Capital Market and Securities Laws · Issue of Capital and Disclosure Requirements

Eligibility Norms for Public Issues under SEBI ICDR

Updated 11 October 2026 · Fact-checked

Eligibility norms are the tests SEBI's ICDR Regulations, 2018 set before a company can make an IPO or FPO. They cover who is barred, the track record on net tangible assets, operating profit and net worth, and the QIB route for those who fail. To solve a question, test each condition in turn, then conclude.

Understand Eligibility Norms for Public Issues

A public issue invites ordinary investors to put money into a company. SEBI does not want weak or tainted issuers to reach them. So the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 fix entry conditions. An issuer must pass them before it files an offer document and goes to the market.

The conditions fall into two groups. The first group is about who is behind the issue. The issuer, its promoters, promoter group and directors must not be debarred from the securities market by SEBI. The promoters or directors of the issuer must also not be promoters or directors of another company that is debarred by SEBI. They must not be wilful defaulters or fraudulent borrowers, and the promoters must not be fugitive economic offenders. The second group is about the issuer's financial track record. For a main board IPO this is the net tangible assets, operating profit and net worth tests.

The tests are not all applied in the same way. Net tangible assets and net worth are tested for each of the preceding three full years. Operating profit has two limbs: the average operating profit over the preceding three years must be at least ₹15 crore, and the company must also have operating profit in each of those three years. Do not demand ₹15 crore in every single year.

There is also a housekeeping group. Securities held by promoters must be in dematerialised form. Existing partly paid-up shares must be made fully paid up or forfeited. Outstanding convertible securities generally must be converted or exchanged before the final offer document is filed, subject to exceptions such as employee options. The issuer must also have a depository arrangement and apply for listing on a recognised stock exchange.

An issuer that fails the track record test is not shut out. It can use the alternative route: a book-built issue in which at least 75% of the net offer goes to qualified institutional buyers (QIBs). If that QIB share is not met, the money is refunded.

Small companies can list on the SME platform of an exchange. This has its own chapter in the ICDR Regulations (Chapter IX). Its eligibility is set by the criteria in that chapter, which use post-issue paid-up capital as a threshold and a track record test that suits small businesses. Learn the SME criteria exactly as in your current ICSI study material, because SEBI and the exchanges revise them from time to time.

Key rules to remember

Main board IPO: net tangible assets: Net tangible assets ≥ ₹3 crore in each of the preceding 3 full years (12 months each); Not more than 50% of net tangible assets may be held in monetary assets. The cap does not apply if the issue proceeds are used to acquire a business or project.
Main board IPO: operating profit: Average operating profit over the preceding 3 years ≥ ₹15 crore, with operating profit in each of the 3 years; Calculated on a restated, consolidated basis, using years of 12 months each. Two limbs apply: the three-year average must be at least ₹15 crore, and operating profit must be earned in every one of the three years. A single year below ₹15 crore does not by itself fail the test if the average is met and the year still shows operating profit. A loss year or nil operating profit in any year fails it.
Main board IPO: net worth: Net worth ≥ ₹1 crore in each of the preceding 3 full years; Test every year separately. An average does not satisfy it.
Change of name: If name changed within the last 1 year: at least 50% of revenue for the preceding 1 full year must come from the activity suggested by the new name; Applies to the track record route. It checks that the new name is not misleading.
Alternative route for issuers failing the track record test: Book-built issue with at least 75% of the net offer to QIBs; otherwise refund; Allotment to QIBs is mandatory. Retail and non-institutional investors share the balance.
Bar conditions: Issuer, promoters, promoter group, directors: not debarred by SEBI. Promoters or directors of the issuer: not promoters or directors of another company debarred by SEBI. Not wilful defaulters or fraudulent borrowers; promoters not fugitive economic offenders; These apply even if the financial tests are met. The link bar is about a person being a promoter or director of the issuer and also a promoter or director of a debarred company.
SME platform eligibility: Set by the criteria in Chapter IX of the ICDR Regulations. Post-issue paid-up capital of ₹25 crore is the threshold used in the Regulations.; The criteria, including profit, net worth and listing conditions, are revised from time to time. Do not treat ₹25 crore as a fixed limit. Check the current ICSI study material.

