Supreme Court Witnesses High Drama in Smartworks IPO Battle

The Supreme Court on Monday turned into a stage of high-stakes drama as a legal battle over Smartworks Coworking Spaces Limited’s Initial Public Offering (IPO) unfolded. What began as a regulatory dispute escalated into a heated courtroom clash, with allegations of fabricated documents and questions about corporate transparency taking center stage.

At the heart of the matter lies an appeal filed by Infrastructure Watchdog, a New Delhi–based NGO that claims to keep tabs on regulatory compliance and corporate governance. The NGO had approached the Supreme Court after the Securities Appellate Tribunal (SAT) refused to stay Smartworks’ IPO, despite its objections about alleged non-disclosures in the company’s draft prospectus.

Smartworks IPO Issue

Senior Advocate Narender Hooda, appearing for Infrastructure Watchdog, produced what he claimed was a letter from the Ministry of Corporate Affairs (MCA) to the Securities and Exchange Board of India (SEBI). According to him, the letter raised red flags about ongoing investigations against the Sarda family — promoters of Smartworks.

But this move quickly backfired. Senior Advocate Gopal Subramanium, representing Smartworks, countered sharply. He argued that a Right to Information (RTI) query filed with the MCA confirmed no such letter had ever been issued to SEBI. In his words, the NGO was attempting to mislead the Court with a “fabricated” document.

Stern Words from the Bench

The exchange drew an immediate reaction from the Bench, comprising Justices P.S. Narasimha and A.S. Chandurkar. The judges did not mince words:

“You cannot get away with simply apologising to the Court. We will examine the document, and if it is found to be false, prosecution may follow.”

The Bench also directed SEBI to confirm whether all statutory requirements had been complied with before granting approval to Smartworks’ IPO.

A Battle that Began Before Listing

The controversy did not erupt overnight. Infrastructure Watchdog had earlier approached SAT, seeking an investigation into alleged lapses in Smartworks’ disclosures and demanding a stay on the IPO. But on July 16, SAT dismissed the plea, offering a detailed reasoning:

• Complaints were disclosed: Smartworks’ Red Herring Prospectus (RHP) and subsequent addenda explicitly mentioned the NGO’s complaints dated January 12, March 29, and May 21, 2025, along with the company’s responses.

• Income-tax reports were not conclusive: The NGO relied on internal income tax reports, but SAT observed that these were “indicative in nature,” had not triggered statutory notices, and could not be treated as evidence of wrongdoing.

• Investors made an informed choice: SAT underlined that after Smartworks disclosed the NGO’s complaints in its July 11 addendum, the IPO actually witnessed a surge in demand. From a modest 0.83% subscription on Day 1, the issue went on to close at a massive 13.45 times oversubscription — including 24.4 times in the Qualified Institutional Buyers (QIB) category. The Tribunal noted it was “incongruous to assume” that seasoned investors like QIBs and high-net-worth individuals would commit funds without their own due diligence.

• NGO’s standing in question: SEBI also challenged the maintainability of the case, arguing that Infrastructure Watchdog was not a “person aggrieved” under the SEBI Act. SAT kept this legal technicality open but decided the matter on merits “in the peculiar facts” of the case.

Adding to the intrigue, the Tribunal was told that the NGO was allegedly acting at the behest of estranged members of the Sarda family itself, citing its possession of a withdrawn Punjab National Bank show-cause notice that had once been directed at Sarda-linked companies.

IPO Debut Amid Controversy

Despite the legal headwinds, Smartworks went ahead with its listing on July 17. The IPO opened to a warm reception from the market, debuting at a 7% premium on both the BSE and the NSE. The successful listing seemed to vindicate SAT’s observation about strong investor appetite, even in the face of NGO-led objections.

The Supreme Court has now put the spotlight on the authenticity of the disputed MCA letter — a development that could significantly shift the narrative. If the document is indeed fabricated, the NGO could face prosecution, adding a dramatic twist to what began as a challenge to a high-profile IPO.

At the same time, SEBI’s role has come under scrutiny, with the Court specifically asking the market regulator to confirm whether it followed due process before green-lighting Smartworks’ public issue.

For India’s bustling startup ecosystem, where IPOs are increasingly becoming the preferred route for capital raising, this case serves as a reminder of the tightrope walk between regulatory compliance, investor confidence, and corporate credibility.