1. 1 SAHARA V/s SEBI Presented By: Abhishek Jain Kushaldeep Gill Mansi Goel Sakshi Gulati Suvam Dhar Bba 2 nd yr Sec A

2. 2 Contents  Introduction ….3  Sahara v/s SEBI Facts ….4 to 6  Sahara’s contention ….7 to 8  SEBI’s Contention ….9 to 10  Factual Summary ….11  Observations of Supreme Court ….12 to 15  Latest of the Case ….16  Conclusion ….17  Bibliography ….18

3. 3 Introduction: Sahara India Pariwar  Sahara India Pariwar an Indian conglomerate company headquartered in Lucknow  Diversified business in finance, infrastructure & housing, media & entertainment, consumer retail venture etc  Started by Mr. Subrata Roy Sahara in 1978  Main sponsor of Indian Cricket Team (apparently withdrawn and Hockey Team.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

4. 4 Sahara V/s SEBI: Facts  Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHIC) issued Optimally Fully Convertible Debentures (OFCDs) through subscriptions from investors with effect from 25 th April,2008 up to 13 th April,2011  Raised around Rs. 24000 crores from investors  The purpose of issue was 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.

5. 5 Sahara V/s SEBI: Facts Cont’d  However, amount was collected from about 30 million investors in the guise of a ‘Private Placement’.  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.  While processing the prospectus, SEBI received complaint from one of the investor and ‘Professional Group of Investors Protections’ on 25 th December,2009 and 4 th January, 2010.  Complaint alleged Sahara group for issuing Housing Bonds without complying with relevant regulations prompting SEBI to look into matter.

6. 6 Sahara V/s SEBI: Facts Cont’d  The Whole Time Member of SEBI passed an order dated 23 rd June, 2011 directing the two companies to refund the money so collected to the investors.  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 by an order dated 18 th October,2011.  Subsequently Sahara filed an appeal before the Supreme Court of India against the SAT order.

7. 7 Sahara’s Contention  Issue of Optimally Fully Convertible Debentures (OFCD’s) is legal.  Issue of OFCD’s is not a public issue.  OFCD are neither shared nor Debentures but “Hybrid” Class  OFCD’s are “Hybrid Instruments” cannot be listed.  Serious error is committed by SEBI.  No statutory requirement to list OFCD’s.

8. 8 Sahara’s Contention (Cont’d)  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 SCRA and hence not listable securities as per Sec 2(h) of the SCRA.  SEBI contention is incorrect and has no credible evidence.

9. 9 SEBI’s Contention  OFCD was a public issue  OFCDs were transferable securities  Violation of section 73 of Companies Act 1956  Untrue Red Herring Prospectus  Not following The Securities Contracts (Regulation) Act, 1956  The forms issued by two companies did not enclose an abridged prospectus  Did not submit Balance Sheet and P&L a/c to the concerned ROC

10. 10 SEBI’s Contention (Cont’d)  Aggrieved Sahara appealed to SAT (Securities Appellate Tribunal).  Passed order in favor of SEBI.  Aggrieved Sahara again moved towards Supreme Court  Finally, Supreme Court of India passed the judgement in favor of SEBI.  Ordered Sahara to repay the investors.

11. 11 Factual Summary  Sahara aggrieved against the notice of SEBI moved to Allahabad High Court and obtained a stay.  SEBI filed the petition to Supreme Court.  Recall of the earlier order  Allahabad High Court rejected the recall order.  SEBI again approached the Supreme Court  Issue of fresh notice to Sahara by SEBI.  Confirmation of violation of rules and regulations and therefore, order against Sahara was passed

12. 12 Observation by Supreme Court The supreme court of India interpreted provisions of the Companies Act, SEBI Act, Securities Contract (Regulations) Act, 1956 (SCRA), and other related rules to give decisions after considering some issues. Issue 1. Whether the power to investigation and abjudication 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 in this matter.  SEBI Act is a special legislation bestowing SEBI with special powers to investigate and abjudicate to protect the interests of investors

13. 13 Observations by Supreme Court (Cont’d) 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 is marketable.

14. 14 Observations by Supreme Court (Cont’d) 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 people [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.

15. 15 Observations by Supreme Court (Cont’d) 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 Companies Act, 1956]  Sec 73(1) casts obligation on every company intending to make offer securities to public to list its securities.  Intention cannot override Act.

16. 16 Latest of the Case  SEBI has began process of refund to investors being verified by it  Refund is being made from Rs. 5,120 crore deposited by Sahara  Non genuine investor details are provided by Sahara, many of which are fake  Refund of estimated amount of Rs. 24,000 crore  SEBI is demanding personal asset details, bank a/c of Subrata Roy  SEBI has demanded arrest of Subrata Roy

17. 17 Conclusion  The landmark judgement by Supreme Court is a mildstone in India’s corporate Landscape  SEBI has absolute power to investigate into the matters of both listed companies and unlisted companies  It vests SEBI to investigate into any matter concerning the interest of the investors even if it pertains to companies which are not listed  Removes grey areas relating to issue by so called unlisted companies  Forbids such unlisted companies to take advantages of legislative loopholes  Jurisdictional gap is removed between MCA and SEBI in matters of public interest

18. 18 Bibliography  www.mondaq.com www.mondaq.com  www.business-standard.com www.business-standard.com  www.slideshare.net www.slideshare.net

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