Fear and loathing in IPO land

Roshan Parwatay

The 'Outstanding litigations, defaults and material developments' section of an offer document is an interesting place to visit. This page is often littered with litigation that range from the hilarious, shocking to the loathsome.

The Securities Exchange Board of India has made disclosure mandatory. Yes. But is this enough? Should companies with dubious pasts and tangled litigation be allowed to go public? If the promoter of the company is accused of murder, will the investor feel comfortable investing in this company? So what if he is not the director (by resigning weeks before the book-building starts)? The primary market ought to be troubled by these and other issues. Here are some examples of litigation dramas:

Suchinfotech Limited came up with a public issue on August 18, 2000. A criminal case is filed against one of the promoter-directors, D Sreedhar Reddy, for 'wall writing'. Two things come to mind. First, wonder what the guy wrote. Second, is it relevant to the public issue? But then, SEBI wants you to know about them all. Of course, not all litigation is as amusing.

Pritish Nandy Communications telecast a programme on Doordarshan in which a prize was a return ticket to Singapore. Chetan Pandit won the prize, but obviously found Singapore a bit too tough to reach. PNC said he was not in a 'position' to 'claim the prize in a manner that satisfied PNC.' He filed a case against PNC through the Monopolies and Restrictive Trade Practices Commission. One can only imagine what kind of conditions PNC must have imposed to get a ticket to Singapore.

Ramesh Taurani of Tips Industries is one of the accused in the Gulshan Kumar murder case. When Tips started the book-building exercise in April, investment bankers told him to step down as director. Despite the booming market for entertainment stocks, this one was a bit too hot for bankers and public relations agencies to handle.

1. Tips Industries: The company has a total pending tax liability of Rs 101.33 million (another group company has Rs 18.79 million). Total profits last year: Rs 235.75 million.

2. Pritish Nandy Communications: Deepak Babani has filed a case against pnc.com Pvt Ltd, a Pritish Nandy Communications group company, for Rs 11.16 million. Babani claims he paid Rs 7.5 million to pnc.com for buying 50,000 shares. He charges that he neither received the shares nor acknowledgement of payment. PNC claims the money was payment for some software it supplied. Babani's criminal case against Pritish Nandy and Rina Nandy is pending.

Herald Advertising Agency, Delhi, has filed a suit to recover Rs 392,330 (out of Rs 650,650). Herald telecast a programme on behalf of PNC on Doordarshan. PNC claimed it owed Herald only Rs 315,625 and refused to pay the rest.

2. Hughes Tele.com: It is India's first private telecom company to come up with a public offer. Income tax authorities have levied penalty worth Rs 92.72 million for 1998-99. The recovery has been stayed till August 2000 and is currently under appeal.

Also, in September 1999 the former president and CEO of the company has filed a suit against the company in the district court of Maryland, USA, for breach of contract, fraud and negligent misrepresentation. He seeks US $ 60 million as compensation. Fifteen suits have been filed against Ispat Industries, the co-promoter company.

3. Mukta Arts: Drishti India Limited (a group company) is proving to be a black sheep for chairman Subhash Ghai. Prasar Bharati has issued a notice against Drishti for non-payment of minimum guarantee fees to Doordarshan amounting to Rs 33.65 million, plus, interest at 18 per cent per annum from the due date.

5. Nimbus Communications: This company has not yet come out with an issue. But the pending litigation page is far longer than most companies.

a. Nimbus vs Prasar Bharti: Nimbus charged that Prasar Bharti unilaterally revised the minimum guarantee on the television programme Superhit Muqabla, which was beyond the terms of agreement and claimed Rs 99 million for loss of future profits. Prasar Bharti has made a counter claim of Rs 62.8 million.

b. Nimbus vs Chatrabhuj Amrit Burfo Films: CABF terminated the marketing agreement of Sahara. Nimbus has made a claim of Rs 8.05 million and interest at 24 per cent. CABF has made a counter claim for Rs 8.58 million.

c. Nimbus vs Navodaya: Following the termination of the marketing agreement of Bible Ki Kahaniyaan by Navodaya, Nimbus made a claim of Rs 2.85 million. Navodaya has made a counter claim for Rs 87.7 million.

d. Nimbus vs Shishir Gupta Productions Pvt Ltd: Following discontinuation of the telecast of a serial, Manorama Cabin, for which Nimbus was appointed as a marketing agency, Nimbus has sought to adjust Rs 1.98 million due to Shishir Gupta Productions.

e. Media personality Saeed Naqvi has sued Harish Thawani and Nimbus, alleging breach of contract and claiming damages of Rs. 200,000 and interest.

f. Sa Sa Creations has sued Nimbus for Rs 1.12 million of unpaid bills.

By Kensource Information Services Pvt Ltd

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