The DRPH Rulebook: Volume IV

Between Identity and Evolution: General Information and the Company's History

Continuing the practitioner's journey through its intricate chapters, Volume IV of The DRHP Rulebook shifts its gaze to the bedrock disclosures that open the prospectus: General Information and History & Certain Corporate Matters chapters. These aren't technical appendices; they are, quite literally, the who, where, when, and why of an Issuer Company's public story.

Where previous volumes examined the issuer's vulnerabilities (Volume I), operational nature of the Issuer Company with competitive environment (Volume II), and ownership, governance, and control (Volume III), this volume steps back to ask more elemental questions: Who is this company? Who governs it? Where did it come from? How did it get here? The answers, while often seen as “standard inclusions,” are anything but routine. Securities and Exchange Board of India ('the Regulator') in their observation letters frequently reveal how even seemingly minor lapses, missing designations, vague historical milestones can delay or derail the regulatory approval process. This volume explores why these chapters deserve greater scrutiny and narrative clarity than they often receive.

General Information

In the adrenaline-fueled arena of India's capital markets, where Initial Public Offering ('IPO') can catapult an Issuer Company into the spotlight or leave it scrambling for revisions, the General Information chapter stands as the unassuming yet pivotal “identity card” of a Draft Red Herring Prospectus ('DRHP'). Governed by Part A of Schedule VI Clause 7 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 ('ICDR Regulations'), this chapter isn't mere boilerplate it's your first handshake with investors and the Regulators. Think of it as the foundation: Get it wrong, and the edifice crumbles; get it right, and you're off to a flying start.

The Regulator eagle-eyed reviews often unearth gaps that could have been avoided with a dash of foresight. Even though the omission of something as basic as the Issuer Company's legal advisor's email address is not overlooked, it is a direct compliance breach, flagged for undermining the mandate of complete contact details to ensure unhindered investor access. Additionally, a patchy record of auditor changes over the past three years is more than an administrative lapse for the reason that it disrupts the continuity of financial scrutiny. And the intense allocation of responsibility statements among lead managers? That is the quiet architecture of accountability, drawing a clear map of who bears which piece of the due diligence and disclosure burden, so no obligation drifts into a grey zone. Each of these disclosures works like a stitch in the fabric of market transparency, drop enough of them, and the weave begins to loosen.

Now, when it comes to public offerings, the details you disclose are not just paperwork to be done away with mechanically. Investors rely on transparency, and the Regulator expects accuracy. On the lines of the aforestated premises, some of the key disclosures that the Regulator closely watches:

I. Issuer Information: The Basics That Build Trust

First impressions matter, and this is where it all begins. Company Details are essential for investors to get to know the business they're considering putting their money into.

• Company Name and Identity: The Corporate Identification Number (CIN), date of incorporation, and both the registered and corporate office addresses must be included. It is important to remember that the Regulator requires these details to be fully accessible. So, make sure your website link is investor-friendly for investors to access detailed information easily including all policies, shareholding pattern and financials of the company.
• Governance and Leadership: A solid board of directors is a hallmark of strong governance. Investors want to know who's steering the ship and the Regulator expects the full disclosure of the key players. The Regulator insists on the Director Identification Number (DIN), occupations, and terms of appointment for every director. Emphasizing your independent directors here signals strong governance. This ensure that the Issuer Company is in capable hands, but wait where are the KMPs? Beyond the board, the chapter must also highlight key managerial personnel (KMPs) like the Company Secretary and Compliance Officer, transparency is crucial here. Investors need to know exactly who's responsible for key decisions and compliance.
• Key Intermediaries and Advisors: This section is your chance to highlight your trusted partners the Book Running Lead Managers (BRLMs), Registrars, Bankers, and Legal Advisors/Counsel. It's crucial to specify whether the Legal Advisors/Counsel to Indian Laws or if they provide expertise across all applicable laws (including foreign laws, if any). Providing detailed contact information for each of these players gives investors reassurance that your offering is being managed by the experienced professionals. A complete list, from statutory auditors to monitoring and credit rating agencies, is more than just compliance - it's your way of saying: 'We've got this covered.'
• Regulatory Compliance and Underwriting: The General Information chapter also needs to cover critical regulatory aspects such as underwriting agreements, market-making arrangements and monitoring agency. Here, you'll disclose who's underwriting your issue, the terms they're agreeing to, who's handling the risk, and how much they're underwriting. Monitoring Agency (If applicable), oversee how funds from the IPO will be utilized. These details are vital because they assure investors that there's financial backing for the offer, and that the underwriters have the resources to follow through on their commitments.
• Expert Opinions and Independent Oversight: This section serves to confirm the independence and expertise backing your IPO. If you've sought expert opinions, whether for auditing, legal compliance, or industry analysis, you'll need to disclose them here. These experts provide an additional layer of credibility and due diligence, showing that your IPO has been scrutinized and validated by professionals. But when it comes to auditor transitions, disclosure is critical. If a prior auditor bowed out amid financial disagreements, non-disclosure reeks of opacity and can halt proceedings. Recent SEBI observation letters underscore this point, emphasizing that any gaps in auditor history will trigger rigorous due diligence verification as per SEBI's 2012 Rejection Framework. As one merchant banker aptly put it during an industry roundtable: “SEBI isn't just checking boxes, they're digging for skeletons. Incomplete auditor histories? That's a surefire way to get a 'revise and resubmit.'

