Sebi cautions investors against fraud public offers

Ashish Rukhaiyar

1 August 2015

Mint

Mumbai, Aug. 1 — The Securities and Exchange Board of India (Sebi) has cautioned investors against investing money in companies that make a public offer without complying with the necessary legal and regulatory framework. Since January 2013, the capital market watchdog has taken action against 193 such entities, according to a press release issued on Friday.

“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,” said the release.According to Sebi, any offer of securities made to 50 or more persons is considered to be a public offer under the provisions of Companies Act, 1956. The aggregate number of persons to whom such an offer can be made has been capped at 200 in a single financial year.

The Companies Act states that a private placement can be made only to such persons whose names are recorded by the company prior to the invitation to subscribe. Further, the company is not allowed to release public advertisements or use agents to market such an offer.

Sebi has warned the companies as well of stringent action if they make a public issue without applying to the stock exchanges and filing an offer document with the exchange, Sebi or the Registrar of Companies with proper disclosures about the promoters of the company, the risk factors, etc.

“Companies are cautioned not to issue securities to public without complying with provisions of law.failing which Sebi will be constraint to take stringent action against such companies and their directors,” said the release.