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Friday, August 31, 2012

primarily concerned with the powers of the Securities and Exchange Board of India (for short 'SEBI') under Section 55A(b) of the Companies Act, 1956 to administer various provisions relating to issue and transfer of securities to the public by listed companies or companies which intend to get their securities listed on any recognized stock exchange in India and also the question whether Optionally Fully Convertible Debentures (for short 'OFCDs') offered by the appellants should have been listed on any recognized stock exchange in India, being Public Issue under Section 73 read with Section 60B and allied provisions of the Companies Act and whether they had violated the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 [for short 'DIP Guidelines'] and various regulations of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 [for short 'ICDR 2009'], and also whether OFCDs issued are securities under the Securities Contracts (Regulation) Act, 1956 [for short 'SCR Act'].


                                                                  REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO. 9813 OF 2011
    Sahara India Real Estate Corporation Limited & Ors.   .. Appellants
                                   Versus
    Securities and Exchange Board of India & Anr.       .. Respondents
                                    WITH
                        CIVIL APPEAL NO. 9833 OF 2011
                               J U D G M E N T
    K. S. RADHAKRISHNAN, J.


      1.   We are, in these appeals, primarily concerned with the powers of
    the Securities and Exchange Board of India  (for  short  'SEBI')  under
    Section 55A(b)  of  the  Companies  Act,  1956  to  administer  various
    provisions relating to issue and transfer of securities to  the  public
    by listed companies or companies which intend to get  their  securities
    listed on any recognized stock exchange in India and also the  question
    whether Optionally  Fully  Convertible Debentures (for  short  'OFCDs')
    offered by the appellants should have been  listed  on  any  recognized
    stock exchange in India, being Public Issue under Section 73 read  with
    Section 60B and allied provisions of the Companies Act and whether they
    had violated the Securities and Exchange Board of India (Disclosure and
    Investor Protection) Guidelines, 2000 [for short 'DIP Guidelines']  and
    various regulations of the  Securities  and  Exchange  Board  of  India
    (Issue of Capital and Disclosure Requirements) Regulations,  2009  [for
    short 'ICDR 2009'], and also whether OFCDs issued are securities  under
    the Securities  Contracts (Regulation) Act, 1956 [for short 'SCR Act'].


     2.      Sahara  India  Real  Estate  Corporation  Limited  (for   short
     'SIRECL') and Sahara Housing Investment Corporation Limited (for  short
     'SHICL”), appellants herein  (conveniently  called  Saharas),  are  the
     companies controlled by  Sahara  Group.   Saharas  have  raised  almost
     identical issues on facts as well as on questions of law before us  and
     hence we are disposing  off  both  the  appeals  by  way  of  a  common
     judgment.


    3.     SIRECL was originally incorporated as Sahara India  “C”  Junxion
    Corporation Limited on 28.10.2005 as a public limited company under the
    Companies Act and it changed its name to SIRECL on  7.3.2008.   As  per
    the Balance Sheet of the company as on 31.12.2007, its  cash  and  bank
    balances were Rs.6,71,882 and its net current assets worth Rs.6,54,660.
     Company had no fixed assets  nor  any  investment  as  on  that  date.
    SIRECL's operational and other expenses for the three  quarters  ending
    31.12.2007 were Rs.9,292 and the loss carried forward  to  the  Balance
    Sheet as on that date was Rs.3,28,345.


    4.     SIRECL, in its Extraordinary General Meeting held  on  3.3.2008,
    resolved through a special resolution passed in terms of Section 81(1A)
    of the Companies Act to raise funds through unsecured OFCDs by  way  of
    private   placement   to   friends,   associates,   group    companies,
    workers/employees  and  other  individuals   associated/affiliated   or
    connected in any manner with  Sahara  Group  of  Companies  (for  short
    ‘Sahara Group’) without giving any  advertisement  to  general  public.
    Company authorized its Board of  Directors  to  decide  the  terms  and
    conditions and revision thereof,  namely,  face  value  of  each  OFCD,
    minimum application size, tenure, conversion and interest rate.   Board
    of Directors, consequently, held a meeting on 10.3.2008 and resolved to
    issue unsecured OFCDs by way of private placement, the details of which
    were mentioned in the Red Herring Prospectus (for  short  'RHP')  filed
    with the Registrar of Companies (for short “RoC”), Kanpur.   SIRECL had
    specifically indicated in the RHP that they did not intend to get their
    securities listed on any recognized stock exchange.   Further,  it  was
    also stated in the RHP that only those persons to whom the  Information
    Memorandum (for short 'IM') was circulated and/or approached  privately
    who were associated/affiliated or connected in any manner  with  Sahara
    Group, would be eligible to apply.   Further, it was also stated in the
    RHP that the funds raised by the company  would  be  utilized  for  the
    purpose  of  financing  the  acquisition  of   townships,   residential
    apartments, shopping complexes etc. and construction  activities  would
    be undertaken by the company in major cities of the  country  and  also
    would finance other commercial  activities/projects  taken  up  by  the
    company within or apart from the above projects.   RHP  also  indicated
    that the intention of the company  was  to  carry  out  infrastructural
    activities and the amount collected from the issue would be utilized in
    financing the completion of projects, namely, establishing/constructing
    the bridges, modernizing or setting up of airports, rail system or  any
    other projects which might be alloted to the company from time to  time
    in future.   RHP also highlighted  the  intention  of  the  company  to
    engage in the business of electric power  generation  and  transmission
    and that the proceeds of the  current  issue  or  debentures  would  be
    utilized for power projects which would be alloted to the  company  and
    that the money, not required  immediately,  might  be  parked/invested,
    inter alia, by way of circulating capital  with  partnership  firms  or
    joint ventures, or in any other manner, as  per  the  decision  of  the
    Board of Directors from time to time.  SIRECL, under Section 60B of the
    Companies  Act,  filed  the  RHP  before  the  RoC,  Uttar  Pradesh  on
    13.3.2008, which was registered on  18.3.2008.  SIRECL  then  in  April
    2008, circulated IM along with the application forms to its  so  called
    friends,  associated  group  companies,  workers/employees  and   other
    individuals associated with Sahara Group for subscribing to  the  OFCDs
    by way of private placement.  Then IM carried a  recital  that  it  was
    private and confidential and not for circulation.  A brief reference to
    the IM may be useful, hence given below:

                                                     “PRIVATE & CONFIDENTIAL

                                                       (NOT FOR CIRCULATION)

      INFORMATION MEMORANDUM FOR PRIVATE PLACEMENT OF OPTIONALLY FULLY
                   CONVERTIBLE UNSECURED DEBENTURES (OFCD)
         This Memorandum of Information is being made by Sahara  India  Real
         Estate Corporation  Limited  (formerly  Sahara  India  'C'  Junxion
         Corporation Limited) which is an unlisted Company and  neither  its
         equity shares  nor  any  of  the  bonds/debentures  are  listed  or
         proposed to be  listed.   This  issue  is  purely  on  the  private
         placement basis and the company does not intend to get these OFCD's
         listed on any of the Stock Exchanges in India  or  Abroad.     This
         Memorandum for Private Placement is  neither  a  Prospectus  nor  a
         Statement in Lieu of prospectus.  It does not constitute  an  offer
         for an invitation to subscribe to OFCD's  issued  by  Sahara  India
         Real Estate  Corporation  Limited.    The  Memorandum  for  Private
         Placement is intended to form  the  basis  of  evaluation  for  the
         investors to whom it is addressed and who are willing and  eligible
         to subscribe to these OFCD's.  Investors are required to make their
         own  independent  evaluation  and  judgment   before   making   the
         investment.  The contents of this Memorandum for Private  Placement
         are intended to be used by the investors to whom  it  is  addressed
         and distributed.   This Memorandum for  Private  Placement  is  not
         intended for distribution and  is  for  the  consideration  of  the
         person to whom it is addressed and should not be reproduced by  the
         recipient.  The OFCD's mentioned  herein  are  being  issued  on  a
         private placement basis and this offer does not constitute a public
         offer/invitation.”                   (emphasis added)

     5.     The RHP, which was issued prior to the IM, had  also  given  the
     details and particulars of the three OFCDs issued by SIRECL appended as
     Annexure-I, which would give a brief idea of the Tenure  of  the  Bonds
     issued, its face value, redemption value etc., a projection of which is
     given below:
| |Particulars     |Nature of OFCDs                                |
|                 |Abode Bond     |Real Estate    |Nirmaan Bond   | |
|                 |               |Bond           |               | |
|Tenure           |120 months     |60 months      |48 months      | |
|Face Value       |Rs.5,000/-     |Rs.12,000/-    |Rs.5,000/-     | |
|Redemption Value |Rs.15,530/-    |Rs.15,254/-    |Rs.7,728/-     | |
|Early Redemption |After 60 months|NIL            |After 18 months| |
|Conversion       |On completion  |On completion  |On completion  | |
|                 |of 120 months  |of 60 months   |of 48 months   | |
|Minimum          |Rs.5,000/-     |Rs.12,000/-    |Rs.5,000/-     | |
|Application Size |               |               |               | |
|Nominee System   |Double Nominee |Double Nominee |Double Nominee | |
|Transfer         |Yes            |Yes            |Yes            | |


    6.     I may also indicate that all  the  bonds  stipulated  that  bond
    holders could avail of loan facility as per the terms and conditions of
    the application forms.   Nirmaan and Real Estate  Bonds  prescribed  an
    additional feature of death risk cover  as  well.   Clause  13  of  RHP
    imposed no restriction on the transfer of the OFCDs.



    7.     SIRCEL, therefore, floated the issue of the  OFCDs  as  an  open
    ended scheme and collected an amount  of  Rs.19400,86,64,200  (Nineteen
    thousand four hundred crores, eighty six lacs, sixty four thousand  and
    two hundred only) from 25.4.2008 to 13.4.2011.   Company  had  a  total
    collection of Rs.17656,53,22,500 (Seventeen thousand  six  hundred  and
    fifty six crores, fifty  three  lacs,  twenty  two  thousand  and  five
    hundred only) as on 31.8.2011, after meeting the demand  for  premature
    redemption.   The  above  mentioned   amounts   were   collected   from
    2,21,07,271 investors.



    8.     SHICL, a member of Sahara  Group  companies,  also  convened  an
    Annual General Meeting on 16.9.2009 to raise funds by issue  of  OFCDs,
    by way of private placement, to friends,  associated  group  companies,
    workers/employees  and  other  individuals   associated/affiliated   or
    connected  in   any   manner   with   the   Sahara   Group   companies.
    Consequently, a RHP was filed on 6.10.2009 under  Section  60B  of  the
    Companies Act with the RoC, Mumbai, Maharashtra, which  was  registered
    on 15.10.2009.  Later, SHICL issued OFCDs  of  the  nature  of  Housing
    Bond; conversion price of Rs.5,000/- for each five bonds, Income  Bond,
    conversion price of Rs.6,000/- for six bonds; Multiple Bond, conversion
    price of Rs.24,000/- for two bonds.  Interest accrued on  each  of  the
    three types of bonds was to be refunded to the bond holders.


    9.     SEBI, as already indicated, had come to know of the large  scale
    collection of money from the public by  Saharas  through  OFCDs,  while
    processing the RHP submitted by  Sahara  Prime  City  Limited,  another
    Company of the Sahara Group, on 12.1.2010 for its initial public offer.
     SEBI then addressed  a  letter  dated  12.1.2010  to  Enam  Securities
    Private Limited, merchant bankers of Sahara Prime  City  Limited  about
    the complaint received from one Roshan Lal alleging that  Sahara  Group
    was    issuing     Housing     bonds     without     complying     with
    Rules/Regulations/Guidelines issued by RBI/MCA/NHB.    Merchant  Banker
    sent a reply dated 29.1.2010 stating that SIRECL  and  SHICL  were  not
    registered with any stock exchange and were not subjected to any rule /
    regulation / guidelines / notification / directions  framed  thereunder
    and the issuance of OFCDs were in compliance with the applicable  laws.
    Following the above, another letter dated 26.2.2010 was  also  sent  by
    the Merchant Banker to SEBI stating that SIRECL and  SHICL  had  issued
    the OFCDs pursuant to a special resolution under  Section 81(1A) of the
    Companies Act, 1956 passed  on  3.3.2008  and  16.9.2009  respectively.
    Further, it was also pointed out that they had issued and circulated an
    IM prior to the opening of the offer and  that  RHP  issued  by  SIRECL
    dated 13.3.2008 was filed with RoC, U.P. and Uttarakhand and RHP issued
    by SIHCL dated 6.10.2009 was filed with RoC, Maharashtra.


    10.    SEBI on 21.4.2010 addressed a letter to the  Regional  Director,
    Northern and Western Regions of Ministry  of  Corporate   Affairs  (for
    short 'MCA') enclosing the  complaint  received  in  respect  of  OFCDs
    issued by Saharas.  SEBI had stated that those companies had  solicited
    and issued OFCDs violating statutory requirements and  that  they  were
    not listed companies and had not filed the RHP with SEBI.  SEBI sent  a
    communication dated 12.5.2010 to Saharas calling  for  various  details
    including  the  details  regarding  the  number  of  application  forms
    circulated after filing of RHP with RoC, details regarding  the  number
    of applications received and  subscription  amount  received,  date  of
    opening and closing of subscription list of OFCDs, number and  list  of
    allotees etc.




    11.     SIRECL  on  31.5.2010   addressed   a   letter   to   MCA   for
    guidance/advice as to whether it was SEBI or MCA who had  locus  standi
    in the matter of unlisted  companies  in  view  of  the  provisions  of
    Section 55A(c) of the Act.   MCA, it is seen, had sent a  letter  dated
    17.6.2010 to SIRECL stating that the matter was  being  examined  under
    the relevant provisions of the Companies Act,  1956.   SIRECL  informed
    SEBI of the reply they had received from the MCA and  that  they  would
    address SEBI after a decision was taken by MCA.   Having  not  received
    the details called for from Saharas, SEBI had  prima  facie  felt  that
    SIRECL was carrying out various transactions in securities in a  manner
    detrimental to the interests of the  investors  or  to  the  securities
    market and, therefore, issued summons dated  30.8.2010,  under  Section
    11C of the SEBI Act, directing the company  to  furnish  the  requisite
    information by 15.9.2010.  Detailed reply dated 13.9.2010 was  sent  by
    SIRECL to SEBI, wherein it was stated that the company had followed the
    procedure prescribed under Section 60B of the Companies Act pursuant to
    the special resolution passed under Section 81(1A) in its meeting  held
    on 3.3.2008 and filed its RHPs under Section  60B  with  the  concerned
    RoC.  Further, it was pointed out that SIRECL was not a listed company,
    nor did it intend to get its securities listed on any recognized  stock
    exchange in India and that OFCDs issued by the company would  not  fall
    under Sections 55A(a) and/or (b) and hence the issue and/or transfer of
    securities and/or non-payment of dividend or administration  of  either
    the company or its issuance of OFCDs, were not to  be  administered  by
    SEBI and all matters pertaining to  the  unlisted  company  would  fall
    under the administration of the Central Government or  RoC.    Further,
    it was urged that Regulations 3 and 6 of ICDR  2009  would  not  apply,
    since there was no public issue either in  the  nature  of  an  initial
    public offer or further public offer as defined  by  Regulation  2(zc),
    2(p) and/or 2(n) of ICDR  2009.    OFCDs,  it  was  pointed  out,  were
    restricted to a select group (as distinguished  from  general  public),
    however large they might be and hence the issuance of OFCDs was  not  a
    public offer to attract the provisions of Regulations  3  and/or  6  of
    ICDR 2009.  Company had stated that issuance of OFCDs of 2008 was  also
    not covered by the SEBI (Issue  and  Listing  Securities)  Regulations,
    2008, since it would apply to non-convertible debt securities,  whereas
    the OFCDs  issued  by  SIRECL  were  convertible  securities.   SIRECL,
    therefore, requested SEBI to withdraw the summons issued under  Section
    11C of the SEBI Act.  Summons dated 23.9.2010 was also issued to SHICL,
    for which also an identical reply was sent to SEBI.




    12.    MCA, in the meanwhile, sent a letter dated 21.9.2010  to  SIRECL
    under Section 234(1) of the Companies Act calling for  various  details
    including the  amount  collected  through  private  placement,  details
    regarding the number of investors to whom the allotment had been  made,
    their  names,  addresses,  utilization  of  the  funds  collected,  its
    purpose, class or classes of persons to whom  the  allotment  had  been
    made and whether allotments were completed and various  other  details.
    SIRECL was directed to furnish the information within 15 days from  the
    date of receipt of notice, failing which it  was  informed  that  penal
    action would be initiated against the company and its  directors  under
    Section 234(4)(a) of the Companies Act.

