Supreme Court of India
SAHARA INDIA REAL ESTATE CORPORATION LIMITED & ORS.versusSECURITIES AND EXCHANGE BOARD OF INDIA & ANR.
- Citation
- 2012 INSC 367
- Decided
- 31 August 2012
- Disposal
- Dismissed
- Bench
- K S RADHAKRISHNAN
Holding
SEBI has jurisdiction to administer the provisions of the Companies Act relating to issue and transfer of securities by public companies that have issued securities to fifty or more persons, and such companies are mandatorily required to list their securities on a recognized stock exchange.
Summary
The Supreme Court dismissed appeals by Sahara India Real Estate Corporation Ltd. and Sahara Housing Investment Corporation Ltd. against SEBI's order to refund over Rs. 17,400 crores collected through Optionally Fully Convertible Debentures (OFCDs). The Court held that the OFCDs were public issues, not private placements, as they were offered to more than 50 persons, triggering mandatory listing under Section 73 of the Companies Act. SEBI had jurisdiction under Section 55A(b) to administer the issue and transfer of securities, even for unlisted companies that issued securities to 50 or more persons. The Court found that Sahara violated disclosure requirements, DIP Guidelines, and ICDR Regulations, and failed to list the securities. The Court upheld SEBI's direction to refund the money with 15% interest and appointed a retired Supreme Court judge to oversee compliance. The appeals were dismissed with directions for refund and verification of subscribers.
Issues considered
- Whether SEBI has jurisdiction under Section 55A(b) of the Companies Act to administer provisions relating to issue and transfer of securities by public companies that have issued securities to fifty or more persons without listing.
- Whether the offer of OFCDs by Sahara companies to fifty or more persons constitutes a public issue under Section 67(3) of the Companies Act.
- Whether Section 73 of the Companies Act mandates listing of securities when an offer is made to the public, including when made to fifty or more persons.
- Whether OFCDs are 'securities' under the Securities Contracts (Regulation) Act, 1956 and whether SEBI has jurisdiction over hybrid securities.
- Whether Sahara violated the DIP Guidelines and ICDR Regulations by not complying with disclosure and investor protection requirements.
- Whether the Unlisted Public Companies (Preferential Allotment) Rules, 2003 override the proviso to Section 67(3) and Section 73 of the Companies Act.
- Whether Section 28(1)(b) of the SCR Act excludes OFCDs from the definition of securities.
- Whether SEBI can exercise powers under Sections 11, 11A, 11B of the SEBI Act and Regulation 107 of ICDR 2009 over unlisted public companies that have issued securities to fifty or more persons.
- Whether Sahara is liable to refund the money collected with interest under Section 73(2) of the Companies Act.
- Whether Sahara's conduct attracts civil and criminal liability under various provisions of the Companies Act.
Legislation cited
- Companies Act, 1956s. 117A, s. 117B, s. 117C, s. 55A, s. 56, s. 60B, s. 62, s. 628, s. 629, s. 63, s. 67, s. 68, s. 68A, s. 73, s. 81
- Securities and Exchange Board of India Act, 1992s. 11, s. 11A, s. 11B, s. 11C, s. 15Z
- Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000
- Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009s. 107, s. 111
- Securities Contracts (Regulation) Act, 1956s. 28, s. 2(h)
- Unlisted Public Companies (Preferential Allotment) Amendment Rules, 2011
- Unlisted Public Companies (Preferential Allotment) Rules, 2003
Subjects
securitiesOFCDpublic issueprivate placementSEBI jurisdictionlistinginvestor protectionCompanies ActSEBI ActSCR Acthybrid securitiesdebenturesrefundinterest
Judgment
(2012] 12 S.C.R. 1
SAHARA INDIA REAL ESTATE CORPORATION LIMITED A
& ORS.
v.
SECURITIES AND EXCHANGE BOARD OF INDIA & ANR.
(Civil Appeal No. 9813 of 2011)
AUGUST 31, 2012 B
[K.S. RADHAKRISHNAN AND JAGDISH SINGH
KHEHAR, JJ.]
Companies Act, 1956 - s. 55A - Allegation of pre- c
planned attempt to bypass the regulatory (and administrative)
authority of SEBI - Invitation to subscribe to Optionally Fully
Convertible Debentures (OFCDs) - Inquiries made by the
Investigating Authority - Powers of the Securities and
Exchange Board of India ('SEBI? u/s.55A(b) of the Companies 0
Act to administer various provisions relating to issue and
transfer of securities to the public by listed companies or
companies which intend to get their securities fisted on any
recognized stock exchange in India - Discussed.
Companies Act, 1956 - s. 73 r/w s. 60B - Issue as to E
whether Optionally Fully Convertible Debentures (OFCDs)
offered by the appellants should have been listed on any
recognized stock exchange in India, being Public Issue under
s. 73 r/w s. 60B and allied provisions of the Companies Act -
Discussed. F
Securities and Exchange Board of India (Disclosure and
Investor Protection) Guidelines, 2000 - Securities and
Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009 - Violation of DIP
Guidelines and various regulations of the ICDR 2009 - If G
made out.
Securities Contracts (Regulation) Act, 1956 - Issue as
to whether Optionally Fully Convertible Debentures (OFCDs)
1 H
2 SUPREME COURT REPORTS [2012] 12 S.C.R.
A issued are securities under the SCR Act - Discussed.
In the instant appeals, questions concerning the
powers of the Securities and Exchange Board of India
('SEBI') under Section 55A(b) of the Companies Act, 1956
to administer various provisions relating to issue and
8
transfer of securities to the public by listed companies or
companies which intend to get their securities listed on
any recognized stock exchange in India and also the
question whether Optionally Fully Convertible
Debentures ('OFCDs') offered by the appellants should
C have been listed on any recognized stock exchange in
India, being Public Issue under Section 73 read with
Section 60B and allied provisions of the Companies Act
and whether they had violated the Securities and
Exchange Board of India (Disclosure and Investor
D Protection) Guidelines, 2000 ['DIP Guidelines'] and
various regulations of the Securities and Exchange
Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009 ['ICDR 2009'], and also
whether OFCDs issued are securities under the
E Securities Contracts (Regulation) Act, 1956 ['SCR Act'],
were raised.
Much of the arguments centered round the scope
and interpretation of various provisions of the Companies
Act, SEBI Act and the rules and regulations framed
F thereunder, relating to matters concerning the issue of
securities, powers of SEBI, Central Government, Ministry
of Corporate Affairs (MCA), Roe. Powers conferred on
SEBI, Central Government, (MCA), RoC etc. under the
Companies Act, SEBI Act also came up for consideration.
G
Dismissing the appeals, the Court
HELD:
Per Radhakrishnan. J. [With Khehar, J. concurring]
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 3
AND EXCH. BOARD OF INDIA
1. QUESTIONS OF LAW RAISED WITH ANSWERS A
Whether SE81 has jurisdiction or power to administer
the provisions of Sections 56, 62, 63, 67, 73 and the
related provisions of the Companies Act, after the
insertion of Section 55A(b) w.e.f. 13.12.2000, by the
8
Companies (Amendment) Act, 2000, so far as it relates to
issue and transfer of securities by listed public
companies, which intend to get their securities listed on
a recognized stock exchange and. public companies
which have issued securities to fifty persons or more
without listing their securities on a recognized stock C
exchange.
Answer: SE81 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- D
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.
E
Whether the public companies referred in question
no. (a) is legally obliged to file the final prospectus under
Section 608(9) with SE81 and whether Section 608, as it
is, falls under Section 55A of the Companies Act.
Answer: Saharas were legally obliged to file the final F
prospectus under Section 608(9) with SE81, failure to do
so attracts criminal liability.
Whether Section 67 of the Companies Act implies
that the company's offer of shares or debentures to fifty G
or more persons would ipso facto become a public issue,
subject to certain exceptions provided therein and the
scope and ambit of the first proviso to Section 67(3) of
the Act, which was inserted w.e.f. 13.12.2000 by the
Companies (Amendment) Act, 2000.
H
4 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Answer: First proviso to Section 67(3) casts a legal
obligation to list the securities on a recognized stock
exchange, if the offer is made to fifty or more persons,
which Saharas have violated which may attract the penal
provisions contained in Section 68 of the Act.
8 What is the scope and ambit of Section 73 of the
Companies Act and whether it casts an obligation on a
public company intending to offer its shares or
debentures to the public, to apply for listing of Its
securities on a recognized stock exchange once it invites
C subscription from fifty or more persons and what legal
consequences would follow, if permission under sub-
section (1) of Section 73 is not applied for listing of
securities.
0 Answer: Section 73 of the Act casts an obligation on
a public company to apply for listing of its securities on
a recognized stock exchange, once it invites subscription
from fifty or more persons, which Saharas have violated
and they have to refund the money collected to the
E investors with interest.
What is the scope and ambit of DIP (Guidelines) and
ICDR 2009 and whether Sahara had violated the various
provisions of the DIP (Guidelines) and ICDR 2009, by not
complying with the disclosure requirements or investor
F protection measures prescribed for public issue under
DIP (Guidelines) and ICDR 2009, thereby violating Section
56 of the Companies Act.
Answer: Saharas have violated the DIP Guidelines
and ICDR 2009 and by not complying with the disclosure
G requirements and investor protection measures for
public, and also violated Section 56 of the Companies Act
which may attract penal provisions.
Whether Rules 2003 framed by the Central
H Government under Section 81(1A) of the Companies Act
..
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 5
AND EXCH. BOARD OF INDIA
read with Section 642 of the Act are applicable to any A
offer of shares or debentures to fifty or more as per the
first proviso to sub-section (3) of Section 67 of the
Companies Act and what is the effect of UPC (PA)
Amendment Rules 2011 and whether it would operate
only prospectively making it permissible for Saharas to B
issue OFCDs to fifty or more persons prior to 14.12.2011.
Answer: 2003 Rules or the 2011 Rules cannot
override the provisions of Section 67(3) and Section 73,
being subordinate legislations, 2003 Rules are also not
applilcable to any offer of shares or debentures to more C
than forty nine persons and are to be read subject to the
proviso to Section 67(3) and Section 73(1) of the
Companies Act.
Whether after the insertion of the definition of D
'securities' in Section 2(45AA) as "including hybrids" and
after insertion of the separate definition of the term
"hybrid" in Section 2(19A) of the Act, the provision of
Section 67 would apply to OFCDs issued by Saharas and
what is the effect of the definition clause 2(h) of SCR Act E
on it.
Answer: OFCDs issued by Saharas have the
characteristics of shares and debentures and fall within
the definition of Section 2(h) of SCR Act. The definition
of 'securities' under Section 2(45AA) of the Companies F
Act includes 'hybrids' and SEBI has jurisdiction over
hybrids like OFCDs issued by Saharas, since the
expression 'securities' has been specifically dealt with
under Section 55A of the Companies Act.
G
Whether OFCDs issued by Saharas are convertible
bonds falling within the scope of Section 28(1)(b) of the
SCR Act, therefore, not 'securities' or, at any rate, not
listable under the provisions of SCR Act.
H
6 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Answer: Section 28(1)(b) of the SCR Act indicates
that it is only convertible bonds and share/warrant of the
type referred to therein, which are excluded from the
applicability of the SCR Act and not debentures, which
are separate category of securities in the definition
B contained in Section 2(h) of SCR Act. Contention of
Saharas that OFCDs issued by them are convertible
bonds issued on the basis of the price agreed upon at
the time of issue and, therefore, the provisions of SCR
Act, would not apply, in view of Section 28(1)(b) cannot
C be sustained.
Whether SE81 can exercise its jurisdiction under
Sections 11(1), 11(4), 11A(1)(b) and 118 of the SE81 Act
and Regulation 107 of ICDR 2009 over public companies
who have issued shares or debentures to fifty or more,
D but have not complied with the provision of Section 73(1)
by not listing its securities on a recognized stock
exchange.
Answer: SE81 can exercise its jurisdiction under
E Sections 11(1), 11(4), 11A(1)(b) and 118 of SE81 Act and
Regulation 107 of ICDR 2009 over public companies who
have issued shares or debentures to fifty or more, but
not complied with the provisions of Section 73(1) by not
listing its securities on a recognized stock exchange.
F Scope of Section 73(2) of the Companies Act
regarding refund of the money collected from the Public.
Answer: Saharas are legally bound to refund the
money collected to the investors, as provided under
Section 73(2) of the Companies Act read with Rule 40 of
G the Companies (Central Government's) General Rules
and Forms, 1956 and the SEBI has the power to enforce
those provisions.
Civil and Criminal liability under the various
H provisions of the Companies Act.
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 7
AND EXCH. BOARD OF INDIA
Answer: Saharas' conduct invites civil and criminal A
liability under various provisions like Sections 56(3), 62,
68, 68A, 73(3), 628, 629 and so on. [Paras 52 and 116] [57-
A-H; 58-A-H; 59-A-B; 100-G-H; 101-A-H; 102-A-H; 103-A]
CONCLUSIONS:
B
2.1. The OFCDs issued by Saharas were public issue
of debentures, hence securities. Once there is an
intention to issue shares or debentures to the public, it
is/was obligatory to make an application to one or more
recognized stock exchanges, prior to such issue. c
Registration of Red Herring Prospectus (RHPs) by the
Office of the Registrar does not mean that the mandatory
provisions of Sections 67(3), 73(1) and DIP Guidelines be
not followed. Saharas could not have filed RHP or any
prospectus with the Registrar of Companies RoC,
0
without submitting the same to SEBI under Clauses 1.4,
2.1.1. and 2.1.4 of DIP Guidelines. Unlisted companies like
Saharas when made an offer of shares or debentures to
fifty or more persons, it was mandatory to follow the legal
requirements of listing their securities. Once the number E
forty nine is crossed, the proviso to Section 67(3) kicks
in and it is an issue to the public, which attracts Section
73(1) and an application for listing becomes mandatory
which fall under the administration of SEBI under Section
55A(1 ){b) of the Companies Act. [Para 117] [103-A-E]
F
2.2. SEBI has a duty under Section 11A of the SEBI
Act to protect the interests of investors in securities either
listed or which are required to be listed under the law or
intended to be listed. Under Section 11 B, SEBI has the
power to issue appropriate directions in the interests of G
investors in securities and securities market to any
person who is associated with securities market. [Para
118] [103-E-F]
2.3. SEBI Act is a special law, distinct iji form, but
related to the Company Law, 1956. There is' a purpose H
8 SUPREME COURT REPORTS [2012) 12 S.C.R.
A and object behind establishing a body like SEBI under
the SE81 Act. The impugned orders were issued by SE81
in exercise of its powers conferred under Sections 11,
11A and 118 of SE81 Act and Regulations 107 of ICDR
2009. DIP Guidelines did apply to both listed and unlisted
B companies. Clause 2.1.1 of DIP Guidelines had made it
mandatory to file draft prospectus only before SE81, not
before the Central Government. Obligation was also cast
on initial public offerings by unlisted companies and the
issue of OFCDs was a public issue under Regulation 1.2.1
C (xxiii) which also indicated that DIP Guidelines would
apply to Saharas as well. Issuing of convertible
debentures in violation of those guidelines gives ample
powers on SE81 to pass orders under Sections 11A and
118 of the SE81 Act as well as Regulation 107 of ICDR
2009 and direct refund of the money to investors. [Para
0
119) [103-G-H; 104-A-C]
2.4. SE81, in the facts and circumstances of the case,
has rightly claimed jurisdiction over the OFCDs issued by
Saharas. Saharas have no right to collect Rs.27,000
E crores from three million (3 crore investors) without
complying with any regulatory provisions contained in
the Companies Act, SE81 Act, Rules and Regulations
already discussed. MCA, it is well known, does not have
the machinery to deal with such a large public issue of
F securities, its powers are limited to deal with unlisted
companies with limited number of share holders or
debenture holders and the legislature, in its wisdom, has
conferred powers on SE81. Therefore, on facts as well as
on law, no illegality is found in the proceedings initiated
G by SE81 and the order passed by SE81 (WTM) dated
23.6.2011 and SAT dated 18.10.2011 are accordingly
upheld. [Para 120) [104-C-F]
Life Insurance Corporation of India v. Escorts Ltd. & Ors.
(1986) 1 SCC 264: 1985 (3) Suppl. SCR 909; Union of India
H v. Allied International Products Ltd. & Anr. (1970) 3 SCC 594:
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 9
AND EXCH. BOARD OF INDIA
1971 (2) SCR 661; Kalpana Bhandari v. Securities and A
Exchange Board of India (2005) 125 Comp. Cases 804
(Born.); Society for Consumers and Investment v. Union of
India and others - Delhi High Court in W.P.(C) No.15467 of
2006; Kunamkulam Paper Mills Ltd. & Ors. V. Securities and
Exchange Board of India & Others- Kerala High Court in Writ B
Petition (C) No. 19192 of 2003; Commissioner of Income
Tax, Gujarat v. Girdhardas and Co. Private Ltd. AIR 19.67 SC
795: 1967 SCR 777; Hindustan Lever Ltd. v. Ashok Vishnu
Kate and Ors. (1995) 6 sec 326: 1995 (3) Suppl. SCR 702;
Delhi Judicial Services Association v. State of Gujarat AIR c
1991 SC 2176: 1991 (3) SCR 936; S. Sundaram Pillai & Ors.
v. V.R. Pattabiraman & Ors. (1985) 1 SCC 591: 1985 (2)
SCR 643; Raymonds Synthetics Ltd. & Ors. v. Union of India
& Ors. (1992) 2 sec 255: 1992 (1) SCR 481; Sudhir
Shanti/al Mehta v. Central Bureau of Investigation (2009) 8 D
SCC 1: 2009 (12) SCR 682 and Naresh K. Aggarwala & Co.
v. Canbank Financial Services Ltd. and Anr. (2010) 6 SCC
178: 2010 (6) SCR 1 - referred to.
In re. Nanwa Gold Mines Ltd. (1955) 1WLR1080; Young
v. Bristol Aeroplane Company Ltd. 1945 PC 163 (HL); E
Dilworth v. Commissioner of Stamps (1999) AC 99; Gissing
v. Gissing (1971) 1 AC 886 and Crofter Hand Woven Harris
Tweed Co. Ltd. v. Veitch [1942] AC 435 - referred to.
Bennion on Statutory Interpretation, 5th Edn., p. 1104 - F
referred to.
Case Law Reference:
1985 (3) Suppl. SCR 909 referred to Para 34
1971 (2) SCR 661 referred to Para 34 G
(1955) 1 WLR 1080 referred to Para 34
(2005) 125 Comp. referred to Para 38
Cases 804 (Born.)
H
10 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 1945 PC 163 (HL) referred to Para 42
1967 SCR 777 referred to Para 53
1995 (3) Suppl. SCR 702 referred to Para 68
(1999) AC 99 referred to Para 68
B
1991 (3) SCR 936 referred to Para 68
1985 (2) SCR 643 referred to Para 70
(1971) 1 AC 886 referred to Para 94
c
[1942] AC 435 referred to Para 94
1992 (1) SCR 481 referred to Para 97,
115
D 2009 (12) SCR 682 referred to Para 110
2010 (6) SCR 1 referred to Para 110
Per Khehar. J. [with Radhakrishnan, J. concurring]
CONCLUSIONS:
E
1. Was the invitation to subscribe to OFCDs, by
SIRECL and SHICL, by way of private placement (as
claimed by the appellant-companies), or by way of an
invitation to the public (as counter-claimed by the SEBI)?
F The first perspective: SEBI is statutorily empowered
under sections 11 (2)(i) and (ia), as well as, 11 (2A) of the
SEBI Act, to call for information. The appellant-companies
were, therefore, statutorily obliged to furnish the
information sought. The information sought by SEBI from
G the appellant-companies, would have led to a firm and
clear factual conclusion, whether the OFCDs issued by
SIRECL and SHICL were by way of "private placement",
or by way of an invitation "to the public". The best legal
minds in this country have guided and represented the
H appellant-companies at all stages, right from the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 11
AND EXCH. BOARD OF INDIA
beginning. There can therefore be no doubt, that the A
particulars sought by the SEBI, were not furnished by the
appellant-companies, on the basis o( considered legal
advice. But then, there are legal consequences, for such
considered withholding of information. Based on section
114 of the Indian Evidence Act, and more particularly the s
illustrations thereto, SEBI ought to have drawn the
obvious presumption against the appellant-companies.
The material sought by the SEBI from the appellant-
companies, thought available with them, must be deemed
to have been consciously withheld, as the same if c
disclosed, would have been unfavourable to the
appellant-companies. Details sought by the SEBI from
the appellant-companies included particulars of the
application forms circulated, the number of application
forms received, the amount of subscription deposited, D
the number and list of allottees, the number of OFCDs
issued, the value of their allotment, the date of dispatch
of debenture certificates, copies of board/committee
meetings, minutes of the meetings during which
allotment was approved. The information sought was
merely basic, and the denial of the same amounted to a E
calculated and deliberated denial of the same. The
aforesaid information had been sought, to determine
whether the OFCDs issued by SIRECL and SHICL were
by way of "private placement" (as claimed by the
appellant-companies), or by way of an invitation "to the F
public" (as counter claimed by the SEBI). Since the
appellant-companies willfully avoided to furnish the
aforesaid information (which ought to have been readily
available with them) to the SEBI, one is constrained to
conclude, that if the appellant-companies had furnished G
the said information, SEBI would have been able to
conclude the issue against the appellant-companies, i.e.,
that the OFCDs issued by the SIRECL and SHICL, were
by way of an invitation "to the public". [Paras 59, 72]
[169-E-F; 180-A-D; 181-E-H; 182-A-D] H
12 SUPREME COURT REPORTS (2012) 12 S.C.R.
A The second perspective: The appellant-companies
have stated, that the invitation/offer of the OFCDs were
made to friends, associates, group companies, workers/
employees and other individuals associated/affiliated or
connected in any manner with the Sahara India Group of
B Companies. This description cannot lead to the
inference, that the invitation/offer made by SIRECL or
SHICL had been made as a matter of domestic
arrangement between the persons making/receiving the
invitation/offer. As such, the OFCDs in question do not
c satisfy the requirement under clause (b} of section 67(3).
The appellant-companies had invited subscription for
their OFCDs through their respective RHPs. The RHPs
issued by the two companies clearly expressed, that the
subscribers could transfer the same to any other person,
subject to the terms and conditions and the approval of
0
the concerned company. In sum and substance,
therefore, the OFCDs/bonds under reference were
transferable, whereas, to satisfy the requirement under
clause (a) of section 67(3) the shares/debentures should
be non-transferable. Clearly, the OFCDs/bonds issued by
E the appellant-companies did not fall within the scope of
clauses (a) or (b) of section 67(3) of the Companies Act.
Therefore, per-se the contention of the appellant-
companies, that invitation to subscribers to the OFCDs
was by way of "private placement" is unacceptable. Even
F if for arguments sake, it is assumed that the OFCDs in
question fall in one or the other exempted categories,
defined through clauses (a) or (b) of section 67'"1), still in
so far as the present controversy is concerned, the same
would not constitute an exception to sub-sections (1) and
G (2) of section 67 of the Companies Act, because the
invitation/offer of OFCDs, in the present controversy, was
admittedly made to approximately 3 crore persons
(expressed as 30 million persons by the SAT in the
impugned order dated 18.10.2011) and was subscribed
H to by 66 lakh persons (mentioned as 6.6 million persons
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 13
AND EXCH. BOARD OF INDIA
in the SEBI (FTM) order dated 23.6.2011), in the case of A
OFCDs issued by the SIRECL. And it may be presumed,
that a similar number had subscribed to the OFCDs
issued by SHICL. In case of both the appellant-
companies therefore, the number of subscribers
exceeded manifolds, the upper limit of 49, expressed in B
the first proviso under section 67(3) of the Companies
Act. Consequently, even as a matter of law, it is not
possible to find favour with the contention advanced at
the behest of the appellant-companies, that the OFCDs
issued by the SIRECL and SHICL were by of "private c
placement". It is inevitable therefore, to accept the
contention of the SEBI, that the OFCDs issued by the
SIRECL and SHICL were by way of an invitation "to the
public". [Para 75] [186-C-H; 187-A-F]
The third perspective: SAT expressed the opinion, D
that the appellant-companies did not disclose in their
information memorandum, that the invitation/offer to
subscribe to the OFCDs was being issued to 3 crore
persons (expressed as 30 million persons by the SAT),
through 10 lakh agents, stationed in more than 2900 E
branch offices. And therefore, the real intent of the
appellant-companies remained unnoticed. The aforesaid
figures, according to the SAT, were by themselves
sufficient to conclude, that the appellant-companies had
approached the public through an advertisement, i.e., by F
way of an invitation "to the public", and not on "tap" basis
(i.e., by way of "private placement") as was being
suggested by the appellant-companies. On the basis of
the factual position, there can be no doubt, that SAT was
fully justified in drawing its conclusions, by taking into G
consideration the number of persons to whom the
invitation/offer to subscribe to the OFCDs was extended,
the number of agents associated by the appellant-
companies to solicit subscriptions and the number of
branch offices established for the purpose. If one were H
14 SUPREME COURT REPORTS [2012] 12 S.C.R.
A to add to the aforesaid consideration, the number cf
subscribers and the amount of subscription collected (all
of these numbers have been delineated during the
deliberations on the instant issue), the submissions
advanced on behalf of the appellant-companies can be
B visualized as not only unrealistic, but also preposterous.
[Paras 76, 78] [187-F-H; 188-A-B; 190-F-H; 191-A]
2. Whether the SAT was justified in ignoring the
factual conclusions drawn by the SEBI (FTM) on the
C basis of the inquiries made by the Investigating Authority,
on the ground of violation of the rules of natural justice?
Certain factual conclusions drawn by the SEBI (FTM)
were omitted from consideration by the SAT, on the basis
of the determination by the SAT, that the same had been
D drawn in violation of the rules of natural justice. The SAT
held, that the facts ascertained on an inquiry made by the
Investigating Authority appointed by the SEBI, were liable
to be ignored, because the appellant-companies had
neither been put to notice, nor their response thereon
E had been sought. However, in so far as the present
controversy is concerned, opportunities were repeatedly
provided by SEBI, to the appellant-companies, but they
remained adamant and obstinate. Based on one excuse
or the other, they declined to furnish the information
F sought. The appellant-companies did not dispute the
factual position (recorded by the SEBI (FTM) from the
details furnished by the Investigating Authority) before
the SAT. The two companies could have easily done so
by providing the details available with them. Even before
G the SAT, they did not come out with the correct factual
position. The material sought by SEBI from the two
companies, would have constituted a valid basis to
decipher and unravel the true factual position. To get
over the crisis, emerging from the facts discovered by the
H Investigating Authority, the appellant-companies relied on
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 15
AND EXCH. BOARD OF INDIA
technicalities of law, by canvassing their claim under the A
rules of natural justice. Numerous opportunities were
afforded to them to disclose information available with
them, but they choose to shun the liberty. The data
available with the appellant-companies was preserved as
a closely guarded secret. That position has remained B
unaltered throughout. A person who has repulsed earlier
opportunities (as the appellant-companies have), has no
right to demand any further opportunity under the rules
of natural justice. The appellant-companies cannot be
heard to say, that though they had consciously kept all C
the facts secret, they should have all the same been
given an opportunity under the rules of natural justice to
disclose the secrets? A party which has not been fair,
cannot demand a right based on a rule founded on
fairness. lnspite of the aforesaid conclusion, it would be
0
wrong to assume that the appellant-companies were
remediless. That remedy was, to place the correct factual
data, supported by documents in their custody before the
adjudicating authorities. That would have certainly
enabled SAT, in its appellate jurisdiction, to determine
whether the SEBI (FTM) was justified in drawing the E
factual inferences. The SAT was therefore, wholly
unjustified in ignoring the conclusions drawn by the SEBI
(FTM), on the basis of inquiries which were got
conducted by it, through its Investigating Authority. That
is so, specially because there are no allegations of bias, F
prejudice or malice against either the SEBI or the
Investigating Authority. To that extent, the order passed
by the SAT cannot be legally sustained. [Paras 79, 81]
[191-A-F; 196-A-H; 197-A]
G
3. Whether OFCDs issued by SIRECL and SHICL
which are admittedly "hybrids", are securities? If not so,
whether they would be amenable to the jurisdiction of the.
SEBI?
H
16 SUPREME COURT REPORTS [2012] 12 S.C.R.
A The first perspective: Since the definition of term
"securities" contained in section 2(45AA) of the
Companies Act, expressly includes "hybrids", it is
inevitable to conclude, that while interpreting the
provisions of Companies Act (including the administrative
B role assigned to SEBI under section 55A), "hybrids"
would be treated as a component of the term "securities".
This is so, because the term "securities" defined in
section 2(45AA) expressly includes "hybrids". In the
aforesaid view of the matter, irrespective of whether
c "hybrids" are included in the term "securities" under the
SEBI Act, while interpreting the provisions of the
Companies Act, even with reference to SEBI, "securities"
will include "hybrids". Therefore, the term "securities" in
section 55A of the Companies Act, even while being
examined with reference to the administrative powers
D assigned to SEBI thereunder, would include "hybrids".
[Para 86] [200-G-H; 201-A-C]
The second perspective: The term "hybrid" is not
defined under the SEBI Act, and consequently it may be
E appropriate to accept the same, as it has been defined
in the Companies Act, specially with reference to an issue
arising in respect of a public company. The term "hybrid"
as defined in the Companies Act means "any security"
having "the character of more than one type of security"
F and "includes their derivatives". For the purposes of the
SEBI Act, the term "securities" is accepted as it is defined
in section 2(h) of the SC(R) Act. Section 2(h) of the SC(R)
Act does not define the term "securities" exhaustively,
because clauses (i) to (iia) thereof, only demonstrate
G what may be treated as included in the definition of the
term "securities". And, clause (i) of section 2(h) of the
SC(R) Act, includes within the definition of the term
"securities" inter alia, "bonds", "debentures" and "other
marketable securities of a like nature". Since the term
H "hybrid" has been expressed as " ... means any
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 17
AND EXCH. BOARD OF INDIA
security ... " there can be no doubt that a "hybrid" is per- A
se a security. Moreover, the term "security" in its
definition includes " ... other marketable securities of a like
nature ... ". Therefore, even if for one or the other reason,
the OFCDs issued by the appellant-companies may not
strictly fall within the terms "debentures" or "bonds" B
(referred to in the definition of the term "securities") they
would nonetheless fall within the ambit of the expression
"securities of a like nature". The definition of the term
"hybrid" also explains that a "hybrid" has the character
of more than one kind of "security" or their "derivatives". c
The term "securities" also includes "derivatives".
Therefore, even if the definition of the term "hybrid" is
construed strictly, it would fall in the realm of "securities
of a like nature". And if, "securities of a like nature" are
"marketable", they would clearly fall within the expanse 0
of the term "securities" defined in section 2(h) of the
SC(R) Act (and therefore also, section 2(1)(i) of the SEBI
Act). The OFCDs/bonds issued by appellant-companies
were also clearly marketable, because the RHPs issued
by the two companies provided, that the subscribers E
would be at liberty to transfer the OFCDs/bonds, to any
other person. Although, the transfer of OFCDs/bonds was
to be subject to the terms and conditions prescribed, and
the approval of the appellant-companies. In the absence
of any prescribed terms and conditions barring transfer,
the OFCDs/bonds were clearly transferable, and F
therefore, "marketable". The term "marketable" simply
means, that which is capable of being sold. Allowing the
liberty to subscribers to transfer the OFCDs/bonds made
them "marketable". There is therefore, no room for any
doubt, that the term "hybrid", as defined in the G
Companies Act, would squarely fall within the term
"securities" as defined under section 2(1) (i) of the SEBI
Act (i.e., Section 2(h) of the SC(R) Act). In view of the
above it is clear, that "hybrids" are included within the
term "securities" not only for the purposes of Companies H
18 SUPREME COURT REPORTS [2012) 12 S.C.R.
A Act, but also, under the SEBI Act. SEBI therefore, would
have jurisdiction even over "hybrids", even under the
provisions of the SEBI Act. [Paras 87, 88) [201-F; 202-A-
C-D-H; 203-A-E]
B 4. Whether it is optional for a public company,
intending to offer shares or debentures to the public, to
have the same listed on a recognized stock exchange (as
is claimed by the appellant-companies) or is it mandatory
(as is being asserted by, the SEBI)?
c The appellant-companies invited subscriptions, by
making an offer "to the public". Since the invitation/offer
was made "to the public", the same could only have been
through one or more recognized stock exchange(s).
Once a public company adopts that course, which is
D actually a mandate of law emerging from section 73 of the
Companies Act, the concerned companies portfolio
changes that to a "listed" public company. So listing in
the present controversy was an inevitable consequence
of inviting subscriptions from the public. There can
E therefore be no hesitation to conclude, that the procedure
contemplated in section 73 of the Companies Act,
whenever a public company wishes to issue debentures
"to the public", is not optional but mandatory. The result
of the present deliberations based on a collective reading
F of section 608 and section 73 of the Companies Act is,
that a public company making an invitation/offer "to the
public" can do so only by a process of listing in one or
more recognized stock exchange(s). The aforesaid
mandate of law is imperative and cannot be relaxed at the
G discretion of the concerned public company. The
requirement of "listing" automatically brings in the
jurisdiction of the SEBI, as it transforms a "public
company" into a "listed public company". [Paras 95, 96)
[214-D-H; 215-A-B]
H 5. Whether SEBI had the jurisdiction to regulate the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 19
AND EXCH. BOARD OF INDIA.
OFCDs issued by SIRECL and SHICL (as is the case of A
the SEBI), or is it that SEBI has no jurisdiction over the
OFCDs issued by the two companies (as is the case of
appellant-companies)?
The first perspective: Clause (b) of section 55A of the
Companies Act uses the term "intend". And what is B
"intended" is a matter of the mind. Therefore, unless
actions speak for themselves, no presumption can be
drawn on the "intent" of a party. "Intent" as one
commonly understands is something aimed at or wished
as a goal; it is something that one resolves to do; it is a C
will to achieve as an end; it is a direction as one's course;
it is planning towards something to be brought about; it
is something that an individual fixes the mind upon; it is
a design for a particular purpose. When a party
expresses its design repeatedly in writing, as it is the case D
of the appellant-companies, no contrary assumption
should normally be drawn. The appellant-companies
must be deemed to have "intended" to get their
securities listed on a recognized stock exchange,
because they could only then be considered to have E
proceeded legally. That being the mandate of law, it
cannot be presumed that the appellant-companies could
have "intended", what was contrary to the mandatory
requirement of law. There can therefore, be no hesitation
in concluding, that inspite of the observations recorded F
by the appellant-companies in writing, including in the
RHPs issued by them, as also the registration of the said
RHPs by the respective Registrars of Companies, the
said companies must be deemed to satisfy the
requirements of clause (b) of section 55A of the G
Companies Act. The obvious consequence thereof would
be, that the power of administration in the present set of
circumstances lies in the hands of the SEBI. [Para 98]
[217-A-C; 218-A-E]
The second perspective: Extensive powers have H
20 SUPREME COURT REPORTS [2012] 12 S.C.R.
A been vested with the SEBI to issue directions and to
make investigations. The power vested with SEBI, is not
limited in any manner, and shall therefore, be deemed to
extend to both "listed" and "unlisted" public companies.
From a collective perusal of sections 11, 11A, 11 B and
B 11C of the SEBI Act, the conclusions drawn by the SAT,
that on the subject of regulating the securities market and
protecting interest of investors in securities, the SEBI Act
is a stand alone enactment, and the SEBl's powers
thereunder are not fettered by any other law including the
c Companies Act, is fully justified. In fact the aforesaid
justification was rendered absolute, by the addition of
section SSA in the Companies Act, whereby,
administrative authority on the subjects relating to "issue
and transfer of securities and non payment of dividend"
0 which was earlier vested in the Central Government
(Tribunal or Registrar of Companies), came to be
exclusively transferred to the SEBI. There seems no
ambiguity that the SEBI has the jurisdiction to regulate
and administer SIRECL and SHICL. [Paras 106, 107 and
E 108] [242-F-H; 243-A-C]
6. Whether it was a pre-planned attempt of SIRECL
and SHICL, to bypass the regulatory (and administrative)
authority of SEBI in respect of OFCDs/ bonds issued by.
them?
F
The first perspective: It is apparent, that in the
declaration made by the two companies, they had clearly
avoided references to the SEBI and accordingly
circumvented adherence to the provisions of the SEBI
Act, rules and guidelines. The appellant-companies have
G likewise avoided, the provisions of the Companies Act
(which are under the administrative control of the SEBI),
as is apparent from the deliberations recorded. Even
though it is not possible for one to record a clear finding,
whether or not the declaration under reference was
H altered with a pre-planned intention to bypass the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 21
AND EXCH. BOARD OF INDIA
regulatory and administrative authority of SEBI, there can A
be no hesitation to recording, that it certainly seems so.
[Para 111] [248-E-G]
The second perspective: There was no justification
whatsoever for circulating an "information
8
memorandum" after SIRECL had already issued a RHP.
The procedure adopted by the appellant-companies is
obviously topsy turvy and contrary to the recognized
norms in company affairs. All tltis makes the entire
approach of the appellant-companies calculated and
crafty. It is clearly apparent, that the appellant-companies C
had clearly taken upon themselves to tread a path
different from the mandate of law delineated under the
Companies Act. [Para 113) [249-G-H; 250-A-B]
The third perspective: Independently of the D
interaction of the appellant-companies with SEBI, from
letters written by SIRECL in January, 2011, it was
concluded by the SEBI (FTM), that the company was
seeking professional services to collect and compile data
pertaining to the OFCDs issued by it. Since the E
subscription to the OFCDs under reference commenced
in March, 2008, the same raised suspicious about the
genuineness and the bonafides of the appellant-
companies. Surely the suspicion was well placed. This
itself is sufficient to conclude, that the whole affair was F
doubtful, dubious and questionable. The consequence
thereof, if correct, would be shocking. [Para 114) [251-E-
H]
There can therefore be no hesitation in accepting,
that on all three perspectives raised at the behest of the G
SEBI, to demonstrate that there was a pre-planned
attempt at the hands of the SIRECL and SHICL, to bypass
the regulatory and administrative authority of the SEBI,
does seem to be real. One can only hope, it is not so. But
there may be no real subscribers for the OFCDs issued H
22 SUPREME COURT REPORTS [2012] 12 S.C.R.
A by the SIRECL or SHICL. Or alternatively, there may be
an intermix of real and fictitious subscribers. The issue
that would emerge in the aforesaid situation would be,
how the subscription amount collected, should be dealt
with, specially when the impugned orders passed by the
B SEBI, SAT are to be affirmed. Even though it is hoped 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
c law is not only satisfied but is also enforced. [Para 115)
[252-A-D]
Per Order of the Court
On facts as well as on law, no illegality is found in
D the proceedings initiated by SEBI as well as in the order
passed by SEBI (WTM) dated 23.6.2011 and SAT dated
18.10.2011 and they are accordingly upheld. The order
passed by this Court in C.A. No.9813 of 2011 filed by
SIREC and in C.A. No.9833 of 2011 filed by SHICL,
E praying for extending the time for refund of the amount
of Rs.17,400 crores, as ordered by SAT, stands vacated
and consequently the entire amount, including the
amount mentioned above will have to be refunded by
Saharas with 15% interest. Directions are being issued
F in modification of the directions issued by SEBI (WTM)
which was endorsed by SAT. [Para 111) [252-E-G]
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
9813 of 2011.
G From the Judgment and Order dated 18.10.2011 of the
Securities Appellate Tribunal in Appeal No. 131 of 2011.
WITH
Civil Appeal No. 9833 of 2011.
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 23
AND EXCH. BOARD OF INDIA
F.S. Nariman, Gopal Subramanium, Subhash Chand A
Sharma, Gaurav Kejriwal, Keshav Mohan, Amit Pathak,
Vandana Jalan, Nishit Agarwal, Ajit Sharma, Satish
Kishanchandani, Jatin Pore, Tanu Banerjee, D. Mohta, Mit
Chowdhury for the Appellants.
B
Arvind P. Datar, Pratap Venugopal, Surekha Raman,
Varun Singh, Purushottam Jha, K.J. John & Co., Gagan Gupta,
Maneesha Dhir, Apoorve Karol, Megha Nagpal, Chirag Kher,
Mitho Jain, B.V. Bairam Das, Supriya Jain, Pranav Sachdeva
(For Prashant Bhushan) for the Respondents.
c
The Judgments and Order of the Court was delivered by
K.S. RADHAKRISHNAN, J. 1. We are, in these appeals,
primarily concerned with the powers of the Securities and
Exchange Board of India (for short 'SEBI') under Section 55A(b) D
of the Companies Act, 1956 to administer various provisions
relating to issue and transfer of securities to the public by listed
companies or companies which intend to get their securities
listed on any recognized stock exchange in India and also the
question whether Optionally Fully Convertible Debentures (for E
short 'OFCDs') offered by the appellants should have been
listed on any recognized stock exchange in India, being Public
Issue under Section 73 read with Section 60B and allied
provisions of the Companies Act and whether they had violated
the Securities and Exchange Board of India (Disclosure and
Investor Protection) Guidelines, 2000 [for short 'DIP Guidelines'] F
and various regulations cif the Securities and Exchange Board
of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009 [for short 'ICDR 2009'], and also whether
OFCDs issued are securities under the Securities Contracts
(Regulation) Act, 1956 [for short 'SCR Act']. G
2. Sahara India Real Estate Corporation Limited (for short
'SIRECL') and Sahara Housing Investment Corporation Limited
(for short 'SHICL"), appellants herein (conveniently called
H
24 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Saharas), are the companies controlled by Sahara Group.
Saharas have raised almost identical issues on facts as well
as on questions of law before us and hence we are disposing
off both the appeals by way of a common judgment.
B 3. SIRECL was originally incorporated as Sahara India "C"
Junxion Corporation Limited on 28.10.2005 as a public limited
company under the Companies Act and it changed its name
to SIRECL on 7.3.2008. As per the Balance Sheet of the
company as on 31.12.2007, its cash and bank balances were
C Rs.6,71,882 and its net current assets worth Rs.6,54,660.
Company had no fixed assets nor any investment as on that
date. SIRECL's operational and other expenses for the three
quarters ending 31.12.2007 were Rs.9,292 and the loss carried
forward to the Balance Sheet as on that date was Rs.3,28,345.
D 4. SIRECL, in its Extraordinary General Meeting held on
3.3.2008, resolved through a special resolution passed in terms
of Section 81 (1A) of the Companies Act to raise funds through
unsecured OFCDs by way of private placement to friends,
associates, group companies, workers/employees and other
E individuals associated/affiliated or connected in any manner
with Sahara Group of Companies (for short 'Sahara Group')
without giving any advertisement to general public. Company
authorized its Board of Directors to decide the terms and
conditions and revision thereof, namely, face value of each
F OFCD, minimum application size, tenure, conversion and
interest rate. Board of Directors, consequently, held a meeting
on 10.3.2008 and resolved to issue unsecured OF CDs by way
of private placement, the details of which were mentioned in
the Red Herring Prospectus (for short 'RHP') filed with the
G Registrar of Companies (for short "RoC"), Kanpur. SIRECL had
specifically indicated in the RHP that they did not intend to get
their securities listed on any recognized stock exchange.
Further, it was also stated in the RHP that only those persons
to whom the Information Memorandum (for short 'IM') was
H circulated and/or approached privately who were associated/
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 25
AND EXCH. BOARD or INDIA [KS. RADHAKRISHNAN, J.]
affiliated or connected in any manner with Sahara Group, would A
be eligible to apply. Further, it was also slated in the RHP that
the fUnds raised by the company would be utilized for the
purpose of financing the acquisition of townships, residential
apartments, shopping complexes etc. and construction
activities would be undertaken by the company in major cities B
of the country and also would finance other commercial
activlfieslprojects taken up by the company within or apart from
the j!.bove projects. RHP also indicated that the intention of the
company was to carry out infrastructural activities and the
amount collected from the issue would be utilized In financing c
the completion of p"Ojecls, namely, eslablishingi'constructing the
bridges, modernizing or selling up of airports, rail system or
any other projects which might be alloted to the company from
time to time in future. RHP also highlighted the intention of the
company to engage In the business of electric power o
generation and transmission and that the proceeds of lhe
current issue or debentures would be utilized for power projects
which would-be alloted to the company and that the money, not
required immediately, might be parked/invested, inter alia, by
way of circulating capital with partnership firms or joint ventures, E
or in any other manner, as per the decision of the Board of
Directors from. time to lime. SIRECL, under Section 608 of the
Companies Act, filed the RHP before the RoC, Uttar Pradesh
on 13.3.2008, which was registered on 18.3.2008. SIRECL
then in April 2008, circulated JM along with the application forms
to its so called friends, associated group companies, workers/ F
employees and other !ndividua!s associated with Sahara Group
for subscribing to the OFCDs by way of private placement Then
IM carried a recital that It was private and confidential and not
for circulation. A brief reference to the IM may be useful, hence
given below: G
"PRIVATE & CONFIDENTIAL
(NOT FOR CIRCULATION)
H
26 SUPREME COURT REPORTS __ [2012) 12 S.C.R.
A INFORMATION MEMORANDUM FOR PRIVATE
PLACEMENT OF OPTIONALLY FULLY
CONVERTIBLE UNSECURED DEBENTURES
(OFCO)
B This Memorandum of Information is being made by Sahara
India Real Estate Corporation Limited (formerly Sahara
India 'C' Junxion Corporation Limited) which is an unlisted
Company and neither lts equity shares nor any of the
bonds/debentures are listed or proposed to be listed. Ihi§.
issue is ourely on the private placemen! basis and the
c companv does not intend to get these OFCD's listed on
any of the Stock Exchanges in India or Abroad. This
Memorandum for Private Placement Is neither a
Prospectus nor a Statement in Lieu of prospectus. It does
not constitute an offer for an invitation to subscribe to
0 OFCO's Issued by Sahara India Real Estate Corporation
limited. The Memorandum for Private Placement is
in~nded to form the basis of evaluation for the investors
to whom it is addressed and who are willing and eligible
to subscribe to these QFCD's. Investors are required to
E make their own independent evaluation and judgment
before making the investment. The contents of this
Memorandum for Private Placement are intended to be
used by the investors to whom it is addressed and
distributed. This Memorandum for Private Placement is not
F intended for distribution and Is for the consideration of the
person to whom it is addressed and should not be
reproduced by the recipient. The OFCO's mentioned
herein are being issued on a private placement basis and
this offer does not constitute a public offer/invitation."
G · (emphasis added)
5. The RHP, which was issued prior to the IM, had also
given the details and particulars of the three OF CDs issued by
SIRECL appended as Annexure-1, which would give a brief idea
of the Tenure of the Bonds issued, its face value, redemption
H value etc., a projection of which is given below:
SAHARAINDIAREAL ESTAlE CORP. LTD. v. SECURITTES 27
AND EXCH. BOARD OF INOIA [KS. RADl-Ll\KRISHNAN, J.J
Particulars Nature of OFCDs A
Abode Bond Real Estate Nirmaan
Bond Bond
Tenure 120 months 60 months 48 months B
Face Value Rs.5,000/- Rs.12,000/- Rs.5,000/-
Redemption Rs.15,530/- Rs.15,254/- Rs.7,728/-
Value. ..
Early After 60 NIL After 18
c
Redemption months months
Conversion On completion On completion On
of 120 months completion of completion
60 months of48 D
• months
Minimum Rs.5,000/-, Rs.12,000/- Rs.5,000/-
Application . .
Size E
Nominee Double Double Double
System Nominee Nominee Nominee ·
Transfer Yo• Yo• Yo•
F
6. I may also indicate that all the bonds stipulated that
bond holders could avail of loan facility as per the terms and
conditions of the application forms. Nirmaan and Real Estate
Bonds prescribed an additional feature of death risk cover as
well. Clause 13 of RHP imposed no restriction on the transfer G
of the OFCDs.
7. SIRCEL, therefore, floated the issue of the OFCDs as
an open ended scheme and collected an amount of
Rs.19400,86,64,200 (Nineteen thousand four hundred crores,
eighty six lacs, sixty four thousand and two hundred only) from H
-·~ - .
28 SUPREME COURT REPORTS 12012] 12 S.C.R.
A 25.4.2008 to 13.4.2011. Company had a total collection of
Rs.17656,53.22,500 (Seventeen thousand six hundred and fifty
six crores, fifty three lacs, twenty two thousand and five hundred
only) as on 31.8.2011, after meeting the demand for premature
·redemption. The above mentioned amounts were collected
B _from 2,21,07,271 investors..
8. 'SHICL, a membei- of Sahara Group c0mpanies. also
convened an Annual General Meeting on 16.9.2009 to raise
funds by Issue of OFCDs, by way of private placement, to
friends, associated group companies, workers/employees and
C other individuals associated/affiliated or connected in any
manner with the Sahara Group companies. Consequently, a
RHP was filed on 6.10.2009 under Section 60B of the
Companies Act with the RoC, Mumbai. Maharashtra, which was
registered on 15.10.2009. Later, SHICL issued OFCDs of the
D nature of Housing Bond; conversion price of Rs.5,000/· for each
five bonds, Income Bond, conversion price of Rs.6,000/- for six
bonds; Multiple Bond, conversion price of Rs.24,000/- for two
bonds. Interest accrued on each of the three types of bonds was
to be refunded to the bond holders.
E
9. SEBI, as already indicated, had come lo know of the
large scale collection of money from the public by Saharas
through OFCDs, while processing the RHP submitted by
Sahara Prime City Limited, another Company of the Sahara
F Group, on 12.1.2010 for its initial public offer. SEBJ then
addressed a letter dated 12.1.2010 to Enam Secorilies Private
Limited, merchant bankers of Sahara Prime City Limited about
the complaint received from one Roshan Lal alleging that
Sahara Group was issuing Housing bonds without complying
G with RulesJRegulationsJGuidelines Issued by RBl/MCA/NHB.
Merchant Banker [Jn! a reply dated 29.1.2010 stating that
S!RECL and SHICL were not registered with any stock
exchange and were not subjected lo any rule I regulation I
guidelines I notification I directions framed thereunder and the
H issuance of OFCDs were in compliance with the applicable
SAHARA lNDIA REAL ESTATE CORP. LID. v. SECURITlES 29
AND EXCH. BOARD OF !NOIA [K.S. RADHAKRISHNAN, J.}
laws. Following the above, another letter dated 26.2.2010 was A
also sent by the Merchant Banker to SEBI staling that SIRE CL
and SHJCL had issued the OFCDs pursuant to a special
resolution under Section 81(1A) of the Companies Act, 1956
passed on 3.3.2008 and 16.9.2009 respectively. Further, ll was
also pointed out that they had issued and circulated an IM prior B
to the opening of the offer and that RHP issued by SIRECL
dated 13.3.2008 was filed with RoC, U.P. and Uttarakhand and
RHP Issued by SIHCL dated 6.10.2009 was filed wfth RoC,
Maharashtra.
10. SEBI on 21.4.2010 addressed a letter to the R.egional
c
Director, Northern and Western Regions of Ministry OT Corporate
Affairs (for short 'MCA') enclosing the complaint received in
respect of OFCDs issued by Saharas. SEBI had stated that
those companies had solicited and issued OFCDs violating
statutory requirements and that they were not listed companies 0
and had not filed the RHP with SEBI. SEBI sent a
communiCation dated 12.5.2010 to Saharas calling for various
details including the details regarding the number of application
forms circulated after filing of RHP wi1h RoC, deta~s regardng
the number of applications received and subscription amount E
received, date of opening and closing of subscription list Of
OFCDs, number and list of allotees etc.
