Norms on private placement of shares are likely to be tightened soon to make the practice more transparent and free of misuse.
A notification has been prepared by the Ministry of Corporate Affairs that makes it mandatory for companies to file each placement individually with the registrar of companies (RoC).
This will help enforce the upper limit of 49 individuals or entities who can be issued shares through private placement, an official said.
If the number of individuals or entities is 50 or above, it is considered a public placement and will have to be carried out under relevant Securities and Exchange Board of India (SEBI) provisions.
The move comes on the back of a recent dispute between the market regulator SEBI and Sahara Group where the latter has been asked to refund Rs 24,000 crore to investors.
Sahara raised over Rs 19,400 crore from 2.21 crore investors, terming it a “private placement”. But SEBI said that this was a public issue that required any company to follow all the filing and disclosure norms for such issues.
Through this alleged “private placement” offer to “friends, associates, employees” and so on of the group, the Sahara companies managed to raise more money than any other initial public offering (IPO) till date.
The largest IPO was by Government-owned Coal India. It raked in only Rs 15,475 crore. The Reliance Power IPO, which had investors lining up to open new demat accounts, collected Rs 11,600 crore.
The Sahara real estate “private placement” was not a seven-day affair. The offer of optionally fully-convertible debentures was open for a period of three years from April 2008 to April 2011, during which the companies raked in this massive sum.
If the new notification gets through, companies will have to wait much longer to get clearance for up to 49 private placements, as the RoC typically takes an hour to a day to file and close each placement.
“This will help stop the misuse (of the law) by companies where several placements get cleared on an hourly basis and no one knows how,” said the official.