SAHARA

Question -
“We have found that the contemnors have maintained an unreasonable stand throughout the proceedings
before SEBI, SAT, High Court and even before this Court. Reports/analysis filed by SEBI on 18.2.2014
make detailed reference to the submissions, documents, etc. furnished by the contemnors, which indicates
that they are filing and making unacceptable statements and affidavits all through and even in the contempt
proceedings. Documents and affidavits produced by the contemnors themselves would apparently falsify
their refund theory and cast serious doubts about the existence of the socalled investors. All the fact finding
authorities have opined that majority of investors do not exist. Preservation of market integrity is extremely
important for economic growth of this country and for national interest. Maintaining investors’ confidence
requires market integrity and control of market abuse. Market abuse is a serious financial crime which
undermines the very financial structure of this country and will make imbalance in wealth between haves
and have nots.” (Subrata Roy Sahara v Union of India and others, May 6, 2014)
Refund of money to the actual investors still seems to be embroiled in claims and counter-claims of the
parties involved. Analyse the challenges faced by the Supreme Court of India in the Sahara dispute.
Question -

Subrata Roy Sahara, a business baron started off with a chit fund business in the late 1970s. At the peak of
his success, Mr. Roy prevailed over an empire that included an airline, Air Sahara, television channels,
finance and real estate. The Sahara group was once considered India’s second largest employer after the
Indian Railways, with a professed employee base of around 1.2 million, but ran into trouble with financial
sector regulators. Sahara case has tested the efficacy of the Indian legal System.

Critically analyse the above–mentioned observation in the light of the dispute of Sahara with SEBI.

Answer:

 Under the companies act 1956 - the private placement was allowed to a maximum of 49 people. -
Under Section 81
 However, two companies of the SEBI Group i.e. Sahara India Real Estate Corporation Limited (for
short 'SIRECL') and Sahara Housing Investment Corporation Limited (for short 'SHICL”) issued
Optionally Fully Convertible Debentures to around 30 Million (3 Crore) people.
 Sahara wanted to acquire townships, shopping complexes, and apartments and the fund was needed
for the purpose of infrastructure construction.
 However, the requirements of the Public Offer under the SEBI Rules was not complied with -they
instead complied with the requirements of the private placement under the companies act - filled it
with ROC etc.
 The companies resolved to issue unsecured OFCDs by way of private placement, the details of which
were mentioned in the Red Herring Prospectus (for short 'RHP') filed with the Registrar of
Companies (for short “RoC”), Kanpur.
 SAHARA then in circulated information memorandum along with the application forms to its so
called friends, associated group companies, workers/employees and other individuals associated with
Sahara Group for subscribing to the OFCDs by way of private placement.
 Company claimed that it raised funds from friends, associates, group companies, workers/employees
and other individuals associated/affiliated or connected in any manner with Sahara Group of
Companies
 SEBI had come to know of the large scale collection of money from the public by Saharas through
OFCDs, while processing the RHP submitted by Sahara Prime City Limited, another Company of
the Sahara Group.
THE TUSSLE BEGINS