Equally important is your disclosure of the Issue Price process whether its Book Building Process or Fixed Price Issue. Investors want to know how the price discovery mechanism works and how shares are allocated. A transparent approach here will inspire confidence in your offering and assure the market that the pricing is not arbitrary but based on competitive bidding.

This list encapsulates some of the most important disclosures but remember it's not exhaustive. The regulatory landscape is dynamic, and SEBI is constantly evolving its requirements. As such, companies should treat these disclosures as guidelines that are likely to shift depending on the specifics of each transaction and industry practices.

If your Issue includes a Green Shoe Option, make sure to clearly disclose all relevant details. The Green Shoe Option allows the Issuer Company to issue additional shares to the underwriters in case of over-subscription. This provides market stability and allows for post-offer price stabilization. In this chapter, one needs to include the name of the stabilizing agent, the maximum number of shares to be over-allotted, and the duration for which the stabilization mechanism will be in place.

To avoid any pitfalls, it's important to take a proactive approach when drafting this chapter. Make sure you include the no-objection certificate or any relevant documentation that supports the decision. This not only pre-empts any questions but also signals your commitment to transparency.

Another essential aspect is cross-referencing. Instead of repeating information, link to other sections where relevant such as the “Our Management” chapter for detailed director profiles or the “Outstanding Litigations” section for any disputes. This keeps your document organized, easy to navigate, and ensures investors have a seamless experience accessing important information. The Regulator's digital scrutiny is sharp, and they'll catch these inconsistencies quickly. So, be sure to double-check that all details are up-to-date before submitting. It's about showing professionalism and attention to detail.

History and Certain Corporate Matters

A Journey from Inception to Innovation

Now that the foundational information about the advisors and partners for the issue has been established, the focus shifts to a deeper exploration of the company's history and corporate structure. This chapter is far from being just a mere historical account of when the Issuer Company was founded or when it changed its name, it's the backstory that explains how the company has evolved and why it's poised for success. Investors want to know: What's your story? How did you get here? And, most importantly; Where are you headed? The chapter is guarded by Clause 10(D) of Part A of Schedule VI of the ICDR Regulations, and serves as company's narrative framework. It provides the crucial milestones and shifts that have defined your company's journey. But here's the thing: It's not just about dates; it's about understanding the why behind the decisions that shaped your business.

I. From Inception to Evolution: The Foundation of Your Journey

Every Issuer Company has a starting point, and this chapter needs to establish exactly when and how your journey began. This isn't about simply stating the date of incorporation or when your company transformed from LLP to company or moved from private to public as they don't tell the whole story. Investors want story and narratives. It's about showcasing your strategic foresight. Why did you rebrand in 2019? Was it part of a larger vision to expand into new markets? Each of these decisions needs to be framed as part of the company's growth story.

Consider a company that rebranded in 2015, shifting its name to align more closely with its focus on optical products and, it's part of a broader strategy to tap into the growing demand for innovative eyewear? If so, this name change wasn't just cosmetic; it was a strategic pivot. Investors need to understand not just what happened but why it happened and how it contributed to your broader business goals.

Also, don't forget to mention any registered office relocations. Investors want to know how your company has adapted to changing business environments. For instance, if you relocated your registered office to a more strategic business hub, explain why it was essential for your operational expansion or efficiency.

