IPO Application Rejection Reasons: Why Bids Fail and How to Avoid It

Most people who miss out on an IPO assume the lottery went against them. Sometimes it did. But a fair number of bids never reach the lottery at all, because they were thrown out on technicalities. Knowing the common IPO application rejection reasons is the cheapest edge a retail investor can have: it costs nothing, and it keeps your bid in the draw.

The rulebook here is not a secret. SEBI’s General Information Document for Investing in Public Offers (the GID, the version hosted on SEBI’s site) carries a full section titled “Grounds for Technical Rejections”, and every red herring prospectus repeats a version of it. We went through that list, plus later SEBI and BSE circulars, and grouped the reasons the way they actually trip people up.

Rejected vs not allotted: two different things

A quick distinction first, because the two get mixed up all the time. “Not allotted” means your bid was valid and simply lost out when the issue was oversubscribed. “Rejected” means the bid was invalid and was never considered for allotment.

The GID says applications can be rejected on technical grounds either when they are submitted to an intermediary or later, at the time the basis of allotment is finalised. That second part matters. Your broker app may show “bid placed” and you may still get knocked out at the registrar’s end. If you want the full journey of a bid from form to shares, our guide to the ASBA IPO application process walks through it.

IPO application rejection reasons linked to PAN and demat details

This is the biggest bucket, and almost all of it comes down to one rule: the identity on your form has to match the identity the depository holds.

• PAN missing. A form without PAN is liable to be rejected. The only exemptions the GID lists are bids by or on behalf of the Central or State Government, officials appointed by courts, and residents of Sikkim, and even these have to be verified through depository records.
• PAN, DP ID and Client ID don’t line up. If the depositories have no record that matches the DP ID, Client ID and PAN together, the bid goes. A single wrong digit in your Client ID is enough.
• Name mismatch. The GID asks that the name on the form be exactly the name in which the demat account is held. For joint accounts, the bid has to be in the name of the first holder.
• Inactive demat account. Bids from demat accounts that are “suspended for credit” are liable to be rejected, under a SEBI circular dated July 29, 2010. Depositories classify these as inactive and don’t send demographic details for them.

In practice, online applications through a broker pull the DP ID, Client ID and PAN automatically, so this bucket bites harder on offline forms and on people who keep several demat accounts. If your KYC itself is in doubt, sort that out before the issue opens; our explainer on checking your KYC status shows how.

The UPI mandate: where most retail bids now fail

For individual investors, UPI is the default route. A SEBI circular dated April 5, 2022 made it compulsory for individual investors applying for up to ₹5 lakh through a syndicate member, broker, depository participant or registrar to use UPI and give their UPI ID on the form, for issues opening on or after May 1, 2022. That covered a lot of people, and it brought a new set of ways to get rejected.

• Mandate not approved. The GID lists “the UPI Mandate is not approved” as a ground for rejection. Placing the bid in your broker app is only step one. The sponsor bank then sends a mandate request to your UPI app, and you have to accept it.
• Approving too late. Under a BSE notice of August 3, 2022, for issues opening on or after September 1, 2022, the mandate acceptance window expires at 5:00 PM on the closing day of the IPO. The same notice says the exchange displays only bids where the funds were actually blocked.
• Third-party UPI ID. Using a UPI ID linked to someone else’s bank account is a ground for rejection, and SEBI’s investor education page on ASBA puts it plainly: third-party UPI IDs or third-party bank accounts will not be considered for allocation.
• Wrong handle or bank. The GID also lists UPI handles and banks not on SEBI’s prescribed lists as grounds for rejection. SEBI’s investor page asks you to create your UPI ID with a bank on its list of SCSBs eligible to act as issuer banks, and to use only apps and handles from its published list.
• Revised bid, unapproved mandate. If you revise a bid, a fresh mandate request follows. Leave it unapproved and the application is liable to be rejected.

Placing the bid is only half the job. Until the mandate in your UPI app is approved and the money is blocked, the exchange doesn’t even show your bid.

Our take: the third-party rule is where families lose the most bids. One spouse’s demat account paired with the other spouse’s UPI ID looks harmless. Under the rules, it’s a third-party payment, and it’s out.

Money in the account and the ASBA side

If you apply through net banking (direct ASBA) rather than UPI, the bank does the blocking. Two grounds stand out in the GID. The first is inadequate funds in the ASBA account at the time of blocking. The second is no confirmation of blocking being received from the bank (the SCSB) or the sponsor bank.

There is also a newer check. A BSE notice of September 14, 2023, relaying a SEBI circular of August 9, 2023, says that before blocking money for direct bank ASBA and syndicate ASBA applications, the SCSB has to make sure the PAN on the application matches the PAN linked to the bank account. So the “same person” rule now runs through the bank too, not just the depository.

