One Fact, Many Chapters: The Horizontal Diligence Problem In A DRHP

An offer document must present a true, adequate and coherent account of the issuer, not conflicting versions of the same facts across its chapters.

Consider an issuer whose ten largest customers contributed 42% of its revenue from operations in FY 2026. In Our Business Section, the figure describes customer concentration. In the Risk Factors Section, it may indicate dependence on major customers, while in Management's Discussion and Analysis (“MD&A”)Section, changes in concentration across periods may help explain movements in revenue. If customer concentration is disclosed as a key performance indicator (“KPI”), it may also appear in the Basis for Issue Price Section. Different sections of the DRHP, as indicated above, may use common information for different purposes, but underlying facts should remain consistent wherever they are disclosed, and if the context requires otherwise, the same must be made clear to the readers.

Now suppose the same FY 2026 customer-concentration figure appears in a DRHP as 42% in Our Business, 37% in Risk Factors and 39% in MD&A. All three cannot be correct unless the disclosure distinguishes by different reporting scope or basis of calculation or some other contextual reference. If each section should report the percentage of revenue from operations contributed by the issuer’s ten largest customers for the same financial year, the figures should be identical; they are not.

The discrepancy may have resulted from retaining an earlier working figure or from a subsequent revision not being reflected in all the sections where the figure should feature. The correct figure must therefore be established from the underlying records and reflected consistently across all three sections. Until then, the DRHP not only presents conflicting information about the issuer’s customer concentration, leaving investors confused about the actual position, but also kills confidence and may burden the IPO’s timeline with delays.

The disclosure obligation does not stop at the chapter boundary

Regulation 24(1) of the SEBI ICDR Regulations, 2018, requires the draft offer document and the offer document to contain all material disclosures that are true and adequate to enable an informed investment decision. Regulation 24(3) requires lead managers to exercise due diligence on all aspects of the issue, including the veracity and adequacy of disclosures. These requirements apply to the offer document as a whole and cannot be assessed by examining its individual sections in isolation.

SEBI's circular dated February 6, 2024, on the return and resubmission of draft offer documents expressly recognizes this concern. The circular identifies inconsistencies in numbers, data or facts across different sections of an offer document, or between the draft offer document and subsequent submissions made in response to clarifications, among the deficiencies that may warrant the return for resubmission of the draft offer document.

The manner in which a DRHP is prepared helps explain how these discrepancies can arise. Part A of Schedule VI to the ICDR Regulations sets out disclosure requirements under separate sections, covering Our Business, Risk Factors, Restated Financial Information, Management’s Discussion and Analysis, Basis for Issue Price and Outstanding Litigation and Material Developments and other matters. These sections draw on different records and are reviewed with inputs from the issuer, lead managers, auditors and legal counsel. As a result, a fact or figure may be verified against the records supporting one section without being compared with its disclosure elsewhere in the DRHP. Reviewing each section separately is necessary, but it does not, by itself, establish consistency across the offer document.

To move from individual section reviews to document-wide consistency, the review process must use two lenses: vertical diligence and horizontal diligence. Vertical diligence checks whether statements within a chapter have adequate support; Horizontal diligence traces recurring facts or disclosures across other sections and checks whether the disclosures and their underlying facts agree and, if they differ, whether the differences are warranted and explained. The two reviews complement one another. Vertical and horizontal diligence are not distinct statutory tests under the ICDR Regulations; rather, they are the essential diligence processes required to achieve overall consistency and compliance. 

Facts and their Cross-Sectional Convergence in a DRHP 

The same fact may appear in different sections of a DRHP, with each section addressing and/or disclosing a different aspect of it. The table below illustrates some facts, shows how they disclose different aspects across different DRHP sections, and explains what each disclosure says.

Building on the convergence of these various sections, the customer-concentration illustration demonstrates a numerical drift, i.e., a variance in the presentation of the same underlying fact across different disclosures. Such drifts highlight the necessity of horizontal diligence to ensure internal consistency throughout the DRHP. These variances may take forms other than numerical drift and reveal deeper structural misalignments. Such internal inconsistencies typically emerge in the following forms: 

1. Definitional drift: Where an order book includes letters of intent in one section but only confirmed orders in another, without explaining the difference.
2. Scope drift: Where capacity figures relate to a particular plant in one section but to the issuer's overall operations in another, without clearly identifying their respective scope.
3. Temporal drift: Where the status of a regulatory proceeding is disclosed by reference to different dates without explaining the intervening developments.
4. Narrative drift: Where a contract is described as a continuing source of revenue in one section despite its termination being disclosed elsewhere.
5. And lastly, numerical drift.

These forms of drift are not necessarily independent. A difference in one aspect of disclosure may give rise to inconsistencies in others. For instance, including letters of intent in the order book in one section but excluding them elsewhere may produce different order-book values (numerical drift) and, in turn, affect how the issuer's future revenue visibility is described (narrative drift). Much like a puzzle, a discrepancy in one piece can affect the overall picture presented by the others. The concern is therefore not limited to identifying individual differences but extends to understanding their effect on related disclosures.

