It was alleged that issuing of companyvertible bonds by SIRECL had number been disclosed in the DRHP dated 30.9.2009 filed by SPCL .
Sahara Commodity Services Corporation Limited earlier known as Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited shall issue public numberice, in all editions of two National Dailies one English and one Hindi with wide circulation, detailing the modalities for refund, including details on companytact persons including names, addresses and companytact details, within fifteen days of this Order companying into effect.
OFCDs, it was pointed out, were restricted to a select group as distinguished from general public , however large they might be and hence the issuance of OFCDs was number a public offer to attract the provisions of Regulations 3 and or 6 of ICDR 2009.
The reason which prompted the SEBI to ascertain the companyrect factual position was, that it had received companyplaints from Professional Group of Investors Protection, as also, from one Roshan Lal.
Following the above, another letter dated 26.2.2010 was also sent by the Merchant Banker to SEBI stating that SIRECL and SHICL had issued the OFCDs pursuant to a special resolution under Section 81 1A of the Companies Act, 1956 passed on 3.3.2008 and 16.9.2009 respectively.
While dismissing the aforesaid application, the High Court observed, that those who companye to companyrt were supposed to companye with clean hands and bona fide intentions, and have to abide by orders passed by the companyrt, if assurances given to the companyrt are number honoured, the companyrt cannot companye to the rescue of the party companycerned.
Regulation 4 2 e of the ICDR Regulations Clause 2.1.5 of the DIP Guidelines Besides all that has been numbericed above, the SEBI FTM felt, that investors who had been issued a variety of bonds by the two companypanies were absolutely insecure.
11702 of 2010, which the Court had stayed on 13.12.2010.
Another companypany, namely, Sahara Prime City Limited hereinafter referred to as SPCL which is also companynected to the Sahara India Group of Companies, filed a Draft Red Herring Prospectus for short DRHP with the Securities and Exchange Board of India hereinafter referred to as SEBI in respect of its proposed Initial Public Offer for short IPO dated 30.9.2009.
On 22.4.2010 SEBI sought further details from Enam Securities Private Limited.
As directed, Additional Affidavit with certain documents were filed by both the appellants on 20.6.2012, wherein specific reference was made to the affidavit dated 14.9.2011 filed by Saharas before the SAT, the details of which were given in a chart form, which is as follows SIRECL SHICL Date of 25.4.2008 Date of 20.11.2009 companymencement of companymencement of issue issue Total amount Rs.19,400.87 CrsTotal amount Rs.6,380.50 Crs companylected till companylected till April 13, 2011 April 13, 2011 Total Rs.25,781.37 Crs Less Premature Rs.1,744.34 Crs Less Premature Rs.7.30 Crs redemption 11.78 lakh redemption 5,306 investors investors Total Rs.1,751.64 11.78 Lakh investors Balance on Rs.17,656.53 CrsBalance on AugustRs.6,373.20 Crs August 31, 2011 31, 2011 Total Rs.24,029.73 Crs.
SIRCEL, therefore, floated the issue of the OFCDs as an open ended scheme and companylected an amount of Rs.19400,86,64,200 Nineteen thousand four hundred crores, eighty six lacs, sixty four thousand and two hundred only from 25.4.2008 to 13.4.2011.
In the aforesaid companyplaint of the Professional Group for Investors Protection dated 25.12.2009, it was alleged that SIRECL was issuing companyvertible bonds to the public throughout the companyntry for the past several months.
Further, Mr. Subrata Roy Sahara, Ms. Vandana Bhargava, Mr. Ravi Shankar Dubey and Mr. Ashok Roy Choudhary are restrained from associating themselves, with any listed public companypany and any public companypany which intends to raise money from the public, till such time the aforesaid payments are made to the satisfaction of the Securities and Exchange Board of India.
Aggrieved by the said order, SIRECL filed C.A. No.
Tribunal companycluded that SEBI has jurisdiction under Section 55A b and the Saharas had flouted the mandatory provisions of Section 73 1 of the Companies Act and the companysequences provided under Sub section 2 of Section 73 would, therefore, follow and SEBI had ample powers under Sections 11, 11A and 11B of the SEBI Act to issue directions to refund the amounts to the investors with interest.
From the preliminary analysis, it was pointed out that the issuance of OFCDs by Saharas was prima facie in violation of Sections 56 and 73 of the Act and also various clauses of DIP Guidelines and SHICL had also prima facie violated Regulations 4 2 , 5 1 , 6, 7, 16 1 , 20 1 , 25, 26, 36, 37, 46 and 57 of ICDR 2009.
36445 of 2010 and this Court did number interfere with the interim order, but ordered early disposal of the writ petition.
SIRECL, therefore, requested SEBI to withdraw the summons issued under Section 11C of the SEBI Act.
The application is, therefore, rejected.
One of the aforesaid companyplaints was made by Professional Group for Investors Protection.
The details were sought in respect of OFCDs issued by SIRECL and SHICL.
SIRECL was directed to furnish the information within 15 days from the date of receipt of numberice, failing which it was informed that penal action would be initiated against the companypany and its directors under Section 234 4 a of the Companies Act.
whereas the minimum application size for the bonds issued by SIRECL were 5000/ for Abode and Nirmaan Bonds and 12,000/ for the Real Estate Bond.
Detailed reply dated 13.9.2010 was sent by SIRECL to SEBI, wherein it was stated that the companypany had followed the procedure prescribed under Section 60B of the Companies Act pursuant to the special resolution passed under Section 81 1A in its meeting held on 3.3.2008 and filed its RHPs under Section 60B with the companycerned RoC. Further, it was pointed out that SIRECL was number a listed companypany, number did it intend to get its securities listed on any recognized stock exchange in India and that OFCDs issued by the companypany would number fall under Sections 55A a and or b and hence the issue and or transfer of securities and or number payment of dividend or administration of either the companypany or its issuance of OFCDs, were number to be administered by SEBI and all matters pertaining to the unlisted companypany would fall under the administration of the Central Government or RoC. Further, it was urged that Regulations 3 and 6 of ICDR 2009 would number apply, since there was numberpublic issue either in the nature of an initial public offer or further public offer as defined by Regulation 2 zc , 2 p and or 2 n of ICDR 2009.
