Disclosure and due diligence obligations in India are evolving, say Varoon Chandra and Lionel D’Almeida
The Securities and Exchange Board of India (SEBI) is the primary regulator of equity and debt offerings by Indian companies. As is the case with other jurisdictions, the prescribed disclosures with respect to such capital issuances are intended to ensure adequate and timely disclosure, so as to enable investors to make balanced and informed investment decisions.
Typically, securities regulators approach this role in one of two ways. Some regulators prescribe a broad set of disclosure guidelines and leave the onus of compliance on the issuer and other intermediaries (primarily the investment banks). This is subject to the overarching requirement that all material information that would impact an investor’s investment decision requires disclosure. The second approach is to have more prescriptive regulations, which outline specific disclosure requirements with limited discretion vis-à-vis disclosures available to the issuer and intermediaries.
SEBI has historically adopted a combination of the above approaches. However, with respect to prescribed detailed disclosure requirements, latent ambiguities in the regulations have resulted in issuers and investment banks needing to exercise a degree of discretion. Further, certain disclosure requirements prescribed in offer documents may not necessarily have a bearing on the capital issuance at hand or the issuer company. For instance, tracing the share capital build-up from the inception of an issuer, as required to be disclosed under the ICDR Regulations, is a task that is time consuming, and at times infructuous (for companies in existence for significant periods of time) due to unavailability of records. In the absence of any adverse due diligence findings (which would in any case have been required to be disclosed if they were material), such disclosures serve little purpose for an investor.
Varoon Chandra and Lionel D’Almeida are partners in the capital markets practice at AZB & Partners in Mumbai.