A separate problem arises when verified information changes during the transaction. A major order may be cancelled, an approval received or a litigation matter resolved after the relevant chapter has been drafted. If the change is made only in that chapter, other disclosures may continue to reflect an outdated position.

When does a difference become a disclosure inconsistency?

Different figures or descriptions are not necessarily wrong. They may relate to different dates, entities, business segments or methods of calculation, or they may be used for different disclosure purposes. The question is whether each statement remains accurate in context and whether the investor can understand the reason for the difference.

SEBI, Adjudication Order in the matter of Gretex Corporate Services Limited, Adjudication Order No. Order/AK/GN/2025-26/31964, dated January 13, 2026, observed that in the SME IPO of Owais Metal and Mineral Processing Limited, the RHP incorrectly described the issuer's CFO as a director at one place, although she was correctly identified as CFO in the financial statements, KMP disclosures and organization structure. The registered office was similarly misstated at one place but correctly disclosed in key sections of the RHP. SEBI accepted both instances as typographical errors. In the same order, however, SEBI took a different view of substantive diligence gaps: the issuer's top ten customers accounted for approximately 95.99% of its revenue from operations, but the lead manager was unable to demonstrate adequate verification of the list of key customers. The order therefore distinguishes isolated drafting errors from substantive information for which the diligence process must demonstrate adequate verification.

From chapter review to document-wide reconciliation

For each, the transaction team should be able to identify the supporting record, the relevant date, the definition or calculation used and the sections that depend on it. This may be maintained through a disclosure matrix, cross-reference schedule, an issue tracker or another mapping method suited to the transaction and teams. The aim is a verified and reconciled factual basis, not identical wording where legal, accounting or commercial disclosures properly serve different purposes.

When that information changes, the team should revisit every dependent disclosure and make the necessary updates, or record why no amendment is required. Before filing, it should also compare the recurring disclosures themselves, rather than confining its review to the supporting records for each chapter. That is the additional work involved in document-wide reconciliation.

Assessing the differences identified

Once recurring facts and disclosures have been compared, the next step is to determine whether the differences identified are legitimate, require further explanation or call for correction. The review should, therefore, be guided by the following diagnostic framework: 

1. Where different figures are disclosed for the same fact and reporting period, which figure is supported by the verified records, and what explains the discrepancy?
2. Are the terms used and the items included or excluded consistent across disclosures? If different definitions are intended, is the distinction clearly identified and explained?
3. Do the disclosures cover the same entity, business segment, plant, geographical area or transaction? Where does their scope differ, is that difference apparent to the reader?
4. Do the disclosures relate to the same reporting period or cut-off date? Have subsequent developments been reflected in every section affected by the change?
5. Do the descriptions of the same fact accurately reflect its significance in the context of each section? Has any material qualification been omitted, or does one disclosure present a position inconsistent with another?

The review should also consider whether a difference in one area affects other figures, financial disclosures, risk assessments or descriptions of the business, and whether those differences, individually or collectively, could materially affect an investor's understanding. The above questions are illustrative, not exhaustive. The objective is to distinguish legitimate differences in disclosure from inconsistencies and errors that require further verification, explanation or correction.

The reconciliation exercise continues after DRHP filing. Where SEBI specifies changes or issues observations, Regulation 25(5) of the ICDR Regulations requires the issuer and lead managers to reflect them in an updated draft offer document and highlight the changes made. The consistency check must then carry through to the red herring prospectus (“RHP”) and subsequent prospectus. Section 32(3) of the Companies Act, 2013 gives the RHP the same obligations as a prospectus and requires variations between the RHP and prospectus to be highlighted in the prospectus. Sections 34 and 35 separately address criminal and civil liability arising from misleading statements, inclusions or omissions in a prospectus, subject to their respective statutory requirements and defenses. These provisions are not engaged merely because two passages use different figures. The concern is an unexplained material discrepancy that renders a disclosure in the RHP or prospectus misleading in its context.

Filing readiness must be tested across the document

An inconsistency that remains unresolved in an offer document can have consequences. For investors, an inaccurate or incomplete disclosure may distort their understanding of the issuer's business, risks and valuation, potentially leading to investment decisions based on misleading information and consequent financial loss to investors. For issuers and BRLMs, material discrepancies may invite further SEBI queries and revisions to the offer document. Where the deficiencies warrant return and resubmission, they may also disrupt the IPO timeline and increase the time and resources required to complete the transaction. Further, where such discrepancies amount to misleading disclosures or reflect inadequate due diligence, regulatory or statutory consequences may arise, subject to the applicable legal requirements.

At the 14th AIBI Annual Convention on January 15, 2026, SEBI Chairman Shri Tuhin Kanta Pandey described merchant bankers as the "first line of disclosure integrity" and observed that recurring disclosure gaps impair investor understanding and may delay the IPO process by necessitating repeated regulatory clarifications and revisions. His remarks reinforce the responsibility of issuers, BRLMs and IPO advisers to ensure that material disclosures are not only true, adequate and properly verified individually, but also accurate and reconcilable when read together. Filing readiness should therefore be assessed against the offer document as a whole, with material differences identified, explained or corrected before filing. An investor should be able to understand the issuer's actual position from the offer document, without having to determine which of its conflicting disclosures is correct.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.