Under the Companies Act, 1956, offers of securities by companies to more than 49 persons were deemed to be public offers and required the issuance of a prospectus. This threshold has been increased to 200 offerees/ allottees under the Companies Act, 2013. Until now, SEBI had been initiating penal action against companies offering securities to over 49 persons in violation of the Companies Act, 1956. However, in light of the enhanced cap for private placement, SEBI, through its circular dated December 31, 2015, has sought to extend the benefit of the enhanced cap to cases prior to April 01, 2014 as well. SEBI has decided that in cases where securities were offered/allotted to over 49 persons but not more than 200 persons in a financial year, companies may avoid penal action.

To avail this benefit, companies would be required to provide the investors an option to surrender the securities and get the refund amount at a price not below the subscription money, paid along with 15% interest per annum or such higher return as promised to investors. Companies would be permitted to adjust the amounts already paid to investors as interest/dividend from the refund amount.

As the number of offerees/ allottees in cases of gun-jumping is usually much higher than 200 persons, it appears that the benefit of this circular may be limited and errant companies would continue to get orders prohibiting them and their key persons from accessing the securities market and directing them to refund the monies collected.