A New Company's Act May be on its Way

The Sahara-SEBI case will go down the history as it brought focus on investor protection issue. We witness Supreme Court issuing well researched, landmark orders on the violation of its regulatory framework and jailed the offenders.

Two companies of the Sahara group issued securities and mobilised a large sum of money (more than Rs 24,000 crore) from over 3 crore investors without complying with SEBI'S regulatory framework for public issues.

SEBI had received 3,375 applications for refund of money amounting to Rs 25.37 crore. While scrutinising, SEBI found in several cases the details provided by the investors did not match with the database submitted by the Sahara entities. The court had ordered Sahara to immediately refund the money to the investors.

After this fall out the corporate affairs ministry is willing to modify the existing loopholes in the current legal regime that deals with shares and debenture sales. According to the clause of Section 67, sale of securities to more than 50 people is currently considered as a public issue and, therefore, open to close regulatory scrutiny. If only 49 entities subscribe to a share or debt issue, it is deemed private. This law stands debatable.

 This clause has rooms for different interpretations .Does it specify the time period in which the securities are issued? Is it possible to have multiple, simultaneous offers to 49 entities each? These questions are unanswered.

A top official of the ministry was quoted saying that one way could be to close it when framing rules under the New Companies Act although nothing is been specified as how the amending would take place. The Act was passed by the Lok Sabha in December but has to be cleared by the Rajya Sabha.

                                                       by Kislay Pandey - Advocate, Supreme Court of India.