 46 (period of subscription), Regulation 47 (application and minimum application value), Regulation 49 (allotment procedure and basis of allotment) to Regulation 50 (allotment, refund and payment of interest). Read together, these provisions answer three questions: did the issue attract enough subscribers to proceed at all; if it did, who among the applicants gets shares and in what quantity; and if it did not, how and how quickly must the money go back. The interplay with eligibility norms is taken up in the chapters on eligibility for IPO and eligibility for FPO.
Regulation 45: the ninety-per-cent minimum subscription floor
The single most important precondition to any allotment is that the public issue must achieve its minimum subscription. Regulation 45 of the ICDR Regulations, 2018 provides that the minimum subscription to be received in an issue shall be at least ninety per cent of the offer through the offer document. The ninety-per-cent threshold is not measured against the entire issued capital but against the offer made to the public through the prospectus or red herring prospectus, the contents of which are addressed in the chapter on disclosure in the draft red herring prospectus.
The legislative logic is protective and structural. A public issue is a capital-raising exercise calibrated to fund a stated object; if barely half the targeted capital arrives, the issuer's business plan is undercapitalised and the early subscribers are exposed to a thinly funded venture they never bargained for. By insisting that ninety per cent of the offer be taken up before a single share is allotted, Regulation 45 ensures that the issue either succeeds substantially or is unwound entirely. There is no middle path of a half-funded company foisted on those who happened to apply. Where the issue includes an offer for sale by existing shareholders, the minimum-subscription discipline is read with the fresh-issue component so that the protective floor is not diluted by treating sale proceeds as if they were subscription capital for the company.
The consequence of failure is unambiguous and is the trigger for the refund machinery discussed below: if the issuer does not receive the minimum subscription, it must refund the entire subscription amount received. The floor thus operates as an all-or-nothing gate — clearing it opens the door to the basis of allotment; falling short slams that door and opens the refund window instead.
Regulation 38: the thousand-allottee dispersion rule
Quantum of subscription is necessary but not sufficient. The ICDR framework also insists on a minimum dispersion of ownership. Regulation 38 provides that an issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand. This is a distinct and independent precondition: even a fully subscribed, even an oversubscribed, issue cannot proceed to allotment if fewer than a thousand investors will end up holding shares.
The rationale is the creation of a genuine public float. A security listed on a recognised stock exchange must have a real, dispersed shareholder base so that a price-discovering secondary market can exist; a notional listing concentrated in a handful of hands defeats the very object of bringing a company to the public market. The thousand-allottee rule complements the minimum-public-shareholding norms by ensuring that, from day one of listing, the security is held widely enough to trade. If the minimum-allottee condition is not met, the issuer is again thrown back on the refund obligation — the monies must be returned exactly as in a minimum-subscription failure. Regulation 38 therefore sits alongside Regulation 45 as the second of the two gateways an issue must clear before allotment can lawfully begin.
Regulation 46: the subscription window and its extensions
An issue cannot stay open indefinitely while the issuer hopes the minimum subscription will trickle in. Regulation 46 governs the period of subscription. A public issue must be kept open for at least three working days. In the case of a revision in the price band, the issuer must extend the bidding period for a minimum period as specified, and the total bidding period must not exceed the outer limit prescribed under the regulation. These limits perform two functions: they guarantee retail and institutional applicants a fair, advertised window in which to bid, and they cap the issuer's ability to keep an undersubscribed book open in the hope of last-minute rescue.
The period of subscription dovetails with the refund timeline because the refund clock and the listing clock both start running from the closure of the issue. The compression of that post-closure timeline to T+3 (discussed below) is precisely what makes a disciplined, statutorily bounded subscription window indispensable: a moving close date would make a fixed listing date unworkable. Regulation 46 thus fixes the temporal anchor — the issue-closing date, conventionally denoted ‘T’ — from which every downstream obligation, allotment, unblocking, refund and listing, is measured.
Regulation 47: application and the minimum application value
Regulation 47 prescribes the application and minimum application value. The minimum sum payable on application per specified security must fall within the band prescribed by SEBI, and the issuer must take the entire amount on application (subject to the limited carve-out for issues structured with calls). In practice the regulation, read with SEBI's operational circulars, fixes the value of each application by a retail individual investor within a defined rupee band so that the ‘minimum bid lot’ — the smallest number of shares for which a retail applicant may bid — carries a known, modest ticket size.
