‘Complaints against 100 unlisted cos’https://indianexpress.com/article/news-archive/web/complaints-against-100-unlisted-cos/

‘Complaints against 100 unlisted cos’

Many of these entities are allegedly running Collective Investment Schemes: Sebi

Market regulator Sebi has received investor complaints against around 100 unlisted companies,who have allegedly raised money from the public in violation of regulations,with promises of high returns.

Many of these entities are allegedly running Collective Investment Schemes (CISs) without Sebi’s approval,while there are also multi-level marketing (MLM) firms and those promising high returns through investments in real estate,gold,art funds and foreign currencies,a senior official said.

He did not disclose the names of the companies,saying that would impede the investigation process.

In most cases,the companies have pooled in money from investors for certain pre-specified purposes,with a promise to distribute the profit or income among the contributors.


The investor grievance cell of Sebi has been flooded with such complaints especially after the recent Supreme Court verdict on Sahara group,whose two companies have been asked to refund about Rs 24,000 crore to the investors within three months with an annual interest of 15 per cent.

The money was raised by the two unlisted Sahara companies through issue of instruments called ‘Optionally Fully Convertible Debentures’ (OFCDs). The Sahara group has told the Court that it would refund the money within three months.

Although unlisted firms do not come under jurisdiction of Sebi,any issue of securities to 50 or more investors is considered as a public offering and requires Sebi’s clearance.

Besides looking into the investor grievances at its own end,Sebi will also seek the help of other agencies,including RBI and Ministry of Corporate Affairs (MCA) as the complaints also involve matters falling under their jurisdictions.

Sebi has also sought a total revamp of the rules for CIS entities as it fears that the prevailing loopholes in legal provisions and lack of clarity about roles of different

agencies such as MCA,Sebi,RBI and state governments allow for gullible investors being taken for a ride.

Sebi has already given the MCA names of over 500 CIS firms,which have raised money in violation of its CIS rules.

While Sebi has initiated necessary action against most of these companies,such entities and their operators tend to restart similar business under a new name and garner large funds before coming under the regulatory scanner.

The market regulator has therefore requested MCA to circulate names of the defaulter CIS entities and related persons to all the ROCs (Registrars of Companies) to prevent

them from being associated with any new company.

Following the apex court order on Sahara group,the MCA has also directed all ROCs to strengthen their surveillance.


The MCA has also asked the RoCs to reject applications of unlisted firms for raising money through issue of shares,debentures or other securities from 50 or more investors,as such fund-raising comes under Sebi’s jurisdiction.