Sebi pulls up Kolkata firm for illegal debt issue

The Securities and Exchange Board of India (Sebi) on Wednesday told the Supreme Court that it had issued a show-cause notice to a Kolkata-based realty and infrastructure company, Vibgyor, for allegedly issuing securities to the public in breach of the rules.

Sebi said Vibgyor was the only entity found issuing securities in a manner similar to the Sahara group. It did not disclose further details about the number of investors involved or the amount raised by Vibgyor. The counsel for the ministry of company affairs also agreed with Sebi’s contention, adding all other companies that had issued securities to 50 or more people had listed their securities on the stock exchanges.

Sebi’s disclosure came during the hearing of an appeal by the Sahara group against the regulator’s order to refund money raised by issuing optionally fully convertible debentures, allegedly in violation of public issue norms. However, Sahara contends it was a private placement by unlisted firms and, therefore, not under the purview of Sebi.

Sahara completed its arguments on Wednesday. Sebi and the ministry of company affairs will respond tomorrow.

The Vibgyor group also has interests in automobile, cement, finance, information technology, IT-enabled services and PVC pipes, according to the group website. Promoted by Raja Bhadra, in his 30s, the group has plans to enter capital-intensive businesses such as “steel industry and a four-wheeler project”.

“Vibgyor Group was born out of the dream, vision and burning desire of a young person in his early 20s from Kolkata, on March 13, 2002...From a humble beginning, not too long ago, the Group has emerged as a fast moving business house and been able to make its own place in the corporate globe of India,” the website said.

Raj Kishore Ram, company secretary, Vibgyor, said,” We have already responded to the Sebi notice.” He declined to give details.

Earlier the Sahara counsel, Gopal Subramanium, arguing against the concept of an obligation to list if an issue crosses 50 investors, said while a private company can be started with a capital of Rs 10 lakh, listing of securities required a much higher capital, of a few crore rupees. “Does it mean that anyone who doesn’t have these crores cannot run a business in this country? That cannot be the intent of the legislation,” he added.

At this point, judge J S Khehar said, “But this is a provision of law (that an offer of securities made to 50 or more persons amounts to an offer to the public under the proviso to Sub-section 3 of Section 67 of the Companies Act).”

The Sahara counsel then said many companies in their early days had used the private placement route to raise funds from over 50 persons, citing the example of N R Narayana Murthy of Infosys. To this, the judge said, “If they did, then they violated the law.” The court asked Sebi whether it had any details of Infosys raising money this way in its early days and the Sebi counsel responded, “I don’t know what they are talking about,” asking Sahara to substantiate. The Sahara counsel replied it was for Sebi to find out.