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An Analysis of
Sahara India Real Estate Corporation Ltd. & Others vs. SEBI



Abhay Singh Rajput

Dr. Manish Singh

Roll no.-05

Associate Professor of Law

Sec-A, V Semester


3rd Year




I owe a great many thanks to a great many people who helped and supported me during the
writing of this research project.
I wish to express my deep appreciation to my teacher Dr. Manish Singh, Associate Professor
of Law, for their guidance and persistent help without which completing this research would
not be possible. They continuously and convincingly conveyed their knowledge on the
subject and the right spirit and excitement for teaching. They have taken pain to go through
the project and make necessary correction as and when needed.
I would also thank my Institution and my faculty members without whom this project would
have been a distant reality. I also extend my heartfelt thanks to my family, seniors and friends
for their continuous support and advice helping me to complete my project.

Thanking you,



LIST OF ABBREVIATIONS...............................................................................4
FACTS OF THE CASE........................................................................................6
RULINGS BY COURT........................................................................................7
ANALYSIS OF THE EFFECT OF THE DECISION........................................19



OFCDs Optionally Fully Convertible Debentures

ROC - Registrar of Companies
Saharas 2 Sahara Companies
(i) Sahara India Real Estate Corporation Limited and
(ii) Sahara Housing Investment Corporation Limited.
SAT Securities Appellate Tribunal
SCRA Securities Contracts (Regulations) Act, 1956
SEBI Securities and Exchange Board of India
SEBI (FTM) SEBI (Full Time Member) or SEBI (Whole-time Member)
SEBI ICDR Regulations Securities and Exchange Board of India (Issue of Capital

and Disclosure Requirements), 2009

SEBI DIP Guidelines Securities and Exchange Board of India (Disclosure and
Investor Protection) Guidelines 2000

As has been widely reported, the Supreme Court rejected all the contentions of the two
Sahara companies (Saharas) against the order of SAT which in turn was against the order of
SEBI. The matter of course is far more complex than being a linear sequence of orders and

appeals and has several detours to Allahabad and other courts but, in essence, it is sufficient
to consider this series of Orders only. The decision of the Supreme Court covers many
important issues and, to clarify at the outset, this is only to highlight some important aspects
of the decision. The decision covers many important areas of powers of SEBI, of what
constitutes an issue to the public, of the sanctity of Guidelines of SEBI and so on. There are
concerns about the dubious role that the Registrar of Companies performed. The Supreme
Court also appears to have endorsed the possibility of criminal action against the Saharas.
These and other issues may need separate legal analysis as to its scope and implications.
Further, the progress of implementation of the order of the Supreme Court in terms of
payment of refund monies into the designated bank, identification of the OFCDs holders, etc.
will have to be seen. There are reports that the Saharas may pursue further litigation and
hence this matter may develop even further.

The essential facts are summarized in a simplified manner below. However, one preliminary
thought comes to mind. The facts are quite glaring and extreme. The Saharas offered their
Optionally Fully Convertible Debentures (OFCDs) to crores of people, hiring lakhs of
agents through thousands of branches and raised tens of thousands of crores of rupees. And
then they claimed, clearly on technical grounds, that there was no issue of securities to the
public that would result in need for compliance of SEBI Regulations and other laws for
disclosure, investor protection, etc. Further, they refused to provide information to SEBI and
adopted delaying tactics. In face of such facts, one wonders whether the decision which
rejects every contention of the Saharas and even removing several creases and gaps in law in
the process could be interpreted to some extent as restricted to the facts of the case.


To come to the facts, the Saharas, as the Supreme Court records, sought to raise funds
through Optionally Fully Convertible Debentures (OFCDs). They filed/circulated an

information memorandum/ Red Herring Prospectus with the Registrar of Companies but no
documents with SEBI. It took a view that issue of shares to a group of people described in
an extremely broad manner did not amount to an issue to the public requiring compliance
with the provisions of the Companies Act, 1956, the SEBI Act and Regulations, etc. that dealt
with public issues. The Saharas, however, appointed about 10,00,000 agents, opened 2900
branches and offered the OFCDs to crores of people, and issued the OFCDs to some 66 lakhs
people (it appears actual figures may be even higher). Contrast this with the maximum limit
of 49 offerees permitted under Section 67(3) of the Companies Act, 1956, beyond which the
offer would become a public offer.

