The Securities and Exchange Board of India (Underwriters) Regulations, 1993, notified on 8 October 1993 under Section 30 of the SEBI Act, 1992, created a dedicated registration regime for the one intermediary whose business is to absorb the risk that a public issue might fail. An underwriter promises that if shareholders or the public do not take up the securities offered, it will. For nearly three decades the 1993 Regulations governed who could make that promise, how much risk they could carry, and what conduct they owed issuers and investors. This chapter traces the architecture of the regime - definitions, registration, capital adequacy, the code of conduct and the default machinery - and explains why SEBI first merged underwriting into the broker and merchant-banker frameworks in 2006 and finally repealed the standalone Regulations outright in 2021. For examinees the topic is deceptively rich: it is a compact case study in how SEBI structures every intermediary, and it sits at the intersection of the merchant banker and stock broker regimes you study elsewhere in this hub.
What underwriting is, and why SEBI regulated it
Underwriting is the financial backstop of the primary market. When a company makes a public issue of shares or debentures, it needs certainty that the issue will actually raise capital; the Companies Act regime requires a minimum subscription (historically 90 per cent of the issued amount) before any allotment can proceed, so an issue that falls short must be unwound and the money refunded. An underwriter removes that uncertainty: in exchange for a commission it agrees that, to the extent the issue is not subscribed by existing shareholders or the public, it will subscribe itself.
Regulation 2(g) of the 1993 Regulations captured this precisely, defining underwriting as "an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them." The breadth of "with or without conditions" is deliberate - it captures both firm commitments and conditional arrangements - and the trigger is always the same: a shortfall in subscription. An underwriter, in turn, was defined as a person who engages in the business of underwriting an issue of securities of a body corporate.
SEBI regulated this activity for the same reason it regulates every market intermediary: the underwriter's promise is only as good as its solvency. An undercapitalised underwriter that cannot honour devolvement leaves the issuer stranded and undermines investor confidence in the primary market. The 1993 Regulations therefore did three things - they licensed underwriters, they imposed capital adequacy keyed to the risk being carried, and they bound underwriters to a code of conduct - mirroring the template SEBI applies across the intermediary universe.
Devolvement, hard underwriting and soft underwriting
The mechanics matter for understanding the risk the Regulations were managing. Devolvement is the event in which an issue is under-subscribed and the unsubscribed portion "devolves" upon the underwriter, who must then subscribe to it. The size of an underwriter's exposure is the aggregate of all such potential devolvements across the issues it has agreed to support - which is exactly why SEBI capped that aggregate against net worth (discussed below).
Market practice distinguishes hard underwriting from soft underwriting. In hard underwriting the underwriter commits at the offer-document stage, before the issue opens, and therefore bears uncertain and potentially large devolvement risk. In soft underwriting the commitment crystallises only after the issue closes and the price and shortfall are known, so the underwriter has a far clearer view of its likely obligation and carries correspondingly less risk. Hard underwriting thus demands greater financial commitment, which feeds directly into the capital-adequacy logic of the regime.
A related but distinct concept is firm allotment - an arrangement under which an underwriter or other party agrees to take up a fixed quantum of securities irrespective of public subscription. Under the modern ICDR framework certain allotments (for example to qualified institutional buyers) cannot be underwritten at all, a refinement that post-dates and ultimately helped make the standalone 1993 regime redundant.
The registration requirement: Regulation 3
The foundational rule was Regulation 3: no person could act as an underwriter unless it held a certificate of registration granted by the Board under the Regulations. This is the underwriting-specific expression of the umbrella prohibition in Section 12 of the SEBI Act, 1992, which bars any intermediary from operating without registration. The Supreme Court has repeatedly underscored that registration is the bedrock of SEBI's regulatory authority; in SEBI v. Ajay Agarwal (2010) the Court affirmed SEBI's expansive remedial and supervisory powers over registered intermediaries, and the broader principle that a person who voluntarily enters a SEBI-licensed activity submits to the discipline of the registration regime is well settled.
The application process was set out across Regulations 3, 3A, 4 and 5. Following the 2011 amendments the scheme split registration into two stages - an application for a certificate of initial registration under Regulation 3A (granted under Regulation 8) and, later, a certificate of permanent registration under Regulation 8A. The applicant filed Form A in Schedule I with the prescribed fee. Regulation 4 empowered the Board to call for further information and clarification, and Regulation 5 required the application to conform to the requirements of the Regulations, failing which it could be rejected after giving the applicant an opportunity to remove the defects. This staged, document-driven gatekeeping is identical in structure to the model later codified in the common framework for intermediaries.
