Taking a leaf out of the Sahara case, the Corporate Affairs Ministry is contemplating to tighten fund raising norms from the public by unlisted companies.

The Ministry, according to an official, is of the view that an unlisted company should not be allowed to raise funds either through private placement of shares or deposits from more than 49 persons in a year. 

The government is proposing to impose these restrictions by introducing new rules in the Companies Act, 1956, he said, adding, the changes would also help in clarifying the existing provisions in the Company Law.

According to Section 67 (3) of the Companies Act, if a company decides to allot shares to 50 people or more, it would become obligatory for it to apply for listing.

“The timeframe is not mentioned. It is not clear whether to interpret it as 50 people or more at a time, or 50 people or more in a year. So, that leads to a lot of misinterpretation and sometimes also misuse by companies.

“After the Sahara case, we want to tighten the norms to ensure there is no loophole,” the official said.

The Supreme Court in August had directed two Sahara firms to refund about Rs 24,000 crore to the investors within three months with an annual interest of 15 per cent, after finding violations of regulatory norms in raising funds from the public.

The money was raised through issue of an instrument called ‘Optionally Fully Convertible Debentures’ (OFCDs).

Following the court order, the Sahara group had assured its depositors and investors that their money was safe and there would be no delay in payment commitment to them.

If the two companies failed to refund the amount, Sebi could attach their properties as well as freeze bank accounts. Sebi has also been asked to investigate the issue. (PTI)