SAT upholds SEBI order on Sahara to refund money

The Securities Appellate Tribunal (SAT) has upheld stock market regulator SEBI's order (dated June 23, 2011) against two Sahara companies — Sahara Housing Investment Corporation Ltd and Sahara India Real Estate Corporation Ltd

The Tribunal also ruled that SEBI has the jurisdiction to regulate optionally fully convertible debentures (OFCDs) issued by the Sahara companies as they were securities and it was a public issue that required mandatory listing.

The SEBI order of June 2011 had asked the Sahara companies to refund the entire proceeds of its OFCDs to investors (Rs 17,656.53 crore as on August 31, 2011) with 15 per cent interest.

SAT has given Sahara six weeks to make these repayments.

SAT said that the fact that the information memorandum was circulated to more than 30 million persons through 10 lakh agents and more than 2,900 branch offices was nothing but advertisement to the public. Withholding this fact from all concerned was evidence that the company concealed some vital facts and that the disclosures made in the red herring prospectus (RHP) were not true and fair.

SAT said that the OFCDs were a form of debentures that were fully convertible at the option of the investors. They were classified as ‘other marketable security' in the Security Contract Regulation Act (SCRA). SAT also said that the OFCDs were freely transferable (as per Sahara's RHP).

The Tribunal observed that Sections 11, 11A and 11B of the SEBI Act applied to all securities, listed and unlisted, and that Section 55 A of the Companies Act (relating to issue of capital, transfer of securities and investor protection) was in addition to the powers SEBI already had and did not whittle down its powers under the provisions of Sections 11, 11A and 11B.

Hence, a company (though unlisted) issuing OFCDs, which were securities within the meaning of the SEBI Act, was a person associated with the securities market, and would fall under the regulatory jurisdiction of SEBI.

SAT said that there is no estoppel against law and that the legal position was that SEBI had the power to regulate all listed and unlisted companies if they are associated in any manner with the securities market.

The Tribunal held that shares offered to more than 50 persons were a public issue and that Parliament had made it clear beyond doubt.

It said that Sahara had tried to use the information memorandum to assess the demand for the OFCDs which was synonymous with the book building process used by companies coming out with public issues to raise funds. The fact that the OFCDs were issued to more than 22.1 million investors was evidence enough to deem the company's intention to go public and therefore Sahara could not contend that it wasn't going public and that it did not intend to list its OFCDs.

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