India's capital markets boom has made IPOs larger, faster, and more complex — and investor scrutiny of prospectuses has never been more intense. Signatories of a public prospectus carry personal liability for every representation it contains. A single misrepresentation or omission can trigger investor class actions, SEBI enforcement, and personal liability for directors and officers that survives the transaction by years. POSI ring-fences this securities exposure in a single-premium, transaction-specific policy that protects the company, its directors, officers, underwriters, and selling shareholders for up to six years from the offering date.
Financial Liabilities Insurance · Capital Markets · Securities Liability · Prospectus Liability · IPO · FPO · QIP · Private Placement
Public Offering of Securities Insurance (POSI) — also known as IPO Insurance — is a transaction-specific, single-premium liability policy that protects the issuing company, its directors, officers and employees, underwriters, and selling shareholders against securities claims arising from a public or private offering of the company's securities. Unlike annual D&O policies that carry ongoing premium costs and aggregate across multiple policy years, POSI is placed once at the time of the offering, pays a single premium, and provides protection for a defined period of up to six years — precisely ring-fencing the prospectus liability window and protecting the company's existing D&O programme from being eroded by securities offering claims.
Core coverage for actual or alleged untrue, misleading, or incomplete statements in the offering prospectus — protecting the company and all signatories against investor claims arising from prospectus misrepresentations or omissions, whether in the main prospectus, supplementary documents, or road show materials.
PROSPECTUSCovers defence costs and settlements for each individual director, officer, and employee named in or connected to the offering — providing personal protection for IPO signatories who bear personal liability for prospectus contents under the Companies Act 2013 and SEBI regulations.
D&OCovers the underwriters (investment banks, merchant bankers acting as book-running lead managers — BRLMs) for their exposure from actual or alleged untrue or misleading statements in the prospectus — essential for the banks that conduct due diligence and sign the offering document.
UNDERWRITERCovers controlling shareholders and selling shareholders (promoters, PE/VC investors exiting through the IPO OFS component) for their liability arising from actual or alleged untrue or misleading prospectus representations — critical for PE-backed IPOs with significant Offer for Sale components.
SELLING SH.POSI is transaction-specific — placed once at the time of the offering — with a customisable policy period of up to six years, reflecting the long-tail nature of securities litigation where investor claims can arise years after the IPO date when post-IPO performance reveals alleged prospectus misrepresentations.
6 YEARSPOSI covers not only compensatory damages (investor losses from prospectus misrepresentation) but also punitive and exemplary damages where awarded by courts or tribunals — providing comprehensive financial protection for the full range of potential securities claim awards.
PUNITIVECoverage Scope — Prospectus Liability, Defence Costs, Underwriter & Shareholder Exposure
POSI provides comprehensive coverage for all the major financial exposures arising from a securities offering — from the immediate defence costs of responding to a regulatory inquiry through to multi-year securities litigation settlements.
The central coverage of POSI is protection against securities claims arising from the prospectus — the legal document filed with SEBI, the Registrar of Companies (RoC), and the stock exchanges that forms the basis of the public offering.
What constitutes a covered prospectus claim:
• Untrue statements: A statement in the prospectus that was materially incorrect at the time of the offering — whether about the company's financial condition, business prospects, risk factors, litigation, related-party transactions, or use of proceeds
• Misleading statements: Statements that were technically accurate but presented in a manner that created a false impression — including through selective disclosure, misleading context, or material omissions that made accurate statements misleading
• Omissions: Material information that was required to be disclosed in the prospectus but was not included — SEBI (ICDR) Regulations prescribe extensive mandatory disclosure requirements; any significant omission creates prospectus liability
• Road show and marketing materials: POSI can extend to cover liability arising from statements made in road show presentations, analyst briefings, and other marketing materials connected to the offering
• Negotiations and discussions: POSI can cover liabilities arising from negotiations, discussions, and decisions made in connection with the offering process — including pre-IPO investor briefings and anchor investor allocations
Types of investors who can bring claims:
• Retail investors who subscribed in the IPO based on the prospectus
• Institutional investors (FIIs, domestic mutual funds, insurance companies) who subscribed during book-building
• Anchor investors who subscribed based on the draft red herring prospectus (DRHP) or final prospectus
• Secondary market investors who purchased shares post-listing in reliance on prospectus representations (in some jurisdictions)
Securities claims are expensive to defend — even meritless claims generate substantial legal costs. POSI covers all reasonable defence costs from the point of claim:
What defence costs cover:
• Solicitors' and barristers' fees for defending SEBI enforcement proceedings, NCLT proceedings, stock exchange grievance proceedings, and civil court litigation
• Costs of responding to SEBI show-cause notices and summons
• Expert witness fees — financial economists, accounting experts, securities market experts
• Forensic accountant costs for reconstructing financial statements or analysing disclosures
• Costs of engaging independent directors and advisors in connection with the claim
• Travel and logistical costs of defending claims in multiple forums
• Costs of internal investigation to assess the merits of claims
Why defence costs coverage is critical even for meritless claims:
Most securities claims following an IPO are initially speculative — the claimant has bought shares that declined in value and alleges prospectus misrepresentation. Many such claims are ultimately unsuccessful. But defending them is expensive: a single SEBI enforcement proceeding can generate legal costs of ₹1–3 crore over 2–3 years; a full NCLT or High Court action defending a class of investors can cost ₹5–15 crore. POSI covers these defence costs from the moment the claim or investigation begins — protecting directors' personal assets from legal cost exposure even before the claim is resolved.