When the Sahara Group filed an offer document through merchant banker for a public issue
of shares of another group company, SEBI, having come to know through this offer document
of the earlier issues of OFCDs, made preliminary inquiries with the merchant banker. The
merchant banker essentially replied, relying on legal opinions, that the earlier issues of
OFCDs were in compliance of law but did not provide more details. When SEBI pursued the
matter further with the Saharas, they insisted that SEBI had no jurisdiction and that they had
complied with the law and would respond only to the Registrar of Companies. In what was
seen to be further delaying tactics, they claimed that the issue as to whether they are liable to
provide information to SEBI was pending determination before the Law Ministry and SEBI
should wait till the matter was resolved. This resulted in gathering of information by SEBI
from ROC documents and passing of certain orders by SEBI, petitions before High Court,
etc. and finally, the Order by SEBI which, alongwith the Order on appeal by SAT was upheld
by the Supreme Court.

Several issues were raised before the Supreme Court. The rulings of the Supreme Court and
their implications would need far more detailed analysis and at this stage, some important of
these issues and rulings are highlighted below.


Was the offer of OFCDs by the Saharas a private placement or an issue to the
It was noted that the offer was made to friends, associates, group companies, workers/
employees and other individuals associated/affiliated or connected in any manner with Sahara
India Group of Companies. These persons in reality turned out to be nearly 3 crores in
number. When finally details of the allottees were provided, the Supreme Court was
dissatisfied with the details and noted that the front page was enough to cast doubt on the
genuineness of the persons. An allottee was named merely Kalavati and the person
introducing her was named Haridwar. No details were provided how the allottees even
formed part of the group described above.
It was held that in view of the first proviso to Section 67(3), offer to more than 49 persons
would be deemed to be an offer to the public. The fact that the offer was clearly made to more
than 49 persons attracted this provision. Apart from the offer to more than 49 conditions,
another preceding that the offer should have been made as a matter of domestic concern
between the persons making and receiving the offer was also not satisfied in view of the
extremely broad description of the offerees. Further, since the OFCDs were transferable, yet
another preceding condition that the offer should not be calculated to be received by
persons other than the offerees was also not satisfied.
Thus, the offer was clearly a offer to the public under Section 67(3) of the Companies Act,
Whether there was violation of rules of natural justice in the Order of SEBI (FTM)
as held by SAT?
This issue was not pursued before the Supreme Court though held against SEBI by SAT.
However, the Supreme Court still felt it appropriate to consider this issue.
SEBI, on basis of certain investor data made available, had approached randomly four of the
investors. It found that two of the investors were not traceable. The other two stated that
they had invested because agents approached them. SEBI held that thus this showed that the
offer was made to the public and not even to the broadly described group. SAT held that
relying on such findings without providing them to the Saharas and giving them an
opportunity to rebut them amounted to violation of the rules of natural justice.

The Supreme Court held that this was not correct. The rules of natural justice were available
only to a party which has itself been fair, and therefore, deserves to be treated fairly. The
Saharas had not at all cooperated with SEBI in providing the data despite having been
provided with several opportunities. Further, instead of countering the findings of SEBI with
correct data, it merely contested this issue on the basis that the rules of natural justice were
Thus, it was held that the Order of the SAT on this aspect could not be sustained.

Whether the OFCDs which admittedly were hybrids, were securities and hence
amenable to jurisdiction of SEBI?
The Saharas contrasted the definition of securities under the SEBI Act/SCRA and the
Companies Act, 1956 to submit that the term securities under the SEBI Act/SCRA did not
cover hybrids while that under the Companies Act, 1956, covered it. Reliance was placed on
the definition under the Companies Act, 1956, which reads:2(45AA) securities means securities as defined in clause (h) of section 2 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), and includes hybrids; (emphasis supplied)
Thus, it was argued by Saharas that since hybrids were specifically included as an addition, it
showed that the basic definition of securities under SCRA could not have included hybrids.
Thus, in short, the OFCDs, being hybrids were governed only by the Companies Act, 1956,
and SEBI who obtained jurisdiction under the SEBI Act/SCRA, could not govern issue of
The Supreme Court first held that since under Section 55A, SEBI had powers to administer
various specified provisions of the Companies Act, 1956, in matters of issue of securities and
since securities specifically included hybrids, SEBI did have jurisdiction to that extent.
Then, the Supreme Court examined the definition of hybrid under the Companies Act, 1956,
and noted that it covered any security that had the character of more than one type of security
including their derivatives. The definition under SCRA defines securities inclusively and not
exhaustively. Since, by definition, a hybrid is a security, it is covered by definition of
securities under SCRA. Further, securities under SCRA included other marketable
securities of a like nature and thus hybrids would be once again be covered. It was

