Financial Scams PRESENTED BY: NITESH BHATI
Disclaimer This
Presentations is intended for open discussion/debate and educational purposes only. Statements of fact stated, are based on information available on public domain. The authenticity of the same have not been check by the presenter.
Sahara India Pariwar Investor fraud case* *Source: Wikipedia, Supreme Court order and various other website
Timelines – SAHARA Case
Dec 2010 Allahabad High Court
May 2011 Supreme Court
Nov. 2010 SEBI Interim Order Sep. 2009 Sahara Prime City Limited filed DRHP
Oct., 2011 SAT upheld order June, 2011 SEBI final order
Aug. 2012 Supreme Court order
Facts and Figures
Sahara India Real Estate Corporation Limited ('SIRECL') and Sahara Housing Investment Corporation Limited ('SHICL”)
issued Optionally Fully Convertible Debentures ('OFCDs')
by way of private placement
Red Herring Prospectus filed with the Registrar of Companies
Specifically indicated in the RHP that
they did not intend to get their securities listed on any recognized stock exchange.
only those persons to whom Information Memorandum was circulated and/or approached privately who were associated/affiliated or connected in any manner with Sahara Group, would be eligible to apply.
Facts and Figures…… SHICL
SIRECL Date of commencement of issue Total amount collected till April 13, 2011 Total
25.4.2008
20.11.2009
Rs. 19,400.87 Crs
Rs.6,380.50 Crs
Less: Premature redemption
Rs.25,781.37 Crs (Number of Investors 3.07 Crs..) Rs. 1,744.34 Crs Rs.7.30 Crs
Total Balance on August 31, 2011
Rs.1,751.64 Rs.6,373.20 Crs
Total
Rs. 17,656.53 Crs
Rs.24,029.73 Crs. (Number of Investors 2.96 Crs.)
Questions of Law
OFCDs issued by Saharas fall within definition of ‘securities’ under Section 2(h) of SCR Act.
Whether, the issue was a private placement or public issue under section 67(3) of the Companies Act, 1956
Whether, legal obligation to list the securities on a recognized stock exchange under setion 73 of the Companies Act, 1956
Whether, SEBI has the powers to administer under Section 55 A of the companies Act, 1956
Whether, Sahara have violated the Companies Act, DIP Guidelines and ICDR 2009
OFCDs
OFCDs issued by Saharas have the characteristics of shares and debentures and fall within the definition of Section 2(h) of SCR Act.
Private placement or Public issue
By virtue of the first proviso to Section 67(3), if an offer of securities is made to fifty or more persons, it would be deemed to be a public issue, even if it is of domestic concern or proved that the shares or debentures are not available for subscription or purchase by persons other than those received the offer or invitation.
Information Memorandum was issued through 10 lac agents and more than 2900 branch offices to more than 3 crores persons inviting them to subscribe to the OFCDs which amounted to invitation to public
Listing is mandatory
Section 73(1) of the Act casts an obligation on every company intending to offer shares or debentures to the public to apply on a stock exchange for listing of its securities. Such companies have no option or choice but to list their securities on a recognized stock exchange, once they invite subscription from over forty nine investors from the public.
Sahara having failed to make application for listing on any of the recognized stock exchange, become legally liable to refund the amount collected from the subscribers in pursuance to their RHPs, along with interest as provided under Section 73(2) of the Act.
SEBI’s Power under Companies Act
Section 55A: The provisions contained in sections-----, so far as they relate to issue and transfer of securities and non-payment of dividend shall, -
(a) in case of listed public companies ; (b) in case of those public companies which intend to get their securities listed on any recognised stock exchange in India, be administered by the Securities and Exchange Board of India.
Supreme Court Opinion: SEBI has the powers to administer the provisions referred to in the opening part of Section 55A which relates to issue and transfer of securities and non-payment of dividend by public companies like Saharas, which have issued securities to fifty persons or more, though not listed on a recognized stock exchange, whether they intended to list their securities or not.
Violation of the Companies Act, DIP Guidelines and ICDR 2009
Sahara have violated the DIP Guidelines and ICDR 2009 and by not complying with the disclosure requirements and investor protection measures for public, and also violated Section 56 of the Companies Act which may attract penal provisions.
Hon'ble Supreme Court Judgment
Supreme Court find on facts as well as on law, no illegality in the proceedings initiated by SEBI and the order passed by SEBI (WTM) dated 23.6.2011 and SAT dated 18.10.2011 are accordingly upheld.
Even though Supreme Court hope that all the subscribers are genuine, and so also, the subscription amount, it would be necessary to modify the operative part of the order issued by the SEBI which came to be endorsed by the SAT, so that the purpose of law is not only satisfied but is also enforced.
Hon'ble Supreme Court: Order
Saharas (SIRECL & SHICL) would refund the amounts collected with interest @ 15% per annum to SEBI
Saharas are also directed to furnish the details with supporting documents to establish whether they had refunded any amount to the persons who had subscribed
Documents produced by Saharas are not found genuine or acceptable, then the SEBI (WTM) would proceed as if the Saharas had not refunded any amount
Saharas are directed to furnish all documents to SEBI so as to enable it to ascertain the genuineness of the subscribers as well as the amounts deposited,
Hon'ble Supreme Court: Order….
SEBI (WTM) if, after the verification of the details furnished, is unable to find out the whereabouts of all or any of the subscribers, then the amount collected from such subscribers will be appropriated to the Government of India.
Hon'ble Supreme Court also appoints Mr. Justice B.N. Agrawal, a retired Judge of this Court to oversee whether directions issued by this Court are properly and effectively complied with by the SEBI (WTM) from the date of this order.