 SEBI then addressed a letter to Enam Securities Private Limited, merchant bankers of Sahara Prime
City Limited about the complaint received from one Roshan Lal alleging that Sahara Group was
issuing Housing bonds without complying with Rules/Regulations.
 Merchant Banker wrote to SEBI stating that SIRECL and SHICL had issued the OFCDs pursuant to
a special resolution under Section 81(1A) of the Companies Act, 1956
 SEBI wrote to MCA enclosing the complaint received in respect of OFCDs issued by Saharas.
 SEBI then wrote to SAHARA calling for various details including the details regarding the number
of application forms circulated after filing of RHP with RoC, details regarding the number of
applications received and subscription amount received, date of opening and closing of subscription
list of OFCDs, number and list of allotees etc.
 SAHARA wrote to MCA for guidance/advice as to whether it was SEBI or MCA who had locus
standi in the matter of unlisted companies in view of the provisions of Section 55A(c) of the Act.
 MCA sent a letter to SAHARA stating that the matter was being examined under the relevant
provisions of the Companies Act, 1956.
 SAHARA informed SEBI of the reply they had received from the MCA and that they would address
SEBI after a decision was taken by MCA.
 SEBI had prima facie felt that SAHARA was carrying out various transactions in securities in a
manner detrimental to the interests of the investors or to the securities market and, therefore, issued
summons under Section 11C of the SEBI Act, directing the company to furnish the requisite
information by 15.9.2010.
 SAHARA sent a detailed reply to SEBI - that it is a unlisted company and that it has only made a
private placement therefore it will not be in the ambit of the SEBI. Therefore, it requested SEBI to
withdraw the summons issued under Section 11C of the SEBI Act.
 MCA, in the meanwhile, sent a letter SAHARA under Section 234(1) of the Companies Act calling
for various details including the amount collected through private placement, details regarding the
number of investors to whom the allotment had been made, their names, addresses, utilization of the
funds collected, its purpose, class or classes of persons to whom the allotment had been made and
whether allotments were completed and various other details.
 SEBI wrote to SAHARA reminding that it had not provided information/documents on the issue of
OFCDs. Proceeding issued for appointing the investigating agency was also forwarded to the
company.
 SAHARA again replied by its letter dated 30.9.2010 raising the issue of jurisdiction of SEBI in
investigating the affairs of SAHARA
 SAHARA replied to the letter of MCA stating inter alia that it would be filing the prospectus on the
closure of the issue in compliance with the provisions of 15 Section 60B(9) of the Companies Act,
stating therein the total capital raised by way of OFCDs and the related information by filing the
prospectus.
 SEBI, in the meanwhile, issued a notice dated 24.11.2010 informing both SIRECL and SHICL that
the issuance of OFCDs was a public issue and, therefore, securities were liable to be listed on a
recognized stock exchange under Section 73 of the Companies Act. Both the companies were,
therefore, directed to show cause why action should not be initiated against them including issuance
of direction to refund the money solicited.
 This show cause notice was then challenged before the Allahabad High Court, Lucknow Bench,
which imposed a stay on the show cause notice.
 SEBI Challenged the stay before the Supreme Court - the supreme court refused interference.
 MCA, following its earlier letter dated 21.9.2010 issued another notice dated 14.2.2011 directing
SIRECL to furnish details on four specific points, including the details of the number of persons who
had applied in pursuance to the OFCDs issued, the mode of receipt of payment (Application
Register), the name, address, number of persons to whom OFCDs were allotted (Allotment Register)
and also whether the number of allottees to whom OFCDs were allotted etc. exceeded fifty. SIRECL
replied to the notice on 26.2.2011.
 SAHARA sent details in a CD without the password of the CD.
 SEBI pointed this out to the Allahabad HC - and it vacated the stay.
  After this SAHARA - requested further stay from HC.
 HC dismissed the petition.
 SAHARA filed SLP in SC
 SC - orders SEBI to decide the case and then Allahabad HC was allowed to decide the case
meanwhile.
 SEBI passed its final order through its whole-time member (WTM) on 23.6.2011.
o SEBI examined the nature of OFCDs issued by Saharas and came to the conclusion that
OFCDs issued would come within the definition of “securities” as defined under Section 2(h)
of SCR Act.
o SEBI also found that those OFCDs issued to the public were in the nature of Hybrid
securities, marketable and would not fall outside the genus of debentures.
o SEBI concluded that OFCDs issued were in fact public issues and the Saharas were bound to
comply with Section 73 of the Companies Act, in compliance with the parameters provided
by the first proviso to Section 67(3) of the Companies Act.
o SEBI took the view that OFCDs issued by Saharas should have been listed on a recognized
stock exchange and ought to have followed the disclosure requirement and other investors'
protection norms.
o SEBI directed Saharas to refund the money collected under the Prospectus dated 13.3.2008
and 6.10.2009 to all such investors who had subscribed to their OFCDs, with interest.
 SAT Order -
o Appellants, aggrieved by the above mentioned order of SEBI, filed Appeal Nos. 131 of 2011
and 132 of 2011 before the Tribunal and the Tribunal passed a common order on 18.10.2011.
o The Tribunal took the view that OFCDs issued were securities within the meaning of Clause
(h) of Section 2 of SCR Act, so also under SEBI Act.
o Tribunal also noticed that RHP issued by SIRECL was registered by the RoC on 18.3.2008,
though information memorandum (IM) was issued later in April 2008 in clear violation of
Section 60B of the Companies Act.
o Tribunal also recorded a finding that Saharas, having made a public issue, cannot escape from
complying with the requirements of Section 73(1) of the Companies Act on the ground that
the companies had not intended to get the OFCDs listed on any stock exchange.
o Tribunal also examined the scope and ambit of Sections 55A of Companies Act read with
Sections 11, 11A and 11B of SEBI Act and took the view that a plain reading of those
provisions would indicate that SEBI has jurisdiction over the Saharas since OFCDs issued
were in the nature of securities and hence should have been listed on any of the recognized
exchanges of India.
o the appellants have been asked by SAT to refund a sum of Rs.17,400/- crores approximately
on or before 28th November, 2011.

