Skip to main content

Govt likely to give Sebi powers to regulate private placements

Govt likely to give Sebi powers to regulate private placements
The government is planning to relax a few key norms in the Companies Act to give Sebi more powers over private placements so that there's no conflict with the proposed crowdfunding norms.
The government is likely to give the Securities and Exchange Board of India (Sebi) the power to regulate private placements by any Indian entity at a time when the capital markets regulator is finalizing norms for crowdfunding, said two people with direct knowledge of ongoing discussions between the regulator, the ministry of corporate affairs (MCA) and the ministry of finance.
At present, private placements by unlisted firms are regulated by the MCA, while Sebi regulates fundraising activities by listed firms.Private placement means raising funds from less than 200 investors in a financial year. Funds raised from more than 200 investors automatically becomes a public offering and the issuer has to list these securities.
Following a meeting in Delhi earlier this month, MCA, Sebi and the ministry of finance are planning to relax a few key norms in the Companies Act and allow the capital markets regulator more powers over private placements so that there is no conflict with the proposed crowdfunding rules.
Emails sent to Sebi, MCA and the ministry of finance remained unanswered.On 20 November, Mint had reported that the government may exempt crowdfunding activities from provisions of the Companies Act as it seeks to bring such fundraising under the regulatory ambit of Sebi and allow start-ups to raise funds easily.
Under the new norms being planned, start-ups will be allowed to make a fund-raising offer to more than 200 investors—without breaching Companies Act norms—through their prospectus and advertisements on digital platforms, which will be licensed and regulated by Sebi.

Crowdfunding is defined as raising of money from a large number of individuals, typically through the internet or social media, to finance a new business venture. Currently, Sebi is in the process of framing a dedicated set of rules for crowdfunding.

“For any start-up, if the number of investors actually investing exceeds 200, it should be brought under crowdfunding norms and if the number is less than 200, it should be brought under private placement guidelines,” said one of the two people cited earlier on condition of anonymity.

“It is not fair to make early-stage companies adhere to all the stringent public issue norms just because more than 200 people happened to view the fundraising advertisement. But before bringing norms for crowdfunding, it is necessary to put in place appropriate private placement norms,” added this person.

Under current norms, it is difficult to distinguish a private placement platform from a crowdfunding platform, the second person said, also on condition of anonymity.
According to Shanti Mohan, chief executive officer of LetsVenture Online Pte. Ltd, a start-up funding platform, the collective approach by Sebi and MCA to ease the way start-up funding is regulated is encouraging.Start-ups should be allowed to pitch to investors with no limit on the number, Mohan said.
“However, the start-up should know who is being pitched (to). I believe the audience should still be curated and not public at large.This will allow investors to understand entrepreneurship better and will foster innovation,” she added.Sebi has been looking to regulate crowdfunding for quite some time now and has cautioned investors at least twice over the last two years.
In October, the regulator wrote to at least a dozen start-up fundraising platforms in India seeking details of the detailed fund-flow process on these platforms, the process of registering investors and companies on them, the minimum subscription amounts and the platforms’ compliance with private placement norms under the Companies Act. Additionally, Sebi asked how order matching of the shares offered in private placements was done by the company or the platform, and the form of settlement mechanism, among other things.
The Mint, New Delhi, 26th December 2017


Popular posts from this blog

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…