SEBI warns investors on issues by unlisted companies

Markets regulator Securities and Exchange Board of India (SEBI) on Thursday warned the public of some unlisted companies issuing debentures, preference shares as private placement without complying with law.

"Any offer of securities made to 50 or more people has to be construed as a 'Public Offer' under the provisions of Companies Act, 1956," SEBI said.

According to SEBI, some unlisted companies are luring retail investors by issuing securities including non-convertible debentures/ non convertible preference shares in the garb of private placement, without complying with the provisions of Companies Act, 1956 read with the Companies Act, 2013, SEBI (Issue and Listing of Debt Securities), Regulations, 2008 and SEBI (Issue and Listing of Non Convertible Redeemable Preference Shares), Regulations, 2013.

SEBI said under Companies Act, 2013, private placement shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe.

"Further, 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. Further, such offer or invitation shall not be made to more than 200 persons in the aggregate in a financial year," SEBI said.

SEBI has taken action against 112 such entities, since January 2013 for issuance of securities in the form of non-convertible preference shares/non-convertible debentures to public, without complying with the prescribed provisions of law.

"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.