SC – KS Radhakrishnan + JS Khehar

The question of SEBI Jurisdiction came before the Supreme Court - the question then before the Supreme
Court was weather ‘bonds’ falls in the definition of “securities”.

◦ Contentions of SAHARA (Fali Nariman)

 S 55A Co Act confer no power on SEBI to administer ss 56, 62, 63, 73 on unlisted co
 SEBI act do not confer power wrt unlisted
 Power only wrt listed co else power with CG under MCA
 The petitioners said that SEBI court have amended the definition and included it in the definition of
the Securities. So it is not covered.

◦ SC – 31 Aug 2012
 No illegality in SEBI/SAT order – ratio upheld
  SC said that the OFCDs, are very well covered in the definition of the securities. - the Supreme Court
used the meathod of Ejusdem Generis - and so included the OFCDs in that definition.
 Having read that in the definition, all the rules and regulations of SEBI will apply. Which they were
in violation of.
 Therefore, Supreme Court said that the company must return the money.
 It asked the company to give money and investor information to SEBI. The SEBI will return this
money to the investor.
 This was happening in 2012 - the company then said that it does not have money. So it needs time to
pay 24000 Cr.
 Then it was divided it in 3 installments - it then paid 5120 Cr. - i.e. first installmet but then it did not
pay the other 2 installments. (they paid 5120 Crores) - 2nd installment was 10,000 cr and third was
7400 cr.
 17,400 cr was left to be paid back + refund at 15%
 Furnish details and docs
 SEBI can take further action

Contempt case
 the balance amount or the interest payable, as per the installments, was not deposited though it was
to be deposited by January/February, 2013.
 As a response: chief of Sahara was called into SEBI’s office. Subrata Roy (chief of Sahara) came out
and said to reporters that he was not even offered tea by SEBI and media reports showed how they
are still not humble and was criticised.
 Sahara on being asked about details: sent the papers via 127 trucks and sent them to SEBI’s office
that caused a heavy traffic jam.

