Some companies, including fintech firm Mobikwik, are experiencing delays in obtaining approval from the Securities and Exchange Board of India (SEBI) for their initial public offerings (IPOs). Sources informed Moneycontrol that previous share sales by investors/shareholders of these companies were found to be non-compliant with the Companies Act.
According to section 42(2) of the Companies Act, 2013, an unlisted company cannot sell shares to more than 200 people in a financial year without conducting a public offering. Such share sales are considered deemed public issues (DPIs) under the regulations and may lead to penalties or necessitate the provision of an exit route for the buyers to comply with the act.
SEBI has postponed final clearance for the IPOs of some of these companies due to shares being sold to more than 200 people, rendering them non-compliant with the Companies Act.
However, sources clarified that the non-compliance resulting from DPIs is not due to the company directly selling shares to investors but rather arises from existing investors/shareholders selling down their shares.
“The companies are not to blame as they have not offered shares to more than 200 people. They also cannot control to whom their shareholders end up selling shares. Many of these shares have been purchased by high net-worth individuals (HNIs) in the unlisted market in anticipation of favorable returns through the IPO. Approximately half a dozen companies are facing delays in securing SEBI approval due to this issue,” one of the sources explained.
The companies and their advisors are engaged in discussions with SEBI to address the issue and expedite resolution to avoid prolonged delays in the IPO process, the source added.