The investment banks (BRLMs — Book-Running Lead Managers) that manage an IPO carry significant prospectus liability as co-signatories of the offering documents:
Why BRLMs need POSI coverage:
• BRLMs conduct due diligence on the issuer and are responsible for the accuracy of prospectus disclosures. Any material misrepresentation that slipped through their due diligence creates potential liability
• BRLMs sign the prospectus alongside the issuer, making them joint signatories and co-responsible for prospectus content
• Investor claims may be directed against BRLMs as well as the issuer — particularly where investors allege that the BRLM's due diligence was inadequate
• SEBI enforcement action has increasingly focused on the quality of BRLM due diligence following high-profile IPO failures
POSI covers underwriter exposure arising from:
• Actual or alleged untrue or misleading statements in the prospectus that the underwriter was responsible for verifying
• Claims that the underwriter's due diligence was inadequate or negligent
• SEBI investigation and enforcement relating to the underwriter's role in the offering
• Third-party claims from investors who suffered losses in reliance on the prospectus that the underwriter helped prepare
Separate POSI for underwriters: While the issuer's POSI can extend to cover underwriter exposure, some BRLMs purchase their own separate POSI to ensure that their coverage is not shared with the issuer and is not subject to the same policy limits — particularly where the BRLM manages multiple IPOs in the same policy year.
One of the most important and often overlooked components of POSI is the coverage for selling shareholders — particularly critical in IPOs with large Offer for Sale (OFS) components:
Who are selling shareholders in an IPO?
• Promoter shareholders selling a portion of their holdings through the OFS component of the IPO
• Private equity and venture capital investors exiting their investment through the IPO — the typical exit mechanism for PE/VC-backed companies going public
• Strategic investors and pre-IPO shareholders monetising their holdings through the OFS
• Employee shareholders selling ESOP shares through the IPO
Why selling shareholders need POSI:
Selling shareholders who sign or are associated with the prospectus carry liability for its contents. If the prospectus contains misrepresentations and investors sue, selling shareholders face the same claims as the company's directors — and their personal assets are at risk. For a PE fund that has exited ₹500 crore through an IPO OFS and receives an investor claim for ₹100 crore 3 years later, the fund's managing partners face significant personal and fund-level liability. POSI's selling shareholder coverage provides specific protection for this exposure.
Post-exit liability — a critical risk: PE and VC investors who have fully exited after the IPO and have no further involvement with the company can still be named in investor claims arising from the prospectus — years after they have received their exit proceeds. POSI's up-to-6-year policy period specifically addresses this post-exit liability risk that many PE exits overlook.
IPO · FPO · QIP · Rights Issue · OFS · Private Placement — Which Offerings Need POSI
POSI is designed for any capital market transaction involving the publication of an offering document. The coverage scope extends across the full range of equity and debt capital market offerings.
