MUMBAI: After more than seven years, the Securities Appellate Tribunal (SAT) has upheld the Sebi order directing Sahara India Commercial Corporation (SICCL) and its directors to refund Rs 14,106 crore raised through optionally fully-convertible debentures (OFCDs) from nearly 1.98 crore investors as the fundraising was a public issue in violation of securities laws and not a private placement as the appellant claimed.
The present case, dating back to 2018, is one of three such illegal fundraises by the company over the years, which eventually upended the group. One of the cases led to the arrest and jailing of the group founder Subrata Roy in Delhi’s Tihar jail in March 2014. He remained in custody for over two years. While on parole, he died in November 2023.
Sebi found fault with three OFCD issues by Sahara group over the years. The first OFCD illegal fundraising case was initiated in 2010–11, involving two Sahara companies—Sahara India Real Estate Corporation (SIRECL) and Sahara Housing Investment Corporation (SHICL), which had raised over Rs 24,000 crore (later found to have raised much more) from about 3 crore investors. This case led to Roy’s arrest for failing to meet a Supreme Court order to refund the money. And the third is the present case involving Sahara India Commercial Corporation.
The SAT ruling on March 9 came more than seven years after the Sebi order of October 31, 2018, which was challenged by the company in early 2019.
On March 9, the SAT dismissed appeals filed by SICCL, Sahara India, and several directors challenging Sebi’s October 31, 2018 order. The tribunal held that the company had issued OFCDs to over 1.98 crore investors between July 1998 and June 2008, thereby triggering the regulatory requirements applicable to public issues.
Upholding the Sebi findings that the OFCDs violated Section 73 of the Companies Act, 1956, which requires companies making public offers to seek permission from stock exchanges, the tribunal rejected Sahara’s claims of refund and conversion of debentures, noting that no reliable records were produced to prove actual payments to investors.
The tribunal also ruled that the offer of debentures could not be treated as a private placement or a domestic arrangement, as the number of investors far exceeded the statutory threshold.
It further observed that under then applicable provisions of the Companies Act, 1956, any offer made to 50 or more investors must be treated as a public offer, requiring compliance with listing and disclosure requirements. Since the company neither sought permission from stock exchanges nor obtained necessary regulatory approvals from Sebi, the tribunal held that Sebi had the jurisdiction to take enforcement action.
The SAT also rejected Sahara’s argument that the Sebi action suffered from delay, noting the regulator initiated the proceedings after examining related issues involving other Sahara group companies and receiving an inspection report from the corporate affairs ministry.
Given that the case involved funds raised from nearly 2 crore investors and extensive documentation, the tribunal held that the time taken by Sebi to initiate proceedings was not unreasonable.
Sahara group counsel JP Sen argued that the Sebi order incorrectly directed refund of the entire Rs 14,106 crore when most of the amount had already been repaid or adjusted. According to Sahara, only about Rs 17 crore worth of OFCDs remained outstanding.
Sahara also contended that Rs 4,400 crore worth of OFCDs had been converted into equity, and supported the argument with the filings made to the Registrar of Companies. They further claimed that Rs 1,527.76 crore had been repaid through cheques, while another Rs 8,157.80 crore had been refunded in cash, supported by a chartered accountant’s certificate and affidavits from branch managers stating that investors were paid.
Sahara also argued that the OFCD issuance began in 1998, prior to the 2000 amendment to Section 67 of the Companies Act, and therefore could not be retrospectively treated as a public offer. They further submitted that Sebi wrongly bifurcated the issuance period to apply the amended provision.
They also submitted that the show-cause notice did not require them to furnish the names of investors, and that the issue had been recognized as a private placement by the RoC and the corporate affairs ministry.
They also questioned Sebi’s jurisdiction, arguing that the regulator’s authority applied primarily to listed companies.
Another key argument raised was the delay, with Sahara stating that Sebi initiated the proceedings nearly 17 years after the issue opened, despite approvals being obtained from competent authorities at the time.
Opposing the appeals, Sebi’s senior advocate Chetan Kapadia argued that Sahara failed to produce credible evidence to substantiate claims of repayment to investors. He also pointed out that the company had relied largely on a single-page chartered accountant certificate, which could not establish that payments were actually made to 1.98 crore investors.
Sebi also argued that cash repayments were not legally permissible and the affidavits filed by branch managers related to payments made through Sahara India as an arranger, rather than directly by SICCL.
The regulator further said the show-cause notice clearly required the company to furnish details of OFCD holders and repayment records digitally, but the appellants failed to do so. It also argued that certain documents relating to conversion of debentures into equity were submitted only after the Sebi order was passed, making them unreliable.
On the issue of jurisdiction, Sebi maintained that it had ‘inherent jurisdiction’ under the Sebi Act of 1992 to regulate public issues of securities. It further argued that the 2000 amendment to the Companies Act was clarificatory in nature and that any offer made to more than 50 persons automatically constituted a public offer.
The regulator also rejected Sahara’s claim of private placement, stating that the company failed to produce evidence identifying the targeted investors. According to Sebi, the offer was effectively made to the public through the Sahara group’s widespread network and could not qualify as a domestic arrangement.