    13.    SEBI, in the meanwhile, sent a letter dated 23.9.2010 to  SIRECL
    reminding that it had not provided information/documents on  the  issue
    of OFCDs.   Proceeding issued for appointing the  investigating  agency
    was also forwarded to the company.  SIRECL again replied by its  letter
    dated  30.9.2010  raising  the  issue  of  jurisdiction  of   SEBI   in
    investigating the affairs of SIRECL.  SIRECL, however, replied  to  the
    letter of MCA dated 21.9.2010 on 4.10.2010, stating inter alia that  it
    would be  filing  the  prospectus  on  the  closure  of  the  issue  in
    compliance with the provisions of Section 60B(9) of the Companies  Act,
    stating therein the total capital  raised  by  way  of  OFCDs  and  the
    related information by filing the prospectus.   Further,  it  was  also
    pointed out that allotment had been made to persons who were  connected
    with the Sahara Group and that investors had given a declaration to the
    company to that effect in terms of the RHP.   MCA  then  sent  a  reply
    dated 14.10.2010 stating that the points 1 to 3, 5 to 10, 12 to 16,  18
    to 22 had been examined and appeared to be satisfactory.   With  regard
    to points 4, 11 and 17, the company was directed to  effect  compliance
    on closure of issue by filing of prospectus as required  under  Section
    60B(9) of the Companies Act.


    14.    SEBI,  in  the  meanwhile,  issued  a  notice  dated  24.11.2010
    informing both SIRECL and SHICL that the issuance of OFCDs was a public
    issue and,  therefore,  securities  were  liable  to  be  listed  on  a
    recognized stock exchange  under  Section  73  of  the  Companies  Act.
    From the preliminary analysis, it was pointed out that the issuance  of
    OFCDs by Saharas was prima facie in violation of Sections 56 and 73  of
    the Act and also various clauses of DIP Guidelines and SHICL  had  also
    prima facie violated Regulations 4(2), 5(1), 6, 7,  16(1),  20(1),  25,
    26, 36, 37, 46 and  57  of  ICDR  2009.     Both  the  companies  were,
    therefore, directed to show cause why action should  not  be  initiated
    against them including  issuance  of  direction  to  refund  the  money
    solicited and mobilized through the prospectus issued with  respect  to
    the OFCDs, since they had violated the provisions of the Companies Act,
    SEBI Act, erstwhile DIP Guidelines and ICDR 2009.


    15.    SIRECL had challenged  the  show-cause-notice  dated  24.11.1010
    before the Allahabad High Court, Lucknow Bench in W. P.  No.  11702  of
    2010, which the Court had stayed on  13.12.2010.    SEBI  took  up  the
    matter before this Court in S.L.P. (Civil) No. 36445 of 2010  and  this
    Court did not interfere with  the  interim  order,  but  ordered  early
    disposal of the writ petition.


    16.    MCA, following its earlier letter dated 21.9.2010 issued another
    notice dated 14.2.2011 directing SIRECL  to  furnish  details  on  four
    specific points, including the details of the number of persons who had
    applied in pursuance to the  OFCDs  issued,  the  mode  of  receipt  of
    payment (Application Register), the name, address, number of persons to
    whom OFCDs were allotted (Allotment  Register)  and  also  whether  the
    number of allottees to whom OFCDs were allotted etc.   exceeded  fifty.
    SIRECL replied to the notice on 26.2.2011.  SIRECL, it was stated,  had
    sent a password protected CD along with two separate sheets  containing
    the procedure and the password to SEBI; the CD contained of  investors'
    names, serial numbers and amounts invested in  OFCDs.   SEBI,  however,
    could not open the CD due to non furnishing  of  the  password.    SEBI
    pointed out this fact before the High  Court and the Court vacated  the
    interim order dated 13.12.2010.  SIRECL took up the matter before  this
    Court in S.L.P. (Civil) No. 11023 of 2011.


    17.    SIRECL, in the  meanwhile,  claimed  that  it  had  furnished  a
    separate CD along with the password vide letter dated 19.4.2011 to SEBI
    stating that due to  the  enormity  of  the  work  and  time  taken  in
    collating and compiling the data relating to the  names  and  addresses
    and the amount invested, the company could  only  provide  the  partial
    information relating to names,  numbers  and  amount  invested  by  the
    investors through the covering letter dated 18.3.2011 in a CD.   SIRECL
    then moved the High Court  on  29.4.2011  to  recall  the  order  dated
    7.4.2011 on the plea that the details  called  for  by  SEBI  had  been
    furnished.  The High Court dismissed the application, which led  SIRECL
    filing SLP (Civil) No. 13204 of 2011 before this Court.  This  Court on
    12.5.2011 passed the following order in SLP (Civil) No. 11023  of  2011
    and SLP (Civil) No. 13204 of 2011:
            “In this matter the questions as to what is OFCD and the  manner
         in which investments are called for are very  important  questions.
         SEBI, being the custodian of the Investor's and as an expert  body,
         should examine these questions apart from other issues.  Before  we
         pass further orders, we want  SEBI  to  decide  the  application(s)
         pending before it so that we could obtain the requisite  input  for
         deciding these petitions.  We request SEBI  to  expeditiously  hear
         and decide this case so that this Court can pass suitable orders on
         re-opening.  However, effect to the  order  of  SEBI  will  not  be
         given.  We are taking this route as we want to protect the interest
         of the Investor.  In the meantime, the High Court may  proceed,  if
         it so chooses, to dispose of the case at the earliest.”




    18.    SEBI then issued a fresh notice  dated  20.5.2011  stating  that
    Saharas had not provided any information to SEBI regarding  details  of
    its investors to show that the offer of OFCDs was  made  to  less  than
    fifty persons.   Further,  it  was  pointed  out  that  Saharas  though
    claimed, that the offer/issue was made on private placement basis,  any
    offer/issue to fifty  or  more  persons  would  be  treated  as  public
    issue/offer in terms of the first proviso to Sub-section (3) of Section
    67 of the Companies  Act  and  the  provisions  of  the  Companies  Act
    governing public issues and the provisions of DIP Guidelines  and  ICDR
    2009 would consequently apply.  Further, it was also pointed out in the
    notice that the RHP provided along with  the  letter  of  SIRCEL  dated
    15.1.2011 contained untrue statements which attracted the provisions of
    Sections 62 and 63 of the Act and hence the offer of  OFCDs  to  public
    through the RHP was illegal.  Further, it was stated that none  of  the
    disclosure requirements specified by SEBI or the  investors  protection
    measures prescribed for public issues under  DIP  Guidelines  and  ICDR
    2009 had been complied with and hence there was prima  facie  violation
    of Section 56 of the Companies Act and hence offer of OFCDs of  Saharas
    to the public was illegal.  Notice  also  indicated  that  Saharas  had
    violated the provisions of Section 73 of the  Companies  Act,  by  non-
    listing of their debentures in a recognized stock  exchange.   Further,
    it was also pointed out that Saharas had  not  executed  any  Debenture
    Trust Deed for their OFCDs, not appointed any Debenture Trustee and not
    created  any  Debenture  Redemption  Reserve,  which  would  amount  to
    violation of Sections 117A, 117B and 117C of the Companies  Act.   Non-
    compliance of furnishing details in Form No. 2A, as required under Rule
    4CC of the Companies (Central Government's) General  Rules  and  Forms,
    1956 read with DIP Guidelines and ICDR 2009, it was  pointed  out,  had
    violated Section 56(3) of the Companies Act.


    19.    SEBI notice dated 20.5.2011 also highlighted  that  the  CD  was
    secured in such  a  manner  that  no  analysis  was  possible  and  the
    addresses of the OFCDs holders were incomplete or  ambiguous.   Serious
    doubts were also raised with regard to the identity and genuineness  of
    the investors and the intention of the companies to repay the debenture
    holders upon redemption.  Notice, therefore, stated that the  companies
    had prima facie violated the provisions of the Companies Act, SEBI Act,
    1992, DIP Guidelines and ICDR 2009 and hence the offer/issue  of  OFCDs
    to public was illegal, and imperiled the interest of investors in  such
    OFCDs and was detrimental to the interest  of  the  securities  market.
    Saharas were, therefore, called  upon  to  show  cause  why  directions
    contained in the interim order of SEBI dated 24.11.2010 be  not  issued
    under Sections 11(1), 11(4)(B), 11A(1)(b) and 11B of SEBI Act read with
    Regulation 107 of ICDR 2009.


    20.    Saharas then sent a detailed reply dated 30.5.2011 pointing  out
    that the appellants had made private placement of OFCDs to persons  who
    were associated with Sahara Group and  those  issues  were  not  public
    issues.  Further, it was also urged  that  OFCDs  issued  were  in  the
    nature of “hybrid” as defined under the Companies Act and SEBI did  not
    have  jurisdiction  to  administer  those   securities   since   Hybrid
    securities were not included in the definition  of  'securities'  under
    the SEBI Act, SCR Act etc.   Further,  it  was  also  urged  that  such
    hybrids were issued in terms of Section 60B of the Companies  Act  and,
    therefore, only the  Central  Government  had  the  jurisdiction  under
    Section 55A(c) of the Companies Act.  Further, it was also pointed  out
    that Sections 67 and  73  of  the  Companies  Act  could  not  be  made
    applicable to Hybrid securities, so also the DIP  Guidelines  and  ICDR
    2009.  Further, it was reiterated that the company had raised funds  by
    way of private  placement  to  friends,  associates,  group  companies,
    workers/employees  and  other  individuals  associated/affiliated  with
    Sahara Group, without giving any advertisement to the public.  Further,
    it was also pointed out that RoC, Kanpur and Maharashtra had registered
    those RHPs without any demur and, therefore, it was unnecessary to send
    it to SEBI.


    21.    SEBI passed its final order through its whole-time member  (WTM)
    on 23.6.2011.  SEBI examined the nature of OFCDs issued by Saharas  and
    came to  the  conclusion  that  OFCDs  issued  would  come  within  the
    definition of “securities” as defined under Section 2(h)  of  SCR  Act.
    SEBI also found that those OFCDs issued  to  the  public  were  in  the
    nature of Hybrid securities, marketable and would not fall outside  the
    genus of debentures.   SEBI  also  found  that  the  OFCDs  issued,  by
    definition, design and characteristics intrinsically  and  essentially,
    were debentures and the  Saharas  had  designed  the  OFCDs  to  invite
    subscription from the public at large  through  their  agents,  private
    offices and information memorandum.  SEBI concluded that  OFCDs  issued
    were in fact public issues and the Saharas were bound  to  comply  with
    Section 73 of the Companies Act,  in  compliance  with  the  parameters
    provided by the first proviso to Section 67(3) of  the  Companies  Act.
    SEBI took the view that OFCDs issued by Saharas should have been listed
    on  a  recognized  stock  exchange  and  ought  to  have  followed  the
    disclosure requirement and other investors' protection norms.




    22.    SEBI also held that the Parliament has conferred  powers  on  it
    under Section 55A(b) of the Companies Act to administer such issues  of
    securities and Saharas were not justified in raising crores and  crores
    of rupees on the premise that that OFCDs issued by them, were by way of
    private  placement.   SEBI,  therefore,  found  that  the  Saharas  had
    contravened the provisions of Sections 56, 73, 117A, 117B and  117C  of
    the Companies Act and also various clauses  of  DIP  Guidelines.   SEBI
    also  held  that  SHICL  had  not  complied  with  the  provisions   of
    Regulations 4(2), 5(1), 5(7), 6, 7, 16(1), 20(1), 25, 26,  36,  37,  46
    and 57 of ICDR Regulations.  Having found so, SEBI directed Saharas  to
    refund the money collected under the  Prospectus  dated  13.3.2008  and
    6.10.2009 to all such investors who had subscribed to their OFCDs, with
    interest.


    23.    Appellants, aggrieved by the  above  mentioned  order  of  SEBI,
    filed Appeal Nos. 131 of 2011 and 132 of 2011 before the  Tribunal  and
    the Tribunal passed a common order on 18.10.2011.  Before the Tribunal,
    Union of India, represented through the Ministry  of  Company  Affairs,
    was impleaded.     The Tribunal took the view that  OFCDs  issued  were
    securities within the meaning of Clause (h) of Section 2 of SCR Act, so
    also under SEBI Act.   Tribunal also noticed that RHP issued by  SIRECL
    was registered by the RoC on 18.3.2008, though  information  memorandum
    (IM) was issued later in April 2008 in clear violation of  Section  60B
    of the Companies Act.   Further, it was also noticed that IM was issued
    through 10 lac agents and more than 2900 branch offices to more than 30
    million persons inviting them to subscribe to the OFCDs which  amounted
    to invitation to public.  Tribunal also found fault with the RoC as  it
    had failed to forward the draft RHP to SEBI since it was a public issue
    and hence violated Circular dated 1.3.1991 issued by the Department  of
    Company Affairs, Government of India.


    24.    Tribunal also recorded a finding that  Saharas,  having  made  a
    public issue, cannot escape from complying  with  the  requirements  of
    Section 73(1) of the Companies Act on the ground that the companies had
    not intended to get the OFCDs listed on any stock  exchange.   Tribunal
    also examined the scope and ambit of Sections 55A of Companies Act read
    with Sections 11, 11A and 11B of SEBI Act and  took  the  view  that  a
    plain  reading  of  those  provisions  would  indicate  that  SEBI  has
    jurisdiction over the Saharas since OFCDs issued were in the nature  of
    securities and hence should have been listed on any of  the  recognized
    exchanges of India.  SEBI also took the view that  the  explanation  to
    Section 55A has to be read harmoniously, and if so read, clearly spells
    out the powers of SEBI and  the  Central  Government.    Tribunal  also
    considered the scope of Section 28(1)(b) of the SCR Act and  held  that
    the exclusion in the said Act is not available to OFCDs issued  by  the
    appellants.   Tribunal  concluded  that  SEBI  has  jurisdiction  under
    Section 55A(b) and the Saharas had flouted the mandatory provisions  of
    Section 73(1) of the Companies Act and the consequences provided  under
    Sub-section (2) of Section 73 would, therefore,  follow  and  SEBI  had
    ample powers under Sections 11, 11A and 11B of the SEBI  Act  to  issue
    directions to refund  the  amounts  to  the  investors  with  interest.
    Aggrieved by the said order, SIRECL filed C.A. No.  9813  of  2011  and
    SHICL filed C.A. No. 9833 of 2011 before this Court under  Section  15Z
    of the SEBI Act which came up  for  admission  on  28.11.2011  and  the
    direction issued to refund  sum  of  Rs.17,400  crores,  on  or  before
    28.11.2011, was extended. This Court also passed the following order:
                 “By the impugned order, the appellants have been  asked  by
         SAT to refund a sum  of  Rs.17,400/-  crores  approximately  on  or
         before 28th  November,  2011.   We  extend  that  period  upto  9th
         January, 2012.


                 In the meantime, we are directing the appellants to put  on
         affidavit,  before  the  next  date  of  hearing,   the   following
         information:

                 (a) Application of the funds, which  they  have  collected
                 from the Depositors;

                 (b) Networth of the Companies which  have  received  these
                 deposits;

                 c) Particulars of assets of  the  said  Companies  against
                    which  the  liability  has  been  created.   For   that
                    purpose, the  appellants  will  produce  the  requisite
                    financial statements consisting of  the  Balance  Sheet
                    and Profit and Loss Account of  the  year  ending  31st
                    March, 2011 and the  Statement  of  Account  upto  30th
                    November, 2011;

                 (d)  The Affidavit will indicate  how  the  said  Compnies
                 seek to secure the liabilities which  the  Companies  have
                 incurred and how they will protect the debenture holders;

                 (e)  If returns have been  filed  under  Income  Tax  Act,
                 1961, the same may be  annexed  to  the  Affidavit  to  be
                 filed.”

    25.    Civil Appeals later came  for  admission  on  9.1.2012  and  the
    interim order granted was extended.  As directed, Additional  Affidavit
    with certain documents were filed by both the appellants on  20.6.2012,
    wherein specific reference was made to the  affidavit  dated  14.9.2011
    filed by Saharas before the SAT, the details of which were given  in  a
    chart form, which is as follows:
| |SIRECL                         |SHICL                               |
|Date of         |25.4.2008       |Date of          |20.11.2009       |
|commencement of |                |commencement of  |                 |
|issue           |                |issue            |                 |
|Total amount    |Rs.19,400.87 Crs|Total amount     |Rs.6,380.50 Crs  |
|collected till  |                |collected till   |                 |
|April 13, 2011  |                |April 13, 2011   |                 |
|Total           |                |                 |Rs.25,781.37 Crs |
|Less: Premature |Rs.1,744.34 Crs |Less: Premature  |Rs.7.30 Crs      |
|redemption      |(11.78 lakh     |redemption       |(5,306 investors)|
|                |investors)      |                 |                 |
|Total           |                |                 |Rs.1,751.64      |
|                |                |                 |(11.78 Lakh      |
|                |                |                 |investors)       |
|Balance on      |Rs.17,656.53 Crs|Balance on August|Rs.6,373.20 Crs  |
|August 31, 2011 |                |31, 2011         |                 |
|Total           |                |                 |Rs.24,029.73 Crs.|
|                |                |                 |                 |
|Total no. of investors                                               |
|                |Total  |Balance|               |Total    |Balance  |
|                |till   |as on  |               |till     |as on    |
|                |April  |August |               |April 13,|August   |
|                |13,    |31,    |               |2011 ( in|31, 2011 |
|                |2011   |2011   |               |Lakhs)   |(in      |
|                |(in    |(in    |               |         |Lakhs)   |
|                |lakhs) |Lakhs) |               |         |         |
|Abode Bond      |70.94  |70.65  |Income Bond    |1.45     |1.44     |
|Nirman Bond     |25.44  |14.12  |Multiple Bond  |30.46    |30.45    |
|Real Estate Bond|136.47 |136.3  |Housing Bond   |43.23    |43.19    |
|Total           |232.85 |221.07 |Total          |75.14    |75.08    |
|                                                |Total    |Balance  |
|                                                |till     |as on    |
|                                                |April 13,|August   |
|                                                |2011 (in |31, 2011 |
|                                                |Lakhs)   |(in      |
|                                                |         |Lakhs)   |
|Total                                           |307.99   |296.15   |


    26.    Shri Fali S.  Nariman,  learned  senior  counsel  appearing  for
    SIRECL formulated several questions of  law  which,  according  to  the
    senior counsel, arise out of the order passed by the Tribunal.  Learned
    senior counsel submitted that Section 55A of Companies Act  confers  no
    power on SEBI to administer the provisions of Sections 56, 62,  63  and
    73 of the Companies Act of an unlisted company or  to  adjudicate  upon
    the alleged violation of those provisions, that too without framing any
    regulations under Section 642(4) of the Companies Act.   Learned senior
    counsel also pointed out that Sections 11, 11A and 11B of the SEBI  Act
    empower SEBI to protect the interest of investors but not to administer
    the provisions of the Companies  Act  so  far  as  an  unlisted  public
    company is concerned, consequently, when exercising powers  under  SEBI
    Act and/or SEBI Regulations, SEBI is not empowered  to  administer  the
    provisions of the Companies Act relating to the issue and  transfer  of
    securities and non-payment of dividends, so far as an  unlisted  public
    company is concerned.


