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Rizvi College of Arts, Science and Commerce Batch: May 2013 Group 10 1
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Presentation By: Shrusti Vasani WRO0401581 Team Leader Arshita JainWRO0384491 Team Member Aakash Tejani WRO0394257 Team MemberSejal Patel WRO0409682 Team Member Shaurya Taperiya WRO0391837Team Member 2
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Landmark Case in Indian Corporate Landscape 3
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Contents 1. 2. 3. 4. 5. 6. 7. 8. Introduction Sahara V/S SEBI: Facts SaharasContention SEBIs Contention Factual Summary Observations of SupremeCourt Latest of the Case Conclusion 56 to 8 9 & 10 11 & 12 1314 to 18 19 20 4
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Introduction: Sahara India Pariwar Sahara India Pariwar an Indian
conglomerate company headquartered in Lucknow Diversified business infinance, infrastructure & housing, media & entertainment, consumer
merchandise retail venture etc. Started by Mr. Subrata Roy Sahara in 1978
Peak of success in very short period, such a success motivating but
suspicious Main sponsor of the Indian Cricket Team (apparently withdrawnand Hockey Team. They own an IPL Team and 42.5% stake in Formula One's
Force India F1 The Brand Trust Report published by Trust ResearchAdvisory, listed Sahara in the top 100 most trusted brands of India. 5
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SAHARA V/S SEBI: FactsSahara India Real Estate Corporation Limited(SIRECL) and Sahara Housing Investment Corporation Limited (SHIC) issued
Optionally Fully Convertible Debentures (OFCDS) through subscriptions from
investors with effect from 25th April 2008 up to 13th April 2011. Raised
around Rs.20,000 crores from investors The purpose of issue was to carryout infrastructural activities namely, constructing the bridges, modernizing orsetting up of airports, rail system or any other projects which may be allotted
to the company Filed RHPs to the concerned ROC and specified intention of
company not wanting to list the shares on any stock exchanges. As perSahara issue of OFCDS was private placement. 6
7. SAHARA V/S SEBI: Facts (Contd) However, amount was collected from
about 30 million investors in the guise of a "Private Placement" Therequirements applicable to the public offerings of securities were not complied
with. Later, Sahara Prime City Limited intended to raise funds through listing
of its shares filed Prospectus to SEBI While processing the prospectus,SEBI received complaint from one of the investor and Professional Group of
Investors Protections on 25.12.09 and 4.01.10 Complaint alleged Saharagroup for issuing Housing Bonds without complying with relevant regulationsprompting SEBI to look into matter 7
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8. SAHARA V/S SEBI: Facts (Contd) The Whole Time Member of SEBI
passed an order dated 23rd June, 2011 directing the two companies to refund
the money so collected to the investors Also restrained the promoters of thetwo companies including Mr. Subrata Roy from accessing the securities
market till further orders.
Sahara then preferred an appeal before SecuritiesAppellate Tribunal (SAT) against the order. SAT confirmed and maintained the
order of the Whole Time Member by an order dated 18th October, 2011. Subsequently Sahara filed an appeal before the Supreme Court of Indiaagainst the SAT order. 8
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SAHARAS CONTENTION Issue of Optionally Fully Convertible Bonds
(OFCDs) is legal. Issue of OFCDs is not a public issue. OFDC are
neither shares nor Debentures but Hybrid Class OFCDs are Hybrid
Instruments cannot be listed. Serious error is committed by SEBI. No
statutory requirement to list OFCDs. 9
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SAHARAS CONTENTION (Contd) Bonds issued by Sahara are:- 1.2. Hybrid instruments as per Sec 2(19A) of the Companies Act. Convertiblebonds as per Sec 28(1)(b) of the SCR Act & hence not list-able securities as
per Sec 2 (h) of the SCR Act. SEBI contention is incorrect and has nocredible evidence. 10
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SEBIs contention 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 concernedROC 11
12. SEBIs contention (Contd) Aggrieved Sahara appealed to
SAT(Securities Appeallet Tribunal). Passed order in favor of SEBI.