11. SIRECL on 31.5.2010 addressed a letter to MCA for
'
guidance/advice as to whether it was SEBI or MCA who had F
locus standi in the matter of unlisted companies in view of the
provisions of Section 55A(c) of the Acl MCA, it is seen, had ~
sent a letter dated 17.6.2010 to SIRECL stating that the matter
was being examined under the relevant provisions of the
Companies Act, 1956. SIRE CL Informed SEBI of the reply they G
had received from the MCA and that they would add res!' SEBt
after a decision was taken by MCA. Having not received the
details cal 1ed for from Saharas, SEBI had prima facie fell that
SlRECL was carrying out various transactions in securities in
a manner detrimental to the interests of the investors or to the H
30 SUPREME COURT REPORTS -- - (2012] 12 S.C.R.
A securities market and, therefore, Issued summons dated
30.8.2010, under Section 11C of the SEBI Act, directing the
company to fumish the requisite information by 15.92010.
Detailed reply dated 13.9.2010 was sent by SIRECL to SEBI,
wherein it was stated that the company had followed the
B procedure prescribed under Section 608 of the Companies Act
pursuant to the special resolution passed under Section 81(1A)
in Its meeting held on 3.3.2008 and filed its RHPs under
Section 608 with the ~ncemed RoC. Further, II was pointed
out that SIRECL was not a listed company, nor did ii intend to
c get its securities listed on any recognized stock exchange in
1ndia and that OFCDs isSued by the company would not fall
under Sections 55A(a) and/or (b) and hence the issue and/or
transfer of securities and/or non-payment of dividend or
administration of either the company or its issuance of OFCDs,
were not to be administered by SEBI and all matters pertaining
0
to the unlisted company would fall under the administration of
the Central Government or RoC. Further, it was urged that
Regulati6ns 3 and 6 of ICDR 2009 would not apply, since there
was no public issue either in the nature of an initial public offer
E or further public offer as defined by Regulation 2(zc), 2(p) and/
or 2(n) of ICDR 2009. OFCDs, It was pointed out, were
restricted to a select group (as distinguished from general
public), however large they might be and hence the Issuance
of OFCDs was not a public offer to attract the provisions of
Regulations 3 and/or 6 of JCDR 2009. Company had stated that
F Issuance of OF CDs of 2008 was also not covered by the SE Bl
~ (Issue and Listing Securities) Regulations, 2008, since ii would
apply to non-convertible debt securities, whereas the OFCDs
issued by SIRECL were convertible securities. SJRECL,
therefore, requested SEBI to withdraw the summons Issued
G under Section 11C of the SEBI Act. Summons dated 23.9.2010
was also Issued to SHICL, for which also an identical reply was
sent to SEBI.,
12. MCA, in the meanwhile, sent a letter dated 21.9.2010 -
H to SIRECL under Section 234(1) of the Companies Act calling
' -- - , -.-
.'
SAHi\RA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 31
AND EXCH. BOARD OF INDIA [K.S. RADl-W<RISHNAN, J.J
for various details including the amount collected through private A
placement, details regarding the number Of investors to whom
the allotment had been made, their names, addresses,
utilization of the fUnds collected, its purpose, class or classes
of persons to whom the allotment had been made and whether
allotments were completed and various other details. SIRECL B
was directed to furnish lhe information within 15 days from the
date of receipt of notice, failing which it was infonned that penal
action would be initialed against the company and its directors
under Section 234(4)(a) of the Companies Act.
13. SEBI, in the meanwhile, sent a letter dated 23.92010 C
to SIRECL reminding that it had not provided information{
documents on the issue of OFCOs. Proceeding issued for
appointing the investigating agency was also fOIWSrded to the
company. SIRECL again replied by Its letter dated 30.9.2010
raising the Issue of jurisdiction of SEBI in investigating the D
affairs of SIRECL. SIRECL, however, replied to the letter of
MCA dated'21.9.2010 on 4.10.2010, stating inter alia that It
would be filing the prospectus on the closure of the Issue in
compliance with the provisions of Section 608(9) of the
Companies Act, staling therein the total capital raised by way E
of OF CDs and the related information by filing the prospectus.
Further, It was also pointed out that allotment had been made
to persons who were connected with the Sahara Group and that
investors had given a declaration to the company to that effect
in terms of the RHP. MCA then sent a reply dated 14.10.2010 F
stating that the points 1 to 3, 5 to 10, 12 to 16, 18 to 22 had
been examined and appeared to be satisfactol)'. With regard
to points 4, 11 and 17, the company was directed to effect
compliance on closure of issue by filing of prospectus as
required under Section 608(9) of the Companies Act. G
14. SEBI, in the meanwhile, issued a notice dated
24.11.2010 informing both SIRECL and SHICL that the
issuance of OFCDs was a public issue and, therefore,
securities were liable to be listed on a recognized stock H
32 SUPREME COURT REPORTS [2012J 12 S.C.R.
A exchange under Section 73 of the Companies Act From the
preliminary analysis, it was pointed out that the issuance of
OFCDs by Saharas was prima facie in violation of Sections
56 and 73 of the Act and also various clauses of DIP
Guidelines and SHICL had also prima facie violated
B Regulations 4(2), 5(1), 6, 7, 16(1), 20(1), 25, 26, 36, 37, 46 and
57 of ICDR 2009. Both the companies were, therefore, directed
to show cause why action should not be initiated against them
including issuance of direction to refund the money solicited and
mobilized through the prospectus issued with respect to the
c OFCDs, since they had violated the provisions of the
Companies Act, SEBI Act, erstwhile DIP Guidel.. 1es and ICDR
2009.
15. SIRECL had challenged the show-cause-notice dated
24.11.1010 before the Allahabad High Court, Lucknow Bench
D in W. P. No.11702 of2010, which the Court had stayed on
13.12.2010. SEBI took up the matter before this Court in S.L.P.
(Civil) No. 364450f 2010 and this Court did not interfere with
the interim order, but ordered early disposal of the writ petition.
E 16. MCA, following its earlier letter dated 21.9.2010 issued
another notice dated 14.2.2011 directing SIRECL to furnish
details on·four specific points, including the details of the
number of persons who had applied in pursuance to the OF CDs
issued, the mode of receipt of payment (Application Register),
F the name, address, number of persons lo whom OFCDs were
allotted (Allotment Register) and also whether the number of
allottees to whom OFCDs were allotted etc. exceeded fifty.
SIRECL replied to the notice on 26.2.2011. SIRECL, ii was
stated, had sent a password protected CO along with two
G separate sheets containing the procedure and the password
to SEBI; the C[1 contained of investors' names, serial numbers
and amounts invested In OFCDs. SEBI, however, could not
open the CD due to non furnishing of the password. SEBI
pointed out this fact before the High Court and the Court
H '
-~-~------
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 33
AND EXCH. BOARD OF INDIA [KS. RADHAKRJSHNAN, J.]
vacated the Interim order dated 13.12.2010. SIRECL took up A
the matter before this Court in S.L.P. (Civil) No. 11023 of 2011.
17. SlRECL, in the meanwhile, claimed that it had
furnished a separate CD along with the password vide letter
dated 19.4.2011 to SE Bl stating that due to the enormity of the B
work and lime taken in collati'lg and COfllliling the data relating
to the names and addresses and the amount invested, the
company could only provide the partial information relating to
names, numbers and amount invested by the investors through
the covering letter dated 18.3.2011 in a CD. SIRECL then C
moved the High Court on 29.4.2011 to recall the order dated
7.4.2011 on the plea that the details called for by SEBI had
been furnished. The High Court dismissed the application,
which led SIRECL filing SLP (Civil) No. 13204 of 2011 before
this Court. This Court on 12.5.2011 passed the following order
in SLP (Civil) No. 11023 of 2011 and SLP (Civil) No. 13204 D
of 2011: •
"In this matter the questions as to what is OFCD and
the manr.er in which Investments are called for are very
important questions. SEBI, being the custodian of the E
lnvestofs and as an expert body, should examine these
questions apart from other issues. Before we pass further
orders, we want SE Bl to decide the application(s) pending
before it so that we could obtain the requisite input for
deciding these petitions. We request SEBI to expeditiously F
hear and decide this case so that this Court can pass
suitable orders on re-opening. However, effect to the order
of SEBl will not be given. We are taking this route as we
want to protect the interest of the Investor. In the meantime,
the High Court may proceed, if ii so chooses, to dispose G
of the case at the earliest."
18. SEBI then issued a fresh notice dated 20.5.2011
staling that Saharas had not provided any lnfcrmation to SEBI
regarding details of its investors to show that the offer of
OFCDs was made to less than fifty persons. Further, ii was H
34 SUPREME COURT REPORTS [2012] 12 S.C.R.
A pointed out that Saharas though claimed, that the offer/issue
was made on private placement basis, any offer/issue lo fifty
or more persons would be treated as public lssuefoffer in terms
of the first proviso to Sub-section (3) of Section 67 of the
Companies Act and the provisions of the Companies Act
B governing public Issues and the provisions of DIP Gukle-lines
and ICDR 2009 would consequenUy apply. Further, ii was also
pointed Out in the notice that the RHP provided along with the
letter of SIRCEL dated 15.1.2011 contained untrue statements
which attracted the provisions of Sections 62 and 63 of the Act
c and hence the offer of OFCDs to pubf1c through the RHP was
Illegal. Further, it was stated that norie of the disclosure
requirements specified by SEBI or the investors protection
measures prescribed for public issues under DIP Guidelines
and ICDR 2009 had been complied with and hence there was
0 prima facie violation of Section 56 of the Companies Act and
hence offer of OFCDs of Saharas to the public was illegal.
Notice also indicated that Saharas had violated the provisions
of Section 73 of the Companies Act, by non-listing of thefr
debentures ln a recognized stock exchange. Further, II was also
E pointed out that Saharas had not executed any Debenture Trust
Deed for their OFCDs, not appointed any Debenture Trustee
and not created any Debenture Redemption Reserve, which
would amount to violation of Sections 117A, 1179 and 117C
of the Companies Act. Non-compliance of furnishing details in
Form No. 2A, as required under Rule 4CC of the Companies
F (Central Government's) General Rules and Forms, 1956 read
with DIP Guidelines and ICDR 2009, it was pointed out, had
violated Section 56(3) of the Companies Act.
19. SEBI notice da!ed 20.5.2011 also highl!ghted that the
G CD was secured in such a manner that no analysis was
possible and the addresses of the OFCDs holders were
incomplete or ambiguous. Serious doubts were also raised wfth
regard to the identity and genuineness of the investors and the
intention of the companies to repay the debenture holders upon
H redemption. Notice, therefore, stated that the companies had
SAHARA lNDIA REAL ESTATE CORP. LTD. v. SECURITTES _ 35
ANO EXCH. BOARD OF INDIA [KS. RADHAKRlSHNAN, J.J
Prima facie violated the provisions of the Companies Act, SEBI A
Act, 1992, DIP Guidelines and ICDR 2009 and hence the offer/
issue of OFCDs to public was illegal, and imperiled the interest
of investors in such OFCDs and was detrimental to the interest
of the secur1lies market Saharas were, therefore, called upon
to show cause why directions contained in the Interim order of a
SEBI dated 24.11.2010 be not issued under Sections 11(1),
11(4)(9), 11A(1)(b) and 118 of SEBI Act read with Regulation
107 of ICDR 2009.
20. Saharas then sent a detailed reply dated 30.5.2011
pointing out that the appellants had made private placement of C
OFCDs to j'.lersons who were associated with Sahara Group
and those issues were not public issues. Further, ii was also
urged that OFCDs issued were ln the nature of "hybrid' as
defined under the Companies Act and SEBI did not have
jurisdiction to administer those securities since Hybrid D
securities were not included in the definition of 'securities' under
the SEBI A¢. SCR Act etc. Further, it was also urged that such
hybrids were issued In terms of Section 608 of the Companies
Act and, therefore, only the Central Government had the
jurisdiction under Section 55A(c) of the Companies Act. Further, E
it was also pointed out that Sections 67 and 73 of the
Companies 'Act could not be made applicable to Hybrid
securities, so also the DIP Guidelines and lCDR 2009. Further,
it was reiterated that the company had raised funds by way of
private placement to friends, associates, group companies, F
workers/employees and other individuals associated/affiliated
with Sahara Group, without giving any advertisement to the
public. Further, it was also pointed out that Roe. Kanpur and
Maharashtra had registered those RHPs without any demur
and, therefore, It was unnecessary to send ii to SEBl. G
.
21. SEBI passed its final order through its whole-time
member (WTM) on 23.6.2011. SEBl examined the nature of
OFCDs issued by Saharas and came to the conclusion that
OFCDs issued would come within the definition of "securities'
as defined under Section 2{h) of SCR Act SEBI also found that H
36 SUPREME COURT REPORTS _ 12012] 12 S.C.R.
A those OFCDs issued to the public were in the nature of Hybrid
securities, marketable and would not fall outside the genus of
debentures. SEBI also found that the OFCOs issued, by
definition, design and characteristics intrinsically and
essentially, were debentures and the Saharas had designed
a the OFCDs to invite subscription from the public at large
through their agents, private offices and Information
memorandum. SEBI concluded that OFCDs issued were in fact
public issues and the Saharas were bound to comply with
Section 73 of the Companies Act, in compliance with the
c parameters provided by the first proviso to Section 67(3) of the
Companies Act. SEBI took the view that OFCOs issued by
Saharas should have been listed on a recognized stock
exchange and ought to have followed the disclosure
requirement and other investors' protection norms.
0 22. SEBI also held that the Parliament has conferred
powers on It under Section 55A(b) of the Companies Act to
administer such issues of securities and Saharas were not
_ justified.in raising crores and crores of rupees on the premise
that that OFCDs issued by them, were by way of private
E placement. SEBI, therefore, found that the Saharas had
contravened the provisions of Sections 56, 73, 117A, 1178
and 117C of the Companies Act and also various clauses of
DIP Guidelines. SEBI also held that SHICL had not complied
with the provisions of Regulations 4(2), 5(1), 5(7), 6, 7, 16(1),
F 20(1), 25, 26, 36, 37, 46 and 57 of ICDR Regulations. Having
found so, SEBI directed Saharas to refund the money collected
under the Prospectus dated 13.3.2008 and 6.10.2009 to all
such investors who had subscribed to their OFCDs, ·with
interest
G
23. Appellants, aggrieved by the above mentioned order
of SEBI, filed Appeal Nos. 131 of 2011 and 132 of2011 before
the Tribunal and the Tribunal passed a common order on
18.10.2011. Before'the Tribunal, Unloo of India, represented
through the Ministry of Company Affairs, was impleaded. The
H
SAHARA INOIA REAL ESTATE CORP. l TD. v. SECURITIES 37
ANO EXCH. BOARD OF !NOIA {KS. RA[)l-l.GJ{RISHNAN, J.]
Tribunal took the view that OFCOs issued were securities within A
the meaning of Clause (h) of Section 2 of SCR Act, so also
under SEBI Act. Tribunal also noticed that RHP issued by
SlRECL was registered by the RoC on 18.3.2008, though
information memorandum (IM) was issued later in April 2008
ln clear vio!aUon of Secllon 608 of the Companies Act. Further, B
it was also noticed that IM was issued through 10 lac agents
and more,than 2900 branch offices to more than 30 million
persons inviting them to s ..bscribe to the OFCDs which
amounted to invitation to public. Tribunal also found fault with
the RQC as ii had failed to forward the draft RHP lt'I SEBI since C
it was a public issue and hence violated Circular dated
1.3.1991 issued by the Department of Company Affairs,
Government of India.
24. Tribunal also recorded a finding that Saharas, having
made a public issue, cannot escape from complying with the D
requirements of Section 73(1) of the Companies Act on the
ground that the companies had not Intended to get the OF CDs
listed on anY stock exchange. Tribunal also examined the scope
and ambit of Sections SSA of Companies Act read with
Sections 11. 11A and 11B of SEBI Act and took the view that E
a plain reading of those provisions would indicate that SEBI
has jurisdiction over the Saharas since OFCDs Issued were
in the nature of securities and hence should have been listed
on any of the recognized exchanges of India. SEBI also took
the view that the explanation to Section SSA has to be read F
harmoniously, and if so read, clearty spells out the powers of
SEBI and the Central Government Tribunal also considered the
scope of Section 28(1){b) of the SCR Act and held that the
exclusion in the said Act is not available to OFCDs Issued by
the appellants. Tribunal concluded that SEBl has jurisdiction· G
under Section SSA{b) and the Saharas had flouted the
mandatory provisions of Section 73(1) of the Companies Act
and the consequences provided under Sub-section (2) of
Section 73 would, therefore, follow and SEBl had ample powers
under Sections 11, 11A and 118 of the SEBI Act to issue H
38 SUPREME COURT REPORTS -- (2012] 12 S.C.R.
A directions lo.refund the amounts to the investors with interest.
Aggrieved by the said order, SIRECL filed CA. No. 9813 of
2011 and SHICL filed CA No. 9833 of 2011 before this Court
under Section 15Z of the SEBI Act which came up for
admission on 28.11.2011 and the direction issued to refund
e sum of Rs.17,400 crores, on or before 28.11.2011, was
extended. This Court also passed the following order:
· ' "By the impugned order, the appellants have been
asked by SAT lo refund a sum of Rs.17,400/- crores
approximately on or before 28th November, 2011. We
c extend that period upto 9th January, 2012.
In the meantime, we are directing the appellants to
put on affidavit, before the next date of hearing, the
following information:
0
(a) Application ofthefurxls, which they have collected from
the Depositors;
•
(b) Networth of the Companies which have received these
deposits;
E
(c) Particulars of assets of the said Companies against
which the liability has been created. For that purpose, the
appellants will produce the requisite financial statements
consisting of the Balance Sheet and Profit and loss
F Account of the year ending 31st March, 2011 and the
Statement of Account upto 30th November, 2011;
(d) The Affidavit will indicate how the said Compnies seek
lo secure the 1'1ab'iities which the Companies have incurred
G. and how they will protect the debenture holders;
(e) If returns have been filed under Income Tax Act, 1961,
the same may be annexed lo the Affidavit lo be filed."
25. Civil Appeals later came for admission on 9.1.2012
H and the interim order granted was extended. As directed,
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 39
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.)
Additional Affidavit with certain documents were filed by both A
the appellants on 20.6.2012, wherein specific reference was
made to the affidavit dated 14.9.2011 filed by Saharas before
the SAT, the details of which were given in a chart form, which
is as follows:
SIRECL SHICL B
Date of 25.4.2008 Date of 20.11.2009
commencement commencement
of issue of issue
Total amount Rs.19,400.87 Total amount Rs. 6,380.5( c
collected till Crs collected till Crs
April 13, 2011 April 13, 2011
Total Rs.25,781.37
Crs.
Less: Premature Rs.1,744.34 Less: Prematun Rs.7.30 Crs D
redemption Crs (11.78 redemption (5,306
lakh investors) investors)
Total Rs.1,751.64
(11.78 Lakh
investors) E
Balance on Rs.17,656.53 Balance on Rs.6,373.20
August 31, 2011 Crs August 31, 2011 Crs
Total Rs.24,029.73
Crs.
F
Total no. of investors
Total till Balance Total till Balance
April 13, as on April 13, on August
2011 (in August 2011 (in 31,2011 G
lakhs) 31,2011 Lakhs) (in Lakhs)
(in
lakhs)
Abode Bond 70.94 70.65 Income 1.45 1.44
Bond H
40 SUPREME COURT REPORTS [2012] 12 S.C.R.
-
A Nirman Bond 25.44 14.12 Multiple 30.46 30.45
Bond Bond
Real Estate 136.47 136.3 Housing 43.23 43.19
Bond Bond
B Total 232.85 221.0i ToF.11 75.14 75.08
Total till Balance as
April 13, on August
2011 (in 31, 2011
c Lakhs) (in Lakhs)
Total 307.99 296.15
26. Shri Fali S. Nariman, learned senior counsel appearing
for SIRECL formulated several questions of law which,
o according to the senior counsel, arise out of the order passed
by the Tribunal. Learned senior counsel submitted that Section
55A of Companies Act confers no power on SEBI to administer
the provisions of Sections 56, 62, 63 and 73 of the Companies
Act of an unlisted company or to adjudicate upon the alleged
E violation of those provisions, that too without framing any
regulations under Section 642(4) of th€ Companies Act.
Learned senior counsel also pointed out that Sections 11, 11A
and 11 B of the SEBI Act empower SEBI to protect the interest
of investors but not to administer the provisions of the
F Companies Act so far as an unlisted public company is
concerned, consequently, when exercising powers under SEBI
Act and/or SEBI Regulations, SEBI is not empowered to
administer the provisions of the Companies Act relating to the
issue and transfer of securities and non-payment of dividends,
so far as an unlisted public company is concerned.
G
27. Learned senior counsel also submitted that the powers
of SEBI to administer the aforesaid provisions are limited to
the listed companies and public companies which intend to get
their securities listed on any recognized stock exchange in India
H and, in any other case, the power of administration of Sections
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 41
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
S6, 62, 63 and 73 with respect to OFCDs is vested only with A
the Central Government and not with SEBI. Reference was also
placed on the explanation to Section SSA and submitted that
all powers relating to "all other matters" i.e. matters other than
those relating to the issue and transfer of securities and non-
payment of dividends, including the matter relating to B
prospectus would be exercised by the Central Government or
the RoC and not SEBI.
28. Learned senior counsel also highlighted the
conspicuous omission of Section 608 in Section SSA which, C
according to the senior counsel, indicates that SEBI cannot
administer in case of any violation of Section 608. Even
otherwise, learned senior counsel submitted that, as a matter
of legislative drafting, Section 608 could not have been
intended to be included in the parenthetical clause and,
therefore, could not be said to be covered by Section SSA. D
Learned senior counsel also submitted that even if Section
608 falls in between under Sections S9 to 81, Saharas either
through their conduct or action depicted no intention to have
their securities listed on any stock exchange in India so as to
fall under Section SSA(b) of the Act. Learned senior counsel E
also referred to Section 608(9) of the Act and submitted that
the same would apply only in the case of listed company.
29. Learned counsel also referred to the Unlisted Public
Companies (Preferentiai Allotment) Rules, 2003 (for short F
'2003 Rules') and submitted that unlisted publ ..; companies, for
the first time, could make preferential allotment through private
placement pursuant to a special resolution passed under Sub-
section (1A) of Section 81 of the Companies Act, if authorized
by its Article of Association. Section 608, it was pointed out, G
contemplated an unlisted company filing a RHP even though
OFCDs were not offered or to be offered to the public. Further,
it was also pointed out that, at best, the present case falls under
Section SSA(c) and it is amenable only to the jurisdiction of the
Central Government and that SEBI has no jurisdiction to H
42 SUPREME COURT REPORTS [2012] 12 S.C.R.
A administer, inter alia, the provisions of Sections 56, 62, 63 and
73 of the Companies Act, so far as unlisted public companies
are concerned.
30. Shri Nariman also submitted that SEBI has committed
a serious error in holdi~g that the SIRECL had contravened the
B
provisions of SEBI Act, DIP Guidelines read with ICDR 2009.
Learned senior counsel pointed out that DIP Guidelines were
expressly repealed by ·ICDR 2009 and even if the DIP
Guidelines apply, the same would not cover the preferential
issue of OFCDs by Saharas under 2003 Rules read with
c Section 81(1A) of the Companies Act. Learned counsel also
pointed that ICDR 2009 would apply to the OFCDs issued by
SIRECL by private placement and when it comes to regulating
preferential allotment by private placement by unlisted public
companies, the same is governed by 2003 Rules and only in
D case of preferential allotment by listed public companies, ICDR
2009 would apply.
31. Shri Nariman also contended that there was no
statutory requirement for SIRECL to list OFCDs on any
E recognized stock exchange under the provisions of 2003 Rules.
Further, it is also contended that the above rules do not have
any deeming provisions for treating any issue as a public issue
on the basis of number of persons to whom offers were made
or on the basis of any other criteria. Learned senior counsel
F also submitted that the proviso of Section 67(3) of the
Companies Act, added by the Companies Amendment Act,
2000 (w.e.f. 13.12.2000), was also not attracted to 2003 Rules,
hence it was urged that, in view of the statutory rules of 2003,
preferential allotment by unlisted public companies by private
G placement was provided for and permitted without any
restriction on numbers as per the proviso to Section 67(3) and
without requiring listing of OFCDs on any recognized stock
exchange. Shri Nariman also pointed out that it is only from
14.12.2011, the 2003 Rules were amended, whereby the
definition of preferential allotment was substituted, without
H
.
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 43
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
disturbing or amending Rule 2 of 2003 Rules. Learned senior A
counsel submitted that by the amended definition of
Preferential Allotment by the Unlisted Public Companies
(Preferential Allotment) Rules, 2011 (for short '2011 Rules'),
hybrid instrument stands specifically included. Consequently,
the first proviso to Section 67 of the Companies Act was B
specifically made applicable.
32. Learned senior counsel also contended that after the
insertion of the definition of "securities" in Section 2(45AA) as
including hybrid and the definition of "hybrid" in Section 2(19A) c
of the Companies Act, the provisions of Section 67 were not
applicable to OF CDs which have been held to be "hybrid".
Various bonds issued by Saharas, learned senior counsel
submitted, were never shares or debentures but hybrids, a
separate and distinct class of securities. Section 67, it was D
submitted, speaks only of shares and debentures and not
hybrids and, therefore, Section 67 would not apply to OFCDs
issued by SIRECL.
33. Learned counsel also referred to various terms and
conditions of the Abode Bond, Nirmaan Bond and Real Estate E
Bond and submitted that they are convertible bonds falling with
the scope of Section 28(1 )(b) of the SCR Act, in view of Section
9(1) and Section 9(2)(m) of that Act and are not listable
securities within the meaning of Section 2(h) of the SCR Act
and hence there is no question of making applications for listing F
under Section 73(1) of the Companies Act. Learned senior
counsel also submitted that three Registrars of Companies -
West Bengal, Kanpur, and Mumbai - had, at different point of
time, registered the RHPs at different places over a period of
nine years. Registrars of Companies could have refused G
registration under Section 60(3) of the Companies Act as well,
if there was non-compliance of the provisions of the Companies
Act. Learned counsel pointed out that having not done so, it is
to be presumed that private placement under Section 60B of
the Companies Act was permissible and hence no punitive H
44 SUPREME COURT REPORTS [2012) 12 S.C.R.
A action including refund of the amounts is called for and the order
to that effect be declared illegal.
34. Shri Gopal Subramanium, learned senior counsel
appearing on behalf of SHICL submitted that any act of
compulsion on Saharas to list their shares or debentures on a
8
stock exchange would make serious inroad into their corporate
autonomy. Learned senior counsel submits that the concept of
autonomy involves the rights of shareholders, their free speech,
their decision making and all other factors. To highlight the
concept of corporate autonomy, learned senior counsel placed
C reliance on the Constitution Bench judgment of this Court in Life
Insurance Corporation of India v. Escorts Ltd. & Ors. (1986)
1 SCC 264. Learned senior counsel submitted that SEBl's
insistence that Saharas ought to have listed their shares or
debentures on a recognized stock exchange in accordance with
D Section 73 of the Companies Act would necessarily expose
shareholders and debenture holders to the risks of trading in
shares and would also compel unlisted companies to seek
financial help from investment bankers. Learned senior counsel
placed reliance on the judgment of this Court in Union of India
E v. Allied International Products Ltd. & Anr. (1970) 3 SCC 594
and submitted that Section 73(1) was enacted with the object
that the subscribers would be ensured the facility of easy
convertibility of their holdings when they have subscribed to the
shares on the representation in the prospectus that an
F application for quotation of shares had been or would be made.
Learned senior counsel also made reference to the Cohen
Committee Report (U.K.) and submitted that the same would
bring about the true purport of Section 73, that it is the obligation
on the company which has promised the members of the public
G that their shares would be marketable or capable of being dealt
with in the stock exchange. Learned senior counsel made
reference to Section 51 of the Companies Act, 1948 (U.K.) and
the judgment in In re. Nanwa Gold Mines Ltd. (1955) 1 WLR
1080 and submitted that the object of Section 51 was to protect
H those persons who had paid money on the faith or the promise
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 45
AND EXCH. BOARD OF INDIA [KS. RADHAKRISHNAN, J.]
that their shares would be listed. Learned senior counsel A
pointed out that Sub-section (1) of Section 73 is qualified by
the term "intending", which means Section 73(1) deals with
companies that want to issue new shares or debentures to be
listed, and which have declared to the investors that they intend
to have those shares or debentures dealt with on the stock B
exchange. In such a case, Section 73(1) obliges those
companies to make an application to one or more recognized
stock exchanges for permission for the shares or debentures
to be dealt with on the stock exchange or each such stock
exchange, before the issue of a prospectus. Learned senior c
counsel submitted that the role of Section 73(1) is, therefore,
narrow and limited and those companies which do not intend
to list their securities on a stock exchange are not covered by
this provision. Learned senior counsel submitted that the
expression "to be dealt in on stock exchange" occurring in the D
heading of Section 73 must be read in the text of that Section,
to reach the understanding that it is not merely the invitation of
shares or debentures to the public which warrants the
application of Section 73, but it is only when such companies
intend to have their shares or debentures listed on the stock E
exchange that. the prescription under Section 73 shall apply.
Learned senior counsel submitted that the company's freedom
to contract under the Constitution as well as the Law of
Contracts needs to be safeguarded and that persons who
belong to the lower echelons of society, while it is necessary
that they must never be duped, ought not be prevented from F
investing in measures which would add to their savings.
Learned senior counsel pointed out that to deprive them of such
an opportunity would be a serious infraction.
35. Learned senior counsel referring to Section 64 of the G
Companies Act submitted that the expression "deemed to be
prospectus" indicates that whenever shares or debentures
which are allotted can be offered for sale to the public, such a
document is deemed to be a prospectus and has legal
consequences. Section 73, according to the learned senior H
46 SUPREME COURT REPORTS [2012] 12 S.C.R.
A counsel, operationalizes the intention of a company which is
allotment of shares with a view to sell to the public as
contemplated in Section 64 of the Act. So, while Section 64
refers to the documents containing such an offer as a
prospectus, Section 73 requires the company to make an
B application before the issue of the prospectus. Learned senior
counsel also submitted that mere filing of prospectus is not
reflective of the intention to make a public offer. The purpose
of issue of prospectus is to disclose true and correct
statements and it cannot be characterized as an invitation to
c the public for subscription of shares or debentures. Learned
senior counsel also pointed out that the filing of the prospectus
or the administration of Section 62 on account of misstatement
in a prospectus will be undertaken by the Central Government
on account of explanation to Section 55A of the Companies
0 Act. Learned senior counsel submitted that the manner in which
a listed public company will offer its shares would be determined
under the SEBI Act as well as the SEBI Regulations. Learned
senior counsel submitted that Section 608 of the Companies
Act, as such, does not presuppose or prescribes an intention
E to list. Section 608 enables a prospectus to be filed where a
company is not a listed public company. Learned senior
counsel pointed out that IM or RHPs can be filed although an
offer of shares may be made by way of private placement or
to a section of the public or even to the public, but yet without
intending it to be listed. Learned senior counsel, therefore,
F pointed out that the stand of SEBI that where there is an offer
of shares or debentures by way of prospectus, it amounts to
an offer of shares to the general public and, therefore, to be
dealt with on a stock exchange, is completely flawed and that
Section 73 cannot be interpreted to impinge upon the corporate
G autonomy of the company.
36. Shri Subramanium also submitted that Section 67 of
the Companies Act does not imply that a company's offer of
shares or debentures to fifty or more persons would ipso facto
H become a 'public issue' or a 'private offer'. Learned senior
SAHARA INDIA REAL ESTATE CORP LTD. v. SECURITIES 47
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
counsel submitted that in order to determine whether an offer A
is meant for the public at large or by way, of private placement,
what is relevant is the intention of the offerer. In other words,
the numbers are irrelevant, submits the counsel, it is only the
intention to offer to a select or identified group which will make
the offer a private placement. Learned senior counsel also B
submitted that the proviso to sub-section (3) of Section 67 of
the Companies Act would be appreciated in that background.
Learned senior counsel also submitted that private placement
is not authorized by interpretative provision in Section 67(3) but
is in fact the will of the company reflected in a Special C
Resolution unde.r Section 81 (1A) of the Companies Act which
deals with "preferential allotment". Learned senior counsel
submitted that when there is a private placement, irrespective
of the number, then the offer of shares need not take place
through a prospectus but can even take place through a letter
0
or a memorandum.
37. Learned senior counsel submitted that the Central
Government correctly understood the position while framing the
2003 Rules. Learned senior counsel also submitted that SAT
has no jurisdiction over unlisted public companies either under E
Section 55A of the Companies Act or under the SEBI Act.
Learned senior counsel referred to the various provisions
conferring powers on SEBI under the SEBI Act as well as the
limited powers conferred on SEBI under the Companies Act.
Learned senior counsel pointed out that SEBI is not concerned F
with the securities of all the companies, nor is it responsible
for overseeing the sources of capital in the country, except that
which is in the securities market. Learned senior counsel also
pointed out that compulsory listing of scrips is 'unheard of in
any jurisdiction. It was further submitted that it is impossible to G
conceive that a regulator or State or Parliament could actually
intend that there would be a mandatory exposure of business
to vicissitudes of fortune being swept by waves in the stock
market.
H
48 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 38. Learned senior counsel elaborately referred to the
various provisions of the SEBI Act in that context. Learned
senior counsel also submitted that the Central Government and
SEBI cannot approbate or reprobate regarding their jurisdiction
over the unlisted public companies. Learned senior counsel
B pointed out that SEBI has categorically stated on oath before
various Forums that an unlisted public company was not within
its jurisdiction if that company did not intend to list their shares
on the stock exchange. Later, SEBI has unfairly changed its
stand before the other Forums. Learned senior counsel referred
C to the stand taken by SEBI before the Bombay High Court in
Kalpana Bhandari v. Securities and Exchange Board of India
(2005) 125 Comp. Cases 804 (Born.) as well as Delhi High
Court judgment in Society for Consumers and Investment v.
Union of India and others passed in Writ Petition No. 15467
of 2006. Reference was also made to the judgment of the
0
Kerala High Court in Writ Petition (C) No. 19192 of 2003
[Kunamkulam Paper Mills Ltd. & Ors. V. Securities and
Exchange Board of India & Others] learned senior counsel
pointed out that SEBI has taken contradictory stand in various
forums rather than properly appreciating and applying the
E provisions of SEBI Act and the Companies Act.
39. Learned senior counsel also submitted that OFCDs
issued by the Saharas are outside the purview of the SCR Act
as well as the SEBI Act. Learned senior counsel referred to
F Section 2(19A) of the Companies Act defining the term "hybrid"
and also the definition of "securities" under Section 2(45AA)
and submitted that the legislative intent was to treat "hybrids"
differently from either shares or debentures and thus exclude
from the purview of Section 67, the offer of hybrids. Learned
G senior counsel submitted that OFCDs issued by Saharas which
are convertible debentures would fall within the meaning of "any
convertible bond" under Section 28(1)(b) of SCR Act and,
therefore, would stand excluded from the purview of SCR Act.
40. Learned senior counsel also submitted that SEBI has
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 49
AND EXCH. BOARD OF INDIA [KS. RADHAKRISHNAN, J.]
exceeded its jurisdiction by acting contrary to and beyond this A
Court's order dated 12.5.2011 passed in SLP(C) No.11023
of 2011 and SLP(C) No.13024 of 2011 and has conducted
itself in a manner prejudicial to Saharas. Learned counsel
pointed out that the conduct of the regulator in the manner in
which proceedings have been conducted raises serious B
doubts about SEBI functions. Learned senior counsel pointed
out that, apart from asserting jurisdiction in an erroneous
manner, SEBI has no evidence of credible nature to show that
Saharas had attempted to deceive or collect money from
fictitious sources. Further, it was pointed out that there was no c
complaint from any investor and it originated on a complaint
by a person who has no interest in Saharas. Learned senior
counsel also submitted that SAT's direction of refund, in
exercise of its powers under Section 73(2) of the Companies
Act, is erroneous. Learned senior counsel, therefore, submitted D
that such a direction to refund the amount with interest is bad
in law and liable to be quashed.
41. Shri Arvind P. Dattar, learned senior counsel appearing
on behalf ot SEBI, submitted that SEBI as well as SAT were
fully justified in holding that SEBI has jurisdiction to administer E
the provisions contained under Section 55A, so far as they
relate to the issue and transfer of securities by Saharas.
Learned senior counsel pointed out that Saharas had paid up
share capital of just Rs.10 lakhs and virtually no assets and the
companies had collected about Rs. 27,000 crores from about F
3 crore subscribers, through unsecured OFCDs. Learned
senior counsel pointed out that Sections 55A, proviso to
Section 67(3), Section 73 and other related provisions clearly
bring out the intention of the Parliament, i.e. after 13.12.2000,
even if an unlisted public company makes an offer of shares G
or debentures to fifty or more persons, it was mandatory to
follow all the statutory provisions that would culminate in the
listing of those securities. Learned senior counsel pointed out
that once the number reaches fifty, proviso to Section 67(3)
applies and it is an issue to the public, attracting Section 73(1) H
50 SUPREME COURT REPORTS [2012] 12 S.C.R.
A and an application for listing becomes mandatory and, thereafter
the jurisdiction vests with SE81.
42. Learned senior counsel elaborately argued on the
structure of Section 55A and the purpose and object of the
parenthetical clause and the brackets employed in the sub-
8
section. Learned senior counsel referred to the word "including"
in Section 55A and submitted that the word has been used to
emphasize and to make it abundantly clear that Sections 68A,
77A and BOA will be administered by SE81 even though they
do not primarily deal with the issue and transfer of securities
C and non-payment of dividend. Learned senior counsel pointed
out that if Section 608 is excluded from the main part of Section
55A, it will stand excluded for listed companies as well which
is a consequence never envisaged or intended by the
Legislature. Learned senior counsel also submitted on a
D reference to Sections 59 to 81 that Parliament intended to
include all sections in that range. Learned senior counsel
pointed out that Section 55A also applies to companies which
"intend to" get their securities listed and that on a combined
reading of the proviso to Section 67(3} and Section 73(1}, since
E Saharas had made an offer of OFCDs to more than forty nine
persons, the requirement to make application for listing
became mandatory and SE81 has the necessary jurisdiction
even though Saharas had not got their securities listed on a
stock exchange. Learned senior counsel also stated that, the
F plea, that Saharas never wanted or intended to list their
securities, hence escaped from the rigor of Sections 55A, 608,
73 etc. of the Companies Act, cannot be sustained. Learned
senior counsel submitted that Saharas should be judged by
what they did, not what they intended. Reference was placed
G on a Privy Counsel judgment in Young v. Bristol Aeroplane
Company Ltd. [1945 PC 163 (HL}]. Learned senior counsel
also made elaborate arguments on the explanation to Section
55A as well.
43. Shri Dattar also submitted that DIP Guidelines have
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 51
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
statutory force since they are made specifically under the A
powers granted to SEBI under Section 11 of the SEBI Act.
Learned senior counsel pointed out that DIP Guidelines were
implemented by SEBI with regard to all listed companies and
unlisted companies which made a public offer, until it was
replaced by ICDR 2009. Learned senior counsel submitted that B
the issue of OFCDs was in contradiction of Section 73(1) and
the applicable DIP Guidelines/ICDR 2009, consequently, SEBI
was obliged to pass orders for refunding the amount that was
collected by Saharas.
44. Learned senior counsel submitted that under Section C
11 (1) of the SEBI Act, SEBI is duty bound to protect the
interest of investors in securities either listed or which are
required by law to be listed, and under Section 11 B, SEBI has
the power to issue appropriate directions, in the interests of
investors in securities and the securities market, to any person D
who is associated with securities market. Learned senior
counsel pointed out that 2003 Rules are not applicable after
2003, to any offer or shares or debentures to more than forty
nine persons and the rules were amended in the year 2011 to
make explicit what was already implicit, but the statutory E
mandate in this regard was made clearw.e.f. 13.12.2000, and
that the 2003 Rules will be subject to the statutory provisions
of the proviso to Sections 67(3) and 73(1 ).
45. Learned senior counsel also submitted that Saharas' F
basic assumption that they are covered by 2003 Rules is
erroneous. Learned counsel pointed out that a public issue
would not become a preferential allotment by merely labeling
it as such and the facts on record show that the issue could
not be termed as a preferential allotment. Preferential allotment G
learned counsel submits, is made by passing a special
resolution under Section 81 (1A) and is an exception to the rule
of rights issue that requires new shares or debentures to be
offered to the existing members/holders on a pro rata basis.
Learned senior counsel pointed out that once the offer is made
to more than forty nine persons, then apart from compliance H
52 .SUPREME COURT REPORTS [2012] 12 S.C.R.
A with Section 81 (1A). other requirements regarding public
issues have to be complied with.
46. Shri Dattar further submitted that after insertion of the
proviso to Section 67(3) in December, 2000, private placement
as allowed under Section 67(3) was restricted up to forty nine
8
persons only and 2003 Rules were framed k.eepins this
statutory provision in mind and were never intended for private
placement/preferential issue to more than forty nine persons
and the amendments to these rules made in the year 2011
merely made the said legal position under the 2003 Rules,
C explicit. Shri Dattar also submitted that OFCDs are debentures
by name and the nature and the definition of 'debenture' as
given under Section 2(12) of the Companies Act includes any
other securities. Learned senior counsel submitted that the
securities as defined in Section 2(45AA) of the Companies Act
D includes hybrids and, therefore, hybrids fall in the definition of
debentures and are amenable to the provisions of Sections 67
and 73 of the Companies Act.
47. Shri Dattar also submitted that Section 28(1)(b) of SCR
E Act does not apply to convertible debentures and the plea
raised by Saharas is also untenable because the interpretation
placed on Section 28(1)(b) would be in contradiction to the
mandatory provisions of Section 73(1) and the proviso to
Section 67(3) of the Companies Act. It was next submitted that
F if the convertible debentures are excluded from SCR Act, it
would lead to a paradoxical situation because these
debentures are required to be listed under Section 73(1) but
they cannot be listed in view of Section 28(1)(b). Learned senior
counsel submitted that SEBI has rightly claimed jurisdiction to
G administer the OFCDs, as it was obligatory on the part of
Saharas to comply with the statutory requirements of the
Companies Act, SEBI Act and SCR Act. Saharas, learned
senior counsel submits, had no right to collect Rs.27,000 crores
from three crore investors without complying with any regulatory
provisions, except filing of RHP with Roes at Kanpur and
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 53
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.)
Mumbai and that SEBI was justified in directing refunding of A
amount with 15% interest.
48. Shri Harin P. Rawal, Additional Solicitor General
appearing on behalf of Union of India placed detailed written
submissions, supporting the stand taken by SEBI. Powers 8
conferred on SEBI under the SEBI Act as well as the
Companies Act have been elaborately dealt with in the written
submissions filed by him, pointing out that there is no conflict
of jurisdiction of SEBI or RoC/MCA while enforcing the
provisions of SEBI Act and the Companies Act. It was pointed C
out that the•e is no overlap, much less any repugnancy or conflict
between provisions of SEBI Act and those of Section 55A of
the Companies Act and the Sections enumerated thereunder.
It was pointed out that Sections 11A and 11 B of SEBI Act
should be read as provisions additional to Section 55A.
Reference was also made to Section 32 of the SEBI Act and D
it was submitted that the provisions of SEBI Act are "in addition
to" and "not in derogation or the provisions of any other law,
unless the provisions of SEBI Act are wholly inconsistent with
the Companies Act, the provisions of both the SEBI Act and
the Companies Act should be harmonized and both sets of E
provisions given operation. Further, it was pointed out that
Sections 11, 11A, 11 B of SEBI Act are special law and Section
55A and the enumerated sections of the Companies Act are
general law. It was further pointed out that Sections 11 (2A),
11(4) and 11A of SEBI Act were enacted (or amended) in 2002 F
and those provisions did not limit SEBl's powers to only
regulating listed companies. Moreover, those provisions were
predicated upon the continued operation of Sections 11 and
118 even to unlisted companies and, consequently, it cannot
be said that the Parliament intended Section 55A of the G
Companies Act to impliedly repeal the powers of SEBI in
relation to unlisted companies under Sections 11 and 11 B of
SEBI Act.
H
54 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Supreme Court as a court of appeal
49. Saharas have filed these appeals, under Section 152
of the SEBI Act, raising various questions of law which they
claim arise out of the order of the Tribunal. Section 152 reads
as follow:
8
Appeal to Supreme Court:
"15Z. Any person aggrieved by any decision or order of
the Securities Appellate Tribunal may file an appeal to the
c Supreme Court within sixty days from the date of
communication of the decision or order of the Securities
Appellate Tribunal to him on any question of law arising
out of such order:
Provided that the Supreme Court may, if it is satisfied that
D the applicant was prevented by sufficient cause from filing
the appeal within the said period allow it to be filed within
a further period not exceeding sixty days."
50. The Securities Appellate Tribunal (for short 'SAT')
E which exercises powers under Section 15T, it is well settled,
is the final adjudicator of facts. Under Sub-section (3) of
Section 15U of SEBI Act, every proceeding before the Tribunal
shall be deemed to be a judicial proceeding within the meaning
of Sections 193 and 228 and for the purpose of Section 196
F IPC. Under Section 15U, the Tribunal, in exercise of its powers
and in discharge of its functions, shall not be bound by the
procedure laid down by the Code of Civil Procedure, but shall
be guided by the principles of natural justice. The Tribunal has,
for the purpose of discharging its functions, the same powers
G as are vested in a Civil Court under the Code of Civil
Procedure. Broadly speaking, the Tribunal has trappings of a
court in the sense that it has to determine the appeal placed
before it judicially and give a fair hearing to the parties, to
accept evidence and also order for inspection and discovery
H of documents, compel attendance of witnesses and to pass a
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 55
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
reasoned order which gives finality to the dispute, subject to A
the appeal to Supreme Court under Section 15Z of the Act.
Findings of fact generally fall in the domain of the Tribunal
provided it stays within its jurisdiction. Situations may also be
there, where the evidence taken as a whole is not reasonably
capable of supporting the findings recorded by the Tribunal or B
the Tribunal could have reasonably recorded that conclusion.
Questions repeatedly posed in this case before SEBI as well
as before SAT, were with regard to the nature of OFCDs issued
by Saharas. RHPs produced had disclosed that Saharas did
not intend the proposed securities to be listed on any stock c
exchange and that the issues consisted of unsecured OFCDs
with an option to convert the same to equity shares. Saharas
had also disclosed that the issue was made on a private
placement basis and that OFCDs would be offered also to such
persons to whom IM would be circulated. But the fact remains D
that it was circulated to more than three crore people inviting
them to subscribe. The same was circulated through ten lac
agents and more than 2900 branch offices and Saharas had
a capital base of only 10 lakhs with no other assets or reserves
and was a loss making company and had collected nearly
27,000 crores by way of private placement through unsecured E
OFCDs redeemable/convertible after 48/60/120 months. Fact
finding authorities repeatedly asked for information regarding
the names, addresses of investors in OFCDs and the amounts
subscribed by them. SIRECL claimed that it had furnished to
SEBI a separate CD giving the details of names of investors, F
the amount invested etc. along with the password and keys,
along with its letter dated 19.4.2011 which, according to
SIRECL, was never opened or checked. SEBI, as already
indicated, has been vested with the powers of a Civil Court
under CPC, as per Sub-section (3) of Section 11 of the SEBI G
Act. Under Section 11 C, the Board has also been vested with
the powers to order investigation to examine whether any
person associated with securities market has violated any
provision of the Act or the rules or the regulations made or
direction issued by the Board. H
56 SUPREME COURT REPORTS (2012] 12 S.C.R.
A 51. Saharas, along with Vol Ill {additional documents), filed
before this Court, gave certain details of the persons who have
invested. Documents produced before us and before the fact
finding authorities do not show the relationship Sahara Group
had with the investors. Claim of Saharas was that the investors
B were their friends, associated group companies, workers/
employees and other individuals who were associated/affiliated
or connected with Sahara Group. Saharas, in the bonds,
sought for a declaration from the applicants that they had been
associated with Sahara Group. No details had been furnished
c to show what types of association the investors had with
Sahara Group. Bonds also required to name an introducer,
whose job evidently was to introduce the company to the
prospective investor. If the offer was made to those persons
related or associated with Sahara Group, there was no
necessity of an introducer and an introduction. Burden of proof
0
is entirely on Saharas to show that the investors are/were their
employees/ workers or associated with them in any other
capacity which they have not discharged. Fact finding authorities
have clearly held that Saharas had not discharged their burden
which is purely a question of fact. Facts are elaborately
E discussed by SEBI {WTM) and SAT, hence we do not want to
burden this judgment with those factual details. I find no
perversity or illegality in those findings which call for interference
by this Court sitting under Section 15Z of the SEBI Act. I,
therefore, fully concur with the Tribunal that the money collected
F by Saharas through their RHPs dated 13.3.2008 and
6.10.2009, through the OFCDs, were from the public at large
and the same would amount to collection of money by way of
issue of securities to the public, a finding which calls for no
interference by this Court sitting under Section 15Z of the SEBI
G Act.
52. I will now examine various questions of laws raised
before us. Following are some of the cardinal issues that have
come up for consideration, apart from other incidental issues
H and ancillary issues, which also I may deal with:
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES S7
AND EXCH. BOARD OF INDIA [KS. RADHAKRISHNAN, J.]
QUESTIONS OF LAW FRAMED A
(a) Whether SEBI has jurisdiction or power to
administer the provisions of Sections S6, 62, 63,
67, 73 and the related provisions of the Companies
Act, after the insertion of Section SSA(b) w.e.f. 8
13.12.2000, by the Companies (Amendment) Act,
2000, so far as it relates to issue and transfer of
securities by listed public companies, which intend
to get their securities listed on a recognized stock
exchange and public companies which have issued
securities to fifty persons or more without listing
c
their securities on a recognized stock exchange;
(b) Whether the public companies referred in question
no. (a) is legally obliged to file the final prospectus
under Section 608(9) with SEBI and whether D
Section 608, as it is, falls under Section SSA of the
Companies Act;
(c) Whether Section 67 of the Companies Act implies
that the company's offer of shares or debentures to E
fifty or more persons would ipso facto become a
public issue, subject to certain exceptions provided
therein and the scope and ambit of the first proviso
to Section 67(3) of the Act, which was inserted
w.e.f. 13.12.2000 by the Companies (Amendment)
Act, 2000;
F
(d) What is the scope and ambit of Section 73 of the
Companies Act and whether it casts an obligation
on a public company intending to offer its shares
or debentures to the public, to apply for listing of its G
securities on a recognized stock exchange once it
invites subscription from fifty or more persons and
what legal consequences would follow, if
permission under sub-section (1) of Section 73 is
not applied for listing of securities; H
58 SUPREME COURT REPORTS (2012] 12 S.C.R.
A (e) What is the scope and ambit of DIP (Guidelines)
and ICDR 2009 and whether Sahara had violated
the various provisions of the DIP (Guidelines) and
ICDR 2009, by not complying with the disclosure
requirements or investor protection measures
B prescribed for public issue under DIP (Guidelines)
and ICDR 2009, thereby violating Section 56 of the
Companies Act;
(f) Whether Rules 2003 framed by the Central
Government under Section 81(1A) of the
c Companies Act read with Section 642 of the Act
are applicable to any offer of shares or debentures
to fifty or more as per the first proviso to sub-section
(3) of Section 67 of the Companies Act and what
is the effect of UPC (PA) Amendment Rules 2011
D and whether it would operate only prospectively
making it permissible for Saharas to issue OFCDs
to fifty or more persons prior to 14.12.2011;
(g) Whether after the insertion of the definition of
E 'securities' in Section 2(45AA) as "including
hybrids" and after insertion of the separate definition
of the term "hybrid" in Section 2(19A) of the Act, the
provision of Section 67 would apply to OFCDs
issued by Saharas and what is the effect of the
F definition clause 2(h) of SCR Act on it;
(h) Whether OFCDs issued by Saharas are convertible
bonds falling within the scope of Section 28(1 )(b)
of the SCR Act, therefore, not 'securities' or, at any
rate, not listable under the provisions of SCR Act;
G
(i) Whether SEBI can exercise its jurisdiction under
Sections 11(1), 11(4), 11A(1)(b) and 118 of the
SEBI Act and Regulation 107 of ICDR 2009 over
public companies who have issued shares or
H debentures to fifty or more, but have not complied
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 59
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
with the provision of Section 73(1) by not listing its A
securities on a recognized stock exchange.
