CASE ANALYSIS: SAHARA INDIA REAL ESTATE LIMITED & ORS. V.

SECURITIES EXCHANGE BOARD OF INDIA & ORS

FACTS
Sahara India floated 2 new companies- Sahara India Real Estate Corporation Limited (SIRECL)
and Sahara Housing Investment Corporation (SHIC) in 2005 by registering them under the
Companies Act, 1956 with the relevant Registrar of Companies in Kanpur and Maharashtra
respectively. In the annual meetings held by both the companies, a resolution was passed to raise
funds through private placement of optionally fully convertible debentures (OFCD‘s) from the
friends, associates, and family members of the Board of Directors. Funds were also to be raised
through the circulation of an information memorandum to a few trusted investors. The date of
commencement of issues of the debentures was 25th April, 2008 and 20th November, 2009,
respectively. SIRECL collected Rs. 17,656.53 crores (net value) between 25th April, 2008 and
13th April, 2011. SHICL collected Rs. 6373.20 crores (net value) between 20th November, 2009
and 13th April, 2011. Thus both the companies collected Rs. 24,029.73 crores from 30 million
investors over a period of 3 years. In 2009, when a red herring prospectus for Sahara Prime City
(a real estate venture of Sahara India) was submitted to SEBI for approval, SEBI noticed unusual
fund raising activity in the 2 firms- SHICL and SIRECL. On 4th January, 2010, SEBI received a
complaint from a man, RoshanLal, who alleged that ―illegal means were being used by SHICL
and SIRECL in issuance of OFCD‘s.‖ Following this, SEBI launched an investigation against
Sahara India, inquiring into the fund raising activities of SHICL and SIRECL along with investor
information. On receiving stiff resistance from Sahara, SEBI passed an interim order confirming
that there was illegal activity with regard to issuance of OFCD‘s and instructed SHICL and
SIRECL to refund the money to the investors with interest. Following this, Sahara filed a petition
in the Court asking for a stay order. Since Sahara was not co-operative with the authorities,
eventually the stay order was vacated and a final order was passed by SEBI on 23rd June, 2011.
Even the Securities Appellate Tribunal (SAT) approved the SEBI order on 18th October, 2011.
After this, Sahara appealed the SEBI order in the Supreme Court, questioning their jurisdiction in
the matter and alleging a defamatory agenda on part of SEBI to destroy the market reputation of
Sahara India.

ISSUES
a) Jurisdiction of SEBI on this matter?
Supreme Court finally made an important observation that it was stated by Sahara
company that its OFCD scheme was a kind of private placement and included
only selective clients yet it failed to prove the same, and it is very well evident
that it was a kind of public offer in which more than 23 million people invested
over which SEBI has complete authority.
b) OFCD’S being a hybrid security does fall under securities contract regulation
(SCR)Act ?
OFCD’S were distributed to 30 million people so its marketability cannot be
denied. Hence, it is a marketable security under the ambit of section 2 (h) of
Securities Contract Regulation Act.
 c) Does the issue of OFCD’S qualifies as to private placement?
In the case of private placement, the documents should be submitted by the company that
its investors had some relation with the company which in this case was not proved by
the Sahara group and thus it does not qualify the claim of the investment being a private
placement.

LEGAL PROVISIONS
 Section 55A of the Companies Act, 2013, it paves the path for SEBI’s jurisdiction.
 Section 62, 63, 67, 117A, 117B, 117C, of the Companies Act, 2013
 Section 73 of the Companies Act, 2013 which prohibits private company to take deposits
from the public and allows only eligible companies to accept deposits from the public.
 S. 2(h) of the Securities Contract Regulation Act
 S. 11 and 19 of SEBI Act.

JUDGES/ BENCH
 JUSTICE DEEPAK MISHRA
 JUSTCE RANJAN GOGOI
 JUSTICE A.K. SIKRI

STATUS OF JUDGEMENT
The Hon’ble Supreme Court ordered Sahara to refund the entire deposits collected by it through
Red Herring Prospectus at an interest rate of 15% till the date of refund. It also authorised SEBI
to take legal recourse in case the appellant i.e. Sahara fails to comply with the said order. Subrata
Roy is currently in jail since May, 2014 on a non bailable warrant for nonpayment of the dues to
SEBI and noncompliance of court orders.