Sebi warns firms against fraudulent NCD, NPS issues

Concerned over a large number of unlisted firms fraudulently raising money from the public, the Securities and Exchange Board of India (Sebi) on Thursday warned such companies and their directors of “stringent action” and asked investors not to be lured by such schemes.

The warning comes amid a continuing crackdown by Sebi against various unlisted companies that have lured retail investors by issuing securities such as non-convertible debentures/non-convertible preference shares, in the garb of private placement.

The regulator said it had taken action against 112 such entities since January 2013 for issuance of non-convertible preference shares (NPS) or non-convertible debentures (NCDs) to public without complying with regulations.

Such securities were issued without complying with the prescribed Companies Act and Sebi norms.

“Investors are also cautioned not to subscribe to such issues. Investors are advised to see whether any such entity has filed offer document or filed application with Stock Exchange for listing,” Sebi said in a public notice.

So far in 2015 itself, Sebi has passed orders against more than 50 companies in such cases. The companies against which action has been taken in the last few years include Polaris Agro Industries, Mangalam Agro Products Ltd, Mega Mould India Ltd, Alchemist Holdings Ltd and PAFL Industries Ltd.

By the Companies Act, 1956 any offer of securities made to 50 or more persons has to be construed as a “Public Offer”.

The new Companies Act also mentioned that “Private Placement” has to be made only to such persons whose names are recorded by the company prior to the invitation to subscribe.

It further says that in case of private placements, the company shall not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer.

Besides, such offer or invitation shall not be made to more than 200 persons in the aggregate in a financial year, the sectoral guidelines says.

Moreover, under the norms no issuer can make public issue of these securities, unless it has made application to the recognised stock exchanges for listing of such securities.

The issuer, among the other things, is required to file the offer document with Registrar of Companies and stock exchanges and has to make necessary disclosures.