Scope of Section 73(2) of the Companies Act
regarding refund of the money collected from the
Public; B
(k) Civil and Criminal liability under the various
provisions of the Companies Act.
53. Much of the arguments on either side centered round
the scope and interpretation of various provisions of the c
Companies Act, SEBI Act and the rules and regulations framed
thereunder, relating to matters concerning the issue of
securities, powers of SEBI, Central Government (MCA), RoC,
which are being discussed hereunder. Powers conferred on
SEBI, Central Government, (MCA), RoC etc. under the 0
Companies Act, SEBI Act also call for consideration.
Powers of SEBI. Central Government. (MCA). Registrar of
Companies under the companies Act and SEBI Act:
54. The Companies Act, 1956 is a consolidation of the E
then existing laws, statutory rules and certain judgments laid
down by the Courts in India and England. This Court in
Commissioner of Income Tax, Gujarat v. Girdhardas and Co.
Private Ltd. AIR 1967 SC 795, noticed that the Companies Act,
1956 substantially incorporated the provisions of the English F
Companies Act, 1948. However, there has been considerable
shift of principles and concepts after the formation of 1948
English Companies Act and those principles and concepts find
a place in the later English Companies Act, 1985, followed by
1989 Act. Indian Companies Act, 1956 still remains static on G
various issues. No efforts have been made to incorporate
universally accepted principles and concepts into our company
law, hitherto. Of late, however, some efforts have been made
to carry on few amendments to the Companies Act, 1956, so
also in the SEBI Act, 1992 and also by framing rules and H
60 SUPREME COURT REPORTS [2012] 12 S.C.R.
A regulations like SEBI Rules, Regulations, so as to keep pace
with the English Companies Act and related legislations.
Instances are many where securities market have collapsed in
England, USA, India etc. due to high-profile corporate fraud
cases, leading to legislative intervention in various countries
B including India. For example, England faced a flood of
speculative and fraudulent schemes of company flotation, a
classic example is scheme formulated by the South Sea
Company, which collapsed in 1720, which heralded the start
of Security Law in England. Great Crash of New York in 1929
C also contributed in equal measure apart from other high-profile
corporate fraud cases in U.S.A. Various ventures, undertakings
by the companies registered under England Companies Act
have their own impact on Securities Law as well. Prior to 1985,
in England, the procedure to be followed by the companies for
the issue of securities were mainly contained in the Companies
0
Act 1948, the Companies Act 1980 and the Prevention of Fraud
in Investment Act 1958. Later, in England, the Companies Act
2006 was enacted making detailed and important changes to
the legal treatment of shares. Securities markets now stand
controlled by the Financial Services and Market Act, 2000
E (FSMA) in England, which has created the Financial Service
Authority (FSA). Historical facts also show that fraudulent .
accounting and non-disclosure of information was root cause
for collapse of Enron, Barings, World Com, BCCI etc. which
put the reforms of corporate governance on the agenda in the
F United States.
55. India is also not an exception. Harshad Mehta, a
Broker, was charged for diverting funds from the Bank to the
tune of Rs.4000 crores to stock brokers between 1991-92;
G Ketan Parekh Securities Scam in the year 2001 in which
investors, it was reported, had lost heavily; so also the Banks
in the UTI scam 2001, where it was reported that heavy funds
were collected from small investors and money was used to
fund large business houses and huge amounts were invested
H in junk bonds; Satyam Computers Scam of 2008, where it was
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 61
AND EXCH. BOARD OF INDIA (K.S. RADHAKRISHNAN, J.]
reported that, over a number of years, Satyam Computer A
account was manipulated and money was raised through
shares.
56. Both in England and India, it is well established, that
the range of functions that may be performed by a company B
incorporated under the Companies Act is extremely wide.
Public companies and private companies, functioning under the
Companies Act 2006 in England, the Companies Act 1956 in
India, have considerable social and economic importance, but
public companies are more highly regulated thao private C
companies. Private companies are not authorized to offer any
securities to the public. FSMA in England generally deals with
issue of securities to the public, including listing Rules, the
Prospectus Rules, and continuing obligation contained in the
Disclosure and Transparency Rules etc. The Companies Act
1956 in India was enacted with the object to protect the D
interests of a large number of shareholders, safeguard the
interests of the creditors to attain the ultimate ends of social
and economic policy of the Government. Provisions have also
been incorporated making provisions for prospectus, allotment
and other matters relating to issue of shares and debentures E
etc. Parliament has also enacted the SEBI Act to provide for
the establishment of a Board to protect the interests of investors
in securities and to promote the development of, and to regulate
the securities market. SEBI was established in the year 1988
to promote orderly and healthy growth of the securities market F
and for investors' protection. SEBI Act, Rules and Regulations
also oblige the public companies to provide high degree of
protection to the investor's rights and interests through
adequate, accurate and authentic information and disclosure
of information on a continuous basis. G
57. SEBI Act is a special law, a complete code in itself
containing elaborate provisions to protect interests of the
investors. Section 32 of the Act says that the provisions of that
Act shall be in addition to and not in derogation of the provisions H
of any other law.
62 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 58. SEBI Act is a special Act dealing with specific subject,
which has to be read in harmony with the provisions of the
Companies Act 1956. In fact, 2002 Amendment of the SEBI
Act further re-emphasize the fact that some of the provisions
of the Act will continue to operate without prejudice to the
B provisions of the Companies Act, qua few provisions say that
notwithstanding the regulation and order made by SEBI, the
provisions of the Companies Act dealing with the same issues
will remain unaffected. I only want to highlight the fact that both
the Acts will have to work in tandem, in the interest of investors,
C especially when public money is raised by the issue of
securities from the people at large.
59. Powers and functions of SEBI are dealt with in
Chapter IV of the SEBI Act. Section 11 states that, subject to
the provisions of the Act, it shall be the duty of SEBI to protect
D the interests of investors in securities and to promote the
development of and to regulate the securities market. SEBI is
also duty bound to prohibit fraudulent and unfair trade practices
relating to securities markets, prohibiting insider trading in
securities etc. Section 11A authorizes SEBI to regulate or
E prohibit issue of prospectus, offer document or advertisement
soliciting money for issue of securities which read as follows:
"11 A (1) Without prejudice to the provisions of the
Companies Act, 1956(1 of 1956), the Board may, for the
protection of investors, -
F
(a) specify, by regulations -
(i) the matters relating to issue of capital, transfer of
securities and other matters incidental thereto; and
G
(ii) the manner in which such matters shall be disclosed
by the companies;
(b) by general or special orders -
H (i) prohibit any company from issuing prospectus, any
SAHARA INDIA REAL ESTATE CORP LTD. v. SECURITIES 63
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
offer document, or advertisement soliciting money A
from the public for the issue of securities;
(ii) specify the conditions subject to which the
prospectus, such offer document or advertisement,
if not prohibited, may be issued.
B
(2) Without prejudice to the provisions of section 21 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956),
the Board may specify the requirements for listing and
transfer of securities and other matters· incidental thereto."
c
Section 11 B empowers the Board to issue directions
which reads as follows:
"11 B. Save as otherwise provided in section 11, if after
making or causing to be made an enquiry, the Board is
0
satisfied that it is necessary,-
(i) in the interest of investors, or orderly development
of securities market; or
(ii) to prevent the affairs of any intermediary or other E
persons referred to in section 12 being conducted
in a manner detrimental to the interest of investors
or securities market; or
(iii) to secure the proper management of ·any such
intermediary or person, F
it may issue such directions,-
(a) to any person or class of persons referred to in
section 12, or associated with the securities G
market; or
(b) to any company in respect of matters specified in
section 11A, as may be appropriate in the interests
of investors in securities and the securities market."
H
64 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 60. I find all the above quoted provisions are inter-related
and inter-connected and the main focus is on Investor
Protection. Power is also conferred on SEBI under Section 11 C
to conduct investigation if the transactions are being dealt with
in a manner detrimental to the investors or securities market.
B Mandatory listing of securities in case of offer to public would
cast an obligation on the issuers to ensure the transparency of
information and other continuing obligations to provide
information by means of prospectus and to follow disclosure
provisions.
c 61. I may, in the above background, examine the various
provisions of the Companies Act which cast a legal obligation
on the public companies which offer securities to the public and
the SE Bi's power or jurisdiction to administer those companies
and the legal requirement to be followed while making offer of
D securities to the public. When we interpret and deal with the
provisions like Section 55A, 608, 67, 73 etc. of Companies
Act, we have to always bear in mind the various provisions of
the SEBI Act, especially Sections 11, 11A, 11 B, 11 C, 32 etc.
because as we have already indicated, those provisions shall
E be in addition to and not in derogation of the provisions of the
Companies Act.
62. I _may straightway deal with the first question posed on
the jurisdiction of SEBI over various provisions of the
F companies Act in the case of public companies, whether listed
or unlisted, when they issue and transfer securities.
63. Section 55A, the scope of which has been extensively
argued, is given below for easy reference:
G "SSA. Powers of Securities and Exchange Board of
India.- The provisions contained in sections 55 to 58, 59
to 81, (including Sections 68A, 77A and 80A)108, 109,
110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206,
206A and 207, so far as they relate to issue and transfer
H of securities and non-payment of dividend shall,-
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 65
AND EXCH. BOARD OF INDIA [KS. RADHAKRISHNAN, J.]
(a) in case of listed public companies; A
(b) in case of those public companies which intend to get
their securities listed on any recognized stock exchange
in India, be administered by the Securities and Exchange
Board of India; and B
(c) in any other case, be administered by the Central
Government.
Explanation.-For the removal of doubts, it is hereby
declared that all powers relating to all other matters C
including the matters relating to prospectus, statement in
lieu of prospectus, return of allotment, issue of shares and
redemption of ir-redeemable preference shares shall be
exercised by the Central Government, Tribunal or the
Registrar of Companies, as the case may be." o
64. Section 55A was inserted in the Act by the Companies
(Amendment) Act, 2000 w.e.f. 13.12.2000. Clauses (v) to (x)
of the Statement of Objects and Reasons give an indication of
the intention of the Legislature. Clauses (v) and (x) read as
follows: E
"Clause (v) - to provide that the Securities and
Exchange Board of India be entrusted with powers with
regard to all matters relating to public issues and transfers
including power to prosecute defaulting companies and F
their directors.
(x) to provide that any offer of shares or debentures
to more than 50 persons shall be treated as a public issue
with suitable modification in the case of public financial G
institutions and non-banking financial companies."
(emphasis supplied)
65. Legislative intention to entrust the powers with SEBI,
with regard to all matters relating to public issues and transfers H
66 SUPREME COURT REPORTS [2012] 12 S.C.R.
A including power to prosecute default companies and their
directors, is based on information derived from past and
present experiences. Powers have been specifically conferred
on SEBI because it was established under the SEBI Act, 1992,
in order to protect the interest of investors in securities and to
B promote the development of and to regulate the securities
market and for matters connected therewith or incidental
thereto. When we look at Section SSA it is clear that it deals
with the following three categories:
'
(a) Listed public companies
c
(b) Public companies which intend to get their securities
listed on any recognized stock exchange in India; and
(c) "in any other case" that is, all other unlisted public
0 companies, which do not make a public offer of securities
and private companies.
66. Public companies which fall under categories (a) and
(b) are to be administered by SEBI and with regard to various
provisions mentioned in the first part of Section SSA. so far they
E relate to issue and transfer of securities and non-payment of
dividend and rest of the matter be administered by the Central
Government. Power of administration of Sections S6, 62, 63
and 73 with respect to issue of OFCDs lies with SEBI and not
with the Central Government since they relate to issue of
F securities.
67. We shall now examine the structure of Section SSA and
when we do that, we have to necessarily keep in mind the
object and purpose of that section, the intention of the
G Legislature and the role and function to be performed by the
specialized forum, SEBI, created by the SEBI Act. Powers
conferred on SEBI under Section 11A to protect the interest of
investors that too without prejudice to the provisions of the
Companies Act, may also be borne in mind when we interpret
H Section SSA, as already indicated. Provisions which relate to
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 67
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.j
issue and transfer of securities and non-payment of dividend A
have to be administered by SEBI, a legal obligation cast on
SEBI. Section 55A specifically refers to Sections 55 to 5B and
Sections 59 to 81 with an emphasis to Sections 6BA, 77A and
BOA within brackets. Specific reference has been made to
Sections 10B, 109, 110 and Sections 116, 117, 11B, 119, 120, B
121, 122, 206, 206A and 207. The Original Companies
(Second Amendment) Bill of 1999 [Bill No. 139 of 1999] did
not have the parenthetical clause in Section 55A (i.e. including
Sections 6BA, 77 A and BOA) which was introduced as
corrigendum before the leave was sought and granted to c
introduce the Bill in the Lok Sabha and with this corrigendum
the bill was passed in the Lok Sabha on 27.11.2000 and then
on 30.11.2000 by the Rajya Sabha and later assented by the
President. Contention was, therefore, raised that when the Bill
was introduced it was provided that Sections 59 to B1 were to D
be administered by SEBI, in respect of listed public companies
and companies intended to get their securities listed in a stock
exchange. But, it was pointed out, that Sections in between
Sections 59 to B1, which had letters 'A' or 'B' as a suffix, were
not all intended to be covered by Section 55A, hence the
necessity for the parenthetical clause added by a corrigendum, E
i.e. (including Sections 6BA, 77A and BOA). Further, it was also
contended that where provisions ending with the suffix 'A', 'AA'
or 'B' were intended to be included in Sections 59 to B1, it was
specifically so provided. Reference was made to Section 206A
which finds a place in Section 55A. For the above, it was F
submitted by Saharas that Section 60B could not have been
intended to be included in the parenthetical portions and could
not be said to have covered by Section 55A.
6B. All sections falling within Sections 55 to 5B of the G
Companies Act will fall under those sections. So far as Section
55A is concerned, it is the very Section which deals with
powers of SEBI, Central Government, Tribunal, Company Law
Board, Registrar of Companies etc. Reference to Sections 59
to 81 indicated that Parliament intended to include all sections H
68 SUPREME COURT REPORTS [2012) 12 S.C.R.
A in that range which takes in Sections 608, 62, 63, 67, 73 etc.
of the Companies Act. Section 67 is also a section of
considerable importance because the expression "offer of
shares or debentures to the public" finds a place in various
sections of the Act, as well as the articles of a company. Further,
B the first proviso added to Section 67(3) vide the Companies
(Amendment) Act, 2000 w.e.f. 13.12.2000 is also of
considerable bearing in determining whether a public company
offering shares or debentures to the public has to list its
securities on a recognized stock exchange. Expression 'to'
c clearly has a meaning i.e. evervthing in between or destination
of an action. The meaning of the expression 'to' came up for
consideration before this Court in Hindustan Lever Ltd. v.
Ashok Vishnu Kate and Ors. (1995) 6 SCC 326. Further, the
specific inclusion of Sections 6BA, 77A and BOA in a bracket,
would not mean the exclusion of all sections between in
D Sections 59 to B1 with suffix 'A' or 'AA' or 'B'. The word
'including' used in the parenthetical clause is only to give
emphasis to those sections. Lord Watson in Dilworth v.
Commissioner of Stamps (1999) AC 99 said that the word
'include' is very generally used in interpretation clause in order
E to enlarge the meaning of words or phrases occurring in the
body of the Statute and, when it is so used, these words and
phrases must be construed as comprehending, not only things
they signify according to their natural import, but also those
things which the interpretation clause declares that they shall
F include.' In Delhi Judicial Services Association v. State of
Gujarat AIR 1991 SC 2176, the expression used in Article 129
of the Constitution i.e. including the power to punish for
contempt of itself which was interpreted by the Court stating that
the expression 'including' has been interpreted by Courts to
G extend and widen the scope of power. Giving emphasis to
Sections 6BA, 77A and BOA does not mean the exclusion of
all such similar sections.
69. Legislature, in its wisdom, thought some emphasis has
H to be given to Sections 6BA, 77A and BOA because all those
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 69
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
sections provide certain offences to be punishable with A
imprisonment. Further clue for that reasoning, we may get, if
we examine the manner in which the Legislature has used
succeeding sections. In Section 55A there is a specific
reference to Section 108, not Sections 108A to I. So also
Section 55A specifically refers to Section 109, not Sections B
109A and B. Legislature wanted inclusion of Sections 108A to
I, Section 109A etc., then it would have said Sections 108 to
110. Further, the Legislature never wanted the inclusion of
Sections 117A to C, hence it used Section 117 alone, not
Sections 116 to 122. if it has used so, then Sections 117A to c
C also would have been included. Legislature in that sequence
wanted inclusion of Sections 206 and 206A, hence both the
sections have been included. Hence, when the legislature has
used the expression Sections 59 to 81, 608 which falls in
between, stands included. Further, the entrustment of powers D
on SEBI, under Section 55A, is in addition to the then existing
powers of SEBI under SEBI Act, 1992, which takes Sections
11, 11A and 11B as well.
70. Explanation has been added to Section 55A to
harmonize and to clear up doubts and allay groundless E
apprehensions. In S. Sundaram Pillai & Ors. v. V.R.
Pattabiraman & Ors. (1985) 1 SCC 591, this Court has ruled
that the purpose of the explanation is to clarify where there is
any obscurity or vagueness in the main enactment and to make
it consistent with the dominant object which it seems to serve. F
The main part of Section 55A confers jurisdiction on SEBI with
regard to three categories i.e. issue of securities, transfer of
securities and non-payment of dividend. The expression "all
other matters" mentioned in the explanation would refer to
powers other than the above mentioned categories. Further, it G
may also be remembered that the explanation does not take
away the powers conferred on SEBI by other sections of the
Companies Act. At the same time, matters relating to
prospectus, statement in lieu of prospectus, return of allotment,
issue of shares and redemption of irredeemable preference H
70 SUPREME COURT REPORTS (2012] 12 S.C.R.
A shares be exercised by the Central Government, Tribunal,
Company Law Board, Registrars of Companies, as the case
may be. Further, Section 608(9) clearly indicates that upon
closing of the offer of securities, a final 'prospectus' has to be
filed in the case of listed company with SEBI and Registrar,
B hence the explanation to Section 55A can never be constructed
or interpreted to mean that SEBI has no power in relation to
the prospectus and the issue of securities by an unlisted public
company, if the securities are offered to more than forty nine
persons.
c 71. I am, therefore, of the view that the mere fact that
emphasis has been given to Sections 68A, 77A and BOA, does
not mean the exclusion of Section 608 from Section 59 to 81.
We, therefore, hold that, so far as the provisions enumerated
in the opening portion of Section 55A of the Companies Act,
D so far as they relate to issue and transfer of securities and non-
payment of dividend is concerned, SEBI has the power to
administer in the case of listed public companies and in the
case of those public companies which intend to get their
securities listed on a recognized stock exchange in India. In any
E other case, i.e. rest of the matters, that is excluding matters
relating to issue and transfer of securities and non-payment of
dividend be administered by the Central Government in the
case of listed public companies and those companies which
intend to get their securities listed on any recognized stock
F exchange in India. Explanation to that section further clarifies
the position so as to remove doubts, saying all powers relating
to other matters including the matters relating to prospectus,
statement in lieu of prospectus, return of allotment, issue of
shares and redemption of irredeemable preference shares,
G should be exercised by the Central Government, Tribunal or the
Registrar of Companies, as the case may be. Section 55A,
therefore, makes it clear that SEBI has the power to administer
the above mentioned select provisions of the Companies Act
relating to matters specified therein. Contention raised by
H Saharas that without regulations being framed under Section
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 71
AND EXCH. BOARD OF INDIA [KS. RADHAKRISHNAN, J.]
642(4) of the companies Act, SEBI cannot exercise powers of A
administration, is totally unfounded and is rejected.
PROSPECTUS AND IM
72. Prospectus is the principal medium through which the
investors get information of the strength and weakness of the B
company, its creditworthiness, credence and confidence of
promoters and the company's prospects. Section 55 of the Act
provides that a prospectus issued by or on behalf of a company
or in relation to an intended company shall be dated and that
date shall be taken as the date of its publication. The matters C
to be stipulated and reports to be set out are provided under
Section 56 of the Act, read with Part 1 of Schedule 11 of the
Companies Act, which also calls for the details of the stock
exchange where application was made for listing of issue of
securities. Section 60 of the Act deals with registration of the D
prospectus. Section 60(3) specifically states that the Registrar
shall not register a prospectus unless the requirements of
Sections 55, 56, 57 and 58 and sub-sections (1) & (2) of that
section have been complied with. Securities can be listed on
a recognized stock only after the prospectus is prepared and E
approved by the RoC, SEBI, as the case may be. Section 62
imposes civil liability for mis-statements in prospectus and
Section 63 criminal liability. Section 68 provides imprisonment
for a term which may extend to five years, or with fine which
may extend to one lakh rupees, or with both, for fraudulently F
inducing persons to invest money. In other words, either to offer
transferrable securities for sale to the public or to request the
admission of securities for trading on a regulated market
without prospectus, or to offer transferrable securities for sale
to the public, by way of shares and debentures, in violation of G
the first proviso to Section 67(3) may attract civil and criminal
liability. Saharas, in this case, published RHPs with the approval
of RoC, but did not get them approved by SEBI or their
securities listed on a recognized stock exchange.
73. Section 608 which was included in the Act by the H
72 SUPREME COURT REPORTS (2012] 12 S.C.R.
A Companies Amendment Act, 2000 (Act 53 of 2000) w.e.f.
13.12.2000. 608(1) reads as follows:
"SOB. Information memorandum.
(1) A public company making an issue of securities may
B circulate information memorandum to the public prior to
filing of a prospectus."
74. Section 608(1) is an enabling provision which enables
a public company making an issue of securities to circulate
c information memorandum (IM) to the public before filing the
prospectus. Purpose of that sub-section is for assessing the
demand and the price which the public would be willing to offer,
which is not a mandatory requirement. Note on Clause 52 of
the 1997 Bill explains the object and purpose of that Section
0 as follows:
"This Section provides for the concepts of 'book building'
and 'information memorandum'. This is an international
practice and refers to collecting orders from investment
bankers and large investors based on an indicative price
E range. This is essentially a pre-issue exercise which will
facilitate the issuers to get better idea of demand and the
final offer price. The directors of the company, however,
will not be permitted to resort to underwriting on book
building."
F
75. Section 608(1 ), therefore, was introduced to facilitate
a pre-issue exercise to get a better insight of demand and final
offer price. Section 608(2) of the Act refers to the stage at
which the RHPs has to be filed by the company. The provision
G clearly states that the company inviting subscription by an IM
shall be bound to file a prospectus prior to the opening of the
subscription lists and the offer as a RHP, at least three days
before the opening of the offer. Section 608(3) stipulates that
IM and RHPs shall carry the same obligations as are
H applicable in the case of prospectus. Explanation clause states,
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 73
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
"for the purpose of Sub-sections (2), (3) and (4), "Red Herring A
Prospectus" means a prospectus which does not have
complete particulal'S on the price of the securities offered and
the quantum of sec~rities offered". The expression "prospectus"
is also defined in the Act vide Section 2(36) of the Companies
Act as follows: B
"2(36) "Prospectus" means any document described
or issued as a prospectus and includes any notice,
circular, advertisement or other document inviting deposits
from the public or inviting offers from the public for the C
subscription or purchase of any shares in, or debentures
of, a body corporate. (emphasis supplied)"
Section 608(9) deals with the final prospectus, which
reads as follows:
D
"608 (9) Upon the closing of the offer of securities, a final
prospectus stating therein the total capital raised, whether
by way of debt or share capital and the closing price of
the securities and any other details as were not complete
in the red-herring prospectus shall be filed in a case of a E
listed public company with the Securities and Exchange
Board and Registrar, and in any other case with the
Registrar only."
76. Section 608(9) deals with two categories of companies
i.e. "listed public company" under one category and the rest of F
the companies falling under "any other case" under another
category. A company inviting subscription from public by an IM
is bound to file a prospectus prior to the opening of the
subscription lists. That is the moment a company decides to
issue securities to the public, a duty is cast on it to get its G
securities listed on a recognized stock exchange. Section 608,
as already indicated, refers to IM. Section 2(198) was inserted
by the Companies (Second Amendmen_t) Act, 2002, w.e.f.
1.4.2003, which reads as follows:
H
74 SUPREME COURT REPORTS [2012] 12 S.C.R.
A "2(198) "information memorandum" means a
process undertaken prior to the filing of a prospectus by
which a demand for the securities proposed to be issued
by a company is elicited, and the price and the terms of
issue for such securities is assessed, by means of a
8 notice, circular, advertisement or document.•
77. The initiation of the process of offering securities to
the public by a company, therefore, starts with IM, but it is bound
to file a prospectus prior to the opening of subscription lists and
the offer as RHPs and then reaches its final intimation, that is
C after closing of the offer of securities with a final prospectus,
with the requisite details and any other details as were not
completed in the RHP by filing the same with SE81 and
Registrar of Companies. Therefore, a company which has
made on offer of securities to the public and, therefore, has
D applied for listing on a stock exchange, will fall under the
category of listed companies and not in 'any other case' under
Section 608(9) of the Act. Therefore, a reading of Sections
608(1), (2) and (3) reveals the stage when IM and RHPs are
filed and Section 608(9) the stage of culmination on closing of
E the offer of securities and filing of the prospectus of a listed
company with SE81 and RoC and in any other case with only
the RoC. Registration of prospectus is dealt with in Section 60
of the Act which says, no prospectus shall be issued by or on
behalf of a company or in relation to an intended company,
F unless on or before the date of its publication, there has been
delivered to the RoC for Registration a copy thereof, duly
signed and complying with statutory requirements. Registrar
shall not register a prospectus unless the requirements of
Sections 55, 56, 57 and 58 and Sub-sections (1) and (2) of
G Section 60 have been complied with. Section 56 refers to the
matter to be stated and reports to be set out in the prospectus,
and states that every prospectus issued shall state the matter
specified in Part I of Schedule II and set out reports as
specified in Part II of the Schedule, which will have effect subject
H to the provisions contained in Part Ill of that schedule. General
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 75
AND EXCH. BOARD OF INDIA [KS. RADHAKRISHNAN, J.]
infonnation clause (c) of Part I of Schedule II calls for the names A
of recognized stock exchange and other stock exchanges
where application is made for listing. Section 60B(3), as I have
already indicated, says IM and RHPs shall carry same
obligations as are applicable in the case of a prospectus.
B
78. SEBI, under Section 60B(9), however, as a Regulator
is legally obliged to examine whether, upon the closing of the
offer of securities, a final prospectus giving the details of the
total capital raised, whether by way of debt or share capital and
the closing of the securities and other details as were not C
complete in RHPs, have been filed in a case of listed public
company with SE81. This duty is cast on the Registrar alongwith
SE81 in the case of a listed public company and in any other
case only the Registrar.
79. Saharas have taken up the stand that they have only D
circulated the IM, by way of private placement, to their
associates, group companies, workers/employees etc. Section
608(1) , as I have already indicated, casts no obligation to issue
an IM. It is open to a public company making an issue of
securities to circulate the IM to public before filing a prospectus E
for assessing the demand and price which public would be
willing to offer. If Saharas were going for a private placement,
then I fail to see why they had elicited all those details through
an IM, since Section 608(1) deals with issue of IM to the public
alone. But from Saharas' conduct and action, it is clear, that F
their intention was to issue securities to the public under the
garb of private placement. RHPs issued by Saharas indicated
that they did not intend the proposed issue of securities to be
listed on a stock exchange, even though in reality the securities
were issued to the public. Every company which intends to offer G
shares or debentures to the public for subscription by way of a
prospectus is legally obliged to make an application on a
recognized stock exchange. Let us examine whether Saharas
practiced what they have preached. First, they have breached
the very statutory declaration prescribed in Part 1 of Schedule H
II ~tat11torv declaration reads as follows:
76 SUPREME COURT REPORTS [2012] 12 S.C.R.
A "Declaration: That all the relevant provisions of the
Companies Act, 1956, and the guidelines issued by the
Government or the guidelines issued by the Securities and
Exchange Board of India established under section 3 of
the Securities and Exchange Board of India Act, 1992, as
B the case may be, have been complied with and no
statement made in prospectus is contrary to the provisions
of the Companies Act, 1956 or the Securities and
Exchange Board of India Act, 1992 or rules made
thereunder or guidelines issued, as the case may be.:
c 80. RHP issued by Saharas (SIRECL) contains not the
declaration mentioned above, but states as follows:
"All the relevant provision of the Companies Act, 1956 and
the guidelines issued by the Government have been
D complied with and no statement made in the prospectus
is contrary to the provisions of the Companies Act, 1956
and the Rules thereunder."
In the Bond (OFCDs) of Saharas, there is a head
E "Declaration" which, inter alia, reads as follows:
"... .I confirm that I am/applicant associated with Sahara
India Group. I have been explained everything in the
language known to me and I have given my full consent on
terms and conditions mentioned above."
F
Further, at the end of the page containing the terms and
conditions of bond, the following is also given as a declaration,
which reads as follows:
"I have explained everything in the language known to the
G
applicanURepresentative of applicant and he/she has
given his/her full consent on terms and conditions
mentioned above. I, hereby further declare that all
declaration made by the Bond Holder/Representative of
Bond Holder and alfthe information/personal particulars
H given above by the Bond Holder/Representative of Bond
SAHARA INDIA REAL ESTATE CORP. LID. v. SECURITIES 77
AND EXCH. BOARD OF INDIA [KS. RADHAKRISHNAN, J.)
Holder are correct and true to the best of my knowledge A
and belief. Signature of the Introducer."
81. I fail to see, if the investors were associated with
Sahara Group, as declared, then where was the necessity of
an Introducer and Introduction. If the offer was made only to B
persons associated, related· or known to Sahara Group, then
they could have furnished those details before the fact finding
authorities. Further, in the IM, Saharas had stated that if the
number of interested parties to the issue exceeds fifty they
should approach the RoC to file RHPs as per Section 67(3) of
the Companies Act, which clearly indicates that Saharas knew, C
by virtue of the first proviso to Section 67, if the number of
persons exceeds fifty, then the same would be a public issue.
Facts indicate that, through this dubious method, that SIRECL
had approached more than thirty million investors, out of which
22.1 million have invested in the OFCDs and it had raised D
nearly 20,000 crores, for which it had utilized the services of
its staff in 2900 branches/service centers and utilized the
services of more than one million agents/representatives. Court
can, in such circumstances, lift the veil to examine the conduct
and method adopted by Saharas to defeat the various E
provisions of the Companies Act, already discussed, read with
the provisions of the SEBI Act.
82. I, in the above facts and circumstances, fully endorse
the findings recorded by SEBI (WTM) and SAT that the F
placement of OFCDs by Saharas was nothing but issue of
debentures to the public, resultantly, those securities should
have been listed on a recognized stock exchange.
AID FOR THE CONSTRUCTION
G
83. Section 67 provides an aid for the construction of the
phrase "offering shares or debentures to the Public". Section
67 of the Act gives an indication of the differences between
private placement and public issue. The expression "offer of
shares or debentures to public", i.e. issue of securities finds a H
78 SUPREME COURT REPORTS [2012] 12 S.C.R.
A place in several sections of the Act, like Sections 608, 73 and
those expressions are to be construed bearing in mind Section
67 as well. For our purpose, it is useful to reproduce the entire
section, which reads as follows:
"67. Construction of references to offering shares or
B
debentures to the public, etc
(1) Any reference in this Act or in the articles of a
company to offering shares or debentures to the
public shall, subject to any provision to the contrary
c contained fn this Act and subject also to the
provisions of sub-sections (3) and (4), be construed
as including a reference to offering them to any
section of the public, whether selected as members
or debenture holders of the company concerned or
D as clients of the person issuing the prospectus or
in any other manner.
(2) Any reference in this Act or in the articles of a
company to invitations to the public to subscribe for
shares or debentures shall, subject as aforesaid, be
E construed as including a reference to invitations to
subscribe for them extended to any section of the
public, whether selected as members or debenture
holders of the company concerned or as clients of
the person issuing the prospectus or in any other
F manner.
(3) No offer or invitation shall be treated as made to
the public by virtue of sub- section (1) or sub- section
(2), as the case may be, if the offer or invitation can
G properly be regarded, in all the circumstances-
(a) as not being calculated to result, directly or
indirectly, in the shares or debentures becoming
available for subscription or purchase by persons
other than those receiving the offer or invitation; or
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 79
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
(b) otherwise as being a domestic concern of the A
persons making and receiving the offer or invitation.
Provided that nothing contained in this sub-section shall
apply in a case where the offer or invitation to subscribe
for shares or debentures is made to fifty persons or more: B
Provided further that nothing contained in the first proviso
shall apply to the non-banking financial companies or public
financial institutions specified in section 4A of the
Companies Act, 1956 (1 of 1956).
c
(3A) Notwithstanding anything contained in sub-section
(3), the Securities and Exchange Board of India
shall, in consultation with the Reserve Bank of India,
by notification in the Official Gazette, specify the
guidelines in respect of offer or invitation made to D
the public by a public financial institution specified
under Section 4A or non-banking financial company
referred to in clause (f) of section 45-1 of the Reserve
Bar.~ of India Act, 1934 (2 of 1934).
(4) Without prejudice to the generality of sub- section E
(3), a provision in a company's articles prohibiting
invitations to the public to subscribe for shares or
debentures shall not be taken as prohibiting the
making to members or debenture holders of an
invitation which can properly be regarded in the F
manner set forth in that sub- section.
(5) The provisions of this Act relating to private
companies shall be construed in accordance with
the provisions contained in sub- sections (1) to (4)." G
84. Section 67(1) deals with the offer of shares and
debentures to the public and Section 67(2) deals with invitation
to the public to subscribe for shares and debentures and how
those expressions are to be understood, when reference is H
80 SUPREME COURT REPORTS [2012] 12 S.C.R.
A made to the Act or in the articles of a company. The emphasis
in Section 67(1) and (2) is on the "section of the public". Section
67(3) states that no offer or invitation shall be treated as made
to the public, by virtue of Sub-sections (1) and (2), that is to any
section of the public, if the offer or invitation is not being
B calculated to result, directly or indirectly, in the shares or
debentures becoming available for subscription or purchase by
persons other than those receiving the offer or invitation or
otherwise as being a domestic concern of the persons making
and receiving the offer or invitations. Section 67(3) is, therefore,
c an exception to Sections 67(1) and (2). If the circumstances
mentioned in clauses (1) and (b) of Section 67(3) are satisfied,
then the offer/invitation would not be treated as being made to
the public.
85. The first proviso to Section 67(3) was inserted by the
D Companies (Amendment) Act, 2000 w.e.f. 13.12.2000, which
clearly indicates, nothing contained in Sub-section (3) of
Section 67 shall apply in a case where the offer or invitation to
subscribe for shares or debentures is made to fifty persons or
more. Resultantly, after 13.12.2000, any offer of securities by
E a public company to fifty persons or more will be treated as a
public issue under the Companies Act, even if it is of domestic
concern or it is proved that the shares or debentures are not
available for subscription or purchase by persons other than
those receiving the offer or invitation. A public company can
F escape from the rigor of provisions, if the offer is made by
companies mentioned under Section 67(3A), i.e. by public
financial institutions specified under Section 4A or by non-
banking financial companies referred to in Section 451(f) of the
Reserve Bank of India Act, 1934.
G
Following situations, it is generally regarded, as not an
offer made to public.
Offer of securities made to less than 50 persons;
H Offer made only to the existing shareholders of the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 81
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
company (Right Issue); A
Offer made to a particular addressee and be
accepted only persons to whom it is addressed;
Offer or invitation being made and it is the domestic
concern of those making and receiving the offer. B
86. Resultantly, 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 c
persons other than those received the offer or invitation.
87. I may, in this connection, point out that the position in
England is almost the same. The Companies Act, 2006 in
England also says that it is unlawful for transferring securities
0
to others, certain listed securities, such other transferable
securities, as may be specified in prospectus rules, to be
offered to the public, unless approved prospectus has been
made available to the public before the offer is made. For the
purpose of the Companies Act, 2006 (Sections 755-760), 'offer
to the public' includes an offer to any section of the public, E
however, selected. An offer is not regarded as an offer to the
public if (1) it can properly be regarded in all circumstances as
not being calculated to result, directly or individually, in securities
of the company becoming available to persons other than those
receiving the offer; or (2) otherwise being a private concern of F
the person receiving it and the person making it: s 756(3). An
offer is to be regarded (unless the contrary is proved) as being
a private concern of the person receiving it and the person
making it if (a) it is made to a person already connected with
the company and, where it is made on terms allowing that G
person to renounce his rights, the rights may only be renounced
in favour of another person already connected with the
company; or (b) it is an offer to subscribe for securities to be
held under an employees' share scheme and, where it is made
on terms allowing that person to renounce his rights, the rights H
82 SUPREME COURT REPORTS [2012] 12 S.C.R.
A may only be renounced in favour of (i) another person entitled
to hold securities under the scheme; or (ii) a person already
connected with the company: s756(4). For these purposes
'person already connected with the company' means (A) an
existing member or employee of the company; (B) a member
B of the family of a person who is or was a member or employee
of the company; (C) the widow or widower, or surviving civil
partner, of a person who was a member or employee of the
company; (D) an existing debenture holder of the company; or
(E) a trustee (acting in his capacity as such) of a trust of which
c the principal beneficiary is a person within any of heads (A) to
(D) above: s756(5). For the purpose of head (B) above, the
members of a person's family are the person's spouse or civil
partner and children (including step-children) and their
descendants: s 756(6). Fur the purposes of Pt 20Ch 1
'securities' means shares or debentures: s. 755(5).
0
88. Companies Act, 2006, FSMA 2000, Prospectus
Regulations, 2005 etc. applicable in England, if read together
we get a complete picture of the securities laws in that country.
Indian Companies Act, as I have already indicated has its
E foundation on the English Companies Act.
89. Alastair Hudson in his book 'Securities Law' First
Edition (Sweet & Maxwell), 2008 at page 342, refers to
'Restricted Offers' and noticed that there is no contravention
F of Section 85 of FSMA 2000, if: "(b) the offer is made to or
directed at fewer than 100 persons, other than qualified
investors, per EEA State". The purpose underlying that
exemption, the author says, is mainly the fact that the offer is
not being made to an appreciable section of "the public" such
G that the policy of the prospectus rules generally is not affected.
Further, the author says that "Self-evidently, while an offer to 99
ordinary members of the public would be within the literal terms
of the exemption, it would not be the sort of activity anticipated
by the legislation. Moreover, if a marketing campaign were
H arranged such that ordinary members of the people were
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 83
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
approached in groups of 99 people at a time in an effort to avoid A
the prospectus rules, then that would not appear to be within
the spirit of the regulations and might be held to contravene the
core principle that a regulated person must ;;ict with integrity."
90. I may, therefore, indic(!te, subject to what has been
8
stated above, in India that any share or debenture issue beyond
forty nine persons, would be a public issue attracting all the
relevant provisions of the SEBI Act, regulations framed
thereunder, the Companies Act, pertaining to the public issue.
Facts clearly reveal that Saharas have issued securities to the
public more than the threshold limit statutorily fixed under the C
first proviso to Section 67(3) and hence violated the listing
provisions which may attract civil and criminal liabilities.
LISTING OF SECURITIES - LEGAL OBLIGATIONS
91. Principles of listing, which I may later on discuss, is D
intended to assist public companies in identifying their
obligations and responsibilities, which are continuing in nature,
transparent in content and call for high degree of integrity.
Obligations are imposed on the issuer on an ongoing basis.
Public companies who are legally obliged to list their securities E
are deemed to accept the continuing obligations, by virtue of
their application, prospectus and the subsequent maintenance
of listing on a recognized stock exchange. Disclosure is the
rule, there is no exception. Misleading public is a serious crime,
which may attract civil and criminal liability. Listing of securities F
depends not upon one's volition, but on statutory mandate.
92. Section 73, the listing provision, which deals with the
allotment of shares and debentures of which Sub-sections (1 ),
(1A) and (2) are relevant for our purpose and hence given
below: G
"73. Allotment of shares and debentures to be dealt
in on stock exchange.-
(1) Every company intending to offer shares or debentures
to the public for subscription by the issue of a prospectus H
84 SUPREME COURT REPORTS [2012) 12 S.C.R.
A shall, before such issue, make an application to one or
more recognised stock exchanges for permission for the
shares or debentures intending to be so offered to be dealt
with in the stock exchange or each such stock exchange.
(1A) Where a prospectus, whether issued generally or not,
B
states that an application under sub-section (1) has been
made for permission for the shares or debentures offered
thereby to be dealt in one or more recognized stock
exchanges, such prospectus shall state the name of the
stock exchange or, as the case may be, each such stock
c exchange, and any allotment made on an application in
pursuance of such prospectus shall, whenever made, be
void, if the permission has not been granted by the stock
exchange or each such stock exchange, as the case may
be, before the expiry of ten weeks from the date of the
D closing of the subscription lists:
Provided that where an appeal against the decision of any
recognized stock exchange refusing permission for the
shares or debentures to be dealt in on that stock exchange
E has been preferred under section 22 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), such
allotment shall not be void until the dismissal of the appeal.
(2) Where the permission has not been applied under sub-
section (1) or such permission having been applied for,
F has not been granted as aforesaid, the company shall
forthwith repay without interest all moneys received from
applicants in pursuance of the prospectus, and, if any such
money is not repaid within eight days after the company
becomes liable to repay it, the company and every director
G of the company who is an officer in default shall, on and
from the expiry of the eighth day, be jointly and severally
liable to repay that money with interest at such rate, not
less than four per cent and not more than fifteen per cent,
as may be prescribed, having regard to the length of the
H period of delay in making the repayment of such money.
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 85
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
(emphasis supplied)" A
93. 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
8
on a recognized stock exchange, once they invite subscription
from over forty nine investors from the public. If an unlisted
company expresses its intention, by conduct or otherwise, to
offer its securities to the public by the issue of a prospectus,
the legal obligation to make an application on a recognized
stock exchange for listing starts. Sub-section (1A) of Section C
73 gives indication of what are the particulars to be stated in
such a prospectus. The consequences of not applying for the
permission under sub-section (1) of Section 73 or not granting
of permission is clearly stipulated in sub-section (3) of Section
73. Obligation to refund the amount collected from the public • D
with interest is also mandatory as per Section 73(2) of the Act.
94. Listing is, therefore, a legal responsibility of the
company which offers securities to the public, provided offers
are made to more than 50 persons. In view of the clear statutory E
mandate, the contention raised, based on Rule 19 of the SCR
Rules framed under the SCR Act, has no basis. Legal
obligation flows the moment the company issues the
prospectus expressing the intention to offer shares or
debentures to the public, that is to make an application to the F
recognized stock exchange, so that it can deal with the
securities. A company cannot be heard to contend that it has
no such intention or idea to make an application to the stock
exchange. Company's option, choice, election, interest or
design does not matter, it is the conduct and action that matters G
and that is what the law demands. Law judges not what is in
their minds but what they have said or written or done. Lord
Diplock in Gissing v. Gissing (1971) 1 AC 886, has said, "As
in so many branches of English Law, in which legal rights and
obligations depend upon the intention of each party, the relevant
H
86 SUPREME COURT REPORTS (2012] 12 S.C.R.
A intention of each party is the intention which was reasonably
understood by the other party to be manifested by that party's
words or conduct notwithstanding that he did not consciously
formulate that intention in his own mind or even acted with some
different intention which he did not communicate to the other
8 party." Lord Simon in Crofter Hand Woven Harris Tweed Co.
Ltd. v. Veitch [1942] AC 435, opined that in some branches of
law, 'intention' may be understood to cover results which may
reasonably flow from what is deliberately done, the principle
being that a man is to be treated intending the reasonable
C consequences of his acts.
95. The maxim 'acta exterior indicant interiora secreta'
(external action reveals inner secrets) applies with all force in
the case of Saharas, which I have already demonstrated on
facts as well as on law. Conduct and actions of Saharas
D indicate their intention, we have to judge their so called intention
from their subsequent conduct. Subsequent illegality shows that
Saharas contemplated illegality. A person's inner intentions are
to be read and understood from his acts and omissions.
Whenever, in the application of an enactment, a person's state
E of mind is relevant, the above maxim comes into play. (Ref.
Bennion on Statutory Interpretation, 5th Edn., p. 1104)
96. We have to apply the various provisions of the
Companies Act and SEBI Act and the rules and regulations
framed thereunder to Saharas' conduct and their inner
F intentions are to be understood from their acts and omissions,
by applying the above maxim. Saharas' acts and omissions
have clearly violated the provisions of Section 73, their failure
to list the securities offer to the public was, therefore, intentional
and the plea that they did not want their securities listed, is not
G an answer, since they were legally bound to do so. The duty of
listing flows from the act of issuing securities to the pubic,
provided such offer is made to fifty or more than fifty persons.
Any offering of securities to fifty or more is a public offering by
virtue of Section 67(3) of the Companies Act, which the
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 87
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
Saharas very well knew, their subsequent actions and conducts A
unquestionably reveal so.
97. The scope of Section 73 came up for consideration
before this Court in Raymonds Synthetics Ltd. & Ors. v. Union
of India & Ors. (1992) 2 SCC 255 and this Court held through B
Dr. Justice T. K. Thommen as follows:
"9. A public limited company has no obligation to have its
shares listed on a recognised stock exchange. But if the
company intends to offer its shares· or debentures to the
public for subscription by the issue of a prospectus, it must, C
before issuing such prospectus, apply to one or more
recognised stock exchanges for ·permission to have the
shares or debentures intended to be so offered to the
public to be dealt with in each such stock exchange in
terms of Section 73 .." D
98. The above discussion clearly indicates that from the
years 1988 to 2000, private placement of preferential allotment
could be made to fifty or more persons if the requirements of
Clauses {a) and {b) of Section 67(3) are satisfied. However, E
after the amendment to the Companies Act, 1956 on
13.12.2000, every private placement made to fifty or more
persons becomes an offer intended for the public and attracts
the listing ~quirements under Section 73(1 ). Even those issues
which sati~fy Sections 67(3)(a) and (b) would be treated as an ·
issue to the public if it is issued to fifty or more persons, as F
per the proviso to Section 67(3) and as per Section 73(1 ), an
application for listing becomes mandatory and a legal
requirement. Reading of the proviso to Section 67(3) and
Section 73(1) conjointly indicates that any public company
which intends to issue shares or debentures to fifty persons or G
more is legally obliged to make an application for listing its
securities on a recognized stock exchange.
99. Saharas, in my view, have not followed any of those
statutory requirements. On a combined reading of the proviso H
88 SUPREME COURT REPORTS . (2012] 12 S.C.R.
A to Section 67(3) and Section 73(1 ), it is clear that the Saharas
had made an offer of OFCDs to fifty persons or more,
consequently, the requirement to make an application for listing
became obligatory leading to a statutory mandate which they
did not follow.
B
Unlisted Public Companies (Preferential Allotment> Rules.
2003 and the Unlisted Public Companies (Preferential
Allotment) Amendment Rules 2011
100. Considerable arguments were advanced by Saharas
C on the applir.:::bility of the provisions of 2003 Rules which,
according to them, did not require the OFCDs to be first listed
on a recognized stock exchange, especially in the light of the
promulgation of Unlisted Public Companies (Preferential
Allotment) Amendment Rules 2011 (for short '2011 Rules').
D Contention was raised that, in view of 2003 Rules, preferential
allotment by unlisted public companies on private placement
was provided for and permitted without any restriction on
numbers as per the proviso to Section 67(3) of the Companies
Act and without requiring listing of such OFCDs on a
E recognized stock exchange. Further, it was pointed out that only
on and from 14.12.2011, 2003 Rules were amended, whereby
the definition of "preferential allotmenr was substituted without
in any way disturbing or amending Rule 2 of 2003 Rules. After
14.12.2011, it was pointed out, the definition of 'preferential
F allotment" was amended prospectively. Further, it was pointed
out that the first proviso to Section 67(3) of the Companies Act,
added by the Companies Amendment Act 53 of 2000 w.e.f.
13.12.2000 (which was earlier not applicable to the 2003
Rules) has now been expressly made applicable w.e.f.
G 14.12.2011, so as to limit/restrict the number of persons to
whom the offer on private placement is made, to only 49
persons, and hence the restriction imposed by the amendment
made in December 2011 to issue of OFCDs by unlisted
companies pursuant to the special resolution under Section
81(1A) is also prospective. Law, therefore, it was urged,
H
SAHARA INDIA REAL ESTATE CORP. LTD . v. SECURITIES 89
AND EXCH BOARD OF INDIA [KS. RADHAKRISHNAN, J.]
permitted the unlisted companies like Saharas to issue OFCDs A
to more than 49 persons prior to December 2011, on a private
placement basis, without requiring the same to be first listed.
101. I find that no such contention was seen urged either
before SEBI or SAT, nor do I find any substance in that 8
contention. 2003 Rules are not applicable to any offer of shares
or debentures to more than 49 persons. 2003 Rules was framed
.by the Central Government in exercise of the powers conferred
under Section 81 (1A) read with Section 642 of the Companies
Act to provide for rules applicable to the unlisted public
companies. Section 81 of the Companies Act deals with further C
issue of securities and only gives pre-emptive rights to the
existing shareholders of the company, so that subsequent offer
of securities have to be offered to them as their "rights". Section
81(1A), it may be noted, is only an exception to the said rule,
that the further shares may be offered to any persons subject D
to passing a special resolution by the company in their general
meeting. Section 81(1A) cannot, in any view, have an overriding
effect on the provisions relating to public issue. Even if armed
with a special resolution for any further issue of capital to person
other than shareholders, it can only be subjected to the E
provisions of Section 67 of the Company Act, that is if the offer
is made to fifty persons or more, then it will have to be treated
as public issue and not a private placement. A public issue of
securities will not become a preferential allotment on
description of label. Proviso to Section 67(3) does not make F
any distinction between listed and unlisted public companies
or between preferential or ordinary allotment. Even prior to the
introduction of the proviso to Section 67(3), any issue of
securities to the public required mandatory applications for
listing to one or more stock exchanges. After insertion of the G
proviso to Section 67(3) in December 2000, private placement
allowed under Section 67(3) was also restricted up to 49
persons. 2003 Rules apply only in the context of preferential
allotment of unlisted companies, however, if the preferential
allotment is a public issue, then 2003 Rules would not apply. H
90 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 2003 Rules are only meant to regulate the issue of the shares
and debentures by unlisted public companies and prevent the
misuse of the private placement. Section 81(1A), as I have
already indicated, says that a preferential allotment can be
made by passing a special resolution which is an exception
B to the rules of rights issue, since that requires new shares or
debentures to be offered to the existing members/holders on
a pro rata basis. But when offer is made to more than 49
persons, then apart from compliance with Section 81(1A), other
requirements regarliling public issue have to be complied with.
