Sahara Legal Case
Can anyone explain me the order passed by SEBI and Supreme Court in Sahara Legal Case? Will it result in some stringent SEBI regulations which will further strengthen corporate governance in the country?
Brief facts of the case- The Saharas sought to raise funds through Optionally Fully Convertible Debentures (OFCDs”). They filed/circulated an information memorandum/ Red Herring Prospectus with the Registrar of Companies but no documents with SEBI. It took a view that issue of shares to a group of people – described in an extremely broad manner – did not amount to an issue to the public requiring compliance with the provisions of the Companies Act, 1956, the SEBI Act and Regulations, etc. that dealt with public issues. The Saharas, however, appointed about 10,00,000 agents, opened 2900 branches and offered the OFCDs to crores of people, and issued the OFCDs to some 66 lakhs people (it appears actual figures may be even higher). Contrast this with the maximum limit of 49 offerees permitted under Section 67(3) of the Companies Act, 1956, beyond which the offer would become a public offer.
SAT (Securities Appellate Tribunal) & SEBI Decision- Both SAT & SEBI held that offer of OFCDs by the Saharas was an ‘issue to the public’ and not a private placement. The OFCDs offered to the persons turned out to be 3 crores in number. It was held that in view of the first proviso to Section 67(3), offer to more than 49 persons would be deemed to be an offer to the public. The fact that the offer was clearly made to more than 49 persons attracted this provision. Thus, the SAT & SEBI ordered the two Sahara companies to refund the amount with 15 % interest.
Supreme Court judgment- The Supreme Court upheld the judgment of the SAT & the SEBI. It ordered the Saharas to refund the amount collected to the tune of 24,000 cr.
Strengthening of SEBI’s power- To stop this fraudulent raising of deposits and money from the public, Securities Law Amendment Ordinance, 2013 was promulgated. This ordinance has granted SEBI wide regulatory and enforcement power to tackle fraudulent schemes as witnessed in Sahara case. Further, Supreme court’s judgment has laid down a definitive ruling on the following points of law concerning the jurisdiction of the SEBI-
i. Issue involving 50 or more people to be public issues.
ii. All public issues should go through Sebi framework.
iii. Just disclaimers can’t ward away Sebi.
iv. Conduct, not statements, determines whether an issue is public.
v. Sebi has powers to take any step to protect investor
Civil and criminal complaints had been lodged against two Sahara firms and their top executives in the Securities and Exchange Board of India (SEBI)-Sahara case, a metropolitan magistrate in Mumbai had asked them to appear before it for 'violation' of regulations. Following the Supreme Court order against Sahara for refund of more than Rs 24,000 crore to their bondholders , SEBI had filed criminal complaints against Sahara India Real Estate Corp Ltd and Sahara Housing Investment Corp Ltd and their top officials for violation of various provisions of the Companies Act and the SEBI Act. After looking into the complaints, the magistrate passed orders to issue an order against the two companies and their top officials under the Companies Act and the SEBI Act. The order means that the court has taken cognisance of the complaint and has sought appearance of the accused parties before it. Supreme Court upheld the judgment of the SAT & the SEBI. t ordered the Saharas to refund the amount collected to the tune of 24,000 crore.
SEBI made a forceful plea to the Supreme Court to punish Sahara chief Subrata Roy along with his two firms and their directors for not complying with its order for refunding Rs 24,000 crore to investors. Refuting the contention of Roy who had submitted that he cannot be penalised for non-refund of the money by Sahara India Real Estate Corp Ltd (SIREC) and Sahara India Housing Investment Corp Ltd (SHIC), the market regulator said that the business tycoon held 70 per cent stake in the companies and liable for contempt of court punishable upto to six months imprisonment or fine.
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