    27.    Learned senior counsel also submitted that the powers of SEBI to
    administer the aforesaid provisions are limited to the listed companies
    and public companies which intend to get their securities listed on any
    recognized stock exchange in India and, in any other case, the power of
    administration of Sections 56, 62, 63 and 73 with respect to  OFCDs  is
    vested only with the Central Government and not with SEBI.    Reference
    was also placed on the explanation to Section 55A  and  submitted  that
    all powers relating to “all other  matters”  i.e.  matters  other  than
    those relating to the issue and transfer of securities and  non-payment
    of dividends, including the matter  relating  to  prospectus  would  be
    exercised by the Central Government or the RoC and not SEBI.


    28.    Learned senior counsel also highlighted the conspicuous omission
    of Section 60B in Section 55A which, according to the  senior  counsel,
    indicates that SEBI cannot administer  in  case  of  any  violation  of
    Section 60B.   Even otherwise, learned senior counsel  submitted  that,
    as a matter of legislative drafting, Section 60B could  not  have  been
    intended to be included in the  parenthetical  clause  and,  therefore,
    could not be said to be covered by Section 55A.  Learned senior counsel
     also submitted that  even  if  Section  60B  falls  in  between  under
    Sections 59 to 81, Saharas  either  through  their  conduct  or  action
    depicted no intention to have their  securities  listed  on  any  stock
    exchange in India so as to  fall  under  Section  55A(b)  of  the  Act.
    Learned senior counsel also referred to Section 60B(9) of the  Act  and
    submitted that the same would apply only in the case of listed company.


    29.    Learned counsel also referred to the Unlisted  Public  Companies
    (Preferential Allotment) Rules,  2003  (for  short  '2003  Rules')  and
    submitted that unlisted public companies, for  the  first  time,  could
    make preferential allotment through private  placement  pursuant  to  a
    special resolution passed under Sub-section (1A) of Section 81  of  the
    Companies Act, if authorized by its Article of  Association.    Section
    60B, it was pointed out, contemplated an unlisted company filing a  RHP
    even though OFCDs were not offered or to  be  offered  to  the  public.
    Further, it was also pointed out that, at best, the present case  falls
    under Section 55A(c) and it is amenable only to the jurisdiction of the
    Central Government and that SEBI has  no  jurisdiction  to  administer,
    inter alia, the provisions of  Sections  56,  62,  63  and  73  of  the
    Companies Act, so far as unlisted public companies are concerned.




    30.    Shri Nariman also submitted that SEBI has  committed  a  serious
    error in holding that the SIRECL had contravened the provisions of SEBI
    Act, DIP Guidelines read  with  ICDR  2009.    Learned  senior  counsel
    pointed out that DIP Guidelines were expressly repealed  by  ICDR  2009
    and even if the DIP Guidelines apply, the  same  would  not  cover  the
    preferential issue of OFCDs by  Saharas  under  2003  Rules  read  with
    Section 81(1A) of the Companies Act.    Learned  counsel  also  pointed
    that ICDR 2009 would apply to the OFCDs issued  by  SIRECL  by  private
    placement and when it comes to  regulating  preferential  allotment  by
    private placement by unlisted public companies, the same is governed by
    2003 Rules and only in case of preferential allotment by listed  public
    companies, ICDR 2009 would apply.


    31.     Shri  Nariman  also  contended  that  there  was  no  statutory
    requirement for SIRECL to list OFCDs on any recognized  stock  exchange
    under the provisions of 2003 Rules.  Further, it is also contended that
    the above rules do not have any deeming  provisions  for  treating  any
    issue as a public issue on the basis  of  number  of  persons  to  whom
    offers were made or on the basis of any other criteria.  Learned senior
    counsel also submitted  that  the  proviso  of  Section  67(3)  of  the
    Companies Act, added by  the  Companies  Amendment  Act,  2000  (w.e.f.
    13.12.2000), was also not attracted to 2003 Rules, hence it  was  urged
    that, in view of the statutory rules of 2003, preferential allotment by
    unlisted public companies by private placement  was  provided  for  and
    permitted without any restriction on numbers  as  per  the  proviso  to
    Section 67(3) and without requiring listing of OFCDs on any  recognized
    stock exchange.  Shri Nariman also pointed out that  it  is  only  from
    14.12.2011, the 2003 Rules were  amended,  whereby  the  definition  of
    preferential allotment was substituted, without disturbing or  amending
    Rule 2 of 2003 Rules.  Learned senior counsel  submitted  that  by  the
    amended definition of Preferential Allotment  by  the  Unlisted  Public
    Companies  (Preferential  Allotment)  Rules,  2011  (for  short   '2011
    Rules’), hybrid instrument stands specifically included.  Consequently,
    the first proviso to Section 67 of the Companies Act  was  specifically
    made applicable.


    32.    Learned senior counsel also contended that after  the  insertion
    of the definition of  “securities”  in  Section  2(45AA)  as  including
    hybrid and  the  definition  of  “hybrid”  in  Section  2(19A)  of  the
    Companies Act, the provisions of Section  67  were  not  applicable  to
    OFCDs which have been held to be “hybrid”.    Various bonds  issued  by
    Saharas,  learned  senior  counsel  submitted,  were  never  shares  or
    debentures but hybrids, a separate and distinct  class  of  securities.
    Section 67, it was submitted, speaks only of shares and debentures  and
    not hybrids and, therefore, Section 67 would not apply to OFCDs  issued
    by SIRECL.


    33.    Learned counsel also referred to various terms and conditions of
    the Abode Bond, Nirmaan Bond and Real Estate Bond  and  submitted  that
    they are convertible bonds falling with the scope of  Section  28(1)(b)
    of the SCR Act, in view of Section 9(1) and Section 9(2)(m) of that Act
    and are not listable securities within the meaning of Section  2(h)  of
    the SCR Act and hence there is no question of making  applications  for
    listing under Section 73(1)  of  the  Companies  Act.   Learned  senior
    counsel also submitted  that  three  Registrars  of  Companies  –  West
    Bengal,  Kanpur,  and  Mumbai  –  had,  at  different  point  of  time,
    registered the RHPs at different places over a period  of  nine  years.
    Registrars of Companies could have refused registration  under  Section
    60(3) of the Companies Act as well, if there was non-compliance of  the
    provisions of the Companies Act.   Learned  counsel  pointed  out  that
    having not done so, it is to be presumed that private  placement  under
    Section 60B of the Companies Act was permissible and hence no  punitive
    action including refund of the amounts is called for and the  order  to
    that effect be declared illegal.


    34.    Shri Gopal Subramanium,  learned  senior  counsel  appearing  on
    behalf of SHICL submitted that any act of compulsion on Saharas to list
    their shares or debentures on  a  stock  exchange  would  make  serious
    inroad into their corporate autonomy.  Learned senior  counsel  submits
    that the concept of autonomy involves the rights of shareholders, their
    free speech, their decision making and all other factors.  To highlight
    the concept  of  corporate  autonomy,  learned  senior  counsel  placed
    reliance on the Constitution Bench  judgment  of  this  Court  in  Life
    Insurance Corporation of India v. Escorts Ltd. &  Ors.   (1986)  1  SCC
    264.  Learned senior counsel  submitted  that  SEBI’s  insistence  that
    Saharas ought to have listed their shares or debentures on a recognized
    stock exchange in accordance with Section 73 of the Companies Act would
    necessarily expose shareholders and debenture holders to the  risks  of
    trading in shares and would also  compel  unlisted  companies  to  seek
    financial help from investment bankers.  Learned senior counsel  placed
    reliance on the judgment of this Court in  Union  of  India  v.  Allied
    International Products Ltd. & Anr. (1970) 3 SCC 594 and submitted  that
    Section 73(1) was enacted with the object that the subscribers would be
    ensured the facility of easy convertibility of their holdings when they
    have subscribed to the shares on the representation in  the  prospectus
    that an application for quotation of shares had been or would be  made.
    Learned senior counsel also  made  reference  to  the  Cohen  Committee
    Report (U.K.) and submitted that the same would bring  about  the  true
    purport of Section 73, that it is the obligation on the  company  which
    has promised the members of the  public  that  their  shares  would  be
    marketable or capable of  being  dealt  with  in  the  stock  exchange.
    Learned senior counsel made reference to Section 51  of  the  Companies
    Act, 1948 (U.K.) and the judgment in  In  re.  Nanwa  Gold  Mines  Ltd.
    (1955) 1 WLR 1080 and submitted that the object of Section  51  was  to
    protect those persons who had paid money on the faith  or  the  promise
    that their shares would be listed.  Learned senior counsel pointed  out
    that  Sub-section  (1)  of  Section  73  is  qualified  by   the   term
    “intending”, which means Section 73(1) deals with companies  that  want
    to issue new shares or debentures to be listed, and which have declared
    to the investors that they intend to have those  shares  or  debentures
    dealt with on the stock exchange.    In  such  a  case,  Section  73(1)
    obliges  those  companies  to  make  an  application  to  one  or  more
    recognized stock exchanges for permission for the shares or  debentures
    to be dealt with on the stock exchange or  each  such  stock  exchange,
    before the issue of a prospectus.   Learned  senior  counsel  submitted
    that the role of Section 73(1) is, therefore, narrow  and  limited  and
    those companies which do not intend to list their securities on a stock
    exchange are not covered by this provision.    Learned  senior  counsel
    submitted that the expression  “to  be  dealt  in  on  stock  exchange”
    occurring in the heading of Section 73 must be read in the text of that
    Section,  to  reach  the  understanding  that  it  is  not  merely  the
    invitation of shares or debentures to the  public  which  warrants  the
    application of Section 73, but it is only when such companies intend to
    have their shares or debentures listed on the stock exchange  that  the
    prescription under Section 73  shall  apply.   Learned  senior  counsel
    submitted that the company’s freedom to contract under the Constitution
    as well as the Law of  Contracts  needs  to  be  safeguarded  and  that
    persons who belong to the  lower  echelons  of  society,  while  it  is
    necessary that they must never be duped, ought not  be  prevented  from
    investing in measures which  would  add  to  their  savings.    Learned
    senior counsel pointed out that to deprive them of such an  opportunity
    would be a serious infraction.


    35.    Learned senior counsel referring to Section 64 of the  Companies
    Act submitted that the expression “deemed to be  prospectus”  indicates
    that whenever shares or debentures which are allotted  can  be  offered
    for sale to the public, such a document is deemed to  be  a  prospectus
    and has legal consequences.   Section  73,  according  to  the  learned
    senior counsel, operationalizes the intention of  a  company  which  is
    allotment of shares with a view to sell to the public  as  contemplated
    in Section 64 of the Act.  So, while Section 64 refers to the documents
    containing such an offer as  a  prospectus,  Section  73  requires  the
    company to make an application before  the  issue  of  the  prospectus.
    Learned senior counsel also submitted that mere filing of prospectus is
    not reflective of the intention to make a public offer.  The purpose of
    issue of prospectus is to disclose true and correct statements  and  it
    cannot be characterized as an invitation to the public for subscription
    of shares or debentures.  Learned senior counsel also pointed out  that
    the filing of the prospectus or the administration  of  Section  62  on
    account of misstatement in a  prospectus  will  be  undertaken  by  the
    Central Government on account of explanation  to  Section  55A  of  the
    Companies Act.  Learned senior counsel submitted  that  the  manner  in
    which a listed public company will offer its shares would be determined
    under the SEBI Act as well as the  SEBI  Regulations.   Learned  senior
    counsel submitted that Section 60B of the Companies Act, as such,  does
    not presuppose or prescribes an intention to list.  Section 60B enables
    a prospectus to be filed  where  a  company  is  not  a  listed  public
    company.  Learned senior counsel pointed out that IM  or  RHPs  can  be
    filed although an offer of  shares  may  be  made  by  way  of  private
    placement or to a section of the public or even to the public, but  yet
    without intending it to be listed.   Learned senior counsel, therefore,
    pointed out that the stand of SEBI that where  there  is  an  offer  of
    shares or debentures by way of prospectus, it amounts to  an  offer  of
    shares to the general public and, therefore, to  be  dealt  with  on  a
    stock exchange, is completely flawed and  that  Section  73  cannot  be
    interpreted to impinge upon the corporate autonomy of the company.


    36.    Shri Subramanium also submitted that Section 67 of the Companies
    Act does not imply that a company’s offer of shares  or  debentures  to
    fifty or more persons would ipso facto become a  ‘public  issue’  or  a
    ‘private offer’.  Learned senior counsel submitted  that  in  order  to
    determine whether an offer is meant for the public at large or  by  way
    of private placement, what is relevant is the intention of the offeror.
     In other words, the numbers are irrelevant, submits the counsel, it is
    only the intention to offer to a select or identified group which  will
    make the offer  a  private  placement.   Learned  senior  counsel  also
    submitted that the proviso to sub-section (3)  of  Section  67  of  the
    Companies Act would be appreciated in that background.  Learned  senior
    counsel also submitted that private  placement  is  not  authorized  by
    interpretative provision in Section 67(3) but is in fact  the  will  of
    the company reflected in a Special Resolution under Section  81(1A)  of
    the Companies Act which deals with “preferential  allotment”.   Learned
    senior counsel submitted  that  when  there  is  a  private  placement,
    irrespective of the number, then the offer  of  shares  need  not  take
    place through a prospectus but can even take place through a letter  or
    a memorandum.


    37.    Learned senior counsel submitted  that  the  Central  Government
    correctly  understood  the  position  while  framing  the  2003  Rules.
    Learned senior counsel also submitted that SAT has no jurisdiction over
    unlisted public companies either under Section 55A of the Companies Act
    or under the SEBI Act.  Learned senior counsel referred to the  various
    provisions conferring powers on SEBI under the SEBI Act as well as  the
    limited powers conferred on  SEBI  under  the  Companies  Act.  Learned
    senior counsel  pointed  out  that  SEBI  is  not  concerned  with  the
    securities of all the companies, nor is it responsible  for  overseeing
    the sources of capital in the country, except  that  which  is  in  the
    securities market.   Learned  senior  counsel  also  pointed  out  that
    compulsory listing of scrips is ‘unheard of’ in any  jurisdiction.   It
    was further  submitted  that  it  is  impossible  to  conceive  that  a
    regulator or State or Parliament could actually intend that there would
    be a mandatory exposure of business to vicissitudes  of  fortune  being
    swept by waves in the stock market.


    38.    Learned senior  counsel  elaborately  referred  to  the  various
    provisions of the SEBI Act in that  context.   Learned  senior  counsel
    also submitted that the Central Government and SEBI cannot approbate or
    reprobate  regarding  their  jurisdiction  over  the  unlisted   public
    companies.   Learned  senior  counsel  pointed  out   that   SEBI   has
    categorically stated on oath before various  Forums  that  an  unlisted
    public company was not within its jurisdiction if that company did  not
    intend to list their shares on the stock  exchange.   Later,  SEBI  has
    unfairly changed its stand before the other  Forums.    Learned  senior
    counsel referred to the stand taken by  SEBI  before  the  Bombay  High
    Court in Kalpana Bhandari v. Securities and  Exchange  Board  of  India
    (2005) 125 Comp. Cases 804 (Bom.) as well as Delhi High Court  judgment
    in Society for Consumers and Investment v. Union of  India  and  others
    passed in Writ Petition No. 15467 of 2006.  Reference was also made  to
    the judgment of the Kerala High Court in Writ Petition (C) No. 19192 of
    2003 [Kunamkulam Paper Mills Ltd. & Ors.  V.  Securities  and  Exchange
    Board of India & Others] learned senior counsel pointed out  that  SEBI
    has taken contradictory stand in various forums  rather  than  properly
    appreciating and applying the provisions of SEBI Act and the  Companies
    Act.