C 2003 Rules, in my view, cannot override the provisions of
Section 67(3) and Se~tion 73. The definition of "preferential
allotment" in 2011 Rules only made what was implicit in 2003,
more explicit. In my view, both 2003 Rules and 2011 Rules are
subordinate regulations and are to be read subject to the
proviso to Section 67(3) and 73(1) and other related
D provisions.
DIP GUIDELINES & ICDR 2009
102. Senior counsels appearing for Saharas also raised
E a contention that DIP Guidelines were only departmental
instructions, not having the sanction of law and, therefore, would
not apply to the OFCDs issued. This argument, in my view, has
no basis. DIP Guidelines had statutory fcirce since they were
framed by SEBI in exercise of its powers conferred on it under
F Sections 11 and 11A of the SEBI Act. Powers have been
conferred on SEBI to protect the interests of the investors in
securities and regulate the issue of prospectus, offer
documents or advertisement soliciting money through the issue
of prospectus. Section 11 of the Act, ii may be noted has been
G incorporated, evidently to protect the interests of investors
whose securities are legally required to be listed. DIP
Guidelines were implemented by SEBI with regard to the listed
and unlisted companies, which made public offer, until it was
replaced by ICDR 2009. Contention was raised by Saharas
that they had issued OfCDs in the year 2008 and no action
H was taken under DIP Guidelines and hence ICDR 2009, which
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 91
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.)
came into force only on 26.8.2009, would not apply and have A
no retrospective operation. In my view, this contention has no
force, especially when Saharas had not complied with the
statutory requirements provided in the DIP Guidelines.
103. Repeal and Saving Clause under ICDR 2009 would
8
clearly indicate that the violation under DIP Guidelines was a
continuing one. Regulation 111 of ICDR reads as follows:
"Repeal and Savings
111. (1) On and from the commencement of these c
regulations, the Securities and Exchange Board of India
(Disclosure and Investor Protection) Guidelines, 2000 shall
stand rescinded.
(2) Notwithstanding such rescission;
D
(a) anything done or any action taken or purported to
have been done or taken including observation
made in respect of any draft offer document, any
enquiry or investigation commenced or show
cause notice issued in respect of the said E
Guidelines shall be deemed to have been done or
taken under the corresponding provisions of these
regulations;
(b) any offer documents, whether draft or otherwise,
filed or application made to the Board under the
F
said Guidelines and pending before it shall be
deemed to have been filed or made under the
corresponding provisions of these regulations."
104. Regulation 111 (1) of ICDR 2009 rescinded the DIP G
Guidelines from 26.8.2009 and clause (2) of Regulation 111
contains the saving clause. The expression "anything done" or
"any action taken" under Regulation 111 (1) are of wide import
and would take anything done by the company omitted to be
done which they legally ought to have done. Non-performance H
92 SUPREME COURT REPORTS [2012] 12 S.C.R.
A of statutory obligations purposely or otherwise may also fall
within th~ above mentioned expressions. Failure to take any
action by SEBI under DIP Guidelines, in spite of the fact that
Saharas did not discharge their statutory obligation, would not
be a ground to contend that 2009 Regulations would not apply
B as also the saving clause. 2009 Regulations, in my view, will
apply to all companies whether listed or unlisted. Further, in the
instant case, SEBI was not informed of the issuance of
securities by the Saharas while the DIP Guidelines were in force
and Saharas continued to mobilize funds from the public which
c was nothing but continued violation which started when the DIP
Guidelines were in force and also when they were replaced by
2009 Regulations. Further, it may also be recalled that any
solicitation for subscription from public can be regulated only
after complying with the requirements stipulated by SEBI, in
D fact, an amendment was made to Schedule II of the Companies
Act vide notification No. GSR 650(3) dated 17.9.2002 by
inserting a declaration which has to be signed by the directors
of the company filing the prospectus, which reads as under:
"That all the relevant provisions of the Companies Act,
E 1956, and the guidelines issued by the Government or the
guidelines issued by the Securities and Exchange Board
of India established under Section 3 of the Securities and
Exchange Board of India Act, 1992, as the case may be,
have been complied with and no statement made in
F prospectus is contrary to the provisions of the Companies
Act, 1956 or the securities and Exchange Board of India
Act, 1992 or rules made there-under or guidelines issued,
as the case may be."
G 105. I find that Saharas conveniently omitted the reference
to SEBI in the declaration given in the prospectus. OFCDs
were, therefore, issued by Saharas in contravention of the DIP
Guidelines, ICDR 2009, notification dated 17.9.2002 and also
overlooking the statutory requirements stipulated in Section
73(1) of the Companies Act.
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 93
AND EXCH. BOARD OF INDIA [K.S RADHAKRISHNAN, J.]
Hybrids - SCR Act A
106. Saharas also raised a contention that after the
insertion of the definition of "securities" in Section 2(45AA) as
"including hybrid" and after insertion of the separate definition
of "hybrid" in Section 2(19A) of the Act, the provisions of 8
Section 67 are not at all applicable to OFCDs, which have
been held to be "hybrid". Further, it was also contended that
OFCDs issued were convertible bonds falling within the scope
of Section 28(1 )(b) of SCR Act and they were not "securities"
or at any rate the provisions of SEBI Act and Section 67 were C
not at all applicable to OFCDs, which have been found to be
"hybrid".
107. Saharas mainly canvassed the position that OF CDs
issued were hybrid securities covered by the term securities
in the Companies Act and they do not come under the D
definition of "securities" under the SCR Act, hence under the
SEBI Act. Further, it was also urged that when the definition of
"securities" was amended to include hybrids in the Companies
Act, no corresponding amendment was made in the SCR Act
and SEBI Act and hence it was contended that SEBI has no E
jurisdiction or control over the hybrid securities. Further, it was
also pointed out that hybrid securities at best can come under
the regulatory control of MCA, Government of India. Saharas
also contended that even Section 67 speaks only of shares
and debentures and does not reflect the change brought about F
by the definition Clause 2(19A) 'hybrid' or by the insertion of
the definition of "securities" in Section 2(45AA) as including
hybrid even though Section 67(3) of the Act was amended, by
the Amendment Act 53 of 2000, by which the definitions of
'.securities' and 'hybrid' were introduced. It was also pointed out G
that non-substitution/non-amendment of Section 67(1) and (2),
'by not including the word 'hybrid' after the words 'shares' and
'debentures', is significant.
108. OFCDs issued by Saharas undoubtedly were
unsecured debentures by name and nature. Section 2(12) of H
94 SUPREME COURT REPORTS [2012) 12 S.C.R.
A the Companies Act deals with the definition of the word
"debentures" and includes any "other securities". The same
reads as follows:
"2(12). "Debenture' includes debenture stock, bonds
and any other securities of a company, whether constituting
B
a charge on the assets of the company or not.•
The definition of the word "securities' under Section
2(45AA) of the Companies Act, reads as follows:
c "2(45AA). "Securities" means securities as defined
in Clause (h) of Section 2 of the Securities Contracts
(Regulation) Act, 1956 (42of1956), and includes hybrids."
Section 2(h) of the SCR Act, 1956 reads as follows:
D "2(h) "securities" include-
(i) shares, scrips, stocks, bonds, debentures, debenture
stock or other marketable securities of a like nature in or
of any incorporated company or other body corporate;
E (ia) derivative;
(ib) units or any other instrument issued by any collective
investment scheme to the investors in such
schemes;
F
(ic) security receipt as defined in clause (zg) of section
2 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security
Interest Act, 2002;
G (id) units or any other such instrument issued to the
investors under any mutual fund scheme;
Explanation.- For the removal of doubts, it is hereby
declared that "securities" shall not include any unit
H linked insurance policy or scrips or any such
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 95
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
instrument or unit, by whatever name called, which A
provides a combined benefit risk on the life of the
persons and investment by such persons and
issued by an insurer referred to in clause (9) of
section 2 of the Insurance Act, 1938 (4 of 1938);
B
(ie) any certificate or instrument (by whatever name
called), issued to an investor by any issuer being a
special purpose distinct entity which possesses
any debt or receivable, including mortgage debt,
assigned to such entity, and acknowledging
beneficial interest of such investor in such debt or C
receivable, including mortgage debt, as the case
may be;
(ii) Government securities;
D
(iia) such other instruments as may be declared by the
Central Government to be securities; and
(iii) rights or interest in securities."
109. The word "hybrid" under Section 2(19A) was inserted E
in the Companies Act, vide the Companies (Amendment) Act,
2002 w.e.f. 13.12.2000 and reads as follows:
"2(19A). "hybrid" means any security which has the
character of more than one type of security, including their F
derivatives.•
110. Hybrid securities, therefore, generally means
securities, which have some of the attributes of both debt
securities and equity securities, means a security which, in the
term of a debenture, encompassing the element of indebtness G
and element of equity stock as well. The scope of the definition
of Section 2(h) of SCR Act came up for consideration before
this Court in Sudhir Shantilal Mehta v. Central Bureau of
Investigation (2009) 8 SCC 1 and the Court stated that the
definition of securities under the SCR Act is an inclusive H
96 SUPREME COURT REPORTS [2012] 12 S.C.R.
A definition and not exhaustive. The Court held that it takes within
its purview not only the matters specified therein, but also all
other types of securities, thus it should be given an expansive
meaning. In Naresh K. Aggarwala & Co. v. Canbank Financial
Services Ltd. and Anr. (2010) 6 SCC 178, while referring to
B the definition of the term "securities" defined under SCR Act
and the applicability of a Circular issued by the Delhi Stock
Exchange, the Court endorsed the view of the Special Court
and noted that the perusal of the above quoted definition
showed that they did not make any distinction between listed
C securities and unlisted securities and, therefore, it was clear
that the circular would apply to the securities which were not
listed on the stock exchange.
111. Section 2(h) of the SCR Act gives emphasis to the
words "other marketable securities of a like nature", which gives
D a clear indication of the marketability of the securities and gives
an expansive meaning to the word securities. Any security
which is capable of being freely transferrable is marketable. The
definition clause in Section 2(h) of SCR Act is a wide definition,
an inclusive one, which takes in hybrid also, which I have
E already indicated, defined vide Section 2(19A) of the
Companies Act.
112. OFCDs issued have the characteristics of shares
and debentures and fall within the definition of Section 2(h) of
SCR Act, which continue to remain debentures till they are
F converted. In other words, OFCDs issued by Saharas are
debentures in presenti and become shares in futuro. Even if
OFCDs are hybrid securities, as defined in Section 2(19A) of
the Companies Act, they shall remain within the purview of the
definition of "securities" in Section 2(h) of SCR Act. Further, it
G may be noted that Saharas have treated OFCDs only as
debentures in the IM, RHP, application forms and also in their
balance sheet. The terms "Securities" defined in the
Companies Act has the same meaning as defined in the SCR
Act, which would also cover the species of "hybrid" defined
H under Section 2(19A) of the Companies Act. Since the
SAHARA INDIA REAL·ESTATE CORP. LTD. v. SECURITIES 97
AND EXCH. BOARD OF !NOIA [KS. RADHAKRISHNAN, J.]
definition of "securities" under Section 2(45AA) of the A
Companies Act includes "hybrids", SEBI has jurisdiction over
hybrids like OFCDs issued by Saharas, since the expression
"securities" has been specifically dealt with under Section 55A
of the Companies Act.
B
OFCDs whether Convertible Bonds - SCR Act
113. Saharas raised yet another contention that OFCDs
issued by them are convertible bonds issued on the basis of
the price agreed upon at the time of issue and, therefore, the
provisions of SCR Act are not applicable in view of Section C
28(1)(b) thereof. Further, it was also contended that convertible
bonds having been issued at a price agreed upon at the time
of issue are not listable in view of the exception granted under
Section 28(1) of the SCR Act.
D
114. Section 28 was inserted by the SCR Act. The object
of the amendment as stated in the Bill was to exempt
convertible bonds by foreign financial institutions that had an
option to obtain shares at a later date. Preamble of SCR Act
provided "prohibition on options in securities" as a mode "to E
prevent the undesirable transactions in securities". Resultantly,
Section 28 had to be amended to make so inapplicable to such
options in the bonds and to delete the words "by prohibiting
options in securities" to facilitate such options. Parliament
never intended to take away convertible debentures from the F
purview of SCR Act. For easy reference, I may refer to Section
28, which reads as follows:
"28. Act not to be apply in certain cases.
(1) The provisions of this Act shall not apply to- G
(a) the Government, the Reserve Bank of India, any
local authority or any corporation set-up by a special
law or any person who has effected any transaction
with or through the agency of any such authority as H
is referred to in this clause;
98 SUPREME COURT REPORTS [2012] 12 S.C.R.
A (b) any convertible bond or share warrant or any option
or right in relation thereto, in so far as it entitles the
person in whose favour any of the foregoing has
been issued to obtain at his option from the
company or other body corporate, issuing the same
B or from, any of its shareholders or duly appointed
agents shares of the company or other body
corporate, whether by conversion of the bond or
warrant or otherwise, on the basis of the price
agreed upon when the same was issued.
c (2) Without prejudice to the provisions contained in sub-
section (1) if the Central Government is satisfied that in the
interests of trade and commerce or the economic
development of the country it is necessary or expedient so
to do, it may, by notification in the Official Gazette, specify
D any class of contracts as contracts to which this Act or any
provision contained therein shall not apply, and also the
conditions, limitations or restrictions, if any, subject to which
it shall not so apply."
E Section 28(1)(b) makes it clear that the Act will not apply
to the 'entitlement' of the buyer, inherent in the convertible bond.
Entitlement may be severable, but does not itself qualify as a
security that can be administered by the SCR Act, unless it is
issued in a detachable format. Therefore, the inapplicability of
F SCR Act, as contemplated in Section 28(1)(b), is not to the
convertible bonds, but to the entitlement of a person to whom
such share, warrant or convertible bond has been issued, to
have shares at his option. The Act is, therefore, inapplicable
only to the options or rights or entitlement that are attached to
G the bond/warrant and not to the bond/warrant itself. The
expression "insofar as it entitles the person" clearly indicates
that it was not intended to exclude convertible bonds as a class.
Section 28(1 )(b), therefore, clearly indicates that it is only the
convertible bonds and share/warrant of the type referred to
H therein that are excluded from the applicability of the SCR Act
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 99
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
and not debentures which are separate category of securities A
in the definition contained in Section 2(h) of SCR Act. Section
20 of SCR Act, which was omitted, by Securities Laws
(Amendment) Act, 1995, with effect from 25.1.1995, stated that
all options entered into after the commencement of the Act
would be illegal. The introduction of Sections 28(1)(b) and 28(2) B
became necessary because of the provisions of Sections 13,
16 and 20. Section 20 was deleted in the year 1995, but SEBI
notification No. 184 dated 1.3.2000 continued to prohibit
options. Consequently, OFCDs issued by Saharas to the public
cannot be excluded from the purview of listing requirements, c
any interpretation to the contrary would contravene the
mandatory requirements contained in Section 73(1) and
proviso to Section 67(3) of the Companies Act.
REFUND OF THE MONEY COLLECTED
D
115. I have found that Saharas having failed to make
application for listing on any of the recognized stock exchange,
as provided under Section 73(1) of the Companies Act,
become legally liable to refund the amount collected from the
subscribers in pursuance to their RHPs, along with interest as E
provided under Section 73(2) of the Act. Rule 40 of the
Companies (Central Government) General Rules and Forms
1956 prescribes the rates of interest for the purposes of sub-
sections (2) and (2A) of Section 73, which shall be fifteen per
cent per annum. Section 73(2) says that every company and F
every director of the company who is an officer in default, shall
be jointly and severally liable to repay that money with interest
at such rate, not less than four per cent and not more than
fifteen per cent, as may be prescribed. The scope of the above
mentioned provisions came up for consideration before this G
Court in Raymond Synthetics Ltd. & Ors. V. Union of India
(supra), wherein the Court held that in a case where the
company has not applied for listing on a stock exchange, the
consequences will flow from the company's disobedience of
the law, the liability to pay interest arises as from the date of H
100 SUPREME COURT REPORTS [2012] 12 S.C.R.
A receipt of the amounts, for the company ought not to have
received any such amount in response to !he-prospectus. I am,
therefore, of the view that since Saharas had violated the listing
provisions and collected huge amounts from the public in
disobedience of law, SEBI is justified in directing refund of the
s amount with interest.
CIVIL AND CRIMINAL LIABILITY
116. I have found, in this case, that Saharas had not
complied with the legal requirements of Section 56 and hence
C the second proviso to Section 56(3) may apply and it is also
stated in sub-section (6) of Section 56 that the liability under
the General Law has been excluded. Section 62 casts civil
liability for mis-statement in prospectus and Section 63(1)
speaks of criminal liability. Section 68 speaks of penalty for
D fraudulently inducing persons to invite, which also leads to
imprisonment and fine. Section 68A prescribes punishment for
violation of what is provided under Sections 68A(1)(a) and (b),
with imprisonment for a term of five years. Section 73(3) also
speaks of imposition of fine. Over and above the penal
E provisions, Section 628 of the Companies Act also proposes
imprisonment and fine, for making false statements. Further,
furnishing false evidence may also attract punishment with
imprisonment for a term which may extend to seven years and
also fine under Section 629 of the Companies Act. The
F provisions for imposing civil and criminal liability and refund of
the amount with interest would indicate that, of late, economic
offences in India like the one committed by Saharas be treated
with an iron hand, or else we may land in another security
market pandemonium.
G I, therefore, answer the questions of law raised as follows:
(a) 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-
H payment of dividend by public companies like
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 101
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
Saharas, which have issued securities to fifty A
periions or more, though not listed on a recognized
stock exchange, whether they intended to list their
securities or not.
(b) Saharas were legally obliged to file the final
B
prospectus under Section 608(9) with SEBI, failure
to do so attracts criminal liability.
(c) First proviso to Section 67(3) casts a legal
obligation to list the securities on a recognized
stock exchange, if the offer is made to fifty or more c
persons, which Saharas have violated which may
attract the penal provisions contained in Section 68
of the Act.
(d) Section 73 of the Act casts an obligation on a D
public company to apply for listing of its securities
on a recognized stock exchange, once it invites
subscription from fifty or more persons, which
Saharas have violated and they have to refund the
money collected to the investors with interest.
E
(e) Saharas 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 F
provisions.
(f) 2003 Rules or the 2011 Rules cannot override the
provisions of Section 67(3) and Section 73, being
subordinate legislations, 2003 Rules are also not G
applilcable to any offer of shares or debentures to
more than forty nine persons and are to be read
subject to the proviso to Section 67(3) and Section
73(1) of the Companies Act.
(g) OFCDs issued by Saharas have the characteristics H
102 SUPREME COURT REPORTS [2012] 12 S.C.R.
A of shares and debentures and fall within the
definition of Section 2(h) of SCR Act. The definition
of 'securities' under Section 2(45AA) of the
Companies 'Act includes 'hybrids' and SEBI has
jurisdiction over hybrids like OFCDs issued by
B Saharas, since the expression 'securities' has been
specifically dealt with under Section 55A of the
Companies Act.
(h) Section 28(1 )(b) of the SCR Act indicates that it is
only conver'tible bonds and share/warrant of the
c type referred to therein, which are excluded from the
applicability of .the SCR Act and not debentures,
which are separate category of securities in the
definition contained in Section 2(h) of SCR Act.
Contention of Saharas that OFCDs issued by them
D are convertible bonds issued on the basis of the
price agreed upon at the time of issue and,
therefore, the provisions of SCR Act, would not
apply, in view of Section 28(1 )(b) cannot be
sustained.
E
(i) SEBI can exercise its jurisdiction under Sections
11(1), 11(4), 11A(1)(b) and 118 of SEBI Act and
Regulation 107 of ICDR 2009 over public
companies who have issued shares or debentures
to fifty or more, but not complied with the provisions
F
of Section 73(1) by not listing its securities on a
recognized stock exchange.
Q) Saharas are legally bound to refund the money
collected to the investors, as provided under
G Section 73(2) of the Companies Act read with Rule
40 of the Companies (Central Government's)
General Rules and Forms, 1956 and the SEBI has
the power to enforce those provisions.
H (k) Saharas' conduct invites civil and criminal liability
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 103
AND EXCH. BOARD OF INDIA [K.S. RADHAKRISHNAN, J.]
under various provisions like Sections 56(3), 62, 68, A
68A, 73(3), 628, 629 and so on.
CONCLUSION
117. The above discussion will clearly indicate that OFCDs
issued by Saharas were public issue of debentures, hence B
securities. Once there is an intention to issue shares or
debentures to the public, it is/was obligatory to make an
application to one or more recognized stock exchanges, prior
to such issue. Registration of RHPs by the Office of the
Registrar does not mean that the mandatory provisions of C
Sections 67(3), 73(1) and DIP Guidelines be not followed.
Saharas could not have filed RHP or any prospectus with RoC,
without submitting the same to SEBI under Clauses 1.4, 2.1.1.
and 2.1.4 of DIP Guidelines. Unlisted companies like Saharas
when made an offer of shares or debentures to fifty or more D
persons, it was mandatory to follow the legal requirements of
listing their securities. Once the number forty nine is crossed,
the proviso to Section 67(3) kicks in and it is an issue to the
public, which attracts Section 73(1) and an application for listing
becomes mandatory which fall under the administration of SEBI E
under Section 55A(1)(b) of the Companies Act.
118. SEBI, I have already indicated, has a duty under
Section 11 A of the SEBI Act to protect the interests of investors
in securities either listed or which are required to be listed
under the law or intended to be listed. Under Section 11 B, SEBI F
has the power to issue appropriate directions in the interests
of investors in securities and securities market to any person
who is associated with securities market.
119. I have already referred to the power of SEBI under G
the SEBI Act in the earlier part of this judgment. SEBI Act, it
may be noted, is a special law, distinct in form, but related to
the Company Law, 1956. Purpose and object behind
establishing a body like SEBI under the SEBI Act has also
been highlighted by us. The impugned orders, as already H
104 SUPREME COURT REPORTS (2012) 12 S.C.R.
A stated, were issued by SEBI in exercise of its powers
conferred under Sections 11, 11A and 11 B of SEBI Act and
Regulations 107 of ICDR 2009. DIP Guidelines, as already
indicated, did apply to both listed and unlisted companies.
Clause 2.1.1 of DIP Guidelines had made it mandatory to file
B draft prospectus only before SEBI, not before the Central
Government. Obligation was also cast on initial public offerings
by unlisted companies and the issue of OFCDs was a public
issue under Regulation 1.2.1 (xxiii) which also indicated that
DIP Guidelines would apply to Saharas as well. Issuing of
C convertible debentures in violation of those guidelines gives
ample powers on SEBI to pass orders under Sections 11A and
11 B of the SEBI Act as well as Regulation 107 of ICDR 2009
and direct refund of the money to investors.
120. SEBI, in the facts and circumstances of the case, has
D rightly claimed jurisdiction over the OF CDs issued by Saharas.
Saharas have no right to collect Rs.27,000 crores from three
million (3 crore investors) without complying with any regulatory
provisions contained in the Companies Act, SEBI Act, Rules
and Regulations already discussed. MCA, it is well known,
E does not have the machinery to deal with such a large public
issue of securities, its powers are limited to deal with unlisted
companies with limited number of share holders or debenture
holders and the legislature, in its wisdom, has conferred powers
on SEBI. I, therefore, find on facts as well as on law, no illegality
F 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.
JAGDISH SINGH KHEHAR, J. 1. I have carefully read the
G order of my learned brother Radhakrishnan, J. I am however
inclined to record my own reasons while dealing with the
propositions canvassed before us. Before examining the
issues canvassed, it is necessary to record some further facts,
which constitute the foundational basis of my order. During the
course of hearing learned counsel had mainly relied on the
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 105
AND EXCH. BOARD OF INDIA (JAGDISH SINGH KHEHAR, J.]
pleadings in Civil Appeal no.9813 of 2011, accordingly, A
reference shall be made mainly to the facts narrated therein.
Facts referred to in Civil Appeal no.9833 of 2011 have also
been adverted to when necessary.
2. Sahara India Real Estate Corporation Limited 8
(hereinafter referred to as "SIRECL") and Sahara Housing
Investment Corporation Limited (hereinafter referred to as
"SHICL") are a part of Sahara India Group of Companies.
Another company, namely, Sahara Prime City Limited
(hereinafter referred to as "SPCL") which is also connected to C
the Sahara India Group of Companies, filed a Draft Red
Herring Prospectus (for short "DRHP") with the Securities and
Exchange Board of India (hereinafter referred to as "SEBI") in
respect of its proposed Initial Public Offer (for short "IPO") dated
30.9.2009. While the aforesaid DRHP dated 30.9.2009 was
under scrutiny, SEBI received complaints relating to disclosures D
made in the DHRP. One of the aforesaid complaints was made
by "Professional Group for Investors Protection". In the
aforesaid complaint of the "Professional Group for Investors
Protection" dated 25.12.2009, it was alleged that SIRECL was
issuing convertible bonds to the public throughout the country E
for the past several months. It was alleged that issuing of
convertible bonds by SIRECL had not been disclosed in the
DRHP dated 30.9.2009 (filed by SPCL). On similar lines SEBI
received a complaint from one Roshan Lal dated 4.1.2010.
F
3. In order to probe the authenticity of the allegations
levelled in the aforementioned complaints, SEBI sought
information from Enam Securities Private Limited - the
merchant banker for SPCL. Enam Securities Private Limited
responded to the communication received from the SEBI on G
21.2.2010. Enam Securities Private Limited, in its response,
asserted on the basis of an inquiry conducted and legal opinion
sought, that it had arrived at the conclusion, that the optionally
fully convertible debentures (for short OFCDs) issued by
H
106 SUPREME COURT REPORTS [2012) 12 S.C.R.
A SIRECL and SHICL had been issued in conformity with all
applicable laws.
4. On 26.2.2010 lead managers of the two companies
(SIRECL and SHICL) informed SEBI, that both the companies
B had issued debentures on •tap basis" i.e., by way of private
placement. It was confirmed, that the two companies had issued
an "information memorandum" under section 60B of the
Companies Act, 1956 (hereinafter referred to as the
Companies Act), prior to opening of the offer. It was
acknowledged, that SIRECL had also issued a red herring
C prospectus (for short "RHP") with the Registrar of Companies
(Uttar Pradesh and Uttarakhand). Likewise, SHICL had issued
a RHP with the Registrar of Companies, Maharashtra.
5. In the RHPs issued by the two companies it was
D mentioned, that the companies did not intend the proposed
issue to be listed in any stock exchange. The RHPs also stated,
that only those persons were eligible to apply, to whom the
information memorandum was being circul.ated. The RHPs also
expressed, that the appellant ought to be associated/affiliated
E or connected with the Sahara Group of Companies. The RHP
noted, that the invitation to apply was being extended privately,
without issuing any advertisement to the general public. What
had been indicated in the RHPs was, what had been
determined by the SIRECL in its special resolution dated
F 3.3.2003 i.e., that the OFCDs would be issued by way of private
placement 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".
G 6. Copies of the terms and conditions of the OFCDs
issued by the two companies reveal, that the appellant-
companies issued "bonds" (named as, Abode Bonds, Nirman
Bonds and Real Estate Bonds - by SIRECL; and as, Multiple
Bonds, Income Bonds and Housing Bonds - by the SHICL) of
H different face values (varying from Rs.5000 to Rs.24000) and
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 107
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
different maturity periods (varying from 48 months to 180 A
months). The OFCDs issued by the two companies
contemplated different redemption values and conversion
options.
7. Vide letter dated 22.4.2010, SEBI sought further details
from Enam Securities Private Limited. The' details were sought 8
in respect of OFCD's issued by SIRECL and SHICL. The
particulars on which information was sought, is being extracted
hereunder:
"2. a. details regarding the filing of RHP of the said c
companies with the concerned Roe.
b. date of opening and closing of the subscription list.
c. details regarding the number of application forms
circulated after the filing of the RHP with RoC. D
d. details regarding the number of applications
received.
e. the number of allottees
E
f. list of allottees.
g. the date of allotment.
h. date of dispatch of debenture certificates etc.
F
i. copies of application forms, RHP, pamphlets and
other promotional material circulated."
The aforesaid information sought by SEBI from Enam
Securities Private Limited was never furnished. G
8. Thereupon, the same information was sought by SEBI
directly from SIRECL and SHICL, through separate letters dated
12.5.2010. The two companies responded to the letters dated
12.5.201 O through separate replies dated 19.5.2010. Instead
108 SUPREME COURT REPORTS [2012] 12 S.C.R.
A of furnishing details of the information sought by SEBI, the two
companies required SEBI to furnish them with the complaints
which had prompted it, to seek the information. SEBI again
addressed separate communications to the two companies
dated 21.S.2010 yet again seeking the same information, by
B making it clear to the two companies, that non compliance
would result in appropriate action under the Companies Act,
the Securities and Exchange Board of India Act, 1992
(hereinafter referred to as the "SEBI Act"), as also, the
regulations framed thereunder. Both the companies, without
C furnishing details sought by SEBI, responded through separate
letters, dated 24.S.2010 and 26.S.2010. In their response it was
asserted, that since a large number of their staff members were
on summer vacation, the information could not be made
available immediately. In the aforesaid communications, the
companies also informed SEBI, that the OFCDs had been
D issued by them in compliance with the provisions of the
enactments referred to by the SEBI. Besides the foresaid, the
two companies informed SEBI, that neither of them were listed
public companies, and that, their securities were not being
traded through any exchange in India or abroad. The aforesaid
E factual position was pointed out by the two companies to SEBI,
with the clear intent to inform SEBI, that it had no jurisdiction to
inquire into the OFCDs issued by them. Despite the aforesaid
response, SEBI addressed separate communications dated
28.S.2010 to the two companies requiring them to furnish the
F same information. Yet again, the companies replied on the lines
adopted earlier. SEBI again repeated its request for
information through further separate communications dated
11.6.2010.
G 9. In the meantime SIRECL addressed a letter dated
31.S.2010 to the Union Minister of Corporate Affairs, to inform
him of the correspondence exchanged.with the SEBI. Being an
unlisted entity, and also there being no intention to list the
companies securities on any stock exchange, it was pleaded
H before the Union Minister, that under section SSA of the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 109
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
Companies Act the company could only be regulated and A
administered by the Ministry of Corporate Affairs and not by
the SEBI. In the aforesaid view of the matter SIRECL requested
the Union Minister of Corporate Affairs to advise it on its locus
standi, "vis-a-vis our regulatory authority whether the company
is governed by Ministry of Corporate Affairs, or SEBI, in view B
of the provisions of section 55A(c) of the Companies Act,
1956".
10. Through separate letters dated 16.6.2010 the two
companies informed SEBI that they had already sought a
clarification on the subject from the Government. Yet again, vide C
separate letters dated 28.6.2010 both companies informed
SEBI, that they had received a communication from the office
of the Union Minister of State for Corporate Affairs to the effect
that the matter was being examined by the Ministry.
Accordingly, the companies adopted the stance, that they would D
file their replies to the letters addressed to them by SEBI only
on receipt of a response from the Government.
11 . It is apparent from the factual position depicted
hereinabove, that SEBI was seeking information from the two E
companies since May, 2010. Since the information was not
being supplied, SEBI initiated an investigation into the OFCDs
issued by SIRECL and SHICL. Accordingly, summons dated
30.8.2010 and 23.9.2010 were issued to the two companies
under section 11 C of the SEBI Act, to provide the following F
information:
"3. 1. Details regarding filing of prospectus/Red-
herring Prospectus with ROC for issuance of
OFCDs.
G
2. Copies of the application forms, Red-Herring
Prospectus, Pamphlets, advertisements and other
promotional materials circulated for issuance of
OFCDs.
H
110 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 3. Details regarding number of application forms
circulated, inviting subscription for OFCDs.
4. Details regarding number of applications and
subscription amount received for OFCDs.
B 5. Date of opening and closing of the subscription list
for the said OFCDs.
6. Number and list of allottees for the said OFCDs and
the number of OFCDs allotted and value of such
c allotment against each allottee's name;
7. Date of allotment of OFCDs;
8. Copies of the minutes of Board/committee meeting
in which the resolution has been passed for
D allotment;
9. Copy of Form 2 (along with annexures) filed with
ROC, if any, regarding issuance of OFCDs or
equity shares arising out of conversion of such
E OFCDs.
10. Copies of the Annual Reports filed with Registrar
of Companies for the immediately preceding two
financial years.
F 11. bate of dispatch of debenture certificate etc."
12. On receipt of the aforesaid summons, SIRECL and
SHICL raised a number of legal objections to stall the proposed
investigation. In respect of the information sought, their
response dated 13.9.2010, interalia expressed as under:
G
"17. SIRECL is an unlisted company. The OFCDs of March
2008 were neither intended to be issued to the public nor
were the OFCDs actually issued to the public, hence, do
not come within the purview of section 55A(a)/(b) of the
H Companies Act, 1956 conferring administrative jurisdiction
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 111
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
of SEBI. SIRECL had represented to the Central A
Government in the Ministry of Corporate Affairs on May
31, 2010 and on June 17, 2010, on which the Ministry,
while acknowledging SIRECL's representation of May 31,
2010, informed SIRECL that the matter was being
examined in the Ministry under the relevant provisions of B
the Companies Act, 1956.
18. In the light of above submission, the company requests
you to kind withdraw the summons dated 30th August,
2010."
c
Based on the aforesaid response·, the two companies
requested SEBI to withdraw the orders dated 30.8.2010 and
23.9.2010. On 30.9.2010, through separate letters issued by
SIRECL and SHICL, they adopted the stance, that they did not
have complete information sought by the SEBI. D
13. It would be relevant to notice, that at the request of the
Chief Financial Officer of the Sahara India Group of
Companies, an opportunity of hearing was granted to him on
3.11.2010, by the SEBI (FTM). During the course of the
aforesaid hearing it was again impressed upon the Chief E
Financial Officer, that he should furnish information sought by
the SEBI fully and accurately without any delay. Despite the
aforesaid, the Chief Financial Officer during the course of the
said hearing, did not make any firm commitment to furnish the
information sought. It is essential to note, that the Chief F
Financial Officer, did not furnish the information sought.
14. Despite the fact that the companies chose not to
provide the information, SEBI was able to collect some shreds
of information, from details which had been furnished by the G
companies themselves, to the concerned Registrar of
Companies. This information was obtained by SEBI, from
MCA-21 portal maintained by the Ministry of Corporate Affairs.
In other words, the information which eventually became
available with the SEBI, was not the information furnished by H
112 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the companies to the SEBI, but the information furnished by
SIRECL to the Registrar of Companies, Uttar Pradesh and
Uttarakhand, and the information furnished by SHICL to the
Registrar of Companies, Maharashtra. The information which
became available to SEBI in respect of SIRECL through the
B aforesaid source is being extracted hereinunder:
"9. i. Shareholders Resolution:
Vide resolution passed at the Extraordinary
General meeting held on March 3, 2008 (and filed
c with RoC), consent of the members of SIRECL was
obtained for issuance of OFCD by way of private
placement basis to friends, associates, group
companies, workers/employees and other
individual who are associated/affiliated or
D connected in any manner with Sahara India Group
of Companies and RHP of SIRECL was filed with
RoC, Uttar Pradesh and Uttrakhand on March 13,
2008.
E ii. Promoters as per the RHP:
SIRECL is a company belonging to the Sahara
India Group and is promoted by Mr.Subrata Roy
Sahara, the founder of Sahara India Group.
F iii. Directors as per the RHP:
Mrs.Vandana Bharrgava, Mr.Ravi Shankar Dubey
and Mr.Ashok Roy Choudhary have given consent
to include their names as directors and have
signed the RHP as the directors of SIRECL.
G
iv. Date of opening and closing of the issue:
RHP merely states that date of opening and closing
would be as decided by the Board of Directors.
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 113
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
v. Details of the issue as per the RHP: A
The issue consists of OFCDs with option to the
holders to convert the same into Equity Share of
Rs.10 each at a premium to be decided at the time
of issue equal to the face value of the Optionally 8
Fully Convertible Rs.***. Since it is a RHP, the
quantum and the price is to be determined at a
future date. (It is pertinent to note that in the RHP,
the total cost of the project, in which the proceeds
of the said issue would be utilized is mentioned as C
Rs.20,000 crores).
vi. Objects of the issue as per RHP:
The funds raised shall be utilized for the purpose
of financing the acquisition of lands for the purpose D
of development of townships, residential
apartments, shopping complexes, etc. The
proceeds shall also be utilized for construction
activities which shall be undertaken by the company
in major cities of the country and also to finance E
other commercial activities/projects taken up by the
company within or apart from the above projects.
The company also proposes to carry out
infrastructure activities and the amount collected
from the current issue shall be utilized in financing F
the completion of projects viz., establishmenU
constructing the bridges, modernization or setting
up of airports, rail system or any other projects
which may be allotted to the company, from time
to time future. The company also proposes to
engage into the business of electric power G
generation and transmission and the proceeds of
the current issue shall also be used for the power
projects which shall be allotted to the company. The
money not required immediately by the company
H
114 SUPREME COURT REPORTS [2012] 12 S.C.R.
A may be parked/invested inter-alia by way of
circulating capital with partnership firms or joint
ventures or in any other manner as per the decision
of the Board of Directors, from time to time.
vii. Annual results:
B
As per the recently filed balance sheet of SIRECL
(as at June 30, 2009), proceeds from the issuance
of OFCDs is shown as Rs.4843.37 crores.
c viii. Eligibility to apply:
It is mentioned in the RHP that only those persons
are eligible fo apply to whom the information
Memorandum was circulated and/or approached
privately, who are associated/affiliated or connected
D in any manner with Sahara Group of Companies,
without giving any advertisement in general public."
Likewise the information which became available
to SEBI in respect of SHICL is also being extracted
E hereunder:
"9. i. Shareholders Resolution:
As per the RHP, it is observed that the OFCD
issuance by SHICL was approved by shareholders,
F vide the resolution (which is more or less similar to
the resolution passed by SIRECL), passed in the
AGM held on September 16, 2009. The RHP was
filed with RoC, Maharashtra on October 6, 2009.
G ii. Promoters as per the RHP:
SHICL is a company promoted by Mr.Subrata Roy
Sahara, the founder of Sahara India Group.
iii. Directors as per the RHP:
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 115
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
Mrs.Vandana Bhargava, Mr.Ravi Shankar Dubey A
and Mr.Ashok Roy Choudhary have given consent
to include their name as direct"rs and have signed
the RHP as directors of SHICL.
iv. Date of opening and closing of the issue:
B
RHP merely states that date of opening and closing
would be as decided by the Board of Directors.
v. Details of the issue:
The issue consists of Optionally Fully Convertible
c
Unsecured Debentures with option to the holders
to convert the same into Equity Share of Rs.10
each at a premium of to be decided at the time of
issue equal to the face value of the Optionally Fully D
Convertible Unsecured Debentures to be privately
placed aggregating to Rs.*** (since it is a Red
Herring Prospectus the quantum and the price is to
be determined at a future date). (It is pertinent to
note that in the RHP, the total cost of the projec~ in
which the proceeds of the said issue would be E
utilized is mentioned as Rs.20,000 crores).
vi. Objects of the issue as per RHP:
The object stated in short is • .... Financing the F
acquisition of lands for the purpose of development
of townships, residential apartments, shopping
complexes, etc .... • The objects mentioned therein
is more or less similar to the "objects of the issue"
mentioned in the RHP of SIRECL.
G
vii. Annual Report:
Since the Annual Report of SHICL for the
concerned period has not yet been filed with RoC.
the amount of the issue proceeds is not known. H
116 SUPREME COURT REPORTS [2012] 12 S.C.R.
A viii. Eligibility to apply:
RHP mentions that only those persons are eligible
to apply to whom the information Memorandum was
circulated and/or approached privately, who are
associated/affiliated or connected in any manner
B
with Sahara Group of Companies, without giving
any advertisement in general public.
ix. Explanatory note to the shareholders resolution:
c The explanatory note to the shareholders resolution
filed by SHICL with Roe (Extraordinary General
Meeting resolution dated November 11, 2009 by
SHICL) mentions: "The company further keeping in
view that the number of persons to whom the offer
D of OFCDs shall be issued might exceed the limits
as specified under Section 67 of the Companies
Act, 1956 made an application for approval of Red
herring Prospectus."
15. On the failure of the two companies to furnish
E information to SEBI, its Full Time Member - for short, SEBI
(FTM), drew the following conclusions in his order dated
24.11.2010.
Firstly, neither SIRECL nor SHICL had denied their having
F issued OFCDs.
Secondly, SIRECL as also SHICL acknowledged having
filed RHPs in respect of the OFCDs issued by them with the
concerned Registrar of Companies.
G Thirdly, besides the dates of filing the RHPs with tile
respective Registrar of Companies, neither of the companies
had furnished any other information/document sought from the
companies by SEBI.
H Fourthly, the companies had adopted a stance, that they
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 117
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
did not have complete details relating to the securities issued A
by them. This stance adopted by the two companies, according
to the SEBI, was preposterous.
Fifthly, SEBI had sought details of the number of
application forms circulated, the number of application forms 8
received, the amount of subscription deposited, the number and
list of allottees, the number of OFCDs allotted, the value of
allotment, the date of allotment, the date of dispatch of
debenture certificates, copies of board/committee meetings,
minutes of meetings during which the said allotment was
approved. According to SEBI, since the information sought was C
merely basic, the denial of the same by the companies
amounted to a calculated and deliberate denial of information.
Sixthly, information sought by the SEBI depicted at serial
number fifthly hereinabove, was solicited to determine the D
authenticity of the assertion made by the companies, that the
OFCDs had been issued by way of private placement.
Whereas, it was believed by the SEBI that the companies had
issued the OFCDs to the public.
E
Seventhly, since the companies had adopted the position,
that the OFCDs were issued by way of private placement to
friends, associate group companies, workers/employees and
other individuals who were associated/affiliated/connected to
the Sahara Group of Companies, according to· SEBI it was
highly improbable, that the details and particulars of such F
friends, associate group companies, workers/employees and
other individuals which were associated/affiliated/connected to
the Sahara India Group of companies, was not available with
them (for being passed over to SEBI).
G
16. Based on the aforesaid, the SEBI (FTM) passed an
order dated 24.11.2010. In the aforesaid order various issues
were separately examined. Issue no.1 was framed to determine
whether the OFCDs invited by SIRECL and SHICL had been
issued "to the public". On the instant subject the SEBI (FTM) H
118 SUPREME COURT REPORTS [2012] 12 S.C.R.
A expressed the view, that the proviso under section 67(3) of the
Companies Act made the position clear, that any offer/invitation
made by a public company to 50 or more persons was bound
to be considered as having been made "to the public". Since
the OFCDs were issued to persons far in excess of 50, it was
B sought to be concluded that the stance adopted by SIRECL
and SHICL to the effect, that the offer of OFCDs was by way .
of private placement was not acceptable. The SEBI (FTM) also
adopted another reasoning to determine the issue. According
to the information made available, the subscribed amount as
c on 30.6.2009 was Rs.4843.37 crores. To remain out of the
purview of the proviso under sub-section (3) of section 67 of
the Companies Act, the subscribed amount should have been
drawn from less than 50 persons (i.e., at the most 49 persons). ,
If (according to the SEBI), the subscribers are assumed to be
49 (which is the maximum permissible for private placement),
0
then the average subscription would have been in the range of
Rs.98.84 crores (Rs.4843.37 • 49 = 98.8442 crores). According
to the SEBI (FTM) since the unit face value of the OFCDs
issued by SIRECL and SHICL varied from Rs.5000/- to
E Rs.24000/-, it was unlikely that such an offer was made by less
than 50 persons. This inference was drawn on account of the
fact that even high net-worth investors are not seen to make
such huge investments in a single company.
17. The SEBI (FTM) then examined the plea advanced by
F the companies, that in view of the resolution passed by the
companies under section 81 (1A) of the Companies Act, they
could offer shares to any person, in any manner. And therefore,
their offer to a select set of persons should not be construed
as a public offer. The SEBI (FTM) rejected the aforesaid
G submission on the premise, that section 81(1A) of the
Companies Act, did not have an overriding effect over the
provisions relating to public issue under the Companies Act. It
was sought to be e.xplained, that further issue of securities,
extended only to existing shareholders of a company. According
H to the SEBI (FTM) section 81 (1A) was only an exception to the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 119
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
said rule, subject to the procedural requirements enumerated A
therein. It was pointed out, that under the Companies Act further
issue of capital, even pursuant to a resolution made under
section 81 (1A) of the Companies Act was subject to the
provisions of Part Ill of the Companies Act, when an offer was
to be made to 50 or more persons. The legal submissions, B
advanced on behalf of the companies based on section 81 (1A)
was, accordingly rejected.
18. The SEBI (FTM) also examined the issue with
reference to section 2(36) of the Companies Act, which defines C
the term "prospectus" to mean any document described or
issued as a prospectus and includes any notice, circular,
advertisement or other document "inviting, deposits from the
public or inviting _offers from the public" for the subscription or
purchase of any shares in, or debentures of a body corporate.
Based on the definition of term "prospectus" and the conduct D
of the companies in filing their respective prospectus for their
OFCDs, with the concerned Registrar of Companies, according
to SEBI (FTM). would lead to the inference that the companies
intended to mobilize funds through a subscription "to the public".
E
19. Based on the factual and legal aspects of the matter
considered by SEBI (FTM) noticed above, the following
summary of inferences were recorded in the order dated
24.11.201 O:
F
"18. i. The issue of OFCDs by the companies have
been made to a base of investors that are fifty or
more in number.
ii. The companies themselves tacitly admit the
same as they have no case that funds have been G
mobilized from a group smaller than fifty.
iii. A resolution under section 81 (1A) of the Act
does not take away the 'public' nature of the issue.
iv. The filing of a prospectus under the Act signifies H
120 SUPREME COURT REPORTS [2012) 12 S.C.R.
A the intention of the issuer to raise funds from the
public.
Therefore, for the aforesaid reasons, the
submission of the companies that their OFCD
issues are made on private placement and do not
8
fall under the definition of a public issue, is not
tenable. The instances discussed above would
prima facie suggest that the offer of OFCDs made
by the companies is "public" in nature ."
C 20. According to SE81 (FTM) since the offer was made to
the public, as per the mandate of section 73(1) of the
Companies Act, it was obligatory for the companies issuing
shares/debentures through a prospectus, to compulsorily seek
approval for listing in a recognized stock exchange. It was,
D therefore, sought to be concluded, that non-compliance of the
mandatory provisions contained in section 73 of the
Companies Act, could not result in drawing a favourable
inference. In other wods, because the companies had wrongfully
not sought approval for listing in a recognized stock exchange,
E it could not be presumed that the offer made by them was by
way of private placement. With the aforesaid observations, the
SE81 (FTM) concluded its determination on issue no.1, i.e., both
SIRl;CL and SHICL had sought subscription to the OFCDs, by
way of an invitation "to the public".
F 21. Issue no.2 was framed to determine whether section
608 of the Companies Act provided an alternative route, for
raising capital without complying with the procedure
contemplated under section 73 of the Companies Act. For
dealing with the second issue, reference was made to section
G 60 of the Companies Act which postulates the requirement of
a company issuing a prospectus to deliver the same to the
Registrar of Companies for registration. Reference was also
made to section 608(1) of the Companies Act which permits
a company to issue an information memorandum to the public
H before filing a prospectus. It was observed, that the object of
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 121
AND EXCH. BOARD OF INDIA (JAGDISH SINGH KHEHAR, J.]
issuing an information memorandum, is to elicit the public A
demand for the securities proposed to be issued. The
information collected, it was observed, is to enable the
concerned company to assess the price and the terms of the
proposed securities. Also taken into consideration was section
608(2) of the Companies Act, which it was observed, imposes B
a mandatory condition on a public company to file a prospectus
"prior to the opening of the subscription list" after it had issued
an information prospectus. The requirement of filing
prospectus, as indicated hereinabove, it was observed, is
preceded with the words "bound" depicting the mandatory c
character thereof. The SEBI (FTM) also made a reference to
section 608(3) of the Companies Act which, it was observed,
contemplates that the "information memorandum" and the
"RHP" would carry the same obligation as are applicable in
case of a prospectus. D
22. Learned counsel for the appellant-companies had
canvassed before the SEBI (FTM), that necessary particulars
had only to be furnished to the Registrar of Companies and not
to SEBI. In so far as the instant aspect of the matter is
concerned, the contention advanced on behalf of the appellant- E
companies was sought to be rejected by concluding that the.
term "any other case" used in section 608(9) was bound to be
given the same meaning and effect as was assignable to the
said term under section 53A(c) of the Companies Act. Based
on the aforesaid consideration, the SEBI (FTM) concluded as F
under:
"24. From the above reasons, section 608 of the Act
cannot be read in isolation, but has to be harmoniously
construed with the other provisions of the Act governing G
public issues. Therefore, section 608 of the Act does not
prescribe an alternative procedure to provisions of
Sections 67(3) and 73(1) of the Act, as contended by the
companies. Further, vide their letter dated September 30,
2010, the companies have mentioned that the issue is not H
122 SUPREME COURT REPORTS [2012] 12 S.C.R.
A yet closed. A prospectus cannot be kept open perpetually.
It is prima facie inferred from such conduct of the
companies that they have taken recourse to the argument
that their issues are covered under section 608 to
circumvent the applicable legal framework laid out
8 elaborately for public issues. Once an offer is made to fifty
or more persons, compliance with section 60B(filing with
RoC) alone cannot be treated as compliance. The moment
the company offers to fifty or more persons, it has to
comply with all the provisions applicable for public issues
c (Part Ill of the Act). Hence, the legal opinion submitted by.
the companies that they can issue to fifty or more persons
without making an application to a stock exchange under
section 73 of the Act, by following the procedure under
section 608 thereof, seems to be a narrower and a
convenient interpretation. If such an interpretation is
D
accepted it will pave the way for companies to raise money
from the general public, without following various
procedures intended to protect the interest of investors, in
respect of the public issues, prescribed under the Act and
the ICDR Regulations including the requirements for due
E diligence, disclosures, credit-rating, etc."
23. Based on the DIP Guidelines and the ICDR
Regulations, the SEBI (FTM) found that the companies had
committed the following violations:
F
"29 a) failure to file the draft offer document with
SEBI;
(b) failure to mention the risk factors and provide
the adequate disclosures that is stipulated, to
G enable the investors to take a well-informed
decision.
(c) denied the exit opportunity to the investors.
(d) failure to lock-in the minimum promoters
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 123
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
contribution. A
(e) failure to grade their issue.
(f) failure to open and close the issue within the
stipulated time limit.
B
(g) failure to obtain the credit rating from the
recognized credit rating agency for their
instruments.
(h) failure to appoint a debenture trustee c
(i) failure to create a charge on the assets of the
company.
