Title : Sahara V/s Sebi Case analysis
Submitted by : Kawaljeet Katija
Course LLM A – Corporate Law
Content :
• Sahara India Real Estate ... vs Securities & [Link] Of India & ... on 11 September,
2012
[Link]
• Sahara files plea against Sebi in SC - Times of India
• Sebi asks Sahara's Subrata Roy to pay Rs 62,600 crore to [Link] ›
business-news › sebi...20-Nov-2020 —
• SEBI Sahara case: Supreme Court exempts Sahara group [Link]
24-Jan-2020 —
Facts of the Case :-
SIRECL (Sahara India Real Estate Corporation Limited) and SHICL (Sahara Housing
Investment Corporation Limited) were accused by SEBI of collecting around 17,656 crore from
around 30 million investors as subscription in the guise of “private placements” without complying
to the requirements of public offerings of securities. Sahara filed an appeal before the Supreme
Court of India against the SAT order.
Judgement pronounced :-
• Sahara Group and its two group companies should refund around Rs 17,400 crore to their
investors within 3 months from the date of the order with an interest of 15%.
• SEBI was asked to probe into the matter and find out the actual investor base who have
subscribed to the Optionally Fully Convertible Debentures (OFCDs) issued by the two
group companies SIRECL and SHICL.
• The Supreme Court while confirming the findings of the SAT had further asked SEBI to
probe into the matter and find out the actual investor base who have subscribed to the
Optionally Fully Convertible Debentures (OFCDs) issued by the two group companies
SIRECL and SHICL.
PG 1
ANALYSIS
I agree with the Supreme Court judgement as Sahara tried to cheat its investors by misinterpreting
the provisions of SEBI Act, and companies Act. A major population of India that hopes to invest
in the share market to uplift their living standards and gain some dignity in life are less educated
and unaware of such largescale financial frauds. These small investors do not have complete
knowledge of financial position of company, its performance, debentures etc. Such investors only
hope is that the law of land is protecting their hard earned savings which they so invested in such
large corporations with high hopes.
This was the first time in Indian Legal History where the Director of Company in this case
Mr Subrato Roy was jailed, it also assured the financial world that whoever tries to evade law will
be punished and if the powerful tries to evade the line of legality by hiring the best of legal minds
in India, The Rule of law will bring them to justice.
I believe that the observation made by the Supreme Court is justified from all perspectives as it
emphasized the fact that how Sahara tried to defeat the provisions of various acts like SEBI Act,
1992, Companies Act, 2013 and jeopardized the lives of so many investors who mainly belonged
to the lower strata of the society and barely earned enough to keep their body and soul together. It
tried to gamble the life of majorly illiterate group of people who have less or no idea of the financial
position of a company and thus are ambiguous about harnessing the opportunity to make benefit
out of schemes such as OFCD which requires knowledge about performance of the company and
basic knowledge about proper time to turn such debentures into shares which will be a profitable
for them. Such investors are unaware of the risk that comes along with such luring schemes and
out of ignorance they put all their money in one hope given by such unscrupulous managers of
these companies. This decision of the Supreme Court in every manner will be a major precedent
which will act as a deterrent for them not to involve themselves in such incoherent schemes.
PG 2
POSITIVE OUTCOME OF THIS CASE
• SEBI has come out as victorious.
This judgement has removed doubts from minds of people that SEBI can only monitor
listed companies and it does not have jurisdiction over unlisted companies. The jurisdiction
and power of SEBI over regulated unlisted companies and fall under its Radar.
• Jurisdiction of SEBI versus Ministry: This judgment is a very crucial one for SEBI as it
not only affirms its jurisdiction and power to administer various provisions of the
Companies Act, but also clarifies that even unlisted companies (whether private or public)
which intend to (by conduct or otherwise) get their securities listed on any stock exchange
now fall within the radar of SEBI. Also, the role of Ministry of Corporate affairs in such
cases may now be limited.
