Sebi vs Sahara

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PUBLIC OFFER OF SECURITIES—AN ANALYSIS

T.V. GANESHAN
CS
Introduction
Section 67 of the Companies Act, 1956 contains the provisions wherein when an offer of shares or debentures to investors shall be construed as having been made to the public, meaning "public offering". According to the provisions, any offer of shares or debentures made to 50 persons or more will be considered a public offering, which will in turn require listing of the said shares or debentures on a recognised Stock Exchange in India. In case if a company does not want to come into the clutches of Regulatory Authorities and want to stay out of the provisions of this Section, then it should make distinct offerings of securities, with each such offering being made to less than 50 persons. In the wake of the probe into the modalities of raising funds by Sahara India Real Estate Corporation Ltd (SIRECL), as well as Sahara Housing Investment Corporation Ltd (SHICL), this Article captures the various provisions relating to public offering of securities according to the provisions of the Companies Act, 1956 and powers of SEBI. Case relating to Sahara

 (a)  Background
In July, 2008 Reserve Bank of India banned Sahara India Financial Corporation from accepting any deposits beyond 30th June, 2011 and also ordered the Company to pay back all investors by June 30th 2015. Two unlisted companies of Sahara Group namely SIRECL and SHICL were resorting to the practice of raising funds from the public in the form of unsecured loans in the guise of private placement through Optional fully convertible debentures (OFCDs). As per records and reports, SIRECL has raised approximately Rs. 4843 crores as on 30th June, 2009 where as Sahara India Commercial Corporation Limited (SICCL) has raised approximately Rs.17,250 crores of unsecured debentures over a period of last 10 years and reportedly have 6.6 million as total investors. The contention of Sahara was that the issuance of OFCDs were made on private placement basis to friends, associates, group companies, workers/employees and other individuals who are associated / affiliated or connected in any manner with Sahara India Group of Companies and hence it is not an offer to the public. Further, they do not intend to get the OFCDs listed in India or abroad and therefore the issuance of OFCDs do not come under the purview of SEBI in terms of Section 55A of the Companies Act, 1956. Sahara has also filed a Red Herring prospectus with the Registrar of Companies concerned by adopting the process laid down under Section 60B of the Companies Act, 1956 with a clear intention that it does not intend to list its securities. Further, the Sahara companies on the basis of the legal opinion received by them, have stated and contended that they had passed the resolution under Section 81(1A) of the Companies Act, 1956 (which states that further shares may be offered to any persons in any manner whatsoever) and that their offer to a select set of persons should not be construed as a public offer. In the meanwhile,another Sahara Group company viz., Sahara Prime City in September, 2009 filed a draft red herring prospectus with the Securities Exchange Board of India (SEBI) for an Initial Public Offering. While processing the IPO, SEBI found that the issue of OFCD has violated the public issue norms. Since SEBI received certain complaints that SIRECL and SHICL had issued OFCDs in violation of statutory norms and rules and regulations, it has issued a notice to their Merchant Banker calling for certain information relating to the debentures. Thereafter, SEBI in November, 2010 through an Order banned the Sahara group companies and its promoters from raising money from the public for allegedly violating the public issue norms. Further, SEBI had forwarded the order to Ministry of Corporate Affairs (MCA) to take appropriate action.  (b)  Power of SEBI

Aggrieved by the SEBI’s Order, SIRECL filed a writ petition before the Hon’ble Allahabad High...
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