Sebi has power to direct unlisted firms,says SAT

The Securities Appellate Tribunal observed that the Securities and Exchange Board of India has wider powers under the Sebi Act.

The Securities Appellate Tribunal (SAT) on Monday observed that the Securities and Exchange Board of India (Sebi) has wider powers under the Sebi Act to issue directions to even unlisted firms to protect interest of investors in the securities market.

The SAT observation came in response to a Sahara Group argument that the jurisdiction to regulate an unlisted public company lies with the Central government and not with the Sebi.

SAT also directed the ministry of corporate affairs (MCA) to produce before it a copy of its response to a query raised by Sahara Group in 2010 on whether the OFCD issued by the company fell within the purview of the Central government or the Sebi.

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The matter came before SAT after Sebi directed two Sahara Group firms to refund money to investors in the companies optionally fully convertible debentures (OFCD) scheme. Earlier in July,the Supreme Court had directed SAT to expedite the case with in a period of eight weeks and also decide the jurisdiction to regulate such instruments. The Sahara counsel pointed out Section 55 A of the Companies Act,which makes a distinction between listed and unlisted public companies with relation to the issue and transfer of securities.

The provision states that Sebi will have the powers to regulate the issue and transfer of securities in case of listed public companies and those public companies,which intend to get their securities listed on any recognised stock exchange. While the unlisted public companies will be administered by the Central government.

We are an unlisted public company and dont have any intention to list our securities. So prima facie,Sebi Act doesnt apply to us, said Fali S Nariman,senior counsel appearing on behalf of Sahara Group. However,SAT observed that Section 55 A of the Companies Act should not override the wider powers enjoyed by Sebi under the Sebi Act.

The issue relates to Sebis finding in November,2010 indicting two Sahara Group firms Sahara India Real Estate Corporation now known as Sahara Commodity Services Corporation Ltd and Sahara Housing Investment Corporation for raising funds from the public through OFCD scheme without conforming to prudent disclosure and other investor protection norms,which govern such public issues. FE