The Promoter Group challenge that often goes unnoticed

Every IPO begins with an exercise that sounds deceptively simple: identifying the promoter group. Under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (the “SEBI ICDR Regulations”), the definition of a promoter group is intentionally broad and far-reaching.

It captures not just the controlling shareholders and their immediate families, but extends to entities where promoters hold significant stakes. In practice, this often results in issuers identifying individuals or entities with whom the company has limited interaction and, in certain cases, no existing relationship at all.

This is where practical difficulties begin. The offer document whether a Draft Red Herring Prospectus (“DRHP”) for a main board IPO or an SME draft offer document filed with the relevant stock exchange requires detailed disclosures regarding every constituent of the promoter group. Where such individuals are untraceable, estranged, residing overseas without active communication, or otherwise non-responsive, issuers may face a genuine compliance challenge. The required disclosures cannot be assumed or reconstructed without supporting information, yet the filing process cannot proceed with material disclosure gaps.

“The inability to contact a promoter group member does not eliminate the disclosure obligation. However, it may constitute valid grounds for seeking regulatory exemption from SEBI”

REGULATORY RELIEF

Regulation 300: The Exemption Route

Regulation 300 of the SEBI ICDR Regulations provides issuers with the ability to seek exemptions or relaxations from strict compliance with specific disclosure requirements where SEBI is satisfied that:

• the requirement is procedural in nature; or
• any disclosure requirement is not relevant for a particular class of industry or issuer; or
• the non-compliance was caused due to factors beyond the control of the issuer.

In the context of promoter group disclosures, Regulation 300 becomes particularly relevant where issuers are genuinely unable to obtain documents or information such as:

• PAN details;
• KYC documentation;
• shareholding particulars;
• financial information; or
• other prescribed disclosures,

from a promoter group constituent who cannot be contacted despite reasonable efforts.

The authority empowered to grant such exemption is the Securities and Exchange Board of India (“SEBI”).

In practice, SEBI does not grant a complete waiver from promoter group disclosure requirements under Regulation 300. Instead, SEBI directs issuers to disclose all information available in the public domain or otherwise capable of independent verification. Accordingly, even where a promoter group constituent is non-contactable and the issuer is unable to obtain direct confirmations, KYC documents, or other information from such person, SEBI requires the issuer to make disclosures based on publicly available sources such as MCA records, shareholding disclosures, statutory filings, stock exchange disclosures, and other accessible databases. The regulatory position reflected across exemption orders is therefore not one of absolute dispensation from disclosure, but of permitting issuers to proceed with disclosures limited to information reasonably available despite genuine efforts undertaken to obtain complete particulars from the relevant promoter group constituent.

KEY PRINCIPLE

An exemption under Regulation 300 is not automatic. The issuer must submit a formal application supported by documentary evidence demonstrating genuine and reasonable efforts to obtain the required information. SEBI generally directs issuers to disclose all information available in the public domain, while granting relief only for information that remains unavailable despite genuine efforts undertaken by the issuer.

TIME & PLANNING

The 2–4 Month Reality of Getting an Exemption Order

Based on practical experience with Regulation 300 applications, the period between filing the exemption application and receiving SEBI’s final order generally ranges between two and four months. This timeline accounts for SEBI’s review of the application, any clarifications or additional documentation sought by the regulator, and the issuance of the final order.

For SME IPO issuers, where transaction timelines are often commercially sensitive and funding requirements may be urgent, an additional two-to-four month regulatory process can materially impact the proposed listing schedule.

Where the issue is identified only at the stage of DRHP preparation, the delay becomes almost unavoidable. Accordingly, identifying non-contactable promoter group members at the outset of the IPO process is not merely a procedural best practice it is a critical transaction management requirement.

PLANNING NOTE FOR SME IPOS

Given the sequential nature of the exemption process and the average regulatory timeline involved, the Regulation 300 exercise should ideally commence at least five to six months prior to the proposed DRHP filing date to avoid disruption to the overall transaction schedule.

Recent Cases

Earkart Limited

• Exemption Application Filed – January 2, 2025
• SEBI response Issued – March 21, 2025

Kheria Autocomp Limited

• Exemption Application Filed – May 19, 2025
• SEBI response Issued – July 11, 2025

In both the above mentioned cases the exemption was ultimately not granted and the issuer company was directed to make disclosure based on publicly available document/information, the review cycle itself took approximately 2-3 months.

STEP-BY-STEP PROCESS*

The Exemption Process: From Identification to SEBI Order

The process for obtaining a Regulation 300 exemption in respect of a promoter group constituent is sequential and evidence-driven. Each step must be documented carefully, as the communications and their outcomes form the evidentiary backbone of the application submitted to SEBI.

1. Identification of promoter group constituents

Map the full promoter group as per the ICDR definition. This includes immediate relatives of promoters, entities where promoters hold 20% or more, and other connected persons. Flag at the outset any individual or entity for whom the issuer does not have current contact details, valid address, or an established communication channel. This exercise should happen at the very start of IPO preparation, not at the DRHP drafting stage.

2. Initial outreach to the individual or entity

Issue a formal written communication preferably by post, email or courier to the last known address and contact details of the promoter group constituent. The communication should clearly state the purpose (IPO process), the specific documents and information required, and a reasonable deadline for response. This constitutes the first and primary attempt to obtain information.

3. First reminder after 7 days of non-response

If no response is received within seven days of the initial outreach, issue the first reminder communication. The content mirrors the initial letter but notes that a previous communication was sent and remains unanswered. The tone should remain formal and non-coercive. All delivery proofs postal receipts, courier acknowledgements, email delivery reports must be preserved as evidence.

4. Second reminder after a further 7 days

If the first reminder also elicits no response, a second and final reminder is issued after another seven days. This letter should reference both the original communication and the first reminder, note their lack of response, and indicate that the issuer will be compelled to proceed under applicable regulatory provisions in the absence of a reply. Post this communication, the evidentiary record of three documented attempts over a minimum of fifteen days is complete.

5. Filing the Regulation 300 application with SEBI

Upon non-response to both reminders, the exemption application is prepared and filed with SEBI. The application must be accompanied by all communications the initial outreach letter, both reminders, and evidence of their dispatch and attempted delivery. The application sets out the identity of the non-contactable promoter group member, the disclosures that cannot be made, the genuine efforts undertaken, and the prayer for exemption. The comprehensiveness and credibility of this documentation directly influences SEBI’s assessment of the application.

6. Await SEBI order (2–4 months)

SEBI reviews the application, may seek additional information or clarifications, and issues the order.

* The process mentioned here is based on current market practices.

Conclusion

The Regulation 300 exemption mechanism exists precisely because the law acknowledges practical impossibility. Not every promoter group member will be traceable, cooperative, or even aware of their classification.

This is not a paperwork task to tick off during DRHP drafting. It is one of the first things that should happen. The earlier you identify a non-contactable promoter group member, the earlier you can start the outreach process and file the exemption application, if required, rather than delaying your listing at the end.