Share Samadhan IPO: A Troubled Affordable Debut ?

Share Samadhan Introduction

Share Samadhan Limited is a company specializing in investment retrieval and wealth protection. They offer comprehensive solutions for recovering unclaimed investments, protecting wealth, and funding litigation.

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Brief about Share Samadhan Limited

Summary of the business of Brief about Share Samadhan Limited

Our company is a one-stop solution, providing a wide range of services aimed at helping clients efficiently to protect and retrieve their investments / money. These services include Investment retrieval, Wealth Protection, and litigation funding solutions thereby assistance in resolving various disputes regarding blocked investments in any asset class largely on a success fees model.

Brief about Share Samadhan Limited History

Company was incorporated as a private limited company with the name of “Tiger Island Hospitality Private Limited” under the Companies Act, 1956 vide certificate of incorporation dated December 26, 2011, issued by Registrar of Companies, Delhi, bearing CIN U55101DL2011PTC229303. Further, our company changed its name from “Tiger Island Hospitality Private Limited” to “Share Samadhan Private Limited” in pursuance of a special resolution passed by the member of our Company at the Extra Ordinary General Meeting held on February 24, 2015 & Registrar of Companies, Delhi has issued a new certificate of incorporation consequent upon conversion dated March 05, 2015.

Share Samadhan Promoters & Board of Directors

• The promoters of Company are Mr. Abhay Kumar Chandalia and Mr. Vikash Kumar Jain.

Share Samadhan Board of directors

Share Samadhan Share Holding pattern

Share Samadhan Strength

• Good track record.
• Leveraging the experience of our Promoters.
• Experienced management team and a motivated and efficient work force.
• Quality Deliverables of services.
• Adaption to advanced technology.

Share Samadhan Strategies

• Expand our international presence.
• Expansion of B2C channels through enhanced digital marketing and social media strategies.
• Embracing new technologies
• Strengthening B2B relationships and fostering additional partnerships for increased lead flow.

Industry Outlook

INVESTMENT RETRIEVAL INDUSTRY OUTLOOK INDUSTRY OVERVIEW

Introduction: India’s financial sector is witnessing rapid growth due to the expansion of existing financial services firms and the entry of new entities. The sector includes capital markets, commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds, provident fund entities, postal savings, and other smaller financial entities. This growth has increased the complexity of managing financial assets, leading to higher volumes of unclaimed investments across various asset classes.

PHYSICAL SHARES AND UNCLAIMED SHARES

According to ARIA report, around ₹3,78,000 crores worth of physical shares remain across various companies.

Navigating the Challenge of Nomination Gaps in Demat Accounts: Opportunities for many companies to Resolve Disputes and Simplify Claims.

Recent data from SEBI reveals that a staggering of single-holding demat accounts lack nomination details, posing substantial risks such as increased familial disputes and significant hurdles in claiming investments after the account holder’s demise.

GOVERNMENT AND REGULATORY EFFORTS

SEBI has mandated all demat account holders to either nominate beneficiaries or formally opt-out, setting strict deadlines to ensure compliance.

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UNCLAIMED MUTUAL FUNDS IN INDIA

As per ARIA report, around ₹35,770 crores worth of unclaimed mutual funds in India remain across various companies.

Reasons for Unclaimed Mutual Funds:

• Account Inactivity: Investors may forget about old accounts, especially those with small balances.
• Change of Address: Investors may not update their contact information with the Asset Management Company (AMC), leading to lost communication.
• Death of Investor: Heirs might be unaware of the investment or face challenges in claiming it.
• Dematerialization Issues: Incomplete KYC or issues during dematerialization can lead to unclaimed funds.

UNCLAIMED PROVIDENT FUND IN INDIA

As per ARIA report, around Rs. 48,000 Crores worth of provident funds remain across various companies.

Overview of Unclaimed Provident Funds

Unclaimed provident funds refer to the retirement savings accumulated in provident fund accounts that have not been claimed by beneficiaries after the retirement or death of the account holder. These funds represent a significant portion of financial assets that, if unclaimed, can impact the financial security of retirees and their families.