(i) Memorandum of Association: A Foundation for Expansion

Company's Memorandum of Association (MoA) lays the foundation for business activities, and it's crucial to disclose the main objects as set out in the MoA. But it's not just about listing business activities but also include the dates of amendments in MoA over the years in a clear format that may be in tabular form, noting key additions or changes. This shows how your company has adapted to market needs or new business opportunities and reassures investors that the company is both dynamic and responsive.

(ii) Major Milestones: Beyond the Numbers, There's Vision

While dates matter, milestones matter even more. Investors don't just want to know what happened; they want to understand why it happened and how it fits into the company's strategy. This chapter needs to walk investors through major corporate developments, from strategic partnerships and product launches to market expansions and acquisitions including awards, accreditations, and industry recognitions to validate achievements. But don't just list them, give investors the strategic context.

For instance, if you entered into strategic partnerships that fueled growth in new regions or the launch of new products that set your company apart from competitors need to be framed as pivotal moments in your history. Was the partnership with Company X a move to expand into Southeast Asia? Did the product launch in 2022 to capture untapped markets? The same goes for strategic acquisitions/ undertaking - don't just state that you acquired a company in 2020. Describe how this acquisition fits into your long-term plans. By answering these questions, you provide depth to the milestones, turning them into part of a larger narrative.

(iii) The Ups and Downs: Transparent Challenges and Strategic Pivots

No journey is without its challenges, and being honest about them shows investors that the Issuer Company is not only resilient but also capable of learning from setbacks. This section is where you can speak about cost overruns, time delays in setting up a new plant or completion of project, or financial restructuring, and here's the interesting part how you overcame them. Investors are keen on understanding how you manage adversity, not just how you grow.

For instance, if your company had to restructure borrowings in 2020 due to market volatility, don't shy away from mentioning it. But also explain how you resolved it: Did you renegotiate terms with banks? Were there no penalties incurred?

(iv) Material Events: Acquisitions, Mergers, and Strategic Consolidation

Let's talk about acquisitions, mergers, joint ventures, and other material events. These aren't just business transactions or some Merger and Acquisitions (M&A), they're a reflection of your company's growth strategy. If your company acquired another business, tell the story of why it was important. Detail major acquisitions or mergers over the past decade, making sure to include dates, parties involved, and rationale. Was it to integrate advanced technology? Did the acquisition expand your geographic footprint? For example, in your recent acquisition of Company Y, you expanded into advanced technology, a sector that had been growing rapidly. This acquisition wasn't just about buying a company; it was about securing market share in an emerging tech space.

(v) The Backbone of Your Organization

As the business grows, so does the complexity of its corporate structure. Many issuers prefer to present these details as a separate chapter in the DRHP, while others may integrate it into the History chapter as a subheading. Regardless of the format, the main intent remains the same: To give investors a clear, unfiltered view of the company's structure, operations, and growth potential.

Why is this so important? Because, for investors and regulators, understanding how the company operates across different layers; whether through subsidiaries or joint ventures is crucial for assessing the overall health, risks, and potential rewards of the investment and to provide clarity on the relationships between holding companies, subsidiaries, and joint ventures.

However, this section goes beyond simply listing group entities, it's about contextualizing their role in the company's broader growth narrative. Rather than just naming subsidiaries and affiliates, take the time to show explain how these entities actively drive the company's expansion, fuel innovation, or open new markets. Break it down and include detailed disclosures incorporation dates, Corporate Identification Number (CIN), registered address, business activities a.k.a. MOA, directors and promoter's details, capital structures, shareholding patterns and financials of each subsidiary and joint venture. These details are crucial for providing a complete picture of the group's financial situation and risks.

For example, a subsidiary in Singapore might be pivotal for global trading, or a joint venture in the UAE could be instrumental in retail sales. Be clear about the profitability of these entities, including any accumulated profits or losses, as this will help investors understand where value is being created across the group.

(vi) Shareholder Agreements and Governance: Securing Investor Trust

When it comes to corporate governance, shareholder agreements (SHAs) are the unsung architects, quietly shaping the very ownership structure and decision-making that drive the business forward. For investors, these agreements aren't just legal formalities; they're the blueprints of how the company operates, how power is distributed, and how their interests are protected. This is why detailing your SHAs isn't just important, it's essential for building trust.

