SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992,

Sections 11B, 11A & 11, Section 67

Power to issue directions and levy penalty - Appeal against direction to refund of monies with interest - Allotment made to less than 50 allottees by way of private allotment - Whether section 67(3) of the Companies Act 1956 violated

Company raised its capital by allotment of Redeemable Preferential Shares (RPS) through private placement that is to friends and relatives of members/directors. Some members made complaints to SEBI in respect of issue of RPS with regard to non-inclusion of their names in list submitted before RoC. WTM found that the RPS was made to 50 persons in violation of section 67(3) of the Companies Act, 1956. Consequently, the WTM exercising powers under sections 11(1), 11(4), 11A(1)(b) and 11B of the SEBI Act directed the company and its directors to refund the monies collected through RPS along with interest at the rate of 15% per annum. Therefore, the company filed an appeal against the order on the ground that allotment was made to less than 50 persons. Held: An invitation was made by the management of the company to selected persons for subscription or purchase by less than 50 persons. Once allotment was made to less than 50 allottees by way of private allotment, then, first proviso to section 67(3) clearly made it a private issue and not a public issue. Consequently, there was no violation of the provisions of the Companies Act. Thus, the order of the WTM could not be sustained and was quashed.

REFERRED : Sahara India Real Estate Corpn. Ltd. v. SEBI (2013) 1 SCC 1 : 2013 TaxPub(CL) 0397 (SC).

FAVOUR : In favour of appellant

A.Y. :

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