In this article we will discuss about:- 1. Bid cum Application Form 2. Who can Bid? 3. Method and Process of Bidding 4. Escrow Mechanism of Bidding 5. Electronic Registration of Bids (e-IPO) 6. Registeration of Bids 7. Building Up of the Book and Revision of Bids.

Bid cum Application Form:

Bidders shall only use the specified Bid cum Application Form bearing the stamp of a member of the Syndicate for the purpose of making a Bid in terms of the prospectus. Upon the allocation of equity shares, dispatch of the Confirmation of Allotment Note (CAN), and filing of the Prospectus with the Registrar of Companies, the Bid cum Application Form shall be considered as the Application Form.

Upon completing and submitting the Bid cum Application Form to a member of the Syndicate, the Bidder is deemed to have authorized the issuer to make the necessary changes in the Prospectus and the Bid cum Application Form as would be required for filing the Prospectus with the Registrar of Joint Stock Companies and as would be required by Registrar of Joint Stock Companies after such filing, without prior or subsequent notice of changes to the Bidder.

Who can Bid?

Indian nationals resident in India who are majors, in single or joint names (not more than three):


1. Hindu Undivided Families (HUFs) in the individual name of the Karta. The Bidder should specify that the Bid is being made in the name of the HUF in the Bid cum Application form. Bids by HUFs are considered at par with those from individuals;

2. Eligible Non-Resident Indians on a repatriation basis or a non-repatriation basis subject to applicable laws;

3. Companies and corporate bodies registered under the applicable laws in India and authorized to invest in equity shares;

4. Trusts/Societies registered under the Societies Registration Act, 1860 as amended, or under any other law relating to trusts/societies and who are authorized under their constitution to hold and invest in equity shares;


5. Scientific and/or Industrial research organizations authorized to invest in equity shares;

6. Indian Financial Institutions, Commercial Banks, Regional Rural Banks, Co-operative Banks (subject to the RBI regulations and the SEBI guidelines and regulations as applicable);

7. Mutual funds registered with SEBI;

8. Foreign Institutional Investors registered with SEBI on a repatriation basis;


9. Multilateral and bilateral development financial institutions;

10. Venture Capital funds registered with SEBI;

11. Foreign Venture Capital investors registered with SEBI;

12. State Industrial Development Corporations;


13. Insurance Companies registered with the Insurance Regulatory and Development Authority, India;

14. Provident funds with minimum corpus of Rs. 250 million and who are authorized under their constitution to invest in equity shares; and

15. Pension funds with a minimum corpus of Rs. 250 million and who are authorized under their constitution to invest in equity shares.

Method and Process of Bidding:

Every public offer through the book-building process has a book running lead manager (BRLM), a merchant banker, appointed by the issuing company who manages the issue. The lead merchant banker acts as the lead book runner and the other eligible merchant bankers are terms as co-book running lead managers (Co-BRLMs).


The primary responsibility of building of book is that of the lead book runner. The book runners may appoint SEBI registered intermediaries who are permitted to carry on activity as ‘underwriters’ as syndicate members.

The members of the Syndicate shall accept Bids from the Bidders during the issue period in accordance with the terms of syndicate agreement. Investors who are interested in subscribing to the equity shares should approach any of the members of the Syndicate or their authorized agents to register their bid.

The bidding issue shall be a minimum three working days and shall not exceed seven working days. In case the Price Band is revised, the revised Price Band and Bidding/issue period will be published in an English national newspaper, a Hindi national newspaper and a Tamil newspaper with wide circulation and also by indicating the change on the website of the Book Running Lead Manager and at the terminals of the members of the Syndicate and the Bidding/issue Period may be extended, if required, by an additional three working days, subject to the total Bidding/Issue Period not exceeding 10 working days.

Each Bid cum Application Form will give the choice to bid for up to three optional prices within the Price Band and specify the demand (i.e., the number of Equity Shares bid for) in each option. The price and demand options submitted by the bidder in the Bid cum Application Form will be treated as optional demands from the Bidder and will not be cumulated.


After determination of the Issue Price, the maximum number of Equity Shares Bid for by a Bidder at or above the Issue Price will be considered for allocation and the rest of the Bid(s), irrespective of the Bid Price, will become automatically invalid.

