Exemption 3: Relaxation of lock-in period for anchor investors.

The ICDR rule, Schedule XIII, Part A, Clause 10 (j) allows an anchor investor to sell only 50% of the shares allotted after 30 days from the date of allotment. According to market sources, LIC anchor investors are allowed to sell 100% of their allotted shares after 30 days from the allotment. It is still not clear under what rules, this exemption has been provided to the insurance behemoth.

Consequences of exemptions made for LIC

From the legal perspective, the LIC IPO is opening up vistas for other companies to take advantage of the regulatory flexibility that was offered to LIC. The Doctrine of Stare Decisis, in legalese, implies that any judicial or quasi-judicial authority will be guided by earlier decisions, or precedence, to decide upon the present matter in consideration. This means that in future if a company seeks exemptions from certain regulations of ICDR, it can appeal on the basis of exemptions granted to LIC.

Thus, when LIC can reserve shares in its IPO for its policyholders, in future, a telco’s IPO may reserve a share quota for its subscribers, or a retail chain may seek to reserve share quota for its channel partners, or a bank may seek the same for its account-holders.

In fact, as per principles of natural justice, every company with listing aspirations should now be able to reserve a quota of IPO for their own class of customers. By the same principles, relaxation of the lock-in period for anchor investors may be sought whenever there is a national or global crisis that affects the market.

Citing the size of the company, its crucial role in nation-building, or the condition of the market, if LIC can launch IPO by diluting only 3.5% of its equity, other behemoths who are operating in crucial sectors like telecom, financial services, agriculture, or health, etc may use the same argument to dilute smaller equity only.

All the exemptions made for LIC mentioned here have not been incorporated into the ICDR rules, so far. Neither SEBI nor LIC has clarified the basis for the grant of exemptions, which are clear deviations from the existing law. As per legal experts, the ambiguity surrounding the special treatment given to LIC will make it easier for others to seek exemptions as there are no rules that define the basis on which exemptions may be granted or denied.

Any legal system that has ambiguous provisions is a fertile ground for exploitation by those who have the resources to bend the laws to their advantage. To make the current ICDR stringent again, the legislature and the regulator must amend the ICDR to explicitly clarify the provisions under which certain leniency may be granted to future IPOs.

Exemptions to LIC IPO

Sea of exemptions to LIC IPO open a can of worms