Reasons for Provident Funds Remaining Unclaimed

• Lack of Awareness: Beneficiaries, especially in rural and semi-urban areas, often lack awareness about the procedures for claiming provident funds or the existence of such funds.
• Documentation Issues: Completing the required documentation for claiming provident funds can be cumbersome, deterring many potential claimants.
• Account Holder Information: Inaccurate or outdated account holder information can prevent the provident fund office from reaching potential claimants.
• Mobility of Workers: High mobility of workers across states and industries can lead to provident fund accounts being forgotten or neglected.

UNCLAIMED INSURANCE IN INDIA

As per LIC, around ₹ 21,539 crores worth of unclaimed insurance remain with them.

Reasons for Unclaimed Insurance:

• Policy Lapse: Unpaid premiums can lead to policy lapses, leaving unclaimed benefits.
• Lost or Forgotten Policies: Policyholders might lose track of old policies, especially those with small payouts.
• Change of Address/Beneficiary: Outdated contact details or beneficiary information can hinder claim processing.
• Death of Policyholder: Unaware beneficiaries or difficulties in claim procedures can lead to unclaimed benefits.
• Estimated Amount and Regulatory Measures
• Unclaimed amounts are transferred to the Senior Citizens’ Welfare Fund (SCWF) after 10 years, but beneficiaries can still claim them for up to 25 years.
• IRDAI regulations require insurers to actively trace policyholders and improve communication to reduce unclaimed amounts.

UNCLAIMED INOPERATIVE BANK ACCOUNTS IN INDIA

Unclaimed inoperative bank accounts are those that have not seen any activity or transaction for a significant period, typically ten years or more. These accounts hold funds that have not been claimed by account holders, leading to their transfer to the Depositors Education and Awareness Fund (DEAF) managed by the Reserve Bank of India (RBI).

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Reasons for the Accumulation of Unclaimed Funds

• Lack of Account Management: Many account holders forget about old accounts or neglect small balances, which over time, become inoperative.
• Inadequate Follow-Up: Often, banks fail to adequately notify or communicate with account holders about their inoperative or dormant status.
• Migration or Change in Contact Details: Account holders who move to new locations without updating their contact details with their banks contribute to the increase in unclaimed accounts.
• Death of Account Holders: Accounts become inoperative after the death of an account holder, especially when heirs are unaware of the existence of such accounts or how to claim them.

Government and Regulatory Initiatives

• DEAF Initiative: The DEAF was established to pool funds from inoperative accounts for the purpose of promoting depositor education and awareness, as well as to safeguard the interests of depositors.
• Mandatory Actions by Banks: Banks are required by the RBI to make a concerted effort to contact account holders of inoperative accounts and inform them about the consequences of non-action.
• Public Awareness Campaigns: The RBI and banks run periodic campaigns to educate the public on the importance of updating their bank records and regularly reviewing their bank account statuses.

Implications for Unclaimed Investments

• With the increase in wealth and the complexity of managing vast financial portfolios, there is a notable rise in unclaimed investments.
• Complexity in Asset Management: The growth in financial services and wealth levels increases the complexity of asset management, often leading to higher volumes of unclaimed investments.
• Need for Specialized Services: As the volume of investments and their complexity grows, there is an increasing need for specialized services to manage, reclaim, and ensure proper distribution of unclaimed assets.

Role of investment retrieval advisory companies in the Evolving Market

• Mitigating Risks: They play a crucial role in mitigating risks associated with unclaimed investments. By ensuring these assets are actively managed and reclaimed, the service protects the financial legacy of individuals and enhances financial security for families and heirs.
• Enhancing Transparency and Trust: With a greater focus on transparency, the companies helps in building trust among investors, ensuring that their investments are in safe hands and are being managed efficiently.
• Adoption of New Technologies: Investment in state-of-the-art technologies and best practices in advisory services enables the company to handle complex cases of unclaimed investments effectively. This adoption not only aids in growth but also improves service delivery, making it more streamlined and user-friendly.

