New Delhi/Mumbai: The fate of two Sahara group companies that raised money through optionally fully convertible debentures (OFCDs) will be decided by the appellate tribunal of the Securities and Exchange Board of India (Sebi) within three months.
The Supreme Court on Friday disposed of special leave petitions filed by Sahara Commodity Services Corp. Ltd (earlier known as Sahara India Real Estate Corp. Ltd, or SIRECL) and Sahara Housing Investment Corp. Ltd (SHICL), and asked the Securities Appellate Tribunal (SAT) to examine the question of whether they could use OFCDs to raise money from investors.
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Sahara agreed not to raise any more deposits from investors until SAT decides the case.
“We are directing SAT to dispose of the matter within eight weeks from the date of filing (parties have three weeks to file the case before SAT),” said a bench comprising Chief Justice S.H. Kapadia and justices K.S. Radhakrishnan and Swatanter Kumar. “We are asking for an early hearing because this is a very important matter. It a fundamental question of law.”
On 23 June, Sebi directed the two Sahara companies to refund the money collected from investors through the sale of OFCDs with an annual interest of 15%. However, this order is not in operation due to the Supreme Court keeping it in abeyance in view of the question on OFCDs not being completely settled.
The regulator and Sahara were embroiled in litigation on OFCDs in the Allahabad high court, from where the appeals came to the apex court. Sahara was told to withdraw the high court cases.
“We are of the view that keeping in mind the interest of the investors and the laxities involved in the case and the issue of jurisdiction, we direct the petitioners (Sahara) to appeal to the tribunal under the Sebi Act. We also instruct the petitioners to withdraw the pending case in the Allahabad high court. The tribunal will decide the cases uninfluenced by any opinion expressed by the high court,” ordered the Supreme Court, adding that the parties should not seek adjournments before the tribunal.
The apex court has also asked the tribunal to decide the issue of jurisdiction on the regulation of instruments such as OFCDs. There is a conflict between the ministry of corporate affairs (MCA) and Sebi on which body should regulate them. MCA told the Allahabad high court that the Registrar of Companies, which forms a part of its organizational machinery, would have jurisdiction and not Sebi.
“We make it clear, in the appeal which is proposed, that ministry of corporate affairs should be a party as a respondent, particularly in view of issues arising in this statutory appeal,” the bench said.
Sandeep Parekh, founder of law firm Finsec Law Advisors and former Sebi executive director, said: “Sahara group has maintained that the issue doesn’t fall under Sebi jurisdiction. However, the latest Supreme Court direction asking SAT to examine the OFCD issue implicitly indicates that it is a securities case and should be decided by the appellate tribunal.”
Akil Hirani, managing partner of Majmudar and Co., said: “The Supreme Court has directed SAT to investigate the nature of the OFCDs used to raise money and whether Sebi has jurisdiction over unlisted companies using such instruments.”
According to the Sebi annual report, 361 appeals were filed before SAT in 2009-10. Out of these, SAT, which hears appeals against orders that Sebi issues, decided 155 appeals in favour of the regulator, 56 were sent back to it for reconsideration and in 36, the tribunal set aside the order.
Abhijit Sarkar, a spokesperson for the Sahara group, in an emailed statement said: “The court stated that it has understood the concept of OFCD and was of the view that the matter involves important questions of law, which need to be adjudicated upon.”
“The court also ordered that as the issue involved important questions of law under the Companies Act, 1956, and the MCA, which had authorized the issuance of OFCDs by Sahara, should be made a necessary party to the petition,” the statement said.
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. Mint is contesting the case.