SEBI issues caution notice against unlawful private placement
Published: Feb 01, 2017
By TIOLCORP News Service
MUMBAI, FEB 1, 2017: SOME unlisted companies are luring retail investors by issuing securities including non-convertible and convertible debentures/non-convertible and convertible preference shares/equity shares in the garb of private placement, without complying with the provisions of Companies Act, 1956 read with the Companies Act, 2013, SEBI (Issue and Listing of Debt Securities), Regulations, 2008, SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares), Regulations, 2013 and SEBI (Issue of capital and Disclosure Requirements) Regulations, 2009. To stop this practice, SEBI is taking every possible steps like cautioning investors and imposing penalty on these errant companies. In this context SEBI issued a press release cautioning investors against such illegal private placements.
Under the provisions of Companies Act, 1956, any offer of securities made to 50 or more persons has to be construed as a "Public Offer". Under Companies Act, 2013, "Private Placement" shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe. Further, in case of private placements, the company shall not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer. Further, such offer or invitation shall not be made to more than 200 persons in the aggregate in a financial year.
As per the provisions of Companies Act, 2013 and SEBI Regulations, no issuer shall make public issue of these securities, unless it has made application to the recognized Stock Exchange(s) for listing of such securities. Further, the issuer, among the other things, is required to file the offer document with RoC/Stock Exchange/SEBI etc. The issuer has to make disclosures about the issuer company, the promoters of the company, the risk factors etc.
SEBI has taken action against 256 (as on January 10, 2017) such entities for issuance of securities in the form of non-convertible and convertible preference shares/non-convertible and convertible debentures/equity shares to public, without complying with the prescribed provisions of law. SEBI has also passed orders against entities/individuals who have acted as debenture trustees for debt issuance of companies without being registered with SEBI as Debenture Trustee as per SEBI Act, 1992. SEBI has cautioned companies not to issue securities to public without complying with provisions of law as referred above.