| Offering Type | Description | POSI Applicability | Key Risk |
|---|---|---|---|
| Initial Public Offering (IPO) | First listing on NSE/BSE — fresh issue + OFS component. DRHP filed with SEBI; full prospectus filed at listing. | Primary use case for POSI | Highest risk — first-time public disclosure; extensive mandatory disclosures; widest investor base; longest tail risk |
| Follow-on Public Offer (FPO) | Additional equity issuance by an already-listed company through a fresh issue or OFS to public investors. | Strongly recommended | Incremental prospectus liability; existing shareholders may compare FPO disclosures with prior statements |
| Qualified Institutional Placement (QIP) | Placement of equity shares by a listed company exclusively to Qualified Institutional Buyers (QIBs) under SEBI (ICDR) Regulations, Chapter VI. | Recommended — often overlooked | Institutional investors have resources and sophistication to pursue claims; placement memorandum creates prospectus-like liability |
| Rights Issue | Offering of additional shares to existing shareholders in proportion to their current holdings, at a discount to market price. | Applicable | Rights issue letter of offer creates prospectus liability; existing shareholders are well-positioned to compare current vs prior disclosures |
| SME IPO / Emerge Platform | IPO of SME companies on NSE Emerge or BSE SME platforms under relaxed eligibility criteria and simplified disclosures. | Applicable — often underinsured | SME directors often unaware of personal prospectus liability; smaller issue size does not reduce director liability exposure |
| Private Placement / Pre-IPO | Placement of securities to a defined set of investors (typically institutional) on a private basis, accompanied by an information memorandum. | Applicable | Private placement memorandum creates liability for misrepresentations; sophisticated investors are better positioned to litigate |
| NCDs / Debt Offerings | Public or private issuance of Non-Convertible Debentures (NCDs) or bonds through a prospectus or information memorandum. | Applicable | NCD prospectus creates same liability as equity prospectus; debenture holders have fixed-income expectations and may litigate aggressively on default |
India's primary market has witnessed extraordinary activity: FY2024–25 saw over 90 mainboard IPOs raising approximately ₹1.6 lakh crore — including landmark listings like Hyundai India (₹27,870 crore), NTPC Green Energy (₹10,000 crore), and several other ₹5,000 crore+ transactions. The SME platform saw over 200 IPOs in the same period. Retail investor participation has reached 9+ crore demat accounts. Post-listing scrutiny of prospectus disclosures by SEBI, media, and investors has intensified markedly. Several high-profile IPOs from 2021–2023 that listed at a premium but subsequently declined sharply in price triggered investor complaints and media scrutiny of prospectus disclosures — exactly the environment where POSI claims emerge. The frequency and quantum of potential securities litigation in India's capital markets makes POSI no longer optional for significant offerings.
Who Is Covered Under a POSI Policy — Insured Parties & Their Specific Exposures
POSI is distinguished from standard D&O by its breadth of insured parties — covering not just the company and its board but every party who has signed or is associated with the prospectus and carries prospectus liability.
The company making the public offering is a primary insured under POSI. The company's liability arises from:
• Entity-level prospectus liability — the company is primarily responsible for the accuracy of its prospectus
• Regulatory enforcement — SEBI and NCLT proceedings against the company as issuer
• Investor class action — collective investor claims against the company for prospectus misrepresentation
• Indemnification obligations to directors — many companies contractually commit to indemnify their directors against securities claims; POSI covers this obligation at the company level
POSI vs D&O for the company:
Company-level securities claims may be covered under the company reimbursement section of a D&O policy, but standard D&O typically has limitations on securities claim coverage that POSI addresses specifically. For major offerings, companies prefer to have a dedicated POSI policy rather than rely on the D&O policy's potentially limited and contested securities coverage.
Every individual who signs or is formally associated with the prospectus carries personal prospectus liability:
Who is personally liable under Indian law:
Under Section 34, 35, and 36 of the Companies Act 2013 (civil liability for misstatements in prospectus) and SEBI (ICDR) Regulations:
• Managing Director / CEO: Signs the prospectus; carries primary management responsibility for its contents
• CFO / Finance Director: Responsible for financial disclosures in the prospectus; faces specific liability for financial misstatements
• All other Directors (including independent directors): Sign the prospectus; carry liability proportionate to their knowledge and role
• Company Secretary: Formally associated with the prospectus filing and corporate governance disclosures
• Other Senior Officers who are formally named or associated with the offering
Personal liability — why it is alarming for directors:
Section 35 of the Companies Act 2013 imposes civil liability for misstatements in the prospectus on every person who signed the prospectus — unless they can prove they had reasonable grounds to believe the statement was true. This reversal of the burden of proof means that a director who signed the prospectus must actively prove they were NOT negligent. Without POSI, each director faces personal liability — potentially exceeding their personal net worth — from investor class actions following an IPO where post-listing performance has disappointed.
