Background:
Sahara Housing Investment Corporation and Sahara India Real Estate Corporation planned to raise Rs 20,000 crores each through the issue of OFCDs (Optionally Fully Convertible Debentures). It issued a draft Red Herring Prospectus. The above companies have stated that they do not have any intention to list the OFCDs in any stock exchanges in India or in foreign countries. Issuer informed that since the company do not wish to get its securities listed on stock exchanges and since it is an unlisted one, the jurisdiction to deal with the issues will vest with the Central Government in pursuant to section 55 A ( c ) of the Act.Section 55 A of the companies Act describes the powers of Securities and Exchange Board of India.
Issues Involved
The main issue in this case whether SEBI is authorised to initiate any action against the company and if so , whether they should have been issued in pursuant to an offering document filed with SEBI. In case of issue ,transfer of securities and non-payment of dividend shall in case of
a) In case of listed public companies;
b) In case of public companies which aim to get their securities listed on any recognised stock exchange of India;
c) In any other case , be administered by the Central Government ( MCA).
According to section 67(3) of the Companies Act ,
· No invitation or offer shall be construed to be made to the public if the invitation or offer is not made to public but made to those persons to whom it has been sent .
· It could be regarded as a domestic concern of the individual receiving or making the invitation or the offer.
SEBI’s Perception to issue the Said OFCDs”
SEBI argued that modus operandi followed by the Sahara group was nothing but an indirect way of offering shares to public without adhering norms , without disclosing vital information , risk associated and not tailored to safeguard the investor’s interest.
SEBI argued that if the Companies like Sahara Group is allowed to raise capital from public by way of private placement , then it would be tantamount to ridicule to the whole gamut of capital market structure and all conventional mechanisms to safeguard investor’s interest.
SEBI issued a show cause notice to Sahara Groups why action should not be initiated against them which might include demanding the group to refund the money already received from investors.
Decision of the Allahabad High Court:
Allahabad High Court issued as stay against the decision of SEBI preventing Sahara Group to issue OFCDs
ü The OFCDs issued does not fall under the SEBIs purview as the Sahara Group is neither a listed company nor any intention to get it listed with SEBI.
ü MCA is already aware of the issue
ü Allahabad High Court viewed the SEBIs order is in infringement of fundamentals of natural justice and SEBIs sweeping order has really injured the civil rights and SEBI should not have passed such an order which is against the principles of natural justice.
DECISION OF THE SUPREME COURT :
The Supreme Court of India also seconded the view of the Allahabad High Court in this issue. It observed SEBI is having every right to ask details from Sahara Group on how OFCDs were being raised . Supreme Court also refused to stay the Sahara Group’s ongoing fund-mopping exercise.
Supreme Court also observed SEBI has the right to gather datas about investors details from Sahara Groups and also directed Allahabad High Court to dispose off the case expeditiously .
Supreme Court further observed that if it all , the investors make to decision to invest in the OFCDs offered by Sahara Group , then they would do the same at their own risk.
Supreme Court also directed the SEBI to issue a public advertisement warning the public the inherent risk associated in investing in such OFCDs .
Learning Lessons From Sahara Group OFCDs Case:
1. A private limited company or a public limited unlisted company can issue OFCDs as a private placement to less than 50 investors which have no intention to get it listed.
2. While offering OFCDs to the investors under private placement , the company should file an “Red Herring Prospectus “ with the Registrar of Companies concerned.
3. Thus , private limited companies or public unlisted companies can go to the public and collect funds by following the strategy pursued by SAHARA without listing or observing the strict guidelines issued by SEBI for collecting funds from public.
