Go Digit Hit with Penalty by IRDAI for Delay in Disclosing Conversion Ratio Change

Go Digit General Insurance, a company on the path to an initial public offering (IPO), has been penalized by the Insurance Regulatory and Development Authority of India (IRDAI) for an undue delay in filing crucial details. The penalty of Rs 1 crore stems from Go Digit’s failure to promptly submit information regarding a joint venture agreement that impacted the conversion ratio of compulsorily convertible preference shares (CCPS) issued by its parent company.

Show Cause Notice Issued in November

In November 2023, IRDAI issued a formal notice to Go Digit, raising concerns about the delay in filing the joint venture agreement details. This agreement, signed in 2017, pertained to the conversion ratio of CCPS issued by Go Digit Info Works Services Pvt. Ltd. (GDISPL), the parent company of Go Digit General Insurance, to FAL Corporation, a subsidiary of the Fairfax Group.

Conversion Ratio Discrepancy

The initial agreement established a conversion ratio of “1 CCPS for 2.324 equity shares.” However, Go Digit subsequently altered this ratio to “2.324 CCPS for 1 equity share,” effectively increasing the number of CCPS issued. The regulatory order, dated May 2nd, 2024, highlights that GDISPL issued a total of 78,00,000 CCPS to FAL Corporation, exceeding the originally agreed-upon amount of 63,00,000.

Go Digit Acknowledges Oversight

Go Digit, in its response to IRDAI, conceded that the “specific non-submission of the joint venture agreement to the authority was purely inadvertent and unintentional.”

Regulatory Scrutiny for Go Digit’s IPO Path

This penalty adds to the challenges Go Digit has faced during its IPO journey. Since filing its Draft Red Herring Prospectus (DRHP) in August 2022, the company has encountered regulatory hurdles. The Securities and Exchange Board of India (SEBI) initially withheld approval, requesting additional information and raising concerns about employee stock ownership plans. Go Digit was forced to resubmit its draft IPO papers in April 2023.

IRDAI’s Concerns and SEBI’s Approval

While SEBI granted IPO approval in March 2024, IRDAI continued to scrutinize Go Digit’s actions. In November 2023, the insurance regulator issued the aforementioned show cause notice and multiple advisories regarding the undisclosed conversion ratio change.

Go Digit Joins a String of Companies Facing Scrutiny

Go Digit is not alone in experiencing regulatory friction during the IPO process. Just last month, FirstCry was compelled to resubmit its draft IPO documents due to concerns raised by SEBI. Similarly, fintech firm MobiKwik and travel technology company TBO also had to revise their IPO plans and reduce their intended fundraising goals.