    39.    Learned senior counsel also submitted that OFCDs issued  by  the
    Saharas are outside the purview of the SCR Act as well as the SEBI Act.
     Learned senior counsel referred to Section 2(19A) of the Companies Act
    defining the term “hybrid” and  also  the  definition  of  “securities”
    under Section 2(45AA) and submitted that the legislative intent was  to
    treat “hybrids” differently from either shares or debentures  and  thus
    exclude from the purview of Section 67, the offer of hybrids.   Learned
    senior counsel  submitted  that  OFCDs  issued  by  Saharas  which  are
    convertible  debentures  would  fall  within  the   meaning   of   “any
    convertible bond” under Section 28(1)(b) of  SCR  Act  and,  therefore,
    would stand excluded from the purview of SCR Act.


    40.    Learned senior counsel also submitted that SEBI has exceeded its
    jurisdiction by acting contrary to and beyond this Court’s order  dated
    12.5.2011 passed in SLP(C) No.11023 of 2011 and SLP(C) No.13024 of 2011
    and has conducted itself in a manner prejudicial to  Saharas.   Learned
    counsel pointed out that the conduct of the regulator in the manner  in
    which proceedings have been conducted raises serious doubts about  SEBI
    functions.   Learned  senior  counsel  pointed  out  that,  apart  from
    asserting jurisdiction in an erroneous manner, SEBI has no evidence  of
    credible nature to show  that  Saharas  had  attempted  to  deceive  or
    collect money from fictitious sources.  Further,  it  was  pointed  out
    that there was no complaint from any investor and it  originated  on  a
    complaint by a person who has no interest in  Saharas.  Learned  senior
    counsel also submitted that SAT’s direction of refund, in  exercise  of
    its powers under Section 73(2) of  the  Companies  Act,  is  erroneous.
    Learned senior counsel, therefore, submitted that such a  direction  to
    refund the amount with interest is bad in law and liable to be quashed.


    41.    Shri Arvind P.  Dattar,  learned  senior  counsel  appearing  on
    behalf of SEBI, submitted that SEBI as well as SAT were fully justified
    in holding that SEBI has  jurisdiction  to  administer  the  provisions
    contained under Section 55A, so far as they relate  to  the  issue  and
    transfer of securities by Saharas.  Learned senior counsel pointed  out
    that Saharas had  paid  up  share  capital  of  just  Rs.10  lakhs  and
    virtually no assets and the companies had collected  about  Rs.  27,000
    crores  from  about  3  crore  subscribers,  through  unsecured  OFCDs.
    Learned senior counsel  pointed  out  that  Sections  55A,  proviso  to
    Section 67(3), Section 73 and other related  provisions  clearly  bring
    out the intention of the Parliament, i.e. after 13.12.2000, even if  an
    unlisted public company makes an offer of shares or debentures to fifty
    or  more  persons,  it  was  mandatory  to  follow  all  the  statutory
    provisions that would culminate in the  listing  of  those  securities.
    Learned senior counsel pointed out that once the number reaches  fifty,
    proviso to Section 67(3) applies and it is  an  issue  to  the  public,
    attracting  Section  73(1)  and  an  application  for  listing  becomes
    mandatory and, thereafter the jurisdiction vests with SEBI.


    42.    Learned senior counsel elaborately argued on  the  structure  of
    Section 55A and the purpose and object of the parenthetical clause  and
    the brackets employed  in  the  sub-section.   Learned  senior  counsel
    referred to the word “including” in Section 55A and submitted that  the
    word has been used to emphasize and to make it  abundantly  clear  that
    Sections 68A, 77A and 80A will be administered by SEBI even though they
    do not primarily deal with the issue and transfer of securities and non-
    payment of dividend.   Learned  senior  counsel  pointed  out  that  if
    Section 60B is excluded from the main part  of  Section  55A,  it  will
    stand excluded for listed companies as  well  which  is  a  consequence
    never envisaged or intended by the Legislature.  Learned senior counsel
    also submitted on a reference to Sections  59  to  81  that  Parliament
    intended to include  all  sections  in  that  range.    Learned  senior
    counsel pointed out that Section 55A also applies  to  companies  which
    “intend to” get their securities listed and that on a combined  reading
    of the proviso to Section 67(3) and Section 73(1),  since  Saharas  had
    made an offer of OFCDs to more than forty nine persons, the requirement
    to make application for listing  became  mandatory  and  SEBI  has  the
    necessary jurisdiction even though Saharas had not got their securities
    listed on a stock exchange.  Learned senior counsel also  stated  that,
    the  plea,  that  Saharas  never  wanted  or  intended  to  list  their
    securities, hence escaped from the rigor of Sections 55A, 60B, 73  etc.
    of the Companies Act, cannot  be  sustained.   Learned  senior  counsel
    submitted that Saharas should be judged by what they did, not what they
    intended.  Reference was placed on a Privy Counsel judgment in Young v.
    Bristol Aeroplane Company Ltd. [1945  PC  163  (HL)].   Learned  senior
    counsel also made elaborate arguments on the explanation to Section 55A
    as well.


    43.    Shri Dattar also submitted that DIP  Guidelines  have  statutory
    force since they are made specifically under the powers granted to SEBI
    under Section 11 of the SEBI Act.  Learned senior counsel  pointed  out
    that DIP Guidelines were implemented by SEBI with regard to all  listed
    companies and unlisted companies which made a public  offer,  until  it
    was replaced by ICDR 2009.  Learned senior counsel submitted  that  the
    issue of OFCDs was in contradiction of Section 73(1) and the applicable
    DIP Guidelines/ICDR 2009, consequently, SEBI was obliged to pass orders
    for refunding the amount that was collected by Saharas.


    44.    Learned senior counsel submitted that under Section 11(1) of the
    SEBI Act, SEBI is duty bound to protect the interest  of  investors  in
    securities either listed or which are required by law to be listed, and
    under Section 11B, SEBI has the power to issue appropriate  directions,
    in the interests of investors in securities and the securities  market,
    to any person who  is  associated  with  securities  market.    Learned
    senior counsel pointed out that 2003 Rules  are  not  applicable  after
    2003, to any offer or shares or debentures  to  more  than  forty  nine
    persons and the rules were amended in the year 2011  to  make  explicit
    what was already implicit, but the statutory mandate in this regard was
    made clear w.e.f. 13.12.2000, and that the 2003 Rules will  be  subject
    to the statutory provisions of the proviso to Sections 67(3) and 73(1).




    45.    Learned  senior  counsel  also  submitted  that  Saharas'  basic
    assumption that they are covered by 2003 Rules is  erroneous.   Learned
    counsel pointed out that a public issue would not become a preferential
    allotment by merely labeling it as such and the facts  on  record  show
    that the issue  could  not  be  termed  as  a  preferential  allotment.
    Preferential allotment, learned counsel submits, is made by  passing  a
    special resolution under Section 81(1A) and is an exception to the rule
    of rights issue that requires new shares or debentures to be offered to
    the existing members/holders on  a  pro  rata  basis.   Learned  senior
    counsel pointed out that once the offer is made to more than forty nine
    persons,  then  apart  from  compliance  with  Section  81(1A),   other
    requirements regarding public issues have to be complied with.


    46.    Shri Dattar  further  submitted  that  after  insertion  of  the
    proviso to Section  67(3)  in  December,  2000,  private  placement  as
    allowed under Section 67(3) was restricted up  to  forty  nine  persons
    only and 2003 Rules were framed keeping  this  statutory  provision  in
    mind and were never intended for private  placement/preferential  issue
    to more than forty nine persons and the amendments to these rules  made
    in the year 2011 merely made the said legal  position  under  the  2003
    Rules, explicit.  Shri Dattar also submitted that OFCDs are  debentures
    by name and the nature and the definition of 'debenture' as given under
    Section 2(12) of the  Companies  Act  includes  any  other  securities.
    Learned senior counsel submitted that  the  securities  as  defined  in
    Section 2(45AA) of the Companies Act includes hybrids  and,  therefore,
    hybrids fall in the definition of debentures and are  amenable  to  the
    provisions of Sections 67 and 73 of the Companies Act.


    47.    Shri Dattar also submitted that Section 28(1)(b) of SCR Act does
    not apply to convertible debentures and the plea raised by  Saharas  is
    also untenable because the interpretation placed  on  Section  28(1)(b)
    would be in contradiction to the mandatory provisions of Section  73(1)
    and the proviso to Section 67(3) of the Companies  Act.   It  was  next
    submitted that if the convertible debentures are excluded from SCR Act,
    it would lead to a paradoxical situation because these  debentures  are
    required to be listed under Section 73(1) but they cannot be listed  in
    view of Section 28(1)(b).  Learned senior counsel submitted  that  SEBI
    has rightly claimed jurisdiction to administer the  OFCDs,  as  it  was
    obligatory on  the  part  of  Saharas  to  comply  with  the  statutory
    requirements of the Companies Act, SEBI Act  and  SCR  Act.    Saharas,
    learned senior counsel submits,  had  no  right  to  collect  Rs.27,000
    crores  from  three  crore  investors  without  complying   with    any
    regulatory provisions, except filing of RHP with  RoCs  at  Kanpur  and
    Mumbai and that SEBI was justified in  directing  refunding  of  amount
    with 15% interest.


    48.    Shri Harin P. Rawal, Additional Solicitor General  appearing  on
    behalf  of  Union  of  India  placed  detailed   written   submissions,
    supporting the stand taken by SEBI.  Powers conferred on SEBI under the
    SEBI Act as well as the Companies Act have been elaborately dealt  with
    in the written submissions filed by him, pointing out that there is  no
    conflict of  jurisdiction  of  SEBI  or  RoC/MCA  while  enforcing  the
    provisions of SEBI Act and the Companies Act.  It was pointed out  that
    there is no overlap, much  less  any  repugnancy  or  conflict  between
    provisions of SEBI Act and those of Section 55A of  the  Companies  Act
    and the Sections  enumerated  thereunder.   It  was  pointed  out  that
    Sections 11A  and  11B  of  SEBI  Act  should  be  read  as  provisions
    additional to Section 55A.   Reference was also made to Section  32  of
    the SEBI Act and it was submitted that the provisions of SEBI  Act  are
    “in addition to” and “not in derogation of” the provisions of any other
    law, unless the provisions of SEBI Act are wholly inconsistent with the
    Companies Act, the provisions of both the SEBI Act  and  the  Companies
    Act should be harmonized and both sets of provisions  given  operation.
    Further, it was pointed out that Sections 11, 11A, 11B of SEBI Act  are
    special law  and  Section  55A  and  the  enumerated  sections  of  the
    Companies Act are  general  law.   It  was  further  pointed  out  that
    Sections 11(2A), 11(4) and 11A of SEBI Act were enacted (or amended) in
    2002  and  those  provisions  did  not  limit  SEBI's  powers  to  only
    regulating  listed  companies.    Moreover,   those   provisions   were
    predicated upon the continued operation of Sections 11 and 11B even  to
    unlisted companies and,  consequently,  it  cannot  be  said  that  the
    Parliament intended Section 55A  of  the  Companies  Act  to  impliedly
    repeal the powers of SEBI  in  relation  to  unlisted  companies  under
    Sections 11 and 11B of SEBI Act.
    Supreme Court as a court of appeal
    49.    Saharas have filed these appeals, under Section 15Z of the  SEBI
    Act, raising various questions of law which they claim arise out of the
    order of the Tribunal.  Section 15Z reads as follow:
           Appeal to Supreme Court:
           “15Z. Any person aggrieved by  any  decision  or  order  of  the
           Securities Appellate Tribunal may file an appeal to the  Supreme
           Court within sixty days from the date of  communication  of  the
           decision or order of the Securities Appellate Tribunal to him on
           any question of law arising out of such order:


           Provided that the Supreme Court may, if it is satisfied that the
           applicant was prevented by  sufficient  cause  from  filing  the
           appeal within the said period allow it  to  be  filed  within  a
           further period not exceeding sixty days.”




    50.    The  Securities  Appellate  Tribunal  (for  short  ‘SAT’)  which
    exercises powers under Section 15T, it is well settled,  is  the  final
    adjudicator of facts.   Under Sub-section (3) of Section  15U  of  SEBI
    Act, every proceeding before the Tribunal  shall  be  deemed  to  be  a
    judicial proceeding within the meaning of Sections 193 and 228 and  for
    the purpose of Section 196 IPC.  Under Section 15U,  the  Tribunal,  in
    exercise of its powers and in discharge of its functions, shall not  be
    bound by the procedure laid down by the Code of  Civil  Procedure,  but
    shall be guided by the principles of  natural  justice.   The  Tribunal
    has, for the purpose of discharging its functions, the same  powers  as
    are vested in a Civil Court under the Code of Civil Procedure.  Broadly
    speaking, the Tribunal has trappings of a court in the  sense  that  it
    has to determine the appeal placed before it judicially and give a fair
    hearing  to  the  parties,  to  accept  evidence  and  also  order  for
    inspection and discovery of documents, compel attendance  of  witnesses
    and to pass a reasoned order  which  gives  finality  to  the  dispute,
    subject to the appeal to Supreme Court under Section 15Z  of  the  Act.
    Findings of fact generally fall in the domain of the Tribunal  provided
    it stays within its jurisdiction.   Situations may also be there, where
    the evidence taken as a whole is not reasonably capable  of  supporting
    the findings recorded by  the  Tribunal  or  the  Tribunal  could  have
    reasonably recorded that conclusion.   Questions  repeatedly  posed  in
    this case before SEBI as well as before SAT, were with  regard  to  the
    nature of OFCDs issued by Saharas.  RHPs produced  had  disclosed  that
    Saharas did not intend the proposed securities  to  be  listed  on  any
    stock exchange and that the issues consisted of unsecured OFCDs with an
    option to  convert  the  same  to  equity  shares.   Saharas  had  also
    disclosed that the issue was made on a private placement basis and that
    OFCDs would be offered also  to  such  persons  to  whom  IM  would  be
    circulated.  But the fact remains that it was circulated to  more  than
    three  crore  people  inviting  them  to  subscribe.    The  same   was
    circulated through ten lac agents and more than 2900 branch offices and
    Saharas had a capital base of only 10 lakhs with  no  other  assets  or
    reserves and was a loss making company and had collected nearly  27,000
    crores  by  way  of   private   placement   through   unsecured   OFCDs
    redeemable/convertible   after   48/60/120   months.    Fact    finding
    authorities repeatedly  asked  for  information  regarding  the  names,
    addresses of investors in OFCDs and the  amounts  subscribed  by  them.
    SIRECL claimed that it had furnished to SEBI a separate CD  giving  the
    details of names of investors, the amount invested etc. along with  the
    password and  keys,  along  with  its  letter  dated  19.4.2011  which,
    according to SIRECL, was never opened or checked.    SEBI,  as  already
    indicated, has been vested with the powers of a Civil Court under  CPC,
    as per Sub-section (3) of Section 11 of the SEBI  Act.   Under  Section
    11C,  the  Board  has  also  been  vested  with  the  powers  to  order
    investigation to examine whether any person associated with  securities
    market has violated any provision of  the  Act  or  the  rules  or  the
    regulations made or direction issued by the Board.


    51.    Saharas, along with Vol III (additional documents), filed before
    this Court, gave certain details of  the  persons  who  have  invested.
    Documents produced before us and before the fact finding authorities do
    not show the relationship Sahara Group had with the  investors.   Claim
    of Saharas was that the investors were their friends, associated  group
    companies,   workers/employees   and   other   individuals   who   were
    associated/affiliated or connected with Sahara Group.  Saharas, in  the
    bonds, sought for a declaration from the applicants that they had  been
    associated with Sahara Group.  No details had been  furnished  to  show
    what types of association the investors had with Sahara Group.    Bonds
    also required to  name  an  introducer,  whose  job  evidently  was  to
    introduce the company to the prospective investor.  If  the  offer  was
    made to those persons related or associated with  Sahara  Group,  there
    was no necessity of an introducer and an introduction.  Burden of proof
    is entirely on Saharas  to  show  that  the  investors  are/were  their
    employees/ workers or associated with them in any other capacity  which
    they have not discharged.  Fact finding authorities have  clearly  held
    that Saharas had not discharged their burden which is purely a question
    of fact.   Facts are elaborately discussed by SEBI (WTM) and SAT, hence
    we do not want to burden this judgment with those factual details.    I
    find no perversity or illegality  in  those  findings  which  call  for
    interference by this Court sitting under Section 15Z of the  SEBI  Act.
    I, therefore, fully concur with the Tribunal that the  money  collected
    by Saharas through their RHPs dated 13.3.2008  and  6.10.2009,  through
    the OFCDs, were from the public at large and the same would  amount  to
    collection of money by way of issue of  securities  to  the  public,  a
    finding which calls for no interference by  this  Court  sitting  under
    Section 15Z of the SEBI Act.


