Mumbai: A recent regulatory crackdown on two sugar mills in Maharashtra for alleged breach of private placement rules has cast a shadow over nearly 100 others in the state which operate under the same model. Expanding the action to more mills could potentially freeze cane procurement, delay payments to farmers and heighten farm crisis, mill owners said.
On 4 January, the Securities and Exchange Board of India (Sebi) attached the assets of Lokmangal Agro Industries Ltd; exactly a week later, it directed Babanraoji Shinde Sugar and Allied Industries Ltd to refund money to individuals to whom it had sold shares.
Sugar mills have long been the battleground for a proxy political battle in Maharashtra, with the state’s ruling Bharatiya Janata Party (BJP) trying to dislodge the Congress and the Nationalist Congress Party (NCP) stranglehold over the sugar industry.
Sebi’s actions are likely to only intensify this political slugfest.
The two mills are accused of violating rules on private placement, under which an unlisted company can privately sell shares to a maximum of 49 people. The mills are accused of crossing this limit, violating The Companies Act, 1956, and the Sebi Act. Issuing shares to 50 or more people is considered as a “deemed public issue", bringing it within the regulatory ambit.
“There was a debate in Sahara matter before Supreme Court whether Companies Act 1956 implied that a company’s offer of securities to 50 or more persons (in a financial year) would automatically become a public issue. Threshold for a deemed public offer has increased to 200 or more persons under Companies Act, 2013. Sebi norms have made it clear now that it is aggregate calculation and multiple offers of security by any company at various intervals, with each offer being to less than 200 persons but in aggregate more than 200 persons (per financial year) would qualify as a public issue," said Sumit Agrawal, founder, Regstreet Law Advisors.
Sugarcane farmers are organized into cooperative societies, or are part of private limited companies which own sugarcane factories. In cooperative societies, ownership rests with the farmers who bring in cane. In private sugar factories, shares are issued to farmers, giving them ownership. These could be equity shares or preference shares depending on the model adopted by the mills. Most cooperative structures have now converted to private sugar factories to ensure farmers’ participation.
“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.
In Maharashtra, at least 100 sugar mills operate as private limited companies, including prominent names such as Shri Gurudatt Sugars Ltd of Kolhapur, Eco Cane Sugar of Kolhapur, Cane Agro Energy (India) Ltd, and Sadguru Sri Sri Sakhar Karkhana Ltd of Sangli.