How to solve Eligibility Norms for Public Issues questions

Use the same checklist for every eligibility question. Do not jump to the financial tests. Examiners often hide the problem in the facts about promoters or directors.

1Identify the issue type (IPO or FPO) and the platform (main board or SME). The tests differ.
2Check the bar conditions first: any SEBI debarment of the issuer, promoters, promoter group or directors, any promoter or director who is also a promoter or director of a company debarred by SEBI, wilful defaulter status, fraudulent borrower status or fugitive economic offender status.
3Apply the financial tests: net tangible assets, the monetary assets share and net worth for each year separately; operating profit as a three-year average of at least ₹15 crore, with operating profit in each year. Use only full 12-month years.
4Check special facts: a recent change of name, partly paid-up shares, outstanding convertibles and demat form of promoters' holding.
5If the track record test fails, state that the issuer can still proceed through the alternative route with at least 75% of the net offer to QIBs.
6For an SME issue, apply the Chapter IX criteria as given in your current study material. These include the post-issue paid-up capital threshold, the track record and the net worth criteria.
7Write the conclusion plainly: eligible, not eligible, or eligible only through the QIB route, and give the reason.

Quickest way: Four-gate screen

When to use it: Use it for short-note questions and for case facts with several numbers when time is tight.

Gate 1, people: any debarment, wilful default or fugitive status? If yes, stop. Not eligible.
Gate 2, money: draw a three-column table of years. Fill NTA, monetary assets, operating profit and net worth. Mark each cell pass or fail.
Gate 3, special facts: name change, partly paid shares, convertibles, demat holding.
Gate 4, rescue: if Gate 2 fails, write the 75% QIB route. Then write the conclusion in one sentence.

Common mistakes in Eligibility Norms for Public Issues

Applying one rule to all three financial tests, for example averaging net tangible assets or net worth, or demanding ₹15 crore of operating profit in every year.
Students hear 'three-year track record' and treat every figure the same way.
Fix: Net tangible assets and net worth are tested for each year separately. Operating profit needs a three-year average of at least ₹15 crore and operating profit in each of the three years.
Treating a company that fails the track record as barred from an IPO.
Students stop reading after the financial tests fail.
Fix: Always mention the alternative route with at least 75% of the net offer to QIBs and refund if that is not achieved.
Forgetting the 50% monetary assets cap on net tangible assets.
The ₹3 crore figure gets all the attention.
Fix: Compute monetary assets as a percentage of NTA for each year. Remember the exception for proceeds used to acquire a business or project.
Ignoring the people tests when the numbers are strong.
Students think eligibility is only about financial strength.
Fix: Check debarment and wilful defaulter status of issuer, promoters, promoter group and directors before any arithmetic. Also check whether any promoter or director sits on a debarred company.
Mixing up main board and SME limits.
Both are in the same Regulations and have rupee figures that look alike.
Fix: Write the platform at the top of your answer. Keep ₹3 crore, ₹15 crore and ₹1 crore for the main board. For SME, use the Chapter IX criteria, and treat ₹25 crore of post-issue paid-up capital as a threshold, not a fixed limit.
Counting a part-year or a restated figure wrongly.
Students use the latest stub period or unrestated numbers.
Fix: Use full 12-month years and restated consolidated figures, as the Regulations require.

Worked examples

Example 1

Sundaram Foods Ltd plans a main board IPO. For the last three full years its net tangible assets were ₹4 crore, ₹5 crore and ₹6 crore. Monetary assets in those years were ₹1.8 crore, ₹2.2 crore and ₹3.3 crore. Operating profit was ₹12 crore, ₹15 crore and ₹18 crore. Net worth was ₹2 crore, ₹3 crore and ₹5 crore. The issue proceeds will not be used to acquire a business. Is the company eligible under the track record route? What can it do?

