IPO-bound cos hit by surprise lawsuits claim mischief

Several high-profile companies in the final stages of their initial public offerings (IPO) have been hit by surprise lawsuits and complaints to various authorities by former insiders and vendors, creating uncertainty about their IPO timelines and prospects.

While the aggrieved parties accuse the companies of breach of contracts or non-payment of dues, the companies feel these are attempts at creating hurdles in their IPO plans and arm-twist them to agree to some settlement.

Reuters reported on Friday about an unusual hurdle before Paytm’s $2.2 billion share sale, with a 71-year-old former director urging the markets regulator to stall the offering, alleging he is a co-founder who invested $27,500 two decades ago but never got shares.

In legal documents seen by Reuters, Paytm said the claim by Ashok Kumar Saxena and his allegations of fraud in a police complaint in New Delhi are mischievous attempts to harass the company.

The dispute has been cited by Paytm in its IPO prospectus under the section ‘criminal proceedings’.

Saxena has approached the Securities and Exchange Board of India (Sebi) to stall the IPO, arguing investors could lose money if his claim is proved right, Reuters reported.

“There is no ongoing court case or police investigation against the founder and the company or any of its subsidiaries in regards to this issue. The company has also not received any communication from Sebi on this. The company believes that there is no merit in this issue, and that this will not impact its IPO in any way,” a Paytm official said on the condition of anonymity.

However, an email sent to Paytm went unanswered.

Nirma group’s cement business Nuvoco Vistas Corp. Ltd also faced a similar surprise last week, just ahead of the opening of its ₹5,000 crore IPO on 9 August.

A Nuvoco vendor filed an insolvency petition against the company in the Mumbai bench of the National Company Law Tribunal (NCLT), alleging non-payment of dues worth over ₹5 crore.

The vendor also wrote to markets regulator Sebi and the stock exchanges against the IPO of the company, citing the pending insolvency petition in the NCLT.

“The release of outstanding payments to a vendor is subject to production of documentary evidence in relation to statutory dues and final reconciliation as per PO (purchase order) terms. The retention to this extent is necessitated due to the reason that relevant rules impose an obligation on purchaser also to ensure statutory payments by vendor by demanding documentary evidence towards discharge of statutory liability by vendor otherwise obligation will fall on company,” said a Nuvoco Vistas spokesperson.

Any outstanding payments may be released once the vendor provides the relevant documentary evidence and invoices are certified to this extent as per PO terms.

“Also, we have not received any notice from NCLT regarding this matter,” he added.

“Since the amount is much lower than the materiality threshold of ₹37 crore as determined in line with policy made in furtherance of extant norms, we did not disclose this in the prospectus,” the spokesperson said.

However, these are not the first IPO-bound companies to face such last-minute lawsuits. In the past, Quickheal Technologies and Prince Pipes and Fittings, too, went through similar disputes at the time of their IPOs. In the case of Quickheal, the dispute had a significant impact on the company’s shares post listing.

“An IPO is a high-profile and very sensitive event for any company, and we have seen in many instances that various parties come forward at this time with lawsuits or complaints to the regulators to settle old pending disputes or personal grievances. Given the very public nature of an IPO, these disputes get highlighted significantly. And if these disputes emerge close to the IPO and the listing, then it has a significant impact on the price of the stock. Sometimes, these cases are just mischievous attempts to arm-twist the companies for a monetary settlement or just to get some publicity,” an investment banker who advises on IPOs said on condition of anonymity.