Introduction
After a muted phase between 2022–24, India is witnessing a sharp rebound in Initial Public Offerings (IPOs) and Special Purpose Acquisition Companies (SPACs). Key sectors such as renewable energy, semiconductor tech, electric vehicles, AI-driven SaaS, and infrastructure-enabling services are now attracting intense investor interest.
However, the regulatory landscape has also evolved. Companies seeking to list are now under greater scrutiny from SEBI, tax authorities, MCA, and investors alike. Compliance failures — even historical ones — are increasingly deal-breakers during IPO due diligence or DRHP vetting.
This article sets out a compliance-first roadmap to prepare Indian mid-market businesses for IPO success, with real examples and a legal checklist that is both comprehensive and practical.
Why IPOs Are Surging Again — And Why Compliance Now Matters More Than Ever
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India had 62 IPOs in Q1 2025, the highest globally by deal volume.
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Renewed market optimism, driven by strong GDP growth and retail investor participation.
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Lower interest rates and reduced global risk aversion have reopened capital markets.
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SEBI’s 2024 reforms mandate enhanced disclosures, promoter transparency, and ESG reporting.
Yet, many companies fail IPO scrutiny due to historical issues in taxation, related party transactions, FEMA non-compliance, ESOP errors, and promoter structuring — not just valuation or business model.
Real-World Examples of IPO Pitfalls
❌ Example 1: ESOP Missteps
A technology company lost investor interest mid-IPO due to incorrect ESOP valuations issued during early funding rounds, violating Rule 11UA and attracting Section 56(2)(viib) complications.
❌ Example 2: FEMA Non-Compliance
A D2C brand was denied DRHP clearance because of past foreign share subscription without proper RBI reporting, requiring compounding under FEMA. The delay led to investor exit.
Example 3: Clean-Up Before Listing
An infrastructure firm undertook a 2-year compliance audit across all past MCA filings, GST reconciliations, and tax positions before initiating the IPO — and successfully closed ₹800 crore funding at a premium valuation.
IPO Readiness: Comprehensive Compliance Checklist (India-Specific)
Below is the IPO Compliance Readiness Checklist prepared by Sandeep Ahuja & Co., specifically for Indian promoter-driven and mid-market companies (₹100–1000 crore turnover):
Corporate Legal & MCA Compliance
| Item | Requirement |
|---|---|
| ROC Filings | Ensure Form MGT-7, AOC-4, PAS-3, and other forms are duly filed and error-free for the last 5 years. |
| Directors | DIN KYC, Form DIR-3 updates, and DPT-3 (if applicable) filed. |
| Shareholding Pattern | All equity and preference shares legally issued and recorded in the Register. No benami or oral arrangements. |
| Related Party Transactions (RPT) | Disclosures under Section 188 of Companies Act fully documented, and approvals in place. |
| Internal Audit & Secretarial Audit | Mandatory for certain thresholds. Check if appointed as per law. |
Taxation Compliance
| Item | Requirement |
|---|---|
| Income Tax | Past assessments, 143(3)/147 orders, appeals, and notices disclosed. No contingent liabilities undisclosed. |
| TDS/TCS | Verify clean TDS reconciliation across Form 26AS, books, and GST. |
| GST | No mismatches in GSTR-1 vs 3B, cross-charging, e-invoicing errors. |
| MAT/AMT/Deferred Tax | Adjustments correctly reflected in financial statements and deferred tax calculations. |
FEMA & FDI Compliance
| Item | Requirement |
|---|---|
| Past FDI | Proper allotment within 60 days; FC-GPR filed; valuation certified by CA or merchant banker. |
| ECB or Foreign Loans | Reporting of Form ECB, annual return (ECB-2), and compliance with end-use restrictions. |
| ODI Investments | Outbound investments recorded and compliance under RBI ODI rules ensured. |
| Compounding Applications | Initiated where non-compliance was found to avoid IPO delays. |
Promoter & Group Structuring
| Item | Requirement |
|---|---|
| Holding Company Structure | Avoid multiple layering; clear beneficial ownership. |
| Family-owned Concerns | Clearly defined related party disclosures, arms-length contracts, and succession planning. |
| Real Estate/Assets | Clearly accounted for; no unregistered or cash-driven asset transactions in the past 6 years. |
ESOP & Share Allotments
| Item | Requirement |
|---|---|
| ESOP Trust | Properly registered, with accounting and TDS compliance. |
| Valuation Reports | Form 56(2)(viib) valuation and FMV justified using Rule 11UA guidelines. |
| Bonus/Buyback/Right Issues | Proper minutes, filings, and legal vetting of past transactions. |
Financials & DRHP Readiness
| Item | Requirement |
|---|---|
| Statutory Audit | 3-year audited financials in compliance with Ind-AS and SEBI guidelines. |
| Internal Controls | Evidence of strong internal controls over financial reporting. |
| Litigation | All past litigation (tax, commercial, labor, SEBI) disclosed. |
Conclusion
The IPO journey is no longer just about raising capital. It is a full-spectrum compliance test. SEBI, merchant bankers, legal counsel, and even investors now look deeper into tax positions, related-party controls, FEMA compliance, and ESOP histories.
