Supreme Court Judgment in Sahara India case _ Key Summary

The Supreme Court on 31st August, 2012 in its most anticipated judgment of recent times has directed the Sahara Group and its two group companies Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) to refund around Rs 17,400 crore to their investors within 3 months from the date of the order with an interest of 15%. The Court further asked SEBI to probe into the matter and find out the actual investor base who have subscribed to the Optionally Fully Convertible Debentures (OFCDs) issued by the two group companies SIRECL and SHICL.

Main points

Issue 1. 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.

What SC concludes

The Supreme Court held that SEBI does have power to investigate and adjudicate in this matter.

Issue 2. 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.

What SC concludes

The Supreme Court held that although the OFCDs issued by the two companies are in the nature of "hybrid" instruments, it does not cease to be a "Security" within the meaning of Companies Act, SEBI Act and SCRA.

Issue 3. Whether the issue of OFCDs to millions of persons who subscribed to the issue is a Private Placement so as not to fall within the purview of SEBI Regulations and various provisions of Companies Act.

What SC concludes

The Supreme Court went on to hold that although the intention of the companies was to make the issue of OFCDs look like a private placement, it ceases to be so when such securities are offered to more than 50 persons. Section 67(3) specifically mentions that when any security is offered to and subscribed by more than 50 persons it will be deemed to be a Public Offer and therefore SEBI will have jurisdiction in the matter and the issuer will have to comply with the various provisions of the legal framework for a public issue.