The minimum bid lot is the atomic unit of the entire allotment mechanism. Because Regulation 49 guarantees that, where shares are available, each successful retail individual investor receives at least one minimum bid lot, the size of that lot directly determines how many retail applicants can be accommodated in an oversubscribed retail book. A small minimum application value widens retail participation but, on heavy oversubscription, forces allotment by draw of lots; a larger value narrows the field but raises the odds of any individual applicant being allotted. Regulation 47 therefore is not a mere formality — it calibrates the granularity of retail access to the issue.
Regulation 49: the basis of allotment and the categories of investor
Once the gateways of Regulations 38 and 45 are cleared, Regulation 49 governs the allotment procedure and basis of allotment. The first principle is reservation by category. The net offer to the public is carved among qualified institutional buyers (QIBs), non-institutional investors (NIIs) and retail individual investors (RIIs), with the proportions turning on which eligibility route the issuer has taken — the profitability route or the alternative route. Anchor investors, where deployed, are allotted out of the QIB portion on a discretionary basis before the issue opens, a mechanism noted in the chapter on definitions and scope.
The second principle is proportionality with a retail floor. The allotment of specified securities to applicants other than retail individual investors and anchor investors is to be made on a proportionate basis within each category. For retail individual investors, the regulation builds in a protective minimum: the allotment to each successful RII shall not be less than the minimum bid lot, subject to availability of shares in the retail category. This is the doctrinal heart of retail protection in Indian primary markets — the small investor is not crushed into a fractional, uneconomic allotment but is assured at least one whole tradeable lot when shares are available.
The third principle, governing how proportionality is reconciled with the retail floor when there are simply not enough shares for everyone, is the draw of lots. Where the number of retail applicants who have each bid for at least one minimum lot exceeds the maximum number of RIIs who can be allotted one lot each, the successful applicants are chosen by a computerised draw of lots. The draw is neutral, automated and auditable — there is no room for the issuer or its bankers to favour any applicant. The detailed mechanics of category reservation, the rounding-off for minimum lots and the proportionate residual allotment are set out in the relevant Schedule to the Regulations.
Oversubscription and the mechanics of the draw of lots
Oversubscription — where applications exceed shares on offer — is the norm in successful issues, and the Regulations engineer a disciplined response. The governing idea is that, within the retail category, every successful applicant should get at least one minimum bid lot before anyone gets more. Accordingly, the available retail shares are first divided by the minimum bid lot to yield the maximum number of RII allottees. If the number of valid retail applicants is at or below that figure, each receives at least one lot and any surplus is distributed proportionately among those who bid for more than one lot. If the number of retail applicants exceeds the maximum allottee figure, then the applicants who will receive one lot each are selected by the computerised draw of lots.
To make the minimum-lot guarantee work even under heavy oversubscription, the Regulations permit a controlled enlargement of the allotted pool. In case of oversubscription, an allotment of not more than ten per cent of the net offer to the public may be made for the purpose of making allotment in minimum lots — a deliberate, capped flexibility that lets the issuer round up so that whole lots, rather than fractional shares, are allotted. The combined effect of the proportionate principle, the retail minimum-lot floor, the draw of lots and the ten-per-cent rounding flexibility is a basis of allotment that is simultaneously fair (proportionate among large applicants), protective (a whole lot for as many retail applicants as possible) and mechanical (automated, with no discretionary favouritism). Any applicant not selected in the draw, or whose proportionate entitlement falls below a lot, receives no allotment — and the entire blocked amount is released, which is where the refund and unblocking machinery takes over.
The ASBA-UPI architecture: blocking instead of collecting
The modern refund regime cannot be understood without the ASBA (Application Supported by Blocked Amount) architecture, which SEBI has made mandatory for all applicants in public issues. Under ASBA, the applicant does not part with money when applying. Instead, the application authorises a Self-Certified Syndicate Bank (SCSB) to block the application amount in the applicant's own bank account. The money stays in the applicant's account, earning interest for the applicant, and is debited only if and to the extent that shares are allotted. For retail applicants the blocking is effected through the UPI mechanism, under which the investor approves a mandate on a UPI application and the bank blocks the funds against that mandate.
