Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture
The Securities and
Exchange Board of India (Sebi) is planning a crackdown on unauthorised
crowdfunding platforms, which are gaining popularity in the country as
alternative capital-raising facilitators.
Sebi has sent notices to as many as 10 crowdfunding platforms,
which predominantly operate through their websites. The market regulator
has quizzed them on their business models and asked them how they are not in
violation of the securities law, said sources in the know.
Similar to a stock exchange platform, crowdfunding
websites act as a link between investors and companies, typically start-ups.
Most of these entities are operating without any authorisation or registration
with Sebi and, as a result, are not being governed under any law,
said a source.
| WHAT IS CROWDFUNDING? |
|
Grex, Kickstarter,
Indiegogo, Ketto, LetsVenture, Milaap, Wishberry, Fueladream, BitGiving,
Catapooolt, DreamWallets, Start51, and Fundlines are among the active crowdfunding platforms in the country catering to various kinds of projects.
The exact amount mobilised by these players isn’t
known. However, these platforms claim to have empanelled hundreds of investors
and start-ups. It could not be ascertained which of the platforms have received Sebi notice.
However, crowdfunding operators claim their
business doesn’t fall under Sebi’s ambit. “We are just providing a platform to
fund certain projects by facilitating monetary contribution from a large number
of people,” said the founder of one of the crowd-funding websites, requesting
anonymity.
Last month, Sebi had cautioned investors against participating against
dealing with digital fundraising platforms operating on the lines of stock
exchanges without regulatory approval. Sebi has a view that these electronic platforms
might be facilitating investment in the form of private placement with
companies, as the offer is open to all investors registered with the platform,
which would be a contravention of the provisions of the Securities Contract
(Regulation) Act, 1956 (SCRA) and the Companies Act, 2013.
According to Sebi, only recognised stock exchanges
can provide a platform where equity and other securities issued by companies
are listed and traded in accordance with the provisions of the SCRA.
Not only electronic platforms, unauthorised prize
money schemes and apps linked to the securities market, too, have come under
the Sebi glare.
“Each gaming site and fact scenario would require
a review and analysis as to whether it has invoked the prescribed provisions
and has complied with such laws. No doubt, in the coming times, fantasy trading
games, apps or websites and their promoters will face increasing scrutiny,”
said or Sumit Agrawal, former Sebi official
and founder of Suvan Law Advisors, a Mumbai-based law firm.
Sebi may
consider these apps or websites as engaging in “any act, practice, course of
business which operates or would operate as fraud or deceit upon any person, in
connection with the issue, dealing in securities, which are listed or proposed
to be listed on a recognised stock exchange as prescribed under Section 12A of Sebi Act, 1992, he added.
Sebi had floated
a discussion paper two years ago, when it had proposed a framework to enable
domestic start-ups and small and medium enterprises to raise capital from
multiple investors through crowdfunding. It had defined crowdfunding as
“solicitation of funds (small amount) from multiple investors through a
web-based platform or social networking site for a specific project, business
venture or social cause”. The regulator, however, is yet come up with final
regulations on crowdfunding.