    52.    I will now examine various questions of laws raised  before  us.
    Following are some of  the  cardinal  issues  that  have  come  up  for
    consideration, apart from other incidental issues and ancillary issues,
    which also I may deal with:


    QUESTIONS OF LAW FRAMED

     a) Whether SEBI has jurisdiction or power to administer the provisions
        of Sections 56, 62, 63, 67, 73 and the related  provisions  of  the
        Companies  Act,  after  the  insertion  of  Section  55A(b)  w.e.f.
        13.12.2000, by the Companies (Amendment) Act, 2000, so  far  as  it
        relates to issue  and  transfer  of  securities  by  listed  public
        companies, which  intend  to  get  their  securities  listed  on  a
        recognized stock exchange and public companies  which  have  issued
        securities  to  fifty  persons  or  more  without   listing   their
        securities on a recognized stock exchange;
     b)  Whether the public companies  referred  in  question  no.  (a)  is
        legally obliged to file the final prospectus under  Section  60B(9)
        with SEBI and whether Section 60B, as it is,  falls  under  Section
        55A of the Companies Act;
     c) Whether Section 67 of the Companies Act implies that the  company’s
        offer of shares or debentures to fifty or more persons  would  ipso
        facto become a public issue, subject to certain exceptions provided
        therein and the scope and ambit of the  first  proviso  to  Section
        67(3) of the Act, which  was  inserted  w.e.f.  13.12.2000  by  the
        Companies (Amendment) Act, 2000;


     d) What is the scope and ambit of Section 73 of the Companies Act  and
        whether it casts an obligation on a  public  company  intending  to
        offer its shares or debentures to the public, to apply for  listing
        of its securities on a recognized stock exchange  once  it  invites
        subscription from fifty or more persons and what legal consequences
        would follow, if permission under sub-section (1) of Section 73  is
        not applied for listing of securities;
     e) What is the scope and ambit of DIP (Guidelines) and ICDR  2009  and
        whether Sahara had violated  the  various  provisions  of  the  DIP
        (Guidelines) and ICDR 2009, by not complying  with  the  disclosure
        requirements or investor protection measures prescribed for  public
        issue under DIP  (Guidelines)  and  ICDR  2009,  thereby  violating
        Section 56 of the Companies Act;
     f) Whether Rules 2003 framed by the Central Government  under  Section
        81(1A) of the Companies Act read with Section 642 of  the  Act  are
        applicable to any offer of shares or debentures to fifty or more as
        per the first proviso to sub-section  (3)  of  Section  67  of  the
        Companies Act and what is the effect of UPC  (PA)  Amendment  Rules
        2011 and whether it would  operate  only  prospectively  making  it
        permissible for Saharas to issue OFCDs to  fifty  or  more  persons
        prior to 14.12.2011;


     g) Whether after the insertion of the definition  of  ‘securities’  in
        Section 2(45AA) as “including hybrids” and after insertion  of  the
        separate definition of the term “hybrid” in Section 2(19A)  of  the
        Act, the provision of Section 67 would apply  to  OFCDs  issued  by
        Saharas and what is the effect of the definition clause 2(h) of SCR
        Act on it;
     h) Whether OFCDs issued  by  Saharas  are  convertible  bonds  falling
        within the scope of Section 28(1)(b) of the SCR Act, therefore, not
        ‘securities’ or, at any rate, not listable under the provisions  of
        SCR Act;
     i) Whether SEBI can exercise its jurisdiction  under  Sections  11(1),
        11(4), 11A(1)(b) and 11B of the SEBI Act and Regulation 107 of ICDR
        2009 over public companies who have issued shares or debentures  to
        fifty or more, but have not complied with the provision of  Section
        73(1) by not listing its securities on a recognized stock exchange.


     j) Scope of Section 73(2) of the Companies Act regarding refund of the
        money collected from the Public;
     k) Civil and Criminal liability under the various  provisions  of  the
        Companies Act.


    53.    Much of the arguments on either side centered  round  the  scope
    and interpretation of various provisions of the Companies Act, SEBI Act
    and the rules and regulations framed thereunder,  relating  to  matters
    concerning the issue of securities, powers of SEBI, Central  Government
    (MCA), RoC, which are being discussed hereunder.  Powers  conferred  on
    SEBI, Central Government, (MCA), RoC etc. under the Companies Act, SEBI
    Act also call for consideration.


    Powers of SEBI, Central Government, (MCA), Registrar of Companies under
    the companies Act and SEBI Act:




    54.    The Companies Act, 1956 is a consolidation of the then  existing
    laws, statutory rules and certain judgments laid down by the Courts  in
    India and England.   This Court in Commissioner of Income Tax,  Gujarat
    v. Girdhardas and Co. Private Ltd. AIR 1967 SC 795,  noticed  that  the
    Companies Act, 1956 substantially incorporated the  provisions  of  the
    English Companies Act, 1948.   However,  there  has  been  considerable
    shift of principles and concepts after the formation  of  1948  English
    Companies Act and those principles and concepts find  a  place  in  the
    later English Companies  Act,  1985,  followed  by  1989  Act.   Indian
    Companies Act, 1956 still remains static on various issues.  No efforts
    have been made  to  incorporate  universally  accepted  principles  and
    concepts into our company  law,  hitherto.    Of  late,  however,  some
    efforts have been made to carry on few amendments to the Companies Act,
    1956, so also in the SEBI Act, 1992  and  also  by  framing  rules  and
    regulations like SEBI Rules, Regulations, so as to keep pace  with  the
    English Companies Act and  related  legislations.  Instances  are  many
    where securities market have collapsed in England, USA, India etc.  due
    to  high-profile  corporate  fraud  cases,   leading   to   legislative
    intervention  in  various  countries  including  India.   For  example,
    England faced a flood of speculative and fraudulent schemes of  company
    flotation, a classic example is scheme  formulated  by  the  South  Sea
    Company, which collapsed in 1720, which heralded the start of  Security
    Law in England.  Great Crash of New York in 1929  also  contributed  in
    equal measure apart from other high-profile corporate  fraud  cases  in
    U.S.A.  Various ventures,  undertakings  by  the  companies  registered
    under England Companies Act have their own impact on Securities Law  as
    well.  Prior to 1985, in England, the procedure to be followed  by  the
    companies for the issue of securities  were  mainly  contained  in  the
    Companies Act 1948, the Companies Act 1980 and the Prevention of  Fraud
    in Investment Act 1958.  Later, in England, the Companies Act 2006  was
    enacted making detailed and important changes to the legal treatment of
    shares.  Securities markets  now  stand  controlled  by  the  Financial
    Services and Market Act, 2000 (FSMA) in England, which has created  the
    Financial Service Authority (FSA).  Historical  facts  also  show  that
    fraudulent accounting and non-disclosure of information was root  cause
    for collapse of Enron, Barings, World Com,  BCCI  etc.  which  put  the
    reforms of corporate governance on the agenda in the United States.




    55.    India is also not an exception.  Harshad Mehta,  a  Broker,  was
    charged for diverting funds from the Bank to the tune of Rs.4000 crores
    to stock brokers between 1991-92; Ketan Parekh Securities Scam  in  the
    year 2001 in which investors, it was reported,  had  lost  heavily;  so
    also the Banks in the UTI scam 2001, where it was reported  that  heavy
    funds were collected from small investors and money was  used  to  fund
    large business houses and huge amounts were  invested  in  junk  bonds;
    Satyam Computers Scam of 2008, where  it  was  reported  that,  over  a
    number of years, Satyam Computer account was manipulated and money  was
    raised through shares.


    56.    Both in England and India, it  is  well  established,  that  the
    range of functions that may be  performed  by  a  company  incorporated
    under the Companies  Act  is  extremely  wide.   Public  companies  and
    private companies, functioning under the Companies Act 2006 in England,
    the Companies Act 1956 in India, have considerable social and  economic
    importance, but public companies are more highly regulated than private
    companies.    Private  companies  are  not  authorized  to  offer   any
    securities to the public.  FSMA in England generally deals  with  issue
    of securities to the public, including listing  Rules,  the  Prospectus
    Rules, and  continuing  obligation  contained  in  the  Disclosure  and
    Transparency Rules etc.  The Companies Act 1956 in  India  was  enacted
    with the  object  to  protect  the  interests  of  a  large  number  of
    shareholders, safeguard the interests of the creditors  to  attain  the
    ultimate  ends  of  social  and  economic  policy  of  the  Government.
    Provisions  have  also  been   incorporated   making   provisions   for
    prospectus, allotment and other matters relating to issue of shares and
    debentures etc.  Parliament has also enacted the SEBI  Act  to  provide
    for the establishment of a Board to protect the interests of  investors
    in securities and to promote the development of, and  to  regulate  the
    securities market.  SEBI was established in the year  1988  to  promote
    orderly and healthy growth of the securities market and for  investors'
    protection.  SEBI Act, Rules and Regulations  also  oblige  the  public
    companies to provide high degree of protection to the investor’s rights
    and interests through adequate, accurate and authentic information  and
    disclosure of information on a continuous basis.




    57.    SEBI Act is a special law, a complete code in itself  containing
    elaborate provisions to protect interests of the investors.  Section 32
    of the Act says that the provisions of that Act shall be in addition to
    and not in derogation of the provisions of any other law.


    58.    SEBI Act is a special Act dealing with specific  subject,  which
    has to be read in harmony with the  provisions  of  the  Companies  Act
    1956.  In fact, 2002 Amendment of the SEBI Act further re-emphasize the
    fact that some of the provisions of the Act will  continue  to  operate
    without prejudice to the provisions  of  the  Companies  Act,  qua  few
    provisions say that notwithstanding the regulation and  order  made  by
    SEBI, the provisions of the Companies Act dealing with the same  issues
    will remain unaffected.  I only want to highlight the  fact  that  both
    the Acts will have to work in tandem, in  the  interest  of  investors,
    especially when public money is raised by the issue of securities  from
    the people at large.


    59.    Powers and functions of SEBI are dealt with in Chapter IV of the
    SEBI Act.  Section 11 states that, subject to  the  provisions  of  the
    Act, it shall be the duty of SEBI to protect the interests of investors
    in securities and to promote the development of  and  to  regulate  the
    securities market.  SEBI is also duty bound to prohibit fraudulent  and
    unfair trade practices  relating  to  securities  markets,  prohibiting
    insider trading in securities etc.   Section  11A  authorizes  SEBI  to
    regulate  or  prohibit  issue  of   prospectus,   offer   document   or
    advertisement soliciting money for issue of securities  which  read  as
    follows:
             “11A  (1) Without prejudice to the provisions of the Companies
             Act, 1956(1 of 1956), the Board may,  for  the  protection  of
             investors, -

                    a) specify, by regulations –

                      i) the matters relating to issue of capital,  transfer
                         of securities and other matters incidental thereto;
                         and

                      (ii)  the  manner  in  which  such  matters  shall  be
                           disclosed by the companies;

                  (b) by general or special orders –

                      (i)  prohibit any company from issuing prospectus, any
                           offer  document,  or  advertisement   soliciting
                           money  from  the  public  for   the   issue   of
                           securities;

                      (ii)   specify the conditions  subject  to  which  the
                           prospectus,    such    offer     document     or
                           advertisement, if not prohibited, may be issued.



             (2) Without prejudice to the provisions of section 21  of  the
             Securities Contracts (Regulation) Act, 1956 (42 of 1956),  the
             Board may specify the requirements for listing and transfer of
             securities and other matters incidental thereto."

    Section 11B empowers the Board  to  issue  directions  which  reads  as
    follows:
              “11B. Save as otherwise provided  in  section  11,  if  after
              making or causing  to  be  made  an  enquiry,  the  Board  is
              satisfied that it is necessary,-

              (i) in the interest of investors, or  orderly  development  of
                   securities market; or

              (ii)  to prevent the affairs  of  any  intermediary  or  other
                  persons referred to in section 12 being  conducted  in  a
                  manner  detrimental  to  the  interest  of  investors  or
                  securities market; or

            iii) to secure the proper management of any such intermediary or
                 person,

              it may issue such directions,-

                (a) to any person  or  class  of  persons  referred  to  in
                     section 12, or associated with the  securities  market;
                     or

                (b) to any company  in  respect  of  matters  specified  in
                     section 11A, as may be appropriate in the interests  of
                     investors in securities and the securities market.”

    60.    I find all the above quoted  provisions  are  inter-related  and
    inter-connected and the main focus is on Investor Protection.  Power is
    also conferred on SEBI under Section 11C to  conduct  investigation  if
    the transactions are being dealt with in a manner  detrimental  to  the
    investors or securities market.  Mandatory  listing  of  securities  in
    case of offer to public would cast an  obligation  on  the  issuers  to
    ensure the transparency of information and other continuing obligations
    to provide information by means of prospectus and to follow  disclosure
    provisions.




    61.    I may, in the above background, examine the  various  provisions
    of the Companies Act which  cast  a  legal  obligation  on  the  public
    companies which offer securities to the public and the SEBI’s power  or
    jurisdiction to administer those companies and the legal requirement to
    be followed while making offer of securities to the  public.   When  we
    interpret and deal with the provisions like Section 55A,  60B,  67,  73
    etc. of Companies Act, we have to  always  bear  in  mind  the  various
    provisions of the SEBI Act, especially Sections 11, 11A, 11B,  11C,  32
    etc. because as we have already indicated, those provisions shall be in
    addition to and not in derogation of the provisions  of  the  Companies
    Act.


    62.    I may straightway deal with the  first  question  posed  on  the
    jurisdiction of SEBI over various provisions of the  companies  Act  in
    the case of public companies, whether listed  or  unlisted,  when  they
    issue and transfer securities.
    63.    Section 55A, the scope of which has been extensively argued,  is
    given below for easy reference:


         “55A. Powers of Securities  and  Exchange  Board  of  India.—   The
         provisions contained in sections 55 to 58,  59  to  81,  (including
         Sections 68A, 77A and 80A)108, 109, 110, 112, 113, 116,  117,  118,
         119, 120, 121, 122, 206, 206A and 207, so far  as  they  relate  to
         issue and  transfer  of  securities  and  non-payment  of  dividend
         shall,—
         
         (a) in case of listed public companies;
         
         (b) in case of those public companies which  intend  to  get  their
         securities listed on any recognized stock  exchange  in  India,  be
         administered by the Securities and Exchange Board of India; and
         
         (c) in any other case, be administered by the Central Government.
         
         Explanation.—For the removal of doubts, it is hereby declared  that
         all powers relating to all  other  matters  including  the  matters
         relating to prospectus, statement in lieu of prospectus, return  of
         allotment,  issue  of  shares  and  redemption   of   ir-redeemable
         preference shares shall be exercised  by  the  Central  Government,
         Tribunal or the Registrar of Companies, as the case may be.”


    64.    Section 55A was inserted in the Act by the Companies (Amendment)
    Act, 2000 w.e.f. 13.12.2000.  Clauses (v) to (x) of  the  Statement  of
    Objects and  Reasons  give  an  indication  of  the  intention  of  the
    Legislature.  Clauses (v) and (x) read as follows:
              “Clause (v) - to provide that  the  Securities  and  Exchange
         Board of India be entrusted with powers with regard to all  matters
         relating  to  public  issues  and  transfers  including  power   to
         prosecute defaulting companies and their directors.
              (x)     to provide that any offer of shares or debentures  to
         more than 50 persons shall  be  treated  as  a  public  issue  with
         suitable modification in the case of public financial  institutions
         and non-banking financial companies.”
                                                         (emphasis supplied)




    65.    Legislative intention to entrust  the  powers  with  SEBI,  with
    regard to all matters relating to public issues and transfers including
    power to prosecute default companies and their directors, is  based  on
    information derived from past and  present  experiences.   Powers  have
    been specifically conferred on SEBI because it  was  established  under
    the SEBI Act, 1992, in order to protect the interest  of  investors  in
    securities and to promote  the  development  of  and  to  regulate  the
    securities market and for matters  connected  therewith  or  incidental
    thereto.  When we look at Section 55A it is clear that  it  deals  with
    the following three categories:


         a) Listed public companies
         b) Public companies which intend to get their securities listed  on
            any recognized stock exchange in India; and
         c)  “in  any  other  case”  that  is,  all  other  unlisted  public
            companies, which do not make a public offer  of  securities  and
            private companies.


    66.    Public companies which fall under categories (a) and (b) are  to
    be administered by SEBI and with regard to various provisions mentioned
    in the first part of Section 55A, so  far  they  relate  to  issue  and
    transfer of securities and non-payment of  dividend  and  rest  of  the
    matter  be  administered  by  the   Central   Government.    Power   of
    administration of Sections 56, 62, 63 and 73 with respect to  issue  of
    OFCDs lies with SEBI and not with the  Central  Government  since  they
    relate to issue of securities.


