Sebi eases penal provision for deemed public offers

Unlisted companies raising funds through securities without having a public offer document will be exempt from penal action if they provide a refund option along with 15 per cent interest rate at the time of issuance, Sebi said today.
The relaxation will be applicable to entities that have raised funds by issuing securities to more than 49 persons, but up to 200 individuals in a financial year.
Under the Companies Act, 2013 -- whose most provisions came into effect from April 1, 2014 -- any offer or allotment of securities is considered as public issue if the number of allottees exceeds 200 persons in a financial year. This provision replaced the cap of 49 persons in the Companies Act, 1956.

In a circular, Sebi said that companies that have raised funds through issuance of securities to anywhere between 49 and 200 individuals in a financial year -- can now avoid penal action subject to certain conditions.
"...Firms may avoid penal action if they provide the investors with an option to surrender securities and get the refund amount at a price not less than amount of subscription money paid along with 15 per cent interest per annum thereon or such higher return as promised to investors," Sebi said.
The move on public issues also took into consideration the interest of investors while recognising their right to stay invested in case they feel it is beneficial to them.

The markets regulator said that refund will be made only through banking channels.

Such companies will be allowed to adjust the amounts already paid to the allottees either as interest, dividend or otherwise from the amount of refund to be paid to investors.
In the case of transfer of securities by the original allottees, option for refund may be provided to the current holders of the securities.
The repayment made by the company following the option for refund exercised by investors will have to be certified by independent practising chartered accountants, company secretaries or cost accountants.
The refund will be supported by proof of dispatch through registered or Speed Post or proof of delivery of letters if effected through any other mode.

In recent times, Sebi has clamped down on many cases where entities have illegally raised funds from the public. Collective Investment Schemes (CIS) come under the ambit of Sebi.