0) failure to create debenture redemption reserve,
etc." D
24. Having recorded the aforesaid deliberations and
conclusions, the SEBI (FTM) issued the following directions in
its order dated 24.11.2010:
"Therefore, in view of the foregoing reasons, in order to E
protect the interest of investors and the integrity of the
securities market, I, in exercise of the powers conferred
upon me under section 19 the Securities and Exchange
Board of India Act, 1992 and Sections 11 (1), 11(4)(b), 11A
and 11 B thereof, read with Regulation 107 of the F
Securities and Exchange Board of India (issue of Capital
and Disclosure Requirements) Regulations, 2009, pending
investigation, hereby issue the following directions, by way
of this ad interim ex-parte order:
G
a. Sahara India Real Estate Corporation Limited
and Sahara Housing Investment Corporation
Limited are restrained from mobilizing funds under
the Red Herring Prospectus dated March 13, 2008
and October 6, 2009, respectively, filed with the H
124 SUPREME COURT REPORTS [2012] 12 S.C.R.
A concerned Registrar of Companies, till further
directions. The said companies are further directed
not to offer their equity shares/OFCDs or any other
securities, to the public and invite subscription, in
any manner whatsoever, either directly or indirectly
B till further directions.
b. Sahara India Real Estate Corporation Limited
and Sahara Housing Investment Corporation
Limited and are persons who are named as
promoters and directors of the said companies in
c the Red-Herring Prospectus filed with the
concerned Registrar of Companies, namely,
Mr.Subrata Roy Sahara, Ms.Vandana Bharrgava,
Mr.Ravi Shankar Dubey and Mr.Ashok Roy
Choudhary, are prohibited from issuing prospectus,
D or any offer document, or issue advertisement for
soliciting money from the public for the issue of
securities, in any manner whatsoever, either directly
or indirectly, till further directions.
E 40. Sahara India Real Estate Corporation Limited and
Sahara Housing Investment Corporation Limited are
directed to show cause as to why action should not be
initiated against them including issuance of directions to
refund the money solicited and mobilized through the
F prospectus issued with respect to the impugned OFCDs,
done prima facie in violation of the provisions of the
Companies Act, 1956, the Securities and Exchange Board
of India Act, 1992, the erstwhile Securities and Exchange
Board of India (Disclosure and Investor Protection)
Guidelines, 2000 and the Securities and Exchange Board
G
of India (issue of Capital and Disclosure Requirement)
Regulations, 2009, as observed in this order.
41. The entities/persons against whom this order is issued
may file their objections, if any, to this order within thirty
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 125
AND EXCH. BOARD OF INDIA (JAGDISH SINGH KHEHAR, J.)
days from the date of this order and, if they so desire, avail A
of an opportunity of personal hearing at the Securities and
Exchange Board of India, Head Office, SEBI Bhavan, C-
4A, G, Block, Bandra Kurla Complex, Bandra (East)
Mumbai-400051. They may also inspect the relevant
documents, if they so desire, on any working day prior to B
the hearing, during office hours at the above mentioned
address.
42. Copy of this order is also forwarded to the Ministry of
Corporate Affairs to enable them to take appropriate C
action as deemed fit by them, for any violation of the
applicable provisions of the Companies Act, 1956
administered by them.
43. This order is without prejudice to any other action that
may be initiated against the said violations. D
44. This order shall come into force with immediate effect."
Through the aforesaid order of the SEBI (FTM) dated
24.11.2010 SIRECL and SHICL were also directed to show
cause as to why action should not be initiated against them, E
including issuance of directions to refund the money solicited
and mobilized through the prospectus issued with respect to
the impugned OFCDs. The instant show cause notice issued
by the SEBI (FTM) dated 24.11.2010 shall hereinafter be
referred to as "the first show cause notice issued by the SEBI." F
25. SEBl's order dated 24.11.2010 (the first show cause
notice issued by the SEBI) was challenged before the Lucknow
Bench of the High Court of Judicature at Allahabad (hereafter
referred to as the "the High Court") through Writ Petition G
No.11702 (M/B) of 2010 on 29.11.2010. On 13.12.2010, the
High Court stayed the operation of the order dated 24.11.2010
(the first show cause notice issued by the SEBI). Despite the
aforesaid injunction granted by the High Court, it permitted
SEBI to proceed with its inquiry against both the companies, H
126 SUPREME COURT REPORTS (2012] 12 S.C.R.
A but restrained SEBI from passing any final order. SEBI assailed
the order dated 13.12.2010 by filing Special Leave Petition (C)
No.36445 of 2010. SEBl's challenged was declined by this
Court on 4.1.2011.
26. Even though the High Court, in the first instance, was
8
pleased to stay the operation of the order dated 24.11.2011
(vide an order dated 13.12.2010), yet the High Court vacated
the aforesaid interim order dated 13.12.2010 by an order dated
7.4.2011, in furtherance of an application filed by the SEBI.
C While vacating the interim order the High Court observed, that
the appellant-companies were expected to cooperate with the
inquiry being conducted by the SEBI. Since the appellant-
companies were found remiss in the matter, the High Court
was constrained to vacate the interim order passed earlier (on
13.12.2010). The appellant-companies (petitioners before the
D High Court) then filed an application before the High Court
seeking a restoration of the order passed on 13.12.2010. The
said application was dismissed on 29.11.2011. While
dismissing the aforesaid application, the High Court observed,
that those who come to court were supposed to come with
E clean hands and bona fide intentions, and have to abide by
orders passed by the court, if assurances given to the court are
not honoured, the court cannot come to the rescue of the party
concerned. It is apparent, that the High Court had denied relief
to the appellant-companies because they had not approached
F the High Court with clean hands and because their intentions
were not found bona fide.
27. The order passed by the High Court vacating the
interim order (passed on 13.12.2010) dated 7.4.2011 came to
G be assailed by SIRECL before this Court through Special
Leave Petition (C) No.11023 of 2011. Having entertained the
aforesaid petition filed by SIRECL, this Court on 12.5.2011
passed the following order:
"1. . .... In this matter the questions as to what is OFCD
H and the manner in which investments are called for are very
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 127
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
important questions. SEBI, being the custodian of the A
investor's interest and as an expert body, should examine
these questions apart from other issues. Before we pass
further orders, we want SEBI to decide the application(s)
pending before it so that we could obtain the requisite input
for deciding these petitions. We request SEBI to B
expeditiously hear and decide this case so that this Court
can pass suitable orders on re-opening. However, effect
to the order of SEBI will not be given. We are taking this
route as we want to protect the interest of the investor. In
the meantime, the High Court may proceed, if it so c
chooses, to dispose of the case at the earliest. The
Special Leave Petitions shall stand over to July, 2011."
28. In compliance with the order extracted hereinabove,
SEBI issued separate show cause notices to the companies
on 20.5.2011. For facility of segregation, the instant show D
cause notices dated 20.5.2011 shall hereinafter be referred to
as "the second show cause notice issued by the SEBI''.
Through the second show cause notice, the two companies
were required to satisfy the SEBI why the directions contained
in the order dated 24.11.2010 should not be reaffirmed. In E
response to the second show cause notice, detailed replies
dated 30.5.2011 were filed by the companies so as to enable
the companies to effectively project their respective claims. An
opportunity of hearing was also afforded to the companies on
6.6.2011. During the course of hearing on 6.6.2011 (as well as F
on the adjourned dated i.e., 6.8.2011) detailed submissions
were advanced through counsel.
29. In the interregnum SIRECL changed its name to
Sahara Commodities Services Corporation Limited. Be that as G
it may, while adjudicating upon the present controversy, to the
said company will be referred to as SIRECL.
30. Having issued the second show cause notice dated
20.5.2011 and having received detailed replies from SIRECL
as also from SHICL, and thereupon, having heard detailed H
128 SUPREME COURT REPORTS [2012] 12 S.C.R.
A submissions advanced by counsel representing the two
companies, SEBI (FTM) summarized the pleas raised on
behalf of the companies in response to the second show cause
notice as under:
"6 ...... A. The two companies have made 'private
B
placements' of Optionally Fully Convertible Debentures
(OFCDs) to persons related or associated with the Sahara
India Group, and therefore these issuances are not 'public'
issues.
c B. OFCDs are neither shares nor debentures in its strict
sense and are in the nature of 'hybrid' as defined in the
Companies Act, 1956 (hereinafter referred to as the
Companies Act).
D C. 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
Contract (Regulation) Act, 1956 (hereinafter referred to as
the SCR Act).
E D. Such hybrid securities were issued by the two
companies (both unlisted), in terms of section 608 of the
Companies Act and therefore, the jurisdiction in respect
of such issues lies with the Central Government in terms
of Section 55A(c) thereof and not with SEBI.
F
E. Sections 67 and 73 of the Companies Act are not
applicable to such hybrid securities issued by the two
companies.
F. The DIP Guidelines and the ICDR Regulations would not
G be applicable to the hybrid securities as neither the SEBI
Act nor SCRA confer jurisdiction on SEBI in respect of
such securities."
31. On the issue whether the SEBI had jurisdiction to deal
H with the matter under reference it was imperative for SEBI (FTM)
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 129
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
to first ascertain, whether OFCDs issued by SIRECL and A
SH ICL were 'hybrid securities". If so, whether "hybrid securities"
were covered by the definition of the term "securities" under the
SEBI Act and/or the Securities Contract (Regulations) Act, 1956
(hereinafter referred to as "the SC(R) Act). The contention
advanced at the behest of the companies on the instant issue B
was based on an amendment to the Companies Act in 2000.
By the aforesaid amendment, the term 'hybrid" was included
in the definition of the term 'securities" in section 45AA of the
Companies Act (with effect from 13.12.2000). Since the term
"hybrid" was not similarly included within the definition of term c
"securities" under the SEBI Act and/or SC(R) Act, the contention
advanced on behalf of the appellant-companies was that SEBI
had no jurisdiction in respect of "hybrid securities".
32. The SEBI (FTM), on analyzing section 2(k) of the
SC(R) Act arrived at a conclusion that the term "securities" in D
the SEBI Act as also SC(R) Act included "other marketable
securities of a like nature", SEBI, according to the SEBI (FTM),
would therefore, have jurisdiction to deal with the matter under
reference.
E
33. While evaluating the terms and conditions of the bonds
issued in response to the OFCDs (floated by the two
companies), it was found that holders of all the six different
kinds of bonds issued by SIRECL and SHICL, had the liberty
to transfer the same to any other person subject to the terms F
and conditions incorporated therein and the approval of the
respective company. It was therefore held:
"14.5.6 ... I find that firstly, marketability of a security
denotes the ease with which it can be sold, secondly what
is freely transferable is marketable and thirdly what is G
saleable is also marketable. Clearly, OFCDs issued by the
two companies to such a wide base of investors who can
sell these securities among themselves, if not to others are
evidently 'marketable'. I have to therefore regard the
H
130 SUPREME COURT REPORTS [2012] 12 S.C.R.
A OFCDs issued by the two companies as marketable
securities."
34. On the issue whether the OFCDs which are the subject
matter of contention in the present controversy, fell within the
8 definition of term "debentures", the decision of the SEBI (FTM)
was as under:
"14.6.1 From the nomenclature itself, 'Optionally Fully
Convertible Debentures' are 'Debentures', as they indeed
are named so ..... A succinct eludication of what the test
c for a "security" under securities laws may be found in A
Ramaiya (XVII Ed. 2010 - Guide to the Companies Act-
page 100). The acid test is whether the scheme involves
an investment of money in a common enterprise with
profits to come solely from the efforts of others so that
D whenever an investor relinquishes control over her funds
and submits their control to another for the purpose and
hopeful expectation of deriving profits thereof, she is in fact
investing her funds in a security ..... Such test contains
three elements: the investment of money; a common
E enterprise; and profits or returns solely derived from the
efforts of others.
14.6.2 ..... In this case, the investor purchasing the OFCD
makes an investment. Both the two companies issuing the
OFCDs are common enterprises, being public limited
F companies. The investor herself has absolutely no part in
generating profits on her investment - and therefore, as
such, the profits or returns are solely derived from the
efforts of others. Therefore, on the basis of this test, it is
amply evident that OFCDs come well within the scope of
G securities as defined in Section 2(h) of the SCR Act."
In conjunction with the aforesaid, the issue in hand was
further evaluated by the SEBI (FTM) on the following lines:
H "14.6.8 In Narendra Kumar Maheshwari vs. Union of India
SAHARA !NOIA REAL ESTATE CORP. LTD. v. SECURITIES 131
AND EXCH. BOARD OF !NOIA (JAGDISH SINGH KHEHAR, J.]
[1990 (Suppl.) SCC 440], the Hon'ble Supreme Court, A
observed that in the various guidelines applicable to such
instruments, compulsorily convertible debentures are
regarded as 'equity' and not as a loan or debt." One of the
critical considerations adopted by the Hon'ble Supreme
Court of India in concluding so, is that "A compulsorily B
convertible debenture does not postulate any repayment
of the principal.• The thinking of the Hon'ble Supreme Court
revealed in this Judgment, not only clarifies the issue, but
also provides me with a touchstone to determine whether
the OFCDs issued by the two companies are more in the· c
nature of shares or debentures. SIRECL has issued three
bonds viz., Abode Bond, Real Estate Bond and Nirmaan
Bond. SHICL has also issued three bonds, viz., Multiple
Bond, Income Bond and Housing Bond. From a plain
reading of the summary of their descriptions at paragraph D
9.2 and 9.3 above, it is evident that all these six bonds
postulate a repayment of the principal. The repayment of
the principal will be at the option of the investor. The
investor holds the option, which gives her a right to
determine whether she would like to get her principal back E
in cash or as equity shares. Hence, Optionally Fully
Convertible Debentures unlike their counterpart category
of Compulsorily Convertible Debentures do not share the
characteristic pointed out by the Hon'ble Supreme Court
in arriving at the conclusion that Compulsorily Convertible
Debentures are more of equity than of debentures. Thus, F
all the six financial instruments issued by the two
companies share the defining feature of debentures in that
a payment of interest to the investor and a repayment of
the principal, albeit at the option of the investor, is
postulated." G
Based on the aforesaid analysis SEBI (FTM) summarized
its conclusions as under:
"14.10 The following summarises the discussions above: H
132 SUPREME COURT REPORTS (2012] 12 S.C.R.
A 1. As laid down in the judgment in the matter of Sudhir
Shantilal Mehta vs. CBI (quoted supra), the definition of
'securities' in Section 2(h) of the SCR Act is an inclusive
one and not exhaustive, with adequate latitude to
accommodate OFCDs.
B
2. OFCDs issued by the two companies are marketable
scurities.
3. These instruments satisfy all the characteristic features
that identify a security based on clear tests used to identify
c what a security under section 2(h) of the SCR Act is.
4. Debenture is a genus and not a species of financial
instruments. This genus includes OFCDs.
5. OFCDs contemplate the repayment of principal, and
D hence using the yardstick adopted by the Hon'ble Supreme
Court of India in Narendra Kumar Maheshwari vs. Union
of India (quoted supra), these instruments indeed are
debentures.
E 6. The Companies Act recognizes OFCDs as a
composite financial instrument where an option is attached
to a debenture.
7. Design and valuation characteristics of OFCDs, show
that it is the sum of the valuation of the two parts, viz.,
F debenture and option, where the option is valued as a
'sweetener' to improve the pricing and risk characteristics
of the debenture.
8. OFCDs are issued as debentures (Palmer's Company
G Law - XXIV Ed. Page 676).
14.11 From the foregoing discussions, it therefore
becomes abundantly clear that OFCDs belong to the
family of debentures covered by the definition of the term
H 'securities' in section 2(h) of the SCR Act. That an OFCD
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 133
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
is a hybrid therefore does not detract from the fact that an A
OFCD is by definition, design and its characteristics,
intrinsically and essentially a 'debenture'."
35. Thereupon SEBI (FTM) ventured to make a comparison
of the definition of the term "securities" as under the 8
Companies Act and with reference to its definition under the
SC(R) Act. This comparison was made so as to determine the
veracity of the submissions advanced on behalf of the appellant-
companies that the term "securities", as defined under SC(R)
Act which had been adopted by the SEBI Act could not be given C
the same meaning and effect as the definition of the term
"securities" under the Companies Act for the simple reason that
the Companies Act expressly included "hybrids" within the
definition of the term "securities" (in section 2(45AA) of the
Companies Act in 2000) whereas no such or similar inclusion
was made in the SC(R) Act. The aforesaid submissions had D
been advanced in order to press the plea of the appellant-
companies, that OFCDs issued by SIRECL and SHICL were
"hybrids", and as such were not within the purview of SEBI Act.
The relevant observations recorded by SEBI (FTM) on the
instant subject are being placed below: E
"15.1 To reiterate, Section 2(19A) of the Companies Act
defines 'hybrid' to mean "any security which has the
character of more than one type of security, including their
derivatives". Black's Law Dictionary (VIII Ed.) defines F
hybrid security as: "A security with features of a debt
instrument (such as a bond) and an equity interest (such
as share or stock)." While the Companies Act
contemplates that a hybrid can be any combination of
securities - and makes it an omnibus definition, the more G
precise definition in Black's Law Dictionary is that it is a
combination of a debt instrument and an equity interest. ....
Section 2(h)(i) of the SCR Act, which specifies that
"securities" includes "shares, scrips, stocks, bonds,
debentures, debenture stock or other marketable H
134 SUPREME COURT REPORTS [2012] 12 S.C.R.
A securities of a like nature in or any incorporated company
or other body corporate''. In this list of instruments, the last
three viz., bonds, debentures and debenture stock are debt
instruments, and the first three viz., shares, scrips and
stocks are equity instruments. Under the definition, any
B marketable security of 'a like nature' automatically falls
under section 2(h)(i) of the SCR Act. A hybrid, as long as
it is marketable, regardless of the strength or proportion
in which the debt and equity components are assembled
together, bears an unmistakable likeness to one more of
c these six instruments. So clearly, any marketable hybrid,
in the way we understand hybrids in India today, is a
marketable security of a 'like' nature ....
15.2 This is not to say that all hybrids invariably have to
combine debt and equity. Many issuers have sold debt
D instruments where the amount of principal payable at
maturity is tied to the performance of a stock or bond index,
or a commodity or foreign currency or even the rate of
inflation. Whether in the future, financial engineering will
create newer hybrids as combinations of other securities
E that become popular in India is hard to predict - but today,
it is unequivocally true that all marketable hybrids available
in the market neatly fall into the categories "marketable
securities of a like nature".
F On the second issue while dealing with the factual and legal
connotations involved, SEBI (FTM) recorded the following
conclusions:
"15.12 Five definite conclusions emerge from the above
discussions.
G
1. OFCD as a hybrid is a 'debenture' under Section 2(h)(i)
of the SCR and is also a marketable security.
2. The import of the expression "and includes" as used in
Section 2(45AA) of the Companies Act has to be
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 13S
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
appreciated against the maxim of noscitur a sociis. The A
term 'securities' itself has a very extensive scope. There
are no exceptional circumstances that suggest the need
for any deviation from a normal and common interpretation
of such expression. Therefore, the definition of the term
'securities' in section 2(h) of SCR Act encompasses B
'hybrid' also and is therefore equivalent to the definition in
section 2(4SAA) in the Companies Act.
3. The powers conferred on SEBI under section SSA
of the Companies Act, relate to 'securities' defined under C
that Act, and not under the SCR Act. So even if one were
to assume that there are differences between the two
definitions (even though there are none) SEBI can regulate
all securities (whether hybrid or not) under Section SSA of
the Companies Act.
D
4. Any assumption, even for argument's sake, that
hybrids are not covered under the SCR Act, would lead to
an untenable position, with a regulatory vacuum in so far
as regulation of transactions in such hybrids are
concerned, once they are issued. E
S. Finally, were "hybrid", as defined in the Companies
Act, to be treated as distinct from, and falling outside
"securities" under the SCR Act, then this would give rise
to an incurable defect in the very definition of the term
F
"hybrid" itself."
36. In order to return a finding on the issue whether OFCDs
offered by the two companies were by way of private placement
or by way of an offer to the public", reliance was placed by the
SEBI (FTM) on a series of factual circumstances, including G
assertions made in the information memorandum, the terms
and conditions incorporated in the bonds issued by the two
companies, the assertions made in the extraordinary general
body meeting of the equity-holders (accepting the legal position
in the eventuality of the subscribers number exceeded SO), the H
136 SUPREME COURT REPORTS [2012] 12 S.C.R.
A declaration required to be made by the applicants, the letters
written by the companies seeking assistance from professional
accounting firms for collection and compilation of data, the non
availability of the data with the companies, and such like factual
pointers, to conclude as under:
B
"17.16. These facts drive home one rather straightforward
inference viz., the issue was marketed to and subscribed
by the general public and it was not a private placement
by any stretch of imagination. Therefore, the OFCD issues
by the two companies cannot be held, even for a moment,
c to be of a "domestic concern· or "that it was not subscribed
to by others to whom such offer was not made" (as referred
to in Section 67(3) of the Companies Act). Further, it is
the case of SlRECL that they have 6.6 million subscribers.
Given the above circumstances, I do not hesitate in being
D a tad dismissive of the argument advanced by the learned
counsel, when I say that 6.6 million subscribers is too
colossal a pool of persons associated to the companies,
to be labeled 'private', particularly in the absence of any
definition of what such an association or relationship is.
E What seems to be very obvious is that the two companies
are obtaining subscriptions into its OFCD schemes
through mass subscription solicitation through service
centres sprawled across the country. I have no hesitation
in concluding that placements of OF CDs made by the two
F companies were indeed made to the public. In fact, unless
there is a database of investors already available with an
issuer, the offer letters under a 'private placement' simply
cannot be mailed out. The very absence of a 'database',
readily available with the two companies itself is the best
G indicator that these not by any means 'private placements'.
The SEBI (FTM), based on the analysis briefly noticed
above, summarized its findings and conclusions on the issue
in hand as under:
H "17.20 The above findings are summarized below:
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 13 7
AND EXCH. BOARD OF INDIA [JAGDJSH SINGH KHEHAR, J.]
1. The OFCDs in question here constitute an offer to the A
public as they have been made to over fifty persons.
2. The manner and the features of fund raising under the .
bond issues by the two companies discussed above,
suggest these issues are by no means 'private'. What 8
seems evident is that the two companies have been
running a mass subscription solicitation from the public.
3, The two companies do not fall under the entities
specified in the second proviso to section 67(3) which is
the only exemption granted to the 'Rule of 50', that defines C
offer to the public, under the Companies Act.
I would therefore conclude that the OFCDs issued by the
two companies are public issues, without any ambiguity."
D
37. The SEBI (FTM), thereupon, examined the applicability
of section 73 of the Companies Act to the controversy in hand.
Taking into consideration the fact that the two companies had
issued OFCDs which were debentures offered to the public
through a prospectus, it was held, that compliance with the E
requirements expressed in Section 73 of the Companies Act
was imperative. The aforesaid conclusion was sought to be
drawn by recording the following observations:
"18.7 To sum up, for a public issue, whose parameters are
set by the first proviso to Section 67(3) of the Companies F
Act, the issuer is bound to proceed to Section 73, and
comply with the requirements stipulated there. In fact, there
does not seem to have been any doubts in the minds of
the two companies that they were bound to comply with
Sections 67 and 73 of the Companies Act, as seen from G
their statement to the Registrar itself. I also suspect that
there has been a reprehensible attempt to conceal this
applicability of the provisions of laws and the jurisdiction
of SEBI on the issue itself, by making changes in the form
and structure of the statutory declaration filed by the H
138 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Directors of the two companies."
xxx xxx xxx
"19.7. Therefore, the intention to list, contemplated in the
Companies Act does not originate from the benevolence
8 and large-heartedness of the issuer or from a voluntary
desire to subject itself to greater regulatory discipline. It
arises because Parliament, in its wisdom, as explained in
the aforesaid observations of the Hon'ble Apex Court, had
decided that listing the shares or debentures of a public
c company that issues shares or debentures to the public,
on a stock exchange should be an integral part of the
measures for investor protection in our country. In other
words, where the expression "intend to" is used in the
Companies Act, in the matter of listing, the law does not
D offer a choice to the issuer, but mandates the same."
38. The SE81 (FTM), then examined the submission put
forward by the two companies, that section 608 of the
Companies Act was the only route available to the companies
E to raise capital by way of hybrid securities. In this behalf, the
assertion on behalf of the companies was, that sections 67 and
73 of the Companies Act could not be relied upon to determine
the present controversy because the said provisions were
applicable only to "shares and debentures" and not to "hybrid
securities". Thus viewed, the contention on behalf of the
F companies was that SIRECL, as well as, SHICL were only
obliged to file their final prospectus with the Registrar of
Companies under section 608(9) of the Companies Act. This
issue was dealt with by the SE81 (FTM) by expressing the
following logic and analysis:
G
"20.6 ... in the spirit of the Companies Act, an issuer that
has made an offer of securities to the public, and therefore
has applied for listing as legally required, undoubtedly has
to sit in the category of 'listed public companies?- and not
H 'others' in section 608(9) of the Companies AC! - and
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 139
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
'others' in section 608(9) of the Companies Act - and A
would indeed therefore be under the regulatory umbrella
of SE81, as provided in this sub-section itself. In other
words, had the two companies abided by the requirements
set by law, under section 67(3) and section 73, and
applied for listing, they legitimately should have been dealt 8
with, for the purposes of Section 608(9), on par with any
listed company. So, even the argument of the two
companies, that they belong to the category of 'others'
under section 608(9) is ultra vires of the law, because it
is premised on a violation of two important provisions of c
the Companies Act - viz., section 67(3) and 73.
The analysis of the SE81 (FTM) of the process
contemplated under section 608 of the Companies Act, was
dealt with in the following manner:
D
"20.9. Thus there are three distinct 'gates' that have to be
crossed in the process of raising capital through the
'information memorandum' route - firstly, the issue of the
information memorandum itself [section 608(1)], secondly
the filing of the red-herring prospectus [Section 608(2)] E
and lastly the filing of the final prospectus [Section 608(9)].
Evidently, the 'final prospectus' is the last post to be
reached. A careful reading of Section 608(1 ), (2) and (3)
clearly shows that at the stage, when the information
memorandum and prospectus (red-herring) are filed, the F
Companies Act directs the process in the regulatory sense
to Section 55 (on the dating of prospectus) and Section
56 where the matter to be stated and set out in the
prospectus are defined.
20.10. Section 608 of the Companies Act, from a plain G
reading of the Act itself, and as also argued by learned
counsel, applies to all securities, and therefore it would
· apply to 'shares' and 'debentures' as well. It offers a route
to 'listed public companies' and 'public companies which
intend to get their securities listed' as well. Any issuer H
140 SUPREME COURT REPORTS [2012] 12 S.C.R.
A company has to cross the first two gates in the process -
circulation of an information memorandum and a RHP
under section 60B(1) and 60B(2). Section 608(3) places
all these documents on par with a prospectus. Evidently
therefore these provisions in the Companies Act imply that
B Section 55 and 56 of the same apply in toto. Parliament,
in its wisdom, under section 55A, has decided that SEBI
should administer sections 55 and 56, insofar as it relates
to 'listed public companies' and 'public companies which
intend to get their securities listed'. Therefore, it goes
c without saying, that as far as 'listed public companies' and
'public companies which intend to get their securities
listed' are concerned, SEBI is the regulatory gatekeeper,
posted at Sections 60B(1) and 60B(2) of the Companies
Act. In fact this indeed is precisely what happens now,
when 'listed public companies' and 'public companies
D
which intend to get their securities listed' file their DRHP
and RHP before SEBI."
Having evaluated the controversy in the aforesaid manner,
the SEBI (FTM) recorded a decision on the issue canvassed,
E by relying upon section 60B(9) of the Companies Act, in the
manner set out below:
"20.19 To sum up the discussion in this section, the
following conclusions emerge:
F *If the offer of OFCDs are 'private' in nature, as claimed
by the two companies, then section 60B is not the correct
route to traverse for issuing OFCDs, given that section
608 deals with issue of information memorandum to the
public alone. The two companies cannot, in one breath,
G claim that their issues are private placements and at the
same time proceed to use a route, exclusively designed
for public issues.
*At the stage of taking recourse to section 60B under the
H Companies Act, a public company that proposes to issue
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 141
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
securities to the public should already have applied, as is A
required under law, for listing on a stock exchange, and
as such can only be treated on par with a "listed public
company" and not in the category of the other group "and
in any other case with the Registrar only" under section
608(9) of the Companies Act. 8
*The argument that they are in the latter category is built
on the presumption that the two companies need not have
complied with section 67(3) and section 73. The two
companies are required under law to conform to these C
applicable legal provisions. Therefore, the framework for
issue of capital under the Companies Act, the SE81 Act
and its Regulations would apply in toto to the OFCD issues
of the two companies.
*Section 608 should not be aligned solely with the D
expression "and in any other case with the Registrar only",
but has to be read progressively, in its context, going from
section 608(1) all the way to Section 608(9).
*Section 608 - whether for listed public companies or E
other companies - was introduced in the Companies Act,
for a specific purpose under the Companies (Second
Amendment) Act, 2002. It was never designed to create
an island of regulatory standards that are distinct from and
contrary to the spirit of various other provisions in the
Companies Act itself, in so far as mobilization of capital F
from the public or their investor protection is concerned.
*There are no valid grounds to infer that the expression
"and in any other case with the Registrar only" that
appears section 608(9) was intended in law to curtail the G
powers of SE81 conferred on it under section 55A of the
Companies Act. Hence, I am of the considered opinion that
the two companies have violated the legal provisions
under Section 67(3) and 73 of the Companies Act, and
have acted ultra vires of the law, in using section 608(9) H
142 SUPREME COURT REPORTS (2012] 12 S.C.R.
A for their OFCDs to bypass the regulatory framework
applicable to them, relying solely on the expression "and
in any other case with the Registrar only" that occurs in
this sub-section."
39. It was also contended on behalf of the two Companies
8
before the SEBI (FTM), that the Companies had wrongly been
proceeded against by the SEBI under the SEBI (Disclosure and
Investor Protection) Guidelines, 2000 (hereinafter referred to as
the "DIP Guidelines") during the period the same were not in
force. It was further contended, that presently the SEBI (Issue
C of Capital and Disclosure Requirements) Regulations, 2009
(hereinafter referred to as "the ICDR Regulations") govern the
subject under consideration, as the DIP Guidelines had been
repealed by the ICDR Regulations. Insofar as the ICDR
Regulations are concerned, it was pointed out, that the same
D being prospective in nature could not be taken into
consideration to determine the validity of the Companies
activities, which had taken place well before the ICDR
Regulations came into force (with effect from 26.8.2009). The
instant contention of the companies was rejected by the SEBI
E (FTM) by ruling, that the two companies had continued to
mobilize funds from the public under the information
memorandum and the RHP, till they were restrained from doing
so by the SEBI (vide its order dated 24.11.2010). Having
considered the aforesaid contention raised on behalf of the
F appellant-companies the SEBI (FTM) also expressed the view,
that the ICDR Regulations would be applicable because the
violations committed by the two companies was of a continuing
nature, more so; because the violations had continued even
after the enforcement of the ICDR Regulations (with effect from
G 26.8.2009). Accordingly, the SEBI (FTM) expressed the view,
that action could be taken against SIRECL, as well as, SHICL
if their activities after 26.8.2009 were found to be in violation
of the ICDR Regulations.
40. Having dealt with the issues raised by the appellant-
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 143
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
companies as have been noticed hereinabove, as well as, A
certain other trivial matters not requiring an express mention
in the instant order, the SEBI (FTM) ventured to examine the
action of the two Companies on the touchstone of investor
protection in securities, and the responsibilities assigned to
SEBI to regulate the securities marked. Some of the aspects B
highlighted by the SEBI (FTM) which demonstrate absolute lack
of investor's safeguards at the hands of the two companies are
being extracted hereunder :
"24.1 The two Companies, as stated in the interim order C
as well as in the additional Show Cause Notice, are
without doubt, clearly in gross violation of the provisions
of the laws applicable to public companies making offers
of securities to the public. I have referred earlier to how
the two Companies, seem to be unable to furnish even
basic data on the identity of its own investors. The letters D
sent by SIRECL to various accounting firms in January
2011, seeking professional services seem to suggest a
woeful lack of compiled and authenticated data on their
investors and the funds. If the identity of the investors and
addresses themselves are not readily available with the E
firm - and the compilation and authentication of the data
across the thousands of service centres will have to, as
admitted by SIRECL, require the support of professional
accounting firms at this stage, then I wonder what real
safeguards can possibly be there in place for investor F
protection.
24.2 I observe here that only one company viz. SIRECL
has furnished information about its investors. SHICL has
not, despite reminders from· SEBI, cared to furnish the G
requisite information. Despite instructions from the Hon'ble
Supreme Court of India and the Hon'ble High Court of
Lucknow directing SIRECL to be forthcoming on the data
on its investors, there still is little clarity in the statements
furnished by it. This is seen particularly in the absence of H
144 SUPREME COURT REPORTS [2012] 12 S.C.R.
A details on the actual quantum of funds that has been
mobilized. All that has been declared clearly in the RHP
is that both the companies together need '40000 er. for
their projects. Additionally, I also observe that the data
furnished by SIRECL in the Compact Disk, are in the form
B of scanned images, which are not amenable to easy
analysis on a Computer. SIRECL has not supplied the data
in standard spreadsheet form or as regular documents for
word processing. Thus, based on what has been furnished
by the Companies, SEBI has little means to find out
c cumulative totals of funds mobilized or do further useful
analysis on the data itself, as part of its investigation, should
any such future requirements arise. The Hon'ble High Court
of Allahabad, as quoted supra above, had expressed its
displeasure at the rather blatant unwillingness of SIRECL
to comply with its directions and cooperate with the
D
investigations. There seems to be an unstated resolve on
the part of the two Companies not to part with data in any
meaningful manner. The thrust seems to be on
concealment and obfuscation rather than openness and
transparency.·
E
24.3 The Learned Counsel, at one point in the submissions
before me, mentioned the fact that there are no investor
complaints at all, from any investor in the OFCDs raised
by the two Companies. Going by the history of scams in
F financial markets across the globe, the number of investor
complaints has never been a good measure or indicator
of the risk to which the investors are exposed. Most major
'Ponzi' schemes in the financial markets, which have finally
blown up in the face of millions of unsuspecting investors,
G have historically never been accompanied by a gradual
· build up of investor complaints. But when financial
catastrophes have indeed finally erupted, they do so with
little warning and lead to major collapses in the financial
markets with disastrous consequences to investors.
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 145
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
24.4 I have examined the copies of the RHPs filed by the A
two Companies. Against all the major investor protection
measures contemplated (for e.g. appointment of debenture
trustee, credit rating, underwriting, .utilization of funds
collected), I see the entry "Not applicable". Some of them,
as stated therein, are declared inapplicable because the B
issue will not be listed. Others are declared inapplicable,
because the issue is not of debentures. If such vital
regulatory requirements themselves have all been declared
superfluous or unnecessary, and have not been complied
with on one pretext or the other, what then exacUy are the c
protective measures that the two Companies can possibly
have in place for its investors? The records furnished to
SEBI shed little light on this. Neither have the two
Companies come forward to allay the legitimate concern
of SEBI as a regulator in this regard, duly reflected in the 0
show cause notices issued to the two Companies and their
promoters and directors.
24.5 SIRECL did not have any distributable profit for the
financial year ending 31st March, 2008. SIRECL had a
negative net worth at the time of the offer and the net worth E
of SHICL was around '11 lakh. The subscribed capital of
the two Companies is very small in comparison to the
liabilities on their balance sheets. OFCDs raised are of
the order of at least a few thousand crore of rupees, with
the requirements for funds indicated at '40000 er. To F
compound these concerns, all the OFCDs are unsecured
- there is no charge on either the assets of the companies
or on the revenue streams from the various projects
undertaken by the two Companies. Given the large scale
of fund raising that has been resorted to by the two G
Companies, and the fact that particulars about these funds
and their utilization are not available with SEBI, at this stage
one can, for the sake of the investors, merely fervently hope
that the two Companies have taken some other
reasonable measures, albeit not very evident to me, for
146 SUPREME COURT REPORTS [2012) 12 S.C.R.
A protecting its investors."
41. The SEBI (FTM) then went on to record the investor
protection measures violated by the two Companies. The
measures found to have been violated in the aforesaid order
B are being extracted hereunder :
"24.7 In this case, the salient investor protection measures
that two Companies have not conformed with are listed
below. A cursory reading of the RHP filed by the two
Companies, contrasted against the elaborate investor
C protection measures outlined below, vividly exposes the
huge information gaps in them. As the issues have been
kept open for several years now, even the scanty and
sketchy information in these documents might have lost all
its currency and utility to investors.
D
1. Filing of draft offer document with SEBI:
Every issuer making public issue of securities has to file
a draft offer document with SEBI through SEBI registered
Merchant Banker. The draft offer document will be put-up
E for public comments for at least 21 days. SEBI examines
the draft offer document with an objective for ensuring
compliance with the investor protection measures
prescribed by SEBI and for enhancing disclosures based
on understanding of the matter contained in the prospectus
F or based on comments/complaints, if any, received from
public, on the document. The Merchant Banker then
incorporates necessary changes in the offer document.
2. Eligibility requirements for making a public issue:
G An unlisted issuer to become eligible for making a public
issue should have : net tangible assets of at least '3 crore
in each of the preceding three full years, distributable
profits in at least three of the immediately preceding five
years, net worth of at least '1 crore in each of the preceding
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 147
AND EXCH. BOARD OF INDIA [JAGDJSH SINGH KHEHAR, J.]
three full years, issue size should not exceed 5 times the A
pre-issue net worth as per the audited balance sheet of
the last financial year etc. If the issuer is unable to comply
with any of these conditions, it can make a public issue,
provided if at least 50% of the issue is allotted to the
Qualified Institutional Buyers or if project is appraised and B
'participated to the extent of 15% by Financial Institutions/
Scheduled Commercial Banks of which at least 10%
comes from the appraiser(s). This helps a retail investor
subscribing in this issue, to derive the benefit of the more
informed investment decisions that would be typically be c
made by institutional investors.
3. Minimum Promoters' Contribution and lock-in:
In a public issue by an unlisted issuer, the promoters
should contribute not less than 20% of the post issue D
capital, which should be locked in for a period of 3 years.
"Lock-in" indicates a freeze on the shares. In case of an
initial public offer of convertible debt instruments without
a prior public issue of equity shares, the promoters should
bring in a contribution of at least 20% of the project cost E
in the form of equity shares, subject to contributing at least
20% of the issue size from their own funds in the form of
equity shares. Promoters' contribution shall be computed
on the basis of the post-issue expanded capital assuming
full proposed conversion of convertible securities into F
equity shares. The remaining pre-issue capital should also
be locked in for a period of one year from the date of
listing.
4. Credit Rating:
G
Companies making public issue of convertible debt
instruments or non-convertible debt instruments, should
obtain a credit rating from at least one credit rating agency
(CRA) registered with the SEBI and disclose the rating in
the offer document. A credit rating is a professional opinion H
148 SUPREME COURT REPORTS (2012] 12 S.C.R.
A regarding the issuer's ability to make timely payment of
interest and principal on a debt instrument, given after
studying all available information at a particular point of
time. It is reviewed periodically during the tenure of the debt
instrument. CRAs are specialized independent bodies
B registered and regulated by SEBI. SEBI specifies the
eligibility criteria for their registration, monitoring and
review of ratings, requirements for a proper rating process,
avoidance of conflict of interest, code of conduct and
inspection of rating agencies by SEBI.
c 5. IPO Grading:
Under the SEBI Guidelines/Regulations, no issuer shall
make an initial public offer, unless as on the date of
registering prospectus (or RHP) with the Registrar of
D Companies, the issuer has obtained grading for the initial
public offer from at least one CRA registered with SEBI.
IPO grading was made mandatory by SEBI as an
endeavour to make additional information available to the
investors to facilitate their assessment of the security on
E offer. It is intended to provide the investor with an informed
and objective opinion expressed by a professional rating
agency, after analyzing factors like business and financial
prospects, management quality and corporate governance
practices etc.
F 6. Creation of debenture trust and appointment of
Debenture Trustee:
Under Section 11 ?B of the Companies Act, 1956 and
. SEBI Guidelines/Regulations, no company can issue a
G prospectus to the public for subscription of its debentures,
unless the company has, before such issue, has appointed
one or more debenture trustees and the company has, on
the face of the prospectus, stated that the debenture trustee
or trustees have given their consent to the company to be
H so appointed. Debenture trustee are registered and
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 149
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
regulated by SEBI. Only scheduled banks/public financial A
institutions/insurance companies etc. can act as debenture
trustees. A Debenture trustee is obligated under the
provisions of the Companies Act, 1956 and Securities
and Exchange Board of India (Debenture Trustees)
Regulations, 1993 inter alia to exercise due diligence to B
ensure compliance by the company issuing debentures
with the provisions of the Companies Act, the listing
agreement of the stock exchange or the trust deed and to
take appropriate measures for protecting the interest of the
debenture holders as soon as any breach of the trust deed c
or law comes to his notice. A debenture trustee should
ensure that SEBI is promptly informed about any material
breach or non-compliance by the company of any law,
rules, regulations and directions of the SEBI or of any other
regulatory body. Further, every debenture trustee should 0
ensure that the trust deed executed between a body
corporate and debenture trustee, amongst other things,
contains the information required under the Regulations.
7. Creation of debenture redemption reserve:
E
Under Section 117C of the Companies Act, 1956 and
SEBI Guidelines/Regulations, where a company issues
debentures, it should create a debenture redemption
reserve for the redemption of such debentures, into which
adequate amounts should be credited, from out of its F
profits every year, until such debentures are redeemed.
8. Appointment of Monitoring Agency:
The SEBI Guidelines/Regulations stipulates, that if the
issue size exceeds 500 er., the issuer should appoint one G
public financial institution or schedUled 90mmercial banks,
named in the offer document a~bar1Kers of the issuer, as
a monitoring agency, to monitor the use of proceeds of the
issue. The monitoring agency should submit its report to
the issuer in the specified format on a half yearly basis, till H
150 SUPREME COURT REPORTS [2012) 12 S.C.R.
A the proceeds of the issue have been fully utilized. Such
monitoring report should be placed before the Audit
Committee. This mechanism is in built-in to avoid
siphoning of the funds by the Promoters by diverting the
proceeds of the issue later-on to some other objects, other
B than what is disclosed in the offer document.
9. Appointment of SEBI registered Merchant banker and
Registrar to the issue for the issue:
In case of public issue, issuing company should appoint
c one or more merchant bankers to carry out the obligations
relating to the issue. Merchant bankers should
independently exercise due diligence and satisfy himself
about all the aspects of the issue including the veracity and
adequacy of disclosure in the offer documents and to
D ensure the interest of the investors are protected. The
merchant ban~er should call upon the issuer, its promoters
or directors to fulfill their obligations as required in terms
of these Regulafions and continue to be responsible for
post issue activities till the subscribers have received the
E securities certificates, credit to their demat account or
. refund of application moneys and listing/trading permission
is obtained. Merchant banker should submit a due
diligence certificate to SEBI at the various stages of the
issue inter alia stating that they have exercised due
F diligence including examination of various documents of
the company and have satisfied themselves about the
compliance with all the legal requirements relating to the
issue, that disclosures which are fair and adequate to
enable the investor to make a well informed decision and
all applicable disclosures mandated by SEBI have been
G
duly made. Further, in case of Public offers, an issuer is
required to appoint a Registrar toJhe issue, which has
connectivity with all the depositories. Both Merchant
bankers and Registrars to the issue are intermediaries
under Section 12 of SEBI Act, registered and regulated
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 151
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
by SEBI. They are required to comply with the code of A
conduct and other obligations as prescribed by SEBI.
10. Violation of disclosure requirements:
The present legal and regulatory framework is primarily
based on disclosures. The offer document is required to B
contain all disclosures and undertakings specified in the
Schedule II of the Companies Act read with the erstwhile
DIP Guidelines and the ICDR Regulations and also
additional disclosures as deemed fit, by Merchant Banker
to enable investors to make an informed investment C
decision. Such disclosures include internal and external
risks envisaged by the company including risk factors
which are specific to the project and internal to the issuer
company and those which are external and beyond the
control of the issuer company, offering details, details of D
capital structure, promoters build-up, details of shares to
be locked-in, details of business of the company, basis of
issue price, accounting ratios, comparison with peer
group, history and corporate structure, management and
board of directors, direct or indirect interest of promoters, E
directors, key managerial personnel in the company or in
. the issue, financial information, details of the promoters,
their photographs, Permanent Account Number (PAN),
details regarding their driving license, passport etc. their
background, Management Discussion and Analysis of F
Financial Statements, details of group companies,
pending approvals, outstanding litigations etc. Further, the
offer document should also contain elaborate disclosures
pertaining to the object of the issue, details of the projects
in which the investment is to be made, funding plan for the G
project, schedule of implementation etc.
Further, as per Section 56(3) of the Companies Act, no
one should issue any form of application for shares in or
debentures of a company, unless the form is accompanied
H
152 SUPREME COURT REPORTS [2012] 12 S.C.R.
A by an abridged prospectus, containing details specified in
Form 2A. Additional disclosure requirements for abridged
prospectus are specified in SEBI Guidelines/Regulations.
11. Opening and Closing of the issue:
B Regulation 46(1) of the ICDR Regulations (Clause 8.8.1
of the erstwhile DIP Guidelines) mentions that a public
issue should be kept open for at least three working days
but not more than ten working days. In the case of the two
Companies and another of its Group Companies, the issue
C has been kept open for years on end.
12. Firm arrangements for finance:
An issuer cannot make a public issue, unless firm
arrangements of finance through verifiable means towards
D 75% of the stated means of finance (excluding the amount
to be raised through the proposed public issue or rights
issue or through existing identifiable internal accruals) have
been made.
E 13. In-principle approval for listing from recognized stock
exchanges:
Issuers are required to obtain in-principle listing permission
from the stock exchange, before making a public issue,
as per SEBI Guidelines/Regulations. The requirement of
F
listing in respect of a public issue is to ensure that the
subscribers to the shares or debentures have a facility to
approach a stock exchange for having their holdings
converted into cash, whenever they desire and to provide
liquidity and exit opportunity to the investors, especially in
G case, when the offer is made to large number of investors
(50 or more). Further once listed, the Companies need to
comply with the stringent provisions of the Debt Listing
Agreement, including provisions relating to disclosure of
periodical information to Debenture trustee, maintenance
H of maintain 100% asset cover sufficient to discharge the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 153
AND EXCH. BOARD OF INDIA [JAGDISH S1Nl3H KHEHAR, J.)
principal amount of the debt, periodical disclosure of A
financials, disclosure of statement of deviations in use of
issue proceeds, timely disclosure of price sensitive
information.
14. Scrutiny by Regulated intermediaries at all stages: 8
ICDR regulations in addition to various other regulations
framed by SEBI ensures that in the process of public issue
starting from drafting prospectus till allotmenVrefund and
listing, all specified tasks are performed only by registered
intermediaries. These intermediaries are bound by rules C
and regulations framed for them by SEBI as well as the
code of conduct prescribed for each.
15. Post issue transparency, marketability, corporate
governance and listing requirements. Equally important is D
the elaborate protection measures that are available to the
investor after the issue is closed and listed on a Stock
Exchange. Transactions in the securities carried out on
stock exchange are transparent with a well settled price
discovery process. Information including quarterly results, E
shareholder details, and annual report are periodically
made available to shareholders. All price sensitive
information is disseminated through Stock Exchanges.
Transactions carried out on stock exchanges are
guaranteed by Stock Exchanges and these are under the
vigilant surveillance of concerned stock exchange and F
SEBI. Stock Exchanges have Investors Protection funds
which protects investor against default by brokers and
there are well laid out mechanisms for the redressing
investors grievance.
G
16. Other miscellaneous requirements:
-Issuer should, after registering the red herring prospectus,
with the Registrar of Companies, make a pre-issue
advertisement in one English national daily newspaper with H
154 SUPREME COURT REPORTS [2012) 12 S.C.R.
A wide circulation, Hindi national daily newspaper with wide
circulation and one regional language newspaper with
wide circulation at the place where the registered office
of the issuer is situated. (Regulation 47 of the ICDR
Regulations/Clause 5.6A of the DIP Guidelines)
B
-The issuer should appoint a compliance officer who shall
be responsible for monitoring the compliance of the
securities laws and for redressal of investors' grievances.
(Regulation 63 of the ICDR Regulations/Clause 5.12 of the
DIP Guidelines)
c
-The issuer and lead merchant bankers should ensure that
the contents of offer documents hosted on the websites as
required in these regulations are the same as that of their
printed versions as filed with the Registrar of Companies,
D Board and the stock exchanges. (Regulation 61 (1) of the
ICDR Regulations/Clause 5.6 of the DIP Guidelines)
-Issuer should enter into an agreement with a depository
for dematerialization of specified securities already issued
or proposed to be issued. (Regulation 4(2)(e) of the ICDR
E
Regulations/Clause 2.1.5 of the DIP Guidelines)"
42. Besides all that has been noticed above, the SEBI
(FTM) felt, that investors who had been issued a variety of
bonds by the two companies were absolutely insecure. For the
F aforesaid inference the SEBI (FTM) mentioned the following
reasons:
"24.8 I also note that in the RHPs filed by the two
Companies, it is stated that "The money not required
G immediately by the company may be parked/invested inter
alia by way of circulating capital with partnership firms of
Joint Ventures or in the fixed deposits of various Banks."
This means that such funds mobilized beyond the pale of
law, could be potentially diverted into various activities of
the group companies, without any significant accountability
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 155
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
or reporting requirements. Such diversion, in the case of A
debentures would not have been permissible under the
ICDR Regulations. In the entry in the RHP for "Means of
Financing", where the total project cost is indicated at
'20000 er. for each of the two Companies, it is stated that
"The projects are being financed partly by this issue as well 8
as with the Capital, Reserves and other sources of the
Company.• From an examination of the financial
statements of the two Companies, it seems that the
Capital and Reserves of the two Companies are miniscule
in proportion to the funds required for the projects."
c
43. In addition to the sorry state of affairs painted by the
SEBI (FTM) certain other unpalatable facts which had emerged
during investigation were also highlighted by the SEBI (FTM).
These are also being extracted hereunder :
D
"..... During investigations into the same, SEBI had prima
facie found that
a. SIRECL had issued OFCDs to more than 6.6 million
investors and that SHICL had not provided any information E
about the number of investors of the OFCDs issued by it.
b. The RHPs of SIRECL and SHICL contained untrue
statement and mis-statements.
c. SIRECL and SHICL have not executed debenture trust F
deed; not appointed debenture trustee and have not
created any debenture redemption reserve.
d. The forms issued by the two companies did not enclose
an abridged prospectus.
G
e. The two companies continued to solicit subscriptions to
their OFCDs in violation of the Court's order in vacating
the stay imposed on the SEBI Order.
f. The balance sheets and profit and loss accounts (for the H
156 SUPREME COURT REPORTS (2012] 12 S.C.R.
A relevant period) of the companies were not filed with the
concerned Roe.
g. The sums subscribed in the OFCDs varied from '200/-
, 300/-, 400/- etc. whereas the minimum application size
for the bonds issued by SIRECL were 5000/- (for Abode
B and Nirmaan Bonds) and '12,000/- for the Real Estate
Bond.
h. From the list of accredited agents through whom
subscriptions for OFCDs was sought and the proforma of
c application forms from which subscription for OFCDs were
sought, it was observed that subscription was sought from
the general public across the country, without adequately
informing them of the risk factors involved in such a
complex financial product."
