Bombay High Court ruling throws light on misuse of petitions to stall IPOs

Experts call for frameworks to identify, deter vexatious legal challenges

A recent Bombay High Court ruling upholding market regulator Securities and Exchange Board of India’s (Sebi’s) nod for the initial public offering (IPO) of WeWork India Management has brought to focus the misuse of petitions that often lead to vexatious legal challenges.

 

A slew of initial public offering (IPO)-bound companies this year have got into legal trouble during the launch of their share sale.

 

In July, an NGO moved the Securities Appellate Tribunal (SAT) seeking to restrain the IPO of Smartworks Coworking. The tribunal dismissed the plea, observing that no valid ground had been made to stall the issue. 

BlueStone Jewellery and Lifestyle, too, faced legal hurdles during its IPO process and the most recent example is that of WeWork.

 

The grounds cited in such petitions range from alleged disclosure lapses and disputed legal interpretations to questions around shareholder classification.

 

While not all complaints are frivolous, experts say petitions timed close to an IPO or listing often raise concerns about mala fide intent.

 

“The timing of shareholder-driven litigation or regulatory complaints is rarely accidental. More often than not, these actions surface precisely when a company is poised for a significant growth event — such as an IPO or a major fundraise — when the scope for disruption is the highest,” said Abhiraj Arora, partner, Securities and Regulatory Practice, Saraf and Partners.

 

Experts said any complaint or issue raised at the time of filing a draft red herring prospectus (DRHP) is the right approach as it gives the issuer as well as the regulator ample time to take remedial action.

 

During WeWork India’s IPO in October, multiple writ petitions were filed in the Bombay HC, challenging Sebi’s approval on disclosure-related grounds.

 

The court’s scrutiny, however, revealed serious impropriety on the part of a petitioner, prompting the court to dismiss the petition and impose costs of ₹1 lakh. Another petition filed against the company is still pending before the court.

 

In an official statement, WeWork India said the last-minute petitions were aimed at derailing its IPO, noting that the petitioners were not IPO investors. They had approached the court just a day before the issue opened, despite the draft prospectus being in the public domain for several months.

 

Industry participants point to corporate rivalry as a possible driver in some of these cases.

 

“In recent times, there has been a noticeable trend of rival firms engaging in proxy battles through front entities, often small investors. These fronts typically hold modest shareholdings, sometimes amounting to just a few thousand rupees. Yet they seek judicial intervention in matters involving significant commercial interests,” said Vinay Chauhan, counsel at the Bombay High Court and a securities lawyer.

 

“Experience shows that such petitions are sometimes orchestrated by business rivals or parties with vested interests, using shareholders as a front to advance their own agendas. Courts and regulators are increasingly alert to these tactics, ensuring that capital markets remain a forum for fair competition rather than strategic obstruction,” Arora added.

 

Chauhan also underscored the need for systemic safeguards. “There is a critical need to establish comprehensive frameworks to identify and deter vexatious legal tactics. Such measures would help protect the integrity of legal and regulatory institutions from being misused under the guise of shareholder activism or related concerns,” he said. 

Activism or ploy?

• Recently, Bombay HC, in a ruling, upheld Sebi’s nod for WeWork India’s IPO
• The judgment flagged misuse of shareholder activism
• In some cases, rival firms were seen to be driving proxy legal battles
• Experts say the timing of the petitions raise concerns about mala fide intent