A falling market should cool the appetite for new listings. In India this year, it has done the exact opposite. The Nifty 50 has lost more than 13% since January, yet Indian IPOs raised about USD 9 billion between July and September 2026, the highest ever for that quarter according to Bloomberg data. About 144 companies already hold SEBI’s approval to list, and 73 more are waiting.
The explanation lies less in market mood than in the law. The most important legal fact about this boom is one most investors never check. In a large part of these IPOs, the company is not raising money at all. Its existing shareholders are selling.
Two Kinds of Money in One IPO
Every IPO can have two parts. In a fresh issue, the company creates new shares, and the money goes to the company to build a plant, repay a loan or grow its business. In an offer for sale, existing shareholders sell their own shares, and the money goes straight to them. The company gets nothing.
Two offers from last month show the difference. Moneyview’s red herring prospectus shows a fresh issue of Rs 750 crore and tells investors where that money will go, Rs 325 crore for lending and Rs 250 crore into its subsidiary, along with a schedule for deploying it. Alongside it, existing shareholders are selling about 10 crore shares. The National Stock Exchange’s red herring prospectus has no fresh issue at all. The entire Rs 22,562 crore went to 23 selling shareholders. The exchange did not receive a single rupee.
There is nothing illegal in this. Long-term investors are entitled to exit, and both documents disclosed the position clearly. But the trend matters. PRIME Database figures show that between January 2025 and August 2026, about 61% of all IPO money, roughly Rs 1.45 lakh crore, went to selling shareholders rather than to the companies. When India celebrates record IPO numbers, it is often celebrating record exits.
Why Companies Are Not Waiting for the Market to Recover
Three reasons explain the rush. The first is time. Under Regulation 44 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, an issue must open within 12 months of SEBI’s observations. Once that window closes, the approval is lost. An approval letter is a ticking clock, not a standing invitation.
The second is anchor investors. Large institutions commit their money one working day before the issue opens to the public. In a weak market, a strong anchor book gives ordinary investors confidence.
The third is that the rules have been eased for very large companies. The Securities Contracts (Regulation) Amendment Rules, 2026, notified on 13 March 2026, allow a company valued at more than Rs 5 lakh crore at the offer price to offer as little as 2.5% of its shares to the public, subject to a minimum offer of Rs 15,000 crore. A small float at a high valuation suits sellers in any market, and giant listings such as Jio Platforms are already lined up.
The Law Watches the Company’s Money, Not the Seller’s
Almost all our safeguards protect only the money that reaches the company. Regulation 41 of the ICDR Regulations requires a monitoring agency to check how IPO money is used, but only where the issue size, leaving out the offer for sale, is above Rs 100 crore. Regulation 7 limits general corporate purposes to 25% of the money raised by the company. Section 27 of the Companies Act, 2013 stops a company from changing the stated use of IPO money without a special resolution of its shareholders. None of this applies to money paid to sellers, because the company never receives it.
Each rule makes sense on its own. Together, they mean that when most of an IPO is a sale, most of the investor’s money is protected by disclosure and nothing more. The bigger the sale, the thinner the protection.
SEBI has already accepted this reasoning for smaller companies. In its board memorandum on the SME framework, SEBI recorded that “OFS proceeds are not forming capital for issuer”, and the rules now cap the offer for sale in an SME IPO at 20% of the issue size. For main board IPOs worth thousands of crores, there is no similar limit.
What the Courts and SEBI Have Said
The Supreme Court has been firm that money taken from investors must be used for the purpose disclosed to them. In SEBI v. Terrascope Ventures Ltd. (2026 INSC 245), decided on 17 March 2026, the Court restored penalties on a company that had diverted about Rs 15.37 crore of the Rs 15.87 crore it raised through a preferential allotment into other companies’ shares and loans. The company argued that its shareholders had later approved this. The Court rejected the argument, holding that “Illegality cannot be ratified.” The case involved a preferential allotment, but the principle applies equally to an IPO.
In Nilesh Shah v. SEBI (2026 INSC 681), a mutual fund case decided on 13 July 2026, the Court called the plea that investors had gained “no defence at all”, warning that “excusing a breach which led to profit is likely to incentivize the next breach.” A strong listing day does not wash away a weak disclosure.
SEBI has also shown that it will act. In its order in the matter of Trafiksol ITS Technologies Ltd. dated 3 December 2024, SEBI found that Rs 17.70 crore, earmarked in a Rs 44.87 crore SME IPO for buying software, was to be paid to a vendor it held to be a shell entity. It directed the company to refund investors’ money within one week.
In each matter, the law reached money the company had raised. None of them tells us who answers for the money paid to sellers.
Who Is Responsible If the Prospectus Is Wrong?
The Companies Act does think about sellers. Section 28 treats the offer for sale document as a prospectus issued by the company. Section 35 makes every person who “has authorised the issue of the prospectus” liable to compensate investors who suffer loss because of a misleading statement. And selling shareholders must formally authorise the company to make the offer on their behalf.
Yet the cover page of almost every prospectus, including the NSE document, says that each seller takes responsibility only for statements about itself and the shares it is selling, and for nothing else. The reason is understandable, since a fund selling a minority stake cannot check a company’s accounts. But a clause drafted by sellers and their bankers should not be able to cut down a liability that Parliament has given to investors. No Indian court appears to have decided this point yet. That question is waiting for its first case, and the answer will matter to every seller in the market.
One limit must be stated. The law does not compensate an investor who simply paid too much. It protects against false or misleading statements.
What Every Investor Should Read Before Applying
Most investors look only at the price band and the grey market premium. Three things in the prospectus matter far more. First, the split between the fresh issue and the offer for sale. Second, the “Objects of the Offer” section, to see whether the company’s money has a clear and specific use. Third, the average price at which each selling shareholder bought its shares, which must be disclosed. In the NSE offer, the largest seller’s average cost was under Rs 1 a share, against an offer price of Rs 1,785. Every investor deserves to know whose gain they are paying for.
What Should Change
Offers for sale are not the problem. Without a clear exit, private investors would not fund Indian businesses at all. But protection should follow the money. Two simple changes would help. Where more than half of an IPO is an offer for sale, every seller holding 5% or more should take responsibility for the important statements about the business, with a defence if it honestly and reasonably believed them to be true. And the abridged prospectus, which SEBI has chosen to standardise precisely to help retail investors, should state in its first line how much of every Rs 100 goes to the company and how much goes to the sellers.
An IPO boom is truly tested only when the market turns. When that day comes, the investor’s complaint will not be about how the company spent the money. It will be that the company never got it. Indian law has done well in guarding the company’s money. The next reform must ask, just as firmly, who answers for the seller’s.
*Anand Kumar Maurya is the Founder and Principal Advocate of Maurya & Co., practising in the areas of Arbitration and Commercial Dispute Resolution, Banking and Finance, Insolvency, and Project and Infrastructure Law.
Note: The views expressed are personal. This article is my independent legal analysis of the regulations, judgments, orders and offer documents referred to in it, and of market data publicly reported in relation to them, undertaken for professional and academic understanding of Indian securities law. It is not intended as, and should not be relied upon as, legal or investment advice. It does not make any allegation against, or express any opinion on behalf of, the Securities and Exchange Board of India, the Supreme Court of India, or any company, selling shareholder or intermediary named in this article.