Apex court says SEBI can seek relevant information from Sahara group companies, but should not restrain them from raising money from capital markets
In what appears to be a severe blow to the market regulator, the Supreme Court on Tuesday asked the Securities and Exchange Board of India (SEBI) not to restrain the Sahara group from raising money from the capital markets. The apex court also said SEBI can seek all relevant information directly from Sahara group companies.
The Supreme Court order was on a petition by SEBI challenging an Allahabad High Court stay on a ban by the regulator on the Sahara group raising money from the markets. The dispute is related to SEBI’s restriction in November on Sahara India Real Estate Corp Ltd (SIRECL), Sahara Housing Investment Corporation Ltd (SHICL) and Sahara group chairman Subrata Roy.
A bench headed by chief justice SH Kapadia said, “We make it clear that SEBI is entitled to call for any information which it deems fit, including names of the investors who have invested in optionally fully convertible debentures (OFCDs).”
The bench, however, declined the plea by the SEBI counsel to stay the plans of Sahara group companies to raise money from the market through OFCDs. The Supreme Court also asked the Registrar of Companies to appear before the Allahabad High Court and file its reply in this matter.
SEBI had acted on complaints it had received against Sahara Prime City Ltd (SPCL), which alleged that the company's sister concerns, SIRECL and SHICL were issuing OFCDs, in violation of the statutory requirements of disclosure. Subsequently, the market regulator issued an order restraining the Sahara group companies from raising money through OFCDs for non-disclosure of information.
SIRECL challenged the SEBI order before the Lucknow bench of the Allahabad High Court, saying that the market regulator has no jurisdiction over the company, as it was neither a listed company in any stock exchange nor intending to be listed in the future. It said that the company was regulated by the Ministry of Corporate Affairs under the Companies Act 1956 and not by SEBI.
The Sahara group claimed that in February 2008, SIRECL decided to raise funds from OFCDs by way of private placements. This was mentioned in its red herring prospectus filed with the Registrar of Companies at Kanpur. In the filing, SIRECL also mentioned that in the OFCDs only those persons would be eligible to apply to whom the information memorandum was circulated or approached privately and associated with Sahara group of companies.
Objecting to SIRECL's claims, SEBI said that according to section 67 (3) of the Companies Act, an offer made by less than 50 persons could be treated as a private placement, but if the offer is made by more than 50 persons then it should be treated as a public offer. Till June 2010, the total investment made through OFCDs in SIRECL was about Rs4,843.40 crore and interest accrued and due for payments was around Rs541.80 crore. SEBI said that keeping in mind the amount involved, this should be treated as a public offer and should require the company to become a listed entity.
The High Court bench observed that the issue was still open and that the union government is examining it. The bench then stayed the SEBI order.
The case is due to come up at the High Court again on 12th January. But SEBI approached the Supreme Court to decide on the validity of the interim order of the Allahabad High Court.
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