SAT Upholds SEBI Order Directing Sahara Group Firm SICCL To Refund ₹14,106 Crore Raised Through OFCDs

The Securities Appellate Tribunal (SAT) at Mumbai on Monday dismissed appeals filed by Sahara India Commercial Corporation Limited (SICCL) and its directors challenging SEBI's directions to refund Rs 14,106 crore raised from nearly 1.98 crore investors through Optionally Fully Convertible Debentures (OFCDs).

A coram of Presiding Officer Justice P.S. Dinesh Kumar and Technical Members Meera Swarup and Dr. Dheeraj Bhatnagar passed the order.

It observed, “We have already held that the issue was a not a 'private placement' but a 'Public Issue'. The Company has collected ₹14,106 crores from 1.98 Crore investors and not repaid the same. In view of the gravity and ramification of the case, we are of the view that Directors are liable under Section 62 of the Companies Act, 1956"

The appeals arose from a SEBI order directing SICCL, its directors and promoter, and Sahara India, the arranger for the OFCD issue, along with certain managers and officials to refund amounts raised through OFCDs, disclose inventory, issue public notices and face market restrictions under the SEBI Act.

SICCL, a Sahara Group company, had issued OFCDs between 1998 and 2008. During SEBI's investigation into OFCD issuances by other Sahara group entities, it discovered that SICCL had filed a Red Herring Prospectus and a final prospectus with the Registrar of Companies to raise funds through OFCDs.

An inspection by the Ministry of Corporate Affairs indicated that the company had raised about Rs 14,106 crore from nearly 1.98 crore investors between July 6, 1998 and June 30, 2008.

SEBI thereafter issued a show cause notice on February 20, 2015 alleging that the OFCD issuance amounted to a public offer and that the company had violated provisions of the Companies Act and SEBI regulations.

SICCL contended that the OFCDs were issued as a private placement to targeted persons and therefore did not amount to a public offer. SEBI, on the other hand, argued that there was no document on record to show that the OFCDs were issued only to targeted persons. It pointed out that the company's resolution for private placement did not specify the names or details of the proposed investors.

The Tribunal noted that after the amendment to Section 67 of the Companies Act, 1956, any offer or invitation made to fifty or more persons would be treated as a public offer. It further noted that under Section 73 every company offering debentures was required to obtain permission from a stock exchange.

“This means, even if the offer is made directly to the subscriber (targeted person) or even as a domestic concern, the rigor of Section 73 of Companies Act, 1956 shall apply if the number of persons to whom the offer exceeded fifty persons,” the tribunal said.

Observing that the company had neither obtained permission from a stock exchange nor obtained registration under Section 12(1-B) of the SEBI Act, the tribunal held that SICCL had violated Section 73 of the Companies Act, 1956, and that the OFCDs issued by the company amounted to a public offer.

The tribunal also rejected SICCL's contention of delay, holding that SEBI initiated action after investigations and receipt of the MCA report and that the time taken could not be considered unreasonable.

“In the light of the fact that this case involves collection of money from more than 1.98 Crore people, the time taken by SEBI in initiating proceeding is not wholly unreasonable as SEBI was required to look into several documents running to thousands of pages,” it held.

Accordingly, the tribunal dismissed the appeals filed by SICCL and its directors. However, it allowed the appeal filed by the managers and the company secretary, holding that the managers, being paid employees of the company, could not be held liable for the acts and omissions of the company and its directors.

For Appellants: Senior Advocate J.P Sen, Advocates Kunal Vaishnav, Afreen Thanevala, Gautam Talukdar, Simranjeet Singh, Yajat Gulia, Kazan Shroff and Vikash Kumar

For Respondent: Senior Advocate Chetan Kapadia, Advocates Suraj Chaudhary, Mihir Mody, Vijay Chockalingam, Karthik K.P. and Aavish Shetty