Explain the procedure of Due Diligence as expected to be carried by a Merchant Banker for an IPO.

The SEBI Regulations requires a Merchant Banker, amongst other things, to exercise due diligence, ensure proper care and exercise independent professional judgment. The SEBI Regulations requires Merchant Banker to maintain records and documents pertaining to due diligence exercised in pre-issue and post-issue matters. Furthermore, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 require due diligence certificate to be issued by the Merchant Banker. A Merchant Banker for an IPO is expected to: carry out the procedures to demonstrate that it had no reasonable ground to believe and did not believe that there were material misstatements or omissions in the Offer Documents which could have had an impact on an investment decision; have detailed discussions with the management and key customers, suppliers (where practicable) and the Issuer's auditors with respect to the business and associated risks and financial reporting statements; identify procedures such that disclosures in the Offer Document that are material to an investment decision are backed by appropriate documentation, such as corporate and secretarial records or certificates of the Issuer or third parties and independent third party reports; and inform the Issuer that it may be required to provide documents that have been reviewed for an Issue, post completion of the Issue in instances of receipt of clarifications or questions from the SEBI or other regulatory agencies or other persons. It must be clearly understood that due diligence is the backbone of any primary market offering. The risk that the Merchant Banker runs for any lapse in conducting due diligence is not restricted only to any regulatory action but extends to reputational risk with the investors & Issuers. Though Merchant Bankers are supposed to carry out diligence and comply with all the requirements of applicable regulations, the Company and the Management is responsible for the contents of offer document and have to declare and certify that all the information in the offer document is true and fair. Offer document being a legal document defined under the Companies Act as well as applicable regulations, responsibility of the management is final. Companies need to prepare and be ready for the process of the diligence.