The Bidder cannot bid on another Bid cum Application Form after Bid(s) on one Bid cum Application Form have been submitted to a member of the Syndicate. Submission of a second Bid Cum Application Form to either the same or to another member of the Syndicate will be treated as multiple Bids and is liable to be rejected either before entering the Bid into the electronic bidding system, or at any point of time prior to the Allotment of Equity Shares in the issue. However, the Bidder can revise the Bid through the Revision Form by following the procedure concerned.

During the Bidding Period, Bidders may approach the members of the syndicate to submit their bid. Every member of the Syndicate shall accept bids from all clients/investors who place orders through them and shall have the right to vet the Bids. Along with the Bid cum Application Form, all Bidders will make payment in the manner described in the prospectus.

The members of the Syndicate will enter each Bid option into the electronic bidding system as separate Bid and generate a Transaction Registration Slip (‘TRS’), for each price and demand option and give the same to the Bidder. Therefore, a Bidder can receive up to three TRSs for each Bid cum Application Form.


Revision of Price Band:

In accordance with the SEBI Guidelines, the issuer has the right to revise the Price Band during the Bidding Period. The cap on the Price Band should not be more than 20 percent of the floor of the Price Band. The floor of the Price Band can move up or down to the extent of 20 percent of the floor of the Price Band.

In case of a revision in the Price Band, the issue Period will be extended for three additional days after revision of the Price Band subject to a maximum of 10 working days.

Any revision in the Price Band and the revised Bidding/Issue Period, if applicable, will be widely disseminated by notification to the BSE and the NSE, by issuing a public notice in an English National Newspaper, a Hindi National Newspaper and a Tamil Newspaper, with wide circulation, and also by indicating the change on the websites of the Book Running Lead Manager (BRLM), the Senior Co-BRLM, the Co-BRLMs and at the terminals of the members of the Syndicate. The issuers in consultation with the BRLM, finalise the Issue Price within the Price Band, without the prior approval of, or intimation to, the Bidders.

Bids at Different Price Levels:

The Bidder can bid at any Price within the Price Band in multiples of Rupee One. The Bidder has to bid for the desired number of Equity Shares at a specific price. Retail Individual Bidders may bid at Cut-off Price. However, bidding at cut-off price is prohibited for Qualified Institutional Bidders (QIBs) or Non-Institutional Bidders and such Bids from QIBs and Non-Institutional Bidders shall be rejected.


Retail Individual Bidders who bid at Cut-off Price agree that they shall purchase the Equity Shares at the Issue Price. Retail individual Bidders bidding at Cut-off Price shall submit the Bid cum Application Form along with a Cheque/Demand draft for the bid amount based on the cap of the Price Band with the members of the Syndicate.

In the event of the Bid Amount is higher than the subscription amount payable by the Retail Individual Bidders who bid at Cut-off Price (i.e., the total number of Equity Shares allocated in the issue multiplied by the Issue Price), the Retail Individual Bidders, who bid at Cut-off Price, shall receive the refund of the excess amounts from the respective refund account.

Upward Revision in the Price-Band:

In case of an upward revision in the Price-Band, Retail individual Bidders, who had bid at the cut-off Price could either – (i) revise their bid or (ii) make additional payment based on the cap of the revised Price Band (such that the total amount i.e., original Bid Amount plus additional payment does not exceed Rs. 1,00,000 if the Bidder wants to continue to bid at Cut-off price), with the members of the Syndicate to whom the original bid was submitted.

In case the total amount (i.e., original bid amount plus additional payment) exceeds Rs. 1,00,000, the bid will be considered for allocation under the Non-institutional portion. If however, the bidder does not either revise the bid or make additional payment and the issue price is higher than the cap of the price band prior to revision the number of equity shares bid for shall be adjusted downwards for the purpose of allotment, such that no additional payment would be required from the bidder and the bidder is deemed to have approved such revised Bid at Cut-off price.

Downward Revision in the Price-Band:


In case of a downward revision in the Price Band, Retail individual Bidders, who have bid at Cut-off price, could either revise their bid or the excess amount paid at the time bidding would be refunded from the respective Refund Account. In the event of any revision in the Price Band, whether upward or downward, the minimum application size shall remain the same.

