THE Rs 24,000-CR LIST
Since 2010, when the Securities and Exchange Board of India (SEBI) first raised questions about the Sahara group, the agencies and institutions that have looked into the matter — including SEBI itself, the Security Appellate Tribunal (SAT), the Allahabad High Court, the Supreme Court, the Enforcement Directorate (ED) and the Ministry of Corporate Affairs — have repeatedly brought up one issue, Sahara’s “intent”.
SEBI’s attention was drawn to Sahara when it was approached by Sahara Prime City for an initial public offering. SEBI raised questions on the Optionally Fully Convertible Debentures (OFCDs), a hybrid financial instrument, to the tune of Rs 24,000 crore issued by two sister concerns, Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara Housing Investment Corporation Ltd (SHICL), and whether these were for public placement and hence came under SEBI’s jurisdiction.
In a show-cause notice to SIRECL and SHICL, then SEBI member K M Abraham said, “The very fact that the offer was made 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, by itself would indicate the intention of the offer or to make the offer to wider gamut of people.”
Sahara argued that it did not come under SEBI purview as it did not “intend” to make public placement of the OFCDs.
In April-May 2011, SEBI’s senior advocate Arvind Datar* quoted from a landmark British case — Young vs Bristol Aeroplane Co Ltd — before SAT to argue that “Sahara should be judged by what they did, not what they intended”.
When SEBI asked for details of those who had subscribed to Sahara’s OFCDs, the group first said their staff were on a long holiday and so it could not provide the details. A SEBI officer involved in the investigation from the beginning said, “It was clear that they did not want disclosure. Their intentions were our problem.”
THE MINISTRY’S ENTRY
Asked to furnish details to SEBI, Sahara in June 2010 forwarded a letter from the office of then minister of state for corporate affairs Salman Khurshid, stating that his ministry was examining whether the issue under SEBI’s scrutiny was a matter of the ministry’s jurisdiction. Sahara argued that they were guided by the Companies Act. SEBI made it clear that there was no such official communication between the ministry and it.
Sahara next approached the Allahabad High Court, which granted a stay on SEBI’s proceedings. Meanwhile, even as the Ministry of Corporate Affairs gave an affidavit in the high court supporting Sahara’s stand, the arguments against this contiunued within the ministry.
In February 2011, the ministry sought legal opinion. Then additional solicitor general Parag Tripathi said the matter fell in the domain of SEBI. However, the ministry sought a second opinion, from another ASG, present Solicitor General Mohan Parasaran, who favoured the ministry’s stand.
A note put up internally within the ministry in April 2011 said, “The first proviso to Section 67(3) inserted by the Companies (Amendment) Act 2000 with effect from 13.12.2000 sets at continued…