Imperative to lift corporate veil: Sebi on Sahara fund-raising

Two Sahara entities were raising Rs 40,000 crore through debentures

The Securities and Exchange Board of India (Sebi) has castigated the Sahara Group for raising thousands of crores in violation of the regulatory framework, and said there was a clear “imperative to lift the corporate veil.”

Rejecting the contention of two Sahara Group entities and its supremo, Subrata Roy, that mopping up funds through their debenture issue — optionally fully convertible debentures (OFCDs) — was outside its purview, Sebi barred them from approaching the public for raising money till further orders. Sebi also sent its interim order to the ministry of corporate affairs for action on any violation of the Companies Act by the two unlisted companies.

Reacting sharply to the order that questions attempts to raise Rs 40,000 crore by the two entities, Sahara India Real Estate Corporation (SIRECL) and Sahara Housing Investment Corporation, a Sahara spokesperson termed the Sebi action ‘wrong’. Citing legal opinion from former Chief Justice of India Justice A M Ahmadi and C Achuthan, presiding officers of the Securities Appellate Tribunal and other legal luminaries, he said in a statement, “All these opinions clearly stated this matter is not under the jurisdiction of Sebi. The order is very unreasonable and arbitrary.”

The two companies were raising Rs 40,000 crore through issuance of OFCDs, whereas only Rs 27,000 crore was raised collectively in the entire capital market by 60 companies during two years ending 2009-10, Sebi said.

“This is a fit case where in the interest of investors, there is a clear imperative to lift the corporate veil and identify the individuals behind the solicitation of funds. Needless to say, it would be an indefensible failure on the part of Sebi if it were to allow investors to be imperilled,” it said. The matter came to light when Sebi was examining complaints alleging non-disclosure of fund raising by two Sahara entities in the draft papers for the proposed initial public offering of Sahara Prime City.

Pending the investigations, Sebi called for immediate action to protect investors and barred the two companies and its promoters from directly or indirectly from raising money from public. It, however, gave them 30 days time to avail of an opportunity of personal hearing or inspect the relevant documents.

In its statement, Sahara said it had earlier written to Sebi “where it is clearly mentioned that this OFCD matter is definitely outside the jurisdiction of Sebi and we have given them clear opinions that it’s a ministry of corporate affairs matter.”

Asserting the need for its intervention for the safety of funds of the investors, Sebi said if unchecked, it would lead to ‘further unbridled’ solicitation of money without complying with the statutory requirement. Questioning Sahara’s contention that the funds were raised through private placement involving less than 50 persons, the order said according to the information by SIRECL, it raised Rs 4,834 crore.