It resulted in filing of the contempt petitions

Contempt case filed in SC against Roy – 12 March 2014

5 Advocates – Jethmalani, Rajeev Dhawan, Rakesh Dwivedi, S Ganesh and Ravi Shankar Prasad

 The regulator filled a application for sezuire of the passport of Subrata Roy. And second application
was of arrest.
 To this he filled a counter affidavit - telling that there is no possibility of me running away. - he has
his friends, relatives and assets and business all in India.
 Then court summoned Subrata Roy - and sought him to appear before the court. - then he does not
appear - advocate tells the court that the mother is sick so he is handholding her.
 Court says that it will issue the arrest warrant on next date. Subrata Roy then appeared and told that it
was unable to pay the money because he is not getting adequate price of his properties. Then court
ordered arrest of Subrata Roy. - he was taken to Tihar directly.
 Bail application before the same bench - March 2014
o The Court passed conditional order of bail on that day. The condition was that the
contemnors deposit 10,000 ₹ crores – ₹5000 crores in cash and balance of ₹5000 crores in
the form of bank guarantee of a nationalised bank, to be furnished in favour of SEBI.
 Challenged the arrest - Subrata Roy v. UOI, 2nd May, 2014
Grounds
 What offence, punishable under what provision of law, has the petitioner committed, that you have
sent him to jail? Can an order of arrest and detention be passed orally…, without there being any
writing…, without there being any notice…, without any opportunity to reply to the same? “… You
have done all this, and more…”, we were told.
 Another argument was that the same bench is prejudiced against Roy. Whenever we came up with
any proposal, you rejected it, and when we asked for bail, you said 10,000 crores, which is
unprecedented. You just want to ensure that our client is behind the bar, hence, you must recuse
yourself, and that’s the only hope of justice.
Held
1. To the question of notice: we are not the ones to pass this order, many judges have passed many stern
orders, SEBI’s two interlocutory applications are pending, and you responded to one of them
(passport) so where is the question of no notice? This was bound to happen. Either you convince us
that you are going to pay back or you know this was coming. So, the absence of notice is not a valid
ground to declare the judgment null. Audi Altrem Partem rejected.
2. Another argument was that the same bench is prejudiced against Roy. Whenever we came up with
any proposal, you rejected it, and when we asked for bail, you said 10,000 crores, which is
unprecedented. You just want to ensure that our client is behind the bar, hence, you must recuse
yourself, and that’s the only hope of justice. Bench rejected this argument. Said: when it comes to
we being biased, in this matter, we are not the only bench who passed this order and our
predecessors have passed several orders in last 2 years (passport seize) and not all business plans
were rejected by us so not all of us are biased. The bail amount is in proportion to the amount due,
which is 24,000 so bail amount cannot be 1,000 rupees. The ultimate strategy of the advocates was to
get Roy out as the previous order would have been null and void if they accepted the arguments and
it would have given us some time. SC mentioned this in the judgement and said doing this will lead
to further delay and investors will suffer.
3. This order went to the extent of recommending to parliament that, when the people have no
substantial grounds and they keep on challenging it, which leads to wastage of judicial time, a law
penalising such challenges must be passed where on futile grounds the proceedings must not be
halted. Another point was that these corporate clients can hire advocates who challenge the orders
but due to the delay caused the ordinary people suffer. So, bring a law for vexatious litigation.
 14 May Radhakrishnan retired from the case - he marked in his farewell speech that this case was
immence pressure - politically also - all who's who were in the cremation of mother of Subrata Roy.
 A new bench was then constituted as Justice RadhaKrishnan retired and Justice Kehar Recused.
 Decision- 2015 - TS Thakur, Anil R Dave, AK Sikri
o the total liability which according to SEBI, has risen to Rs.36,000 crores (approximately), the
contemnors shall deposit the balance outstanding amount within a period of 18 months
commencing from the date of their release from custody in nine installments. First eight
installments shall be of Rs.3,000 crores payable every two months from the date of their
release from custody and last installment shall be of the remaining amount
o In the event of the default - SEBI can encash the bank guarantee.

He is out ….yaayyyy

3 Books he wrote in Jail

o Thoughts from Tihar
o Reflections from Tihar
o Think with me

He said this after returning

 “I, like any other human in confinement, could not contain my thoughts and at times felt an
emotional outrage, 'why me?', 'what have I done wrong to deserve this?'. Thoughts such as these
often raced through my mind”
He was victimising himself.

2017 - But this payment plan was also not followed and therefore, the matter moved, and another bench
constituted in this case:
 SC asked SEBI, the most prized property of Sahara: i.e Ambay Valley, they directed the auction of
the property and appointed the Bombay HC as receiver. Kapil Sibal objected, but no heed was paid.
 On the date of the auction, no bidder showed up, Bombay HC prepared closure report and sent it to
SC.
  Matter continues

The amount that was collected 17000 Cr.

Then by the time of the order it was 24000 Cr (this was in 2012)-
Then by the time three judge bench was constituted it was 36000 Cr. (2015 0rder)
Then soon it was 49000 Cr By the time the auction was conducted.