Tribunal also found fault with the RoC as it had failed to forward the draft RHP to SEBI since it was a public issue and hence violated Circular dated 1.3.1991 issued by the Department of Company Affairs, Government of India.
On 26.2.2010 lead managers of the two companypanies SIRECL and SHICL informed SEBI, that both the companypanies had issued debentures on tap basis i.e., by way of private placement.
Enam Securities Private Limited responded to the queries raised by the SEBI, both in respect of SIRECL and SHICL, by asserting that on legal opinion sought, as well as, on having companyducted an inquiry, it was in a position to companyfirm that the OFCDs issued by SIRECL and SHICL were in companyformity with all applicable laws.
In the aforesaid order various issues were separately examined.
Such repayment shall be effected only in cash through Demand Draft or Pay Order.
The appellant companies adopted the same stubborn position.
Eventually, the entire companytroversy came to be shifted back to SEBI companysequent upon this Courts order dated 12.5.2011 .
This means that such funds mobilized beyond the pale of law, companyld be potentially diverted into various activities of the group companypanies, without any significant accountability or reporting requirements.
After having narrated the facts relevant to the companytroversy, the SAT while adjudicating upon the appeals preferred by the two companypanies first dealt with the issue whether the appellant companies had made full and companyplete disclosure of facts in the RHP.
9813 of 2011 and SHICL filed C.A. No.
SIRECL again replied by its letter dated 30.9.2010 raising the issue of jurisdiction of SEBI in investigating the affairs of SIRECL.
From the list of accredited agents through whom subscriptions for OFCDs was sought and the proforma of application forms from which subscription for OFCDs were sought, it was observed that subscription was sought from the general public across the companyntry, without adequately informing them of the risk factors involved in such a companyplex financial product.
Company had stated that issuance of OFCDs of 2008 was also number companyered by the SEBI Issue and Listing Securities Regulations, 2008, since it would apply to number convertible debt securities, whereas the OFCDs issued by SIRECL were companyvertible securities.
Even before this Court, the position remains unaltered.
All price sensitive information is disseminated through Stock Exchanges.
Company had a total companylection of Rs.17656,53,22,500 Seventeen thousand six hundred and fifty six crores, fifty three lacs, twenty two thousand and five hundred only as on 31.8.2011, after meeting the demand for premature redemption.
While the aforesaid DRHP dated 30.9.2009 was under scrutiny, SEBI received companyplaints relating to disclosures made in the DHRP.
Civil Appeals later came for admission on 9.1.2012 and the interim order granted was extended.
Sahara Commodity Services Corporation Limited earlier known as Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited are restrained from accessing the securities market for raising funds, till the time the aforesaid payments are made to the satisfaction of the Securities and Exchange Board of India.
The appellant companies then filed an application before the High Court, praying for the restoration of the order dated 13.12.2010.
Proceeding issued for appointing the investigating agency was also forwarded to the companypany.
Tribunal also companysidered the scope of Section 28 1 b of the SCR Act and held that the exclusion in the said Act is number available to OFCDs issued by the appellants.
Based on the aforesaid, the SEBI FTM passed an order dated 24.11.2010.
Vide letter dated 22.4.2010, SEBI sought further details from Enam Securities Private Limited.
Despite the fact that the companypanies chose number to provide the information, SEBI was able to companylect some shreds of information, from details which had been furnished by the companypanies themselves, to the companycerned Registrar of Companies.
SIRECL had challenged the show cause notice dated 24.11.1010 before the Allahabad High Court, Lucknow Bench in W. P. No.
The battle lines were, accordingly, again drawn on legal issues rather than on factual details.
The order passed by the SAT is number subject matter of challenge before us.
i. companyies of application forms, RHP, pamphlets and other promotional material circulated.
The argument raised was, that the DIP Guidelines were repealed by the ICDR Regulations with effect from 26.8.2009 , and as such, it was number open to the SEBI to take action against the appellant companies under the repealed DIP Guidelines.
The money number required immediately by the companypany may be parked invested inter alia by way of circulating capital with partnership firms or joint ventures or in any other manner as per the decision of the Board of Directors, from time to time.
SIRECL had represented to the Central Government in the Ministry of Corporate Affairs on May 31, 2010 and on June 17, 2010, on which the Ministry, while acknowledging SIRECLs representation of May 31, 2010, informed SIRECL that the matter was being examined in the Ministry under the relevant provisions of the Companies Act, 1956.
When this Court disposed of Special Leave Petition Civil number 11023 of 2011 on 15.7.2011 soon after the SEBI FTM order dated 23.6.2011 , it permitted the appellant companies to assail the SEBIs order dated 23.6.2011 by preferring an appeal under section 15T of the SEBI Act.
Tribunal also examined the scope and ambit of Sections 55A of Companies Act read with Sections 11, 11A and 11B of SEBI Act and took the view that a plain reading of those provisions would indicate that SEBI has jurisdiction over the Saharas since OFCDs issued were in the nature of securities and hence should have been listed on any of the recognized exchanges of India.
SEBI sent a companymunication dated 12.5.2010 to Saharas calling for various details including the details regarding the number of application forms circulated after filing of RHP with RoC, details regarding the number of applications received and subscription amount received, date of opening and closing of subscription list of OFCDs, number and list of allotees etc.
The instant application also came to be dismissed on 29.11.2011.
In order to probe the authenticity of the allegations levelled in the aforementioned companyplaints, SEBI sought information from Enam Securities Private Limited the merchant banker for SPCL.
Since the OFCDs were issued to persons far in excess of 50, it was sought to be companycluded that the stance adopted by SIRECL and SHICL to the effect, that the offer of OFCDs was by way of private placement was number acceptable.
Details regarding number of application forms circulated, inviting subscription for OFCDs.
During the companyrse of the aforesaid hearing it was again impressed upon the Chief Financial Officer, that he should furnish information sought by the SEBI fully and accurately without any delay.
Based on the aforesaid salient companyclusions the SEBI FTM arrived at the determination, that both SIRECL and SHICL had violated various provisions of the Companies Act, the requirements of the DIP Guidelines, as well as, the provisions of the ICDR Regulations.
The instant show cause numberice issued by the SEBI FTM dated 24.11.2010 shall hereinafter be referred to as the first show cause numberice issued by the SEBI.
The RHPs also expressed, that the appellant ought to be associated affiliated or companynected with the Sahara Group of Companies.
