As per Sebi regulations, any offer of securities to more than 49 entities constitutes a 'public issue' and hence requires approval from the capital markets regulator. Photo: Abhijit Bhatlekar/Mint
Mumbai: The Securities and Exchange Board of India (Sebi) is coming down heavily on companies that are raising money from a large number of investors without obtaining regulatory approvals, much like two Sahara Group entities that fell afoul of the capital market watchdog.
In less than a week's time, Sebi has passed orders against as many as 11 companies, barring them from raising fresh funds, prohibiting their directors from dealing in the securities market and barring them from disposing of any assets until a final order is passed.
An email query sent to Infocare Infra remained unanswered till the time of going to press.
The other companies could not be contacted as there was no website or contact details available.
The cumulative amount raised by the 11 entities is nearly Rs.110 crore, as per Sebi orders put up on the website of the regulator.
According to the Sebi orders, these companies were selling securities to a large number of investors in the form of non-convertible debentures, optionally convertible unsecured debentures and redeemable preference shares that earn investors regular interest income along with maturity benefits.
As per Sebi regulations, any offer of securities to more than 49 entities constitutes a "public issue" and hence requires approval from the capital markets regulator. MARS Agrofarm, for instance, allotted shares to 237 individuals, according to the Sebi order.
While regulations clearly state that any offering of securities to more than 49 entities require Sebi approval and has to be listed on stock exchanges, the apex court ruling only reinforced the applicability of the laws, legal experts said.
The Supreme Court, in its order in the Sahara matter, said: "If an offer of securities is made to fifty or more persons, it would be deemed to be a public issue, even if it is of domestic concern or proved that the shares or debentures are not available for subscription or purchase by persons other than those received the offer or invitation."
"...that any share or debenture issue beyond forty nine persons, would be a public issue attracting all the relevant provisions of the Sebi Act, regulations framed there under, the Companies Act, pertaining to the public issue," it added.
To be sure, the money raised by these companies is just a fraction of what was raised by the Sahara entities. Rista Fisheries and Infrastructure raised Rs.8 crore while Maxbe Green Provision raised Rs.1.36 crore, as per the Sebi orders.
Lawyers also point out that the Sahara ruling provides more sanctity to the orders by Sebi, which has sent out a strong signal by barring companies even in cases where only a small amount of money has been raised.
"The Supreme Court ruling in the Sahara matter only reinforces the Sebi laws, which were already in place, though each of the orders would be tested independently on facts of the matter (if challenged)," said Loona, who has previously earlier worked as an executive director in the legal department of Sebi.
Responding to an email query sent by Mint, a Sebi spokesperson acknowledged the fact that the Supreme Court ruling in the Sahara case has provided more sanctity to the Sebi orders, but added that in the last two financial years, Sebi has passed over 125 such orders of which 120 were passed in the current financial year.
Sahara has filed a defamation case in a Patna court against Mint's editor and some reporters over the newspaper's coverage of the company's dispute with Sebi. Mint is contesting the case.
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