Sahara challenges govt stand on OFCDs issue at SAT

Why did the central government register its debenture-issue prospectus and then take well over a year to suddenly say it didn’t agree, asked counsel for the Sahara group of companies at the Securities Appellate Tribunal (SAT) today.

Sahara India Real Estate Corporation and Sahara Housing Investment Corporation are contesting an order by the Securities and Exchange Board of India (Sebi) to refund money collected by issuing Optionally Fully Convertible Debentures (OFCDs). In an affidavit filed at SAT last week, the central government supported Sebi’s action.

Saying the stand was “irresponsible”, Sahara counsel Fali S Nariman said the registrar of companies was not just a “record keeper”. It was bound to refuse documents filed by companies if these were not in order. “You can’t come to me after two and a half years and say all my documents are false and illegal,” he said.

SAT also directed the government to spell out what decision it had taken on the matter of jurisdiction when it had asked Sahara for details of the OFCD issue in October 2010, even while a probe by the market regulator was on.

Sahara contended it had not concealed any detail in the prospectus and had made clear its intention not to list the OFCDs. The counsel argued extensively on Section 55A of the Companies Act, which he said limited the powers of Sebi to companies that are listed and those intending to list. The Sahara group companies, having categorically said in their prospectus that they did not intend to list the OFCDs, would not come under Sebi’s jurisdiction, the counsel argued.

However, SAT presiding officer N K Sodhi said Section 55A did not have the effect of curtailing the powers vested on Sebi by Sections 11 and 11A of the Sebi Act.

Nariman will continue his arguments on the section and other important questions of law, including whether the OFCDs are ‘securities’ as defined under the Sebi Act. According to Sahara, the instruments are “hybrids” and do not come under the definition of securities.

Tomorrow, SAT will also hear an application filed by the Mumbai-based Investors and Consumer Guidance Society to make itself a party to the dispute. The investor group’s lawyer said, “The question of law on Section 55 A has a wider implication on the investor community. We will support Sebi.”