CAN A COMPANY RAISE ₹24000 CRORES THROUGH PRIVATE PLACEMENT OF OPTIONALLY FULLY CONVERTIBLE DEBENTURES (OFCDS) WITHOUT SEBI’S CONSENT ?

 CAN A COMPANY RAISE  ₹24000 CRORES

 THROUGH PRIVATE PLACEMENT OF

 OPTIONALLY FULLY CONVERTIBLE

 DEBENTURES (OFCDS) WITHOUT SEBI’S

 CONSENT ?

SEBI V. SAHARA INDIA REAL ESTATE CORPORATION LTD. & ORS.

FACTS OFF THE CASE

Two Sahara group companies — Sahara India Real Estate Corporation Ltd. (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL) — raised approximately ₹24,000 crore from around 3 crore investors between 2008–2009.

No public listing. No SEBI approval. Just promises of high returns — wrapped in trust and paperwork.

But when SEBI started asking questions, Sahara called it “a private arrangement.”

OUTSIDE SEBI’S REGULATORY JURISDICTION

They issued Optionally Fully Convertible Debentures (OFCDs), claiming these were “private placements” and therefore outside SEBI’s regulatory jurisdiction.

RED HERRING PROSPECTUSES (RHPS)

The companies filed Red Herring Prospectuses (RHPs) with the Registrar of Companies (RoC) under the Companies Act, 1956, not with SEBI.

LEGAL QUESTION

Can a company raise funds from the public under the guise of a “private placement” without complying with SEBI regulations and disclosure norms?

SEBI’s RETALIATION

The offer was made to more than 50 investors, which automatically makes it a public issue under Section 67(3).

Sahara failed to comply with SEBI’s public issue norms — no listing, no prospectus, and no investor protection mechanism.

Hence, the money raised violated the SEBI Act, 1992, Companies Act, 1956, and ICDR Regulations, 2009.

DEFENSE BY SAHARA

Claimed that the issue was private, offered only to “friends, associates, group employees, and loyal customers.”

Asserted that since RHPs were filed with the RoC, SEBI had no jurisdiction.

Also claimed that the funds were refunded to investors.

SUPREME COURT’S VERDICT

The Supreme Court upheld SEBI’s jurisdiction and ruled:

Sahara had illegally issued Optionally Fully Convertible Debentures (OFCDs) to millions of people, violating public issue rules under the Companies Act, 1956 and SEBI Act, 1992.

The  Supreme Court ordered Sahara to refund over ₹24,000 crores with interest to investors through SEBI — marking a historic assertion of SEBI’s regulatory power.

KEY TAKEAWAY:

 No  Company is above market regulation. If money is raised from the public — even indirectly — SEBI’s jurisdiction automatically applies.

which was in violation of  the SEBI Act, 1992, Companies Act, 1956, and ICDR Regulations, 2009.

R V SECKAR , FCS , LLB 79047 19295