The new Companies Act has given a comprehensive jurisdiction over all offers made to 50 or more persons to Sebi irrespective of the name they are called or other conditions attached to these.
According to the new provisions, if a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to 50 or such higher number as may be prescribed, the same shall be deemed to be an “offer to the public” and shall accordingly be governed by the provisions provided in this regard by the Securities And Exchange Board of India(SEBI).
Though the earlier legal position of the law on issues of securities made to over 50 persons was held to be the same, there was no express provision that covered the differences between a private placement and a public offer. There were also instances where companies argued that the Sebi powers are limited to the offers by listed companies.
But the new provisions clearly state that, “whether the payment for the securities has been received or not or whether the Company intends to list its securities or not on any recognized stock exchange in or outside India,” once the number of investors exceed the prescribed number they will be deemed to be public offers and regulated accordingly. “Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be required to be complied with,” the act said under the chapter dealing with private placements.
“All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash,” it said.
Recently, the Supreme Court had upheld the jurisdiction of Sebi over a “placement” of optionally fully convertible debentures by two Sahara group firms to over 29 million investors.