SEBI warns JM Financial for non-compliance during Western Carrier IPO

India’s market regulator, the Securities and Exchange Board of India (SEBI) on Friday issued an “administrative warning” to merchant banker JM Financial in relation to the initial public offering (IPO) of its client Western Carrier (India) Ltd.

The Western Carrier public issue opened for subscription on September 13, 2024 and closed on September 19, 2024 while the company took board and shareholders' approval on September 15, 2024 and September 16, 2024, respectively.

SEBI observed that approval of board and shareholders for increase in authorised share capital was taken while the issue was already open for subscription. Ideally, the approvals for incremental authorised share capital should have been taken prior to opening of the issue and not after opening of the issue, the market watchdog says.

JM Financial and Kotak Mahindra Capital Company Ltd were the book-running lead managers (BRLMs) in relation to the IPO of Western Carrier. The Draft Red Herring Prospectus (DRHP) of Western Carrier was filed by the BRLMs with SEBI.

The facts and circumstances of the case indicate that the book running lead managers have failed to exercise due diligence since the shortfall in authorised share capital of the company came to the notice only after opening of the issue for subscription and the approvals for incremental authorised share capital were taken thereafter, the regulator says.

“The above non-compliances have been viewed very seriously,” says SEBI. “The BRLMs are, therefore, advised to be careful in future and improve their compliance standards to avoid recurrence of such instances, failing which action may be initiated in accordance with the provisions of SEBI Act, 1992 and the Rules and Regulations,” it says.

Reacting to the development, shares of JM Financial fell 2.5% on Friday.

The offer structure with regard to the lPO of equity shares of Western Carrier as per the red herring prospectus dated September 7 ,2024 comprised of fresh issue component of up to ₹400 crore and an offer for sale component of up to 54,00,000 equity shares.

This is not the first time when JM Financial has come in SEBI’s crosshairs. The market regulator has barred JM Financial from taking any new mandate for acting as a lead manager for any public issue of debt securities till March 31, 2025. On March 6, 2024, SEBI in its interim order said that it undertook a routine examination of the public issues of non-convertible debentures (NCDs) during the year 2023 for which JM Financial was one of the lead managers. The regulator observed that in a particular issue, a significant number of individual investors sold the securities allotted to them on the day of listing itself. “The holding pattern of the securities showed that a very large percentage of securities issued changed hands on the day of listing as a result of which retail ownership came down sharply. This was unusual,” it noted.