Private placement route can have up to 200 investors

Tightening the norms for the much-abused private placement route of raising funds, the government today proposed to limit the number of investors in such schemes to 200 persons with a minimum investment size of Rs 50,000 each in a financial year.

The proposal is part of the draft norms, issued by the Corporate Affairs Ministry today, for the implementation of the Companies Act, 2013.

According to the draft rules, private placement offer or invitation "shall be made to not more than two hundred persons in the aggregate in a financial year". Qualified institutional buyers and employees of the company being offered securities under Employees Stock Options are exempted from the limit.

Further, the "value of such offer or invitation shall be with an investment size of not less than Rs 50,000 per person".

There have been cases where thousands of crores worth money have been raised through private placement of various securities, including debentures, without going through the public offer route where norms are much more stringent.

A long-running regulatory dispute has been been in case of Sahara, which had raised over Rs 24,000 crore through issuance of certain debentures on private placement to more than three crore investors.

After markets regulator Sebi cracked the whip, Sahara had challenged Sebi's jurisdiction saying that the money was raised through private placement and was not a public offer.

There have been many other cases where companies have raised money through large number of public investors, without necessary approvals and disclosuers required under public offer regulations.

With regard to private placement route for raising funds, the draft rules has said that number of such offers should not exceed four in a financial year.

Such offers can be utilised only once in the quarter of a calendar year, that too with a minimum gap of sixty days between any two such offers or invitations.