SAHARA INDIA REAL ESTATE CORPORATION LIMITED & ORS. V. SECURITIES AND EXCHANGE BOARD OF INDIA & ANR (2012) 10 SCC 603

SAHARA INDIA REAL ESTATE CORPORATION LIMITED &ORS. V. SECURITIES AND EXCHANGE BOARD OF INDIA &ANR.  (2012) 10 SCC 603

FACTS

The appellants Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Investment Corporation Limited (SHICL) two companies of Sahara, raised funds as optionally Fully Convertible Funds under Companies Act. They raised over Rs.17,656 crores (round off) from about three crore investors over the course of 2 years by issuing OFCDs.

They filing a Red Hiring prospectus under sec. 60(B) of the companies Act, and an information memo also submitted to the registrar of companies. The memo stated that an issuance would be a private placement rather than a public offering.

After the SEBI inquiry the money was ordered to be returned to the investors. And also barred the promoters from obtaining additional securities as a result of the order. This order was upheld by the Security Appellant Tribunal, after the appellant filed an appeal with the tribunal.

ISSUES

1. Whether SEBI has the authority to investigate and make a decision in this case determined by Sections 11,11A and 11B of the SEBI act as well as sec. 55A of the Companies Act. Is it the Ministry of Corporate affairs or the companies acts sec. 55A(c) has the jurisdiction?
2. Whether after the insertion of the definition of ‘securities’ in section 2(45AA) as “including hybrids” and after the insertion of term ‘hybrid’ in Sec.2(19A);of the Act, the provision of Sec. 67 would apply to OFCDs issued by saharas and what is the effect of the definition clause 2(h)of SCR Act on it?
3. Is the issuance of OFCDs to the millions of participants in the offering a private placement exempt from SEBI regulations and other Companies Act provisions?
4. Whether Section 73’s listing requirements apply to all public problems or whether it is contingent on the “intention of the corporation” to be listed?
5. Whether the public companies referred in question no.(a) is legally obliged to file the final prospectus under Section 60B(9) with SEBI and whether sec. 60B, as it is, falls under sec. 55A of the companies Act?
6. Whether OFCDs issued by saharas are convertible bonds and if so, whether they are exempt from SCRA application under Sec. 28(1)(b)?

 

DECISION

 1.SEBI Act is a special Act dealing with specific subject, which has to be read in harmony with the provisions of the Companies Act, 1956.

The has stated that SEBI has the authority to investigate as it has particular powers that are not in conflict with any other provisions of law and there is no conflict of jurisdiction between MCA and the SEBI in matters involving investors interests.

When we interpret and deal with provisions like Sec. 55A,60B,67 ,73 etc. Of companies act, we have to always bear in mind the various provisions of the SEBI act, especially sections 11,11A ,11B,11C,32 etc. Because these provisions shall be in addition to and not in derogation of the companies act.

2.The word ‘hybrid’ means any security which has the character of more than one type of security, including their derivatives. Sec. 2(19A) of companies act.Even if OFCDs are hybrid securities,as defined in section, they shall remain within the purview of the definition of “securities” defined in SCR act.Sahara treated OFCDs only as debentures. The term securities defined in companies act has the same meaning as defined in the SCR Act, which would also cover the species of “hybrid” defined. SEBI has jurisdiction over hybrids like OFCDs issued by saharas, since the expression “securities” has been specifically dealt with under sec. 55A of the companies act.

3.When a security is offered to and subscribed to by more than 50 people, it is regarded to be a public offer, according to sec. 67(3).The court found that the Sahara Companies offered securities to a larger number of people than the statutory limit set out in the proviso to sec. 67(3), and thereby violated the listing regulations, exposing them to civil and criminal culpability. Also stated that the issue of OFCDs through the circulation of IM to the public was subject to the provisions of sec. 60B of the companies act, which required the filling of a prospectus under sec. 60B (9) and as companies did not issue a final prospectus on the closing of the offer and failed to register it with SEBI, the Court held that sec. 60B of the companies act was also violated.

4.Section 73(1) of the Act casts an obligation on every company intending to offer shares or debentures to the public apply on a stock exchange for listing of its securities. The Court stated that in the case of the Saharas, the phrase “acta exterior indicant interiora secreta” ( external action exposes inner secrets) holds true. Saharas acts and omissions have clearly violated the provisions of sec.73 , their failure to list the securities offer to the public was. Therefore, intentional and the plea that they did not want their securities listed, is not an answer, since they were legally bound to do so.

5.Section 55A,makes it clear that SEBI has the power to issue and transfer of securities and non payment of dividend in the case of listed public companies and in the case of those public companies which intended to get their securities listed on a recognized stock exchange in india. In any other case the same can be administered by the central government. And also the power relating to other matters of prospectus, return of allotment, issue of shares etc. Should be exercised by the central government, tribunal or the registrar of companies, as the case may be. Thus contention raised by saharas that without regulations being framed under Companies act, SEBI cannot exercise powers of administration, is totally unfounded and is rejected.

6.The inapplicability of SCR act, as contemplated in sec. 28(1)(b) , not to be convertible bonds, but to the entitlement of a person to whom such share, warrant or convertible bond has been issued, to have shares at his option. It is clearly indicates that it is only convertible bonds and share/warrant of the type referred to therein that are excluded from the applicability of the SCR Act and not debentures which are separate category of securities in the definition contained in sec.2(h) of SCR act.