Supreme Court stays SEBI IPO refund

In a major setback to more than 10,000 investors, the Supreme Court on Monday stayed market regulator SEBI’s order asking SVPCL Ltd, a Hyderabad-based stationery manufacturing company, to refund the application money with interest to all the investors who had applied for its IPO in October 2007.

A bench headed by Justice C K Thakker while staying SEBI’s order also issued notice to it and Merchant Bankers UTI Securities Ltd. The issue size of the initial public offer (IPO) was Rs 34 crore.

SEBI in its letter dated May 21 had stated that due to dismissal of the appeal by Securities Appellate Tribunal (SAT) and deemed refusal by National Stock Exchange, SVPCL’s public issue had become void by virtue of Section 73(1A) of the Companies Act, 1956.

"In terms of provision of the Companies Act and disclosure made by you (SVPCL) in the offer document, you are liable to refund the all application money along with the applicable rate of interest and to confirm compliance of the same by May 31, 2008," the market regulator had stated.

Challenging the SAT judgement that dismissed its plea for a direction to BSE to list its equity shares, SVPCL stated that BSE and NSE vide their letters dated May 18, 2007 and June 18, 2007, respectively, had given in principle approval for listing of shares in its Draft Red Herring Prospectus.

Besides, SEBI had also issued acknowledgment letters after asking it to make certain modifications, it said.

According to SVPCL counsel AM Singhvi, the primary ground on which the request for listing by BSE had been turned down was that UTI Securities, the lead manager responsible for post issue compliances, had expressed its inability to give an undertaking as required by BSE under Section 73 of the Companies Act, 1956, it added.

According to Singhvi, NSE could not grant the requisite permission within the stipulated period of 10 weeks as SEBI’s restraint order had made it impossible to proceed further towards listing of shares till the complaint filed by one Srinivas Pandit against the IPO was addressed. SAT failed to appreciate that the fate of SVPCL’s listing on NSE was contingent upon listing of shares of BSE, it said.

The Andhra Pradesh High Court had issued an interim order asking BSE and NSE to allow only the listing but not the trading of the shares at the exchanges. The company also claimed that it had given investors, through a notice on December 3, the option of pulling out of the issue and only small percentage of investors had withdrawn their applications.

The Tribunal while dismissing its plea had stated that the validity of the allotment was dependent on securing the requisite permission of each stock exchange whose permission had been sought. If permission is not granted by the stock exchange before the expiry of 10 weeks from the date of closing of the subscription lists, and upon the expiry of that date, any allotment of shares made by the company becomes void, SAT said, adding "the period of 10 weeks is sacrosanct and cannot be extended for any reason whatsoever nor can any period be excluded therefrom."

As the company had mentioned the names of NSE and BSE in its prospectus when it offered shares to the public for subscription, it was, therefore, necessary that both these exchanges should have granted permission for the listing of the shares within 10 weeks from the closing of the subscription lists which expired on January 4, 2008, it added.