Escrow Mechanism of Bidding:

The issuing company open Escrow Accounts with the Escrow Collection Banks in whose favour the Bidders shall write the cheque or demand draft in respect of his or her Bid and/or revision of the bid. Cheques or demand drafts received for the full bid amount from bidders would be deposited in the Escrow Account.

The monies in the Escrow Accounts shall be maintained by the Escrow Collection Banks for and on behalf of the Bidders. The Escrow Collection Banks shall not exercise any lien whatsoever over the monies deposited there in and shall hold the monies therein in trust for the Bidders.

On the Designated Date, the Escrow Collection Banks shall transfer the monies from the Escrow Account to the Issue Account and the Refund Account as per the terms of Escrow Agreement. The escrow mechanism is not prescribed by SEBI and it is usually established as an arrangement between the issuer, the Syndicate, the Escrow Collection Banks and the Registrar to the Issue to facilitate collections from the bidders.

Electronic Registration of Bids (e-IPO):

A company proposing to issue capital to public through the on-line system of the stock exchange for offer of securities can do so if it complies with the requirements. The members of the Syndicate register the bids using the on-line facilities of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

There will be at least one on-line connectivity in each city, where a stock exchange is located in India and where Bids are being accepted. The BSE and NSE offer a screen-based facility for registering bids for the Issue. This facility will be available on the terminals of the members of the Syndicate and their authorized agents during the Bidding period.


The members of the Syndicate can also set up facilities for off-line electronic registration of Bids subject to the condition that they will subsequently download the off-line data file into the on-line facilities for book building on a regular basis.

The consolidated demand and price for Bids registered on the electronic facilities of the BSE and NSE will be displayed on-line at all bidding centres, on a regular basis. A graphical presentation of consolidated demand and price would be made available at the bidding centres during the Bidding period.

Registration of Bids:

At the time of registering each Bid, the members of the Syndicate shall enter the following details of the investor in the on-line system:

a. Name of the first/sole bidder;

b. Investor Category—Individual, corporate, Eligible Non Resident Indian, Foreign Institutional Investor, Mutual Fund, etc.;

c. Number of Equity Shares bid for;


d. Bid Price;

e. Bid cum Application Form Number;

f. Whether payment is made upon submission of Bid cum Application Form;

g. Depository Participant identification number, and

h. Client identification number of the beneficiary account of the bidder.

A system generated Transaction Registration Slip (TRS) will be given to the bidder as a proof of the registration for each of the bidding options. It is the bidder’s responsibility to obtain the TRS from the members of the Syndicate.


The registration of the Bid by the member of the Syndicate does not guarantee that the Equity Shares shall be allocated either by the members of the Syndicate or by the Issuers. Such TRS is non-negotiable and by itself does not create any obligation of any kind.

Building Up of the Book and Revision of Bids:

Bids registered by various bidders through the members of the Syndicate are electronically transmitted to the BSE or the NSE mainframe on a regular basis. The book gets built up at various price levels, thus the term ‘book-building.’ This information will be available with the BRLM, the Senior Co-BRLM and the Co-BRLMs on a regular basis.

During the bidding/issue period, any bidder who has registered his or her interest in the equity shares at a particular price level is free to revise his or her bid with in the price band using the printed Revision Form which is a part of the Bid Cum Application Form. Revisions can be made in both the desired number of equity shares and the bid price using the Revision Form.

Apart from mentioning the revised options in the Revision Form, the bidder must also mention the details of all the options in his or her Bid cum Application Form or earlier Revision Form. For example, if a bidder has Bid for three options in the Bid cum Application Form and he is changing only one of the options in the Revision Form, he must still fill the details of the other two options that are not being changed in the Revision Form.

Incomplete or Inaccurate Revision Forms will not be accepted by the members of the Syndicate. The Bidder can make this revision any number of times during the bidding/issue period. However, for any revision(s) in the Bid, the bidders will have to use the services of the same member of the Syndicate through whom he or she had placed the original bid.

Bidders should retain the copies of the blank Revision Form appended to the Bid cum Application Form and the revised Bid must be made only in such Revision Form or copies thereof. Any revision of the bid should be accompanied by payment in the form of cheque or demand draft for the incremental amount, if any, to be paid on account of the upward revision of the bid.

