SEBI Issues Warning Letter to JM Financial Over Western Carrier India IPO Management

The Securities and Exchange Board of India (SEBI) issued a cautionary notice to investment banking firm JM Financial for lapses in due diligence related to the initial public offering (IPO) of Western Carrier (India).

In an administrative warning dated January 1, SEBI highlighted that the book-running lead managers (BRLMs) did not adequately perform their due diligence, as the shortfall in the company’s authorized share capital was identified only after the IPO had opened for subscription.

During this period, approvals for the additional authorized share capital were sought and secured. SEBI emphasized in its letter that the company’s board and shareholder approvals for increasing authorized share capital were obtained while the issue was already open, stating that such approvals should ideally be finalized before the IPO launch.

The issue was brought to SEBI's attention when the BRLMs sent an email requesting an update to the red herring prospectus (RHP) reflecting the increased authorized share capital. The board of Western Carrier approved the increase in a meeting held on September 15, 2024, while the IPO had already opened on September 13. Shareholder approval was obtained during an extraordinary general meeting (EGM) held on September 16.

In its regulatory filing, JM Financial acknowledged receiving the administrative warning letter from SEBI, noting that the notice pertains to their role as a SEBI-registered merchant banker.

SEBI underscored the seriousness of these compliance failures and instructed the BRLMs to enhance their compliance processes to prevent future occurrences. The regulatory body also warned that stricter action could be taken in the event of similar violations.

Following the news, JM Financial share price dropped over 2%, closing at approximately ₹130.25 per share.

The IPO structure of Western Carrier included a fresh issue component of up to ₹400 crore and an offer for sale of 5.4 million equity shares. While the RHP was updated following the request, SEBI has directed the investment banker to implement corrective measures to avoid such lapses in the future.