Future Prospects and Strategic Positioning

• Regulatory Environment and Investor Protection: The evolving regulatory environment for fiduciary duties in wealth management necessitates robust mechanisms for protecting investors.
• Partnership-Based Model and Brand Building: A partnership-based business model and strong brand building efforts are likely to improve the penetration of advisory services.

Market Size and Significance

• Massive Market Potential: The debtor recovery market in India is substantial, with the total volume of NPAs in the banking sector alone reported to be at 1.65% of the net advances (source RBI report dated 27th dec 2023). The broader market, including corporate debts outside of the banking system, adds considerably to this figure.
• Economic Impact: High levels of unrecovered debt pose a significant challenge to the liquidity and financial health of businesses, impacting economic stability and growth.

Reasons for the Increase in Debtor Volumes

• Economic Fluctuations: Periodic economic downturns severely affect the ability of businesses and individuals to meet their debt obligations.
• Inadequate Credit Assessment: Often, debts go unpaid due to inadequate initial credit assessment, resulting in loans being extended to borrowers with poor creditworthiness.
• Operational Inefficiencies: Many organizations lack effective systems for debt management and recovery, leading to increased volumes of aged debts.
• Regulatory and Legal Delays: The process of debt recovery can be complicated by lengthy legal proceedings and regulatory hurdles, making it difficult for creditors to swiftly reclaim their dues.

Government Initiatives for Protecting Unclaimed Investments in India

The Government of India has enacted several reforms to liberalize, regulate, and enhance the industry, solidifying India’s position as one of the world’s most vibrant capital markets.

• Investor Education and Protection Fund (IEPF) Authority
  • The IEPF Authority was established to promote investor awareness and protect their interests by managing the Investor Education and Protection Fund. This fund is utilized to refund unclaimed dividends, matured deposits, shares, and other financial assets to rightful claimants. The Authority plays a critical role in educating investors and facilitating the recovery of unclaimed funds, thereby safeguarding investors’ wealth that might otherwise remain unclaimed.
• Depositors Education and Awareness Fund (DEAF)
  • Formed by the Reserve Bank of India, DEAF accumulates funds from inoperative savings accounts that have been dormant for ten years or more. This initiative aims to enhance depositor education and fund awareness programs, ensuring that depositors are well-informed about their rights and the means to reclaim their funds.
• Senior Citizens’ Welfare Fund (SCWF)
  • The SCWF is intended to support senior citizens through the utilization of unclaimed amounts transferred from various financial instruments like PPF, EPF, and other small savings schemes. This fund serves as a resource for supporting welfare programs specifically targeted at the elderly population, helping to ensure financial security and support.
• UDGAM – Digital Platform for Unclaimed Money
  • UDGAM is a digital initiative aimed at identifying and managing inoperative bank balances. This system is designed to help trace unclaimed deposits and facilitate their return to the rightful owners, thereby reducing the volume of unclaimed funds within the banking system.
• IRDA’s Mandatory Display of Unclaimed Insurance Amounts
  • The Insurance Regulatory and Development Authority (IRDA) has mandated all insurance companies to display information regarding unclaimed insurance amounts on their websites. This measure ensures greater transparency and assists beneficiaries in claiming their dues more efficiently.
• Universal Account Number (UAN) for Provident Fund
  • The introduction of the UAN for provident funds simplifies the management and withdrawal of PF accounts. It ensures that employees can easily transfer their PF accounts between jobs without the risk of creating dormant accounts, thus reducing the likelihood of unclaimed funds.
• AMFI’s Unclaimed Mutual Fund Search Facility
  • The Association of Mutual Funds in India (AMFI) has introduced a facility on its members’ websites, allowing investors to search for unclaimed amounts in mutual funds. This initiative enhances the ability of investors to track and claim their investments, thereby minimizing unclaimed assets.
• Standardization of Share Claiming Processes
  • Recent reforms have standardized the processes for claiming shares, including simplifying the duplication and transmission processes and relaxing succession requirements. These changes aim to streamline the claiming process, making it easier for heirs and beneficiaries to access unclaimed shares.
• RBI’s Campaigns on Financial Awareness
  • The Reserve Bank of India regularly conducts campaigns aimed at preventing fraud and educating people about their rights to claim ancestral and unclaimed wealth. These initiatives are crucial in enhancing financial literacy and ensuring that individuals are equipped to claim their financial assets effectively.

