sahara vs sebi case summary
Subsequently Sahara filed an appeal … In the SEBI order by K.M. Create a free website or blog at WordPress.com. The refund to investors will have to be completed within a 30 day period. Only after the procurement of this certificate will the Sahara Companies resume their ordinary course of business and access the security markets. Abraham under S.19[10] along with S. 11, 11(4), 11A and 11B of the SEBI Act. Change ), You are commenting using your Google account. The Companies and the Board Members will be banned from accessing the security markets in any way before the payment is complete. The order provided a logical explanation that proved that OFCD‘s, even though classified as ―hybrids‖, fall under the category of debentures. Fill in your details below or click an icon to log in: You are commenting using your WordPress.com account. The court made it clear that if the documents produced by Saharas are not found genuine or acceptable, then the SEBI would proceed as if the Saharas had not refunded any amount to the real and genuine subscribers who had invested money through RHPs. SEBI claimed that over 23 million people have invested in this scheme including peasants, labourers, cobblers, artisans and many other. The SAT order passed, validated the logic on the basis of which SEBI concluded that OFCD‘s were included in the genus of debentures and therefore fell within the scope of the definition of ―securities as given in S.2 (h) of the Securities Contract Regulation Act. [7] S.117 A of the Companies Act, 1956 provides for the creation of a debenture trust deed. Sahara has finally started complying with the Supreme Court order and has deposited 3,007-crore with market regular SEBI. 25000 crores was picked up from the investors. This solved the question of Jurisdiction. SEBI filed petition to Supreme Court. The Companies Act was introduced in 1956 with an aim to establish a formal procedure to be followed by companies for registration. Mar 04, 2014 Sahara India floated 2 new companies- Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation (SHIC) in 2005 by registering them under the Companies Act, 1956 with the relevant Registrar of Companies in Kanpur and Maharashtra respectively. ( Log Out / Following this, Sahara filed a petition in the Court asking for a stay order. Allahabad High courts vacates stay. SEBI & MCA had to issue summons calling for information as interest of investors was involved. S.11B of the SEBI Act- Explains the powers to issue directions to the body under investigation if found guilty. The SAT ordered SHICL and SIRECL to pay Rs. 24,400 crores has been paid by Sahara to SEBI. Aside from this, the SAT also found that the red herring prospectus issued by SIRECL was registered by the Registrar of Companies on 18th March, 2008, but the information memorandum was issued in April, 2008. It is indicated that the intention of the company was to carry out infrastructural activities and the amount collected from the issue would be utilized in financing the completion of projects, namely, establishing/constructing the bridges, modernizing or setting up of airports, rail system or any other projects which might be allotted to the company from time to time. This further strengthened the stand of the companies that they belonged to S. 55 A (c). It shall be open to the Saharas , in such an eventuality to associate the concerned subscribers to establish their claims. Even the Securities Appellate Tribunal (SAT) approved the SEBI order on 18th October, 2011. This closing prospectus would provide all the information the MCA needed. While processing the prospectus, SEBI received complaint from Mr. Roshan Lal alleging that Sahara group was issuing Housing Bonds without complying with Rules/Regulations/Guidelines by RBI/MCA/NHB, SEBI also received complaint from “Professional Group of Investors Protections” which prompted SEBI to ascertain the correct factual position. © Copyright © 2014 R & A Associates. Sahara replied to show cause notice stating that SEBI has no jurisdiction. 152,815 crores, a landholding of 36,361 acres and a depositor base of 5.1 crore people; all this within 40 years of its existence. 'Sahara sebi case' - 1 व ड य र जल ट स निवेशकों से धोखाधड़ी : सहारा के दावों पर सेबी के सवाल? SIRECL collected Rs. Thus both the companies collected Rs. This is the most radical change in company law due to the Sahara Scam. Thus the issue of OFCD‘s to 30 million people did not qualify as a private placement despite the fact that all of them received an invitation to buy. In this case, 2 laws are put under the lens- the Companies Act, 1956 and the SEBI Act, 1992. 