The legal battle between market regulator Sebi and Sahara India is expected to enter a decisive round in the New Year. The Supreme Court is soon expected to hear a review petition by the Sahara group, while Sebi is reportedly preparing to move the apex court in case Sahara fails to deposit the court-directed amount with the regulator.
Over the next few months the battle is sure to involve some of the country's top legal minds. TOI reviewed court papers, opinions given by former judges, and orders of some of the cases that dealt with similar cases to try and discern what's at the core of the dispute and how it has been handled. Sebi and Sahara officials declined to comment on TOI's queries, saying the matter was sub judice.
At the core of the dispute is whether Sebi or the ministry of corporate affairs (MCA) has jurisdiction over fund raising activities by two unlisted Sahara group entities, Sahara India Real Estate Corp (SIRECL) and Sahara Housing Investment Corp (SHICL), through the private placement route. Also, whether raising money from more than 50 people, even if through the private placement route, is construed as public offering or not, because all public offers require Sebi's permission.
For perspective, here are the facts of the case. Sahara started the offering in 2001 and closed it in 2007. Subsequently, it submitted its prospectus giving details of 1.97 crore investors to the concerned Registrar of Companies (RoC). The number of investors, above 50, was not objected to by the authorities. Then in 2008, the two companies took permissions again from two different RoCs to raise funds through optionally fully convertible debentures (OFCDs), through the private placement route and raised money from about three crore investors, all of whom were claimed to be people associated with the Sahara group.
In 2009, when Sahara Prime City, one of the group companies approached Sebi to go public, the regulator suddenly asked SIRECL and SHICL to refund all the OFCD money to investors. That began the battle.
In April 2010, Sebi forwarded some OFCD investor complaints to RoCs in UP and Maharashtra. In its letter Sebi said that these Sahara companies were unlisted and had not filed prospectus for raising funds with it, and requested the two RoCs "for examination (of the complaints) and necessary action"
Around this time, in another case relating to an unlisted entity, Sebi said that its primary mandate was over listed entities, and requested MCA to look into allegations against unlisted companies. Around the same time, backed by inputs from an executive director of Sebi, MoS finance Namo Narayan Meena told the LokSabha that privately placed debentures by unlisted companies, issued under the Companies Act, were under the regulatory purview of MCA and not Sebi.
In this period, four former judges, V N Khare and A H Ahmadi, both former SC chief justices, S P Kurudkar, who was also in the SC and C Achutan, who was a member of SAT, gave separate opinions saying that MCA had the jurisdiction over OFCDs issued by SIRECL and SHICL.
In February 2011, law minister VeerappanMoily gave an opinion to MCA that the jurisdiction over the two Sahara companies was not of Sebi's but of MCA. Mohan Parasaran, additional solicitor general, also noted that Sebi had no jurisdiction over unlisted companies such as the two Sahara companies which don't intend to get listed. Ashok Nigam, another ASG, also held that the central government remains the regulating authority for the two Sahara companies, not Sebi. Parasaran also mentioned the contrary view of his colleague ParagTripathi who had agreed with Sebi's action and disagreed with the Law Ministry. Parasaran ended his opinion saying that he, however, agreed with the views of the Law Ministry.
Now, on the question of whether the OFCD offer to more than 50 people was a public issue, the SC has recently ruled that they come under Sebi's jurisdiction. However, in 2007 Sahara had reported that there were 1.97 crore investors for its first issue and no one had objected. In addition, post this discloser, two RoCs had allowed Sahara to issue fresh OFCD issues.
The flip-flop in the case raises some questions:
►If with government permission a business is done for 11 years, can the rules be changed and the entity punished with retrospective effect?
►Can a regulator give one statement in Parliament and after a few months give a contradictory statement through an affidavit in court?
►Can Sebi state through a letter to RoC that an entity is not under it and RoC should take action, but after seven months contradict itself and issue prohibitory orders against the same entity saying it was under its purview and not MCA, the nodal ministry for RoC?
In late 2011, Sebi and Sahara had their first showdown in the Allahabad high court. The battle then moved to the SC where in August 2012 Sahara was asked to refund about Rs 25,000 crore to its OFCD holders. Last week, Sahara moved the apex court again pleading that its total liability towards OFCD holders was only about Rs 2,620 crore and this was reducing steadily as the group was paying off the investors.
It also said that it has kept aRs 2,500 crore buffer for final verification.
An apex court bench has agreed to hear the petition on Monday, setting the stage for the next twist in this fascinating battle.
Over the next few months the battle is sure to involve some of the country's top legal minds. TOI reviewed court papers, opinions given by former judges, and orders of some of the cases that dealt with similar cases to try and discern what's at the core of the dispute and how it has been handled.
