The document discusses various topics related to raising capital such as prospectuses, private placements, rights issues, and bonus issues. It provides definitions and processes for private placements, rights issues, and bonus issues. It also discusses the Sahara vs SEBI case involving Sahara's issuance of securities disguised as a private placement but ruled a public issue by the Supreme Court. The document includes a sample private placement form, prospectus components and types, and culpability for prospectus violations.

1. Tuesday, February 13, 2018
Prospectus
and
Private Placements
Group 2 :
Uday Sethi (170301045)
Harshit Bansal (170301024)
Abhinav Deb(170301002)
Nitin Saxena (170301031)
Ankit Bharadwaj (170301009)
Subhasis Ansuman Sarma (170301038)

2. Raising of capital
Chapter III, Prospectus and
Allotment of Securities,
Companies Act(2013)
Fund raising by private
Company [Sec 23(2)]
Rights Issue
Private Placements
Bonus Issue
Fund raising by public
company [Sec 23(1)]
Private Placements
Through
Prospectus(IPO & FPO)
Rights Issue
Bonus Issue

3. Rights Issue and Bonus Issue
Rights Issue of Shares (Section-62(1) of Companies Act 2013)
• Rights Issue means offering shares to existing members in proportion to their existing share holding at a
discounted price.
• The object is, of course, to ensure equitable distribution of Shares and the proportion of voting rights is
not affected by issue of Fresh shares.
Bonus Issue of Shares (Section-63 of Companies Act 2013)
• Bonus shares are additional shares given to the current shareholders without any additional cost, based
upon the number of shares that a shareholder owns.
• These are company’s accumulated earnings which are not given out in the form of dividends, but are
converted into free shares and distributed to increase the liquidity.

4. Private Placements of Securities
Process of Private Placements
• Offer or Invitation to Subscribe Securities as Per Section 42 of 2013 Companies act
• Can only be made to maximum of 200 persons in a financial year excluding QIBs and ESOPs
• No Fresh Offer or Invitation to offer will be issued till
a) Allotments are done for Previous offers
b) Previous offers and invitations to offers are abandoned/withdrawn
• Act restricts any payment against offer in form of cash.
• No advertisement in any media
Allotment and Refund
• Securities shall be allocated only to those whose names were recorded before issue of offer or invitation to offer.
• A company making an offer or invitation under this section shall allot its securities within sixty days
• If not, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days
and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money
with interest at the rate of twelve per cent. per annum from the expiry of the sixtieth day
Culpability
• Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer
• If any rules of Private Placements are violated a company shall pay a fine of 2crore or total amount involved in the offer
whichever is higher.

5. Sample Private Placement Offer
• http://www.mca.gov.in/MCA21/dca/downloadeforms/eformTemplates/NCA/Form_PAS-4.pdf

6. Case Study
SAHARA vs SEBI
CASE BACKGROUND : Sahara Group’s two companies, Sahara India Real Estate Corporation Limited (SIRECL)
and Sahara Housing Investment Corporation Limited (SHICL) floated an issue of OFCDs (Optionally Fully
Convertible Debentures) and started collecting subscriptions from investors with effect from 25th April 2008 up
to 13th April 2011. During this period, the company had a total collection of over Rs 17,656 crore. The amount
was collected from about 30 million investors in the guise of a "Private Placement” without complying with the
requirements applicable to the public offerings of securities.

7. Case Study (Issue 1)
Is the issuance of and subscription to OFCDs by 30 million people a Private Placement? If it is not a Private Placement, does it fall within the
purview of SEBI Regulations and various provisions of Companies Act?
SAHARA’S CONTENTION:
Information memorandum specifically mentioned that OFCDs were issued only to those related to Sahara. Hence, there was no public offer and
exemption under Sec 67(3) is applicable.
SUPREME COURT CONCLUSIONS:
• According to Sec 67(3) of the Companies act, any security offered to and subscribed by more than 50 people will be deemed to be a Public Offer. SEBI has
jurisdiction on any violation to this end.
• Under Sec 60(B) of the Companies act, Companies eliciting public demand for OFCDs through issue of Information Memorandum is only meant for Public Issues.
The companies did not come out with a final prospectus on the closing of the offer and failed to register it with SEBI, hence violating Sec 60B of the Companies act
too.
• In this case, introducers were needed for anyone to subscribe to the OFCDs. Private placements are given to persons who are already associated or related to the
Sahara group, for which an introducer is not required. Hence, it is clear that the issue was not meant for persons related or associated with Sahara Group.
• Through the actions and intentions on the part of the two companies, it was concluded by the Supreme Court that the two companies clearly wanted to issue
securities to the public in the disguise of a private placement to bypass various laws and regulations in relation to the issuance of the securities.