5 Lakhs to oversee the entire steps adopted by SEBI and other officials for effective implementation of the directions issued by this Court and which shall be borne by SEBI and recoverable from Saharas. However, according to the SCR Act, any marketable security is included within the ambit of the definition of the term ―securities. [5] S.62 of the Indian Companies Act, 1956 provides that all the directors and promotors will be held liable to refund the investors who have invested in a company on the basis of false statements included in the prospectus. Abraham‘s findings and the particulars of the order. The Council also reiterated that there had been a private placement of OFCD‘s. Abraham found SHICL and SIRECL in violation of S. 62[5] , S.63[6] , S. 67(3), S. 73, S.117A[7] , S.117B[8] and S.117C[9] of the Indian Companies Act, 1956. [10]S. 19 of the SEBI Act- Confers powers onto another authority to pass the order before it becomes actionable in certain cases. Your email address will not be published. SEBI shall have the liberty to engage Investigating Officers, experts in Finance and Accounts and other supporting staff to carry out directions and the expenses for the same will be borne by Saharas and be paid to SEBI. The final SEBI order was given on 23rd June, 2011 by K.M. Subrata Roy is currently in jail since May, 2014 on a non bailable warrant for nonpayment of the dues to SEBI and noncompliance of court orders. As you’ve seen in ^this case, SAHARA’s main argument is “SEBI doesn’t have jurisdiction over our OFCD investment scheme, because this money was meant for our “unlisted” companies.” Government has decided to fix this ambiguity in the new Companies Act. As soon as the number rises beyond 50, a private placement ceases to exist and it must be verified by the SEBI, whether it is a listed or an unlisted company. It has been amended several times since its inception to account for the changing circumstances. The judgement was given by K.S. The entire case shows up the serious trust deficit between Mistry, the board and the Tata Trusts, the majority shareholders, which own two-thirds of the holding company. The decision of SEBI in this behalf will be final and binding on Saharas as well as the subscribers. The judgement upheld the SEBI order and ordered Sahara to pay Rs. Radhakrishnan, J. Secondly, it provided guidelines for the development and regulation of security markets in India. Part A addressed the questions of jurisdiction raised by Sahara. Abraham, the report has been divided into 3 parts. The Securities and Exchange Board of India (Sebi) had asked Sahara to refund over Rs 20,000 crore to investors but Sahara failed to do so repeatedly. The Senior Council for the Sahara Companies, ShriFaliNariman, stated that under S. 55 A, the companies fall under the third category of companies and thus should be answerable only to the Ministry of Corporate Affairs (MCA). The curious case of Subrata Roy: Highlights of the Sahara-SEBI story - The Supreme Court of India on Wednesday issued a non-bailable warrant against Sahara chief Subrata Roy for non-appearance despite a summon and contempt of court. 68,174 crores, an asset worth of Rs. Edit them in the Widget section of the, CASE COMMENTARY ON Tara v State,W.P. SAT passed its order approving the SEBI order dated 23rd June, 2011 on 18th October, 2011. Radhakrishnan, J. This money was to be paid off by the promotor of the company, Subrata Roy and by the directors of the company- Ravi Shankar Dubey, VandanaBhargava and Ashok Roy Chaudhary jointly and severally. Since the OFCD‘s were distributed to 30 million investors, their marketability cannot be denied. Abraham, a full time member of SEBI. Cheques would be unacceptable. Radhakrishnan, J. that a private placement is limited to 50 people receiving invitations to purchase securities. Readers may refer to case law Kalpana Bhandarai Vs SEBI(2003)56 CLA167(Bom). S.42 defines private placement of securities as any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section including the condition that he offer or invitation is made to not more than 50 or such higher number of persons as may be prescribed in a financial year”. S. 11(4) of the SEBI Act –Explains the powers conferred upon SEBI while giving an interim order and while passing a final order. 55A (b) – those companies that wish to be publicly listed. On, 31st Aug, 2012, Supreme Court of India passed a landmark judgment wherein, the honorable court ordered business conglomerate and leading sports sponsor Sahara to refund more than $3 billion it collected from millions of small savers. (CRL) 296/2012 before the High Court of Delhi, CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY: EXPLORING THE INTER-RELATIONSHIP, http://supremecourtofindia.nic.in/outtoday/CA9813%20Sahara%20combined.pdf, 55A (a) – those companies that have been publicly listed. The SAT order also pointed out that the RoC failed to forward the draft of the prospectus to SEBI as is the norm for a public issue. Its businesses range from media to housing projects. In addition to this he added, the companies had been registered with 2 separate RoC‘s – in Kanpur and Maharashtra. Securities were liable to be listed on a recognized stock exchange under the Companies Act, 1956. In addition to this S.42 (4) has been included to emphasize the importance of the SEBI and SCR Act. On receiving stiff resistance from Sahara, SEBI passed an interim order confirming that there was illegal activity with regard to issuance of OFCD‘s and instructed SHICL and SIRECL to refund the money to the investors with interest. The Unresolved Battle of SEBI vs Sahara The case devolves around various loopholes such as fraud, duping investors, corporate governance lapses oblivious to regulatory bodies, contempt of court, money