particularly noted that the OFCDs were transferable, i.e., marketable as understood in this
Thus, hybrids were held to be securities under SCRA too and hence SEBI was held to have
jurisdiction over them.
It is submitted that this does not fully explain why the definition under the Companies Act,
1956, specifically included hybrids.

Whether the listing of OFCDs on stock exchanges was optional or mandatory?

The Saharas argued that under Section 60B, there was clear demarcation of listed and unlisted
companies and unlisted companies were required to file the RHP only with the Registrar of
Companies. The Saharas were neither listed nor intended to be listed. SEBI countered that
Section 73 clearly requires that a company seeking to offer securities to the public has to
apply for listing to the stock exchanges.
The Supreme Court read Section 60B and Section 73 harmoniously and held that it was
concluded by it earlier that the offer was indeed an offer to the public. In view of this, there
was no option left in manner of applying for listing. Listing was an inevitable consequence of
such an offer and thus not optional but mandatory. Requirement of listing automatically
brings in the jurisdiction of the SEBI, as it transforms a public company into a listed
public company and thus covered by Section 60B too.

Whether Section 55A gave powers to SEBI to administer specific provisions on

unlisted companies that did not intend to get their securities listed?
Section 55A gives powers to SEBI to administer certain provisions in case of listed
companies and unlisted companies that intended to get their securities listed on recognized
stock exchanges. The Saharas were neither listed nor, they claimed, they intended to get
listed. This was even clearly specified in various documents.
The Supreme Court held that intention could not be grasped and determined out of context of
the actions of the Saharas. The Saharas did make an issue to the public. Such a public issue
necessarily resulted in their being mandatorily required to get such securities listed. Thus,

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there is a deemed intention since they could not carry out acts which require listing and then
claim that they do not intend to list their securities.
Even otherwise, the Supreme Court held, Section 11 of the SEBI Act was wide enough to
give powers to SEBI to protect the interest of investors in securities and to regulate the
securities markets by such measures as it thinks fit. This is wide enough to give powers to
SEBI under the present facts. Later provisions of the Act do state that SEBI has certain
powers over other persons associated with the securities markets and public companies
which intend to get their securities listed on recognized stock exchanges. Even if these are
taken to be restrictions for those sections and purposes, they do not apply to the former
provisions. Thus, SEBI has adequate powers to govern the unlisted Saharas.
Furthermore, Section 11A is even more specific in matters of issue of prospectus, etc. Section
11B/11C reinforce this conclusion that SEBI has powers to govern listed and unlisted
companies. Being a stand alone statute, the SEBI Act cannot be limited even by the
provisions of the Companies Act, 1956.
Thus SEBI had jurisdiction to regulate and administer the unlisted Saharas.

Whether there was a pre-planned attempt by the Saharas to bypass the regulatory
and administrative authority of SEBI in respect of issue of OFCDs?
It was pointed out by SEBI that the Saharas had modified the explicit format of declaration
required to be given in the prescribed format. The prescribed format required the companies
issuing a prospectus to state, inter alia, that the guidelines of SEBI have been complied with
and no statement is made contrary to the provisions of the SEBI Act or rules made thereunder
or guidelines issued thereunder. The Saharas omitted these declarations. There was further
attempt to misguide by stating that the offer was by way of private placement when the
invitation was extended to approximately 3 crores persons. The Supreme Court said that it
certainly seemed so that there was a pre-planned intention to bypass the regulatory and
administrative authority of SEBI.
The manner of issuing the information memorandum/RHP showed that the procedure adopted
was obviously topsy-turvy and contrary to the recognized norms in company affairs. All
this made, the Supreme Court said, the entire approach of the Saharas calculated and crafty.

