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REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 9813 OF 2011 Sahara India Real Estate Corporation Li ited ! Ors" Vers#s Se$#rities and E%$han&e 'oard o( India ! Anr" )ITH CIVIL APPEAL NO. 9833 OF 2011 JUDGMENT K. S. RADHAKRISHNAN, J. "" Respondents "" Appellants

*"

)e are+ in these appeals+ pri aril, $on$erned -ith the

po-ers o( the Se$#rities and E%$han&e 'oard o( India .(or short /SE'I/0 #nder Se$tion 11A.20 o( the Co panies A$t+ *314 to ad inister 5ario#s pro5isions relatin& to iss#e and trans(er o( se$#rities to the p#2li$ 2, listed $o panies or $o panies -hi$h intend to &et their se$#rities listed on an, re$o&ni6ed sto$7 e%$han&e in India and also the 8#estion -hether Optionall, F#ll, Con5erti2le De2ent#res .(or short /OFCDs/0 o((ered 2, the

appellants sho#ld ha5e 2een listed on an, re$o&ni6ed sto$7

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e%$han&e in India+ 2ein& P#2li$ Iss#e #nder Se$tion 9: read -ith Se$tion 4;' and allied pro5isions o( the Co panies A$t and -hether the, had 5iolated the Se$#rities and E%$han&e 'oard o( India .Dis$los#re and In5estor Prote$tion0 <#idelines+ =;;; >(or short /DIP <#idelines/? and 5ario#s re&#lations o( the Se$#rities and E%$han&e 'oard o( India .Iss#e o( Capital and Dis$los#re Re8#ire ents0 Re&#lations+ =;;3 >(or short /ICDR =;;3/?+ and also -hether OFCDs iss#ed are se$#rities #nder the Se$#rities

Contra$ts .Re&#lation0 A$t+ *314 >(or short /SCR A$t/?"

="

Sahara India Real Estate Corporation Li ited .(or short

/SIRECL/0 and Sahara Ho#sin& In5est ent Corporation Li ited .(or short /SHICL@0+ appellants herein .$on5enientl, $alled Saharas0+ are the $o panies $ontrolled 2, Sahara <ro#p" Saharas ha5e

raised al ost identi$al iss#es on (a$ts as -ell as on 8#estions o( la- 2e(ore #s and hen$e -e are disposin& o(( 2oth the appeals 2, -a, o( a $o on A#d& ent"

:"

SIRECL -as ori&inall, in$orporated as Sahara India BC@

J#n%ion Corporation Li ited on =C"*;"=;;1 as a p#2li$ li ited $o pan, #nder the Co panies A$t and it $han&ed its na e to

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SIRECL on 9":"=;;C" As per the 'alan$e Sheet o( the $o pan, as on :*"*="=;;9+ its $ash and 2an7 2alan$es -ere Rs"4+9*+CC= and its net $#rrent assets -orth Rs"4+1D+44;" Co pan, had no (i%ed assets nor an, in5est ent as on that date" SIRECL/s operational and other e%penses (or the three 8#arters endin& :*"*="=;;9 -ere Rs"3+=3= and the loss $arried (or-ard to the 'alan$e Sheet as on that date -as Rs":+=C+:D1"

D"

SIRECL+ in its E%traordinar, <eneral Meetin& held on

:":"=;;C+ resol5ed thro#&h a spe$ial resol#tion passed in ter s o( Se$tion C*.*A0 o( the Co panies A$t to raise (#nds thro#&h #nse$#red OFCDs 2, -a, o( pri5ate pla$e ent to (riends+ asso$iates+ &ro#p $o panies+ -or7ersEe plo,ees and other

indi5id#als asso$iatedEa((iliated or $onne$ted in an,

anner -ith

Sahara <ro#p o( Co panies .(or short FSahara <ro#pG0 -itho#t &i5in& an, ad5ertise ent to &eneral p#2li$" Co pan, a#thori6ed its 'oard o( Dire$tors to de$ide the ter s and $onditions and re5ision thereo(+ na el,+ (a$e 5al#e o( ea$h OFCD+ appli$ation si6e+ ten#re+ $on5ersion and interest rate" Dire$tors+ $onse8#entl,+ held a ini # 'oard o(

eetin& on *;":"=;;C and resol5ed

to iss#e #nse$#red OFCDs 2, -a, o( pri5ate pla$e ent+ the details

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o( -hi$h -ere

entioned in the Red Herrin& Prospe$t#s .(or short

/RHP/0 (iled -ith the Re&istrar o( Co panies .(or short BRoC@0+ Hanp#r" SIRECL had spe$i(i$all, indi$ated in the RHP that the, did

not intend to &et their se$#rities listed on an, re$o&ni6ed sto$7 e%$han&e" F#rther+ it -as also stated in the RHP that onl, those persons to -ho -as $ir$#lated the In(or ation Me orand# andEor approa$hed .(or short /IM/0 -ho -ere

pri5atel,

asso$iatedEa((iliated or $onne$ted in an, <ro#p+ -o#ld 2e eli&i2le to appl,"

anner -ith Sahara

F#rther+ it -as also stated in

the RHP that the (#nds raised 2, the $o pan, -o#ld 2e #tili6ed (or the p#rpose o( (inan$in& the a$8#isition o( to-nships+ residential apart ents+ shoppin& $o ple%es et$" and $onstr#$tion a$ti5ities -o#ld 2e #nderta7en 2, the $o pan, in and also -o#ld (inan$e other $o aAor $ities o( the $o#ntr,

er$ial a$ti5itiesEproAe$ts ta7en the a2o5e proAe$ts" RHP

#p 2, the $o pan, -ithin or apart (ro

also indi$ated that the intention o( the $o pan, -as to $arr, o#t in(rastr#$t#ral a$ti5ities and the a o#nt $olle$ted (ro the iss#e

-o#ld 2e #tili6ed in (inan$in& the $o pletion o( proAe$ts+ na el,+ esta2lishin&E$onstr#$tin& the 2rid&es+ airports+ rail s,ste to the $o pan, (ro oderni6in& or settin& #p o( i&ht 2e alloted

or an, other proAe$ts -hi$h ti e to ti e in (#t#re"

RHP also hi&hli&hted

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the intention o( the $o pan, to en&a&e in the 2#siness o( ele$tri$ po-er &eneration and trans ission and that the pro$eeds o( the $#rrent iss#e or de2ent#res -o#ld 2e #tili6ed (or po-er proAe$ts -hi$h -o#ld 2e alloted to the $o pan, and that the re8#ired i ediatel,+ one,+ not

i&ht 2e par7edEin5ested+ inter alia+ 2, -a,

o( $ir$#latin& $apital -ith partnership (ir s or Aoint 5ent#res+ or in an, other (ro anner+ as per the de$ision o( the 'oard o( Dire$tors

ti e to ti e" SIRECL+ #nder Se$tion 4;' o( the Co panies

A$t+ (iled the RHP 2e(ore the RoC+ Uttar Pradesh on *:":"=;;C+ -hi$h -as re&istered on *C":"=;;C" SIRECL then in April =;;C+ $ir$#lated IM alon& -ith the appli$ation (or s to its so $alled (riends+ asso$iated &ro#p $o panies+ -or7ersEe plo,ees and other indi5id#als asso$iated -ith Sahara <ro#p (or s#2s$ri2in& to the OFCDs 2, -a, o( pri5ate pla$e ent" Then IM $arried a re$ital that it -as pri5ate and $on(idential and not (or $ir$#lation" A 2rie( re(eren$e to the IM a, 2e #se(#l+ hen$e &i5en 2elo-I

BPRIVATE ! CONFIDENTIAL .NOT FOR CIRCULATION0 INFORMATION MEMORANDUM FOR PRIVATE PLACEMENT OF OPTIONALLY FULLY

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CONVERTIBLE UNSECURED DEBENTURES OFCD! This Me orand# Sahara .(or erl, India Sahara o( In(or ation is 2ein& Real Estate /C/ Corporation J#n%ion India ade 2, Li ited

Corporation

Li ited0 -hi$h is an #nlisted Co pan, and neither its e8#it, shares nor an, o( the 2ondsEde2ent#res are listed or proposed to 2e listed" This iss#e is p#rel, on the pri5ate pla$e ent 2asis and the $o pan, does not intend to &et these OFCD/s listed on an, o( the Sto$7 E%$han&es in India or A2road" Me orand# This (or Pri5ate Pla$e ent is neither a

Prospe$t#s nor a State ent in Lie# o( prospe$t#s" It does not $onstit#te an o((er (or an in5itation to s#2s$ri2e to OFCD/s iss#ed 2, Sahara India Real Estate Corporation Li ited" The Me orand# (or Pri5ate Pla$e ent is intended to (or e5al#ation (or the in5estors to -ho OFCD/s" In5estors are re8#ired to the 2asis o( it is addressed a7e their o-n a7in&

and -ho are -illin& and eli&i2le to s#2s$ri2e to these independent e5al#ation and A#d& ent 2e(ore the in5est ent" in5estors to -ho This Me orand# o( the person to -ho 2e reprod#$ed 2,

The $ontents o( this Me orand# it is addressed and distri2#ted" (or Pri5ate Pla$e ent is not it is addressed and sho#ld not the re$ipient" The OFCD/s

(or Pri5ate Pla$e ent are intended to 2e #sed 2, the

intended (or distri2#tion and is (or the $onsideration

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entioned herein are 2ein& iss#ed on a pri5ate pla$e ent 2asis and this o((er does not $onstit#te a p#2li$ o((erEin5itation"@ added0 .e phasis

1"

The RHP+ -hi$h -as iss#ed prior to the IM+ had also &i5en

the details and parti$#lars o( the three OFCDs iss#ed 2, SIRECL appended as Anne%#reJI+ -hi$h -o#ld &i5e a 2rie( idea o( the Ten#re o( the 'onds iss#ed+ its (a$e 5al#e+ rede ption 5al#e et$"+ a proAe$tion o( -hi$h is &i5en 2elo-I Parti$#lars Nat#re o( OFCDs A2ode 'ond Real Estate 'ond *=; onths 4; onths Rs"1+;;;EJ Rs"*=+;;;EJ Rs"*1+1:;EJ Rs"*1+=1DEJ A(ter 4; onths On $o pletion o( *=; onths Rs"1+;;;EJ NIL

Nir aan 'ond DC onths Rs"1+;;;EJ Rs"9+9=CEJ

Ten#re Fa$e Val#e Rede ption Val#e Earl, Rede ption Con5ersion

Mini # Appli$ation Si6e No inee S,ste Do#2le No inee Trans(er Kes

A(ter *C onths On $o pletion On $o pletion o( 4; onths o( DC onths Rs"*=+;;;EJ Rs"1+;;;EJ Do#2le No inee Kes Do#2le No inee Kes

4"

a, also indi$ate that all the 2onds stip#lated that 2ond

holders $o#ld a5ail o( loan (a$ilit, as per the ter s and $onditions

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o( the appli$ation (or s"

Nir aan and Real Estate 'onds

pres$ri2ed an additional (eat#re o( death ris7 $o5er as -ell" Cla#se *: o( RHP i posed no restri$tion on the trans(er o( the OFCDs"

9" open

SIRCEL+ there(ore+ (loated the iss#e o( the OFCDs as an ended s$he e and $olle$ted an a o#nt o(

Rs"*3D;;+C4+4D+=;; .Nineteen tho#sand (o#r h#ndred $rores+ ei&ht, si% la$s+ si%t, (o#r tho#sand and t-o h#ndred onl,0 (ro =1"D"=;;C to *:"D"=;**" Co pan, had a total $olle$tion o(

Rs"*9414+1:+==+1;; .Se5enteen tho#sand si% h#ndred and (i(t, si% $rores+ (i(t, three la$s+ t-ent, t-o tho#sand and (i5e h#ndred onl,0 as on :*"C"=;**+ a(ter rede ption" The a2o5e eetin& the de and (or pre at#re entioned a o#nts -ere $olle$ted (ro

=+=*+;9+=9* in5estors"

C"

SHICL+

e 2er

o(

Sahara

<ro#p

$o panies+

also

$on5ened an Ann#al <eneral Meetin& on *4"3"=;;3 to raise (#nds 2, iss#e o( OFCDs+ 2, -a, o( pri5ate pla$e ent+ to (riends+ asso$iated &ro#p $o panies+ -or7ersEe plo,ees and other

indi5id#als asso$iatedEa((iliated or $onne$ted in an, the Sahara <ro#p $o panies"

anner -ith

Conse8#entl,+ a RHP -as (iled on

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4"*;"=;;3 #nder Se$tion 4;' o( the Co panies A$t -ith the RoC+ M# 2ai+ Maharashtra+ -hi$h -as re&istered on *1"*;"=;;3" Later+ SHICL iss#ed OFCDs o( the nat#re o( Ho#sin& 'ondL $on5ersion pri$e o( Rs"1+;;;EJ (or ea$h (i5e 2onds+ In$o e 'ond+ $on5ersion pri$e o( Rs"4+;;;EJ (or si% 2ondsL M#ltiple 'ond+ $on5ersion pri$e o( Rs"=D+;;;EJ (or t-o 2onds" Interest a$$r#ed on ea$h o( the

three t,pes o( 2onds -as to 2e re(#nded to the 2ond holders"

3"

SE'I+ as alread, indi$ated+ had $o e to 7no- o( the lar&e one, (ro the p#2li$ 2, Saharas thro#&h

s$ale $olle$tion o(

OFCDs+ -hile pro$essin& the RHP s#2 itted 2, Sahara Pri e Cit, Li ited+ another Co pan, o( the Sahara <ro#p+ on *="*"=;*; (or its initial p#2li$ o((er" *="*"=;*; to Ena SE'I then addressed a letter dated er$hant 2an7ers o( one

Se$#rities Pri5ate Li ited+

Sahara Pri e Cit, Li ited a2o#t the $o plaint re$ei5ed (ro

Roshan Lal alle&in& that Sahara <ro#p -as iss#in& Ho#sin& 2onds -itho#t $o pl,in& -ith R#lesERe&#lationsE<#idelines iss#ed 2, R'IEMCAENH'" Mer$hant 'an7er sent a repl, dated =3"*"=;*;

statin& that SIRECL and SHICL -ere not re&istered -ith an, sto$7 e%$han&e and -ere not s#2Ae$ted to an, r#le E re&#lation E &#idelines E noti(i$ation E dire$tions (ra ed there#nder and the

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iss#an$e o( OFCDs -ere in $o plian$e -ith the appli$a2le la-s" Follo-in& the a2o5e+ another letter dated =4"="=;*; -as also sent 2, the Mer$hant 'an7er to SE'I statin& that SIRECL and SHICL had iss#ed the OFCDs p#rs#ant to a spe$ial resol#tion #nder Se$tion C*.*A0 o( the Co panies A$t+ *314 passed on :":"=;;C and *4"3"=;;3 respe$ti5el," F#rther+ it -as also pointed o#t that

the, had iss#ed and $ir$#lated an IM prior to the openin& o( the o((er and that RHP iss#ed 2, SIRECL dated *:":"=;;C -as (iled -ith RoC+ U"P" and Uttara7hand and RHP iss#ed 2, SIHCL dated 4"*;"=;;3 -as (iled -ith RoC+ Maharashtra"

*;"

SE'I on =*"D"=;*; addressed a letter to the Re&ional

Dire$tor+ Northern and )estern Re&ions o( Ministr, o( Corporate A((airs .(or short /MCA/0 en$losin& the $o plaint re$ei5ed in respe$t o( OFCDs iss#ed 2, Saharas" SE'I had stated that those

$o panies had soli$ited and iss#ed OFCDs 5iolatin& stat#tor, re8#ire ents and that the, -ere not listed $o panies and had not (iled the RHP -ith SE'I" SE'I sent a $o #ni$ation dated

*="1"=;*; to Saharas $allin& (or 5ario#s details in$l#din& the details re&ardin& the n# 2er o( appli$ation (or s $ir$#lated a(ter (ilin& o( RHP -ith RoC+ details re&ardin& the n# 2er o( appli$ations

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re$ei5ed and s#2s$ription a o#nt re$ei5ed+ date o( openin& and $losin& o( s#2s$ription list o( OFCDs+ n# 2er and list o( allotees et$"

**"

SIRECL on :*"1"=;*; addressed a letter to MCA (or

&#idan$eEad5i$e as to -hether it -as SE'I or MCA -ho had locus standi in the atter o( #nlisted $o panies in 5ie- o( the pro5isions MCA+ it is seen+ had sent a letter atter -as 2ein&

o( Se$tion 11A.$0 o( the A$t"

dated *9"4"=;*; to SIRECL statin& that the

e%a ined #nder the rele5ant pro5isions o( the Co panies A$t+ *314" SIRECL in(or ed SE'I o( the repl, the, had re$ei5ed (ro the MCA and that the, -o#ld address SE'I a(ter a de$ision -as ta7en 2, MCA" Ha5in& not re$ei5ed the details $alled (or (ro

Saharas+ SE'I had prima facie (elt that SIRECL -as $arr,in& o#t 5ario#s transa$tions in se$#rities in a anner detri ental to the ar7et and+ there(ore+

interests o( the in5estors or to the se$#rities iss#ed s#

ons dated :;"C"=;*;+ #nder Se$tion **C o( the SE'I

A$t+ dire$tin& the $o pan, to (#rnish the re8#isite in(or ation 2, *1"3"=;*;" Detailed repl, dated *:"3"=;*; -as sent 2, SIRECL to SE'I+ -herein it -as stated that the $o pan, had (ollo-ed the pro$ed#re pres$ri2ed #nder Se$tion 4;' o( the Co panies A$t

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p#rs#ant to the spe$ial resol#tion passed #nder Se$tion C*.*A0 in its eetin& held on :":"=;;C and (iled its RHPs #nder Se$tion 4;'

-ith the $on$erned RoC" F#rther+ it -as pointed o#t that SIRECL -as not a listed $o pan,+ nor did it intend to &et its se$#rities listed on an, re$o&ni6ed sto$7 e%$han&e in India and that OFCDs iss#ed 2, the $o pan, -o#ld not (all #nder Se$tions 11A.a0 andEor .20 and hen$e the iss#e andEor trans(er o( se$#rities andEor nonJ pa, ent o( di5idend or ad inistration o( either the $o pan, or its iss#an$e o( OFCDs+ -ere not to 2e ad inistered 2, SE'I and all atters pertainin& to the #nlisted $o pan, -o#ld (all #nder the ad inistration o( the Central <o5ern ent or RoC" F#rther+ it -as

#r&ed that Re&#lations : and 4 o( ICDR =;;3 -o#ld not appl,+ sin$e there -as no p#2li$ iss#e either in the nat#re o( an initial p#2li$ o((er or (#rther p#2li$ o((er as de(ined 2, Re&#lation =.6$0+ =.p0 andEor =.n0 o( ICDR =;;3" OFCDs+ it -as pointed o#t+ -ere &eneral p#2li$0+

restri$ted to a sele$t &ro#p .as distin&#ished (ro ho-e5er lar&e the,

i&ht 2e and hen$e the iss#an$e o( OFCDs -as

not a p#2li$ o((er to attra$t the pro5isions o( Re&#lations : andEor 4 o( ICDR =;;3" Co pan, had stated that iss#an$e o( OFCDs o(

=;;C -as also not $o5ered 2, the SE'I .Iss#e and Listin& Se$#rities0 Re&#lations+ =;;C+ sin$e it -o#ld appl, to nonJ

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$on5erti2le de2t se$#rities+ -hereas the OFCDs iss#ed 2, SIRECL -ere $on5erti2le se$#rities" SIRECL+ there(ore+ re8#ested SE'I to -ithdra- the s# S# ons iss#ed #nder Se$tion **C o( the SE'I A$t"

ons dated =:"3"=;*; -as also iss#ed to SHICL+ (or -hi$h

also an identi$al repl, -as sent to SE'I"

*="

MCA+ in the

ean-hile+ sent a letter dated =*"3"=;*; to

SIRECL #nder Se$tion =:D.*0 o( the Co panies A$t $allin& (or 5ario#s details in$l#din& the a o#nt $olle$ted thro#&h pri5ate pla$e ent+ details re&ardin& the n# 2er o( in5estors to -ho allot ent had 2een the

ade+ their na es+ addresses+ #tili6ation o(

the (#nds $olle$ted+ its p#rpose+ $lass or $lasses o( persons to -ho the allot ent had 2een ade and -hether allot ents -ere SIRECL -as dire$ted to the date o( re$eipt o(

$o pleted and 5ario#s other details"

(#rnish the in(or ation -ithin *1 da,s (ro

noti$e+ (ailin& -hi$h it -as in(or ed that penal a$tion -o#ld 2e initiated a&ainst the $o pan, and its dire$tors #nder Se$tion =:D.D0.a0 o( the Co panies A$t" *:" SE'I+ in the ean-hile+ sent a letter dated =:"3"=;*; to

SIRECL re indin& that it had not pro5ided in(or ationEdo$# ents

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on the iss#e o( OFCDs"

Pro$eedin& iss#ed (or appointin& the

in5esti&atin& a&en$, -as also (or-arded to the $o pan," SIRECL a&ain replied 2, its letter dated :;"3"=;*; raisin& the iss#e o( A#risdi$tion o( SE'I in in5esti&atin& the a((airs o( SIRECL" SIRECL+ ho-e5er+ replied to the letter o( MCA dated =*"3"=;*; on D"*;"=;*;+ statin& inter alia that it -o#ld 2e (ilin& the prospe$t#s on the $los#re o( the iss#e in $o plian$e -ith the pro5isions o( Se$tion 4;'.30 o( the Co panies A$t+ statin& therein the total $apital raised 2, -a, o( OFCDs and the related in(or ation 2, (ilin& the prospe$t#s" F#rther+ it -as also pointed o#t that allot ent had 2een ade to persons -ho -ere $onne$ted -ith the Sahara <ro#p

and that in5estors had &i5en a de$laration to the $o pan, to that e((e$t in ter s o( the RHP" MCA then sent a repl, dated

*D"*;"=;*; statin& that the points * to :+ 1 to *;+ *= to *4+ *C to == had 2een e%a ined and appeared to 2e satis(a$tor," )ith

re&ard to points D+ ** and *9+ the $o pan, -as dire$ted to e((e$t $o plian$e on $los#re o( iss#e 2, (ilin& o( prospe$t#s as re8#ired #nder Se$tion 4;'.30 o( the Co panies A$t" *D" SE'I+ in the ean-hile+ iss#ed a noti$e dated =D"**"=;*;

in(or in& 2oth SIRECL and SHICL that the iss#an$e o( OFCDs -as

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a p#2li$ iss#e and+ there(ore+ se$#rities -ere lia2le to 2e listed on a re$o&ni6ed sto$7 e%$han&e #nder Se$tion 9: o( the Co panies A$t" Fro the preli inar, anal,sis+ it -as pointed o#t that the iss#an$e

o( OFCDs 2, Saharas -as prima facie in 5iolation o( Se$tions 14 and 9: o( the A$t and also 5ario#s $la#ses o( DIP <#idelines and SHICL had also prima facie 5iolated Re&#lations D.=0+ 1.*0+ 4+ 9+ *4.*0+ =;.*0+ =1+ =4+ :4+ :9+ D4 and 19 o( ICDR =;;3" 'oth the

$o panies -ere+ there(ore+ dire$ted to sho- $a#se -h, a$tion sho#ld not 2e initiated a&ainst the to re(#nd the one, soli$ited in$l#din& iss#an$e o( dire$tion and o2ili6ed thro#&h the

prospe$t#s iss#ed -ith respe$t to the OFCDs+ sin$e the, had 5iolated the pro5isions o( the Co panies A$t+ SE'I A$t+ erst-hile DIP <#idelines and ICDR =;;3" *1" SIRECL had $hallen&ed the sho-J$a#seJnoti$e dated

=D"**"*;*; 2e(ore the Allaha2ad Hi&h Co#rt+ L#$7no- 'en$h in )" P" No" **9;= o( =;*;+ -hi$h the Co#rt had sta,ed on *:"*="=;*;" SE'I too7 #p the atter 2e(ore this Co#rt in S"L"P" .Ci5il0 No"

:4DD1 o( =;*; and this Co#rt did not inter(ere -ith the interi order+ 2#t ordered earl, disposal o( the -rit petition" *4" MCA+ (ollo-in& its earlier letter dated =*"3"=;*; iss#ed

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another noti$e dated *D"="=;** dire$tin& SIRECL to (#rnish details on (o#r spe$i(i$ points+ in$l#din& the details o( the n# 2er o( persons -ho had applied in p#rs#an$e to the OFCDs iss#ed+ the ode o( re$eipt o( pa, ent .Appli$ation Re&ister0+ the na e+ address+ n# 2er o( persons to -ho OFCDs -ere allotted

.Allot ent Re&ister0 and also -hether the n# 2er o( allottees to -ho OFCDs -ere allotted et$" e%$eeded (i(t," SIRECL replied to SIRECL+ it -as stated+ had sent a

the noti$e on =4"="=;**"

pass-ord prote$ted CD alon& -ith t-o separate sheets $ontainin& the pro$ed#re and the pass-ord to SE'IL the CD $ontained o( in5estors/ na es+ serial n# 2ers and a o#nts in5ested in OFCDs" SE'I+ ho-e5er+ $o#ld not open the CD d#e to non (#rnishin& o( the pass-ord" SE'I pointed o#t this (a$t 2e(ore the Hi&h Co#rt and order dated *:"*="=;*;" SIRECL

the Co#rt 5a$ated the interi too7 #p the =;**" *9" SIRECL+ in the

atter 2e(ore this Co#rt in S"L"P" .Ci5il0 No" **;=: o(

ean-hile+ $lai ed that it had (#rnished a

separate CD alon& -ith the pass-ord 5ide letter dated *3"D"=;** to SE'I statin& that d#e to the enor it, o( the -or7 and ti e ta7en in $ollatin& and $o pilin& the data relatin& to the na es and

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addresses and the a o#nt in5ested+ the $o pan, $o#ld onl, pro5ide the partial in(or ation relatin& to na es+ n# 2ers and a o#nt in5ested 2, the in5estors thro#&h the $o5erin& letter dated *C":"=;** in a CD" SIRECL then o5ed the Hi&h Co#rt on

=3"D"=;** to re$all the order dated 9"D"=;** on the plea that the details $alled (or 2, SE'I had 2een (#rnished" The Hi&h Co#rt

dis issed the appli$ation+ -hi$h led SIRECL (ilin& SLP .Ci5il0 No" *:=;D o( =;** 2e(ore this Co#rt" This Co#rt on *="1"=;** passed the (ollo-in& order in SLP .Ci5il0 No" **;=: o( =;** and SLP .Ci5il0 No" *:=;D o( =;**I BIn this the atter the 8#estions as to -hat is OFCD and SE'I+ 2ein& the $#stodian o( the other iss#es" 'e(ore -e pass (#rther

anner in -hi$h in5est ents are $alled (or are 5er,

i portant 8#estions" 8#estions apart (ro

In5estor/s and as an e%pert 2od,+ sho#ld e%a ine these orders+ -e -ant SE'I to de$ide the appli$ation.s0 pendin& 2e(ore it so that -e $o#ld o2tain the re8#isite inp#t (or de$idin& these petitions" )e re8#est SE'I to e%peditio#sl, hear and de$ide this $ase so that this Co#rt $an pass s#ita2le orders on reJopenin&" Ho-e5er+ e((e$t to the order o( SE'I -ill not 2e &i5en" )e are ta7in& this ro#te as -e -ant to prote$t the interest o( the In5estor" In the eanti e+ the Hi&h Co#rt a, pro$eed+ i( it so $hooses+ to dispose o( the $ase at the earliest"@

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*C"

SE'I then iss#ed a (resh noti$e dated =;"1"=;** statin& that

Saharas had not pro5ided an, in(or ation to SE'I re&ardin& details o( its in5estors to sho- that the o((er o( OFCDs -as ade

to less than (i(t, persons" F#rther+ it -as pointed o#t that Saharas tho#&h $lai ed+ that the o((erEiss#e -as pla$e ent 2asis+ an, o((erEiss#e to (i(t, or ade on pri5ate

ore persons -o#ld 2e

treated as p#2li$ iss#eEo((er in ter s o( the (irst pro5iso to S#2J se$tion .:0 o( Se$tion 49 o( the Co panies A$t and the pro5isions o( the Co panies A$t &o5ernin& p#2li$ iss#es and the pro5isions o( DIP <#idelines and ICDR =;;3 -o#ld $onse8#entl, appl," F#rther+ it -as also pointed o#t in the noti$e that the RHP pro5ided alon& -ith the letter o( SIRCEL dated *1"*"=;** $ontained #ntr#e state ents -hi$h attra$ted the pro5isions o( Se$tions 4= and 4: o( the A$t and hen$e the o((er o( OFCDs to p#2li$ thro#&h the RHP -as ille&al" F#rther+ it -as stated that none o( the dis$los#re 2, SE'I or the in5estors prote$tion

re8#ire ents spe$i(ied

eas#res pres$ri2ed (or p#2li$ iss#es #nder DIP <#idelines and ICDR =;;3 had 2een $o plied -ith and hen$e there -as prima facie 5iolation o( Se$tion 14 o( the Co panies A$t and hen$e o((er

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o( OFCDs o( Saharas to the p#2li$ -as ille&al"

Noti$e also

indi$ated that Saharas had 5iolated the pro5isions o( Se$tion 9: o( the Co panies A$t+ 2, nonJlistin& o( their de2ent#res in a re$o&ni6ed sto$7 e%$han&e" F#rther+ it -as also pointed o#t that Saharas had not e%e$#ted an, De2ent#re Tr#st Deed (or their OFCDs+ not appointed an, De2ent#re Tr#stee and not $reated an, De2ent#re Rede ption Reser5e+ -hi$h -o#ld a o#nt to 5iolation o( Se$tions **9A+ **9' and **9C o( the Co panies A$t" $o plian$e o( (#rnishin& details in For NonJ

No" =A+ as re8#ired #nder

R#le DCC o( the Co panies .Central <o5ern ent/s0 <eneral R#les and For s+ *314 read -ith DIP <#idelines and ICDR =;;3+ it -as pointed o#t+ had 5iolated Se$tion 14.:0 o( the Co panies A$t"

*3"

SE'I noti$e dated =;"1"=;** also hi&hli&hted that the CD anner that no anal,sis -as possi2le and OFCDs holders -ere in$o plete or

-as se$#red in s#$h a the addresses o( the

a 2i&#o#s"

Serio#s do#2ts -ere also raised -ith re&ard to the

identit, and &en#ineness o( the in5estors and the intention o( the $o panies to repa, the de2ent#re holders #pon rede ption" Noti$e+ there(ore+ stated that the $o panies had prima facie 5iolated the pro5isions o( the Co panies A$t+ SE'I A$t+ *33=+ DIP

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<#idelines and ICDR =;;3 and hen$e the o((erEiss#e o( OFCDs to p#2li$ -as ille&al+ and i periled the interest o( in5estors in s#$h OFCDs and -as detri ental to the interest o( the se$#rities ar7et" Saharas -ere+ there(ore+ $alled #pon to sho- $a#se -h, dire$tions $ontained in the interi order o( SE'I dated =D"**"=;*;

2e not iss#ed #nder Se$tions **.*0+ **.D0.'0+ **A.*0.20 and **' o( SE'I A$t read -ith Re&#lation *;9 o( ICDR =;;3" =;" Saharas then sent a detailed repl, dated :;"1"=;** pointin& ade pri5ate pla$e ent o( OFCDs to

o#t that the appellants had

persons -ho -ere asso$iated -ith Sahara <ro#p and those iss#es -ere not p#2li$ iss#es" F#rther+ it -as also #r&ed that OFCDs

iss#ed -ere in the nat#re o( Bh,2rid@ as de(ined #nder the Co panies A$t and SE'I did not ha5e A#risdi$tion to ad inister those se$#rities sin$e H,2rid se$#rities -ere not in$l#ded in the de(inition o( /se$#rities/ #nder the SE'I A$t+ SCR A$t et$" F#rther+ it -as also #r&ed that s#$h h,2rids -ere iss#ed in ter s o( Se$tion 4;' o( the Co panies A$t and+ there(ore+ onl, the Central <o5ern ent had the A#risdi$tion #nder Se$tion 11A.$0 o( the Co panies A$t" F#rther+ it -as also pointed o#t that Se$tions 49 and 9: o( the Co panies A$t $o#ld not 2e ade appli$a2le to

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H,2rid se$#rities+ so also the DIP <#idelines and ICDR =;;3" F#rther+ it -as reiterated that the $o pan, had raised (#nds 2, -a, o( pri5ate pla$e ent to (riends+ asso$iates+ &ro#p $o panies+ -or7ersEe plo,ees and other indi5id#als asso$iatedEa((iliated -ith Sahara <ro#p+ -itho#t &i5in& an, ad5ertise ent to the p#2li$" F#rther+ it -as also pointed o#t that RoC+ Hanp#r and Maharashtra had re&istered those RHPs -itho#t an, de #r and+ there(ore+ it -as #nne$essar, to send it to SE'I" =*" SE'I passed its (inal order thro#&h its -holeJti e e 2er

.)TM0 on =:"4"=;**" SE'I e%a ined the nat#re o( OFCDs iss#ed 2, Saharas and $a e to the $on$l#sion that OFCDs iss#ed -o#ld $o e -ithin the de(inition o( Bse$#rities@ as de(ined #nder Se$tion =.h0 o( SCR A$t" SE'I also (o#nd that those OFCDs iss#ed to the ar7eta2le and SE'I also (o#nd

p#2li$ -ere in the nat#re o( H,2rid se$#rities+ -o#ld not (all o#tside the &en#s o( de2ent#res"

that the OFCDs iss#ed+ 2, de(inition+ desi&n and $hara$teristi$s intrinsi$all, and essentiall,+ -ere de2ent#res and the Saharas had desi&ned the OFCDs to in5ite s#2s$ription (ro thro#&h their a&ents+ pri5ate o((i$es the p#2li$ at lar&e and in(or ation

e orand# "

SE'I $on$l#ded that OFCDs iss#ed -ere in (a$t

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p#2li$ iss#es and the Saharas -ere 2o#nd to $o pl, -ith Se$tion 9: o( the Co panies A$t+ in $o plian$e -ith the para eters pro5ided 2, the (irst pro5iso to Se$tion 49.:0 o( the Co panies A$t" SE'I too7 the 5ie- that OFCDs iss#ed 2, Saharas sho#ld

ha5e 2een listed on a re$o&ni6ed sto$7 e%$han&e and o#&ht to ha5e (ollo-ed the dis$los#re re8#ire ent and other in5estors/ prote$tion nor s"

=="

SE'I also held that the Parlia ent has $on(erred po-ers on

it #nder Se$tion 11A.20 o( the Co panies A$t to ad inister s#$h iss#es o( se$#rities and Saharas -ere not A#sti(ied in raisin& $rores and $rores o( r#pees on the pre ise that that OFCDs iss#ed 2, the + -ere 2, -a, o( pri5ate pla$e ent" SE'I+ there(ore+ (o#nd that the Saharas had $ontra5ened the pro5isions o( Se$tions 14+ 9:+ **9A+ **9' and **9C o( the Co panies A$t and also 5ario#s $la#ses o( DIP <#idelines" SE'I also held that SHICL had not

$o plied -ith the pro5isions o( Re&#lations D.=0+ 1.*0+ 1.90+ 4+ 9+ *4.*0+ =;.*0+ =1+ =4+ :4+ :9+ D4 and 19 o( ICDR Re&#lations" Ha5in& (o#nd so+ SE'I dire$ted Saharas to re(#nd the one,

$olle$ted #nder the Prospe$t#s dated *:":"=;;C and 4"*;"=;;3 to all s#$h in5estors -ho had s#2s$ri2ed to their OFCDs+ -ith

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interest" =:" Appellants+ a&&rie5ed 2, the a2o5e entioned order o(

SE'I+ (iled Appeal Nos" *:* o( =;** and *:= o( =;** 2e(ore the Tri2#nal and the Tri2#nal passed a $o on order on *C"*;"=;**"

'e(ore the Tri2#nal+ Union o( India+ represented thro#&h the Ministr, o( Co pan, A((airs+ -as i pleaded" The Tri2#nal too7 eanin& o(

the 5ie- that OFCDs iss#ed -ere se$#rities -ithin the

Cla#se .h0 o( Se$tion = o( SCR A$t+ so also #nder SE'I A$t" Tri2#nal also noti$ed that RHP iss#ed 2, SIRECL -as re&istered 2, the RoC on *C":"=;;C+ tho#&h in(or ation e orand# .IM0 -as

iss#ed later in April =;;C in $lear 5iolation o( Se$tion 4;' o( the Co panies A$t" F#rther+ it -as also noti$ed that IM -as iss#ed ore than =3;; 2ran$h o((i$es to ore

thro#&h *; la$ a&ents and than :;

illion persons in5itin& the

to s#2s$ri2e to the OFCDs Tri2#nal also (o#nd (a#lt

-hi$h a o#nted to in5itation to p#2li$"

-ith the RoC as it had (ailed to (or-ard the dra(t RHP to SE'I sin$e it -as a p#2li$ iss#e and hen$e 5iolated Cir$#lar dated *":"*33* iss#ed 2, the Depart ent o( Co pan, A((airs+ <o5ern ent o( India" =D" Tri2#nal also re$orded a (indin& that Saharas+ ha5in& ade a

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p#2li$ iss#e+ $annot es$ape (ro

$o pl,in& -ith the re8#ire ents

o( Se$tion 9:.*0 o( the Co panies A$t on the &ro#nd that the $o panies had not intended to &et the OFCDs listed on an, sto$7 e%$han&e" Tri2#nal also e%a ined the s$ope and a 2it o( Se$tions 11A o( Co panies A$t read -ith Se$tions **+ **A and **' o( SE'I A$t and too7 the 5ie- that a plain readin& o( those pro5isions -o#ld indi$ate that SE'I has A#risdi$tion o5er the Saharas sin$e OFCDs iss#ed -ere in the nat#re o( se$#rities and hen$e sho#ld ha5e 2een listed on an, o( the re$o&ni6ed e%$han&es o( India" SE'I also too7 the 5ie- that the e%planation to Se$tion 11A has to 2e read har onio#sl,+ and i( so read+ $learl, spells o#t the po-ers o( SE'I and the Central <o5ern ent" Tri2#nal also $onsidered the

s$ope o( Se$tion =C.*0.20 o( the SCR A$t and held that the e%$l#sion in the said A$t is not a5aila2le to OFCDs iss#ed 2, the appellants" Tri2#nal $on$l#ded that SE'I has A#risdi$tion #nder andator,

Se$tion 11A.20 and the Saharas had (lo#ted the

pro5isions o( Se$tion 9:.*0 o( the Co panies A$t and the $onse8#en$es pro5ided #nder S#2Jse$tion .=0 o( Se$tion 9: -o#ld+ there(ore+ (ollo- and SE'I had a ple po-ers #nder Se$tions **+ **A and **' o( the SE'I A$t to iss#e dire$tions to re(#nd the a o#nts to the in5estors -ith interest" A&&rie5ed 2, the said

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order+ SIRECL (iled C"A" No" 3C*: o( =;** and SHICL (iled C"A" No" 3C:: o( =;** 2e(ore this Co#rt #nder Se$tion *1M o( the SE'I A$t -hi$h $a e #p (or ad ission on =C"**"=;** and the dire$tion iss#ed to re(#nd s# o( Rs"*9+D;; $rores+ on or 2e(ore

=C"**"=;**+ -as e%tended" This Co#rt also passed the (ollo-in& orderI B', the i p#&ned order+ the appellants ha5e 2een as7ed 2, SAT to re(#nd a s# o( Rs"*9+D;;EJ $rores th appro%i atel, on or 2e(ore =C No5e 2er+ =;**" )e e%tend that period #pto 3th Jan#ar,+ =;*=" In the eanti e+ -e are dire$tin& the appellants to p#t on a((ida5it+ 2e(ore the ne%t date o( hearin&+ the (ollo-in& in(or ationI .a0 Appli$ation o( the (#nds+ -hi$h the, ha5e $olle$ted (ro the DepositorsL .20 Net-orth o( the Co panies -hi$h ha5e re$ei5ed these depositsL
(c) Parti$#lars o( assets o( the said Co

panies a&ainst -hi$h the lia2ilit, has 2een $reated" For that p#rpose+ the appellants -ill prod#$e the re8#isite (inan$ial state ents $onsistin& o( the 'alan$e Sheet and Pro(it and Loss A$$o#nt o( the ,ear endin& :*st Mar$h+ =;** and the State ent o( A$$o#nt #pto :;th No5e 2er+ =;**L

.d0 The A((ida5it -ill indi$ate ho- the said Co pnies see7 to se$#re the lia2ilities -hi$h the

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Co panies ha5e in$#rred and ho- the, -ill prote$t the de2ent#re holdersL .e0 I( ret#rns ha5e 2een (iled #nder In$o e Ta% A$t+ *34*+ the sa e a, 2e anne%ed to the A((ida5it to 2e (iled"@ =1" interi Ci5il Appeals later $a e (or ad ission on 3"*"=;*= and the order &ranted -as e%tended" As dire$ted+ Additional

A((ida5it -ith $ertain do$# ents -ere (iled 2, 2oth the appellants on =;"4"=;*=+ -herein spe$i(i$ re(eren$e -as ade to the a((ida5it

dated *D"3"=;** (iled 2, Saharas 2e(ore the SAT+ the details o( -hi$h -ere &i5en in a $hart (or + -hi$h is as (ollo-sI
SIRECL
Date o( =1"D"=;;C $o en$e ent o( iss#e Total a o#nt $olle$ted till April *:+ =;** Total LessI Pre at#re rede ption Total 'alan$e on A#&#st Rs"*9+414"1: Crs :*+ =;** Total 'alan$e on A#&#st :*+ =;** Rs"*+9DD":D Crs .**"9C la7h in5estors0 LessI Pre at#re rede ption Rs"*3+D;;"C9 Crs Date o( $o en$e ent o( iss#e

SHICL
=;"**"=;;3

Total a o#nt Rs"4+:C;"1; Crs $olle$ted till April *:+ =;** Rs.25,781.37 Crs Rs"9":; Crs .1+:;4 in5estors0 Rs"*+91*"4D .**"9C La7h in5estors0 Rs"4+:9:"=; Crs R".2#,029.$3 C%".

T&'() *&. &+ ,*-."'&%"

Total till 'alan$e April *:+ as on Total till April *:+ 'alan$e as on A#&#st

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=;** .in A#&#st la7hs0 :*+ =;** .in La7hs0 A2ode 'ond Nir an 'ond Real Estate 'ond T&'() 9;"3D =1"DD *:4"D9 232.8/ 9;"41 *D"*= *:4": 221.0$ In$o e 'ond M#ltiple 'ond Ho#sin& 'ond T&'() =;** . in La7hs0 :*+ =;** .in La7hs0

*"D1 :;"D4 D:"=: $/.1# Total till April *:+ =;** .in La7hs0

*"DD :;"D1 D:"*3 $/.08 'alan$e as on A#&#st :*+ =;** .in La7hs0 290.1/

T&'()

30$.99

=4"

Shri Fali S" Nari an+ learned senior $o#nsel appearin& (or

SIRECL (or #lated se5eral 8#estions o( la- -hi$h+ a$$ordin& to the senior $o#nsel+ arise o#t o( the order passed 2, the Tri2#nal" Learned senior $o#nsel s#2 itted that Se$tion 11A o( Co panies A$t $on(ers no po-er on SE'I to ad inister the pro5isions o( Se$tions 14+ 4=+ 4: and 9: o( the Co panies A$t o( an #nlisted $o pan, or to adA#di$ate #pon the alle&ed 5iolation o( those pro5isions+ that too -itho#t (ra in& an, re&#lations #nder Se$tion 4D=.D0 o( the Co panies A$t" Learned senior $o#nsel also pointed

o#t that Se$tions **+ **A and **' o( the SE'I A$t e po-er SE'I to prote$t the interest o( in5estors 2#t not to ad inister the pro5isions o( the Co panies A$t so (ar as an #nlisted p#2li$ $o pan, is $on$erned+ $onse8#entl,+ -hen e%er$isin& po-ers

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#nder SE'I A$t andEor SE'I Re&#lations+ SE'I is not e po-ered to ad inister the pro5isions o( the Co panies A$t relatin& to the iss#e and trans(er o( se$#rities and nonJpa, ent o( di5idends+ so (ar as an #nlisted p#2li$ $o pan, is $on$erned" =9" Learned senior $o#nsel also s#2 itted that the po-ers o(

SE'I to ad inister the a(oresaid pro5isions are li ited to the listed $o panies and p#2li$ $o panies -hi$h intend to &et their se$#rities listed on an, re$o&ni6ed sto$7 e%$han&e in India and+ in an, other $ase+ the po-er o( ad inistration o( Se$tions 14+ 4=+ 4: and 9: -ith respe$t to OFCDs is 5ested onl, -ith the Central <o5ern ent and not -ith SE'I" Re(eren$e -as also pla$ed on the

e%planation to Se$tion 11A and s#2 itted that all po-ers relatin& to Ball other atters@ i"e" atters other than those relatin& to the

iss#e and trans(er o( se$#rities and nonJpa, ent o( di5idends+ in$l#din& the atter relatin& to prospe$t#s -o#ld 2e e%er$ised 2,

the Central <o5ern ent or the RoC and not SE'I" =C" Learned senior $o#nsel also hi&hli&hted the $onspi$#o#s

o ission o( Se$tion 4;' in Se$tion 11A -hi$h+ a$$ordin& to the senior $o#nsel+ indi$ates that SE'I $annot ad inister in $ase o( an, 5iolation o( Se$tion 4;'" E5en other-ise+ learned senior

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$o#nsel s#2 itted that+ as a

atter o( le&islati5e dra(tin&+ Se$tion

4;' $o#ld not ha5e 2een intended to 2e in$l#ded in the parentheti$al $la#se and+ there(ore+ $o#ld not 2e said to 2e $o5ered 2, Se$tion 11A" Learned senior $o#nsel also s#2 itted that e5en i( Se$tion 4;' (alls in 2et-een #nder Se$tions 13 to C*+ Saharas either thro#&h their $ond#$t or a$tion depi$ted no intention to ha5e their se$#rities listed on an, sto$7 e%$han&e in India so as to (all #nder Se$tion 11A.20 o( the A$t" Learned senior $o#nsel also

re(erred to Se$tion 4;'.30 o( the A$t and s#2 itted that the sa e -o#ld appl, onl, in the $ase o( listed $o pan," =3" Learned $o#nsel also re(erred to the Unlisted P#2li$

Co panies .Pre(erential Allot ent0 R#les+ =;;: .(or short /=;;: R#les/0 and s#2 itted that #nlisted p#2li$ $o panies+ (or the (irst ti e+ $o#ld a7e pre(erential allot ent thro#&h pri5ate pla$e ent

p#rs#ant to a spe$ial resol#tion passed #nder S#2Jse$tion .*A0 o( Se$tion C* o( the Co panies A$t+ i( a#thori6ed 2, its Arti$le o( Asso$iation" Se$tion 4;'+ it -as pointed o#t+ $onte plated an

#nlisted $o pan, (ilin& a RHP e5en tho#&h OFCDs -ere not o((ered or to 2e o((ered to the p#2li$" F#rther+ it -as also pointed o#t

that+ at 2est+ the present $ase (alls #nder Se$tion 11A.$0 and it is

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a ena2le onl, to the A#risdi$tion o( the Central <o5ern ent and that SE'I has no A#risdi$tion to ad inister+ inter alia+ the pro5isions o( Se$tions 14+ 4=+ 4: and 9: o( the Co panies A$t+ so (ar as #nlisted p#2li$ $o panies are $on$erned"

:;"

Shri Nari an also s#2 itted that SE'I has $o

itted a

serio#s error in holdin& that the SIRECL had $ontra5ened the pro5isions o( SE'I A$t+ DIP <#idelines read -ith ICDR =;;3" Learned senior $o#nsel pointed o#t that DIP <#idelines -ere e%pressl, repealed 2, ICDR =;;3 and e5en i( the DIP <#idelines appl,+ the sa e -o#ld not $o5er the pre(erential iss#e o( OFCDs 2, Saharas #nder =;;: R#les read -ith Se$tion C*.*A0 o( the Co panies A$t" Learned $o#nsel also pointed that ICDR =;;3

-o#ld appl, to the OFCDs iss#ed 2, SIRECL 2, pri5ate pla$e ent and -hen it $o es to re&#latin& pre(erential allot ent 2, pri5ate pla$e ent 2, #nlisted p#2li$ $o panies+ the sa e is &o5erned 2, =;;: R#les and onl, in $ase o( pre(erential allot ent 2, listed p#2li$ $o panies+ ICDR =;;3 -o#ld appl," :*" Shri Nari an also $ontended that there -as no stat#tor,

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re8#ire ent (or SIRECL to list OFCDs on an, re$o&ni6ed sto$7 e%$han&e #nder the pro5isions o( =;;: R#les" F#rther+ it is also

$ontended that the a2o5e r#les do not ha5e an, dee in& pro5isions (or treatin& an, iss#e as a p#2li$ iss#e on the 2asis o( n# 2er o( persons to -ho o((ers -ere ade or on the 2asis o(

an, other $riteria" Learned senior $o#nsel also s#2 itted that the pro5iso o( Se$tion 49.:0 o( the Co panies A$t+ added 2, the

Co panies A end ent A$t+ =;;; .-"e"(" *:"*="=;;;0+ -as also not attra$ted to =;;: R#les+ hen$e it -as #r&ed that+ in 5ie- o( the stat#tor, r#les o( =;;:+ pre(erential allot ent 2, #nlisted p#2li$ $o panies 2, pri5ate pla$e ent -as pro5ided (or and per itted -itho#t an, restri$tion on n# 2ers as per the pro5iso to Se$tion 49.:0 and -itho#t re8#irin& listin& o( OFCDs on an, re$o&ni6ed sto$7 e%$han&e" Shri Nari an also pointed o#t that it is onl, (ro *D"*="=;**+ the =;;: R#les -ere a ended+ -here2, the de(inition o( pre(erential allot ent -as s#2stit#ted+ -itho#t dist#r2in& or a endin& R#le = o( =;;: R#les" Learned senior $o#nsel s#2 itted that 2, the a ended de(inition o( Pre(erential Allot ent 2, the Unlisted P#2li$ Co panies .Pre(erential Allot ent0 R#les+ =;** .(or short /=;** R#lesG0+ h,2rid instr# ent stands spe$i(i$all, in$l#ded" Conse8#entl,+ the (irst pro5iso to Se$tion 49 o( the Co panies A$t

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32

-as spe$i(i$all, :="

ade appli$a2le"

Learned senior $o#nsel also $ontended that a(ter the

insertion o( the de(inition o( Bse$#rities@ in Se$tion =.D1AA0 as in$l#din& h,2rid and the de(inition o( Bh,2rid@ in Se$tion =.*3A0 o( the Co panies A$t+ the pro5isions o( Se$tion 49 -ere not appli$a2le to OFCDs -hi$h ha5e 2een held to 2e Bh,2rid@" Vario#s 2onds iss#ed 2, Saharas+ learned senior $o#nsel

s#2 itted+ -ere ne5er shares or de2ent#res 2#t h,2rids+ a separate and distin$t $lass o( se$#rities" Se$tion 49+ it -as

s#2 itted+ spea7s onl, o( shares and de2ent#res and not h,2rids and+ there(ore+ Se$tion 49 -o#ld not appl, to OFCDs iss#ed 2, SIRECL" ::" Learned $o#nsel also re(erred to 5ario#s ter s and

$onditions o( the A2ode 'ond+ Nir aan 'ond and Real Estate 'ond and s#2 itted that the, are $on5erti2le 2onds (allin& -ith the s$ope o( Se$tion =C.*0.20 o( the SCR A$t+ in 5ie- o( Se$tion 3.*0 and Se$tion 3.=0. 0 o( that A$t and are not lista2le se$#rities -ithin the eanin& o( Se$tion =.h0 o( the SCR A$t and hen$e there a7in& appli$ations (or listin& #nder Se$tion Learned senior $o#nsel also

is no 8#estion o(

9:.*0 o( the Co panies A$t"

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33

s#2 itted that three Re&istrars o( Co panies N )est 'en&al+ Hanp#r+ and M# 2ai N had+ at di((erent point o( ti e+ re&istered the RHPs at di((erent pla$es o5er a period o( nine ,ears" Re&istrars o( Co panies $o#ld ha5e re(#sed re&istration #nder Se$tion 4;.:0 o( the Co panies A$t as -ell+ i( there -as nonJ$o plian$e o( the pro5isions o( the Co panies A$t" Learned $o#nsel pointed o#t that ha5in& not done so+ it is to 2e pres# ed that pri5ate pla$e ent #nder Se$tion 4;' o( the Co panies A$t -as per issi2le and hen$e no p#niti5e a$tion in$l#din& re(#nd o( the a o#nts is $alled (or and the order to that e((e$t 2e de$lared ille&al" :D" Shri <opal S#2ra ani# + learned senior $o#nsel appearin&

on 2ehal( o( SHICL s#2 itted that an, a$t o( $o p#lsion on Saharas to list their shares or de2ent#res on a sto$7 e%$han&e -o#ld a7e serio#s inroad into their $orporate a#tono ," Learned

senior $o#nsel s#2 its that the $on$ept o( a#tono , in5ol5es the ri&hts o( shareholders+ their (ree spee$h+ their de$ision a7in& and

all other (a$tors" To hi&hli&ht the $on$ept o( $orporate a#tono ,+ learned senior $o#nsel pla$ed relian$e on the Constit#tion 'en$h A#d& ent o( this Co#rt in Life Insurance Corporation of India v. Escorts Ltd. & Ors. .*3C40 * SCC =4D" Learned senior

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34

$o#nsel s#2 itted that SE'IGs insisten$e that Saharas o#&ht to ha5e listed their shares or de2ent#res on a re$o&ni6ed sto$7 e%$han&e in a$$ordan$e -ith Se$tion 9: o( the Co panies A$t -o#ld ne$essaril, e%pose shareholders and de2ent#re holders to the ris7s o( tradin& in shares and -o#ld also $o pel #nlisted $o panies to see7 (inan$ial help (ro in5est ent 2an7ers"

