Ministry seeks SEBI's views on new Companies Bill

The government has asked the Securities and Exchange Board of India (SEBI) to set up a committee to look into compatibility of its regulations for private placement of securities with the measures proposed in the new Companies Bill.

This suggestion has been made by the union corporate affairs ministry amid rising instances of the private placements route being misused by various entities to raise funds from the public, according to an NDTV report.

Private placement of securities - a relatively faster way to raise funds - is governed by both the Companies Act and SEBI regulations.

The new bill to amend the Companies Act has been passed by the Lok Sabha and is now awaiting passage through the Rajya Sabha nod. It provides for exhaustive changes in the way that private placements are to be carried out and regulated.

"The corporate affairs ministry has asked SEBI to consider setting up a committee to look into the compatibility of SEBI regulations with the provisions of Companies Bill dealing with private placement," sources told NDTV.

Aligning the rules of the Companies Act and SEBI would help in plugging regulatory loopholes and protect the interest of investors, they added.

In the new Companies Bill, issuance of securities to up to 50 persons or entities would be considered as private placement and in case of exceeding that limit, firms would be required to make a public offer.

The new bill was approved by the Lok Sabha in December last year and is likely to be taken up by the Rajya Sabha in the next session of parliament.

Under SEBI rules, a private placement is an issue of shares or of convertible securities by a company to a select group of persons, which is neither a rights issue nor a public issue.

Instances of entities misusing the private placement route to garner funds have come to light in recent times - as in the case of the two Sahara Group companies, Sahara India Real Estate Corp Ltd and Sahara Housing Investment Corp Ltd, which have been ordered by the Supreme Court to refund the more than Rs24,000 crore they raised from the public.