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Their repeated refusals to share information and their non-cooperation, the unrealistic and
possibly fictitious information provided and other similar factors made the Supreme Court to
also state that the whole affair was doubtful, dubious and questionable.
Accordingly, the Supreme Court upheld the proceedings initiated by SEBI and the Orders of
SEBI and SAT. It upheld the Order of SAT for refund of the amounts collected by issue of
OFCDs along with interest @ 15% per annum. Mechanism was laid down to ensure this
including deposit of the amounts with a nationalized bank, appointment of a retired Judge of
the Supreme Court to oversee the process and several other directions for safeguarding
various interests.


The analysis of the rulings of the order of the Supreme Court shall be done point wise.

Whether SEBI has the power to investigate and adjudicate in this matter as per Sec 11,
11A, 11B of SEBI Act and under Sec 55A of the Companies Act or is it the Ministry of
Corporate Affairs (MCA) which has the jurisdiction under Sec 55A (c) of the Companies

In order to address this issue the Hon'ble SC applied the following two rules of statutory
a) Legislative intent
In law, the judiciary may attempt to assess legislative intent where legislation is ambiguous,
or does not appear too directly or adequately address a particular issue, or when there appears
to have been a legislative drafting error. Section 55A was inserted in the Companies Act 1956
by the Companies (Amendment) Act, 2000 w.e.f. 13.12.2000. The Statement of Objects and
Reasons give an indication of the intention of the Legislature read as follows:

"to provide that the Securities and Exchange Board of India be entrusted with powers with
regard to all matters relating to public issues and transfers including power to prosecute
defaulting companies and their directors."

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Therefore, from above it is clear that the legislative intent behind incorporation of Section
55A, of the legislature, was to vest SEBI with powers to investigate and adjudicate in all the
matter related to the public issue of securities.

b) Rule of Harmonious Construction

The purpose of the rule is to clarify where there is any obscurity or vagueness in the main
enactment then in order to make it consistent with the dominant object which it seems to
serve, the statutes must be read in harmony with each other.
In Sundaram Pillai & Ors. v. V.R. Pattabiraman & Ors1., the Honble Supreme Court of
India observed that the main part of Section 55A confers jurisdiction on SEBI with regard to
three categories i.e. issue of securities, transfer of securities and non-payment of dividend.
The expression "all other matters" mentioned in the explanation would refer to powers other
than the above mentioned categories. Further, it may also be remembered that the explanation
does not take away the powers conferred on SEBI by any other sections of the Companies
Act. Therefore, by virtue of the above two rules, the Apex Court concluded that SEBI has
powers to investigate and adjudicate the matter under SEBI Act 1992 and The Companies Act

Whether the hybrid OFCDs fall within the definition of "Securities" within the meaning
of Companies Act, SEBI Act and SCRA so as to vest SEBI with the jurisdiction to
investigate and adjudicate?

To resolve this question, it is first necessary to understand the nature of hybrid securities
themselves. Section 2(19A) of the Companies Act defines hybrid as to mean "any security
which has the character of more than one type of security, including their derivatives".
(Introduced through the Amendment Act No.53 of 2000). Section 2(45AA) of the Companies
Act defines securities as defined in clause (h) of section 2 of the SCR Act and includes
hybrids. Blacks Law Dictionary defines hybrid security as follows a security with features of
a debt instrument (such as bond) and an equity interest (such as share or stock) , which can be
exchanged for shares in the issuing corporation and is subject to stock-price fluctuations.
1 1985 AIR 582, 1985 SCR (2) 643

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A Ramayia sheds light on hybrid securities, and the features that distinguish them from other
securities. Hybrid Securities means securities which have some of the attributes of both debt
securities and equity securities. A type of security which, in the form of a debenture, contains
elements of indebtedness and elements of equity stock also is an example of a hybrid. In the
matter of Sudhir Shantilal Mehta vs. Central Bureau of Investigation 2 commenting on the
scope of securities encompassed by the definition of the term in Section 2(h) of the SCR Act,
the Honourable Supreme Court of India, observed that the definition of 'securities' is an
inclusive one and not exhaustive. It takes within its purview not only the matter specified
therein but also all other types of securities as commonly understood. The term 'securities',
thus, should be given an expansive meaning."

