Smartworks Faces Valuation Inflation, Other Allegations Amid Ongoing IPO

In the midst of its initial public offering (IPO), coworking space provider Smartworks intimated markets regulator SEBI of an appeal filed against its promoter entities NS Niketan LLP and SNS Infrarealty LLP, jute baron Ghanshyam Sarda (who is the father of Smartworks cofounder Neetish Sarda), and SEBI at the Securities Appellate Tribunal (SAT) by an NGO, Infrastructure Watchdog.

The appeal has been filed on the grounds of alleged inaction by SEBI in relation to certain complaints filed by the appellant about Smartworks.

The NGO has urged SAT to direct SEBI to initiate investigation in the affairs of the company, restrain it from proceeding with the IPO till the completion of the investigation, and an interim order maintaining status quo on Smartworks’ public offering.

It filed the appeal at SAT on July 8 and said that Smartworks is under an investigation by the Income Tax department. It also alleged inadequate disclosure of inspection and investigation by the RoC over certain group companies in the RHP, allegations of receiving funds from shell companies and some amounts through benami transactions, among others.

Smartworks responded only to the shell company allegation, which pertains to benami entities making investments in the paid-up equity share capital of Smartworks by conversion of black money during 2017-2018 post demonetisation in India.

“Such illegitimate money is being used to increase the valuation of the company in the offer. These allegations are also mentioned in certain internal reports of the Income Tax department, wherein a probe of these matters by the Enforcement Directorate under the Prohibition of Benami Property Transactions Act, 1988 has also been proposed,” the NGO alleged.

Denying the allegation, Smartworks argued that its promoter LLPs have regularly filed their annual return and statement of account and solvency and charge filing in Form 11 and Form 8, respectively, since incorporation and their investment into the equity shares of Smartworks was funded through capital contribution of the respective partners of their LLPs.

The SAT heard the case yesterday and set July 15 as the next day of hearing. Notably, the company’s IPO, which got oversubscribed 1.15X on its second day, is due to close on July 14. Following this, the company’s shares are expected to list on the bourses on July 17. The company is eyeing a post-IPO valuation of INR 4,645 Cr at the upper end of the price band.

Prior to the fresh case, Smartworks acknowledged a total of 44 “common allegations” in its RHP, which were made against them between 2017 and 2021. The most salient of these allegations are mentioned below:

— Smartworks is under investigation by the Income Tax department and was planning raids against the company but “scrapped at the last moment”

—The company is facing investigations by the RoC, MCA’s regional director under direction of Serious Fraud Investigation Office, DGCA, ED and the CBI

— Founder and MD Neetish Sarda is facing criminal charges, including abetting a suicide of Anvay Naik and his mother, has been deported from the US in the past and allegations of taking huge loans in the name of Smartworks and diverting the funds to different companies

— The company is planning to inflate its valuation based on the number of rented spaces

— Businessman Ghanshyam Sarda is running the company for all practical purposes but has Neetish Sarda and Harsh Binani as fronts and that NS Niketan LLP and SNS Infrarealty LLP are indirectly controlled by him through multiple layers. He is also alleged to have connections within SEBI and intends to influence them to approve the issue

— The company has defaulted on loans obtained from ICICI Bank, IndusInd bank, South Indian Bank and HDFC Bank and categorised as NPAs by the banks

The company denied all these allegations.

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