Case Name and Citation:

The Supreme Court of India , Civil Appeal No. 9813 of 2011

Facts of the case

From 25th April 2008 to 13th April 2011, Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) floated an issue of Optionally Fully Convertible Debentures (OFCDs) and started collecting subscriptions from investors.

The company had over Rs. 17,656 crore during that period. In the guise of  “Private Placement”, the amount was collected from about 30 million investors. This act was performed without complying with the requisites relevant to the public offerings of the securities. The Whole Time Member of SEBI was taking cognizance of the act.

On June 23rd ,2011 they passed an order. The order directed two companies to refund the money to the investors which was collected from the them. Additionally, the promoters of the two companies along with Mr. Subrata Roy were restrained from accessing the securities market until further orders. An appeal was made before the Securities Appellate Tribunal (SAT) by the Sahara. This appeal was against the order of the Whole Time Member.

After hearing, on 18th Oct, 2011 the SAT confirmed and maintained the order of the Whole Time Member. Subsequently an appeal was made by Sahara before the Supreme Court of India against the order of the SAT.

Issue Raised

Issue 1. Whether SEBI has the power to adjudicate and investigate in the given matter according to Section 11, 11A, 11B of SEBI Act and under Section 55A of the Companies Act. Or whether the jurisdiction under Section 55A (c) of the Companies Act is with the Ministry of Corporate Affairs (MCA).

Issue 2. Whether the hybrid OFCDs comes under the definition of “Securities” within the meaning of SEBI Act, Companies Act and The Securities Contracts (Regulation) Act (SCRA) for vesting SEBI with the jurisdiction to adjudicate and investigate.

Issue 3. Whether the issue of the OFCDs to millions of persons who had subscribed to that issue is a Private Placement so that not to come within the scope of SEBI Regulations and various other provisions of Companies Act.

Issue 4. Whether listing of the provisions under Section 73 compulsorily applies to all the public issues or it only depends on the “intention of the company” for getting listed.

Issue 5. Whether the Public Unlisted Companies (Preferential Allotment Rules) 2003 will be applied in this case or not.

Issue 6. Whether OFCDs are Convertible Bonds and whether they are exempted from application of SCRA as per the provisions of Section 28(1)(b).


Judgment for issue 1

In the present matter the

 Supreme Court held that SEBI have power to adjudicate and investigate. Also the SC said that according to the SEBI Act, the SEBI has special powers for doing investigation and adjudication to protect the interests of the investors.

This special power of the SEBI do not show disrespectful attitude to any provisions which are present in any law. They are an analogous to other law and it should be read in harmonious manner with other provisions. In the present matter where the interests of the investors are at stake, there is no conflict of jurisdiction between the SEBI and the MCA.

For supporting this view, the Supreme Court gave special importance to the legislative intent, and also to the statement of objectives for enacting the SEBI Act and the inserting Section 55A in the Companies Act to authorize special powers to SEBI in the matters of issue, allotment and transfer of the securities.

The SC observed that according to provisions mentioned under Section 55A of the Companies Act, so far matters connected to issue and transfer of the securities and non-payment of the dividend, the SEBI has the power to administer in the case of listed public companies and also in the case of those public companies which intended of getting their securities listed on a recognized and identified stock exchange in India.

Judgment for issue 2-

The OFCDs issued two companies which are in the nature of “hybrid” instruments. The Supreme Court held that even though the OFCDs had issued that, it do not cease to be a “Security” within the meaning of the SEBI Act, Companies Act, and SCRA.

It says in spite of having the definition of “Securities” under section 2(h) of SCRA, it doesn’t contain the term “hybrid instruments”. The definition which is provided in the Act is covering all the “Marketable securities”.

In this case such OFCDs were offered to number of people, so the question about the marketability of such instrument do not arise. Additionally, since the name itself was comprise of the term “Debenture”, it is considered as a security according to the provisions of the SEBI Act, Companies Act and SCRA.

Judgment for issue 3-

The Supreme Court held that even though the intention of the companies was of making the issue of OFCDs look as a private placement, but when such securities are given to more than 50 persons, it ceases to be so.

This is specifically mentioned in Section 67(3). Hence the SEBI will have jurisdiction in that matter. Here, the issuer has to act in accordance with the provisions of the legal framework for a public issue. Although Sahara companies opposed that they do not fall under the provisos to Sec 67 (3) as the Information memorandum mentioned that OFCDs were issued only to those belonging to Sahara Group.

No public offer was present, but the SC held that as the companies elicited public demand for OFCDs via issue of Information Memorandum under Sec 60B of the Companies Act, is only meant for Public Issues. Additionally, observed that the issue was not for persons associated to the Sahara Group as introducers were required for someone to subscribe to OFCDs and in the present case introducer will not be needed because a person is already associated to Sahara Group.

Hence, the SC concluded that it can be clearly noticed from the intension and actions of the two companies that they desired to issue securities to public in the garb of a private placement for bypassing various laws and regulations in relation to that. Moreover, SC observed, Sahara companies had violated the provisions of Sec 67(3) as they had issued securities to more than the statutory limit.

Hence attracting civil and criminal liability. Also, the Supreme Court held that the violation of sec 60B of the Companies Act had took place. Because issue of OFCDs by circulation of IM to public had attracted provisions of Section 60B of the Companies Act, which are required in filing prospectus under Sec 60B(9) and companies had not given a final prospectus on closing of the offer and also can’t manage to register it with SEBI.

Judgment for issue 4-

The Sahara argued that listing requirement under Section 73 of Companies Act is optional and it applies only to those companies who “intend to get listed”, and no company can be forced for getting listed on a stock exchange or else it will be violation of corporate autonomy.

However, the SC refused this and held that, Sec 73 (1) is a compulsory provision of law which companies should comply with and any issue of securities exceeds 49 persons according to Sec 67(3) of the Companies Act, the intention of companies to get listed do not matter at all. 

Section 73(1) of the Act puts obligation on every company who is intending to offer debentures or shares to public for applying on a stock exchange to list its securities. Also, the maxim ”acta exterior indicant interiora secreta”  i.e external action reveals inner secrets applies in this case of Saharas.

The court also held that, if securities to fifty or more are offered, it is a public offering as per Section 67(3) of the Companies Act.

Judgment for issue 5-

According to the Unlisted Public Companies (Preferential Allotment) Rules 2003, preferential allotment by unlisted public companies on private placement was given authorization without any restriction on numbers according to Section 67(3) of the Companies Act, argued by the companies.

Moreover, Sec 67(3) is applicable to Preferential Allotment which was made by unlisted public companies in 2011 by amending the 2003 rules which was with prospective effect and not with retrospective effect. Therefore, before the 2011 Rules were made there was freedom to make preferential allotment to more than 50 persons also.

Nevertheless, the SC disagreed and observed that 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.

Judgment for issue 6-

Here the Supreme Court held that 28(1)(b), accurately points out that only the convertible bonds and share or warrant of the type referred here are excluded from applicability of SCRA and not debentures which are another category of securities in definition which is present in Section 2(h) of SCRA.


The judgment not only consecrates SEBI’s absolute power to investigate in the matters of listed companies, but also in matters pertaining to unlisted companies. It removes the grey areas of securities issues by the unlisted companies taking advantage of loopholes of the law. This is a landmark judgement in India’s corporate landscape.


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