VERSES

Dr. SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY

Lucknow

Faculty of Law

PROJECT ON

ANALYSIS OF SECURITY EXCHANGE BOARD OF INDIA

VERSUS

SAHARA INDIA PARIWAR

For

COURSE ON ‘Corporate Law l’

Course: B.Com., LL.B (Hons.) 5th Semester

Submitted by

ANUJ PRATAP SINGH

B.Com LL.B/2016-17/60

Roll No. – 164140009

Under the Supervision of

Mr. Shail Shakya

Asst. Professor

Faculty of Law

Dr. Shakuntala Misra National Rehabilitation University

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ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Mr. Shail Shakya who
gave me the golden opportunity to do this wonderful topic Analysis of “SEBI Vs. SAHARA
INDIA PARIWAR” which also helped me in doing a lot of Research and I came to know
about so many new things I am really thankful to them.

ANUJ PRATAP SINGH

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TABLE OF CONTENT

 INTRODUCTION ………………………………………04
 APPLYING RULES AND LEGAL TERMS ……………….04-05
 FACTS OF THE CASE ……………………………….05-07
 CONTENSION BETWEEN SEBI & SAHARA AGAINST
EACHOTHER ……………………………………………….…07
 ISSUES OF THE CASE ……………………………………….07-08
 OBSERVATION AND INTERPRETATION BY SUPREME
COURT ………………………………………………………..08-09
 ORDERS OF SUPREME COURT …………………………09-10
 CONCLUSION ……………………………………………….10

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SEBI V. SAHARA INDIA PARIWAR

INTRODUCTION
This case is about Sahara group which did a fraud with their investors. Company failed to
comply with a Supreme Court order in 2012 to repay investors in the bond scheme, which the
court has said was illegal. With this regard Delhi police arrest Sahara group owner Subrata
Roy in march 2014 and to appear in court over failure of two Sahara companies to pay Rs
19,000 crore by way of dues to be paid to investors.

The World’s Largest Family, Sahara India Pariwar is uniquely formed on the ethos of an
emotionally integrated family. As the Managing Worker and Chairman of Sahara India
Pariwar, Subrata Roy started his stupendous journey with a vision backed by the belief that
“emotion is the key to success”.

Sahara India Pariwar (founded in 1978) is an Indian conglomerate headquartered in

Lucknow, India with business interests in finance, infrastructure & housing, media &
entertainment, consumer merchandise retail venture, manufacturing and information
technology. The company had an estimated market capitalization of US$25.94 billion as of
March 2011.

The Sahara Group was termed by the Time magazine as ‘The second largest employer in
India after the Indian Railways’. The group is successfully diversified into Infrastructure
and Housing (real state), Media (news channels and news-paper), Entertainment (TV
channels and film production), Aviation and Health Care. It intends to move into Finance,
Information Technology, Tourism and Hospitality, Life Insurance and Consumer Products,
with many projects already in the pipeline. It also sponsors the Indian Hockey and Cricket
team jerseys and other sports equipment. On March 22, 2010 in the IPL franchisee auction,
Sahara group bought the Pune IPL team for Rs. 1,702 crores and named it “Pune Warriors
India”.

APPLYING RULES AND LEGAL TERMS

1. Section 28 (1) (b) of SECURITIES CONTRACTS (REGULATION) ACT, 1956

This section provided that any convertible bond or share warrant or any option or right in
relation thereto, in so far as it entitles the person in whose favour any of the foregoing has
been issued to obtain, at his option, from the company or other body corporate issuing the
same or from any of its shareholders or duly appointed agents shares of the company or other

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body corporate, whether by conversion of the bond or warrant or otherwise, on the basis of
the price agreed upon when the same was issued.

2. Section 2 (h) of SECURITIES CONTRACTS (REGULATION) ACT, 1956

This section provided that - 'securities' include—

(i) Shares, scripts stocks, bonds, debentures, debenture stock or other marketable securities
of a like nature in or of any incorporated company or other body corporate;

(ii) Government securities; and

(iii) Rights or interests in securities;

3. Section 2(19) (A) of COMPANIES ACT, 1956

This section deals with “hybrid” –

Hybrid means any security which has the character of more than one type of security includes
their derivatives.

4. Section 73 of COMPANIES ACT, 1956

5. Section 55A of COMPANIES ACT, 1956

6. Draft Red Herring Prospectus (DRHP) - Any company that wants to issue equity
shares or Debentures or any other market related instrument to the public through the IPO
Process has to file a Draft Red Herring Prospectus or DRHP to SEBI to tell them the
details of the public issue, why they are doing so, their financial position etc. It is pretty
standard procedure in India.
7. Optionally Fully Convertible Debenture (OFCD) - An Optionally Fully Convertible
Debenture is just a kind of Bond that can be converted into Equity Shares by the
investors if they want to. So, this is a kind of hybrid market instrument that would come
under the jurisdiction of the Securities and Exchanges Board of India (SEBI)

FACTS OF THE CASE

It all started when in 2008 the two companies of the group Sahara India Real Estate
Corporation Ltd.(SIRECL) and the Sahara Housing Investment Corporation Ltd.
(SHICL) started raising funds through Red Herring Prospectus (RHPs), and had
collected over Rs. 7,000 crores till October 16, 2009.
The two appellants companies have raised about Rs. 19,000 crores rupees from

