A rights issue is a manner of raising additional capital by offering existing shareholders the opportunity to purchase additional shares at a specific price. This benefit is usually offered to shareholders in proportion to their current shareholding, and allows companies to strengthen their capital base without increasing the number of external investors. This benefits the existing shareholders, allowing them to maintain their shareholding in the company, while ensuring that companies can meet their working capital requirements and fund their business expansion.

Despite the favourable nature of rights issues and the benefits it offers, the Securities and Exchange Board of India (“SEBI”) observed that the amount raised by companies through rights issues were substantially lower compared to the amounts raised by companies through the other routes. This misalignment of the benefits offered by rights issues and amount raised through rights issues was evaluated by SEBI in the consultation paper titled “Faster rights issue with flexibility of allotment to selective investors” published on August 20, 2024.

The consultation paper deliberated that the disfavour associated with a rights issue could be attributed to the cumbersome compliances involved in a rights issue, and the elongated time periods associated with such compliances. To enhance the appeal of rights issues as a fundraising method, SEBI notified the SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2025 (“Amendment”). The Amendment aims to expedite the process involved in a rights issue by eliminating several steps previously associated with the same.

Subsequently, SEBI issued a circular on March 11, 2025, that laid out the timelines that are to be associated with each step of the process followed in a rights issue. The provisions of the circular shall be applicable to rights issues approved by the board of directors of the issuing companies from April 7, 2025, onwards. The Amendment, read with the circular, addresses several lacunae that were present in the erstwhile framework.

A few prominent hurdles present in the provisions of the erstwhile regime were: (i) the timeline associated with the process was estimated to be 317 (three hundred and seventeen) days; (ii) only certain categories of companies could offer rights issues to their shareholders; and (iii) companies were required to follow a pre-determined structure for allotment, with no scope for the current shareholders to modulate the participation of external investors. The foremost benefit offered by the Amendment is the shortening of the overall time period associated with allotment of securities by way of a rights issue. The new framework specifies that rights issues will be approved, and securities issued within 23 (twenty three) working days from the date that the issuing company’s board of directors approve such rights issue. This accelerated timeline is aimed at providing the issuing company with access to capital in a timely manner, while ensuring necessary regulatory oversight.

Along with lengthy timelines, the erstwhile framework also restricted the fast-track procedure for rights issues by incorporating higher procedural thresholds for companies that do not meet the eligibility requirements. The eligibility requirements for companies to offer fast-track rights issues included: (a) being a listed company for at least 3 (three) years prior to raising to capital via rights issues; (b) having an average market capitalization of public shareholding of at least Rs. 2,50,00,00,000/- (Rupees Two Hundred and Fifty Crores only); and (c) the promoter group shareholders mandatorily subscribing to their rights entitlements. Pursuant to the Amendment, such eligibility requirements have been completely redacted. Companies no longer face restrictions on their eligibility to offer rights issues through the fast track process, making the standard of compliance uniform for all companies.

In order to further streamline the process of a rights issue, SEBI has eased the compliances and filings required for the same. In the erstwhile framework, companies were required to file a draft letter of offer, and this requirement was eased for companies that met the fast track eligibility criteria. The Amendment has eliminated the requirement to file a draft letter of offer altogether. Now, all companies, irrespective of their classification, are required to file only the letter of offer with SEBI for the purposes of dissemination of information. All of these submissions have been digitised by the Amendment, minimising the chances of undue procedural delays. To further streamline the process, SEBI has created a framework for the implementation of an automated bid validation system by stock exchanges and depositories. This system, expected to be operational within 6 (six) months from the date of notification of the Amendment, will reduce any discrepancies in the application and processing of the submitted bids. Under the previous framework, bid mismatches often caused delays, adding unnecessary complexity to the process.

Arguably, the most investor centric modification introduced by the Amendment is the flexibility offered to the investor to choose to renounce their rights entitlements, and to request for the rights issue to be granted to a specific investor instead. This flexibility allows for more strategic capital allocation and investor participation. This relaxation has provided flexibility to the companies to extend the shareholding of the company to investors who previously did not hold any equity, upon the discretion of the existing shareholders of the company. This modulation of the shareholding, while ensuring the generation of capital, has opened doors for companies to modulate their business strategies without getting caught in laborious compliances.

It is evident that the Amendment has tried to promote rights issues by addressing the multiple facets of the hardships earlier faced by the companies wishing to offer rights issues. This Amendment reflects a fundamental shift in SEBI’s approach towards the interests of listed companies and the associated promoters. By eliminating procedural redundancies, removing the restrictions imposed, and focusing on having clearly specified timelines, SEBI has ensured that the generation of capital will not affect the overall of structure of companies and cause any undue disadvantages to the existing shareholders. This brings rights issues at par with the other forms and methods of raising capital, at least on paper. However, in order to truly benefit the companies and their promoters, it is essential to ensure that the framework introduced by the Amendment is effectively implemented. Whether SEBI will be able to realise such smooth and speedy implementation of the framework will only be determined with the passage of time.