Sebi warns investment banking firm JM Financial of lapses in due diligence

The Securities and Exchange Board of India (Sebi) has warned investment banking firm JM Financial for certain lapses in due diligence during the initial public offering (IPO) of Western Carrier (India).

The administrative warning, dated January 1, points out that the book-running lead managers (BRLMs) failed to exercise due diligence, as the shortfall in authorised share capital of the company came to notice only after the issue opened for subscription.

Further, the approvals for the incremental authorised share capital were taken during this period.

“The approval of the board and shareholders for an 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 the opening of the issue and not after it,” said Sebi in the letter.

The issue was noted when the BRLMs sent an email to Sebi requesting an update in the red herring prospectus (RHP) regarding the increased authorised share capital. The board of directors of Western Carrier had approved it in a meeting on September 15, 2024, while the IPO was already open for subscription from September 13. Further, the shareholders’ approval in the extraordinary general meeting (EGM) was taken on September 16.

“The above 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 a recurrence of such instances, failing which action may be initiated,” added Sebi.

The shares of JM Financial closed with a decline of over 2 per cent, settling at Rs 130.25 apiece.

The offer structure of Western Carrier before the issue opened consisted of a fresh issue component of up to Rs 400 crore and an offer for sale of up to 54 lakh equity shares.

Though the RHP was updated after the request, Sebi has asked the investment banker to take corrective steps.