Learned senior $o#nsel pla$ed relian$e on the A#d& ent o( this Co#rt in Union of India v. Allied International Products Ltd. & Anr. .*39;0 : SCC 13D and s#2 itted that Se$tion 9:.*0 -as ena$ted -ith the o2Ae$t that the s#2s$ri2ers -o#ld 2e ens#red the (a$ilit, o( eas, $on5erti2ilit, o( their holdin&s -hen the, ha5e s#2s$ri2ed to the shares on the representation in the prospe$t#s that an appli$ation (or 8#otation o( shares had 2een or -o#ld 2e ade" Learned senior $o#nsel also Co ade re(eren$e to the Cohen

ittee Report .U"H"0 and s#2 itted that the sa e -o#ld 2rin&

a2o#t the tr#e p#rport o( Se$tion 9:+ that it is the o2li&ation on the $o pan, -hi$h has pro ised the shares -o#ld 2e e 2ers o( the p#2li$ that their

ar7eta2le or $apa2le o( 2ein& dealt -ith in the ade re(eren$e to Se$tion

sto$7 e%$han&e" Learned senior $o#nsel

1* o( the Co panies A$t+ *3DC .U"H"0 and the A#d& ent in In re. Nanwa Gold Mines Ltd. .*3110 * )LR *;C; and s#2 itted that

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the o2Ae$t o( Se$tion 1* -as to prote$t those persons -ho had paid one, on the (aith or the pro ise that their shares -o#ld 2e listed" Learned senior $o#nsel pointed o#t that S#2Jse$tion .*0 o( Se$tion 9: is 8#ali(ied 2, the ter Bintendin&@+ -hi$h eans

Se$tion 9:.*0 deals -ith $o panies that -ant to iss#e ne- shares or de2ent#res to 2e listed+ and -hi$h ha5e de$lared to the in5estors that the, intend to ha5e those shares or de2ent#res dealt -ith on the sto$7 e%$han&e" those $o panies to In s#$h a $ase+ Se$tion 9:.*0 o2li&es ore re$o&ni6ed

a7e an appli$ation to one or

sto$7 e%$han&es (or per ission (or the shares or de2ent#res to 2e dealt -ith on the sto$7 e%$han&e or ea$h s#$h sto$7 e%$han&e+ 2e(ore the iss#e o( a prospe$t#s" Learned senior $o#nsel

s#2 itted that the role o( Se$tion 9:.*0 is+ there(ore+ narro- and li ited and those $o panies -hi$h do not intend to list their se$#rities on a sto$7 e%$han&e are not $o5ered 2, this pro5ision" Learned senior $o#nsel s#2 itted that the e%pression Bto 2e dealt in on sto$7 e%$han&e@ o$$#rrin& in the headin& o( Se$tion 9: #st

2e read in the te%t o( that Se$tion+ to rea$h the #nderstandin& that it is not erel, the in5itation o( shares or de2ent#res to the p#2li$

-hi$h -arrants the appli$ation o( Se$tion 9:+ 2#t it is onl, -hen s#$h $o panies intend to ha5e their shares or de2ent#res listed on

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36

the sto$7 e%$han&e that the pres$ription #nder Se$tion 9: shall appl," (reedo Learned senior $o#nsel s#2 itted that the $o pan,Gs to $ontra$t #nder the Constit#tion as -ell as the La- o(

Contra$ts needs to 2e sa(e&#arded and that persons -ho 2elon& to the lo-er e$helons o( so$iet,+ -hile it is ne$essar, that the, ne5er 2e d#ped+ o#&ht not 2e pre5ented (ro eas#res -hi$h -o#ld add to their sa5in&s" $o#nsel pointed o#t that to depri5e the -o#ld 2e a serio#s in(ra$tion" :1" Learned senior $o#nsel re(errin& to Se$tion 4D o( the #st

in5estin& in Learned senior

o( s#$h an opport#nit,

Co panies A$t s#2 itted that the e%pression Bdee ed to 2e prospe$t#s@ indi$ates that -hene5er shares or de2ent#res -hi$h are allotted $an 2e o((ered (or sale to the p#2li$+ s#$h a do$# ent is dee ed to 2e a prospe$t#s and has le&al $onse8#en$es" Se$tion 9:+ a$$ordin& to the learned senior $o#nsel+ operationali6es the intention o( a $o pan, -hi$h is allot ent o( shares -ith a 5ie- to sell to the p#2li$ as $onte plated in Se$tion 4D o( the A$t" So+

-hile Se$tion 4D re(ers to the do$# ents $ontainin& s#$h an o((er as a prospe$t#s+ Se$tion 9: re8#ires the $o pan, to appli$ation 2e(ore the iss#e o( the prospe$t#s" a7e an

Learned senior

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37

$o#nsel also s#2 itted that re(le$ti5e o( the intention to

ere (ilin& o( prospe$t#s is not a7e a p#2li$ o((er" The p#rpose o(

iss#e o( prospe$t#s is to dis$lose tr#e and $orre$t state ents and it $annot 2e $hara$teri6ed as an in5itation to the p#2li$ (or s#2s$ription o( shares or de2ent#res" Learned senior $o#nsel also pointed o#t that the (ilin& o( the prospe$t#s or the ad inistration o( Se$tion 4= on a$$o#nt o( isstate ent in a prospe$t#s -ill 2e

#nderta7en 2, the Central <o5ern ent on a$$o#nt o( e%planation to Se$tion 11A o( the Co panies A$t" s#2 itted that the Learned senior $o#nsel

anner in -hi$h a listed p#2li$ $o pan, -ill

o((er its shares -o#ld 2e deter ined #nder the SE'I A$t as -ell as the SE'I Re&#lations" Learned senior $o#nsel s#2 itted that

Se$tion 4;' o( the Co panies A$t+ as s#$h+ does not pres#ppose or pres$ri2es an intention to list" Se$tion 4;' ena2les a prospe$t#s to 2e (iled -here a $o pan, is not a listed p#2li$ $o pan," Learned senior $o#nsel pointed o#t that IM or RHPs $an 2e (iled altho#&h an o((er o( shares a, 2e ade 2, -a, o( pri5ate

pla$e ent or to a se$tion o( the p#2li$ or e5en to the p#2li$+ 2#t ,et -itho#t intendin& it to 2e listed" Learned senior $o#nsel+

there(ore+ pointed o#t that the stand o( SE'I that -here there is an o((er o( shares or de2ent#res 2, -a, o( prospe$t#s+ it a o#nts to

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38

an o((er o( shares to the &eneral p#2li$ and+ there(ore+ to 2e dealt -ith on a sto$7 e%$han&e+ is $o pletel, (la-ed and that Se$tion 9: $annot 2e interpreted to i pin&e #pon the $orporate a#tono , o( the $o pan," :4" Shri S#2ra ani# also s#2 itted that Se$tion 49 o( the

Co panies A$t does not i pl, that a $o pan,Gs o((er o( shares or de2ent#res to (i(t, or ore persons -o#ld ipso facto 2e$o e a

Fp#2li$ iss#eG or a Fpri5ate o((erG" Learned senior $o#nsel s#2 itted that in order to deter ine -hether an o((er is eant (or the p#2li$

at lar&e or 2, -a, o( pri5ate pla$e ent+ -hat is rele5ant is the intention o( the o((eror" In other -ords+ the n# 2ers are

irrele5ant+ s#2 its the $o#nsel+ it is onl, the intention to o((er to a sele$t or identi(ied &ro#p -hi$h -ill a7e the o((er a pri5ate

pla$e ent" Learned senior $o#nsel also s#2 itted that the pro5iso to s#2Jse$tion .:0 o( Se$tion 49 o( the Co panies A$t -o#ld 2e appre$iated in that 2a$7&ro#nd" s#2 itted that pri5ate Learned senior $o#nsel also is not a#thori6ed 2,

pla$e ent

interpretati5e pro5ision in Se$tion 49.:0 2#t is in (a$t the -ill o( the $o pan, re(le$ted in a Spe$ial Resol#tion #nder Se$tion C*.*A0 o( the Co panies A$t -hi$h deals -ith Bpre(erential allot ent@"

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Learned senior $o#nsel s#2 itted that -hen there is a pri5ate pla$e ent+ irrespe$ti5e o( the n# 2er+ then the o((er o( shares need not ta7e pla$e thro#&h a prospe$t#s 2#t $an e5en ta7e pla$e thro#&h a letter or a :9" Learned e orand# " $o#nsel s#2 itted that the Central

senior

<o5ern ent $orre$tl, #nderstood the position -hile (ra in& the =;;: R#les" Learned senior $o#nsel also s#2 itted that SAT has no A#risdi$tion o5er #nlisted p#2li$ $o panies either #nder Se$tion 11A o( the Co panies A$t or #nder the SE'I A$t" Learned senior $o#nsel re(erred to the 5ario#s pro5isions $on(errin& po-ers on SE'I #nder the SE'I A$t as -ell as the li ited po-ers $on(erred on SE'I #nder the Co panies A$t" Learned senior $o#nsel pointed o#t that SE'I is not $on$erned -ith the se$#rities o( all the $o panies+ nor is it responsi2le (or o5erseein& the so#r$es o( $apital in the $o#ntr,+ e%$ept that -hi$h is in the se$#rities ar7et" Learned

senior $o#nsel also pointed o#t that $o p#lsor, listin& o( s$rips is F#nheard o(G in an, A#risdi$tion" It -as (#rther s#2 itted that it is i possi2le to $on$ei5e that a re&#lator or State or Parlia ent $o#ld a$t#all, intend that there -o#ld 2e a andator, e%pos#re o(

2#siness to 5i$issit#des o( (ort#ne 2ein& s-ept 2, -a5es in the

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sto$7 :C"

ar7et" Learned senior $o#nsel ela2oratel, re(erred to the 5ario#s

pro5isions o( the SE'I A$t in that $onte%t" Learned senior $o#nsel also s#2 itted that the Central <o5ern ent and SE'I $annot appro2ate or repro2ate re&ardin& their A#risdi$tion o5er the #nlisted p#2li$ $o panies" Learned senior $o#nsel pointed o#t that SE'I has $ate&ori$all, stated on oath 2e(ore 5ario#s For# s that an #nlisted p#2li$ $o pan, -as not -ithin its A#risdi$tion i( that $o pan, did not intend to list their shares on the sto$7 e%$han&e" Later+ SE'I has #n(airl, $han&ed its stand 2e(ore the other For# s" Learned senior $o#nsel re(erred to the stand ta7en 2, SE'I 2e(ore the 'o 2a, Hi&h Co#rt in Kalpana E#c!an$e !andari v. "ecurities and

oard of India .=;;10 *=1 Co p" Cases C;D .'o "0

as -ell as Delhi Hi&h Co#rt A#d& ent in "ociet% for Consu&ers and Invest&ent v. Union of India and ot!ers passed in )rit Petition No" *1D49 o( =;;4" Re(eren$e -as also ade to the

A#d& ent o( the Herala Hi&h Co#rt in )rit Petition .C0 No" *3*3= o( =;;: >Kuna&'ula& Paper Mills Ltd. & Ors. (. "ecurities and E#c!an$e oard of India & Ot!ers? learned senior $o#nsel

pointed o#t that SE'I has ta7en $ontradi$tor, stand in 5ario#s

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(or# s

rather

than

properl,

appre$iatin&

and

appl,in&

the

pro5isions o( SE'I A$t and the Co panies A$t" :3" Learned senior $o#nsel also s#2 itted that OFCDs iss#ed 2,

the Saharas are o#tside the p#r5ie- o( the SCR A$t as -ell as the SE'I A$t" Learned senior $o#nsel re(erred to Se$tion =.*3A0 o( the Co panies A$t de(inin& the ter Bse$#rities@ #nder Se$tion Bh,2rid@ and also the de(inition o( and s#2 itted that the

=.D1AA0

le&islati5e intent -as to treat Bh,2rids@ di((erentl, (ro shares or de2ent#res and th#s e%$l#de (ro 49+ the o((er o( h,2rids"

either

the p#r5ie- o( Se$tion

Learned senior $o#nsel s#2 itted that

OFCDs iss#ed 2, Saharas -hi$h are $on5erti2le de2ent#res -o#ld (all -ithin the eanin& o( Ban, $on5erti2le 2ond@ #nder Se$tion the

=C.*0.20 o( SCR A$t and+ there(ore+ -o#ld stand e%$l#ded (ro p#r5ie- o( SCR A$t" D;"

Learned senior $o#nsel also s#2 itted that SE'I has

e%$eeded its A#risdi$tion 2, a$tin& $ontrar, to and 2e,ond this Co#rtGs order dated *="1"=;** passed in SLP.C0 No"**;=: o( =;** and SLP.C0 No"*:;=D o( =;** and has $ond#$ted itsel( in a preA#di$ial to Saharas" anner

Learned $o#nsel pointed o#t that the anner in -hi$h pro$eedin&s ha5e

$ond#$t o( the re&#lator in the

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2een $ond#$ted raises serio#s do#2ts a2o#t SE'I (#n$tions" Learned senior $o#nsel pointed o#t that+ apart (ro A#risdi$tion in an erroneo#s assertin&

anner+ SE'I has no e5iden$e o(

$redi2le nat#re to sho- that Saharas had atte pted to de$ei5e or $olle$t one, (ro (i$titio#s so#r$es" F#rther+ it -as pointed o#t an, in5estor and it ori&inated on

that there -as no $o plaint (ro

a $o plaint 2, a person -ho has no interest in Saharas" Learned senior $o#nsel also s#2 itted that SATGs dire$tion o( re(#nd+ in e%er$ise o( its po-ers #nder Se$tion 9:.=0 o( the Co panies A$t+ is erroneo#s" Learned senior $o#nsel+ there(ore+ s#2 itted that s#$h

a dire$tion to re(#nd the a o#nt -ith interest is 2ad in la- and lia2le to 2e 8#ashed" D*" Shri Ar5ind P" Dattar+ learned senior $o#nsel appearin& on

2ehal( o( SE'I+ s#2 itted that SE'I as -ell as SAT -ere (#ll, A#sti(ied in holdin& that SE'I has A#risdi$tion to ad inister the pro5isions $ontained #nder Se$tion 11A+ so (ar as the, relate to the iss#e and trans(er o( se$#rities 2, Saharas" Learned senior $o#nsel pointed o#t that Saharas had paid #p share $apital o( A#st Rs"*; la7hs and 5irt#all, no assets and the $o panies had $olle$ted a2o#t Rs" =9+;;; $rores (ro a2o#t : $rore s#2s$ri2ers+ thro#&h

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#nse$#red OFCDs"

Learned senior $o#nsel pointed o#t that

Se$tions 11A+ pro5iso to Se$tion 49.:0+ Se$tion 9: and other related pro5isions $learl, 2rin& o#t the intention o( the Parlia ent+ i"e" a(ter *:"*="=;;;+ e5en i( an #nlisted p#2li$ $o pan, o((er o( shares or de2ent#res to (i(t, or a7es an

ore persons+ it -as

andator, to (ollo- all the stat#tor, pro5isions that -o#ld $#l inate in the listin& o( those se$#rities" Learned senior $o#nsel pointed o#t that on$e the n# 2er rea$hes (i(t,+ pro5iso to Se$tion 49.:0 applies and it is an iss#e to the p#2li$+ attra$tin& Se$tion 9:.*0 and an appli$ation (or listin& 2e$o es therea(ter the A#risdi$tion 5ests -ith SE'I" D=" Learned senior $o#nsel ela2oratel, ar&#ed on the str#$t#re andator, and+

o( Se$tion 11A and the p#rpose and o2Ae$t o( the parentheti$al $la#se and the 2ra$7ets e plo,ed in the s#2Jse$tion" Learned

senior $o#nsel re(erred to the -ord Bin$l#din&@ in Se$tion 11A and s#2 itted that the -ord has 2een #sed to e phasi6e and to a7e

it a2#ndantl, $lear that Se$tions 4CA+ 99A and C;A -ill 2e ad inistered 2, SE'I e5en tho#&h the, do not pri aril, deal -ith the iss#e and trans(er o( se$#rities and nonJpa, ent o( di5idend" Learned senior $o#nsel pointed o#t that i( Se$tion 4;' is e%$l#ded

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(ro

the

ain part o( Se$tion 11A+ it -ill stand e%$l#ded (or listed

$o panies as -ell -hi$h is a $onse8#en$e ne5er en5isa&ed or intended 2, the Le&islat#re" Learned senior $o#nsel also s#2 itted on a re(eren$e to Se$tions 13 to C* that Parlia ent intended to in$l#de all se$tions in that ran&e" Learned senior $o#nsel pointed

o#t that Se$tion 11A also applies to $o panies -hi$h Bintend to@ &et their se$#rities listed and that on a $o 2ined readin& o( the pro5iso to Se$tion 49.:0 and Se$tion 9:.*0+ sin$e Saharas had ade an o((er o( OFCDs to re8#ire ent to ore than (ort, nine persons+ the andator, and

a7e appli$ation (or listin& 2e$a e

SE'I has the ne$essar, A#risdi$tion e5en tho#&h Saharas had not &ot their se$#rities listed on a sto$7 e%$han&e" Learned senior

$o#nsel also stated that+ the plea+ that Saharas ne5er -anted or intended to list their se$#rities+ hen$e es$aped (ro the ri&or o(

Se$tions 11A+ 4;'+ 9: et$" o( the Co panies A$t+ $annot 2e s#stained" Learned senior $o#nsel s#2 itted that Saharas sho#ld 2e A#d&ed 2, -hat the, did+ not -hat the, intended" Re(eren$e ristol

-as pla$ed on a Pri5, Co#nsel A#d& ent in )oun$ v. Aeroplane Co&pan% Ltd. >*3D1 PC *4: .HL0?" $o#nsel also

Learned senior

ade ela2orate ar&# ents on the e%planation to

Se$tion 11A as -ell"

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45

D:"

Shri

Dattar

also

s#2 itted

that

DIP

<#idelines

ha5e

stat#tor, (or$e sin$e the, are

ade spe$i(i$all, #nder the po-ers

&ranted to SE'I #nder Se$tion ** o( the SE'I A$t" Learned senior $o#nsel pointed o#t that DIP <#idelines -ere i ple ented 2, SE'I -ith re&ard to all listed $o panies and #nlisted $o panies -hi$h ade a p#2li$ o((er+ #ntil it -as repla$ed 2, ICDR =;;3" Learned senior $o#nsel s#2 itted $ontradi$tion o( Se$tion that the iss#e o( OFCDs -as in 9:.*0 and the appli$a2le DIP

<#idelinesEICDR =;;3+ $onse8#entl,+ SE'I -as o2li&ed to pass orders (or re(#ndin& the a o#nt that -as $olle$ted 2, Saharas" DD" Learned senior $o#nsel s#2 itted that #nder Se$tion **.*0

o( the SE'I A$t+ SE'I is d#t, 2o#nd to prote$t the interest o( in5estors in se$#rities either listed or -hi$h are re8#ired 2, la- to 2e listed+ and #nder Se$tion **'+ SE'I has the po-er to iss#e appropriate dire$tions+ in the interests o( in5estors in se$#rities and the se$#rities se$#rities ar7et+ to an, person -ho is asso$iated -ith Learned senior $o#nsel pointed o#t that =;;:

ar7et"

R#les are not appli$a2le a(ter =;;:+ to an, o((er or shares or de2ent#res to ore than (ort, nine persons and the r#les -ere a7e e%pli$it -hat -as alread,

a ended in the ,ear =;** to

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i pli$it+ 2#t the stat#tor,

andate in this re&ard -as

ade $lear

-"e"(" *:"*="=;;;+ and that the =;;: R#les -ill 2e s#2Ae$t to the stat#tor, pro5isions o( the pro5iso to Se$tions 49.:0 and 9:.*0" D1" Learned senior $o#nsel also s#2 itted that Saharas/ 2asi$

ass# ption that the, are $o5ered 2, =;;: R#les is erroneo#s" Learned $o#nsel pointed o#t that a p#2li$ iss#e -o#ld not 2e$o e a pre(erential allot ent 2, erel, la2elin& it as s#$h and the (a$ts

on re$ord sho- that the iss#e $o#ld not 2e ter ed as a pre(erential allot ent" Pre(erential allot ent+ learned $o#nsel s#2 its+ is

ade 2, passin& a spe$ial resol#tion #nder Se$tion C*.*A0 and is an e%$eption to the r#le o( ri&hts iss#e that re8#ires ne- shares or de2ent#res to 2e o((ered to the e%istin& e 2ersEholders on a pro

rata 2asis" Learned senior $o#nsel pointed o#t that on$e the o((er is ade to ore than (ort, nine persons+ then apart (ro

$o plian$e -ith Se$tion C*.*A0+ other re8#ire ents re&ardin& p#2li$ iss#es ha5e to 2e $o plied -ith" D4" Shri Dattar (#rther s#2 itted that a(ter insertion o( the

pro5iso to Se$tion 49.:0 in De$e 2er+ =;;;+ pri5ate pla$e ent as allo-ed #nder Se$tion 49.:0 -as restri$ted #p to (ort, nine persons onl, and =;;: R#les -ere (ra ed 7eepin& this stat#tor, pro5ision

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in

ind and -ere ne5er intended (or pri5ate pla$e entEpre(erential ore than (ort, nine persons and the a end ents to ade in the ,ear =;** erel, ade the said le&al

iss#e to

these r#les

position #nder the =;;: R#les+ e%pli$it" Shri Dattar also s#2 itted that OFCDs are de2ent#res 2, na e and the nat#re and the de(inition o( /de2ent#re/ as &i5en #nder Se$tion =.*=0 o( the Co panies A$t in$l#des an, other se$#rities" Learned senior

$o#nsel s#2 itted that the se$#rities as de(ined in Se$tion =.D1AA0 o( the Co panies A$t in$l#des h,2rids and+ there(ore+ h,2rids (all in the de(inition o( de2ent#res and are a ena2le to the pro5isions o( Se$tions 49 and 9: o( the Co panies A$t" D9" Shri Dattar also s#2 itted that Se$tion =C.*0.20 o( SCR A$t

does not appl, to $on5erti2le de2ent#res and the plea raised 2, Saharas is also #ntena2le 2e$a#se the interpretation pla$ed on Se$tion =C.*0.20 -o#ld 2e in $ontradi$tion to the andator,

pro5isions o( Se$tion 9:.*0 and the pro5iso to Se$tion 49.:0 o( the Co panies A$t" It -as ne%t s#2 itted that i( the $on5erti2le SCR A$t+ it -o#ld lead to a

de2ent#res are e%$l#ded (ro

parado%i$al sit#ation 2e$a#se these de2ent#res are re8#ired to 2e listed #nder Se$tion 9:.*0 2#t the, $annot 2e listed in 5ie- o(

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Se$tion =C.*0.20" Learned senior $o#nsel s#2 itted that SE'I has ri&htl, $lai ed A#risdi$tion to ad inister the OFCDs+ as it -as o2li&ator, on the part o( Saharas to $o pl, -ith the stat#tor, re8#ire ents o( the Co panies A$t+ SE'I A$t and SCR A$t" Saharas+ learned senior $o#nsel s#2 its+ had no ri&ht to $olle$t Rs"=9+;;; $rores (ro three $rore in5estors -itho#t $o pl,in& -ith

an, re&#lator, pro5isions+ e%$ept (ilin& o( RHP -ith RoCs at Hanp#r and M# 2ai and that SE'I -as A#sti(ied in dire$tin& re(#ndin& o( a o#nt -ith *1O interest" DC" Shri Harin P" Ra-al+ Additional Soli$itor <eneral appearin&

on 2ehal( o( Union o( India pla$ed detailed -ritten s#2 issions+ s#pportin& the stand ta7en 2, SE'I" Po-ers $on(erred on SE'I

#nder the SE'I A$t as -ell as the Co panies A$t ha5e 2een ela2oratel, dealt -ith in the -ritten s#2 issions (iled 2, hi + pointin& o#t that there is no $on(li$t o( A#risdi$tion o( SE'I or RoCEMCA -hile en(or$in& the pro5isions o( SE'I A$t and the Co panies A$t" It -as pointed o#t that there is no o5erlap+ #$h

less an, rep#&nan$, or $on(li$t 2et-een pro5isions o( SE'I A$t and those o( Se$tion 11A o( the Co panies A$t and the Se$tions en# erated there#nder" It -as pointed o#t that Se$tions **A and

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**' o( SE'I A$t sho#ld 2e read as pro5isions additional to Se$tion 11A" Re(eren$e -as also ade to Se$tion := o( the SE'I A$t and

it -as s#2 itted that the pro5isions o( SE'I A$t are Bin addition to@ and Bnot in dero&ation o(@ the pro5isions o( an, other la-+ #nless the pro5isions o( SE'I A$t are -holl, in$onsistent -ith the Co panies A$t+ the pro5isions o( 2oth the SE'I A$t and the Co panies A$t sho#ld 2e har oni6ed and 2oth sets o( pro5isions &i5en operation" F#rther+ it -as pointed o#t that Se$tions **+ **A+

**' o( SE'I A$t are spe$ial la- and Se$tion 11A and the en# erated se$tions o( the Co panies A$t are &eneral la-" It -as (#rther pointed o#t that Se$tions **.=A0+ **.D0 and **A o( SE'I A$t -ere ena$ted .or a ended0 in =;;= and those pro5isions did not li it SE'I/s po-ers to onl, re&#latin& listed $o panies" Moreo5er+ those pro5isions -ere predi$ated #pon the $ontin#ed operation o( Se$tions ** and **' e5en to #nlisted $o panies and+ $onse8#entl,+ it $annot 2e said that the Parlia ent intended Se$tion 11A o( the Co panies A$t to i pliedl, repeal the po-ers o( SE'I in relation to #nlisted $o panies #nder Se$tions ** and **' o( SE'I A$t" S12%.3. C&1%' (" ( 4&1%' &+ (22.() D3" Saharas ha5e (iled these appeals+ #nder Se$tion *1M o( the

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50

SE'I A$t+ raisin& 5ario#s 8#estions o( la- -hi$h the, $lai o#t o( the order o( the Tri2#nal" Se$tion *1M reads as (ollo-I A22.() '& S12%.3. C&1%'5 61/7. An, person a&&rie5ed 2, an, de$ision or order o( the Se$#rities Appellate Tri2#nal a, (ile an appeal to the S#pre e Co#rt -ithin si%t, da,s (ro the date o( $o #ni$ation o( the de$ision or order o( the Se$#rities Appellate Tri2#nal to hi on an, 8#estion o( la- arisin& o#t o( s#$h orderI P%&-,8.8 that the S#pre e Co#rt a,+ i( it is satis(ied that the appli$ant -as pre5ented 2, s#((i$ient $a#se (ro (ilin& the appeal -ithin the said period allo- it to 2e (iled -ithin a (#rther period not e%$eedin& si%t, da,s"@ 1;"

arise

The Se$#rities Appellate Tri2#nal .(or short FSATG0 -hi$h

e%er$ises po-ers #nder Se$tion *1T+ it is -ell settled+ is the (inal adA#di$ator o( (a$ts" Under S#2Jse$tion .:0 o( Se$tion *1U o(

SE'I A$t+ e5er, pro$eedin& 2e(ore the Tri2#nal shall 2e dee ed to 2e a A#di$ial pro$eedin& -ithin the eanin& o( Se$tions *3: and

==C and (or the p#rpose o( Se$tion *34 IPC" Under Se$tion *1U+ the Tri2#nal+ in e%er$ise o( its po-ers and in dis$har&e o( its (#n$tions+ shall not 2e 2o#nd 2, the pro$ed#re laid do-n 2, the Code o( Ci5il Pro$ed#re+ 2#t shall 2e &#ided 2, the prin$iples o( nat#ral A#sti$e" The Tri2#nal has+ (or the p#rpose o( dis$har&in& its (#n$tions+ the sa e po-ers as are 5ested in a Ci5il Co#rt #nder the

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51

Code o( Ci5il Pro$ed#re"

'roadl, spea7in&+ the Tri2#nal has

trappin&s o( a $o#rt in the sense that it has to deter ine the appeal pla$ed 2e(ore it A#di$iall, and &i5e a (air hearin& to the parties+ to a$$ept e5iden$e and also order (or inspe$tion and dis$o5er, o( do$# ents+ $o pel attendan$e o( -itnesses and to pass a reasoned order -hi$h &i5es (inalit, to the disp#te+ s#2Ae$t to the appeal to S#pre e Co#rt #nder Se$tion *1M o( the A$t" Findin&s o( (a$t &enerall, (all in the do ain o( the Tri2#nal pro5ided it sta,s -ithin its A#risdi$tion" Sit#ations a, also 2e

there+ -here the e5iden$e ta7en as a -hole is not reasona2l, $apa2le o( s#pportin& the (indin&s re$orded 2, the Tri2#nal or the Tri2#nal $o#ld ha5e reasona2l, re$orded that $on$l#sion"

P#estions repeatedl, posed in this $ase 2e(ore SE'I as -ell as 2e(ore SAT+ -ere -ith re&ard to the nat#re o( OFCDs iss#ed 2, Saharas" RHPs prod#$ed had dis$losed that Saharas did not intend the proposed se$#rities to 2e listed on an, sto$7 e%$han&e and that the iss#es $onsisted o( #nse$#red OFCDs -ith an option to $on5ert the sa e to e8#it, shares" iss#e -as Saharas had also dis$losed that the

ade on a pri5ate pla$e ent 2asis and that OFCDs IM -o#ld 2e ore than

-o#ld 2e o((ered also to s#$h persons to -ho

$ir$#lated" '#t the (a$t re ains that it -as $ir$#lated to

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52

three $rore people in5itin& the

to s#2s$ri2e"

The sa e -as

$ir$#lated thro#&h ten la$ a&ents and

ore than =3;; 2ran$h

o((i$es and Saharas had a $apital 2ase o( onl, *; la7hs -ith no other assets or reser5es and -as a loss a7in& $o pan, and had

$olle$ted nearl, =9+;;; $rores 2, -a, o( pri5ate pla$e ent thro#&h #nse$#red OFCDs redee a2leE$on5erti2le a(ter DCE4;E*=; onths"

Fa$t (indin& a#thorities repeatedl, as7ed (or in(or ation re&ardin& the na es+ addresses o( in5estors in OFCDs and the a o#nts s#2s$ri2ed 2, the " SIRECL $lai ed that it had (#rnished to SE'I a separate CD &i5in& the details o( na es o( in5estors+ the a o#nt in5ested et$" alon& -ith the pass-ord and 7e,s+ alon& -ith its letter dated *3"D"=;** -hi$h+ a$$ordin& to SIRECL+ -as ne5er opened or $he$7ed" SE'I+ as alread, indi$ated+ has 2een 5ested

-ith the po-ers o( a Ci5il Co#rt #nder CPC+ as per S#2Jse$tion .:0 o( Se$tion ** o( the SE'I A$t" Under Se$tion **C+ the 'oard has also 2een 5ested -ith the po-ers to order in5esti&ation to e%a ine -hether an, person asso$iated -ith se$#rities ar7et has 5iolated ade or

an, pro5ision o( the A$t or the r#les or the re&#lations dire$tion iss#ed 2, the 'oard" 1*"

Saharas+ alon& -ith Vol III .additional do$# ents0+ (iled

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2e(ore this Co#rt+ &a5e $ertain details o( the persons -ho ha5e in5ested" Do$# ents prod#$ed 2e(ore #s and 2e(ore the (a$t

(indin& a#thorities do not sho- the relationship Sahara <ro#p had -ith the in5estors" Clai o( Saharas -as that the in5estors -ere

their (riends+ asso$iated &ro#p $o panies+ -or7ersEe plo,ees and other indi5id#als -ho -ere asso$iatedEa((iliated or $onne$ted -ith Sahara <ro#p" (ro Saharas+ in the 2onds+ so#&ht (or a de$laration

the appli$ants that the, had 2een asso$iated -ith Sahara No details had 2een (#rnished to sho- -hat t,pes o( 'onds also

<ro#p"

asso$iation the in5estors had -ith Sahara <ro#p"

re8#ired to na e an introd#$er+ -hose Ao2 e5identl, -as to introd#$e the $o pan, to the prospe$ti5e in5estor" I( the o((er -as ade to those persons related or asso$iated -ith Sahara <ro#p+ there -as no ne$essit, o( an introd#$er and an introd#$tion" '#rden o( proo( is entirel, on Saharas to sho- that the in5estors areE-ere their e plo,eesE -or7ers or asso$iated -ith the other $apa$it, -hi$h the, ha5e not dis$har&ed" in an,

Fa$t (indin&

a#thorities ha5e $learl, held that Saharas had not dis$har&ed their 2#rden -hi$h is p#rel, a 8#estion o( (a$t" Fa$ts are ela2oratel,

dis$#ssed 2, SE'I .)TM0 and SAT+ hen$e -e do not -ant to 2#rden this A#d& ent -ith those (a$t#al details" I (ind no

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per5ersit, or ille&alit, in those (indin&s -hi$h $all (or inter(eren$e 2, this Co#rt sittin& #nder Se$tion *1M o( the SE'I A$t" there(ore+ (#ll, $on$#r -ith the Tri2#nal that the I+

one, $olle$ted

2, Saharas thro#&h their RHPs dated *:":"=;;C and 4"*;"=;;3+ thro#&h the OFCDs+ -ere (ro -o#ld a o#nt to $olle$tion o( the p#2li$ at lar&e and the sa e one, 2, -a, o( iss#e o( se$#rities

to the p#2li$+ a (indin& -hi$h $alls (or no inter(eren$e 2, this Co#rt sittin& #nder Se$tion *1M o( the SE'I A$t" 1=" #s" I -ill no- e%a ine 5ario#s 8#estions o( la-s raised 2e(ore Follo-in& are so e o( the $ardinal iss#es that ha5e $o e #p other in$idental iss#es and an$illar,

(or $onsideration+ apart (ro iss#es+ -hi$h also I

a, deal -ithI

PUESTIONS OF LA) FRAMED .a0 )hether SE'I has A#risdi$tion or po-er to ad inister the

pro5isions o( Se$tions 14+ 4=+ 4:+ 49+ 9: and the related pro5isions o( the Co panies A$t+ a(ter the insertion o( Se$tion 11A.20 -"e"(" *:"*="=;;;+ 2, the Co panies .A end ent0 A$t+ =;;;+ so (ar as it relates to iss#e and trans(er o( se$#rities 2, listed p#2li$ $o panies+ -hi$h intend to &et their se$#rities listed on a re$o&ni6ed sto$7 e%$han&e and p#2li$ $o panies -hi$h ha5e iss#ed se$#rities to (i(t, persons or ore -itho#t listin& their se$#rities on a re$o&ni6ed sto$7 e%$han&eL

Page 54

55 (b) )hether the p#2li$ $o

panies re(erred in 8#estion no" .a0 is

le&all, o2li&ed to (ile the (inal prospe$t#s #nder Se$tion 4;'.30 -ith SE'I and -hether Se$tion 4;'+ as it is+ (alls #nder Se$tion 11A o( the Co panies A$tL
(c) )hether Se$tion 49 o( the Co

panies A$t i plies that the ore

$o pan,Gs o((er o( shares or de2ent#res to (i(t, or

persons -o#ld ipso facto 2e$o e a p#2li$ iss#e+ s#2Ae$t to $ertain e%$eptions pro5ided therein and the s$ope and a 2it o( the (irst pro5iso to Se$tion 49.:0 o( the A$t+ -hi$h -as inserted -"e"(" *:"*="=;;; 2, the Co panies .A end ent0 A$t+ =;;;L .d0 )hat is the s$ope and a 2it o( Se$tion 9: o( the Co panies

A$t and -hether it $asts an o2li&ation on a p#2li$ $o pan, intendin& to o((er its shares or de2ent#res to the p#2li$+ to appl, (or listin& o( its se$#rities on a re$o&ni6ed sto$7 e%$han&e on$e it in5ites s#2s$ription (ro persons and -hat le&al $onse8#en$es (i(t, or -o#ld (ollo-+ ore i(

per ission #nder s#2Jse$tion .*0 o( Se$tion 9: is not applied (or listin& o( se$#ritiesL .e0 )hat is the s$ope and a 2it o( DIP .<#idelines0 and ICDR =;;3 and -hether Sahara had 5iolated the 5ario#s pro5isions o( the DIP .<#idelines0 and ICDR =;;3+ 2, not $o pl,in& -ith the dis$los#re re8#ire ents or in5estor prote$tion eas#res pres$ri2ed (or p#2li$ iss#e #nder DIP .<#idelines0 and ICDR =;;3+ there2, 5iolatin& Se$tion 14 o( the Co panies A$tL .(0)hether R#les =;;: (ra ed 2, the Central <o5ern ent #nder Se$tion C*.*A0 o( the Co panies A$t read -ith Se$tion 4D= o(

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the A$t are appli$a2le to an, o((er o( shares or de2ent#res to (i(t, or ore as per the (irst pro5iso to s#2Jse$tion .:0 o( Se$tion 49 o( the Co panies A$t and -hat is the e((e$t o( UPC .PA0 A end ent R#les =;** and -hether it -o#ld operate onl, prospe$ti5el, OFCDs to (i(t, or .&0 a7in& it per issi2le (or Saharas to iss#e ore persons prior to *D"*="=;**L

)hether a(ter the insertion o( the de(inition o( Fse$#ritiesG in Bh,2rid@ in Se$tion =.*3A0

Se$tion =.D1AA0 as Bin$l#din& h,2rids@ and a(ter insertion o( the separate de(inition o( the ter o( the A$t+ the pro5ision o( Se$tion 49 -o#ld appl, to OFCDs iss#ed 2, Saharas and -hat is the e((e$t o( the de(inition $la#se =.h0 o( SCR A$t on itL .h0 )hether OFCDs iss#ed 2, Saharas are $on5erti2le 2onds (allin& -ithin the s$ope o( Se$tion =C.*0.20 o( the SCR A$t+ there(ore+ not Fse$#ritiesG or+ at an, rate+ not lista2le #nder the pro5isions o( SCR A$tL .i0 )hether SE'I $an e%er$ise its A#risdi$tion #nder Se$tions **.*0+ **.D0+ **A.*0.20 and **' o( the SE'I A$t and Re&#lation *;9 o( ICDR =;;3 o5er p#2li$ $o panies -ho ha5e iss#ed shares or de2ent#res to (i(t, or se$#rities on a re$o&ni6ed sto$7 e%$han&e" .A0 S$ope o( Se$tion 9:.=0 o( the Co panies A$t re&ardin& re(#nd o( the .70 one, $olle$ted (ro the P#2li$L Ci5il and Cri inal lia2ilit, #nder the 5ario#s pro5isions o( ore+ 2#t ha5e not $o plied -ith the pro5ision o( Se$tion 9:.*0 2, not listin& its

the Co panies A$t"

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1:"

M#$h o( the ar&# ents on either side $entered ro#nd the

s$ope and interpretation o( 5ario#s pro5isions o( the Co panies A$t+ SE'I A$t and the r#les and re&#lations (ra ed there#nder+ relatin& to atters $on$ernin& the iss#e o( se$#rities+ po-ers o(

SE'I+ Central <o5ern ent .MCA0+ RoC+ -hi$h are 2ein& dis$#ssed here#nder" Po-ers $on(erred on SE'I+ Central <o5ern ent+ .MCA0+ RoC et$" #nder the Co panies A$t+ SE'I A$t also $all (or $onsideration" P&9.%" &+ SEBI, C.*'%() G&-.%*3.*', MCA!, R.:,"'%(% &+ C&32(*,." 1*8.% ';. 4&32(*,." A4' (*8 SEBI A4'5 1D" The Co panies A$t+ *314 is a $onsolidation o( the then

e%istin& la-s+ stat#tor, r#les and $ertain A#d& ents laid do-n 2, the Co#rts in India and En&land" This Co#rt in Co&&issioner of

Inco&e *a#+ Gu,arat v. Gird!ardas and Co. Private Ltd. AIR *349 SC 931+ noti$ed that the Co panies A$t+ *314 s#2stantiall, in$orporated the pro5isions o( the En&lish Co panies A$t+ *3DC" Ho-e5er+ there has 2een $onsidera2le shi(t o( prin$iples and $on$epts a(ter the (or ation o( *3DC En&lish Co panies A$t and those prin$iples and $on$epts (ind a pla$e in the later En&lish

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Co panies A$t+ *3C1+ (ollo-ed 2, *3C3 A$t"

Indian Co panies No e((orts ha5e

A$t+ *314 still re ains stati$ on 5ario#s iss#es" 2een

ade to in$orporate #ni5ersall, a$$epted prin$iples and O( late+ ho-e5er+ so e

$on$epts into o#r $o pan, la-+ hitherto" e((orts ha5e 2een

ade to $arr, on (e- a end ents to the

Co panies A$t+ *314+ so also in the SE'I A$t+ *33= and also 2, (ra in& r#les and re&#lations li7e SE'I R#les+ Re&#lations+ so as to 7eep pa$e -ith the En&lish Co panies A$t and related le&islations" Instan$es are an, -here se$#rities ar7et ha5e $ollapsed in

En&land+ USA+ India et$" d#e to hi&hJpro(ile $orporate (ra#d $ases+ leadin& to le&islati5e inter5ention in 5ario#s $o#ntries in$l#din& India" For e%a ple+ En&land (a$ed a (lood o( spe$#lati5e and

(ra#d#lent s$he es o( $o pan, (lotation+ a $lassi$ e%a ple is s$he e (or #lated 2, the So#th Sea Co pan,+ -hi$h $ollapsed in *9=;+ -hi$h heralded the start o( Se$#rit, La- in En&land" <reat Crash o( Ne- Kor7 in *3=3 also $ontri2#ted in e8#al (ro eas#re apart Vario#s

other hi&hJpro(ile $orporate (ra#d $ases in U"S"A"

5ent#res+ #nderta7in&s 2, the $o panies re&istered #nder En&land Co panies A$t ha5e their o-n i pa$t on Se$#rities La- as -ell" Prior to *3C1+ in En&land+ the pro$ed#re to 2e (ollo-ed 2, the $o panies (or the iss#e o( se$#rities -ere ainl, $ontained in the

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Co panies A$t *3DC+ the Co panies A$t *3C; and the Pre5ention o( Fra#d in In5est ent A$t *31C" Later+ in En&land+ the Co panies A$t =;;4 -as ena$ted a7in& detailed and i portant $han&es to Se$#rities ar7ets no- stand

the le&al treat ent o( shares"

$ontrolled 2, the Finan$ial Ser5i$es and Mar7et A$t+ =;;; .FSMA0 in En&land+ -hi$h has $reated the Finan$ial Ser5i$e A#thorit, .FSA0" Histori$al (a$ts also sho- that (ra#d#lent a$$o#ntin& and

nonJdis$los#re o( in(or ation -as root $a#se (or $ollapse o( Enron+ 'arin&s+ )orld Co + 'CCI et$" -hi$h p#t the re(or s o( $orporate &o5ernan$e on the a&enda in the United States"

11"

India is also not an e%$eption"

Harshad Mehta+ a 'ro7er+ the 'an7 to the t#ne o(

-as $har&ed (or di5ertin& (#nds (ro

Rs"D;;; $rores to sto$7 2ro7ers 2et-een *33*J3=L Hetan Pare7h Se$#rities S$a in the ,ear =;;* in -hi$h in5estors+ it -as =;;*+ s all

reported+ had lost hea5il,L so also the 'an7s in the UTI s$a -here it -as reported that hea5, (#nds -ere $olle$ted (ro in5estors and

one, -as #sed to (#nd lar&e 2#siness ho#ses and Sat,a Co p#ters

h#&e a o#nts -ere in5ested in A#n7 2ondsL S$a Sat,a

o( =;;C+ -here it -as reported that+ o5er a n# 2er o( ,ears+ Co p#ter a$$o#nt -as anip#lated and one, -as raised

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60

thro#&h shares" 14" 'oth in En&land and India+ it is -ell esta2lished+ that the a, 2e per(or ed 2, a $o pan, P#2li$ the

ran&e o( (#n$tions that

in$orporated #nder the Co panies A$t is e%tre el, -ide" $o panies and pri5ate $o panies+ (#n$tionin&

#nder

Co panies A$t =;;4 in En&land+ the Co panies A$t *314 in India+ ha5e $onsidera2le so$ial and e$ono i$ i portan$e+ 2#t p#2li$ $o panies are ore hi&hl, re&#lated than pri5ate $o panies"

Pri5ate $o panies are not a#thori6ed to o((er an, se$#rities to the p#2li$" FSMA in En&land &enerall, deals -ith iss#e o( se$#rities to the p#2li$+ in$l#din& listin& R#les+ the Prospe$t#s R#les+ and $ontin#in& o2li&ation $ontained in the Dis$los#re and Transparen$, R#les et$" The Co panies A$t *314 in India -as ena$ted -ith the o2Ae$t to prote$t the interests o( a lar&e n# 2er o( shareholders+ sa(e&#ard the interests o( the $reditors to attain the #lti ate ends o( so$ial and e$ono i$ poli$, o( the <o5ern ent" Pro5isions ha5e also 2een in$orporated and other a7in& pro5isions (or prospe$t#s+ allot ent

atters relatin& to iss#e o( shares and de2ent#res et$"

Parlia ent has also ena$ted the SE'I A$t to pro5ide (or the esta2lish ent o( a 'oard to prote$t the interests o( in5estors in

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se$#rities and to pro ote the de5elop ent o(+ and to re&#late the se$#rities ar7et" SE'I -as esta2lished in the ,ear *3CC to ar7et and

pro ote orderl, and health, &ro-th o( the se$#rities (or in5estors/ prote$tion"

SE'I A$t+ R#les and Re&#lations also

o2li&e the p#2li$ $o panies to pro5ide hi&h de&ree o( prote$tion to the in5estorGs ri&hts and interests thro#&h ade8#ate+ a$$#rate and a#thenti$ in(or ation and dis$los#re o( in(or ation on a $ontin#o#s 2asis"

19"

SE'I A$t is a spe$ial la-+ a $o plete $ode in itsel( $ontainin&

ela2orate pro5isions to prote$t interests o( the in5estors" Se$tion := o( the A$t sa,s that the pro5isions o( that A$t shall 2e in addition to and not in dero&ation o( the pro5isions o( an, other la-" 1C" SE'I A$t is a spe$ial A$t dealin& -ith spe$i(i$ s#2Ae$t+ -hi$h

has to 2e read in har on, -ith the pro5isions o( the Co panies A$t *314" In (a$t+ =;;= A end ent o( the SE'I A$t (#rther reJ

e phasi6e the (a$t that so e o( the pro5isions o( the A$t -ill $ontin#e to operate -itho#t preA#di$e to the pro5isions o( the Co panies A$t+ 8#a (e- pro5isions sa, that not-ithstandin& the re&#lation and order ade 2, SE'I+ the pro5isions o( the

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Co panies

A$t

dealin&

-ith

the

sa e

iss#es

-ill

re ain

#na((e$ted" I onl, -ant to hi&hli&ht the (a$t that 2oth the A$ts -ill ha5e to -or7 in tande + in the interest o( in5estors+ espe$iall, -hen p#2li$ one, is raised 2, the iss#e o( se$#rities (ro the

people at lar&e" 13" Po-ers and (#n$tions o( SE'I are dealt -ith in Chapter IV o(

the SE'I A$t" Se$tion ** states that+ s#2Ae$t to the pro5isions o( the A$t+ it shall 2e the d#t, o( SE'I to prote$t the interests o( in5estors in se$#rities and to pro ote the de5elop ent o( and to re&#late the se$#rities ar7et" SE'I is also d#t, 2o#nd to prohi2it ar7ets+

(ra#d#lent and #n(air trade pra$ti$es relatin& to se$#rities

prohi2itin& insider tradin& in se$#rities et$" Se$tion **A a#thori6es SE'I to re&#late or prohi2it iss#e o( prospe$t#s+ o((er do$# ent or ad5ertise ent soli$itin& (ollo-sI B**A .*0 )itho#t preA#di$e to the pro5isions o( the Co panies A$t+ *314.* o( *3140+ the 'oard a,+ (or the prote$tion o( in5estors+ J .a0spe$i(,+ 2, re&#lations N .i0 the atters relatin& to iss#e o( $apital+ trans(er o( se$#rities and other atters in$idental theretoL and one, (or iss#e o( se$#rities -hi$h read as

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.ii0 the anner in -hi$h s#$h atters shall 2e dis$losed 2, the $o paniesL .20 2, &eneral or spe$ial orders N .i0 prohi2it an, $o pan, (ro iss#in& prospe$t#s+ an, o((er do$# ent+ or ad5ertise ent soli$itin& one, (ro the p#2li$ (or the iss#e o( se$#ritiesL spe$i(, the $onditions s#2Ae$t to -hi$h the prospe$t#s+ s#$h o((er do$# ent or ad5ertise ent+ i( not prohi2ited+ a, 2e iss#ed"

.ii0

.=0 )itho#t preA#di$e to the pro5isions o( se$tion =* o( the Se$#rities Contra$ts .Re&#lation0 A$t+ *314 .D= o( *3140+ the 'oard a, spe$i(, the re8#ire ents (or listin& and trans(er o( se$#rities and other atters in$idental thereto"Q Se$tion **' e po-ers the 'oard to iss#e dire$tions -hi$h reads as (ollo-sI B**'" Sa5e as other-ise pro5ided in se$tion **+ i( a(ter a7in& or $a#sin& to 2e ade an en8#ir,+ the 'oard is satis(ied that it is ne$essar,+J .i0 in the interest o( in5estors+ or de5elop ent o( se$#rities ar7etL or orderl,

.ii0

to pre5ent the a((airs o( an, inter ediar, or other persons re(erred to in se$tion *= 2ein& $ond#$ted in a anner detri ental to the interest o( in5estors or se$#rities ar7etL or

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64

.iii0 to se$#re the proper an, s#$h inter ediar, or person+ it a, iss#e s#$h dire$tions+J

ana&e ent o(

.a0 to an, person or $lass o( persons re(erred to in se$tion *=+ or asso$iated -ith the se$#rities ar7etL or .20 to an, $o pan, in respe$t o( atters spe$i(ied in se$tion **A+ as a, 2e appropriate in the interests o( in5estors in se$#rities and the se$#rities ar7et"@

4;"

I (ind all the a2o5e 8#oted pro5isions are interJrelated and ain (o$#s is on In5estor Prote$tion"

interJ$onne$ted and the

Po-er is also $on(erred on SE'I #nder Se$tion **C to $ond#$t in5esti&ation i( the transa$tions are 2ein& dealt -ith in a detri ental to the in5estors or se$#rities ar7et" anner

Mandator,

listin& o( se$#rities in $ase o( o((er to p#2li$ -o#ld $ast an o2li&ation on the iss#ers to ens#re the transparen$, o( in(or ation and other $ontin#in& o2li&ations to pro5ide in(or ation 2, o( prospe$t#s and to (ollo- dis$los#re pro5isions" eans

4*"

a,+ in the a2o5e 2a$7&ro#nd+ e%a ine the 5ario#s

pro5isions o( the Co panies A$t -hi$h $ast a le&al o2li&ation on the p#2li$ $o panies -hi$h o((er se$#rities to the p#2li$ and the

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SE'IGs po-er or A#risdi$tion to ad inister those $o panies and the le&al re8#ire ent to 2e (ollo-ed -hile the p#2li$" a7in& o((er o( se$#rities to

)hen -e interpret and deal -ith the pro5isions li7e

Se$tion 11A+ 4;'+ 49+ 9: et$" o( Co panies A$t+ -e ha5e to al-a,s 2ear in ind the 5ario#s pro5isions o( the SE'I A$t+ espe$iall,

Se$tions **+ **A+ **'+ **C+ := et$" 2e$a#se as -e ha5e alread, indi$ated+ those pro5isions shall 2e in addition to and not in dero&ation o( the pro5isions o( the Co panies A$t"

4="

a, strai&ht-a, deal -ith the (irst 8#estion posed on the

A#risdi$tion o( SE'I o5er 5ario#s pro5isions o( the $o panies A$t in the $ase o( p#2li$ $o panies+ -hether listed or #nlisted+ -hen the, iss#e and trans(er se$#rities"

4:"

Se$tion 11A+ the s$ope o( -hi$h has 2een e%tensi5el,

ar&#ed+ is &i5en 2elo- (or eas, re(eren$eI B//A. P&9.%" &+ S.41%,',." (*8 E<4;(*:. B&(%8 &+ I*8,("R The pro5isions $ontained in se$tions 11 to 1C+ 13 to C*+ .in$l#din& Se$tions 4CA+ 99A and C;A0*;C+ *;3+ **;+ **=+ **:+ **4+ **9+ **C+ **3+ *=;+ *=*+ *==+ =;4+ =;4A and =;9+ so (ar as the, relate to iss#e and trans(er o( se$#rities and nonJpa, ent o( di5idend shall+R .a0 in $ase o( listed p#2li$ $o paniesL

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66

.20 in $ase o( those p#2li$ $o panies -hi$h intend to &et their se$#rities listed on an, re$o&ni6ed sto$7 e%$han&e in India+ 2e ad inistered 2, the Se$#rities and E%$han&e 'oard o( IndiaL and .$0 in an, other $ase+ 2e ad inistered 2, the Central <o5ern ent" E%planation"RFor the re o5al o( do#2ts+ it is here2, de$lared that all po-ers relatin& to all other atters in$l#din& the atters relatin& to prospe$t#s+ state ent in lie# o( prospe$t#s+ ret#rn o( allot ent+ iss#e o( shares and rede ption o( irJredee a2le pre(eren$e shares shall 2e e%er$ised 2, the Central <o5ern ent+ Tri2#nal or the Re&istrar o( Co panies+ as the $ase a, 2e"@ 4D" Se$tion 11A -as inserted in the A$t 2, the Co panies

.A end ent0 A$t+ =;;; -"e"(" *:"*="=;;;" Cla#ses .50 to .%0 o( the State ent o( O2Ae$ts and Reasons &i5e an indi$ation o( the intention o( the Le&islat#re" Cla#ses .50 and .%0 read as (ollo-sI BCla#se .50 J to pro5ide that the Se$#rities and E%$han&e 'oard o( India 2e entr#sted -ith po-ers -ith re&ard to all atters relatin& to p#2li$ iss#es and trans(ers in$l#din& po-er to prose$#te de(a#ltin& $o panies and their dire$tors" .%0 to pro5ide that an, o((er o( shares or de2ent#res to ore than 1; persons shall 2e treated as a p#2li$ iss#e -ith s#ita2le odi(i$ation in the $ase o( p#2li$ (inan$ial instit#tions and nonJ2an7in& (inan$ial $o panies"@ .e phasis s#pplied0 41" Le&islati5e intention to entr#st the po-ers -ith SE'I+ -ith

