Supreme Court dismisses plea against Smartworks IPO, rebukes petitioner-NGO for filing false docs

The Supreme Court on Monday dismissed an appeal filed by New Delhi–based NGO Infrastructure Watchdog against the Securities and Exchange Board of India (SEBI) in connection with the initial public offering (IPO) of Smartworks Coworking Spaces Limited [Infrastructure Watchdog Vs SEBI].

A Bench of Justices PS Narasimha and AS Chandurkar also cautioned the NGO against filing false documents and rebuked its lawyers for failing to prevent such a lapse.

The Court was hearing an appeal filed by Infrastructure Watchdog arising from a July 16 order of the Securities Appellate Tribunal (SAT) which had refused to stay Smartworks’ ₹560-crore IPO.

During the earlier round of hearings, Senior Advocate Narender Hooda, appearing for the NGO, had produced what he claimed was a letter from the Ministry of Corporate Affairs (MCA) to SEBI, suggesting that investigations were pending against the Sarda family, the promoters of Smartworks.

This claim was immediately disputed by Senior Advocate Gopal Subramanium, who represented the respondents. Subramanium pointed out that a Right to Information Act (RTI Act) query filed with the MCA confirmed that no such letter had ever been issued. He accused the NGO of misleading the Court with fabricated material.

The Supreme Court reacted sternly, warning that if the letter was indeed false, prosecution could follow.

On Monday, the Bench was informed by SEBI and the respondents that the document was indeed fake as there was no record of it.

However, the Court decided not to pursue any action against the NGO but issued a strong warning. The Court emphasised that while the NGO may be let off with a warning in this instance, any future attempt to mislead the Court could attract serious consequences.

At the same time, the Bench expressed dissatisfaction with the conduct of the NGO’s lawyers.

“Lawyers should be the first barrier in such cases. How can you let this happen? How did you let them file such a document?” Justice Narasimha asked Senior Advocate Hooda and his team, observing that the bar has an obligation to prevent questionable material from reaching the Court record.

The matter was then dismissed.

The respondents were represented by Senior Advocates Gopal Subramanium and Gopal Sankaranarayanan with advocates Gaurav Kejriwal, Avishkar Singhvi and Naman Joshi.

Senior Advocate Kapil Sibal, who was present in the court for another matter, agreed with the Bench and noted that a litigant filing a false document before the Supreme Court was a serious issue.

The dispute arose when Infrastructure Watchdog approached SAT seeking to block Smartworks’ IPO, alleging that its draft red herring prospectus contained incomplete and misleading disclosures. The NGO relied on internal income-tax reports and claimed that complaints it had filed had not been adequately considered.

However, SAT dismissed the appeal. It held that Smartworks’ red herring prospectus (RHP) and subsequent addenda had, in fact, referred to the NGO’s complaints dated January 12, March 29 and May 21 along with company responses. The Tribunal also noted that the tax reports relied upon by the NGO were merely “indicative” and had not translated into statutory notices or tax demands.

The IPO was subscribed just 0.83% on the first day, but after the July 11 addendum disclosing the NGO’s complaints, demand surged, closing at 13.45 times overall, including 24.4 times in the Qualified Institutional Buyers (QIB) category.

“It would be incongruous to assume that QIB investors and High Net Worth investors would have invested without proper analysis,” SAT observed.

SEBI had also raised the objection that the NGO lacked locus standi under Section 15T of the SEBI Act since it was not “person aggrieved.” SAT left this issue open but nonetheless decided the case on merits in the “peculiar facts.”

After the SAT dismissed the plea, the NGO moved the top court which dismissed the appeal today.