Comprehension
Alastair Hudson in his book ‘Securities Law’ First Edition (Sweet & Maxwell), 2008 at page 342, refers to ‘Restricted Offers’ and noticed that there is no contravention of Section 85 of FSMA 2000, if: “(b) the offer is made to or directed at fewer than 100 persons, other than qualified investors, per EEA State”. The purpose underlying that exemption, the author says, is mainly the fact that the offer is not being made to an appreciable section of “the public” such that the policy of the prospectus rules generally is not affected. Further, the author says that “Self-evidently, while an offer to 99 ordinary members of the public would be within the literal terms of the exemption, it would not be the sort of activity anticipated by the legislation. Moreover, if a marketing campaign were arranged such that ordinary members of the people were approached in groups of 99 people at a time in an effort to avoid the prospectus rules, then that would not appear to be within the spirit of the regulations and might be held to contravene the core principle that a regulated person must act with integrity.”
I may, therefore, indicate, subject to what has been stated above, in India that any share or debenture issue beyond forty-nine persons, would be a public issue attracting all the relevant provisions of the SEBI Act, regulations framed thereunder, the Companies Act, pertaining to the public issue. Facts clearly reveal that Saharas have issued securities to the public more than the threshold limit statutorily fixed under the first proviso to Section 67(3) and hence violated the listing provisions which may attract civil and criminal liabilities. Principles of listing, which I may later on discuss, is intended to assist public companies in identifying their obligations and responsibilities, which are continuing in nature, transparent in content and call for high degree of integrity. Obligations are imposed on the issuer on an ongoing basis. Public companies who are legally obliged to list their securities are deemed to accept the continuing obligations, by virtue of their application, prospectus and the subsequent maintenance of listing on a recognized stock exchange. Disclosure is the rule, there is no exception. Misleading public is a serious crime, which may attract civil and criminal liability. Listing of securities depends not upon one’s volition, but on statutory mandate.
[Extract from Sahara India Real Estate Corporation Limited v. Securities and Exchange Board of India (SEBI), Para 89-91, Civil Appeal No. 9833/2011 (SC)]
I may, therefore, indicate, subject to what has been stated above, in India that any share or debenture issue beyond forty-nine persons, would be a public issue attracting all the relevant provisions of the SEBI Act, regulations framed thereunder, the Companies Act, pertaining to the public issue. Facts clearly reveal that Saharas have issued securities to the public more than the threshold limit statutorily fixed under the first proviso to Section 67(3) and hence violated the listing provisions which may attract civil and criminal liabilities. Principles of listing, which I may later on discuss, is intended to assist public companies in identifying their obligations and responsibilities, which are continuing in nature, transparent in content and call for high degree of integrity. Obligations are imposed on the issuer on an ongoing basis. Public companies who are legally obliged to list their securities are deemed to accept the continuing obligations, by virtue of their application, prospectus and the subsequent maintenance of listing on a recognized stock exchange. Disclosure is the rule, there is no exception. Misleading public is a serious crime, which may attract civil and criminal liability. Listing of securities depends not upon one’s volition, but on statutory mandate.
[Extract from Sahara India Real Estate Corporation Limited v. Securities and Exchange Board of India (SEBI), Para 89-91, Civil Appeal No. 9833/2011 (SC)]
Question: 1
Which among the following is not considered as a ‘prospectus’ under the Companies Act, 2013?
Which among the following is not considered as a ‘prospectus’ under the Companies Act, 2013?
Updated On: Nov 7, 2024
- Shelf prospectus
- Red herring prospectus
- Private placement offer letter
- Advertisement inviting offers from public
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The Correct Option is C
Solution and Explanation
A private placement offer letter is excluded from the definition of a ‘prospectus’
under the Companies Act, 2013, as it is intended for a limited group of investors rather than
the general public.
The correct option is (C): Private placement offer letter
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Question: 2
In Sahara India Real Estate Corporation Limited v. SEBI, Sahara issued which of the following instruments to raise money?
In Sahara India Real Estate Corporation Limited v. SEBI, Sahara issued which of the following instruments to raise money?
Updated On: Nov 7, 2024
- Shares
- Convertible preference share
- Optionally fully convertible debentures
- Currency derivatives
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The Correct Option is C
Solution and Explanation
Sahara issued optionally fully convertible debentures, which were at the center of the dispute with SEBI regarding regulatory compliance.
The correct option is (C): Optionally fully convertible debentures
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Question: 3
In Sahara India Real Estate Corporation Limited v. SEBI, the company issued securities in violation of rules relating to:
In Sahara India Real Estate Corporation Limited v. SEBI, the company issued securities in violation of rules relating to:
Updated On: Nov 7, 2024
- Public issue under the Companies Act.
- SEBI Disclosure Investor Protection Guidelines, 2000 read with Issue of Capital and Disclosure Guidelines, 2009.
- Both the above
- None of the above
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The Correct Option is C
Solution and Explanation
Sahara violated rules under both the Companies Act and SEBI’s Disclosure and
Investor Protection Guidelines, as the issue was deemed a public issue requiring SEBI’s approval.
The correct option is (C): Both the above
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Question: 4
The Supreme Court of India in Sahara case held:
The Supreme Court of India in Sahara case held:
Updated On: Nov 7, 2024
- SEBI, being a statutory regulator, does not have the power to investigate and adjudicate.
- As per Companies Act and SEBI Act, 1992, SEBI has jurisdiction over both listed companies and companies which intend to get listed
- SEBI has no jurisdiction over public issuances of hybrid securities
- Powers of SEBI supersede that of Ministry of Corporate Affairs
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The Correct Option is B
Solution and Explanation
The Supreme Court held that SEBI has jurisdiction over both listed companies and
companies intending to get listed under the Companies Act and SEBI Act, 1992. This ruling
affirms SEBI’s authority in regulating and supervising securities markets comprehensively.
The correct option is (B): As per Companies Act and SEBI Act, 1992, SEBI has jurisdiction over both listed companies and companies which intend to get listed
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Question: 5
Which of the following is mandatory in case of private placements by private companies?
Which of the following is mandatory in case of private placements by private companies?
Updated On: Nov 7, 2024
- Mandatory grading by a credit rating agency
- Use of public media to advertise the issue
- Post-issue listing of securities
- Return of allotment to be filed with Registrar of Companies (RoC)
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The Correct Option is D
Solution and Explanation
For private placements, it is mandatory for companies to file the return of allotment
with the Registrar of Companies (RoC) as per regulatory requirements, ensuring compliance
and transparency.
The correct option is (D): Return of allotment to be filed with Registrar of Companies (RoC)
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