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67

re&ard to all

atters relatin& to p#2li$ iss#es and trans(ers

in$l#din& po-er to prose$#te de(a#lt $o panies and their dire$tors+ is 2ased on in(or ation deri5ed (ro past and present

e%perien$es"

Po-ers ha5e 2een spe$i(i$all, $on(erred on SE'I

2e$a#se it -as esta2lished #nder the SE'I A$t+ *33=+ in order to prote$t the interest o( in5estors in se$#rities and to pro ote the de5elop ent o( and to re&#late the se$#rities ar7et and (or

atters $onne$ted there-ith or in$idental thereto" )hen -e loo7 at Se$tion 11A it is $lear that it deals -ith the (ollo-in& three $ate&oriesI

.a0 .20

Listed p#2li$ $o panies P#2li$ $o panies -hi$h intend to &et their se$#rities

listed on an, re$o&ni6ed sto$7 e%$han&e in IndiaL and

(c) Bin an, other $ase@ that is+ all other #nlisted p#2li$

$o panies+ -hi$h do not and pri5ate $o panies" 44"

a7e a p#2li$ o((er o( se$#rities

P#2li$ $o panies -hi$h (all #nder $ate&ories .a0 and .20 are

to 2e ad inistered 2, SE'I and -ith re&ard to 5ario#s pro5isions entioned in the (irst part o( Se$tion 11A+ so (ar the, relate to

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iss#e and trans(er o( se$#rities and nonJpa, ent o( di5idend and rest o( the atter 2e ad inistered 2, the Central <o5ern ent"

Po-er o( ad inistration o( Se$tions 14+ 4=+ 4: and 9: -ith respe$t to iss#e o( OFCDs lies -ith SE'I and not -ith the Central <o5ern ent sin$e the, relate to iss#e o( se$#rities" 49" )e shall no- e%a ine the str#$t#re o( Se$tion 11A and ind the o2Ae$t

-hen -e do that+ -e ha5e to ne$essaril, 7eep in

and p#rpose o( that se$tion+ the intention o( the Le&islat#re and the role and (#n$tion to 2e per(or ed 2, the spe$iali6ed (or# + SE'I+ $reated 2, the SE'I A$t" Po-ers $on(erred on SE'I #nder

Se$tion **A to prote$t the interest o( in5estors that too -itho#t preA#di$e to the pro5isions o( the Co panies A$t+ 2orne in a, also 2e

ind -hen -e interpret Se$tion 11A+ as alread, indi$ated"

Pro5isions -hi$h relate to iss#e and trans(er o( se$#rities and nonJ pa, ent o( di5idend ha5e to 2e ad inistered 2, SE'I+ a le&al o2li&ation $ast on SE'I" Se$tion 11A spe$i(i$all, re(ers to Se$tions

11 to 1C and Se$tions 13 to C* -ith an e phasis to Se$tions 4CA+ 99A and C;A -ithin 2ra$7ets" Spe$i(i$ re(eren$e has 2een ade to

Se$tions *;C+ *;3+ **; and Se$tions **4+ **9+ **C+ **3+ *=;+ *=*+ *==+ =;4+ =;4A and =;9" The Ori&inal Co panies .Se$ond

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A end ent0 'ill o( *333 >'ill No" *:3 o( *333? did not ha5e the parentheti$al $la#se in Se$tion 11A .i"e" in$l#din& Se$tions 4CA+ 99A and C;A0 -hi$h -as introd#$ed as $orri&end# 2e(ore the

lea5e -as so#&ht and &ranted to introd#$e the 'ill in the Lo7 Sa2ha and -ith this $orri&end# the 2ill -as passed in the Lo7 Sa2ha on

=9"**"=;;; and then on :;"**"=;;; 2, the RaA,a Sa2ha and later assented 2, the President" Contention -as+ there(ore+ raised that -hen the 'ill -as introd#$ed it -as pro5ided that Se$tions 13 to C* -ere to 2e ad inistered 2, SE'I+ in respe$t o( listed p#2li$ $o panies and $o panies intended to &et their se$#rities listed in a sto$7 e%$han&e" '#t+ it -as pointed o#t+ that Se$tions in

2et-een Se$tions 13 to C*+ -hi$h had letters FAG or F'G as a s#((i%+ -ere not all intended to 2e $o5ered 2, Se$tion 11A+ hen$e the ne$essit, (or the parentheti$al $la#se added 2, a $orri&end# + i"e" .in$l#din& Se$tions 4CA+ 99A and C;A0" F#rther+ it -as also

$ontended that -here pro5isions endin& -ith the s#((i% FAG+ FAAG or F'G -ere intended to 2e in$l#ded in Se$tions 13 to C*+ it -as spe$i(i$all, so pro5ided" Re(eren$e -as ade to Se$tion =;4A For the a2o5e+ it -as

-hi$h (inds a pla$e in Se$tion 11A"

s#2 itted 2, Saharas that Se$tion 4;' $o#ld not ha5e 2een intended to 2e in$l#ded in the parentheti$al portions and $o#ld not

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2e said to ha5e $o5ered 2, Se$tion 11A" 4C" All se$tions (allin& -ithin Se$tions 11 to 1C o( the Co panies So (ar as Se$tion 11A is

A$t -ill (all #nder those se$tions"

$on$erned+ it is the 5er, Se$tion -hi$h deals -ith po-ers o( SE'I+ Central <o5ern ent+ Tri2#nal+ Co pan, La- 'oard+ Re&istrar o( Co panies et$" Re(eren$e to Se$tions 13 to C* indi$ated that

Parlia ent intended to in$l#de all se$tions in that ran&e -hi$h ta7es in Se$tions 4;'+ 4=+ 4:+ 49+ 9: et$" o( the Co panies A$t" Se$tion 49 is also a se$tion o( $onsidera2le i portan$e 2e$a#se the e%pression Bo((er o( shares or de2ent#res to the p#2li$@ (inds a pla$e in 5ario#s se$tions o( the A$t+ as -ell as the arti$les o( a $o pan," F#rther+ the (irst pro5iso added to Se$tion 49.:0 5ide the Co panies .A end ent0 A$t+ =;;; -"e"(" *:"*="=;;; is also o( $onsidera2le 2earin& in deter inin& -hether a p#2li$ $o pan, o((erin& shares or de2ent#res to the p#2li$ has to list its se$#rities on a re$o&ni6ed sto$7 e%$han&e" E%pression FtoG $learl, has a

eanin& i"e" e5er,thin& in 2et-een or destination o( an a$tion" The eanin& o( the e%pression FtoG $a e #p (or $onsideration

2e(ore this Co#rt in -industan Lever Ltd. v. As!o' (is!nu Kate and Ors. .*3310 4 SCC :=4" F#rther+ the spe$i(i$ in$l#sion o(

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Se$tions 4CA+ 99A and C;A in a 2ra$7et+ -o#ld not

ean the

e%$l#sion o( all se$tions 2et-een in Se$tions 13 to C* -ith s#((i% FAG or FAAG or F'G" The -ord Fin$l#din&G #sed in the parentheti$al $la#se is onl, to &i5e e phasis to those se$tions" Lord )atson in

.ilwort! v. Co&&issioner of "ta&ps .*3330 AC 33 said that the -ord /in$l#de/ is 5er, &enerall, #sed in interpretation $la#se in order to enlar&e the eanin& o( -ords or phrases o$$#rrin& in the

2od, o( the Stat#te and+ -hen it is so #sed+ these -ords and phrases #st 2e $onstr#ed as $o prehendin&+ not onl, thin&s the,

si&ni(, a$$ordin& to their nat#ral i port+ 2#t also those thin&s -hi$h the interpretation $la#se de$lares that the, shall in$l#de"@ In .el!i /udicial "ervices Association v. "tate of Gu,arat AIR *33* SC =*94+ the e%pression #sed in Arti$le *=3 o( the Constit#tion i"e" in$l#din& the po-er to p#nish (or $onte pt o( itsel( -hi$h -as interpreted 2, the Co#rt statin& that the e%pression /in$l#din&/ has 2een interpreted 2, Co#rts to e%tend and -iden the s$ope o( po-er" <i5in& e phasis to Se$tions 4CA+ 99A and C;A does not se$tions" 43" Le&islat#re+ in its -isdo + tho#&ht so e e phasis has to 2e ean the e%$l#sion o( all s#$h si ilar

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&i5en to Se$tions 4CA+ 99A and C;A 2e$a#se all those se$tions pro5ide $ertain o((en$es to 2e p#nisha2le -ith i prison ent" F#rther $l#e (or that reasonin&+ -e a, &et+ i( -e e%a ine the

anner in -hi$h the Le&islat#re has #sed s#$$eedin& se$tions" In Se$tion 11A there is a spe$i(i$ re(eren$e to Se$tion *;C+ not Se$tions *;CA to I" So also Se$tion 11A spe$i(i$all, re(ers to Le&islat#re -anted

Se$tion *;3+ not Se$tions *;3A and '"

in$l#sion o( Se$tions *;CA to I+ Se$tion *;3A et$"+ then it -o#ld ha5e said Se$tions *;C to **;" F#rther+ the Le&islat#re ne5er -anted the in$l#sion o( Se$tions **9A to C+ hen$e it #sed Se$tion **9 alone+ not Se$tions **4 to *==" I( it has #sed so+ then

Se$tions **9A to C also -o#ld ha5e 2een in$l#ded" Le&islat#re in that se8#en$e -anted in$l#sion o( Se$tions =;4 and =;4A+ hen$e 2oth the se$tions ha5e 2een in$l#ded" Hen$e+ -hen the le&islat#re has #sed the e%pression Se$tions 13 to C*+ 4;' -hi$h (alls in 2et-een+ stands in$l#ded" F#rther+ the entr#st ent o( po-ers on SE'I+ #nder Se$tion 11A+ is in addition to the then e%istin& po-ers o( SE'I #nder SE'I A$t+ *33=+ -hi$h ta7es Se$tions **+ **A and **' as -ell" 9;" E%planation has 2een added to Se$tion 11A to har oni6e

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and to $lear #p do#2ts and alla, &ro#ndless apprehensions" In ". "undara& Pillai & Ors. v. (.0. Patta1ira&an & Ors. .*3C10 * SCC 13*+ this Co#rt has r#led that the p#rpose o( the e%planation is to $lari(, -here there is an, o2s$#rit, or 5a&#eness in the ena$t ent and to ain

a7e it $onsistent -ith the do inant o2Ae$t ain part o( Se$tion 11A $on(ers

-hi$h it see s to ser5e" The

A#risdi$tion on SE'I -ith re&ard to three $ate&ories i"e" iss#e o( se$#rities+ trans(er o( se$#rities and nonJpa, ent o( di5idend" The e%pression Ball other atters@ entioned in the e%planation -o#ld entioned $ate&ories"

re(er to po-ers other than the a2o5e F#rther+ it

a, also 2e re e 2ered that the e%planation does not

ta7e a-a, the po-ers $on(erred on SE'I 2, other se$tions o( the Co panies A$t" At the sa e ti e+ atters relatin& to prospe$t#s+

state ent in lie# o( prospe$t#s+ ret#rn o( allot ent+ iss#e o( shares and rede ption o( irredee a2le pre(eren$e shares 2e e%er$ised 2, the Central <o5ern ent+ Tri2#nal+ Co pan, La- 'oard+ Re&istrars o( Co panies+ as the $ase a, 2e" F#rther+ Se$tion 4;'.30

$learl, indi$ates that #pon $losin& o( the o((er o( se$#rities+ a (inal /prospe$t#s/ has to 2e (iled in the $ase o( listed $o pan, -ith SE'I and Re&istrar+ hen$e the e%planation to Se$tion 11A $an ne5er 2e $onstr#$ted or interpreted to ean that SE'I has no po-er in

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relation to the prospe$t#s and the iss#e o( se$#rities 2, an #nlisted p#2li$ $o pan,+ i( the se$#rities are o((ered to nine persons" 9*" I a + there(ore+ o( the 5ie- that the ere (a$t that ore than (ort,

e phasis has 2een &i5en to Se$tions 4CA+ 99A and C;A+ does not ean the e%$l#sion o( Se$tion 4;' (ro Se$tion 13 to C*" )e+

there(ore+ hold that+ so (ar as the pro5isions en# erated in the openin& portion o( Se$tion 11A o( the Co panies A$t+ so (ar as the, relate to iss#e and trans(er o( se$#rities and nonJpa, ent o( di5idend is $on$erned+ SE'I has the po-er to ad inister in the $ase o( listed p#2li$ $o panies and in the $ase o( those p#2li$ $o panies -hi$h intend to &et their se$#rities listed on a re$o&ni6ed sto$7 e%$han&e in India" In an, other $ase+ i"e" rest o( the atters+ that is e%$l#din& atters relatin& to iss#e and trans(er

o( se$#rities and nonJpa, ent o( di5idend 2e ad inistered 2, the Central <o5ern ent in the $ase o( listed p#2li$ $o panies and those $o panies -hi$h intend to &et their se$#rities listed on an, re$o&ni6ed sto$7 e%$han&e in India" E%planation to that se$tion

(#rther $lari(ies the position so as to re o5e do#2ts+ sa,in& all po-ers relatin& to other atters in$l#din& the atters relatin& to

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prospe$t#s+ state ent in lie# o( prospe$t#s+ ret#rn o( allot ent+ iss#e o( shares and rede ption o( irredee a2le pre(eren$e shares+ sho#ld 2e e%er$ised 2, the Central <o5ern ent+ Tri2#nal or the Re&istrar o( Co panies+ as the $ase there(ore+ a2o5e a, 2e" Se$tion 11A+

a7es it $lear that SE'I has the po-er to ad inister the

entioned sele$t pro5isions o( the Co panies A$t relatin& to Contention raised 2, Saharas that

atters spe$i(ied therein"

-itho#t re&#lations 2ein& (ra ed #nder Se$tion 4D=.D0 o( the $o panies A$t+ SE'I $annot e%er$ise po-ers o( ad inistration+ is totall, #n(o#nded and is reAe$ted"

PROSPECTUS AND IM

9="

Prospe$t#s is the prin$ipal

edi#

thro#&h -hi$h the

in5estors &et in(or ation o( the stren&th and -ea7ness o( the $o pan,+ its $redit-orthiness+ $reden$e and $on(iden$e o(

pro oters and the $o pan,Gs prospe$ts"

Se$tion 11 o( the A$t

pro5ides that a prospe$t#s iss#ed 2, or on 2ehal( o( a $o pan, or in relation to an intended $o pan, shall 2e dated and that date shall 2e ta7en as the date o( its p#2li$ation" The atters to 2e

stip#lated and reports to 2e set o#t are pro5ided #nder Se$tion 14

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o( the A$t+ read -ith Part * o( S$hed#le ** o( the Co panies A$t+ -hi$h also $alls (or the details o( the sto$7 e%$han&e -here appli$ation -as ade (or listin& o( iss#e o( se$#rities" Se$tion 4;

o( the A$t deals -ith re&istration o( the prospe$t#s" Se$tion 4;.:0 spe$i(i$all, states that the Re&istrar shall not re&ister a prospe$t#s #nless the re8#ire ents o( Se$tions 11+ 14+ 19 and 1C and s#2J se$tions .*0 ! .=0 o( that se$tion ha5e 2een $o plied -ith" Se$#rities $an 2e listed on a re$o&ni6ed sto$7 onl, a(ter the prospe$t#s is prepared and appro5ed 2, the RoC+ SE'I+ as the $ase a, 2e" Se$tion 4= i poses $i5il lia2ilit, (or isJstate ents

in prospe$t#s and Se$tion 4: $ri inal lia2ilit," Se$tion 4C pro5ides i prison ent (or a ter (ine -hi$h -hi$h a, e%tend to (i5e ,ears+ or -ith

a, e%tend to one la7h r#pees+ or -ith 2oth+ (or one," In other -ords+

(ra#d#lentl, ind#$in& persons to in5est

either to o((er trans(erra2le se$#rities (or sale to the p#2li$ or to re8#est the ad ission o( se$#rities (or tradin& on a re&#lated ar7et -itho#t prospe$t#s+ or to o((er trans(erra2le se$#rities (or sale to the p#2li$+ 2, -a, o( shares and de2ent#res+ in 5iolation o( the (irst pro5iso to Se$tion 49.:0 a, attra$t $i5il and $ri inal

lia2ilit," Saharas+ in this $ase+ p#2lished RHPs -ith the appro5al o( RoC+ 2#t did not &et the appro5ed 2, SE'I or their se$#rities

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listed on a re$o&ni6ed sto$7 e%$han&e" 9:" Se$tion 4;' -hi$h -as in$l#ded in the A$t 2, the Co panies

A end ent A$t+ =;;; .A$t 1: o( =;;;0 -"e"(" *:"*="=;;;" 4;'.*0 reads as (ollo-sI B00B. I*+&%3(',&* 3.3&%(*813. .*0 A p#2li$ $o pan, a7in& an iss#e o( se$#rities a, $ir$#late in(or ation e orand# to the p#2li$ prior to (ilin& o( a prospe$t#s"@ 9D" p#2li$ Se$tion 4;'.*0 is an ena2lin& pro5ision -hi$h ena2les a $o pan, a7in& an iss#e o( se$#rities to $ir$#late

in(or ation prospe$t#s"

e orand#

.IM0 to the p#2li$ 2e(ore (ilin& the

P#rpose o( that s#2Jse$tion is (or assessin& the

de and and the pri$e -hi$h the p#2li$ -o#ld 2e -illin& to o((er+ -hi$h is not a andator, re8#ire ent" Note on Cla#se 1= o( the

*339 'ill e%plains the o2Ae$t and p#rpose o( that Se$tion as (ollo-sI BThis Se$tion pro5ides (or the $on$epts o( F2oo7 2#ildin&G and Fin(or ation e orand# G" This is an international pra$ti$e and re(ers to $olle$tin& orders (ro in5est ent 2an7ers and lar&e in5estors 2ased on an indi$ati5e pri$e ran&e" This is essentiall, a preJiss#e e%er$ise -hi$h -ill (a$ilitate the iss#ers to &et 2etter idea o( de and and the (inal o((er pri$e" The dire$tors o( the $o pan,+ ho-e5er+ -ill not 2e per itted to resort to #nder-ritin& on 2oo7 2#ildin&"@

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91"

Se$tion 4;'.*0+ there(ore+ -as introd#$ed to (a$ilitate a preJ

iss#e e%er$ise to &et a 2etter insi&ht o( de and and (inal o((er pri$e" Se$tion 4;'.=0 o( the A$t re(ers to the sta&e at -hi$h the RHPs has to 2e (iled 2, the $o pan," The pro5ision $learl, states that the $o pan, in5itin& s#2s$ription 2, an IM shall 2e 2o#nd to (ile a prospe$t#s prior to the openin& o( the s#2s$ription lists and the o((er as a RHP+ at least three da,s 2e(ore the openin& o( the o((er" Se$tion 4;'.:0 stip#lates that IM and RHPs shall $arr, the sa e o2li&ations as are appli$a2le in the $ase o( prospe$t#s" E%planation $la#se states+ B(or the p#rpose o( S#2Jse$tions .=0+ .:0 and .D0+ BRed Herrin& Prospe$t#s@ eans a prospe$t#s -hi$h does

not ha5e $o plete parti$#lars on the pri$e o( the se$#rities o((ered and the 8#ant# o( se$#rities o((ered@" The e%pression

Bprospe$t#s@ is also de(ined in the A$t 5ide Se$tion =.:40 o( the Co panies A$t as (ollo-sI B=.:40 BProspe$t#sQ eans an, do$# ent des$ri2ed or iss#ed as a prospe$t#s and in$l#des an, noti$e+ $ir$#lar+ ad5ertise ent or other do$# ent in5itin& deposits (ro the p#2li$ or in5itin& o((ers (ro the p#2li$ (or the s#2s$ription or p#r$hase o( an, shares in+ or de2ent#res o(+ a 2od, $orporate" .e phasis s#pplied0@ Se$tion 4;'.30 deals -ith the (inal prospe$t#s+ -hi$h reads as

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(ollo-sI B4;' .30 Upon the $losin& o( the o((er o( se$#rities+ a (inal prospe$t#s statin& therein the total $apital raised+ -hether 2, -a, o( de2t or share $apital and the $losin& pri$e o( the se$#rities and an, other details as -ere not $o plete in the redJherrin& prospe$t#s shall 2e (iled in a $ase o( a listed p#2li$ $o pan, -ith the Se$#rities and E%$han&e 'oard and Re&istrar+ and in an, other $ase -ith the Re&istrar onl,"@ 94" Se$tion 4;'.30 deals -ith t-o $ate&ories o( $o panies i"e"

Blisted p#2li$ $o pan,@ #nder one $ate&or, and the rest o( the $o panies (allin& #nder Ban, other $ase@ #nder another $ate&or," A $o pan, in5itin& s#2s$ription (ro p#2li$ 2, an IM is 2o#nd to

(ile a prospe$t#s prior to the openin& o( the s#2s$ription lists" That is the o ent a $o pan, de$ides to iss#e se$#rities to the p#2li$+

a d#t, is $ast on it to &et its se$#rities listed on a re$o&ni6ed sto$7 e%$han&e" Se$tion 4;'+ as alread, indi$ated+ re(ers to IM" Se$tion =.*3'0 -as inserted 2, the Co panies .Se$ond A end ent0 A$t+ =;;=+ -"e"(" *"D"=;;:+ -hi$h reads as (ollo-sI B2 19B! Qin(or ation e orand# Q eans a pro$ess #nderta7en prior to the (ilin& o( a prospe$t#s 2, -hi$h a de and (or the se$#rities proposed to 2e iss#ed 2, a $o pan, is eli$ited+ and the pri$e and the ter s o( iss#e (or s#$h se$#rities is assessed+ 2, eans o( a noti$e+ $ir$#lar+ ad5ertise ent or do$# ent"@

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99"

The initiation o( the pro$ess o( o((erin& se$#rities to the

p#2li$ 2, a $o pan,+ there(ore+ starts -ith IM+ 2#t it is 2o#nd to (ile a prospe$t#s prior to the openin& o( s#2s$ription lists and the o((er as RHPs and then rea$hes its (inal inti ation+ that is a(ter $losin& o( the o((er o( se$#rities -ith a (inal prospe$t#s+ -ith the re8#isite details and an, other details as -ere not $o pleted in the RHP 2, (ilin& the sa e -ith SE'I and Re&istrar o( Co panies" There(ore+ a $o pan, -hi$h has ade on o((er o( se$#rities to the

p#2li$ and+ there(ore+ has applied (or listin& on a sto$7 e%$han&e+ -ill (all #nder the $ate&or, o( listed $o panies and not in Fan, other $aseG #nder Se$tion 4;'.30 o( the A$t" There(ore+ a readin& o( Se$tions 4;'.*0+ .=0 and .:0 re5eals the sta&e -hen IM and RHPs are (iled and Se$tion 4;'.30 the sta&e o( $#l ination on $losin& o( the o((er o( se$#rities and (ilin& o( the prospe$t#s o( a listed $o pan, -ith SE'I and RoC and in an, other $ase -ith onl, the RoC" Re&istration o( prospe$t#s is dealt -ith in Se$tion 4; o( the A$t -hi$h sa,s+ no prospe$t#s shall 2e iss#ed 2, or on 2ehal( o( a $o pan, or in relation to an intended $o pan,+ #nless on or 2e(ore the date o( its p#2li$ation+ there has 2een deli5ered to the RoC (or Re&istration a $op, thereo(+ d#l, si&ned and $o pl,in& -ith stat#tor, re8#ire ents" Re&istrar shall not re&ister a

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prospe$t#s #nless the re8#ire ents o( Se$tions 11+ 14+ 19 and 1C and S#2Jse$tions .*0 and .=0 o( Se$tion 4; ha5e 2een $o plied -ith" Se$tion 14 re(ers to the atter to 2e stated and reports to

2e set o#t in the prospe$t#s+ and states that e5er, prospe$t#s iss#ed shall state the atter spe$i(ied in Part I o( S$hed#le II and

set o#t reports as spe$i(ied in Part II o( the S$hed#le+ -hi$h -ill ha5e e((e$t s#2Ae$t to the pro5isions $ontained in Part III o( that s$hed#le" <eneral in(or ation $la#se .$0 o( Part I o( S$hed#le II $alls (or the na es o( re$o&ni6ed sto$7 e%$han&e and other sto$7 e%$han&es -here appli$ation is ade (or listin&" Se$tion 4;'.:0+

as I ha5e alread, indi$ated+ sa,s IM and RHPs shall $arr, sa e o2li&ations as are appli$a2le in the $ase o( a prospe$t#s"

9C"

SE'I+ #nder Se$tion 4;'.30+ ho-e5er+ as a Re&#lator is

le&all, o2li&ed to e%a ine -hether+ #pon the $losin& o( the o((er o( se$#rities+ a (inal prospe$t#s &i5in& the details o( the total $apital raised+ -hether 2, -a, o( de2t or share $apital and the $losin& o( the se$#rities and other details as -ere not $o plete in RHPs+ ha5e 2een (iled in a $ase o( listed p#2li$ $o pan, -ith SE'I" This d#t, is $ast on the Re&istrar alon&-ith SE'I in the $ase o( a listed p#2li$ $o pan, and in an, other $ase onl, the Re&istrar"

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93"

Saharas ha5e ta7en #p the stand that the, ha5e onl,

$ir$#lated the IM+ 2, -a, o( pri5ate pla$e ent+ to their asso$iates+ &ro#p $o panies+ -or7ersEe plo,ees et$" Se$tion 4;'.*0 + as I It is

ha5e alread, indi$ated+ $asts no o2li&ation to iss#e an IM" open to a p#2li$ $o pan,

a7in& an iss#e o( se$#rities to $ir$#late

the IM to p#2li$ 2e(ore (ilin& a prospe$t#s (or assessin& the de and and pri$e -hi$h p#2li$ -o#ld 2e -illin& to o((er" I( Saharas -ere &oin& (or a pri5ate pla$e ent+ then I (ail to see -h, the, had eli$ited all those details thro#&h an IM+ sin$e Se$tion 4;'.*0 deals -ith iss#e o( IM to the p#2li$ alone" '#t (ro SaharasG $ond#$t

and a$tion+ it is $lear+ that their intention -as to iss#e se$#rities to the p#2li$ #nder the &ar2 o( pri5ate pla$e ent" RHPs iss#ed 2,

Saharas indi$ated that the, did not intend the proposed iss#e o( se$#rities to 2e listed on a sto$7 e%$han&e+ e5en tho#&h in realit, the se$#rities -ere iss#ed to the p#2li$" E5er, $o pan, -hi$h

intends to o((er shares or de2ent#res to the p#2li$ (or s#2s$ription 2, -a, o( a prospe$t#s is le&all, o2li&ed to a re$o&ni6ed sto$7 e%$han&e" a7e an appli$ation on

Let #s e%a ine -hether Saharas First+ the, ha5e 2rea$hed the

pra$ti$ed -hat the, ha5e prea$hed"

5er, stat#tor, de$laration pres$ri2ed in Part * o( S$hed#le II"

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Stat#tor, de$laration reads as (ollo-sI BD.4)(%(',&*5 That all the rele5ant pro5isions o( the Co panies A$t+ *314+ and the &#idelines iss#ed 2, the <o5ern ent or the &#idelines iss#ed 2, the Se$#rities and E%$han&e 'oard o( India esta2lished #nder se$tion : o( the Se$#rities and E%$han&e 'oard o( India A$t+ *33=+ as the $ase a, 2e+ ha5e 2een $o plied -ith and no state ent ade in prospe$t#s is $ontrar, to the pro5isions o( the Co panies A$t+ *314 or the Se$#rities and E%$han&e 'oard o( India A$t+ *33= or r#les ade there#nder or &#idelines iss#ed+ as the $ase a, 2e"I C;" RHP iss#ed 2, Saharas .SIRECL0 $ontains not the

de$laration

entioned a2o5e+ 2#t states as (ollo-sI

BAll the rele5ant pro5ision o( the Co panies A$t+ *314 and the &#idelines iss#ed 2, the <o5ern ent ha5e 2een $o plied -ith and no state ent ade in the prospe$t#s is $ontrar, to the pro5isions o( the Co panies A$t+ *314 and the R#les there#nder"@ In the 'ond .OFCDs0 o( Saharas+ there is a head BDe$laration@ -hi$h+ inter alia+ reads as (ollo-sI BS"I $on(ir that I a Eappli$ant asso$iated -ith Sahara India <ro#p" I ha5e 2een e%plained e5er,thin& in the lan&#a&e 7no-n to e and I ha5e &i5en , (#ll $onsent on ter s and $onditions entioned a2o5e"@ F#rther+ at the end o( the pa&e $ontainin& the ter s and $onditions o( 2ond+ the (ollo-in& is also &i5en as a de$laration+ -hi$h reads as (ollo-sI BI ha5e e%plained e5er,thin& in the lan&#a&e 7no-n to the appli$antERepresentati5e o( appli$ant and heEshe has

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&i5en hisEher (#ll $onsent on ter s and $onditions entioned a2o5e" I+ here2, (#rther de$lare that all de$laration ade 2, the 'ond HolderERepresentati5e o( 'ond Holder and all the in(or ationEpersonal parti$#lars &i5en a2o5e 2, the 'ond HolderERepresentati5e o( 'ond Holder are $orre$t and tr#e to the 2est o( , 7no-led&e and 2elie(" Si&nat#re o( the Introd#$er"@ C*" I (ail to see+ i( the in5estors -ere asso$iated -ith Sahara

<ro#p+ as de$lared+ then -here -as the ne$essit, o( an Introd#$er and Introd#$tion" I( the o((er -as ade onl, to persons

asso$iated+ related or 7no-n to Sahara <ro#p+ then the, $o#ld ha5e (#rnished those details 2e(ore the (a$t (indin& a#thorities" F#rther+ in the IM+ Saharas had stated that i( the n# 2er o( interested parties to the iss#e e%$eeds (i(t, the, sho#ld approa$h the RoC to (ile RHPs as per Se$tion 49.:0 o( the Co panies A$t+ -hi$h $learl, indi$ates that Saharas 7ne-+ 2, 5irt#e o( the (irst pro5iso to Se$tion 49+ i( the n# 2er o( persons e%$eeds (i(t,+ then the sa e -o#ld 2e a p#2li$ iss#e" Fa$ts indi$ate that+ thro#&h this d#2io#s ethod+ that SIRECL had approa$hed ore than thirt,

illion in5estors+ o#t o( -hi$h =="*

illion ha5e in5ested in the

OFCDs and it had raised nearl, =;+;;; $rores+ (or -hi$h it had #tili6ed the ser5i$es o( its sta(( in =3;; 2ran$hesEser5i$e $enters and #tili6ed the ser5i$es o( ore than one illion

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a&entsErepresentati5es" Co#rt $an+ in s#$h $ir$# stan$es+ li(t the 5eil to e%a ine the $ond#$t and ethod adopted 2, Saharas to

de(eat the 5ario#s pro5isions o( the Co panies A$t+ alread, dis$#ssed+ read -ith the pro5isions o( the SE'I A$t"

C="

I+ in the a2o5e (a$ts and $ir$# stan$es+ (#ll, endorse the

(indin&s re$orded 2, SE'I .)TM0 and SAT that the pla$e ent o( OFCDs 2, Saharas -as nothin& 2#t iss#e o( de2ent#res to the p#2li$+ res#ltantl,+ those se$#rities sho#ld ha5e 2een listed on a re$o&ni6ed sto$7 e%$han&e"

AID FOR THE CONSTRUCTION C:" Se$tion 49 pro5ides an aid (or the $onstr#$tion o( the phrase Se$tion 49 o( the 2et-een pri5ate

Bo((erin& shares or de2ent#res to the P#2li$@" A$t &i5es an indi$ation o( the di((eren$es

pla$e ent and p#2li$ iss#e"

The e%pression Bo((er o( shares or

de2ent#res to p#2li$@+ i"e" iss#e o( se$#rities (inds a pla$e in se5eral se$tions o( the A$t+ li7e Se$tions 4;'+ 9: and those e%pressions are to 2e $onstr#ed 2earin& in -ell" ind Se$tion 49 as

For o#r p#rpose+ it is #se(#l to reprod#$e the entire se$tion+

-hi$h reads as (ollo-sI

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B49" Constr#$tion o( re(eren$es to o((erin& shares or de2ent#res to the p#2li$+ et$ .*0 An, re(eren$e in this A$t or in the arti$les o( a $o pan, to o((erin& shares or de2ent#res to the p#2li$ shall+ s#2Ae$t to an, pro5ision to the $ontrar, $ontained in this A$t and s#2Ae$t also to the pro5isions o( s#2Jse$tions .:0 and .D0+ 2e $onstr#ed as in$l#din& a re(eren$e to o((erin& the to an, se$tion o( the p#2li$+ -hether sele$ted as e 2ers or de2ent#re holders o( the $o pan, $on$erned or as $lients o( the person iss#in& the prospe$t#s or in an, other anner" .=0 An, re(eren$e in this A$t or in the arti$les o( a $o pan, to in5itations to the p#2li$ to s#2s$ri2e (or shares or de2ent#res shall+ s#2Ae$t as a(oresaid+ 2e $onstr#ed as in$l#din& a re(eren$e to in5itations to s#2s$ri2e (or the e%tended to an, se$tion o( the p#2li$+ -hether sele$ted as e 2ers or de2ent#re holders o( the $o pan, $on$erned or as $lients o( the person iss#in& the prospe$t#s or in an, other anner"
(3) No o((er or in5itation shall 2e treated as

ade to the p#2li$ 2, 5irt#e o( s#2J se$tion .*0 or s#2J se$tion .=0+ as the $ase a, 2e+ i( the o((er or in5itation $an properl, 2e re&arded+ in all the $ir$# stan$esJ
(a) as not 2ein& $al$#lated to res#lt+ dire$tl, or

indire$tl,+ in the shares or de2ent#res 2e$o in& a5aila2le (or s#2s$ription or p#r$hase 2, persons other than those re$ei5in& the o((er or in5itationL or

.20 other-ise as 2ein& a do esti$ $on$ern o( the persons a7in& and re$ei5in& the o((er or in5itation" P%&-,8.8 that nothin& $ontained in this s#2Jse$tion

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shall appl, in a $ase -here the o((er or in5itation to s#2s$ri2e (or shares or de2ent#res is ade to (i(t, persons or oreI P%&-,8.8 +1%';.% that nothin& $ontained in the (irst pro5iso shall appl, to the nonJ2an7in& (inan$ial $o panies or p#2li$ (inan$ial instit#tions spe$i(ied in se$tion DA o( the Co panies A$t+ *314 .* o( *3140" .:A0 Not-ithstandin& an,thin& $ontained in s#2J se$tion .:0+ the Se$#rities and E%$han&e 'oard o( India shall+ in $ons#ltation -ith the Reser5e 'an7 o( India+ 2, noti(i$ation in the O((i$ial <a6ette+ spe$i(, the &#idelines in respe$t o( o((er or in5itation ade to the p#2li$ 2, a p#2li$ (inan$ial instit#tion spe$i(ied #nder Se$tion DA or nonJ 2an7in& (inan$ial $o pan, re(erred to in $la#se .(0 o( se$tion D1JI o( the Reser5e 'an7 o( India A$t+ *3:D .= o( *3:D0" .D0 )itho#t preA#di$e to the &eneralit, o( s#2J se$tion .:0+ a pro5ision in a $o pan,/s arti$les prohi2itin& in5itations to the p#2li$ to s#2s$ri2e (or shares or de2ent#res shall not 2e ta7en as prohi2itin& the a7in& to e 2ers or de2ent#re holders o( an in5itation -hi$h $an properl, 2e re&arded in the anner set (orth in that s#2J se$tion" .10 The pro5isions o( this A$t relatin& to pri5ate $o panies shall 2e $onstr#ed in a$$ordan$e -ith the pro5isions $ontained in s#2J se$tions .*0 to .D0"@ CD" Se$tion 49.*0 deals -ith the o((er o( shares and de2ent#res

to the p#2li$ and Se$tion 49.=0 deals -ith in5itation to the p#2li$ to s#2s$ri2e (or shares and de2ent#res and ho- those e%pressions

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are to 2e #nderstood+ -hen re(eren$e is

ade to the A$t or in the

arti$les o( a $o pan," The e phasis in Se$tion 49.*0 and .=0 is on the Bse$tion o( the p#2li$@" in5itation shall 2e treated as Se$tion 49.:0 states that no o((er or ade to the p#2li$+ 2, 5irt#e o( S#2J

se$tions .*0 and .=0+ that is to an, se$tion o( the p#2li$+ i( the o((er or in5itation is not 2ein& $al$#lated to res#lt+ dire$tl, or indire$tl,+ in the shares or de2ent#res 2e$o in& a5aila2le (or s#2s$ription or p#r$hase 2, persons other than those re$ei5in& the o((er or in5itation or other-ise as 2ein& a do esti$ $on$ern o( the persons a7in& and re$ei5in& the o((er or in5itations" Se$tion 49.:0 is+ I( the

there(ore+ an e%$eption to Se$tions 49.*0 and .=0" $ir$# stan$es

entioned in $la#ses .*0 and .20 o( Se$tion 49.:0

are satis(ied+ then the o((erEin5itation -o#ld not 2e treated as 2ein& ade to the p#2li$"

C1"

The (irst pro5iso to Se$tion 49.:0 -as inserted 2, the

Co panies .A end ent0 A$t+ =;;; -"e"(" *:"*="=;;;+ -hi$h $learl, indi$ates+ nothin& $ontained in S#2Jse$tion .:0 o( Se$tion 49 shall appl, in a $ase -here the o((er or in5itation to s#2s$ri2e (or shares or de2ent#res is ade to (i(t, persons or ore"

Res#ltantl,+ a(ter *:"*="=;;;+ an, o((er o( se$#rities 2, a p#2li$

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$o pan, to (i(t, persons or

ore -ill 2e treated as a p#2li$ iss#e

#nder the Co panies A$t+ e5en i( it is o( do esti$ $on$ern or it is pro5ed that the shares or de2ent#res are not a5aila2le (or s#2s$ription or p#r$hase 2, persons other than those re$ei5in& the o((er or in5itation" A p#2li$ $o pan, $an es$ape (ro pro5isions+ i( the o((er is ade 2, $o panies the ri&or o(

entioned #nder

Se$tion 49.:A0+ i"e" 2, p#2li$ (inan$ial instit#tions spe$i(ied #nder Se$tion DA or 2, nonJ2an7in& (inan$ial $o panies re(erred to in Se$tion D1I.(0 o( the Reser5e 'an7 o( India A$t+ *3:D" Follo-in& sit#ations+ it is &enerall, re&arded+ as not an o((er ade to p#2li$" O((er o( se$#rities O((er ade to less than 1; personsL

ade onl, to the e%istin& shareholders o( the

$o pan, .Ri&ht Iss#e0L O((er ade to a parti$#lar addressee and 2e a$$epted onl, it is addressedL ade and it is the do esti$

persons to -ho

O((er or in5itation 2ein& $on$ern o( those

a7in& and re$ei5in& the o((er"

C4"

Res#ltantl,+ i( an o((er o( se$#rities is

ade to (i(t, or

ore

persons+ it -o#ld 2e dee ed to 2e a p#2li$ iss#e+ e5en i( it is o(

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do esti$ $on$ern or pro5ed that the shares or de2ent#res are not a5aila2le (or s#2s$ription or p#r$hase 2, persons other than those re$ei5ed the o((er or in5itation" C9" I a,+ in this $onne$tion+ point o#t that the position in

En&land is al ost the sa e" The Co panies A$t+ =;;4 in En&land also sa,s that it is #nla-(#l (or trans(errin& se$#rities to others+ $ertain listed se$#rities+ s#$h other trans(era2le se$#rities+ as a,

2e spe$i(ied in prospe$t#s r#les+ to 2e o((ered to the p#2li$+ #nless appro5ed prospe$t#s has 2een the o((er is ade" ade a5aila2le to the p#2li$ 2e(ore

For the p#rpose o( the Co panies A$t+ =;;4

.Se$tions 911J94;0+ /o((er to the p#2li$/ in$l#des an o((er to an, se$tion o( the p#2li$+ ho-e5er+ sele$ted" An o((er is not re&arded as an o((er to the p#2li$ i( .*0 it $an properl, 2e re&arded in all $ir$# stan$es as not 2ein& $al$#lated to res#lt+ dire$tl, or indi5id#all,+ in se$#rities o( the $o pan, 2e$o in& a5aila2le to persons other than those re$ei5in& the o((erL or .=0 other-ise 2ein& a pri5ate $on$ern o( the person re$ei5in& it and the person a7in& itI s 914.:0" An o((er is to 2e re&arded .#nless the

$ontrar, is pro5ed0 as 2ein& a pri5ate $on$ern o( the person re$ei5in& it and the person a7in& it i( .a0 it is ade to a person

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alread, $onne$ted -ith the $o pan, and+ -here it is

ade on a,

ter s allo-in& that person to reno#n$e his ri&hts+ the ri&hts

onl, 2e reno#n$ed in (a5o#r o( another person alread, $onne$ted -ith the $o pan,L or .20 it is an o((er to s#2s$ri2e (or se$#rities to 2e held #nder an e plo,ees/ share s$he e and+ -here it is ade

on ter s allo-in& that person to reno#n$e his ri&hts+ the ri&hts a, onl, 2e reno#n$ed in (a5o#r o( .i0 another person entitled to hold se$#rities #nder the s$he eL or .ii0 a person alread, $onne$ted -ith the $o pan,I s914.D0" For these p#rposes /person alread, $onne$ted -ith the $o pan,/ eans .A0 an e%istin& e 2er o( the (a il,

e 2er or e plo,ee o( the $o pan,L .'0 a o( a person -ho is or -as a

e 2er or e plo,ee o( the $o pan,L

.C0 the -ido- or -ido-er+ or s#r5i5in& $i5il partner+ o( a person -ho -as a e 2er or e plo,ee o( the $o pan,L .D0 an e%istin&

de2ent#re holder o( the $o pan,L or .E0 a tr#stee .a$tin& in his $apa$it, as s#$h0 o( a tr#st o( -hi$h the prin$ipal 2ene(i$iar, is a person -ithin an, o( heads .A0 to .D0 a2o5eI s914.10" p#rpose o( head .'0 a2o5e+ the For the

e 2ers o( a person/s (a il, are

the person/s spo#se or $i5il partner and $hildren .in$l#din& stepJ $hildren0 and their des$endantsI s 914.40" F#r the p#rposes o( Pt =;Ch * /se$#rities/ eans shares or de2ent#resI s" 911.10"

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CC"

Co panies A$t+ =;;4+ FSMA =;;;+ Prospe$t#s Re&#lations+

=;;1 et$" appli$a2le in En&land+ i( read to&ether -e &et a $o plete pi$t#re o( the se$#rities la-s in that $o#ntr," Indian Co panies

A$t+ as I ha5e alread, indi$ated has its (o#ndation on the En&lish Co panies A$t"

C3"

Alastair H#dson in his 2oo7 /Se$#rities La-/ First Edition

.S-eet ! Ma%-ell0+ =;;C at pa&e :D=+ re(ers to /Restri$ted O((ers/ and noti$ed that there is no $ontra5ention o( Se$tion C1 o( FSMA =;;;+ i(I B.20 the o((er is ade to or dire$ted at (e-er than *;; The

persons+ other than 8#ali(ied in5estors+ per EEA State@" p#rpose #nderl,in& that e%e ption+ the a#thor sa,s+ is (a$t that the o((er is not 2ein&

ainl, the

ade to an appre$ia2le se$tion o(

Bthe p#2li$@ s#$h that the poli$, o( the prospe$t#s r#les &enerall, is not a((e$ted" F#rther+ the a#thor sa,s that BSel(Je5identl,+ -hile e 2ers o( the p#2li$ -o#ld 2e -ithin the

an o((er to 33 ordinar,

literal ter s o( the e%e ption+ it -o#ld not 2e the sort o( a$ti5it, anti$ipated 2, the le&islation" Moreo5er+ i( a -ere arran&ed s#$h that ordinar, ar7etin& $a pai&n

e 2ers o( the people -ere

approa$hed in &ro#ps o( 33 people at a ti e in an e((ort to a5oid

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the prospe$t#s r#les+ then that -o#ld not appear to 2e -ithin the spirit o( the re&#lations and i&ht 2e held to $ontra5ene the $ore #st a$t -ith inte&rit,"@

prin$iple that a re&#lated person 3;" I

a,+ there(ore+ indi$ate+ s#2Ae$t to -hat has 2een stated

a2o5e+ in India that an, share or de2ent#re iss#e 2e,ond (ort, nine persons+ -o#ld 2e a p#2li$ iss#e attra$tin& all the rele5ant pro5isions o( the SE'I A$t+ re&#lations (ra ed there#nder+ the Co panies A$t+ pertainin& to the p#2li$ iss#e" Fa$ts $learl, re5eal ore than the

that Saharas ha5e iss#ed se$#rities to the p#2li$

threshold li it stat#toril, (i%ed #nder the (irst pro5iso to Se$tion 49.:0 and hen$e 5iolated the listin& pro5isions -hi$h $i5il and $ri inal lia2ilities" a, attra$t

LISTING OF SECURITIES = LEGAL OBLIGATIONS 3*" Prin$iples o( listin&+ -hi$h I a, later on dis$#ss+ is intended

to assist p#2li$ $o panies in identi(,in& their o2li&ations and responsi2ilities+ -hi$h are $ontin#in& in nat#re+ transparent in $ontent and $all (or hi&h de&ree o( inte&rit," O2li&ations are

i posed on the iss#er on an on&oin& 2asis" P#2li$ $o panies -ho

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are le&all, o2li&ed to list their se$#rities are dee ed to a$$ept the $ontin#in& o2li&ations+ 2, 5irt#e o( their appli$ation+ prospe$t#s and the s#2se8#ent aintenan$e o( listin& on a re$o&ni6ed sto$7

e%$han&e" Dis$los#re is the r#le+ there is no e%$eption" Misleadin& p#2li$ is a serio#s $ri e+ -hi$h a, attra$t $i5il and $ri inal

lia2ilit," Listin& o( se$#rities depends not #pon oneGs 5olition+ 2#t on stat#tor, 3=" andate" -hi$h deals -ith the

Se$tion 9:+ the listin& pro5ision+

allot ent o( shares and de2ent#res o( -hi$h S#2Jse$tions .*0+ .*A0 and .=0 are rele5ant (or o#r p#rpose and hen$e &i5en 2elo-I 6$3. A))&'3.*' &+ ";(%." (*8 8.>.*'1%." '& >. 8.()' ,* &* "'&4? .<4;(*:..@ .*0 E5er, $o pan, intendin& to o((er shares or de2ent#res to the p#2li$ (or s#2s$ription 2, the iss#e o( a prospe$t#s shall+ 2e(ore s#$h iss#e+ a7e an appli$ation to one or ore re$o&nised sto$7 e%$han&es (or per ission (or the shares or de2ent#res intendin& to 2e so o((ered to 2e dealt -ith in the sto$7 e%$han&e or ea$h s#$h sto$7 e%$han&e" .*A0 )here a prospe$t#s+ -hether iss#ed &enerall, or not+ states that an appli$ation #nder s#2Jse$tion .*0 has 2een ade (or per ission (or the shares or de2ent#res o((ered there2, to 2e dealt in one or ore re$o&ni6ed sto$7 e%$han&es+ s#$h prospe$t#s shall state the na e o( the sto$7 e%$han&e or+ as the $ase a, 2e+ ea$h s#$h sto$7 e%$han&e+ and an, allot ent ade on an appli$ation in p#rs#an$e o( s#$h prospe$t#s shall+ -hene5er ade+ 2e

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5oid+ i( the per ission has not 2een &ranted 2, the sto$7 e%$han&e or ea$h s#$h sto$7 e%$han&e+ as the $ase a, 2e+ 2e(ore the e%pir, o( ten -ee7s (ro the date o( the $losin& o( the s#2s$ription listsI P%&-,8.8 that -here an appeal a&ainst the de$ision o( an, re$o&ni6ed sto$7 e%$han&e re(#sin& per ission (or the shares or de2ent#res to 2e dealt in on that sto$7 e%$han&e has 2een pre(erred #nder se$tion == o( the Se$#rities Contra$ts .Re&#lation0 A$t+ *314 .D= o( *3140+ s#$h allot ent shall not 2e 5oid #ntil the dis issal o( the appeal" .=0 )here the per ission has not 2een applied #nder s#2J se$tion .*0 or s#$h per ission ha5in& 2een applied (or+ has not 2een &ranted as a(oresaid+ the $o pan, shall (orth-ith repa, -itho#t interest all one,s re$ei5ed (ro appli$ants in p#rs#an$e o( the prospe$t#s+ and+ i( an, s#$h one, is not repaid -ithin ei&ht da,s a(ter the $o pan, 2e$o es lia2le to repa, it+ the $o pan, and e5er, dire$tor o( the $o pan, -ho is an o((i$er in de(a#lt shall+ on and (ro the e%pir, o( the ei&hth da,+ 2e Aointl, and se5erall, lia2le to repa, that one, -ith interest at s#$h rate+ not less than (o#r per $ent and not ore than (i(teen per $ent+ as a, 2e pres$ri2ed+ ha5in& re&ard to the len&th o( the period o( dela, in a7in& the repa, ent o( s#$h one," .e phasis s#pplied0@ 3:" Se$tion 9:.*0 o( the A$t $asts an o2li&ation on e5er,

$o pan, intendin& to o((er shares or de2ent#res to the p#2li$ to appl, on a sto$7 e%$han&e (or listin& o( its se$#rities" S#$h

$o panies ha5e no option or $hoi$e 2#t to list their se$#rities on a re$o&ni6ed sto$7 e%$han&e+ on$e the, in5ite s#2s$ription (ro (ort, nine in5estors (ro the p#2li$" o5er

I( an #nlisted $o pan,

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e%presses its intention+ 2, $ond#$t or other-ise+ to o((er its se$#rities to the p#2li$ 2, the iss#e o( a prospe$t#s+ the le&al o2li&ation to a7e an appli$ation on a re$o&ni6ed sto$7 e%$han&e

(or listin& starts" S#2Jse$tion .*A0 o( Se$tion 9: &i5es indi$ation o( -hat are the parti$#lars to 2e stated in s#$h a prospe$t#s" The

$onse8#en$es o( not appl,in& (or the per ission #nder s#2Jse$tion .*0 o( Se$tion 9: or not &rantin& o( per ission is $learl, stip#lated in s#2Jse$tion .:0 o( Se$tion 9:" O2li&ation to re(#nd the a o#nt $olle$ted (ro the p#2li$ -ith interest is also andator, as per

Se$tion 9:.=0 o( the A$t" 3D" Listin& is+ there(ore+ a le&al responsi2ilit, o( the $o pan, ade to

-hi$h o((ers se$#rities to the p#2li$+ pro5ided o((ers are ore than 1; persons" In 5ie- o( the $lear stat#tor,

andate+ the

$ontention raised+ 2ased on R#le *3 o( the SCR R#les (ra ed #nder the SCR A$t+ has no 2asis" Le&al o2li&ation (lo-s the o ent the

$o pan, iss#es the prospe$t#s e%pressin& the intention to o((er shares or de2ent#res to the p#2li$+ that is to a7e an appli$ation

to the re$o&ni6ed sto$7 e%$han&e+ so that it $an deal -ith the se$#rities" A $o pan, $annot 2e heard to $ontend that it has no a7e an appli$ation to the sto$7

s#$h intention or idea to

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e%$han&e" does not

Co pan,/s option+ $hoi$e+ ele$tion+ interest or desi&n atter+ it is the $ond#$t and a$tion that atters and that inds 2#t

is -hat the la- de ands" La- A#d&es not -hat is in their

-hat the, ha5e said or -ritten or done" Lord Diplo$7 in Gissin$ v. Gissin$ .*39*0 * AC CC4+ has said+ BAs in so an, 2ran$hes o(

En&lish La-+ in -hi$h le&al ri&hts and o2li&ations depend #pon the intention o( ea$h part,+ the rele5ant intention o( ea$h part, is the intention -hi$h -as reasona2l, #nderstood 2, the other part, to 2e ani(ested 2, that part,Gs -ords or $ond#$t not-ithstandin& ind

that he did not $ons$io#sl, (or #late that intention in his o-n

or e5en a$ted -ith so e di((erent intention -hi$h he did not $o #ni$ate to the other part,"@ Lord Si on in Crofter -and

2oven -arris *weed Co. Ltd. v. (eitc! >*3D=? AC D:1+ opined that in so e 2ran$hes o( la-+ FintentionG $o5er res#lts -hi$h a, reasona2l, (lo- (ro a, 2e #nderstood to -hat is deli2eratel,

done+ the prin$iple 2ein& that a

an is to 2e treated intendin& the

reasona2le $onse8#en$es o( his a$ts" 31" The a%i acta exterior indicant interiora secreta .e%ternal

a$tion re5eals inner se$rets0 applies -ith all (or$e in the $ase o( Saharas+ -hi$h I ha5e alread, de onstrated on (a$ts as -ell as on

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la-"

Cond#$t and a$tions o( Saharas indi$ate their intention+ -e their s#2se8#ent

ha5e to A#d&e their so $alled intention (ro $ond#$t" ille&alit,"

S#2se8#ent ille&alit, sho-s that Saharas $onte plated A personGs inner intentions are to 2e read and his a$ts and o issions" )hene5er+ in the ind is rele5ant+

#nderstood (ro

appli$ation o( an ena$t ent+ a personGs state o( the a2o5e a%i $o es into pla," 30ef.

ennion on "tatutor%

Interpretation+ 4t! Edn.+ p. 55678 34" )e ha5e to appl, the 5ario#s pro5isions o( the Co panies

A$t and SE'I A$t and the r#les and re&#lations (ra ed there#nder to SaharasG $ond#$t and their inner intentions are to 2e #nderstood (ro their a$ts and o issions+ 2, appl,in& the a2o5e a%i "

SaharasG a$ts and o issions ha5e $learl, 5iolated the pro5isions o( Se$tion 9:+ their (ail#re to list the se$#rities o((er to the p#2li$ -as+ there(ore+ intentional and the plea that the, did not -ant their se$#rities listed+ is not an ans-er+ sin$e the, -ere le&all, 2o#nd to do so" The d#t, o( listin& (lo-s (ro the p#2i$+ pro5ided s#$h o((er is persons" the a$t o( iss#in& se$#rities to ade to (i(t, or ore than (i(t, ore is a p#2li$