MARKET DYNAMICS AND KEY PLAYERS OF TPLF

Overview and analysis of TPLF.

TPLF has grown at a rapid pace in the Western countries such as the US, the UK, and Australia, with the US being the largest market for litigation funding. Litigation funding in the Asian economies is also on the rise, especially in China, Japan, South Korea, Singapore, and Hong Kong. TPLF is, therefore, becoming an alternate investment route for many startups and large corporations.

The Indian Market

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The Third-Party Litigation Funding market in India is in its infancy. According to the Government of India Press Note, in 2016, the total amount involved in Infrastructure project related arbitrations was estimated at 70,000 crores. In 2019, the total litigation expenses exceeded 230,000 crores while National Highway Authority of India (NHAI), a single Government entity had outstanding arbitration claims of around 278,000 crores.

It is estimated that the Indian companies currently make up to 30% of the total arbitration cases handled by Singapore and London. According to the SIAC’s 2016 annual report, 45% of the 343 cases it received, involved Indian companies, either as a petitioner or as a respondent.

With the establishment of India International Arbitration Centre, Mumbai Centre of International Arbitration and other international centres in India, there is a possibility of transforming India into an international arbitration hub.

The first step in establishing the legal framework in India for Third Party Funding has been the establishment of Indian Association for Litigation Financing (IALF) on February 11,2021, by practitioners, law firms and third- party financiers. The association’s goals include a robust self-regulating system of Lawsuit Funding and promoting education among the public for the same.

The working group of IALF comprises Phoenix Advisors, Omni Bridgeway, Singularity Legal, FTI Consulting and Grant Thornton. According to the working group of IALF, MSMEs and start-ups would be benefitted from TPF.

Fee Structure for TPLF

TPLF is provided on a non-recourse basis, hence, there is a risk-return trade off, whereby the funder needs to charge a higher fee for the risks assumed.

There is no legislation which imposes any restriction on the amount of fees or interest a funder can charge (except UK). It will purely depend on the terms of the agreement between the two parties. A study by Professor Michael McDonald in 2016 on global litigation funding, indicated an average annual ROI of 36%.

The terms of the funder’s fee will vary depending on the risk profile of the individual case; however, the fee is equal to either (or a hybrid) of:

• A multiple of the amount of funds drawn from the facility (indicating the extent of legal expenses incurred) at the date of resolution (normally three to four times); or/and
• A percentage of the gross proceeds received from the Respondent (normally 20% to 40% (in India), the global returns are much higher). Contingency fees are common in personal injury cases in the US, where the successful lawyer is awarded between 20% to 50% of the recovery amount. However, lawyers in India are prohibited to enter into conditional or contingency fee agreements. In the UK, fees for most types of claims are subject to a 50% cap (inclusive of VAT). In employment tribunal cases, 35% cap continues. Personal injury and clinical negligence claims are subject to a 25% cap18.

CHALLENGES OF TPLF

The success of TPLF depends on the ability of the funders to meet the challenges that they are likely to face and the challenges that are likely to emerge in the future with more players entering the market and making it more competitive.

CONCLUSION:

ADHERE TO RULES/REGULATIONS OF RESPECTIVE JURISDICTIONS

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Since different laws/regulations/rules apply in different jurisdictions, as a first step, the funding entity should identify the relevant jurisdiction (whether in India or abroad and if in India, the exact jurisdiction), where the Court proceedings/the Arbitral process would take place. Essentially, where the cause of action takes place, determines the jurisdiction of the dispute.

