‘No­tify Crowd­fund­ing

The Economic Times - - Fi­nance & Com­modi­ties -

“Treat­ing an eq­uity crowd­fund­ing plat­form which is fa­cil­i­tat­ing is­suance of un­listed se­cu­ri­ties, as a stock ex­change may not be ap­pro­pri­ate. Un­der Se­cu­ri­ties Con­tracts (Reg­u­la­tion) Act, 1956, tech­ni­cally, any en­tity which as­sists in deal­ing in se­cu­ri­ties can be tagged as a ‘stock ex­change’ but the ap­pli­ca­tion of such a wide pro­vi­sion has to be care­fully thought through. Oth­er­wise, any in­vest­ment banker or an ad­viser fa­cil­i­tat­ing a deal in un­listed se­cu­ri­ties (whether or not on an elec­tronic plat­form) can be termed as a stock ex­change,” said Te­jesh Chit­langi, part­ner at IC Le­gal, a law firm which is ad­vis­ing some of the an­gel net­works.

Ac­cord­ing to a Sebi of­fi­cial, a team set up by the reg­u­la­tor is ex­am­in­ing whether such fund mo­bil­i­sa­tion is a ‘deemed pub­lic is­sue’. “We want to know who are the per­sons run­ning these plat­forms, and whether these plat­forms are op­er­at­ing like ex­changes; whether pub­lic is­sue norms are be­ing sidestepped,” he said. Also, there are con­cerns whether some plat- forms are open­ing the doors to un­scrupu­lous prac­tices and al­lur­ing un­sus­pect­ing small in­vestors, said the per­son.

Chit­langi agrees that com­pa­nies rais­ing money on such plat­forms must strictly fol­low the un­am­bigu­ous pri­vate place­ment norms un­der the com­pany law. “How­ever, eq­uity crowd­fund­ing plat­form or an an­gel net­work merely acts as an ar­ranger with­out reg­u­lat­ing the ac­tual trades or fa­cil­i­tat­ing two-way quotes… also, earlystage star­tups are in no po­si­tion to get listed. So, equat­ing such a setup with an ex­change can only harm the startup ecosys­tem,” he said. In­stead, Sebi should no­tify the eq­uity crowd­fund­ing reg­u­la­tions, which never pro­gressed beyond a con­sul­ta­tion paper, said Chit­langi.

There are about a dozen an­gel net­works in In­dia, with some in ex­is­tence for 7-10 years. These pass­word pro­tected web­sites can be ac­cessed by mem­bers (pay­ing an­nual fees) to know more about com­pa­nies and take a call on in­vest­ments.

In the com­ing days, these firms

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