Consideration of the application and the 'fit and proper' test
Regulation 6 listed the matters the Board took into account before granting a certificate. The applicant had to be a body corporate (other than, as the eligibility scheme developed, certain excluded entities); it had to have the necessary infrastructure - adequate office space, equipment and trained manpower - to discharge its activities; its directors or partners had to be persons of integrity who had not been convicted of an offence involving moral turpitude or found guilty of any economic offence; it had to have adequate professional qualification and experience; and it had to satisfy the capital adequacy requirement of Regulation 7.
The 2006 amendment inserted Regulation 6A, the 'fit and proper person' criterion, importing into the underwriting regime the same probity filter that runs through every modern SEBI intermediary regulation. The fit-and-proper standard looks to the applicant's integrity, reputation, character, absence of convictions and absence of restraint orders. SEBI's reliance on this standard to refuse or cancel registration has been consistently upheld; the Securities Appellate Tribunal and the courts treat the assessment of fitness and propriety as a matter squarely within SEBI's regulatory judgment, interfering only where the decision is shown to be arbitrary or unsupported by material. The structural point for examinees is that Regulation 6A is not unique to underwriters - it is the same gate you meet in the stock broker and merchant-banker regimes.
Capital adequacy: the Rs 20 lakh net worth floor (Regulation 7)
Regulation 7 was the financial heart of the regime. Regulation 7(1) provided that the capital adequacy requirement referred to in Regulation 6 "shall not be less than the net worth of rupees twenty lakhs." The Explanation to Regulation 7 defined net worth as the aggregate of the paid-up capital and free reserves of the underwriter at the time of making the application. Twenty lakh rupees was thus the minimum solvency cushion SEBI insisted upon before allowing a person to assume devolvement risk.
The 2006 amendment added Regulation 7(2): notwithstanding sub-regulation (1), every stock broker who acts as an underwriter had to fulfil the capital adequacy requirements specified by the stock exchange of which it was a member, rather than the flat Rs 20 lakh floor. This was an early signal of the policy direction that would culminate in 2006 and 2021 - underwriting was increasingly treated as an activity that a broker or banker could simply add to its existing registration, governed by that registration's own capital norms, rather than a standalone licence.
Net worth also governed the ceiling on exposure. The general responsibilities provision required that the total underwriting obligations of an underwriter at any point in time not exceed twenty times its net worth. This leverage cap was the regime's central prudential lever: it tied the maximum aggregate devolvement an underwriter could promise directly to its own loss-absorbing capital, ensuring that a wave of under-subscriptions could not bankrupt the backstop the market was relying upon.
Grant of certificate, validity and fees
Where the Board was satisfied that the applicant met the Regulation 6 conditions, it granted a certificate of initial registration in Form B under Regulation 8, later progressing to permanent registration under Regulation 8A. Regulation 9A set out the conditions of registration - chiefly that the underwriter pay the prescribed fees, comply with the Regulations, and inform the Board of any material change in the information previously furnished.
Regulation 10 prescribed the procedure where registration was not granted: the Board had to communicate the refusal, with reasons, and the applicant could apply for reconsideration. Regulation 11 dealt with the effect of refusal of permanent registration - the person had to cease carrying on underwriting activity. Regulation 12 governed the payment of fees as specified in Schedule II and the consequences of failure to pay, including the lapse of registration. The fee structure separated application fees from registration and renewal fees, with a notable carve-out: a stock broker already registered and paying fees under the Stock Brokers Regulations was relieved of certain duplicative underwriting fees - again foreshadowing the eventual consolidation.
The code of conduct: Regulation 13 and Schedule III
Regulation 13 obliged every underwriter "to abide by the code of conduct" set out in Schedule III. The code was conduct-based rather than prescriptive in fine detail. Its core commands were that an underwriter must make all efforts to protect the interests of its clients; maintain high standards of integrity, dignity and fairness in the conduct of its business; fulfil its obligations under the underwriting agreement in a prompt and professional manner; not make any misrepresentation about its capacity or services; render the best possible advice having regard to the client's needs; and avoid conflicts of interest, disclosing any that arise.