It's crucial to provide a clear, detailed account of these agreements, offering insights into the company's ownership evolution and governance. Investors want to understand when and how investors entered, the amount of capital they put in, and the specific rights granted in exchange. These aren't just technicalities; they shape how decisions are made and who has control. Disclosing these details ensures that investors know exactly what they're walking into, particularly when it comes to special rights or preferences.

According to Regulation 31B under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ('LODR Regulations'), companies must disclose any special rights in their shareholder agreements. This ensures that no one investor or group has undue control or influence over the business. By mapping out the cap table and disclosing rights granted to investors, you give the market a clear picture of who holds power and how it will impact the company's future.

II. Proactive Transparency and the Importance of Clarity

SEBI's scrutiny is sharp, and the rigorous examinations often highlight oversights that can undermine investor trust. One common issue is the incomplete disclosure of director or promoter guarantees, financial partners, injunctions or restraining orders, strikes and lockouts, including quantum and potential liquidity impacts. Such gaps often prompt SEBI to demand detailed quantifications of these risks, as demonstrated in observation letters for recent filings. Another frequent pitfall is the omission of a clear categorical statement on covenants and the absence of which can trigger requests for sworn confirmations to safeguard minority investors' interests.

Moreover, historical gaps such as undated milestones or unsubstantiated awards may invite revisions and delay approval. Failing to provide adequate details on MOA amendments or the financials of subsidiaries especially when overlooking step-down entities with substantial turnover simply raises red flags.

To effectively draft this section, ensure that milestones are presented chronologically, supported by evidence-backed certification or awards. Also, provide a categorical statement on covenants, such as: “As on the date of this Draft Red Herring Prospectus, our Company does not have any financial partners. Or As on the date of this Draft Red Herring Prospectus, there have been no time and cost overruns in any of the projects undertaken by our Company.”

In the end, this chapter is more than just a historical record or required formality in the DRHP. By taking a strategic, transparent approach to this chapter, you lay the groundwork for investor confidence, showing that your company is not only capable of navigating the complexities of the market but also poised to thrive in the future.

Practioner's Takeway

General Information

• Make the identity verifiable: Ensure that the company's legal name, CIN, addresses, and website are consistent with ROC filings and accessible to investors.
• Disclose directors and KMPs clearly: Names, DINs, designations, and terms of appointment for directors must be disclosed alongside details of key managerial personnel.
• Define roles among lead managers: Include inter se responsibility statements to demarcate the scope of each BRLM's due diligence and disclosure obligations.
• List all intermediaries with precision: Mention each advisor, legal counsel (with jurisdiction), auditor, registrar, and underwriter with full contact details.
• Explain underwriting and market support: Where applicable, disclose underwriting arrangements and market-making mechanisms, including parties and terms.
• Handle auditor transitions with transparency: Disclose the last three years of auditor history with reasons for any changes.
• Clarify issue pricing and discovery: Specify whether the issue is via book building or fixed price, and explain the price discovery mechanism adopted.
• Use internal cross-references: Point to relevant chapters within the DRHP rather than duplicating disclosures.

History and Certain Corporate Matters

• Capture the complete legal evolution of the company: Disclose the date of incorporation, any conversions (LLP to company, private to public), and each name change with corresponding dates and commercial rationale. Mention all shifts in the registered office address, along with the date and business rationale for the move (e.g., proximity to operations, regulatory advantages).
• State main objects and all amendments to the MoA: Include the current main objects as per the MoA and tabulate all amendments with effective dates and brief descriptions of each change.
• Present milestones with year-wise chronology and business context: Outline key corporate developments (launches, partnerships, expansions, awards) with timelines and explain their relevance to the company's growth trajectory.
• Detail material acquisitions, mergers, and joint ventures with purpose: List all strategic transactions with names of parties, effective dates, and the business rationale (e.g., market entry, vertical integration, product diversification).
• Disclose group structure with functional and financial clarity: Include incorporation details, CIN, business activity, shareholding pattern, director/promoter details, and key financials of each subsidiary or joint venture.
• Include shareholder agreements and governance rights transparently: Disclose all investor entry points, capital infused, and rights granted under SHAs, especially those impacting governance, control, or decision-making.
• Make categorical declarations on covenants and legal exposures: Explicitly state the presence or absence of financial partners, shareholder covenants, injunctions, guarantees, strikes, or lockouts as on the DRHP date.
• Support awards and milestones with dated, verifiable evidence: Avoid unverifiable claims. Only include awards, accreditations, or recognitions that are clearly dated, certified, and relevant to the issuer's positioning.