    67.    We shall now examine the structure of Section 55A and when we do
    that, we have to necessarily keep in mind the  object  and  purpose  of
    that section, the  intention  of  the  Legislature  and  the  role  and
    function to be performed by the specialized forum, SEBI, created by the
    SEBI Act.   Powers conferred on SEBI under Section 11A to  protect  the
    interest of investors that too without prejudice to the  provisions  of
    the Companies Act, may also be borne in mind when we interpret  Section
    55A, as already indicated.    Provisions  which  relate  to  issue  and
    transfer  of  securities  and  non-payment  of  dividend  have  to   be
    administered by SEBI, a legal obligation cast on  SEBI.    Section  55A
    specifically refers to Sections 55 to 58 and Sections 59 to 81 with  an
    emphasis to Sections  68A,  77A  and  80A  within  brackets.   Specific
    reference has been made to Sections 108, 109,  110  and  Sections  116,
    117, 118, 119,  120,  121,  122,  206,  206A  and  207.   The  Original
    Companies (Second Amendment) Bill of 1999 [Bill No. 139  of  1999]  did
    not have the  parenthetical  clause  in  Section  55A  (i.e.  including
    Sections 68A, 77A and 80A) which was introduced as  corrigendum  before
    the leave was sought and granted to introduce the Bill in the Lok Sabha
    and with this corrigendum the bill was  passed  in  the  Lok  Sabha  on
    27.11.2000 and then on 30.11.2000 by the Rajya Sabha and later assented
    by the President.  Contention was, therefore, raised that when the Bill
    was introduced it was provided that  Sections  59  to  81  were  to  be
    administered by  SEBI,  in  respect  of  listed  public  companies  and
    companies intended to get their securities listed in a stock  exchange.
    But, it was pointed out, that Sections in between Sections  59  to  81,
    which had letters ‘A’ or ‘B’ as a suffix, were not all intended  to  be
    covered by Section 55A,  hence  the  necessity  for  the  parenthetical
    clause added by a corrigendum, i.e. (including Sections  68A,  77A  and
    80A).  Further, it was also contended that where provisions ending with
    the suffix ‘A’, ‘AA’ or ‘B’ were intended to be included in Sections 59
    to 81, it was specifically so provided.  Reference was made to  Section
    206A which finds a place  in  Section  55A.   For  the  above,  it  was
    submitted by Saharas that Section 60B could not have been  intended  to
    be included in the parenthetical portions and could not be said to have
    covered by Section 55A.


    68.    All sections falling within Sections 55 to 58 of  the  Companies
    Act will  fall  under  those  sections.   So  far  as  Section  55A  is
    concerned, it is the very Section which  deals  with  powers  of  SEBI,
    Central Government, Tribunal, Company Law Board, Registrar of Companies
    etc.   Reference  to  Sections  59  to  81  indicated  that  Parliament
    intended to include all sections in that range which takes in  Sections
    60B, 62, 63, 67, 73 etc. of the Companies Act.   Section 67 is  also  a
    section of considerable importance because  the  expression  “offer  of
    shares or debentures to the public” finds a place in  various  sections
    of the Act, as well as the articles of a company.  Further,  the  first
    proviso added to Section 67(3) vide the Companies (Amendment) Act, 2000
    w.e.f. 13.12.2000  is  also  of  considerable  bearing  in  determining
    whether a public company offering shares or debentures  to  the  public
    has to list its securities on a recognized stock exchange.   Expression
    ‘to’ clearly has a meaning i.e. everything in between or destination of
    an  action.    The  meaning  of  the  expression  ‘to’  came   up   for
    consideration before this Court in Hindustan Lever Ltd. v. Ashok Vishnu
    Kate and Ors. (1995) 6 SCC 326.   Further, the  specific  inclusion  of
    Sections 68A, 77A and 80A in a bracket, would not mean the exclusion of
    all sections between in Sections 59 to 81 with suffix ‘A’  or  ‘AA’  or
    ‘B’.  The word ‘including’ used in the parenthetical clause is only  to
    give  emphasis  to  those  sections.   Lord  Watson  in   Dilworth   v.
    Commissioner of Stamps (1999) AC 99 said that  the  word  'include'  is
    very generally used in interpretation clause in order  to  enlarge  the
    meaning of words or phrases occurring in the body of the  Statute  and,
    when it is so used, these  words  and  phrases  must  be  construed  as
    comprehending, not only things they signify according to their  natural
    import, but also those things which the interpretation clause  declares
    that they shall include.”  In Delhi Judicial  Services  Association  v.
    State of Gujarat AIR 1991 SC 2176, the expression used in  Article  129
    of the Constitution i.e. including the power to punish for contempt  of
    itself which was interpreted by the Court stating that  the  expression
    'including' has been interpreted by Courts  to  extend  and  widen  the
    scope of power.  Giving emphasis to Sections 68A, 77A and 80A does  not
    mean the exclusion of all such similar sections.


    69.    Legislature, in its wisdom, thought  some  emphasis  has  to  be
    given to Sections 68A, 77A and 80A because all those  sections  provide
    certain offences to be punishable with imprisonment.   Further clue for
    that reasoning, we may get, if we  examine  the  manner  in  which  the
    Legislature has used succeeding sections.  In Section 55A  there  is  a
    specific reference to Section 108, not Sections 108A  to  I.   So  also
    Section 55A specifically refers to Section 109, not Sections  109A  and
    B.   Legislature wanted inclusion of Sections 108A to I,  Section  109A
    etc., then it would  have  said  Sections  108  to  110.  Further,  the
    Legislature never wanted the inclusion of Sections 117A to C, hence  it
    used Section 117 alone, not Sections 116 to 122.  If it  has  used  so,
    then Sections 117A to C also would have been included.  Legislature  in
    that sequence wanted inclusion of Sections 206 and 206A, hence both the
    sections have been included.  Hence, when the legislature has used  the
    expression Sections 59 to  81,  60B  which  falls  in  between,  stands
    included.  Further, the entrustment of powers on  SEBI,  under  Section
    55A, is in addition to the then existing powers of SEBI under SEBI Act,
    1992, which takes Sections 11, 11A and 11B as well.


    70.    Explanation has been added to Section 55A to  harmonize  and  to
    clear up doubts and allay groundless  apprehensions.   In  S.  Sundaram
    Pillai & Ors. v. V.R. Pattabiraman & Ors. (1985) 1 SCC 591, this  Court
    has ruled that the purpose of the explanation is to clarify where there
    is any obscurity or vagueness in the main  enactment  and  to  make  it
    consistent with the dominant object which it seems to serve.  The  main
    part of Section 55A confers jurisdiction on SEBI with regard  to  three
    categories i.e. issue of securities, transfer of  securities  and  non-
    payment of dividend.  The expression “all other matters”  mentioned  in
    the explanation would refer to powers other than  the  above  mentioned
    categories. Further, it may also be  remembered  that  the  explanation
    does not take away the powers conferred on SEBI by  other  sections  of
    the Companies Act.  At the same time, matters relating  to  prospectus,
    statement in lieu of prospectus, return of allotment, issue  of  shares
    and redemption of irredeemable preference shares be  exercised  by  the
    Central  Government,  Tribunal,  Company  Law  Board,   Registrars   of
    Companies, as the  case  may  be.    Further,  Section  60B(9)  clearly
    indicates that upon  closing  of  the  offer  of  securities,  a  final
    'prospectus' has to be filed in the case of listed  company  with  SEBI
    and Registrar, hence the  explanation  to  Section  55A  can  never  be
    constructed or interpreted to mean that SEBI has no power  in  relation
    to the prospectus and the issue of securities  by  an  unlisted  public
    company, if the securities are offered to more than forty nine persons.




    71.    I am, therefore, of the view that the mere  fact  that  emphasis
    has been given to  Sections  68A,  77A  and  80A,  does  not  mean  the
    exclusion of Section 60B from Section 59 to  81.  We,  therefore,  hold
    that, so far as the provisions enumerated in  the  opening  portion  of
    Section 55A of the Companies Act, so far as they relate  to  issue  and
    transfer of securities and non-payment of dividend is  concerned,  SEBI
    has the power to administer in the case of listed public companies  and
    in the case of  those  public  companies  which  intend  to  get  their
    securities listed on a recognized stock  exchange  in  India.   In  any
    other case, i.e.  rest  of  the  matters,  that  is  excluding  matters
    relating to  issue  and  transfer  of  securities  and  non-payment  of
    dividend be administered by the  Central  Government  in  the  case  of
    listed public companies and those companies which intend to  get  their
    securities  listed  on  any  recognized  stock   exchange   in   India.
    Explanation to that section further clarifies the  position  so  as  to
    remove doubts, saying all powers relating to  other  matters  including
    the matters relating to prospectus, statement in  lieu  of  prospectus,
    return of allotment, issue of shares  and  redemption  of  irredeemable
    preference shares, should  be  exercised  by  the  Central  Government,
    Tribunal or the Registrar of Companies, as the case  may  be.   Section
    55A, therefore, makes it clear that SEBI has the  power  to  administer
    the above mentioned select provisions of the Companies Act relating  to
    matters specified therein.   Contention raised by Saharas that  without
    regulations being framed under Section 642(4)  of  the  companies  Act,
    SEBI cannot exercise powers of administration, is totally unfounded and
    is rejected.
    PROSPECTUS AND IM


    72.    Prospectus is the principal medium through which  the  investors
    get information of the  strength  and  weakness  of  the  company,  its
    creditworthiness,  credence  and  confidence  of  promoters   and   the
    company’s prospects.  Section 55 of the Act provides that a  prospectus
    issued by or on behalf of a company  or  in  relation  to  an  intended
    company shall be dated and that date shall be taken as the date of  its
    publication.  The matters to be stipulated and reports to  be  set  out
    are provided under Section 56 of the Act, read with Part 1 of  Schedule
    11 of the Companies Act, which also calls for the details of the  stock
    exchange where application was made for listing of issue of securities.
     Section 60 of the Act  deals  with  registration  of  the  prospectus.
    Section 60(3) specifically states that the Registrar shall not register
    a prospectus unless the requirements of Sections 55, 56, 57 and 58  and
    sub-sections (1) &  (2)  of  that  section  have  been  complied  with.
    Securities  can  be  listed  on  a  recognized  stock  only  after  the
    prospectus is prepared and approved by the RoC, SEBI, as the  case  may
    be. Section 62 imposes civil liability for mis-statements in prospectus
    and Section 63 criminal liability.  Section  68  provides  imprisonment
    for a term which may extend to five  years,  or  with  fine  which  may
    extend to one lakh rupees, or  with  both,  for  fraudulently  inducing
    persons to invest money.  In other words, either to offer transferrable
    securities for sale to the  public  or  to  request  the  admission  of
    securities for trading on a regulated market without prospectus, or  to
    offer transferrable securities for sale to the public, by way of shares
    and debentures, in violation of the first proviso to Section 67(3)  may
    attract civil and criminal liability.  Saharas, in this case, published
    RHPs with the approval of RoC, but did not get them approved by SEBI or
    their securities listed on a recognized stock exchange.


    73.    Section 60B which was included  in  the  Act  by  the  Companies
    Amendment Act, 2000 (Act 53 of 2000) w.e.f. 13.12.2000.   60B(1)  reads
    as follows:
           “60B. Information memorandum.
         (1) A public company making an issue of  securities  may  circulate
         information  memorandum  to  the  public  prior  to  filing  of   a
         prospectus.”

    74.    Section 60B(1) is an enabling provision which enables  a  public
    company  making  an  issue  of  securities  to  circulate   information
    memorandum (IM) to the public before filing the prospectus.  Purpose of
    that sub-section is for assessing the demand and the  price  which  the
    public would be willing to offer, which is not a mandatory requirement.
    Note on Clause 52 of the 1997 Bill explains the object and  purpose  of
    that Section as follows:
         “This Section provides for the  concepts  of  ‘book  building’  and
         ‘information memorandum’.  This is an  international  practice  and
         refers to collecting  orders  from  investment  bankers  and  large
         investors based on an indicative price range.   This is essentially
         a pre-issue exercise which  will  facilitate  the  issuers  to  get
         better idea of demand and the final offer price.  The directors  of
         the  company,  however,  will  not  be  permitted  to   resort   to
         underwriting on book building.”




    75.    Section 60B(1), therefore, was introduced to facilitate  a  pre-
    issue exercise to get a better insight of demand and final offer price.
     Section 60B(2) of the Act refers to the stage at which the RHPs has to
    be filed by the company.  The provision clearly states that the company
    inviting subscription by an IM shall be  bound  to  file  a  prospectus
    prior to the opening of the subscription lists and the offer as a  RHP,
    at least three days before the opening of the  offer.   Section  60B(3)
    stipulates that IM and RHPs shall carry the  same  obligations  as  are
    applicable in the case of prospectus.  Explanation clause states,  “for
    the purpose of Sub-sections (2), (3) and (4), “Red Herring  Prospectus”
    means a prospectus which does not  have  complete  particulars  on  the
    price of the securities offered and the quantum of securities offered”.
     The expression “prospectus” is also defined in the  Act  vide  Section
    2(36) of the Companies Act as follows:
              “2(36) “Prospectus" means any document described or issued as
         a prospectus and includes any notice,  circular,  advertisement  or
         other document inviting deposits from the public or inviting offers
         from the public for the subscription or purchase of any shares  in,
         or debentures of, a body corporate. (emphasis supplied)”

    Section 60B(9) deals with the final prospectus, which reads as follows:
         “60B (9) Upon the closing of  the  offer  of  securities,  a  final
         prospectus stating therein the total capital raised, whether by way
         of debt or share capital and the closing price  of  the  securities
         and any other details as  were  not  complete  in  the  red-herring
         prospectus shall be filed in a case of a listed public company with
         the Securities and Exchange Board and Registrar, and in  any  other
         case with the Registrar only.”




    76.    Section 60B(9) deals  with  two  categories  of  companies  i.e.
    “listed public  company”  under  one  category  and  the  rest  of  the
    companies falling under “any other case”  under  another  category.   A
    company inviting subscription from public by an IM is bound to  file  a
    prospectus prior to the opening of the subscription lists.  That is the
    moment a company decides to issue securities to the public, a  duty  is
    cast on it to get its securities listed on a recognized stock exchange.
     Section 60B, as already indicated, refers to IM.  Section  2(19B)  was
    inserted  by  the  Companies  (Second  Amendment)  Act,  2002,   w.e.f.
    1.4.2003, which reads as follows:


               “2(19B) "information memorandum" means a  process  undertaken
         prior to the filing of a prospectus  by  which  a  demand  for  the
         securities proposed to be issued by a company is elicited, and  the
         price and the terms of issue for such securities  is  assessed,  by
         means of a notice, circular, advertisement or document.”



    77.    The initiation of the process  of  offering  securities  to  the
    public by a company, therefore, starts with IM, but it is bound to file
    a prospectus prior to the opening of subscription lists and  the  offer
    as RHPs and then reaches its final intimation, that is after closing of
    the offer of securities with a final  prospectus,  with  the  requisite
    details and any other details as were  not  completed  in  the  RHP  by
    filing the same with SEBI and Registrar  of  Companies.   Therefore,  a
    company which has made on  offer  of  securities  to  the  public  and,
    therefore, has applied for listing on a stock exchange, will fall under
    the category of listed companies and not  in  ‘any  other  case’  under
    Section 60B(9) of the Act.  Therefore, a reading  of  Sections  60B(1),
    (2) and (3) reveals the stage when IM and RHPs are  filed  and  Section
    60B(9) the stage of culmination on closing of the offer  of  securities
    and filing of the prospectus of a listed company with SEBI and RoC  and
    in any other case with only the RoC.   Registration  of  prospectus  is
    dealt with in Section 60 of the Act which says, no prospectus shall  be
    issued by or on behalf of a company  or  in  relation  to  an  intended
    company, unless on or before the date of  its  publication,  there  has
    been delivered to the RoC for Registration a copy thereof, duly  signed
    and  complying  with  statutory  requirements.   Registrar  shall   not
    register a prospectus unless the requirements of Sections  55,  56,  57
    and 58 and Sub-sections (1) and (2) of Section 60  have  been  complied
    with.  Section 56 refers to the matter to be stated and reports  to  be
    set out in the prospectus, and  states  that  every  prospectus  issued
    shall state the matter specified in Part I of Schedule II and  set  out
    reports as specified in Part II of the Schedule, which will have effect
    subject to the provisions contained  in  Part  III  of  that  schedule.
    General information clause (c) of Part I of Schedule II calls  for  the
    names of recognized stock exchange  and  other  stock  exchanges  where
    application is made for listing.  Section 60B(3),  as  I  have  already
    indicated, says IM  and  RHPs  shall  carry  same  obligations  as  are
    applicable in the case of a prospectus.


    78.    SEBI, under Section 60B(9), however, as a Regulator  is  legally
    obliged  to  examine  whether,  upon  the  closing  of  the  offer   of
    securities, a final prospectus giving the details of the total  capital
    raised, whether by way of debt or share capital and the closing of  the
    securities and other details as were not complete in  RHPs,  have  been
    filed in a case of listed public company with SEBI.  This duty is  cast
    on the Registrar alongwith SEBI in the case of a listed public  company
    and in any other case only the Registrar.


