ISSUANCE OF PRIVATE

PLACEMENT BY A
COMPANY
Submitted in Partial Fulfillment of the Requirements for Post Graduate
Diploma in Management
Legal Environment of Business
Institute of Management Technology
2014-2016
Group 9
Aalok Joshi (140102002)
Gautam Aggarwal (140101055)
Lahar Solanki (140103089)
Priya Goel (140102096)
Rahul Mishra (140102101)
Siddharth Dhamija (140101170)
Surabhi Sharma (140101181)

Content Layout

What is Private Placement?

What are the Forms of Private Placement?

Facts of the Case: Sahara V/s SEBI and Supreme Court of India

The Judgment: Sahara V/s SEBI and Supreme Court of India

Saharas Stand

SEBIs Stand

Supreme Courts Verdict

Loopholes Exploited by Sahara

Draft Rules, Act 2013

Industry Impact

Loopholes in Draft Rules, Act 2013

What is Private
Placement?

What is Private Placement?

As per Section 42 of the Companies Act, 2013, a private placement isany offer of securities or invitation to subscribe securities
to a select group of persons by a company (other than by
way of public offer) through issue of a private placement
offer letter and which satisfies the conditions specified in this
section including the condition that the offer or invitation is
made to not more than 50 or such higher number of persons
as may be prescribed in a financial year

What are the Forms of

Private Placement?

What are the Forms of Private Placement?

Preferential Allotment

Private Investment in Public Equity (PIPE) and Standby Equity

Distribution Agreement (SEDA) are also forms of private placements.

Facts of the Case:

Sahara V/s SEBI and
Supreme Court of India

Facts of the Case: Sahara V/s SEBI and

Supreme Court of India
Sahara Group of Companies issued OFCDs to the public under the guise of a private placement

Company collected over Rs 17,656cr from more than 2 crore investors in a period of 3 years

SEBI issued a show cause notice to Sahara on the basis of a complaint calling for information on the issued OFCDs

Sahara refused to divulge information on the grounds that SEBI lacked jurisdiction
SEBI responded by issuing another show cause notice to Sahara that securities issued involved 50 or more persons and
thus needed to be listed on the stock exchange
Sahara appealed against the SEBI order before SAT

After SAT dismissed Saharas appeal , further appeal was initiated against SEBI before the Supreme Court

The Judgment: Sahara

V/s SEBI and Supreme
Court of India

The Judgment: Sahara V/s SEBI and Supreme

Court of India

Supreme Court upheld SEBI & SAT orders

Ordered to refund the amount and empowered SEBI for legal recourse
Sahara did not comply with the order
SC issued a non-bailable arrest warrant against Sahara Chief, Mr. Subrorto Roy

Saharas Stand

Saharas Stand
Hybrid Securities is not defined in SEBI Act or Securities Contract Regulation Act

Only Central Govt. has jurisdiction in issuance of Hybrid Securities u/s 55-A of
Companies Act-1956
Funds raised through Group Companies, associates and friends in Private
Placement Sections 67 & 73 are not applicable
Number of allottees or offerees is insignificant in determining whether an offer
was a public issue
The intention to offer to a select or identified group would make the offer a
private placement
Red Herring Prospectus was registered with ROC, Kanpur

SEBIs Stand

SEBIs Stand

OFCDs are a public issue comprising more than 50 person, liable to be listed on a
stock exchange u/s 73 of Companies Act 1956

Non Compliance of DIP Guidelines

Violated Regulations under Issue of Capital & Disclosure Requirements, 2009 of
SEBI

Supreme Courts
Verdict

Supreme Courts Verdict

The SC cited Section 55A of the Companies Act which deals with delegation of
powers to SEBI wrt. securities
Definition of securities in Companies Act includes marketable securities which is
inclusive of hybrids, thus, SEBI has jurisdiction over hybrids
SC stated that Section 73(1) of the Companies Act requires companies offering
shares or debentures to the public to list securities on a stock exchange
Intention to offer the OFCDs was to the public (more than 3 crore people). Thus
stock exchange listing was mandatory

Loopholes Exploited by
Sahara

Loopholes Exploited by Sahara

Sahara had exploited the loopholes in the previous Company Act, 1956 offering
deposit schemes under the guise of OFCDs as Hybrid instruments.
Another pivotal loophole exploited was from Unlisted Public Companies Rules
2003 that does not limit the number of persons that a preferential allotment is to
be made .

Draft Rules, Act 2013

Draft Rules, Act 2013

A private placement offer letter shall be accompanied by an application form addressed specifically to the person
to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days of
recording the names of such persons in accordance with section 42(7) of the Act, 2013. No person other than the
person so addressed in the application form shall be allowed to apply through such application form and any
application not so received shall be treated as invalid.

The proposed offer of securities or invitation to subscribe securities must be approved by the shareholders of the
company, by way of a special resolution, for each of the offers/ invitations.

The offer or invitation shall be made to not more than two hundred persons in the aggregate in a financial year,
excluding the qualified institutional buyers and employees of the company being offered securities under a scheme
of employees stock option as per provisions of clause (b) of subsection (1) of section 62 of the Act, 2013.

The number of such offers or invitations shall not exceed four in a financial year and not more than once in a
calendar quarter with a minimum gap of sixty days between any two such offers or invitations.

The value of such offer or invitation shall be with an investment size of not less than fifty thousand rupees per
person.

The payment to be made on subscription of securities shall be made from the bank account of the person
subscribing to such securities. However, monies payable on subscription to securities to be held by joint holders
shall be paid from the bank account of the person whose name appears first in the application.

Industry Impact

Industry Impact

Introduction of the term securities instead of shares

Number of people who can be offered private placement in a financial year

Not a private placement = public offer

Completing allotment in 60 days

Use of proper banking channels like cheque, demand draft, etc.

Loopholes in Draft
Rules, Act 2013

Loopholes in Draft Rules, Act 2013

No Internal Control over Financial Reporting (ICOFR)

Laws of 1956 and 2013 co-exist

Work load on MCA, technology and scalability of man power required

Only two layers of subsidiaries for investment

Questions?

Thank You