An, o((erin& o( se$#rities to (i(t, or

o((erin& 2, 5irt#e o( Se$tion 49.:0 o( the Co panies A$t+ -hi$h the

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Saharas 5er, -ell 7ne-+ their s#2se8#ent a$tions and $ond#$ts #n8#estiona2l, re5eal so" 39" The s$ope o( Se$tion 9: $a e #p (or $onsideration 2e(ore

this Co#rt in 0a%&onds "%nt!etics Ltd. & Ors. v. Union of India & Ors. .*33=0 = SCC =11 and this Co#rt held thro#&h Dr" J#sti$e T" H" Tho en as (ollo-sI

B3" A p#2li$ li ited $o pan, has no o2li&ation to ha5e its shares listed on a re$o&nised sto$7 e%$han&e" '#t i( the $o pan, intends to o((er its shares or de2ent#res to the p#2li$ (or s#2s$ription 2, the iss#e o( a prospe$t#s+ it #st+ 2e(ore iss#in& s#$h prospe$t#s+ appl, to one or ore re$o&nised sto$7 e%$han&es (or per ission to ha5e the shares or de2ent#res intended to 2e so o((ered to the p#2li$ to 2e dealt -ith in ea$h s#$h sto$7 e%$han&e in ter s o( Se$tion 9:""@ 3C" The a2o5e dis$#ssion $learl, indi$ates that (ro the ,ears

*3CC to =;;;+ pri5ate pla$e ent o( pre(erential allot ent $o#ld 2e ade to (i(t, or ore persons i( the re8#ire ents o( Cla#ses .a0 Ho-e5er+ a(ter the

and .20 o( Se$tion 49.:0 are satis(ied"

a end ent to the Co panies A$t+ *314 on *:"*="=;;;+ e5er, pri5ate pla$e ent ade to (i(t, or ore persons 2e$o es an o((er

intended (or the p#2li$ and attra$ts the listin& re8#ire ents #nder Se$tion 9:.*0" E5en those iss#es -hi$h satis(, Se$tions 49.:0.a0

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and .20 -o#ld 2e treated as an iss#e to the p#2li$ i( it is iss#ed to (i(t, or ore persons+ as per the pro5iso to Se$tion 49.:0 and as andator,

per Se$tion 9:.*0+ an appli$ation (or listin& 2e$o es

and a le&al re8#ire ent" Readin& o( the pro5iso to Se$tion 49.:0 and Se$tion 9:.*0 $onAointl, indi$ates that an, p#2li$ $o pan, -hi$h intends to iss#e shares or de2ent#res to (i(t, persons or ore is le&all, o2li&ed to a7e an appli$ation (or listin& its

se$#rities on a re$o&ni6ed sto$7 e%$han&e" 33" Saharas+ in , 5ie-+ ha5e not (ollo-ed an, o( those

stat#tor, re8#ire ents" On a $o 2ined readin& o( the pro5iso to Se$tion 49.:0 and Se$tion 9:.*0+ it is $lear that the Saharas had ade an o((er o( OFCDs to (i(t, persons or re8#ire ent to ore+ $onse8#entl,+ the

a7e an appli$ation (or listin& 2e$a e o2li&ator, andate -hi$h the, did not (ollo-"

leadin& to a stat#tor,

U*),"'.8 P1>),4 C&32(*,." P%.+.%.*',() A))&'3.*'! R1).", 2003 (*8 ';. U*),"'.8 P1>),4 C&32(*,." P%.+.%.*',() A))&'3.*'! A3.*83.*' R1)." 2011 *;;" Considera2le ar&# ents -ere ad5an$ed 2, Saharas on the

appli$a2ilit, o( the pro5isions o( =;;: R#les -hi$h+ a$$ordin& to the + did not re8#ire the OFCDs to 2e (irst listed on a re$o&ni6ed

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101

sto$7 e%$han&e+ espe$iall, in the li&ht o( the pro #l&ation o( Unlisted P#2li$ Co panies .Pre(erential Allot ent0 A end ent R#les =;** .(or short F=;** R#lesG0" Contention -as raised that+

in 5ie- o( =;;: R#les+ pre(erential allot ent 2, #nlisted p#2li$ $o panies on pri5ate pla$e ent -as pro5ided (or and per itted -itho#t an, restri$tion on n# 2ers as per the pro5iso to Se$tion 49.:0 o( the Co panies A$t and -itho#t re8#irin& listin& o( s#$h OFCDs on a re$o&ni6ed sto$7 e%$han&e" F#rther+ it -as pointed o#t that onl, on and (ro *D"*="=;**+ =;;: R#les -ere a ended+

-here2, the de(inition o( Bpre(erential allot ent@ -as s#2stit#ted -itho#t in an, -a, dist#r2in& or a endin& R#le = o( =;;: R#les" A(ter *D"*="=;**+ it -as pointed o#t+ the de(inition o( /pre(erential allot ent@ -as a ended prospe$ti5el," F#rther+ it -as pointed o#t

that the (irst pro5iso to Se$tion 49.:0 o( the Co panies A$t+ added 2, the Co panies A end ent A$t 1: o( =;;; -"e"(" *:"*="=;;; .-hi$h -as earlier not appli$a2le to the =;;: R#les0 has no- 2een e%pressl, ade appli$a2le -"e"(" *D"*="=;**+ so as to li itErestri$t the o((er on pri5ate pla$e ent is

the n# 2er o( persons to -ho

ade+ to onl, D3 persons+ and hen$e the restri$tion i posed 2, the a end ent ade in De$e 2er =;** to iss#e o( OFCDs 2,

#nlisted $o panies p#rs#ant to the spe$ial resol#tion #nder

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Se$tion C*.*A0 is also prospe$ti5e" La-+ there(ore+ it -as #r&ed+ per itted the #nlisted $o panies li7e Saharas to iss#e OFCDs to ore than D3 persons prior to De$e 2er =;**+ on a pri5ate pla$e ent 2asis+ -itho#t re8#irin& the sa e to 2e (irst listed" *;*" I (ind that no s#$h $ontention -as seen #r&ed either 2e(ore

SE'I or SAT+ nor do I (ind an, s#2stan$e in that $ontention" =;;: R#les are not appli$a2le to an, o((er o( shares or de2ent#res to ore than D3 persons" =;;: R#les -as (ra ed 2, the Central

<o5ern ent in e%er$ise o( the po-ers $on(erred #nder Se$tion C*.*A0 read -ith Se$tion 4D= o( the Co panies A$t to pro5ide (or r#les appli$a2le to the #nlisted p#2li$ $o panies" Se$tion C* o( the Co panies A$t deals -ith (#rther iss#e o( se$#rities and onl, &i5es preJe pti5e ri&hts to the e%istin& shareholders o( the $o pan,+ so that s#2se8#ent o((er o( se$#rities ha5e to 2e o((ered to the their Bri&hts@" Se$tion C*.*A0+ it as

a, 2e noted+ is onl, an a, 2e o((ered

e%$eption to the said r#le+ that the (#rther shares

to an, persons s#2Ae$t to passin& a spe$ial resol#tion 2, the $o pan, in their &eneral eetin&" Se$tion C*.*A0 $annot+ in an,

5ie-+ ha5e an o5erridin& e((e$t on the pro5isions relatin& to p#2li$ iss#e" E5en i( ar ed -ith a spe$ial resol#tion (or an, (#rther iss#e

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o( $apital to person other than shareholders+ it $an onl, 2e s#2Ae$ted to the pro5isions o( Se$tion 49 o( the Co pan, A$t+ that is i( the o((er is ade to (i(t, persons or ore+ then it -ill ha5e to

2e treated as p#2li$ iss#e and not a pri5ate pla$e ent" A p#2li$ iss#e o( se$#rities -ill not 2e$o e a pre(erential allot ent on des$ription o( la2el" Pro5iso to Se$tion 49.:0 does not a7e an,

distin$tion 2et-een listed and #nlisted p#2li$ $o panies or 2et-een pre(erential or ordinar, allot ent" E5en prior to the introd#$tion o( the pro5iso to Se$tion 49.:0+ an, iss#e o( se$#rities to the p#2li$ re8#ired ore sto$7 e%$han&es" andator, appli$ations (or listin& to one or A(ter insertion o( the pro5iso to Se$tion

49.:0 in De$e 2er =;;;+ pri5ate pla$e ent allo-ed #nder Se$tion 49.:0 -as also restri$ted #p to D3 persons" =;;: R#les appl, onl, in the $onte%t o( pre(erential allot ent o( #nlisted $o panies+ ho-e5er+ i( the pre(erential allot ent is a p#2li$ iss#e+ then =;;: R#les -o#ld not appl," =;;: R#les are onl, eant to re&#late the

iss#e o( the shares and de2ent#res 2, #nlisted p#2li$ $o panies and pre5ent the is#se o( the pri5ate pla$e ent" Se$tion C*.*A0+

as I ha5e alread, indi$ated+ sa,s that a pre(erential allot ent $an 2e ade 2, passin& a spe$ial resol#tion -hi$h is an e%$eption to or

the r#les o( ri&hts iss#e+ sin$e that re8#ires ne- shares

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de2ent#res to 2e o((ered to the e%istin& rata 2asis" '#t -hen o((er is apart (ro ade to

e 2ersEholders on a pro ore than D3 persons+ then

$o plian$e -ith Se$tion C*.*A0+ other re8#ire ents =;;: R#les+ in

re&ardin& p#2li$ iss#e ha5e to 2e $o plied -ith"

, 5ie-+ $annot o5erride the pro5isions o( Se$tion 49.:0 and Se$tion 9:" R#les onl, The de(inition o( Bpre(erential allot ent@ in =;** ade -hat -as i pli$it in =;;:+ ore e%pli$it" In ,

5ie-+ 2oth =;;: R#les and =;** R#les are s#2ordinate re&#lations and are to 2e read s#2Ae$t to the pro5iso to Se$tion 49.:0 and 9:.*0 and other related pro5isions"

DIP GUIDELINES A ICDR 2009

*;="

Senior

$o#nsels that DIP

appearin& <#idelines

(or

Saharas onl,

also

raised

$ontention

-ere

depart ental

instr#$tions+ not ha5in& the san$tion o( la- and+ there(ore+ -o#ld not appl, to the OFCDs iss#ed" This ar&# ent+ in , 5ie-+ has no

2asis" DIP <#idelines had stat#tor, (or$e sin$e the, -ere (ra ed 2, SE'I in e%er$ise o( its po-ers $on(erred on it #nder Se$tions ** and **A o( the SE'I A$t" Po-ers ha5e 2een $on(erred on SE'I to prote$t the interests o( the in5estors in se$#rities and re&#late the

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iss#e o( prospe$t#s+ o((er do$# ents or ad5ertise ent soli$itin& one, thro#&h the iss#e o( prospe$t#s" Se$tion ** o( the A$t+ it a, 2e noted has 2een in$orporated+ e5identl, to prote$t the interests o( in5estors -hose se$#rities are le&all, re8#ired to 2e listed" DIP <#idelines -ere i ple ented 2, SE'I -ith re&ard to ade p#2li$ o((er+ #ntil it

the listed and #nlisted $o panies+ -hi$h -as repla$ed 2, ICDR =;;3"

Contention -as raised 2, Saharas

that the, had iss#ed OFCDs in the ,ear =;;C and no a$tion -as ta7en #nder DIP <#idelines and hen$e ICDR =;;3+ -hi$h $a e into (or$e onl, on =4"C"=;;3+ -o#ld not appl, and ha5e no

retrospe$ti5e operation" In

, 5ie-+ this $ontention has no (or$e+

espe$iall, -hen Saharas had not $o plied -ith the stat#tor, re8#ire ents pro5ided in the DIP <#idelines"

*;:"

Repeal and Sa5in& Cla#se #nder ICDR =;;3 -o#ld $learl,

indi$ate that the 5iolation #nder DIP <#idelines -as a $ontin#in& one" Re&#lation *** o( ICDR reads as (ollo-sI BR.2.() (*8 S(-,*:" ***" .*0 On and (ro the $o en$e ent o( these re&#lations+ the Se$#rities and E%$han&e 'oard o( India .Dis$los#re and In5estor Prote$tion0 <#idelines+ =;;; shall stand res$inded"

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.=0

Not-ithstandin& s#$h res$issionL .a0 an,thin& done or an, a$tion ta7en or p#rported to ha5e 2een done or ta7en in$l#din& o2ser5ation in5esti&ation $o ade in respe$t o( an, dra(t o((er do$# ent+ an, en8#ir, or en$ed or sho- $a#se noti$e iss#ed in respe$t o( the said <#idelines shall 2e dee ed to ha5e 2een done or ta7en #nder the $orrespondin& pro5isions o( these re&#lationsL .20 an, o((er do$# ents+ -hether dra(t or other-ise+ (iled or appli$ation ha5e 2een (iled or ade to the 'oard #nder the said ade #nder the $orrespondin& <#idelines and pendin& 2e(ore it shall 2e dee ed to pro5isions o( these re&#lations"@

*;D"

Re&#lation

***.*0

o(

ICDR

=;;3

res$inded

the

DIP

<#idelines (ro

=4"C"=;;3 and $la#se .=0 o( Re&#lation *** The e%pression Ban,thin& done@ or

$ontains the sa5in& $la#se"

Ban, a$tion ta7en@ #nder Re&#lation ***.*0 are o( -ide i port and -o#ld ta7e an,thin& done 2, the $o pan, o itted to 2e done -hi$h the, le&all, o#&ht to ha5e done" stat#tor, o2li&ations p#rposel, or other-ise the a2o5e entioned e%pressions" NonJper(or an$e o( a, also (all -ithin

Fail#re to ta7e an, a$tion 2,

SE'I #nder DIP <#idelines+ in spite o( the (a$t that Saharas did not

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107

dis$har&e their stat#tor, o2li&ation+ -o#ld not 2e a &ro#nd to $ontend that =;;3 Re&#lations -o#ld not appl, as also the sa5in& $la#se" =;;3 Re&#lations+ in , 5ie-+ -ill appl, to all $o panies

-hether listed or #nlisted" F#rther+ in the instant $ase+ SE'I -as not in(or ed o( the iss#an$e o( se$#rities 2, the Saharas -hile the DIP <#idelines -ere in (or$e and Saharas $ontin#ed to (#nds (ro o2ili6e

the p#2li$ -hi$h -as nothin& 2#t $ontin#ed 5iolation

-hi$h started -hen the DIP <#idelines -ere in (or$e and also -hen the, -ere repla$ed 2, =;;3 Re&#lations" F#rther+ it re$alled that an, soli$itation (or s#2s$ription (ro a, also 2e

p#2li$ $an 2e

re&#lated onl, a(ter $o pl,in& -ith the re8#ire ents stip#lated 2, SE'I+ in (a$t+ an a end ent -as ade to S$hed#le II o( the

Co panies A$t 5ide noti(i$ation No" <SR 41;.:0 dated *9"3"=;;= 2, insertin& a de$laration -hi$h has to 2e si&ned 2, the dire$tors o( the $o pan, (ilin& the prospe$t#s+ -hi$h reads as #nderI BThat all the rele5ant pro5isions o( the Co panies A$t+ *314+ and the &#idelines iss#ed 2, the <o5ern ent or the &#idelines iss#ed 2, the Se$#rities and E%$han&e 'oard o( India esta2lished #nder Se$tion : o( the Se$#rities and E%$han&e 'oard o( India A$t+ *33=+ as the $ase a, 2e+ ha5e 2een $o plied -ith and no state ent ade in prospe$t#s is $ontrar, to the pro5isions o( the Co panies A$t+ *314 or the se$#rities and E%$han&e 'oard o( India A$t+ *33= or r#les ade thereJ#nder or &#idelines iss#ed+ as the $ase a, 2e"@

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108

*;1"

I (ind that Saharas $on5enientl, o itted the re(eren$e to OFCDs -ere+ o( the DIP

SE'I in the de$laration &i5en in the prospe$t#s" there(ore+ iss#ed 2, Saharas in $ontra5ention

<#idelines+ ICDR =;;3+ noti(i$ation dated *9"3"=;;= and also o5erloo7in& the stat#tor, re8#ire ents stip#lated in Se$tion 9:.*0 o( the Co panies A$t" HB>%,8" = SCR A4' *;4" Saharas also raised a $ontention that a(ter the insertion o(

the de(inition o( Bse$#rities@ in Se$tion =.D1AA0 as Bin$l#din& h,2rid@ and a(ter insertion o( the separate de(inition o( Bh,2rid@ in Se$tion =.*3A0 o( the A$t+ the pro5isions o( Se$tion 49 are not at all appli$a2le to OFCDs+ -hi$h ha5e 2een held to 2e Bh,2rid@" F#rther+ it -as also $ontended that OFCDs iss#ed -ere $on5erti2le 2onds (allin& -ithin the s$ope o( Se$tion =C.*0.20 o( SCR A$t and the, -ere not Bse$#rities@ or at an, rate the pro5isions o( SE'I A$t and Se$tion 49 -ere not at all appli$a2le to OFCDs+ -hi$h ha5e 2een (o#nd to 2e Bh,2rid@"

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109

*;9"

Saharas

ainl, $an5assed the position that OFCDs iss#ed se$#rities in the

-ere h,2rid se$#rities $o5ered 2, the ter

Co panies A$t and the, do not $o e #nder the de(inition o( Bse$#rities@ #nder the SCR A$t+ hen$e #nder the SE'I A$t" F#rther+ it -as also #r&ed that -hen the de(inition o( Bse$#rities@ -as a ended to in$l#de h,2rids in the Co panies A$t+ no $orrespondin& a end ent -as ade in the SCR A$t and SE'I A$t

and hen$e it -as $ontended that SE'I has no A#risdi$tion or $ontrol o5er the h,2rid se$#rities" F#rther+ it -as also pointed o#t that

h,2rid se$#rities at 2est $an $o e #nder the re&#lator, $ontrol o( MCA+ <o5ern ent o( India" Saharas also $ontended that e5en

Se$tion 49 spea7s onl, o( shares and de2ent#res and does not re(le$t the $han&e 2ro#&ht a2o#t 2, the de(inition Cla#se =.*3A0 Fh,2ridG or 2, the insertion o( the de(inition o( Bse$#rities@ in Se$tion =.D1AA0 as in$l#din& h,2rid e5en tho#&h Se$tion 49.:0 o( the A$t -as a ended+ 2, the A end ent A$t 1: o( =;;;+ 2, -hi$h the de(initions o( Fse$#ritiesG and Fh,2ridG -ere introd#$ed" It -as also pointed o#t that nonJs#2stit#tionEnonJa end ent o( Se$tion 49.*0 and .=0+ 2, not in$l#din& the -ord Fh,2ridG a(ter the -ords FsharesG and Fde2ent#resG+ is si&ni(i$ant"

Page 109

110

*;C"

OFCDs iss#ed 2, Saharas #ndo#2tedl, -ere #nse$#red Se$tion =.*=0 o( the Co panies

de2ent#res 2, na e and nat#re"

A$t deals -ith the de(inition o( the -ord Bde2ent#res@ and in$l#des an, Bother se$#rities@" The sa e reads as (ollo-sI B=.*=0" BDe2ent#reG in$l#des de2ent#re sto$7+ 2onds and an, other se$#rities o( a $o pan,+ -hether $onstit#tin& a $har&e on the assets o( the $o pan, or not"@ The de(inition o( the -ord Bse$#ritiesG #nder Se$tion =.D1AA0 o( the Co panies A$t+ reads as (ollo-sI B=.D1AA0" BSe$#rities@ eans se$#rities as de(ined in Cla#se .h0 o( Se$tion = o( the Se$#rities Contra$ts .Re&#lation0 A$t+ *314 .D= o( *3140+ and in$l#des h,2rids"@ Se$tion =.h0 o( the SCR A$t+ *314 reads as (ollo-sI B=.h0 Bse$#rities@ in$l#deR .i0 shares+ s$rips+ sto$7s+ 2onds+ de2ent#res+ de2ent#re sto$7 or other ar7eta2le se$#rities o( a li7e nat#re in or o( an, in$orporated $o pan, or other 2od, $orporateL

.ia0 deri5ati5eL .i20 #nits or an, other instr# ent iss#ed 2, an, $olle$ti5e in5est ent s$he e to the in5estors in s#$h s$he esL se$#rit, re$eipt as de(ined in $la#se .6&0 o( se$tion = o( the Se$#ritisation and Re$onstr#$tion o( Finan$ial Assets and En(or$e ent o( Se$#rit, Interest A$t+ =;;=L .id0 #nits or an, other s#$h instr# ent iss#ed to the .i$0

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in5estors #nder an,

#t#al (#nd s$he eL

E%planation"J For the re o5al o( do#2ts+ it is here2, de$lared that Bse$#rities@ shall not in$l#de an, #nit lin7ed ins#ran$e poli$, or s$rips or an, s#$h instr# ent or #nit+ 2, -hate5er na e $alled+ -hi$h pro5ides a $o 2ined 2ene(it ris7 on the li(e o( the persons and in5est ent 2, s#$h persons and iss#ed 2, an ins#rer re(erred to in $la#se .30 o( se$tion = o( the Ins#ran$e A$t+ *3:C .D o( *3:C0L .ie0 an, $erti(i$ate or instr# ent .2, -hate5er na e $alled0+ iss#ed to an in5estor 2, an, iss#er 2ein& a spe$ial p#rpose distin$t entit, -hi$h possesses an, de2t or re$ei5a2le+ in$l#din& ort&a&e de2t+ assi&ned to s#$h entit,+ and a$7no-led&in& 2ene(i$ial interest o( s#$h in5estor in s#$h de2t or re$ei5a2le+ in$l#din& ort&a&e de2t+ as the $ase a, 2eL .ii0 <o5ern ent se$#ritiesL

.iia0 s#$h other instr# ents as a, 2e de$lared 2, the Central <o5ern ent to 2e se$#ritiesL and .iii0 *;3" ri&hts or interest in se$#rities"@

The -ord Bh,2rid@ #nder Se$tion =.*3A0 -as inserted in the

Co panies A$t+ 5ide the Co panies .A end ent0 A$t+ =;;= -"e"(" *:"*="=;;; and reads as (ollo-sI B=.*3A0" Bh,2rid@ eans an, se$#rit, -hi$h has the $hara$ter o( ore than one t,pe o( se$#rit,+ in$l#din& their deri5ati5es"@ **;" H,2rid se$#rities+ there(ore+ &enerall, eans se$#rities+

Page 111

112

-hi$h ha5e so e o( the attri2#tes o( 2oth de2t se$#rities and e8#it, se$#rities+ eans a se$#rit, -hi$h+ in the ter o( a

de2ent#re+ en$o passin& the ele ent o( inde2tness and ele ent o( e8#it, sto$7 as -ell" The s$ope o( the de(inition o( Se$tion =.h0 o( SCR A$t $a e #p (or $onsideration 2e(ore this Co#rt in S18;,% "!antilal Me!ta v. Central ureau of Investi$ation .=;;30 C

SCC * and the Co#rt stated that the de(inition o( se$#rities #nder the SCR A$t is an in$l#si5e de(inition and not e%ha#sti5e" Co#rt held that it ta7es -ithin its p#r5ie- not onl, the The atters

spe$i(ied therein+ 2#t also all other t,pes o( se$#rities+ th#s it sho#ld 2e &i5en an e%pansi5e eanin&" In Nares! K. A$$arwala

& Co. v. Can1an' 9inancial "ervices Ltd. and Anr. .=;*;0 4 SCC *9C+ -hile re(errin& to the de(inition o( the ter Bse$#rities@

de(ined #nder SCR A$t and the appli$a2ilit, o( a Cir$#lar iss#ed 2, the Delhi Sto$7 E%$han&e+ the Co#rt endorsed the 5ie- o( the Spe$ial Co#rt and noted that the per#sal o( the a2o5e 8#oted de(inition sho-ed that the, did not a7e an, distin$tion 2et-een

listed se$#rities and #nlisted se$#rities and+ there(ore+ it -as $lear that the $ir$#lar -o#ld appl, to the se$#rities -hi$h -ere not listed on the sto$7 e%$han&e"

Page 112

113

***" Bother

Se$tion =.h0 o( the SCR A$t &i5es e phasis to the -ords ar7eta2le se$#rities o( a li7e nat#re@+ -hi$h &i5es a $lear ar7eta2ilit, o( the se$#rities and &i5es an An, se$#rit, -hi$h is

indi$ation o( the e%pansi5e

eanin& to the -ord se$#rities"

$apa2le o( 2ein& (reel, trans(erra2le is

ar7eta2le" The de(inition

$la#se in Se$tion =.h0 o( SCR A$t is a -ide de(inition+ an in$l#si5e one+ -hi$h ta7es in h,2rid also+ -hi$h I ha5e alread, indi$ated+ de(ined 5ide Se$tion =.*3A0 o( the Co panies A$t" **=" OFCDs iss#ed ha5e the $hara$teristi$s o( shares and

de2ent#res and (all -ithin the de(inition o( Se$tion =.h0 o( SCR A$t+ -hi$h $ontin#e to re ain de2ent#res till the, are $on5erted" In

other -ords+ OFCDs iss#ed 2, Saharas are de2ent#res in presenti and 2e$o e shares in futuro" E5en i( OFCDs are h,2rid se$#rities+ as de(ined in Se$tion =.*3A0 o( the Co panies A$t+ the, shall re ain -ithin the p#r5ie- o( the de(inition o( Bse$#rities@ in Se$tion =.h0 o( SCR A$t" F#rther+ it a, 2e noted that Saharas ha5e

treated OFCDs onl, as de2ent#res in the IM+ RHP+ appli$ation (or s and also in their 2alan$e sheet" The ter s BSe$#rities@ eanin& as de(ined in

de(ined in the Co panies A$t has the sa e

the SCR A$t+ -hi$h -o#ld also $o5er the spe$ies o( Bh,2rid@

Page 113

114

de(ined #nder Se$tion =.*3A0 o( the Co panies A$t"

Sin$e the

de(inition o( Bse$#rities@ #nder Se$tion =.D1AA0 o( the Co panies A$t in$l#des Bh,2rids@+ SE'I has A#risdi$tion o5er h,2rids li7e OFCDs iss#ed 2, Saharas+ sin$e the e%pression Bse$#rities@ has 2een spe$i(i$all, dealt -ith #nder Se$tion 11A o( the Co panies A$t"

OFCD" 9;.';.% C&*-.%',>). B&*8" = SCR A4'

**:" the

Saharas raised ,et another $ontention that OFCDs iss#ed 2, are $on5erti2le 2onds iss#ed on the 2asis o( the pri$e a&reed

#pon at the ti e o( iss#e and+ there(ore+ the pro5isions o( SCR A$t are not appli$a2le in 5ie- o( Se$tion =C.*0.20 thereo(" F#rther+ it

-as also $ontended that $on5erti2le 2onds ha5in& 2een iss#ed at a pri$e a&reed #pon at the ti e o( iss#e are not lista2le in 5ie- o( the e%$eption &ranted #nder Se$tion =C.*0 o( the SCR A$t" **D" Se$tion =C -as inserted 2, the SCR A$t" The o2Ae$t o( the

a end ent as stated in the 'ill -as to e%e pt $on5erti2le 2onds 2, (orei&n (inan$ial instit#tions that had an option to o2tain shares at a later date" Prea 2le o( SCR A$t pro5ided Bprohi2ition on

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options in se$#rities@ as a transa$tions in se$#rities@" a ended to

ode Bto pre5ent the #ndesira2le Res#ltantl,+ Se$tion =C had to 2e

a7e so inappli$a2le to s#$h options in the 2onds and

to delete the -ords B2, prohi2itin& options in se$#rities@ to (a$ilitate s#$h options" Parlia ent ne5er intended to ta7e a-a, the p#r5ie- o( SCR A$t" For eas,

$on5erti2le de2ent#res (ro re(eren$e+ I

a, re(er to Se$tion =C+ -hi$h reads as (ollo-sI

B28" A4' *&' '& >. (22)B ,* 4.%'(,* 4(".". .*0 .a0 The pro5isions o( this A$t shall not appl, toJ the <o5ern ent+ the Reser5e 'an7 o( India+ an, lo$al a#thorit, or an, $orporation setJ#p 2, a spe$ial la- or an, person -ho has e((e$ted an, transa$tion -ith or thro#&h the a&en$, o( an, s#$h a#thorit, as is re(erred to in this $la#seL an, $on5erti2le 2ond or share -arrant or an, option or ri&ht in relation thereto+ in so (ar as it entitles the person in -hose (a5o#r an, o( the (ore&oin& has 2een iss#ed to o2tain at his option (ro the $o pan, or other 2od, $orporate+ iss#in& the sa e or (ro + an, o( its shareholders or d#l, appointed a&ents shares o( the $o pan, or other 2od, $orporate+ -hether 2, $on5ersion o( the 2ond or -arrant or other-ise+ on the 2asis o( the pri$e a&reed #pon -hen the sa e -as iss#ed"

(b)

.=0 )itho#t preA#di$e to the pro5isions $ontained in s#2J se$tion .*0 i( the Central <o5ern ent is satis(ied that in the interests o( trade and $o er$e or the e$ono i$ de5elop ent o( the $o#ntr, it is ne$essar, or

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e%pedient so to do+ it a,+ 2, noti(i$ation in the O((i$ial <a6ette+ spe$i(, an, $lass o( $ontra$ts as $ontra$ts to -hi$h this A$t or an, pro5ision $ontained therein shall not appl,+ and also the $onditions+ li itations or restri$tions+ i( an,+ s#2Ae$t to -hi$h it shall not so appl,"@ Se$tion =C.*0.20 a7es it $lear that the A$t -ill not appl, to

the Fentitle entG o( the 2#,er+ inherent in the $on5erti2le 2ond" Entitle ent a, 2e se5era2le+ 2#t does not itsel( 8#ali(, as a

se$#rit, that $an 2e ad inistered 2, the SCR A$t+ #nless it is iss#ed in a deta$ha2le (or at" There(ore+ the inappli$a2ilit, o( SCR A$t+ as $onte plated in Se$tion =C.*0.20+ is not to the $on5erti2le 2onds+ 2#t to the entitle ent o( a person to -ho s#$h share+

-arrant or $on5erti2le 2ond has 2een iss#ed+ to ha5e shares at his option" The A$t is+ there(ore+ inappli$a2le onl, to the options or

ri&hts or entitle ent that are atta$hed to the 2ondE-arrant and not to the 2ondE-arrant itsel(" The e%pression Binso(ar as it entitles

the person@ $learl, indi$ates that it -as not intended to e%$l#de $on5erti2le 2onds as a $lass" Se$tion =C.*0.20+ there(ore+ $learl,

indi$ates that it is onl, the $on5erti2le 2onds and shareE-arrant o( the t,pe re(erred to therein that are e%$l#ded (ro the appli$a2ilit,

o( the SCR A$t and not de2ent#res -hi$h are separate $ate&or, o( se$#rities in the de(inition $ontained in Se$tion =.h0 o( SCR A$t"

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Se$tion =; o( SCR A$t+ -hi$h -as o itted+ 2, Se$#rities La-s .A end ent0 A$t+ *331+ -ith e((e$t (ro options entered into a(ter the $o ille&al" =1"*"*331+ stated that all

en$e ent o( the A$t -o#ld 2e

The introd#$tion o( Se$tions =C.*0.20 and =C.=0 2e$a e

ne$essar, 2e$a#se o( the pro5isions o( Se$tions *:+ *4 and =;" Se$tion =; -as deleted in the ,ear *331+ 2#t SE'I noti(i$ation No" *CD dated *":"=;;; $ontin#ed to prohi2it options" Conse8#entl,+ OFCDs iss#ed 2, Saharas to the p#2li$ $annot 2e e%$l#ded (ro the p#r5ie- o( listin& re8#ire ents+ an, interpretation to the $ontrar, -o#ld $ontra5ene the andator, re8#ire ents $ontained

in Se$tion 9:.*0 and pro5iso to Se$tion 49.:0 o( the Co panies A$t"

REFUND OF THE MONEY COLLECTED

**1"

I ha5e (o#nd that Saharas ha5in& (ailed to

a7e appli$ation

(or listin& on an, o( the re$o&ni6ed sto$7 e%$han&e+ as pro5ided #nder Se$tion 9:.*0 o( the Co panies A$t+ 2e$o e le&all, lia2le to re(#nd the a o#nt $olle$ted (ro the s#2s$ri2ers in p#rs#an$e to

their RHPs+ alon& -ith interest as pro5ided #nder Se$tion 9:.=0 o( the A$t" R#le DD o( the Co panies .Central <o5ern ent0 <eneral

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R#les and For s *314 pres$ri2es the rates o( interest (or the p#rposes o( s#2Jse$tions .=0 and .=A0 o( Se$tion 9:+ -hi$h shall 2e (i(teen per $ent per ann# " Se$tion 9:.=0 sa,s that e5er,

$o pan, and e5er, dire$tor o( the $o pan, -ho is an o((i$er in de(a#lt+ shall 2e Aointl, and se5erall, lia2le to repa, that -ith interest at s#$h rate+ not less than (o#r per $ent and not than (i(teen per $ent+ as a2o5e a, 2e pres$ri2ed" one, ore

The s$ope o( the

entioned pro5isions $a e #p (or $onsideration 2e(ore this

Co#rt in 0a%&ond "%nt!etics Ltd. & Ors. (. Union of India .s#pra0+ -herein the Co#rt held that in a $ase -here the $o pan, has not applied (or listin& on a sto$7 e%$han&e+ the $onse8#en$es -ill (lo- (ro the $o pan,Gs diso2edien$e o( the la-+ the lia2ilit, to the date o( re$eipt o( the a o#nts+ (or

pa, interest arises as (ro

the $o pan, o#&ht not to ha5e re$ei5ed an, s#$h a o#nt in response to the prospe$t#s" I a + there(ore+ o( the 5ie- that sin$e Saharas had 5iolated the listin& pro5isions and $olle$ted h#&e a o#nts (ro the p#2li$ in diso2edien$e o( la-+ SE'I is A#sti(ied in

dire$tin& re(#nd o( the a o#nt -ith interest" CIVIL AND CRIMINAL LIABILITY **4" I ha5e (o#nd+ in this $ase+ that Saharas had not $o plied

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-ith the le&al re8#ire ents o( Se$tion 14 and hen$e the se$ond pro5iso to Se$tion 14.:0 a, appl, and it is also stated in s#2J

se$tion .40 o( Se$tion 14 that the lia2ilit, #nder the <eneral Lahas 2een e%$l#ded" Se$tion 4= $asts $i5il lia2ilit, (or isJ

state ent in prospe$t#s and Se$tion 4:.*0 spea7s o( $ri inal lia2ilit," Se$tion 4C spea7s o( penalt, (or (ra#d#lentl, ind#$in&

persons to in5ite+ -hi$h also leads to i prison ent and (ine" Se$tion 4CA pres$ri2es p#nish ent (or 5iolation o( -hat is pro5ided #nder Se$tions 4CA.*0.a0 and .20+ -ith i prison ent (or a ter o(

(i5e ,ears" Se$tion 9:.:0 also spea7s o( i position o( (ine" O5er and a2o5e the penal pro5isions+ Se$tion 4=C o( the Co panies A$t also proposes i prison ent and (ine+ (or F#rther+ (#rnishin& (alse e5iden$e i prison ent (or a ter -hi$h a7in& (alse state ents"

a, also attra$t p#nish ent -ith a, e%tend to se5en ,ears and also

(ine #nder Se$tion 4=3 o( the Co panies A$t" The pro5isions (or i posin& $i5il and $ri inal lia2ilit, and re(#nd o( the a o#nt -ith interest -o#ld indi$ate that+ o( late+ e$ono i$ o((en$es in India li7e the one $o else -e itted 2, Saharas 2e treated -ith an iron hand+ or ar7et pande oni# "

a, land in another se$#rit,

I+ there(ore+ ans-er the 8#estions o( la- raised as (ollo-sI .a0 SE'I has the po-ers to ad inister the pro5isions re(erred to

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in the openin& part o( Se$tion 11A -hi$h relates to iss#e and trans(er o( se$#rities and nonJpa, ent o( di5idend 2, p#2li$ $o panies li7e Saharas+ -hi$h ha5e iss#ed se$#rities to (i(t, persons or ore+ tho#&h not listed on a re$o&ni6ed sto$7

e%$han&e+ -hether the, intended to list their se$#rities or not" .20 Saharas -ere le&all, o2li&ed to (ile the (inal prospe$t#s #nder Se$tion 4;'.30 -ith SE'I+ (ail#re to do so attra$ts $ri inal lia2ilit," .$0 First pro5iso to Se$tion 49.:0 $asts a le&al o2li&ation to list the se$#rities on a re$o&ni6ed sto$7 e%$han&e+ i( the o((er is ade to (i(t, or -hi$h ore persons+ -hi$h Saharas ha5e 5iolated

a, attra$t the penal pro5isions $ontained in Se$tion

4C o( the A$t" .d0 Se$tion 9: o( the A$t $asts an o2li&ation on a p#2li$ $o pan, to appl, (or listin& o( its se$#rities on a re$o&ni6ed sto$7 e%$han&e+ on$e it in5ites s#2s$ription (ro (i(t, or ore

persons+ -hi$h Saharas ha5e 5iolated and the, ha5e to re(#nd the one, $olle$ted to the in5estors -ith interest"

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.e0

Saharas ha5e 5iolated the DIP <#idelines and ICDR =;;3 and 2, not $o pl,in& -ith the dis$los#re re8#ire ents and in5estor prote$tion eas#res (or p#2li$+ and also 5iolated a, attra$t penal

Se$tion 14 o( the Co panies A$t -hi$h pro5isions" .(0

=;;: R#les or the =;** R#les $annot o5erride the pro5isions o( Se$tion 49.:0 and Se$tion 9:+ 2ein& s#2ordinate

le&islations+ =;;: R#les are also not applil$a2le to an, o((er o( shares or de2ent#res to ore than (ort, nine persons and

are to 2e read s#2Ae$t to the pro5iso to Se$tion 49.:0 and Se$tion 9:.*0 o( the Co panies A$t" .&0 OFCDs iss#ed 2, Saharas ha5e the $hara$teristi$s o( shares and de2ent#res and (all -ithin the de(inition o( Se$tion =.h0 o( SCR A$t" The de(inition o( Fse$#ritiesG #nder Se$tion

=.D1AA0 o( the Co panies A$t in$l#des Fh,2ridsG and SE'I has A#risdi$tion o5er h,2rids li7e OFCDs iss#ed 2, Saharas+ sin$e the e%pression Fse$#ritiesG has 2een spe$i(i$all, dealt -ith #nder Se$tion 11A o( the Co panies A$t"

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122

.h0

Se$tion =C.*0.20 o( the SCR A$t indi$ates that it is onl, $on5erti2le 2onds and shareE-arrant o( the t,pe re(erred to therein+ -hi$h are e%$l#ded (ro the appli$a2ilit, o( the SCR

A$t and not de2ent#res+ -hi$h are separate $ate&or, o( se$#rities in the de(inition $ontained in Se$tion =.h0 o( SCR A$t" Contention o( Saharas that OFCDs iss#ed 2, the are

$on5erti2le 2onds iss#ed on the 2asis o( the pri$e a&reed #pon at the ti e o( iss#e and+ there(ore+ the pro5isions o( SCR A$t+ -o#ld not appl,+ in 5ie- o( Se$tion =C.*0.20 $annot 2e s#stained" .i0 SE'I $an e%er$ise its A#risdi$tion #nder Se$tions **.*0+ **.D0+ **A.*0.20 and **' o( SE'I A$t and Re&#lation *;9 o( ICDR =;;3 o5er p#2li$ $o panies -ho ha5e iss#ed shares or de2ent#res to (i(t, or ore+ 2#t not $o plied -ith the

pro5isions o( Se$tion 9:.*0 2, not listin& its se$#rities on a re$o&ni6ed sto$7 e%$han&e"
(j)

Saharas are le&all, 2o#nd to re(#nd the

one, $olle$ted to

the in5estors+ as pro5ided #nder Se$tion 9:.=0 o( the Co panies A$t read -ith R#le DD o( the Co panies .Central <o5ern ent/s0 <eneral R#les and For s+ *314 and the SE'I

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123

has the po-er to en(or$e those pro5isions" .70 SaharasG $ond#$t in5ites $i5il and $ri inal lia2ilit, #nder 5ario#s pro5isions li7e Se$tions 14.:0+ 4=+ 4C+ 4CA+ 9:.:0+ 4=C+ 4=3 and so on" CONCLUSION **9" The a2o5e dis$#ssion -ill $learl, indi$ate that OFCDs iss#ed

2, Saharas -ere p#2li$ iss#e o( de2ent#res+ hen$e se$#rities" On$e there is an intention to iss#e shares or de2ent#res to the p#2li$+ it isE-as o2li&ator, to a7e an appli$ation to one or ore

re$o&ni6ed sto$7 e%$han&es+ prior to s#$h iss#e" RHPs 2, the O((i$e o( the Re&istrar does not

Re&istration o( ean that the

andator, pro5isions o( Se$tions 49.:0+ 9:.*0 and DIP <#idelines 2e not (ollo-ed" Saharas $o#ld not ha5e (iled RHP or an,

prospe$t#s -ith RoC+ -itho#t s#2 ittin& the sa e to SE'I #nder Cla#ses *"D+ ="*"*" and ="*"D o( DIP <#idelines" $o panies li7e Saharas -hen de2ent#res to (i(t, or Unlisted

ade an o((er o( shares or andator, to (ollo- the On$e the n# 2er

ore persons+ it -as

le&al re8#ire ents o( listin& their se$#rities"

(ort, nine is $rossed+ the pro5iso to Se$tion 49.:0 7i$7s in and it is an iss#e to the p#2li$+ -hi$h attra$ts Se$tion 9:.*0 and an

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appli$ation (or listin& 2e$o es

andator, -hi$h (all #nder the

ad inistration o( SE'I #nder Se$tion 11A.*0.20 o( the Co panies A$t" **C" SE'I+ I ha5e alread, indi$ated+ has a d#t, #nder Se$tion

**A o( the SE'I A$t to prote$t the interests o( in5estors in se$#rities either listed or -hi$h are re8#ired to 2e listed #nder the la- or intended to 2e listed" Under Se$tion **'+ SE'I has the

po-er to iss#e appropriate dire$tions in the interests o( in5estors in se$#rities and se$#rities -ith se$#rities **3" ar7et" ar7et to an, person -ho is asso$iated

I ha5e alread, re(erred to the po-er o( SE'I #nder the SE'I a, 2e noted+

A$t in the earlier part o( this A#d& ent" SE'I A$t+ it

is a spe$ial la-+ distin$t in (or + 2#t related to the Co pan, La-+ *314" P#rpose and o2Ae$t 2ehind esta2lishin& a 2od, li7e SE'I

#nder the SE'I A$t has also 2een hi&hli&hted 2, #s" The i p#&ned orders+ as alread, stated+ -ere iss#ed 2, SE'I in e%er$ise o( its po-ers $on(erred #nder Se$tions **+ **A and **' o( SE'I A$t and Re&#lations *;9 o( ICDR =;;3" DIP <#idelines+ as alread, Cla#se

indi$ated+ did appl, to 2oth listed and #nlisted $o panies" ="*"* o( DIP <#idelines had ade it

andator, to (ile dra(t

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prospe$t#s onl, 2e(ore SE'I+ not 2e(ore the Central <o5ern ent" O2li&ation -as also $ast on initial p#2li$ o((erin&s 2, #nlisted $o panies and the iss#e o( OFCDs -as a p#2li$ iss#e #nder Re&#lation *"="* .%%iii0 -hi$h also indi$ated that DIP <#idelines -o#ld appl, to Saharas as -ell" Iss#in& o( $on5erti2le de2ent#res in 5iolation o( those &#idelines &i5es a ple po-ers on SE'I to pass orders #nder Se$tions **A and **' o( the SE'I A$t as -ell as Re&#lation *;9 o( ICDR =;;3 and dire$t re(#nd o( the in5estors" *=;" SE'I+ in the (a$ts and $ir$# stan$es o( the $ase+ has ri&htl, Saharas illion .: one, to

$lai ed A#risdi$tion o5er the OFCDs iss#ed 2, Saharas" ha5e no ri&ht to $olle$t Rs"=9+;;; $rores (ro three

$rore in5estors0 -itho#t $o pl,in& -ith an, re&#lator, pro5isions $ontained in the Co panies A$t+ SE'I A$t+ R#les and Re&#lations alread, dis$#ssed" MCA+ it is -ell 7no-n+ does not ha5e the

a$hiner, to deal -ith s#$h a lar&e p#2li$ iss#e o( se$#rities+ its po-ers are li ited to deal -ith #nlisted $o panies -ith li ited n# 2er o( share holders or de2ent#re holders and the le&islat#re+ in its -isdo + has $on(erred po-ers on SE'I" I+ there(ore+ (ind on (a$ts as -ell as on la-+ no ille&alit, in the pro$eedin&s initiated 2,

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SE'I and the order passed 2, SE'I .)TM0 dated =:"4"=;** and SAT dated *C"*;"=;** are a$$ordin&l, #pheld"

SS""SSSSSSSSS"""""""""J" .H"S" Radha7rishnan0

JAGDISH SINGH KHEHAR, J. 1. I have carefully read the order of my learned brother Radhakrishnan, J. I

am however inclined to record my own reasons while dealing with the propositions canvassed before us. Before examining the issues canvassed, it is necessary to record some further facts, which constitute the foundational basis of my order. uring the course of hearing learned counsel had mainly relied on the

pleadings in !ivil "ppeal no.#$1% of &'11, accordingly, reference shall be made mainly to the facts narrated therein. (acts referred to in !ivil "ppeal no.#$%% of &'11 have also been adverted to when necessary. &. )ahara India Real *state !orporation +imited ,hereinafter referred to as

-)IR*!+./ and )ahara 0ousing Investment !orporation +imited ,hereinafter referred to as -)0I!+./ are a part of )ahara India 1roup of !ompanies. "nother company, namely, )ahara 2rime !ity +imited ,hereinafter referred to as -)2!+./ which is also connected to the )ahara India 1roup of !ompanies, filed a raft

Red 0erring 2rospectus ,for short - R02./ with the )ecurities and *xchange Board of India ,hereinafter referred to as -)*BI./ in respect of its proposed Initial 2ublic 3ffer ,for short -I23./ dated %'.#.&''#. 4hile the aforesaid R02 dated

%'.#.&''# was under scrutiny, )*BI received complaints relating to disclosures

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127 made in the 0R2. 3ne of the aforesaid complaints was made by -2rofessional

1roup for Investors 2rotection.. In the aforesaid complaint of the -2rofessional 1roup for Investors 2rotection. dated &5.1&.&''#, it was alleged that )IR*!+ was issuing convertible bonds to the public throughout the country for the past several months. It was alleged that issuing of convertible bonds by )IR*!+ had not been disclosed in the R02 dated %'.#.&''# ,filed by )2!+/. 3n similar

lines )*BI received a complaint from one Roshan +al dated 6.1.&'1'. %. In order to probe the authenticity of the allegations levelled in the

aforementioned complaints, )*BI sought information from *nam )ecurities 2rivate +imited 7 the merchant banker for )2!+. *nam )ecurities 2rivate

+imited responded to the communication received from the )*BI on &1.&.&'1'. *nam )ecurities 2rivate +imited, in its response, asserted on the basis of an in8uiry conducted and legal opinion sought, that it had arrived at the conclusion, that the optionally fully convertible debentures ,for short 3(! s/ issued by )IR*!+ and )0I!+ had been issued in conformity with all applicable laws. 6. 3n &9.&.&'1' lead managers of the two companies ,)IR*!+ and )0I!+/

informed )*BI, that both the companies had issued debentures on -tap basis. i.e., by way of private placement. It was confirmed, that the two companies had issued an -information memorandum. under section 9'B of the !ompanies "ct, 1#59 ,hereinafter referred to as the !ompanies "ct/, prior to opening of the offer. It was acknowledged, that )IR*!+ had also issued a red herring prospectus ,for short -R02./ with the Registrar of !ompanies ,:ttar 2radesh and :ttarakhand/. +ikewise, )0I!+ had issued a R02 with the Registrar of !ompanies, ;aharashtra.

Page 127

128 5. In the R02s issued by the two companies it was mentioned, that the

companies did not intend the proposed issue to be listed in any stock exchange. <he R02s also stated, that only those persons were eligible to apply, to whom the information memorandum was being circulated. <he R02s also expressed, that the appellant ought to be associated=affiliated or connected with the )ahara 1roup of !ompanies. <he R02 noted, that the invitation to apply was being extended privately, without issuing any advertisement to the general public. 4hat had been indicated in the R02s was, what had been determined by the )IR*!+ in its special resolution dated %.%.&''% i.e., that the 3(! s would be issued by way of private placement to -friends, associates, group companies, workers=employees and other individuals, who are associated=affiliated or connected, in any manner with )ahara India 1roup of !ompanies.. 9. !opies of the terms and conditions of the 3(! s issued by the two

companies reveal, that the appellant>companies issued -bonds. ,named as, "bode Bonds, ?irman Bonds and Real *state Bonds > by )IR*!+@ and as, ;ultiple Bonds, Income Bonds and 0ousing Bonds > by the )0I!+/ of different face values ,varying from Rs.5''' to Rs.&6'''/ and different maturity periods ,varying from 6$ months to 1$' months/. <he 3(! s issued by the two

companies contemplated different redemption values and conversion options. A. Bide letter dated &&.6.&'1', )*BI sought further details from *nam

)ecurities 2rivate +imited. <he details were sought in respect of 3(! Cs issued by )IR*!+ and )0I!+. <he particulars on which information was sought, is being extracted hereunderD -&. a. details regarding the filing of R02 of the said

Page 128

129 b. c. d. e. f. g. h. i. companies with the concerned Ro!. date of opening and closing of the subscription list. details regarding the number of application forms circulated after the filing of the R02 with Ro!. details regarding the number of applications received. the number of allottees list of allottees. the date of allotment. date of dispatch of debenture certificates etc. copies of application forms, R02, pamphlets and other promotional material circulated..

<he aforesaid information sought by )*BI from *nam )ecurities 2rivate +imited was never furnished. $. <hereupon, the same information was sought by )*BI directly from <he two

)IR*!+ and )0I!+, through separate letters dated 1&.5.&'1'.

companies responded to the letters dated 1&.5.&'1' through separate replies dated 1#.5.&'1'. Instead of furnishing details of the information sought by )*BI, the two companies re8uired )*BI to furnish them with the complaints which had prompted it, to seek the information. )*BI again addressed separate

communications to the two companies dated &1.5.&'1' yet again seeking the same information, by making it clear to the two companies, that non compliance would result in appropriate action under the !ompanies "ct, the )ecurities and *xchange Board of India "ct, 1##& ,hereinafter referred to as the -)*BI "ct./, as also, the regulations framed thereunder. Both the companies, without furnishing details sought by )*BI, responded through separate letters, dated &6.5.&'1' and &9.5.&'1'. In their response it was asserted, that since a large number of their staff members were on summer vacation, the information could not be made available immediately. In the aforesaid communications, the companies also informed )*BI, that the 3(! s had been issued by them in compliance with the

Page 129

130 provisions of the enactments referred to by the )*BI. Besides the foresaid, the two companies informed )*BI, that neither of them were listed public companies, and that, their securities were not being traded through any exchange in India or abroad. <he aforesaid factual position was pointed out by the two companies to )*BI, with the clear intent to inform )*BI, that it had no Eurisdiction to in8uire into the 3(! s issued by them. espite the aforesaid response, )*BI addressed

separate communications dated &$.5.&'1' to the two companies re8uiring them to furnish the same information. Fet again, the companies replied on the lines adopted earlier. )*BI again repeated its re8uest for information through further separate communications dated 11.9.&'1'. #. In the meantime )IR*!+ addressed a letter dated %1.5.&'1' to the :nion

;inister of !orporate "ffairs, to inform him of the correspondence exchanged with the )*BI. Being an unlisted entity, and also there being no intention to list the companies securities on any stock exchange, it was pleaded before the :nion ;inister, that under section 55" of the !ompanies "ct the company could only be regulated and administered by the ;inistry of !orporate "ffairs and not by the )*BI. In the aforesaid view of the matter )IR*!+ re8uested the :nion ;inister of !orporate "ffairs to advise it on its locus standi, -vis>G>vis our regulatory authority whether the company is governed by ;inistry of !orporate "ffairs, or )*BI, in view of the provisions of section 55",c/ of the !ompanies "ct, 1#59.. 1'. <hrough separate letters dated 19.9.&'1' the two companies informed

)*BI that they had already sought a clarification on the subEect from the 1overnment. Fet again, vide separate letters dated &$.9.&'1' both companies informed )*BI, that they had received a communication from the office of the

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131 :nion ;inister of )tate for !orporate "ffairs to the effect that the matter was being examined by the ;inistry. "ccordingly, the companies adopted the stance, that they would file their replies to the letters addressed to them by )*BI only on receipt of a response from the 1overnment. 11. It is apparent from the factual position depicted hereinabove, that )*BI

was seeking information from the two companies since ;ay, &'1'. )ince the information was not being supplied, )*BI initiated an investigation into the 3(! s issued by )IR*!+ and )0I!+. "ccordingly, summons dated %'.$.&'1' and &%.#.&'1' were issued to the two companies under section 11! of the )*BI "ct, to provide the following informationD -%. 1. etails regarding filing of prospectus=Red>herring 2rospectus with R3! for issuance of 3(! s. &. !opies of the application forms, Red>0erring 2rospectus, 2amphlets, advertisements and other promotional materials circulated for issuance of 3(! s. %. etails regarding number of application forms circulated, inviting subscription for 3(! s. 6. etails regarding number of applications and subscription amount received for 3(! s. 5. ate of opening and closing of the subscription list for the said 3(! s. 9. ?umber and list of allottees for the said 3(! s and the number of 3(! s allotted and value of such allotment against each allotteeCs name@ A. ate of allotment of 3(! s@ $. !opies of the minutes of Board=committee meeting in which the resolution has been passed for allotment@ # !opy of (orm & ,along with annexures/ filed with R3!, if any, regarding issuance of 3(! s or e8uity shares arising out of conversion of such 3(! s. 1'. !opies of the "nnual Reports filed with Registrar of !ompanies for the immediately preceding two financial years. 11. ate of dispatch of debenture certificate etc..

1&.

3n receipt of the aforesaid summons, )IR*!+ and )0I!+ raised a number In respect of the

of legal obEections to stall the proposed investigation.

