An Indian conglomerate called Sahara India Pariwar has investments in a number of sectors, including media, entertainment, housing, infrastructure, and finance. Due to a complicated web of financial irregularities, the sahara group, founded by Subrata Roy, was compelled to refund 24000 crores to its investors together with the interest that had accrued.
sahara vs sebi Case Facts
- Sahara India Financial Corporation was barred by the Reserve Bank of India in 2008 and was unable to accept new deposits. Sahara India required a financial tool that would allow them to get around the RBI’s ban on accepting public deposits while still allowing them to access public funds.
- Sahara India made the decision to issue FCCSs (Optionally Fully Convertible Debentures) through two of its subsidiaries, Sahara Housing Investment Corporation (SHICL) and Sahara India Real Estate Corporation Limited (SIRECL).
- When a firm solicits funding from more than fifty investors, it becomes a public offering and must apply for approval from the securities and exchange board of india (SEBI) and comply with SEBI’s disclosure guidelines. The Companies Act of 2013 stipulates that such an offer must be concluded within the allotted time; nonetheless, Sahara India raised Rs 17,250 crore by keeping the offering open for ten years.
- When the group attempted to acquire money by using the stock market through its subsidiary Sahara Prime City, the default of Sahara India became apparent. The company was required to file a prospectus and provide financial data on the group’s companies in order to do this. K.M. Abraham discovered problems with SIREC and SHIC throughout this endeavor, wherein funds were obtained using OFCDs and then disguising themselves as private placements.
- Abraham found that companies did not have accurate records of the identities of their investors, even if they raised enormous sums of money. This made it difficult for the corporations to return the money.
- By appealing SEBI’s findings to the Securities Appellate Tribunal (SAT) and the Supreme Court, the sahara group successfully contested the agency’s conclusions. The SAT upheld SEBI’s conclusions. The Sahara Group’s problems did not stop here.
- The Supreme Court mandated that sahara group pay back Rs. 24000 crores to SEBI within ninety days, failing which sebi will distribute the funds to the rightful investors. Sahara asserted, however, that they have repaid the majority of the funds over the previous year and that they now only have about Rs. 5000 crores remaining.
sahara vs sebi Issues
- The jurisdictional authority to investigate and make a decision on the matter is the main point of contention in Sahara v. SEBI. It challenges whether Sections 11, 11A, 11B of the SEBI Act, Section 55A of the Companies Act, and the securities and exchange board of india (SEBI) have the legal jurisdiction to handle this case, or whether Section 55A (c) of the Companies Act places jurisdiction over the Ministry of Corporate Affairs (MCA).
- The categorization of Optionally Fully Convertible Debentures (OFCDs) as “securities” under the definitions given by the Companies Act, SEBI Act, and Securities Contracts (Regulation) Act (SCRA) is a crucial issue in Sahara v. SEBI. The classification establishes whether sebi is authorised to look into and make decisions about this financial instrument.
- The lawsuit challenges whether issuing OFCDs to a sizable subscriber base counts as a private placement, shielding it from SEBI’s regulatory scrutiny and other provisions of the Companies Act. The key to this issue is the contrast between a public issue and a private placement.
Contentions by the Parties
Petitioner:
- The Companies Act’s Section 55A grants SEBI jurisdiction. In Sahara v. SEBI, the petitioner contended that SEBI’s jurisdiction is restricted to information gathering and company investigations pertaining to businesses listed on the stock market, as per Section 55A of the Companies Act, 1956. During the probe, the petitioner argued that SEBI lacked authority to obtain information from the Sahara firms because their applications for listing were still pending.
- The petitioner argued that only firms intending to list would be subject to the listing requirements set forth in Section 73 of the firms Act, and that the requirement itself is not mandatory. Any company’s corporate autonomy was said to be violated when it was required of them to pursue a stock exchange listing.
Respondent:
- In Sahara v. SEBI, the respondent refuted the petitioner’s allegation by stating that SEBI has jurisdiction over any entity, whether private or public, that makes an offer to the general public. The reply emphasized SEBI’s function as a regulatory body that has control over businesses that make initial public offerings.
- The respondent in Sahara against SEBI further contended that the securities classifications given by the businesses Act, SEBI Act, and SCRA should apply to the OFCDs issued by the two businesses. Millions of people were provided these OFCDs, demonstrating their marketability. The term “debenture” in the instrument’s name suggested that it should be regarded as a security for the purposes of the applicable laws.
sahara vs sebi Judgment
- Return of Deposits with Interest: The Supreme Court mandated that Sahara India Pariwar return all of the deposits it had received, plus interest accrued at a rate of fifteen percent per annum up until the time of the refund. The goal of this decision was to safeguard the interests of the investors who were impacted by the OFCD problem.
- SEBI’s Authority: The Supreme Court granted the regulator the legal authority to enforce the refund order, thus strengthening its already established authority. This proved the Court’s dedication to safeguarding investors and making sure financial markets are regulated.
- Non-Bailable Warrant: The Chairman of Sahara India Pariwar and other members who disobeyed the reimbursement order are wanted by the court on a non-bailable warrant. This lawsuit demonstrated how important it is to follow the Court’s orders and comply with sebi requirements.
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