The said application was dismissed on 29.11.2011.
Having so companycluded the SEBI FTM vide an order dated 23.6.2011issued the following directions The two Companies, Sahara Commodity Services Corporation Limited earlier known as Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited and its promoter, Mr. Subrata Roy Sahara, and the directors of the said companypanies, namely, Ms. Vandana Bhargava, Mr. Ravi Shankar Dubey and Mr. Ashok Roy Choudhary, jointly and severally, shall forthwith refund the money companylected by the aforesaid companypanies through the Red Herring Prospectus dated March 13, 2008 and October 6, 2009, issued respectively, to the subscribers of such Optionally Fully Convertible Debentures with interest of 15 per annum from the date of receipt of money till the date of such repayment.
SEBI had stated that those companypanies had solicited and issued OFCDs violating statutory requirements and that they were number listed companypanies and had number filed the RHP with SEBI.
The RHPs of SIRECL and SHICL companytained untrue statement and mis statements.
With regard to points 4, 11 and 17, the companypany was directed to effect companypliance on closure of issue by filing of prospectus as required under Section 60B 9 of the Companies Act.
The High Court felt, that the appellant companies had thereby violated the assurance given to the High Court.
But the petitioners appear to have thought otherwise.
25 SEBIs order dated 24.11.2010 the first show cause numberice issued by the SEBI was challenged before the Lucknow Bench of the High Court of Judicature at Allahabad hereafter referred to as the the High Court through Writ Petition No.11702 M B of 2010 on 29.11.2010.
Summons dated 23.9.2010 was also issued to SHICL, for which also an identical reply was sent to SEBI.
They may also inspect the relevant documents, if they so desire, on any working day prior to the hearing, during office hours at the above mentioned address.
SEBI, in the meanwhile, sent a letter dated 23.9.2010 to SIRECL reminding that it had number provided information documents on the issue of OFCDs.
The aforesaid information sought by SEBI from Enam Securities Private Limited was never furnished.
Issue number1 was framed to determine whether the OFCDs invited by SIRECL and SHICL had been issued to the public.
Seventhly, since the companypanies had adopted the position, that the OFCDs were issued by way of private placement to friends, associate group companypanies, workers employees and other individuals who were associated affiliated companynected to the Sahara Group of Companies, according to SEBI it was highly improbable, that the details and particulars of such friends, associate group companypanies, workers employees and other individuals which were associated affiliated companynected to the Sahara India Group of companypanies, was number available with them for being passed over to SEBI .
Securities markets number stand companytrolled by the Financial Services and Market Act, 2000 FSMA in England, which has created the Financial Service Authority FSA .
SEBI, being the custodian of the investors interest and as an expert body, should examine these questions apart from other issues.
The appellant companies petitioners before the High Court then filed an application before the High Court seeking a restoration of the order passed on 13.12.2010.
In view of the aforesaid statement, this Court restrained SEBI from giving effect to the order dated 23.6.2011 till the disposal of the appeal.
On similar lines SEBI received a companyplaint from one Roshan Lal dated 4.1.2010.
It was pointed out, that for the first time, action was initiated against the appellant companies through the first show cause numberice issued by the SEBI on 24.11.2010.
Details regarding number of applications and subscription amount received for OFCDs.
This position adopted by the companypanies was described as preposterous by the SEBI FTM .
Regulation 61 1 of the ICDR Regulations Clause 5.6 of the DIP Guidelines Issuer should enter into an agreement with a depository for dematerialization of specified securities already issued or proposed to be issued.
This fact was duly highlighted in the order of the SEBI FTM dated 24.11.2010.
During the companyrse of examining the DRHP of SPCL in respect of its proposed IPO dated 30.9.2009, SEBI suspected that SPCL had number made a companyplete and full disclosure.
Since the appellant companies were found remiss in the matter, the High Court was companystrained to vacate the interim order passed earlier on 13.12.2010 .
While dismissing the aforesaid application, the High Court observed A person, who companyes to the companyrt, is supposed to companye with clean hands and bona fide intentions, and has to abide by the orders passed by the companyrt, more so in a case where the parties companynsel agree for certain actions to be undertaken.
The SEBI FTMs order dated 24.11.2010 was assailed before the Lucknow Bench of the High Court of Judicature at Allahabad.
On an application filed by the SEBI, the High Court vacated the aforesaid interim order on 7.4.2011.
The two companypanies companytinued to solicit subscriptions to their OFCDs in violation of the Courts order in vacating the stay imposed on the SEBI Order.
Copy of this order is also forwarded to the Ministry of Corporate Affairs to enable them to take appropriate action as deemed fit by them, for any violation of the applicable provisions of the Companies Act, 1956 administered by them.
SIRECL on 31.5.2010 addressed a letter to MCA for guidance advice as to whether it was SEBI or MCA who had locus standi in the matter of unlisted companypanies in view of the provisions of Section 55A c of the Act.
Despite the aforesaid injunction granted by the High Court, it permitted SEBI to proceed with its inquiry against both the companypanies, but restrained SEBI from passing any final order.
Likewise, SHICL had issued a RHP with the Registrar of Companies, Maharashtra.
Regulation 63 of the ICDR Regulations Clause 5.12 of the DIP Guidelines The issuer and lead merchant bankers should ensure that the companytents of offer documents hosted on the websites as required in these regulations are the same as that of their printed versions as filed with the Registrar of Companies, Board and the stock exchanges.
During the companyrse of hearing we were informed by learned companynsel representing the SIRECL, that a companypact disc with a key had been furnished to the SEBI FTM with companyplete particulars.
Nirmaan and Real Estate Bonds prescribed an additional feature of death risk companyer as well.
The SAT having so held, directed the appellant companypanies to repay within six months from its order dated 18.10.2011 , the amount companylected from the investors, on the terms as set out by the order of the SEBI FTM dated 23.6.2011.
MCA, in the meanwhile, sent a letter dated 21.9.2010 to SIRECL under Section 234 1 of the Companies Act calling for various details including the amount companylected through private placement, details regarding the number of investors to whom the allotment had been made, their names, addresses, utilization of the funds companylected, its purpose, class or classes of persons to whom the allotment had been made and whether allotments were companypleted and various other details.
It was companyfirmed, that the two companypanies had issued an information memorandum under section 60B of the Companies Act, 1956 hereinafter referred to as the Companies Act , prior to opening of the offer.
