New companies Bill to ensure privately-held, unlisted companies can’t escape Sebi scrutiny.
All registered companies, both listed and unlisted, which raise public funds through sale of shares will be answerable to the Securities and Exchange Board of India (Sebi).
The new companies Bill, being formulated by the Ministry of Corporate Affairs, is expected to make it clear that privately-held and unlisted companies will not be allowed to escape Sebi scrutiny by claiming they are governed by the Registrar of Companies and the Companies Act, and not Sebi rules.
The move is significant in view of the ongoing Sahara-Sebi litigation, where Sahara has maintained that Sebi has no power to probe fund-raising by two of its group firms — Sahara India Real Estate Corporation and Sahara Housing Investment Corporation — as they are not publicly listed. These companies were raising funds from the public through an optionally fully convertible debenture scheme, allegedly without conforming to disclosure and other investor protection norms.
Even privately-held companies that have no desire to go public can come under Sebi scrutiny if they collect or propose to collect money through sale of shares from 50 and more individuals, according to official sources.
The move is part of the ministry’s efforts to stay clear of the jurisdiction issues with sector regulators such as Sebi and the Reserve Bank of India (RBI).
RBI had, in a representation to the parliamentary panel, complained that while the current law — the Companies Act, 1956 — applied to banking companies only if its provisions were inconsistent with the Banking Companies Act, 1949 (now the Banking Regulation Act, 1949), such a clause was missing in the Companies Bill, 2009.
The ministry is likely to pacify sector regulators by having a provision under which the central government will be able to exempt specific sectors from the purview of the Act through later notifications.
The Parliamentary Standing Committee that looked into the Bill had asked the ministry to ensure the sector regulators were left undisturbed.
Corporate Affairs Minister Veerappa Moily recently said his ministry would be ready with the Cabinet note on the Bill by the end of the week. The ministry has been awaiting the response of the finance ministry. The minister expects to introduce the Bill in the monsoon session of Parliament that begins on August 1.