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132 information sought, their response dated 1%.#.&'1', interalia expressed as underD -1A. )IR*!+ is an unlisted company. <he 3(! s of ;arch &''$ were neither intended to be issued to the public nor were the 3(! s actually issued to the public, hence, do not come within the purview of section 55",a/=,b/ of the !ompanies "ct, 1#59 conferring administrative Eurisdiction of )*BI. )IR*!+ had represented to the !entral 1overnment in the ;inistry of !orporate "ffairs on ;ay %1, &'1' and on June 1A, &'1', on which the ;inistry, while acknowledging )IR*!+Cs representation of ;ay %1, &'1', informed )IR*!+ that the matter was being examined in the ;inistry under the relevant provisions of the !ompanies "ct, 1#59. 1$. In the light of above submission, the company re8uests you to kind withdraw the summons dated %'th "ugust, &'1'.. Based on the aforesaid response, the two companies re8uested )*BI to withdraw the orders dated %'.$.&'1' and &%.#.&'1'. 3n %'.#.&'1', through separate

letters issued by )IR*!+ and )0I!+, they adopted the stance, that they did not have complete information sought by the )*BI. 1%. It would be relevant to notice, that at the re8uest of the !hief (inancial

3fficer of the )ahara India 1roup of !ompanies, an opportunity of hearing was granted to him on %.11.&'1', by the )*BI ,(<;/. uring the course of the

aforesaid hearing it was again impressed upon the !hief (inancial 3fficer, that he should furnish information sought by the )*BI fully and accurately without any delay. espite the aforesaid, the !hief (inancial 3fficer during the course of the

said hearing, did not make any firm commitment to furnish the information sought. It is essential to note, that the !hief (inancial 3fficer, did not furnish the information sought. 16. espite the fact that the companies chose not to provide the information,

)*BI was able to collect some shreds of information, from details which had been furnished by the companies themselves, to the concerned Registrar of !ompanies. <his information was obtained by )*BI, from ;!">&1 portal

Page 132

133 maintained by the ;inistry of !orporate "ffairs. In other words, the information which eventually became available with the )*BI, was not the information furnished by the companies to the )*BI, but the information furnished by )IR*!+ to the Registrar of !ompanies, :ttar 2radesh and :ttarakhand, and the

information furnished by )0I!+ to the Registrar of !ompanies, ;aharashtra. <he information which became available to )*BI in respect of )IR*!+ through the aforesaid source is being extracted hereinunderD -#. i. )hareholders ResolutionD Bide resolution passed at the *xtraordinary 1eneral meeting held on ;arch %, &''$ ,and filed with Ro!/, consent of the members of )IR*!+ was obtained for issuance of 3(! by way of private placement basis to friends, associates, group companies, workers=employees and other individual who are associated=affiliated or connected in any manner with )ahara India 1roup of !ompanies and R02 of )IR*!+ was filed with Ro!, :ttar 2radesh and :ttrakhand on ;arch 1%, &''$. ii. 2romoters as per the R02D )IR*!+ is a company belonging to the )ahara India 1roup and is promoted by ;r.)ubrata Roy )ahara, the founder of )ahara India 1roup. iii. irectors as per the R02D ;rs.Bandana Bharrgava, ;r.Ravi )hankar ubey and ;r."shok Roy !houdhary have given consent to include their names as directors and have signed the R02 as the directors of )IR*!+. iv. ate of opening and closing of the issueD R02 merely states that date of opening and closing would be as decided by the Board of irectors. v. etails of the issue as per the R02D <he issue consists of 3(! s with option to the holders to convert the same into *8uity )hare of Rs.1' each at a premium to be decided at the time of issue e8ual to the face value of the 3ptionally (ully !onvertible Rs.HHH. )ince it is a R02, the 8uantum and the price is to be determined at a future date. ,It is pertinent to note that in the R02, the total cost of the proEect, in which the proceeds of the said issue would be utiliIed is mentioned as Rs.&',''' crores/. vi. 3bEects of the issue as per R02D <he funds raised shall be utiliIed for the purpose of financing the ac8uisition of lands for the purpose of development of townships, residential apartments, shopping complexes, etc. <he proceeds

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134 shall also be utiliIed for construction activities which shall be undertaken by the company in maEor cities of the country and also to finance other commercial activities=proEects taken up by the company within or apart from the above proEects. <he company also proposes to carry out infrastructure activities and the amount collected from the current issue shall be utiliIed in financing the completion of proEects viI., establishment= constructing the bridges, moderniIation or setting up of airports, rail system or any other proEects which may be allotted to the company, from time to time future. <he company also proposes to engage into the business of electric power generation and transmission and the proceeds of the current issue shall also be used for the power proEects which shall be allotted to the company. <he money not re8uired immediately by the company may be parked=invested inter>alia by way of circulating capital with partnership firms or Eoint ventures or in any other manner as per the decision of the Board of irectors, from time to time. vii. "nnual resultsD "s per the recently filed balance sheet of )IR*!+ ,as at June %', &''#/, proceeds from the issuance of 3(! s is shown as Rs.6$6%.%A crores. viii. *ligibility to applyD It is mentioned in the R02 that only those persons are eligible to apply to whom the information ;emorandum was circulated and=or approached privately, who are associated=affiliated or connected in any manner with )ahara 1roup of !ompanies, without giving any advertisement in general public.. +ikewise the information which became available to )*BI in respect of )0I!+ is also being extracted hereunderD -#. i. )hareholders ResolutionD "s per the R02, it is observed that the 3(! issuance by )0I!+ was approved by shareholders, vide the resolution ,which is more or less similar to the resolution passed by )IR*!+/, passed in the "1; held on )eptember 19, &''#. <he R02 was filed with Ro!, ;aharashtra on 3ctober 9, &''#. ii. 2romoters as per the R02D )0I!+ is a company promoted by ;r.)ubrata Roy )ahara, the founder of )ahara India 1roup. iii. irectors as per the R02D ;rs.Bandana Bhargava, ;r.Ravi )hankar ubey and ;r."shok Roy !houdhary have given consent to include their name as directors and have signed the R02 as directors of )0I!+. iv. ate of opening and closing of the issueD R02 merely states that date of opening and closing would be as

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135 decided by the Board of irectors. v. etails of the issueD <he issue consists of 3ptionally (ully !onvertible :nsecured ebentures with option to the holders to convert the same into *8uity )hare of Rs.1' each at a premium of to be decided at the time of issue e8ual to the face value of the 3ptionally (ully !onvertible :nsecured ebentures to be privately placed aggregating to Rs.HHH ,since it is a Red 0erring 2rospectus the 8uantum and the price is to be determined at a future date/. ,It is pertinent to note that in the R02, the total cost of the proEect, in which the proceeds of the said issue would be utiliIed is mentioned as Rs.&',''' crores/. vi. 3bEects of the issue as per R02D <he obEect stated in short is -J. (inancing the ac8uisition of lands for the purpose of development of townships, residential apartments, shopping complexes, etcJ.. <he obEects mentioned therein is more or less similar to the -obEects of the issue. mentioned in the R02 of )IR*!+. vii. "nnual ReportD )ince the "nnual Report of )0I!+ for the concerned period has not yet been filed with Ro!, the amount of the issue proceeds is not known. viii. *ligibility to applyD R02 mentions that only those persons are eligible to apply to whom the information ;emorandum was circulated and=or approached privately, who are associated=affiliated or connected in any manner with )ahara 1roup of !ompanies, without giving any advertisement in general public. ix. *xplanatory note to the shareholders resolutionD <he explanatory note to the shareholders resolution filed by )0I!+ with Ro! ,*xtraordinary 1eneral ;eeting resolution dated ?ovember 11, &''# by )0I!+/ mentionsD -<he company further keeping in view that the number of persons to whom the offer of 3(! s shall be issued might exceed the limits as specified under )ection 9A of the !ompanies "ct, 1#59 made an application for approval of Red herring 2rospectus.. 15. 3n the failure of the two companies to furnish information to )*BI, its (ull

<ime ;ember 7 for short, )*BI ,(<;/, drew the following conclusions in his order dated &6.11.&'1'. Firstly, neither )IR*!+ nor )0I!+ had denied their having issued 3(! s. Secondly, )IR*!+ as also )0I!+ acknowledged having filed R02s in respect of

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136 the 3(! s issued by them with the concerned Registrar of !ompanies. Thirdly, besides the dates of filing the R02s with the respective Registrar of !ompanies, neither of the companies had furnished any other

information=document sought from the companies by )*BI. Fourthly, the companies had adopted a stance, that they did not have complete details relating to the securities issued by them. <his stance adopted by the two companies, according to the )*BI, was preposterous. Fifthly, )*BI had sought details of the number of application forms circulated, the number of application forms received, the amount of subscription deposited, the number and list of allottees, the number of 3(! s allotted, the value of allotment, the date of allotment, the date of dispatch of debenture certificates, copies of board=committee meetings, minutes of meetings during which the said allotment was approved. "ccording to )*BI, since the information sought was merely basic, the denial of the same by the companies amounted to a calculated and deliberate denial of information. Sixthly, information sought by the )*BI depicted at serial number fifthly hereinabove, was solicited to determine the authenticity of the assertion made by the companies, that the 3(! s had been issued by way of private placement. 4hereas, it was believed by the )*BI that the companies had issued the 3(! s to the public. Seventhly, since the companies had adopted the position, that the 3(! s were issued by way of private placement to friends, associate group companies, workers=employees and other individuals who were

associated=affiliated=connected to the )ahara 1roup of !ompanies, according to

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137 )*BI it was highly improbable, that the details and particulars of such friends, associate group companies, workers=employees and other individuals which were associated=affiliated=connected to the )ahara India 1roup of companies, was not available with them ,for being passed over to )*BI/. 19. Based on the aforesaid, the )*BI ,(<;/ passed an order dated

&6.11.&'1'. In the aforesaid order various issues were separately examined. Issue no.1 was framed to determine whether the 3(! s invited by )IR*!+ and )0I!+ had been issued -to the public.. 3n the instant subEect the )*BI ,(<;/ expressed the view, that the proviso under section 9A,%/ of the !ompanies "ct made the position clear, that any offer=invitation made by a public company to 5' or more persons was bound to be considered as having been made -to the public.. )ince the 3(! s were issued to persons far in excess of 5', it was sought to be concluded that the stance adopted by )IR*!+ and )0I!+ to the effect, that the offer of 3(! s was by way of private placement was not acceptable. <he )*BI ,(<;/ also adopted another reasoning to determine the issue. "ccording to the information made available, the subscribed amount as on %'.9.&''# was Rs.6$6%.%A crores. <o remain out of the purview of the proviso under sub>section ,%/ of section 9A of the !ompanies "ct, the subscribed amount should have been drawn from less than 5' persons ,i.e., at the most 6# persons/. If ,according to the )*BI/, the subscribers are assumed to be 6# ,which is the maximum permissible for private placement/, then the average subscription would have been in the range of Rs.#$.$6 crores ,Rs.6$6%.%A 6# K #$.$66& crores/. "ccording to the )*BI ,(<;/ since the unit face value of the 3(! s issued by )IR*!+ and )0I!+ varied from Rs.5'''=> to Rs.&6'''=>, it was unlikely that such

Page 137

138 an offer was made by less than 5' persons. <his inference was drawn on

account of the fact that even high net>worth investors are not seen to make such huge investments in a single company. 1A. <he )*BI ,(<;/ then examined the plea advanced by the companies, that

in view of the resolution passed by the companies under section $1 ,1"/ of the !ompanies "ct, they could offer shares to any person, in any manner. "nd therefore, their offer to a select set of persons should not be construed as a public offer. <he )*BI ,(<;/ reEected the aforesaid submission on the premise, that section $1,1"/ of the !ompanies "ct, did not have an overriding effect over the provisions relating to public issue under the !ompanies "ct. It was sought to be explained, that further issue of securities, extended only to existing shareholders of a company. "ccording to the )*BI ,(<;/ section $1,1"/ was only an exception to the said rule, subEect to the procedural re8uirements enumerated therein. It was pointed out, that under the !ompanies "ct further issue of capital, even pursuant to a resolution made under section $1,1"/ of the !ompanies "ct was subEect to the provisions of 2art III of the !ompanies "ct, when an offer was to be made to 5' or more persons. <he legal submissions, advanced on behalf of the companies based on section $1,1"/ was, accordingly reEected. 1$. <he )*BI ,(<;/ also examined the issue with reference to section &,%9/ of

the !ompanies "ct, which defines the term -prospectus. to mean any document described or issued as a prospectus and includes any notice, circular, advertisement or other document -inviting, deposits from the public or inviting offers from the public. for the subscription or purchase of any shares in, or

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139 debentures of a body corporate. Based on the definition of term -prospectus. and the conduct of the companies in filing their respective prospectus for their 3(! s, with the concerned Registrar of !ompanies, according to )*BI ,(<;/, would lead to the inference that the companies intended to mobiliIe funds through a subscription -to the public.. 1#. Based on the factual and legal aspects of the matter considered by )*BI

,(<;/ noticed above, the following summary of inferences were recorded in the order dated &6.11.&'1'D -1$. i. <he issue of 3(! s by the companies have been made to a base of investors that are fifty or more in number. ii. <he companies themselves tacitly admit the same as they have no case that funds have been mobiliIed from a group smaller than fifty. iii. " resolution under section $1,1"/ of the "ct does not take away the LpublicC nature of the issue. iv. <he filing of a prospectus under the "ct signifies the intention of the issuer to raise funds from the public. <herefore, for the aforesaid reasons, the submission of the companies that their 3(! issues are made on private placement and do not fall under the definition of a public issue, is not tenable. <he instances discussed above would prima facie suggest that the offer of 3(! s made by the companies is -public. in nature .. &'. "ccording to )*BI ,(<;/ since the offer was made to the public, as per the

mandate of section A%,1/ of the !ompanies "ct, it was obligatory for the companies issuing shares=debentures through a prospectus, to compulsorily seek approval for listing in a recogniIed stock exchange. It was, therefore, sought to be concluded, that non>compliance of the mandatory provisions contained in section A% of the !ompanies "ct, could not result in drawing a favourable inference. In other wods, because the companies had wrongfully not sought

approval for listing in a recogniIed stock exchange, it could not be presumed that

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140 the offer made by them was by way of private placement. 4ith the aforesaid observations, the )*BI ,(<;/ concluded its determination on issue no.1, i.e., both )IR*!+ and )0I!+ had sought subscription to the 3(! s, by way of an invitation -to the public.. &1. Issue no.& was framed to determine whether section 9'B of the

!ompanies "ct provided an alternative route, for raising capital without complying with the procedure contemplated under section A% of the !ompanies "ct. (or dealing with the second issue, reference was made to section 9' of the !ompanies "ct which postulates the re8uirement of a company issuing a prospectus to deliver the same to the Registrar of !ompanies for registration. Reference was also made to section 9'B,1/ of the !ompanies "ct which permits a company to issue an information memorandum to the public before filing a prospectus. It was observed, that the obEect of issuing an information

memorandum, is to elicit the public demand for the securities proposed to be issued. <he information collected, it was observed, is to enable the concerned company to assess the price and the terms of the proposed securities. "lso taken into consideration was section 9'B,&/ of the !ompanies "ct, which it was observed, imposes a mandatory condition on a public company to file a prospectus -prior to the opening of the subscription list. after it had issued an information prospectus. <he re8uirement of filing prospectus, as indicated

hereinabove, it was observed, is preceded with the words -bound. depicting the mandatory character thereof. <he )*BI ,(<;/ also made a reference to section 9'B,%/ of the !ompanies "ct which, it was observed, contemplates that the -information memorandum. and the -R02. would carry the same obligation as are

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141 applicable in case of a prospectus. &&. +earned counsel for the appellant>companies had canvassed before the

)*BI ,(<;/, that necessary particulars had only to be furnished to the Registrar of !ompanies and not to )*BI. In so far as the instant aspect of the matter is concerned, the contention advanced on behalf of the appellant>companies was sought to be reEected by concluding that the term -any other case. used in section 9'B,#/ was bound to be given the same meaning and effect as was assignable to the said term under section 5%",c/ of the !ompanies "ct. aforesaid consideration, the )*BI ,(<;/ concluded as underD -&6. (rom the above reasons, section 9'B of the "ct cannot be read in isolation, but has to be harmoniously construed with the other provisions of the "ct governing public issues. <herefore, section 9'B of the "ct does not prescribe an alternative procedure to provisions of )ections 9A,%/ and A%,1/ of the "ct, as contended by the companies. (urther, vide their letter dated )eptember %', &'1', the companies have mentioned that the issue is not yet closed. " prospectus cannot be kept open perpetually. It is prima facie inferred from such conduct of the companies that they have taken recourse to the argument that their issues are covered under section 9'B to circumvent the applicable legal framework laid out elaborately for public issues. 3nce an offer is made to fifty or more persons, compliance with section 9'B,filing with Ro!/ alone cannot be treated as compliance. <he moment the company offers to fifty or more persons, it has to comply with all the provisions applicable for public issues ,2art III of the "ct/. 0ence, the legal opinion submitted by the companies that they can issue to fifty or more persons without making an application to a stock exchange under section A% of the "ct, by following the procedure under section 9'B thereof, seems to be a narrower and a convenient interpretation. If such an interpretation is accepted it will pave the way for companies to raise money from the general public, without following various procedures intended to protect the interest of investors, in respect of the public issues, prescribed under the "ct and the I! R Regulations including the re8uirements for due diligence, disclosures, credit>rating, etc.. &%. Based on the I2 1uidelines and the I! R Regulations, the )*BI ,(<;/ Based on the

found that the companies had committed the following violationsD -&# a/ failure to file the draft offer document with )*BI@

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142 b/ failure to mention the risk factors and provide the ade8uate disclosures that is stipulated, to enable the investors to take a well> informed decision. c/ denied the exit opportunity to the investors. d/ failure to lock>in the minimum promoters contribution. e/ failure to grade their issue. f/ failure to open and close the issue within the stipulated time limit. g/ failure to obtain the credit rating from the recogniIed credit rating agency for their instruments. h/ failure to appoint a debenture trustee i/ failure to create a charge on the assets of the company. E/ failure to create debenture redemption reserve, etc.. &6. 0aving recorded the aforesaid deliberations and conclusions, the )*BI

,(<;/ issued the following directions in its order dated &6.11.&'1'D -<herefore, in view of the foregoing reasons, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me under section 1# the )ecurities and *xchange Board of India "ct, 1##& and )ections 11,1/, 11,6/,b/, 11" and 11B thereof, read with Regulation 1'A of the )ecurities and *xchange Board of India ,issue of !apital and isclosure Re8uirements/ Regulations, &''#, pending investigation, hereby issue the following directions, by way of this ad interim ex>parte orderD a. )ahara India Real *state !orporation +imited and )ahara 0ousing Investment !orporation +imited are restrained from mobiliIing funds under the Red 0erring 2rospectus dated ;arch 1%, &''$ and 3ctober 9, &''#, respectively, filed with the concerned Registrar of !ompanies, till further directions. <he said companies are further directed not to offer their e8uity shares=3(! s or any other securities, to the public and invite subscription, in any manner whatsoever, either directly or indirectly till further directions. b. )ahara India Real *state !orporation +imited and )ahara 0ousing Investment !orporation +imited and are persons who are named as promoters and directors of the said companies in the Red>0erring 2rospectus filed with the concerned Registrar of !ompanies, namely, ;r.)ubrata Roy )ahara, ;s.Bandana Bharrgava, ;r.Ravi )hankar ubey and ;r."shok Roy !houdhary, are prohibited from issuing prospectus, or any offer document, or issue advertisement for soliciting money from the public for the issue of securities, in any manner whatsoever, either directly or indirectly, till further directions. 6'. )ahara India Real *state !orporation +imited and )ahara 0ousing Investment !orporation +imited are directed to show cause as to why action should not be initiated against them including issuance of directions

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143 to refund the money solicited and mobiliIed through the prospectus issued with respect to the impugned 3(! s, done prima facie in violation of the provisions of the !ompanies "ct, 1#59, the )ecurities and *xchange Board of India "ct, 1##&, the erstwhile )ecurities and *xchange Board of India , isclosure and Investor 2rotection/ 1uidelines, &''' and the )ecurities and *xchange Board of India ,issue of !apital and isclosure Re8uirement/ Regulations, &''#, as observed in this order. 61. <he entities=persons against whom this order is issued may file their obEections, if any, to this order within thirty days from the date of this order and, if they so desire, avail of an opportunity of personal hearing at the )ecurities and *xchange Board of India, 0ead 3ffice, )*BI Bhavan, !>6", 1, Block, Bandra Murla !omplex, Bandra ,*ast/ ;umbai>6'''51. <hey may also inspect the relevant documents, if they so desire, on any working day prior to the hearing, during office hours at the above mentioned address. 6&. !opy of this order is also forwarded to the ;inistry of !orporate "ffairs to enable them to take appropriate action as deemed fit by them, for any violation of the applicable provisions of the !ompanies "ct, 1#59 administered by them. 6%. <his order is without preEudice to any other action that may be initiated against the said violations. 66. <his order shall come into force with immediate effect.. <hrough the aforesaid order of the )*BI ,(<;/ dated &6.11.&'1' )IR*!+ and )0I!+ were also directed to show cause as to why action should not be initiated against them, including issuance of directions to refund the money solicited and mobiliIed through the prospectus issued with respect to the impugned 3(! s. <he instant show cause notice issued by the )*BI ,(<;/ dated &6.11.&'1' shall hereinafter be referred to as -the first show cause notice issued by the )*BI.. &5.. )*BICs order dated &6.11.&'1' ,the first show cause notice issued by the

)*BI/ was challenged before the +ucknow Bench of the 0igh !ourt of Judicature at "llahabad ,hereafter referred to as the -the 0igh !ourt./ through 4rit 2etition ?o.11A'& ,;=B/ of &'1' on &#.11.&'1'. 3n 1%.1&.&'1', the 0igh !ourt stayed the operation of the order dated &6.11.&'1' ,the first show cause notice issued by the )*BI/. espite the aforesaid inEunction granted by the 0igh !ourt, it

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144 permitted )*BI to proceed with its in8uiry against both the companies, but restrained )*BI from passing any final order. )*BI assailed the order dated 1%.1&.&'1' by filing )pecial +eave 2etition ,!/ ?o.%9665 of &'1'. challenged was declined by this !ourt on 6.1.&'11. &9. *ven though the 0igh !ourt, in the first instance, was pleased to stay the )*BICs

operation of the order dated &6.11.&'11 ,vide an order dated 1%.1&.&'1'/, yet the 0igh !ourt vacated the aforesaid interim order dated 1%.1&.&'1' by an order dated A.6.&'11, in furtherance of an application filed by the )*BI. 4hile vacating the interim order the 0igh !ourt observed, that the appellant>companies were expected to cooperate with the in8uiry being conducted by the )*BI. )ince the appellant>companies were found remiss in the matter, the 0igh !ourt was constrained to vacate the interim order passed earlier ,on 1%.1&.&'1'/. <he

appellant>companies ,petitioners before the 0igh !ourt/ then filed an application before the 0igh !ourt seeking a restoration of the order passed on 1%.1&.&'1'. <he said application was dismissed on &#.11.&'11. 4hile dismissing the

aforesaid application, the 0igh !ourt observed, that those who come to court were supposed to come with clean hands and bona fide intentions, and have to abide by orders passed by the court, if assurances given to the court are not honoured, the court cannot come to the rescue of the party concerned. It is apparent, that the 0igh !ourt had denied relief to the appellant>companies because they had not approached the 0igh !ourt with clean hands and because their intentions were not found bona fide. &A. <he order passed by the 0igh !ourt vacating the interim order ,passed on

1%.1&.&'1'/ dated A.6.&'11 came to be assailed by )IR*!+ before this !ourt

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145 through )pecial +eave 2etition ,!/ ?o.11'&% of &'11. 0aving entertained the aforesaid petition filed by )IR*!+, this !ourt on 1&.5.&'11 passed the following orderD -1. J..In this matter the 8uestions as to what is 3(! and the manner in which investments are called for are very important 8uestions. )*BI, being the custodian of the investorCs interest and as an expert body, should examine these 8uestions apart from other issues. Before we pass further orders, we want )*BI to decide the application,s/ pending before it so that we could obtain the re8uisite input for deciding these petitions. 4e re8uest )*BI to expeditiously hear and decide this case so that this !ourt can pass suitable orders on re>opening. 0owever, effect to the order of )*BI will not be given. 4e are taking this route as we want to protect the interest of the investor. In the meantime, the 0igh !ourt may proceed, if it so chooses, to dispose of the case at the earliest. <he )pecial +eave 2etitions shall stand over to July, &'11.. &$. In compliance with the order extracted hereinabove, )*BI issued separate

show cause notices to the companies on &'.5.&'11. (or facility of segregation, the instant show cause notices dated &'.5.&'11 shall hereinafter be referred to as -the second show cause notice issued by the )*BI.. <hrough the second show cause notice, the two companies were re8uired to satisfy the )*BI why the directions contained in the order dated &6.11.&'1' should not be reaffirmed. In response to the second show cause notice, detailed replies dated %'.5.&'11 were filed by the companies so as to enable the companies to effectively proEect their respective claims. "n opportunity of hearing was also afforded to the companies on 9.9.&'11. uring the course of hearing on 9.9.&'11 ,as well as on the

adEourned dated i.e., 9.$.&'11/ detailed submissions were advanced through counsel. &#. In the interregnum )IR*!+ changed its name to )ahara !ommodities

)ervices !orporation +imited. Be that as it may, while adEudicating upon the

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146 present controversy, to the said company will be referred to as )IR*!+. %'. 0aving issued the second show cause notice dated &'.5.&'11 and having

received detailed replies from )IR*!+ as also from )0I!+, and thereupon, having heard detailed submissions advanced by counsel representing the two companies, )*BI ,(<;/ summariIed the pleas raised on behalf of the companies in response to the second show cause notice as underD -9. J..". <he two companies have made Lprivate placementsC of 3ptionally (ully !onvertible ebentures ,3(! s/ to persons related or associated with the )ahara India 1roup, and therefore these issuances are not LpublicC issues. B. 3(! s are neither shares nor debentures in its strict sense and are in the nature of LhybridC as defined in the !ompanies "ct, 1#59 ,hereinafter referred to as the !ompanies "ct/. !. )*BI does not have any Eurisdiction on such hybrid issues as the term LhybridC is not included in the definition of LsecuritiesC, under the )*BI "ct, or in the )ecurities !ontract ,Regulation/ "ct, 1#59 ,hereinafter referred to as the )!R "ct/. . )uch hybrid securities were issued by the two companies ,both unlisted/, in terms of section 9'B of the !ompanies "ct and therefore, the Eurisdiction in respect of such issues lies with the !entral 1overnment in terms of )ection 55",c/ thereof and not with )*BI. *. )ections 9A and A% of the !ompanies "ct are not applicable to such hybrid securities issued by the two companies. (. <he I2 1uidelines and the I! R Regulations would not be applicable to the hybrid securities as neither the )*BI "ct nor )!R" confer Eurisdiction on )*BI in respect of such securities.. %1. 3n the issue whether the )*BI had Eurisdiction to deal with the matter

under reference it was imperative for )*BI ,(<;/ to first ascertain, whether 3(! s issued by )IR*!+ and )0I!+ were -hybrid securities.. If so, whether -hybrid securities. were covered by the definition of the term -securities. under the )*BI "ct and=or the )ecurities !ontract ,Regulations/ "ct, 1#59 ,hereinafter referred to as -the )!,R/ "ct/. <he contention advanced at the behest of the companies on the instant issue was based on an amendment to the !ompanies

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147 "ct in &'''. By the aforesaid amendment, the term -hybrid. was included in the definition of the term -securities. in section 65"" of the !ompanies "ct ,with effect from 1%.1&.&'''/. )ince the term -hybrid. was not similarly included within the definition of term -securities. under the )*BI "ct and=or )!,R/ "ct, the contention advanced on behalf of the appellant>companies was that )*BI had no Eurisdiction in respect of -hybrid securities.. %&. <he )*BI ,(<;/, on analyIing section &,k/ of the )!,R/ "ct arrived at a

conclusion that the term -securities. in the )*BI "ct as also )!,R/ "ct included -other marketable securities of a like nature., )*BI, according to the )*BI ,(<;/, would therefore, have Eurisdiction to deal with the matter under reference. %%. 4hile evaluating the terms and conditions of the bonds issued in response

to the 3(! s ,floated by the two companies/, it was found that holders of all the six different kinds of bonds issued by )IR*!+ and )0I!+, had the liberty to transfer the same to any other person subEect to the terms and conditions incorporated therein and the approval of the respective company. therefore heldD -16.5.9 JI find that firstly, marketability of a security denotes the ease with which it can be sold, secondly what is freely transferable is marketable and thirdly what is saleable is also marketable. !learly, 3(! s issued by the two companies to such a wide base of investors who can sell these securities among themselves, if not to others are evidently LmarketableC. I have to therefore regard the 3(! s issued by the two companies as marketable securities.. %6. 3n the issue whether the 3(! s which are the subEect matter of It was

contention in the present controversy, fell within the definition of term -debentures., the decision of the )*BI ,(<;/ was as underD -16.9.1 (rom the nomenclature itself, L3ptionally (ully !onvertible

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148 ebenturesC are L ebenturesC, as they indeed are named soJ.. " succinct eludication of what the test for a -security. under securities laws may be found in " Ramaiya ,NBII *d. &'1' 7 1uide to the !ompanies "ct 7 page 1''/. <he acid test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others so that whenever an investor relin8uishes control over her funds and submits their control to another for the purpose and hopeful expectation of deriving profits thereof, she is in fact investing her funds in a securityJ.. )uch test contains three elementsD the investment of money@ a common enterprise@ and profits or returns solely derived from the efforts of others. 16.9.& J..In this case, the investor purchasing the 3(! makes an investment. Both the two companies issuing the 3(! s are common enterprises, being public limited companies. <he investor herself has absolutely no part in generating profits on her investment 7 and therefore, as such, the profits or returns are solely derived from the efforts of others. <herefore, on the basis of this test, it is amply evident that 3(! s come well within the scope of securities as defined in )ection &,h/ of the )!R "ct.. In conEunction with the aforesaid, the issue in hand was further evaluated by the )*BI ,(<;/ on the following linesD -16.9.$ In ?arendra Mumar ;aheshwari vs. :nion of India O1##' ,)uppl./ )!! 66'P, the 0onCble )upreme !ourt, observed that in the various guidelines applicable to such instruments, compulsorily convertible debentures are regarded as Le8uityC and not as a loan or debt.. 3ne of the critical considerations adopted by the 0onCble )upreme !ourt of India in concluding so, is that -" compulsorily convertible debenture does not postulate any repayment of the principal.. <he thinking of the 0onCble )upreme !ourt revealed in this Judgment, not only clarifies the issue, but also provides me with a touchstone to determine whether the 3(! s issued by the two companies are more in the nature of shares or debentures. )IR*!+ has issued three bonds viI., "bode Bond, Real *state Bond and ?irmaan Bond. )0I!+ has also issued three bonds, viI., ;ultiple Bond, Income Bond and 0ousing Bond. (rom a plain reading of the summary of their descriptions at paragraph #.& and #.% above, it is evident that all these six bonds postulate a repayment of the principal. <he repayment of the principal will be at the option of the investor. <he investor holds the option, which gives her a right to determine whether she would like to get her principal back in cash or as e8uity shares. 0ence, 3ptionally (ully !onvertible ebentures unlike their counterpart category of !ompulsorily !onvertible ebentures do not share the characteristic pointed out by the 0onCble )upreme !ourt in arriving at the conclusion that !ompulsorily !onvertible ebentures are more of e8uity than of

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149 debentures. <hus, all the six financial instruments issued by the two companies share the defining feature of debentures in that a payment of interest to the investor and a repayment of the principal, albeit at the option of the investor, is postulated.. Based on the aforesaid analysis )*BI ,(<;/ summariIed its conclusions as underD -16.1'<he following summarises the discussions aboveD 1. "s laid down in the Eudgment in the matter of )udhir )hantilal ;ehta vs. !BI ,8uoted supra/, the definition of LsecuritiesC in )ection &,h/ of the )!R "ct is an inclusive one and not exhaustive, with ade8uate latitude to accommodate 3(! s. &. 3(! s issued by the two companies are marketable scurities. %. <hese instruments satisfy all the characteristic features that identify a security based on clear tests used to identify what a security under section &,h/ of the )!R "ct is. 6. ebenture is a genus and not a species of financial instruments. <his genus includes 3(! s. 5. 3(! s contemplate the repayment of principal, and hence using the yardstick adopted by the 0onCble )upreme !ourt of India in ?arendra Mumar ;aheshwari vs. :nion of India ,8uoted supra/, these instruments indeed are debentures. 9. <he !ompanies "ct recogniIes 3(! s as a composite financial instrument where an option is attached to a debenture. A. esign and valuation characteristics of 3(! s, show that it is the sum of the valuation of the two parts, viI., debenture and option, where the option is valued as a LsweetenerC to improve the pricing and risk characteristics of the debenture. $. 3(! s are issued as debentures ,2almerCs !ompany +aw 7 NNIB *d. 2age 9A9/. 16.11 (rom the foregoing discussions, it therefore becomes abundantly clear that 3(! s belong to the family of debentures covered by the definition of the term LsecuritiesC in section &,h/ of the )!R "ct. <hat an 3(! is a hybrid therefore does not detract from the fact that an 3(! is by definition, design and its characteristics, intrinsically and essentially a LdebentureC.. %5. <hereupon )*BI ,(<;/ ventured to make a comparison of the definition of

the term -securities. as under the !ompanies "ct and with reference to its definition under the )!,R/ "ct. <his comparison was made so as to determine the veracity of the submissions advanced on behalf of the appellant>companies

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150 that the term -securities., as defined under )!,R/ "ct which had been adopted by the )*BI "ct could not be given the same meaning and effect as the definition of the term -securities. under the !ompanies "ct for the simple reason that the !ompanies "ct expressly included -hybrids. within the definition of the term -securities. ,in section &,65""/ of the !ompanies "ct in &'''/ whereas no such or similar inclusion was made in the )!,R/ "ct. <he aforesaid submissions had been advanced in order to press the plea of the appellant>companies, that 3(! s issued by )IR*!+ and )0I!+ were -hybrids., and as such were not within the purview of )*BI "ct. <he relevant observations recorded by )*BI ,(<;/ on the instant subEect are being placed belowD -15.1 <o reiterate, )ection &,1#"/ of the !ompanies "ct defines LhybridC to mean -any security which has the character of more than one type of security, including their derivatives.. BlackCs +aw ictionary ,BIII *d./ defines hybrid security asD -" security with features of a debt instrument ,such as a bond/ and an e8uity interest ,such as share or stock/.. 4hile the !ompanies "ct contemplates that a hybrid can be any combination of securities 7 and makes it an omnibus definition, the more precise definition in BlackCs +aw ictionary is that it is a combination of a debt instrument and an e8uity interestJ.. )ection &,h/,i/ of the )!R "ct, which specifies that -securities. includes -shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or any incorporated company or other body corporate.. In this list of instruments, the last three viI., bonds, debentures and debenture stock are debt instruments, and the first three viI., shares, scrips and stocks are e8uity instruments. :nder the definition, any marketable security of La like natureC automatically falls under section &,h/,i/ of the )!R "ct. " hybrid, as long as it is marketable, regardless of the strength or proportion in which the debt and e8uity components are assembled together, bears an unmistakable likeness to one more of these six instruments. )o clearly, any marketable hybrid, in the way we understand hybrids in India today, is a marketable security of a LlikeC natureJ. 15.& <his is not to say that all hybrids invariably have to combine debt and e8uity. ;any issuers have sold debt instruments where the amount of principal payable at maturity is tied to the performance of a stock or bond index, or a commodity or foreign currency or even the rate of inflation. 4hether in the future, financial engineering will create newer hybrids as combinations of other securities that become popular in India is

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151 hard to predict 7 but today, it is une8uivocally true that all marketable hybrids available in the market neatly fall into the categories -marketable securities of a like nature.. 3n the second issue while dealing with the factual and legal connotations involved, )*BI ,(<;/ recorded the following conclusionsD -15.1& (ive definite conclusions emerge from the above discussions. 1. 3(! as a hybrid is a LdebentureC under )ection &,h/,i/ of the )!R and is also a marketable security. &. <he import of the expression -and includes. as used in )ection &,65""/ of the !ompanies "ct has to be appreciated against the maxim of noscitur a sociis. <he term LsecuritiesC itself has a very extensive scope. <here are no exceptional circumstances that suggest the need for any deviation from a normal and common interpretation of such expression. <herefore, the definition of the term LsecuritiesC in section &,h/ of )!R "ct encompasses LhybridC also and is therefore e8uivalent to the definition in section &,65""/ in the !ompanies "ct. %. <he powers conferred on )*BI under section 55" of the !ompanies "ct, relate to LsecuritiesC defined under that "ct, and not under the )!R "ct. )o even if one were to assume that there are differences between the two definitions ,even though there are none/ )*BI can regulate all securities ,whether hybrid or not/ under )ection 55" of the !ompanies "ct. 6. "ny assumption, even for argumentCs sake, that hybrids are not covered under the )!R "ct, would lead to an untenable position, with a regulatory vacuum in so far as regulation of transactions in such hybrids are concerned, once they are issued. 5. (inally, were -hybrid., as defined in the !ompanies "ct, to be treated as distinct from, and falling outside -securities. under the )!R "ct, then this would give rise to an incurable defect in the very definition of the term -hybrid. itself..

%9.

In order to return a finding on the issue whether 3(! s offered by the two

companies were by way of private placement or by way of an offer to the public., reliance was placed by the )*BI ,(<;/ on a series of factual circumstances, including assertions made in the information memorandum, the terms and conditions incorporated in the bonds issued by the two companies, the assertions made in the extraordinary general body meeting of the e8uity>holders ,accepting

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152 the legal position in the eventuality of the subscribers number exceeded 5'/, the declaration re8uired to be made by the applicants, the letters written by the companies seeking assistance from professional accounting firms for collection and compilation of data, the non availability of the data with the companies, and such like factual pointers, to conclude as underD -1A.19 <hese facts drive home one rather straightforward inference viI., the issue was marketed to and subscribed by the general public and it was not a private placement by any stretch of imagination. <herefore, the 3(! issues by the two companies cannot be held, even for a moment, to be of a -domestic concern. or -that it was not subscribed to by others to whom such offer was not made. ,as referred to in )ection 9A,%/ of the !ompanies "ct/. (urther, it is the case of )IR*!+ that they have 9.9 million subscribers. 1iven the above circumstances, I do not hesitate in being a tad dismissive of the argument advanced by the learned counsel, when I say that 9.9 million subscribers is too colossal a pool of persons associated to the companies, to be labeled LprivateC, particularly in the absence of any definition of what such an association or relationship is. 4hat seems to be very obvious is that the two companies are obtaining subscriptions into its 3(! schemes through mass subscription solicitation through service centres sprawled across the country. I have no hesitation in concluding that placements of 3(! s made by the two companies were indeed made to the public. In fact, unless there is a database of investors already available with an issuer, the offer letters under a Lprivate placementC simply cannot be mailed out. <he very absence of a LdatabaseC, readily available with the two companies itself is the best indicator that these not by any means Lprivate placementsC. <he )*BI ,(<;/, based on the analysis briefly noticed above, summariIed its findings and conclusions on the issue in hand as underD -1A.&'<he above findings are summariIed belowD 1. <he 3(! s in 8uestion here constitute an offer to the public as they have been made to over fifty persons. &. <he manner and the features of fund raising under the bond issues by the two companies discussed above, suggest these issues are by no means LprivateC. 4hat seems evident is that the two companies have been running a mass subscription solicitation from the public. %. <he two companies do not fall under the entities specified in the second proviso to section 9A,%/ which is the only exemption granted to the LRule of 5'C, that defines offer to the public, under the

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153 !ompanies "ct. I would therefore conclude that the 3(! s issued by the two companies are public issues, without any ambiguity.. %A. <he )*BI ,(<;/, thereupon, examined the applicability of section A% of the

!ompanies "ct to the controversy in hand. <aking into consideration the fact that the two companies had issued 3(! s which were debentures offered to the public through a prospectus, it was held, that compliance with the re8uirements expressed in )ection A% of the !ompanies "ct was imperative. <he aforesaid conclusion was sought to be drawn by recording the following observationsD -1$.A <o sum up, for a public issue, whose parameters are set by the first proviso to )ection 9A,%/ of the !ompanies "ct, the issuer is bound to proceed to )ection A%, and comply with the re8uirements stipulated there. In fact, there does not seem to have been any doubts in the minds of the two companies that they were bound to comply with )ections 9A and A% of the !ompanies "ct, as seen from their statement to the Registrar itself. I also suspect that there has been a reprehensible attempt to conceal this applicability of the provisions of laws and the Eurisdiction of )*BI on the issue itself, by making changes in the form and structure of the statutory declaration filed by the irectors of the two companies.. xxx xxx xxx

-1#.A <herefore, the intention to list, contemplated in the !ompanies "ct does not originate from the benevolence and large>heartedness of the issuer or from a voluntary desire to subEect itself to greater regulatory discipline. It arises because 2arliament, in its wisdom, as explained in the aforesaid observations of the 0onCble "pex !ourt, had decided that listing the shares or debentures of a public company that issues shares or debentures to the public, on a stock exchange should be an integral part of the measures for investor protection in our country. In other words, where the expression -intend to. is used in the !ompanies "ct, in the matter of listing, the law does not offer a choice to the issuer, but mandates the same.. %$. <he )*BI ,(<;/, then examined the submission put forward by the two

companies, that section 9'B of the !ompanies "ct was the only route available to the companies to raise capital by way of hybrid securities. In this behalf, the

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154 assertion on behalf of the companies was, that sections 9A and A% of the !ompanies "ct could not be relied upon to determine the present controversy because the said provisions were applicable only to -shares and debentures. and not to -hybrid securities.. <hus viewed, the contention on behalf of the

companies was that )IR*!+, as well as, )0I!+ were only obliged to file their final prospectus with the Registrar of !ompanies under section 9'B,#/ of the !ompanies "ct. <his issue was dealt with by the )*BI ,(<;/ by expressing the following logic and analysisD -&'.9 Jin the spirit of the !ompanies "ct, an issuer that has made an offer of securities to the public, and therefore has applied for listing as legally re8uired, undoubtedly has to sit in the category of Llisted public companiesC and not LothersC in section 9'B,#/ of the !ompanies "ct 7 and would indeed therefore be under the regulatory umbrella of )*BI, as provided in this sub>section itself. In other words, had the two companies abided by the re8uirements set by law, under section 9A,%/ and section A%, and applied for listing, they legitimately should have been dealt with, for the purposes of )ection 9'B,#/, on par with any listed company. )o, even the argument of the two companies, that they belong to the category of LothersC under section 9'B,#/ is ultra vires of the law, because it is premised on a violation of two important provisions of the !ompanies "ct 7 viI., section 9A,%/ and A%. <he analysis of the )*BI ,(<;/ of the process contemplated under section 9'B of the !ompanies "ct, was dealt with in the following mannerD -&'.# <hus there are three distinct LgatesC that have to be crossed in the process of raising capital through the Linformation memorandumC route 7 firstly, the issue of the information memorandum itself Osection 9'B,1/P, secondly the filing of the red>herring prospectus O)ection 9'B,&/P and lastly the filing of the final prospectus O)ection 9'B,#/P. *vidently, the Lfinal prospectusC is the last post to be reached. " careful reading of )ection 9'B,1/, ,&/ and ,%/ clearly shows that at the stage, when the information memorandum and prospectus ,red>herring/ are filed, the !ompanies "ct directs the process in the regulatory sense to )ection 55 ,on the dating of prospectus/ and )ection 59 where the matter to be stated and set out in the prospectus are defined. &'.1' )ection 9'B of the !ompanies "ct, from a plain reading of the "ct itself, and as also argued by learned counsel, applies to all

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155 securities, and therefore it would apply to LsharesC and LdebenturesC as well. It offers a route to Llisted public companiesC and Lpublic companies which intend to get their securities listedC as well. "ny issuer company has to cross the first two gates in the process 7 circulation of an information memorandum and a R02 under section 9'B,1/ and 9'B,&/. )ection 9'B,%/ places all these documents on par with a prospectus. *vidently therefore these provisions in the !ompanies "ct imply that )ection 55 and 59 of the same apply in toto. 2arliament, in its wisdom, under section 55", has decided that )*BI should administer sections 55 and 59, insofar as it relates to Llisted public companiesC and Lpublic companies which intend to get their securities listedC. <herefore, it goes without saying, that as far as Llisted public companiesC and Lpublic companies which intend to get their securities listedC are concerned, )*BI is the regulatory gatekeeper, posted at )ections 9'B,1/ and 9'B,&/ of the !ompanies "ct. In fact this indeed is precisely what happens now, when Llisted public companiesC and Lpublic companies which intend to get their securities listedC file their R02 and R02 before )*BI.. 0aving evaluated the controversy in the aforesaid manner, the )*BI ,(<;/ recorded a decision on the issue canvassed, by relying upon section 9'B,#/ of the !ompanies "ct, in the manner set out belowD -&'.1# <o sum up the discussion in this section, the following conclusions emergeD HIf the offer of 3(! s are LprivateC in nature, as claimed by the two companies, then section 9'B is not the correct route to traverse for issuing 3(! s, given that section 9'B deals with issue of information memorandum to the public alone. <he two companies cannot, in one breath, claim that their issues are private placements and at the same time proceed to use a route, exclusively designed for public issues. H"t the stage of taking recourse to section 9'B under the !ompanies "ct, a public company that proposes to issue securities to the public should already have applied, as is re8uired under law, for listing on a stock exchange, and as such can only be treated on par with a -listed public company. and not in the category of the other group -and in any other case with the Registrar only. under section 9'B,#/ of the !ompanies "ct. H<he argument that they are in the latter category is built on the presumption that the two companies need not have complied with section 9A,%/ and section A%. <he two companies are re8uired under law to conform to these applicable legal provisions. <herefore, the framework for issue of capital under the !ompanies "ct, the )*BI "ct and its Regulations would apply in toto to the 3(! issues of the two companies. H)ection 9'B should not be aligned solely with the expression -and in any other case with the Registrar only., but has to be read progressively, in its context, going from section 9'B,1/ all the way to )ection 9'B,#/.

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156 H)ection 9'B 7 whether for listed public companies or other companies 7 was introduced in the !ompanies "ct, for a specific purpose under the !ompanies ,)econd "mendment/ "ct, &''&. It was never designed to create an island of regulatory standards that are distinct from and contrary to the spirit of various other provisions in the !ompanies "ct itself, in so far as mobiliIation of capital from the public or their investor protection is concerned. H<here are no valid grounds to infer that the expression -and in any other case with the Registrar only. that appears section 9'B,#/ was intended in law to curtail the powers of )*BI conferred on it under section 55" of the !ompanies "ct. 0ence, I am of the considered opinion that the two companies have violated the legal provisions under )ection 9A,%/ and A% of the !ompanies "ct, and have acted ultra vires of the law, in using section 9'B,#/ for their 3(! s to bypass the regulatory framework applicable to them, relying solely on the expression -and in any other case with the Registrar only. that occurs in this sub>section.. %#. It was also contended on behalf of the two !ompanies before the )*BI

,(<;/, that the !ompanies had wrongly been proceeded against by the )*BI under the )*BI , isclosure and Investor 2rotection/ 1uidelines, &''' ,hereinafter referred to as the - I2 1uidelines./ during the period the same were not in force. It was further contended, that presently the )*BI ,Issue of !apital and isclosure Re8uirements/ Regulations, &''# ,hereinafter referred to as -the I2

I! R Regulations./ govern the subEect under consideration, as the

1uidelines had been repealed by the I! R Regulations. Insofar as the I! R Regulations are concerned, it was pointed out, that the same being prospective in nature could not be taken into consideration to determine the validity of the !ompanies activities, which had taken place well before the I! R Regulations came into force ,with effect from &9.$.&''#/. <he instant contention of the

companies was reEected by the )*BI ,(<;/ by ruling, that the two companies had continued to mobiliIe funds from the public under the information memorandum and the R02, till they were restrained from doing so by the )*BI ,vide its order

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157 dated &6.11.&'1'/. 0aving considered the aforesaid contention raised on behalf of the appellant>companies the )*BI ,(<;/ also expressed the view, that the I! R Regulations would be applicable because the violations committed by the two companies was of a continuing nature, more so, because the violations had continued even after the enforcement of the I! R Regulations ,with effect from &9.$.&''#/. "ccordingly, the )*BI ,(<;/ expressed the view, that action could be taken against )IR*!+, as well as, )0I!+ if their activities after &9.$.&''# were found to be in violation of the I! R Regulations. 6'. 0aving dealt with the issues raised by the appellant>companies as have

been noticed hereinabove, as well as, certain other trivial matters not re8uiring an express mention in the instant order, the )*BI ,(<;/ ventured to examine the action of the two !ompanies on the touchstone of investor protection in securities, and the responsibilities assigned to )*BI to regulate the securities marked. )ome of the aspects highlighted by the )*BI ,(<;/ which demonstrate absolute lack of investorCs safeguards at the hands of the two companies are being extracted hereunder D -&6.1 <he two !ompanies, as stated in the interim order as well as in the additional )how !ause ?otice, are without doubt, clearly in gross violation of the provisions of the laws applicable to public companies making offers of securities to the public. I have referred earlier to how the two !ompanies, seem to be unable to furnish even basic data on the identity of its own investors. <he letters sent by )IR*!+ to various accounting firms in January &'11, seeking professional services seem to suggest a woeful lack of compiled and authenticated data on their investors and the funds. If the identity of the investors and addresses themselves are not readily available with the firm 7 and the compilation and authentication of the data across the thousands of service centres will have to, as admitted by )IR*!+, re8uire the support of professional accounting firms at this stage, then I wonder what real safeguards can possibly be there in place for investor protection.

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158 &6.& I observe here that only one company viI. )IR*!+ has furnished information about its investors. )0I!+ has not, despite reminders from )*BI, cared to furnish the re8uisite information. espite instructions from the 0onCble )upreme !ourt of India and the 0onCble 0igh !ourt of +ucknow directing )IR*!+ to be forthcoming on the data on its investors, there still is little clarity in the statements furnished by it. <his is seen particularly in the absence of details on the actual 8uantum of funds that has been mobiliIed. "ll that has been declared clearly in the R02 is that both the companies together need Q6'''' cr. for their proEects. "dditionally, I also observe that the data furnished by )IR*!+ in the !ompact isk, are in the form of scanned images, which are not amenable to easy analysis on a !omputer. )IR*!+ has not supplied the data in standard spreadsheet form or as regular documents for word processing. <hus, based on what has been furnished by the !ompanies, )*BI has little means to find out cumulative totals of funds mobiliIed or do further useful analysis on the data itself, as part of its investigation, should any such future re8uirements arise. <he 0onCble 0igh !ourt of "llahabad, as 8uoted supra above, had expressed its displeasure at the rather blatant unwillingness of )IR*!+ to comply with its directions and cooperate with the investigations. <here seems to be an unstated resolve on the part of the two !ompanies not to part with data in any meaningful manner. <he thrust seems to be on concealment and obfuscation rather than openness and transparency. &6.% <he +earned !ounsel, at one point in the submissions before me, mentioned the fact that there are no investor complaints at all, from any investor in the 3(! s raised by the two !ompanies. 1oing by the history of scams in financial markets across the globe, the number of investor complaints has never been a good measure or indicator of the risk to which the investors are exposed. ;ost maEor Q2onIiC schemes in the financial markets, which have finally blown up in the face of millions of unsuspecting investors, have historically never been accompanied by a gradual build up of investor complaints. But when financial catastrophes have indeed finally erupted, they do so with little warning and lead to maEor collapses in the financial markets with disastrous conse8uences to investors. &6.6 I have examined the copies of the R02s filed by the two !ompanies. "gainst all the maEor investor protection measures contemplated ,for e.g. appointment of debenture trustee, credit rating, underwriting, utiliIation of funds collected/, I see the entry -?ot applicable.. )ome of them, as stated therein, are declared inapplicable because the issue will not be listed. 3thers are declared inapplicable, because the issue is not of debentures. If such vital regulatory re8uirements themselves have all been declared superfluous or unnecessary, and have not been complied with on one pretext or the other, what then exactly are the protective measures that the two !ompanies can

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159 possibly have in place for its investorsR <he records furnished to )*BI shed little light on this. ?either have the two !ompanies come forward to allay the legitimate concern of )*BI as a regulator in this regard, duly reflected in the show cause notices issued to the two !ompanies and their promoters and directors. &6.5 )IR*!+ did not have any distributable profit for the financial year ending %1st ;arch, &''$. )IR*!+ had a negative net worth at the time of the offer and the net worth of )0I!+ was around Q11 lakh. <he subscribed capital of the two !ompanies is very small in comparison to the liabilities on their balance sheets. 3(! s raised are of the order of at least a few thousand crore of rupees, with the re8uirements for funds indicated at Q6'''' cr. <o compound these concerns, all the 3(! s are unsecured 7 there is no charge on either the assets of the companies or on the revenue streams from the various proEects undertaken by the two !ompanies. 1iven the large scale of fund raising that has been resorted to by the two !ompanies, and the fact that particulars about these funds and their utiliIation are not available with )*BI, at this stage one can, for the sake of the investors, merely fervently hope that the two !ompanies have taken some other reasonable measures, albeit not very evident to me, for protecting its investors.. 61. <he )*BI ,(<;/ then went on to record the investor protection measures

violated by the two !ompanies. <he measures found to have been violated in the aforesaid order are being extracted hereunder D -&6.A In this case, the salient investor protection measures that two !ompanies have not conformed with are listed below. " cursory reading of the R02 filed by the two !ompanies, contrasted against the elaborate investor protection measures outlined below, vividly exposes the huge information gaps in them. "s the issues have been kept open for several years now, even the scanty and sketchy information in these documents might have lost all its currency and utility to investors. 1. (iling of draft offer document with )*BID *very issuer making public issue of securities has to file a draft offer document with )*BI through )*BI registered ;erchant Banker. <he draft offer document will be put>up for public comments for at least &1 days. )*BI examines the draft offer document with an obEective for ensuring compliance with the investor protection measures prescribed by )*BI and for enhancing disclosures based on understanding of the matter contained in the prospectus or based on comments=complaints, if any, received from public, on the document. <he ;erchant Banker then incorporates necessary changes in the offer document.