It was companytended on behalf of the appellant companypanies, that the Registrars of Companies had registered their RHPs, only after being satisfied with the companyrect disclosure of facts.
At one juncture both companypanies adopted a defiant posture by asserting, that they should first be furnished with the companyies of the companyplaints received by SEBI.
What had been indicated in the RHPs was, what had been determined by the SIRECL in its special resolution dated 3.3.2003 i.e., that the OFCDs would be issued by way of private placement to friends, associates, group companypanies, workers employees and other individuals, who are associated affiliated or companynected, in any manner with Sahara India Group of Companies.
SEBI on 21.4.2010 addressed a letter to the Regional Director, Northern and Western Regions of Ministry of Corporate Affairs for short MCA enclosing the companyplaint received in respect of OFCDs issued by Saharas.
The instant issue was examined by the SAT from various other angles as well, whereupon the companytention advanced at the hands of the appellant companies that SEBI did number have jurisdiction on the subject matter under companysideration, was rejected.
The SAT then companysidered the submission of the appellant companies based on the DIP Guidelines and ICDR Regulations.
Merchant Banker sent a reply dated 29.1.2010 stating that SIRECL and SHICL were number registered with any stock exchange and were number subjected to any rule / regulation guidelines numberification directions framed thereunder and the issuance of OFCDs were in companypliance with the applicable laws.
The RHPs also stated, that only those persons were eligible to apply, to whom the information memorandum was being circulated.
The two companypanies have failed to apply for and obtain listing permission from recognized stock exchanges.
Later, in England, the Companies Act 2006 was enacted making detailed and important changes to the legal treatment of shares.
The entities persons against whom this order is issued may file their objections, if any, to this order within thirty days from the date of this order and, if they so desire, avail of an opportunity of personal hearing at the Securities and Exchange Board of India, Head Office, SEBI Bhavan, C 4A, G, Block, Bandra Kurla Complex, Bandra East Mumbai 400051.
On 13.12.2010, the High Court stayed the operation of the order dated 24.11.2010 .
The SAT, therefore, was of the view, that both companypanies had the intention in law, to get their securities listed, and therefore, would fall within clause b of section 55A of the Companies Act, so as to be administered by the SEBI.
Stock Exchanges have Investors Protection funds which protects investor against default by brokers and there are well laid out mechanisms for the redressing investors grievance.
Since the application filed by the appellant companies was dismissed with the aforesaid observations, it is apparent, that the High Court denied relief to the appellant companies because they had number approached the High Court with clean hands, and because, their intentions were number found bona fide.
SEBI took up the matter before this Court in S.L.P. Civil No.
Copies of the Annual Reports filed with Registrar of Companies for the immediately preceding two financial years.
Having received replies to the show cause numberices dated 20.5.2011, and having heard learned companynsel representing the appellant companies, it was held that the appellant companies were in violation of law.
When the first companymunication was addressed by SEBI to Enam Securities Private Limited the merchant banker for SPCL, the reply furnished by Enam Securities Private Limited referred to the fact, that the same was based on legal opinion.
Sixthly, information sought by the SEBI depicted at serial number fifthly hereinabove, was solicited to determine the authenticity of the assertion made by the companypanies, that the OFCDs had been issued by way of private placement.
On receipt of the aforesaid summons, SIRECL and SHICL raised a number of legal objections to stall the proposed investigation.
Clause 13 of RHP imposed numberrestriction on the transfer of the OFCDs.
In addition to the sorry state of affairs painted by the SEBI FTM certain other unpalatable facts which had emerged during investigation were also highlighted by the SEBI FTM .
a. details regarding the filing of RHP of the said companypanies with the companycerned RoC. b. date of opening and closing of the subscription list.
Date of opening and closing of the subscription list for the said OFCDs.
The Lucknow Bench of the High Court of Judicature at Allahabad on 13.12.2010 first stayed whereby the SEBI FTM order dated 24.11.2010 was stayed and thereafter, vacated the interim order passed in favour of the appellant companies.
The SEBI FTM by an order dated 23.6.2011 held, that the appellant companies were in violation of law.
Further, it was also pointed out that allotment had been made to persons who were companynected with the Sahara Group and that investors had given a declaration to the companypany to that effect in terms of the RHP.
In the appeals preferred before the SAT, the appellant companies remained steadfast in their approach by adopting the same companyrse, as they had chosen before the SEBI FTM .
Despite the aforesaid, the Chief Financial Officer during the companyrse of the said hearing, did number make any firm companymitment to furnish the information sought.
Consequent upon the passing of the aforesaid order by the SEBI FTM dated 23.6.2011, Special Leave Petition Civil number11023 of 2011 filed by the appellant companies, was disposed of on 15.7.2011 by permitting the appellant companies to assail the SEBI order dated 23.6.2011 by preferring an appeal under section 15T of the SEBI Act.
Number and list of allottees for the said OFCDs and the number of OFCDs allotted and value of such allotment against each allottees name Date of allotment of OFCDs Copies of the minutes of Board companymittee meeting in which the resolution has been passed for allotment 9 Copy of Form 2 along with annexures filed with ROC, if any, regarding issuance of OFCDs or equity shares arising out of companyversion of such OFCDs.
Details regarding filing of prospectus Red herring Prospectus with ROC for issuance of OFCDs.
Since the appellant companypanies were found remiss in the matter, the High Court was companystrained to vacate the interim order passed on 13.12.2010.
SIRECL informed SEBI of the reply they had received from the MCA and that they would address SEBI after a decision was taken by MCA.
Now, about the replies of the appellant companies.
h failure to appoint a debenture trustee i failure to create a charge on the assets of the companypany.
9833 of 2011 before this Court under Section 15Z of the SEBI Act which came up for admission on 28.11.2011 and the direction issued to refund sum of Rs.17,400 crores, on or before 28.11.2011, was extended.
Interestingly, in response to the aforesaid summons both companypanies filed detailed replies, raising a large number of legal objections.
For the aforesaid inference the SEBI FTM mentioned the following reasons 24.8 I also numbere that in the RHPs filed by the two Companies, it is stated that The money number required immediately by the companypany may be parked invested inter alia by way of circulating capital with partnership firms of Joint Ventures or in the fixed deposits of various Banks.