Transferability vs. Marketability

The relation between transferability and marketability of the securities is also an important
factor to address this issue. To explain this we may refer to the case of Dahiben Umedbhai
Patel v. Norman James Hamilton and Others3, the Bombay High Court observed:

"If one goes through the provisions of the Act, the scheme of the Act makes it clear that no
restrictive interpretation can be placed on the terms used in the Act. If the provisions of the
Act are looked at, it is clear that it relates not merely to securities which are listed but it also
relates to securities which may not be listed in any stock exchange. All that is required is that
there must be "marketability". It cannot be said that any security which is not listed on any
recognised stock exchange is not "marketable". As laid down by the Single Judge and the
Division Bench (in the judgments set out above) "marketability" implies ease of selling and
includes any security which is capable of being sold in the market. This does not mean that it
must be sold in the market. All bonds of Government companies are freely and easily
transferable. Normally, shares of public limited companies are also freely transferable. Any
security which is capable of being freely transferable is marketable. As is seen, the definition
2 [2009] INSC 1421 (7 August 2009).
3 (1983) 85 BOMLR 275

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of the word "security" under Section 2(h) is an inclusive definition. It is very wide. Thus all
securities which are marketable and which have an ease or facility of selling and/or which
have a high degree of liquidity and/ or are capable of being sold in a market i.e. stock
exchange, are included. ."
Based on the guidance of the Honourable High Court outlined above, I would like to
conclude 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. Hence, clearly the OFCDs issued by the two Companies to such a wide base of
investors who can transfer / sell these securities among themselves, if not to others are
evidently marketable .Also the OFCDs issued by the two Companies as marketable
securities and fall within the definition of "Securities" under Companies Act, SEBI Act and
SCRA so as to vest SEBI with the jurisdiction to investigate and adjudicate.

Whether the issue of OFCDs to millions of persons who subscribed to the issue is a
Private Placement so as not to fall within the purview of SEBI Regulations and various
provisions of Companies Act?

In the matter of Toubro Infotech and Industries Limited and Another vs. SEBI4, the Honble
SAT observed that "an invitation to subscription made to 50 or more persons ceases to be a
private placement."
Also first proviso to section 67(3) says that if an offer of securities is made to more than 49
persons then, it will not be a private placement and such offer is public offer. But it is
instructive to examine, whether the Companies Act provides any exemption from this rule.
The second proviso to Section 67(3) is the following:

"Provided further that nothing contained in the first proviso shall apply to the non-banking
financial companies or public financial institutions specified in section 4A of the Companies
Act, 1956."
Therefore, what this implies is that other than non-banking financial companies or public
financial institutions under Section 4A of the Companies Act, no other entity is exempted
4 2004 SCC OnLine SAT 47 : [2004] SAT 46

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from the Rule of 50. Also, the Supreme Court observed as the companies in the Sahara
matter elicited public demand for the OFCDs through issue of Information Memorandum
under Section 60B of the Companies Act, which is only meant for public issues. Thus the
Supreme Court concluded that the actions and intentions on the part of the two companies
clearly show that they wanted to issue securities to the public in the garb of a private
placement to bypass the various laws and regulations in relation to that. The Court observed
that the Sahara Companies have issued securities to more than the threshold statutory limit
fixed under proviso to Section 67(3) and hence violated the listing provisions attracting civil
and criminal liability. The Apex Court also observed that issue of OFCDs through circulation
of Information Memorandum to public attracted provisions of Section 60B of the Companies
Act, which required filing of prospectus under Section 60B (9) and since the companies did
not come out with a final prospectus on the closing of the offer and failed to register it with
SEBI, the Supreme Court held that there was violation of Section 60B of the Companies Act
attracting civil and criminal liability.

Whether listing provisions under Sec 73 mandatorily applies to all public issues or
depends upon the "intention of the company" to get listed?

Although Sahara argued that listing requirement under Section 73 of Companies Act is not
mandatory and applies to those companies only who "intend to get listed", no company can
be forced to get listed on a stock exchange and in such cases it will be a violation of corporate
autonomy. The Supreme Court held as long as the law is clear and unambiguous, and any
issue of securities is made to more than 49 persons as per Sec 67(3) of the Companies Act,
the intention of the companies to get listed does not matter at all and Sec 73 (1) is a
mandatory provision of law which companies are required to comply with. The Supreme
Court observed that Section 73(1) of the Act casts an obligation on every company intending
to offer shares or debentures to the public to apply on a stock exchange for listing of its
securities. In addition the Supreme Court observed that the maxim "acta exterior indicant
interiora secreta" (external action reveals inner secrets) applies with all force in the case of
Saharas. The Court observed that the contention that they did not want their securities listed
does not stand. The duty of listing flows from the act of issuing securities to the pubic
provided such offer is made to fifty or more than fifty persons. Any offering of securities to

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fifty or more is a public offering by virtue of Section 67(3) of the Companies Act, which the
Saharas very well knew, their subsequent actions and conducts unquestionably reveal so.