Within India too, not all the jurisdictions are the same in terms of laws and regulations concerning TPLF and average time taken for completion of a case. For instance, High Courts in Gujarat, Allahabad, Karnataka, and Calcutta take much longer time to conclude the proceedings than their counterparts in Mumbai, Delhi, and Rajasthan. Even at Sub-ordinate Courts, the time frame for pendency of suits is not uniform. While in Gujarat, the average pendency of cases in the Sub-ordinate Courts is 9.51 years, in West Bengal, it is 6 years, in Delhi, it is 3.86 years and in Rajasthan, it is 3.67 years.

It is, therefore, important for the funder to consider pendency time before funding the case. Further, preferably choose suits in those jurisdictions, which have lower pendency time. In addition, in the six Indian states that have modified the Code of Civil Procedure, there are high chances that the funder may become a co-plaintiff and would, therefore, need to bear the security for costs.

Share Samadhan Business Data

Share Samadhan Verticals

• Investments Retrieval services through Share Samadhan Limited.
• Wealth Protection services through Wealth Samadhan Pvt Limited.
• Litigation funding solutions through Nyaya Mitra Limited.

Share Samadhan Revenue contribution from Geography presence

(Rupees in Thousands)

Competition

In today’s dynamic business environment which is filled with rapid change government policies, mounting competitive threats and constant new entrants into the market, makes it challenging to sustain and handle the intricacies and provide competitive solutions to its clients.

Further we believe that our competition also depends on several factors which include the changing business framework and difficulty in retaining skilled staff.

As of now, we haven’t encountered any company that directly competes with us across the entirety of investment protection and retrieval advisory, including litigation funding consulting. However, there are competitors for certain verticals within Share Samadhan.

Peer companies comparison

• No Listed peers are available as on the date of Draft Red Herring Prospectus.

Share Samadhan Subsidiary companies

• Wealth Samadhan Private Limited
• Nyaya Mitra Limited

Share Samadhan SWOT ANALYSIS

• Strengths
  • Specialized Services: Share Samadhan Limited offers niche services in investment retrieval, wealth protection, and litigation funding, which are highly specialized and in demand.
  • Comprehensive Solutions: The company provides a wide range of services through its subsidiaries, including Wealth Samadhan Private Limited and Nyaya Mitra Limited, enhancing its market reach and customer base.
  • Experienced Leadership: The company is led by a team with extensive experience in finance and legal sectors, which adds credibility and trustworthiness to its services.
• Weaknesses
  • Dependence on Market Conditions: The company’s performance is closely tied to the financial market conditions, which can be volatile and unpredictable.
  • Limited Brand Recognition: Compared to larger financial service providers, Share Samadhan Limited may have limited brand recognition, which could impact its ability to attract new clients.
  • Operational Challenges: Managing a diverse range of services and subsidiaries can lead to operational complexities and inefficiencies.
• Opportunities
  • Growing Demand for Financial Recovery Services: With increasing awareness about unclaimed investments and wealth protection, there is a growing market for the services offered by Share Samadhan Limited.
  • Technological Advancements: Investing in technology can streamline operations, improve service delivery, and enhance customer satisfaction.
  • Expansion into New Markets: There is potential for geographic expansion, both within India and internationally, to tap into new customer bases.
• Threats
  • Regulatory Changes: Changes in financial regulations and policies can impact the company’s operations and profitability.
  • Competition: The financial services sector is highly competitive, with many established players offering similar services.
  • Economic Downturns: Economic recessions or downturns can reduce the demand for financial recovery and wealth protection services.

Business risk factors

• The success of business is highly dependent on relationships with business associates. Any loss of these associates, or their unavailability, could have a significant negative impact on the business and its operations, potentially leading to increased costs, decreased revenue, and damage to the business’s reputation.

Share Samadhan Financials

Share Samadhan Key Financial Ratios

Share Samadhan Key Performance Indicators

(Rupees in thousands, except EPS, % and ratios)

Share Samadhan Assets & Liabilities

(Rupees in Thousands)

Share Samadhan Profit & Loss

(Rupees in thousands, % and ratios)

IPO Details

Share Samadhan IPO Details

Object of the issue

Litigation involved in Share Samadhan

Gray Market Premium

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