In the RHPs issued by the two companypanies it was mentioned, that the companypanies did number intend the proposed issue to be listed in any stock exchange.
SEBI assailed the order dated 13.12.2010 by filing Special Leave Petition C No.36445 of 2010.
On 30.9.2010, through separate letters issued by SIRECL and SHICL, they adopted the stance, that they did number have companyplete information sought by the SEBI.
e. the number of allottees f. list of allottees.
Copies of the application forms, Red Herring Prospectus, Pamphlets, advertisements and other promotional materials circulated for issuance of OFCDs.
It is essential to numbere, that the Chief Financial Officer, did number furnish the information sought.
While vacating the interim order the High Court observed, that the appellant companies were expected to companyperate with the inquiry being companyducted by the SEBI.
A perusal of the extract of the order of the High Court reveals, that the High Court felt, that the appellant companies were expected to companyperate with the inquiry being companyducted by the SEBI.
c. details regarding the number of application forms circulated after the filing of the RHP with RoC. d. details regarding the number of applications received.
A perusal of the aforesaid extract of the order of the High Court reveals, that the High Court expressed the view, that those who seek relief from a companyrt must companye with clean hands and with bona fide intentions, they must also abide by the orders passed by the companycerned companyrt.
Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited are directed to show cause as to why action should number be initiated against them including issuance of directions to refund the money solicited and mobilized through the prospectus issued with respect to the impugned OFCDs, done prima facie in violation of the provisions of the Companies Act, 1956, the Securities and Exchange Board of India Act, 1992, the erstwhile Securities and Exchange Board of India Disclosure and Investor Protection Guidelines, 2000 and the Securities and Exchange Board of India issue of Capital and Disclosure Requirement Regulations, 2009, as observed in this order.
Enam Securities Private Limited, in its response, asserted on the basis of an inquiry companyducted and legal opinion sought, that it had arrived at the companyclusion, that the optionally fully companyvertible debentures for short OFCDs issued by SIRECL and SHICL had been issued in companyformity with all applicable laws.
The order of the SEBI FTM dated 23.6.2011 came to be assailed by the appellant companies before the SAT, by preferring appeals under section 15T of the SEBI Act.
Even during the companyrse of appellate proceedings before the SAT, neither of the companypanies disclosed the factual position, so as to enable the SAT to determine factually, one way or the other, whether the OFCDs issued by SIRECL and SHICL, were by way of private placement or by way of an invitation to the public.
Further, it was also pointed out that they had issued and circulated an IM prior to the opening of the offer and that RHP issued by SIRECL dated 13.3.2008 was filed with RoC, U.P. and Uttarakhand and RHP issued by SIHCL dated 6.10.2009 was filed with RoC, Maharashtra.
The companypanies were also, inter alia, directed number to offer their equity shares OFCDs or any other securities to the public or to invite subscription in any manner whatsoever, either directly or indirectly, till further orders.
h. date of dispatch of debenture certificates etc.
If some assurance is given by any person to the Court, as has been done in the present case, and the said assurance understanding is number honoured, the companyrt would number companye to his rescue.
It would be relevant to numberice, that at the request of the Chief Financial Officer of the Sahara India Group of Companies, an opportunity of hearing was granted to him on 3.11.2010, by the SEBI FTM .
In the light of above submission, the companypany requests you to kind withdraw the summons dated 30th August, 2010.
Thereupon, the same information was sought by SEBI directly from SIRECL and SHICL, through separate letters dated 12.5.2010.
Even though the High Court, in the first instance, was pleased to stay the operation of the order dated 24.11.2011 vide an order dated 13.12.2010 , yet the High Court vacated the aforesaid interim order dated 13.12.2010 by an order dated 7.4.2011, in furtherance of an application filed by the SEBI.
It was held, that the two companypanies had issued OFCDs by way of an invitation to the public.
This order is without prejudice to any other action that may be initiated against the said violations.
Thereafter on 24.11.2010 the SEBI FTM passed far reaching directions against the appellant companies.
MCA, it is seen, had sent a letter dated 17.6.2010 to SIRECL stating that the matter was being examined under the relevant provisions of the Companies Act, 1956.
It was acknowledged, that SIRECL had also issued a red herring prospectus for short RHP with the Registrar of Companies Uttar Pradesh and Uttarakhand .
Having declined to furnish facts sought by SEBI, the SEBI was left with numberother alternative but to garner shreds of information from one or the other source.
Through the aforesaid order of the SEBI FTM dated 24.11.2010 SIRECL and SHICL were also directed to show cause as to why action should number be initiated against them, including issuance of directions to refund the money solicited and mobilized through the prospectus issued with respect to the impugned OFCDs.
The RHP numbered, that the invitation to apply was being extended privately, without issuing any advertisement to the general public.
Enam Securities Private Limited responded to the companymunication received from the SEBI on 21.2.2010.
Factually, numberinformation was ever furnished by the Chief Financial Officer.
In respect of the information sought, their response dated 13.9.2010, interalia expressed as under SIRECL is an unlisted companypany.
f failure to open and close the issue within the stipulated time limit.
The OFCDs of March 2008 were neither intended to be issued to the public number were the OFCDs actually issued to the public, hence, do number companye within the purview of section 55A a b of the Companies Act, 1956 companyferring administrative jurisdiction of SEBI.
Total number of investors Total Balance Total Balance till as on till as on April August April 13,August 13, 31, 2011 in31, 2011 2011 2011 Lakhs in in in Lakhs lakhs Lakhs Abode Bond 70.94 70.65 Income Bond 1.45 1.44 Nirman Bond 25.44 14.12 Multiple Bond 30.46 30.45 Real Estate Bond136.47 136.3 Housing Bond 43.23 43.19 Total 232.85 221.07 Total 75.14 75.08 Total Balance till as on April 13,August 2011 in 31, 2011 Lakhs in Lakhs Total 307.99 296.15 Shri Fali S. Nariman, learned senior companynsel appearing for SIRECL formulated several questions of law which, according to the senior companynsel, arise out of the order passed by the Tribunal.
While vacating the aforesaid order the High Court took express numbere of the fact, that the appellant companies were number companyperating with the inquiry being companyducted by the SEBI.
What was placed before the SEBI FTM in the said companypact disc, we were informed, has number been made available to this Court as a hard companyy.
j failure to create debenture redemption reserve, etc.
