The Supreme Court of India on August 18, 2025, witnessed high drama in the ongoing battle over the Smartworks Coworking Spaces Limited IPO. The matter came up in the appeal filed by New Delhi–based NGO Infrastructure Watchdog against the Securities Appellate Tribunal’s (SAT) refusal to halt Smartworks’ Initial Public Offering (IPO).
During the hearing, the NGO faced stern judicial rebuke for allegedly producing a forged letter purportedly issued by the Ministry of Corporate Affairs (MCA) to the Securities and Exchange Board of India (SEBI). The Bench comprising Justice PS Narasimha and Justice AS Chandurkar warned the NGO that if the document is found to be fabricated, criminal prosecution could follow.
This development has cast a sharp spotlight on the interplay between corporate governance, securities regulation, and the misuse of judicial forums by interest groups.
The Case Background: Smartworks IPO and NGO’s Challenge
Smartworks Coworking Spaces Limited, a leading flexible workspace provider, launched its IPO on July 17, 2025, debuting with a 7% premium on both BSE and NSE. However, its listing process was mired in controversy due to repeated objections raised by Infrastructure Watchdog.
The NGO alleged that the company had failed to disclose material facts in its Draft Red Herring Prospectus (DRHP), particularly concerning investigations against the Sarda family, promoters of Smartworks. It filed multiple complaints with SEBI on January 12, March 29, and May 21, 2025.
When SEBI allowed the IPO to proceed, the NGO approached SAT seeking directions to stop the listing. On July 16, 2025, SAT dismissed the appeal, leading to the NGO’s current challenge before the Supreme Court.
The Forged Letter Controversy
During the Supreme Court proceedings, Senior Advocate Narender Hooda, appearing for the NGO, produced a letter allegedly written by the MCA to SEBI, purportedly confirming investigations against the Sarda family.
However, Senior Advocate Gopal Subramanium, representing Smartworks, countered this by producing an RTI response from the MCA that categorically denied issuing any such letter. He accused the NGO of misleading the Court by presenting fabricated documents.
At this, the Supreme Court Bench reacted strongly:
“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 verify whether all statutory requirements were duly complied with before clearing the IPO.
SAT’s Findings in the Smartworks IPO Case
The Securities Appellate Tribunal, in its July 16 order, rejected the NGO’s plea for multiple reasons:
- Disclosure of Complaints – Smartworks had already disclosed Infrastructure Watchdog’s complaints in its RHP and addenda. Investors were made aware of these issues before subscribing.
- Income Tax Reports Not Conclusive – The NGO relied on internal income tax reports against the Sarda family, but SAT held that these were “indicative, not exhaustive”, and had not led to statutory notices or tax demands.
- Strong Investor Participation – Initially, the IPO was subscribed only 0.83%. But after disclosure of the NGO’s complaints in an addendum dated July 11, investor confidence surged, and the IPO was subscribed 13.45 times overall, including 24.4 times by Qualified Institutional Buyers (QIBs). SAT observed that sophisticated investors would not have subscribed without independent due diligence.
- Maintainability and Locus – SEBI argued that the NGO was not a “person aggrieved” under Section 15T of the SEBI Act. While SAT did not conclusively rule on this, it decided the case on merits, citing “peculiar facts.”
- Possible Motives of NGO – It was also brought to SAT’s attention that the NGO might be acting at the behest of estranged members of the Sarda family, given its possession of a withdrawn Punjab National Bank show-cause notice.
Legal Issues Emerging from the Case
This case raises multiple legal and regulatory issues that go beyond the fate of Smartworks’ IPO:
- Authenticity of Documents in Court – The alleged forged letter raises serious questions about perjury, forgery, and contempt of court. If proven, the NGO could face criminal liability under Sections 191–196 (perjury), 463–471 (forgery and using forged documents), and 228 (insulting or interrupting court proceedings) of the Indian Penal Code, 1860.
- Locus Standi of NGOs in Securities Litigation – While PILs are permitted in constitutional matters, SAT questioned whether NGOs have standing in securities market disputes, especially when they are not investors. This could set a precedent on who qualifies as an aggrieved person under the SEBI Act.
- Investor Protection vs. Market Stability – The case illustrates the balance courts must strike between protecting investors from non-disclosure and ensuring IPO markets are not derailed by vexatious litigants.
- Role of SEBI in Pre-IPO Clearance – The Supreme Court’s direction to SEBI to re-verify compliance highlights the regulator’s crucial role in scrutinizing prospectuses and ensuring market integrity.
Implications for Corporate Governance
The Smartworks IPO litigation underscores the rising importance of corporate transparency and regulatory compliance in India’s fast-growing capital markets. A few key takeaways include:
- Investor Confidence Matters Most – The fact that Smartworks’ IPO was oversubscribed despite the NGO’s complaints shows that institutional investors often rely on their own assessments rather than activist claims.
- Regulatory Vigilance is Crucial – SEBI’s responsibility in scrutinizing IPO documents is central to maintaining trust in the markets. Any failure could erode investor faith.
- NGOs and Accountability – While NGOs play an important role in holding corporations accountable, misuse of judicial processes through fabricated evidence can backfire and damage credibility.
Conclusion
The Supreme Court’s stern warning in the Smartworks IPO case reflects the judiciary’s zero tolerance towards fabricated evidence and misuse of its processes. The controversy highlights the delicate balance between activism and accountability, investor protection and market confidence, as well as regulatory vigilance and judicial oversight.
As the matter progresses, the Court’s findings on the alleged forged MCA letter will be critical in determining whether Infrastructure Watchdog faces prosecution. At the same time, SEBI’s compliance verification will decide if Smartworks’ IPO withstands scrutiny.
In the long run, this case will likely set important precedents on locus standi in securities litigation, the role of NGOs in financial regulation, and the boundaries of judicial intervention in corporate governance.
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