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160 &. *ligibility re8uirements for making a public issueD "n unlisted issuer to become eligible for making a public issue should have D net tangible assets of at least Q% crore in each of the preceding three full years, distributable profits in at least three of the immediately preceding five years, net worth of at least Q1 crore in each of the preceding three full years, issue siIe should not exceed 5 times the pre>issue net worth as per the audited balance sheet of the last financial year etc. If the issuer is unable to comply with any of these conditions, it can make a public issue, provided if at least 5'S of the issue is allotted to the Tualified Institutional Buyers or if proEect is appraised and participated to the extent of 15S by (inancial Institutions=)cheduled !ommercial Banks of which at least 1'S comes from the appraiser,s/. <his helps a retail investor subscribing in this issue, to derive the benefit of the more informed investment decisions that would be typically be made by institutional investors. %. ;inimum 2romotersC !ontribution and lock>inD In a public issue by an unlisted issuer, the promoters should contribute not less than &'S of the post issue capital, which should be locked in for a period of % years. -+ock>in. indicates a freeIe on the shares. In case of an initial public offer of convertible debt instruments without a prior public issue of e8uity shares, the promoters should bring in a contribution of at least &'S of the proEect cost in the form of e8uity shares, subEect to contributing at least &'S of the issue siIe from their own funds in the form of e8uity shares. 2romotersC contribution shall be computed on the basis of the post>issue expanded capital assuming full proposed conversion of convertible securities into e8uity shares. <he remaining pre>issue capital should also be locked in for a period of one year from the date of listing. 6. !redit RatingD !ompanies making public issue of convertible debt instruments or non> convertible debt instruments, should obtain a credit rating from at least one credit rating agency ,!R"/ registered with the )*BI and disclose the rating in the offer document. " credit rating is a professional opinion regarding the issuerCs ability to make timely payment of interest and principal on a debt instrument, given after studying all available information at a particular point of time. It is reviewed periodically during the tenure of the debt instrument. !R"s are specialiIed independent bodies registered and regulated by )*BI. )*BI specifies the eligibility criteria for their registration, monitoring and review of ratings, re8uirements for a proper rating process, avoidance of conflict of interest, code of conduct and inspection of rating agencies by )*BI. 5. I23 1radingD :nder the )*BI 1uidelines=Regulations, no issuer shall make an initial public offer, unless as on the date of registering prospectus ,or R02/ with the Registrar of !ompanies, the issuer has obtained grading for the initial

Page 160

161 public offer from at least one !R" registered with )*BI. I23 grading was made mandatory by )*BI as an endeavour to make additional information available to the investors to facilitate their assessment of the security on offer. It is intended to provide the investor with an informed and obEective opinion expressed by a professional rating agency, after analyIing factors like business and financial prospects, management 8uality and corporate governance practices etc. 9. !reation of debenture trust and appointment of ebenture <rusteeD :nder )ection 11AB of the !ompanies "ct, 1#59 and )*BI 1uidelines=Regulations, no company can issue a prospectus to the public for subscription of its debentures, unless the company has, before such issue, has appointed one or more debenture trustees and the company has, on the face of the prospectus, stated that the debenture trustee or trustees have given their consent to the company to be so appointed. ebenture trustee are registered and regulated by )*BI. 3nly scheduled banks=public financial institutions=insurance companies etc. can act as debenture trustees. " ebenture trustee is obligated under the provisions of the !ompanies "ct, 1#59 and )ecurities and *xchange Board of India , ebenture <rustees/ Regulations, 1##% inter alia to exercise due diligence to ensure compliance by the company issuing debentures with the provisions of the !ompanies "ct, the listing agreement of the stock exchange or the trust deed and to take appropriate measures for protecting the interest of the debenture holders as soon as any breach of the trust deed or law comes to his notice. " debenture trustee should ensure that )*BI is promptly informed about any material breach or non> compliance by the company of any law, rules, regulations and directions of the )*BI or of any other regulatory body. (urther, every debenture trustee should ensure that the trust deed executed between a body corporate and debenture trustee, amongst other things, contains the information re8uired under the Regulations. A. !reation of debenture redemption reserveD :nder )ection 11A! of the !ompanies "ct, 1#59 and )*BI 1uidelines=Regulations, where a company issues debentures, it should create a debenture redemption reserve for the redemption of such debentures, into which ade8uate amounts should be credited, from out of its profits every year, until such debentures are redeemed. $. "ppointment of ;onitoring "gencyD <he )*BI 1uidelines=Regulations stipulates, that if the issue siIe exceeds 5'' cr., the issuer should appoint one public financial institution or scheduled commercial banks, named in the offer document as bankers of the issuer, as a monitoring agency, to monitor the use of proceeds of the issue. <he monitoring agency should submit its report to the issuer in the specified format on a half yearly basis, till the proceeds of the issue have been fully utiliIed. )uch monitoring report should be placed before the

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162 "udit !ommittee. <his mechanism is in built>in to avoid siphoning of the funds by the 2romoters by diverting the proceeds of the issue later>on to some other obEects, other than what is disclosed in the offer document. #. "ppointment of )*BI registered ;erchant banker and Registrar to the issue for the issueD In case of public issue, issuing company should appoint one or more merchant bankers to carry out the obligations relating to the issue. ;erchant bankers should independently exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and ade8uacy of disclosure in the offer documents and to ensure the interest of the investors are protected. <he merchant banker should call upon the issuer, its promoters or directors to fulfill their obligations as re8uired in terms of these Regulations and continue to be responsible for post issue activities till the subscribers have received the securities certificates, credit to their demat account or refund of application moneys and listing=trading permission is obtained. ;erchant banker should submit a due diligence certificate to )*BI at the various stages of the issue inter alia stating that they have exercised due diligence including examination of various documents of the company and have satisfied themselves about the compliance with all the legal re8uirements relating to the issue, that disclosures which are fair and ade8uate to enable the investor to make a well informed decision and all applicable disclosures mandated by )*BI have been duly made. (urther, in case of 2ublic offers, an issuer is re8uired to appoint a Registrar to the issue, which has connectivity with all the depositories. Both ;erchant bankers and Registrars to the issue are intermediaries under )ection 1& of )*BI "ct, registered and regulated by )*BI. <hey are re8uired to comply with the code of conduct and other obligations as prescribed by )*BI. 1'. Biolation of disclosure re8uirementsD <he present legal and regulatory framework is primarily based on disclosures. <he offer document is re8uired to contain all disclosures and undertakings specified in the )chedule II of the !ompanies "ct read with the erstwhile I2 1uidelines and the I! R Regulations and also additional disclosures as deemed fit, by ;erchant Banker to enable investors to make an informed investment decision. )uch disclosures include internal and external risks envisaged by the company including risk factors which are specific to the proEect and internal to the issuer company and those which are external and beyond the control of the issuer company, offering details, details of capital structure, promoters build>up, details of shares to be locked>in, details of business of the company, basis of issue price, accounting ratios, comparison with peer group, history and corporate structure, management and board of directors, direct or indirect interest of promoters, directors, key managerial personnel in the company or in the issue, financial information, details of the promoters, their photographs, 2ermanent "ccount ?umber ,2"?/,

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163 details regarding their driving license, passport etc. their background, ;anagement iscussion and "nalysis of (inancial )tatements, details of group companies, pending approvals, outstanding litigations etc. (urther, the offer document should also contain elaborate disclosures pertaining to the obEect of the issue, details of the proEects in which the investment is to be made, funding plan for the proEect, schedule of implementation etc. (urther, as per )ection 59,%/ of the !ompanies "ct, no one should issue any form of application for shares in or debentures of a company, unless the form is accompanied by an abridged prospectus, containing details specified in (orm &". "dditional disclosure re8uirements for abridged prospectus are specified in )*BI 1uidelines=Regulations. 11. 3pening and !losing of the issueD Regulation 69,1/ of the I! R Regulations ,!lause $.$.1 of the erstwhile I2 1uidelines/ mentions that a public issue should be kept open for at least three working days but not more than ten working days. In the case of the two !ompanies and another of its 1roup !ompanies, the issue has been kept open for years on end. 1&. (irm arrangements for financeD "n issuer cannot make a public issue, unless firm arrangements of finance through verifiable means towards A5S of the stated means of finance ,excluding the amount to be raised through the proposed public issue or rights issue or through existing identifiable internal accruals/ have been made. 1%. In>principle approval for listing from recogniIed stock exchangesD Issuers are re8uired to obtain in>principle listing permission from the stock exchange, before making a public issue, as per )*BI 1uidelines=Regulations. <he re8uirement of listing in respect of a public issue is to ensure that the subscribers to the shares or debentures have a facility to approach a stock exchange for having their holdings converted into cash, whenever they desire and to provide li8uidity and exit opportunity to the investors, especially in case, when the offer is made to large number of investors ,5' or more/. (urther once listed, the !ompanies need to comply with the stringent provisions of the ebt +isting "greement, including provisions relating to disclosure of periodical information to ebenture trustee, maintenance of maintain 1''S asset cover sufficient to discharge the principal amount of the debt, periodical disclosure of financials, disclosure of statement of deviations in use of issue proceeds, timely disclosure of price sensitive information. 16. )crutiny by Regulated intermediaries at all stagesD I! R regulations in addition to various other regulations framed by )*BI ensures that in the process of public issue starting from drafting prospectus till allotment=refund and listing, all specified tasks are performed only by registered intermediaries. <hese intermediaries are

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164 bound by rules and regulations framed for them by )*BI as well as the code of conduct prescribed for each. 15. 2ost issue transparency, marketability, corporate governance and listing re8uirements. *8ually important is the elaborate protection measures that are available to the investor after the issue is closed and listed on a )tock *xchange. <ransactions in the securities carried out on stock exchange are transparent with a well settled price discovery process. Information including 8uarterly results, shareholder details, and annual report are periodically made available to shareholders. "ll price sensitive information is disseminated through )tock *xchanges. <ransactions carried out on stock exchanges are guaranteed by )tock *xchanges and these are under the vigilant surveillance of concerned stock exchange and )*BI. )tock *xchanges have Investors 2rotection funds which protects investor against default by brokers and there are well laid out mechanisms for the redressing investors grievance. 19. 3ther miscellaneous re8uirementsD >Issuer should, after registering the red herring prospectus, with the Registrar of !ompanies, make a pre>issue advertisement in one *nglish national daily newspaper with wide circulation, 0indi national daily newspaper with wide circulation and one regional language newspaper with wide circulation at the place where the registered office of the issuer is situated. ,Regulation 6A of the I! R Regulations=!lause 5.9" of the I2 1uidelines/ ><he issuer should appoint a compliance officer who shall be responsible for monitoring the compliance of the securities laws and for redressal of investorsC grievances. ,Regulation 9% of the I! R Regulations=!lause 5.1& of the I2 1uidelines/ ><he issuer and lead merchant bankers should ensure that the contents of offer documents hosted on the websites as re8uired in these regulations are the same as that of their printed versions as filed with the Registrar of !ompanies, Board and the stock exchanges. ,Regulation 91,1/ of the I! R Regulations=!lause 5.9 of the I2 1uidelines/ >Issuer should enter into an agreement with a depository for dematerialiIation of specified securities already issued or proposed to be issued. ,Regulation 6,&/,e/ of the I! R Regulations=!lause &.1.5 of the I2 1uidelines/. 6&. Besides all that has been noticed above, the )*BI ,(<;/ felt, that

investors who had been issued a variety of bonds by the two companies were

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165 absolutely insecure. (or the aforesaid inference the )*BI ,(<;/ mentioned the following reasons D -&6.$ I also note that in the R02s filed by the two !ompanies, it is stated that -<he money not re8uired immediately by the company may be parked=invested inter alia by way of circulating capital with partnership firms of Joint Bentures or in the fixed deposits of various Banks.. <his means that such funds mobiliIed beyond the pale of law, could be potentially diverted into various activities of the group companies, without any significant accountability or reporting re8uirements. )uch diversion, in the case of debentures would not have been permissible under the I! R Regulations. In the entry in the R02 for -;eans of (inancing., where the total proEect cost is indicated at Q&'''' cr. for each of the two !ompanies, it is stated that -<he proEects are being financed partly by this issue as well as with the !apital, Reserves and other sources of the !ompany.. (rom an examination of the financial statements of the two !ompanies, it seems that the !apital and Reserves of the two !ompanies are miniscule in proportion to the funds re8uired for the proEects.. 6%. In addition to the sorry state of affairs painted by the )*BI ,(<;/ certain

other unpalatable facts which had emerged during investigation were also highlighted by the )*BI ,(<;/. <hese are also being extracted hereunder D -J.. uring investigations into the same, )*BI had prima facie found that a. )IR*!+ had issued 3(! s to more than 9.9 million investors and that )0I!+ had not provided any information about the number of investors of the 3(! s issued by it. b. <he R02s of )IR*!+ and )0I!+ contained untrue statement and mis>statements. c. )IR*!+ and )0I!+ have not executed debenture trust deed@ not appointed debenture trustee and have not created any debenture redemption reserve. d. <he forms issued by the two companies did not enclose an abridged prospectus. e. <he two companies continued to solicit subscriptions to their 3(! s in violation of the !ourtCs order in vacating the stay imposed on the )*BI 3rder. f. <he balance sheets and profit and loss accounts ,for the relevant

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166 period/ of the companies were not filed with the concerned Ro!. g. <he sums subscribed in the 3(! s varied from Q&''=>, %''=>, 6''=> etc. whereas the minimum application siIe for the bonds issued by )IR*!+ were 5'''=> ,for "bode and ?irmaan Bonds/ and Q1&,'''=> for the Real *state Bond. h. (rom the list of accredited agents through whom subscriptions for 3(! s was sought and the proforma of application forms from which subscription for 3(! s were sought, it was observed that subscription was sought from the general public across the country, without ade8uately informing them of the risk factors involved in such a complex financial product.. 66. Based on the aforesaid extensive factual and legal examination of the

matter, the )*BI ,(<;/ summariIed its salient conclusions as under D -1. 3(! s are hybrid instruments, and are QdebenturesC.

&. <he definition of QsecuritiesC under )ection &,h/ of the )!R "ct is an inclusive one, and can accommodate a wide class of financial instruments. <he 3(! s issued by the two !ompanies fall well within this definition. %. <he issue of 3(! s by the two !ompanies is public in nature, as they have been offered and issued to more than fifty persons, being covered under the first proviso to )ection 9A,%/ of the !ompanies "ct. <he manner and the features of fund raising under the 3(! s issued by the two !ompanies further show that they cannot be regarded to be of a domestic concern or that only invitees have accepted the offer. 6. )ection 9'B deals with the issue of information memorandum to the public alone. <herefore the same cannot be used for raising capital through private placements as the said provision is exclusively designed for public book built issues. 4hen a company files an information memorandum under )ection 9'B, it should apply for listing and therefore has to be treated as a listed public company for the purposes of )ection 9'B,#/ of the !ompanies "ct. (urther, )ection 9'B has to be read together with all other applicable provisions of the !ompanies "ct and cannot be adopted as a separate code by itself for raising funds, without due regard to the scheme and purpose of the "ct itself. <he same evidently has never been the intention of the 2arliament. 5. <he two companies, in raising money from the public, in violation of the legal framework applicable to them, have not complied with the elaborate investor protection measures, explained in paragraph &5 above. <his, inter alia, also means that the rigorous scrutiny carried out by )*BI

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167 Registered intermediaries on any public issue by a public company have been subverted in the mobiliIation of huge sums of money from the public, by the two !ompanies. 9. <he two !ompanies have not executed debenture trust deeds for securing the issue of debenture@ failed to appoint a debenture trustee@ and failed to create a debenture redemption reserve for the redemption of such debentures. A. <he two !ompanies have failed to appoint a monitoring agency ,a public financial institution or a scheduled commercial bank/ when their issue siIe exceeded Q5'' cr., for the purposes of monitoring the use of proceeds of the issue. <his mechanism is put in place to avoid siphoning of the funds by the promoters by diverting the proceeds of the issue. $. <he two companies failed to enclose an abridged prospectus, containing details as specified, along with their forms. #. <he companies have kept their issues open for more than three years=two years, as the case may be, in contravention of the prescribed time limit of ten working days under the regulations. 1'. <he two companies have failed to apply for and obtain listing permission from recogniIed stock exchanges.. 65. Based on the aforesaid salient conclusions the )*BI ,(<;/ arrived at the

determination, that both )IR*!+ and )0I!+ had violated various provisions of the !ompanies "ct, the re8uirements of the I2 1uidelines, as well as, the

provisions of the I! R Regulations. 0aving so concluded the )*BI ,(<;/ vide an order dated &%.9.&'11issued the following directions D -1. <he two !ompanies, )ahara !ommodity )ervices !orporation +imited ,earlier known as )ahara India Real *state !orporation +imited/ and )ahara 0ousing Investment !orporation +imited and its promoter, ;r. )ubrata Roy )ahara, and the directors of the said companies, namely, ;s. Bandana Bhargava, ;r. Ravi )hankar ubey and ;r. "shok Roy !houdhary, Eointly and severally, shall forthwith refund the money collected by the aforesaid companies through the Red 0erring 2rospectus dated ;arch 1%, &''$ and 3ctober 9, &''#, issued respectively, to the subscribers of such 3ptionally (ully !onvertible ebentures with interest of 15S per annum from the date of receipt of money till the date of such repayment.

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168 &. )uch repayment shall be effected only in cash through raft or 2ay 3rder. emand

%. )ahara !ommodity )ervices !orporation +imited ,earlier known as )ahara India Real *state !orporation +imited/ and )ahara 0ousing Investment !orporation +imited shall issue public notice, in all editions of two ?ational ailies ,one *nglish and one 0indi/ with wide circulation, detailing the modalities for refund, including details on contact persons including names, addresses and contact details, within fifteen days of this 3rder coming into effect. 6. )ahara !ommodity )ervices !orporation +imited ,earlier known as )ahara India Real *state !orporation +imited/ and )ahara 0ousing Investment !orporation +imited are restrained from accessing the securities market for raising funds, till the time the aforesaid payments are made to the satisfaction of the )ecurities and *xchange Board of India. 5. (urther, ;r. )ubrata Roy )ahara, ;s. Bandana Bhargava, ;r. Ravi )hankar ubey and ;r. "shok Roy !houdhary are restrained from associating themselves, with any listed public company and any public company which intends to raise money from the public, till such time the aforesaid payments are made to the satisfaction of the )ecurities and *xchange Board of India.. 69. !onse8uent upon the passing of the aforesaid order by the )*BI ,(<;/

dated &%.9.&'11, )pecial +eave 2etition ,!ivil/ no.11'&% of &'11 filed by the appellant>companies, was disposed of on 15.A.&'11 by permitting the appellant> companies to assail the )*BI order dated &%.9.&'11 by preferring an appeal under section 15< of the )*BI "ct. 4hile disposing of the aforesaid special leave petition, this !ourt recorded the statement of the learned counsel for the appellant>companies ,herein/, that they would not invite any further deposits pending the hearing and final disposal of the proposed appeals. In view of the aforesaid statement, this !ourt restrained )*BI from giving effect to the order dated &%.9.&'11 till the disposal of the appeal. 2ursuant to the order passed by this !ourt on 15.A.&'11 the appellant>companiess herein withdrew 4rit 2etition no.11A'& ,;=B/ of &'1' from the 0igh !ourt and preferred "ppeal no.1%1 of &'11

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169 ,by )IR*!+/ and "ppeal no.1%& of &'11 ,by )0I!+/ before the )ecurities "ppellate <ribunal ,for short -)"<./. 6A. "fter having narrated the facts relevant to the controversy, the )"< while

adEudicating upon the appeals preferred by the two companies first dealt with the issue whether the appellant>companies had made full and complete disclosure of facts in the R02. +earned counsel representing the appellant>companies before the )"<, placed reliance on the resolutions passed by the company and the proEections made in the R02s, so as to contend that a full and faithful disclosure had been made by both companies in their respective R02s. It was contended on behalf of the appellant>companies, that the Registrars of !ompanies had registered their R02s, only after being satisfied with the correct disclosure of facts. <he R02s under reference were then registered by the respective

Registrars of !ompanies. <he aforestated submissions advanced by the learned counsel for the appellant>companies did not find favour with the )"<. <he )"< was of the view that the appellant>companies had not disclosed in the information memorandum, that the same was being issued to % crore persons ,expressed as %' million persons, by the )"</, through 1' lakh agents, stationed in more than &#'' branch offices@ inviting them to subscribe to the 3(! s. <he aforesaid figures, according to the )"<, amounted to approaching the public through an advertisement. <he )"< was of the view, that if )IR*!+ had indicated, that the invitation to subscribe 3(! s was being extended to 5' or more persons, the provisions of law relating to a public issue would have been found to be applicable. ?on>disclosure of the aforesaid information, according to the )"<, could not be considered as innocent. <he )"< felt, that the assertion at the

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170 hands of the appellant>companies, that the invitation to subscribe to 3(! s was by way of private placement, and further that, the appellant>companies did not intend to extend the invitation to subscribe through stock exchange,s/, fell foul of the provisions which would have come into play, had the two companies disclosed that their invitation to subscribe was being extended to 5' or more persons. <he )"< also noticed, that both the companies had stated in their respective R02s, that there would be no restriction on transfer of the 3(! s, but in the terms and conditions mentioned in the application forms, it was mentioned, that transfer of 3(! s would be subEect to the approval by the respective company. <his, according to the )"< was also not legitimate. <he )"<

expressed the view, that the respective Registrars of !ompanies came to be mislead by the aforesaid information furnished in the R02s. <he )"< also

expressed the view, that the Registrars of !ompanies had registered the R02s simply because the appellant>companies had not made full and complete disclosure of facts in their R02s. "ccordingly the )"< observed, that the

intention of the companies and its promoters from the very beginning, was not bonafide@ that the companies concealed vital facts from its shareholders, from its investors and from the respective Registrars of !ompanies. "s such, the )"< felt, that it would be improper to infer legitimacy in the actions of the two companies, merely from the fact that their R02s had been registered by the Registrars of !ompanies. 6$. 4hile dealing with the registration of R02s by the Registrars of

!ompanies, the )"< also expressed the view, that the conduct of the respective Registrars of !ompanies was also inappropriate, inasmuch as, the Registrars of

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171 !ompanies on examination of the facts disclosed by the appellant>companies, ought to have made further en8uiries. )uch additional en8uiries would have

disclosed, that the companies were actually making a public issue. 4henever a company desires to make a public issue, a copy of the R02 is to be submitted to the )*BI. "ppropriate handling of the matter at the hands of the Registrar of !ompanies would have resulted in re8uiring both companies to furnish copies of their R02s to the )*BI. If that had been done, )*BI would have scrutiniIed the matter, and would have ensured that the companies adopted appropriate measures for investorsC protection, as well as, for disciplined regulation of their securities. )"<, therefore, found the Registrar of !ompanies guilty of having registered the R02 with undue haste, and for having acted in dereliction of duty. 6#. <he first legal issue examined by the )"< was, whether the 3(! s under

reference were securities, and whether, )*BI had the Eurisdiction to regulate them. 0aving analyIed the issue, )"< placed reliance on sections &,1/ and &,&/ of the )*BI "ct. It expressed the view, that a reference could not be made, for interpreting the provisions of the )*BI "ct, to terms defined by the !ompanies "ct. "ccordingly, the )"< reEected the contention of the learned counsel

representing the appellant>companies to assign a meaning to the term -securities. with reference to the definition thereof, under the !ompanies "ct. "ccording to the )"<, 3(! s were not new instruments, as they were widely known to the securities market. In the securities market, securities were

understood as a form of debentures. <he )"< was of the view, that 3(! s in the present controversy, were -hybrids., covered by the definition of the term

-securities. under the )*BI "ct read with the )!,R/ "ct. <he )"< also turned

Page 171

172 down the argument, that 3(! s issued by the two companies would not fall within the definition of the term -securities. under the )*BI "ct, as they were not marketable. <he assertion, that the 3(! s in this case were not marketable, was turned down by referring to clause 1% of the R02 issued by the )IR*!+, wherein it was expressed, that there was no restriction on their transfer. It would be pertinent to notice, that )"< highlighted in its order, that the issue of marketability of the 3(! s had been raised during the course of oral submissions, but had not been pressed in the written submissions, as no mention thereof was made in the written submissions filed by the appellant>companies. 5'. <he )"< also expressed the view, that )*BI had all the powers to take

whatever steps it considered appropriate, to safeguard the interests of investors in securities, and also,to regulate the securities market. <he aforesaid power was found by the )"< as traceable to sections 11, 11" and 11B of the )*BI "ct. <he )"< also concluded, that the )*BI "ct did not make any distinction between listed and unlisted companies, and, therefore, measures for regulating securities in section 11, 11" and 11B of the )*BI "ct, were applicable to listed, as well as, unlisted companies. Based on the aforesaid, the )"< held that the two

companies would fall within the regulatory Eurisdiction of )*BI de hors the provisions of any other law. <he )"<, therefore, reEected the submission of the learned counsel for the appellant>companies, that since the two companies were unlisted, their securities could not be regulated by the )*BI. <he )"< also

expressed the view, that on the subEect of protecting investorsC interest in securities, as well as, on the subEect of regulating the securities market, the )*BI "ct was a -stand alone. enactment. <he )"< also concluded, that )*BICs powers

Page 172

173 under the )*BI "ct were not fettered by any other law including the !ompanies "ct. "ccording to the )"<, the )*BI "ct, the )!,R/ "ct and the epositories "ct,

1##9, were cognate statutes, as they dealt with different aspects of securities and the securities market, and they alone governed the capital market. 51. <he )"< thereafter examined the 8uestion whether the invitation of

3(! s by the two companies was by way of private placement ,as claimed by the appellant>companies/ or by way of an issue to the public ,as counter>claimed by the )*BI/. 0aving interpreted section 99 of the !ompanies "ct and having placed reliance on the first proviso under section 9A,%/ of the !ompanies "ct, the )"< held, that the two companies had admittedly offered its 3(! s to more than 5' persons. In the aforesaid view of the matter, according to the )"<, there could not be any other conclusion, but that, the 3(! s floated by the two companies were by way of an invitation to the public. Besides the reasoning summariIed above, the )"< also examined the same issue on the basis of the definition of the term -information memorandum. as has been expressed in section &,1#B/ of the !ompanies "ct, with reference to the procedure contemplated in section 9',B/ of the !ompanies "ct, and concluded, that the invitation of 3(! s by the two companies was not by way of private placement, but was by way of an issue to the public. 5&. 0aving concluded that the two companies had made a public issue, the

)"< summariIed the obligations of a public company before bringing out a public issue. It was pointed out, that a public company was re8uired to file a draft offer document with the )*BI through a registered merchant banker, which neither of the companies had done. )uch a public company was also obliged to appoint a

Page 173

174 Registrar to the issue, who has a separate role assigned to him. Both companies had not complied with this obligation as well. " public company bringing out a public issue is also re8uired to issue a draft offer document for public comment, which is also re8uired to be examined by the )*BI to make sure, that all the investorsC protection measures have been complied with. 4hereupon, all

directions issued by the )*BI have to be incorporated in the offer document. "n unlisted public company ,like the two appellant>companies )IR*!+ and )0I!+/ would ac8uire eligibility to make a public issue, only they had net tangible assets worth more than Rs.% crores in each of the preceding three full years. "nother pre>re8uisite is, that such a company must have distributable profits in at least three of the immediately preceding five years. )uch a public company, must also have a net worth of at least Rs.1 crore in each of the preceding three years. ?either )IR*!+ nor )0I!+, according to the )"<, had either the prescribed tangible assets or the stipulated distributable assets or even the prescribed net worth. It was pointed out ,by the )"</, that for bringing out a public issue, an unlisted companyCs promoters should contribute not less than &'S of the post> issue capital, which is re8uired to be locked>in for a period of three years. 2ublic companies making a public issue, were also re8uired to obtain their credit rating from at least one credit rating agency registered with the )*BI. )uch credit rating agency, is re8uired to rate the public issue proposed to be brought by the concerned company. In case the public issue is debentures, the concerned

company is precluded from issuing a prospectus till it appoints a debenture trustee, and it creates a debenture redemption reserve. "dditionally, a public company, according to the )"<, is re8uired to obtain pre>approval, for listing of its

Page 174

175 securities, from one or more recogniIed stock exchange,s/. "ccording to the )"<, none of the aforestated re8uirements were complied with, by either of the companies. <he )"< therefore felt, that it was appropriate and Eustified for the )*BI to have taken action against both the companies. 5%. <he )"< then examined the 8uestion whether the 3(! s issued by

)IR*!+ and )0I!+ re8uired mandatory listing. (or its answer, the )"< placed reliance on sub>sections ,1/ and ,&/ of section A% of the !ompanies "ct, and thereupon concluded, that a public company which proposes to offer shares or debentures to the public, has to mandatorily issue a prospectus. *ven before issuing the prospectus, the concerned company must make an application to one or more recogniIed stock exchange,s/, for their permission to deal with the shares or debentures proposed to be issued. <he )"< therefore concluded, that both )IR*!+ and )0I!+ were re8uired to be listed on one or more recogniIed stock exchange,s/, and that, both companies willfully defaulted, by not complying with the aforesaid mandatory provisions of section A% of the !ompanies "ct. 56. <he )"< then examined the issue of Eurisdiction, raised by the appellant>

companies, on the basis of section 55" of the !ompanies "ct. <he submission of the appellant>companies before the )"< was, that neither )IR*!+ nor )0I!+ had any intention to list their respective 3(! s on any stock exchange. In fact, it was contended, that both companies had clearly expressed their intention, that they would not list their 3(! s on any stock exchange,s/. In the aforesaid view of the matter, since the )IR*!+ and )0I!+ would not be governed by clauses ,a/ and ,b/ of section 55" of the !ompanies "ct, it was submitted on behalf of the appellant>companies, that they would fall in the ambit of the residuary clause ,c/

Page 175

176 of section 55" of the !ompanies "ct. <hus viewed, the claim of the appellant> companies was, that )*BI had no power to administer the two companies. <he appellant>companies asserted, that )IR*!+ and )0I!+ could only be administered by the !entral 1overnment ,or the <ribunal, or the Registrar of !ompanies/. 55. <he )"< reEected the aforesaid submission, by concluding, that the

entrustment of powers to )*BI under clauses ,a/ and ,b/ of section 55" of the !ompanies "ct was in addition to the power already vested in the )*BI under sections 11, 11" and 11B of the )*BI "ct. <he aforesaid power, according to the )"<, extended to unlisted companies as well, in respect to matters relating to issue of capital, transfer of securities and other matters incidental thereto. <he )"< also noticed, that )*BI had been regulating companies in matters of issue of capital and ensuring capital protection, right from its inception in 1#$$. "ccording to the )"<, the insertion of section 55" in the !ompanies "ct did not in any way affect the powers of )*BI under the )*BI "ct. "ll the same, the )"< concluded, that both )IR*!+ and )0I!+ actually intended to get their 3(! s listed, although they professed to the contrary. <he )"< held, that the companies

having gone to the public by circulating an information memorandum could not be heard to say, that they did not intend to get their securities listed. <he )"<, therefore, was of the view, that both companies had the intention in law, to get their securities listed, and therefore, would fall within clause ,b/ of section 55" of the !ompanies "ct, so as to be administered by the )*BI. <he instant issue was examined by the )"< from various other angles as well, whereupon the contention advanced at the hands of the appellant>companies that )*BI did not

Page 176

177 have Eurisdiction on the subEect matter under consideration, was reEected. 59. <he )"< then considered the submission of the appellant>companies I2 1uidelines and I! R Regulations. <he submission on behalf

based on the

of the appellant>companies, was that the contraventions alleged against the appellant>companies were committed when the I2 1uidelines were in force, but I2

)*BI had not taken any action against the appellant>companies under the

1uidelines. It was pointed out, that for the first time, action was initiated against the appellant>companies through the first show cause notice issued by the )*BI on &6.11.&'1'. <he argument raised was, that the I2 1uidelines were repealed

by the I! R Regulations ,with effect from &9.$.&''#/, and as such, it was not open to the )*BI to take action against the appellant>companies under the repealed I2 1uidelines. Insofar as the I! R Regulations are concerned, the

argument raised was, that the same would only have prospective effect. <herefore, the submission was, that the I! R Regulations would not be applicable to actions and activities which had taken place prior to the coming into force of the I! R Regulations ,with effect from &9.$.&''#/. <he )"< reEected the instant contention of the appellant>companies by placing reliance on Regulation 111 of the I! R Regulations. <he )"< concluded by holding, that the )*BI ,(<;/ was Eustified in holding both companies guilty of violating the 1uidelines read with the I! R Regulations. 5A. 0aving concluded its determination on the issue canvassed before it, the I2

)"<, by its order dated 1$.1'.&'11, upheld the order passed by the )*BI ,(<;/ dated &9.$.&'11. <he )"< having so held, directed the appellant>companies to repay within six months ,from its order dated 1$.1'.&'11/, the amount collected

Page 177

178 from the investors, on the terms as set out by the order of the )*BI ,(<;/ dated &%.9.&'11. 5$. 4hen this !ourt disposed of )pecial +eave 2etition ,!ivil/ no. 11'&% of

&'11 on 15.A.&'11 ,soon after the )*BI ,(<;/ order dated &%.9.&'11/, it permitted the appellant>companies to assail the )*BICs order dated &%.9.&'11 by preferring an appeal under section 15< of the )*BI "ct. 4hile disposing of the aforesaid special leave petition, this !ourt recorded the statements of the learned counsel for the appellant>companies ,herein/, that they would not invite any further deposits pending the hearing and disposal of the proposed appeals ,before the )"</. Meeping in mind the aforesaid statements, this !ourt restrained )*BI ,vide its order dated 15.A.&'11/ from giving effect to the order dated &%.9.&'11 till the disposal of the appeals by the )"<. "s noticed above, the appeals preferred before the )"< by )IR*!+ and )0I!+ came to be dismissed on 1$.1'.&'11. <he common order passed by the )"< dated 1$.1'.&'11 was separately assailed by )IR*!+ ,through !ivil "ppeal no. #$1% of &'11/ and by )0I!+ ,through !ivil "ppeal no. #$%% of &'11/. 4hile entertaining the aforesaid appeals on &$.11.&'11, this !ourt interalia passed the following interim orderD> -By the impugned order, the appellants have been asked by )"< to refund a sum of Rs.1A,6'' crores approximately on or before &$.11.&'11. 4e extend the period upto #.1.&'1&.. 3n the following date of hearing, i.e. on #.1.&'1&, this !ourt extended the interim order passed on &$.11.&'11 by observing as underD> -Interim order granted by this !ourt on &$.11.&'11 shall continue to be operative.. In the aforesaid view of the matter, the order passed by the )*BI ,(<;/ on

Page 178

179 &%.9.&'11, which on the dismissal of the appeals ,preferred by )IR*!+ and )0I!+/ before the )"< on 1$.1'.&'11, was re8uired to be given effect to within a period of six months, has remained unimplemented in view of the interim order passed by this !ourt awaiting this !ourtCs decision in the present set of appeals. I shall now endeavour to adEudicate upon the issues canvassed before us. 5#. <he foundational facts essential for the determination of the twin appeals

have already been narrated above. In the aforesaid narration it was essential to demonstrate the position adopted by the appellant>companies prior to the issuance of the first show cause notice by the )*BI ,(<;/ dated &6.11.&'1'. It was also essential to trace the proceedings initiated in the 0igh !ourt of Judicature at "llahabad, before its +ucknow Bench, for setting out the reasons recorded by the 0igh !ourt@ first, in vacating the interim order originally granted@ and thereafter, for not reviving the original interim order. It was also essential to record the appellant>companies legal responses and submissions before the )*BI ,(<;/ and the )"<. It was essential, also to notice exactly what was

canvassed on behalf of the appellant>companies, so as to visualiIe, that even though the main plank of the appellant>companies submission rested on a factual foundation, namely, whether the 3(! s issued by the appellant>companies was by way of -private placement., or by way of -a public issue.@ the appellant> companies did not base any of their submissions on any concrete factual data, to establish the aforesaid issue. I shall now venture to examine the submissions advanced before us, by dealing with the controversy issue>wise. 4as the invitation to subscribe to 3(! s, by )IR*!+ and )0I!+, by way of private placement ,as claimed by the appellant>companies/, or by way

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180 of an invitation to the public ,as counter>claimed by the )*BI/R <he first perspectiveD 9'. uring the course of hearing there was extensive debate between rival

parties on the subEect whether the 3(! s under reference, were issued by way of -private placement. or by way of an invitation -to the public.. "pparently, the answer to the aforesaid 8uery would emerge from an analysis of the correct factual position. )*BI, in order to determine an answer to the aforesaid 8uery, in the first instance, sought information from *nam )ecurities 2rivate +imited 7 the merchant banker for )2!+. <he reason which prompted the )*BI to ascertain the correct factual position was, that it had received complaints from -2rofessional 1roup of Investors 2rotection., as also, from one Roshan +al. <he formerCs complaint was dated &5.1&.&''#, whereas the latterCs complaint to the )*BI was dated 6.1.&'1'. uring the course of examining the R02 of )2!+ in

respect of its proposed I23 dated %'.#.&''#, )*BI suspected that )2!+ had not made a complete and full disclosure. *nam )ecurities 2rivate +imited responded to the 8ueries raised by the )*BI, both in respect of )IR*!+ and )0I!+, by asserting that on legal opinion sought, as well as, on having conducted an in8uiry, it was in a position to confirm that the 3(! s issued by )IR*!+ and )0I!+ were in conformity with all applicable laws. <he reply of *nam )ecurities 2rivate +imited did not incorporate any response to the express 8ueries raised by )*BI. 3n &9.&.&'1' +ead ;anagers of )IR*!+ and )0I!+ informed )*BI, that both the companies had issued debentures on -tap. basis, thus asserting, that the 3(! s under consideration had been issued by way of -private placement.. <he +ead ;anagers, however, could not deny the issuance of an information

Page 180

181 memorandum, as well as, R02s by the two companies. espite the aforesaid

acknowledgement, the details sought by the )*BI were not furnished by the +ead ;anagers of the appellant>companies. 3n &&.6.&'1' )*BI sought further details from *nam )ecurities 2rivate +imited. )*BI, however, never received any

response thereto. (inding itself in the aforesaid predicament, )*BI had no other alternative, but to seek factual details directly from )IR*!+ and )0I!+. )*BI accordingly addressed a large number of communications to both the companies. <he letters issued by )*BI and the responses furnished by the two companies have been narrated in paras & to 1& of the instant order. )*BI under the

provisions of the )*BI "ct, has a mandate to shoulder extremely serious and onerous responsibilities. <hese responsibilities include the task of protecting the interest of investors in securities, and the development and regulation of the securities market. 4hen the first communication was addressed by )*BI to

*nam )ecurities 2rivate +imited 7 the merchant banker for )2!+, the reply furnished by *nam )ecurities 2rivate +imited referred to the fact, that the same was based on legal opinion. It is therefore apparent, that right from the

beginning, legal opinion came to be sought before replies were furnished, on behalf of the two companies to )*BI. *ven the tenor of the letters addressed by the two appellant>companies available on record depict, that they had furnished their replies after seeking legal guidance. It is in the aforesaid background, that one needs to evaluate the responses of the two companies, to the 8ueries raised by )*BI. 91. ?ow, about the replies of the appellant>companies. "t one Euncture both

companies adopted a defiant posture by asserting, that they should first be

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182 furnished with the copies of the complaints received by )*BI. ;eaning thereby, that they would consider furnishing the desired information only after they had been furnished with the copies of the complaints. (ailing which, it is essential to infer, that they would not supply the information. 3n another occasion, the companies were braIen enough to inform )*BI, that )*BI had no Eurisdiction in the matter. "t a later stage, they informed )*BI, that for a clarification of the Eurisdictional aspect, the companies had addressed a communication to the :nion ;inister incharge of the epartment of !orporate "ffairs. "ccordingly, the

companies commended to )*BI, that it should not probe into the matter further, till the epartment of !orporate "ffairs, clarified the legal position. "n

astounding reply was submitted by the companies in ;ay, &'1'. 3ne would like to extract herein a relevant portion of the communication in 8uestion, as it is difficult to believe, that the companies could have made such an inconsiderate excuse, to avoid furnishing the particulars sought by )*BI. "n extract of the reply is being reproduced hereunderD -In the months of ;ay and June, in the year, most of the staff remains on long holidays with their children due to summer holidays of schools=colleges. In our case also concerned officials are on vacation and gone out of station with their children.. 3ne wonders whether the appellant>companies were running a kindergarten, where their staff were expected to be unavailable during the summer. <he

impression which the aforesaid communication proEect is, that the two companies had no respect whatsoever for )*BI. Inspite of the fact that )*BI was

responsible for the development and regulation of the securities market, the appellant>companies could brush aside the )*BICs demand for information in

Page 182

183 such a brash and audacious manner, is 8uite frankly difficult to comprehend. In response to one of the )*BICs communications, the two companies adopted the stance, that they did not have complete details of the securities issued by them. <he companies responded by stating, that the information would be disclosed after the same is collected. <his position adopted by the companies was described as preposterous by the )*BI ,(<;/. It can certainly be concluded, that the same was outrageously ridiculous, keeping in mind that both companies proclaim to be a part of the )ahara India 1roup of !ompanies. It is difficult to swallow, that the two companies had not even maintained records, pertaining to investments in the range of close to Rs.6',''' crores. 9&. 3n 11.9.&'1' )*BI informed the two companies, that their responses

indicated, that they intended to protract the correspondence, to delay the matter. Relevant extract, of the letter dated 11.9.&'1', is being reproduced hereunderD -!onsidering that, we are surprised your received letter. It seems that the intention behind the letter is only to protract the correspondence. In this regard you are advised to provide the information sought vide our letter dated ;ay 1&, &'1' by June 15, &'1', as agreed vide your aforesaid letter. 4e, once again, reiterate that failure to provide the information or applying any other delaying tactics may result in initiating appropriate action in terms of the )*BI "ct and Regulations made thereunder and also under relevant sections of the !ompanies "ct which are delegated to )*BI.. <he wielded threat contained in the communication extracted hereinabove, had hardly any effect on the two companies. " sterner and direct threat was

contained in a subse8uent communication addressed by the )*BI, wherein the )*BI, inter alia assertedD -2lease take notice that without preEudice to the provisions of any other law for the time being in force, if you fail to produce the books of accounts and=or documents as re8uired, )*BI will initiate adEudication proceedings

Page 183

184 against you under which you could be levied a penalty of one lakh rupees for each day during which such failure continues, or one crore rupees, whichever is less, as provided under )ection 15" of )ecurities and *xchange Board of India "ct, 1##&. (urther, criminal prosecution may also be launched against you under )ection 11!,9/ of )ecurities and *xchange Board of India "ct, 1##&. )ection 11!,9/ provides for a punishment with imprisonment for a term which may extend to one year or with fine which may extend to rupees one crore, or with both, and also with a further fine which may extend to five lakh rupees for each day after the first, during which the failure or refusal continues.. 9%. It is interesting to note, from the narration of facts recorded hereinabove,

that )*BI was seeking information from the appellant>companies since ;ay, &'1'. )ince the information sought by )*BI was not being supplied, )*BI

eventually took upon itself the task of investigation into the issuance of 3(! s by )IR*!+ and )0I!+. (or this, summons dated %'.$.&'1' and &%.#.&'1' were issued to the two companies re8uiring them to furnish various factual details in respect of the 3(! s issued by them. Interestingly, in response to the aforesaid summons both companies filed detailed replies, raising a large number of legal obEections. Importantly, none of the particulars sought by )*BI, were furnished by either of the companies. *ven at this late stage, the !hief (inancial 3fficer of the )ahara India 1roup of !ompanies was afforded an opportunity of hearing, when a re8uest was made by him ,on %.11.&'1'/. It was impressed on him, during the course of hearing, that complete and correct information sought by the )*BI, should be furnished. <he !hief (inancial 3fficer, astoundingly did not

make any commitment to furnish the information sought. <his fact was duly highlighted in the order of the )*BI ,(<;/ dated &6.11.&'1'. (actually, no information was ever furnished by the !hief (inancial 3fficer. 96. !onse8uent upon the receipt of the responses from the appellant>

Page 184

185 companies, and their failure to furnish information to )*BI, a show cause notice dated &6.11.&'1' came to be issued to both the companies. 2ending a response to the show cause notices, the )*BI ,(<;/ vide an order dated &6.11.&'1' issued a number of directions to the appellant>companies, including an order restraining the two companies from mobiliIing funds under the respective R02s issued by them, till further directions. <he companies were also, inter alia,

directed not to offer their e8uity shares=3(! s or any other securities to the public or to invite subscription in any manner whatsoever, either directly or indirectly, till further orders. 95. <he )*BI ,(<;Cs/ order dated &6.11.&'1' was assailed before the

+ucknow Bench of the 0igh !ourt of Judicature at "llahabad. 3n 1%.1&.&'1', the 0igh !ourt stayed the operation of the order ,dated &6.11.&'1'/. 3n an application filed by the )*BI, the 0igh !ourt vacated the aforesaid interim order on A.6.&'11. interaliaD -6. J..<he petitioners were supposed to cooperate in the in8uiry and their interest was protected by restraining the )*BI from passing any final orders. <he matter was being heard finally under the expectation that the assurances given by the learned counsel for the petitioners would be honoured by the petitioners and the matter would be finished at the earliest. But the petitioners appear to have thought otherwise. <he courtCs order cannot be allowed to be violated or circumvented by any means. 4e, therefore, do not find any ground to continue with the interim order, which is hereby vacated for the own conduct of the petitioners and for which they have to thank their own stars.. " perusal of the extract of the order of the 0igh !ourt reveals, that the 0igh !ourt felt, that the appellant>companies were expected to cooperate with the in8uiry being conducted by the )*BI. )ince the appellant>companies were found remiss 4hile vacating the interim directions, the 0igh !ourt observed

Page 185

186 in the matter, the 0igh !ourt was constrained to vacate the interim order passed on 1%.1&.&'1'. <he appellant>companies then filed an application before the 0igh !ourt, praying for the restoration of the order dated 1%.1&.&'1'. <he instant application also came to be dismissed on &#.11.&'11. aforesaid application, the 0igh !ourt observedD --5. J.." person, who comes to the court, is supposed to come with clean hands and bona fide intentions, and has to abide by the orders passed by the court, more so in a case where the partiesC counsel agree for certain actions to be undertaken. If some assurance is given by any person to the !ourt, as has been done in the present case, and the said assurance=understanding is not honoured, the court would not come to his rescue. <he application is, therefore, reEected.. " perusal of the aforesaid extract of the order of the 0igh !ourt reveals, that the 0igh !ourt expressed the view, that those who seek relief from a court must come with clean hands and with bona fide intentions, they must also abide by the orders passed by the concerned court. If assurances given to the court are not honoured, the court cannot come to the rescue of the party. )ince the application filed by the appellant>companies was dismissed with the aforesaid observations, it is apparent, that the 0igh !ourt denied relief to the appellant>companies because they had not approached the 0igh !ourt with clean hands, and because, their intentions were not found bona fide. 99. *ventually, the entire controversy came to be shifted back to )*BI 4hile dismissing the

,conse8uent upon this !ourtCs order dated 1&.5.&'11/. <he writ petition filed by the appellant>companies before the 0igh !ourt, therefore, came to be withdrawn. "t that Euncture, the )*BI issued its second show cause notice dated &'.5.&'11, principally on the same facts and grounds, as its first show cause notice ,dated &6.11.&'1'/. Both )IR*!+ and )0I!+ filed detailed responses to the same,

Page 186

187 again asserting that the 3(! s had been issued to friends, associates, group companies, workers= employees and other individuals associated=affiliated or connected in any manner with )ahara India 1roup of !ompanies, without depicting the details of each of the subscribers to show which of them were friends or associates of group companies or workers=employees and=or other individuals associated=affiliated or connected in any manner with )ahara India 1roup of !ompanies. <he battle lines were, accordingly, again drawn on legal issues rather than on factual details. 9A. 0aving received replies to the show cause notices dated &'.5.&'11, and

having heard learned counsel representing the appellant>companies, it was held that the appellant>companies were in violation of law. It was emphatically

concluded by the )*BI ,(<;/ on &%.9.&'11, that neither )IR*!+ nor )0I!+ had invited subscriptions to their 3(! s by way of -private placement.. It was held, that the two companies had issued 3(! s by way of an invitation -to the public.. 9$. <he order of the )*BI ,(<;/ dated &%.9.&'11 came to be assailed by the

appellant>companies before the )"<, by preferring appeals under section 15< of the )*BI "ct. *ven during the course of appellate proceedings before the )"<, neither of the companies disclosed the factual position, so as to enable the )"< to determine factually, one way or the other, whether the 3(! s issued by

)IR*!+ and )0I!+, were by way of -private placement. or by way of an invitation -to the public.. <he controversy was canvassed before the )"<, at the behest of the appellant>companies, on the same legal parameters, as were adopted before the )*BI ,(<;/. <he )"< by its order dated 1$.1'.&'11, upheld the order

passed by )*BI ,(<;/ dated &9.$.&'11.

Page 187

188 9#. <he order passed by the )"< is now subEect matter of challenge before us. uring the course of

*ven before this !ourt, the position remains unaltered.

hearing we were informed by learned counsel representing the )IR*!+, that a compact disc with a key had been furnished to the )*BI ,(<;/ with complete particulars. 4hat was placed before the )*BI ,(<;/ in the said compact disc, we were informed, has now been made available to this !ourt as a hard copy. uring the course of an examination of the hard copy, it was not possible to persuade oneself to travel beyond the first page of the voluminous compilation. <he reason therefor is being expressed hereinafter. (or facility of reference

extracted hereunder are details of -Malawati., one of the investorCs disclosed in the hard copyD ).?o. 99'%9A5 InvestorCs InvestorCs name particular s Malawati :chahara ).M. ?agar, :.2 "mount 19'' IntroducerC s "gent name 0aridwar IntroducerC s "gent !ode 1'A5116&5 InvestorCs= agentCs address Bani Road, )emeriyawa )ant Mabir ?agar

(irst and foremost, the data furnished by the appellant>companies does not indicate the basis of the alleged -private placement.. It is impossible to

determine whether -Malawati., referred to hereinabove, whose name figured at )l.?o.99'%9A5, was invited to subscribe for the 3(! s, as a friend or associate of group companies or worker=employee and=or other individual

associated=affiliated or connected in any manner with )ahara India 1roup of !ompanies. Besides the aforesaid, -Malawati. is a very common name, and there could certainly be more than a couple of Malwatis, at the investorCs address

Page 188

189 indicated in the compilation. ?either her parentage nor her husbandCs name has been disclosed, so that the identity of -Malawati. could be exclusively determined to the individual who had subscribed to the 3(! s. <he address of -Malawati., indicated is of a general description, as it does not incorporate a particular door number, or street, or locality. different impression altogether. <he name of the introducer=agent, leads to a -0aridwar., as a name of a person of Indian

origin, is 8uite uncomprehendable. In India names of cities do not ever constitute the basis of individual names. 3ne will never find "llahabad, "gra, Bangalore, !hennai or <irupati, as individual names. <he address of the introducer=agent, depicted in the compilation is as intriguing as the address of the investor ,for exactly the same reason recorded above, for the subscribers name/. 3ne would not like to make any unrealistic remark, but there is no other option but to record, that the impression emerging from the analysis of the single entry extracted above is, that the same seems totally unrealistic, and may well be, fictitious, concocted and made up. A'. "t this Euncture it would be necessary to extract certain observations made

by the )*BI ,(<;/ in the order dated &%.9.&'11D -1A.15 I have also examined copies of the letters written by )IR*!+ in January &'11, to a few professional accounting firms, submitted among the documents filed by )IR*!+ before me. <he letter to these firms notes that -the !ompany has from time to time issued 3ptionally (ully convertible ebentures ,3(! / which have been subscribed by various people all over the country.. <he letter seeking professional services -by way of deputation of professional staff to collect data and to the necessary compilation by putting the data together in a consistent format and doing the necessary authentication of the same, given the fact that the data is voluminous and is spread across thousands of service centre.. ,emphasis supplied/ !learly, the 3(! s are issued, admittedly to various people all over the country. <he compilation of the data is not available with the firm. <he data is unauthenticated and the fund mobiliIation is spread across

Page 189

190 thousands of service centresJ.. It seems the two companies collected money from investors, without any sense of responsibility to maintain records, pertaining to funds received. It is not easy to overlook, that the financial transactions under reference are not akin to transactions of a street hawker or a cigarette retail made from a wooden cabin. <he present controversy involves contributions which approximate Rs.6','''=> crores, allegedly collected from the poor rural inhabitants of India. espite

restraint, one is compelled to record, that the whole affair seems to be doubtful, dubious and 8uestionable. ;oney transactions are not expected to be casual, certainly not in the manner expressed by the two companies. A1. <he conse8uence of the foregoing discussion, if correct, is alarming, 4hen the appellant>companies are a part of the

shocking and distressing.

