This article is for informational purposes only and does not constitute legal, tax, financial, or investment advice. Laws and regulations vary by jurisdiction and change frequently. Always consult a qualified professional before making any decision.
As of June 2026, the Securities and Exchange Board of India (SEBI) has intensified scrutiny of Draft Red Herring Prospectus (DRHP) filings and merchant-banker due diligence standards under the ICDR Regulations, 2018 (as amended). Small and medium enterprises (SMEs) pursuing listings on BSE SME Platform or NSE Emerge face mounting rejections and extended timelines when foundational documentation, financial integrity, and regulatory compliance gaps surface during underwriter assessment. Common deficiencies—inadequate related-party disclosures, unresolved environmental or labour compliance issues, weak internal controls, and incomplete tax audits—routinely extend timelines by 6–12 months or trigger withdrawal. This advisory identifies recurrent gaps and how advance preparation with experienced counsel strengthens both the DRHP and the underwriter's comfort.
Market signals
Since April 2026, SEBI has flagged incomplete or ambiguous RPT disclosures in 60+ rejected DRHPs. Merchant bankers now demand granular arm's-length certifications, board minutes, and historical settlement patterns before filing.
Underwriters increasingly retain external environmental and occupational safety consultants before filing. Gaps in DGFT export authorisations, MOEFCC clearances, or DGMS mining compliance can stall offers by 3–4 months.
SEBI's emphasis on governance maturity (via the SME IPO Code of Conduct, voluntary since April 2025) has driven merchant bankers to demand auditor-certified internal control assessments and fraud risk matrices before DRHP lodgement.
Underwriters now cross-check litigant names and claims against GST/Income Tax records and district court dockets. Omitted or understated litigation reserves delay approvals by 2–3 months.
Under the ICDR Regulations, 2018, the merchant banker bears primary responsibility for verifying issuer disclosures (Regulation 30). SEBI has clarified that underwriter negligence—insufficient due diligence on financials, regulatory compliance, or related-party dealings—may invite show-cause notices or temporary exclusion from lead manager roles. Vinayakam Consultants assists SMEs and their merchant bankers by conducting pre-filing compliance audits, verifying environmental and labour clearances with state regulators (RSPCB, DGMS, Chief Inspector of Factories), mapping contingent liabilities against court records and tax authority filings, and preparing arm's-length certifications for RPTs. Early engagement—ideally 4–6 months before intended DRHP filing—materially reduces rejection risk and timeline slippage.
Your action checklist
- Conduct a full related-party transaction (RPT) audit: map all recurring transactions, obtain board approvals for each, secure arm's-length certifications from an independent valuer, and reconcile with auditor reports. File the schedule with DRHP.
- Verify all environmental and labour clearances: confirm DGFT export authorisation status, MOEFCC environmental compliance (pollution board clearances, water board NOCs, hazardous waste authorisation), DGMS mining compliance (if applicable), and Chief Inspector of Factories approval. Obtain dated certificates from each authority.
- Commission an internal audit and control assessment: engage a ICAI-member auditor to map
Frequently asked questions
Common deficiencies include inadequate related-party disclosures, unresolved environmental or labour compliance issues, weak internal controls, and incomplete tax audits. These gaps routinely extend timelines by 6–12 months or trigger withdrawal.
Merchant bankers now demand granular arm's-length certifications for RPTs, board minutes, environmental and occupational safety audits, DGFT export authorisations, MOEFCC clearances, and documented internal control matrices before filing.
Advance preparation with experienced counsel addressing related-party transactions, environmental compliance, labour standards, internal controls, and tax audits significantly strengthens both the DRHP and underwriter comfort during due diligence.