The excess amount, if any, resulting from downward revision of the bid would be returned to the bidder at the time of refund in accordance with the terms of prospectus. In case of Qualified Institutional Bidders, the members of the Syndicate may at their sole discretion waive the payment requirement at the time of one or more revisions.

When a bidder revises his or her bid, he or she should surrender the earlier TRS and get a revised TRS from the members of the Syndicate. It is the responsibility of the Bidder to request for and obtain the revised TRS, which will act as proof of his or her having revised the previous bid.

Price Discovery and Allocation:

After the Bid/Issue closing date, the BRLM and the Senior Co-BRLM will analyse the demand generated at various price levels and discuss the pricing strategy with the issuer. The issuer in consultation with the BRLM and the Senior Co-BRLM, shall finalise the ‘issue price’, the number of equity shares to be allocated in each category and the allocation to successful bidders.

The allocation will be decided based, inter-alia, on the quality of the Bidder, size, price and time of the bid. The allocation for Qualified Institutional Bidders for up to 50 percent of the issue would be discretionary. The allocation to non-institutional bidders and retail individual bidders of not less than 15 percent and 35 percent of the issue, respectively, would be on proportionate basis, in the manner specified in the SEBI Guidelines, in consultation with Designated Stock Exchange, subject to valid bids being received at or above the issue price.

Under-subscription, if any, in any category would be allowed to be met with spillover from any of the other categories at the discretion of the issuer in consultation with the BRLM and the Senior Co-BRLM. The BRLM, the Senior Co-BRLM and the Co-BRLMs, in consultation with the issuer, notify the members of the Syndicate of the Issue Price and allocations to their respective bidders, where the full bid amount has not been collected from the Bidders.

Allocation to Non-residents applying on repatriation basis is subject to the applicable law. In terms of the SEBI Guidelines, QIBs are not allowed to withdraw their bid after the Bid/ Issue closing date.

Issuance of Confirmation of Allotment Note (CAN):

The BRLM, the Senior Co-BRLM, the Co-BRLMs or the Registrar to the Issue send to the members of the Syndicate a list of their bidders who have been allocated equity shares in the issue, where the Margin Amount is less than 100 percent. In such cases, the BRLM, the Senior Co-BRLM, the Co-BRLMs or the members of the Syndicate would then send the CAN to their bidders who have been allocated equity shares in the issue.

The dispatch of a CAN shall be deemed a valid, binding and irrevocable contract for the bidder to pay the entire Issue Price for all the equity shares allocated to such bidder by the pay-in date specified in the CAN. Bidders who have been allotted equity shares and who have already paid into the escrow account at the time of bidding directly receive the CAN from the Registrar to the Issue.

Designated Date and Allotment of Equity Shares:

The issuer completes the allotment of equity shares within 15 days of the Bid/Issue closing date. After the funds are transferred from the escrow account to the Issue Account and the Refund Account on the Designated Date, the issuer credit the successful bidders’ depository accounts of the allotted equity shares to the allottees with in two working days of the date of allotment.

As per the SEBI Guidelines, equity shares are issued and allotted only in dematerialized form to the allottees. Allottees have the option to re-materialise the equity shares so allotted, if they so desire, as per the provisions of the Companies Act and Depositories Act.

Book Building Process—How it Works?

It is a mechanism where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. Take the recent, Yes Bank IPO, the floor price was Rs. 38 and the band was from Rs. 38 to Rs. 45. The investor had to bid for a quantity of shares he wished to subscribe to within this band. The upper price of the band can be a maximum of 1.2 times the floor price.

Cut-Off Price:

Once the issue period is over and the book has been built, the BRLM along with the issuer arrives at a cut-off price. The cut-off price is the price discovered by the market. It is the price at which the shares are issued to the investors. Investors bidding at a price below the cut-off price are ignored. So those investors who apply at a price higher than the cut-off price have a higher chance of getting the stock. So the question that arises is – How is the cut-off price fixed?

The cut-off price is arrived at by the method of Dutch auction. In a Dutch auction the price of an item is lowered, until it gets its first bid and then the item is sold at that price. Let’s say a company wants to issue one million shares. The floor price for one share of face value, Rs. 10, is Rs. 45 and the band is between Rs. 45 and Rs. 55.

