IRDAI slaps show-cause notice, multiple advisories to IPO-bound Go Digit
As per the addendum, the notice was for alleged non-disclosure of change in the conversion ratio of the CCPS issued by the holding company—Go Digit Info Works Services (GDISPL)—to FAL Corporation, which is part of its parent entity Fairfax.
IPO-bound insurance aggregator Go Digit General Insurance has received a show cause notice from insurance regulator IRDAI (Insurance Regulatory and Development Authority) over certain issues along with multiple advisories.
As per the company’s addendum to its draft prospectus filed with market regulator SEBI, the show cause notice was for alleged non-disclosure of change in the conversion ratio of the compulsorily convertible preference shares (CCPS) issued by the holding company—Go Digit Info Works Services (GDISPL)—to FAL Corporation, in violation of the Insurance Act.
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.
Go Digit had replied to the notice on November 6, and the matter is currently pending.
“In case an adverse order is passed against our company and the officers of our company responsible for the non-compliance with Section 26 of the Insurance Act, the maximum penalty that may be levied on them is a fine of Rs 1 lakh for each day during which such failure continues, or Rs 1 crore, whichever is lower,” the addendum read.
Changes in place
Go Digit General Insurance had filed draft documents for its IPO in August last year to raise Rs 1,250 crore from a fresh issue of shares and an offer for the sale of 109.4 million equity shares.
In January, the IPO papers were returned by the SEBI, which requested that the company resubmit with specific modifications. The company refiled its IPO papers in April after making changes to its employee stock appreciation rights scheme.
In response to the resubmitted DRHP, the insurtech firm has received multiple advisories from IRDAI, starting with its failure to take IRDAI’s approval for the change in remuneration of the Chief Executive Officer (CEO) on account of change in ESAR 2018 (employee stock appreciation rights scheme) to ESOP 2018 (employee stock option plans), and failure to inform IRDAI of a retrospective grant of ESARs prior to the date of grant of certificate of registration.
Responding to this, Go Digit said there was no change in the economic benefit accruing out of the change, adding that it has instituted necessary internal controls to seek requisite approvals, in case of change in any component of the CEO’s remuneration.
Further, the IRDAI cautioned the firm to ensure due care and correct disclosures in the offer documents, of the position in relation to the commission on long-term policies, and that acquisition costs are expensed in the year in which they are incurred.
To this, Go Digit has submitted that it is in strict compliance, and in order to provide further clarity it will make some refinements in the accounting policy.
The IRDAI also advised the firm to discontinue the arrangement of markup for certain facility management and technology advisory services provided to the company by GDISPL.
Go Digit has requested the regulator to reconsider this advisory, and allow continuation of the agreements subject to conditions. “The company regularly conducts a benchmarking analysis to ensure that any mark-up charged is within the margins set out in the benchmarking report, issued by an independent external party,” it said.
“Further, in the event the IRDAI is not satisfied with our response, we may have to terminate the relevant agreements entered into with GDISPL for availing such services and to explore alternative arrangements with third parties for such services, which may not be available at commercially viable terms or at all, which may adversely affect our business and operations, and consequently our financial condition and result of operations,” it said.
The regulator cautioned the firm and strengthened its internal controls, commensurate with the size and operations of the company.
Edited by Affirunisa Kankudti