Stuck IPOs of Thyrocare, RBL Bank may get a relief

Sebi's decision to not penalise unlisted entities for violation of public issue norms may boost public offering plans of other companies as well

The Securities and Exchange Board of India (Sebi)’s recent decision to not penalise unlisted entities in breach of the public issue norms is a shot in the arm for the latter’s initial public offering (IPO) plans.

At least six companies, according to a source, were not able to proceed with their IPO plans, having breached the investor cap prescribed in the erstwhile Companies Act. Sebi at its board meeting on November 30 clarified that such companies will avoid penal action if they provide investors an option to surrender their securities.

In the Companies Act, 1956 (since replaced) an unlisted company cannot allot securities to more than 49 investors in a financial year. The clause was relaxed in the Companies Act, 2013, where the cap was increased to 200 investors.

SHOT IN THE ARM

• In the Companies Act, 1956, an unlisted firm cannot allot securities to more than 49 investors in a financial year
• IPO plans of Thyrocare Tech and RBL Bank didn’t get the Sebi’s nod for this reason
• At least 6 companies were not able to proceed with their IPO plans
• Sebi on November 30 said such companies will avoid penal action if they provide investors an option to surrender their securities

Sources said the IPO plans of diagnostics chain Thyrocare Technologies and private sector RBL Bank (former Ratnakar Bank) didn’t get the market regulator’s nod for this reason. Legal experts said Sebi’s latest clarification will help these two companies and five-odd others which have not been able to file their IPO documents.

“Sebi has come out with a pragmatic and good solution of not imposing any penalty if there is a refund of money to shareholders,” said Sudhir Bassi, executive director, Khaitan and Co, a leading law firm. “At least four-five companies which couldn’t file for IPOs due to this reason. Some of them will now come out with their IPOs.”

Sebi has said companies in breach will have to offer refunds to investors at an amount not less than the allotment price, along with interest of 15 per cent annually.

Ajay Saraf, executive director, ICICI Securities, said some companies had inadvertently breached the cap. Sebi in the recent past has passed orders against a number of companies that have been raising money from a large number of investors. However, most of these were seen as operating illegal money collection schemes.

While ruling in the Sahara matter, the Supreme Court had said any offer of securities, debt or equity, to more than 50 persons would be deemed a public issue.