    79.    Saharas have taken up the stand that they have  only  circulated
    the IM, by  way  of  private  placement,  to  their  associates,  group
    companies, workers/employees etc.  Section 60B(1) , as I  have  already
    indicated, casts no obligation to issue an  IM.     It  is  open  to  a
    public company making an issue of securities to  circulate  the  IM  to
    public before filing a prospectus for assessing the  demand  and  price
    which public would be willing to offer.  If Saharas were  going  for  a
    private placement, then I fail to see why they had elicited  all  those
    details through an IM, since Section 60B(1) deals with issue of  IM  to
    the public alone.  But from Saharas’ conduct and action, it  is  clear,
    that their intention was to issue securities to the  public  under  the
    garb of private placement.  RHPs issued by Saharas indicated that  they
    did not intend the proposed issue of securities to be listed on a stock
    exchange, even though in reality the  securities  were  issued  to  the
    public.  Every company which intends to offer shares or  debentures  to
    the public for subscription by way of a prospectus is  legally  obliged
    to make an application on a recognized stock exchange.  Let us  examine
    whether Saharas practiced what they have preached.   First,  they  have
    breached the  very  statutory  declaration  prescribed  in  Part  1  of
    Schedule II.  Statutory declaration reads as follows:
            “Declaration: That all the relevant provisions of the  Companies
         Act, 1956, and the guidelines  issued  by  the  Government  or  the
         guidelines issued by the Securities and  Exchange  Board  of  India
         established under section 3 of the Securities and Exchange Board of
         India Act, 1992, as the case may be, have been complied with and no
         statement made in prospectus is  contrary to the provisions of  the
         Companies Act, 1956 or the Securities and Exchange Board  of  India
         Act, 1992 or rules made thereunder or  guidelines  issued,  as  the
         case may be.:


    80.    RHP issued by Saharas  (SIRECL)  contains  not  the  declaration
    mentioned above, but states as follows:
         “All the relevant provision of the  Companies  Act,  1956  and  the
         guidelines issued by the Government have been complied with and  no
         statement made in the prospectus is contrary to the  provisions  of
         the Companies Act, 1956 and the Rules thereunder.”


    In the Bond (OFCDs) of Saharas, there is a  head  “Declaration”  which,
    inter alia, reads as follows:
         “….I confirm that I  am/applicant  associated  with  Sahara  India
         Group.  I have been explained everything in the language known  to
         me and I have given  my  full  consent  on  terms  and  conditions
         mentioned above.”

      Further, at the end of the page containing the terms and conditions of
      bond, the following is also given as a  declaration,  which  reads  as
      follows:
         “I  have  explained  everything  in  the  language  known  to  the
         applicant/Representative of applicant and he/she has given his/her
         full consent on terms and conditions mentioned above.   I,  hereby
         further  declare  that  all   declaration   made   by   the   Bond
         Holder/Representative    of    Bond    Holder    and    all    the
         information/personal  particulars  given   above   by   the   Bond
         Holder/Representative of Bond Holder are correct and true  to  the
         best of my knowledge and belief.   Signature of the Introducer.”



    81.    I fail to see, if the  investors  were  associated  with  Sahara
    Group, as declared, then where was the necessity of an  Introducer  and
    Introduction.  If the  offer  was  made  only  to  persons  associated,
    related or known to Sahara Group, then they could have furnished  those
    details before the fact  finding  authorities.   Further,  in  the  IM,
    Saharas had stated that if the number  of  interested  parties  to  the
    issue exceeds fifty they should approach the RoC to file  RHPs  as  per
    Section 67(3) of  the  Companies  Act,  which  clearly  indicates  that
    Saharas knew, by virtue of the first proviso  to  Section  67,  if  the
    number of persons exceeds fifty, then the same would be a public issue.
     Facts indicate that, through this  dubious  method,  that  SIRECL  had
    approached more than  thirty  million  investors,  out  of  which  22.1
    million have invested in the OFCDs and  it  had  raised  nearly  20,000
    crores, for which it had utilized the services of  its  staff  in  2900
    branches/service centers and utilized the services  of  more  than  one
    million agents/representatives.  Court can, in such circumstances, lift
    the veil to examine the conduct and method adopted by Saharas to defeat
    the various provisions of the Companies Act,  already  discussed,  read
    with the provisions of the SEBI Act.


    82.    I, in the above  facts  and  circumstances,  fully  endorse  the
    findings recorded by SEBI (WTM) and SAT that the placement of OFCDs  by
    Saharas was nothing but issue of debentures to the public, resultantly,
    those  securities  should  have  been  listed  on  a  recognized  stock
    exchange.


    AID FOR THE CONSTRUCTION
    83.    Section 67 provides an aid for the construction  of  the  phrase
    “offering shares or debentures to the Public”.    Section 67 of the Act
    gives an indication of the differences between  private  placement  and
    public issue.   The  expression  “offer  of  shares  or  debentures  to
    public”, i.e. issue of securities finds a place in several sections  of
    the Act, like  Sections  60B,  73  and  those  expressions  are  to  be
    construed bearing in mind Section 67 as well.    For our purpose, it is
    useful to reproduce the entire section, which reads as follows:
           “67. Construction of references to offering shares or debentures
      to the public, etc


           1) Any reference in this Act or in the articles of a company  to
              offering shares or debentures to the public shall, subject to
              any provision to the  contrary  contained  in  this  Act  and
              subject also to the provisions of sub-sections (3)  and  (4),
              be construed as including a reference to offering them to any
              section  of  the  public,  whether  selected  as  members  or
              debenture holders of the company concerned or as  clients  of
              the person issuing the prospectus or in any other manner.


           2) Any reference in this Act or in the articles of a company  to
              invitations  to  the  public  to  subscribe  for  shares   or
              debentures shall,  subject  as  aforesaid,  be  construed  as
              including a reference to invitations to  subscribe  for  them
              extended to any section of the public,  whether  selected  as
              members or debenture holders of the company concerned  or  as
              clients of the person issuing the prospectus or in any  other
              manner.

           3)  No offer or invitation shall  be  treated  as  made  to  the
              public by virtue of sub- section (1) or sub- section (2),  as
              the case may be, if the offer or invitation can  properly  be
              regarded, in all the circumstances-


                 a)   as  not  being  calculated  to  result,  directly   or
                    indirectly,  in  the  shares  or   debentures   becoming
                    available for subscription or purchase by persons  other
                    than those receiving the offer or invitation; or


                 b) otherwise as being a domestic  concern  of  the  persons
                    making and receiving the offer or invitation.


            Provided that nothing contained in this sub-section shall  apply
           in a case where the offer or invitation to subscribe for  shares
           or debentures is made to fifty persons or more:


            Provided further that nothing contained  in  the  first  proviso
           shall apply to the non-banking  financial  companies  or  public
           financial institutions specified in section 4A of the  Companies
           Act, 1956 (1 of 1956).


           (3A)  Notwithstanding anything contained in sub-section (3), the
                 Securities  and  Exchange  Board   of   India   shall,   in
                 consultation  with  the   Reserve   Bank   of   India,   by
                 notification  in  the   Official   Gazette,   specify   the
                 guidelines in respect of offer or invitation  made  to  the
                 public by a public financial  institution  specified  under
                 Section 4A or non-banking financial company referred to  in
                 clause (f) of section 45-I of the  Reserve  Bank  of  India
                 Act, 1934 (2 of 1934).


           4) Without prejudice to the generality of sub-  section  (3),  a
              provision in a company's articles prohibiting invitations  to
              the public to subscribe for shares or debentures shall not be
              taken as prohibiting  the  making  to  members  or  debenture
              holders of an invitation which can properly  be  regarded  in
              the manner set forth in that sub- section.


           5) The provisions of this  Act  relating  to  private  companies
              shall  be  construed  in  accordance  with   the   provisions
              contained in sub- sections (1) to (4).”

    84.    Section 67(1) deals with the offer of shares and  debentures  to
    the public and Section 67(2) deals with invitation  to  the  public  to
    subscribe for shares and debentures and how those expressions are to be
    understood, when reference is made to the Act or in the articles  of  a
    company.  The emphasis in Section 67(1) and (2) is on the  “section  of
    the public”.   Section 67(3) states that no offer or  invitation  shall
    be treated as made to the public, by virtue  of  Sub-sections  (1)  and
    (2), that is to any section of the public, if the offer  or  invitation
    is not being calculated to  result,  directly  or  indirectly,  in  the
    shares or debentures becoming available for subscription or purchase by
    persons other than those receiving the offer or invitation or otherwise
    as being a domestic concern of the persons  making  and  receiving  the
    offer or invitations.  Section 67(3) is,  therefore,  an  exception  to
    Sections 67(1) and (2).  If the circumstances mentioned in clauses  (1)
    and (b) of Section 67(3) are satisfied, then the offer/invitation would
    not be treated as being made to the public.


    85.    The first proviso to Section 67(3) was inserted by the Companies
    (Amendment) Act,  2000  w.e.f.  13.12.2000,  which  clearly  indicates,
    nothing contained in Sub-section (3) of Section 67  shall  apply  in  a
    case  where  the  offer  or  invitation  to  subscribe  for  shares  or
    debentures is made to  fifty  persons  or  more.    Resultantly,  after
    13.12.2000, any offer of  securities  by  a  public  company  to  fifty
    persons or more will be treated as a public issue under  the  Companies
    Act, even if it is of domestic concern or it is proved that the  shares
    or debentures are not available for subscription or purchase by persons
    other than those receiving the offer or invitation.  A  public  company
    can escape from the rigor of  provisions,  if  the  offer  is  made  by
    companies mentioned under Section  67(3A),  i.e.  by  public  financial
    institutions specified under Section 4A  or  by  non-banking  financial
    companies referred to in Section 45I(f) of the Reserve  Bank  of  India
    Act, 1934.
           Following situations, it is generally regarded, as not an  offer
    made to public.
          • Offer of securities made to less than 50 persons;
          • Offer made only to the  existing  shareholders  of  the  company
            (Right Issue);
          • Offer made to  a  particular  addressee  and  be  accepted  only
            persons to whom it is addressed;
          • Offer or invitation being made and it is the domestic concern of
            those making and receiving the offer.


    86.    Resultantly, if an offer of securities is made to fifty or  more
    persons, it would be deemed to be a public issue,  even  if  it  is  of
    domestic concern or proved  that  the  shares  or  debentures  are  not
    available for subscription or purchase  by  persons  other  than  those
    received the offer or invitation.


    87.    I may, in this  connection,  point  out  that  the  position  in
    England is almost the same.  The Companies Act, 2006  in  England  also
    says that it is unlawful for transferring securities to others, certain
    listed securities,  such  other  transferable  securities,  as  may  be
    specified in prospectus rules, to be  offered  to  the  public,  unless
    approved prospectus has been  made available to the public  before  the
    offer is made.  For the purpose of the Companies  Act,  2006  (Sections
    755-760), 'offer to the public' includes an offer to any section of the
    public, however, selected.  An offer is not regarded as an offer to the
    public if (1) it can properly be regarded in all circumstances  as  not
    being calculated to result, directly or individually, in securities  of
    the company becoming available to persons other  than  those  receiving
    the offer; or (2) otherwise being  a  private  concern  of  the  person
    receiving it and the person making it: s 756(3).  An  offer  is  to  be
    regarded (unless the contrary is proved) as being a private concern  of
    the person receiving it and the person making it if (a) it is made to a
    person already connected with the company and,  where  it  is  made  on
    terms allowing that person to renounce his rights, the rights may  only
    be renounced in favour of another person  already  connected  with  the
    company; or (b) it is an offer to subscribe for securities to  be  held
    under an employees' share  scheme  and,  where  it  is  made  on  terms
    allowing that person to renounce his rights, the  rights  may  only  be
    renounced in favour of (i) another person entitled to  hold  securities
    under the scheme; or (ii) a person already connected with the  company:
    s756(4).   For  these  purposes  'person  already  connected  with  the
    company' means (A) an existing member or employee of the company; (B) a
    member of the family of a person who is or was a member or employee  of
    the company; (C) the widow or widower, or surviving civil partner, of a
    person who was a member or employee of the  company;  (D)  an  existing
    debenture holder of the company;  or  (E)  a  trustee  (acting  in  his
    capacity as such) of a trust of which the principal  beneficiary  is  a
    person within any of heads (A) to (D) above: s756(5).  For the  purpose
    of head (B) above, the members of a person's family  are  the  person's
    spouse or civil partner  and  children  (including  step-children)  and
    their  descendants:  s  756(6).   Fur  the  purposes  of  Pt   20Ch   1
    'securities' means shares or debentures: s. 755(5).


    88.    Companies Act, 2006, FSMA  2000,  Prospectus  Regulations,  2005
    etc. applicable in England, if read together we get a complete  picture
    of the securities laws in that country.  Indian  Companies  Act,  as  I
    have already indicated has its foundation on the English Companies Act.

    89.    Alastair Hudson in  his  book  'Securities  Law'  First  Edition
    (Sweet & Maxwell), 2008 at page 342, refers to 'Restricted Offers'  and
    noticed that there is no contravention of Section 85 of FSMA 2000,  if:
    “(b) the offer is made to or directed at fewer than 100 persons,  other
    than qualified investors, per EEA State”.  The purpose underlying  that
    exemption, the author says, is mainly the fact that the  offer  is  not
    being made to an appreciable section of  “the  public”  such  that  the
    policy of the prospectus rules generally is  not  affected.    Further,
    the author says that “Self-evidently, while an  offer  to  99  ordinary
    members of the  public  would  be  within  the  literal  terms  of  the
    exemption, it would not be the sort  of  activity  anticipated  by  the
    legislation.  Moreover, if a marketing campaign were arranged such that
    ordinary members of the people were approached in groups of  99  people
    at a time in an effort to avoid the prospectus rules, then  that  would
    not appear to be within the spirit of the regulations and might be held
    to contravene the core principle that a regulated person must act  with
    integrity.”


    90.    I may, therefore, indicate, subject  to  what  has  been  stated
    above, in India that any share or debenture  issue  beyond  forty  nine
    persons, would be a public issue attracting all the relevant provisions
    of the SEBI Act, regulations  framed  thereunder,  the  Companies  Act,
    pertaining to the public issue.   Facts  clearly  reveal  that  Saharas
    have issued securities to the public  more  than  the  threshold  limit
    statutorily fixed under the first proviso to Section  67(3)  and  hence
    violated the listing provisions which may attract  civil  and  criminal
    liabilities.






    LISTING OF SECURITIES – LEGAL OBLIGATIONS


    91.    Principles of listing, which I may later on discuss, is intended
    to  assist  public  companies  in  identifying  their  obligations  and
    responsibilities,  which  are  continuing  in  nature,  transparent  in
    content and call for high degree of integrity.  Obligations are imposed
    on the issuer on an ongoing basis.  Public companies  who  are  legally
    obliged to list their securities are deemed to  accept  the  continuing
    obligations,  by  virtue  of  their  application,  prospectus  and  the
    subsequent maintenance of  listing  on  a  recognized  stock  exchange.
    Disclosure is the rule, there is no exception.  Misleading public is  a
    serious crime, which may attract civil and criminal liability.  Listing
    of securities  depends  not  upon  one’s  volition,  but  on  statutory
    mandate.


    92.    Section  73,  the  listing  provision,   which  deals  with  the
    allotment of shares and debentures of which Sub-sections (1), (1A)  and
    (2) are relevant for our purpose and hence given below:


         “73. Allotment of shares and debentures to be  dealt  in  on  stock
         exchange.-


         (1) Every company intending to offer shares or  debentures  to  the
         public for subscription by the issue of a prospectus shall,  before
         such issue, make an application to one  or  more  recognised  stock
         exchanges for permission for the shares or debentures intending  to
         be so offered to be dealt with in the stock exchange or  each  such
         stock exchange.


         (1A) Where a prospectus, whether issued generally  or  not,  states
         that an  application  under  sub-section  (1)  has  been  made  for
         permission for the shares or debentures offered thereby to be dealt
         in one or more recognized stock exchanges,  such  prospectus  shall
         state the name of the stock exchange or, as the case may  be,  each
         such stock exchange, and any allotment made on  an  application  in
         pursuance of such prospectus shall, whenever made, be void, if  the
         permission has not been granted by the stock exchange or each  such
         stock exchange, as the case may be, before the expiry of ten  weeks
         from the date of the closing of the subscription lists:


         Provided  that  where  an  appeal  against  the  decision  of   any
         recognized stock exchange refusing permission  for  the  shares  or
         debentures to be dealt in on that stock exchange has been preferred
         under section 22 of the Securities Contracts (Regulation) Act, 1956
         (42 of 1956), such allotment shall not be void until the  dismissal
         of the appeal.


         (2) Where the permission has not been applied under sub-section (1)
         or such permission having been applied for, has not been granted as
         aforesaid, the company shall forthwith repay without  interest  all
         moneys received from applicants in  pursuance  of  the  prospectus,
         and, if any such money is not repaid within eight  days  after  the
         company becomes liable to repay it, the company and every  director
         of the company who is an officer in default shall, on and from  the
         expiry of the eighth day, be jointly and severally liable to  repay
         that money with interest at such rate, not less than four per  cent
         and not more than fifteen per cent, as may  be  prescribed,  having
         regard to the length of the period of delay in making the repayment
         of such money. (emphasis supplied)”


    93.    Section 73(1) of the Act casts an obligation  on  every  company
    intending to offer shares or debentures to the public  to  apply  on  a
    stock exchange for listing of its securities.   Such companies have  no
    option or choice but to list their securities  on  a  recognized  stock
    exchange, once they invite subscription from over forty nine  investors
    from the public.  If an unlisted company expresses  its  intention,  by
    conduct or otherwise, to offer its securities  to  the  public  by  the
    issue of a prospectus, the legal obligation to make an application on a
    recognized stock exchange for  listing  starts.   Sub-section  (1A)  of
    Section 73 gives indication of what are the particulars to be stated in
    such a prospectus.  The consequences of not applying for the permission
    under sub-section (1) of Section 73 or not granting  of  permission  is
    clearly stipulated in sub-section (3) of  Section  73.   Obligation  to
    refund the amount collected from  the  public  with  interest  is  also
    mandatory as per Section 73(2) of the Act.