Two smaller traps from the GID’s list. A bid can’t be paid by cash, cheque, draft or money order; for everyone other than anchor investors, only blocked ASBA money counts. And if the original bid used UPI, a revision through physical or online ASBA (or the reverse) is a ground for rejection. Stick to one channel for the life of the bid.

Price, quantity and amount errors

The next group is arithmetic. The GID lists bids for fewer shares than the minimum for that category, bids not in multiples of the lot size specified in the RHP, bids below the floor price or above the cap, and bids where the amount on the form doesn’t tally with the shares applied for.

The retail ceiling is where people slip. The GID says retail individual investors must keep the bid amount (less any discount) at or under ₹2,00,000. If a revision or anything else pushes it over, the bid may be moved to the non-institutional category, and since non-institutional investors can’t bid at the cut-off price, such a bid may be rejected if it was at cut-off.

Worked example: the retail ceiling

Take a hypothetical IPO with a price band of ₹285 to ₹300 and a lot of 50 shares. These numbers are illustrative only.

• A cut-off bid is blocked at the top of the band, ₹300.
• One lot costs 50 × ₹300 = ₹15,000.
• 13 lots = 650 shares = ₹1,95,000. That’s inside the ₹2 lakh retail limit.
• 14 lots = 700 shares = ₹2,10,000. That’s over the limit.

So the maximum retail application here is 13 lots. If you put in 14 lots at cut-off, you have asked for something the retail category can’t accept, and the cut-off option isn’t available outside it. Always do this sum at the upper end of the band, not the lower one.

Worked example: the half-funded account

Same IPO. You bid 13 lots at cut-off, so ₹1,95,000 needs to be blocked. Your linked account holds ₹1,90,000. The mandate request arrives, but the block can’t go through. Under the GID, inadequate funds at the time of blocking is a ground for rejection, so the whole bid fails. It isn’t scaled down to what you can afford. Either move money in before approving, or cut the bid to 12 lots (600 shares, ₹1,80,000).

Multiple bids: the rule people break on purpose

Some investors try to improve their odds by applying more than once. The rules are built to catch exactly this. The GID says a second application form, to the same or a different intermediary, is a multiple bid liable to rejection. The registrar can check all bids for a common PAN, and bids with the same PAN may be treated as multiple bids.

Two demat accounts don’t mean two chances. If both carry your PAN, the registrar sees one person applying twice.

A few points that confuse people:

• Choosing up to three price levels on one form is not a multiple bid. The GID allows bids at three different price levels in a single form.
• Bids by eligible employees and retail shareholders in their own reservation portions, alongside a bid in the main retail portion, are not treated as multiple bids under the GID, subject to the offer’s terms.
• The GID also lists more than one form per UPI ID by retail investors bidding through intermediaries other than SCSBs (with an exception for retail shareholders), and more than one form per ASBA account (except joint holders), as grounds for rejection.

The honest way to raise a household’s odds is separate applications from each adult member, each from their own demat account, PAN and bank account. That’s three independent rules satisfied at once.

Timing and the bid-modification window

Deadlines are a quieter reason for rejection. The GID lists forms not delivered within the prescribed time and bids not uploaded on the exchanges’ terminals. Under the August 2022 BSE notice, bid modification runs alongside the regular bidding period and closes at 5 PM on the closing day; the old dedicated correction window on T+1 (the day after bidding closes) no longer exists. Our explainer on IPO bid modification covers what you can change and when.

Brokers often stop taking bids earlier than the exchange deadline, which is their own call. The safe habit is to bid by the day before closing and approve the mandate straight away.

A pre-submission checklist

Here’s how we’d run through an application before pressing submit:

1. Is the demat account active, and in the name of the person applying?
2. Does the UPI ID belong to a bank account in that same person’s name?
3. Is the UPI app and handle on SEBI’s list for public issues?
4. At the top of the price band, is the amount within the retail limit and in whole lots?
5. Is there enough money in the account to cover the full block?
6. Is this the only application under this PAN?
7. Have you approved the mandate, well before 5 PM on the closing day?

Once the issue closes, check the allotment status with the registrar rather than relying on rumours; our guide to checking IPO allotment on NSE and BSE shows the steps. For the bigger picture on choosing issues in the first place, see our pillar on IPO investing in India.

The bottom line

None of these IPO application rejection reasons is complicated on its own. Most come back to two ideas: one person, one PAN, one bank account; and a bid only counts once the money is blocked. Get those right and the only thing left between you and an allotment is the draw.

The exact list of technical grounds is printed in each issue’s RHP, and it can be updated by later SEBI circulars, so read that section for the specific IPO you’re applying to.

Sources: SEBI General Information Document for Investing in Public Offers; SEBI circular SEBI/HO/CFD/DIL2/CIR/P/2022/45 (April 5, 2022); BSE notices 20220803-40 and 20230914-29; SEBI investor education page on applying in IPOs through ASBA.

Disclaimer: This article is for information and education only and is not investment advice. Please consult a SEBI-registered adviser before making any investment decision.