The structural significance of ASBA for refund law is profound. In the old cheque-and-collection regime, the issuer physically received subscription money and then had to physically refund it to unsuccessful or partially successful applicants — a slow, error-prone process that generated the very refund delays the law penalised. Under ASBA there is, for the unsuccessful applicant, nothing to refund: the blocked amount is simply unblocked, instantly restoring the applicant's free use of money that never left the account. For the partially successful applicant, only the amount corresponding to the shares actually allotted is debited and the balance is unblocked. The classical ‘refund’ obligation now survives chiefly for the residual scenarios — minimum-subscription failure, minimum-allottee failure, or failure to obtain listing permission — where the issue is unwound and every blocked amount is released. SCSBs, the registrar to the issue and the lead managers are jointly responsible for the timely, accurate unblocking, and are liable to compensate investors for delay.
Regulation 50: allotment, refund and payment of interest
Regulation 50, titled allotment, refund and payment of interest, is the operative provision that binds the timeline together. It requires the issuer to complete the allotment and to dispatch refunds (or procure unblocking of blocked amounts) within the period stipulated by SEBI, and it fixes the consequence of delay. Historically, where the minimum subscription was not received, the issuer had to refund the application monies within fifteen days of issue closure; where listing or trading permission was refused, within seven days of intimation. Mirroring Section 39 of the Companies Act, a delay beyond the stipulated period attracted interest at fifteen per cent per annum for the delayed period, payable by the issuer and its directors.
SEBI has since compressed these timelines dramatically. Following the move to ASBA, the maximum period for refund or unblocking in the residual scenarios — non-receipt of minimum subscription, or failure to obtain listing/trading permission — was reduced to four working days from the issue-closing date. The fifteen-per-cent interest sanction continues to operate as the penalty for delay beyond the prescribed window, and intermediaries are obliged to compensate investors for any delay in unblocking the ASBA accounts exceeding the prescribed working days from the bid/issue closing date. The result is a regime in which money moves fast and the cost of moving it slowly is made expensive enough to deter laxity. The fifteen-per-cent rate is not arbitrary; it is the same investor-protective rate the Supreme Court applied in the Sahara litigation discussed below, and it reflects a consistent regulatory and judicial valuation of the harm caused by withholding investors' money.
The T+3 revolution: compressing the post-closure clock
The most consequential recent reform is the migration of the IPO listing timeline to T+3 — listing on the third working day after the issue closes (‘T’). SEBI halved the timeline from the earlier T+6, making T+3 optional from 1 September 2023 and mandatory from 1 December 2023. The reform redistributes the post-closure activities across a compressed schedule: bidding, bid modification, validation with depositories, reconciliation of UPI mandate transactions and issue closure occur on T; third-party checks on UPI and non-UPI applications, submission of final certificates, finalisation of rejections and approval of the basis of allotment by the stock exchange occur by T+1, on which day fund-transfer instructions for debit and unblock must be initiated and completed; allotment, credit of securities to demat accounts and the despatch of any residual refunds follow, culminating in listing on T+3.
The investor-protection dividend is immediate. The successful applicant receives credited shares, and the unsuccessful applicant receives unblocked funds, far sooner than under the old regime — blocked capital is freed within days rather than the better part of two weeks. For issuers, the shorter window reduces exposure to market volatility between pricing and listing. The reform is also the practical reason the residual refund timeline could be cut to four working days: when the entire allotment-and-unblock cycle is engineered to close within three days of issue closure, a fifteen-day refund window for the failure scenarios became an anachronism. T+3 is thus the capstone that makes the modern, ASBA-based refund and allotment architecture cohere.
The Sahara jurisprudence: refund as a non-negotiable consequence
No discussion of refund obligations in Indian securities law is complete without Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India, (2013) 1 SCC 1. Two Sahara group companies, SIRECL and SHICL, had raised over Rs 17,600 crore from roughly three crore investors through Optionally Fully Convertible Debentures (OFCDs), styling the exercise as a ‘private placement’ to escape the public-issue regime. The Supreme Court, in a judgment delivered by Justices K.S. Radhakrishnan and J.S. Khehar on 31 August 2012, held that an offer of securities to more than the threshold number of persons is a public issue regardless of the label the issuer attaches, attracting the full force of the listing and disclosure regime and SEBI's jurisdiction.
