SAT orders Sahara to refund Rs 24,029 cr in six weeks
The Securities Appellate Tribunal (SAT) today directed two Sahara group firms to refund a sum of Rs 24,029 crore to 29.6 million investors who had subscribed to its optionally fully convertible debentures (OFCD). The tribunal also gave a timeline of six weeks to the companies to complete this unprecedented and massive refund operation.
"Both the appeals are dismissed and the impugned order upheld. The appellants in both the appeals shall now repay within six weeks from today the amount collected from the investors on the terms as set out by the whole-time member in the impugned order," the tribunal ordered.
A counsel for Sahara indicated that the company will move the Supreme Court. "We are going through the order. We will take a call soon," the counsel said.
According to the affidavits filed by the companies, Sahara India Real Estate had an outstanding of Rs 17,656 crore to 22.1 million investors and Sahara Housing Investment Corporation had an investor base of 7.5 million and an outstanding of Rs 6,373 crore as on August 31, 2011.
Section 67 (3) of Companies Act
A proviso to the section 67(3) of the Companies Act, 1956, which was introduced in 2000 became a crucial factor in the tribunal's decision. The proviso introduced by the Amending Act 53 of 2000 with effect from December 13, 2000 and it reads as under: "Provided 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."
SAT observed that, "With the introduction of this proviso, a number has been fixed beyond which an offer/invitation will become a public issue. The language of the proviso is unambiguous and Parliament has made it clear beyond doubt that any invitation or offer of shares or debentures made to fifty persons or more shall be a public offer.”
The tribunal said the appeals do not stand not only on law but also on the facts of the case. “We are amazed that both the company and the housing company have collected huge sums of money close to Rs 40,000 crore from the unsuspecting investors without putting in place investor protection measures and without making the necessary disclosures to them or to Sebi thereby making a mockery of the regulatory system prevailing in the capital market. In the circumstances, Sebi was justified in taking action against the company,” the tribunal observed.
Section 55A of the Companies Act
Sahara's arguments revolved around the Section 55A of the companies Act. Fali Nariman, senior counsel for Sahara had forcefully argued that the company being an unlisted company which did not intend to get its securities listed falls in clause (c) of section 55A and, therefore, it could be regulated only by the central government and that Sebi had no jurisdiction in this regard.
“We have given our serious consideration to this argument and are unable to accept the same,” SAT said. SAT observed that the conduct of the parties has to be taken into account, while deciding intent. “In our view, the company intended to get the OFCDs listed though it professed to the contrary.”
Intention of the company must mean legal intention which has necessarily to be judged from the facts and circumstances of the case and from its conduct. “Having gone to the public by circulating the information memorandum it cannot be heard to say that it did not intend to get the securities listed. When a company goes to the public, law mandates that it must get its securities listed and, therefore, in law it will be assumed that it intended to get its securities listed,” SAT said in the 55-page order.
Regulation 3 of ICDR (Issue of Capital and Disclosure Requirements) Regulations
Sahara had contended that the regulations apply only to listed companies and since the companies are an unlisted, they are not governed by the regulations and the impugned order is without jurisdiction.
"A plain reading of Regulation 3 leaves no room for doubt that the regulations apply to all public issues.... We have already held in the earlier part of our order that the issue of OFCD was a public issue and, therefore, it is squarely governed by the regulations. Again, Regulation 3(a) makes no distinction between listed or unlisted public issues nor does it differentiate between listed and unlisted companies," the order said.