SEBI observations on a DRHP: what IPO approval means in India

A company that wants to list on the main board files a draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) through its merchant bankers. SEBI reviews the draft for disclosure and compliance and sends comments, called observations, that the company must address. Once satisfied, SEBI issues a final observation letter.

Newspapers call this an approval or a nod. Legally, the letter permits the company to file its red herring prospectus (RHP) and proceed to the issue. SEBI does not assess the worth of the shares, the soundness of the business or the fairness of the price. It checks whether the document gives investors the information the rules require.

The company files the DRHP, which is also put up for public comments for 21 days on the websites of SEBI, the stock exchanges and the lead managers. SEBI studies the draft and raises queries. The lead managers and the company reply, update the draft and may go through several rounds.

There is no single timetable. Reviews run for weeks to many months depending on the complexity of the company, the quality of the first draft and any pending regulatory matters. SEBI posts the status of each draft on its website, which shows when observations were issued.

• Company files the DRHP through its merchant bankers.
• Public comments are open for 21 days.
• SEBI sends queries and the company replies.
• SEBI issues the final observation letter.
• The company updates the document and files the RHP before the issue opens.

Under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the issue must generally open within 12 months of the date of SEBI's observations. If the company misses the window, it must file a fresh draft. As of November 2026, that is the usual rule for the standard route.

In April 2026 SEBI gave a one-time relaxation that extended letters expiring between 1 April and 30 September 2026 up to 30 September 2026. That window has closed, so it should not be relied on for any letter now. Check the current text and the date on the letter for any specific company.

SEBI's status pages sometimes show a draft as returned. This generally means SEBI sent the document back to the company, for example because the draft was incomplete or an issue needed to be resolved first. The company can fix the problem and file again, so the IPO is delayed, not necessarily cancelled.

A draft may also be shown as in abeyance when SEBI has put its processing on hold, often while a regulatory or legal matter is pending. Reports on such cases usually spell out the reason. SEBI's own status pages are the primary source, and headlines about stalled IPOs should be read against them.

Since the 2022 amendment to the ICDR Regulations, a main board company can file a pre-filing draft confidentially under Chapter IIA. The company announces only the fact that it has filed. SEBI gives observations on that confidential draft, and the company then files an updated draft, called the UDRHP-I, which is made public for 21 days of comments.

The route lets a company discuss the document with SEBI and with large institutions before its numbers are public. Sources describe a window of up to 18 months from the date of observations to open the issue, with the UDRHP-I due within 16 months. Because these details come from law firm summaries, check the current regulation before relying on them. Several well-known new-age companies have used the route.

Getting the letter does not oblige the company to list. Management can wait for a better market, for improved financials or for a higher valuation. The letter starts a clock, and the company then decides when to launch inside it.

For investors, this is why an IPO approval headline can be followed by months of silence. Launch depends on market conditions and on how the company's numbers are moving.

The DRHP is the draft shared for review and comments. The observation letter is SEBI's reply that lets the company move on. The red herring prospectus (RHP) is the near-final document filed with the Registrar of Companies, which carries the price band and the issue dates. After the issue, the final prospectus is filed with the actual price.

So an IPO news cycle has stages: the company files, SEBI's observations arrive, the RHP and the price band are announced, bidding opens and then shares list. Many headlines blur these, and the difference matters because only the last few stages happen within a few weeks. The gap between the first and the later stages can be a year or more.

A startup's DRHP also gets read for numbers. Revenue, losses, the use of proceeds and the share of fresh issue versus offer for sale appear in the draft, and they can change before the RHP. Treat the draft as provisional.

During the 21 days of public comments, anyone can read the draft on the websites of SEBI, the exchanges and the lead managers, and send comments through the channels listed there. Journalists, analysts and competitors read these drafts closely, which is why stories about a startup's losses, customers or related-party deals often appear right after a filing.

SEBI's queries to the company are not generally published in full, and the company's replies are filed through the lead managers. What the public sees is the updated draft and the final letter. If a company changes a number between the draft and the RHP, the RHP carries the corrected figure.

Finally, remember that observations are issued per draft. If a company files again after a return or after its validity lapses, it gets a new review, and the earlier timeline does not carry over. A headline that says an IPO has been approved twice usually describes two separate filings, so check the dates in each report.

Look for the date of the observation letter, the validity window and whether the company is on the standard or the confidential route. Check whether the story is about the DRHP being filed, the observations being received or the RHP being filed, since these are three different steps. This is general information, not legal or investment advice.