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SAT quashes appeal against IPO of Tamilnad Mercantile Bank Ltd

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SAT on 02.09.2022 had quashed appeals of several shareholders of Tamilnad Mercantile Bank Ltd, including ROBERT AND ARDIS JAMES FOUNDATION INC, EAST RIVER HOLDINGS, L.P., Swiss Re who were not allowed to participate in the recent IPO of the Bank and sell their shares through Offer For Sale.

Tamilnad Mercantile Bank Ltd had issued Draft Red Herring Prospectus last year. The proposed issue was a mix of fresh issuance of shares and OFS by the existing shareholders. However, several existing shareholders of the Bank were excluded from participating in the OFS due to outstanding litigations involving shares of the bank. These shareholders, aggrieved by the decision of the Bank, filed a writ petition in the High Court of Bombay challenging the decision of the Bank.

During the pendency of the matter, the Bank filed an application before SEBI to allow the Bank to modify its draft prospectus and remove OFS from it without filing a new prospectus. SEBI accorded the exemption to the Bank in exercise of power to exempt provided under ICDR Regulations. The present appeal was filed challenging this exemption provided by SEBI on the ground that the company was bound to issue a fresh resolution upon changes in the prospectus as per the Companies Act. Further, the Bank’s decision to exclude certain shareholders from participation in OFS was not tenable as the outstanding litigations against them involving shares of the Bank does not restrain them from disposing these shares.

The Bank and SEBI on the other hand contended that the exemption is provided from fresh filing of offer document for removal of OFS portion from the public issue. Further, they argued that the appellants have no locus standi as they are not aggrieved and that their shares were not eligible for OFS and were rightly not included in the DRHP.

SAT upheld tha arguments forwarded by SEBI and the Bank and held that the case of appellants for inclusion in public issue is pending before the High Court of Bombay . In the present instance, they cannot be considered as aggrieved parties as they were not part of OFS at the first place. Further, SEBI follows a disclosure based regime and does not regulate on merits or approve an offer document such as the DRHP but only mandates true and fair adequate disclosures. In the present instance, the exemption was provided with a view to ensure that adequate disclosures in the DRHP is made to enable the investors to make an informed decision.

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