The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a penalty of Rs 1 crore on IPO-bound Go Digit General Insurance for non-disclosure of a change in the conversion ratio of compulsorily convertible preference shares (CCPS) issued by its parent company to Fairfax-owned FAL Corporation.
The regulator has previously issued a show cause notice to the firm in the matter.
About 63,00,000 CCPS were issued by Go Digit's holding or parent company—Go Digit Info Works Services (GDISPL)— to Fairfax Group-owned FAL Corporation.
During the time of joint venture (JV) back in 2017, the correct and agreed upon conversion ratio was "1 CCPS for 2.324 equity shares", which was changed by the company to "2.324 CCPS for 1 equity share".
Instead of 63,00,000 CCPS, total 78,00,000 were issued by GDISPL, the regulator noted in the order date May 2, 2024.
While this (change in conversion ratio) was duly shown by Go Digit in an amendment to the JV agreement dated August 11, 2023, and also disclosed in the DHRP filing, the regulator said that the company did not furnish the full particulars of the revision to them, violating Section 26 of the Insurance Act.
"It is pertinent to note that these numbers were interchanged purely owing to inadvertence. As a result of this inadvertent error, the agreed commercial position regarding the CCPS conversion ratio was not accurately reflected in the JV agreement," it said in the order.
Go Digit was also issued a Show Case Notice (SCN) dated on November 10, 2023, to submit a response.
In response to the regulator, Go Digit admitted that it did not separately file a copy of the JVA Amendment with the authority when the amendment (to the JV Agreement) was carried out in August 2022, prior to filing of the DRHP.
"We further submit that, the specific non-submission of the JVA Amendment to the Authority was purely inadvertent and unintentional," it said.
Go Digit had further requested a personal hearing (scheduled 21.1 1.2023), the request for which was later withdrawn. The company requested IRDAI to adjudicate the matter on the basis of its previous response.
The regulator observed that there has been an inordinate delay in filing the particulars of JV Amendment. Further, the said changes (change in conversion ratio and total number of CCPS issued) are material since this will lead to change in shareholding of GDISPL, upon conversion of the said CCPS into equity shares.
FAL Corporation is owned by Canada-based Fairfax Financial Holdings, which owns 45.3% of GDISPL while the rest is owned by founder Kamesh Goyal and Oben Ventures LLP at 14.96% and 39.79%, respectively.
GDISPL further has an 83.47% stake in Digit Insurance.
"In view of the facts and circumstances, it is established that the insurer has failed to comply with section 26 of the Act. Accordingly, in exercise of powers vested with the IRDAI under section 102 of the Act, a penalty of Rs l crore is imposed on the insurer," the notice reads.
Originally planned in 2022, Go Digit had received a go-ahead in March to launch its IPO after series of delays over multiple compliance issues. The firm is eying to launch the IPO in the coming few weeks.
The new age insurance company may raise Rs 1,500 crore via its IPO which includes a fresh share sale of Rs 1,250 crore and an offer-for-sale (OFS) of up to 10.94 crore equity shares aggregating to up to Rs 250 crore by its promoters and existing shareholders of the company.
Ace Indian cricketer Virat Kohli and his actress wife Anushka Sharma are also among the shareholders of the company, as per the DRHP.
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