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Business News/ Market / Stock-market-news/  Sebi targets firms raising funds from large number of investors
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Sebi targets firms raising funds from large number of investors

Markets regulator passes orders against 11 companies, prohibits directors from dealing in securities market

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/MintPremium
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.

The companies that have faced Sebi action include Asoka Life Science Ltd, Astha Techno Realty India Ltd, Cell Industries Ltd, Goldmine Food Products Ltd, GSHP Realtech Ltd, Infocare Infra Ltd, Jeevan Suraksha Real Estate Ltd, MARS Agrofarm Developers Ltd, Maxbe Green Provision Ltd, Rista Fisheries and Infrastructure Ltd and Sunshine Hi-Tech Infracon Ltd.

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 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.

Interestingly, all the orders have extensively quoted the Supreme Court order passed on 31 August 2012 in the matter between two Sahara group entities and the Sebi. The apex court ordered Sahara India Real Estate Corp. Ltd and Sahara Housing Investment Corp. Ltd to return 24,030 crore along with 15% interest to nearly 30 million investors in so-called optionally fully convertible debentures.

Sahara group chief Subrata Roy and two of his directors have been in jail since 4 March last year after the group failed to obey court orders.

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.

R.S. Loona, managing partner, Alliance Corporate Lawyers, a law firm, says any issue made to more than 49 entities is considered to be a deemed public issue and Sebi’s contention is that these companies are in non-compliance with the Companies Act and also the Issue of Capital and Disclosure Requirements (ICDR) Regulations.

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 8 crore while Maxbe Green Provision raised 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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Published: 30 Mar 2015, 12:49 AM IST
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