IPO-bound Go Digit gets Show Cause Notice and multiple Advisory from IRDAI

The Insurance Regulatory and Development Authority of India (IRDAI) has issued a show cause notice and multiple advisories to Bengaluru-based IPO Bound general insurer Go Digit, according to a new addendum to its draft prospectus filed with the Securities And Exchange Board of India (SEBI).

The show cause notice was issued for failing to disclose a change in the conversion ratio of the compulsorily convertible preference shares (CCPS) issued to FAL Corporation by Go Digit Info works Services (GDISPL), the parent company of Go Digit General Insurance.

“In terms of the Notice, the change in the conversion ratio of 6,300,000 CCPS issued by GDISPL to FAL Corporation, from ‘1 CCPS for 2.324 equity shares’ to ‘2.324 CCPS for each equity share’, which was reflected by way of an amendment to the JV Agreement dated August 11, 2022, is a material change to the information furnished at the time of applying for registration to the IRDAI,” the company’s regulatory filing with SEBI stated.

Fairfax Financial Holdings, based in Canada, owns 45.3% of FAL Corporation, while founder Kamesh Goyal and Oben Ventures LLP own 14.96% and 39.79%, respectively. GDISPL also owns 83.47% of Go Digit General Insurance.

The development comes as the company’s IPO is still awaiting final approval from the SEBI, despite Go Digit refiling its draught red herring prospectus (DRHP) to address the market regulator’s concerns.

According to the notice, Go Digit was supposed to inform the IRDAI with the facts of the alteration, but it did not disclose the “full particulars.” As a result, the IRDAI has additionally charged the company with violating Section 26 of the Insurance Act.

“In case an adverse order is issued against our company and the officers of our company liable for the non-compliance with Section 26 of the Insurance Act, the maximum penalty that may be levied on them is a fine of Rs 1 lakh for each day during which the violation continues, or Rs 1 crore, whichever is lower,” the note said.

In August of last year, Go Digit General Insurance filed the paperwork for its initial public offering (IPO) to collect Rs 1,250 crore through a fresh issue of shares and an offer to sell 109.4 million equity shares.

The SEBI returned the IPO paperwork in January. After making improvements to its employee equity appreciation rights scheme, the company refiled its IPO papers in April. The insurtech firm received various advisories from IRDAI in response to the resubmitted DRHP.

Failure to obtain approval for a change in the Chief Executive Officer’s remuneration due to a change in ESAR 2018 (employee stock appreciation rights scheme) to ESOP 2018 (employee stock option plans) and failure to notify IRDAI of retrospective grant of ESARs prior to the date of grant of certificate of registration are among the numerous advisories.

IRDAI has also advised the company to exercise caution in making disclosures in offer documents to reflect the correct position regarding the commission on long-term policies; discontinuation of the arrangement of mark-up charged by GDISPL for certain facility management services and technology services rendered to the company; and strengthening internal controls commensurate with the company’s size and operations.

Go Digit responded to the notice on November 6, and the case is still pending.

The company stated that there was no change in the economic advantage resulting from the modification, and that it has implemented sufficient internal controls to seek essential approvals in the event of any change in any component of the CEO’s salary.