Although framed in general terms, the code was legally operative: breach of the code was actionable as a default. SEBI's approach to enforcing such intermediary codes was endorsed in SEBI v. Kishore R. Ajmera (2016) 6 SCC 368, where the Supreme Court held that the standard of proof in market-regulatory adjudication is preponderance of probabilities and that SEBI may legitimately draw inferences of misconduct from the surrounding conduct and circumstances - a holding directly relevant to proving breaches of an open-textured code of conduct. The same code-of-conduct architecture, and the same enforcement philosophy, governs the stock brokers' code of conduct studied separately in this series.
The underwriting agreement: Regulation 14
Regulation 14 required every underwriter to enter into a written agreement with the body corporate on whose behalf it was acting, and the Regulation specified the minimum contents that agreement had to contain. These included the period for which the agreement was to be in force; the allocation of duties and responsibilities between the underwriter and the issuer; the amount of underwriting obligation; the period within which the underwriter had to subscribe to the issue after being intimated by the issuer of the devolvement; the amount of commission or brokerage payable; and the details regarding the arrangements, if any, made by the underwriter for fulfilling its obligations.
The agreement was the legal instrument that converted the general regulatory promise into a specific, enforceable commitment. The requirement that it fix the devolvement-subscription window and the precise quantum of obligation was the contractual counterpart to the Regulation 7 leverage cap: together they ensured that the underwriter's exposure was both bounded ex ante and crystallised promptly when devolvement occurred. A defective or absent agreement was itself a regulatory breach, exposing the underwriter to disciplinary action under the default provisions.
The agreement also served an investor-protection function that is easy to overlook. Because the issuer and its lead manager relied on the underwriting commitment when representing to the market that the issue was backed, an underwriter who quietly diluted its obligation through side arrangements or failed to disclose its capacity to perform would mislead not only the issuer but the investing public. Regulation 14 therefore insisted on transparency of the commitment's terms - quantum, timing and consideration - so that the chain of representations running from underwriter to issuer to prospectus to investor remained reliable. This is the same investor-facing logic that animates the disclosure obligations across the SEBI intermediary regime.
General responsibilities of an underwriter: Regulation 15
Regulation 15 collected the underwriter's ongoing operational duties. It contained the critical leverage cap - that the total underwriting obligations under all agreements shall not at any time exceed twenty times the net worth of the underwriter - making explicit the prudential limit discussed above. It also required the underwriter to honour its commitment in respect of devolvement within the agreed period once intimated by the issuer; not to derive any direct or indirect benefit from underwriting an issue other than the commission specified in the agreement; and to subscribe for the devolved securities within the time stipulated.
These duties operationalised the entire scheme. An underwriter that failed to subscribe upon devolvement defeated the very purpose for which the market and the issuer engaged it, and Regulation 15 made that failure a clear, citable breach. Read together with Regulation 14, it is a tidy illustration of how SEBI translates a market function into enforceable obligations - the same drafting logic you will recognise across the merchant-banker and broker regimes.
Books of account, record retention and the compliance officer
Regulation 16 required every underwriter to maintain proper books of account, records and documents - including a copy of the balance sheet and profit and loss account, a copy of the auditor's report, and a statement of its financial position - and to intimate the Board of the place where these were kept. Regulation 17 fixed the period of maintenance at a minimum of five years; books and records had to be preserved for at least five years and produced before the Board or its inspecting authority on demand.
Regulation 17A, inserted to align the regime with SEBI's general compliance template, required every underwriter to appoint a compliance officer responsible for monitoring compliance with the Act, rules, regulations, notifications, guidelines and instructions issued by the Board or the Central Government, and for the redressal of investor grievances. The compliance officer had to immediately and independently report to the Board any non-compliance observed. Regulation 18 backed all of this with a power to call for information, allowing the Board to require any information, record or document from the underwriter at any time. This information-and-records spine is common to every intermediary and is consolidated in the 2008 common framework.
Inspection and disciplinary proceedings: Regulations 19-24
Chapter IV armed SEBI with supervisory teeth. Regulation 19 conferred the Board's right to inspect the books, records and documents of an underwriter to ensure that they were maintained as required, to investigate complaints, and to inquire into the affairs of the underwriter in the interest of the securities market or investors. Regulation 20 prescribed the procedure for inspection - including notice to the underwriter, though the Board could dispense with notice where giving it would defeat the purpose of the inspection.