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investors by issuance of Optionally Fully Convertible Debentures (OFCDS) by passing
special resolution. Subsequently they filed RHPs to the concerned Registrar of
Companies and specifically mentioned therein that the company did not intend to list the
shares on any stock exchanges. 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. One of the groups Company Sahara
Prime City Limited intended to raise funds through listing of its shares and filed
Prospectus to SEBI i.e. Securities and Exchange Board of India. While processing the
prospectus, SEBI received two complaints - one on December 25, 2009 and the second
on January 4, 2010 - alleging illegal means used by these two Companies in issuance of
certain bonds, called OFCDs to the public throughout the country for many months. The
complaint from Roshan Lal, a resident of Indore to the National Housing Bank,
requested it to look into housing bonds issued by two companies of the Lucknow
headquartered Sahara group, Sahara India Real Estate Corporation and Sahara Housing
Investment Corporation. Being a charter accountant, Mr. Lal wrote in the small note,
he found that the bonds, bought by a large number of investors, were not issued
according to the rules. The National Housing Bank did not have the wherewithal to
investigate the allegation, so it forwarded the letter to SEBI, the capital markets
regulator. It was also alleged that Sahara group was issuing Housing Bonds without
complying with Rule/Regulation/Guideline by RBI/MCA/NHB. SEBI also received
complaint from “Professional Group of Investors Protections” dated 25.12.2009 and
4.1.2010 which prompted SEBI to ascertain the correct factual position.
November 2010 Securities and Exchange Board of India bars Sahara India Pariwar
chief Subrata Roy and two of its companies - Sahara India Real Estate Corp (SIREC)
and Sahara Housing Investment Corp (SHIC) from raising money from the public as
they raised several thousand crores through optionally fully convertible debentures
which SEBI deemed illegal. December 2010 - Sahara made appeal in the Allahabad
High court which ordered SEBI not to take any action until a court order is passed.
October 2011 - Securities Appellate Tribunal (SAT) ordered two unlisted Sahara Group
companies to refund within six weeks about 17,656.53 crore with 15% interest which it

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had raised through a flotation of OFCDs.
November 2011 - Sahara India Pariwar moved to Supreme Court against SAT's order
and in favour of Sahara Group it stayed the SAT order, and asked the two companies to
refund 17,400 crores to their investors and asked the details & liabilities of the
companies.

CONTENSION BETWEEN SEBI & SAHARA AGAINST EACHOTHER

1. SAHARA’S CONTENTIONS
 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„
2. SEBI’S CONTENTIONS
 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.

ISSUES OF THE CASE

 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.
 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.
 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.

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 Issue 4. Whether listing provisions under sec 73 is mandatory for all public issues
or depends on ‘Intention of the Company’.
 Issue 5. Whether the Public unlisted companies (Preferential Allotment) Rules,
2003 will apply in this case.

OBSERVATION AND INTERPRETATION BY SUPREME COURT

Observation of SC on issue 1

 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.

Observation of SC on issue 2

 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.

Observation of SC on issue 3

 The issue of OFCDs is not private placement since made to 50 or more.

 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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Observation of SC on issue 4

 Law is clear and unambiguous as to any issue made to more than 49 persons is
mandatory to list [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.

Observation of SC on issue 5

 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.

ORDERS OF SUPREME COURT

 On July 15, 2011 Supreme Court stayed SEBI order on refunds to depositors and
directed Securities Appellate Tribunal (SAT) to decide the question of OFCDs.
 In November, 2011 Sahara Companies challenged SAT order in Supreme Court.
The Supreme Court order said the contentions raised by the two Sahara group
firms have been “examined, addressed and answered on all possible angles and
dimensions”.
 31st August, 2012 Hon’ble Supreme Court upholds SAT order and delivers the
verdict against Sahara and asks the above mentioned two Companies to pay the
collected amount i.e. Rs. 24,400 Crores + 15% Interest to its 2.21 Crores
investors. However, the group in December 2012 was allowed to pay the money
in three instalments, including an immediate payment of Rs. 5,120 crores,
followed by an instalment of Rs. 10,000 crores in the first week of January, 2012
and remainder by the first week of February 2012.
 In December, 2012 the Supreme Court told SEBI to begin refunding the money
to genuine investors from Rs. 5,120 crores deposited with it so far.

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 January, 2013 Supreme Court dismissed review petition on August order and
further on February, 2013 said SEBI was free to freeze bank accounts and seize
all properties of two group Companies for defying court’s order by not refunding
Rs. 24,000.
 October 28, 2013, Supreme Court had directed Sahara to hand over title deeds of
properties worth Rs. 20,000 crores to SEBI. On that date, the judges had said
“You indulge too much in hide and seek. We cannot trust you anymore. There is
no escape for you and the money has to come”.
 The Supreme Court on November 1, 2013 allowed Sahara Chief Subrata Roy and
two other Directors to travel abroad, but said if the property title deeds worth
20,000 crores are not submitted to SEBI in three weeks Mr Roy has to come back
to India.
 Subrata Roy was eventually arrested on 28 February 2014 by Uttar Pradesh
police on a Supreme Court's warrant, in a dispute with Market Regulator - SEBI.
 The Supreme Court in March, 2016 directed Securities and Exchange Board of
India (SEBI) to sell Sahara Group properties whose title deeds are lying with the
capital market regulator.

As of August 2014, Roy was still in jail and was trying to sale some of his hotel
properties to enough money.

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CONCLUSION

 After 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.
 Jurisdictional gap is removed between MCA and SEBI in matters of public
interest.
 After this case Private Placement is given in detail in new Companies Act, 2013.

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