This document summarizes a landmark case in the Indian corporate landscape between Sahara India Pariwar and the Securities and Exchange Board of India (SEBI). Sahara raised approximately Rs. 20,000 crores from 30 million investors through optionally fully convertible debentures (OFCDs) but did not comply with relevant securities regulations. SEBI ordered Sahara to refund the money, which Sahara appealed. The Supreme Court ultimately ruled in favor of SEBI, finding that the OFCDs were securities subject to securities laws and the issuance constituted a public offering requiring compliance with investor protection norms.

1. Rizvi College of Arts, Science and Commerce
Batch: May 2013
Group 10
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2. Presentation By:
Shrusti Vasani
WRO0401581
Team Leader
Arshita Jain
WRO0384491
Team Member
Aakash Tejani
WRO0394257
Team Member
Sejal Patel
WRO0409682
Team Member
Shaurya Taperiya
WRO0391837
Team Member
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3. Landmark Case in Indian Corporate Landscape
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4. Contents
1.
2.
3.
4.
5.
6.
7.
8.
Introduction
Sahara V/S SEBI: Facts
Sahara‟s Contention
SEBI‟s Contention
Factual Summary
Observations of Supreme Court
Latest of the Case
Conclusion
…5
…6 to 8
… 9 & 10
…11 & 12
…13
…14 to 18
…19
…20
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5. Introduction: Sahara India Pariwar
 Sahara India Pariwar an Indian conglomerate company
headquartered in Lucknow
 Diversified business in finance, infrastructure & housing, media &
entertainment, consumer merchandise retail venture etc.
 Started by Mr. Subrata Roy Sahara in 1978
 Peak of success in very short period, such a success motivating
but suspicious
 Main sponsor of the Indian Cricket Team (apparently withdrawn and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.
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6. SAHARA V/S SEBI: Facts
 Sahara India Real Estate Corporation Limited (SIRECL) and
Sahara Housing Investment Corporation Limited (SHIC) issued
Optionally Fully Convertible Debentures (OFCDS) through
subscriptions from investors with effect from 25th April 2008 up to
13th April 2011.
 Raised around Rs.20,000 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.
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7. 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 25.12.09 and 4.01.10
 Complaint alleged Sahara group for issuing Housing Bonds without
complying with relevant regulations prompting SEBI to look into
matter
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8. SAHARA V/S SEBI: Facts (Cont‟d)

The Whole Time Member of SEBI passed an order dated 23rd
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 18th October,
2011.
 Subsequently Sahara filed an appeal before the Supreme Court of
India against the SAT order.
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9. SAHARA‟S CONTENTION
 Issue of Optionally Fully Convertible Bonds (OFCD‟s) is legal.
 Issue of OFCD‟s is not a public issue.
 OFDC are neither shares 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.
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10. SAHARA‟S CONTENTION (Cont‟d)
 Bonds issued by Sahara are:-
1.
2.
Hybrid instruments as per Sec 2(19A) of the Companies Act.
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.
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11. SEBI‟s 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
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12. SEBI‟s contention (Cont‟d)
 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.
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13. FACTUAL SUMMARY
 Sahara aggrieved against the notice of SEBI moved the Allahabad
High court and obtained stay.
 SEBI filed petition to Supreme Court.
 Recall of the earlier order.
 Allahabad High Court rejected the recall order.
 SEBI again approached Supreme Court
 Issue of fresh notice to Sahara by SEBI.
 Confirmation of violation of rules and regulations and therefore,
order against Sahara was passed.
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14. Observation by supreme Court
The Supreme Court of India interpreted provisions of the Companies
Act, SEBI Act, Securities Contract (Regulation) Act,1956, (SCRA) and
other related rules to give decisions after considering some issues.
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.
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15. Observation 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 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.
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16. Observation 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 [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
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17. Observation 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’
Observation 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 Company‟s 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.
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18. Observation by supreme Court:(Cont‟d)
Issue 5: Whether the Public unlisted companies (Preferential
Allotment) Rules, 2003 will apply in this case
Obsevations 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
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19. 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
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20. Conclusion
 Landmark Judgment is milestone in India‟s corporate Landscape
 SEBI has myriad powers to investigate listed and unlisted
companies into matters relating to the interest of investors
 Removes grey areas relating to issue by so called unlisted
companies
 Forbids them from companies advantages of legislative loopholes
 Jurisdictional gap is removed between MCA and SEBI in matters of
public interest
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