The Book-Running Lead Managers (BRLMs) — the investment banks that structure and manage the IPO — face significant exposure as co-signatories and due diligence parties:
• BRLMs sign the prospectus alongside the company's directors
• BRLMs are required to conduct and certify due diligence on the issuer's disclosures
• SEBI has powers to take enforcement action against BRLMs for inadequate due diligence
• Investor claims can name BRLMs alongside the issuer — particularly where the BRLM's due diligence process is alleged to have been inadequate
SEBI's increasing scrutiny of BRLMs:
SEBI has in recent years issued show-cause notices and imposed penalties on BRLMs for failures in IPO due diligence — including failures to identify and disclose material litigation, related-party transactions, and financial misstatements. This regulatory enforcement trend has significantly increased the personal liability awareness of BRLM partners and senior bankers who lead IPO transactions. Many leading investment banks now require issuer POSI coverage for their own protection as a condition of accepting an IPO mandate.
Promoters, PE funds, VC investors, and other selling shareholders who participate in the OFS component face prospectus liability that persists long after their exit:
PE/VC fund managers' personal exposure:
Where a PE or VC fund is a selling shareholder in an IPO, the fund's general partners or managing partners who sign or are associated with the prospectus on behalf of the fund carry personal liability in addition to the fund entity's liability. Post-IPO investor claims can be directed personally against these individuals years after they have received their exit proceeds and moved on to new investments.
Lock-in expiry claims:
A common pattern of securities litigation follows lock-in expiry — when promoters or pre-IPO shareholders are released from their lock-in obligation and sell shares, a subsequent stock price decline may trigger investor claims alleging that the original prospectus overstated the company's prospects. These claims are directed at the original signatories of the prospectus, not the secondary market sellers.
POSI for PE/VC exits — a growing requirement:
Several large PE and VC funds active in India now require POSI as a standard requirement for IPO exits, protecting their limited partners and managing partners from the long-tail prospectus liability that could outlast the fund's investment period. This is particularly important for fund GPs who personally signed the prospectus on behalf of the fund.
Which Companies and Transactions Need POSI
POSI is relevant for any company making a public or private offering of its securities — but certain transactions create particularly acute prospectus liability exposures where POSI is virtually essential.
How POSI Claims Arise and Are Managed
POSI claims are complex, multi-year legal proceedings that require early notification and coordinated management across regulatory, civil, and company law forums. The insurer's specialist securities litigation team plays a central role in claim management.
A POSI claim can be triggered by any of the following events — notification to the insurer should occur at the earliest opportunity:
Common POSI claim triggers:
• SEBI show-cause notice or examination: SEBI initiates an examination of the IPO prospectus disclosures, typically following investor complaints or post-listing price decline
• Stock exchange investor grievance: A formal investor complaint filed with NSE or BSE regarding prospectus misrepresentation
• NCLT application: An investor or creditor files an application before the National Company Law Tribunal alleging prospectus misrepresentation or fraud
• Civil court claim: A civil suit filed in the High Court by one or more investors seeking damages for prospectus misrepresentation
• Criminal complaint: A police or SFIO complaint alleging fraudulent prospectus misrepresentation (Note: criminal fines and penalties may not be covered under POSI, but defence costs in criminal proceedings typically are)
• Media investigation: Significant media coverage of alleged prospectus inaccuracies that is likely to trigger regulatory or investor action
• Notice from a large institutional investor: A formal legal notice from an anchor investor or institutional investor claiming prospectus misrepresentation
Timing of notification: Notify Probitas (022 4302 0000) at the earliest sign of any of the above — even before a formal claim is filed. Early notification preserves coverage and activates the insurer's specialist securities litigation team.
The insurer appoints specialist securities litigation counsel to assess and manage the claim:
Initial assessment:
• Review the prospectus in detail to identify the specific representations that are the subject of the claim
• Assess the merits of the claim — whether the challenged disclosure was materially inaccurate or misleading
• Identify all insured parties who are named or likely to be named in the claim
• Review the applicable SEBI regulations and Companies Act provisions
• Assess the likely quantum of the claim (investor losses, legal costs)
Legal defence strategy:
• Engage specialist securities litigation counsel (typically from firms with capital markets and SEBI regulatory expertise)
• Prepare the factual and legal basis for defending the specific allegations
• Manage all insured parties' defences in a coordinated manner (recognising that different insured parties — the company, individual directors, BRLMs — may have different interests that need to be carefully managed)
• Engage with SEBI, stock exchanges, NCLT, or courts as required
• Consider and advise on settlement where appropriate
Documentation required:
• Copy of the prospectus and all supplementary/marketing materials
• Copies of all claim notices, SEBI correspondence, court filings
• Evidence of pre-IPO due diligence materials
• Board minutes and management records relevant to prospectus preparation
• Post-IPO financial performance data
POSI claims are typically resolved through one of three outcomes:
1. Successful defence: The claim is dismissed or SEBI/NCLT proceedings are closed without adverse findings. POSI covers all legal defence costs incurred in achieving this outcome.