The remedial heart of the decision is directly relevant to refund law: having found the OFCD issues to be illegal public offerings, the Court directed the Sahara entities to refund the entire amount collected from investors, together with interest at fifteen per cent per annum, routed through SEBI, within the time the Court stipulated. Sahara establishes three propositions that animate Regulations 45 and 50. First, the refund of investors' money is not a discretionary or negotiable remedy but the automatic legal consequence of an issue that should not have proceeded as it did. Second, fifteen per cent per annum is the judicially endorsed rate at which the cost of withholding investors' money is measured — the very rate Regulation 50 and Section 39 prescribe for delayed refunds. Third, SEBI's reach extends to the substance of a capital-raising transaction, not its form, so an issuer cannot evade the refund-and-allotment discipline by mislabelling a public issue. The protracted contempt and recovery proceedings that followed only underscored the seriousness with which the refund obligation is enforced.
The Companies Act interface: void allotments and director liability
The ICDR refund and allotment rules do not float free of company law; they are reinforced by it. Section 39(3) of the Companies Act, 2013 requires that if the stated minimum subscription is not received within the prescribed period, the application money received must be repaid within the prescribed time, failing which directors become liable. Section 40(3) requires monies received on application to be kept in a separate bank account and applied only towards allotment (where listing permission is obtained) or repayment (where it is not) — a ring-fencing that prevents the issuer from treating subscription money as working capital before allotment is finalised.
Critically, Section 40(1) makes the obtaining of listing permission a condition precedent to making the offer; an allotment made without complying with the listing requirement is exposed to being treated as void, and the company and every officer in default attract penal consequences. This is the company-law mirror of the ICDR rule that failure to obtain listing or trading permission triggers a mandatory refund of the entire amount. The two statutes thus reinforce one another: the ICDR Regulations fix the operational timelines and the basis of allotment; the Companies Act supplies the underlying duty to repay, the separate-account safeguard, the consequence of voidness and the personal liability of directors. An issuer that breaches the refund obligation therefore faces a double jeopardy — SEBI's enforcement powers under Sections 11, 11B and 15 of the SEBI Act, and the penal and avoidance consequences of the Companies Act.
The role of the registrar, lead managers and SCSBs in execution
The basis of allotment and the refund timeline are executed not by the issuer alone but by a chain of accountable intermediaries. The registrar to the issue (RTA) reconciles the applications, eliminates technical rejections, applies the basis of allotment approved by the stock exchange, runs the computerised draw of lots, and generates the file that instructs debit of allotted amounts and unblocking of the rest. The lead manager(s) certify that the minimum subscription has been received before the issue is announced as closed, and are responsible under Section 40(3) for ensuring that funds are released to the company only in accordance with law. The SCSBs and, for retail, the UPI sponsor banks, are the entities that actually block and unblock the money in the applicant's account.
This allocation of execution responsibility matters for liability. SEBI has made clear, through its master circulars on the public-issue process, that intermediaries are responsible to compensate investors for any delay in unblocking the ASBA accounts beyond the prescribed working days from the bid/issue closing date. The compensation framework converts the abstract refund obligation into a concrete, enforceable, intermediary-borne liability — the investor need not chase the issuer; the bank or registrar that caused the delay pays. This distribution of duty across the issue chain is what makes the compressed T+3 and four-working-day timelines realistically enforceable, and it complements the disclosure and governance duties traced in the chapters on eligibility for IPO and disclosure in the draft red herring prospectus.
