This is Part-V of the Capital Markets articles series.
An Initial Public Offering (“IPO”) is often perceived as a financial milestone, a company’s transition from private ownership to public participation. In reality, however, a successful IPO is not merely a capital raising exercise. It is a highly coordinated legal, regulatory, financial and governance transformation.
Behind every successful listing is an ecosystem of professionals working together under intense timelines and regulatory scrutiny. Promoters, merchant bankers, legal counsel and auditors each play a distinct role, but the IPO process succeeds only when these stakeholders operate in alignment. A breakdown in communication, diligence or execution by even one participant can delay the offering, trigger regulatory observations, damage investor confidence or, in extreme cases, derail the transaction entirely.
In the Indian capital markets landscape, where the Securities and Exchange Board of India (“SEBI”) has significantly tightened disclosure and governance standards through successive updates, including the SEBI (ICDR) Amendment Regulations, 2025 and 2026, collaboration between these stakeholders has become more important than ever.
The Promoters: Setting the Foundation
Every IPO begins with the promoters. Long before draft offer documents are prepared, the company’s historical decisions, governance culture and compliance practices come under scrutiny.
The transition from a closely held private company to a publicly scrutinised listed entity requires promoters to shift their mindset from operational control to institutional governance. Decisions that may previously have been taken informally now require documentation, board approvals, policy frameworks and regulatory compliance.
This transition becomes particularly critical because SEBI’s disclosure framework under the ICDR Regulations is based on the principle of informed investor decision-making. Material risks, disputes and governance concerns cannot simply be ignored or commercially managed; they must often be disclosed transparently in the Draft Red Herring Prospectus (“DRHP”).
Several IPOs have witnessed enhanced regulatory scrutiny due to governance concerns linked to promoters. The IPO of Paytm[1], for instance, sparked extensive public and regulatory discussions around business sustainability, governance expectations and disclosure standards applicable to new-age technology companies. Similarly, governance-related disclosures and promoter-linked issues have increasingly become focal points during SEBI review processes.
Promoters therefore play a foundational role in determining whether the IPO process proceeds smoothly or becomes reactive and disclosure-heavy.
Merchant Bankers: The Transaction Architects
Merchant bankers occupy the central coordinating role in an IPO. As lead managers to the issue, they are responsible not only for managing the offering process but also for conducting extensive due diligence and ensuring regulatory compliance.
Under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”), merchant bankers are required to exercise independent due diligence before certifying disclosures made in the offer documents. This obligation is not merely procedural, SEBI has repeatedly emphasised that merchant bankers act as gatekeepers to the securities market. Schedule VI of the ICDR Regulations mandates extensive disclosures relating to promoters, group companies, outstanding litigation, material regulatory actions and related party transactions.
In practice, merchant bankers become transaction architects. They coordinate between lawyers, auditors, registrars, industry experts, internal management teams and regulators. They assess investor positioning, advise on issue structure, evaluate risk disclosures and determine the overall market strategy for the offering.
A strong merchant banker does far more than manage timelines. They identify regulatory concerns early, push for corrective action before filing and ensure that the company’s disclosures are consistent across legal, financial and operational aspects.
This role becomes especially critical during SEBI observations on the DRHP. Queries raised by SEBI frequently require coordinated responses involving legal analysis, financial clarification and business justification. Delays often arise not because of the complexity of the issue itself, but because stakeholders are not aligned on facts, disclosure thresholds or remedial action.
The importance of merchant banker accountability was highlighted in various SEBI enforcement actions over the years where due diligence failures and inadequate disclosures attracted regulatory scrutiny. SEBI has consistently reinforced that intermediaries involved in IPOs cannot function as passive participants.
The Trafiksol ITS Technologies IPO matter is significant example of how disclosure failures and inadequate diligence can disrupt the IPO process even at an advanced stage. In 2024, SEBI halted the proposed SME listing of Trafiksol ITS Technologies after complaints were raised regarding disclosures relating to the proposed utilisation of IPO proceeds, particularly the proposed purchase of software from a third-party vendor with questionable credentials. SEBI’s investigation subsequently examined allegations relating to misleading disclosures, concealment of material facts and possible diversion of funds disclosed in the prospectus. Eventually, SEBI directed refund of IPO funds to investors and cancellation of allotted shares. The matter highlighted the importance of robust due diligence by merchant bankers, verification of disclosures by legal and financial advisors and the need for accurate disclosure standards under the ICDR framework.[2]
Lawyers: Translating Risk into Disclosure
IPO lawyers are often viewed as disclosure specialists, but their role extends much further. Capital markets counsel effectively become legal risk managers for the transaction.
The legal due diligence exercise undertaken during an IPO is one of the most extensive reviews a company may ever face. Lawyers examine constitutional documents, property documents, material contracts, litigation records, regulatory licences, employment structures, intellectual property, financing arrangements, corporate actions and historical compliance records.