Show the solution

People tests: no debarment or default is mentioned, so no bar arises.
Net tangible assets: ₹4 crore, ₹5 crore and ₹6 crore are each at least ₹3 crore. Test met.
Monetary assets: Year 1 is 1.8 ÷ 4 = 45%. Year 2 is 2.2 ÷ 5 = 44%. Year 3 is 3.3 ÷ 6 = 55%. Year 3 exceeds the 50% cap, and the proceeds are not for an acquisition, so no exception applies. Test failed.
Operating profit: average = (12 + 15 + 18) ÷ 3 = 45 ÷ 3 = ₹15 crore, which meets the ₹15 crore average. Operating profit is also positive in each of the three years. Test met. Year 1 at ₹12 crore does not fail the test, because the ₹15 crore requirement is on the average.
Net worth: ₹2 crore, ₹3 crore and ₹5 crore are each at least ₹1 crore. Test met.
Only one condition fails: monetary assets in Year 3. Because the net tangible assets condition includes the 50% cap, the company cannot use the track record route.

Answer: Sundaram Foods is not eligible under the track record route. Its operating profit test is met (average ₹15 crore, with profit in each year), but its monetary assets were 55% of net tangible assets in Year 3, above the 50% cap. It can still go ahead through the alternative route: a book-built issue with at least 75% of the net offer to QIBs, failing which it must refund the money.

Example 2

Kaveri Textiles Ltd meets all the financial tests for an IPO. However, one of its directors is also a director of another company that SEBI has debarred from accessing the securities market, and that debarment is still in force. Advise on eligibility.

Show the solution

Provision: the ICDR Regulations require that the issuer, its promoters, promoter group and directors are not debarred from accessing the capital market by SEBI. They also bar the issuer if any of its promoters or directors is a promoter or director of another company that is debarred by SEBI.
Facts: the financial tests are met, but one director of Kaveri Textiles is also a director of a company that is currently debarred by SEBI.
Analysis: the bar conditions are independent of the financial tests. A strong track record does not cure a bar on the people involved. Here the director's position on the debarred company's board triggers the bar.
The issue should not proceed while the debarment continues, unless the director ceases to hold that position or the debarment ends, and the position is then re-examined.

Answer: Kaveri Textiles is not eligible to make the IPO while its director is also a director of a company debarred by SEBI and that debarment is in force. Meeting the financial tests is not enough if the bar conditions are breached.

Exam tips

Start every eligibility answer with the provision in one line, then apply the facts, then give a clear conclusion in ICSI style.
Learn the main board figures as a trio: ₹3 crore NTA in each year, average operating profit of ₹15 crore (with profit in each year), and ₹1 crore net worth in each year. Add the 50% monetary assets cap and the 75% QIB route.
In case-study questions, build a small year-wise table in your answer. It shows working and earns method marks.
Ask the exam-hall question: which condition is the examiner testing? It is usually a single hidden fact, such as a high monetary assets share in one year, a recent name change or a director on a debarred company's board.
For SME questions, say that eligibility is governed by the Chapter IX criteria, which are revised from time to time. You may mention ₹25 crore of post-issue paid-up capital as the threshold used in the Regulations, but check the current ICSI material and do not present it as a fixed limit. Do not invent figures you are unsure of.

Practice questions from Issue of Capital and Disclosure Requirements

Eligibility Norms for Public Issues in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ProfessionalEligibility and Pre-Issue Requirements for Public Issue

Eligibility Norms for Public Issues: frequently asked questions

What are the eligibility conditions for an IPO under SEBI ICDR 2018?

For the main board, the issuer must not be barred by SEBI. It must show net tangible assets of at least ₹3 crore and net worth of at least ₹1 crore in each of the preceding three full years. Average operating profit over the three years must be at least ₹15 crore, with operating profit in each year. Monetary assets are capped at 50% of net tangible assets, with an exception. An issuer that fails can use the 75% QIB route.

Can a loss-making company make an IPO?

Yes, through the alternative route. The issuer makes a book-built issue and allots at least 75% of the net offer to QIBs. If it cannot do so, it must refund the application money.

Is the SME platform eligibility the same as the main board?

No. The SME platform has its own chapter in the ICDR Regulations (Chapter IX), with different criteria suited to small businesses. The Regulations use post-issue paid-up capital of ₹25 crore as a threshold, but the criteria are revised from time to time. Learn the current criteria from your ICSI study material.

Do the same norms apply to an FPO?

An FPO issuer is also subject to the conditions on who may not access the market and the general conditions on dematerialisation and fully paid shares. Track record and alternative route provisions also apply in a way set out in the Regulations. Check your study material for the exact conditions for an FPO.