The Securities and Exchange Board of India (“SEBI”) issued an interpretive letter dated July 31, 2026, bearing Issue No. I/17888/2026, under the SEBI (Informal Guidance) Scheme, 2025 (“Informal Guidance”) in response to an application dated May 13, 2026, by IDBI Bank Limited (“IDBI”) seeking clarification on the permissibility of the sale of equity shares of unlisted companies to investors who are not Qualified Institutional Buyers (“QIBs”).
Background
In January 2026, the Department of Financial Services, Ministry of Finance, in consultation with SEBI, issued an advisory to public sector banks and IDBI regarding discussing the sale of stakes in unlisted companies held by public sector banks (“PSBs”), insurance companies, and financial institutions through a Request for Proposal (“RFP”) or Expression of Interest (“EOI”) published in public newspapers. The advisory suggested that sale of equity shares of unlisted companies by PSBs be made exclusively to Qualified Institutional Buyers (“QIBs”). This was based on the premise that offers made to QIBs (or to employees of a company under employee stock option schemes) shall not be considered while calculating the limit of 200 persons for a private placement under the Companies Act, 2013 (“Act”), thereby avoiding unintended classification as a deemed public issue.
IDBI had in its possession equity shares of various unlisted companies, primarily acquired as a part of restructuring, loan resolution, invocation of pledges, direct acquisition of these shares as investment, or in-specie distribution of non-exited equity shares by Venture Capital Funds (VCFs) or Alternative Investment Funds (AIFs) at the end of their tenure. Owing to the illiquid nature of the unlisted equity shares, IDBI was unable to monetize such holdings and sought to sell the unlisted equity shares through privately negotiated transactions to identified promoters, QIBs, and non-QIBs without any public advertisement, RFP, EOI or general solicitation, and such transfers would be purely secondary transfers involving no fresh issuance of securities by unlisted companies.
Queries raised by IDBI
Against the aforementioned background, IDBI sought the following clarifications on the permissibility of the proposed manner of sale:
(i) Whether the sale of such unlisted equity shares through a non-advertised privately negotiated transaction with identified investors, including non-QIB investors such as individuals, corporate entities and company’s promoters, be construed as a deemed public issue under the Act, 2013 and is not in violation of any Companies (Prospectus and Allotment of Securities) Rules, 2014 (“PAS Rules”);
(ii) Whether the Act or any other act/rule mandates that such transaction be restricted exclusively to Qualified Institutional Buyer or non-advertised privately negotiated transaction with identified investors including non-QIB investors such as individuals, corporate entities and corporate promoters; and
(iii) Whether the bank is entitled to transfer such unlisted equity shares to the company’s promoters pursuant to contractual arrangements conferring a right of first refusal or their first right to purchase in case of sale by bank.
Key Clarifications
Sale to identified investors is not a deemed public issue if kept within the two hundred persons limit
SEBI clarified the statutory framework governing the proposed sale of shares in unlisted companies, addressing the distinct requirements applicable to private and public limited companies. For a private company, Section 2(68) of the Act limits its membership to 200 persons and prohibits it from inviting the public to subscribe to its securities. Accordingly, Section 23(2)(b) permits a private company to issue securities through private placement. On the other hand, a public company may issue securities to the public through a prospectus, including by way of an offer for sale by an existing shareholder, which is treated as a prospectus under Section 28(2). The Informal Guidance clarifies that where a company makes an offer or invitation, or agrees to allot securities, to more than 200 persons in a financial year, the offer is treated as a public offer. For this purpose, QIBs and employees receiving securities under a stock option scheme are excluded from the 200-person threshold.
Accordingly, SEBI clarified that IDBI may sell unlisted shares through non-advertised, privately negotiated transactions with identified investors, including non-QIBs, and such transactions would not be treated as a deemed public issue so long as the shares of a particular company are sold to no more than 200 persons in aggregate in a financial year.
The Act restricts the number of offerees and not their category
Responding to the second query, SEBI clarified that Section 42(2) read with Rule 14 of the PAS Rules does not mandate or restrict the categories of persons to whom a placement or transfer may be made, but restricts the number of persons in a private placement. In calculating the 200-person threshold, offers made to QIBs are excluded. Accordingly, as discussed above, sale to up to 200 persons in aggregate in a financial year may be made through non-advertised, privately negotiated transactions with identified investors, including non-QIB investors.
Transfers to promoters under the right of first refusal
In response to IDBI’s query as to whether it could transfer its unlisted shares to the company’s promoters pursuant to a contractual right of first refusal or first right to purchase, SEBI clarified that such transfer may be made subject to the prescribed 200-person limit. The contractual terms may be determined by the parties, subject to applicable law.
Our View
The Informal Guidance clarifies that the statutory framework does not restrict private placements to any particular category of transferees, including non-QIBs, and that the relevant numerical threshold is 200 persons in aggregate in a financial year. It also confirms that non-advertised, privately negotiated transactions with identified investors may be undertaken within this threshold. Accordingly, the numerical threshold should not be viewed in isolation. SEBI has previously taken action in cases where transactions structured as private secondary sales were, in substance, found to have the characteristics of a public offering or public fund-raising. In this context, the manner in which the transaction is conducted, including whether the shares are offered to identified investors through non-advertised, privately negotiated transactions or are made available or advertised to an indeterminate class of persons, would therefore remain relevant in determining whether the transaction is, in substance, a public offer.