D
44. Based on the aforesaid extensive factual and legal
examination of the matter, the SEBI (FTM) summarized its
salient conclusions as under :
"1. OFCDs are hybrid instruments, and are 'debentures'.
E
2. The definition of 'securities' under Section 2(h) of the
SCR Act is an inclusive one, and can accommodate a wide
class of financial instruments. The OFCDs issued by the
two Companies fall well within this definition.
F 3. The issue of OFCDs by the two Companies is public in
nature, as they have been offered and issued to more than
fifty persons, being covered under the first proviso to
Section 67(3) of the Companies Act. The manner and the
features of fund raising under the OFCDs issued by the
G two Companies further show that they cannot be regarded
to be of a domestic concern or that only invitees have
accepted the offer.
4. Section 60B deals with the issue of information
H memorandum to the public alone. Therefore the same
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 15 7
AND EXCH. BOARD OF INDIA (JAGDISH SINGH KHEHAR, J.)
cannot be used for raising capital through private A
placements as the said provision is exclusively designed
for public book built issues. When a company files an
information memorandum under Section 608, it should
apply for listing and therefore has to be treated as a listed
public company for the purposes of Section 608(9) of the B
Companies Act. Further, Section 608 has to be read
together with all other applicable provisions of the
Companies Act and cannot be adopted as a separate
code by itself for raising funds, without due regard to the
scheme and purpose of the Act itself. The same evidently c
has never been the intention of the Parliament.
5. The two companies, in raising money from the public,
in violation of the legal framework applicable to them, have
not complied with the elaborate investor protection
measures, explained in paragraph 25 above. This, inter D
alia, also means that the rigorous scrutiny carried out by
SEBI Registered intermediaries on any public issue by a
public company have been subverted in the mobilization
of huge sums of money from the public, by the two
Companies. E
6. The two Companies have not executed debenture trust
deeds for securing the issue of debenture; failed to appoint
a debenture trustee; and failed to create a debenture
redemption reserve for the redemption of such debentures. F
7. The two Companies have failed to appoint a monitoring
agency (a public financial institution or a scheduled
commercial bank) when their issue size exceeded '500 er.,
for the purposes of monitoring the use of proceeds of the
issue. This mechanism is put in place to avoid siphoning G
of the funds by the promoters by diverting the proceeds of
the issue.
8. The two companies failed to enclose an abridged
H
158 SUPREME COURT REPORTS [2012] 12 S.C.R.
A prospectus, containing details as specified, along with their
forms.
9. The companies have kept their issues open for more
than three years/two years, as the case may be, in
B
contravention of the prescribed time limit of ten working
days under the regulations.
10. The two companies have failed to apply for and obtain
listing permission from recognized stock exchanges."
c 45. Based on the aforesaid salient conclusions the SEBI
(FTM) arrived at the determination, that both SIRECL and
SHICL had violated various provisions of the Companies Act,
the requirements of the DIP Guidelines, as well as, the
provisions of the ICDR Regulations. Having so concluded the
D SEBI (FTM) vide an order dated 23.6.2011 issued the following
directions :
"1. The two Companies, Sahara Commodity Services
Corporation Limited (earlier known as Sahara India Real
Estate Corporation Limited) and Sahara Housing
E Investment Corporation Limited and its promoter, Mr.
Subrata Roy Sahara, and the directors of the said
companies, namely, Ms. Vandana Bhargava, Mr. Ravi
Shankar Dubey and Mr. Ashok Roy Choudhary, jointly and
severally, shall forthwith refund the money collected by the
F aforesaid companies through the Red Herring Prospectus
dated March 13, 2008 and October 6, 2009, issued
respectively, to the subscribers of such Optionally Fully
Convertible Debentures with interest of 15% per annum
from the date of receipt of money till the date of such
G repayment.
2. Such repayment shall be effected only in cash through
Demand Draft or Pay Order..
3. Sahara Commodity Services Corporation Limited
H (earlier known as Sahara India Real Estate Corporation
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 159
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
Limited) and Sahara Housing Investment Corporation A
Limited shall issue public notice, in all editions of two
National Dailies (one English and one Hindi) with wide
circulation, detailing the modalities for refund, including
details on contact persons including names, addresses
and contact details, within fifteen days of this Order coming B
into effect.
4. Sahara Commodity Services Corporation Limited
(earlier known as Sahara India Real Estate Corporation
Limited) and Sahara Housing Investment Corporation
Limited are restrained from accessing the securities C
market for raising funds, till the time the aforesaid payments
are made to the satisfaction of the Securities and
Exchange Board of India.
5. Further, Mr. Subrata Roy Sahara, Ms. Vandana D
Bhargava, Mr. Ravi Shankar Dubey and Mr. Ashok Roy
Choudhary are restrained from associating themselves,
with any listed public company and any public company
which intends to raise money from the public, till such time
the aforesaid payments are made to the satisfaction of the E
Securities and Exchange Board of India."
46. Consequent upon the passing of the aforesaid order
by the SEBI (FTM) dated 23.6.2011, Special Leave Petition
(Civil) no.11023 of 2011 filed by the appellant-companies, was
disposed of on 15.7.2011 by permitting the appellant- F
companies to assail the SEBI order dated 23.6.2011 by
preferring an appeal under section 15T of the SEBI Act. While
disposing of the aforesaid special leave petition, this Court
recorded the statement of the learned counsel for the appellant-
companies (herein), that they would not invite any further G
deposits pending the hearing and final disposal of the proposed
appeals. In view of the aforesaid statement, this Court restrained
SEBI from giving effect to the order dated 23.6.2011 till the
disposal of the appeal. Pursuant to the order passed by this
Court on 15.7.2011 the appellant-companiess herein withdrew H
160 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Writ Petition no.11702 (M/B) of 2010 from the High Court and
preferred Appeal no.131 of 2011 (by SIRECL) and Appeal
no.132 of 2011 (by SHICL) before the Securities Appellate
Tribunal (for short "SAT").
47. After having narrated the facts relevant to the
8 controversy, the SAT while adjudicating upon the appeals
preferred by the two companies first dealt with the issue
whether the appellant-companies had made full and complete
disclosure of facts in the RHP. Learned counsel representing
the appellant-companies before the SAT, placed reliance on
C the resolutions passed by the company and the projections
made in the RHPs, so as to contend that a full and faithful
disclosure had been made by both companies in their
respective RHPs. It was contended on behalf of the appellant-
companies, that the Registrars of Companies had registered
D their RHPs, only after being satisfied with the correct disclosure
of facts. The RHPs under reference were then registered by the
respective Registrars of Companies. The aforestated
submissions advanced by the learned counsel for the appellant-
companies did not find favour with the SAT. The SAT was of
E the view that the appellant-companies had not disclosed in the
information memorandum, that the same was being issued to
3 crore persons (expressed as 30 million persons, by the SAT),
through 10 lakh agents, stationed in more than 2900 branch
offices; inviting them to subscribe to the OFCDs. The aforesaid
F figures, according to the SAT, amounted to approaching the
public through an advertisement. The SAT was of the view, that
if SIRECL had indicated, that the invitation to subscribe OFCDs
was being extended to 50 or more persons, the provisions of
law relating to a public issue would have been found to be
G applicable. Non-disclosure of the aforesaid information,
according to the SAT, could not be considered as innocent. The
SAT felt, that the assertion at the hands of the appellant-
companies, that the invitation to subscribe to OFCDs was by
way of private placement, and further that, the appellant-
H companies did not intend to extend the invitation to subscribe
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 161
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
through stock exchange(s), fell foul of the provisions which would A
have come into play, had the two companies disclosed that
their invitation to subscribe was being extended to 50 or more
persons. The SAT also noticed, that both the companies had
stated in their respective RHPs, that there would be no
restriction on transfer of the OFCDs, but in the terms and B
conditions mentioned in the application forms, it was
mentioned, that transfer of OFCDs would be subject to the
approval by the respective company. This, according to the SAT
was also not legitimate. The SAT expressed the view, that the
respective Registrars of Companies came to be mislead by c
the aforesaid information furnished in the RHPs. The SAT also
expressed the view, that the Registrars of Companies had
registered the RHPs simply because the appellant-companies
had not made full and complete disclosure of facts in their
RHPs. Accordingly the SAT observed, that the intention of the D
companies and its promoters from the very beginning, was not
bonafide; that the companies concealed vital facts from its
shareholders, from its investors and from the respective
Registrars of Companies. As such, the SAT felt, that it would
be improper to infer legitimacy in the actions of the two E
companies, merely from the fact that their RHPs had been
registered by the Registrars of Companies.
48. While dealing with the registration of RHPs by the
Registrars of Companies, the SAT also expressed the view,
that the conduct of the respective Registrars of Companies was F
also inappropriate, inasmuch as, the Registrars of Companies
on examination of the facts disclosed by the appellant-
companies, ought to have made further enquiries. Such
additional enquiries would have disclosed, that the companies
were actually making a public issue. Whenever a company G
desires to make a public issue, a copy of the RHP is to be
submitted to the SEBI. Appropriate handling of the matter at
the hands of the Registrar of Companies would have resulted
in requiring both companies to furnish copies of their RHPs to
the SEBI. If that had been done, SEBI would have scrutinized H
162 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the matter, and would have ensured that the companies adopted
appropriate measures for investors' protection, as well as, for
disciplined regulation of their securities. SAT, therefore, found
the Registrar of Companies guilty of having registered the RHP
with undue haste, and for having acted in dereliction of duty.
B
49. The first legal issue examined by the SAT was, whether
the OFCDs under reference were securities, and whether, SEBI
had the jurisdiction tp regulate them. Having analyzed the issue,
SAT placed reliance on sections 2(1) and 2(2) of the SEBI Act.
It expressed the view, that a reference could not be made, for
C interpreting the provisions of the SEBI Act, to terms defined by
the Companies Act. Accordingly, the SAT rejected the
contention of the learned counsel representing the appellant-
companies to assign a meaning to the term "securities" with
reference to the definition thereof, under the Companies Act.
D According to the SAT, OFCDs were not new instruments, as
they were widely known to the securities market. In the
securities market, securities were understood as a form of
debentures. The SAT was of the view, that OFCDs in the
present controversy, were "hybrids", covered by the definition
E of the term "securities" under the SEBI Act read with the SC(R)
Act. The SAT also turned down the argument, that OFCDs
issued by the two companies would not fall within the definition
of the term "securities" under the SEBI Act, as they were not
marketable. The assertion, that the OFCDs in this case were
F not marketable, was turned down by referring to clause 13 of
the RHP issued by the SIRECL, wherein it was expressed, that
there was no restriction on their transfer. It would be pertinent
to notice, that SAT highlighted in its order, that the issue of
marketability of the OFCDs had been raised during the course
G of oral submissions, but had not been pressed in the written
submissions, as no mention thereof was made in the written
submissions filed by the appellant-companies.
50. The SAT also expressed the view, that SEBI had all
the powers to take whatever steps it considered appropriate,
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 163
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
to safeguard the interests of investors in securities, and also.to A
regulate the securities market. The aforesaid power was found
by the SAT as traceable to sections 11, 11 A and 11 B of the
SEBI Act. The SAT also concluded, that the SEBI Act did not
make any distinction between listed and unlisted companies,
and, therefore, measures for regulating securities in section 11, B
11A and 11 B of the SEBI Act, were applicable to listed, as well
as, unlisted companies. Based on the aforesaid, the SAT held
that the two companies would fall within the regulatory
jurisdiction of SEBI de hors the provisions of any other law. The
SAT, therefore, rejected the submission of the learned counsel c
for the appellant-companies, that since the two companies were
unlisted, their securities could not be regulated by the SEBI.
The SAT also expressed the view, that on the subject of
protecting investors' interest in securities, as well as, on the
subject of regulating the securities market, the SEBI Act was D
a "stand alone" enactment. The SAT also concluded, that
SEBl's powers under the SEBI Act were not fettered by any
other law including the Companies Act. According to the SAT,
the SEBI Act, the SC(R) Act and the Depositories Act, 1996,
were cognate statutes, as they dealt with different aspects of
securities and the securities market, and they alone governed E
the capital market.
51. The SAT thereafter examined the question whether the
invitation of OFCDs by the two companies was by way of
private placement (as claimed by the appellant-companies) or F
by way of an issue to the public (as counter-claimed by the
SEBI). Having interpreted section 66 of the Companies Act and
having placed reliance on the first proviso under section 67(3)
of the Companies Act, the SAT held, that the two companies
had admittedly offered its OFCDs to more than 50 persons. In G
the aforesaid view of the matter, according to the SAT, there
could not be any other conclusion, but that, the OFCDs floated
by the two companies were by way of an invitation to the public.
Besides the reasoning summarized above, the SAT also
examined the same issue on the basis of the definition of the H
164 SUPREME COURT REPORTS [2012] 12 S.C.R.
A term "information memorandum" as has been expressed in
section 2(198) of the Companies Act, with reference to the
procedure contemplated in section 60(B) of the Companies
Act, and concluded, that the invitation of OFCDs by the two
companies was not by way of private placement, but was by
B way of an issue to the public.
52. Having concluded that the two companies had made
a public issue, the SAT summarized the obligations of a public
company before bringing out a public issue. It was pointed out,
C that a public company was required to file a draft offer
document with the SEBI through a registered merchant banker,
which neither of the companies had done. Such a public
company was also obliged to appoint a Registrar to the issue,
who has a separate role assigned to him. Both companies had
not complied with this obligation as well. A public company
D bringing out a public issue is also required to issue a draft offer
document for public comment, which is also required to be
examined by the SEBI to make sure, that all the investors'
protection measures have been complied with. Whereupon, all
directions issued by the SEBI have to be incorporated in the
E offer document. An unlisted public company (like the two
appellant-companies SIRECL and SHICL) would acquire
eligibility to make a public issue, only they had net tangible
assets worth more than Rs.3 crores in each of the preceding
three full years. Another pre-requisite is, that such a company
F must have distributable profits in at least three of the
immediately preceding five years. Such a public company, must
also have a net worth of at least Rs.1 crore in each of the
preceding three years. Neither SIRECL nor SHICL, according
to the SAT, had either the prescribed tangible assets or the
G stipulated distributable assets or even the prescribed net worth.
It was pointed out (by the SAT), that for bringing out a public
issue, an unlisted company's promoters should contribute not
less than 20% of the post-issue capital, which is required to
be locked-in for a period of three years. Public companies
H making a public issue, were also required to obtain their credit
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 165
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
rating from at least one credit rating agency registered with the A
SEBI. Such credit rating agency, is required to rate the public
issue proposed to be brought by the concerned company. In
case the public issue is debentures, the concerned company
is precluded from issuing a prospectus till it appoints a
debenture trustee, and it creates a debenture redemption B
reserve. Additionally, a public company, accordir:ig to the SAT,
is required to obtain pre-approval, for listing of its securities,
from one or more recognized stock exchange(s). According to
the SAT, none of the aforestated requirements were complied
with, by either of the companies. The SAT therefore felt, that it c
was appropriate and justified for the SEBI to have taken action
against both the companies.
53. The SAT then examined the question whether the
OFCDs issued by SIRECL and SHICL required mandatory
listing. For its answer, the SAT placed reliance on sub-sections D
(1) and (2) of section 73 of the Companies Act, and thereupon
concluded, that a public company which proposes to offer
shares or debentures to the public, has to mandatorily issue a
prospectus. Even before issuing the prospectus, the concerned
company must make an application to one or more recognized E
stock exchange(s), for their permission to deal with the shares
or debentures proposed to be issued. The SAT therefore
concluded, that both SIRECL and SHICL were required to be
listed on one or more recognized stock exchange(s), and that,
both companies willfully defaulted, by not complying with the F
aforesaid mandatory provisions of section 73 of the Companies
Act.
54. The SAT then examined the issue of jurisdiction, raised
by the appellant-companies, on the basis of section 55A of the G
Companies Act. The submission of the appellant-companies
before the SAT was, that neither SIRECL nor SHICL had any
intention to list their respective OFCDs on any stock exchange.
In fact, it was contended, that both companies had clearly
expressed their intention, that they would not list their OFCDs H
166 SUPREME COURT REPORTS [2012] 12 S.C.R.
A on any stock exchange(s). In the aforesaid view of the matter,
$ince the SIRECL and SHICL would not be governed by
clauses (a) and (b) of section SSA of the Companies Act, it was
submitted on behalf of the appellant-companies, that they
would fall in the ambit of the residuary clause (c) of section SSA
B of the Companies Act. Thus viewed, the claim of the appellant-
companies was, that SEBI had no power to administer the two
companies. The appellant-companies asserted, that SIRECL
and SHICL could only be administered by the Central
Government (or the Tribunal, or the Registrar of Companies).
c SS. The SAT rejected the aforesaid submission, by
concluding, that the entrustment of powers to SEBI under
clauses (a) and (b) of section SSA of the Companies Act was
in addition to the power already vested in the SEBI under
sections 11, 11A and 11 B of the SEBI Act. The aforesaid
D power, according to the SAT, extended to unlisted companies
as well, in respect to matters relating to issue of capital, transfer
of securities and other matters incidental thereto. The SAT also
noticed, that SEBI had been regulating companies in matters
of issue of capital and ensuring capital protection, right from
E its inception in 1988. According to the SAT, the insertion of
section SSA in the Companies Act did not in any way affect the
powers of SEBI under the SEBI Act. All the same, the SAT
concluded, that both SIRECL and SHICL actually intended to
get their OFCDs listed, although they professed to the contrary.
F The SAT held, that the companies having gone to the public
by circulating an information memorandum could not be heard
to say, that they did not intend to get their securities listed. The
SAT, therefore, was of the view, that both companies had the
intention in law, to get their securities listed, and therefore,
G would fall within clause (b) of section SSA of the Companies
Act, so as to be administered by the SEBI. The instant issue
was examined by the SAT from various other angles as well,
whereupon the contention advanced at the hands of the
appellant-companies that SEBI did not have jurisdiction on the
H subject matter under consideration, was rejected.
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 167
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
56. The SAT then considered the submission of the A
appellant-companies based on the DIP Guidelines and ICDR
Regulations. The submission on behalf of the appellant-
companies, was that the contraventions alleged against tile
appellant-companies were committed when the DIP Guidelines
were in force, but SEBI had not taken any action against the B
appellant-companies under the DIP Guidelines. It was pointeci
out, that for the first time, action was initiated against the
appellant-companies through the first show cause notice issued
by the SEBI on 24.11.2010. The argument raised was, that the
DIP Guidelines were repealed by the ICDR Regulations (with c·
effect from 26.8.2009), and as such, it was not open to the SEBI
to take action against the appellant-companies under the
repealed DIP Guidelines. Insofar as the ICDR Regulations are
concerned, the argument raised was, that the same would only
have prospective effect. Therefore, the submission was, that the D
ICDR Regulations would not be applicable to actions and
activities which had taken place prior to the coming into force
of the ICDR Regulations (with effect from 26.8:2009). The SAT
rejected the instant contention of the appellant-companies by
placing reliance on Regulation 111 of the ICDR Regulations. E
The SAT concluded by holding, that the SEBI (FTM) was
justified in holding both companies guilty of violating the DIP
Guidelines read with the ICDR Regulations.
57. Having concluded its determination on the issue
canvassed before it, the SAT, by its order dated 18.10.2011, F
upheld the order passed by the SEBI (FTM) dated 26.8.2011.
The SAT having so held, directed the appellant-companies to
repay within six months (from its order dated 18.10.2011 ), the
amount collected from the investors, on the terms as set out
by the order of the SEBI (FTM) dated 23.6.2011. G
58. When this Court disposed of Special Leave Petition
(Civil) no. 11023 of 2011on15.7.2011 (soon after the SEBI
(FTM) order dated 23.6.2011), it permitted the appellant-
companies to assail the SEBl's order dated 23.6.2011 by H
168 SUPREME COURT REPORTS [2012] 12 S.C.R.
A preferring an appeal under section 15T of the SEBI Act. While
disposing of the aforesaid special leave petition, this Court
recorded the statements of the learned counsel for the
appellant-companies (herein), that they would not invite any
further deposits pending the hearing and disposal of the
B proposed appeals (before the SAT). Keeping in mind the
aforesaid statements, this Court restrained SEBI (vide its order
dated 15. 7 .2011) from giving effect to the order dated
23.6.2011 till the disposal of the appeals by the SAT. As
noticed above, the appeals preferred before the SAT by
c SIRECL and SHICL came to be dismissed on 18.10.2011. The
common order passed by the SAT dated 18.10.2011 was
separately assailed by SIRECL (through Civil Appeal no. 9813
of 2011) and by SHICL (through Civil Appeal no. 9833 of
2011 ). While entertaining the aforesaid appeals on
28.11.2011, this Court interalia passed the following interim
0
order:-
"By the impugned order, the appellants have been asked
by SAT to refund a sum of Rs.17,400 crores approximately
on or before 28.11.2011. We extend the period upto
E 9.1.2012".
On the following date of hearing, i.e. on 9.1.2012, this Court
extended the interim order passed on 28.11.2011 by
observing as under:-
F "lnterim order granted by this Court on 28.11.2011 shall
continue to be operative".
In the aforesaid view of the matter, the order passed by
the SEBI (FTM) on 23.6.2011, which on the dismissal of the
G appeals (preferred by SIRECL and SHICL) before the SAT on
18.10.2011, was required to be given effect to within a period
of six months, has remained unimplemented in view of the
interim order passed by this Court awaiting this Court's decision
in the present set of appeals. I shall now endeavour to
H adjudicate upon the issues canvassed before us.
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 169
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
59. The foundational facts essential for the determination A
of the twin appeals have already been narrated above. In the
aforesaid narration it was essential to demonstrate the position
adopted by the appellant-companies prior to the issuance of
the first show cause notice by the SEBI (FTM) dated
24.11.2010. It was also essential to trace the proceedings B
initiated in the High Court of Judicature at Allahabad, before
its Lucknow Bench, for setting out the reasons recorded by the
High Court; first, in vacating the interim order originally granted;
and thereafter, for not reviving the original interim order. It was
also essential to record the appellant-companies legal c
responses and submissions before the SEBI (FTM) and the
SAT. It was essential, also to notice exactly what was
canvassed on behalf of the appellant-companies, so as to
visualize, that even though the main plank of the appellant-
companies submission rested on a factual foundation, namely, D
whether the OFCDs issued by the appellant-companies was
by way of "private placement", or by way of "a public issue"; the
appellant-companies did not base any of their submissions on
any concrete factual data, to establish the aforesaid issue. I shall
now venture to examine the submissions advanced before us, E
by dealing with the controversy issue-wise.
Was the invitation to subscribe to OFCDs. by SIRECL and
SHICL. by way of private placement (as claimed by the
appellant-companies). or by way of an invitation to the public
(as counter-claimed by the SEBll? F
The first perspective:
60. During the course of hearing there was extensive
debate between rival parties on the subject whether the OF CDs
under reference, were issued by way of "private placement" or G
by way of an invitation "to the public". Apparently, the answer
to the aforesaid query would emerge from an analysis of the
correct factual position. SEBI, in order to determine an answer
to the aforesaid query, in the first instance, sought information
from Enam Securities Private Limited - the merchant banker H
170 SUPREME COURT REPORTS [2012] 12 S.C.R.
A for SPCL. The reason which prompted the SEBI to ascertain
the correct factual position was, that it had received complaints
from "Professional Group of Investors Protection", as also, from
one Roshan Lal. The farmer's complaint was dated 25.12.2009,
whereas the latter's complaint to the SEBI was dated 4.1.2010.
B During the course of examining the DRHP of SPCL in respect
of its proposed IPO dated 30.9.2009, SEBI suspected that
SPCL had not made a complete and full disclosure. Enam
Securities Private Limited responded to the queries raised by
the SEBI, both in respect of SIRECL and SHICL, by asserting
c that on legal opinion sought, as well as, on having conducted
an inquiry, it was in a position to confirm that the OFCDs issued
by SIRECL and SHICL were in conformity with all applicable
laws. The reply of Enam Securities Private Limited did not
incorporate any response to the express queries raised by
D SEBI. On 26.2.2010 Lead Managers of SIRECL and SHICL
informed SEBI, that both the companies had issued debentures
on "tap" basis, thus asserting, that the OFCDs under
consideration had been issued by way of "private placement".
The Lead Managers, however, could not deny the issuance of
an information memorandum, as well as, RHPs by the two
E companies. Despite the aforesaid acknowledgement, the
details sought by the SEBI were not furnished by the Lead
Managers of the appellant-companies. On 22.4.2010 SEBI
sought further details from Enam Securities Private Limited.
SEBI, however, never received any response thereto. Finding
F itself in the aforesaid predicament, SEBI had no other
alternative, but to seek factual details directly from SIRECL and
SHICL. SEBI accordingly addressed a large number of
communications to both the companies. The letters issued by
SEBI and the responses furnished by the two companies have
G been narrated in paras 2 to 12 of the instant order. SEBI under
the provisions of the SEBI Act, has a mandate to shoulder
extremely serious and onerous responsibilities. These
responsibilities include the task of protecting the interest of
investors in securities, and the development and regulation of
H the securities market. When the first communication was
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 171
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
addressed by SEBI to Enam Securities Private Limited - the A
merchant banker for SPCL, the reply furnished by Enam
Securities Private Limited referred to the fact, that the same
was based on legal opinion. It is therefore apparent, that right
from the beginning, legal opinion came to be sought before
replies were furnished, on behalf of the two companies to SEBI. B
Even the tenor of the letters addressed by the two appellant-
companies available on record depict, that they had furnished
their replies after seeking legal guidance. It is in the aforesaid
background, that one needs to evaluate the responses of the
two companies, to the queries raised by SEBI. c
61. Now, about the replies of the appell~nt-companies. At
one juncture both companies adopted a defiant posture by
asserting, that they should first be furnished with the copies of
the complaints received by SEBI. Meaning thereby, that they
would consider furnishing the desired information only after they D
had been furnished with the copies of the complaints. Failing
which, it is essential to infer, that they would not supply the
information. On another occasion, the companies were brazen
enough to inform SEBI, that SEBI had no jurisdiction in the
matter. At a later stage, they informed SEBI, that for a E'
clarification of the jurisdictional aspect, the companies had
addressed a communication to the Union Minister incharge of
the Department of Corporate Affairs. Accordingly, the
companies commended to SEBI, that it should not probe into
the matter further, till the Department of Corporate Affairs, F
clarified the legal position. An astounding reply was submitted
by the companies in May, 2010. One would like to extract herein
a relevant portion of the communication in question, as it is
difficult to believe, that the companies could have made such
an inconsiderate excuse, to avoid furnishing the particulars G
sought by SEBI. An extract of the reply is being reproduced
hereunder:
"In the months of May and June, in the year, most of the
staff remains on long holidays with their children due to H
172 SUPREME COURT REPORTS (2012] 12 S.C.R.
A summer holidays of schools/colleges. In our case also
concerned officials are on vacation and gone out of station
with their children."
One wonders whether the appellant-companies were
8 running a kindergarten, where their staff were expected to be
unavailable during the summer. The impression which the
aforesaid communication project is, that the two companies had
no respect whatsoever for SEBI. lnspite of the fact that SEBI
was responsible for the development and regulation of the
C securities market, the appellant-companies could brush aside
the SEBl's demand for information in such a brash and
audacious manner, is quite frankly difficult to comprehend. In
response to one of the SEBl's communications, the two
companies adopted the stance, that they did not have complete
details of the securities issued by them. The companies
D responcled by stating, that the information would be disclosed.
after the same is collected. This position adopted by the
companies was described as preposterous by the SEBI (FTM).
It can certainly be concluded, that the same was outrageously
ridiculous, keeping in mind that both companies proclaim to be
E a part of the Sahara India Group of Companies. It is difficult to
swallow, that the two companies had not even maintained
records, pertaining to investments in the range of close to
Rs.40,000 crores.
F 62. On 11.6.201 O SEBI informed the two companies, that
their responses indicated, that they intended to protract the
correspondence, to delay the matter. Relevant extract, of the
letter dated 11.6.2010, is being reproduced hereunder:
"Considering that, we are surprised your received letter. It
G seems that the intention behind the letter is only to protract
the correspondence. In this regard you are advised to
provide the information sought vide our letter dated May
12, 2010 by June 15, 2010, as agreed vide your aforesaid
Ir tier. We, once again, reiterate that failure to provide the
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 173
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
information or applying any other delaying tactics may A
result in initiating appropriate action in terms of the SEBI
Act and Regulations made thereunder and also under
relevant sections of the Companies Act which are
delegated to SEBI."
B
The wielded threat contained in the communication
extracted hereinabove, had hardly any effect on the two
companies. A sterner and direct threat was contained in a
subsequent communication addressed by the SEBI, wherein
the SEBI, inter alia asserted:
c
"Please take notice that without prejudice to the provisions
of any other law for the time being in force, if you fail to
produce the books of accounts and/or documents as
required, SEBI will initiate adjudication proceedings
against you under which you could be levied a penalty of D
one lakh rupees for each day during which such failure
continues, or one crore rupees, whichever is less, as
provided under Section 15A of Securities and Exchange
Board of India Act, 1992. Further, criminal prosecution may
also be launched against you under Section 11 C(6) of E
Securities and Exchange Board of India Act, 1992. Section
11 C(6) provides for a punishment with imprisonment for
a term which may extend to one year or with fine which may
extend to rupees one crore, or with both, and also with a
further fine which may extend to five lakh rupees for each F
day after the first, during which the failure or refusal
continues."
63. It is interesting to note, from the narration of facts
recorded hereinabove, that SEBI was seeking information from
the appellant-companies since May, 2010. Since the G
information sought by SEBI was not being supplied, SEBI
eventually took upon itself the task of investigation into the
issuance of OFCDs by SIRECL and SHICL. For this, summons
dated 30.8.2010 and 23.9.2010 were issued to the two
companies requiring them to furnish various factual details in H
174 SUPREME COURT REPORTS [2012] 12 S.C.R.
A respect of the OFCDs issued by them. Interestingly, in
response to the aforesaid summons both companies filed
detailed replies, raising a large number of legal objections.
Importantly, none of the particulars sought by SEBI, were
furnished by either of the companies. Even at this late stage,
B the Chief Financial Officer of the Sahara India Group of
Companies was afforded an opportunity of hearing, when a
request was made by him (on 3.11.2010). It was impressed on
him, during the course of hearing, that complete and correct
information sought by the SEBI, should be furnished. The Chief
c Financial Officer, astoundingly did not make any commitment
to furnish the information sought. This fact was duly highlighted
in the order of the SEBI (FTM) dated 24.11.2010. Factually, no
information was ever furnished by the Chief Financial Officer.
64. Consequent upon the receipt of the responses from
D the appellant-companies, and their failure to furnish information
to SEBI, a show cause notice dated 24.11.2010 came to be
issued to both the companies. Pending a response to the show
cause notices, the SEBI (FTM) vide an order dated 24.11.2010
issued a number of directions to the appellant-companies,
E including an order restraining the two companies from
mobilizing funds under the respective RHPs issued by them,
till further directions. The companies were also, inter alia,
directed not to offer their equity shares/OFCDs or any other
securities to the public or to invite subscription in any manner
F whatsoever, either directly or indirectly, till further orders.
65. The SEBI (FTM's) order dated 24.11.2010 was
assailed before the Lucknow Bench of the High Court of
Judicature at Allahabad. On 13.12.2010, the High Court stayed
G the operation of the order (dated 24.11.2010). On an application
filed by the SEBI, the High Court vacated the aforesaid interim
order on 7.4.2011. While vacating the interim directions, the
High Court observed interalia:
"4 ......The petitioners were supposed to cooperate in the
H inquiry and their interest was protected by restraining the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 175
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
SEBI from passing any final orders. The matter was being A
heard finally under the expectation that the assurances
given by the learned counsel for the petitioners would be
honoured by the petitioners and the"matter would be
finished at the earliest. But the petitioners appear to have
thought otherwise. The court's order cannot be allowed to B
be violated or circumvented by any means.
We, therefore, do not find any ground to continue with the
interim order, which is hereby vacated for the own conduct of
the petitioners and for which they have to thank their own stars.• C
A perusal of the extract of the order of the High Court
reveals, that the High Court felt, that the appellant-companies
were expected to cooperate with the inquiry being conducted
by the SEBI. Since the appellant-companies were found remiss
in the matter, the High Court was constrained to vacate the D
interim order passed on 13.12.2010. The appellant-companies
then filed an application before the High Court, praying for the
restoration of the order dated 13.12.2010. The instant
application also came to be dismissed on 29.11.2011. While
dismissing the aforesaid application, the High Court observed: E
··s......A person, who comes to the court, is supposed to
come with clean hands and bona fide intentions, and has
to abide by the orders passed by the court, more so in a
case where the parties' counsel agree for certain actions F
to be undertaken. If some assurance is given by any
person to the Court, as has been done in the present case,
and the said assurance/understanding is not honoured, the
court would not come to his rescue. The application is,
therefore, rejected."
G
A perusal of the aforesaid extract of the order of the High
Court reveals, that the High Court expressed the view, that those
who seek relief from a court must come with clean hands and
with bona fide intentions, they must also abide by the orders
passed by the concerned court. If assurances given to the court H
176 SUPREME COURT REPORTS (2012] 12 S.C.R.
A are not honoured, the court cannot come to the rescue of the
party. Since the application filed by the appellant-companies
was dismissed with the aforesaid observations, it is apparent,
that the High Court denied relief to the appellant-companies
because they had not approached the High Court with clean
B hands, and because, their intentions were not found bona fide.
66. Eventually, the entire controversy came to be shifted
back to SEBI (consequent upon this Court's order dated
12.5.2011). The writ petition filed by the appellant-companies
before the High Court, therefore, came to be withdrawn. At that
C juncture, the SEBI issued its second show cause notice dated
20.5.2011, principally on the same facts and grounds, as its
first show cause notice (dated 24.11.2010). Both SIRECL and
SHICL filed detailed responses to the same, again asserting
that the OFCDs had been issued to friends, associates, group
D companies, workers/ employees and other individuals
associated/affiliated or connected in any manner with Sahara
India Group of Companies, without depicting the details of each
of the subscribers to show which of them were friends or
associates of group companies or workers/employees and/or
E other individuals associated/affiliated or connected in any
manner with Sahara India Group of Companies. The battle lines
were, accordingly, again drawn on legal issues rather than on
factual details.
F 67. Having received replies to the show cause notices
dated 20.5.2011, and having heard learned counsel
representing the appellant-companies, it was held that the
appellant-companies were in violation of law. It was
emphatically concluded by the SEBI (FTM) on 23.6.2011, that
G neither SIRECL nor SHICL had invited subscriptions to their
OFCDs by way of "private placement". It was held, that the two
companies had issued OFCDs by way of an invitation "to the
public".
68. The order of the SEBI (FTM) dated 23.6.2011 came
H to be assailed by the appellant-companies before the SAT, by
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 177
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
preferring appeals under section 15T of the SEBI Act. Even A
during the course of appellate proceedings before the SAT,
neither of the companies disclosed the factual position, so as
to enable the SAT to determine factually, one way or the other,
whether the OFCDs issued by SIRECL and SHICL, were by
way of "private placement" or by way of an invitation "to the B
public". The controversy was canvassed before the SAT, at the
behest of the appellant-companies, on the same legal
parameters, as were adopted before the SEBI (FTM). The SAT
by its order dated 18.10.2011, upheld the order passed by
SEBI (FTM) dated 26.8.2011. C
69. The order passed by the SAT is now subject matter
of challenge before us. Even before this Court, the position
remains unaltered. During the course of hearing we were
informed by learned counsel representing the SIRECL, that a
compact disc with a key had been furnished to the SEBI (FTM) D
with complete particulars. What was placed before the SEBI
(FTM) in the said compact disc, we were informed, has now
been made available to this Court as a hard copy. During the
course of an examination of the hard copy, ii was not possible
to persuade oneself to travel beyond the first page of the E
voluminous compilation. The reason therefor is being
expressed hereinafter. For facility of reference extracted
hereunder are details of "Kalawati", one of the investor's
disclosed in the hard copy:
S.No. lnves- lnves- Amount lntrod- lntrod- Investor's/ F
tor's tor's ucer's ucer's Agent's
name particu- Agent Agent Code
ulars name Code address
6603675 Kalawati Uchahar. 1600 Haridwar 107511425 Bani Road,
S.K. Semeri-
Nagar, yawa G
U.P. Sant Kabir
Nagar
First and foremost, the data furnished by the appellant-
companies does not indicate the basis of the alleged "private H
178 SUPREME COURT REPORTS [2012] 12 S.C.R.
A placement". It is impossible to determine whether "Kalawati",
referred to hereinabove, whose name figured at Sl.No.6603675,
was invited to subscribe for the OFCDs, as a friend or
associate of group companies or worker/employee and/or other
individual associated/affiliated or connected in any manner with
B Sahara India Group of Companies. Besides the aforesaid,
"Kalawati" is a very common name, and there could certainly
be more than a couple of Kalwatis, at the investor's address
indicated in the compilation. Neither her parentage nor her
husband's name has been disclosed, so that the identity of
c "Kalawati" could be exclusively determined to the individual who
had subscribed to the OFCDs. The address of "Kalawati",
indicated is of a general description, as it does not incorporate
a particular door number, or street, or locality. The name of the
introducer/agent, leads to a different impression altogether.
0 "Haridwar", as a name of a person of Indian origin, is quite
uncomprehendable. In India names of cities do not ever
constitute the basis of individual names. One will never find
Allahabad, Agra, Bangalore, Chennai or Tirupati, as individual
names. The address of the introducer/agent, depicted in the
E compilation is as intriguing as the address of the investor (for
exactly the same reason recorded above, for the subscribers
name). One would not like to make any unrealistic remark, but
there is no other option but to record, that the impression
emerging from the analysis of the single entry extracted above
is, that the same seems totally unrealistic, and may well be,
F fictitious, concocted and made up.
70. At this juncture it would be necessary to extract certain
observations made by the SEBI (FTM) in the order dated
23.6.2011:
G "17.15 I have also examined copies of the letters written
by SIRECL in January 2011, to a few professional
accounting firms, submitted among the documents _filed by
SIRECL before me. The letter to these firms notes that "the
Company has from time to time issued Optionally Fully
H convertible Debentures (OFCD) which have been
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 179
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
subscribed by various people all over the country". The A
letter seeking professional services "by way of deputation
of professional staff to collect data and to the necessary
compilation by putting the data together in a consistent
format and doing the necessary authentication of the same,
given the fact that the data is voluminbus and is spread B
across thousands of service centre." (emphasis supplied)
Clearly, the OFCDs are issued, admittedly to various
people all over the country. The compilation of the data is
not available with the firm. The data is unauthenticated and
the fund mobilization is spread across thousands of service c
centres ... ."
It seems the two companies collected money from
investors, without any sense of responsibility to maintain
records, pertaining to funds received. It is not easy to overlook,
that the financial transactions under reference are not akin to D
transactions of a street hawker or a cigarette retail made from
a wooden cabin. The present controversy involves contributions
which approximate Rs.40,000/- crores, allegedly collected from
the poor rural inhabitants of India. Despite restraint, one is
compelled to record, that the whole affair seems to be doubtful, E
dubious and questionable. Money transactions are not
expected to be casual, certainly not in the manner expressed
by the two companies.
71. The consequence of the foregoing discussion, if F
correct, is alarming, shocking and distressing. When the
appellant-companies are a part of the Sahara India Group of
Companies, recognized in India with awe and admiration, their
apparent attempt to withhold the disclosure of the factual
position solicited by SEBI, cannot be brushed aside lightly. After G
all both companies were proceeding on legal guidance right
from the beginning. What the two companies chose to collect
through their OFCDs was a contribution to the tune of of
Rs.40,000 crores. Surely, while dealing with such an enormous
amount of money, the information available in the records of H
180 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the appellant-companies is expected to be of the highest order
of precision.
72. SEe1 is statutorily empowered under sections 11 (2)(i)
and (ia), as well as, 11 (2A) of the SEBI Act, to call for
information. The appellant-companies were, therefore,
8
statutorily obliged to furnish the information sought. The
information sought by SEBI from the appellant-companies,
would have led to a firm and clear factual conclusion, whether
the OFCDs issued by SIRECL and SHICL were by way of
"private placement", or by way of an invitation "to the public".
C The best legal minds in this country have guided and
represented the appellant-companies al all stages, right from
the beginning. There can therefore be no doubt, that the
particulars sought by the SEBI, were not furnished by the
appellant-companies, on the basis of considered legal advice.
D But then, there are legal consequences, for such considered
withholding of information. It is imperative for us to resurrect the
legal position, not kept in mind by the appellant-companies. For
this, reference needs to be made to section 114 of the Indian
Evidence Act, as also, Illustrations (g) and (h) thereunder. The
E same are extracted below:
"114. Court may presume existence of certain facts
The Court may presume the existence of any fact which it
F thinks likely to have happened, regard being had to the
common course of natural events, human conduct and
public and private business, in their relation lo the facts of
the particular case.
G Illustrations
The Court may presume -
xxx xxx xxx
H (g) Thal evidence which could be and is not produced
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 181
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
would, if produced be unfavorable to the person A
who withholds it;
(h) That if a man refuses to answer a question which
he is not compelled to answer by law, the answer,
if given, would be unfavorable to him; B
)()()( xxx xxx
But the Court shall also have regard to such facts as the
following, in considering whether such maxims do or do
not apply to the particular case before it - c
As to illustration (g) - A man refuses to produce a
document which would bear on a contract of small
importance on which he is sued, but which might also
injure the feelings and reputation of his family;
D
As to illustration (h) - A man refuses to answer a question
which he is not compelled by law to answer, but the answer
to it might cause loss to him in matters unconnected with
the matter in relation to which it is asked;
E
xxx xxx XXX:'
Based on section 114 of the Indian Evidence Act, and
more particularly the illustrations extracted above, SEBI
ought to have drawn the obvious presumption against the
appellant-companies. The material sought by the SEBI F
from the appellant-companies, thought available with them,
must be deemed to have been consciously withheld, as
the same if disclosed, would have been unfavourable to
the appellant-companies. Details sought by the SEBI from
the appellant-companies included particulars of the G
application forms circulated, the number of application
forms received, the amount of subscription deposited, the
number and list of allottees, the number of OFCDs issued,
the value of their allotment, the date of dispatch of
debenture certificates, copies of board/committee H
182 SUPREME COURT REPORTS [2012] 12 S.C.R.
A meetings, minutes of the meetings during which allotment
was approved. According to SEBI the information sought
was merely basic, and the denial of the same amounted
to a calculated and deliberated denial of the same. There
can be no quarrel with the aforesaid conclusion. Why would
B anyone not furnish such basic information? The aforesaid
information had been sought, to determine whether the
OFCDs issued by SIRECL and SHICL were by way of
"private placement• (as claimed by the appellant-
companies), or by way of an invitation "to the public" (as
c counter claimed by the SEBI). Since the appellant-
companies willfully avoided to furnish the aforesaid
information (which ought to have been readily available
with them) to the SEBI, one is constrained to conclude, that
if the appellant-companies had furnished the said
information, SEBI would have been able to conclude the
D
issue against the appellant-companies, i.e., that the
OFCDs issued by the SIRECL and SHICL, were by way
of an invitation "to the public". I am therefore, persuaded
to conclude accordingly.
E The second perspective:
73. The same conclusion as has been drawn hereinabove,
can be legally drawn from another angle as well. For the instant
aspect of the matter it is essential to refer to section 67 of the
F Companies Act. The same is accordingly being extracted
hereunder:
"67. Construction of references to offering shares or
debentures to the public, etc. (1) Any reference in this
Act or in the articles of a company to offering shares or
G debentures to the public shall, subject to any provision to
the contrary contained in this Act and subject also to the
provisions of sub-section (3) and (4), be construed as
including a reference to offering them to any section of the
public, whether selected as members or debenture holders
H of the company concerned or as clients of the person
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 183
AND EXCH. BOARD OF INDIA (JAGDISH SINGH KHEHAR, J.]
issuing the prospectus or in any other manner. A
(2) Any reference in this Act or in the articles of a company
to invitations to the public to subscribe for shares or
debentures shall, subject as aforesaid, be construed as
including a reference to invitations to subscribe for them B
extended to any section of the public, whether selected as
members or debenture holders of the company concerned
or as clients of the person issuing the prospectus or in any
other manner.
(3) No offer or invitation shall be treated as made to the c
public by virtue of sub-section (1) or sub-section (2), as the
case may be, if the offer or invitation can properly be
regarded, in all the circumstances -
(a) as not being calculated to result, directly or indirectly, D
in the shares or debentures becoming available for
subscription or purchased by, persons other than those
receiving the offer or invitation; or
(b) otherwise as being a domestic concern of the persons
making and receiving the order or invitation; E
•'
Provided that nothing contained in this sub-section shall
apply in a case where the offer or invitation to subscribe
for shares or debentures is made to fifty persons or more;
F
Provided further that nothing contained in the first proviso
shall apply to the non-banking financial companies or public
financial institutions specified in section 4A of the
Companies Act (1 of 1956).
(3A) Notwithstanding anything contained in sub-section (3), G
the Securities and Exchange Board of India shall, in
consultation with the Reserve Bank of India, by notification
in the Official Gazette, specify the guidelines in respect of
offer or invitation made to the public by a public financial
H
184 SUPREME COURT REPORTS [2012] 12 S.C.R.
A institution specified under section 4A or non-banking
financial company referred to in clause (f) of section 45-1
of the Reserve Bank of India Act, 1934 (2of1934).
(4) Wittlout prejudice to the generality of sub-section (3),
a provision in a company's articles prohibiting invitations
B
to the public to subscribe for shares or debentures shall
not be taken as prohibiting the making to members or
debenture holders of an invitation which can properly be
regarded in the manner set forth in that sub-section.
c (5) The provisions of this Act relating to private companies
shall be construed in accordance with the provisions
contained in sub-sections (1) to (4)."
The aforesaid provision, pointedly brings out the
0 construction of references to an invitation/offer of shares or
debentures "to the public". Sub-section (1) of section 67
reproduced above, pertains to an act of "offering" of shares and
debentures, whereas, sub-section (2) thereof deals with a
similar act by way of "invitation". The construction of section 67
E of the Companies Act, determines, when the "invitation or offer"
is to be accepted as having a reference "to the public". As a
matter of clarification, the aforestated two sub-sections, while
accepting the generic meaning of the term "to the public",
proposition a special construction for the same whereby a
limited/restricted meaning has been extended to the same.
F Sub-sections (1) and (2) of section 67 of the Companies Act
clearly provide, that an offer or invitation which is limited/
restricted to a section of the public, including members or
debenture-holders of a company, clients of the company
concerned, and even to a class of persons distinguished "by
G any other means", would nonetheless be deemed to be an
invitation/offer, "to the public". Section 67(3) of the Companies
Act provides for an exception to the meaning assigned to the
phrase "to the public" (under sub-sections (1) and (2) of section
67 aforesaid). In this behalf section 67(3) delineates two
H categories of invitations/offers which would not be treated as
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 185
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
invitations/offers, "to the public". Clause (a) of section 67(3) A
mandates, that an offer/invitation which forbids a right of
renunciation in favour of others would "nor be treated as an
invitation or offer "to the public". And clause (b) of section 67(3)
similarly provides, that an invitation/offer made as a matter of
a domestic arrangement, between the persons making and B
receiving the invitation/offer, would also "not" be considered as
an invitation/offer "to the public". The first proviso under section
67(3) of the Companies Act, limits the instant exceptions,
contemplated under clauses (a) and (b) of section 67(3) only
to situations where the invitation/offer is made to less than 50 c
person. Even though, clauses (a) and (b) of sub-section (3) of
section 67 of the Companies Act, are an exception to sub-
sections (1) and (2) of section 67 thereof, yet it must be clearly
understood, that a mere fulfillment of the yardstick defining the
exception (under clauses (a) and (b), aforesaid) would not bring 0
the issue under reference out of the scope of the term "to the
public". For that, it is essential to also satisfy the requirement
of the proviso under section 67(3) i.e., the number of
subscribers should not exceed 49. Only on the satisfaction of
the twin requirements, delineated above, the issue/offer will "nor
be treated as having been made "to the public". E·
74. Having examined the provisions of the Companies Act,
it is clear that the term "private placemenr has not been defined
therein. In fact the term "private placemenr has not been used
in the Companies Act. Presumably, it is coined and conceived F
at the hands of the appellant-companies, on the basis of the
designated meaning of the term in the capital market. At best,
what the appellant-companies have referred to as "private
placement", can be only that which would be an exception to
invitations/offers contemplated under sub-sections (1) and (2) G
of section 67, namely, only such invitations/offers as would be
covered by sub-section (3) of section 67 of the Companies Act.
The category of persons falling within the scope of sub-section
(3) of section 67 only, can be treated as falling in sphere of
"private placement". Therefore, at best "private placemenr H
186 SUPREME COURT REPORTS (2012) 12 S.C.R.
A within the meaning of the assertions made on behalf of the
appellant-companies, would essentially fall in the two categories
expressed in clauses (a) and (b) of sub-section (3) of section
67 of the Companies Act. Clearly, since the first proviso under
section 67(3) limits the upper limit thereunder to less than 50,
B an invitation/offer by way of "private placement" under the
Companies Act, can under no circumstances exceed 49.
Applying the legal parameters emerging from section 67 of the
Companies Act, an e~deavour shall now be made, to
determine whether the invitation/offer made by SIRECL and
c SHICL was by way of "private placement" or by way of an
invitation "to the public".
75. The appellant-companies have stated, that the
invitation/offer of the OF CDs were made to friends, associates,
group companies, workers/employees and other individuals
D associated/affiliated or connected in any manner with the
Sahara India Group of Companies. This description cannot
lead to the inference, that the invitation/offer made by SIRECL
or SHICL had been made as a matter of domestic
arrangement between the persons making/receiving the
E invitation/offer. As such, the OFCDs in question do not satisfy
the requirement under clause (b) of section 67(3). It is also
relevant to notice, that the appellant-companies had invited
subscription for their OFCDs through their respective RHPs. On
the receipt of subscriptions, the appellant-companies had
F issued bonds (named as Abode Bonds, Nirman Bonds and
Real Estate Bonds, in case of SIRECL; and Multiple Bonds,
Income Bonds and Housing Bonds, in case of SHICL). The
RHPs issued by the two companies clearly expressed, that the
subscribers could transfer the same to any other person,
G subject to the terms and conditions and the approval of the
concerned company. In sum and substance, therefore, the
OFCDs/bonds under reference were transferable, whereas, to
satisfy the requirement under clause (a) of section 67(3) the
shares/debentures should be non-transferable. Clearly, the
H OFCDsfbonds issued by the appellant-companies did not fall
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 187
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
within the scope of clauses (a) or (b) of section 67(3) of the A
Companies Act. Therefore, per-se the <:ontention of the
appellant-companies, that invitation to subscribers to the
OFCDs was by way of "private placement" is unacceptable.