8. Case Study (Issue 2)
Do the listing provisions under Sec 73 mandatorily apply to all public issues? Does the intention of the company matter in this aspect?
SAHARA’s CONTENTION
Listing requirement under Sec 73 of Companies Act is not mandatory and applies to those companies only who "intend to get listed",
no company can be forced to get listed on a stock exchange and in such cases it will be a violation of corporate autonomy.
SUPREME COURT OBSERVATION:
• The law is clear and unambiguous, and any issue of securities is made to more than 49 persons as per Sec 67(3) of the Companies
Act, the intention of the companies to get listed does not matter at all.
• Section 73(1) of the Act casts an obligation on every company intending to offer shares or debentures to the public to apply on a
stock exchange for listing of its securities.
• Maxim ''acta exterior indicant interiora secreta'' (external action reveals inner secrets) applies with all force in the case of Saharas.
Any offering of securities to fifty or more is a public offering by virtue of Section 67(3) of the Companies Act, which the Saharas
very well knew, their subsequent actions and conducts unquestionably reveal so.

9. Case Study (Issue 3)
Will the Public Unlisted Companies Rules (Preferential Allotment) of 2003 apply to this case?
SAHARA’s CONTENTION:
• As per the Unlisted Public Companies (Preferential Allotment) Rules 2003, preferential allotment by unlisted public companies on private placement
was provided for and permitted without any restriction on numbers as per the proviso to Section 67(3) of the Companies Act and without requiring
listing of such OFCDs on a recognized stock exchange.
• Sec 67(3) was made applicable to Preferential Allotment made by unlisted public companies only in 2011 by amending the 2003 rules with
prospective effect and not with retrospective effect. This gave Sahara the freedom to make preferential allotment to more than 50 persons.
SUPREME COURT CONCLUSIONS:
• Public Unlisted Companies Rules (Preferential Allotment) of 2003, being a delegated piece of legislation, cannot supersede the statutory provisions of
Sec 67(3), even if armed with a special resolution for any further issue of capital to person other than shareholders. It is also implied in Sec 67(3) that
the 2003 preferential allotment rules were required to comply with the requirement of Sec 67(3).
• The Court observed that 2003 Rules apply only in the context of preferential allotment of unlisted companies, however, if the preferential allotment is
a public issue, then 2003 Rules would not apply.

10. Latest of the Case
• SEBI began the process of refunding the investors that it verified. The refund is currently being made from the money
deposited by Sahara. The total amount refundable is estimated to be Rs. 40,000 crore as of March 2015, with the accrual
of interest.
• SEBI has cancelled the license of Sahara mutual fund business.
• Subrata Roy, Chairman and Founder of Sahara India Pariwar, was arrested for failing to appear before the Supreme court.
He has since been released on parole in May 2016.

11. Prospectus
• Definition
Section 2(70): “prospectus” means any document described or issued as a prospectus and includes a red herring prospectus
referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting
offers from the public for the subscription or purchase of any securities of a body corporate;
• Components of prospectus
Invitation
To public
Must be on by or on behalf of the company or in relation to an intended company
Must be to subscribe or purchase
Must relate to any securities of the company
• Types
 Shelf (Section 31)
 Red Herring (Section 32)
 Abridged(section 2(1))

12. Types of Prospectus
• Shelf prospectus
o For Securities or class of securities to be issued in multiple issues over a definite period of time
o Subsequent issues come with information memorandum
• Red Herring Prospectus
o Initial version of prospectus in case of book-built issues
o Price and quantity is not disclosed but price band is provided
o Upon the closing of the offer of securities, final prospectus stating the total capital raised, whether by way of
debt or share capital, and the closing price of the securities and any other details that are not included in the
red herring prospectus is filed with SEBI and ROC.
• Abridged Prospectus
o Contains salient features of the prospectus as mentioned by SEBI
o Subscription form has to be accompanied by a copy of abridged prospectus

13. Sample Prospectus

14. Culpability
• Violation of Section 26:
• Violation of matters to be stated in prospectus is fined with minimum of 50 thousand to 3 lakhs and/or imprisonment up
to 3 years
• Misstatement or Untrue Information
• CIVIL LIABILITIES:
• Comes under Sec 35 of Companies Act 2013
• Person culpable will have to pay compensation to every person that has sustained loss or damage by reason of untrue
statement included in a Prospectus
• CRIMINAL LIABILITIES:
• Comes under Sec 34 of Companies Act 2013
• Every person who authorizes the issue of such prospectus shall be liable under Sec 447. Sec 447 states that “any person
who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six
months, but which may extend to 10 years and shall also be liable to fine which shall not be less than the amount
involved in the fraud, but which may extend to three times the amount involved in the firm.”

15. Thank You