)ahara India 1roup of !ompanies, recogniIed in India with awe and admiration, their apparent attempt to withhold the disclosure of the factual position solicited by )*BI, cannot be brushed aside lightly. "fter all both companies were proceeding on legal guidance right from the beginning. 4hat the two companies chose to collect through their 3(! s was a contribution to the tune of of Rs.6',''' crores. )urely, while dealing with such an enormous amount of

money, the information available in the records of the appellant>companies is expected to be of the highest order of precision. A&. )*BI is statutorily empowered under sections 11,&/,i/ and ,ia/, as well as,

11 ,&"/ of the )*BI "ct, to call for information. <he appellant>companies were, therefore, statutorily obliged to furnish the information sought. <he information sought by )*BI from the appellant>companies, would have led to a firm and clear

Page 190

191 factual conclusion, whether the 3(! s issued by )IR*!+ and )0I!+ were by way of -private placement., or by way of an invitation -to the public.. <he best

legal minds in this country have guided and represented the appellant>companies at all stages, right from the beginning. <here can therefore be no doubt, that the particulars sought by the )*BI, were not furnished by the appellant>companies, on the basis of considered legal advice. But then, there are legal conse8uences, for such considered withholding of information. It is imperative for us to resurrect the legal position, not kept in mind by the appellant>companies. (or this,

reference needs to be made to section 116 of the Indian *vidence "ct, as also, Illustrations ,g/ and ,h/ thereunder. <he same are extracted belowD -116. Court may presume existence of certain facts <he !ourt may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case. Illustrations <he !ourt may presume > xxx ,g/ ,h/ xxx xxx

<hat evidence which could be and is not produced would, if produced be unfavorable to the person who withholds it@ <hat if a man refuses to answer a 8uestion which he is not compelled to answer by law, the answer, if given, would be unfavorable to him@ xxx xxx

xxx

But the !ourt shall also have regard to such facts as the following, in considering whether such maxims do or do not apply to the particular case before it > "s to illustration ,g/ > " man refuses to produce a document which would

Page 191

192 bear on a contract of small importance on which he is sued, but which might also inEure the feelings and reputation of his family@ "s to illustration ,h/ > " man refuses to answer a 8uestion which he is not compelled by law to answer, but the answer to it might cause loss to him in matters unconnected with the matter in relation to which it is asked@ xxx xxx xxx. Based on section 116 of the Indian *vidence "ct, and more particularly the illustrations extracted above, )*BI ought to have drawn the obvious presumption against the appellant>companies. <he material sought by the )*BI from the appellant>companies, thought available with them, must be deemed to have been consciously withheld, as the same if disclosed, would have been unfavourable to the appellant>companies. etails sought by the )*BI from the appellant>

companies included particulars of the application forms circulated, the number of application forms received, the amount of subscription deposited, the number and list of allottees, the number of 3(! s issued, the value of their allotment, the date of dispatch of debenture certificates, copies of board=committee meetings, minutes of the meetings during which allotment was approved. "ccording to

)*BI the information sought was merely basic, and the denial of the same amounted to a calculated and deliberated denial of the same. <here can be no 8uarrel with the aforesaid conclusion. 4hy would anyone not furnish such basic informationR <he aforesaid information had been sought, to determine whether the 3(! s issued by )IR*!+ and )0I!+ were by way of -private placement. ,as claimed by the appellant>companies/, or by way of an invitation -to the public. ,as counter claimed by the )*BI/. )ince the appellant>companies willfully avoided to furnish the aforesaid information ,which ought to have been readily available with them/ to the )*BI, one is constrained to conclude, that if the appellant>

Page 192

193 companies had furnished the said information, )*BI would have been able to conclude the issue against the appellant>companies, i.e., that the 3(! s issued by the )IR*!+ and )0I!+, were by way of an invitation -to the public.. I am therefore, persuaded to conclude accordingly. <he second perspectiveD A%. <he same conclusion as has been drawn hereinabove, can be legally (or the instant aspect of the matter it is

drawn from another angle as well.

essential to refer to section 9A of the !ompanies "ct. <he same is accordingly being extracted hereunderD -9A. Construction of references to offerin s!ares or "e#entures to t!e pu#lic, etc$ ,1/ "ny reference in this "ct or in the articles of a company to offering shares or debentures to the public shall, subEect to any provision to the contrary contained in this "ct and subEect also to the provisions of sub>section ,%/ and ,6/, be construed as including a reference to offering them to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner. ,&/ "ny reference in this "ct or in the articles of a company to invitations to the public to subscribe for shares or debentures shall, subEect as aforesaid, be construed as including a reference to invitations to subscribe for them extended to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner. ,%/ ?o offer or invitation shall be treated as made to the public by virtue of sub>section ,1/ or sub>section ,&/, as the case may be, if the offer or invitation can properly be regarded, in all the circumstances 7 ,a/ as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchased by, persons other than those receiving the offer or invitation@ or ,b/ otherwise as being a domestic concern of the persons making and receiving the order or invitation@ %ro&i"e" that nothing contained in this sub>section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more@ %ro&i"e" furt!er that nothing contained in the first proviso shall apply to the non>banking financial companies or public financial institutions specified in section 6" of the !ompanies "ct ,1 of 1#59/.

Page 193

194 ,%"/ ?otwithstanding anything contained in sub>section ,%/, the )ecurities and *xchange Board of India shall, in consultation with the Reserve Bank of India, by notification in the 3fficial 1aIette, specify the guidelines in respect of offer or invitation made to the public by a public financial institution specified under section 6" or non>banking financial company referred to in clause ,f/ of section 65>I of the Reserve Bank of India "ct, 1#%6 ,& of 1#%6/. ,6/ 4ithout preEudice to the generality of sub>section ,%/, a provision in a companyCs articles prohibiting invitations to the public to subscribe for shares or debentures shall not be taken as prohibiting the making to members or debenture holders of an invitation which can properly be regarded in the manner set forth in that sub>section. ,5/ <he provisions of this "ct relating to private companies shall be construed in accordance with the provisions contained in sub>sections ,1/ to ,6/.. <he aforesaid provision, pointedly brings out the construction of references to an invitation=offer of shares or debentures -to the public.. )ub>section ,1/ of section 9A reproduced above, pertains to an act of -offering. of shares and debentures, whereas, sub>section ,&/ thereof deals with a similar act by way of -invitation.. <he construction of section 9A of the !ompanies "ct, determines, when the -invitation or offer. is to be accepted as having a reference -to the public.. "s a matter of clarification, the aforestated two sub>sections, while accepting the generic meaning of the term -to the public., proposition a special construction for the same whereby a limited=restricted meaning has been extended to the same. )ub>sections ,1/ and ,&/ of section 9A of the !ompanies "ct clearly provide, that an offer or invitation which is limited=restricted to a section of the public, including members or debenture>holders of a company, clients of the company concerned, and even to a class of persons distinguished -by any other means., would nonetheless be deemed to be an invitation=offer, -to the public.. )ection 9A,%/ of the !ompanies "ct provides for an exception to the meaning assigned to the phrase -to the public. ,under sub>sections ,1/ and ,&/ of section 9A aforesaid/. In

Page 194

195 this behalf section 9A,%/ delineates two categories of invitations=offers which would not be treated as invitations=offers, -to the public.. !lause ,a/ of section 9A,%/ mandates, that an offer=invitation which forbids a right of renunciation in favour of others would -not. be treated as an invitation or offer -to the public.. "nd clause ,b/ of section 9A,%/ similarly provides, that an invitation=offer made as a matter of a domestic arrangement, between the persons making and receiving the invitation=offer, would also -not. be considered as an invitation=offer -to the public.. <he first proviso under section 9A,%/ of the !ompanies "ct, limits the instant exceptions, contemplated under clauses ,a/ and ,b/ of section 9A,%/ only to situations where the invitation=offer is made to less than 5' person. *ven though, clauses ,a/ and ,b/ of sub>section ,%/ of section 9A of the !ompanies "ct, are an exception to sub>sections ,1/ and ,&/ of section 9A thereof, yet it must be clearly understood, that a mere fulfillment of the yardstick defining the exception ,under clauses ,a/ and ,b/, aforesaid/ would not bring the issue under reference out of the scope of the term -to the public.. (or that, it is essential to also satisfy the re8uirement of the proviso under section 9A,%/ i.e., the number of subscribers should not exceed 6#. 3nly on the satisfaction of the twin re8uirements,

delineated above, the issue=offer will -not. be treated as having been made -to the public.. A6. 0aving examined the provisions of the !ompanies "ct, it is clear that the

term -private placement. has not been defined therein. In fact the term -private placement. has not been used in the !ompanies "ct. 2resumably, it is coined and conceived at the hands of the appellant>companies, on the basis of the designated meaning of the term in the capital market. "t best, what the

Page 195

196 appellant>companies have referred to as -private placement., can be only that which would be an exception to invitations=offers contemplated under sub> sections ,1/ and ,&/ of section 9A, namely, only such invitations=offers as would be covered by sub>section ,%/ of section 9A of the !ompanies "ct. <he category of persons falling within the scope of sub>section ,%/ of section 9A only, can be treated as falling in sphere of -private placement.. <herefore, at best -private placement. within the meaning of the assertions made on behalf of the appellant> companies, would essentially fall in the two categories expressed in clauses ,a/ and ,b/ of sub>section ,%/ of section 9A of the !ompanies "ct. !learly, since the first proviso under section 9A,%/ limits the upper limit thereunder to less than 5', an invitation=offer by way of -private placement. under the !ompanies "ct, can under no circumstances exceed 6#. "pplying the legal parameters emerging from section 9A of the !ompanies "ct, an endeavour shall now be made, to determine whether the invitation=offer made by )IR*!+ and )0I!+ was by way of -private placement. or by way of an invitation -to the public.. A5. <he appellant>companies have stated, that the invitation=offer of the

3(! s were made to friends, associates, group companies, workers=employees and other individuals associated=affiliated or connected in any manner with the )ahara India 1roup of !ompanies. <his description cannot lead to the inference, that the invitation=offer made by )IR*!+ or )0I!+ had been made as a matter of domestic arrangement between the persons making=receiving the invitation=offer. "s such, the 3(! s in 8uestion do not satisfy the re8uirement under clause ,b/ of section 9A,%/. It is also relevant to notice, that the appellant>companies had invited subscription for their 3(! s through their respective R02s. 3n the

Page 196

197 receipt of subscriptions, the appellant>companies had issued bonds ,named as "bode Bonds, ?irman Bonds and Real *state Bonds, in case of )IR*!+@ and ;ultiple Bonds, Income Bonds and 0ousing Bonds, in case of )0I!+/. <he

R02s issued by the two companies clearly expressed, that the subscribers could transfer the same to any other person, subEect to the terms and conditions and the approval of the concerned company. In sum and substance, therefore, the 3(! s=bonds under reference were transferable, whereas, to satisfy the re8uirement under clause ,a/ of section 9A,%/ the shares=debentures should be non>transferable. !learly, the 3(! s=bonds issued by the appellant>companies did not fall within the scope of clauses ,a/ or ,b/ of section 9A,%/ of the !ompanies "ct. <herefore, per>se the contention of the appellant>companies, that invitation to subscribers to the 3(! s was by way of -private placement. is unacceptable. *ven if for arguments sake, it is assumed that the 3(! s in 8uestion fall in one or the other exempted categories, defined through clauses ,a/ or ,b/ of section 9A,%/, still in so far as the present controversy is concerned, the same would not constitute an exception to sub>sections ,1/ and ,&/ of section 9A of the !ompanies "ct, because the invitation=offer of 3(! s, in the present controversy, was admittedly made to approximately % crore persons ,expressed as %' million persons by the )"< in the impugned order dated 1$.1'.&'11/ and was subscribed to by 99 lakh persons ,mentioned as 9.9 million persons in the )*BI ,(<;/ order dated &%.9.&'11/, in the case of 3(! s issued by the

)IR*!+. "nd it may be presumed, that a similar number had subscribed to the 3(! s issued by )0I!+. In case of both the appellant>companies therefore, the number of subscribers exceeded manifolds, the upper limit of 6#, expressed in

Page 197

198 the first proviso under section 9A,%/ of the !ompanies "ct. !onse8uently, even as a matter of law, it is not possible to find favour with the contention advanced at the behest of the appellant>companies, that the 3(! s issued by the )IR*!+ and )0I!+ were by of -private placement.. It is inevitable therefore, to accept the contention of the )*BI, that the 3(! s issued by the )IR*!+ and )0I!+ were by way of an invitation -to the public.. <he third perspectiveD A9. <he instant issue was examined by the )"< from yet another viewpoint.

)"< expressed the opinion, that the appellant>companies did not disclose in their information memorandum, that the invitation=offer to subscribe to the 3(! s was being issued to % crore persons ,expressed as %' million persons by the )"</, through 1' lakh agents, stationed in more than &#'' branch offices. "nd

therefore, the real intent of the appellant>companies remained unnoticed. <he aforesaid figures, according to the )"<, were by themselves sufficient to conclude, that the appellant>companies had approached the public through an advertisement, i.e., by way of an invitation -to the public., and not on -tap. basis ,i.e., by way of -private placement./ as was being suggested by the appellant> companies. AA. It is necessary to notice, that in order to controvert the factual position

relied upon by the )*BI, the appellant>companies placed reliance on a couple of factual instances, which when clubbed together, according to the learned counsel for the appellant>companies, would lead to the inference, that the 3(! Cs under reference were issued by way of -private placement.. (irstly, reliance was placed on similar actions of )ahara India !ommercial !orporation +imited ,hereinafter

Page 198

199 referred to as )I!!+/, also a member of the )ahara Indian 1roup of !ompanies, having its registered office in 4est Bengal. )I!!+ had also, according to

learned counsel, similarly issued 3(! s in 1##$ by way of -private placement. ,and continued to issue the 3(! s till %'.9.&''$/. )I!!+ an unlisted public company, according to learned counsel, had filed its R02 on &#.9.&''1, indicating that )I!!+ had no intention to list its 3(! s on a recogniIed stock exchange. "ccording to learned counsel, the aforesaid R02, as in the instant case, was duly approved and registered by the concerned Registrar of !ompanies, despite the fact that subscribers exceeded 5' ,total subscribers indicated as 1,#$,%#,#%#/. It was submitted, that in furtherance of the 3(! s

issued by the )I!!+, a subscription sum in excess of Rs.16,1'9 crores was collected. It was then contended, that no action whatsoever was initiated by the )*BI against the )I!!+. It was submitted, that inspite of the fact that the

appellant>companies are similarly situated as )I!!+, they have been picked up arbitrarily, for unfair and discriminatory treatment. )econdly, )IR*!+ filed its special resolution dated %'.%.&''$ with the Registrar of !ompanies, :ttar 2radesh and :ttarkhand. )IR*!+ then filed its R02 on 1%.%.&''$ before the Registrar of !ompanies. In the said R02, )IR*!+ clearly expressed, that it did not intend to list its 3(! s with any recognised stock exchange. In the said R02 it was inter alia stated as underD I>1eneral Information ,a/JJJ.. ,b/JJJ.. ,c/ ?ames of regional stock 4e do not intend the proposed exchange and other stock issue to be listed in any stock exchanges where exchange,s/ application made for listing

Page 199

200 of present issue II 7 !apital structure of the company ,a/JJJ.. ,b/ )iIe of present issue giving separately reservation for preferential allotment to promoters and others.

<he present issue consists of :nsecured 3ptionally (ully !onvertible :nsecured ebentures with option to the holders to convert the same into *8uity )hare of Rs.1' each at a premium of to b e decided at the time of issue e8ual to the face value of the 3ptionally (ully !onvertible :nsecured ebentures to be privately placed aggregating to Rs.HH

(inding no legal infirmity in the aforesaid R02, it was submitted, that the same was duly registered by the Registrar of !ompanies on 1$.%.&''$. It was also pointed out, that )IR*!+ had also circulated an information memorandum on &5.6.&''$, indicating the same position. Based on the aforesaid factual position, it was contended that the appellant>companies having expressed, that they -do not intend the proposed issue to be listed in any stock exchange,s/., it is wholly arbitrary to presume Eust the opposite. Based on the aforesaid se8uence of facts ,and logic/, it was contended, that it was not appropriate to presume against the appellant>companies, something contrary to what the appellant>companies had clearly expressed. A$. "ll that one would state in response to the submissions advanced on

behalf of the appellant>companies ,as have been recorded in the foregoing paragraph/ is, that the appellant>companies are not placing reliance on the actual facts pertaining to the present controversy, but are relying on allied materials to draw inferences. )ince the appellant>companies are custodians of the factual

Page 200

201 material it is imperative to outrightly and straightaway reEect the basis adopted by the appellant>companies to canvass the merits of the instant issue. <he

illustrative reference to )I!!+, would not make any difference to the determination of the present controversy, because the first proviso under section 9A,%/ of the !ompanies "ct was inserted with effect from 1%.1&.&'''. <he

aforesaid proviso introduced the limit of less than 5' subscribers, in case of -private placement., whereas )I!!+ ,according to the appellant>companies own showing/ had commenced its 3(! issue in 1#$$, i.e., well before the aforesaid

proviso, introducing the outer limit of less than 5' persons, came into existence. <he first of the two submissions is therefore clearly unsustainable. In so far as the second contention is concerned, abundance of material was gathered by )*BI to show, that the specifications=conditions=terms indicated in the documents relied upon by the appellant>companies were clearly fallacious and misleading. <herefore, on the basis of the factual position recorded above ,in the opening paragraph, under the third perspective/, there can be no doubt, that )"< was fully Eustified in drawing its conclusions, by taking into consideration the number of persons to whom the invitation=offer to subscribe to the 3(! s was extended, the number of agents associated by the appellant>companies to solicit subscriptions and the number of branch offices established for the purpose. If one were to add to the aforesaid consideration, the number of subscribers and the amount of subscription collected ,all of these numbers have been delineated during the deliberations on the instant issue/, the submissions advanced on behalf of the appellant>companies can be visualiIed as not only unrealistic, but also preposterous.

Page 201

202 4hether the )"< was Eustified in ignoring the factual conclusions drawn by the )*BI ,(<;/ on the basis of the in8uiries made by the Investigating "uthority, on the ground of violation of the rules of natural EusticeR A#. <he issue incorporated in the 8uery posed above, was not canvassed

before us during the course of hearing. )ince the issue aforesaid had been adEudicated upon in favour of the appellant>companies by the )"<, the appellant> companies were not expected to assail the same. )ince no appeal was preferred at the hands of )*BI ,as it had succeeded on other issues before the )"</, it could not even be agitated on behalf of )*BI. uring the course of preparing the

instant Eudgment one had the occasion to ponder over the determination rendered by the )"<, whereby certain factual conclusions drawn by the )*BI ,(<;/ were omitted from consideration by the )"<, on the basis of the determination by the )"<, that the same had been drawn in violation of the rules of natural Eustice. <he )"< held, that the facts ascertained on an in8uiry made by the Investigating "uthority appointed by the )*BI, were liable to be ignored, because the appellant>companies had neither been put to notice, nor their response thereon had been sought. In order to bring out the determination of the )*BI ,(<;/, as also the decision thereon by the )"< ,based on the plea of violation of the rules of natural Eustice/, one paragraph of the order of the )"<, relevant to the issue, is being set out belowD -4e shall now deal with the argument of the learned senior counsel for the appellants that the whole time member violated the principles of natural Eustice. 0e argued that during the course of the proceedings, the whole time member directed the investigating officer to make en8uiries in regard to certain facts and basing himself on his conclusions he found that the issue of 3(! s was a public issue but the findings of the investigating officer had not been furnished to the appellants. It is contended that the

Page 202

203 appellants had no opportunity to counter the findings of the investigating authority. Reference in this regard was made to paras 1A.# and &9.A of the impugned order where the whole time member has placed reliance on the facts collected by the investigating authority behind the back of the appellants. <his is what the whole time member has observed in these paragraphsD -1A.# I note that the Investigating "uthority had, as directed by me, made en8uiries with two of the subscribers ,who are residing in ;umbai/ to such 3(! s made by the companies. <hese investors had stated that their investments in such instruments were made on the basis of the representations made by the local agents ,employed by the companies/ and that they had no connection, whatsoever, with the two companies themselves or to the )ahara India 2arivarJ.. (or the purpose of my own understanding, I had directed the Investigating "uthority to do a snap verification of any four addresses from a randomly selected locality in ;umbai itself ,as the learned counsel had submitted that complete addresses are given in respect of investors in urban areas/. 3ut of four investors, the Investigating team tried to identify, even after strenuous efforts with the 2ost 3ffice, two of them were simply not traceable. "s to the two investors who were identified, both of them invested in the 3(! s, Eust because they were approached by the "gents in their locality. <hey had no prior association with the issuer or the )ahara 1roup. *vidently, on the face of it, the 3(! s are subscribed to, not by persons belonging to the )ahara India 2arivar as claimed, but by the public, and such subscriptions are solicited through the usual marketing efforts that are typically needed to canvass deposit business from the general public. Both of them had hardly any awareness of the convertibility in these instruments.. <here is merit in the contention of the appellants. "s already observed, one of the primary 8uestions that arose before the whole time member was whether the issue of 3(! s was a public issue, or one by way of private placement. <he appellants have been contending throughout that it was a private issue and that they had not approached the public and that the 3(! s were being offered only to their friends, associates, group companies, workers=employees and other individuals associated=affiliated or connected with )ahara 1roup of companies. In order to find out whether this fact was true, the whole time member directed the investigating authority to find out on a random check whether the company had approached members to the public or their own associates as claimed. <he investigating authority appears to have recorded the statements of some persons to whom 3(! s have been offered and concluded that they were not the associates of the company. <he whole time member relied upon these conclusions to hold that the issue was a public issue. 4e agree with the learned senior counsel for the appellants that the whole

Page 203

204 time member could not rely upon the conclusions arrived at by the investigating authority without furnishing his report to the appellants which they were entitled to controvert. 4e are, therefore, satisfied that the principles of natural Eustice to this extent had been violated. 4e are also of the view that this violation by itself will not vitiate the impugned order. Independently of the observations made in paragraph 1A.# and &9.A of the impugned order there is enough material on the record to hold that the issue of 3(! s was a public issue. (rom the affidavit filed on behalf of the company, it is clear that the 3(! s were offered to millions of investors. <his fact by itself makes the issue a public issue and it was not necessary for the whole time member to look into the findings of the investigating officer which were recorded behind the back of the appellants. ;oreover, on the facts of this case, it is a legal issue based upon the interpretation of the provisions of the !ompanies "ct. 4e have ignored the observations made in the two paras of the impugned order while recording our findings in the earlier part of the order that the issue was a public issue. In view of our findings, the observations made in the aforesaid two paragraphs of the impugned order are of no conse8uences.. ,emphasis is mine/ $'. 4hat needs to be kept in mind while applying the rules of natural Eustice is,

that the same are founded on principles of fairness. <wo cardinal principles of fairness are incorporated in the rules of natural Eustice. (irstly, the person

against whom action is contemplated, is liable to be informed of the basis on which the proposed action is to be taken ,i.e., the affected party is re8uired to be put to notice/. "nd secondly, before taking any adverse action, the affected party is liable to be afforded an opportunity to present his defence ,i.e., an opportunity to be heard, under the tenent -audi alterm partem./. $1. <he rules of natural Eustice being founded on principles of fairness can be

available only to a party which has itself been fair, and therefore, deserves to be treated fairly. <he first determination rendered hereinabove ,on the issue

whether the invitation to subscribe to 3(! s by )IR*!+ and )0I!+ were by way of -private placement. or by way of an issue -to the public./, reveals that inspite of best efforts made by )*BI, neither of the two companies furnished the

Page 204

205 information solicited from them. Information was obtained by )*BI directly from ;!">&1 portal maintained by the ;inistry of !orporate "ffairs. "dded to this, )*BI inter alia relied on facts collected through its Investigating "uthority. Based on the aforesaid material )*BI ,(<;/ ventured to determine the controversy before it. 4hether or not the two companies herein, could be permitted to agitate against the factual determination rendered by the )*BI ,(<;/, based on in8uiries made at the behest of the )*BI ,through its Investigating "uthority/, would depend upon their fairness in furnishing the materials sought by )*BI. It is

apparent, that both )IR*!+ and )0I!+, based on one excuse or another, did not provide the factual details sought by the )*BI, though the same were available with them. 3n some occasions, the excuses for not furnishing the information, were outrageously absurd ,as discussed in an earlier part of the order/. 0aving declined to furnish facts sought by )*BI, the )*BI was left with no other alternative but to garner shreds of information from one or the other source. *very time )*BI sought details from the appellant>companies, )*BI was affording the two companies an opportunity to substantiate their claim ,that the invitation to subscribe to 3(! s was by way of -private placement./. In this way several opportunities were afforded to the appellant>companies to substantiate their stance. 0aving gathered information on its own ,based on its own in8uiries, as well as, through its Investigating "uthority/, )*BI arrived at certain factual ;ust the appellant>companies be again called upon for their

conclusions.

comments, before the )*BI can proceed further with the matter, is the important 8uestion. If the material, gathered by the )*BI ,(<;/ must be first provided to the concerned companies, and their responses sought under the rules of natural

Page 205

206 Eustice, would it not amount to putting a premium on their non>cooperative and unfair stanceR o the rules of natural Eustice have any limitationsR 4hether fair

or not, must the concerned party always enEoy the advantage of procedural prescriptions under the rules of natural EusticeR It is in respect of these propositions, that an answer is being attempted. In so far as the present controversy is concerned, opportunities were repeatedly provided by )*BI, to the appellant>companies, but they remained adamant and obstinate. Based on one excuse or the other, they declined to furnish the information sought. 4hat needs to be noticed in the present controversy is, that the appellant>companies did not dispute the factual position ,recorded by the )*BI ,(<;/ from the details furnished by the Investigating "uthority/ before the )"<. <he two companies could have easily done so by providing the details available with them. *ven before the )"<, they did not come out with the correct factual position. <he material sought by )*BI from the two companies, would have constituted a valid basis to decipher and unravel the true factual position. Interestingly, to get over the crisis, emerging from the facts discovered by the Investigating "uthority, the appellant>companies relied on technicalities of law, by canvassing their claim under the rules of natural Eustice. 4hat the appellant>companies overlook is,

that in actuality numerous opportunities were afforded to them to disclose information available with them, but they choose to shun the liberty. <he data available with the appellant>companies was preserved as a closely guarded secret. <hat position has remained unaltered throughout. " person who has repulsed earlier opportunities ,as the appellant>companies have/, has no right to demand any further opportunity under the rules of natural Eustice. <he appellant>

Page 206

207 companies cannot be heard to say, that though they had consciously kept all the facts secret, they should have all the same been given an opportunity under the rules of natural Eustice to disclose the secretsR 3ne would therefore, have no hesitation in concluding, that a party which has not been fair, cannot demand a right based on a rule founded on fairness. Inspite of the aforesaid conclusion, it would be wrong to assume that the appellant>companies were remediless. <hat remedy was, to place the correct factual data, supported by documents in their custody before the adEudicating authorities. <hat would have certainly enabled )"<, in its appellate Eurisdiction, to determine whether the )*BI ,(<;/ was Eustified in drawing the factual inferences. <he )"< was therefore, wholly

unEustified in ignoring the conclusions drawn by the )*BI ,(<;/, on the basis of in8uiries which were got conducted by it, through its Investigating "uthority. <hat is so, specially because there are no allegations of bias, preEudice or malice against either the )*BI or the Investigating "uthority. <o that extent, the order passed by the )"< cannot be legally sustained. $&. "s already noticed hereinabove, the issue being adEudicated under the

instant 8uery, was not canvassed before us during the course of hearing. 3ne shall also not ,Eust like the )"</ take into consideration, the factual conclusions drawn by the )*BI on the basis of in8uiries conducted by its Investigating "uthority, for recording a final determination, in the present controversy. It was only as a matter of placing the contours of the rules of natural Eustice in the right perspective, that the instant determination on the scope of applicability of the rules of natural Eustice has been recorded, in the background of the facts of the present controversy.

Page 207

208 4hether 3(! s issued by )IR*!+ and )0I!+ which are admittedly -hybrids., are securitiesR If not so, whether they would be amenable to the Eurisdiction of the )*BIR <he first perspectiveD $%. <he submissions advanced at the hands of the learned counsel for the

appellant>companies to support their contention, that the )*BI has no Eurisdiction over -hybrids. is rather simple. <o canvass the aforesaid claim, our attention was first invited to the definition of the term -securities. in section &,1/,i/ of the )*BI "ct. <he same is being extracted hereunderD -&,1/ ,i/ -securities. has the meaning assigned to it in section & of the )ecurities !ontracts ,Regulation/ "ct, 1#59.. (or a complete and effective understanding of section &,1/,i/ extracted above, reference is liable to be made to section &,h/ of the )!,R/ "ct. <he same is therefore being reproduced hereunderD -&,h/ -securities. include 7 i/ shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate@ ia/ derivative@ ib/ units or any other instrument issued by any collective investment scheme to the investors in such schemes@ ic/ security receipt as fined in clause ,Ig/ of section & of the )ecuritisation and Reconstruction of (inancial "ssets and *nforcement of )ecurity Interest "ct, &''& O56 of &''&P@ id/ units or any other such instrument issued to the investors under any mutual fund scheme@ L*xplanation. 7 (or the removal of doubts, it is hereby declared that -securities. shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause ,#/ of section & of the Insurance "ct, 1#%$.. ie/ any certificate or instrument ,by whatever name called/, issued to an investor by any issuer being a special purpose distinct

Page 208

209 entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable including mortgage debt, as the case may be@. ii/ 1overnment securities@ iia/ such other instruments as may be declared by the !entral 1overnment to be securities@ and iii/ rights or interests in securities@. " collective perusal of section &,1/,i/ of the )*BI "ct and section &,h/ of the )!,R/ "ct completely and effectively defines the term -securities. for the purpose of the )*BI. $6. "s against the aforesaid, the term -securities. has been defined in section

&,65""/ of the !ompanies "ct ,conse8uent upon an amendment made in &''' with effect from 1%.1&.&'''/. )ection &,65""/ of the !ompanies "ct, is being extracted hereunderD -&,65""/ -securities. means securities as defined in clause ,h/ of section & of the )ecurities !ontracts ,Regulation/ "ct, 1#59 ,6& of 1#59/, and includes hybrids@. <he aforesaid provisions has also necessarily to be read in conEunction with section &,h/ of the )!,R/ "ct. <he only difference in the definition of the term -securities. under the )*BI "ct and the !ompanies "ct is, that whilst the )*BI "ct fully adopts the definition of term -securities. as is contained in section &,h/ of )!,R/ "ct@ the !ompanies "ct while adopting the definition of the term -securities. as in section &,h/ of the )!,R/ "ct, makes an express amendment thereto by adding the words -Jand includes hybrids.. $5. Based on the legal position recorded in the foregoing two paras, it is the

contention of the learned counsel for the appellant>companies, that the definition of the term -securities. under the !ompanies "ct includes -hybrids. ,conse8uent

Page 209

210 upon the amendment made in &'''/, whereas, an identical definition of the term -securities. under the )*BI "ct, does not provide for such inclusion. Based on the aforesaid provisions, it is the submission of the learned counsel for the appellant>companies, that -hybrids. would be treated as -securities. within the meaning of the !ompanies "ct, but cannot be treated as -securities. within the meaning of the )*BI "ct. (ounded on the aforesaid statutory interpretation, it is the contention of the learned counsel for the appellant>companies, that )*BI has no Eurisdiction, either in matters of administration or in matters of regulation, over -hybrids.. It is important to keep in mind, that the aforesaid submission was canvassed to overcome, the contention of )*BI, that it had a clearly defined administrative role on the subEect of -securities. under section 55" of the !ompanies "ct. $9. <he submission advanced at the hands of the learned counsel for the

appellant>companies, as has been noticed in the foregoing paragraphs, was extremely impressive. <he matter was expressed so simply, that it would be

difficult to find any flaw therein. " closer examination of the controversy in hand, however, would persuade one to conclude, that the aforesaid submission is fallacious. It is not a matter of dispute between the rival parties, that conse8uent upon an amendment made in &''' ,with effect from 1%.1&.&'''/ section 55" was added to the !ompanies "ct. <he aforesaid addition demarcated between )*BI on the one hand, and the !entral 1overnment ,as also, the <ribunal and the Registrars of !ompanies/ on the other, spheres of administrative control over -different provisions. and -subEects. of the !ompanies "ct. *ven out of the expressly demarcated provisions assigned to )*BI, the administrative authority

Page 210

211 vested in the )*BI was limited -Jto issue and transfer of securities and non payment of dividendJ.. <hus viewed, the subEect of -securities. and matters connected thereto were, generally to be administered by the )*BI ,after the addition of section 55" to the !ompanies "ct/, whereas, all the remaining provisions on subEects other than -securities. and matters connected thereto, were generally to be administered by the !entral 1overnment ,as also, the <ribunal and the Registrar of !ompanies/. <here can be no doubt, that the

administrative authority of )*BI pertaining to the provisions of !ompanies "ct, could only be determined on the basis of the definitions, as are contained in the !ompanies "ct. )ince the definition of term -securities. contained in section &,65""/ of the !ompanies "ct, expressly includes -hybrids., it is inevitable to conclude, that while interpreting the provisions of !ompanies "ct ,including the administrative role assigned to )*BI under section 55"/, -hybrids. would be treated as a component of the term -securities.. <his is so, because the term -securities. defined in section &,65""/ expressly includes -hybrids.. In the

aforesaid view of the matter, irrespective of whether -hybrids. are included in the term -securities. under the )*BI "ct, while interpreting the provisions of the !ompanies "ct, even with reference to )*BI, -securities. will include -hybrids.. <herefore, the term -securities. in section 55" of the !ompanies "ct, even while being examined with reference to the administrative powers assigned to )*BI thereunder, would include -hybrids.. <he aforesaid conclusion constitutes a clear answer to the 8uery posed above, with reference to section 55" of the !ompanies "ct. <he second perspectiveD

Page 211

212 $A. "n attempt shall now be made to determine whether -hybrids. can also be

included in the definition of the term -securities. for the purposes of the )*BI "ct. (or the aforesaid analysis reference may first be made to section &,1#"/ of the !ompanies "ct which is being extracted hereunderD -&,1#"/ -hybrid. means any security which has the character of more than one type of security, including their derivatives@. <he term -hybrid. is not defined under the )*BI "ct, and conse8uently it may be appropriate to accept the same, as it has been defined in the !ompanies "ct, specially with reference to an issue arising in respect of a public company. 3fcourse, it would not have been apt to rely on section &,1#"/ of the !ompanies "ct, if the term -hybrid. had also been defined in the )*BI "ct or had even been defined in the )!,R/ "ct on the epositories "ct, 1##9, because section &,&/ of

the )*BI "ct postulates, that words and expressions used but not defined under the )*BI "ct, but defined in the )!,R/ "ct or in the epositories "ct, 1##9 would

be attributed the meaning given to them in the said "cts. But the term -hybrid. has also not been defined in either of the aforesaid enactments. <he term

-hybrid. as defined in the !ompanies "ct means -any security. having -the character of more than one type of security. and -includes their derivatives.. (or the purposes of the )*BI "ct, the term -securities. is accepted as it is defined in section &,h/ of the )!,R/ "ct. )ection &,h/ of the )!,R/ "ct does not define the term -securities. exhaustively, because clauses ,i/ to ,iia/ thereof, only demonstrate what may be treated as included in the definition of the term -securities.. "nd, clause ,i/ of section &,h/ of the )!,R/ "ct, includes within the definition of the term -securities. inter alia, -bonds., -debentures. and -other

Page 212

213 marketable securities of a like nature.. (or the present controversy it is sufficient to notice, that the appellant>companies through their respective R02s had invited subscription to, 3ptionally (ully !onvertible - ebentures. ,3(! s/. 3n receipt of subscription amounts from investors, the appellant>companies had issued different kinds of -bonds. ,described as "bode Bonds, ?irman Bonds and Real *state Bonds, by )IR*!+@ and ;ultiple Bonds, Income Bonds and 0ousing Bonds, by )0I!+/. )ince the term -hybrid. has been expressed as -Jmeans any securityJ. there can be no doubt that a -hybrid. is per>se a security. ;oreover, the term -security. in its definition includes -Jother marketable securities of a like natureJ.. <herefore, even if for one or the other reason, the 3(! s issued by the appellant>companies may not strictly fall within the terms -debentures. or -bonds. ,referred to in the definition of the term -securities./ they would nonetheless fall within the ambit of the expression -securities of a like nature.. (or this, the reasons are as follows. <he definition of the term -hybrid. also explains that a -hybrid. has the character of more than one kind of -security. or their -derivatives.. <he term -securities. also includes -derivatives.. <herefore, even if the definition of the term -hybrid. is construed strictly, it would fall in the realm of -securities of a like nature.. "nd if, -securities of a like nature. are -marketable., they would clearly fall within the expanse of the term -securities. defined in section &,h/ of the )!,R/ "ct ,and therefore also, section &,1/,i/ of the )*BI "ct/. <he 3(! s=bonds issued by appellant>companies were also clearly marketable, because the R02s issued by the two companies provided, that the subscribers would be at liberty to transfer the 3(! s=bonds, to any other person. "lthough, the transfer of 3(! s=bonds was to be subEect to the terms and

Page 213

214 conditions prescribed, and the approval of the appellant>companies. In the

absence of any prescribed terms and conditions barring transfer, the 3(! s=bonds were clearly transferable, and therefore, -marketable.. <he term -marketable. simply means, that which is capable of being sold. "llowing the liberty to subscribers to transfer the 3(! s=bonds made them -marketable.. <here is therefore, no room for any doubt, that the term -hybrid., as defined in the !ompanies "ct, would s8uarely fall within the term -securities. as defined under section &,1/ ,i/ of the )*BI "ct ,i.e., )ection &,h/ of the )!,R/ "ct/. $$. In view of the above it is clear, that -hybrids. are included within the term

-securities. not only for the purposes of !ompanies "ct, but also, under the )*BI "ct. )*BI therefore, would have Eurisdiction even over -hybrids., even under the provisions of the )*BI "ct.

4hether it is optional for a public company, intending to offer shares or debentures to the public, to have the same listed on a recogniIed stock exchange ,as is claimed by the appellant>companies/ or is it mandatory ,as is being asserted by the )*BI/R $#. "ccording to the learned counsel for the appellant>companies, it was not

imperative for either the )IR*!+ or )0I!+ to make an offer of the 3(! s through one or more recogniIed stock exchange,s/. <his has been the firm

position adopted by the appellant>companies, before the )*BI, the )"< and even before us. "ccording to learned counsel, even before the opening of the offer, in furtherance of the R02s issued by the two companies, they had made their position clear by expressing, that they did not intend to be listed on any

Page 214

215 recogniIed stock exchange,s/. <he aforesaid position expressed by the two

companies in their respective R02s, was accepted and approved by the respective Registrars of !ompanies. "ccording to learned counsel, registration of the aforesaid R02s itself implies the fulfillment of all legal norms and formalities. #'. In so far as the instant aspect of the matter is concerned, learned counsel

for the appellant>companies also placed reliance on section 9'B of the !ompanies "ct, which is reproduced hereunderD -9'B. Information 'emoran"um ,1/ " public company making an issue of securities may circulate information memorandum to the public prior to filing of a prospectus. ,&/ " company inviting subscription by an information memorandum shall be bound to file a prospectus prior to the opening of the subscription lists and the offer as a red>herring prospectus, at least three days before the opening of the offer. ,%/ <he information memorandum and red herring prospectus shall carry same obligations as are applicable in the case of a prospectus. ,6/ "ny variation between the information memorandum and the red> herring prospectus shall be highlighted as a variations by the issuing company. Explanation. 7 (or the purposes of sub>sections ,&/, ,%/ and ,6/, -red> herring prospectus. means a prospectus which does not have any complete particulars on the price of the securities offered and the 8uantum of securities offered. ,5/ *very variation as made and highlighted in accordance with sub> section ,6/ above shall be individually intimated to the persons invited to subscribe to the issue of securities. ,9/ In the event of the issuing company or the underwriters to the issue have invited or received advance subscription by way of cash or post> dated che8ues or stock>invest, the company or such underwriters or bankers to the issue shall not encash such subscription moneys or post> dated che8ues or stock>invest before the date of opening of the issue, without having individually intimated the prospective subscribers of the variation and without having offered an opportunity to such prospective subscribers to withdraw their application and cancel their post>dated che8ues or stock>invest or return of subscription paid. ,A/ <he applicant or proposed subscriber shall exercise his right to withdraw from the application on any intimation of variation within seven days from the date of such intimation and shall indicate such withdrawal in

Page 215

216 writing to the company and the underwriters. ,$/ "ny application for subscription which is acted upon by the company or underwriters or bankers to the issue without having given enough information of any variations, or the particulars of withdrawing the offer or opportunity for canceling the post>dated che8ues or stock>invest or stop payments for such payments shall be void and the applicants shall be entitled to receive a refund or return of its post>dated che8ues or stock> invest or subscription moneys or cancellation of its application, as if the said application had never been made and the applicants are entitled to receive back their original application and interest at the rate of fifteen per cent from the date of encashment till payment of realiIation. ,#/ :pon the closing of the offer of securities, a final prospectus stating therein the total capital raised, whether by way of debt or share capital and the closing price of the securities and any other details as were not complete in the red>herring prospectus shall be filed in a case of a listed public company with the )ecurities and *xchange Board and Registrar, and in any other case with the Registrar only.. It was submitted that section 9'B is applicable to listed public companies, as well as, to unlisted public companies. It was pointed out, that the only obligation contemplated under section 9'B, which distinguishes listed public companies from unlisted public companies, is provided for under sub>section ,#/, thereof. "ccording to the learned counsel for the appellant>companies, the process of issue of securities by a public company, can be initiated by circulation of an -information memorandum. to the public. <he procedure contemplated under

section 9'B aforementioned, contemplates the issuance of a R02, and thereafter a final prospectus. "t the time of submission of the -final prospectus., in terms of sub>section ,#/ of section 9'B of the !ompanies "ct, different authorities are contemplated before whom the final prospectus has to be submitted. (or listed public companies the final prospectus has to be filed with the )*BI, whereas in all other cases, the final prospectus is to be filed with the concerned Registrar of !ompanies. "ccording to the learned counsel for the appellant>companies, both the companies abided by procedure contemplated under section 9'B of the

Page 216

217 !ompanies "ct. It was submitted, that since neither of the two companies were listed on a recogniIed stock exchange, their R02s were submitted by )IR*!+, as also, )0I!+ to the Registrar of !ompanies. It was also asserted that neither of the companies could be faulted for having made any false or incorrect disclosure, or for having not complied with the procedure prescribed in section 9'B of the !ompanies "ct. )ince both the companies categorically adopted the stance, that they did not intend to be listed on any recogniIed stock exchange,s/, according to learned counsel, there was no express or implied re8uirement for the appellant>companies, to approach the )*BI, in respect of the issue in hand. It was also submitted, that the registration of the respective R02s issued by the two companies, by the respective Registrars of !ompanies, substantiates due compliance of the prescribed procedure. It was also contended, that having

chosen to remain unlisted, the appellant>companies even during the course of proceedings before the )*BI and )"< respectively, were not accused of having contravened any of the substantive or procedural re8uirements of section 9'B of the !ompanies "ct. It is therefore sought to be canvassed, that the appellant> companies having chosen the section 9'B option, could not be

compelled=persuaded to have their 3(! s listed in one or more recogniIed stock exchange,s/. #1. In order to counter the contentions advanced at the hands of the learned

counsel for the appellant>companies, reliance on behalf of the )*BI was placed on section A% of the !ompanies "ct. extracted hereunderD -A%. Allotment of s!ares an" "e#entures to #e "ealt in on stoc( )ection A% aforementioned, is being

Page 217

218 exc!an e)* 1. *very company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recogniIed stock exchange for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange. 4here a prospectus, whether issued generally or not, states that an application under sub>section ,1/ has been made for permission for the shares or debentures offered thereby to be dealt in one or more recogniIed stock exchanges, such prospectus shall state the names of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void if the permission has not been granted by the stock exchange or each such stock exchange as the case may be, before the expiry of ten weeks from the date of the closing of the subscription listsD 2rovided that where an appeal against the decision of any recogniIed stock exchange refusing permission for the shares or debentures to be dealt in on that stock exchange has been preferred under section && of the )ecurities !ontracts ,Regulation/ "ct, 1#59 ,6& of 1#59/, such allotment shall not be void until the dismissal of the appeal. &. 4here the permission has not been applied under sub>section ,1/ or such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be Eointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money. 4here permission has been granted by the recogniIed stock exchange or stock exchanges for dealing in any shares or debentures in such stock exchange or each such stock exchange and the moneys received from applicants for shares or debentures are in excess of the aggregate of the application moneys relating to the shares or debentures in respect of which allotments have been made, the company shall repay the moneys to the extent of such

1"

&".

Page 218

219 excess forthwith without interest, and if such money is not repaid within eight days, from the day the company becomes liable to pay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be Eointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent as may be prescribed, having regard to the length of the period of delay in making the repayment of such money. &B. If default is made in complying with the provisions of sub>section ,&"/, the company and every officer of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees, and where repayment is not made within six months from the expiry of the eighth day, also with imprisonment for a term which may extend to one year. "ll moneys received as aforesaid shall be kept in a separate bank account maintained with a )cheduled Bank until the permission has seen granted, or where an appeal has been preferred against the refusal to grant such permission, until the disposal of the appeal, and the money standing in such separate account shall where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub>section ,&/@ and if default is made in complying with this sub> section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees. ;oneys standing to the credit of the separate bank account referred to in sub>section ,%/ shall not be utiliIed for any purpose other than the following purposes namelyDU ,a/ adEustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus@ or repayment of moneys received from applicants in pursuance of the prospectus, where shares have not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allotment of share.

%.

%".

,b/

6.

"ny condition purporting to re8uire or bind any applicant for shares or debentures to waive compliance with any of the re8uirements of this section shall be void.

Page 219

220 5. (or the purposes of this section, it shall be deemed that permission has not been granted if the application for permission, where made, has not been disposed of within the time specified in sub>section ,1/. <his section shall have effectU ,a/ in relation to any shares or debentures agreed to be taken by a person underwriting an offer thereof by a prospectus, as if he had applied therefor in pursuance of the prospectus@ and in relation to a prospectus offering shares for sale, with the following modifications, namelyDU ,i/ ,ii/ references to sale shall be substituted for references to allotment@ the persons by whom the offer is made, and not the company, shall be liable under sub>section ,&/ to repay money received from applicants, and references to the companyCs liability under that sub>section shall be construed accordingly@ and for the reference in sub>section ,%/ to the company and every officer of the company who is in default, there shall be substituted a reference to any person by or through whom the offer is made and who is knowingly guilty of, or willfully authoriIes or permits, the default.

9.

,b/

,iii/

A.

?o prospectus shall start that application has been made for permission for the shares or debentures offered thereby to be dealt in on any stock exchange, unless it is a recogniIed stock exchange..

"ccording to the learned counsel presenting )*BI, a perusal of sub>section ,1/ of section A% reveals, that a company intending to offer shares=debentures -to the public. by issue of a prospectus, must apply to one or more recogniIed stock exchange,s/ for permission, that its shares or debentures be dealt with by such recogniIed stock exchange,s/. 4ith reference to the term -prospectus. depicted in sub>section ,1/ of section A% of the companies "ct, our attention was invited to sub>sections ,&/ and ,%/ of section 9'B of the !ompanies "ct, which re8uires a

Page 220

221 company inviting subscription by way of an -information memorandum. to file a -prospectus. prior to the opening of the subscription lists and the offer as a R02, at least three days before the opening of the offer. )ub>section ,%/ of section 9'B of the !ompanies "ct leaves no room for any doubt, that an -information memorandum. and an R02 are to carry the same obligations as are applicable in the case of a -prospectus. under the !ompanies "ct. "ccordingly, the position adopted by the )*BI was, that the appellant>companies having circulated an -information memorandum. and having expressly issued their respective R02s, must be deemed to have accepted the obligation imposed by sub>section ,%/ of section 9'B of the !ompanies "ct, namely, the -information memorandum. and the R02 would carry the same obligations as are applicable in the case of a -prospectus.. )ub>sections ,6/ to ,$/ of section 9'B of the !ompanies "ct,

according to the learned counsel for the )*BI, allows an investor to withdraw any deposits made, if the position disclosed in the -information memorandum. or the R02 is varied in any manner. In case an investor exercises the said option because of any such variation, it was submitted, the deposits received from such investor, must mandatorily be returned with interest at the rate of 15S. ?ot only that, according to the )*BI, even if an application made by a public company to one or more recogniIed stock exchanges, for permission to be dealt with through one or more recogniIed stock exchange,s/ is eventually not accepted by any recogniIed stock exchange, the concerned public company must forthwith repay the deposits received. If the concerned company fails to refund the amount

within the stipulated time, it is also obliged to pay interest for delayed payments. +earned counsel for the )*BI also placed reliance on section A% of the )*BI "ct,

Page 221

222 to contend, that in case a public company wishes to make an offer of debentures -to the public., it can do so only through one or more recogniIed stock exchange,s/. "nd therefore, according to learned counsel, it is mandatory for a public company, intending to offer debenture -to the public., to have the same listed in one or more recogniIed stock exchange,s/. #&. 3n having given a thoughtful consideration to the submissions advanced

at the hands of the rival parties, it needs to be clarified, that section 9'B ,relied on by the appellant>companies/ and section A% of the !ompanies ,relied upon by )*BI/ have to be read harmoniously. <his is so, because the !ompanies "ct does not postulate and overriding effect of one over the other. <he contentions advanced on behalf of the rival parties will have to be examined in a manner, that the purpose and meaning assigned by the legislature to both provisions, is not lost. #%. )ection 9'B has been provided with heading -information memorandum..

