SEBI Warns JM Financial For Failure In Due Diligence During Western Carrier IPO

Market Regulator, Securities and Exchange Board of India, has issued a warning to JM Financial for its role in the initial public offering, or IPO, of one of its clients, Western Carrier (India) Ltd, as per the company's exchange filing on Jan 3. The development has also affected the book-running lead manager's stock, which has declined by two percent. 

The shortfall in the authorised capital of Western Carrier was not brought to the regulator's notice on time. Hence, the issue came to light only after the opening of the issue for subscriptions. 

“The non-compliances have been viewed very seriously. The BRLMs are, therefore, advised to be careful in the future and improve their compliance standards to avoid the recurrence of such instances, failing which action may be initiated in accordance with the provisions of the SEBI Act,” the regulator warned JM Financial. 

In the issue at hand, JM Financial Ltd and Kotak Mahindra Capital were the book-running lead managers in the IPO of the Western Carrier, and they filed the DHRP for the same in June in 2023. 

During the subscription period, the company's Board of Directors, on Sept. 15, 2024, approved an increase in the company's authorised share capital. This decision was subsequently ratified by the shareholders at an Extraordinary General Meeting (EGM) held on Sept 16, 2024. Despite the IPO being underway, the company proceeded to make these changes mid-issue. 

On Sept. 17, 2024, the book-running lead managers notified SEBI of the increased authorised share capital and requested SEBI to upload an addendum to the RHP on its website. They also updated the relevant sections in the RHP, specifically “Capital Structure” and “History and Certain Corporate Matters,” to reflect this change. 

However, the issue was already open for subscription between Sept. 13 and 19, and the regulator was informed at a later stage. 

As per the regulator, the failure to identify the shortfall in authorised share capital before the IPO opened meant that JM Financial did not fulfill their due diligence obligations.