On 30th September 2009, (a real estate venture of Sahara India) filed a red herring prospectus for was submitted to SEBI for approval for its IPO. At the time of analysis of DRHP of SEBI  Sahara Prime City, SEBI noticed unusual fundraising activity in the 2 firms- SHICL and  DIRECT. On 25th December 2009 and on 4th January 2010, SEBI received a complaint against the two companies. It was alleged that ― SHICL and SIRECL were wrongfully issuing OFCD‘s and SEBI ordered an investigation of the two companies and asked for a clarification of the fundraising from Sahara Group. 


SEBI in its investigation found that Sahara India had floated 2 companies. Sahara India Real  Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation (SHIC) in the year 2005. In AGMs held by both the companies, a resolution was passed to raise funds through private placement of optionally fully convertible debentures (OFCDs). DIRECT  collected a total of Rs. 17,656.53 crores and SHICL collected Rs. 6373.20 crores (net value)  between 20th November 2009 and 13th April 2011. Thus both the companies collected Rs.  24,029.73 crores over 3 years. 

In the investigation, it was found that the companies raised funds from the issue of OFCDs from  2-2.5 crore investors without taking permission from SEBI. When a company issues OFCDs to more than 50 investors it requires prior approval of SEBI. The two above companies failed to take before issuing OFCDs. Also, the process of raising funds using OFCDs has to be completed within 6 weeks. Whereas the companies took 3  years.  


SEBI passed an interim order confirming that there was illegal activity regarding the issuance of OFCDs. And instructed SHICL and SIRECL to refund the money to the investors with 15% interest. Also, it instituted a ban on the two companies from raising funds using OFCDs. 

Following this, Sahara filed a petition in the Allahabad High Court and challenged the order of SEBI. In December 2010 Allahabad high court issued a stay on the SEBI order but in April  2011 Allahabad removed the stay. 

Then Sahara group moved to Securities Appellate Tribunal (SAT) and challenged SEBI’s order. SAT reiterated the order given by SEBI and ordered SHICL and SIRECL. The two companies of Sahara Group have to refund the money to the investors with 15% interest. 

SAT directed SHICL and SIRECL to pay Rs. 17,400 crores + 15% interest by 28th  November, 2011.Then Sahara Group decided to challenge the order of SAT before Supreme  Court. 


Q1: Whether SEBI has jurisdiction over the matter under S.55A of the Companies Act,  1956? 

The first question was whether SEBI has jurisdiction on the matter even though SHICL and SIRECL are not publicly listed companies. Also, they have mentioned in their prospectus that they do not wish to list their securities on any stock exchange in India at any point in time in the future. 


Under S.55A of the Companies Act, 1956, there are 3 categories of  companies: 

Provision 55A (a) – those companies that have been publicly listed. 

55A (b) – those companies that wish to be publicly listed. 

55A (c) – remaining companies that come under the jurisdiction of the Central Government  and the MCA 

The Counsel for the Sahara Group was of the view that under S. 55 A, the companies fall under the third category of companies. And they come under the jurisdiction of the Central Government. Thus, should be answerable only to the Ministry of Corporate Affairs (MCA). He further told  Supreme Court that they had fully cooperated with the MCA. And when asked for information and only had to file a final prospectus with the MCA by S. 60B.  

The closing prospectus would provide all the information which was required by MCA. He further added that the companies had been registered with 2 separate ROCs – in Kanpur and  Maharashtra. And ROCs registered the companies without an issue. The Council also reiterated that there was only a private placement of OFCDs. Application for the issue of the OFCDs was distributed only among friends, family members, and associates of the board members and to trusted investors by way of an information memorandum. This further strengthened the stand of the companies that they belonged to S. 55 A (c). 

SEBI has jurisdiction over companies coming under the ambit of S. 55A (a) and S. 55A (b). Thus, SEBI had jurisdiction over SHICL and  DIRECT. 

Q.2 Whether the hybrid OFCDs fall within the definition of “Securities” within the meaning of the Companies Act, SEBI Act, and SCRA? 

It was stated by Sahara Group that the OFCDs are of the nature of ‘hybrid securities’. The  SC held that although the OFCDs issued by the two companies are like “hybrid”  instruments, it does not cease to be a “Security” within the meaning of the Companies Act, SEBI  Act, and SCRA.  

Hybrid securities were included in the definition of the term ―securities in the Companies  Act through the 2003 Amendment. But no changes were made under SEBI and SCRA. The definition of “Securities” under section 2(h) of SCRA does not contain the term “hybrid instruments”. The definition as provided in the Act is an inclusive one and covers all  “Marketable securities”. As in this case, such OFCDs were offered to around 2-2.5 crore people there is no question about the marketability of such instrument. OFCDs are a type of debentures, having the word debentures in the name. Thus SC came to the conclusion that OFCDs are marketable securities and hence included within the ambit of S. 2 (h) of the SCR  Act.  

Q.3 Whether the issue of OFCDs to 30 million people qualify as a private placement? 

As per the Companies Act, 1956, S.67 (3), if a public company issues an offer/ invitation to purchase securities to less than 50 people, it is not regarded as a public offer. The Companies  Act did not specify private placement. But only mentioned certain cases where an offer for securities by a listed company was not a public offer. 

In the case of “Toubro Infotech and Industries Limited and Another vs. SEBI”, the Hon’ble  SAT observed that “an invitation to subscription made to 50 or more persons ceases to be a  private placement.” 

Sahara used the ambiguity of law to its benefit and interpreted it as ―private placement is a  situation wherein each investor receives a special invitation to purchase the securities and  Sahara tried to sell securities to 30 million people in the name of the private placement.  However, in the judgment as well it has been clearly stated by K.S. Radhakrishnan, J. that a  private placement is limited to 50 people receiving invitations to purchase securities.

As soon as the number raises beyond 50, a private placement ceases to exist. And prior permission from SEBI is required, whether it is a listed or an unlisted company. Thus the issue of OFCDs to  30 million people did not qualify as a private placement which was contended by the Sahara  Group.  


The Supreme Court ordered Sahara Group to submit the list of OFCD Holders with SEBI. And ordered them to deposit the money of the investors within 90 days with 15 % interest so that  SEBI could provide the money to the investors.  


After the decision, Sahara Group sent details of OFCD Holders in around 127 trucks. Some of them got rejected by SEBI on account of arriving late with them. On investigation of the documents, SEBI found that the details of the OFCD holders given by Sahara Group were not properly mentioned.

Sahara Group failed to deposit the money of the OFCD holders within 3 months along with 15% interest with SEBI. After which the Supreme Court directed Sahara Group to deposit money to SEBI in 3 installments. Out of 2-2.5 crore investors, only 4600 came to claim their money, whereas Sahara Group said that it had already paid money to the rest investors. 

Thereafter SEBI asked the Group to provide the proof of the amount which it has returned and the source from where it got the money to return the money to the investors, wherein  Sahara Group failed to proof and evidence of the money returned to investors and gave no clarification regarding the source of the funds.  

After Sahara Group failed to replay its 2nd and 3rd installments on the deadline firstly its bank accounts were frozen and then started attaching its movable and immovable properties. 

Later on 24th February 2014, Subrata Roy along with 2 directors of the company was jailed.  Later Enforcement Directorate instituted a case of money laundering on Sahara Group. 

Currently, all the matters are under the consideration of the court. As per the latest update’s available on 24th January 2020 Supreme Court has exempted Sahara group chief Subrata Roy  from personal appearance in court.

Edited by Megha Jain


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