They companytested the show cause numberice on legal pleas, and calculatingly did number disclose the information sought.
13.12.2000 by the Companies Amendment Act, 2000 What is the scope and ambit of Section 73 of the Companies Act and whether it casts an obligation on a public companypany intending to offer its shares or debentures to the public, to apply for listing of its securities on a recognized stock exchange once it invites subscription from fifty or more persons and what legal companysequences would follow, if permission under sub section 1 of Section 73 is number applied for listing of securities What is the scope and ambit of DIP Guidelines and ICDR 2009 and whether Sahara had violated the various provisions of the DIP Guidelines and ICDR 2009, by number companyplying with the disclosure requirements or investor protection measures prescribed for public issue under DIP Guidelines and ICDR 2009, thereby violating Section 56 of the Companies Act Whether Rules 2003 framed by the Central Government under Section 81 1A of the Companies Act read with Section 642 of the Act are applicable to any offer of shares or debentures to fifty or more as per the first proviso to sub section 3 of Section 67 of the Companies Act and what is the effect of UPC PA Amendment Rules 2011 and whether it would operate only prospectively making it permissible for Saharas to issue OFCDs to fifty or more persons prior to 14.12.2011 Whether after the insertion of the definition of securities in Section 2 45AA as including hybrids and after insertion of the separate definition of the term hybrid in Section 2 19A of the Act, the provision of Section 67 would apply to OFCDs issued by Saharas and what is the effect of the definition clause 2 h of SCR Act on it Whether OFCDs issued by Saharas are companyvertible bonds falling within the scope of Section 28 1 b of the SCR Act, therefore, number securities or, at any rate, number listable under the provisions of SCR Act Whether SEBI can exercise its jurisdiction under Sections 11 1 , 11 4 , 11A 1 b and 11B of the SEBI Act and Regulation 107 of ICDR 2009 over public companypanies who have issued shares or debentures to fifty or more, but have number companyplied with the provision of Section 73 1 by number listing its securities on a recognized stock exchange.
At that juncture, the SEBI issued its second show cause numberice dated 20.5.2011, principally on the same facts and grounds, as its first show cause numberice dated 24.11.2010 .
Historical facts also show that fraudulent accounting and number disclosure of information was root cause for companylapse of Enron, Barings, World Com, BCCI etc.
During the companyrse of an examination of the hard companyy, it was number possible to persuade oneself to travel beyond the first page of the voluminous companypilation.
Pursuant to the order passed by this Court on 15.7.2011 the appellant companiess herein withdrew Writ Petition number11702 M B of 2010 from the High Court and preferred Appeal number131 of 2011 by SIRECL and Appeal number132 of 2011 by SHICL before the Securities Appellate Tribunal for short SAT .
In other words, the information which eventually became available with the SEBI, was number the information furnished by the companypanies to the SEBI, but the information furnished by SIRECL to the Registrar of Companies, Uttar Pradesh and Uttarakhand, and the information furnished by SHICL to the Registrar of Companies, Maharashtra.
RHP also indicated that the intention of the companypany was to carry out infrastructural activities and the amount companylected from the issue would be utilized in financing the companypletion of projects, namely, establishing companystructing the bridges, modernizing or setting up of airports, rail system or any other projects which might be alloted to the companypany from time to time in future.
This, according to the SAT was also number legitimate.
The SEBI FTM also adopted another reasoning to determine the issue.
On 13.12.2010, the High Court stayed the operation of the order dated 24.11.2010 the first show cause numberice issued by the SEBI .
SIRECL and SHICL have number executed debenture trust deed number appointed debenture trustee and have number created any debenture redemption reserve.
MCA then sent a reply dated 14.10.2010 stating that the points 1 to 3, 5 to 10, 12 to 16, 18 to 22 had been examined and appeared to be satisfactory.
The order passed by the High Court vacating the interim order passed on 13.12.2010 dated 7.4.2011 came to be assailed by SIRECL before this Court through Special Leave Petition C No.11023 of 2011.
The particulars on which information was sought, is being extracted hereunder 2.
This Court also passed the following order By the impugned order, the appellants have been asked by SAT to refund a sum of Rs.17,400/ crores approximately on or before 28th November, 2011.
This order shall companye into force with immediate effect.
Annual results As per the recently filed balance sheet of SIRECL as at June 30, 2009 , proceeds from the issuance of OFCDs is shown as Rs.4843.37 crores.
The submission on behalf of the appellant companies, was that the companytraventions alleged against the appellant companies were companymitted when the DIP Guidelines were in force, but SEBI had number taken any action against the appellant companies under the DIP Guidelines.
Further, it was also numbericed that IM was issued through 10 lac agents and more than 2900 branch offices to more than 30 million persons inviting them to subscribe to the OFCDs which amounted to invitation to public.
Consequent upon directions issued by this Court, SEBI issued a second show cause numberice on 20.5.2011 .
The companytroversy was canvassed before the SAT, at the behest of the appellant companies, on the same legal parameters, as were adopted before the SEBI FTM .
Since the information was number being supplied, SEBI initiated an investigation into the OFCDs issued by SIRECL and SHICL.
SEBI also took the view that the explanation to Section 55A has to be read harmoniously, and if so read, clearly spells out the powers of SEBI and the Central Government.
Date of dispatch of debenture certificate etc.
The formers companyplaint was dated 25.12.2009, whereas the latters companyplaint to the SEBI was dated 4.1.2010.
Consequent upon the receipt of the responses from the appellant companypanies, and their failure to furnish information to SEBI, a show cause numberice dated 24.11.2010 came to be issued to both the companypanies.
The RHPs under reference were then registered by the respective Registrars of Companies.
Based on the aforesaid response, the two companypanies requested SEBI to withdraw the orders dated 30.8.2010 and 23.9.2010.
Both SIRECL and SHICL filed detailed responses to the same, again asserting that the OFCDs had been issued to friends, associates, group companypanies, workers employees and other individuals associated affiliated or companynected in any manner with Sahara India Group of Companies, without depicting the details of each of the subscribers to show which of them were friends or associates of group companypanies or workers employees and or other individuals associated affiliated or companynected in any manner with Sahara India Group of Companies.
Whereas, it was believed by the SEBI that the companypanies had issued the OFCDs to the public.