<he term -information memorandum. stands defined in section &,1#B/ of the !ompanies "ct as underD -&,1#B/ -information memorandum. means a process undertaking prior to the filing of a prospectus by which a demand for the securities proposed to be issued by a company is elicited, and the price and the terms of issue for such securities is assessed, by means of a notice, circular, advertisement or document@. In terms of the aforesaid definition, an -information memorandum. is a means=process adopted by a company, to elicit a demand for the securities proposed to be issued, as also, to determine the price at which they could be offered. )tated differently, through an -information memorandum. a company

assesses a demand for the proposed securities in the market, and the price

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223 which the public would be willing to offer for the same. <his response solicited from the public presupposes, that the securities are to be collected by way of an offer -to the public.. )uch an offer in terms of section 9'B is made either through a -prospectus. or a R02. #6. It is also necessary to lay down the import of sub>section ,&/ of section 9'B

of the !ompanies "ct, in so far as the present controversy is concerned. It is with the use of the words -shall be bound. that sub>section ,&/ aforesaid, re8uires every public company which has issued an -information memorandum. to follow it up with a -prospectus.=R02. In other words, after issuing an -information

memorandum. the concerned public company is commanded to issue a prospectus=R02. " -prospectus. or the R02, depicts the terms and conditions of the offer. <he binding effect thereof has been noticed in the submissions

advanced on behalf of the )*BI which I hereby accept, as the true import of section 9'B of the !ompanies "ct. "ny alteration in the terms and conditions depicted in the -prospectus. or R02 entitles the applicant=investor to withdraw the entire amount deposited. <he depositor is also is entitled to a refund of the entire amount along with interest. #5. <he situation emerges thus. <he appellant>companies are admittedly

public companies. 0aving issued an -information memorandum. it was binding on them to issue a prospectus=R02. Both companies have actually issued R02s. <he purpose whereof was to invite subscriptions to their 3(! s. It has already been concluded above, that the appellant>companies invited subscriptions, by making an offer -to the public.. )ince the invitation=offer was made -to the

public., the same could only have been through one or more recogniIed stock

Page 223

224 exchange,s/. 3nce a public company adopts that course, which is actually a mandate of law emerging from section A% of the !ompanies "ct, the concerned companies portfolio changes that to a -listed. public company. )o listing in the present controversy was an inevitable conse8uence of inviting subscriptions from the public. <here can therefore be no hesitation to conclude, that the procedure contemplated in section A% of the !ompanies "ct, whenever a public company wishes to issue debentures -to the public., is not optional but mandatory. <he result of the present deliberations based on a collective reading of section 9'B and section A% of the !ompanies "ct is, that a public company making an invitation=offer -to the public. can do so only by a process of listing in one or more recogniIed stock exchange,s/. <he aforesaid mandate of law is imperative and cannot be relaxed at the discretion of the concerned public company. #9. 0aving recorded the aforesaid conclusion, it is also essential to notice,

that the aforesaid determination has a bearing on the 8uery being dealt with immediately hereinafter. <hat is so, because learned counsel representing the rival parties are agreed, that the re8uirement of -listing. automatically brings in the Eurisdiction of the )*BI, as it transforms a -public company. into a -listed public company.. 4hether )*BI had the Eurisdiction to regulate the 3(! s issued by )IR*!+ and )0I!+ ,as is the case of the )*BI/, or is it that )*BI has no Eurisdiction over the 3(! s issued by the two companies ,as is the case of appellant>companies/R <he first perspective #A. It is the vehement contention of the learned counsel for the appellant>

Page 224

225 companies that the Eurisdiction of )*BI is limited to administration of listed public companies, as also such public companies which -intend. to get their securities listed on a recogniIed stock exchange. ?ot only that, administration of )*BI over such companies, it is contended, is also limited to the subEect of -issue and transfer of securities and non payment of dividend.. (or a complete and effective understanding of the submission advanced at the hands of the learned counsel for the appellant>companies, section 55" of the !ompanies "ct is set out belowD -55". %o+ers of Securities an" Exc!an e ,oar" of In"ia 7 <he provisions contained in )ections 55 to 5$, 5# to $1 ,including sections &'9, &'9" and &'A, so far as they relate to issue and transfer of securities and non>payment of dividend shall, >> ,a/ in case of listed companies@ ,b/ in case of those public companies which intend to get their securities listed on any recogniIed stock exchange in India, be administered by the )ecurities and *xchange Board of India@ and ,c/ in any other case, be administered by the !entral 1overnment. Explanation 7 (or the removal of doubts, it is hereby declared that all powers relating to all other matters including the matters relating to prospectus, statement in lieu of prospectus, return of allotment, issue of shares and redemption of irredeemable preference shares shall be exercised by the !entral 1overnment, <ribunal or the Registrar of !ompanies, as the case may be.. "ccording to the learned counsel for the appellant>companies, it is not a matter of dispute that )IR*!+ and )0I!+ are not -listed. companies. <herefore,

according to the learned counsel, clause ,a/ of section 55" of the !ompanies "ct cannot be invoked to determine the Eurisdiction of the )*BI. "ccording to

learned counsel, )*BI may possibly Eustify its Eurisdiction through the route of clause ,b/ of section 55" by asserting, that )IR*!+ as also )0I!+ -intended. to have their 3(! s listed on a recogniIed stock exchange. In so far as clause ,b/ of section 55" of the !ompanies "ct is concerned, it has been the emphatic and repeated contention of the learned counsel for the appellant>companies, that the

Page 225

226 appellant>companies made it clear in writing, not only in their respective R02s, but also whenever called upon, that they did not -intend. to be listed on any recogniIed stock exchange. It was pointed out, that this factual position was officially affirmed when the respective Registrars of !ompanies registered their R02s. <herefore, the vehement submission before us also has been, that it is futile to assume to the contrary, what the appellant>companies have repeatedly expressed in writing. <hus viewed, the contention of the learned counsel for the appellant>companies was, that )*BI had no Eurisdiction to administer the affairs of the appellant>companies even in matters relating to -issue and transfer of securities and non payment of dividends.. #$. 3n a thoughtful consideration to the submissions advanced on behalf of

the appellant>companies on the subEect of Eurisdiction, based on the interpretation of section 55" of the !ompanies "ct, it emerges that clause ,b/ of section 55" of the !ompanies "ct uses the term -intend.. "nd what is -intended. is a matter of the mind. <herefore, unless actions speak for themselves, no presumption can be drawn on the -intent. of a party. -Intent. as one commonly understands is something aimed at or wished as a goal@ it is something that one resolves to do@ it is a will to achieve as an end@ it is a direction as oneCs course@ it is planning towards something to be brought about@ it is something that an individual fixes the mind upon@ it is a design for a particular purpose. 4hen a party expresses its design repeatedly in writing, as it is the case of the appellant>companies, no contrary assumption should normally be drawn. But then, there is also one

simple fundamental of law, i.e. that no>one can be presumed or deemed to be intending something, which is contrary to law. 3bviously therefore, -intent. has its

Page 226

227 limitations also, confining it within the confines of lawfulness. It has already been concluded above, that )IR*!+ and )0I!+ had not invited subscriptions to their respective 3(! s by -private placement.. It has been held, not only inferentially, but also as a matter of law ,on an interpretation of section 9A of the !ompanies "ct/, as also, as a matter of fact, that the )IR*!+ and )0I!+ had called for subscription to their respective 3(! s by way of an invitation -to the public.. It has also been deduced ,by relying on sections 9A and A% of the !ompanies "ct/ above, that an invitation for subscription from the public, could have been made only by way of listing, through one or more recogniIed stock exchange,s/. It has also been concluded, that the purpose sought to be achieved by the two companies ,relying on section 9'B of the !ompanies "ct/ by merely complying with the re8uirements of the procedure contemplated in section 9'B of the !ompanies "ct, is not acceptable in law, as section 9'B is not a stand alone provision. )ection 9'B of the !ompanies "ct has to be harmoniously read along with other provisions of the !ompanies "ct ,as for instance section 9A/. <he appellant>companies must be deemed to have -intended. to get their securities listed on a recogniIed stock exchange, because they could only then be considered to have proceeded legally. <hat being the mandate of law, it cannot be presumed that the appellant>companies could have -intended., what was contrary to the mandatory re8uirement of law. It may be reiterated, that learned counsel representing the rival parties agreed, while advancing their submissions on the preceding issue, that if it came to be concluded by this !ourt that -listing. with a recogniIed stock exchange was a mandatory re8uirement for the appellant>companies ,for inviting subscription to their 3(! s/, it would

Page 227

228 automatically bring in the Eurisdiction of the )*BI. <here can therefore, be no hesitation in concluding, that inspite of the observations recorded by the appellant>companies in writing, including in the R02s issued by them, as also the registration of the said R02s by the respective Registrars of !ompanies, the said companies must be deemed to satisfy the re8uirements of clause ,b/ of section 55" of the !ompanies "ct. <he obvious conse8uence thereof would be, that the power of administration in the present set of circumstances lies in the hands of the )*BI. ##. It would be relevant to notice, for the benefit of the learned counsel

representing the appellant>companies, that certain ancillary submissions were also advanced on the basis of section 55" of the !ompanies "ct. "s for

instance, a reference was made to the sections specifically incorporated in section 55" of the !ompanies "ct. It was submitted, that )*BI could have

Eurisdiction only on matters arising out of provisions expressly mentioned in the said section, and under no other provision of the !ompanies "ct. It was

canvassed, that provision which were relied upon by the appellant>companies to canvass their claims before us, particularly section 9'B, does not fall within the administrative control of )*BI, as the same is not expressly mentioned therein. <o advance the aforesaid contention, learned counsel placed reliance on the provisions placed within brackets in section 55" of the !ompanies "ct, namely, -,including sections 99", AA" and $'"/.. It was contended, that since section 9'B was not expressly included along with other provisions, noticed in the brackets, it would be natural to infer that the )*BI would have no role over issues arising out of section 9'B of the !ompanies "ct. It is not necessary to record any

Page 228

229 express finding on the aforesaid submission, advanced at the hands of the learned counsel for the appellant>companies, since independently of section 55" of the !ompanies "ct, it has already been concluded hereinabove, that the )*BI would have Eurisdiction over matters emerging out of section 9'B in view of the express and clear depiction in sub>section ,#/ of section 9'B itself, specially in a situation as the one presented in the present case, wherein subscription towards the 3(! s under reference could only have been legal, if it was sought through a process of listing, in one or more recogniIed stock exchange,s/. It is therefore, that one feels, that the other submissions advanced at the hands of the learned counsel for the appellant>companies by placing reliance on section 55" of the !ompanies "ct, do not arise for adEudication, in the present controversy. <he second perspective 1''. It is not possible for one to lose sight of the fact, that the )"< in the

impugned order dated 1$.1'.&'11 had recorded its conclusions on Eurisdiction without even placing reliance on the provisions of the !ompanies "ct. "ccording to the )"<, under sections 11, 11", 11B etc., of the )*BI "ct, )*BI has the power of regulating all kinds of companies dealing with securities. <he aforesaid determination at the hands of )"<, was not assailed by the appellant>companies during the course of hearing. Be that as it may, it is essential to independently examine the issue, so as to determine the authenticity of the conclusion drawn by the )"<, hereinafter. 1'1. <he )ecurities and *xchange Board of India ,)*BI/ was established in

1#$$ by way of a 1overnment resolution to promote orderly and healthy growth of the securities market and for investorsC protection. 3n account of tremendous

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230 growth of the capital market characteriIed particularly by increasing participation of the public, to sustain confidence in the capital market it was considered essential to ensure investorsC protection. "ccordingly, it was decided to vest

)*BI with statutory powers, so as to enable it to deal effectively with all matters relating to the capital market. In the first instance, as 2arliament was not in session, keeping in view the urgency of the matter, the 2resident promulgated the )ecurities and *xchange Board of India 3rdinance, 1##& on %'.1.1##&. <he same was substituted by the )ecurities and *xchange Board of India "ct, 1##& and the )ecurities !ontracts ,Regulation/ "ct, 1#59. "fter the aforesaid

legislative enactments remained in force for a few years, experience revealed, a need to amend the original enactments in respect of certain categories of intermediaries, persons associates with the securities markets and companies@ on matters relating to issue of capital and transfer of securities. <he original )*BI "ct was accordingly amended in 1##5. " relevant extract of the statement of obEects and reasons recorded for the aforesaid amendment is being extracted hereunderD -xxx xxx xxx &. 3n the basis of past experience of the Board, a need has been felt to amend the said "cts in respect of certain categories of intermediaries, persons associated with the securities market and companies on matters relating to the issue of capital and the transfer of securities. %. In order to enable the Board to function more effectively, it has become essential to amend the aforesaid "cts to provide, inter alia, the following 7 ,a/ regulate the companies on matters relating to issue of capital, transfer of securities and other matters incidental thereto@ ,b/ bring intermediaries like depositories, custodians for securities and some other categories of persons associated with the securities market like foreign institutional investors, credit rating

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231 agencies and venture capital funds which play a maEor role in the development of the capital market which were outside the purview of the Board@ ,c/ impose monetary penalties also in addition to or other than penalties of suspension or cancellation of certificate of registration which may not be appropriate in all case of default@ ,d/ provide for appointment of adEudicating officer for imposition of penalties and for establishment of )ecurities "ppellate <ribunal to hear appeals from the orders or decisions of adEudicating officer@ ,e/ issue regulations without the approval of the !entral 1overnment@ ,f/ allow directors of companies to be appointed as members of the Board so that the Board benefits from the expertise of people familiar with the capital market@ ,g/ facilitate the issuance and trading of options in securities@ ,h/ allow the existing stock exchanges to establish additional trading floors outside their area of operation@ ,i/ make violation of the listing agreement as an offence. xxx xxxx xxxx.. <he )*BI "ct was again amended in 1###, but in so far as the present controversy is concerned, the amendment of the )*BI "ct in &''& is of utmost relevance. <he relevant part of the statement of obEects and reasons of the

amendment of the )*BI "ct in &''& is being reproduced belowD -xxx &. xxxxx xxx Recently many shortcomings in the legal provisions of the )ecurities and *xchange Board of India "ct, 1##& have been noticed, particularly with respect to inspection, investigation and enforcement. !urrently, the )*BI can call for information, undertake inspections, conduct en8uiries and audits of stock exchanges, mutual funds, intermediaries, issue directions, initiate prosecution, order suspension or cancellation of registration. 2enalties can also be imposed in case of violation of the provisions of the "ct or the rules or the regulations. 0owever, the )*BI has no Eurisdiction to prohibit issue of securities or preventing siphoning of funds or assets stripping by any company. 4hile the )*BI can call for information from intermediaries, it cannot call for information from any bank and other authority or board or corporation established or constituted by or under any !entral, )tate or 2rovincial "ct. <he )*BI cannot retain books of accounts, documents, etc., in its custody. :nder the existing provisions contained in the )ecurities and *xchange Board of India "ct, 1##&, the )*BI cannot issue commissions for the examination of

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232 witnesses or documents. (urther, the )*BI has pointed out that existing penalties are too low and do not serve as effective deterrents. "t present, under section &'#>" of the !ompanies "ct, 1#59, the )*BI can conduct inspection of listed companies only for violations of the provisions contained in sections referred to in section 55>" of that "ct but it cannot conduct inspection of any listed public company for violation of the )*BI "ct or rules or regulations made thereunder. %. In addition, growing importance of the securities markets in the economy has placed new demands upon the )*BI in terms of organiIation structure and institutional capacity. " need was therefore felt to remove these shortcomings by strengthening the mechanisms available to the )*BI for investigation and enforcement so that it is better e8uipped to investigate and enforce against market malpractices. In view of the above, the )ecurities and *xchange Board of India ,"mendment/ 3rdinance, &''& ,9 of &''&/ was promulgated on the &#th 3ctober, &''& to amend the )ecurities and *xchange Board of India "ct, 1##&. It is now proposed to replace the 3rdinance by a Bill, with, inter alia, the following features> ,a/ ,b/ increasing the number of members of the )*BI from six ,including !hairman/ to nine ,including !hairman/@ conferring power upon the Board, for,> ,i/ calling for information and record from any bank or other authority or Board or corporation established or constituted by or under any !entral, )tate or 2rovincial "ct in respect of any transaction in securities which are under investigation or in8uiry by the Board@ passing an order for reasons to be recorded in writing, in the interest of investors or securities market, either pending investigation or en8uiry or on completion of such investigation or in8uiry for taking any of the following measures, namely, to> ,"/ ,B/ suspend the trading of any security in a recogniIed stock exchange@ restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities@

6.

5.

,ii/

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233 ,!/ , / ,*/ suspend any office>bearer of any stock exchange or self>regulatory organiIation from holding such position@ impound and retain the proceeds or securities in respect of any transaction which is under investigation@ attach, after passing of an order on an application made for approval by the Judicial ;agistrate of the first class having Eurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this "ct, or the rules or the regulations made thereunder@ direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation@

,(/

,iii/ ,iv/

,v/

regulating or prohibiting for the protection of investors, issue of prospectus, offer document or advertisement soliciting money for issue of securities@ directing any person to investigate the affairs of intermediary or person associated with the securities market and to search and seiIe books, registers, other documents and records considered necessary for the purposes of the investigation, with the prior approval of a ;agistrate of the first class. passing an order re8uiring any person who has violated or is likely to violate, any provision of the )*BI "ct or any rules or regulations made thereunder to cease and desist for committing any causing such violation@

,c/

,d/ ,e/ ,f/ ,g/

prohibiting manipulative and deceptive devices, insider trading, fraudulent and manipulative trade practices, market manipulation and substantial ac8uisition of securities and control@ crediting sums realiIed by way of penalties to the !onsolidated (und of India@ amending the composition of the )ecurities "ppellate <ribunal from one person to three persons@ changing the 8ualifications for appointment as 2residing 3fficer and members of the )ecurities "ppellate <ribunal@ composition of certain offences by the )ecurities "ppellate

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234 ,h/ ,i/ ,E/ <ribunal@ conferring power upon the !entral 1overnment to grant immunity@ appeal to the )upreme !ourt from the orders of the )ecurities "ppellate <ribunal@ enhancing the penalties specified in the )*BI "ct..

It is not necessary to delineate individually the amendments made from time to time. )uffice it to state that besides amendments to the existing provisions.

sections 11"", 11"B, 11! and 11B came to be added into !hapter IB of the )*BI "ct. 2rovisions contained in !hapter IB deal with the powers and functions of the Board. It is essential to refer to some of the relevant amended provisions, for the determination of the issue in hand. <he said reference shall be limited to the extent of powers vested in the )*BI, to carry out its primary functions i.e., investorsC protection and promotion of development and regulation of the securities market. 1'&. )ection 11 which is the heart and soul of the )*BI "ct is being extracted

hereunderD -11. ,1/ -unctions of ,oar"D> )ubEect to the provisions of this "ct, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. 4ithout preEudice to the generality of the foregoing provisions, the measures referred to therein may provide for > ,a/ ,b/ regulating the business in stock exchanges and any other securities markets@ registering and regulating the working of stock brokers, sub> brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with

,&/

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235 ,ba/ securities markets in any manner@ registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification, specify in this behalf@ registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds@ promoting and regulating self>regulatory organiIations@ prohibiting fraudulent and unfair trade practices relating to securities markets@ promoting investorsV education and training of intermediaries of securities markets@ prohibiting insider trading in securities@ regulating substantial ac8uisition of shares and take>over of companies@ calling for information from, undertaking inspection, conducting in8uiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market intermediaries and self>regulatory organiIations in the securities market@ calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any !entral, )tate or 2rovincial "ct in respect of any transaction in securities which is under investigation or in8uiry by the Board@. performing such functions and exercising such powers under the provisions of the )ecurities !ontracts ,Regulation/ "ct, 1#59,6& of 1#59/, as may be delegated to it by the !entral 1overnment@ levying fees or other charges for carrying out the purposes of this section@ conducting research for the above purposes@ calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions@. performing such other functions as may be prescribed.

,c/ ,d/ ,e/ ,f/ ,g/ ,h/ ,i/

,ia/

,E/

,k/ ,l/ ,la/

,m/

-,&"/ 4ithout preEudice to the provisions contained in sub>section ,&/, the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company ,not being intermediaries referred to in section 1&/ which intends to get its securities listed on any recogniIed stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent

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236 and unfair trade practices relating to securities market.. ,%/ ?otwithstanding anything contained in any other law for the time being in force while exercising the powers under clause ,i/ or clause ,ia/ of sub>section ,&/ or subsection ,&"/, the Board shall have the same powers as are vested in a civil court under the !ode of !ivil 2rocedure, 1#'$ ,5 of 1#'$/,while trying a suit, in respect of the following matters, namely D ,i/ ,ii/ ,iii/ ,iv/ ,v/ ,6/ the discovery and production of books of account and other documents, at such place and such time as may be specified by the Board@ summoning and enforcing the attendance of persons and examining them on oath@ inspection of any books, registers and other documents of any person referred to in section 1&, at any place@ inspection of any book, or register, or other document or record of the company referred to in sub>section ,&"/@ issuing commissions for the examination of witnesses or documents.

4ithout preEudice to the provisions contained in sub>sections ,1/, ,&/, ,&"/ and ,%/ and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or in8uiry or on completion of such investigation or in8uiry, namelyD> ,a/ ,b/ ,c/ ,d/ ,e/ suspend the trading of any security in a recogniIed stock exchange@ restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities@ suspend any office>bearer of any stock exchange or self> regulatory organiIation from holding such position@ impound and retain the proceeds or securities in respect of any transaction which is under investigation@ attach, after passing of an order on an application made for approval, by the Judicial ;agistrate of the first class having Eurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this "ct, or the rules or the regulations made thereunderD 2rovided that only the bank account or accounts or

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237 any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this "ct, or the rules or the regulations made thereunder shall be allowed to be attached@ direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigationD 2rovided that the Board may, without preEudice to the provisions contained in subsection ,&/ or sub>section ,&"/, take any of the measures specified in clause ,d/ or clause ,e/ or clause ,f/, in respect of any listed public company or a public company ,not being intermediaries referred to in section 1&/ which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities marketD 2rovided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. 1'%. <he first step would be to venture an understanding of section 11 of the

,f/

)*BI "ct, so as to grasp the effect and reach thereof. )ub>section ,1/ of section 11 of the )*BI "ct casts an obligation on the )*BI, to protect the interest of investors in securities, to promote the development of the securities market, and to regulate the securities market, -by such measures as it thinks fit.. It is,

therefore, apparent that the measures to be adopted by the )*BI in carrying out its obligations are couched in open>ended terms, having no pre>arranged limits. In other words the extent of the nature and the manner of measures which can be adopted by the )*BI for giving effect to the functions assigned to the )*BI, have been left to the discretion and wisdom of the )*BI. It is necessary to record here, that the aforesaid power to adopt -such measures as it thinks fit. to promote investorsC interest, to promote the development of the securities market and to

Page 237

238 regulate the securities market, has not been curtailed or whittled down in any manner by any other provisions under the )*BI "ct, as no provision has been given overriding effect over sub>section ,1/ of section 11 of the )*BI "ct. !oupled with the clear vesting of the power with )*BI referred to above, sub> section ,&/ of section 11 of the )*BI "ct illustratively records the measures which can be adopted by the )*BI. (or the present controversy reference may be made to clause ,i/ and ,ia/ of sub>section ,&/ which ordain, that the )*BI would be at liberty to call for information from, or undertake inspections of, or conduct in8uiries, or audits into -stock exchanges., -mutual funds., and -other persons associated with the securities market., -intermediaries., and -self regulated organisation in the securities market.. <he power to call for information was expressly extended to -banks., -any other authority or board or corporation., in respect of any transaction in securities which is under investigation or in8uiry ,at the hands of the )*BI/ by adding clause ,ia/ to sub>section ,&/. )ub>section ,&"/ of section 11 of the )*BI "ct, extends to the )*BI, the power to inspect ,in addition to power already delineated in sub>section ,&/ of section 11 referred to above/ books, registers or other documents or records -of any listed public company or a public companyJ which intends to get its securities listed on any recogniIed stock exchange.. )ub>section ,%/ of section 11 of the )*BI "ct, vests with the )*BI, the same powers as are conferred with a civil court, in the matter of discovery and production of books of accounts and other documents, summoning and enforcing the attendance of persons and examining them on oath, inspection of any books, registers or other documents. <he power

aforementioned specifically governs matters relating to calling for information

Page 238

239 already referred to hereinabove ,under clauses ,i/ and ,ia/ of sub>section ,&/, and sub>section ,&"/ of section 11/. In the interest of investorsC protection or the securities market, sub>section ,6/ of section 11 of the )*BICs "ct vests the )*BI with powers to pass interim directions in the nature of suspending the trading of any security in a recogniIed stock exchange, restraining persons from accessing the securities market and prohibiting persons associated with the securities market from buying, selling or dealing with securities, impound or restrain proceeds or securities in respect of any transaction which is under investigation, prohibit an intermediary or any other person associated with the securities market from disposing of or alienating any asset forming part of any investigation etc.. <he first proviso under sub>section ,6/ aforementioned expressly extends the aforesaid power -to impound and retain the proceeds of securitiesJ., -to attach Jone or more bank account or accounts of any intermediary or any person associated with the securities marketJ.. )*BI, can also -direct any intermediary or any person associated with the securities market Jnot to dispose of or alienate any assetJ. in respect of -any listed public company or a public

companyJwhich intends to get its securities listed on any recogniIed stock exchange., if there are reasonable grounds to believe, that such company has been indulging in insider trading or fraudulent and unfair trade practices, relating to the securities market. 1'6. It is imperative to notice the expression -of any listed public company or a

public companyJwhich intends to get its securities listed on any recogniIed stock exchange. incorporated in sub>section ,&"/ and ,6/ of section 11 of the )*BI "ct, and to determine the purport thereof. <he aforesaid inclusion, cannot

Page 239

240 be deemed to limit the power of the )*BI, so as to confine its Eurisdiction only to companies which are listed or which intend to be listed. <he reason for the instant inference is, that sub>section ,&/ does not curtail the powers and functions vested with the )*BI under sub>section ,1/ of section 11 of the )*BI "ct as sub> section ,&/ aforementioned commences with the words -4ithout preEudice to the generality of the foregoing provisionsJ.. <his expression obviously preserves, the power vested in the )*BI under sub>section ,1/ of section 11 of the )*BI "ct, to protect the interest of investors in securities and to promote the development and to regulate the securities market -by such measures as it thinks fit.. (urthermore, sub>section ,&/ of section 11 of the )*BI "ct, after making a reference to the measures generally referred to in sub>section ,1/

empowers=authoriIes that )*BI -may provide for. a series of measures, which are delineated in clauses ,a/ to ,m/ thereof ,of sub>section ,&/ of section 11 of the )*BI "ct/. <he use of the words -may provide for. besides indicating the

discretion vested in the )*BI, demonstrates that, the measures depicted in clauses ,a/ to ,m/ are illustrative and not exhaustive, more so, because sub> clause ,&/ of section 11 of the )*BI "ct does not dilute the power vested in the )*BI under sub>section ,1/ thereof. 4hile interpreting sub>section ,1/ of section 11 of the )*BI "ct, it has already been concluded hereinabove, that the measures to be adopted by the )*BI in carrying out its obligations are couched in open>ended terms having no pre>arranged limits, to the discretion of the )*BI. +ikewise, sub>sections ,&"/ and ,6/ of section 11 of the )*BI "ct, commence with the words -without preEudice to the provisions contained in sub>section ,&/.. <his establishes the legislative intent i.e., that sub>section ,&"/ and ,6/ are

Page 240

241 subservient to sub>section ,&/ of section 11. But it has already been concluded above, that sub>section ,&/ is subservient to sub>section ,1/ of section 11. <herefore both sub>sections ,&"/ and ,6/ will inferentially be subservient to sub> section ,1/ of section 11 of the )*BI "ct. <herefore, the obligation cast on )*BI, to protect the interest of investors in securities, to promote the development of the securities market, and to regulate the securities market -by such measure as it thinks fit., remains undiluted even by sub>sections ,&"/ and ,6/ of section 11 of the )*BI "ct. "n obvious 8uestion that may be posed is, that if the legislative desire was to extend the measures contemplated under section 11 of the )*BI "ct to all kinds of companies, it was unnecessary to limit the scope of inspection contemplated under section 11,&"/ of the )*BI "ct, only to listed public companies or such public companies which intend to get their securities listed on any recogniIed stock exchange. ;ost definitely, the 8uery would seem Eustified on a superficial reading of sub>sections ,&"/ and ,6/ of section 11. <he

aforesaid 8uery would however not arise, if all the sub>sections of section 11 of the )*BI "ct are harmoniously construed. <he legislative intent emerging from sub>section ,%/ of section 11 of the )*BI "ct, was to extend powers as are vested in a civil court under the !ode of !ivil 2rocedure, to only two of the clauses ,i.e., clauses ,i/ and ,ia// of sub>section ,&/ of section 11 of the )*BI "ct, even though, sub>section ,&/ aforesaid has 19 clauses. +ikewise, the legislative intent

emerging from sub>section ,%/ of section 11 of the )*BI "ct was, to extend powers as are vested in a civil court under the !ode of !ivil 2rocedure, only to listed public companies or public companies which intend to get their securities listed on a recogniIed stock exchange. It is therefore, that an express mention

Page 241

242 had to be made, to the sphere=area over which the )*BI would have the same powers which are vested in a civil court. 0aving so defined the scope of authority under section 11 ,&"/ of the )*BI "ct, the legislature extended the power as is vested in a civil court ,in the matter of discovery and production of books of accounts and other documents, summoning and enforcing the attendance of persons and examining them on oath, inspection of any books, registers or other documents/, only to such of the companies which would fall within the expanse=field expressed. (or exactly the same reason, so as to specify the

area=expanse of powers vested with the )*BI under sub>section ,6/ of section 11 of the )*BI "ct ,with reference to clauses ,d/, ,e/ and ,f/ of sub>section ,6/, the legislature likewise limited the authority of )*BI, to listed companies or public companies which intend to get their securities listed on a recogniIed stock exchange. <herefore, in complete agreement with the determination by the )"<, it is concluded, that sub>section ,&"/ and sub>section ,6/ of section 11 of the )*BICs "ct should not be misunderstood, as having limited the power of )*BI, so as to enable it to regulate only listed public company or such public companies which intend to get its securities listed on a recogniIed stock exchange. "ccordingly, it is clear, that the limitation expressed in sub>sections ,&"/ and ,6/ of section 11 of the )*BI "ct, would extend to the area=field of authority referred to above. <herefore, but for the aforesaid limited area=expanse, referred to

above, )*BICs power would extend to all kinds of companies dealing with securities. <he said power, as already noticed above, clearly emerges from the words -by such measures as it thinks fit. expressed in sub>section ,1/ of section 11 of the )*BI "ct. (or the reasons recorded above, the )"< was fully Eustified in

Page 242

243 concluding, that the functions and the powers under section 11 of the )*BI "ct, in so far as protecting the interest of the investors in securities market, as also, for promotion, development and regulation of the securities market, would be applicable to -listed. as well as -unlisted. companies. <he said conclusion is expressed endorsed. 1'5. (rom !hapter IB of the )*BI "ct reference must necessarily be made also

to section 11", which has direct implications, in so far as the present controversy is concerned. )ection 11" of the )*BI "ct is being reproduced hereunderD ..A$ ,oar" to re ulate or pro!i#it issue of prospectus, offer "ocument or a"&ertisement solicitin money for issue of securities$ ,1/ 4ithout preEudice to the provisions of the !ompanies "ct, 1#59 ,1 of 1#59/, the Board may, for the protection of investors> ,a/ specify, by regulations 7 ,i/ the matters relating to issue of capital, transfer of securities and other matters incidental thereto@ and ,ii/ the manner in which such matters shall be disclosed by the companies@ by general or special orders 7 ,i/ prohibit any company from issuing prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities@ ,ii/ specify the conditions subEect to which the prospectus, such offer document or advertisement, if not prohibited, may be issued.

,b/

,&/ 4ithout preEudice to the provisions of section &1 of the )ecurities !ontracts ,Regulation/ "ct, 1#59 ,6& of 1#59/, the Board may specify the re8uirements for listing and transfer of securities and other matters incidental thereto.W " perusal of section 11" extracted above, leaves no room for any doubt, that the authority of )*BI extends to issue of prospectuses, offer documents, including advertisements, soliciting money for the issue of securities etc. (or the exercise

Page 243

244 of such power )*BI has been vested with the authority to make regulations. In addition to the aforesaid authority )*BI has been vested with the power to issue general or special orders prohibiting any company from issuing a prospectus, any offer document or an advertisement soliciting money from the public, for the issue of securities. It has also been vested with the power to issue, general or special directions, and to specify conditions subEect to which a prospectus, offer document or advertisement, may be issued. It is, therefore, futile for a company dealing with the securities to contend, that )*BI does not have the Eurisdiction or the authority in respect to the subEect of -issue of prospectus, offer document or advertisement. soliciting money for securities. 1'9. <he importance and relevance of section 11 and 11" of the )*BI "ct in the

foregoing paras, has been highlighted above. 3f e8ual importance are sections 11B and 11! of the )*BI "ct. <he same are being extracted hereinunderD -11B. %o+er to issue "irections* )ave as otherwise provided in section 11, if after making or causing to be made an en8uiry, the Board is satisfied that it is necessary,> ,i/ ,ii/ ,iii/ in the interest of investors, or orderly development of securities market@ or to prevent the affairs of any intermediary or other persons referred to in section 1& being conducted in a manner detrimental to the interest of investors or securities market@ or to secure the proper management of any such intermediary or person,

it may issue such directions,> ,a/ ,b/ to any person or class of persons referred to in section 1&, or associated with the securities market@ or to any company in respect of matters specified in section 11",

as may be appropriate in the interests of investors in securities and the

Page 244

245 securities market -11!. In&esti ation ,1/ 4here the Board has reasonable ground to believe that 7 ,a/ ,b/ the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market@ or any intermediary or any person associated with the securities market has violated any of the provisions of this "ct or the rules or the regulations made or directions issued by the Board thereunder,

It may, at any time by order in writing, direct any person ,hereafter in this section referred to as the Investigating "uthority/ specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board. ,&/ 4ithout preEudice to the provisions of sections &%5 to &61 of the !ompanies "ct, 1#59 ,1 of 1#59/, it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 1& or every person associated with the securities market to preserve and to produce to the Investigating "uthority or any person authoriIed by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power. <he Investigating "uthority may re8uire any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before it or any person authoriIed by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation. <he Investigating "uthority may keep in its custody any books, registers, other documents and record produced under sub>section ,&/ or sub>section ,%/ for six months and thereafter shall return the same to any intermediary or any person associated with securities market by whom or on whose behalf the books, registers, other documents and record are producedD 2rovided that the Investigating "uthority may call for any book,

,%/

,6/

Page 245

246 register, other document and record if they are needed againD 2rovided further that if the person on whose behalf the books, registers, other documents and record are produced re8uires certified copies of the books, registers, other documents and record produced before the Investigating "uthority, it shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and records were produced. ,5/ "ny person, directed to make an investigation under sub>section ,1/, may examine on oath, any manager, managing director, officer and other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business and may administer an oath accordingly and for that purpose may re8uire any of those persons to appear before him personally. If any person fails without reasonable cause or refuses 7 ,a/ to produce to the Investigating "uthority or any person authoriIed by it in this behalf any book, register, other document and record which is his duty under sub>section ,&/ or sub>section ,%/ to produce@ or to furnish any information which is his duty under sub>section ,%/ to furnish@ or to appear before the Investigating "uthority personally when re8uired to do so under sub>section ,5/ or to answer any 8uestion which is put to him by the Investigating "uthority in pursuance of that sub>section@ or to sign the notes of any examination referred to in sub> section ,A/,

,9/

,b/ ,c/

,d/

he shall be punishable with imprisonment for a term which may extend to one year, or with fine, which may extend to one crore rupees, or with both, and also with a further fine which may extend to five lakh rupees for every day after the first during which the failure or refusal continues. ,A/ ?otes of any examination under sub>section ,5/ shall be taken down in writing and shall be read over to, or by, and signed by, the person examined, and may thereafter be used in evidence against him. 4here in the course of investigation, the Investigating "uthority has reasonable ground to believe that the books, registers, other documents and record of, or relating to, any intermediary or any person associated with securities market in any manner, may be

,$/

Page 246

247 destroyed, mutilated, altered, falsified or secreted, the Investigating "uthority may make an application to the Judicial ;agistrate of the first class having Eurisdiction for an order for the seiIure of such books, registers, other documents and record. ,#/ "fter considering the application and hearing the Investigating "uthority, if necessary, the ;agistrate may, by order, authoriIe the Investigating "uthority 7 ,a/ ,b/ ,c/ to enter, with such assistance, as may be re8uired, the place or places where such books, registers, other documents and record are kept@ to search that place or those places in the manner specified in the order@ and to seiIe books, registers, other documents and record, it considers necessary for the purposes of the investigationD

2rovided that the ;agistrate shall not authoriIe seiIure of books, registers, other documents and record, of any listed public company or a public company ,not being the intermediaries specified under section 1&/ which intends to get its securities listed on any recogniIed stock exchange unless such company indulges in insider trading or market manipulation. ,1'/ <he Investigating "uthority shall keep in its custody the books, registers, other documents and record seiIed under this section for such period not later than the conclusion of the investigation as it considers necessary and thereafter shall return the same to the company or the other body corporate, or, as the case may be, to the managing director or the manager or any other person, from whose custody or power they were seiIed and inform the ;agistrate of such returnD 2rovided that the Investigating "uthority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof. ,11/ )ave as otherwise provided in this section, every search or seiIure made under this section shall be carried out in accordance with the provisions of the !ode of !riminal 2rocedure, 1#A% ,& of 1#A6/, relating to searches or seiIures made under that !ode..

?either of the aforesaid provisions need a detailed analysis. " bare perusal of the aforesaid provisions brings to the fore, the extensive powers vested with the )*BI to issue directions and to make investigations. <he power vested with )*BI,

Page 247

248 is not limited in any manner, and shall therefore, be deemed to extend to both -listed. and -unlisted. public companies. 1'A. (rom a collective perusal of sections 11, 11", 11B and 11! of the )*BI

"ct, the conclusions drawn by the )"<, that on the subEect of regulating the securities market and protecting interest of investors in securities, the )*BI "ct is a stand alone enactment, and the )*BICs powers thereunder are not fettered by any other law including the !ompanies "ct, is fully Eustified. In fact the aforesaid Eustification was rendered absolute, by the addition of section 55" in the !ompanies "ct, whereby, administrative authority on the subEects relating to -issue and transfer of securities and non payment of dividend. which was earlier vested in the !entral 1overnment ,<ribunal or Registrar of !ompanies/, came to be exclusively transferred to the )*BI. 1'$. In answering the 8uestion posed above, there seems no ambiguity that the

)*BI has the Eurisdiction to regulate and administer )IR*!+ and )0I!+. 4hether it was a pre>planned attempt of )IR*!+ and )0I!+, to bypass the regulatory ,and administrative/ authority of )*BI in respect of 3(! s= bonds issued by themR 1'#. <he issues dealt with hitherto>before were canvassed at the behest of the <he instant issue, is being dealt with at the behest of

appellant>companies. )*BI.

uring the course of hearing it was the vehement contention on behalf of

the learned counsel representing )*BI, that )IR*!+ and )0I!+ had pre>planned to avoid the involvement of )*BI in the activities of the two companies. <his, according to the learned counsel representing )*BI, was with the sole purpose of having a free hand in their endeavours. <he instances pointed out by the learned

Page 248

249 counsel for the )*BI can safely be discussed under three heads which are being dealt with hereinafter. <he first perspectiveD 11'. <he first contention advanced by the learned counsel representing )*BI,

was based on section 59 of the !ompanies "ct. )ection 59 aforementioned, is extracted hereunderD -/0$ ,1/ 'atters to #e state" an" reports to #e set out in prospectus *very prospectus issuedU ,a/ by or on behalf of a company, or

,b/ by or on behalf of any person who is or has been engaged or interested in the formation of a company, shall state the matters specified in 2art I of )chedule II and set out the reports specified in 2art II of that )chedule@ and the said 2arts I and II shall have effect subEect to the provisions contained in 2art III of that )chedule. ,&/ " condition re8uiring or binding an applicant for shares in or debentures of a company to waive compliance with any of the re8uirements of this section, or purporting to affect him with notice for any contract, document or matter not specifically referred to in the prospectus, shall be void. ,%/ ?o one shall issue any form of application for shares in or debentures of a company, unless the form is accompanied by a memorandum containing such salient features of a prospectus as may be prescribed which complies with the re8uirements of this sectionD 2rovided that a copy of the prospectus shall, on a re8uest being made by any person before the closing of the subscription list be furnished to himD 2rovided further that this sub>section shall not apply if it is shown that the form of application was issued eitherU ,a/ in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the shares or debentures@ or

Page 249

250 ,b/ in relation to shares or debentures which were not offered to the public. If any person acts in contravention of the provisions of this sub> section, he shall be punishable with fine which may extend to fifty thousand rupees. ,6/ " director or other person responsible for the prospectus shall not incur any liability by reason of any non>compliance with, or contravention of, any of the re8uirements of this section, ifU ,a/ as regards any matter not disclosed, he proves that he had no knowledge thereof@ or ,b/ he proves that the non>compliance or contravention arose from an honest mistake of fact on his part@ or ,c/ the non>compliance or contravention was in respect of matters which, in the opinion of the !ourt dealing with the case were immaterial or was otherwise such as ought, in the opinion of that !ourt, having regard to all the circumstances of the case, reasonably to be excusedD 2rovided that no director or other person shall incur any liability in respect of the failure to include in a prospectus a statement with respect to the matters specified in clause 1$ of )chedule II, unless it is proved that he had knowledge of the matters not disclosed. ,5/ <his section shall not applyU ,a/ to the issue to existing members or debenture>holders of a company of a prospectus or form of application relating to shares in or debentures of the company whether an applicant for shares or debentures will or will not have the right to renounce in favour of other persons@ or ,b/ to the issue of a prospectus or form of application relating to shares or debentures which are, or are to be, in all respects uniform with shares or debentures previously issued and for the time being dealt in or 8uoted on a recognised stock exchange, but, subEect as aforesaid, this section shall apply to a prospectus or a form of application, whether issued on or with reference to the formation of a company or subse8uently. ,9/ ?othing in this section shall limit or diminish any liability which any

Page 250

251 person may incur under the general law or under this "ct apart from this section.. Based on the aforesaid provision, it is the submission of learned counsel, that every company issuing a prospectus has to express all the details in terms of matters specified in 2art>I ,of )chedule &/ and set out the reports as specified in 2art II ,of )chedule &/. It is also the submission of the learned counsel, that 2arts I and II can be given effect to, subEect to the provisions contained in 2art III ,of )chedule &/. It is accordingly submitted, that in order to ensure, that an invitation for subscription from the public is made in consonance with the re8uirements stipulated by the )*BI, an amendment was made in )chedule & of the !ompanies "ct in &''&, re8uiring the company issuing a prospectus, to make a declaration. <he declaration contemplated by the aforesaid amendment is

being extracted hereunderD -<hat all the relevant provisions of the !ompanies "ct, 1#59, and the guidelines issued by the 1overnment or the guidelines issued by the )ecurities and *xchange Board of India established under section % of the )ecurities and *xchange Board of India "ct, 1##&, as the case may be, have been complied with and no statement made in prospectus is contrary to the provisions of the !ompanies "ct, 1#59 or the )ecurities and *xchange Board of India "ct, 1##& or rules made thereunder or guidelines issued, as the case may be.. ,emphasis is mine/ It is pointed out by the learned counsel representing )*BI, that in the R02s filed by )IR*!+ and )0I!+, the declaration introduced in &''& was not filed. Instead, the two companies filed the following declarationD -"ll the relevant provisions of the !ompanies "ct, 1#59 and the guidelines issued by the 1overnment have been complied with and no statement made in the prospectus is contrary to the provisions of the !ompanies "ct, 1#59 and rules thereunder..

Page 251

252 It is apparent from the declaration filed by the appellant>companies that reference to the )*BI "ct, as also, to the rules made thereunder, as also, the guidelines issued ,by the )*BI/ as contained in the amended declaration were omitted. It was therefore, the contention of the learned counsel for the )*BI, that the statutorily prescribed declaration, was unilaterally and deliberately not adhered to, by the two companies. <his, according to the learned counsel, was done so that, the appellant>companies could avoid attention of the )*BI, as well as, to wriggle out of the statutory re8uirements of the )*BI "ct, the rules made thereunder, as also, the guidelines issued by )*BI from time to time. It was submitted, that the most significant violation=omission of the provisions of the )*BI "ct, was committed by asserting, that invitation to the 3(! s was made by way of -private placement., even though the aforesaid invitation was addressed to approximately % crore persons, and was actually subscribed by about 99 lakh people. It was pointed out, that in case of an invitation to 5' or more persons, the invitation is deemed to have been issued -to the public. ,under the mandate of section 9A of the !ompanies "ct/. In case of an offer=invitation -to the public. an allotment of debentures can only be made through one or more recogniIed stock exchange,s/ ,under the mandate of section A% of the !ompanies "ct/. )imilar other violations, as have been mentioned in the body of the instant Eudgment, were also highlighted. ;ore importantly, it was submitted by learned counsel, that any allotment made in violation of the statutory provisions, as for instance, inviting subscription in case of an issue -to the public., without reference to a recogniIed stock exchange, is void. In such a situation section A% of the

!ompanies "ct itself provides, that the concerned company shall make a total

Page 252

253 refund of the monies received by way of subscription. It is pointed out, that the subscription collected by the appellant>companies, which were admittedly to the tune of Rs.6',''' crores, is in complete violation of law. "ccording to learned counsel, avoiding )*BI permitted the appellant>companies to commit all the irregularities=illegalities without having to face adverse action. 111. 0aving considered the aforesaid contention advanced at the hands of the

learned counsel for the )*BI, there can be no denial about the unilateral and arbitrary violation of the declaration referred to by the learned counsel

representing the )*BI. It is also apparent, that in the declaration made by the two companies, they had clearly avoided references to the )*BI and accordingly circumvented adherence to the provisions of the )*BI "ct, rules and guidelines. <he appellant>companies have likewise avoided, the provisions of the !ompanies "ct ,which are under the administrative control of the )*BI/, as is apparent from the deliberations recorded above. <here is, therefore, merit in the contention advanced by the learned counsel representing )*BI. *ven though it is not

possible for one to record a clear finding, whether or not the declaration under reference was altered with a pre>planned intention to bypass the regulatory and administrative authority of )*BI, there can be no hesitation to recording, that it certainly seems so. <he second perspective 11&. +earned counsel representing the )*BI invited our my attention to an arbitrary procedure adopted by the appellant>companies. (or this

allegedly

reference was made to the factual position pertaining to )IR*!+. In this behalf it was submitted, that )IR*!+ issued its R02 pertaining to the 3(! s under

Page 253

254 reference on 1%.%.&''$. )IR*!+, however, circulated its -information It was

memorandum. subse8uent to the issuance of the R02 on &5.6.&''$.

submitted, that an -information memorandum. is a means=process adopted by a company, to elicit a demand for the securities proposed to be issued, as also, the price at which they could be offered. It is accordingly contended that through an information memorandum, a company assesses a demand for the proposed securities in the market, and the price which the public will be willing to offer for the same. It is therefore apparent, that the response solicited from the public ,by way of an -information memorandum./ presupposes that an offer would be made thereafter, through a formal prospectus ,or R02/. <hus viewed, according to learned counsel, the -information memorandum. would inevitably precede the issuance of a prospectus ,or R02/. 0erein, however, the information

memorandum was circulated well after the issuance of the R02, which clearly indicates that the -information memorandum. had been circulated by the )IR*!+, not for the purposes for which it is meant, but for some extraneous consideration. It is submitted, that the appellant>companies had apparently taken upon themselves to tread a path different from the one stipulated under the !ompanies "ct. 11%. 3n considering the submission advanced at the hands of the learned

counsel representing )*BI, as has been noticed in the foregoing paragraph, it is clear that an -information memorandum. must inevitably precede the issuance of a prospectus ,including a R02/. 3ne must agree with the contention of the

learned counsel, that there was no Eustification whatsoever for circulating an -information memorandum. after )IR*!+ had already issued a R02. <he

Page 254

255 procedure adopted by the appellant>companies is obviously topsy turvy and contrary to the recogniIed norms in company affairs. "ll this makes the entire approach of the appellant>companies calculated and crafty. It is clearly apparent, that the appellant>companies had clearly taken upon themselves to tread a path different from the mandate of law delineated under the !ompanies "ct. <here can, therefore, be no doubt about the inferences drawn by the learned counsel representing the )*BI even in so far as the second perspective is concerned. <he third perspectiveD 116. +earned counsel representing )*BI also invited our attention to the

attempt at the hands of the appellant>companies in withholding information from the )*BI. etails in this behalf have already been recorded under the first

perspective, while debating the issue whether the invitation to subscribe to the 3(! s issued by )IR*!+ and )0I!+ was by way of -private placement.. <he aforesaid details are accordingly not being narrated again for reasons of brevity. I shall therefore, merely summarise the se8uence of facts relevant for determining the willingness of the appellant>companies to disclose information sought by the )*BI. In this behalf, it is clear that the appellant>companies did not disclose information to )*BI despite its repeated re8uests. ?ot even, in the

response to the summons ,dated %'.$.&'1' and &%.#.&'1'/ issued by the )*BI containing threats of taking penal action and initiation of criminal prosecution. "ll this, failed to prompt the appellant>companies to divulge the facts solicited. <hereafter on &6.11.&'1' the )*BI ,(<;/ passed far reaching directions against the appellant>companies. <he +ucknow Bench of the 0igh !ourt of Judicature at "llahabad on 1%.1&.&'1' first stayed ,whereby the )*BI ,(<;/ order dated

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256 &6.11.&'1' was stayed/ and thereafter, vacated the interim order passed in favour of the appellant>companies. 4hile vacating the aforesaid order the 0igh !ourt took express note of the fact, that the appellant>companies were not cooperating with the in8uiry being conducted by the )*BI. <he 0igh !ourt felt, that the appellant>companies had thereby violated the assurance given to the 0igh !ourt. <he effort made by the appellant>companies to resurrect the earlier interim order ,dated 1%.1&.&'1'/ through an application filed before the 0igh !ourt was reEected ,on &#.11.&'11/, because the 0igh !ourt was of the considered view, that the appellant>companies had not approached the 0igh !ourt with clean hands, and the intention of the appellant>companies was not bona fide. !onse8uent upon directions issued by this !ourt, )*BI issued a

second show cause notice ,on &'.5.&'11/. <he appellant>companies adopted the same stubborn position. <hey contested the show cause notice on legal pleas, and calculatingly did not disclose the information sought. <he )*BI ,(<;/ by an order dated &%.9.&'11 held, that the appellant>companies were in violation of law. <he said order dated &%.9.&'11 was assailed by the appellant>companies before the )"<. In the appeals preferred before the )"<, the appellant>companies

remained steadfast in their approach by adopting the same course, as they had chosen before the )*BI ,(<;/. (or the first time before this !ourt, in their

challenge to the )"< order dated &9.$.&'11 ,whereby the )*BI ,(<;/ order dated &%.9.&'11 was upheld/, some details were disclosed by )IR*!+. 3n an analysis the material placed before this !ourt, I have recorded hereinabove, that the same seemed to be unrealistic, and may well be, fictitious, concocted and made up. Independently of the interaction of the appellant>companies with )*BI,

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257 from letters written by )IR*!+ in January, &'11, it was concluded by the )*BI ,(<;/, that the company was seeking professional services to collect and compile data pertaining to the 3(! s issued by it. )ince the subscription to the 3(! s under reference commenced in ;arch, &''$, the same raised suspicious about the genuineness and the bonafides of the appellant>companies. )urely the suspicion was well placed. <his itself is sufficient to conclude, that the whole affair was doubtful, dubious and 8uestionable. <he conse8uence thereof, if correct, would be shocking. 115. <here can therefore be no hesitation in accepting, that on all three

perspectives raised at the behest of the )*BI, to demonstrate that there was a pre>planned attempt at the hands of the )IR*!+ and )0I!+, to bypass the regulatory and administrative authority of the )*BI, does seem to be real. 3ne can only hope, it is not so. But having so concluded, it is essential to express, that there may be no real subscribers for the 3(! s issued by the )IR*!+ or )0I!+. 3r alternatively, there may be an intermix of real and fictitious

subscribers. <he issue that would emerge in the aforesaid situation ,which one can only hope, is untrue/ would be, how the subscription amount collected, should be dealt with, specially when the impugned orders passed by the )*BI, )"< are to be affirmed. *ven though I hope that all the subscribers are genuine, and so also, the subscription amount, it would be necessary to modify the operative part of the order issued by the )*BI which came to be endorsed by the )"<, so that the purpose of law is not only satisfied but is also enforced.

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258 JJJJJJJJJJJJJJJ. ,Jagdish )ingh Mhehar/

ORDER )e+ there(ore+ (ind+ on (a$ts as -ell as on la-+ no ille&alit, in the pro$eedin&s initiated 2, SE'I as -ell as in the order passed 2, SE'I .)TM0 dated =:"4"=;** and SAT dated *C"*;"=;** and the, are a$$ordin&l, #pheld" The order passed 2, this Co#rt in C"A" No"3C*: o( =;** (iled 2, SIREC and in C"A" No"3C:: o( =;** (iled 2, SHICL+ pra,in& (or e%tendin& the ti e (or re(#nd o( the a o#nt o( Rs"*9+D;; $rores+ as ordered 2, SAT+ stands 5a$ated and $onse8#entl, the entire a o#nt+ in$l#din& the a o#nt entioned a2o5e -ill ha5e to 2e re(#nded 2, Saharas -ith *1O interest" )e ha5e &one thro#&h ea$h otherGs A#d& ent and (#ll, $on$#r -ith the reasonin& and the 5ie-s e%pressed therein and iss#e the (ollo-in& dire$tions in odi(i$ation o( the dire$tions

iss#ed 2, SE'I .)TM0 -hi$h -as endorsed 2, SATI *" Saharas .SIRECL ! SHICL0 -o#ld re(#nd the a o#nts

$olle$ted thro#&h RHPs dated *:":"=;;C and *4"*;"=;;3 alon& -ith interest T *1O per ann# to SE'I (ro the date o( re$eipt

o( the s#2s$ription a o#nt till the date o( repa, ent+ -ithin a

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259

period o( three

onths (ro

toda,+ -hi$h shall 2e deposited in a a%i # rate o( interest"

Nationali6ed 'an7 2earin&

="

Saharas are also dire$ted to (#rnish the details -ith

s#pportin& do$# ents to esta2lish -hether the, had re(#nded an, a o#nt to the persons -ho had s#2s$ri2ed thro#&h RHPs dated *:":"=;;C and *4"*;"=;;3 -ithin a period o( *; .ten0 da,s (ro the prono#n$e ent o( this order and it is (or the SE'I

.)TM0 to e%a ine the $orre$tness o( the details (#rnished" :" )e a7e it $lear that i( the do$# ents prod#$ed 2, Saharas

are not (o#nd &en#ine or a$$epta2le+ then the SE'I .)TM0 -o#ld pro$eed as i( the Saharas had not re(#nded an, a o#nt to the real and &en#ine s#2s$ri2ers -ho had in5ested RHPs dated *:":"=;;C and *4"*;"=;;3" D" Saharas are dire$ted to (#rnish all do$# ents in their parti$#larl,+ the appli$ation (or s s#2 itted 2, one, thro#&h

$#stod,+

s#2s$ri2ers+ the appro5al and allot ent o( 2onds and all other do$# ents to SE'I so as to ena2le it to as$ertain the &en#ineness o( the s#2s$ri2ers as -ell as the a o#nts deposited+ -ithin a period o( *; .ten0 da,s (ro the date o( prono#n$e ent o( this

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260

order" 1" SE'I .)TM0 shall ha5e the li2ert, to en&a&e In5esti&atin&

O((i$ers+ e%perts in Finan$e and A$$o#nts and other s#pportin& sta(( to $arr, o#t dire$tions and the e%penses (or the sa e -ill 2e 2orne 2, Saharas and 2e paid to SE'I" 4" SE'I .)TM0 shall ta7e steps -ith the aid and assistan$e o(

In5esti&atin& A#thoritiesEE%perts in Finan$e and A$$o#nts and other s#pportin& sta(( to e%a ine the do$# ents prod#$ed 2, Saharas so as to as$ertain their &en#ineness and a(ter ha5in& as$ertained the sa e+ the, shall identi(, s#2s$ri2ers -ho had in5ested the one, on the 2asis o( RHPs dated *:":"=;;C and -ith interest on their

*4"*;"=;;3 and re(#nd the a o#nt to the

prod#$tion o( rele5ant do$# ents e5iden$in& pa, ents and a(ter $o#nter $he$7in& the re$ords prod#$ed 2, Saharas" 9" SE'I .)TM0+ in the e5ent o( (indin& that the &en#ineness o(

the s#2s$ri2ers is do#2t(#l+ an opport#nit, shall 2e a((orded to Saharas to satis(a$toril, esta2lish the sa e as 2ein& le&iti ate and 5alid" It shall 2e open to the Saharas+ in s#$h an e5ent#alit, to asso$iate the $on$erned s#2s$ri2ers to esta2lish their $lai s"

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261

The de$ision o( SE'I .)TM0 in this 2ehal( -ill 2e (inal and 2indin& on Saharas as -ell as the s#2s$ri2ers" C" SE'I .)TM0 i(+ a(ter the 5eri(i$ation o( the details (#rnished+

is #na2le to (ind o#t the -herea2o#ts o( all or an, o( the s#2s$ri2ers+ then the a o#nt $olle$ted (ro 2e appropriated to the <o5ern ent o( India" 3" )e also appoint Mr" J#sti$e '"N" A&ra-al+ a retired s#$h s#2s$ri2ers -ill

J#d&e o( this Co#rt to o5ersee -hether dire$tions iss#ed 2, this Co#rt are properl, and e((e$ti5el, $o plied -ith 2, the SE'I .)TM0 (ro the date o( this order" Mr" J#sti$e '"N" A&ra-al

-o#ld also o5ersee the entire steps adopted 2, SE'I .)TM0 and other o((i$ials (or the e((e$ti5e and proper i ple entation o( the dire$tions iss#ed 2, this Co#rt" )e (i% an a o#nt o( Rs"1 la7hs to-ards the onthl, re #neration pa,a2le to Mr" J#sti$e '"N" odation and

A&ra-al+ this -ill 2e in addition to tra5ellin&+ a$$o other e%penses+ $o

ens#rate -ith the stat#s o( the o((i$e held

2, J#sti$e '"N" A&ra-al+ -hi$h shall 2e 2orne 2, SE'I and re$o5era2le (ro to ta7e #p Saharas" Mr" J#sti$e '"N" A&ra-al is re8#ested this assi&n ent -itho#t a((e$tin& his other

en&a&e ents"

)e also order that all ad inistrati5e e%penses

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262

in$l#din& the pa, ent to the additional sta(( and e%perts+ et$" -o#ld 2e 2orne 2, Saharas" *;" )e also a7e it $lear that i( Saharas (ail to $o pl, -ith one, as dire$ted+ in$l#din&

these dire$tions and do not e((e$t re(#nd o( SE'I $an ta7e re$o#rse to all le&al

re edies+

atta$h ent and sale o( properties+ (ree6in& o( 2an7 a$$o#nts et$" (or reali6ations o( the a o#nts" **" )e also dire$t SE'I.)TM0 to s#2 it a stat#s report+ d#l,

appro5ed 2, Mr" J#sti$e '"N" A&ra-al+ as e%peditio#sl, as possi2le+ and also per it SE'I .)TM0 to see7 (#rther dire$tions (ro this Co#rt+ as and -hen+ (o#nd ne$essar," Appeals are a$$ordin&l, dis issed s#2Ae$t to the a2o5e dire$tions" Ho-e5er+ there -ill 2e no order as to $osts" )e

re$ord o#r deep appre$iation (or the 5al#a2le assistan$e rendered 2, learned senior $o#nsel appearin& on either side (or resol5in& the 5er, intri$ate and interestin& 8#estions o( la- -hi$h arose (or o#r $onsideration in these appeals"

SSSSSSSSSSS"""""""""J"

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263

.H"S" Radha7rishnan0 SSSSSSSSSSSSSSSJ" .Ja&dish Sin&h Hhehar0

Ne- Delhi+ A#&#st :*+ =;*=

Page 263