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SEBI’s recent amendment to the Securities Contracts (Regulation) Rules (SCRR), as approved in its September 2025 board meeting, provides substantial relaxations for very large issuers regarding the Minimum Public Offer (MPO) and timelines for achieving Minimum Public Shareholding (MPS). The changes are aimed at boosting the ease of doing business and making it more practical for companies with massive equity bases to access the Indian capital market.

What the Amendment Says

The revised framework introduces a scale-based approach—larger the company’s post-offer market capitalization (MCap), the lower the immediate public dilution required, and longer the time allowed to meet the 25% public shareholding norm. Here’s what the updated requirements look like:

Post-Offer Market Cap	Minimum Public Offer (MPO)	MPS Compliance Timeline
MCap < ₹16,000 million	25% of post-offer capital	No change (existing)
₹16,000m < MCap ≤ ₹40,000m	₹4,000 million, 25% in 3 years	No change (existing)
₹40,000m < MCap ≤ ₹500,000m	10% of post-offer capital, 25%/3yrs	No change (existing)
₹500,000m < MCap ≤ ₹1,000,000m	₹10,000 million & 8% of capital, 25%/5yrs
₹1,000,000m < MCap ≤ ₹5,000,000m	₹62,500 million & 2.75% of capital; if public <15%, get to 15%/5yrs & 25%/10yrs; if public ≥15%, 25%/5yrs
MCap > ₹5,000,000 million	₹150,000 million & 1% of capital or 2.5% dilution; if <15%, 15%/5yrs & 25%/10yrs; if ≥15%, 25%/5yrs

Example:
Suppose a company is listing with a post-offer market capitalization of ₹1,500,000 million.

• Under the new norms, it can make an MPO of ₹62,500 million (just 2.75% dilution). If its post-listing public shareholding is below 15%, it must reach 15% public float by year 5 and 25% by year 10.

Motivation and Purpose

SEBI observed that very large companies—especially those with a post-offer MCap above ₹500,000 million—face genuine difficulty in diluting a large percentage of equity immediately, as required by existing rules. Raising such high volumes of equity capital at one go can adversely affect price discovery, lead to overhang in the market, or cause execution challenges in the IPO ecosystem. The amendments allow for a more gradual and pragmatic route to compliance, reducing pressure on both issuers and the markets while still ensuring the end goal of a broad public float is ultimately achieved.

Beneficiaries and Adverse Impact

Beneficiaries:

• Large companies/entities seeking to list with high valuations, as they can now go public with less immediate dilution and time their further share sales to market demand.
• Investors, because staggered dilution and better calibrated IPO sizes could lead to more stable post-listing price performance.
• The capital market as a whole, fostering more high-profile listings that might have otherwise remained unlisted due to regulatory constraints.

Potential Drawbacks:

• If public float remains low for several years, liquidity in such stocks may be limited in the short term, potentially disadvantaging retail investors who value easy entry/exit.
• Smaller market participants may perceive an uneven playing field, as smaller companies still have to comply with immediate, stricter dilution requirements.

Case Studies Prompting the Change

Several large companies have been noticeably affected by India’s current minimum public offer (MPO) and minimum public shareholding (MPS) rules, facing challenges in diluting required equity quickly or meeting tight public float deadlines.

Notable Companies Affected

• LIC (Life Insurance Corporation of India):
  The LIC IPO in 2022 was the largest ever in India, requiring immediate massive dilution to meet public shareholding norms. Its scale posed market absorption and liquidity challenges, making it a frequently cited example during the current regulatory review.
• Hyundai Motor India:
  Hyundai is another example, where the sheer size of proposed offerings created concerns about pricing and gradual compliance with public float rules. Meeting the 25% minimum public shareholding in a short timeline would have forced disproportionate immediate sales, potentially impacting market stability.
• Reliance Jio Infocomm:
  With a market cap exceeding ₹5 trillion, Reliance Jio would face significant pressure to dilute large stakes upfront under previous rules. SEBI expressly referenced Reliance Jio as a case benefiting from staggered dilution and extended compliance timelines now proposed.
• National Stock Exchange (NSE):
  NSE is cited as a large entity where the traditional rules could deter domestic listing due to the impracticality of immediate substantial public float, pushing companies to delay or reconsider domestic IPO plans.
• Orchid Pharma:
  Orchid Pharma was penalized for non-compliance with the 25% MPS rule, demonstrating stricter enforcement for companies that failed to dilute as required. Promoters’ shares were frozen, and the company later took steps through QIP to reduce promoter holding, highlighting difficulties under current norms.

