Bombay High Court declines LIC IPO stay

Bombay High Court declines LIC IPO stay

The matter pertained to the portion under the Finance Act 2021

The Bombay High Court has refused to stay the Draft Red Herring Prospectus (DRHP) filed by Life Insurance Corporation (LIC) of India for the issuance of shares through Initial Public Offering (IPO) to the investors.

Three policyholders had filed a plea challenging the forthcoming public offering and issuance of shares to the public by LIC.

However, the bench of Justice Gautam Patel and Justice Madhav Jamdar rejected the ad-interim prayer. But, it clarified that any public issue that LIC proceeded with would be subject to the final decision in the writ petition.

Meanwhile, the Central government has plans to divest 5 percent of its stake in the company through the IPO. While 50 percent of the net issue is reserved for the qualified institutional buyers, the non-institutional buyers would have a 15 percent shares allocation.

The petition had raised the contentions that the Finance Bill, a pre-cursor to the Finance Act, 2021 could never have been passed as a Money Bill under the Constitution of India. Also, the amendments introduced by it to the LIC Act were ultra vires of the Constitution of India.

The petition stated, "Every single existing policyholder from LIC has a direct, enforceable and realizable interest in surplus. That surplus is the property of every policyholder and of all policyholders as a class."

It further said that while earlier it all went in favor of the policyholders, the Finance Act sought to introduce a new class of claimants to the surplus shareholders. This would amount to a deprivation of property, which was in violation of the Constitution of India,

However, the court reasoned, "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 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 specific interest in the fund itself."

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.