Regulation 21 imposed correlative obligations on the underwriter during inspection: to produce records, furnish statements and information, allow reasonable access to premises, and extend reasonable facilities and assistance to the inspecting authority. Regulation 22 required the inspecting authority to submit a report to the Board, Regulation 23 empowered the Board to communicate the findings and take action on the inspection or investigation report, and Regulation 24 allowed the Board to appoint a qualified auditor to investigate the underwriter's books. SEBI's inspection and investigation powers, and the breadth of the consequential action it may take, have been firmly upheld by the Supreme Court in SEBI v. Ajay Agarwal (2010) 3 SCC 765, which confirmed that SEBI's remedial jurisdiction extends to protecting the integrity of the market and investors.
Liability for default: Regulation 25 and the enquiry machinery
Regulation 25 set out liability for action in case of default. An underwriter (and, after the integrating amendments, a stock broker or merchant banker entitled to carry on underwriting) who failed to comply with any condition subject to which the certificate was granted, or who contravened any provision of the Act, rules or regulations, was liable to action. The original Regulations 26 to 32 - which had laid down the detailed enquiry, suspension and cancellation procedure - were omitted by the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 with effect from 27 September 2002, after which the centralised enquiry and penalty machinery (now the SEBI (Intermediaries) Regulations, 2008) applied uniformly to all intermediaries.
The penalties available ranged from suspension to cancellation of the certificate of registration, alongside the monetary penalties and directions available under the SEBI Act. The migration of the default procedure out of the underwriting Regulations and into a single intermediary-wide code was itself part of SEBI's drive to standardise enforcement - the very logic that would later justify dissolving the standalone underwriting regime altogether. Disciplinary action of this kind is always subject to the audi alteram partem principle and to appeal before the Securities Appellate Tribunal, and ultimately to the Supreme Court under Section 15Z of the Act.
The 2006 amendment: the beginning of consolidation
The SEBI (Underwriters) (Amendment) Regulations, 2006, effective 7 September 2006, marked the turning point. The amendment inserted the fit-and-proper criterion (Regulation 6A), the stock-broker capital-adequacy carve-out (Regulation 7(2)), and various definitional updates aligning the Regulations with the SEBI Act and Companies Act. More importantly, it deepened the existing principle that a person already registered as a merchant banker or stock broker under Section 12 of the SEBI Act could carry on underwriting without an entirely fresh, parallel licensing burden.
By 2006 the practical reality was that almost all underwriting in India was conducted by entities that were already registered merchant bankers or brokers. Maintaining a separate registration regime - with its own application forms, fees, capital norms and inspection apparatus - for an activity that those intermediaries were already authorised and supervised to perform had become an administrative redundancy. The 2006 amendments narrowed the standalone regime to the point where its eventual repeal was a question of when, not whether.
The 2021 repeal: underwriting folded into brokers and bankers
SEBI's Board approved the repeal on 17 February 2021, and the SEBI (Underwriters) (Repeal) Regulations, 2021 (Notification No. SEBI/LAD-NRO/GN/2021/15) were notified on 30 March 2021. The operative clause provided that, on and from commencement, the SEBI (Underwriters) Regulations, 1993 "shall stand repealed and the certificate of registration granted to any person under the Securities and Exchange Board of India (Underwriters) Regulations, 1993 shall deemed to be surrendered." Existing underwriter registrations thus lapsed automatically, without any individual surrender application.
The repeal was deliberately paired with amendments to the SEBI (Merchant Bankers) Regulations, 1992 and the SEBI (Stock Brokers) Regulations, 1992, which were updated to incorporate the necessary provisions on net worth, maintenance of records and other regulatory compliances for underwriting activity. SEBI's stated rationale was unambiguous: since merchant bankers and stock brokers were permitted to carry on underwriting under their own regulations, "there is no need of having separate regulation for underwriting activities." The reform was part of a wider ease-of-doing-business exercise that also relaxed minimum public-offer norms.