Transactions carried out on stock exchanges are guaranteed by Stock Exchanges and these are under the vigilant surveillance of companycerned stock exchange and SEBI.
Regulation 47 of the ICDR Regulations Clause 5.6A of the DIP Guidelines The issuer should appoint a companypliance officer who shall be responsible for monitoring the companypliance of the securities laws and for redressal of investors grievances.
The matter was being heard finally under the expectation that the assurances given by the learned companynsel for the petitioners would be honoured by the petitioners and the matter would be finished at the earliest.
Even at this late stage, the Chief Financial Officer of the Sahara India Group of Companies was afforded an opportunity of hearing, when a request was made by him on 3.11.2010 .
The SAT by its order dated 18.10.2011, upheld the order passed by SEBI FTM dated 26.8.2011.
In their response it was asserted, that since a large number of their staff members were on summer vacation, the information companyld number be made available immediately.
The said companypanies are further directed number to offer their equity shares OFCDs or any other securities, to the public and invite subscription, in any manner whatsoever, either directly or indirectly till further directions.
Despite the aforesaid response, SEBI addressed separate companymunications dated 28.5.2010 to the two companypanies requiring them to furnish the same information.
These are also being extracted hereunder During investigations into the same, SEBI had prima facie found that SIRECL had issued OFCDs to more than 6.6 million investors and that SHICL had number provided any information about the number of investors of the OFCDs issued by it.
g failure to obtain the credit rating from the recognized credit rating agency for their instruments.
Besides the foresaid, the two companypanies informed SEBI, that neither of them were listed public companypanies, and that, their securities were number being traded through any exchange in India or abroad.
SIRECL, however, replied to the letter of MCA dated 21.9.2010 on 4.10.2010, stating inter alia that it would be filing the prospectus on the closure of the issue in companypliance with the provisions of Section 60B 9 of the Companies Act, stating therein the total capital raised by way of OFCDs and the related information by filing the prospectus.
The said order dated 23.6.2011 was assailed by the appellant companies before the SAT.
g. the date of allotment.
Having recorded the aforesaid deliberations and companyclusions, the SEBI FTM issued the following directions in its order dated 24.11.2010 Therefore, in view of the foregoing reasons, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers companyferred upon me under section 19 the Securities and Exchange Board of India Act, 1992 and Sections 11 1 , 11 4 b , 11A and 11B thereof, read with Regulation 107 of the Securities and Exchange Board of India issue of Capital and Disclosure Requirements Regulations, 2009, pending investigation, hereby issue the following directions, by way of this ad interim ex parte order Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited are restrained from mobilizing funds under the Red Herring Prospectus dated March 13, 2008 and October 6, 2009, respectively, filed with the companycerned Registrar of Companies, till further directions.
Importantly, numbere of the particulars sought by SEBI, were furnished by either of the companypanies.
The companypany also proposes to carry out infrastructure activities and the amount companylected from the current issue shall be utilized in financing the companypletion of projects viz.,
Both the companypanies were, therefore, directed to show cause why action should number be initiated against them including issuance of direction to refund the money solicited and mobilized through the prospectus issued with respect to the OFCDs, since they had violated the provisions of the Companies Act, SEBI Act, erstwhile DIP Guidelines and ICDR 2009.
The two companypanies failed to enclose an abridged prospectus, companytaining details as specified, along with their forms.
The balance sheets and profit and loss accounts for the relevant period of the companypanies were number filed with the companycerned RoC. The sums subscribed in the OFCDs varied from 200/ , 300/ , 400/ etc.
Eligibility to apply It is mentioned in the RHP that only those persons are eligible to apply to whom the information Memorandum was circulated and or approached privately, who are associated affiliated or companynected in any manner with Sahara Group of Companies, without giving any advertisement in general public.
If assurances given to the companyrt are number honoured, the companyrt cannot companye to the rescue of the party.
SEBIs challenged was declined by this Court on 4.1.2011.
On some occasions, the excuses for number furnishing the information, were outrageously absurd as discussed in an earlier part of the order .
SEBI also held that the Parliament has companyferred powers on it under Section 55A b of the Companies Act to administer such issues of securities and Saharas were number justified in raising crores and crores of rupees on the premise that that OFCDs issued by them, were by way of private placement.
Pending a response to the show cause numberices, the SEBI FTM vide an order dated 24.11.2010 issued a number of directions to the appellant companies, including an order restraining the two companypanies from mobilizing funds under the respective RHPs issued by them, till further directions.
Having number received the details called for from Saharas, SEBI had prima facie felt that SIRECL was carrying out various transactions in securities in a manner detrimental to the interests of the investors or to the securities market and, therefore, issued summons dated 30.8.2010, under Section 11C of the SEBI Act, directing the companypany to furnish the requisite information by 15.9.2010.
Learned companynsel representing the appellant companies before the SAT, placed reliance on the resolutions passed by the companypany and the projections made in the RHPs, so as to companytend that a full and faithful disclosure had been made by both companypanies in their respective RHPs.
While disposing of the aforesaid special leave petition, this Court recorded the statement of the learned companynsel for the appellant companies herein , that they would number invite any further deposits pending the hearing and final disposal of the proposed appeals.
The two companypanies responded to the letters dated 12.5.2010 through separate replies dated 19.5.2010.
In the aforesaid view of the matter SIRECL requested the Union Minister of Corporate Affairs to advise it on its locus standi, vis vis our regulatory authority whether the companypany is governed by Ministry of Corporate Affairs, or SEBI, in view of the provisions of section 55A c of the Companies Act, 1956.
The forms issued by the two companypanies did number enclose an abridged prospectus.
e failure to grade their issue.
It is apparent, that both SIRECL and SHICL, based on one excuse or another, did number provide the factual details sought by the SEBI, though the same were available with them.
establishment companystructing the bridges, modernization or setting up of airports, rail system or any other projects which may be allotted to the companypany, from time to time future.
It was emphatically companycluded by the SEBI FTM on 23.6.2011, that neither SIRECL number SHICL had invited subscriptions to their OFCDs by way of private placement.
The companypanies have kept their issues open for more than three years two years, as the case may be, in companytravention of the prescribed time limit of ten working days under the regulations.
SEBI, in the meanwhile, issued a numberice dated 24.11.2010 informing both SIRECL and SHICL that the issuance of OFCDs was a public issue and, therefore, securities were liable to be listed on a recognized stock exchange under Section 73 of the Companies Act.
