Smartworks IPO Case: SC Warns NGO Of Action Over Forged Letter

The Supreme Court has reportedly issued a warning to NGO Infrastructure Watchdog in connection with its appeal against the Securities Appellate Tribunal’s (SAT) refusal to halt coworking giant Smartworks’ initial public offering (IPO).

As per Bar and Bench, high drama ensued after advocate Narender Hooda, appearing for the NGO, produced what he claimed to be a letter from the corporate affairs ministry (MCA) to SEBI. As per Hooda, the letter reportedly underlined ongoing investigations against Sarda family, the company’s promoters.

Disputing the claim, advocate Gopal Subramanium, representing Smartworks, said that an RTI filed with the MCA revealed no such letter had been issued to the SEBI. The coworking giant’s counsel reportedly accused the NGO of misleading the SC with fabricated material

After hearing the two sides, the bench, comprising Justices PS Narasimha and AS Chandurkar, reportedly warned the NGO of strict action if the document is found to be false.

“You cannot get away with simply apologising to the Court. We will examine the document, and if it is found to be false, prosecution may follow,” the SC reportedly said. Not stopping there, the Court also directed the SEBI to verify whether it had complied with all statutory requirements before clearing the IPO of Smartworks.

It is pertinent to note that Infrastructure Watchdog is a Delhi NCR-based NGO that describes itself as a public interest group monitoring regulatory and corporate governance issues. 

The Smartworks Legal Saga

On July 5, Smartworks filed its red herring prospectus (RHP) with the SEBI for its public issue, which comprised a fresh issue of shares worth INR 445 Cr and an offer-for-sale (OFS) component of 33.79 Lakh shares. 

Just days later on July 8, Infrastructure Watchdog filed an appeal against Smartworks, alleging that the coworking startup was being probed by the Income Tax department for receiving funds from shell companies and through benami transactions. 

The appeal followed, in the words of the NGO, alleged inaction by the SEBI with regards to certain complaints filed by Infrastructure Watchdog against Smartworks. 

In its previous plea before the SAT, the non-profit had reportedly sought directions to the SEBI to investigate alleged non-disclosures in Smartworks’ DRHP. It had also sought an interim order to restrain the company from proceeding with its IPO and maintain status quo till the probe was completed. At the time, Smartworks had rubbished all the allegations. 

Subsequently on July 16, the SAT dismissed the NGO’s plea seeking a stay on Smartworks’ IPO. Infrastructure Watchdog then moved the SC to appeal the order. 

Amid the legal tussle, Smartworks went ahead with its IPO and listed on the exchanges on July 17. The stock listed at INR 436.10 on the BSE, a premium of 7.14% against the issue price of INR 407.