Exam synthesis: how the provisions hang together
For the judiciary and CLAT-PG aspirant, the refund-and-allotment chapter rewards a systems view rather than rote recall of numbers. The logical sequence is: (1) the issue must clear two gateways — minimum subscription of ninety per cent of the offer (Regulation 45) and at least one thousand prospective allottees (Regulation 38); (2) if either gateway fails, the entire amount is refunded/unblocked within the prescribed window, with fifteen-per-cent interest for delay (Regulation 50, Section 39 of the Companies Act); (3) if both gateways are cleared, allotment proceeds on the basis of allotment under Regulation 49 — proportionate for QIBs and NIIs, with a guaranteed minimum bid lot for retail investors and a computerised draw of lots on oversubscription; (4) the ASBA-UPI architecture means money is blocked, not collected, so allotment debits only what is allotted and unblocks the rest; and (5) the whole cycle is compressed into the mandatory T+3 listing timeline.
Tie every rule back to its purpose. The minimum-subscription floor protects against undercapitalised issuers; the thousand-allottee rule protects market integrity by ensuring a genuine float; the proportionate-with-retail-floor basis of allotment balances fairness to large applicants against protection of small ones; the draw of lots eliminates discretion and favouritism; and the refund timeline plus fifteen-per-cent interest, judicially anchored in Sahara, makes withholding investors' money costly. The Companies Act supplies the backbone — separate bank account, repayment duty, voidness of non-compliant allotment and director liability — while the ICDR Regulations supply the operational flesh. A candidate who can recite the regulation numbers but cannot explain why a half-subscribed issue must be unwound, or why retail gets a guaranteed lot, has missed the point. Cross-read this chapter with promoters' contribution and lock-in to see how the post-allotment shareholding is stabilised, and with the SEBI ICDR hub for the full issue lifecycle.
Frequently asked questions
What is the minimum subscription requirement under SEBI ICDR Regulations, 2018?
Under Regulation 45 of the ICDR Regulations, 2018, the minimum subscription to be received in a public issue must be at least ninety per cent of the offer made through the offer document. This mirrors Section 39 of the Companies Act, 2013. If the issue fails to attract ninety per cent subscription, no allotment can be made and the entire amount received must be refunded or unblocked.
What happens if an issuer does not receive the minimum subscription?
The issuer cannot proceed to allotment and must return the entire subscription amount. Historically the refund had to be made within fifteen days of issue closure; following the ASBA reforms this has been compressed to four working days from the issue-closing date. Delay beyond the prescribed period attracts interest at fifteen per cent per annum under Regulation 50 and Section 39 of the Companies Act, 2013, and intermediaries must compensate investors for delayed unblocking.
How is the basis of allotment determined among QIBs, NIIs and retail investors?
Under Regulation 49, allotment to applicants other than retail individual investors and anchor investors is on a proportionate basis within each category. Retail individual investors enjoy a protective floor: each successful retail applicant receives not less than the minimum bid lot, subject to availability of shares. On oversubscription of the retail category, the successful applicants who each receive one minimum lot are chosen by a computerised draw of lots, with up to ten per cent of the net offer to the public available to round allotments into minimum lots.
What is ASBA and how does it change the refund process?
ASBA — Application Supported by Blocked Amount — is mandatory for all public-issue applicants. The application authorises a Self-Certified Syndicate Bank to block the amount in the applicant's own account (via UPI mandate for retail) rather than collect it. Money is debited only to the extent shares are allotted; the rest is simply unblocked. For unsuccessful applicants there is nothing to physically refund — the blocked sum is released — which is why refund timelines could be compressed so dramatically.
Why is the Sahara judgment important for refund law?
In Sahara India Real Estate Corporation Ltd. v. SEBI, (2013) 1 SCC 1, the Supreme Court held that an offer of securities to more than the threshold number of persons is a public issue irrespective of its label, and directed the Sahara entities to refund the entire amount collected with interest at fifteen per cent per annum through SEBI. The case establishes that refund is the automatic, non-negotiable consequence of an unlawful issue, judicially endorses the fifteen-per-cent rate, and confirms that SEBI looks at the substance, not the form, of a capital-raising transaction.
What is the T+3 listing timeline and when did it become mandatory?
T+3 means a public issue is listed on the third working day after the issue closes (‘T’). SEBI halved the timeline from the earlier T+6, making T+3 optional from 1 September 2023 and mandatory from 1 December 2023. Under this schedule, bidding and closure occur on T, basis-of-allotment approval and fund debit/unblock instructions complete by T+1, and listing follows on T+3 — freeing both allotted shares and unblocked funds to investors within days rather than weeks.