The proposed committee will look at plugging any regulatory loopholes between the Sebi regulations and what is outlined in the Companies Bill, 2012, which is expected to be passed by the Rajya Sabha in the upcoming monsoon session of the Parliament.
As per Sebi regulations, a private placement is an issue of shares or of convertible securities by a company to a select group of persons, which is neither a rights issue nor a public issue. However, as per the provisions of the Companies Bill, 2012, issuance of securities to up to 50 persons or entities would be considered as private placement. Securities include a whole gamut of instruments such as debentures , shares, bonds, or other marketable securities of a like nature, including rights or interest in securities.
If an entity issues securities to persons/entities exceeding this limit, then it will have to make it public under the proposed new company law, said a senior corporate lawyer. The stress in the new Companies Bill, 2012 is on securities and not just shares.The Sebi regulations says private placement of units. These issues can be looked in to by the committee, a company law expert said.
The Companies Bill, 2012, also proposes to place a clear time gap between two private placement. Which means, in a single financial year, any company can only undertake private placement once with up to 50 persons. Overall, any entity can raise money via private placement from a maximum of up to 200 persons. Such restrictions are not visible in the Sebi regulations, the expert said.
Sebi on April 16 had come out with a notification to further amend the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. In the proposed regulations, Sebi said: Private placement of securities can happen only after prior approval by the board and the trustees. Also, the company shall have to file a placement memorandum with the board at least seven days prior to the launch of the scheme.
Private placement of securities a relatively faster way to raise funds are governed by both the Companies Act and the Sebi regulations. According to official sources, the move to set up a committee by MCA comes amidst rising instance of private placement being misused by various entities for raising of funds from the public.
Instances of entities misusing the private placement route to garner funds have come to light in recent times. Sahara India Real Estate Corp Ltd (SIRECL) and Sahara Housing Investment Corp Ltd (SHICL) which together raised more than R24,000 crore through private issue of securities were found to have violated various provisions of the Companies Act and the Sebi Act. The two companies have been asked by the Supreme Court to refund the money to investors.