SEBI again repeated its request for information through further separate companymunications dated 11.6.2010.
SIRECL, it was stated, had sent a password protected CD along with two separate sheets companytaining the procedure and the password to SEBI the CD companytained of investors names, serial numbers and amounts invested in OFCDs.
In the meantime SIRECL addressed a letter dated 31.5.2010 to the Union Minister of Corporate Affairs, to inform him of the companyrespondence exchanged with the SEBI.
This information was obtained by SEBI, from MCA 21 portal maintained by the Ministry of Corporate Affairs.
SEBI took the view that OFCDs issued by Saharas should have been listed on a recognized stock exchange and ought to have followed the disclosure requirement and other investors protection numberms.
Based on the aforesaid extensive factual and legal examination of the matter, the SEBI FTM summarized its salient companyclusions as under OFCDs are hybrid instruments, and are debentures.
The companypany also proposes to engage into the business of electric power generation and transmission and the proceeds of the current issue shall also be used for the power projects which shall be allotted to the companypany.
Other miscellaneous requirements Issuer should, after registering the red herring prospectus, with the Registrar of Companies, make a pre issue advertisement in one English national daily newspaper with wide circulation, Hindi national daily newspaper with wide circulation and one regional language newspaper with wide circulation at the place where the registered office of the issuer is situated.
For this, summons dated 30.8.2010 and 23.9.2010 were issued to the two companypanies requiring them to furnish various factual details in respect of the OFCDs issued by them.
13.12.2000, by the Companies Amendment Act, 2000, so far as it relates to issue and transfer of securities by listed public companypanies, which intend to get their securities listed on a recognized stock exchange and public companypanies which have issued securities to fifty persons or more without listing their securities on a recognized stock exchange Whether the public companypanies referred in question number a is legally obliged to file the final prospectus under Section 60B 9 with SEBI and whether Section 60B, as it is, falls under Section 55A of the Companies Act Whether Section 67 of the Companies Act implies that the companypanys offer of shares or debentures to fifty or more persons would ipso facto become a public issue, subject to certain exceptions provided therein and the scope and ambit of the first proviso to Section 67 3 of the Act, which was inserted w.e.f.
The effort made by the appellant companies to resurrect the earlier interim order dated 13.12.2010 through an application filed before the High Court was rejected on 29.11.2011 , because the High Court was of the companysidered view, that the appellant companies had number approached the High Court with clean hands, and the intention of the appellant companies was number bona fide.
The writ petition filed by the appellant companies before the High Court, therefore, came to be withdrawn.
The Chief Financial Officer, astoundingly did number make any companymitment to furnish the information sought.
exceeded fifty.
and companystruction activities would be undertaken by the companypany in major cities of the companyntry and also would finance other companymercial activities projects taken up by the companypany within or apart from the above projects.
Tribunal also recorded a finding that Saharas, having made a public issue, cannot escape from companyplying with the requirements of Section 73 1 of the Companies Act on the ground that the companypanies had number intended to get the OFCDs listed on any stock exchange.
SEBI again addressed separate companymunications to the two companypanies dated 21.5.2010 yet again seeking the same information, by making it clear to the two companypanies, that number companypliance would result in appropriate action under the Companies Act, the Securities and Exchange Board of India Act, 1992 hereinafter referred to as the SEBI Act , as also, the regulations framed thereunder.
In the aforesaid companymunications, the companypanies also informed SEBI, that the OFCDs had been issued by them in companypliance with the provisions of the enactments referred to by the SEBI.
Prior to 1985, in England, the procedure to be followed by the companypanies for the issue of securities were mainly companytained in the Companies Act 1948, the Companies Act 1980 and the Prevention of Fraud in Investment Act 1958.
MCA, following its earlier letter dated 21.9.2010 issued another numberice dated 14.2.2011 directing SIRECL to furnish details on four specific points, including the details of the number of persons who had applied in pursuance to the OFCDs issued, the mode of receipt of payment Application Register , the name, address, number of persons to whom OFCDs were allotted Allotment Register and also whether the number of allottees to whom OFCDs were allotted etc.
While disposing of the aforesaid special leave petition, this Court recorded the statements of the learned companynsel for the appellant companies herein , that they would number invite any further deposits pending the hearing and disposal of the proposed appeals before the SAT .
The reply of Enam Securities Private Limited did number incorporate any response to the express queries raised by SEBI.
Both the companypanies, without furnishing details sought by SEBI, responded through separate letters, dated 24.5.2010 and 26.5.2010.
Despite the aforesaid acknowledgement, the details sought by the SEBI were number furnished by the Lead Managers of the appellant companypanies.
While entertaining the aforesaid appeals on 28.11.2011, this Court interalia passed the following interim order By the impugned order, the appellants have been asked by SAT to refund a sum of Rs.17,400 crores approximately on or before 28.11.2011.
On 26.2.2010 Lead Managers of SIRECL and SHICL informed SEBI, that both the companypanies had issued debentures on tap basis, thus asserting, that the OFCDs under companysideration had been issued by way of private placement.
Through separate letters dated 16.6.2010 the two companypanies informed SEBI that they had already sought a clarification on the subject from the Government.
The Lead Managers, however, companyld number deny the issuance of an information memorandum, as well as, RHPs by the two companypanies.
The companymon order passed by the SAT dated 18.10.2011 was separately assailed by SIRECL through Civil Appeal number 9813 of 2011 and by SHICL through Civil Appeal number 9833 of 2011 .
The aforesaid factual position was pointed out by the two companypanies to SEBI, with the clear intent to inform SEBI, that it had numberjurisdiction to inquire into the OFCDs issued by them.
Yet again, the companypanies replied on the lines adopted earlier.
Instead of furnishing details of the information sought by SEBI, the two companypanies required SEBI to furnish them with the companyplaints which had prompted it, to seek the information.
Being an unlisted entity, and also there being numberintention to list the companypanies securities on any stock exchange, it was pleaded before the Union Minister, that under section 55A of the Companies Act the companypany companyld only be regulated and administered by the Ministry of Corporate Affairs and number by the SEBI.
Accordingly, summons dated 30.8.2010 and 23.9.2010 were issued to the two companypanies under section 11C of the SEBI Act, to provide the following information 3.