2. Negotiated settlement: The parties agree to a commercial settlement of the investor claim — typically at a discount to the theoretical maximum investor loss. POSI covers the settlement amount (subject to policy limit) and all legal costs of negotiating and documenting the settlement.
3. Adverse judgment or award: Where a court, NCLT, or regulatory authority makes an adverse finding and orders compensation to investors, POSI covers the compensation amount and any associated legal costs (subject to the policy limit).
The long timeline of POSI claims:
POSI claims are not resolved quickly. SEBI enforcement proceedings can take 2–4 years. NCLT proceedings can extend to 3–7 years. Civil court proceedings can take even longer. The up-to-6-year POSI policy period reflects this reality — the policy must remain in force for the full litigation duration. Where claims arise late in the policy period, the insurer should be notified promptly to preserve coverage.
Probitas manages the claim notification, documentation, and insurer liaison throughout the POSI claim lifecycle. Contact 022 4302 0000.
Key Exclusions Under POSI
POSI exclusions are focused on specific conduct categories and pre-existing circumstances. Understanding them ensures that the insured understands the boundaries of coverage at the time of placing the policy.
Claims or circumstances that were known before the policy was placed are excluded. Any existing investor complaints, SEBI investigations, or litigation relating to the company or its directors that pre-date the POSI policy must be disclosed at underwriting. Failure to disclose known circumstances is material non-disclosure that can void coverage.
Physical injury to persons or damage to property is excluded from POSI (as with all financial lines policies). POSI covers financial and reputational losses arising from securities claims — not physical harm. Physical injury or property damage claims require general liability or other appropriate coverage.
Deliberate fraud, intentional misrepresentation, or dishonest acts committed by the insured are excluded. POSI covers claims arising from alleged (even unproven) misrepresentation — but if a court or regulatory authority finally determines that the misrepresentation was deliberate and fraudulent, coverage for the perpetrators may be excluded. Defence costs are typically covered until such a final determination is made.
Claims brought by major shareholders (typically defined as shareholders holding above a threshold percentage — commonly 5% or more of the company's shares) against the company may be excluded or subject to specific conditions. This exclusion addresses the concern that controlling shareholders could effectively "self-deal" through insurance by bringing claims against the company they control.
Environmental liability arising from the company's operations is excluded from POSI. If a securities claim is based on alleged misrepresentation of the company's environmental liability (rather than pollution liability itself), this may be covered — but direct environmental cleanup liability is not a POSI coverage.
Criminal fines and penalties imposed on insured persons found guilty of criminal securities fraud or securities law violations are not insurable in India and are therefore excluded. Legal defence costs in criminal proceedings are typically covered (subject to the policy terms), but any fine ultimately imposed following criminal conviction is excluded.
Securities claims arising from misrepresentations or conduct that occurred after the POSI policy period ended are not covered. POSI is a transaction-specific policy tied to the specific offering — it covers claims arising from that offering's prospectus, not from subsequent corporate disclosures or conduct.
Claims between insured parties — for example, one director suing another director over prospectus misrepresentation liability — may be excluded or subject to specific conditions. Cross-claims between insured parties raise complex conflict-of-interest issues that the policy may address through specific conditions.
POSI is a specialist financial lines product requiring individual underwriting assessment for each transaction. Coverage terms, insured parties, policy period, limits, retentions, and exclusions are agreed at the time of placing the policy for each specific offering. This page provides general guidance based on the insurer's POSI product; the specific policy wording governs coverage in all cases. POSI placement must be arranged before or at the time of the offering — it cannot be placed retrospectively after claims have arisen. Probitas Insurance Brokers Pvt. Ltd. · IRDAI Lic. No. 528.
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By submitting you agree to our Privacy Policy and Terms & Conditions. POSI is a specialist financial lines product requiring individual underwriting assessment. Coverage terms, insured parties, limits, retentions, policy period, and premium are agreed at underwriting for each specific transaction. POSI must be placed before or at the time of the offering. Enquiries and confirmations: contact@takemyinsurance.com. Probitas Insurance Brokers Pvt. Ltd. · IRDAI Lic. No. 528.