Aggrieved Sahara again moved towards Supreme court. Finally, Supreme
court of India passed the judgment in favor of SEBI. Ordered Sahara torepay the investors. 12
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FACTUAL SUMMARY Sahara aggrieved against the notice of SEBI
moved the Allahabad High court and obtained stay. SEBI filed petition to
Supreme Court. Recall of the earlier order. Allahabad High Court rejected
the recall order. SEBI again approached Supreme Court Issue of fresh
notice to Sahara by SEBI. Confirmation of violation of rules and regulationsand therefore, order against Sahara was passed. 13
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Observation by supreme Court The Supreme Court of India interpreted
provisions of the Companies Act, SEBI Act, Securities Contract (Regulation)Act,1956, (SCRA) and other related rules to give decisions after considering
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some issues. Issue 1. Whether the power to investigation and adjudication lieswith SEBI in this matter as per Sec 11, 11A, 11B of SEBI Act and or Ministryof Corporate Affairs (MCA) under Sec 55A of the Companies Act .
Observations of SC: 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 theSEBI in the matters where interests of the investors are at stake. 14
15. Observation by supreme Court:(Contd) Issue 2. Whether the hybridOFCDs fall within the definition of "Securities" within the meaning ofCompanies Act, SEBI Act and SCRA so as to vest SEBI with the jurisdiction to
investigate and adjudicate. Observations of SC: OFCDs issued by the two
companies are in the nature of "hybrid" instruments but it is "Security" withinthe meaning of Companies Act, SEBI Act and SCRA. Although the definitionof "Securities" under section 2(h) of SCRA does not contain the term "hybridinstruments" but it is inclusive definition and covers all "Marketable securities".
OFCDs were offered to millions of people hence it were marketable. Thename itself contains the term "Debenture", it is deemed to be a security as perthe provisions of Companies Act, SEBI Act and SCRA. 15
16. Observation by supreme Court:(Contd) Issue 3. Whether the issue ofOFCDs to millions of persons is a Private Placement and not covered by SEBI
Regulations and various provisions of Companies Act. Observations of SC: The issue of OFCDs is not private placement since made to 50 or more [sec
67(3)] The Supreme Court observed as the companies elicited publicdemand for the OFCDs through issue of Information Memorandum which is
only meant for Public Issues. Actions of both the companies clearly depictsthey wanted to issue securities to public in the grab of private placement tobypass various laws and regulations 16
17. Observation by supreme Court:(Contd) Issue 4: Whether listingprovisions under sec 73 is mandatory for all public issues or depends on
Intention of the Company Observation of SC: Law is clear andunambiguous as to any issue made to more than 49 persons is mandatory tolist [u/s 67 (3) of Companys Act,1956] Sec 73(1) casts obligation on everycompany indenting to make offer securities to public to list its securities. Intention can not override Act. 17
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Observation by supreme Court:(Contd) Issue 5: Whether the Publicunlisted companies (Preferential Allotment) Rules, 2003 will apply in this case
Obsevations of SC: Supreme court denied any legislative intention of suchRules 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
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Shareholders sec 67 is to be followed If the preferential allotment by unlistedcompanies is public issue, 2003 Rules will not apply 18
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Latest of the Case SEBI has began process of refund to investors
being verified by it Refund is being made from Rs. 5,120 crore deposited by
Sahara Non genuine investor details are provided by Sahara, many of which
are fake Refund of estimated amount of Rs. 24,000 crore SEBI is
demanding personal asset details, bank a/c of Subrata Roy SEBI hasdemanded arrest of Subrata Roy 19
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Conclusion Landmark Judgment is milestone in Indias 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 Forbids them from
companies advantages of legislative loopholes Jurisdictional gap is removedbetween MCA and SEBI in matters of public interest 20
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