Behind Sebi’s unusual decision to return the draft documents of 4 IPOs last week

Mumbai: Four prominent companies—Vishal Mega Mart, Sai Life Sciences, Avanse Financial Services, and BMW Ventures—had their draft documents returned by the Securities and Exchange Board of India (Sebi) on 24 July, a rare event in the capital markets.

Sebi cited a shortfall under Section 7 (1) (a) of the Issue of Capital and Disclosure Requirements Regulations, 2018, or ICDR, regulations as the reason for returning the documents.

Typically, Sebi would make observations and request additional information and documents, and then the lead banker would provide them. Sebi would then approve the initial public offer (IPO) if the filings are satisfactory. However, in these cases, the documents were returned, indicating Sebi's stricter view on inadequacies and oversights in the processes.

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In three instances, Kotak Mahindra Capital Co., the investment banking arm of Kotak Mahindra Group, was the lead banker.

In these four cases, Sebi raised concerns about the delay in obtaining exchange approvals from National Stock Exchange (NSE) and BSE. While companies and their investor management teams are responsible for notifying the exchanges, the bankers generally guide them through the process.

When merchant bankers file for an IPO, they must make a routine application with the stock exchanges, seeking an "in principle" approval to list. However, in these four cases, application to secure in-principle approval was made only to one exchange.

Sebi, in response to this episode, sent fresh instructions on 25 July asking merchant banks to submit exchange applications seeking approval for listing on the same day as the draft red herring prospectus (DRHP) for IPO approval. 

Sebi tightens IPO filing rules

To be sure, there is no specific provision in the ICDR regulations requiring merchant bankers to file the approvals with the exchanges on the day of filing the draft papers.

According to one interpretation, the company can sometimes file for these approvals. However, Sebi has taken a strict stance, now interpreting it to mean that exchange approvals must be sought on the same day.

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NSE notified bankers on 25 July, instructing them to apply on the same day as the draft red herring prospectus was filed with Sebi.

Kotak and Sebi did not immediately respond to a request for comment on Tuesday evening. Spokespersons for Vishal Megamart, Sai Life Sciences, BMW Ventures, and Avanse Financial Services did not respond to queries.

However, within 48 hours of Sebi's instruction, two of the IPO documents were promptly refiled with the necessary approvals, and the rest are set to be refiled on Wednesday.

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