The repeal carried the usual savings provisions: it did not affect anything previously done or suffered under the repealed Regulations, nor any right, obligation or liability accrued, nor any penalty incurred or proceeding pending in respect of matters arising before the repeal. Conduct that occurred while the 1993 Regulations were in force therefore remains adjudicable under them even after repeal.
Why this topic still matters for the exam
It is tempting to dismiss a repealed regulation as dead law. For the judiciary and CLAT-PG examinee it is the opposite - the 1993 Regulations are a compact, self-contained model of how SEBI structures any intermediary, and the syllabus value lies precisely in that template. Run through the spine: a Section 12 registration prohibition; a body-corporate eligibility and fit-and-proper filter; a net-worth-based capital-adequacy requirement (Rs 20 lakh) with a leverage cap (twenty times net worth); a code of conduct; mandatory client agreements; books, records and a compliance officer; inspection and a default-and-penalty regime; and finally a repeal-with-savings. Every one of those building blocks reappears in the common framework, the merchant-banker and broker regimes, and the capital-adequacy rules.
Examiners also favour the topic because its history tells a clean policy story - from a 1993 standalone licence, through the 2006 fit-and-proper and integration amendments, to the 2021 consolidation - that lets a candidate demonstrate not just rote recall of section numbers but an understanding of regulatory rationalisation. Pair this chapter with the related intermediary regimes in this hub, and you will be able to answer both the bare-provision questions and the analytical "why did SEBI repeal it" questions with equal confidence.
A practical drafting tip for written papers: when a question asks you to "discuss the regulatory framework for underwriters," do not merely list section numbers. Structure the answer around the four regulatory functions - entry control (registration, eligibility, fit-and-proper), prudential control (net worth and the twenty-times leverage cap), conduct control (the code of conduct and the client agreement), and supervisory control (records, inspection, default and penalties) - and then close with the policy arc that ended in the 2021 repeal. That functional framing demonstrates conceptual command of how SEBI regulates intermediaries generally, and it travels directly to questions on brokers, merchant bankers, portfolio managers and every other intermediary you study, which makes the small investment in mastering this repealed regime disproportionately rewarding.
Frequently asked questions
How did the SEBI (Underwriters) Regulations 1993 define underwriting?
Regulation 2(g) defined underwriting as "an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them." The trigger is always a shortfall in subscription, and the unsubscribed portion devolves on the underwriter.
What was the minimum net worth required to register as an underwriter?
Regulation 7(1) fixed the capital adequacy requirement at not less than a net worth of rupees twenty lakhs, with net worth defined in the Explanation as the aggregate of paid-up capital and free reserves. After the 2006 amendment, a stock broker acting as an underwriter instead had to meet the capital adequacy norms specified by its stock exchange under Regulation 7(2).
Was there a cap on how much an underwriter could commit to underwrite?
Yes. The general responsibilities provision (Regulation 15) required that the total underwriting obligations under all agreements not exceed twenty times the underwriter's net worth at any time. This leverage cap tied maximum aggregate devolvement risk directly to the underwriter's loss-absorbing capital.
What did the code of conduct require, and how is it enforced?
Regulation 13, read with Schedule III, required underwriters to protect clients' interests and maintain high standards of integrity, dignity and fairness, to honour their underwriting obligations promptly, and to avoid misrepresentation and conflicts of interest. SEBI may prove breaches on the preponderance of probabilities and by inference from conduct, as the Supreme Court confirmed for intermediary codes in SEBI v. Kishore R. Ajmera (2016) 6 SCC 368.
When and why were the Underwriters Regulations 1993 repealed?
They were repealed by the SEBI (Underwriters) (Repeal) Regulations, 2021 (Notification No. SEBI/LAD-NRO/GN/2021/15) notified on 30 March 2021, after Board approval on 17 February 2021. SEBI reasoned that since merchant bankers and stock brokers were already permitted to underwrite under their own regulations, a separate underwriting regime was redundant. The merchant-banker and broker regulations were simultaneously amended to absorb the net-worth and record-keeping requirements.
What happened to existing underwriter registrations after the 2021 repeal?
The repeal clause provided that on commencement the 1993 Regulations stood repealed and every certificate of registration granted under them was "deemed to be surrendered" - so registrations lapsed automatically without individual surrender applications. The repeal carried savings provisions preserving accrued rights, liabilities, penalties and pending proceedings, so pre-repeal conduct remains adjudicable under the old Regulations.