2016 SAHARA Spokesperson

SEBI has refunded only 50cr only
Has 12,000 cr from SAHARA

2021
Lok Sabha Question Answer -
1. The Saharas have deposited an aggregate amount of Rs.15,485.80 Crores (against the Principal
Amount Rs. 25,781.37 Crores) into designated ‘SEBI-Sahara Refund’ Account as on November 30,
2021.
2. As per the direction of Hon'ble Supreme Court and with the advice of Justice (Retd.) BN Agarwal
appointed by Hon'ble Supreme Court vide order dated 31.08.2012 to oversee the refund process,
SEBI had issued Press Releases at various points in time advising the investors to make necessary
applications to SEBI for refund of their money invested in the OFCDs of the aforesaid two
Companies viz., SIRECL and SHICL. July 2, 2018 was the last date for receiving applications for
refund.
3. SEBI received 19,644 Applications in total involving 53,642 Original Bond Certificates / Pass Books
for an aggregate Principal Amount of Rs. 81.70 Crore. On the basis of verifiable documents, SEBI
made refunds with respect to 17,526 eligible bondholders involving 48,326 Original Bond
Certificates / Pass Books for an aggregate amount of Rs. 138.07 Crores (i.e., Rs. 70.09 Crores as
Principal and Rs. 67.98 Crores as an Interest) by way of transfer through NEFT/RTGS.
4. Till date, SEBI has filed 22 status reports in total before the Supreme Court in this matter. Further,
SEBI has also filed an Interlocutory Application dated 21.10.2021 seeking further directions from
the Supreme Court in this matter and the same is presently pending before the Supreme Court.

LATEST NEWS - fund being used to repay other people as they are unable
 The Centre sought approval through a PIL filed by Pinak Pani Mohanty. The case concerns
repayments to investors in Sahara credit firms and chit fund companies. The SEBI-Sahara refund
account was created after a 2012 order asking Sahara India Real Estate Corporation and Sahara
Housing India Corporation to refund money collected from investors. That was allowed in 2025
September
 Out of the total amount of Rs. 24,979.67 Crores lying in the “Sahara-SEBI Refund Account”, Rs.
5000 Crores be transferred to the Central Registrar of Cooperative Societies, who, in turn, shall
disburse the same against the legitimate dues of the depositors of the Sahara Group of Cooperative
Societies, which shall be paid to the genuine depositors in the most transparent manner and on proper
identification and on submitting proof of their deposits and proof of their claims and to be deposited
in their respective bank accounts directly.
 Introduction
The dispute between the Sahara Group and the Securities and Exchange Board of India represents one
of the most significant and prolonged regulatory litigations in India’s securities law history. It tested
the boundaries of regulatory jurisdiction, corporate compliance, investor protection mechanisms, and
the enforcement capacity of the Indian legal system. The litigation culminated in strong observations
by the Supreme Court of India regarding market abuse, investor confidence, and the national economic
interest.
At the centre of the dispute was the issuance of Optionally Fully Convertible Debentures (OFCDs) by
two unlisted Sahara group companies—Sahara India Real Estate Corporation Ltd. (SIRECL) and
Sahara Housing Investment Corporation Ltd. (SHICL)—to an extraordinarily large number of
investors under the guise of private placement. The case eventually exposed systemic abuse of
corporate law provisions, regulatory arbitrage, and deliberate obstruction of judicial orders.

Background: OFCDs and the Regulatory Framework

Under the Companies Act, 1956, private placement of securities was permitted to a maximum of 49
persons under Section 81(1A) read with Section 67. Any offer made to 50 or more persons was
deemed a public issue, triggering mandatory compliance with disclosure norms, listing requirements,
and SEBI regulations.
Despite this clear statutory framework, SIRECL and SHICL issued OFCDs to approximately three
crore investors, raising around ₹17,400 crore initially. Sahara claimed that these funds were raised
from friends, associates, employees, and group-linked persons for infrastructure development such as
townships and housing projects. The companies filed a Red Herring Prospectus (RHP) with the
Registrar of Companies (RoC), Kanpur, asserting that the issue was a private placement and therefore
outside SEBI’s jurisdiction.

Genesis of the Dispute and Jurisdictional Conflict

SEBI became aware of the massive fund mobilisation while examining documents filed by another
Sahara group company. A complaint was also received alleging that Sahara was issuing securities
without complying with applicable regulations. SEBI sought information from Sahara regarding the
OFCD issue, including details of investors, subscription amounts, and allotments.
Sahara contested SEBI’s jurisdiction, arguing that:
 The companies were unlisted;
 Section 55A of the Companies Act vested regulatory authority over unlisted companies with the
Ministry of Corporate Affairs (MCA);
 SEBI had no authority over private placements.
Simultaneously, MCA also sought information under Section 234 of the Companies Act. Sahara
adopted a strategy of non-cooperation and delay, including furnishing incomplete information,
providing data in inaccessible formats, and repeatedly challenging SEBI’s authority.
Directed SEBI to conduct inquiry.
 SEBI’s Findings and Orders

After detailed investigation, SEBI passed its final order in June 2011, holding that:
 OFCDs fall within the definition of “securities” under Section 2(h) of the Securities Contracts
(Regulation) Act;
 The issuance to more than 50 persons constituted a public issue under the first proviso to Section
67(3) of the Companies Act;
 Compliance with Section 73 (mandatory listing) and SEBI’s disclosure and investor protection
norms was compulsory;
 Sahara had violated securities laws and misled investors.
SEBI directed Sahara to refund the entire amount raised with interest and restrained the companies and
their promoters from accessing the securities market.

