Bombay High Court refuses to stay LIC IPO

The Bombay High Court recently refused to stay the Draft Red Herring Prospectus (DRHP) filed by Life Insurance Corporation (LIC) of India for the issuance of shares though Initial Public Offering (IPO) to investors. [Charudatt Changdeo Pawar & Ors. v. Union of India & Ors.].The order came in a plea filed by three LIC policyholders challenging the forthcoming public offering and issuance of shares to the public by LIC. It challenged the portion under Finance Act which sought to amend the LIC Act.An ad-interim prayer was to stay the DRHP, which was rejected by the Bench of Justices Gautam Patel and Madhav Jamdar.The Bench however clarified that any public issue that LIC proceeds with between now and till the disposal of the writ petition will be subject to the final decision in the writ petition.The Central government is planning to divest 5% of its stake in the company through the IPO.50% of the net issue is reserved for qualified institutional buyers and non-institutional buyers will have 15% shares allocation, as per reports..The petition raised two fold contentions:That the Finance Bill that was a pre-cursor to the Finance Act 2021 could never have been passed as a Money Bill under Article 110 of the Constitution of IndiaThat the Finance Act, and specifically the amendments introduced by it to the LIC Act are ultra vires Article 300A of the Constitution of India.The petition contended that an allocation or reservation immediately gives every policyholder an estate in the surplus of the corporation.“…every single existing policyholder from LIC has a direct, enforceable and realizable interest in surplus. That surplus is, therefore, the “property of” every policyholder and of all policyholders as a class”, the petition stated.What the Finance Act 2021 seeks to do was introduce a new class of claimants to the surplus (shareholders) while earlier the entire cake belonged to policyholders, it was contended.This would amount to deprivation of property, which was in violation of Article 300A of the Constitution of India, the petitioner submitted. .The Court was, however, not convinced that policyholders could have an enforceable estate in the surplus of LIC fund.“…we do not see how this class of persons can say that the surplus or any part of the LIC fund is their ‘property’ within the meaning of Article 300-A of the Constitution of India. It may be one thing to say that a person has an entitlement to receive a dividend or a bonus or some form of payment. That might conceptually be very different from saying that the person has an in specie interest in the fund itself,” the order reasoned..Senior Advocate Pradeep Sancheti with Advocates Pulkit Sharma, Pooja Kane, Pallavi Bali, Saurabh Bachawat and Zaman Ali appeared for the petitioners.Additional Solicitor General N Venkataraman with Advocates Amita Katragadda, Prakhar Pandey, Preksha Malik, Gathi Prakash, Nidhi Asher, Isha Choudhary and Arushi Poddar briefed by Cyril Amarchand Mangaldas appeared for LIC.[Read order]