Mobikwik, other IPO-bound companies face approval delay 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.