Mobikwik, other IPO-bound companies face approval delay over deemed public issue hurdle 

Mobikwik, other IPO-bound companies face delay in Sebi approval over deemed public issue hurdle

A few companies including fintech player Mobikwik are facing delays in getting approval from the Securities and Exchange Board of India (SEBI) for their initial public offerings (IPOs) as past share sales by investors/shareholders of these companies have been found to not be compliant with the Companies Act, sources told Moneycontrol.

As per section 42 (2) of the Companies Act, 2013, an unlisted company cannot sell shares to more than 200 people in a financial year without making a public offering. If such a share sale has taken place, it is considered a deemed public issue (DPI) under the regulations and may result in a penalty or the company may have to give the buyers of these securities an exit route to become compliant with the act.

SEBI has withheld final clearance to the IPO of some of these companies, noting that shares have been sold to more than 200 people, thus making them non-compliant with the Companies Act.

However, sources added that the non-compliance arising from DPIs in these cases is not because of the company directly selling its shares to investors but on account of existing investors/shareholders of these companies selling down their shares.

“The companies are not at fault here as they haven't offered the shares to more than 200 people. They also can't control who their shareholders end up selling shares to. A lot of these shares have been bought by high net-worth individuals (HNIs) in the unlisted market in anticipation of good returns through the IPO. There are about half a dozen companies that are facing delay in securing the SEBI approval because of this issue,” said one of the sources cited above.

The companies and their advisors are discussing the issue with SEBi and trying to find a resolution so that the IPOs are not delayed too long, the source added.

An email sent to SEBI did not elicit a response. Mobikwik declined to comment on the development.