Karamtara mediation ordered in Tarapur IPO contempt case

Karamtara’s Tarapur IPO contempt dispute is moving to mediation after the Bombay High Court directed the appointment of a mediator on September 1, 2026. The petition seeks remedies that include withdrawal of the Offer, while Karamtara denies that its public-company conversion or share offer created prohibited third-party rights in the Tarapur unit.

What is the Tarapur unit dispute behind Karamtara’s contempt petition?

The Tarapur unit dispute arises from Sai Galvanizers and Fabricators Limited’s February 25, 1997 challenge to the sale of its former mortgaged property to Karamtara. The property comprises building numbers G-3/1 and 2 in the MIDC Industrial Area at Tarapur Taluka, Palghar, Thane, and the original petition named SICOM Limited, Karamtara and Hanwant Manbir Singh as defendants.

Karamtara acquired the unit from SICOM under an agreement for sale dated July 4, 1997 for Rs 1.06 crore. SICOM had taken possession after Sai Galvanizers defaulted on loan repayment obligations, using powers under Section 9 of the State Financial Corporations Act, 1951. Sai Galvanizers alleges that the sale was conducted at a throwaway price through collusion, that SICOM failed to follow the required procedure, and that it acted arbitrarily.

Sai Galvanizers seeks Rs 10 crore in damages, excluding interest, against the defendants. The claim remains sub judice, meaning it has not been decided by a court, and the court may determine a different amount or interest. Karamtara filed its written statement on February 4, 2005, describing the allegations as false and frivolous; the sale challenge has since been transferred to and is pending before the City Civil Court, Mumbai.

Why does the Tarapur IPO contempt petition refer to Karamtara’s Offer?

The contempt petition contends that Karamtara’s Offer could create third-party rights in the Tarapur unit, but that contention is an allegation rather than a court ruling. Sai Galvanizers filed the petition before the Bombay High Court on October 17, 2025, alleging wilful disobedience of orders dated June 17, 1998 and August 11, 1998.

The 1998 orders directed appointment of a court receiver to take formal possession of the unit and provided that Karamtara should not create third-party rights in it until possession was handed to the receiver. Sai Galvanizers argues that Karamtara’s conversion into a public limited company and transactions in its securities, including the Offer, would give shareholders proportionate ownership of the company’s assets, including the unit.

The petition also alleges that unauthorised additions and modifications were made to the unit without court permission. It further alleges that Karamtara suppressed material facts in its draft red herring prospectus, or DRHP, including the interest component of the claim, which Sai Galvanizers says should be calculated at 24% a year from July 19, 1996.

Sai Galvanizers has sought a finding of civil contempt under the Contempt of Courts Act, 1971, penalties and formal possession by the court receiver pending final disposal. Its requested disclosure-related remedies are alternatives: Karamtara could be directed to revise the DRHP, remove the unit from the Offer and disclose that exclusion, or withdraw the Offer entirely and immediately.

How has Karamtara answered the Tarapur unit allegations?

Karamtara has rejected the contempt allegations in full and says the Offer concerns its shares rather than ownership of a specific underlying asset. Rajiv Singh, a director and heir of Hanwant Manbir Singh, and Sunil Kumar Rustagi on Karamtara’s behalf filed reply affidavits dated January 20, 2026.

Karamtara says the receiver appointment is asset-specific and applies only to the Tarapur unit. It says the Offer operates at the level of share capital and shareholding, while Karamtara remains a separate legal entity that owns its assets and carries its obligations before and after the Offer. On that basis, Karamtara says a shareholder does not obtain a third-party right in the unit by acquiring company shares.

Karamtara also states that no Bombay High Court order prohibits an alteration in its shareholding or ownership structure. Its reply says the contempt petition is misconceived and lacks the particulars of wilful disobedience required under the Contempt of Courts Act, 1971. The disclosure does not report a ruling on either that defence or Sai Galvanizers’ interpretation of the 1998 orders.

The dispute therefore turns on two different descriptions of the same corporate event. Sai Galvanizers treats public shareholding as creating rights connected to all company assets, whereas Karamtara says legal ownership of the Tarapur unit remains with the company. The distinction matters because the underlying sale challenge and the contempt petition remain pending in separate proceedings.

What has the Bombay High Court done and what remains unresolved?

The Bombay High Court has directed the appointment of a mediator, but it has not been disclosed as deciding whether Karamtara’s Offer breaches the 1998 orders. The mediation direction was issued on September 1, 2026, after the January 2026 reply affidavits. The disclosed record gives no settlement terms, mediation schedule or final ruling on the contempt petition.

Two procedural tracks remain active. The original February 1997 sale challenge, including the Rs 10 crore damages claim excluding interest, is pending before the City Civil Court, Mumbai. The separate October 2025 contempt petition is before the Bombay High Court and includes allegations against the individual promoters as heirs of Hanwant Manbir Singh, who was a defendant in the original proceedings.

A labour-related matter concerning the same unit is also pending. The Office of the Deputy Commissioner of Labour, Palghar asked Karamtara representatives to attend a meeting about workers engaged by Sai Galvanizers before Karamtara acquired the unit. In a September 25, 2024 letter, Karamtara said it acquired the unit in a public auction and that Sai Galvanizers’ liabilities had not transferred to it; a May 16, 2025 communication directed Managing Director Tanveer Singh to attend personally.

Karamtara classifies the Tarapur proceedings as material civil litigation under a board policy adopted on August 25, 2026. The policy covers litigation above specified financial tests or matters that may significantly affect business, operations, financial condition, prospects, reputation, results or cash flows, including disputes whose monetary amount cannot be quantified.

The Rs 10 crore claim before interest exceeds Karamtara’s disclosed profit-based materiality threshold of Rs 7.846 crore. The policy also uses 2% of the latest net worth and 2% of the latest turnover as tests. The contempt petition has non-monetary elements, including possession, prospectus disclosure and the requested withdrawal of the Offer, which are separately relevant under the policy’s significant-effect test.

Conclusion

Karamtara has not disclosed any court order halting its Offer. Instead, Sai Galvanizers has sought remedies extending to withdrawal of the Offer, and Karamtara has disputed the premise that a change in shareholding creates rights in the Tarapur unit. The Bombay High Court’s September 1, 2026 mediation direction leaves the central interpretation of the 1998 orders unresolved.

The next disclosed development is the mediator-led process ordered by the Bombay High Court. Its outcome may determine whether the parties reach a resolution or continue the contempt proceedings, while the City Civil Court, Mumbai retains the unresolved challenge to the July 1997 sale and the Palghar labour communication remains pending.