Market regulator’s order will be implemented only after apex court’s order.
The Supreme Court on Thursday asked market regulator Sebi to proceed with its investigation into the nature of the investment scheme floated by the Sahara Group to raise money from the public.
Making its apprehension clear that investors may not have any knowledge about the products and might feel cheated as in the Harshad Mehta scam of 1990’s, a three-judge bench headed by Chief Justice S H Kapadia said the court was not clear about the term optionally fully convertible debentures (OFCD) and wondered how ordinary investors could understand it.
| THE CASE TILL NOW |
| JUNE 2008: RBI bars Sahara India Financial Corp, from accepting any deposits beyond June 30, 2011. Asks company to pay back all investors by June 30, 2015 |
| APRIL-JUNE 2008: Sahara India Real Estate starts raising money through optionally fully convertible debentures (OFCDs) |
| JUNE 2009: OFCD mobilisation touches Rs 4,843 crore. Sahara Housing Invest Corporation also starts collecting |
| SEPTEMBER 2009: Sahara Prime City files with Sebi for an IPO |
| JAN- JUNE 2010: While processing the IPO, Sebi finds OFCDs violated public issue norms. |
| NOVEMBER 24, 2010: Sebi bans Sahara entities, including chief Subrata Roy |
| DECEMBER 13, 2010: The Lucknow bench of the Allahabad high court stays the Sebi order. (final decision pending) |
| JANUARY 4, 2011: Supreme Court directs Sahara to share information with Sebi, without going into merits |
| APRIL 7, 2011: Sahara does not share information; Allahabad court lifts the stay on Sebi order, putting on hold all money raising activity |
| APRIL 15, 2011: Sahara moves Supreme Court, Sebi follows suit |
| APRIL 29, 2011: High court dismisses application for reversal of April 7 order and adjourns final hearing on the merits to May 17 |
| MAY 12, 2011: Supreme Court directs Sebi to unravel the mystery surrounding OFCDs |
Though the Sahara counsel tried to explain, the apex court said, "Till today, I do not know what is OFCD. How can investors know?... On what basis are you calling it investment?," the bench said, pointing out that the scheme was meant for rural people and they were not aware of it.
The bench appeared unconvinced with the logic of Sahara group firms that OFCD schemes don't come under the purview of the Sebi Act.
“We are of the view that the question of OFCD requires the decision of the Sebi. Let Sebi hear and pass an order," the bench said.
The court, however, observed that the Sebi order would not be operational till the court gives further directions on it. “The order would not apply... We want to see the order of Sebi on OFCD,” the judge said.
He also asked Sahara to produce any advertisement or brochure where the company had explained the nature of the investment. The company counsel could not produce any. However, they handed over the model of the application form as demanded by the court at the last hearing.
In view of the vague nature of the investment, the court asked the Securities and Exchange Board of India (Sebi) to come up with an explanation in July. The court also said the Allahabad high court can proceed with the case pending before it relating to the controversial investment scheme floated by Sahara India Real Estate Corporation.
Sahara and Sebi have been involved in a tussle for more than eight months. The company had challenged Sebi's power to question its scheme as it was not a listed company under the Companies Act. The power to regulate was with the Registrar of Companies and not Sebi, according to company counsel Abhishek Singhvi.
Last November, Sebi had banned two Sahara group entities from raising money from the public allegedly violating public issue norms and refusing to cooperate with Sebi in its attempts to gather information. Sahara had challenged the order before the high court, questioning the power of Sebi to do so. However, its argument has not found favour with the high court and the case is still pending.
Sahara India Real Estate Corporation Ltd and Sahara Housing Investment Corporation Ltd are the two units which are collecting money through agents.
