Listing, and issue of prospectus mandatory before public placement offer —SEBI found Alchemist Capital Ltd and its directors guilty of illegally raising capital from the public

Security and Exchange Board of India: Alchemist Capital Ltd (“ACL”), an NBFC, has been found guilty for making offer and allotment of securities (RPS) in the garb of private placement to general public without complying with law.  The Company failed to comply with the norms stipulated for public issue of securities under the Companies Act, 1956 (sections 56, 60 read with section 2(36), 73) and the DIP Guidelines read with the ICDR Regulations. The Company had made a public issue of securities, it was under an obligation to comply with the Companies Act, 1956, SEBI Act, and the rules, regulations and guidelines framed thereunder which regulate the public issue of equity shares.  

ACL did not issue a prospectus before making offer neither did it listed itself to any recognized stock exchange. Section 73(1); of the Companies Act, 1956 casts an obligation on every company intending to offer shares or debentures to the public to apply on a stock exchange for listing of its securities. Such companies have no option or choice but to list their securities on a recognized stock exchange, once they invite subscription from over forty nine investors from the public. If an unlisted company expresses its intention, by conduct or otherwise, to offer its securities to the public by the issue of a prospectus, the legal obligation to make an application on a recognized stock exchange for listing starts. Section 2(36) of the Companies Act read with section 60 and 56  thereof, mandates a company to register its ‘prospectus’ with the RoC, before making a public offer/ issuing the ‘prospectus’. ACL did neither issue nor file any Prospectus with respect to its offer and allotment of RPS. Also, the company did not file any offer document with SEBI and has also not complied with the requirements of regulation 111 of the ICDR Regulations (erstwhile DIP Regulations).  For the above mentioned contraventions the Company is held liable to make refunds as per the mandate under section 73(2) of the Companies Act, 1956 and also for regulatory action for committing the above violations.

The capital market watchdog relying heavily on the Supreme Court’s ruling in the Sahara India Real Estate Corpn case held that the exemption, w.r.t public placement, available to an NBFC under the second proviso to section 67(3) of the erstwhile Companies Act, 1956 is only with respect to the number of persons and not the complete provisions of section 67(3).  SEBI ruled that the onus is on the company to prove that the offer it had made is a private placement of securities. Mere statement that the issuance of shares was not calculated to result, directly or indirectly, in the shares becoming available for subscription or purchase by persons other than those receiving the offer; the offer made was otherwise as being a domestic concern of the persons making and receiving the offer or invitation, would definitely not suffice.

SEBI also ruled that the directors of ACL who were on the Board of Directors during the period when offer for issuance of RPS and subsequent allotment are liable for such violations committed by the Company.  In re Alchemist Capital Limited, 2015 SCC OnLine SEBI 2decided on 03.08.2015


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