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SEBI’s action on 100 sugar mills for the breach of private placement norms

100 sugar mills may face SEBI action; crackdown could freeze cane procurement: Report

Private placement norms allow an unlisted company to privately sell shares to a maximum of 49 people

MoneyControl – TFM Watch

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MoneyControl: Nearly 100 sugar mills may face action by the market regulator SEBI for the breach of private placement norms, according to a report by Mint.

The news comes in after a recent regulatory crackdown on two sugar mills in Maharashtra for alleged breach of private placement rules. On January 4, the Securities and Exchange Board of India (SEBI) attached the assets of Lokmangal Agro Industries. A week later, it directed Babanraoji Shinde Sugar & Allied Industries to refund money to individuals to whom it had sold shares.

The move to expand such action to more mills could potentially freeze cane procurement, delay payments to farmers and heighten farm crisis, according to mill owners.

The two mills are accused of violating rules on private placement under the Companies Act, 1956, and the SEBI Act. Private placement norms allow an unlisted company to privately sell shares to a maximum of 49 people. The mills are accused of crossing this limit. Issuing shares to 50 or more people brings the issue within the regulatory ambit.

“In the past three years, we have made around 150 offers and none of them have been to more than 49 people. If SEBI goes ahead with the directions mentioned in the interim order (freezing assets) it would severely impact the company and its stakeholders such as banks and, most importantly, the farmers who are the sellers and have mill ownership, as the funding of the mills would choke,” said Ranjeetsingh Babanrao Shinde, Director, Babanraoji Shinde Sugars & Allied Industries.

According to the report, sugar mills have long been the battleground for a proxy political battle in Maharashtra. The state’s ruling Bharatiya Janata Party (BJP) is said to be trying to dislodge the stranglehold of Congress and the Nationalist Congress Party (NCP) over the sugar industry. SEBI’s actions may further intensify this political battle.

The move may impact sugarcane farmers who supply to these private limited companies. In the case of private sugar factories, equity or preference shares are issued to farmers, giving them ownership.

In Maharashtra, at least 100 sugar mills operate as private limited companies. These include prominent names such as Shri Gurudatt Sugars of Kolhapur, Eco Cane Sugar of Kolhapur, Cane Agro Energy (India), and Sadguru Sri Sri Sakhar Karkhana of Sangli.

Source: MoneyControl News

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