Additionally, Schedule II of the Companies Act prescribes the matters to be specified in the
prospectus. Paragraph 22 of this Schedule prescribes the final Declaration to be signed by the
Directors of the Company and reads as follows:

"Declaration: That all the relevant provisions of the Companies Act, 1956, and the guidelines
issued by the Government or the guidelines issued by the Securities and Exchange Board of
India established under section 3 of the Securities and Exchange Board of India Act, 1992, as
the case may be, have been complied with and no statement made in prospectus to the
provisions of the Companies Act, 1956 or the Securities Exchange Board of India Act, 1992
or rules made thereunder or guidelines issued as the case may be. Signatures of directors"5
Saharas conveniently omitted the reference to SEBI in the declaration given in the

Whether the Public Unlisted Companies (Preferential Allotment Rules) 2003 will apply in
this case?

The Public Unlisted Companies (Preferential Allotment Rules) 2003 Rules were framed by
the Central Government in exercise of the powers conferred under Section 81(1A) read with
Section 642 of the Companies Act to provide for rules applicable to the unlisted public
companies. Section 81 of the Companies Act deals with further issue of securities and only
gives pre-emptive rights to the existing shareholders of the company, so that subsequent offer
of securities have to be offered to them as their "rights". Section 81(1A), it may be noted, is
only an exception to the said rule, that the further shares may be offered to any persons
subject to passing a special resolution by the company in their general meeting.

5 Paragraph 22, Schedule II of the Companies Act.

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The Hon'ble Supreme Court observed that Section 81(1A) cannot, in any view, have an
overriding effect on the provisions relating to public issue. Even if armed with a special
resolution for any further issue of capital to person other than shareholders, it can only be
subjected to the provisions of Section 67 of the Company Act, that is if the offer is made to
fifty persons or more, it will have to be treated as public issue and not a private placement. A
public issue of securities will not become a preferential allotment on description of label. The
Proviso to Section 67(3) does not make any distinction between listed and unlisted public
companies or between preferential or ordinary allotment. Even prior to the introduction of the
proviso to Section 67(3), any issue of securities to the public required mandatory applications
for listing to one or more stock exchanges. After insertion of the proviso to Section 67(3) in
December 2000, private placement allowed under Section 67(3) was also restricted up to 49
persons. 2003 Rules apply only in the context of preferential allotment of unlisted companies.
However, if the preferential allotment is a public issue, then 2003 Rules would not apply.

Whether OFCDs are Convertible Bonds and whether exempted from application of SCRA
as per the provisions of sec 28(1)(b)?

The inapplicability of SCR Act, as contemplated in Section 28(1)(b), is not to the convertible
bonds, but to the entitlement of a person to whom such share, warrant or convertible bond has
been issued, to have shares at his option. The Act is, therefore, inapplicable only to the
options or rights or entitlement that are attached to the bond/warrant and not to the
bond/warrant itself. The expression "insofar as it entitles the person" clearly indicates that it
was not intended to exclude convertible bonds as a class. Section 28(1)(b), therefore, clearly
indicates that it is only the convertible bonds and share/warrant of the type referred to therein
that are excluded from the applicability of the SCR Act and not debentures which are separate
category of securities in the definition contained in Section 2(h) of SCR Act.

In Narendra Kumar Maheshwari vs. Union of India 6, the Honourable Supreme Court
observed that in the various guidelines applicable to such instruments, compulsorily
convertible debentures are regarded as equity and not as a loan or debt. One of the critical
6 1989 AIR 2138, 1989 SCR (3)43

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considerations adopted by the Supreme Court of India in arriving at such a conclusion is that
a compulsorily convertible debenture does not postulate any repayment of the principal. It is
evident that all these six bonds issued by Sahara postulate a repayment of the principal. The
repayment of the principal will be at the option of the investor. The investor holds the option,
which gives her a right to determine whether she would like to get her principal back in cash
or as equity shares. Hence, Optionally Fully Convertible Debentures unlike their counterpart
category of Compulsorily Convertible Debentures do not share the characteristic pointed out
by the Honourable Supreme Court in arriving at the conclusion that Compulsorily
Convertible Debentures are more of equity than of debentures. Thus, 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 are postulated.