laundering, benami transactions and non –compliance of provisions of the Companies Act. Part B discussed the provisions of the Companies Act, SEBI Act and the SEBI (Issue of Capital & Disclosure Requirements) Regulations that were applicable to the case and their subsequent violation. [3] “securities”‖ include—shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; [4]S.11 of the SEBI Act – Explains the function of the Security Exchange Board of India. The amount was reportedly collected from various bank accounts and … … SAHARA INDIA PARIWAR INVESTOR FRAUD CASE 2. Part C included K.M. Change ). Allahabad High Court rejected the 55A (c) – the remaining companies which come under the jurisdiction of the Central Government and the Ministry of Corporate Affairs. Securities Exchange Board of India v.Sahara India Real Estate Ltd. is regarded as one of the landmark cases with reference to the power and jurisdiction of SEBI in the case of corporate fundraising. SC proceedings on Sahara-SEBI case SEBI refused to accept the documents submitted by Saharas, whereas it kept on insisting and accepting documents from Saharas when it desired. Roy will be allowed to leave the jail only when Rs. The contents or claims in this website are the sole and exclusive responsibility of R & A Associates. Agrawal with an monthly remuneration of Rs. S.42 (10) provides that the promotors and directors have to refund the entire amount collected from investors or pay a fine of Rs. A question that has been raised by Sahara at every point along the case is whether SEBI has jurisdiction on the matter despite the fact that SHICL and SIRECL are not public listed companies and have clearly mentioned in their prospectus that they do not wish to list their securities on any stock exchange of India at any point in time in the future. SEBI issued a show case notice alleging that it was public issue as it involved more than 50 persons. On the basis of this faulty interpretation, Sahara tried to pass of selling securities to 30 million people as a private placement. In short, both Sahara and SEBI sought adjudication. It defended its action by stating that Hybrid Securities are not defined in in SEBI Act or Securities Contract Regulation Act 1956, Issuance of Hybrid Securities in terms of 60B (Information Memorandum) and only Central Govt had jurisdiction u/s 55A(c) of Companies Act, 1956. 67 (3) of the Companies Act, 1956 states that if a public company sends an offer/ invitation to purchase securities to less than 50 people, it not regarded as a public offer. Your email address will not be published. This money will be inaccessible till allotment of securities is complete. Since the information memorandum had been circulated by 10 lakh agents and 2900 branch offices to 30 million investors, it was already established that the securities issue was a public one. Sections 11, 11B, 11C, 12 and 12A of the SEBI Act, 1992 and Regulations 3, 4 and 5 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 Published in Articles section of www.manupatra.com The Companies Act is general and not prerogative in nature. 24,400 crores (after including the interest and adjusting the redemption vouchers) to SEBI in 3 installments within 4 months along with investor information. One of the group company Sahara Prime City Limited intends to raise funds through listing of its shares filed Prospectus to SEBI. After months of a direct faceoff between the SEBI and Sahara, with Sahara publishing full page advertisements in the newspapers claiming their innocence and SEBI warning the public against investing in the conglomerate, when Subrata Roy finally surrendered in May 2014, it seemed like a poetic culmination to a 4 year long legal battle. Subsequently, Sahara then appealed in Supreme Court against the SEBI orders scrutinizing their jurisdiction in the issue. Saharas were also directed to furnish the details with supporting documents to establish whether they had refunded any amount to the persons who had subscribed through RHPs dated 13.3.2008 and 16.10.2009 within a period of 10 (ten) days from the pronouncement of this order and it is for the SEBI to examine the correctness of the details furnished. Sahara Appeals in Supreme Court that SEBI has no jurisdiction for the proposed issue. Thus we can say that OFCD‘s are marketable securities and hence included within the ambit of S. 2 (h) of the SCR Act. In the matter of jurisdiction, SAT confirmed that under S.55A of the Companies Act, theSahara Companies would be regarded as public companies and would thus not fall under S.55A(c), but under S.55A (b). A three judges bench headed by the Chief Justice S H Kapadia adjourned the matter for a week after the group's investment arm Sahara India Real Estate Corporation sought some time … The case itself comprises big numbers such as collection of over Rs 24,000 crore from three crore individuals, while once in 2013 Sahara sent 127 trucks containing 31,669 cartons full of over three crore application forms and two crore redemption vouchers to Sebi office. After the payment is complete, the details of the same will have to be submitted to the SEBI. Sahara utilized this ambiguity of law to its benefit and interpreted it as- ―private