Even if for arguments sake, it is assumed that the OFCDs in
question fall in one or the other exempted categories, defined B
through clauses (a) or (b) of section 67(3), still in so far as the
present controversy is concerned, the same would not
constitute an exception to sub-sections (1) and (2) of section
67 of the Companies Act, because the invitation/offer of
OFCDs, in the present controversy, was admittedly made to c
approximately 3 crore persons (expressed as 30 million
persons by the SAT in the impugned order dated 18.10.2011)
and was subscribed to by 66 lakh persons (mentioned as 6.6
million persons in the SEBI (FTM) order dated 23.6.2011 ), in
the case of OFCDs issued by the SIRECL. And it may be D
presumed, that a similar number had subscribed to the OFCDs
issued by SHICL. In case of both the appellant-companies
therefore, the number of subscribers exceeded manifolds, the
upper limit of 49, expressed in the first proviso under section
67(3) of the Companies Act. Consequently, even as a matter
of law, it is not possible to find favour with the contention E
advanced at the behest of the appellant-companies, that the
OFCDs issued by the SIRECL and SHICL were by of "private
placement". It is inevitable therefore, to accept the contention
of the SEBI, that the OF CDs issued by the SIRE CL and SHICL
were by way of an invitation "to the public". F
The third perspective:
76. The instant issue was examined by the SAT from yet
another viewpoint. SAT expressed the opinion, that the G
appellant-companies did not disclose in their information
memorandum, that the invitation/offer to subscribe to the
OFCDs was being issued to 3 crore persons (expressed as
30 million persons by the SAT), through 10 lakh agents,
stationed in more than 2900 branch offices. And therefore, the
real intent of the appellant-companies remained unnoticed. The H
188 SUPREME COURT REPORTS [2012] 12 S.C.R.
A aforesaid figures, according to the SAT, were by themselves
sufficient to conclude, that the appellant-companies had
approached the public through an advertisement, i.e., by way
of an invitation "to the public", and not on "tap" basis (i.e., by
way of "private placement") as was being suggested by the
B appellant-companies.
77. It is necessary to notice, that in order to controvert the
factual position relied upon by the SEBI, the appellant-
companies placed reliance ori a couple of factual instances,
which when clubbed together, according to the learned counsel
C for the appellant-companies, would lead to the inference, that
the OFCD's under reference were issued by way of "private
placement". Firstly, reliance was placed on similar actions of
Sahara India Commercial Corporation Limited (hereinafter
referred to as SICCL), also a member of the Sahara Indian
D Group of Companies, having its registered office in West
Bengal. SICCL had also, according to learned counsel, similarly
issued OFCDs in 1998 by way of "private placemenr (and
continued to issue the OFCDs till 30.6.2008). SICCL an unlisted
public company, according to learned counsel, had filed its RHP
E on 29.6.2001, indicating that SICCL had no intention to list its
OFCDs on a recognized stock exchange. According to learned
counsel, the aforesaid RHP, as in the instant case, was duly
approved and registered by the concerned Registrar of
Companies, despite the fact that subscribers exceeded 50
F (total subscribers indicated as 1,98,39,939). It was submitted,
that in furtherance of the OFCDs issued by the SICCL, a
subscription sum in excess of Rs.14, 106 crores was collected.
It was then contended, that no action whatsoever was initiated
by the SEBI against the SICCL. It was submitted, that inspite
G of the fact that the appellant-companies are similarly situated
as SICCL, they have been picked up arbitrarily, for unfair and
discriminatory treatment. Secondly, SIRECL filed its special
resolution dated 30.3.2008 with the Registrar of Companies,
Uttar Pradesh and Uttarkhand. SIRECL then filed its RHP on
1-'i 13.3.2008 before the Registrar of Companies. In the said RHP,
SIRECL clearly expressed, that it did not intend to list its
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 189
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
OFCDs with any recognised stock exchange. In the said RHP A
it was inter alia stated as under:
I-General Information
(a) ...........
(b) ........... B
(c) Names of regional We do not intend the proposed
stock exchange and other issue to be listed in any stock
stock exchanges where exchange(s)
application made for
listing of present issue c
II - Capital structure of the
company
(a) ... ········
D
(b) Size of present issue The present issue consists 0 1
giving separately Unsecured Optionally Fully
reservation for preferential Convertible Unsecured Debentures
allotment to promoters with option to the holders to convert
and others. the same into Equity Share o· E
Rs.10 each at a premium of to be
decided at the time of issue equal
to the face value of the Optionally
Fully Convertible Unsecured
Debentures to be privately placed F
aggregating to Rs.**
Finding no legal infirmity in the aforesaid RHP, it was
submitted, that the same was duly registered by the Registrar
of Companies on 18.3.2008. It was also pointed out, that
SIRECL had also circulated an information memorandum on G
25.4.2008, indicating the same position. Based on the
aforesaid factual position, it was contended that the appellant-
companies having expressed, that they "do not intend the
proposed issue to be listed in any stock exchange(s)", it is
wholly arbitrary to presume just the opposite. Based on the H
190 SUPREME COURT REPORTS [2012] 12 S.C.R.
A aforesaid sequence of facts (and logic), it was contended, that
it was not appropriate to presume against the appellant-
companies, something contrary to what the appellant-
companies had clearly expressed.
78. All that one would state in response to the submissions
B advanced on behalf of the appellant-companies (as have been
recorded in the foregoing paragraph) is, that the appellant-
companies are not placing reliance on the actual facts
pertaining to the present controversy, but are relying on allied
materials to draw inferences. Since the appellant-companies
c are custodians of the factual material it is imperative to outrightly
and straightaway reject the basis adopted by the appellant-
companies to canvass the merits of the instant issue. The
illustrative reference to SICCL, would not make any difference
to the determination of the present controversy, because the
D first proviso under section 67(3) of the Companies Act was
inserted with effect from 13.12.2000. The aforesaid proviso
introduced the limit of less than 50 subscribers, in case of
"private placement", whereas SICCL (according to the
appellant-companies own showing) had commenced its OFCD
E issue in 1988, i.e., well before the aforesaid proviso, introducing
the outer limit of less than 50 persons, came into existence. The
first of the two submissions is therefore clearly unsustainable.
In so far as the second contention is concerned, abundance of
material was gathered by SEBI to show, that the specifications/
F conditions/terms indicated in the documents relied upon by the
appellant-companies were clearly fallacious and misleading.
Therefore, on the basis of the factual position recorded above
(in the opening paragraph, under the third perspective), there
can be no doubt, that SAT was fully justified in drawing its
conclusions, by taking into consideration the number of
G persons to whom the invitation/offer to subscribe to the OFCDs
was extended, the number of agents associated by the
appellant-companies to solicit subscriptions and the number of
branch offices established for the purpose. If one were to add
to the aforesaid consideration, the number of subscribers and
H the amount of subscription collected (all of these numbers have
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 191
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
been delineated during the deliberations on the instant issue), A
the submissions advanced on behalf of the appellant-
companies can be visualized as not only unrealistic, but also
preposterous.
Whether the SAT was justified in ignoring the factual
conclusions drawn by the SEBI CFTMl on the basis of the B
inquiries made by the Investigating Authority. on the ground of
violation of the rules of natural justice?
79. The issue incorporated in. the query posed above, was
not canvassed before us during the course of hearing. Since c
the issue aforesaid had been adjudicated upon in favour of the
appellant-companies by the SAT, the appellant-companies
were not expected to assail the same. Since no appeal was
preferred at the hands of SEBI (as it had succeeded on other
issues before the SAT), it could not even be agitated on behalf D
of SEBI. During the course of preparing the instant judgment
one had the occasion to ponder over the determination
rendered by the SAT, whereby certain factual conclusions drawn
by the SEBI (FTM) were omitted from consideration by the
SAT, on- the basis of the determination by the SAT, that the E
same had been drawn in violation of the rules of natural justice.
The SAT held, that the facts ascertained on an inquiry made
by the Investigating Authority appointed by the SEBI, were liable
to be ignored, because the appellant-companies had neither
been put to notice, nor their response thereon had been sought. F
In order to bring out the determination of the SEBI (FTM), as
also the decision thereon by the SAT (based on the plea of
violation of the rules of natural justice), one paragraph of the
order of the SAT, relevant to the issue, is being set out below:
"We shall now deal with the argument of the learned senior G
counsel for the appellants that the whole time member
violated the principles of natural justice. He argued that
during the course of the proceedings, the whole time
member directed the investigating officer to make
enquiries in regard to certain facts and basing himself on H
192 SUPREME COURT REPORTS [2012] 12 S.C.R.
A his conclusions he found that the issue of OFCDs was a
public issue but the findings of the investigating officer had
not been furnished to the appellants. It is contended that
the appellants had no opportunity to counter the findings
of the investigating authority. Reference in this regard was
B made to paras 17.9 and 26.7 of the impugned order where
the whole time member has placed reliance on the facts
collected by the investigating authority behind the back of
the appellants. This is what the whole time member has
observed in these paragraphs:
c "17 .9 I note that the Investigating Authority had, as
directed by me, made enquiries with two of the
subscribers (who are residing in Mumbai) to such
OFCDs made by the companies. These investors
had stated that their investments in such instruments
D were made on the basis of the representations
made by the local agents (employed by the
companies) and that they had no connection,
whatsoever, with the two companies themselves or
to the Sahara India Parivar ..... For the purpose of
E my own understanding, I had directed the
Investigating Authority to do a snap verification of
any four addresses from a randomly selected locality
in Mumbai itself (as the learned counsel had
submitted that complete addresses are given in
F respect of investors in urban areas). Out of four
investors, the Investigating team tried to identify,
even after strenuous efforts with the Post Office, two
of them were simply not traceable. As to the two
investors who were identified, both of them invested
G in the OFCDs, just because they were approached
by the Agents in their locality. They had no prior
association with the issuer or the Sahara Group.
Evidently, on the face of it, the OFCDs are
subscribed to, not by persons belonging to the
H Sahara India Parivar as claimed, but by the public,
SAHARA INDIA REAL ESTATE CORP. LTO. v. SECURITIES 193
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
and such subscriptions are solicited through the A
usual marketing efforts that are typically needed to
canvass deposit business from the general public.
Both of them had hardly any awareness of the
convertibility in these instruments."
B
There is merit in the contention of the appellants. As
already observed, one of the prima·ry questions that arose
before the whole time member was whether the issue of
OFCDs was a public issue, or one by way of private
placement. The appellants have been contending
throughout that it was a private issue and that they had not C
approached the public and that the OFCDs were being
offered only to their friends, associates, group companies,
workers/employees and other individuals associated/
affiliated or connected with Sahara Group of companies.
In order to find out whether this fact was true, the whole D
time member directed the investigating authority to find out
on a random check whether the company had approached
members to the public or their own associates as claimed.
The investigating authority appears to have recorded the
statements of some persons to whom OFCDs have been E
offered and concluded that they were not the associates
of the company. The whole time member relied upon these
conclusions to hold that the issue was a public issue. We
agree with the learned senior counsel for the appellants
that the whole time member could not rely upon the F
conclusions arrived at by the investigating authority without
furnishing his report to the appellants which they were
entitled to controvert. We are. therefore. satisfied that the
principles of natural justice to this extent had been violated.
We are also of the view that this violation by itself will not G
vitiate the impugned order. Independently of the
observations made in paragraph 17.9 and 26.7 of the
impugned order there is enough material on the record to
hold that the issue of OFCDs was a public issue. From
the affidavit filed on behalf of the company, it is clear that H
194 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the OFCDs were offered to millions of investors. This fact
by itself makes the issue a public issue and it was not
necessary for the whole time member to look into the
findings of the investigating officer which were recorded
behind the back of the appellants. Moreover, on the facts
B of this case, it is a legal issue based upon the
interpretation of the provisions of the Companies Act. We
have ignored the observations made in the two paras of
the impugned order while recording our findings in the
earlier part of the order that the issue was 'a public issue.
c In view of our findings, the observations made in the
aforesaid two paragraphs of the impugned order are of no
consequences.·
(emphasis is mine)
D 80. What needs to be kept in mind while applying the rules
of natural justice is, that the same are founded on principles of
fairness. Two cardinal principles of fairness are incorporated
in the rules of natural justice. Firstly, the person against whom
action is contemplated, is liable to be informed of the basis on
E which the proposed action is to be taken (i.e., the affected party
is required to be put to notice). And secondly, before taking any
adverse action, the affected party is liable to be afforded an
opportunity to present his defence (i.e., an opportunity to be
heard, under the tenent "audi alterm partem").
F 81. The rules of natural justice being founded on principles
of fairness can be available only to a party which has itself been
fair, and therefore, deserves to be treated fairly. The first
determination rendered hereinabove (on the issue whether the
invitation to subscribe to OFCDs by SIRECL and SHICL were
G by way of "private placement• or by way of an issue "to the
public"), reveals that inspite of best efforts made by SEBI,
neither of the two companies furnished the information solicited
from them. Information was obtained by SEBI directly from
MCA-21 portal maintained by the Ministry of Corporate Affairs.
H Added to this, SEBI inter alia relied on facts collected through
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 195
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
its Investigating Authority. Based on the aforesaid material A
SEBI (FTM) ventured to determine the controversy before it.
Whether or not the two companies herein, could be permitted
to agitate against the factual determination rendered by the
SEBI (FTM), based on inquiries made at the behest of the
SEBI (through its Investigating Authority), would depend upon B
their fairness in furnishing the materials 11ought by SEBI. It is
apparent, that both SIRECL and SHICL, based on one excuse
or another, did not provide the factual details sought by the
SEBI, though the same were available with them. On some
occasions, the excuses for not furnishing the information, were c
outrageously absurd (as discussed in an earlier part of the
order). Having declined to furnish facts sought by SEBI, the
SEBI was left with no other alternative but to garner shreds of
information from one or the other source. Every time SEBI
sought details from the appellant-companies, SEBI was
0
affording the two companies an opportunity to substantiate their
claim (that the invitation to subscribe to OFCDs was by way of
"private placement"). In this way several opportunities were
afforded to the appellant-companies to substantiate their
stance. Having gathered information on its own (based on its
own inquiries, as well as, through its Investigating Authority), E
SEBI arrived at certain factual conclusions. Must the appellant-
companies be again called upon for their comments, before the
SEBI can proceed further with the matter, is the important
question. If the. material, gathered by the SEBI (FTM) must be
first provided to the concerned companies, and their responses F
sought under the rules of natural justice, would it not amount to
putting a premium on their non-cooperative and unfair stance?
Do the rules of natural justice have any limitations? Whether fair
or not, must the concerned party always enjoy the advantage
of procedural prescriptions under the rules of natural justice? It G
is in respect of these propositions, that an answer is being
attempted. In so far as the present controversy is concerned,
opportunities were repeatedly provided by SEBI, to the
appellant-companies, but they remained adamant and
obstinate. Based on one excuse or the other, they declined to H
196 SUPREME COURT REPORTS (2012] 12 S.C.R.
A furnish the information sought. What needs to be noticed in the
present controversy is, that the appellant-companies did not
dispute the factual position (recorded by the SEBI (FTM) from
the details furnished by the Investigating Authority) before the
SAT. The two companies could have easily done so by
8 providing the details available with them. Even before the SAT,
they did not come out with the correct factual position. The
material sought by SEBI from the two companies, would have
constituted a valid basjs to decipher and unravel the true factual
position. Interestingly, to get over the crisis, emerging from the
C facts discovered by the Investigating Authority, the appellant-
companies relied on technicalities of law, by canvassing their
claim under the rules of natural justice. What the appellant-
companies overlook is, that in actuality numerous opportunities
were afforded to them to disclose information available with
them, but they choose to shun the liberty. The data available
0
with the appellant-companies was preserved as a closely
guarded secret. That position has remained unaltered
throughout. A person who has repulsed earlier opportunities (as
the appellant-companies have), has no right to demand any
further opportunity under the rules of natural justice. The
E appellant-companies cannot be heard to say, that though they
had consciously kept all the facts secret, they should have all
the same been given an opportunity under the rules of natural
justice to disclose the secrets? One would therefore, have no
hesitation in concluding, that a party which has not been fair,
F cannot demand a right based on a rule founded on fairness.
lnspite of the aforesaid conclusion, it would be wrong to assume
that the appellant-companies were remediless. That remedy
was, to place the correct factual data, supported by documents
in their custody before the adjudicating authorities. That would
G have certainly enabled SAT, in its appellate jurisdiction, to
determine whether the SEBI (FTM) was justified in drawing the
factual inferences. The SAT was therefore, wholly unjustified in
ignoring the conclusions drawn by the SEBI (FTM), on the basis
of inquiries which were got conducted by it, through its
H Investigating Authority. That is so, specially because there are
SAHARA !NOIA REAL ESTATE CORP. LTD. v. SECURITIES 197
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
no allegations of bias, prejudice or malice against either the A
SEBI or the Investigating Authority. To that extent, the order
passed by the SAT cannot be legally sustained.
82. As already noticed hereinabove, the issue being
adjudicated under the instant query, was not canvassed before 8
us during the course of hearing. One shall also not Oust like the
SAT) take into consideration, the factual conclusions drawn by
the SEBI on the basis of inquiries conducted by its Investigating
Authority, for recording a final determination, in the present
controversy. It was only as a matter of placing the contours of
the rules of natural justice in the right perspective, that the instant C
determination on the scope of applicability of the rules of natural
justice has been recorded, in the background of the facts of the
present controversy.
Whether OFCDs issued by SIRECL and SHICL which are D
admittedly "hybrids". are securities? If not so. whether they
would be amenable to the jurisdiction of the SEBI?
Ttie first perspective:
83. The submissions advanced at the hands of the learned E
counsel for the appellant-companies to support their contention,
that the ~EBI has no jurisdiction over "hybrids" is rather simple.
To canvass the aforesaid claim, our attention was first invited
to the definition of the terin "securities" in section 2(1 )(i) of the
SEBI Act. The same is being extracted hereunder: F
"2(1) (i) "securities" has the meaning assigned to it in
section 2 of the Securities Contracts (Regulation) Act,
1956."
For a complete and effective understanding of section G
2(1 )(i) extracted above, reference is liable to be made to
section 2(h) of the SC(R) Act. The same is therefore being
reproduced hereunder:
"2(h) "securities" include - H
198 SUPREME COURT REPORTS [2012] 12 S.C.R.
A (i) shares, scrips, stocks, bonds, debentures, debenture
stock or other marketable securities of a like nature in or
of any incorporated company or other body corporate;
(ia) derivative;
B (ib) units or any other instrument issued by any collective
investment scheme to the investors in such schemes;
(ic) security receipt as fined in clause (zg) of section 2 of
the Securitisation and Reconstruction of Financial Assets
c and Enforcement of Security Interest Act, 2002 (54 of
2002];
(id) units or any other such instrument issued to the
investors under any mutual fund scheme;
'Explanation. - For the removal of doubts, it is hereby
declared that "securities" shall not include any unit linked
insurance policy or scrips or any such instrument or unit,
by whatever name called, which provides a combined
benefit risk on the life of the persons and investment by
such persons and issued by an insurer referred to in
clause (9) of section 2 of the Insurance Act, 1938."
(ie) any certificate or instrument (by whatever name called),
issued to an investor by any issuer being a special
purpose distinct entity which possesses any debt or
receivable, including mortgage debt, assigned to such
entity, and acknowledging beneficial interest of such
investor in such debt or receivable including mortgage
debt, as the case may be;"
(ii) Government securities;
(iia) such other instruments as may be declared by the
Central Government to be securities; and
(iii) rights or interests in securities;"
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 199
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
A collective perusal of section 2(1 )(i) of the SEBI Act and A
section 2(h) of the SC(R) Act completely and effectively defines
the term "securities· for the purpose of the SEBI.
84. As against the aforesaid, the term "securities· has been
defined in section 2(45M) of the Companies Act (consequent B
upon an amendment made in 2000 with effect from
13.12.2000). Section 2(45M) of the Companies Act, is being
extracted hereunder: ·
"2(45AA) "securities· means securities as defined in
clause (h) of section 2 of the Securities Contracts C
(Regulation) Act, 1956 (42of1956), and includes hybrids;•
The aforesaid provisions has also necessarily to be read
in conjunction with section 2(h) of the SC(R) Act. The only
difference in the definition of the term "securities" under the 0
SEBI Act and the Companies Act is, that whilst the SEBI
Act fully adopts the definition of term "securities" as is
contained in section 2(h) of SC(R) Act; the Companies Act
while adopting the definition of the term "securities" as in
section 2(h) of the SC(R) Act, makes an express E
amendment thereto by adding the words " ... and includes
hybrids".
85. Based on the legal position recorded in the foregoing
two paras, it is the contention of the learned counsel for the
appellant-companies, that the definition of the term "securities" F
under the Companies Act includes "hybrids" (consequent upon
the amendment made in 2000), whereas, an identical definition
of the term "securities" under the SEBI Act, does not provide
for such inclusion. Based on the aforesaid provisions, it is the
submission of the learned counsel for the appellant-companies, G
that "hybrids' would be treated as "securities" within the
meaning of the Companies Act, but cannot be treated as
"securities" within the meaning of the SEBI Act. Founded on
the aforesaid statutory interpretation, it is the contention of the
learned counsel for the appellant-companies, that SEBI has no H
200 SUPREME COURT REPORTS [2012] 12 S.C.R.
A jurisdiction, either in matters of administration or in matters of
regulation, over "hybrids". It is important to keep in mind, that
the aforesaid submission was canvassed to overcome, the
contention of SEBI, that it had a clearly defined administrative
role on the subject of "securities• under section 55A of the
B Companies Act.
86. The submission advanced at the hands of the learned
counsel for the appellant-companies, as has been noticed in
the foregoing paragraphs, was extremely impressive. The
C matter was expressed so simply, that it would be difficult to find
any flaw therein. A closer examination of the controversy in
hand, however, would persuade one to conclude, that the
aforesaid submission is fallacious. It is not a matter of dispute
between the rival parties, that consequent upon an amendment
made in 2000 {with effect from 13.12.2000) section 55A was
D added to the Companies Act. The aforesaid addition
demarcated between SEBI on the one hand, and the Central
Government {as also, the Tribunal and the Registrars of
Companies) on the other, spheres of administrative control over
"different provisions· and "subjects" of the Companies Act.
E Even out of the expressly demarcated provisions assigned to
SEBI, the administrative authority vested in the SEBI was
limited "... to issue and transfer of securities and non payment
of dividend ... ". Thus viewed, the subject of "securities· and
matters connected thereto were, generally to be administered
F by the SEBI {after the addition of section 55A to the Companies
Act), whereas, all the remaining provisions on subjects other
than "securities" and matters connected thereto, were generally
to be administered by the Central Government {as also, the
Tribunal and the Registrar of Companies). There can be no
G doubt, that the administrative authority of SEBI pertaining to the
provisions of Companies Act, could only be determined on the
basis of the definitions, as are contained in the Companies Act.
Since the definition of term "securities" contained in section
2{45AA) of the Companies Act, expressly includes "hybrids",
H it is inevitable to conclude, that while interpreting the provisions
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 201
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
of Companies Act (including the administrative role assigned A
to SEBI under section SSA), "hybrids" would be treated as a
component of the term "securities". This is so, because the term
"securities" defined in section 2(4SAA) expressly includes
"hybrids". In the aforesaid view of the matter, irrespective of
whether "hybrids" are included in the term "securities" under the B
SEBI Act, while interpreting the provisions of the Companies
Act, even with reference to SEBI, "securities" will include
"hybrids". Therefore, the term "securities" in section SSA of the
Companies Act, even while being examined with reference to
the administrative powers assigned to SEBI thereunder, would c
include "hybrids". The aforesaid conclusion constitutes a clear
answer to the query posed above, with reference to section
SSA of the Companies Act.
The second perspective:
D
87. An attempt shall now be made to determine whether
"hybrids" can also be included in the definition of the term
"securities" for the purposes of the SEBI Act. For the aforesaid
analysis reference may first be made to section 2(19A) of the
Companies Act which is being extracted hereunder: E
"2(19A) "hybrid" means any security which has the
character of more than one type of security, including their
derivatives;"
The term "hybrid" is not defined under the SEBI Act, and F
consequently it may be appropriate to accept the same, as it
has been defined in the Companies Act, specially with reference
to an issue arising in respect of a public company. Ofcourse,
it would not have been apt to rely on section 2(19A) of the
Companies Act, if the term "hybrid" had also been defined in G
the SEBI Act or had even been defined in the SC(R) Act on
the Depositories Act, 1996, because section 2(2) of the SEBI
Act postulates, that words and expressions used but not
defined under the SEBI Act, but defined in the SC(R) Act or in
the Depositories Act, 1996 would be attributed the meaning · H
202 SUPREME COURT REPORTS [2012] 12 S.C.R.
A given to them in the said Acts. But the term "hybrid" has also
not been defined in either of the aforesaid enactments. The tenn
"hybrid" as defined in the Companies Act means "any security"
having "the character of more than one type of security" and
"includes their derivatives". For the purposes of the SEBI Act,
B the term "securities" is accepted as it is defined in section 2(h)
of the SC(R) Act. Section 2(h) of the SC(R) Act does not define
the tenn "securities" exhaustively, because clauses (i) to (iia)
thereof, only demonstrate what may be treated as included in
the definition of the tenn "securities". And, clause (i) of section
c 2(h) of the SC(R) Act, includes within the definition of the tenn
"securities" inter alia, "bonds", "debentures' and "other
marketable securities of a like nature". For the present
controversy it is sufficient to notice, that the appellant-
compan ies through their respective RHPs had invited
subscription to, Optionally Fully Convertible "Debentures"
0
(OFCDs). On receipt of subscription amounts from investors,
the appellant-companies had issued different kinds of "bonds"
(described as Abode Bonds, Nirman Bonds and Real Estate
Bonds, by SIRECL; and Multiple Bonds, Income Bonds and
E Housing Bonds, by SHICL). Since the tenn "hybrid" has been
expressed as "... means any security ... " there can be no doubt
that a "hybrid" is per-se a security. Moreover, the tenn "security"
in its definition includes" ... other marketable securities of a like
nature .. .". Therefore, even if for one or the other reason, the
OFCDs issued by the appellant-companies may not strictly fall
F within the terms "debentures" or "bonds" (referred to in the
definition of the tenn "securities") they would nonetheless fall
within the ambit of the expression "securities of a like nature".
For this, the reasons are as follows. The definition of the term
"hybrid" also explains that a "hybrid" has the character of more
G than one kind of "security" or their "derivatives". The term
"securities" also includes "derivatives". Therefore, even if the
definition of the term "hybrid" is construed strictly, it would fall
in the realm of "securities of a like nature". And if, "securities
of a like nature" are "marketable", they would clearly fall within
H ·the expanse of the term "securities" defined in section 2(h) of
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 203
AND EXCH. BOARD OF INDIA (JAGDISH SINGH KHEHAR, J.)
the SC(R) Act (and therefore also, section 2(1 )(i) of the SEBI A
Act). The OFCDs/bonds issued by appellant-companies were
also clearly marketable, because the RHPs issued by the two
companies provided, that the subscribers would be at liberty
to transfer the OFCDs/bonds, to any other person. Although,
the transfer of OFCDs/bonds was to be subject to the terms B
and conditions prescribed, and the approval of the appellant-
companies. In the absence of any prescribed terms and
conditions barring transfer, the OFCDs/bonds were clearly
transferable, and therefore, "marketable". The term
"marketable" simply means, that which is capable of being sold. c
Allowing the liberty to subscribers to transfer the OFCDs/bonds
made them "marketable". There is therefore, no room for any
doubt, that the term "hybrid", as defined in the Companies Act,
would squarely fall within the term "securities" as defined under
section 2(1) (i) of the SEBI Act (i.e., Section 2(h) of the SC(R)
0
Act).
88. In view of the above it is clear, that "hybrids" are
included within the term "securities" not only for the purposes
of Companies Act, but also, under the SEBI Act. SEBI
therefore, would have jurisdiction even over "hybrids", even E
under the provisions of the SEBI Act.
Whether it is optional for a public company. intending to
offer shares or debentures to the public. to have the same listed
on a recognized stock exchange (as is claimed by the F
appellant-companies) or is it mandatory (as is being asserted
by the SEBO?
89. According to the learned counsel for the appellant-
companies, it was not imperative for either the SIRECL or
SHICL to make an offer of the OFCDs through one or more G
recognized stock exchange(s). This has been the firm position
adopted by the appellant-companies, before the SEBI, the SAT
and even before us. According to learned counsel, even before
the opening of the offer, in furtherance of the RHPs issued by
the two companies, they had made their position clear by H
204 SUPREME COURT REPORTS [2012) 12 S.C.R.
A expressing, that they did not intend to be listed on. any
recognized stock exchange(s). The aforesaid position
expressed by the two companies in their respective RHPs, was
accepted and approved by the respective Registrars of
Companies. According to learned counsel, registration of the
8 aforesaid RHPs itself implies the fulfillment of all legal norms
and formalities.
90. In so far as the instant aspect of the matter is
concerned, learned counsel for the appellant-companies also
C placed reliance on section 608 of the Companies Act, which
is reproduced hereunder:
"608. Information Memorandum (1) A public company
making an issue of securities may circulate information
memorandum to the public prior to filing of a prospectus.
D
(2) A company inviting subscription by an information
memorandum shall be bound to file a prospectus prior to
the opening of the subscription lists and the offer as a red-
herring prospectus, at least three days before the opening
of the offer. ·
E
(3) The information memorandum and red herring
prospectus shall carry same obligations as are applicable
in the case of a prospectus.
F (4) Any variation between the information memorandum
and the red-herring prospectus shall be highlighted as a
variations by the issuing company.
Explanation. - For the purposes of sub-sections (2), (3)
and (4), "red-herring prospectus" means a prospectus
G which does not have any complete particulars on the
price of the securities offered and the quantum of
securities offered.
(5) Every variation as made and highlighted in accordance
H with sub-section (4) above shall be individually intimated
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 205
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
to the persons invited to subscribe to the issue of A
securities.
(6) In the event of the issuing company or the underwriters
to the issue have invited or received advance subscription
by way of cash or post-dated cheques or stock-invest, the 8
company or such underwriters or bankers to the issue shall
not encash such subscription moneys or post-dated
cheques or stock-invest before the date of opening of the
issue, without having individually intimated the prospective
subscribers of the variation and without having offered an C
opportunity to such prospective subscribers to withdraw
their application and cancel their post-dated cheques or
stock-invl!st or return of subscription paid.
(7) The applicant or proposed subscriber shall exercise his
right to withdraw from the application on any intimation of D
variation within seven days from the date of such intimation
and shall indicate such withdrawal in writing to the company
and the underwriters.
(8) Any application for subscription which is acted upon E
by the company or underwriters or bankers to the issue
without having given enough information of any variations,
or the particulars of withdrawing the offer or opportunity for
canceling the post-dated cheques or stock-invest or stop
payments for such payments shall be void and the
applicants shall be entitled to receive a refund or return of F
its post-dated cheques or stock-invest or subscription
moneys or cancellation of its application, as if the said
application had never been made and the applicants are
entitled to receive back their original application and
interest at the rate of fifteen per cent from the date of G
encashment till payment of-realization.
(9) Upon the closing of the offer of securities, a final
prospectus stating therein the total capital raised, whether
by way of debt or share capital and the closing price of H
206 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the securities and any other details as were not complete
in the red-herring prospectus shall be filed in a case of a
listed public company with the Securities and Exchange
Board and Registrar, and in any other case with the
Registrar only."
B
It was submitted that section 608 is applicable to listed
public companies, as well as, to unlisted public companies. It
was pointed out, that the only obligation contemplated under
section 608, which distinguishes listed public companies from
C unlisted public companies, is provided for under sub-section
(9), thereof. According to the learned counsel for the appellant-
companies, the process of issue of securities by a public
company, can be initiated by circulation of an "information
memorandum' to the public. The procedure contemplated under
section 608 aforementioned, contemplates the issuance of a
D RHP, and thereafter a final prospectus. At the time of
submission of the "final prospectus", in terms of sub-section (9)
of section 608 of the Companies Act, different authorities are
contemplated before whom the final prospectus has to be
submitted. For listed public companies the final prospectus has
E to be filed with the SEBI, whereas in all other cases, the final
prospectus is to be filed with the concerned Registrar of
Companies. According to the learned counsel for the appellant-
com panies, both the companies abided by procedure
contemplated under section 608 of the Companies Act. It was
F submitted, that since neither of the two companies were listed
on a recognized stock exchange, their RHPs were submitted
by SIRECL, as also, SHICL to the Registrar of Companies. It
was also asserted that neither of the companies could be
faulted for having made any false or incorrect disclosure, or for
G having not complied with the procedure prescribed in section
608 of the Companies Act, Since both the companies
categorically adopted the stance, that they did not intend to be
listed on any recognized stock exchange(s), according to
learned counsel, there was no express or implied requirement
H for the appellant-companies, to approach the SEBI, in respect
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 207
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
of the issue in hand. It was also submitted, that the registration A
of the respective RHPs issued by the two companies, by the
respective Registrars of Companies, substantiates due
compliance of the prescribed procedure. It was also contended,
that having chosen to remain unlisted, the appellant-companies
even during the course of proceedings before the SEBI and B
SAT respectively, were not accused of having contravened any
of the substantive or procedural requirements of section 60B
of the Companies Act. It is therefore sought to be canvassed,
that the appellant-companies having chosen the section 60B
option, could not be compelled/persuaded to have their OFCDs c
listed in one or more recognized stock exchange(s).
91. In order to counter the contentions advanced at the
hands of the learned counsel for the appellant-companies,
reliance on behalf of the SEBI was placed on section 73 of the
Companies Act. Section 73 aforementioned, is being extracted D
hereunder:
"73. Allotment of shares and debentures to be dealt
in on stock exchange:- ·
E
1. Every company intending to offer shares or
debentures to the public for subscription by the
issue of a prospectus shall, before such issue,
make an application to one or more recognized
stock exchange for permission for the shares or
debentures intending to be so offered to be dealt F
with in the stock exchange or each such stock
exchange.
1A Where a prospectus, whether issued generally or
not, states that an application under sub-section (1) G
has been made for permission for the shares or
debentures offered thereby to be dealt in one or
more recognized stock exchanges, such
prospectus shall state the names of the stock
exchange or, as the case may be, each such stock H
208 SUPREME COURT REPORTS (2012] 12 S.C.R.
A exchange, and any allotment made on an
application in pursuance of such prospectus shall,
whenever made, be void if the permission has not
been granted by the stock exchange or each such
stock exchange as the case may be, before the
B expiry of ten weeks from the date of the closing of
the subscription lists:
Provided that where an appeal against the decision
of any recognized stock exchange refusing
permission for the shares or debentures to be dealt
c in on that stock exchange has been preferred under
section 22 of the Securities Contracts (Regulation)
Act, 1956 (42 of 1956), such allotment shall not be
void until the dismissal of the appeal.
D 2. Where the permission has not been applied under
sub-section (1) or such permission having been
applied for, has not been granted as aforesaid, the
company shall forthwith repay without interest all
moneys received" from applicants in pursuance of
E the prospectus, and, if any such money is not repaid
within eight days after the company becomes liable
to repay it, the company and every director of the
company who is an officer in default shall, on and
from the expiry of the eighth day, be jointly and
F severally liable to repay that money with interest at
such rate, not less than four per cent and not more
than fifteen per cent, as may be prescribed, having
regard to the length of the period of delay in making
the repayment of such money.
G 2A. Where permission has been granted by the
recognized stock exchange or stock exchanges for
dealing in any shares or debentures in such stock
exchange or each such stock exchange and the
moneys received from applicants for shares or
H debentures are in excess of the aggregate of the
SAHARA INDIA REAL ESTATE CORP LTD. v. SECURITIES 209
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
application moneys relating to the shares or A
debentures in respect of which allotments have
been made, the company shall repay the moneys
to the extent of such excess forthwith without
interest, and if such money is not repaid within eight
days, from the day the company becomes liable to B
pay it, the company and every director of the
company who is an officer in default shall, on and
from the expiry of the eighth day, be jointly and
severally liable to repay that money with interest at
such rate, not less than four per cent and not more c
than fifteen per cent as may be prescribed, having
regard to the length of the period of delay in making
the repayment of such money.
28. If default is made in complying with the provisions
of sub-section (2A), the company and every officer D
of the company who is in default shall be punishable
with fine which may extend to fifty thousand rupees,
and where repayment is not made within six months
from the expiry of the eighth day, also with
imprisonment for a term which may extend to one E
year.
3. All moneys received as aforesaid shall be kept in
a separate bank account maintained with a
Scheduled Bank until the permission has seen F
granted, or where an appeal has been preferred
against the refusal to grant such permission, until
the disposal of the appeal, and the money standing
in such separate account shall where the
permission has not been applied for as aforesaid G
or has not been granted, be repaid within the time
and in the manner specified in sub-section (2); and
if default is made in complying with this sub-section,
the company and every officer of the company who
is in default, shall be punishable with fine which may
H
210 SUPREME COURT REPORTS [2012] 12 S.C.R.
A extend to fifty thousand rupees.
3A. Moneys standing to the credit of the separate bank
account referred to in sub-section (3) shall not be
utilized for any purpose other than the following
purposes namely:-
B
(a) adjustment against allotment of shares, where the
shares have b.een permitted to be dealt in on the
stock exchange or each stock exchange specified
in the prospectus; or
c
(b) repayment of rnoneys received from applicants in
pursuance of the prospectus, where shares have
not been permitted to be dealt in on the stock
exchange or each stock exchange specified in the
D prospectus, as the case may be, or, where the
company is for any other reason unable to make the
allotment of share.
4. Any condition purporting to require or bind any
applicant for shares or debentures to waive
E compliance with any of the requirements of this
section shall be void.
5. For the purposes of this section, it shall be deemed
that permission has not been granted if the
F application for permission, where made, has not
been disposed of within the time specified in sub-
section (1).
6. This section shall have effect-
G (a) in relation to any shares or debentures agreed to
be. taken by a person underwriting an offer thereof
by a prospectus, as if he had applied therefor in
pursuance of the prospectus; and
H (b) in relation to a prospectus offering shares for sale,
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 211
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
with the following modifications, namely:- A
(i) references to sale shall be substituted for
references to allotment;
(ii) the persons by whom the offer is made, and not the
company, shall be liable under sub-section (2) to 8
repay money received from applicants, and
references to the company's liability under that sub-
section shall be construed accordingly; and
(iii) for the reference in sub-section (3) to the company c
and every officer of the company who is in default,
there shall be substituted a reference to any person
by or through. whom the offer is made and who is
knowingly guilty of, or willfully authorizes or permits,
the default.
D
7. No prospectus shall start that application has been
made for permission for the shares or debentures
offered thereby to be dealt in on any stock
exchange, unless it is a recognized stock
exchange." E
According to the learned counsel presenting SE81, a
perusal of sub-section (1) of section 73 reveals, that a company
intending to offer shares/debentures "to the public" by issue of
a prospectus, must apply to one or more recognized stock F
exchange(s) for permission, that its shares or debentures be
dealt with by such recognized stock exchange(s). With reference
to the term "prospectus" depicted in sub-section (1) of section
73 of the companies Act, our attention was invited to sub-
sections (2) and (3) of section 608 of the Companies Act, G
which requires a company inviting subscription by way of an
"information memorandum" to file a "prospectus" prior to the
opening of the subscription lists and the offer as a RHP, at
least three days before the opening of the offer. Sub-section
(3) of section 608 of the Companies Act leaves no room for H
212 SUPREME COURT REPORTS [2012) 12 S.C.R.
A any doubt, that an "information memorandum" and an RHP are
to carry the same obligations as are applicable in the case of
a "prospectus" under the Companies Act. Accordingly, the
position adopted by the SE81 was, that the appellant-companies
having circulated an "information memorandum" and having
8 expressly issued their respective RHPs, must be deemed to
have accepted the obligation imposed by sub-section (3) of
section 608 of the Companies Act, namely, the "information
memorandum" and the RHP would carry the same obligations
as are applicable in the case of a "prospectus". Sub-sections
C (4) to (8) of section 608 of the Companies Act, according to
the learned counsel for the SE81, allows an investor to withdraw
any deposits made, if the position disclosed in the "information
memorandum" or the RHP is varied in any manner. In case an
investor exercises the said option because of any such
variation, it was submitted, the deposits received from such
D investor, must mandatorily be returned with interest at the rate
of 15%. Not only that, according to the SE81, even if an
application made by a public company to one or more
recognized stock exchanges, for permission to be dealt with
through one or mo.re recognized stock exchange(s) is eventually
E not accepted by any recognized stock exchange, the concerne~
public company must forthwith repay the deposits received. If
the concerned company fails to refund the amount within the
stipulated time, it is also obliged to pay interest for delayed
payments. Learned counsel for the SE81 also placed reliance
F on section 73 of the SE81 Act, to contend, that in case a public
company wishes to make an offer of debentures "to the public",
it can do so only through one or more recognized stock
exchange(s). And therefore, according to learned counsel, it is
mandatory for a public company, intending to offer debenture
G "to the public", to have the same listed in one or more
recognized stock exchange(s).
92. On having given a thoughtful consideration to the
submissions advanced at the hands of the rival parties, it needs
H to be clarified, that section 608 (relied on by the appellant-
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 213
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
companies) and section 73 of the Companies (relied upon by A
SEBI) have to be read harmoniously. This is so, because the
Companies Act does not postulate and overriding effect of one
over the other. The contentions advanced on behalf of the rival
parties will have to be examined in a manner, that the purpose
and meaning assigned by the legislature to both provisions, is 8 -
not lost.
93. Section 608 has been provided with heading
"information memorandum". The term "information
memorandum" stands defined in section 2(198) of the C
Companies Act as under:
"2(198) "information memorandum" means a process
undertaking prior to the filing of a prospectus by which a
demand for the securities proposed to be issued by a
company is elicited, and the price and the terms of issue D
for such securities is assessed, by means of a notice,
circular, advertisement or document;"
In terms of the aforesaid definition, an "information
memorandum" is a means/process adopted by a company, to E
elicit a demand for the securities proposed to be issued, as
also, to determine the price at which they could be offered.
Stated differently, through an "information memorandum" a
company assesses a demand for the proposed· securities in
the market, and the price which the public would be willing to F
offer for the same. This response solicited from the public
presupposes, that the securities are to be collected by way of
an offer "to the public". Such an offer in terms of section 608
is made either through a "prospectus" or a RHP.
94. It is also necessary to lay down the import of sub- G
section (2) of section 608 of the Companies Act, in so far as
the present controversy is concerned. It is with the use of the
words "shall be bound" that sub-section (2) aforesaid, requires
every public company which has issued an "information
memorandum" to follow it up with a "prospectus"/RHP. In other H
214 SUPREME COURT REPORTS (2012) 12 S.C.R.
A words, after issuing an "information memorandum" the
concerned public company is commanded to issue a
prospectus/RHP. A "prospectus" or the RHP, depicts the terms
and conditions of the offer. The binding effect thereof has been
noticed in the submissions advanced on behalf of the SEBI
s which I hereby accept, as the true import of section 608 of the
Companies Act. Any alteration in the terms and conditions
depicted in the "prospectus" or RHP entitles the applicant/
investor to withdraw the entire amount deposited. The depositor
is also is entitled to a refund of the entire amount along with
c interest.
95. The situation emerges thus. The appellant-companies
are admittedly public companies. Having issued an "information
memorandum" it was binding on them to issue a prospectus/
RHP. Both companies have actually issued RHPs. The purpose
D whereof was to invite subscriptions to their OFCDs. It has
already been concluded above, that the appellant-companies
invited subscriptions, by making an offer "to the public". Since
the invitation/offer was made "to the public", the same could only
have been through one or more recognized stock exchange(s).
E Once a public company adopts that course, which is actually a
mandate of law emerging from section 73 of the Companies
Act, the concerned companies portfolio changes that to a "listed"
public company. So listing in the present controversy was an
inevitable consequence of inviting subscriptions from the public.
F There can therefore be no hesitation to conclude, that the
procedure contemplated in section 73 of the Companies Act,
whenever a public company wishes to issue debentures "to the
public", is not optional but mandatory. The result of the present
deliberations based on a collective reading of section 608 and
G section 73 of the Companies Act is, that a public company
making an invitation/offer ''to the public" can do so only by a
process of listing in one or more recognized stock exchange(s).
The aforesaid mandate of law is imperative and cannot be
relaxed at the discretion of the concerned public company.
H
SAHARA INDIA REAL ESTATE CORP LTD. v. SECURITIES 215 .
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
96. Having recorded the aforesaid conclusion, it is also A
essential to notice, that the aforesaid determination has a
bearing on the query being dealt with immediateiy hereinafter.
That is so, because learned counsel representing the rival
parties are agreed, that the requirement of "listing" automatically
brings in the jurisdiction of the SEBI, as it transforms a "public B
company" into a "listed public company".
Whether SEBI had the jurisdiction to regulate the OFCDs
issued by SIRECL and SHICL (as is the case of the SEBI\, or
is it that SEBI has no jurisdiction over the OFCDs issued by
the two companies (as is the case of appellant-companies)? C
The first perspective
97. It is the vehement contention of the learned counsel for
the appellant-companies that the jurisdiction of SEBI is limited 0
to administration of listed public companies, as also such. public
companies which "intend" to get their securities listed on a
recognized stock exchange. Not only that, administration of
SEBI over such companies, it is contended, is also limited to
the subject of "issue and transfer of securities and non payment E
of dividend". For a complete and effective understanding of the
submission advanced at the hands of the learned counsel for
the appellant-companies, section 55A of the Companies Act
is set out below:
"55A. Powers of Securities and Exchange Board of F
India - The provisions contained in Sections 55 to 58, 59
to 81 (including sections 206, 206A and 207, so far as
they relate to issue and transfer of securities and non-
payment of dividend shall, -
G
(a) in case of listed companies;
(b) in case of those public companies which intend to get
their securities listed on any recognized stock exchange
in India,
H
216 SUPREME COURT REPORTS [2012] 12 S.C.R.
A be administered by the Securities and Exchange Board
of India; and
(c) in any other case, be administered by the Central
Government.
B Explanation - For the removal of doubts, it is hereby
declared that all powers relating to all other matters including
the matters relating to prospectus, statement in lieu of
prospectus, return of allotment, issue of shares and redemption
of irredeemable preference shares shall be exercised by the
C Central Government, Tribunal or the Registrar of Companies,
as the case may be."
According to the learned counsel for the appellant-
companies, it is not a matter of dispute that SIRECL and
0 SHICL are not "listed" companies. Therefore, according to the
learned counsel, clause (a) of section 55A of the Companies
Act cannot be invoked to determine the jurisdiction of the SEBI.
According to learned counsel, SEBI may possibly justify its
jurisdiction through the route of clause (b) of section 55A by
E asserting, that SIRECL as also SHICL "intended" to have their
OFCDs listed on a recognized stock exchange. In so far as
clause (b) of section 55A of the Companies Act is concerned,
it has been the emphatic and repeated contention of the learned
counsel for the appellant-companies, that the appellant-
companies made it clear in writing, not only in their respective
F RHPs, but also whenever called upon, that they did not "intend"
to be listed on any recognized stock exchange. It was pointed
out, that this factual position was officially affirmed when the
respective Registrars of Companies registered their RHPs.
Therefore, the vehement submission before us also has been,
G that it is futile to assume to the contrary, what the appellant-
eompanies have repeatedly expressed in writing. Thus viewed,
the contention of the learned counsel for the appellant-
companies was, that SEBI had no jurisdiction to administer the
affairs of the appellant-companies even in matters relating to
H "issue and transfer of securities and non payment of dividends".
SAHARA INDIA REAL ESTATE CORP LTD. v. SECURITIES 21 7
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
98. On a thoughtful consideration to the submissions A
advanced on behalf of the appellant-companies on the subject
of jurisdiction, based on the interpretation of section 55A of the
Companies Act, it emerges that clause (b) of section 55A of
the Companies Act uses the term "intend". And what is
"intended" is a matter of the mind. Therefore, unless actions B
speak for themselves, no presumption can be drawn on the
"intenf' of a party. "lntenr as one commonly understands is
something aimed at or wished as a goal; it is something that
one resolves to do; it is a will to achieve as an end; it is a
direction as one's course; it is planning towards something to c
be brought about; it is something that an individual fixes the
mind upon; it is a design for a particular purpose. When a party
expresses its design repeatedly in writing, as it is the case of
the appellant-companies, no contrary assumption should
normally be drawn. But then, there is also one simple
0
fundamental of law, i.e. that no-one can be presumed or
deemed to be intending something, which is contrary to law.
Obviously therefore, "intent" has its limitations also, confining it
within the confines of lawfulness. It has already been concluded
above, that SIRECL and SHICL had not invited subscriptions E
to their respective OFCDs by "private placement". It has been
held, not only infere{ltially, but also as a matter of law (on an
interpretation of section S7 of the Companies Act), as also, as
a matter of fact, that the SIRECL and SHICL had called for
subscription to their respective OFCDs by way of an invitation
"to the public". It has also been deduced (by relying on sections F
S7 and 73 of the Companies Act) above, that an invitation for
subscription from the public, could have been made only by way
of listing, through one or more recognized stock exchange(s).
It has also been concluded, that the purpose sought to be
achieved by the two companies (relying on section SOB of the G
Companies Act) by merely complying with the requirements of
the procedure contemplated in section SOB of the Companies
Act, is not acceptable in law, as section SOB is not a stand
alone provision. Section SOB of the Companies Act has to be
harmoniously read along with other provisions of the H
218 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Companies Act (as for instance section 67). The appellant-
companies must be deemed to have "intended" to get their
securities listed on a recognized stock exchange, because they
could only then be considered to have proceeded legally. That
being the mandate of law, it cannot be presumed that the
B appellant-companies could have "intended", what was contrary
to the mandatory requirement of law. It may be reiterated, that
learned counsel representing the rival parties agreed, while
advancing their submissions on the preceding issue, that if it
came to be concluded by this Court that "listing" with a
c recognized stock exchange was a mandatory requirement for
the appellant-companies (for inviting subscription to their
OFCDs), it would automatically bring in the jurisdiction of the
SEBI. There can therefore, be no hesitation in concluding, that
inspite of the observations recorded by the appellant-
D companies in writing, including in the RHPs issued by them,
as also the registration of the said RHPs by the respective
Registrars of Companies, the said companies must be deemed
to satisfy the requirements of clause (b) of section 55A of the
Companies Act. The obvious consequence thereof would be,
E that the power of administration in the present set of
circumstances lies in the hands of the SEBI.
99. It would be relevant to notice, for the benefit of the
learned counsel representing the appellant-companies, that
certain ancillary submissions were also advanced on the basis
F of section 55A of the Companies Act. As for instance, a
reference was made to the sections specifically incorporated
in section 55A of the Companies Act. It was submitted, that
SEBI could have jurisdiction only on matters arising out of
provisions expressly mentioned in the said section, and under
G no other provision of the Companies Act. It was canvassed, that
provision which were relied upon by the appellant-companies
to canvass their claims before us, particularly section 608, does
not fall within the administrative control of SEBI, as the same
is not expressly mentioned therein. To advance the aforesaid
H contention, learned counsel placed reliance on the provisions
SAHAP-A INDIA REAL ESTATE CORP. LTD. v. SECURITIES 219
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
placed within brackets in section 55A of the Companies Act, A
namely, "(including sections 66A, 77A and 80A)". It was
contended, that since section 608 was not expressly included
along with other provisions, noticed in the brackets, it would be
natural to infer that the SEBI would have no role over issues
arising out of section 60B of the Companies Act. It is not B
necessary to record any express finding on the aforesaid
submission, advanced at the hands of the learned counsel for
the appellant-companies, since independently of section 55A
of the Companies Act, it has already been concluded
hereinabove, that the SEBI would have jurisdiction over matters c
emerging out of section 60B in view of the express and clear
depiction in sub-section (9) of section 60B itself, specially in a
situation as the one presented in the present case, wherein
subscription towards the OFCDs under reference could only
have been legal, if it was sought through a process of listing, D
in one or more recognized stock exchange(s). It is therefore,
that one feels, that the other submissions advanced at the hands
of the learned counsel for the appellant-companies by placing
reliance on section 55A of the Companies Act, do not arise
for adjudication, in the present controversy.
