Tribunal to decide on Sahara's case against SEBI order on OFCDs

The Securities Appellate Tribunal (SAT) will now decide the case regarding an order by capital markets regulator SEBI against two Sahara Group firms.

Last month, SEBI had directed the firms to refund – with 15 per cent interest – the money raised by them from the market through optionally fully convertible debentures (OFCD) saying it did not conform to the regulatory norms.

The latest development follows a direction to that effect by the Supreme Court on Friday, which gave the firms an opportunity to move the SAT against SEBI's order.

The firms are Sahara Housing Investment Corporation and Sahara India Real Estate Corporation. OFCD is a debt instrument that can be converted into equity at the holder's option as per the terms of the offer.

Pointing out that the case involved important questions of law, the Supreme Court on Friday asked SAT to pass an order in eight weeks (from the date of filing of the case – the parties can move the SAT within three weeks from now).

It said until then the SEBI order will not be operational, adding that SAT should not be influenced by earlier orders in the case. The Court has also directed the Corporate Affairs Ministry to be a party (respondent) in the matter.

Meanwhile, Sahara Group said it will not make any attempt to raise money from investors through OFCDs till the SAT order.

The Supreme Court also asked the Sahara Group to withdraw its petition against SEBI in the Allahabad High Court (from where the matter had come before the Supreme Court).

Sahara Group contended that since it is an unlisted company, it was the Corporate Affairs Ministry that has jurisdiction over it and not SEBI, which is the regulator for listed firms.

Sahara Group also said SEBI passed its order despite the matter pending in the Court. In its order, SEBI had also restrained the Sahara group firms from raising funds from the market till they make payments to the regulator's satisfaction.

In May, observing that ordinary investors may not be knowledgeable about products such as OFCDs, the Supreme Court had asked SEBI to carry on with its probe into the OFCD scheme of the Sahara group. However, the Court had also said that till its further order in the matter, SEBI's ruling was not to take effect.

In November last, the SEBI had restrained the Sahara firms from accessing the market for “non-disclosure” of information including investors in the OFCDs. According to norms, if the offer or the invitation to subscribe for shares or debentures is made to over 50 persons, it would be deemed to be a public issue, SEBI said. But Sahara contended that its firms are not listed entities and it has no intention of listing the OFCDs and therefore, the issuance of OFCDs does not come under SEBI's purview.

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