placement is a situation wherein each investor receives a special invitation to purchase the securities‖. This case note follows the case from the time SEBI spotted unusual fund raising activity in SHICL and SIRECL (companies under Sahara India) in 2009 till the time Roy surrendered in 2014 with a special analysis of the landmark judgement given by the Supreme Court on 12th August, 2012. Sahara then preferred an appeal before Securities Appellate Tribunal (" SAT ") against the order of the Whole Time Member and after hearing, the SAT confirmed and maintained the order of the Whole Time Member by an order. In addition to this, OFCD‘s are, naturally, type of debentures, having the word ―debentures in the name itself. Like the Company Act, it has been amended several times since its inception and can be enforced in conjunction with another act. The Securities and Exchange Board of India (SEBI) has asked the Supreme Court to cut short the “long rope” given to the Sahara group and direct it to … In addition to this, the allotment of thesecurities must be completed within 60 days of collecting the money. Application for the issue of the OFCD‘s wasdistributed only to the friends, family members and associates of the board members and to trusted investors by way of an information memorandum. Order of the Hon'ble Supreme Court in CA No. Subsequently they filed RHPs to the concerned ROC and specifically mentioned therein that the company did not intend to list the shares on any stock exchanges. The Companies Act did not specifically define private placement, but only mentioned certain cases where an offer for securities by a listed company was not a public offer. Hence these companies would have to adhere to S.11, 11(4), 11A and 11B of the SEBI Act in addition to the relevant provisions of the Companies Act. 11295 of 2020 – H.L. New Criteria for Classification of Micro, Small and Medium Enterprises, Due Diligence under Companies Act, 2013 and FEMA Regulations, Conversion of an Unlisted Public Company to a Limited Liability Partnership Firm [LLP], Limited Liability Partnership (LLP) Vs Company, Case Study on Revival Of A Company Under The Companies Act, 2013, SEBI restrains Sahara India Real Estate Corporation Ltd and Sahara Housing Investment Corporation Ltd from raising funds from optionally fully convertible debentures(OFCD). 5,120 crores of the Rs. SEBI if, after the verification of the details furnished, is unable to find out the whereabouts of all or any of the subscribers, then the amount collected from such subscribers will be appropriated to the Government of India. This means that if another law is applicable to a company in addition to the Companies Act, then the company will have to follow the provisions of both the acts. According to S.55A of the Companies Act, 1956, there are 3 categories of companies- Ø. With respect to Part B, K.M. The Sebi-Sahara case itself comprises staggering numbers like collection of over Rs 24,000 crore from three crore individuals, while once Sahara sent 127 trucks containing 31,669 cartons full of over three crore application forms and two crore redemption vouchers to Sebi office. In its previous hearing, the apex court gave 15-days time to Roy to deposit Rs 552 crore in connection with the case. In addition to this, the Sahara Companies would have to publish a detailed explanation of the payback mechanism, along with names and contact details of people handling the payback, in a Hindi and an English Daily. SEBI has introduced online system to promote ease of operations in terms of e-Registration, etc. With a founder who calls himself the ―Managing Worker‖ of this empire, when the news of an investor fraud broke, naturally, it sent shockwaves through the country. Supreme Court Judgment in Sahara India Real Estate Corporation Ltd and Others vs. SEBI & Anr. Change ), You are commenting using your Twitter account. This provision when read with S. 11, 11(4), 11A and 11B of the SEBI Act confirm SEBI‘s jurisdiction in the matter. SEBI has jurisdiction over companies belonging to S. 55 A (a) and S. 55 A (b). SHICL collected Rs. ( Log Out / Nagaraja Vs. SEBI … ( Log Out / 10,000 crores is deposited with SEBI in the form of cash as a demand draft. 6373.20 crores (net value) between 20th November, 2009 and 13th April, 2011. Analysis of the Supreme Court Judgement Dated 12th August, 2012. Sahara challenges SAT Order, obtains stay. Supreme Court asks SEBI to proceed with OFCD probe. We also make it clear that if Saharas fail to comply with these directions and do not effect refund of money as directed, SEBI can take recourse to all legal remedies, including attachment and sale of properties, freezing of bank accounts etc. It also defined the roles of the directors, promotors and the secretaries of a company. The Relationship between the two have broken down A bench comprising by Justices KS Radhakrishnan and JS Khehar reprimanded Sahara for approaching Allahabad High Court against the order of the Apex Court in April, 2013. SEBI issues advertisements cautioning investors. Facts Sahara floated two companies in 2005 by registering under companies act 1956. which were Sahara Indian Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation (SHIC).