New Delhi/Mumbai: The Supreme Court (SC) has declined the securities market regulator’s plea to stop two firms?that?are?part of the Sahara Group from continuing to raise money from investors, but empowered the Securities and Exchange Board of India (Sebi) to seek and receive information from the companies, including names of the investors.
The move, while providing relief to the Sahara Group, is also significant because it allows Sebi access to the information it has been seeking in vain. The stock market regulator has thus far based its investigations into the money-raising exercises by Sahara India Real Estate Corp. Ltd and Sahara Housing Investment Corp. Ltd on secondary sources. The regulator has been seeking details of the investors, including their names, because if it can establish that there are more than 50 investors in the public issues by the firms, its case for jurisdiction over them becomes stronger under law.
Click here for details to the issue
Last month, the Allahabad high court stayed a 24 November Sebi order against the Sahara firms, which prevented them from “mobilizing funds under the red herring prospectus dated March 13, 2008 and October 6, 2009, respectively, filed with the concerned Registrar of Companies (RoC)”.
Sahara’s lawyer Soli Sorabjee told SC that his client’s companies would make available the information sought by Sebi without prejudice to proceedings in the high court.
A Sebi spokesperson declined comment, saying the regulator does not comment on pending litigations.
The SC chief justice’s bench said it did not want to further interfere in the case at this juncture as it was pending before the high court and was due to come up for hearing on 12 January. It directed the high court’s two-judge bench to hear the case on a “day-to-day basis” without adjournments, which will mean it will not go on indefinitely.
In addition, Sebi has been directed to file its response in the high court on or before 7 January. RoC was also directed to respond in the high court as it was earlier directed to investigate the matter. RoC was not represented in Tuesday’s hearing.
As of 30 June 2010, the two Sahara firms raised Rs4,843.37 crore through a sale of debentures; the interest accrued and interest due for payment to these debenture holders was Rs541.79 crore. The firms want to raise up to Rs20,000 crore each, according to arguments in court.
Sahara’s position is that Sebi does not have the jurisdiction over unlisted firms and that the firms’ RoC filings should suffice.
The firms have not mentioned a closing date for the investments, according to Sebi’s counsel Arvind P. Datar.
Sahara Prime City Ltd had filed a draft red herring prospectus (DRHP) with Sebi for an initial public offering through its lead managers Enam Securities Pvt. Ltd, JM Financial Consultants Pvt. Ltd and others.
“While examining the same, Sebi received various complaints in respect of the disclosures made in the said DRHP regarding non-disclosure of issuance of optionally fully convertible debentures (OFCDs) by Sahara India Real Estate Corporation Limited and its group company Sahara Housing Investment Corporation Limited (SHICL) in violation of applicable provisions of Companies Act and Sebi Act,” the regulator said in its petition to the apex court.
Sebi justified its order before SC saying it provided Sahara “sufficient opportunities for over nearly six months beginning May 2010” to disclose information, but it received no response. The regulator said it wanted the court to stop the firms from raising funds until the matter was decided by the high court.
While the apex court declined to oblige Sebi, it said the regulator could issue advertisements to inform investors that the matter was pending before court and that their investments would be subject to the outcome of the litigation. The court also declined to place the money raised by the firms so far in an Escrow account.