Mumbai: India’s capital market regulator Securities and Exchange Board of India (Sebi) on Thursday directed two Sahara group firms Sahara Commodity Services Corp. Ltd (earlier known as Sahara India Real Estate Corp. Ltd or SIRECL), Sahara Housing Investment Corp. Ltd (SHICL), their promoter Subrata Roy and the directors of two firms to immediately refund the money collected through sales of optionally fully convertible debentures (OFCDs) with annual interest of 15%.
Sebi’s order follows a 12 May Supreme Court direction and will come into effect after the apex court ratifies it.
In November, Sebi had barred the two firms from raising public money in any manner, citing violations of capital-raising norms and certain sections of the Companies Act.
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On Thursday, Sebi directed the entities to refund the money to the OFCD subscribers in cash and restrained the two firms from accessing the capital market till the repayment.
The Sebi order also restrained Roy and the directors of the two firms—Vandana Bhargava, Ravi Shankar Dubey and Ashok Roy Choudhary—from associating “with any listed public company and any public company which intends to raise money from the public” till the repayments are completed.
The order requires the two firms to file a certificate of completion of all repayments with Sebi from two independent chartered accountants.
If the companies fail to do so, Sebi will take “appropriate action, including launching of prosecution proceedings...in accordance with the law”, the order said.
Sebi has found that OFCDs raised by the two firms are “in effect no different from deposits from the public, except that they come with an ‘option to convert’ appended to it…it seems that under the guise of OFCDs, the two companies are extensively taking up parabanking activities and running deposit schemes”.
An email sent to Sahara group and its official communication agency, and calls made to them on Thursday evening seeking comment, remained unanswered.
According to Sebi’s November order, the two Sahara group firms were raising money from the public without conforming to prudent regulatory disclosures and other investor protection norms governing public issues.
Going by the most recently filed balance sheet of SIRECL, as on 30 June 2009, the company raised Rs4,843.37 crore via OFCDs through various schemes, including Abode Bonds, Nirman Bond and Real Estate Bond.
The proceeds from such issuances by SHICL was not known.
Sahara Prime City Ltd, another group company that had filed a prospectus in 2010 with Sebi for an initial public offering, did not disclose details of such mobilization. This triggered a Sebi probe into the matter.
Sahara challenged Sebi’s November order at the Lucknow bench of the Allahabad high court, saying the capital market regulator did not have any jurisdiction over the group companies as they were not listed and do not intend to list their shares on the stock exchanges.
Subsequently, on 13 December, the Allahabad high court stayed the Sebi order pending investigation.
On 4 January, the Supreme Court granted Sebi permission to seek and get details of names, addresses of investors and amounts invested in these schemes.
The Allahabad high court on 7 April lifted the stay after it came to light that 6.6 million investors put money in the OFCD issues against a maximum of 49 investors authorized by their boards.
Under existing norms, an entity is required to secure Sebi’s consent for any capital-raising issue that involves 50 or more investors.
Sahara, in its earlier explanations to Sebi, had referred the Companies Act and stated that the two firms are not obliged to take Sebi’s approval for raising capital from the public as they were not listed and the issue was meant for a select group of subscribers associated with the group.
Sebi had dismissed this argument, saying this particular provision of the Companies Act is applicable only for issues with less than 50 investors.
The two firms, according to Sebi, should have taken its approval before raising public money and since the number of investors exceeds 50, they are compelled by the existing rules to get listed.
Sahara on 15 April moved the apex court against the order passed by the Allahabad high court.
On 12 May, the Supreme Court directed Sebi to proceed with its investigation into financial instruments being used by the two Sahara group companies to raise money from the public. The apex court dismissed Sahara’s claims, saying that the crux of the issue lies in the true meaning of OFCDs, used by Sahara to collect public money.
It directed Sebi to “expeditiously hear and decide this case so that this court can pass suitable orders on reopening (of the case). However, effect to the order of Sebi will not be given”. This is why the Thursday Sebi order said it “will be given effect to only subject to the direction of the Supreme Court”.
Sahara group’s business interests include finance, entertainment, real estate and media. Its Hindi-language newspaper competes in some markets with Hindustan, published by HT Media Ltd, which also publishes Mint.
Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s dispute with Sebi. Mintis contesting the case.