The regulator claimed that Go Digit had neglected to report a shift in the conversion ratio of mandatory convertible preference shares issued by its parent company, Go Digit Info Works Services (GDISPL), to FAL Corporation, which is owned by the Fairfax Group.
Go Digit General Insurance, an IPO-bound company, faces a penalty of Rs 1 crore from the Insurance Regulatory and Development Authority of India (IRDAI) for failing to disclose a change in the conversion ratio of compulsorily convertible preference shares (CCPS) issued by its parent company to Fairfax-owned FAL Corporation.
The company in question has already received a show-cause letter from the regulator.
Go Digit Info Works Services (GDISPL), the holding or parent company of Go Digit, awarded roughly 63,00,000 CCPS to FAL Corporation, which is controlled by the Fairfax Group.
The conversion ratio that was meant to be “1 CCPS for 2.324 equity shares” during the joint venture (JV) period in 2017 was altered to “2.324 CCPS for 1 equity share” by the company.
The regulator stated in the order date of May 2, 2024 that GDISPL issued a total of 78,00,000 CCPS rather than the anticipated 63,00,000.
Although Go Digit duly demonstrated this (the change in conversion ratio) in an amendment to the JV agreement dated August 11, 2023, and also disclosed it in the DHRP filing, the regulator claimed that the company had violated Section 26 of the Insurance Act by failing to provide them with all of the revision’s details.
It is important to remember that these numbers were accidentally switched. The JV agreement did not appropriately reflect the agreed-upon commercial position regarding the CCPS conversion ratio due to this unintended error, the order stated.
Additionally, Go Digit was given until November 10, 2023, to respond to a Show Case Notice (SCN).
Go Digit acknowledged to the regulator that, when the JV Agreement was amended in August 2022, before the DRHP was filed, it had neglected to submit a copy of the revision with the appropriate authority.
“We further submit that, the specific non-submission of the JVA Amendment to the Authority was purely inadvertent and unintentional,” it continued.
Additionally, Go Digit had asked for a personal hearing (planned for 21.1 1.2023), but that motion was eventually withdrawn. Based on its earlier response, the business asked IRDAI to decide the case.
The regulator noted that the JV Amendment details have been filed with an unusually long delay. Furthermore, the aforementioned modifications (total number of CCPS issued and conversion ratio) are significant since they will alter GDISPL’s shareholding after the CCPS are converted into equity shares.
Fairfax Financial Holdings, a Canadian company, owns 45.3% of GDISPL, including FAL Corporation. The remaining shares are held by Oben Ventures LLP and Kamesh Goyal, the company’s creator, at 14.96% and 39.79%, respectively.
Additionally, GDISPL owns an 83.47% share in Digit Insurance.
“It is found that the insurer has not complied with section 26 of the Act given the facts and circumstances. Consequently, a penalty of Rs. l crore is levied on the insurer in exercise of the IRDAI’s powers under section 102 of the Act,” the notice states.
Go Digit, whose IPO was initially scheduled for 2022, was given the all-clear in March to proceed, following a string of postponements due to various compliance concerns. The company hopes to start the IPO in the upcoming days or weeks.
The modern insurance firm hopes to collect Rs 1,500 crore through its initial public offering (IPO), which will involve the sale of 1,250 new shares and an offer-for-sale (OFS) of up to 10.94 crore equity shares, for a total value of up to Rs 250 crore, from the company’s promoters and current shareholders.
The company’s stockholders include renowned Indian cricketer Virat Kohli and his actress wife, Anushka Sharma, according to the DRHP.
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