Author: Thaarani.S, Sathyabama Institute of Science and Technology
Headline of the article:
The Case of Sahara Pariwar India underscores the importance of Securities Exchange Board of India (SEBI) in upholding proper governance in the securities market. This article examines the unusual case of missing investors of Sahara Pariwar India despite multiple notices from SEBI. The landmark ruling in the case of Sahara v. SEBI by the apex court in the year 2012 directed the Sahara group of companies – consisting of two subsidiaries namely Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation (SHCL) to refund an amount of 24,000 crores – the cash value of total investment with interest rates to its investors. In fact, SEBI took express steps in establishing a government portal for processing the refund to investors. However, a quaint amount of Rs. 8.27 crores out of the total 24,000 crores has only been claimed by the investors of the Sahara companies. This further feeds into the theory that the amount of investment raised by Sahara is not genuine and may be due to scams such as the ponzi schemes.
To the Point:
The Sahara scam case involves the issue related to the Optionally Fully Convertible Debentures, hereafter referred to as OFCD by the Sahara group of companies. Initially, the RBI had instructed Sahara Pariwar India to stop collecting additional investments due to the enormous amounts received by the company in 2008. However, the company disregarded this order by the RBI and continued its course of business. The SEBI, further noticed non-compliance to securities laws by Sahara Pariwar India. Therefore, SEBI ordered the company to return the amount received to its investors. However, the jurisdiction of SEBI over OFCD was challenged by the Sahara group of companies in the Securities Appellate Tribunal (SAT) as they claimed that OFCD bonds were ‘hybrid’ in nature and fell under the scope of the Registrar of Companies (ROC), Ministry of Companies and not under SEBI. This case was later appealed to the apex court of India, where the Supreme Court ordered the company to repay an amount of 24,000 crores in 90 days.
Use of Legal Jargon:
SEBI is the apex body which regulates the securities market in India. However, this case involved jurisdictional dispute over the directions given to the Sahara company about the issuance of OFCDs. The company challenged the jurisdiction under section 11,11A,11B of the SEBI Act and section 55 of Companies Act. The company argued that the jurisdiction in matters relating to OFCDs rests with the ROC of MCA as per section 55A(c) of the companies act as OFCDs were convertible bonds with hybrid nature. Further, the supreme court also dealt with the definition of “Securities” and whether the disputed OFCDs fell under such definition in the SEBI Act. On the other hand, SEBI disputed the public issue of investments of Sahara Pariwar India before the apex court. However, in August 2012, after five long years of unsettling legal battle, the supreme court ordered the repayment of the amount due to the investors with the occurred interest within 90 days – although the company pleaded that it had repaid over 18,00 crores during the course of the legal battle between the parties.
Abstract:
The Sahara India Real Estate Corporation Ltd. v. Securities and Exchange Board of India (SEBI) case stands as one of India’s most significant corporate legal battles, highlighting deep-rooted issues in regulatory enforcement, investor protection, and corporate transparency. The dispute arose when Sahara raised nearly ₹24,000 crore from millions of investors through Optionally Fully Convertible Debentures (OFCDs) without obtaining SEBI’s approval. SEBI declared the fundraising illegal, asserting that such public issues required its clearance under Indian securities law. Sahara contested SEBI’s jurisdiction, arguing that the issuances were private placements. The Supreme Court ruled in favor of SEBI in 2012, ordering Sahara to refund the amount with interest. However, the case took a bizarre turn when Sahara failed to provide verifiable details of the alleged investors, leading to the infamous question: Where are the investors? Despite SEBI opening refund avenues, only a minuscule portion was claimed, suggesting that many investors were either fictitious or untraceable. The case culminated in the arrest of Sahara chief Subrata Roy and ongoing recovery efforts. It underscores the need for greater accountability in financial markets, robust enforcement mechanisms, and enhanced investor verification processes to prevent similar large-scale financial irregularities in the future.
Conclusion:
The Sahara v SEBI remains relevant in the arena of securities law as the need for constant regulation in transparency and investor welfare still persists long after this landmark judgement. The Securities market is often shadowed by scams and illegal schemes motivated by capitalistic greed that lingers in the society. The need to protect the interest of the investors and ensure they are not exploited remains with SEBI. This case reinforced the role of SEBI to prevent large scale securities scam which exploited the positive interest of investors. Further, it also alerted the legal system that there needs to be a check on the type and number of investors and their identity in cases which involve large numbers of investors and huge sums of money.
FAQ:
- What is the main issue covered in the Sahara v SEBI case?
This case arose due to the fact that Sahara raised nearly ₹24,000 crore from millions of investors through Optionally Fully Convertible Debentures (OFCDs) without obtaining SEBI’s approval. SEBI declared the fundraising illegal, asserting that such public issues required its clearance under Indian securities law.
- What was the decision in the Sahara v. SEBI case?
The Supreme Court ruled in favor of SEBI, ordering Sahara to refund the amount with interest. In August 2012, after five long years of unsettling legal battle, the supreme court ordered the repayment of the amount due to the investors with the occurred interest within 90 days – although the company pleaded that it had repaid over 18,00 crores during the course of the legal battle between the parties.