SAT and Supreme Court: Affirmation of SEBI’s Jurisdiction

The Securities Appellate Tribunal (SAT) upheld SEBI’s findings, emphasizing that intent to list is
irrelevant once an issue is deemed public. SAT further clarified that SEBI’s jurisdiction extends to all
securities intended to be listed, regardless of the company’s listed status.
The matter reached the Supreme Court, where Sahara argued that OFCDs were not securities and that
SEBI had overstepped its statutory powers. Rejecting these arguments, the Court held that:
 OFCDs are securities, applying the doctrine of ejusdem generis;
 Once classified as securities, SEBI’s regulatory framework applies in full;
 Sahara had deliberately structured the issue to bypass investor protection norms.
In its landmark judgment dated 31 August 2012, the Supreme Court upheld SEBI’s and SAT’s orders
and directed Sahara to deposit the money with SEBI for refund to genuine investors.

Refund Mechanism and Non-Compliance

The Court initially allowed Sahara to repay the amount in instalments. While Sahara paid
approximately ₹5,120 crore, it defaulted on subsequent payments. The outstanding liability, with
interest, continued to rise due to prolonged non-compliance.
SEBI was also directed to verify investor claims and process refunds. However, Sahara’s failure to
provide credible investor data severely hampered this process. Multiple reports indicated that a
significant number of purported investors did not exist, further casting doubt on Sahara’s claims.

Contempt Proceedings and Judicial Enforcement

Due to Sahara’s continued defiance, contempt proceedings were initiated against its chief, Subrata
Roy. SEBI sought seizure of his passport and arrest for wilful disobedience of court orders. Roy
 challenged the proceedings on grounds of lack of notice, violation of natural justice, and alleged
judicial bias.
The Supreme Court rejected these contentions, holding that:
 Adequate notice had been given through multiple proceedings;
 Natural justice principles cannot be used as shields for deliberate non-compliance;
 The bail conditions imposed were proportionate to the magnitude of the default.
Roy was taken into custody in March 2014 and later granted conditional bail upon partial compliance.

Judicial Observations on Market Integrity and Legal Abuse

In one of its strongest observations, the Supreme Court emphasized that:

 Preservation of market integrity is essential for economic growth and national interest;
 Market abuse is a serious financial crime that undermines investor confidence;
 Vexatious litigation and dilatory tactics by powerful corporate entities cause disproportionate harm
to ordinary investors.
The Court even recommended legislative measures to penalise frivolous challenges that delay justice
and clog the judicial system.

Subsequent Developments and Continuing Challenges

Despite revised repayment schedules and attempts to auction Sahara’s properties, including the Amby
Valley project, recovery remained incomplete. The total liability escalated from ₹17,400 crore to
nearly ₹49,000 crore over time.
SEBI periodically submitted status reports to the Supreme Court. By 2021, only a small fraction of
investors had come forward with verifiable claims, and refunds disbursed were minimal compared to
the amounts collected.
In recent developments, the Supreme Court permitted partial utilisation of the SEBI–Sahara Refund
Account for repayment of genuine depositors of Sahara cooperative societies, reflecting a pragmatic
approach to utilising idle funds while safeguarding investor interests.

Conclusion

The Sahara–SEBI dispute stands as a watershed moment in Indian securities law. It reaffirmed the
supremacy of investor protection over corporate convenience, clarified SEBI’s jurisdiction over public
issues regardless of corporate form, and highlighted the judiciary’s resolve to uphold market integrity.
At the same time, it underscored the need for stronger enforcement mechanisms, faster dispute
resolution, and safeguards against vexatious litigation.
Ultimately, the case serves as both a warning to corporate entities that regulatory evasion will not be
tolerated and a call to reform to ensure that justice is not only pronounced but effectively delivered to
those it is meant to protect—the investors.