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Financial Scams

PRESENTED BY: NITESH BHATI

Disclaimer
This

Presentations is intended for open


discussion/debate
and
educational
purposes only. Statements of fact stated,
are based on information available on
public domain. The authenticity of the
same have not been check by the
presenter.

Sahara India Pariwar


Investor fraud case*
*Source: Wikipedia, Supreme Court order and various other website

Timelines SAHARA Case

Dec 2010 Allahabad


High Court

May 2011
Supreme
Court

Nov. 2010 SEBI Interim


Order
Sep. 2009
Sahara
Prime City
Limited filed
DRHP

Oct., 2011
SAT upheld
order
June, 2011 SEBI final
order

Aug. 2012
Supreme
Court order

Facts and Figures

Sahara India Real Estate Corporation Limited ('SIRECL') and Sahara


Housing Investment Corporation Limited ('SHICL)

issued Optionally Fully Convertible Debentures ('OFCDs')

by way of private placement

Red Herring Prospectus filed with the Registrar of Companies

Specifically indicated in the RHP that

they did not intend to get their securities listed on any recognized stock
exchange.

only those persons to whom Information Memorandum was circulated and/or


approached privately who were associated/affiliated or connected in any
manner with Sahara Group, would be eligible to apply.

Facts and Figures


SHICL

SIRECL
Date of commencement of
issue
Total amount collected till
April 13, 2011
Total

25.4.2008

20.11.2009

Rs. 19,400.87 Crs

Rs.6,380.50 Crs

Less: Premature redemption

Rs.25,781.37 Crs
(Number of Investors 3.07 Crs..)
Rs. 1,744.34 Crs
Rs.7.30 Crs

Total
Balance on August 31, 2011

Rs.1,751.64
Rs.6,373.20 Crs

Total

Rs. 17,656.53 Crs

Rs.24,029.73 Crs.
(Number of Investors 2.96 Crs.)

Questions of Law

OFCDs issued by Saharas fall within definition of securities under Section


2(h) of SCR Act.

Whether, the issue was a private placement or public issue under section
67(3) of the Companies Act, 1956

Whether, legal obligation to list the securities on a recognized stock


exchange under setion 73 of the Companies Act, 1956

Whether, SEBI has the powers to administer under Section 55 A of the


companies Act, 1956

Whether, Sahara have violated the Companies Act, DIP Guidelines and
ICDR 2009

OFCDs

OFCDs issued by Saharas have the characteristics of shares and


debentures and fall within the definition of Section 2(h) of SCR Act.

Private placement or Public issue

By virtue of the first proviso to Section 67(3), if an offer of securities is made


to fifty or more persons, it would be deemed to be a public issue, even if it
is of domestic concern or proved that the shares or debentures are not
available for subscription or purchase by persons other than those
received the offer or invitation.

Information Memorandum was issued through 10 lac agents and more


than 2900 branch offices to more than 3 crores persons inviting them to
subscribe to the OFCDs which amounted to invitation to public

Listing is mandatory

Section 73(1) of the Act casts an obligation on every company intending


to offer shares or debentures to the public to apply on a stock exchange
for listing of its securities. Such companies have no option or choice but to
list their securities on a recognized stock exchange, once they invite
subscription from over forty nine investors from the public.

Sahara having failed to make application for listing on any of the


recognized stock exchange, become legally liable to refund the amount
collected from the subscribers in pursuance to their RHPs, along with
interest as provided under Section 73(2) of the Act.

SEBIs Power under Companies Act

Section 55A: The provisions contained in sections-----, so far as they relate to


issue and transfer of securities and non-payment of dividend shall, -

(a) in case of listed public companies ;


(b) in case of those public companies which intend to get their securities
listed on any recognised stock exchange in India,
be administered by the Securities and Exchange Board of India.

Supreme Court Opinion: SEBI has the powers to administer the provisions
referred to in the opening part of Section 55A which relates to issue and
transfer of securities and non-payment of dividend by public companies like
Saharas, which have issued securities to fifty persons or more, though not listed
on a recognized stock exchange, whether they intended to list their securities
or not.

Violation of the Companies Act, DIP


Guidelines and ICDR 2009

Sahara have violated the DIP Guidelines and ICDR 2009 and by not
complying with the disclosure requirements and investor protection
measures for public, and also violated Section 56 of the Companies Act
which may attract penal provisions.

Hon'ble Supreme Court Judgment

Supreme Court find on facts as well as on law, no illegality in the


proceedings initiated by SEBI and the order passed by SEBI (WTM) dated
23.6.2011 and SAT dated 18.10.2011 are accordingly upheld.

Even though Supreme Court hope that all the subscribers are genuine, and
so also, the subscription amount, it would be necessary to modify the
operative part of the order issued by the SEBI which came to be endorsed
by the SAT, so that the purpose of law is not only satisfied but is also
enforced.

Hon'ble Supreme Court: Order

Saharas (SIRECL & SHICL) would refund the amounts collected with interest
@ 15% per annum to SEBI

Saharas are also directed to furnish the details with supporting documents
to establish whether they had refunded any amount to the persons who
had subscribed

Documents produced by Saharas are not found genuine or acceptable,


then the SEBI (WTM) would proceed as if the Saharas had not refunded
any amount

Saharas are directed to furnish all documents to SEBI so as to enable it to


ascertain the genuineness of the subscribers as well as the amounts
deposited,

Hon'ble Supreme Court: Order.

SEBI (WTM) if, after the verification of the details furnished, is unable to find
out the whereabouts of all or any of the subscribers, then the amount
collected from such subscribers will be appropriated to the Government of
India.

Hon'ble Supreme Court also appoints Mr. Justice B.N. Agrawal, a retired
Judge of this Court to oversee whether directions issued by this Court are
properly and effectively complied with by the SEBI (WTM) from the date of
this order.