SAHARA CASE what and why?

Learnings

CONTENTS
SAHARA
SEBI
ABOUT THE CASE
SAHARAS CONTENTION

SEBIS CONTENTION
OUTCOME
SUPREME COURT OBSERVATIONS
TIMELINE

SAHARA
Started by Mr. Subrata Roy Sahara in 1978
Businesses include finance, infrastructure & housing, media & entertainment
etc
Main sponsor of the Indian Cricket Team (apparently withdrawn) and Hockey
Team. They own an IPL Team and 42.5% stake in Formula One's Force India F1
The Brand Trust Report published by Trust Research Advisory, listed Sahara in
the top 100 most trusted brands of India.

SEBI
TheSecurities and Exchange Board of India(SEBI) is theregulatorfor
thesecuritiesmarket in India. It was established in the year 1988 and given
statutory powers on 12 April 1992 through theSEBI Act, 1992.
SEBI has to be responsive to the needs of:
the issuers of securities | the investors | the market intermediaries.
SEBI drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders
in its judicial capacity

ABOUT THE CASE

Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing
Investment Corporation Limited (SHIC) issued Optionally Fully Convertible
Debentures (OFCDS).
Raised around Rs.20,000 crores from investors with the purpose to carry
out infrastructural activities namely, constructing the bridges, modernizing
or setting up of airports, rail system or any other projects which may be
allotted to the company
Filed RHPs to the concerned ROC and specified intention of company not
wanting to list the shares on any stock exchanges.
As per Sahara issue of OFCDS was private placement.

ABOUT THE CASEContd

The requirements applicable to the public offerings of securities were not
complied with.
Later, Sahara Prime City Limited intended to raise funds through listing of
its shares filed Prospectus to SEBI

ABOUT THE CASEContd

SEBI passed an order dated 23rd June, 2011 directing the two companies
to refund the money.
Also restrained the promoters of the two companies including Mr. Subrata
Roy from accessing the securities market till further orders.
Sahara then preferred an appeal before Securities Appellate Tribunal (SAT)
against the order. SAT confirmed and maintained the order of the Whole
Time Member.
Subsequently Sahara filed an appeal before the Supreme Court of India
against the SAT order.

SAHARAs CONTENTION
Issue of Optionally Fully Convertible Debentures (OFCDs) is legal.
Issue of OFCDs is not a public issue.
OFDC are neither shares nor Debentures but Hybrid Class
OFCDs are Hybrid Instruments cannot be listed.
Serious error is committed by SEBI.

SAHARAs CONTENTION.Contd
No statutory requirement to list OFCDs.
Bonds issued by Sahara are:1. Hybrid instruments as per Sec 2(19A) of the Companies Act.
2. Convertible bonds as per Sec 28(1)(b) of the SCR Act & hence
not list-able securities as per Sec 2 (h) of the SCR Act.
. SEBI contention is incorrect and has no credible evidence.

SEBIs CONTENTION
OFCD was public issue
OFCDs were securities transferable
Violation of section 73 of Companies Act 1956
Untrue Red Herring Prospectus Not following The Securities
Contracts (Regulation) Act, 1956
The forms issued by the two companies did not enclose an abridged
prospectus
Did not submit Balance Sheet and P&L a/c to the concerned ROC

OUTCOME
Aggrieved Sahara appealed to SAT(Securities Appeallet Tribunal).
Passed order in favor of SEBI.
Aggrieved Sahara again moved towards Supreme court.
Finally, Supreme court of India passed the judgment in favor of
SEBI.
Ordered Sahara to repay the investors.

SUPREME COURT OBSERVATIONS

ISSUE
1

Whether the power to investigation and adjudication lies with SEBI in this
matter as per Sec 11, 11A, 11B of SEBI Act and or Ministry of Corporate Affairs
(MCA) under Sec 55A of the Companies Act.
OBSERVATIONS OF SC:
SEBI does have power to investigate and adjudicate in this matter.
SEBI Act is a special legislation bestowing SEBI with special powers to investigate and
adjudicate to protect the interests of the investors.
SEBI has special powers are not derogatory to any other provisions existing in any other law
There is no conflict of jurisdiction between the MCA and the SEBI in the matters where
interests of the investors are at stake.

SUPREME COURT OBSERVATIONS

ISSUE
2

Whether the hybrid OFCDs fall within the definition of "Securities" within the
meaning of Companies Act, SEBI Act and SCRA so as to vest SEBI with the
jurisdiction to investigate and adjudicate
OBSERVATIONS OF SC:
OFCDs issued by the two companies are in the nature of "hybrid" instruments but it is
"Security" within the meaning of Companies Act, SEBI Act and SCRA.
Although the definition of "Securities" under section 2(h) of SCRA does not contain the term
"hybrid instruments" but it is inclusive definition and covers all "Marketable securities".
OFCDs were offered to millions of people hence it were marketable.
The name itself contains the term "Debenture", it is deemed to be a security as per the
provisions of Companies Act, SEBI Act and SCRA.

