The company has not yet paid 15% interest on the proceeds that it had received for its failed public offer in 2007, despite the Supreme Court upholding SEBI’s order to repay applicants’ money in 2008

Hyderabad-based paper product manufacturer Sri Vijaya Lakshmi Paper Convertors Ltd (SVPCL) Ltd came out with its initial public offering (IPO) on 22 October 2007. In the draft red herring prospectus, it had informed market regulator Securities and Exchange Board of India (SEBI) that if 50% of the issue was not allotted to Qualified Institutional Buyers (QIBs), SVPCL would refund the entire application money.

BOB Capital Markets Limited was the lead book running manager and Aarthi Consultants Pvt Ltd was the registrar to the issue. The issue opened on 22 October 2007 and closed on 26 October 2007. The issue was subscribed 1.09 times.

The company had filed an application to list on the Bombay Stock Exchange (BSE) on 17 January 2008. However, BSE refused to allow SVPCL to list as it failed to comply with Section 73 (1A) of the Companies Act, 1956. The relevant section of the Act states that "if permission for listing is not granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists, then any allotment made in pursuance to the prospectus shall be void." SVPCL's post-issue banker UTI Securities Ltd (now Standard Chartered - STCI Capital Markets Ltd) didn't provide an undertaking that it had complied with Section 73 (1A).

The voluntary book-building clause of SEBI (DIP) Guidelines 2000 does not require minimum subscription by QIBs. However, as mentioned earlier, the company in its draft red herring prospectus (DRHP) and application forms had mentioned the following: "The Issue is being made through a 100% book-building process wherein up to 50% of the net issue to (the) public will be allocated on a proportionate basis to Qualified Institutional Buyers (QIBs) out of which 5% shall be available for allocation on a proportionate basis to Mutual Funds. If at least 50% of the Net Issue cannot be allocated to QIB Bidders, then the entire application money will be refunded."

Subsequently, SVPCL moved the Andhra Pradesh High Court, which again did not rule in favour of the company. The Mumbai Securities Appellate Tribunal (SAT) dismissed the appeal filed by SVPCL on 9 May 2008 to direct BSE to list its shares.  The company then filed an appeal against the SAT order in the Supreme Court, arguing that it had received an in-principle approval for listing from the BSE and the National Stock Exchange (NSE) on 18 May 2007 and 18 June 2007 respectively.

However, the Supreme Court (SC) dismissed SVPCL's plea on 20 August 2008, upholding SEBI's earlier order which had asked the company to refund the IPO money. The SC asked SVPCL to repay applicants' money along with 15% interest for delay beyond 10 November 2007. According to industry sources, the principal amount was fully repaid to all investors (numbering around 10,000) in 2009 but investors are yet to receive interest of 15% on the same.

"The registrar (Aarthi Consultants) has confirmed to us that all money (excluding the interest payout) has been refunded. During the legal tussle before repayment of the principal amount, the company had parked the funds with banks," said a source from an investment banking firm preferring anonymity.

The company had plans to utilise Rs24.44 crore from the IPO money to modernise and expand its existing manufacturing facilities at Hyderabad, Vijayawada and Visakhapatnam.

SVPCL officials were not immediately available for comment.