➢ SEBI vs.

SAHARA {VERY IMP CASE}

Facts:

1. Sahara Ltd. is an unlisted company engaged in real estate business which raised money
from 2 lakh investors in form of Optionally Fully Convertible Debentures in the year 2016
which went on till 2017.
2. SEBI claimed that in the form of Optionally Fully Convertible Debentures, Sahara India
Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation
Limited claim to have collected deposits from general public including cobblers, labourers,
artisans and peasants.
3. Around 23 million people, mostly from villages and small towns subscribed to this scheme
and invested about 24000 crores rupees. The Company targeted people from non-financial
background.
4. The matter came into light when a complaint was filed against the Company with SEBI for
violation of Section 42 of the Companies Act.

Issues and Judgement:

1. Whether SEBI has the power to investigate and adjudicate in this matter as per
Section 11 of the SEBI Act and Section 55 of 1956 Act.

Supreme Court held that SEBI does have the power to investigate and adjudicate in the matter
as SEBI Act 1992 is a special legislation bestowing SEBI with special powers to protect the
interest of the investors (Section 11) The Court laid emphasis on the legislative intent, the
statement of objective for the enactment of SEBI Act and incorporating sections under
Companies Act to delegate the special Powers to SEBI in the matter of issuance, allotment and
transfer of securities. SEBI has the power to administer public listed company and those
public companies which intends to get their securities listed on a recognised stock
exchange.

2. Whether the hybrid OFCD (Optionally Fully Convertible Debentures) falls within the
definition of Securities under the Companies Act.
OFCDs are kind of debentures which can be fully converted into shares at an expiry of a certain
period at pre-determined price if the debenture holders opt for a share. Supreme Court held that
though OFCDs issued by two companies are in nature of hybrid instrument, it does not cease
to be a security. Though the definition of securities under Section 2(h) of SCRA Act does not
contain the term hybrid instrument but it is an inclusive definition and the interpretation of
other marketable securities will include hybrid OFCDs as they were offered to millions of
people and therefore there is no question about the marketability of the instrument.

3. Whether the issuance of OFCD to millions of people to subscribe to the issue is a

private placement so as not to fall within the pursuit of SEBI Regulation.

Supreme Court held that although the intention of the company 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 the prescribed number of persons under the Companies Act. Therefore, it is breach
of Section 42 and it will be deemed to be a public offer compelling the company to comply
with SEBI regulations.

4. Whether listing provisions under the Companies Act mandatorily applies to all Public
Companies or depends upon the Company’s intention to get listed.

Sahara argued that listing requirements under the Companies Act is not Mandatory and applies
to only those companies who intends to get listed. No company can be forced to list itself on
the Stock Exchange as it will lead to violation of corporate autonomy. The SC rejecting this
contention held that as long as the law is clear and unambiguous any issue of securities to more
than the prescribed limit shows the intention of the Company to get listed. In addition, the
Court observed that the maxim Acta Exterior Indicant Interoria Secreta applies to Sahara
in all forms. Therefore, the court ordered Sahara to refund 25000 crores with 15% interest to
the investors within 3 months.

Private Placements - Recent Amendments 2018 (Only for Reading Purpose)