Is SEBI’s action on Coal India too harsh?
Moneylife Digital Team 21 October 2010

In the past, companies have left out significant information like pending litigation against them from their red herring prospectuses. Coal India, however, was pulled up just for a typographical error

Has the Securities and Exchange Board of India (SEBI) been unduly harsh with Coal India Ltd (CIL) by asking it to give institutional investors an exit option because of a typographical error? (See: http://moneylife.in/article/81/10190.html).

A look at a few instances where such withdrawal notices had to be posted certainly suggests that is the case.

Moneylife unearthed four instances where SEBI had asked companies to give investors an option to withdraw their subscriptions from Initial Public Offerings (IPOs). They were MBL Infrastructures Ltd, Aishwarya Telecom Ltd, Anu's Laboratories Ltd, Aster Silicates Ltd and VA Tech Wabag Ltd.  In each of these cases, the companies had left out significant information about litigation filed against them or complaints over non-payment. None of them pertained to something as trivial as a typographical error that does not affect the financials of the company.

In December 2009, MBL Infrastructures Ltd issued a notice saying that it omitted some information from its red herring prospectus (RHP) under the 'outstanding litigations and material development' section. The company said it did not mention in the RHP that it had been prohibited by the road construction department (RCD), Jharkhand, from participating in tenders in the state.

In the second instance, while MBL Infrastructures did provide information about a petition filed against it by Jan Kalyan Morcha, an NGO, it did not disclose its admission to certain damages to a road that it had constructed. It also failed to disclose the report and remarks of a five-member committee appointed by RCD pursuant to observations by the Jharkhand High Court to enquire into the reasons for the deterioration of the road.

Aishwarya Telecom claimed that it was a "bona fide mistake" on its part in not disclosing a case filed against it by Jaipur-based EL-Tronics before the District Consumer Forum III, Hyderabad. The company had to add a clarification in its RHP under the 'risk factors' and 'outstanding litigation and defaults' section. Aishwarya Telecom Ltd admitted that it diverted the delivery of the material ordered by El-Tronics to another client to meet "certain business urgencies", due to which El-Tronics filed a case against it.

Anu's Laboratories also failed to disclose information about litigation filed against it by Sunmoom Chemicals Pvt Ltd and had to add the same in its RHP under the 'outstanding litigations and material development' section in May 2008.

This year two companies - Aster Silicates and VA Tech Wabag - had to delay their IPOs due to non-disclosures in RHPs. In July 2010, Aster Silicates had to clarify and provide details of the allegations made by Balwant Jain and Sandip Bhandari against one of its promoters, Mahesh Maheshwari, in its RHP over pledging of shares.

In the case of VA Tech Wabag, it was found that the company provided wrong comparison about its financials and its peers in the RHP. While VA Tech Wabag provided its financials on a consolidated basis, for its peers it provided information on a standalone basis besides adding a note at the end of the table that all figures were on a consolidated basis. This was done with an intention to show VA Tech Wabag in a better position than its competitors.

After SEBI sent a letter, the company had to delete the footnote. However, in the public notice, it said that VA Tech Wabag was not in a position to confirm whether the figures are on a standalone or a consolidated basis.

Looking at the above instances, why was CIL pulled up for a simple typo?

Comments
VISHAL
1 decade ago
Yes Indeed!

In fact if you see previous years result. You can clearly figure out that error. Also if you compare with consolidation number then also you can figure that error.

So it's just an typing error which can be understood while going through financials of the company.
Narendra Doshi
1 decade ago
What about SKS Microfinance very recent IPO & the subsequent removal of its CEO etc?? Could you please inform - Moneylife Digital Team
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