E
The second perspective
100. It is not possible for one to lose sight of the fact, that
the SAT in the impugned order dated 18.10.2011 had recorded
its conclusions on jurisdiction without even placing reliance on F
the provisions of the Companies Act. According to the SAT,
under sections 11, 11A, 11 B etc., of the SEBI Act, SEBI has
the power of regulating all kinds of companies dealing with
securities. The aforesaid determination at the hands of SAT,
was not assailed by the appellant-companies during the course G
of hearing. Be that as it may, it is essential to independently
examine the issue, so as to determine the authenticity of the
conclusion drawn by the SAT, hereinafter.
101. The Securities and Exchange Board of India (SEBI)
was established in 1988 by way of a Government resolution to H
220 SUPREME COURT REPORTS [2012] 12 S.C.R.
A promote orderly and healthy growth of the securities market
and for (nvestors' protection. On account of tremendous growth
of the capital market characterized particularly by increasing
participation of the public, to sustain confidence in the capital
market it was considered essential to ensure investors'
B protection. Accordingly, it was decided to vest SEBI with
statutory powers, so as to enable it to deal effectively with all
matters relating to the capital market. In the first instance, as
Parliament was not in session, keeping in view the urgency of
the matter, the President promulgated the Securities and
c Exchange Board of India Ordinance, 1992 on 30.1.1992. The
same was substituted by the Securities and Exchange Board
of India Act, 1992 and the Securities Contracts (Regulation)
Act, 1956. After the aforesaid legislative enactments remained
in force for a few years, experience revealed, a need to amend
the original enactments in respect of certain categories of
0
intermediaries, persons associates with the securities markets
and companies; on matters relating to issue of capital and
transfer of securities. The original SEBI Act was accordingly
amended in 1995. A relevant extract of the statement of objects
and reasons recorded for the aforesaid amendment is being
E extracted hereunder:
"xxx xxx xxx
2. On the basis of past experience of the Board, a need
F has been felt to amend the said Acts in respect of certain
categories of intermediaries, persons associated with the
securities market and companies on matters relating to the
issue of capital and the transfer of securities.
3. In order to enable the Board to function more effectively,
G it has become essential to amend the aforesaid Acts to
provide, inter alia, the following -
(a) regulate the companies on matters relating to
issue of capital, transfer of securities and other
H matters incidental thereto;
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 221
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
(b) bring intermediaries like depositories, A
custodians for securities and some other
categories of persons associated with the
securities market like foreign institutional investors,
credit rating agencies and venture capital funds
which play a major role in the development of the B
capital market which were outside the purview of
the Board;
(c) impose monetary penalties also in addition to
or other than penalties of suspension or cancellation C
of certificate of registration which may not be .
appropriate in all case of default;
(d) provide for appointment of adjudicating officer
for imposition of penalties and for establishment of
Securities Appellate Tribunal to hear appeals from D
the orders or decisions of adjudicating officer;
(e) issue regulations without the approval of the
Central Government;
(f) allow directors of companies to be appointed as E
members of the Board so that the Board benefits
from the expertise of people familiar with the capital
market;
(g) facilitate the issuance and trading of options in F
securities;
(h) allow the existing stock exchanges to establish
additional trading floors outside their area of
operation;
G
(i) make violation of the listing agreement as an
offence.
xxx xxxx ~-
H
222 SUPREME COURT REPORTS [2012) 12 S.C.R.
A The SEBI Act was again amended in 1999, but in so far
as the present controversy is concerned, the amendment of the
SEBI Act in 2002 is of utmost relevance. The relevant part of
the statement of objects and reasons of the amendment of the
SEBI Act in 2002 is being reproduced below:
B
"xxx )()()()()( JOO(
2. Recently many shortcomings in the legal provisions
of the Securities and Exchange Board of India Act,
1992 have been noticed, particularly with respect
c to inspection, investigation and enforcement.
Currently, the SEBI can call for information,
undertake inspections, conduct enquiries and
audits of stock exchanges, mutual funds,
intermediaries, issue directions, initiate
D prosecution, order suspension or cancellation of
registration. Penalties can also be imposed in case
of violation of the provisions of the Act or the rules
or the regulations. However, the SEBI has no
jurisdiction to prohibit issue of securities or
E preventing siphoning of funds or assets stripping by
any company. While the SEBI can call for
information from intermediaries, it cannot call for
information from any bank and other authority or
board or corporation established or constituted by
F or under any Central, State or Provincial Act. The
SEBI cannot retain books of accounts, documents,
etc., in its custody. Under the existing provisions
contained in the Securities and Exchange Board of
India Act, 1992, the SEBI cannot issue
commissions for the examination of witnesses or
G
documents. Further, the SEBI has pointed out that
existing penalties are too low and do not serve as
effective deterrents. At present, under section 209-
A of the Companies Act, 1956, the SEBI can
conduct inspection of listed companies only for
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 223
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
violations of the provisions contained in sections A
referred to in section 55-A of that Act but it cannot
conduct inspection of any listed public company for
violation of the SEBI Act or rules or regulations
made thereunder.
B
3. In addition, growing importance of the securities
markets in the economy has placed new demands
upon the SEBI in terms of organization structure and
institutional capacity. A need was therefore felt to
remove these shortcomings by strengthening the
mechanisms available to the SEBI for investigation C
and enforcement so that it is better equipped to
investigate and enforce against market
malpractices.
4. In view of the above, the Securities and Exchange D
Board of India (Amendment) Ordinance, 2002 (6 of
2002) was promulgated on the 29th October, 2002
to amend the Securities and Exchange Board of
India Act, 1992.
E
5. It is now proposed to replace the Ordinance by a
Bill, with, inter alia, the following features-
(a) increasing the number of members of the SEBI
from six (including Chairman) to nine (including
Chairman); F
(b) conferring power upon the Board, for,-
(i) calling for information and record from any
bank or other authority or Board or
corporation established or constituted by or G
under any Central, State or Provincial Act in
respect of any transaction in securities which
are under investigation or inquiry by the
Board;
H
224 SUPREME COURT REPORTS [2012] 12 S.C.R.
A (ii) passing an order for reasons to be recorded
in writing, in the interest of investors or
securities market, either pending
investigation or enquiry or on completion of
such investigation or inquiry for taking any of
8 the following measures, namely, to-
{A) suspend the trading of any security in a
recognized stock exchange;
(8) restrain persons from accessing the
c securities market and prohibit any person
associated with securities market to buy, sell
or deal in securities;
(C) suspend any office-bearer of any stock
D exchange or self-regulatory organization from
holding such position;
(D) impound and retain the proceeds or
securities in respect of any transaction which
is under investigation;
E
{E) attach, after passing of an order on an
application made for approval by the Judicial
Magistrate of the first class having
jurisdiction, for a period not exceeding one
F month, one or more bank account or accounts
of any intermediary or any person associated
with the securities market in any manner
involved in violation of any of the provisions
of this Act, or the rules or the regulations
made thereunder;
G
(F) direct any intermediary or any person
associated with the securities market in any
manner not to dispose of or alienate an asset
forming part of any transaction which is
H under investigation;
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 225
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
{iii) regulating or prohibiting for the protection of A
investors, issue of prospectus, offer document or
advertisement soliciting money for issue of
securities;
{iv) directing any person to investigate the affairs of B
intermediary or person associated with the
securities market and to search and seize books,
registers, other documents and records considered
necessary for the purposes of the investigation, with
the prior approval of a Magistrate of the first class.
c
{v) passing an order requiring any person who has
violated or is likely to violate, any provision of the
SEBI Act or any rules or regulations made
thereunder to cease and desist for committing any
causing such violation; D
{c) prohibiting manipulative and deceptive devices,
insider trading, fraudulent and manipulative trade
practices, market manipulation and substantial
acquisition of securities and control; E
{d) crediting sums realized by way of penalties to the
Consolidated Fun~ of India;
{e) amending the composition of the Securities
Appellate Tribunal from one person to three F
persons;
{f) changing the qualifications for appointment as
Presiding Officer and members of the Securities
Appellate Tribunal;
G
{g) composition of certain offences by the Securities
Appellate Tribunal;
{h) conferring power upon the Central Government to
grant immunity; H
226 SUPREME COURT REPORTS [2012] 12 S.C.R.
A (i) appeal to the Supreme Court from the orders of the
Securities Apellate Tribunal;
(j) enhancing the penalties specified in the SEBI Act."
It is not necessary to delineate individually the
B amendments made from time to time. Suffice it to state that
besides amendments to the existing provisions. sections 11AA,
11 AB, 11 C and 11 B came to be added into Chapter IV of the
SEBI Act. Provisions contained in Chapter IV deal with the
powers and functions of the Board. It is essential to refer to
C some of the relevant amended provisions, for the determination
of the issue in hand. The said reference shall be limited to the
extent of powers vested in the SEBI, to carry out its primary
functions i.e., investors' protection and promotion of
development and regulation of the securities market.
D
102. Section 11 which is the heart and soul of the SEBI
Act is being extracted hereunder:
"11. Functions of Board:-
E (1) Subject to the provisions of this Act, it shall be the
duty of the Board to protect the interests of
investors in securities and to promote the
development of, and to regulate the securities
market, by such measures as it thinks fit.
F
(2) Without prejudice to the generality of the foregoing
provisions, the measures referred to therein may
provide for -
(a) regulating the business in stock exchanges
G and any other securities markets;
(b) registering and regulating the working of
stock brokers, sub-brokers, share transfer
agents, bankers to an issue, trustees of trust
H deeds, registrars to an issue, merchant
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 227
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
bankers, underwriters, portfolio managers, A
investment advisers and such other
intermediaries who may be associated with
securities markets in any manner;
(ba) registering and regulating the working of the
B
depositories, participants, custodians of
securities, foreign institutional investors,
credit rating agencies and such other
intermediaries as the Board may, by
notification, specify in this behalf;
c
(c) registering and regulating the working of
venture capital funds and collective
investment schemes, including mutual funds;
(d) promoting and regulating self-regulatory D
organizations;
(e) prohibiting fraudulent and unfair trade
practices relating to securities markets;
(f) promoting investors' education and training E
of intermediaries of securities markets;
(g) prohibiting insider trading in securities;
(h) regulating substantial acquisition of shares
and take-over of companies; F
(i) calling for information from, undertaking
inspection, conducting inquiries and audits of
the stock exchanges, mutual funds, other
persons associated with the securities G
market intermediaries and self-regulatory
organizations in the securities market;
(ia) calling for information and record from any
bank or any other authority or board or
H
228 SUPREME COURT REPORTS (2012] 12 S.C.R.
A corporation established or constituted by or
under any Central, State or Provincial Act in
respect of any transaction in securities which
is under investigation or inquiry by the
Board;"
B
0) performing such functions and exercising
such powers under the provisions of the
Securities Contracts (Regulation) Act,
1956(42 of 1956), as may be delegated to
it by the Central Government;
c
(k) levying fees or other charges for carrying out
the purposes of this section;
(I) conducting research for the above purposes;
D (la) calling from or furnishing to any such
agencies, as may be specified by the Board,
such information as may be considered
necessary by it for the efficient discharge of
its functions;"
E
(m) performing such other functions as may be
prescribed.
"(2A) Without prejudice to the provisions contained in
sub-section (2), the Board may take measures to
F
undertake inspection of any book, or register, or
other document or record of any listed public
company or a public company (not being
intermediaries referred to in section 12) which
intends to get its securities listed on any recognized
G stock exchange where the Board has reasonable
grounds to believe that such company has been
indulging in insider trading or fraudulent and unfair
trade practices relating to securities market.•
H (3) Notwithstanding anything contained in any other law
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 229
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
for the time being in force while exercising the A
powers under clause (i) or clause (ia) of sub-section
(2) or subsection (2A), the Board shall have the
same powers as are vested in a civil court under
the Code of Civil Procedure, 1908 (5 of 1908),while
trying a suit, in respect of the following matters, B
namely:
(i) the discovery and production of books of
account and other documents, at such place
and such time as may be specified by the C
Board;
(ii) summoning and enforcing the attendance of
persons and examining them on oath;
(iii) inspection of any books, registers and other D
documents of any person referred to in
section 12, at any place;
(iv) inspection of any book, or register, or other
document or record of the company referred
to in sub-section (2A); E
(v) issuing commissions for the examination of
witnesses or documents.
(4) Without prejudice to the provisions contained in F
sub-sections (1 ), (2), (2A) and (3) and section 11 B,
the Board may, by an order, for reasons to be
recorded in writing, in the interests of investors or
securities market, take any of the following
measures, either pending investigation or inquiry or G
on completion of such investigation or inquiry,
namely:-
(a) suspend the trading of any security in a recognized
stock exchange;
H
230 SUPREME COURT REPORTS [2012] 12 S.C.R.
A (b) restrain persons from accessing the securities
market and prohibit any person associated with
securities market to buy, sell or deal in securities;
(c) suspend any office-bearer of any stock exchange
B or self- regulatory organization from holding such
position;
(d) impound and retain the proceeds or securities in
respect of any transaction which is under
investigation;
c
(e) attach, after passing of an order on an application
made for approval, by the Judicial Magistrate of the
first class having jurisdiction, for a period not
exceeding one month, one or more bank account
0 or accounts of any intermediary or any person
associated with the securities market in any
manner involved in violation of any of the provisions
of this Act, or the rules or the regulations made
thereunder:
E Provided that only the bank account or accounts or
any transaction entered therein, so far as it relates to the
proceeds actually involved in violation of any of the
provisions of this Act, or the rules or the regulations made
thereunder shall be allowed to be attached;
F
(f) direct any intermediary or any person associated
with the securities market in any manner not to
dispose of or alienate an asset forming part of any
transaction which is under investigation:
G Provided that the Board may, without prejudice to the
provisions contained in subsection (2) or sub-section (2A),
take any of the measures specified in clause (d) or clause
(e) or clause (f), in respect of any listed public company
or a public company (not being intermediaries referred to
H in section 12) which intends to get its securities listed on
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 231
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
any recognised stock exchange where the Board has A
reasonable grounds to believe that such company has
been indulging in insider trading or fraudulent and unfair
trade practices relating to securities market:
Provided further that the Board shall, either before B
or after passing such orders, give an opportunity of hearing
to such intermediaries or persons concerned.
103. The first step would be to venture an understanding
of section 11 of the SEBI Act, so as to grasp the effect and
reach thereof.. Sub-section (1) of section 11 of the SEBI Act C
casts an obligation on the SEBI, to protect the interest of
investors in securities, to promote the development of the
securities market, and to regulate the securities market, "by
such measures as it thinks fit". It is, therefore, apparent that the
measures to be adopted by the SEBI in carrying out its D
obligations are couched in open-ended terms, having no pre-
arranged limits. In other words the extent of the nature and the
manner of measures which can be adopted by the SEBI for
giving effect to the functions assigned to the SEBI, have been
left to the discretion and wisdom of the SEBI. It is necessary E
to record here, that the aforesaid power to adopt "such
measures as it thinks fit" to promote investors' interest, to
promote the development of the securities market and to
regulate the securities market, has not been curtailed or whittled
down in any manner by any other provisions under the SEBI F
Act, as no provision has been given overriding effect over sub-
section (1) of section 11 of the SEBI Act. Coupled with the
clear vesting of the power with SEBI referred to above, sub-
section (2) of section 11 of the SEBI Act illustratively records
the measures which can be adopted by the SEBI. For the G
present controversy reference may be made to clause (i) and
(ia) of sub-section (2) which ordain, that the SEBI would be at
liberty to call for information from, or undertake inspections of,
or conduct inquiries, or audits into "stock exchanges", "mutual
funds", and "other persons associated with the securities H
232 SUPREME COURT REPORTS [2012] 12 S.C.R.
A market", "intermediaries", and "self regulated organisation in the
securities market". The power to call for information was
expressly extended to "banks", "any other authority or board or
corporation", in respect of any transaction in securities which
is under investigation or inquiry (at the hands of the SEBI) by
B adding clause (ia) to sub-section (2). Sub-section (2A) of section
11 of the SEBI Act, extends to the SEBI, the power to inspect
(in addition to power already delineated in sub-section (2) of
section 11 referred to above) books, registers or other
documents or records "of any listed public company or a public
c company ... which intends to get its securities listed on any
recognized stock exchange". Sub-section (3) of section 11 of
the SEBI Act, vests with the SEBI, the same powers as are
conferred with a civil court, in the matter of discovery and
production of books of accounts and other documents,
summoning and enforcing the attendance of persons and
0
examining them on oath, inspection of any books, registers or
other documents. The power aforementioned specifically
governs matters relating to calling for information already
referred to hereinabove (under clauses (i) and (ia) of sub-
section (2), and sub-section (2A) of section 11 ). In the interest
E of investors' protection or the securities market, sub-section (4)
of section 11 of the SEBl's Act vests the SEBI with powers to
pass interim directions in the nature of suspending the trading
of any security in a recognized stock exchange, restraining
persons from accessing the securities market and prohibiting
F persons associated with the securities market from buying,
selling or dealing with securities, impound or restrain proceeds
or securities in respect of any transaction which is under
investigation, prohibit an intermediary or any other person
associated with the securities market from disposing of or
G alienating any asset forming part of any investigation etc .. The
first proviso under sub-section (4) aforementioned expressly
extends the aforesaid power "to impound and retain the
proceeds of securities .. .", "to attach ... one or more bank
account or accounts of any intermediary or any person
H associated with the securities market. .. ". SEBI, can also "direct
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 233
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
any intermediary or any person associated with the securities A
market ... not to dispose of or alienate any asset..." in respect
of "any listed public company or a public company ... which
intends to get its securities listed on any recognized stock
exchange", if there are reasonable grounds to believe, that such
company has been indulging in insider trading or fraudulent and B
unfair trade practices, relating to the securities marl<et.
104. It is imperative to notice the expression "of any listed
public company or a public company ... which intends to get its
securities listed on any recognized stock exchange" C
incorporated in sub-section (2A) and (4) of section 11 of the
SEBI Act, and to determine the purport thereof. The aforesaid
inclusion, cannot be deemed to limit the power of the SEBI, so
as to confine its jurisdiction only to companies which are listed
or which intend to be listed. The reason for the instant inference
is, that sub-section (2) does not curtail the powers and functions D
vested with the SEBI under sub-section (1) of section 11 of the
SEBI Act as sub-section (2) aforementioned commences with
the words "Without prejudice to the generality of the foregoing
provisions ... •. This expression obviously preserves, the power
vested in the SEBI under sub-section (1) of section 11 of the E
SEBI Act, to protect the interest of investors in securities and
to promote the development and to regulate the securities
market "by such measures as it thinks fir. Furthermore, sub-
section (2) of section 11 of the SEBI Act, after making a
reference to the measures generally referred to in sub-section F
(1) empowers/authorizes that SEBI "may provide for" a series
of measures, which are delineated in clauses (a) to (m) thereof
(of sub-section (2) of section 11 of the SEBI Act). The use of
the words "may provide for" besides indicating the discretion
vested in the SEBI, demonstrates that, the measures depicted G
in clauses (a) to (m) are illustrative and not exhaustive, more
so, beca:.ise sub-clause (2) of section 11 of the SEBI Act does
not dilute the power vested in the SEBI under sub-section (1)
thereof. While interpreting sub-section (1) of section 11 of the
SEBI Act, it has already been concluded hereinabove, that the H
234 SUPREME COURT REPORTS [2012) 12 S.C.R.
A measures to be adopted by the SEBI in carrying out its
obligations are couched in open-ended terms having no pre-
arranged limits, to the discretion of the SEBI. Likewise, sub-
sections (2A) and (4) of section 11 of the SEBI Act, commence
with the words "without prejudice to the Pf"ovisions contained
B in sub-section (2)". This establishes the legislative intent i.e.,
that sub-section (2A) and (4) are subservient to sub-section (2)
of section 11. But it' has already been concluded above, that
sub-section (2) is subservient to sub-section (1) of section 11.
Therefore both sub-sections (2A) and (4) will inferentially be
c subservient to sub-section (1) of section 11 of the SEBI Act.
Therefore, the obligation cast on SEBI, to protect the interest
of investors in securities, to promote the development of the
securities market, and to regulate the securities market "by such
measure as it thinks fir, remains undiluted even by sub-sections
D (2A) and (4) of section 11 of the SEBI Act. An obvious question
that may be posed is, that if the legislative desire was to extend
the measures contemplated under section 11 of the SEBI Act
to all kinds of companies, it was unnecessary to limit the scope
of inspection contemplated under section 11 (2A) of the SEBI
Act, only to listed public companies or such public companies
, E which intend to get their securities listed on any recognized
1 stock exchange. Most definitely, the query would seem justified
on a superficial reading of sub-sections (2A) and (4) of section
11. The aforesaid query would however not arise, if all the sub-
sections of section 11 of the SEBI Act are harmoniously
F construed. The legislative intent emerging from sub-section (3)
of section 11 of the SEBI Act, was to extend powers as are
vested in l civil court under the Code of Civil Procedure, to only
· two of th, clauses (i.e., clauses (i) and (ia)) of sub-section (2)
of section 11 of the SEBI Act, even though, sub-section (2)
G aforesaid has 16 clauses. Likewise, the legislative intent
emerging from sub-section (3) of section 11 of the SEBI Act
was, to extend powers as are vested in a civil court under the
Code of Civil Procedure, only to listed public companies or
public companies which intend to get their securities listed on
H a recognized stock exchange. It is therefore, that an express
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 235
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
mention had to be made, to the sphere/area over which the A
SEBI would have the same powers which are vested in a civil
court. Having so defined the scope of authority under section
11 (2A) of the SEBI Act, the legislature extended the power as
is vested in a civil court (in the matter of discovery and
production of books of accounts and other documents, B
summoning and enforcing the attendance of persons and
· examining them on oath, inspection of any books, registers or
other documents), only to such of the companies which would
fall within the expanse/field expressed. For exactly the same
reason, so as to specify the area/expanse of powers vested c
with the SEBI under sub-section (4) of section 11 of the SEBI
Act (with reference to clauses (d), (e) and (f) of sub-section (4),
the legislature likewise limited the authority of SEBI, to listed
companies or public companies which intend to get their
securities listed on a recognized stock exchange. Therefore, D
in complete agreement with the determination by the SAT, it is
concluded, that sub-section (2A) and sub-section (4) of section
11 of the SEBl's Act should not be misunderstood, as having
limited the power of SEBI, so as to enable it to regulate only
listed public company or such public companies which intend E
to get its securities listed on a recognized stock exchange.
Accordingly, it is clear, that the limitation expressed in sub-
sections (2A) and (4) of section 11 of the SEBI Act, would
extend to the area/field of authority referred to above. Therefore,
but for the aforesaid limited area/expanse, referred to above,
SEBl's power would extend to all kinds of companies dealing F
with securities. The said power, as already noticed above,
clearly emerges from the words "by such measures as it thinks
fit" expressed in sub-section (1) of section 11 of the SEBI Act.
For the reasons recorded above, the SAT was fully justified in
concluding, that the functions and the powers under section 11 G
of the SEBI Act, in so far as protecting the interest of the
investors in securities market, as also, for promotion,
development and regulation of the securities market, would be
applicable to "listed" as well as "unlisted" companies. The said
conclusion is expressed endorsed. H
236 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 105. From Chapter IV of the SEBI Act reference must
necessarily be made also to section 11A, which has direct
implications, in so far as the present controversy is concerned.
Section 11 A of the SEBI Act is being reproduced hereunder:
11 A. Board to regulate or prohibit issue of prospectus,
B
offer document or advertisement soliciting money
for issue of securities.
(1) Without prejudice to the provisions of the
Companies Act, 1956 (1 of 1956). the Board may,
C for the protection of investors-
(a) specify, by regulations -
(i) the matters relating to issue of capital,
transfer of securities and other matters
D incidental thereto; and
(ii) the manner in which such matters shall be
disclosed by the companies;
E (b) by general or special orders -
(i) prohibit any company from issuing
prospectus, any offer document, or
advertisement soliciting money from the
public for the issue of securities;
F
(ii) specify the conditions subject to which the
prospectus, such offer document or
advertisement, if not prohibited, may be
issued.
G
(2) Without prejudice to the provisions of section 21 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956),
the Board may specify the requirements for listing and
transfer of securities and other matters incidental thereto."
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 237
AND EXCH. BOARD OF INDIA (JAGDISH SINGH KHEHAR, J.]
A perusal of section 11A extracted above, leaves no room A
for any doubt, that the authority of SEBI extends to issue of
prospectuses, offer documents, including advertisements,
soliciting money for the issue of securities etc. For the exercise
of such power SEBI has been vested with the authority to make
regulations. In addition to the aforesaid authority SEBI has been B
. vested with the power to issue general or special orders
prohibiting any company from issuing a prospectus, any offer
document or an advertisement soliciting money from the public,
for the issue of securities. It has also been vested with the
power to issue, general or special directions, and to specify c
conditions subject to which a prospectus, offer document or
advertisement, may be issued. It is, therefore, futile for a
company dealing with the securities to contend, that SEBI does
not have the jurisdiction or the authority in respect to the subject
of "issue of prospectus, offer document or advertisement" 0
soliciting money for securities.
106. The importance and relevance of section 11 and 11A
of the SEBI Act in the foregoing paras, has been highlighted
above. Of equal importance are sections 11 B and 11 C of the
SEBI Act. The same are being extracted hereinunder: · E
"11 B. Power to issue directions-
Save as otherwise provided in section 11 , if after making
or causing to be made an enquiry, the Board is satisfied
that it is necessary,-
F
(i) in the interest of investors, or orderly development
of securities market; or
(ii) to prevent the affairs of any intermediary or other G
persons referred to in section 12 being conducted
in a manner detrimental to the interest of investors
or securities market; or
(iii) to secure the proper management of any such
intermediary or person, H
238 SUPREME COURT REPORTS (2012] 12 S.C.R.
A it may issue such directions,-
(a) to any person or class of persons referred to in
section 12, or associated with the securities
market; or
B (b) to any company in respect of matters specified in
section 11 A,
as may be appropriate in the interests of investors in
securities and the securities market
c "11 C. Investigation
(1) Where the Board has reasonable ground to believ(
that-
D (a) the transactions in securities are being dealt
with in a manner detrimental to the investors
or the securities market; or
(b) any intermediary or any person associated
with the securities market has violated any of
E the provisions of this Act or the rules or the
regulations made or directions issued by the
Board thereunder,
It may, at any time by order in writing, direct any person
F (hereafter in this section referred to as the Investigating
Authority) specified in the order to investigate the affairs
of such intermediary or persons associated with the
securities market and to report thereon to the Board.
(2) Without prejudice to the provisions of sections 235
G
to 241 of the Companies Act, 1956 (1 of 1956), it
shall be the duty of every manager, managing
director, officer and other employee of the company
and every intermediary referred to in section 12 or
every person associated with the securities market
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 239
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
to preserve and to produce to the Investigating A
Authority or any person authorized by it in this
behalf, all the books, registers, other documents
and record of, or relating to, the company or, as the
case may be, of or relating to, the intermediary or
such person, which are in their custody or power. B
(3) The Investigating Authority may require any
intermediary or any person associated with
securities market in any manner to furnish such
information to, or produce such books, or registers,
or other documents, or record before it or any c
person authorized by it in this behalf as it may
consider necessary if the furnishing of such
information or the production of such books, or
registers, or other documents, or record is relevant
or necessary for the purposes of its investigation. D
(4) The Investigating Authority may keep in its custody
any books, registers, other documents and recerd
produced under sub-section (2) or sub-section (3)
for six months and thereafter shall return the same E
to any intermediary or any person associated with
securities market by whom or on whose behalf the
books, registers, other documents and record are
produced:
Provided that the Investigating Authority may call for F
any book, register, other document and record if
they are needed again:
Provided further that if the person on whose behalf
the books, registers, other documents and record G
are produced requires certified copies of the
books, registers, other documents and record
produced before the Investigating Authority, it shall
give certified copies of such books, registers, other
documents and record to such person or on whose H
• 240 SUPREME COURT REPORTS [2012] 12 S.C.R.
A behalf the books, registers, other documents and
records were produced.
(5) Any person, directed to make an investigation under
sub-section (1 ), may examine on oath, any
manager, managing director, officer and other
B
employee of any intermediary or any person
associated with securities market in any manner,
in relation to the affairs of his business and may
administer an oath accordingly and for that purpose
may require any of those persons to appear before
c him personally.
(6) If any person fails without reasonable cause or
refuses -
D (a) to produce to the Investigating Authority or any
person authorized by it in this behalf any book,
register, other document and record which is his
duty under sub-section (2) or sub-section (3) to
produce; or
E (b) to furnish any information which is his duty under
sub-section (3) to furnish; or
(c) to appear before the Investigating Authority
personally when required to do so under sub-
F section (5) or to answer any question which is put
to him by the Investigating Authority in pursuance
of that sub-section; or
(d) to sign the notes of any examination referred to in
sub-section (7),
G
he shall be punishable with imprisonment for a term
which may extend to one year, or with fine, which
may extend to one crore rupees, or with both, and
also with a further fine which may extend to five lakh
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 241
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
rupees for every day after the first during which the A
failure or refusal continues.
(7) Notes of any examination under sub-section (5)
shall be taken down in writing and shall be read over
to, or by, and signed by, the person examined, and B
may thereafter be used in evidence against him.
(8) Where in the course of investigation, the
Investigating Authority has reasonable ground to
believe that the books, registers, other documents
and record of, or relating to, any intem1ediary or any c
person associated with securities market in any
manner, may be destroyed, mutilated, altered,
falsified or secreted, the Investigating Authority may
make an application to the Judicial Magistrate of
the first class having jurisdiction for an order for the D
seizure of such books, registers, other documents
and record.
(9) After considering the application and hearing the
Investigating Authority, if necessary, the Magistrate E
may, by order, authorize the Investigating Authority
(a) to enter, with such assistance, as may be
required, the place or places where such
books, registers, other documents and F
record are kept;
(b) to search that place or those places in the
manner specified in the order; and
(c) to seize books, registers, other documents G
and record, it considers necessary for the
purposes of the investigation:
Provided that the Magistrate shall not authorize seizure of
books, registers, other documents and record, of any listed H
242 SUPREME COURT REPORTS [2012] 12 S.C.R.
A public company or a public company (not being the
intermediaries specified under section 12) which intends
to get its securities listed on any recognized stock
exchange unless such company indulges in insider trading
or market manipulation.
B
(10) The Investigating Authority shall keep in its custody
the books, registers, other documents and record
seized under this section for such period not later
than the conclusion of the investigation as it
considers necessary and thereafter shall return the
c same to the company or the other body corporate,
or, as the case may be, to the managing director
or the manager or any other person, from whose
custody or power they were seized and inform the
Magistrate of such return:
D
Provided that the Investigating Authority may, before
returning such books, registers, other documents
and record as aforesaid, place identification marks
on them or any part thereof.
E
(11) Save as otherwise provided in this section, every
search or seizure made under this section shall be
carried out in accordance with the provisions of the
Code of Criminal Procedure, 1973 (2 of 1974),
relating to searches or seizures made under that
F Code."
Neither of the aforesaid provisions need a detailed
analysis. A bare perusal of the aforesaid provisions brings to
the fore, the extensive powers vested with the SEBI to issue
G directions and to make investigations. The power vested with
SEBI, is not limited in any manner, and shall therefore, be
deemed to extend to both "listed" and "unlisted" public
companies.
107. From a collective perusal of sections 11, 11A, 11 B
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 243
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
and 11C of the SEBI Act, the conclusions drawn by the SAT, A
that on the subject of regulating the securities market and
protecting interest of investors in securities, the SEBI Act is a
stand alone enactment, and the SEBl's powers thereunder are
not fettered by any other law including the Companies Act, is
fully justified. In fact the aforesaid justification was rendered B
absolute, by the addition of section 55A in the Companies Act,
whereby, administrative authority on the subjects relating to
"issue and transfer of securities and non payment of dividend"
which was earlier vested in the Central Government (Tribunal
or Registrar of Companies), came to be exclusively transferred c
to the SEBI.
108. In answering the question posed above, there seems
no ambiguity that the SEBI has the jurisdiction to regulate and
administer SIRECL and SHICL.
D
Whether it was a pre-planned attempt of SIRECL and
SHICL, to bypass the regulatory (and administrative) authoritv
of SEBI in respect of OFCDs/ bonds issued by them?
109. The issues dealt with hitherto-before were canvassed E
at the behest of the appellant-companies. The instant issue, is
being dealt with at the behest of SEBI. During the course of
hearing it was the vehement contention on behalf of the learned
counsel representing SEBI, that SIRECL and SHICL had pre-
planned to avoid the Involvement of SEBI in the activities of the
two companies. This, according to the learned counsel F
representing SEBI, was with the sole purpose of having a free
hand in their endeavours. The instances pointed out by the
learned counsel for the SEBI can safely be discussed under
three heads which are being dealt with hereinafter.
G
The first perspective:
110. The first contention advanced by the learned counsel
representing SEBI, was based on section 56 of the Companies
Act. Section 56 aforementioned, is extracted hereunder: H
244 SUPREME COURT REPORTS [2012] 12 S.C.R.
A "56. Matters to be stated and reports to be set out in
prospectus
(1) Every prospectus issued-
(a) by or on behalf of a company, or
B
(b) by or on behalf of any person who is or has been
engaged or interested in the formation of a
company,
shall state the matters specified in Part I of Schedule
c II and set out the reports specified in Part II of that
Schedule; and the said Parts I and II shall have effect
subject to the provisions contained in Part 111 of that
Schedule.
D (2) A condition requiring or binding an applicant for shares
in or debentures of a company to waive compliance with
any of the requirements of this section, or purporting to
affect him with notice for any contract, document or matter
not specifically referred to in the prospectus, shall be void.
E
(3) No one shall issue any form of application for shares
in or debentures of a company, unless the form is
accompanied by a memorandum containing such salient
features of a prospectus as may be prescribed which
complies with the requirements of this section:
F
Provided that a copy of the prospectus shall, on a request
being made by any person before the closing of the
subscription list be furnished to him:
G Provided further that this sub-section shall not apply if it is
shown that the form of application was issued either-
(a) in connection with a bona fide invitation to a
person to enter into an underwriting
agreement with respect to the shares or
H debentures; or ·
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 245
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.)
(b) in relation to shares or debentures which A
were not offered to the public.
If any person acts in contravention of the provisions
of this sub-section, he shall be punishable with fine which
may extend to fifty thousand rupees. 8
(4) A director or other person responsible for the
prospectus shall not incur any liability by reason of any non-
com p Ii an ce with, or contravention of, any of the
requirements of this section, if-
c
(a) as regards any matter not disclosed, he proves that he
had no knowledge thereof; or
(b) he proves that the non-compliance or contravention
arose from an honest mistake of fact on his part; or
D
(c) the non-compliance or contravention was in respect of
matters which, in the opinion of the Court dealing with the
case were immaterial or was otherwise such as ought, in
the opinion of that Court, having regard to all the
circumstances of the case, reasonably to be excused: E
Provided that no director or other person shall incur any
liability in respect of the failure to include in a prospectus
a statement with respect to the matters specified in clause
18 of Schedule II, unless it is proved that he had knowledge F
of the matters not disclosed.
(5) This section shall not apply-
(a) to the issue to existing members or debenture-
holders of a company of a prospectus or form of G
application relating to shares in or debentures of the
company whether an applicant for shares or
debentures will or will not have the right to renounce
in favour of other persons; or
H
246 SUPREME COURT REPORTS [2012] 12 S.C.R.
A (b) to the issue of a prospectus or form of
application relating to shares or debentures which
are, or are to be, in all respects uniform with shares
or debentures previously issued and for the time
being dealt in or quoted on a recognised stock
B exchange,
but, subject as aforesaid, this section shall apply to
a prospectus or a form of application, whether issued on
or with reference to the formation of a company or
subsequently.
c
(6) Nothing in this section shall limit or diminish any liability
which any person may incur under the general law or under
this Act apart from this section."
0 Based on the aforesaid provision, it is the submission of
learned counsel, that every company issuing a prospectus has
to express all the details in terms of matters specified in Part-
! (of Schedule 2) and set out the reports as specified in Part II
(of Schedule 2). It is also the submission of the learned counsel,
E that Parts I and II can be given effect to, subject to the provisions
contained in Part Ill (of Schedule 2). It is accordingly submitted,
that in order to ensure, that an invitation for subscription from
the public is made in consonance with the requirements
stipulated by the SEBI, an amendment was made in Schedule
F 2 of the Companies Act in 2002, requiring the company issuing
a prospectus, to make a declaration. The declaration
contemplated by the aforesaid amendment is being extracted
hereunder:
"That all the relevant provisions of the Companies Act,
G 1956, and the guidelines issued by the Government or the
guidelines issued by the Securities and Exchange Board
of India established under section 3 of the Securities and
Exchange Board of India Act, 1992, as the case may be,
have been complied with and no statement made in
H prospectus is contrary to the provisions of the Companies
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 24 7
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
Act. 1956 or the Securities and Exchange Board of India A
Act. 1992 or rules made thereunder or guidelines issued.
as the case may be."
(emphasis is mine)
It is pointed out by the learned counsel representing SEBI, B
that in the RHPs filed by SIRECL and SHICL, the declaration
introduced in 2002 was not filed. Instead, the two companies
filed the following declaration:
"All the relevant provisions of the Companies Act, 1956 c
and the guidelines issued by the Government have been
complied with and no statement made in the prospectus
is contrary to the provisions of the Companies Act, 1956
and rules thereunder."
It is apparent from the declaration filed by the appellant- D
companies that reference to the SEBI Act, as also, to the rules
made thereunder, as also, the guidelines issued (by the SEBI)
as contained in the amended declaration were omitted. It was
therefore, the contention of the learned counsel for the SEBI,
that the statutorily prescribed declaration, was unilaterally and E
deliberately not adhered to, by the two companies. This,
according to the learned counsel, was done so that, the
appellant-companies could avoid attention of the SEBI, as well
as, to wriggle out of the statutory requirements of the SEBI Act,
the rules made thereunder, as also, the guidelines issued by F
SEBI from time to time. It was submitted, that the most
significant violation/omission of the provisions of the SEBI Act,
was committed by asserting, that invitation to the OFCDs was
made by way of "private placement", even though the aforesaid
invitation was addressed to approximately 3 crore persons, and G
was actually subscribed by about 66 lakh people. It was pointed
out, that in case of an invitation to 50 or more persons, the
invitation is deemed to have been issued "to the public" (under
the mandate of section 67 of the Companies Act). In case of
an offer/invitation "to the public" an allotment of debentures can H
248 SUPREME COURT REPORTS [2012] 12 S.C.R.
A only be made through one or more recognized stock
exchange(s) (under the mandate of section 73 of the
Companies Act). Similar other violations, as have been
mentioned in the body of the instant judgment, were also
highlighted. More importantly, it was submitted by learned
B counsel, that any allotment made in violation of the statutory
provisions, as for instance, inviting subscription in case of an
issue "to the public", without reference to a recognized stock
exchange, is void. In such a situation section 73 of the
Companies Act itself provides, that the concerned company
C shall make a total refund of the monies received by way of
subscription. It is pointed out, that the subscription collected by
the appellant-companies, which were admittedly to the tune of
Rs.40,000 crores, is in complete violation of law. According to
learned counsel, avoiding SEBI permitted the appellant-
D companies to commit all the irregularities/illegalities without
having to face adverse action.
111. Having considered the aforesaid contention
advanced at the hands of the learned counsel for the SEBI, there
can be no denial about the unilateral and arbitrary violation of
E the declaration referred to by the learned counsel representing
the SEBI. It is also apparent, that in the declaration made by
the two companies, they had clearly avoided references to the
SEBI and accordingly circumvented adherence to the provisions
of the SEBI Act, rules and guidelines. The appellant-companies
F have likewise avoided, the provisions of the Companies Act
(which are under the administrative control of the SEBI), as is
apparent from the deliberations recorded above. There is,
therefore, merit in the contention advanced by the learned
counsel representing SEBI. Even though it is not possible for
G one to record a clear finding, whether or not the declaration
under reference was altered with a pre-planned intention to
bypass the regulatory and administrative authority of SEBI, there
can be no hesitation to recording, that it certainly seems so.
The second perspective
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 249
AND EXCH. BOARD OF INDIA [JAGDISH ~INGH KHEHAR, J.)
112. Learned counsel representing the SEBI invited our A
my attention to an allegedly arbitrary procedure adopted by the
appellant-companies. For this reference was made to the
factual position pertaining to SIRECL. In this behalf it was
submitted, that SIRECL issued its RHP pertaining to the
OFCDs under reference on 13.3.2008. SIRECL, however, B
circulated its "information memorandum" subsequent to the
issuance of the RHP on 25.4.2008. It was submitted, that an
"information memorandum" is a means/process adopted by a
company, to elicit a demand for the securities proposed to be
issued, as also, the price at which they could be offered. It is c
accordingly contended that through an information
memorandum, a company assesses a demand for the
proposed securities in the market, and the price which the
public will be willing to offer for the same. It is therefore
apparent, that the response solicited from the public (by way D
of an "information memorandum") presupposes that an offer
would be made thereafter, through a formal prospectus (or
RHP). Thus viewed, according to learned counsel, the
"information memorandum" would inevitably precede the
issuance of a prospectus (or RHP). Herein, however, the
information memorandum was circulated well after the issuance E
of the RHP, which clearly indicates that the "information
memorandum" had been circulated by the SIRECL, not for the
purposes for which it is meant, but for some extraneous
consideration. It is submitted, that the appellant-companies had
apparently taken upon themselves to tread a path different from F
the one stipulated under the Companies Act.
113. On considering the submission advanced at the
hands of the learned counsel representing SEBI, as has been
noticed in the foregoing paragraph, it is clear that an G
"information memorandum" must inevitably precede the
issuance of a prospectus (including a RHP). One must agree
with the contention of the learned counsel, that there was no
justification whatsoever for circulating an "information
memorandum" after SIRECL had already issued a RHP. The H
250 SUPREME COURT REPORTS [2012] 12 S.C.R.
A procedure adopted by the appellant-companies is obviously
topsy turvy and contrary to the recognized norms in company
affairs. All this makes the entire approach of the appellant-
companies calculated and crafty. It is clearly apparent, that the
appellant-companies had clearly taken upon themselves to
B tread a path different from the mandate of law delineated under
the Companies Act. There can, therefore, be no doubt about
the inferences drawn by the learned counsel representing the
SEBI even in so far as the second perspective is concerned.
The third perspective:
c
114. Learned counsel representing SEBI also invited our
attention to the attempt at the hands of the appellant-companies
in withholding information from the SEBI. Details in this behalf
have already been recorded under the first perspective, while
D debating the issue whether the invitation to subscribe to the
OFCDs issued by SIRECL and SHICL was by way of "private
placement". The aforesaid details are accordingly not being
narrated again for reasons of brevity. I shall therefore, merely
summarise the sequence of facts relevant for determining the
E willingness of the appellant-companies to disclose information
sought by the SEBI. In this behalf, it is clear that the appellant-
companies did not disclose information to SEBI despite its
repeated requests. Not even, in the response to the summons
(dated 30.8.2010 and 23.9.2010) issued by the SEBI
F containing threats of taking penal action and initiation of criminal
prosecution. All this, failed to prompt the appellant-companies
to divulge the facts solicited. Thereafter on 24.11.2010 the
SEBI (FTM) passed far reaching directions against the
appellant-companies. The Lucknow Bench of the High Court of
G Judicature at Allahabad on 13.12.2010 first stayed (whereby
the SEBI (FTM) order dated 24.11.2010 was stayed) and
thereafter, vacated the interim order passed in favour of the
appellant-companies. While vacating the aforesaid order the
High Court took express note of the fact, that the appellant-
companies were not cooperating with the inquiry being
H
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 251
AND EXCH. BOARD OF INDIA [JAGDISH SINGH KHEHAR, J.]
conducted by the SEBI. The High Court felt, that the appellant- A
companies had thereby violated the assurance giyen to the
High Court. The effort made by the appellant-companies to
resurrect the earlier interim order (dated 13.12.2010) through
an application filed before the High Court was rejected (on
29.11.2011), because the High Court was of the considered B
view, that the appellant-companies had not approached the
High Court with clean hands, and the intention of the appellant-
companies was not bona fide. Consequent upon directions
issued by this Court, SEBI issued a second show cause notice
(on 20.5.2011 ). The appellant-companies adopted the same c
stubborn position. They contested the show cause notice on
legal pleas, and calculatingly did not disclose the information
sought. The SEBI (FTM) by an order dated 23.6.2011 held, that
the appellant-companies were in violation of law. The said order
dated 23.6.2011 was assailed by the appellant-companies
0
before the SAT. In the appeals preferred before the SAT, the
appellant-companies remained steadfast in their approach by
adopting the same course, as they had chosen before the SEBI
(FTM). For the first time before this Court, in their challenge to
the SAT order dated 26.8.2011 (whereby the SEBI (FTM) order
dated 23.6.2011 was upheld), some details were disclosed by E
SIRECL. On an analysis the material placed before this Court,
I have recorded hereinabove, that the same seemed to be
unrealistic, and may well be, fictitious, concocted and made up.
Independently of the interaction of the appellant-companies with
SEBI, from letters written by SIRECL in January, 2011, it was F
concluded by the SEBI (FTM), that the company was seeking
professional services to collect and compile data pertaining to
the OFCDs issued by it. Since the subscription to the OFCDs
under reference commenced in March, 2008, the same raised
suspicious about the genuineness and the bonafides of the G
appellant-companies. Surely the suspicion was well placed.
This itself is sufficient to conclude, that the whole affair was
doubtful, dubious and questionable. The consequence thereof,
if correct, would be shocking.
H
252 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 115. (here can therefore be no hesitation in accepting, that
on all three perspectives raised at the behest of the SEBI, to
demonstrate that there was a pre-planned attempt at the hands
of the SIRECL and SHICL, to bypass the regulatory and
administrative authority of the SEBI, does seem to be real. One
B can only hope, it is not so. But having so concluded, it is
essential to express, that there may be no real subscribers for
the OFCDs issued by the SIRECL or SHICL. Or alternatively,
there may be an intermix of real and fictitious subscribers. The
issue that would emerge in the aforesaid situation (which one
c can only hope, is untrue) would be, how the subscription amount
collected, should be dealt with, specially when the impugned
orders passed by the SEBI, SAT are to be affirmed. Even
though I 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
0
be endorsed by the SAT, so that the purpose of law is not only
satisfied but is also enforced.
ORDER
E 1. We, therefore, find, on facts as well as on law, no
illegality in the proceedings initiated by SEBI as well as in the
order passed by SEBI (WTM) dated 23.6.2011 and SAT dated
18.10.2011 and they are accordingly upheld. The order passed
by this Court in C.A. No.9813 of 2011 filed by SIREC and in
F CA. No.9833 of 2011 filed by SHICL, praying for extending the
time for refund of the amount of Rs.17,400 crores, as ordered
by SAT, stands vacated and consequently the entire amount,
including the amount mentioned above will have to be refunded
by Saharas with 15% interest. We have gone through each
G other's judgment and fully concur with the reasoning and the
views expressed therein and issue the following directions in
modification of the directions issued by SEBI (WTM) which was
endorsed by SAT:
1. Saharas (SIRECL & SHICL) would refund the amounts
H
SAHARA INDIA REAL ESTATE CORP LTD. v. SECURITIES 253
AND EXCH. BOARD OF INDIA
collected through RHPs dated 13.3.2008 and 16.10.2009 along A
with interest@ 15% per annum to SEBI from the date of receipt
of the subscription amount till the date of repayment, within a
period of three months from today, which shall be deposited in
a Nationalized Bank bearing maximum rate of interest.
B
2. 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 through RHPs
dated 13.3.2008 and 16.10.2009 within a period of 10 (ten)
days from the pronouncement of this order and it is for the SEBI C
(WTM) to examine the correctness of the details furnished.
3. We make it clear that if the 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 to the real and genuine subscribers who had invested D
money through RHPs dated 13.3.2008 and 16.10.2009.
4. Saharas are directed to furnish all documents in their
custody, particularly, the application forms submitted by
subscribers, the approval and allotment of bonds and all other E
documents to SEBI so as to enable it to ascertain the
genuineness of the subscribers as well as the amounts
deposited, within a period of 10 (ten) days from the date of
pronouncement of this order.
5. SEBI (WTM) shall have the liberty to engage F
Investigating Officers, experts in Finance and Accounts and
other supporting staff to carry out directions and the expenses
for the same will be borne by Saharas and be paid to SEBI.
6. SEBI (WTM) shall take steps with the aid and G
assistance of Investigating Authorities/Experts in Finance and
Accounts and other supporting staff to examine the documents
produced by Saharas so as to ascertain their genuineness and
after having ascertained the same, they shall identify
subscribers who had invested the money on the basis of RHPs H
\
254 SUPREME COURT REPORTS [2012] 12 S.C.R.
A dated 13.3.2008 and 16.10.2009 and refund the amount to
them with interest on their production of relevant documents
evidencing payments and after counter checking the records
produced by Saharas.
7. SEBI (WTM), in the event of finding that the genuineness
8
of the subscribers is doubtful, an opportunity shall be afforded
to Saharas to satisfactorily establish the same as being
legitimate and valid. It shall be open to the Saharas, in such
an eventuality to associate the concerned subscribers to
C establish their claims. The decision of SEBI (WTM) in this behalf
will be final and binding on Saharas as well as the subscribers.
B. 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
D subscribers will be appropriated to the Government of India.
9. We also appoint 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
E (WTM) from the date of this order. Mr. Justice B.N. Agrawal
would also oversee the entire steps adopted by SEBI (WTM)
and other officials for the effective and proper implementation
of the directions issued by this Court. We fix an amount of Rs.5
lakhs towards the monthly remuneration payable to Mr. Justice
F B.N. Agrawal, this will be in addition to travelling,
accommodation and other expenses, commensurate with the
status of the office held by Justice B.N. Agrawal, which shall
be borne by SEBI and recoverable from Saharas. Mr. Justice
B.N. Agrawal is requested to take up this assignment without
affecting his other engagements. We also order that all
G administrative expenses including the payment to the additional
staff and experts, etc. would be borne by Saharas.
10. We also make it clear that if Saharas fail to comply
with these directions and do not effect refund of money as
H directed, SEBI can take recourse to all legal remedies,
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 255
AND EXCH. BOARD OF INDIA
including attachment and sale of properties, freezing of bank A
accounts etc. for realizations of the amounts.
11. We also direct SEBl(WTM) to submit a status report,
duly approved by Mr. Justice B.N. Agrawal, as expeditiously as
possible, and also permit SEBI (WTM) to seek further directions
8
from this Court, as and when, found necessary.
Appeals are accordingly dismissed subject to the above
directions. However, there will be no order as to costs. We
record our deep appreciation for the valuable assistance
rendered by learned senior counsel appearing on either side C
for resolving the very intricate and interesting questions of law
which arose for our consideration in these appeals.
B.B.B. Appeals dismissed.
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