PremiumMUMBAI: High profile companies bound for public listings have been hit by surprise lawsuits and complaints from former insiders and vendors alleging breach of past contracts and non-payment of dues, creating uncertainties for the timelines of their initial public offerings (IPO) and casting doubts over their post-listing share performance. Companies feel these are attempts to create hurdles in their IPO plans and arm-twist them to agree to some settlement.
For instance, Paytm's $2.2 billion IPO is facing an unusual hurdle - a 71-year-old former director has urged India's markets regulator to stall the offering, alleging he is a co-founder who invested $27,500 two decades ago but never got shares, Reuters reported on Friday.
In legal documents seen by Reuters, Paytm said claims made by Ashok Kumar Saxena and allegations of fraud in a police complaint in New Delhi are mischievous attempts to harass the firm. 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," said a person aware of the development, speaking on the condition of anonymity.
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 Rs5,000 crore IPO on 9 August.
A vendor of the company filed a insolvency petition against the company in Mumbai bench of the National Company Law Tribunal (NCLT) alleging non-payment of dues worth over Rs5 crore. The vendor also shot a letter to 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 vendor is subject to production of documentary evidences 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 imposes an obligation on purchaser also to ensure statutory payments by vendor by demanding documentary evidences 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 Rs37 crore as determined in line with policy made in furtherance of extant norms, we did not disclose this in the prospectus," the spokesperson said.
According to industry insiders, these are not the first IPO-bound companies to face such last minute lawsuits. In the past, companies such as Quickheal Technologies and Prince Pipes and Fittings 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.
“IPO is a high profile and a 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 monetary settlement or just to get some publicity," said an investment banker who advises on IPOs, speaking on condition of anonymity.
