Sahara India real estate Exch. cor. ltd. & Ors. VS Securities and Ech. Board of India

Case Name : Sahara India real estate Exch. cor. ltd. & Ors. VS Securities and Ech. Board of India

Author : Varnika Verma

CITATIONS

AIR 2013 SC 3829

MANU/SC/1192/2012

[2013] 117 SCL 338 (SC)

(2013) 2 SCC 733

2012 (12) SCALE 132

(2013) 1 SCC (LS) 452

BENCH

Justice D.K. Jain, Justice Surinder Singh Nijjar, Justice Ranjana Prakash Desai, Justice Jagdish Singh Khehar.

INTRODUCTION

The case is one of the landmark cases with reference to the power and jurisdiction of SEBI in the case of corporate fund raising. SEBI had claimed that in the form of Optionally Fully Convertible Debentures, Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited had collected deposits from general public including cobblers, labourers, artisans and peasants. Around 23 million people, mostly from villages and small towns subscribed to this scheme and invested about 24,000 crore rupees.

FACTS

1. Sahara India established 2 new companies namely Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation (SHIC) and registered them under the Companies Act, 1956
2. In the annual meeting a resolution was passed to raise funds through private placement of optionally fully convertible debentures (OFCD‘s) from the friends, associates, and family members of the Board of Directors and also through the circulation of an information memorandum to a few trusted investors.
3. In 2009, when a red herring prospectus for Sahara Prime City was submitted to SEBI for approval, SEBI noticed unusual fund raising activity in both the companies, afterwards SEBI also received a complaint that illegal means were being used by SHICL and SIRECL for issuance of OFCD‘s, an investigation was launched against Sahara India.
4. On receiving the irresponsible response from Sahara, SEBI passed an interim order, following this, Sahara filed a petition in the Court asking for a stay order, eventually the stay order was vacated and a final order was passed by SEBI.
5. Sahara appealed the SEBI order in the Supreme Court of India, questioning their jurisdiction in the matter and alleging a defamatory agenda on part of SEBI to destroy the market reputation of Sahara India.

ISSUES

Whether SEBI has the power to investigate and adjudicate in this matter as per Sec 11, 11A, 11B of SEBI Act and under Sec 55A of the Companies Act. Or is it the MCA which has the jurisdiction under Sec 55A (c) of the Companies Act?

Whether the hybrid OFCDs fall within the definition of “Securities” within the meaning of Companies Act, SEBI Act and SCRA so as to vest SEBI with the jurisdiction to investigate and adjudicate?

JUDGMENT

The Hon’ble Supreme Court of India ordered Sahara to refund the entire deposits collected by it through Red Herring Prospectus at an interest rate of 15% till the date of refund. It also authorized SEBI to take legal recourse in case the appellant (Sahara) fails to comply with the said order.