Application of DIP and ICDR Regulations 2009.

In the matter of Yogesh M. Bhansali (HUF) and others v. SEBI7, the SAT held that the SEBI
DIP Guidelines of 2000 were statutory in nature.
In the matter of Kimsuk Krishna Sinha vs SEBI and Ors, 8 the Honble Delhi High Court
observed that "It hardly needs to be stated that the SEBI (DIP) Guidelines are of statutory
character. They are enforceable as such."
In the matter of Toubro Infotech and Industries Limited and Another vs. SEBI, 9 the SAT
observed that: "DIP Guidelines had statutory force since they were framed by SEBI in
exercise of its powers conferred on it under Sections 11 and 11A of the SEBI Act. Powers
have been conferred on SEBI to protect the interests of the investors in securities and regulate
the Pageissue of prospectus, offer documents or advertisement soliciting money through the
issue of prospectus."
Regulation 111(1) of the SEBI (ICDR) Regulations, 2009 rescinded the DIP Guidelines from
26.8.2009 and clause (2) of Regulation 111 contains the saving clause. The expression
7 2009 SCC OnLine SAT 129 : [2009] SAT 129
8 (W.P.(C) 7976 of 2007 & CM APPL No. 15084/07),
9 2004 SCC OnLine SAT 47 : [2004] SAT 46

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"anything done" or "any action taken" under Regulation 111(1) are of wide import and would
take anything done by the company omitted to be done which they legally ought to have
done. Non-performance of statutory obligations purposely or otherwise may also fall within
the above mentioned expressions. Failure to take any action by SEBI under DIP Guidelines,
in spite of the fact that the Sahara companies did not discharge their statutory obligation,
would not be a ground to contend that 2009 Regulations would not apply as also the saving
clause. The aforesaid ICDR Regulations will apply to all companies whether listed or
unlisted. Further, in the instant case, SEBI was not informed of the issuance of securities by
the Saharas while the DIP Guidelines were in force and the Sahara companies continued to
mobilize funds from the public which was nothing but continued violation which started
when the DIP Guidelines were in force and also when they were replaced by 2009
Regulations. Analysis:


1. End of road for Sahara?
This judgment may not be the end of road for the Sahara Group. It can be reviewed by a
review petition, and on dismissal of a review petition, further by a curative petition. However,
the grounds for admitting such petitions are very limited, like for admitting a review petition,
there should be a discovery of new and important matter of evidence, or some mistake or
error apparent on the face of the record. Similarly, for a curative petition, which is ought to be
treated as a rarity, there should be a gross miscarriage of justice resulting from violation of
principles of natural justice as mentioned in the case of Rupa Hurra vs. Ashok Hurra &
Another10, or the judgment should adversely affect a person and he should not be a party to
the dispute, or if he was a party, he should not have been served with notice of the
proceedings and the matter should have proceeded as if he had notice.
2. Jurisdiction of SEBI versus ROC:
This judgment is a very crucial one for SEBI as it not only affirms its jurisdiction and power
to administer various provisions of the Companies Act, but also clarifies that even unlisted
companies (whether private or public) which intend to (by conduct or otherwise) get their
securities listed on any stock exchange now fall within the radar of SEBI. Thus, the general
10 AIR 2002 SC 177

20 | P a g e
perception that SEBI can only monitor listed companies and it does not have jurisdiction over
unlisted companies may not be entirely correct. Also, the role of ROC in such cases may now
be limited.

3. The Public Issue vs. Private Placement debate:

By clarifying that the offer of security to 50 or more persons would qualify as a public issue,
the SC has brought some clarity to this long standing debate. Earlier, there was an ambiguity
as to whether an offer of security to more than 49 persons would ipso facto become a public
issue or not. Though the Statement of Objects and Reasons for the Companies (Amendment)
Act, 2000 provided that 'any offer of shares or debentures to more than 50 persons shall be
treated as a public issue with suitable modification in the case of public financial institutions
and non-banking financial companies, however, the Section 67 of the Companies Act does
not expressly mention so.

