DRHP Drafting: The SEBI Observations That Delay Indian IPOs

Most IPO delays are not caused by the market. They are caused by the draft red herring prospectus. A promoter told the issue will open "in about four months" is working off the merchant banker's best case, which assumes SEBI asks few questions. The gap between filing the DRHP and opening the issue is decided largely by how many rounds of clarification SEBI needs before it issues observations. Companies that treat the DRHP as a drafting exercise for the lawyers lose a quarter or two. Companies that treat it as a disclosure audit of their own history usually do not.

SEBI issues observations, not approval

SEBI does not approve or reject a DRHP. Under Regulation 25 of the ICDR Regulations it issues observations, normally within 30 days. What matters is when that clock starts. It runs from the later of the date SEBI receives a satisfactory reply from the lead merchant banker to any clarification sought, the date any other regulator or agency responds, or the date the in-principle approval from the stock exchanges is received. Every incomplete answer resets it. Two or three weak replies can push a listing past a results season.

Once issued, the observation letter is valid for twelve months. The issue must open within that window, or the document goes back for refiling.

Where the observations usually land

The recurring themes are predictable:

• Related-party transactions: loans to and from group entities, rent paid on promoter-owned property, current-account movements no one can explain.

• Group company disclosure, including dormant, struck-off or loss-making entities the promoter did not think worth mentioning.

• Risk factors written as reassurance rather than as risk. A soft risk factor reads to SEBI as a missing one.

• Objects of the issue: general corporate purposes pushed beyond the permitted proportion, or working capital estimates with no defensible computation behind them.

• Litigation and statutory dues, including tax and GST demands and matters involving directors and group companies.

• Title, approvals and licences for the properties and plants described in the document.

Almost none of this can be fixed during the review period. It is fixed in the two years before filing.

The financial information problem

The DRHP carries restated consolidated financial information for the last three financial years plus any stub period. Restatement is not a re-audit. It means recasting earlier years for changes in accounting policy, errors and prior-period items so that all periods are genuinely comparable. That exercise reliably surfaces what a statutory audit tolerated: inconsistent revenue cut-off, drift in capitalisation policy, provisioning that moved with the tax position rather than with the facts.

Financial information also has a shelf life. If the gap between the latest audited financials and the opening of the issue runs beyond the permitted window, you are into either fresh audited numbers or detailed disclosure of material changes. A timeline that slips by a few weeks can therefore cost an entire additional audit cycle.

What changed in March 2026

SEBI notified ICDR amendments on 16 March 2026 with two consequences worth planning around. Where lock-in on pre-issue non-promoter shares cannot technically be created, typically because those shares are pledged, depositories will mark them non-transferable for the equivalent period instead. Separately, a draft abridged prospectus and abridged prospectus regime with QR-code access has been introduced. That places more weight on how clearly risk factors, key performance indicators, objects of the issue and headline financial metrics are summarised, because that summary is what most retail investors will actually read.

Build the DRHP backwards

The document reports on decisions already taken. Work back from it: settle the group structure and unwind or document the related-party arrangements, close the historical audit issues, and only then begin drafting. Most companies need eighteen to twenty-four months of clean, comparable financial history before the DRHP is worth filing, with a board and audit committee that have been functioning long enough to leave a record.

How Seth & Associates helps

We advise companies in the Rs 100 crore to Rs 1,000 crore band on both mainboard and SME listings, working alongside the merchant banker and legal counsel. Our work is concentrated where SEBI observations usually originate: restatement of financials, related-party and group company clean-up, internal financial controls and the supporting disclosure record.

This article is for general information and does not constitute investment, legal or tax advice. Regulations change; please verify the current position or speak to a qualified adviser before acting.