Jolting the Sahara Group,the Supreme Court today ordered two of its companies to refund Rs 24,000 crore,along with 15 per cent interest,to more than two crore small investors who had invested in their optionally fully convertible debentures (OFCDs) between 2008 and 2011.
Holding Sahara India Real Estate Corporation (now known as Sahara Commodity Services Corporation Ltd) and Sahara Housing Investment Corporation legally liable to pay back the money in three months,the court ruled that Saharas had violated the listing provisions and collected huge amounts from the public in disobedience of law.
The Group could end up paying around Rs 38,000 crore which will include the principal amount of Rs 24,000 crore and interest of Rs 14,000 crore.
The bench of Justices K S Radhakrishnan and K S Khehar asked the Securities and Exchange Board of India (SEBI) to examine the issues relating to genuineness of investors and refund while also giving it the liberty to attach the companies properties and freeze their bank accounts,besides other legal actions,if they failed to pay back.
It also appointed retired Supreme Court judge Justice B N Aggarwal to oversee the action taken by SEBI against the Sahara firms and ensure effective and proper implementation of its directions.
These two companies had moved the apex court against the orders by SEBI and the Securities Appellate Tribunal (SAT) passed last year. The SEBI had indicted them for raising funds from the public through the OFCD scheme without adhering to prudent disclosure and other investor protection norms governing such public issues.
The SAT subsequently upheld this order while brushing aside their objection over SEBIs jurisdiction to regulate OFCDs and also to regulate their hybrid securities. Sahara had maintained that SEBI had no jurisdiction over unlisted public companies and only the Ministry of Corporate Affairs could regulate them.
The apex court,however,found favour with SATs views. It ruled that SEBI will have the powers to regulate their affairs since the money collected by them through OFCDs were from the public at large and it would amount to collection of money by way of issue of securities.
Dismissing the argument that the OFCDs were issued under a private placement basis for only subscribers associated with the Group,the court held that it was in reality a public issue since it was offered to more than 3 crore people and subscribed by 66 lakh investors.
Therefore,the companies,the bench said,were obligated to follow SEBI guidelines and other legal provisions so as to have listed the debentures on a recognised stock exchange,besides following disclosure requirement and other investors protection norms.
But from Saharas conduct and action,it is clear,that their intention was to issue securities to the public under the garb of private placement… Conduct and actions of Saharas indicate their intention,we have to judge their so-called intention from their subsequent conduct. Subsequent illegality shows that Saharas contemplated illegality, noted the bench,adding their mode of collecting money from investors was doubtful,dubious and questionable.
While imposing 15 per cent,the maximum possible rate of interest as penalty under the Companies Act for such defaults,the court also said: The 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.
In his separately pronounced concurrent verdict,Justice Khehar strongly criticised the companies reluctance to disclose details of their investors despite repeated requests by SEBI and said that it seemed the two companies collected money from investors,without any sense of responsibility to maintain records,pertaining to funds received.
The consequence of the foregoing discussion,if 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, he added.