The objective is not simply to identify legal issues, but to determine whether those issues create disclosure obligations, regulatory impediments or investor risks.
One of the most sensitive aspects of IPO work is materiality assessment. Not every dispute or non-compliance automatically becomes a headline risk, but determining what is material requires commercial judgment, regulatory understanding and experience with SEBI’s evolving disclosure expectations.
Lawyers also play a central role in transaction structuring. IPO lawyers often function as the bridge between commercial expectations and regulatory realities. Founders may wish to minimise risk disclosures, while investors and regulators expect transparency. Counsel must therefore ensure that the offer document remains balanced, compliant and defensible.
Indian capital markets have witnessed multiple instances where litigation or governance concerns became central to IPO scrutiny. In some cases, companies have deferred or withdrawn IPO plans following regulatory observations, adverse market perception or unresolved compliance concerns identified during diligence.
The scrutiny surrounding the proposed IPO of WeWork India[3] also illustrates how disclosure standards and governance concerns can become central to the IPO process. The offering faced legal challenges before the Bombay High Court and subsequently the Supreme Court, where allegations were raised regarding the adequacy of disclosures relating to proceedings involving promoters in the offer documents. While the courts ultimately declined to interfere with the IPO process and recognised SEBI’s supervisory role in reviewing disclosures, the episode highlighted the increasing importance of comprehensive due diligence, transparent disclosure practices and effective coordination between promoters, merchant bankers and legal advisors during public offerings.
The Risk of Withdrawal:
If legal diligence fails to resolve compliance flaws or address material defects early, the consequences are severe. Issuers run the risk of having their DRHPs rejected or returned by SEBI under the SEBI (Framework for Rejection of Draft Offer Documents) guidelines, forcing companies to defer or entirely withdraw their listing plans due to adverse market perception.
Auditors: Financial Credibility and Regulatory Confidence
If lawyers validate legal integrity, auditors validate financial credibility.
Financial statements form the backbone of investor decision-making in any IPO. Auditors therefore carry significant responsibility in ensuring that the company’s financial disclosures accurately reflect its operational reality.
The role of auditors extends beyond preparing restated financial statements. They evaluate revenue recognition practices, internal financial controls, related party transactions, contingent liabilities, tax exposures and accounting policy consistency.
In recent years, SEBI and stock exchanges have increasingly focused on financial quality and disclosure reliability. Aggressive accounting practices, sudden revenue spikes, inadequate provisioning or inconsistent reporting standards can invite detailed scrutiny during IPO review processes.
The collapse of confidence following accounting irregularities in corporate scandals globally and in India has reinforced the importance of auditor independence and diligence. Stock Exchanges today closely examine not only financial performance but also the credibility of financial reporting systems.
Auditors also work closely with lawyers and merchant bankers during drafting sessions to ensure consistency between financial disclosures and business disclosures. A mismatch between operational claims and audited financial data can create significant regulatory concerns.
This collaborative dynamic becomes particularly important in sectors such as technology, fintech, infrastructure and pharmaceuticals, where accounting treatment and regulatory disclosures often intersect.
The IPO Process Is Ultimately a Coordination Exercise
A well-run IPO process involves continuous coordination between promoters, legal counsel, merchant bankers and auditors. Legal risks must align with financial disclosures. Governance restructuring must align with regulatory requirements. Commercial positioning must remain consistent with factual disclosures.
Lawyers may identify issues too late because business teams withheld information. Auditors may raise concerns that conflict with commercial narratives. Merchant bankers may face regulatory queries that require urgent remediation. Promoters may underestimate disclosure obligations until late-stage drafting. The result is often delayed filings, expanded risk factors, regulatory observations or weakened investor confidence.
Conclusion
An IPO is often celebrated as a company’s arrival in the public markets. In reality, it is also a stress test of the company’s governance, compliance culture and institutional maturity.
The legal architecture of a successful IPO is built not merely on documentation, but on collaboration. Promoters provide transparency, merchant bankers drive execution, lawyers manage legal and disclosure risk, and auditors ensure financial credibility. When these participants work together effectively, the IPO process becomes structured, efficient and credible.
As India’s capital markets continue to mature, successful IPOs will increasingly belong to companies that treat governance, diligence and transparency not as regulatory hurdles, but as strategic foundations for long-term public market credibility.
-Authored by Mallika Agrawal, Associate and Sanchith Shetty, Associate under the guidance of Riddhi Dutta, Senior Associate and Archana Balasubramanian, Partner.
[1] https://taxguru.in/sebi/analyzing-paytm-ipo-valuation-concerns-regulatory-gap-investor-trust.html
[2] https://groww.in/blog/sebi-halts-trafiksol-ipo
[3] https://www.angelone.in/news/ipos/supreme-court-dismisses-plea-against-wework-india-ipo
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