Sahara vs Sebi Case

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LEGAL ASPECTS OF MANAGEMENT ASSIGNMENT
SAHARA INDIA REAL ESTATE CORPORATION LIMITED AND OTHERS VS SECURITIES AND EXCHANGE BOARD INDIA AND ANOTHER

Presented by: Ateendra Mishra Section a Roll No.:48

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INTRODUCTION ABOUT THE CASE
On, 31st Aug, 2012, Supreme Court of India passed a landmark judgment wherein, the honorable court ordered business conglomerate and leading sports sponsor Sahara to refund more than $3 billion it collected from millions of small savers. It all started when in 2008 the two companies of the group Sahara India Real Estate Corporation Ltd. (SIRECL) and the Sahara Housing Investment Corporation Ltd. (SHICL) started raising funds through Red Herring Prospectus (RHPs), and had collected  Rs 17, 400 till March 13, 2008, &  Over Rs 7, 000 till October 16, 2009 In the meanwhile, SEBI i.e. Securities and Exchange Board of India, in Nov 2010, had restrained the above two companies from raising funds in the form of Optionally Fully Convertible Debentures (OFCD), against which in Dec 2010, Sahara got SEBI order stayed in Allahabad High Court. In Jan 2011, SEBI issued advertisements cautioning investors, in Apr 2011 Allahabad asked Sahara to go to the apex court. In May 2011, SC asks SEBI to continue its OFCD probe.

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In Jun 2011, SEBI asked the above mentioned two companies to refund back the money to the investors, in response to which Sahara in Jul 2011, appeals in Supreme Court stating that SEBI has no jurisdiction in the case. Supreme Court orders Sahara to approach the Securities Appellate Tribunal (SAT), in Oct 2011, SAT upholds the SEBI order. In Nov 2011, Sahara Challenges the SAT order obtains stay. But finally on 31st Aug, 2012 Honorable Supreme Court delivers the verdict against Sahara and asks the above mentioned two companies to pay the collected amount i.e. Rs 24, 400 Crore + 15% Interest to its 2.21 Crore investors.

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VIEW POINT OF THE PARTIES

 Securities and Exchange Board of India (SEBI)
SEBI was of the view that The OFCDs in question here constitute an offer to the public as they have been made to over 50 persons; the manner and the features of fund raising under the bond issues by the two companies suggest these issues are by no means ‘private'. What seems evident is that the two companies have been running a mass subscription solicitation from the public and the two companies do not fall under the entities specified in the second proviso to Sec. 67(3) which is the only exemption granted to the ‘Rule of 50' that defines offer to the public under the Companies Act. Therefore, the OFCDs issued by the two companies are public issues, and thus SEBI has a jurisdiction over the whole issue and needs SEBI’s approval before the issue of such bonds.

 Sahara India Real State Corporation and Others
Sahara said that the two companies have made ‘private placements' of OFCDs to persons related or associated with the Sahara India Group, and therefore these issuances are not ‘public' issues.

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Further, it said OFCDs are neither shares nor debentures in its strict sense and are in the nature of ‘hybrid' as defined in the Companies Act, 1956.

It also argued that SEBI does not have any jurisdiction on such hybrid issues as the term ‘hybrid' is not included in the definition of ‘securities' under the SEBI Act or in the Securities Contracts (Regulation) Act, 1956 (SCR Act). However, SEBI concluded that OFCDs belong to the family of debentures covered by the definition of the term ‘securities' in Sec. 2 (h) of the SCR Act. That an OFCD is a hybrid therefore does not detract from the fact that an OFCD is by definition, design and its characteristics, intrinsically and essentially a ‘debenture'.

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WHAT ACTUALLY OPTIONALLY FULLY CONVERTIBLE DEBENTURES (OFCD) ARE? OFCD is a type of debt security where the option is given to the holder if he wants to convert his debenture into equity share after stipulated time.

This instrument does not yield interest in the...
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