The Supreme Court Today (Aug 25) dismissed an appeal by NGO Infrastructure Watchdog against SEBI in the Smartworks IPO case, warning the NGO for filing a false document. The Bench pulled up its lawyers and made it clear that any future attempt to mislead the Court will invite strict action.
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NEW DELHI: The Supreme Court on Monday dismissed the appeal filed by NGO Infrastructure Watchdog against the Securities and Exchange Board of India (SEBI) regarding the initial public offering (IPO) of Smartworks Coworking Spaces Limited worth Rs 560 crore.
A Bench of Justices PS Narasimha and AS Chandurkar not only dismissed the case but also gave a strict warning to the NGO for producing a fake document.
The judges expressed strong disapproval of such conduct and also criticised the NGO’s lawyers for failing to stop the filing of such a document.
The appeal before the Court arose from the July 16 order of the Securities Appellate Tribunal (SAT), which had earlier rejected the NGO’s request to stop Smartworks’ IPO.
During the earlier hearings, Senior Advocate Narender Hooda, appearing for the NGO, presented what he claimed was a letter from the Ministry of Corporate Affairs (MCA) to SEBI, suggesting that investigations were still pending against the Sarda family, the promoters of Smartworks.
This claim was immediately challenged by Senior Advocate Gopal Subramanium, representing the respondents. He told the Court that a Right to Information (RTI) query filed with the MCA clearly confirmed that no such letter had ever been issued. He further argued that the NGO had misled the Court with a fabricated document.
Hearing this, the Supreme Court reacted sternly and gave a strong warning. The Bench remarked that if the letter was proven to be false, criminal prosecution could follow.
On Monday, both SEBI and the respondents confirmed before the Bench that the document produced by the NGO was indeed fake and that there was no official record of it.
Despite this, the Court decided not to proceed with any punitive action against the NGO. However, it issued a serious warning, making it clear that while the NGO was being let off this time, any future attempt to mislead the Court would attract strict consequences.
At the same time, the judges criticised the NGO’s lawyers for their role in allowing such a document to reach the Court record.
Justice Narasimha questioned the lawyers directly, saying:
“Lawyers should be the first barrier in such cases. How can you let this happen? How did you let them file such a document?”
The Bench observed that members of the legal profession have a duty to prevent false or doubtful material from being placed before the Court. After these remarks, the case was formally dismissed.
The respondents in the matter were represented by Senior Advocates Gopal Subramanium and Gopal Sankaranarayanan, assisted by advocates Gaurav Kejriwal, Avishkar Singhvi and Naman Joshi.
Interestingly, Senior Advocate Kapil Sibal, who was present in court for another matter, also intervened and supported the Bench’s concern. He noted that filing a false document before the Supreme Court is a very serious issue.
The dispute had originally begun when Infrastructure Watchdog approached the SAT seeking to stop Smartworks’ IPO, alleging that its draft red herring prospectus (DRHP) contained incomplete and misleading disclosures. The NGO relied on certain internal income-tax reports and claimed that the complaints it had filed were not properly addressed.
However, the SAT dismissed the plea. It observed that Smartworks’ red herring prospectus (RHP) and later addenda had indeed referred to the NGO’s complaints dated January 12, March 29 and May 21, along with the company’s responses. The Tribunal also pointed out that the income-tax reports relied on by the NGO were only “indicative” and had not turned into statutory notices or tax demands.
The IPO, which was initially subscribed only 0.83% on its opening day, witnessed a huge surge in demand after the July 11 addendum disclosed the NGO’s complaints. The issue eventually closed at 13.45 times overall subscription, including 24.4 times in the Qualified Institutional Buyers (QIB) category.
The SAT commented on this, observing:
“It would be incongruous to assume that QIB investors and High Net Worth investors would have invested without proper analysis.”
Apart from this, SEBI also argued that the NGO had no proper standing under Section 15T of the SEBI Act, as it was not a “person aggrieved.” Though SAT left this legal question open, it still decided the case on its merits given the “peculiar facts” of the dispute.
LAST HEARING IN APEX COURT
The Supreme Court on Aug 18 saw high drama during the hearing of an appeal filed by the New Delhi-based NGO against the Securities Appellate Tribunal’s (SAT) refusal to stop the Initial Public Offering (IPO) of Smartworks Coworking Spaces Limited.
Appearing for the NGO, Senior Advocate Narender Hooda showed what he claimed to be a letter from the Ministry of Corporate Affairs (MCA) to SEBI.
According to him, the letter suggested that there were ongoing investigations against the Sarda family, promoters of Smartworks.
However, Senior Advocate Gopal Subramanium, representing the respondents, strongly denied this claim.
He told the Court that an RTI query to the MCA revealed that no such letter was ever sent to SEBI. He further alleged that the NGO was misleading the Court with false and fabricated documents.
A Bench of Justices PS Narasimha and AS Chandurkar reacted very sternly, stating:
“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 Supreme Court also asked SEBI to confirm whether it had fully complied with all statutory rules before approving the IPO of Smartworks.
Infrastructure Watchdog is an NGO registered under the Societies Registration Act, 1860. It describes itself as a public interest group that keeps an eye on regulatory and corporate governance issues in India.
Smartworks was officially listed on July 17 and made its debut with a 7% premium on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
The case originally began before SAT after Infrastructure Watchdog filed a plea asking SEBI to investigate alleged non-disclosures in Smartworks’ draft prospectus and to stop the company from going ahead with its IPO.
On July 16, SAT dismissed the NGO’s appeal.
The Tribunal gave several reasons for its decision:
- It noted that Smartworks’ red herring prospectus (RHP) and later addenda had already disclosed details of the complaints filed by Infrastructure Watchdog on January 12, March 29, and May 21, 2025, along with the company’s responses.
- Regarding income-tax reports relied on by the NGO, the Tribunal said these were “indicative in nature and not exhaustive” and had not led to any statutory notices or tax demands.
- The Tribunal also pointed to investor behaviour, observing that when the IPO opened, subscription was just 0.83% on Day 1. But after the July 11 addendum, which disclosed the NGO’s complaints, subscription jumped dramatically and finally closed at 13.45 times overall, including 24.4 times in the Qualified Institutional Buyers’ (QIB) category. As SAT noted: “It would be incongruous to assume that QIB investors and High Net Worth investors would have invested without proper analysis.”
- On the question of whether the NGO had the legal standing to file such a case, SEBI had argued that Infrastructure Watchdog was not a “person aggrieved” under Section 15T of the SEBI Act. SAT left this issue open but decided the matter on merits, citing “in the peculiar facts.”
The Tribunal was also informed that Infrastructure Watchdog might have been acting at the behest of estranged members of the Sarda family.
This was indicated by its possession of a withdrawn Punjab National Bank show-cause notice, which had been addressed to companies linked with the family.
CASE TITLE:
Infrastructure Watchdog vs Securities and Exchange Board of India (SEBI)
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