SUPREME COURT OBSERVATIONS

ISSUE
3

Whether the issue of OFCDs to millions of persons is a Private Placement

and not covered by SEBI Regulations and various provisions of Companies
Act.
OBSERVATIONS OF SC:
The issue of OFCDs is not private placement since made to 50 or more [sec 67(3)]
The Supreme Court observed as the companies elicited public demand for the OFCDs
through issue of Information Memorandum which is only meant for Public Issues.
Actions of both the companies clearly depicts they wanted to issue securities to
public in the grab of private placement to bypass various laws and regulations

SUPREME COURT OBSERVATIONS

ISSUE
4

Whether listing provisions under sec 73 is mandatory for all public

issues or depends on Intention of the Company
OBSERVATIONS OF SC:
Law is clear and unambiguous as to any issue made to more than 49 persons is
mandatory to list [u/s 67 (3) of Companys Act,1956]
Sec 73(1) casts obligation on every company indenting to make offer securities to
public to list its securities.
Intention can not override Act.

SUPREME COURT OBSERVATIONS

ISSUE
5

Whether the Public unlisted companies (Preferential Allotment)

Rules, 2003 will apply in this case
OBSERVATIONS OF SC:
Supreme court denied any legislative intention of such Rules to override the
provisions of sec 67(3) and held that even those rules has to comply the aforesaid
section
Even if armed with special resolution of Shareholders sec 67 is to be followed
If the preferential allotment by unlisted companies is public issue, 2003 Rules will
not apply

TIMELINE

24th November,
2010

13th December,
2010

Sebi restricts the promoters and directors of

two Sahara group companies from raising any
capital through the issue of securities: either
equity shares, convertible debentures or any
other securities.

Lucknow bench of Allahabad High Court stays

Sebi order

January 2011

1. SC turns down Sebis plea to stop two

firms from raising money from investors,
but empowers it to seek information and
issue advertisements to inform investors
that the matter is pending investigation.
2. Sebi issues a public notice on its website
cautioning investors against the buying
debentures of Sahara India Real Estate
Corp and Sahara Housing Investment Corp.
3. Sahara India Real Estate sends a legal
notice to Sebi.

April 2011

1. The Lucknow bench of Allahabad High

Court vacates stay
2. Sebi issues a public notice alerting
investors about a ban on money
mobilization by two Sahara group firms.
3. Sahara Group accuses Sebi of defaming the
company & files a petition in the Supreme
Court challenging the Allahabad High
Court order, which asked it to share full
details of investors participating in its
fund-raising exercise with Sebi.

May 2011

June 2011

SC directs Sebi to proceed with its

investigation into financial instruments used
by two Sahara group companies to raise
money from the public.

Sebi directs Sahara firms to immediately

refund the money collected through sales of
optionally fully convertible debentures
(OFCDs) with annual interest of 15 percent.

July 2011

1. Sahara appeals in SC that Sebi has no

jurisdiction. Seeks notice to Centre.
2. SC directs Sahara to approach SAT against
Sebi order on OFCDs

October 2011

November 2011

SAT upholds Sebi order against Sahara to

refund money.
SC stays SAT order

January 2012

31st August,
2012

SC gives Sahara group companies 3 weeks to

choose between -- either to give sufficient
bank guarantee or attach properties worth
the amount.

SC rules in favour of Sebi and orders the two

Sahara companies to return to its OFCD
investors the full outstanding amount of over
Rs 20,000 crore, alongwith 15% interest,
within three months.

October 2012

19th October,
2012
November 2012

Sahara companies file a review petition in

the Supreme Court. Sahara claims it sent a
truckload of documentation to Sebi within
the 10-day limit. But Sebi did not accept it
as the documents arrived on the 10th day,
after office hours.
Sebi approaches Supreme Court alleging
Saharas non-compliance with the main order.
Sebi files a contempt petition against Sahara
claiming it had not furnished the investor
documents within the court stipulated time.

December 2012

The Sahara Group gets a temporary reprieve

from the SC. The apex court grants it more
time to repay the money.

January 2013

Sahara misses the repayment deadline set up

by SC. The company fails to deposit the
second installment amount (Rs.10,000 Cr)
with market regulator by January first week.

February 2013

SC refuses to hear a plea asking for extension

of deadline to refund investors money. Sebi
moves in to attach properties of the group
and group chief.

March 2013

July 2013

Sahara approaches special appellate tribunal

against Sebi move to attach properties. Sebi
seeks arrest of Roy. Sebi also says most of
records provided by Sahara untraceable,
implying several accounts were fictional.

Sebi files a contempt petition against Sahara

in SC. Says company flouting SC direction to
make refund.

November 2013

SC bars Subrata Roy from leaving country.

Sahara attacks Sebi, calls it a sarkari gunda
which is working with political patronage.

February 2014

SC issues non bailable warrant against Roy for

failing to appear at a court hearing.

THANK YOU
Aman Ajmera, Amey Kane, Jayesh Patel,
Joel DSouza, Pritesh Jaisingh, Rahul
Manghat, Rashmika Mahida, Saurabh
Mishra, Sumeet David, Swapnil Shrihari