At Rs. 55, on the basis of the bids received, the investors are ready to buy 200,000 shares. So the cut-off price cannot be set at Rs. 55 as only 200,000 shares will be sold. So as a next step, the price is lowered to Rs. 54. At Rs. 54, investors are ready to buy 400,000 shares. So if the cut-off price is set at Rs. 54, 600,000 shares will be sold.

This still leaves 400,000 shares to be sold. The price is now lowered to Rs. 53. At Rs. 53, investors are ready to buy 400,000 shares. Now if the cut-off price is set at Rs. 53, all one million shares will be sold. Investors who had applied for shares at Rs. 55 and Rs. 54 will also be issued shares at Rs. 53. The extra money paid by these investors while applying will be returned to them.

Allotment of Shares to Various Types of Investors:

There are three kinds of investors in a book-building issue –  the retail individual investor (RII), the non-institutional investor (NII) and the Qualified Institutional Buyers (QIBs). Each of these categories is allocated a certain percentage of the total issue. The total allotment to the RII category has to be at least 35% of the total issue.

RIIs also has an option of applying at the cut-off price. This option is not available to other classes of investors. NIIs are to be given at least 15% of the total issue. And the QIBs are to be issued not more than 50% of the total issue. Allotment to RIIs and NIIs is made through a proportionate allotment system. The allotment to the QIBs is at the discretion of the BRLM.

Let’s suppose, X Ltd., makes an offer for 200,000 shares. The issue is oversubscribed; i.e., there is demand for more shares than the issuer plans to issue. Further, a minimum allotment of 100 shares is to be made for every investor. The cut-off price has been decided and now the allotments are to be made. In the RII category, 1,500 applicants have applied for 100 shares each, i.e., there is a demand for 150,000 shares.

X Ltd plans to issue 35% of the total issue to this category, i.e., 70,000 shares. In the NII category, 200 applicants have applied for 500 shares each, i.e. 100,000 shares. X Ltd plans to issue 15% of the total issue to this category, i.e., 30,000 shares. The cut-off price has already been decided, so adjusting the quantity remains the only way of reaching the equilibrium.

Applying the proportionate allotment system each investor in the RII category will get 46.67 shares [(70,000/150,000) x 100)]. But the minimum allotment has to be 100 shares. So through a lottery, 700 investors are chosen and allotted 100 share each, making a total of 70,000 shares. In the NII category every investor will get 150 shares [(30,000/100,000) x 500)]. And that is how equilibrium is reached.

Green Shoe Option:

In case the issue has been oversubscribed, as was the case with X Ltd., the company may exercise a green shoe option to stabilize the post-listing price. When a particular issue is oversubscribed the appetite of investors for the stock has not been satisfied and once it gets listed they tend to pick up the stock from the secondary market.

Since the demand is greater than supply the prices tend to rise far beyond what the fundamentals of the stock would justify. So in order to stabilise the post-issue price of the stock, the issuer may issue more shares in case of oversubscription. These shares are taken from the pre-issue shareholders or promoters and are issued to the investors who have come in through the public offer on a pro-rata basis. The green shoe option can be a maximum of 15% of the public offer.

Recourse Available to Investor in Case of Issue Complaints:

Most of the issue complaints pertain to non-receipt of refund or allotment, or delay in receipt of refund or allotment and payment of interest thereon. These complaints shall be made to the post issue Lead Manager, who in turn will take up the matter with registrar to redress the complaints. In case the investor does not receive any reply within a reasonable time, investor may complain to SEBI.

Guidelines for Book Building:

Rules governing book building is covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000.

BSE’s Book Building System:

BSE offers the book building services through the Book Building software that runs on the BSE Private network. This system is one of the largest electronic book building networks anywhere spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines, Very Small Aperture Terminals and Campus Local Area Networks.

The software is operated through book-runners of the issue and by the syndicate member brokers. The syndicate member brokers on behalf of themselves or their clients’ place orders. Bids are placed electronically through syndicate members and the information is collected on line real-time until the bid date ends. In order to maintain transparency, the software gives visual graphs displaying price v/s quantity on the terminals.