• Transferable means marketable:
Though, not a ratio decidendi in this case, however, the SC has stated that any security
which is capable of being freely transferable is marketable. This may have some
implications, especially, in case of stamp duty
• Criminal sanctions:
Though no criminal charges are levied on the promoters. SEBI has the powers to impose
imprisonment upto 10 years. If SEBI finds the information submitted by the Appellants
about the applicants or refunds already made, to be fictitious or concocted.
• There is hope for tomorrow
Sahara group did not consider the judgement to be end of road but chose to accept the
judgement and opted for all the legal remedies available to them. Currently Subrato Rao is out
on bail and states that he has all plans to repay back the money owned to him. SEBI has also
began process of refund to investors.
The legal options available to the accused were either to file a review petition. However, the
grounds for admitting review petition is that there should be a discovery of new and important
matter of evidence or some mistake or error apparent on the face of the record. The accused could
also file a curative petition but it is a case of ‘rarity’. It is accepted only if there is gross miscarraig
eof justice resulting from violation of priciples of natural justice as mentioned in the case of Rupa
Hurra Vs Ashok Hurra and Anr., (Air 2002 SC 177) or the judgement should adversely affect
a person and he should not be a party to the dispute or if he was a party, he should not have been
served with notice of the proceedings and the matter should have proceeded as if he had noticected,
SEBI may be at liberty to use its powers to impose sanctions as it may deem fit.
PG 3
Suggestion to avoid such securities fraud in the future :-
• Multiplicity of regulators should be avoided :-
Shares and debentures are regulated by SEBI and Fixed deposits are regulated by NBFC’s.
Fraudsters take use of this loophole and cheat the invetors. Thus multiplicity of regulators should
be avoided
• Speedy justice delivery system in financial Crimes :-
If the law takes a speedier path, it will reaffirm and reassure the investors to invest in Indian
markets. Till that is done it is difficult to convince the world to come and invest in India as an
emerging economy.
• Nurturing smart investors
The reasons for such scandals are several including lack of transparency, weak provisions, political
nexus and above all, ignorance of investors. In the light of Sahara case, it is the responsibility of
the government and its various agencies to protect the interests of investors and nation.
Conclusion:
This case was considered a landmark judgement because Supreme court of India very clearly
sanctifies the absolute power of SEBI to investigate into the matter of listed companies, and also
stretched their scope to matter concerning unlisted companies too. Supreme court gave vast power
to SEBI to protect the interest of the investors even in the case of unlisted companies. Many doubts
and concerns were removed from the minds of investors and common public regarding issuing of
securities by unlisted companies. It also established that to secure the rights of public SEBI and
Ministry of Corporate affairs should work in synergy. Earlier such parties would escape the
jurisdiction of SEBI while showing their affiliation towards MCI. Though Sahara has the options
to appeal for further review this judgement holds the beacon of hope for several investors that their
rights will be protected by the Apex court.
PG 4
REFERENCES
i. Appeal No.141/2003, SAT order dated 19.07.2004.
ii. 1990 (Suppl.) SCC 440
iii. (decided on September 23, 2009). See also, SPS International v. Vijay Remedies [1998]93
Comp Case 547 (CLB) where CLB also proceeded with the assumption of taking the
"guidelines" as "regulations".
iv. [Link]
v. [Link]
1. In Narendra Kumar Maheshwari vs. Union of India, it was held that compulsory
convertible debentures are considered equity and not as loan.
2. Yogesh M. Bhansali (HUF) and others vs. SEBI , It was held that SEBi Guidelines are
statuary in nature. the SAT held that the SEBI DIP Guidelines of 2000 were statutory
in nature.
3. In the matter of Kimsuk Krishna Sinha vs SEBI and Ors, (W.P.(C) 7976 of 2007 & CM
APPL No. 15084/07), The honourable court reiterated that SEBI guidelines are
statutory in character and are also enforceable.
4. In the matter of Toubro Infotech and Industries Limited and Another vs. SEBI, It was
held that SEBI is conferred with the power to protect the interest of the investors in
securities and regulate the details of prospects, offer documents or advertisements.
PG 5