Having said the above, there is still an ambiguity as to whether multiple offers of security by
any company at reasonable intervals of time, with each offer being to less than 49 persons but
in aggregate more than 49 persons, would qualify as public issue or not. Also, so far the
emphasis has always been on an 'offer' to 50 or more persons. What constitutes 'offer' has not
been addressed by the Court in the Sahara Judgement. For instance, does just addressing a
gathering of persons constitute an offer / invitation, or is it the actual act of distributing an IM
which constitutes an offer / invitation. Further, it is not clear as to what happens when a
company does not make an offer or invitation to the public, but only issues its securities to
more than 49 persons at their instance. Though unlikely, but whether such cases would fall
outside the purview of public issue is yet to be seen.

4. Transferable means marketable:

Though, not a ratio decidendi in this case, however, the SC has stated that any security which
is capable of being freely transferable is marketable. This may have some implications,
especially, in case of stamp duty. For instance, the Indian Stamp Act, 1899 defines the term
'marketable' as 'security of such a description as to be capable of being sold in any stock
market in India or in the United Kingdom. Sans the above statement from the SC, one
possible interpretation could be that unless the security is not listed, it cannot be sold in any

21 | P a g e
stock market, and hence only listed securities should fall within the purview of marketable
securities. However, as per the statement of the SC, the moment a security is a transferable, it
becomes marketable. Hence, there arises an ambiguity as to whether an unlisted transferable
security would also be considered 'capable of being sold in a stock market' and hence
'marketable' for the purpose of the stamp duty.

5. Criminal sanctions:
No criminal sanction has been imposed on the Appellants or the promoters / directors in the
instant case. However, the SC has directed the Appellants to furnish details with supporting
documents to SEBI. SEBI has been asked to ascertain the genuineness of the subscribers with
the help of investigating officers / experts in finance and accounts. If the event, SEBI suspects
the genuineness of the subscribers, they are required to give the Appellants a hearing.
However, the SC has directed that the decision of SEBI (WTM) in this behalf shall be final
and binding on the Appellants as well as the subscribers.

Under the SEBI Act, SEBI has inter-alia been granted with powers to impose imprisonment
up to 10 years. Though, this power is used sparingly by SEBI, however, they have not been
shy when the case demands. For instance, in the past, SEBI has imposed criminal sanctions
against the managing director of VR Mathur Mass Communications Limited under Sections
63 and 68 of Companies Act for material misstatements in the prospectus of the company
during its public issue of shares. It has also in case of Gold star Teak Forest India Ltd. &
others, as well as Angel Green Forest Ltd. & others, imposed rigorous imprisonment of 6
months on the accused for violation under the SEBI (Collective Investment Schemes)
Regulations, 1999.

If SEBI finds the information submitted by the Appellants about the applicants or refunds
already made, to be fictitious or concocted, SEBI may be at liberty to use its powers to
impose sanctions as it may deem fit.

22 | P a g e

This landmark Judgment is undoubtedly a milestone in India's Corporate landscape, as it not
only sanctifies SEBI's absolute power to investigate into the matters of listed companies, but
also into the matters pertaining to the unlisted companies. It vests SEBI with myriad powers
to investigate into any matter concerning the interest of the investors even if it pertains to
companies which are not listed. It clarifies significant points of law and removes the grey
areas relating to issue of securities by the so called unlisted companies taking advantage of
the loopholes of law. Also, in the matters of jurisdiction, this Judgment has bridged the
jurisdictional gap which previously existed between that of the Ministry of Corporate Affairs
("MCA") and SEBI. It is hoped that in future this judgment will be instrumental in preventing
turf war between the MCA and SEBI concerning jurisdictional issues as it categorically
iterates that in the matter of public interest, both SEBI and MCA will have concurrent
jurisdiction. This is a welcome relief, as in the past many defaulting parties have taken
advantage of this jurisdictional lacuna and have been able to easily get off the hooks. Sahara
has already filed a review petition against this judgment before the Supreme Court. In a
public statement they have also said even if the review petition fails, they will challenge the
same vide a curative petition before the Supreme Court. Whether Sahara gets any relief in the
near future remains to be seen. It however, seems to be a tough legal battle ahead of them.


Appeal No.141/2003, SAT order dated 19.07.2004.

1990 (Suppl.) SCC 440
(decided on September 23, 2009). See also, SPS International v. Vijay Remedies [1998]93
Comp Case 547 (CLB) where CLB also proceeded with the assumption of taking the

"guidelines" as "regulations".