2020 (5) TMI 428 - AT - SEBI

Public offer of shares - no private placement as per assessee company as per WTM - offer to more than 49 persons - violation of the provisions of the Companies Act - HELD THAT - Evidence indicates that an invitation was made by the management of the company to selected persons for subscription or purchase by less than fifty persons. Such persons receiving the offer or invitation was not calculated directly or indirectly to be availed of by other persons, and consequently such invitation or offer could not be treated as an offer or invitation to the public. The finding of the WTM on this aspect is absolutely perverse. The reasoning given that merely because three allottees had made the complaints indicates that the offer or invitation falls in the category of one which is calculated to result directly or indirectly in the shares, debentures becoming available to persons other than those receiving those offer or invitation is based on surmises and conjectures. No evidence has come forward by these complainants or otherwise to show that the company had made a public offer other than these 49 persons. Allotment was made to less than fifty allottees. Once allotment is made to less than fifty allottees by way of private allotment the first proviso to section 67(3) clearly makes it a private issue and not a public issue. Consequently, there is no violation of the provisions of the Companies Act. The order of the WTM cannot be sustained and is quashed. The appeals are allowed.

Summary

Issues:
1. Whether the company violated section 67(3) of the Companies Act, 1956 by making a public issue of securities without complying with the provisions of the Act.
2. Whether the list submitted to the Registrar of Companies contained clerical errors affecting the number of allottees.
3. Whether the offer or invitation made by the company constituted a public issue under the Companies Act, 1956.

Analysis:
1. The appellants filed appeals against the SEBI order regarding the allotment of Redeemable Preferential Shares (RPS) by the company. SEBI found discrepancies in the number of allottees and directed the company to refund the collected money. The appellants contended that the list submitted to the RoC contained clerical errors. The WTM accepted this, but still held the company violated section 67(3) of the Companies Act. The Tribunal disagreed, stating the evidence showed the total allotments were 47, not exceeding fifty, thus not violating the Act.

2. The WTM's order was based on the belief that the number of allottees did not include the complainants, leading to a violation of the Act. However, the Tribunal found that after correcting the clerical errors, the total allottees were indeed 47, as per the company's clarification. This clarification was crucial in determining that the company did not breach section 67(3) of the Companies Act, 1956.

3. The Tribunal referred to the Supreme Court's interpretation of section 67 of the Companies Act, emphasizing that an offer to the public must be understood in its ordinary sense, distinguishing it from private offers. The insertion of the first proviso to section 67(3) aimed to differentiate between public and private issues. In this case, the evidence showed that the offer was made to less than fifty persons, indicating a private issue. The WTM's conclusion that the offer was calculated to reach a wider audience was deemed unfounded, as there was no evidence supporting this claim. Therefore, the Tribunal ruled that the company's offer did not constitute a public issue, and the WTM's order was quashed.

In conclusion, the Appeals Tribunal overturned the SEBI order, stating that the company did not violate the Companies Act, 1956, as the allotment of securities was made to less than fifty allottees, making it a private issue and not a public one.