The document discusses a Supreme Court of India case involving Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited issuing Optionally Fully Convertible Debentures to over 30 million investors without following proper securities regulations. The Supreme Court affirmed SEBI's jurisdiction and authority over the case and determined that the issuance of OFCDs to millions of people was not a private placement exempt from regulations.
The document discusses a Supreme Court of India case involving Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited issuing Optionally Fully Convertible Debentures to over 30 million investors without following proper securities regulations. The Supreme Court affirmed SEBI's jurisdiction and authority over the case and determined that the issuance of OFCDs to millions of people was not a private placement exempt from regulations.
The document discusses a Supreme Court of India case involving Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited issuing Optionally Fully Convertible Debentures to over 30 million investors without following proper securities regulations. The Supreme Court affirmed SEBI's jurisdiction and authority over the case and determined that the issuance of OFCDs to millions of people was not a private placement exempt from regulations.
The document discusses a Supreme Court of India case involving Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited issuing Optionally Fully Convertible Debentures to over 30 million investors without following proper securities regulations. The Supreme Court affirmed SEBI's jurisdiction and authority over the case and determined that the issuance of OFCDs to millions of people was not a private placement exempt from regulations.
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FACTS Investors bought Optionally Fully Convertible Debentures (OFCDS) from “Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHIC). They were able to raise approximately Rs.20,000 crores from investors. ” The goal of the issuance was to conduct out infrastructural operations such as bridge construction, airport modernization or construction, rail system construction, and any other projects that may be assigned to the firm. They submitted RHPs to the relevant ROC, stating that the business does not intend to list its shares on any stock markets. The OFCDS Sahara issuance was a private placement, according to Sahara. However, under the pretence of a 'Private Placement,' a total of $30 million was gathered from around 30 million investors. The requirements for securities offer in the public market were not followed. Later, Sahara Prime City Limited filed a prospectus with SEBI in order to generate cash by listing its shares on the stock exchange. On the 25th of December 2009 and the 4th of January 2010, SEBI “received a complaint from one of the investors and the Professional Group of Investors Protections” while processing the prospectus. The complaint accused Sahara Group of issuing Housing Bonds in violation of applicable regulations, forcing SEBI to investigate. SEBI's Whole Time Member issued a decision on June 23, 2011 requiring the two firms to repay the money collected to investors and prohibiting the “two companies' promoters, including Mr. Subrata Roy, from accessing the securities market until further orders. Sahara then filed an appeal against the order with the Securities Appellate Tribunal ” (SAT). By a ruling dated October 18, 2011, SAT confirmed and sustained the Whole Time Member's order. Sahara “then filed an appeal against the SAT order in the Supreme Court of India.”
ANALYSIS After analysing relevant concerns, “the Supreme Court of India interpreted provisions of the Companies Act, SEBI Act, Securities Contract ” (Regulation) Act, 1956 (SCRA), and other related statutes to make conclusions. 1. Does SEBI have jurisdiction over this subject under Sections “11, 11A, and 11B of the SEBI Act, or does the Ministry of Corporate Affairs ” (MCA) have jurisdiction under Section 55A of the Companies Act? SEBI “has the authority to investigate and rule in this case. The SEBI Act is a piece of legislation that gives the SEBI particular authority to investigate and adjudicate in order to protect investors' interests. SEBI has unique powers that are not in conflict with any other law's provisions. In situations involving the interests of investors, there is no conflict of authority between the MCA and the SEBI.” 2. Do the hybrid OFCDs fit under the definition of "Securities" “as defined by the Companies Act, SEBI Act, and SCRA, giving SEBI the authority to investigate and adjudicate?” The OFCDs issued by the two businesses are "hybrid" instruments, although they constitute "security" under the “Companies Act, SEBI Act, and SCRA. Although the ” phrase "hybrid instruments" is not included in the definition of "Securities" under section 2(h) of the SCRA, “it is an inclusive definition that embraces all” "Marketable securities." Because “OFCDs were made available to millions of people, they were marketable. The term ” "debenture" is included in the name, and it is considered a security under the Companies Act, SEBI Act, and SCRA. 3. Is the issuance of OFCDs to millions of people a Private Placement, exempt from SEBI Regulations and other provisions of the Companies Act? 2|Page
Since made to 50 or more [Sec 67(3)], the issue of OFCDs is not a private placement. The Supreme Court noted that the firms stimulated public demand for OFCDs by issuing Information Memorandums, which are only intended for public issues. Both corporations' actions plainly show that they planned to use private placement to issue securities to the public in order to circumvent numerous laws and regulations. 4. Whether listing provisions under Sec 73 is mandatory for all public issues or “
depends on 'Intention of the Company'?”
The “law is plain and explicit in that any problem addressed to more than 49 people must be ” listed [section 67 (3) of the Companies Act, 1956]. “Every firm indenting to make an offer of securities to the public is required to list its securities under ” Section 73(1). Act cannot be overridden by intention. 5. Whether the Public unlisted companies (Preferential Allotment) Rules, 2003 will apply in this case? The Supreme Court ruled that such rules had no legislative intent to overrule “the provisions of Sec. 67(3), and that even those rules must adhere to the aforementioned clause. Even if equipped with a special shareholder resolution, sec 67 must be followed. The 2003 guidelines will not apply if the preferential distribution by unlisted businesses is a public matter.”
CONCLUSION This is a watershed decision and a watershed moment in “India's corporate landscape. It demonstrates that SEBI has broad authority to probe both listed and unlisted firms in problems affecting investors' interests, and it clears up any ambiguity surrounding the issuance of securities by so-called unlisted companies. It also prohibits them from taking advantage of legislative loopholes, closing the jurisdictional gap between the MCA and the SEBI on matters of public concern.”
SEBI On Tuesday 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