Additional Examples

• Multiple large IPOs over the past several years have either downsized their issue or staged their equity dilution to avoid shock market absorption, impacting upwards of 15 companies with reduced IPO offer sizes by up to 30% due to current norms and market dynamics.

These examples show how current public offer rules have posed practical obstacles for mega-cap entities and issuers attempting to comply within existing dilution and timeline mandates.

Long-Term Benefits

• Greater flexibility will encourage more large domestic and foreign companies to list in India, broadening the market and enhancing investor choice.
• More controlled and gradual public float increases can improve price stability, investor confidence, and the overall health of the capital markets ecosystem.
• The Indian capital market will remain competitive with international markets by adopting a more pragmatic regulatory stance as seen in major financial centers.
• Enhanced compliance capacity for both issuers and market intermediaries, reducing execution risks and broadening issuer participation.

These changes align Indian regulatory practice with global standards, sustaining market confidence and encouraging sustained capital formation over time.

Penalties for non compliance with MPS

Companies that fail to comply with the Minimum Public Shareholding (MPS) norms in India face a series of progressively stringent penalties imposed by SEBI and stock exchanges:

Monetary Fines

• An initial fine of ₹5,000 per day is levied for every day of non-compliance with the MPS requirement (i.e., not maintaining at least 25% public shareholding).
• If non-compliance extends beyond one year, the penalty increases to ₹10,000 per day of continued default.
• All fines collected are credited to the Investor Protection Fund maintained by the respective stock exchange.

Freezing of Promoters’ Shareholding and Other Restrictions

• The entire shareholding of the promoter and promoter group (except the portion required to meet MPS) can be frozen in their demat accounts.
• Promoters and directors may be barred from holding any new directorship position in other listed companies while the entity remains non-compliant.

Additional Actions

• The names of non-compliant entities are disclosed on stock exchanges’ websites, harming company reputation and visibility.
• In extreme or persistent non-compliance cases, SEBI can initiate proceedings for compulsory delisting of the company’s shares from stock exchanges.
• SEBI may also commence criminal proceedings, freeze voting rights and corporate benefits, and restrict trading in the company’s stocks for promoters and directors.

Case Example

• Several companies, such as Bombay Rayon Fashions, Hindustan Breweries, and Automobile Products of India, have faced these penalties, including freezing of promoter holdings and warnings of stronger enforcement actions by SEBI.

These penalties are designed to ensure that companies maintain sufficient public float, improve governance, and protect retail investor interests while retaining strong deterrents against manipulation or excessive promoter control

Companies employ various SEBI-approved strategies to ensure compliance with Minimum Public Shareholding (MPS) norms, aiming to raise public float to at least 25% of paid-up capital while minimizing market and governance disruptions.

Key Steps Taken by Companies

• Offer for Sale (OFS) via Stock Exchanges:
  Promoters or the promoter group sell shares directly to public investors through an OFS process, a popular and transparent route for rapid compliance.
• Institutional Placement Programme (IPP):
  Shares are offered specifically to qualified institutional buyers to increase public shareholding, often executed in large blocks to meet MPS targets systematically.
• Qualified Institutional Placement (QIP):
  Allotment of shares to institutional investors via QIP helps reach new investors swiftly, supporting MPS compliance for large issuers.
• Employee Stock Option Plans (ESOPs):
  Companies issue ESOPs to employees, which, under current SEBI regulations, can count towards public shareholding up to 2% of paid-up equity capital—linking compliance with employee incentives.
• Transfer to Exchange Traded Funds (ETFs):
  Promoters may transfer up to 5% of paid-up equity to SEBI-registered ETFs, indirectly boosting public float while retaining flexibility in their holdings.
• Fresh Public Issue/Further Public Offer (FPO):
  Companies may issue new shares to the public to raise capital and simultaneously increase public shareholding to reach the 25% requirement.
• Open Market Sale:
  Promoters sell shares on the open market, subject to volume and timing constraints specified by SEBI, ensuring availability to retail investors and gradual compliance.

Practical Considerations

• Companies must make clear disclosures to stock exchanges before executing these actions, including details of sale mechanisms and compliance timelines.
• SEBI has periodically expanded these mechanisms to make compliance more flexible and market-aligned, especially for large listings or companies emerging from corporate restructuring.

These steps are vital for maintaining market liquidity, ensuring broad ownership, and supporting robust governance in line with regulatory objectives.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.

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