    94.    Listing is, therefore, a legal  responsibility  of  the  company
    which offers securities to the public, provided offers are made to more
    than  50  persons.   In  view  of  the  clear  statutory  mandate,  the
    contention raised, based on Rule 19 of the SCR Rules framed  under  the
    SCR Act, has no basis.   Legal obligation flows the moment the  company
    issues the prospectus expressing  the  intention  to  offer  shares  or
    debentures to the public,  that  is  to  make  an  application  to  the
    recognized stock exchange, so that it can  deal  with  the  securities.
    A company cannot be heard to contend that it has no such  intention  or
    idea to make an application to the stock exchange.   Company's  option,
    choice, election, interest or design does not matter, it is the conduct
    and action that matters and that is what the law  demands.  Law  judges
    not what is in their minds but what they have said or written or  done.
    Lord Diplock in Gissing v. Gissing (1971) 1 AC 886, has said, “As in so
    many branches of English Law, in which  legal  rights  and  obligations
    depend upon the intention of each party, the relevant intention of each
    party is the intention which was reasonably  understood  by  the  other
    party to be manifested by that party’s words or conduct notwithstanding
    that he did not consciously formulate that intention in his own mind or
    even acted with some different intention which he did  not  communicate
    to the other party.”   Lord Simon in Crofter Hand  Woven  Harris  Tweed
    Co. Ltd. v. Veitch [1942] AC 435, opined that in some branches of  law,
    ‘intention’ may be understood to cover  results  which  may  reasonably
    flow from what is deliberately done, the principle being that a man  is
    to be treated intending the reasonable consequences of his acts.


    95.    The maxim ‘acta exterior indicant interiora  secreta’  (external
    action reveals inner secrets) applies with all force  in  the  case  of
    Saharas, which I have already demonstrated on facts as well as on  law.
    Conduct and actions of Saharas indicate their  intention,  we  have  to
    judge  their  so  called  intention  from  their  subsequent   conduct.
    Subsequent illegality shows that Saharas  contemplated  illegality.   A
    person’s inner intentions are to be read and understood from  his  acts
    and omissions.   Whenever,  in  the  application  of  an  enactment,  a
    person’s state of mind is relevant, the above maxim  comes  into  play.
    (Ref. Bennion on Statutory Interpretation, 5th Edn., p. 1104)


    96.    We have to apply the various provisions of the Companies Act and
    SEBI Act and the rules and regulations framed  thereunder  to  Saharas’
    conduct and their inner intentions are to be understood from their acts
    and  omissions,  by  applying  the  above  maxim.   Saharas’  acts  and
    omissions have clearly violated the provisions  of  Section  73,  their
    failure to list the securities offer  to  the  public  was,  therefore,
    intentional and the plea  that  they  did  not  want  their  securities
    listed, is not an answer, since they were legally bound to do so.   The
    duty of listing flows from the act of issuing securities to the  pubic,
    provided such offer is made to fifty or more than fifty persons.    Any
    offering of securities to fifty or more is a public offering by  virtue
    of Section 67(3) of the Companies Act,  which  the  Saharas  very  well
    knew, their subsequent actions and conducts unquestionably reveal so.


    97.    The scope of Section 73 came up for  consideration  before  this
    Court in Raymonds Synthetics Ltd. & Ors.  v.  Union  of  India  &  Ors.
    (1992) 2 SCC 255 and this Court held through Dr. Justice T. K.  Thommen
    as follows:


         “9.     A public limited company has  no  obligation  to  have  its
         shares listed on a recognised stock exchange.  But if  the  company
         intends to offer  its  shares  or  debentures  to  the  public  for
         subscription by the issue of a prospectus, it must, before  issuing
         such prospectus, apply to one or more  recognised  stock  exchanges
         for permission to have the shares or debentures intended to  be  so
         offered to the public to be dealt with in each such stock  exchange
         in terms of Section 73..”



    98.    The above discussion clearly indicates that from the years  1988
    to 2000, private placement of preferential allotment could be  made  to
    fifty or more persons if the requirements of Clauses  (a)  and  (b)  of
    Section 67(3) are satisfied.   However,  after  the  amendment  to  the
    Companies Act, 1956 on 13.12.2000,  every  private  placement  made  to
    fifty or more persons becomes an offer  intended  for  the  public  and
    attracts the listing requirements  under  Section  73(1).   Even  those
    issues which satisfy Sections 67(3)(a) and (b) would be treated  as  an
    issue to the public if it is issued to fifty or more  persons,  as  per
    the proviso to Section 67(3) and as per Section 73(1),  an  application
    for listing becomes mandatory and a legal requirement.  Reading of  the
    proviso to Section 67(3) and Section 73(1)  conjointly  indicates  that
    any public company which intends to issue shares or debentures to fifty
    persons or more is legally obliged to make an application  for  listing
    its securities on a recognized stock exchange.


    99.    Saharas, in my view, have not followed any  of  those  statutory
    requirements.  On a combined reading of the proviso  to  Section  67(3)
    and Section 73(1), it is clear that the Saharas had made  an  offer  of
    OFCDs to fifty persons or more, consequently, the requirement  to  make
    an application for listing became obligatory  leading  to  a  statutory
    mandate which they did not follow.




    Unlisted Public Companies (Preferential Allotment) Rules, 2003 and  the
    Unlisted Public Companies (Preferential Allotment) Amendment Rules 2011




    100.    Considerable  arguments  were  advanced  by  Saharas   on   the
    applicability of the provisions of 2003 Rules which, according to them,
    did not require the OFCDs to be first  listed  on  a  recognized  stock
    exchange, especially in the  light  of  the  promulgation  of  Unlisted
    Public Companies (Preferential Allotment)  Amendment  Rules  2011  (for
    short ‘2011 Rules’).   Contention was raised  that,  in  view  of  2003
    Rules, preferential allotment by unlisted public companies  on  private
    placement was provided for and permitted  without  any  restriction  on
    numbers as per the proviso to Section 67(3) of the  Companies  Act  and
    without requiring listing of such OFCDs on a recognized stock exchange.
     Further, it was pointed out that only on  and  from  14.12.2011,  2003
    Rules were amended, whereby the definition of “preferential  allotment”
    was substituted without in any way disturbing or  amending  Rule  2  of
    2003 Rules.  After 14.12.2011, it was pointed out,  the  definition  of
    'preferential allotment” was amended prospectively.   Further,  it  was
    pointed out that the first proviso to Section 67(3)  of  the  Companies
    Act, added by the Companies Amendment Act 53 of 2000 w.e.f.  13.12.2000
    (which was earlier not applicable to  the  2003  Rules)  has  now  been
    expressly made applicable w.e.f. 14.12.2011, so  as  to  limit/restrict
    the number of persons to whom the offer on private placement  is  made,
    to only 49 persons, and hence the restriction imposed by the  amendment
    made in December 2011 to issue of OFCDs by unlisted companies  pursuant
    to the special resolution under Section  81(1A)  is  also  prospective.
    Law, therefore, it was urged, permitted  the  unlisted  companies  like
    Saharas to issue OFCDs to more than 49 persons prior to December  2011,
    on a private placement basis, without requiring the same  to  be  first
    listed.


    101.   I find that no such contention was seen urged either before SEBI
    or SAT, nor do I find any substance in that contention.  2003 Rules are
    not applicable to any offer of shares or debentures  to  more  than  49
    persons.  2003 Rules was framed by the Central Government  in  exercise
    of the powers conferred under Section 81(1A) read with Section  642  of
    the Companies Act to provide  for  rules  applicable  to  the  unlisted
    public companies.  Section 81 of the Companies Act deals  with  further
    issue of securities and only gives pre-emptive rights to  the  existing
    shareholders of the company, so that  subsequent  offer  of  securities
    have to be offered to them as their “rights”.  Section 81(1A),  it  may
    be noted, is only an exception to  the  said  rule,  that  the  further
    shares may be offered to any  persons  subject  to  passing  a  special
    resolution by the company in their  general  meeting.   Section  81(1A)
    cannot, in any view,  have  an  overriding  effect  on  the  provisions
    relating to public issue. Even if armed with a special  resolution  for
    any further issue of capital to person other than shareholders, it  can
    only be subjected to the provisions of Section 67 of the  Company  Act,
    that is if the offer is made to fifty persons or  more,  then  it  will
    have to be treated as public issue and  not  a  private  placement.   A
    public issue of securities will not become a preferential allotment  on
    description of label.  Proviso to  Section  67(3)  does  not  make  any
    distinction between listed and unlisted  public  companies  or  between
    preferential or ordinary allotment. Even prior to the  introduction  of
    the proviso to Section 67(3), any issue of  securities  to  the  public
    required mandatory applications  for  listing  to  one  or  more  stock
    exchanges.  After insertion of the proviso to Section 67(3) in December
    2000, private placement allowed under Section 67(3) was also restricted
    up to 49 persons.  2003 Rules apply only in the context of preferential
    allotment of unlisted companies, however, if the preferential allotment
    is a public issue, then 2003 Rules would not apply.    2003  Rules  are
    only meant to regulate the  issue  of  the  shares  and  debentures  by
    unlisted public  companies  and  prevent  the  misuse  of  the  private
    placement.  Section 81(1A), as I have already indicated,  says  that  a
    preferential allotment can be made  by  passing  a  special  resolution
    which is an exception to the rules of rights issue, since that requires
    new shares  or debentures to be offered to the existing members/holders
    on a pro rata basis.  But when offer is made to more than  49  persons,
    then apart from compliance  with  Section  81(1A),  other  requirements
    regarding public issue have to be complied with.   2003  Rules,  in  my
    view, cannot override the provisions of Section 67(3) and  Section  73.
    The definition of “preferential allotment” in 2011 Rules only made what
    was implicit in 2003, more explicit.  In my view, both 2003  Rules  and
    2011 Rules are subordinate regulations and are to be  read  subject  to
    the proviso to Section 67(3) and 73(1) and other related provisions.
    DIP GUIDELINES & ICDR 2009


    102.   Senior counsels appearing for Saharas also raised  a  contention
    that DIP Guidelines were only departmental instructions, not having the
    sanction of law and, therefore, would not apply to  the  OFCDs  issued.
    This argument, in my view, has no basis.  DIP Guidelines had  statutory
    force since they  were  framed  by  SEBI  in  exercise  of  its  powers
    conferred on it under Sections 11 and 11A of the SEBI Act. Powers  have
    been conferred on SEBI to protect the interests  of  the  investors  in
    securities and regulate the issue of  prospectus,  offer  documents  or
    advertisement  soliciting  money  through  the  issue  of   prospectus.
    Section 11 of the Act, it may be noted has been incorporated, evidently
    to protect the interests of  investors  whose  securities  are  legally
    required to be listed.  DIP Guidelines were implemented  by  SEBI  with
    regard to the listed and unlisted companies, which made  public  offer,
    until it was replaced by ICDR 2009.  Contention was raised  by  Saharas
    that they had issued OFCDs in the year 2008 and  no  action  was  taken
    under DIP Guidelines and hence ICDR 2009, which came into force only on
    26.8.2009, would not apply and have no retrospective operation.  In  my
    view, this contention has no force, especially  when  Saharas  had  not
    complied  with  the  statutory  requirements  provided   in   the   DIP
    Guidelines.


    103.   Repeal and Saving Clause under ICDR 2009 would clearly  indicate
    that  the  violation  under  DIP  Guidelines  was  a  continuing   one.
    Regulation 111 of ICDR reads as follows:
         “Repeal and Savings
         111.    (1)   On and from the commencement  of  these  regulations,
         the Securities and Exchange Board of India (Disclosure and Investor
         Protection) Guidelines, 2000 shall stand rescinded.


         2) Notwithstanding such rescission;
             (a) anything done or any action taken  or  purported  to  have
             been done or taken including observation made  in  respect  of
             any  draft  offer  document,  any  enquiry  or   investigation
             commenced or show cause notice issued in respect of  the  said
             Guidelines shall be deemed to have been done  or  taken  under
             the corresponding provisions of these regulations;
             (b) any offer documents, whether draft or otherwise, filed  or
             application made to the Board under the said   Guidelines  and
             pending before it shall be deemed to have been filed  or  made
             under the corresponding provisions of these regulations.”


    104.   Regulation 111(1) of ICDR 2009 rescinded the DIP Guidelines from
    26.8.2009 and clause (2) of Regulation 111 contains the saving  clause.
     The expression “anything done” or “any action taken” under  Regulation
    111(1) are of wide import and would take anything done by  the  company
    omitted to be done  which  they  legally  ought  to  have  done.   Non-
    performance of statutory obligations purposely or  otherwise  may  also
    fall within the above  mentioned  expressions.   Failure  to  take  any
    action by SEBI under DIP Guidelines, in spite of the fact that  Saharas
    did not discharge their statutory obligation, would not be a ground  to
    contend that 2009 Regulations  would  not  apply  as  also  the  saving
    clause.  2009 Regulations, in my view,  will  apply  to  all  companies
    whether listed or unlisted.  Further, in the instant case, SEBI was not
    informed of the issuance of securities by the  Saharas  while  the  DIP
    Guidelines were in force and Saharas continued to mobilize  funds  from
    the public which was nothing but continued violation which started when
    the DIP Guidelines were in force and also when they  were  replaced  by
    2009  Regulations.   Further,  it  may  also  be  recalled   that   any
    solicitation for subscription from public can be regulated  only  after
    complying with  the  requirements  stipulated  by  SEBI,  in  fact,  an
    amendment  was  made  to  Schedule  II  of  the  Companies   Act   vide
    notification No. GSR 650(3) dated 17.9.2002 by inserting a  declaration
    which has to be signed by the  directors  of  the  company  filing  the
    prospectus, which reads as under:
         “That all the relevant provisions of the Companies Act,  1956,  and
         the guidelines issued by the Government or the guidelines issued by
         the Securities  and  Exchange  Board  of  India  established  under
         Section 3 of the Securities and Exchange Board of India Act,  1992,
         as the case may be, have been complied with and no  statement  made
         in prospectus is contrary to the provisions of the  Companies  Act,
         1956 or the securities and Exchange Board of  India  Act,  1992  or
         rules made there-under or guidelines issued, as the case may be.”





    105.   I find that Saharas conveniently omitted the reference  to  SEBI
    in the declaration given in the  prospectus.   OFCDs  were,  therefore,
    issued by Saharas in contravention of the DIP  Guidelines,  ICDR  2009,
    notification  dated  17.9.2002  and  also  overlooking  the   statutory
    requirements stipulated in Section 73(1) of the Companies Act.


    Hybrids – SCR Act
    106.   Saharas also raised a contention that after the insertion of the
    definition of “securities” in Section 2(45AA) as “including hybrid” and
    after insertion of the  separate  definition  of  “hybrid”  in  Section
    2(19A) of the Act,  the  provisions  of  Section  67  are  not  at  all
    applicable to OFCDs, which have been held to be “hybrid”.  Further,  it
    was also contended that OFCDs issued  were  convertible  bonds  falling
    within the scope of Section 28(1)(b) of  SCR  Act  and  they  were  not
    “securities” or at any rate the provisions of SEBI Act and  Section  67
    were not at all applicable to  OFCDs,  which  have  been  found  to  be
    “hybrid”.

    107.   Saharas mainly canvassed the position  that  OFCDs  issued  were
    hybrid securities covered by the term securities in the  Companies  Act
    and they do not come under the definition of “securities” under the SCR
    Act, hence under the SEBI Act.   Further, it was also urged  that  when
    the definition of “securities” was amended to include  hybrids  in  the
    Companies Act, no corresponding amendment was made in the SCR  Act  and
    SEBI Act and hence it was contended that SEBI has  no  jurisdiction  or
    control over the hybrid securities.  Further, it was also  pointed  out
    that hybrid securities at best can come under the regulatory control of
    MCA, Government of India.  Saharas also contended that even Section  67
    speaks only of shares and debentures and does not  reflect  the  change
    brought about by the  definition  Clause  2(19A)  ‘hybrid’  or  by  the
    insertion of the definition  of  “securities”  in  Section  2(45AA)  as
    including hybrid even though Section 67(3) of the Act was  amended,  by
    the Amendment Act 53 of 2000, by which the definitions of  ‘securities’
    and ‘hybrid’ were introduced.   It  was  also  pointed  out  that  non-
    substitution/non-amendment of Section 67(1) and (2), by  not  including
    the word ‘hybrid’  after  the  words  ‘shares’  and  ‘debentures’,   is
    significant.


    108.   OFCDs issued by Saharas undoubtedly were unsecured debentures by
    name and nature.    Section 2(12) of the Companies Act deals  with  the
    definition  of  the  word  “debentures”   and   includes   any   “other
    securities”.  The same reads as follows:
                 “2(12).   “Debenture’ includes debenture stock,  bonds  and
           any other securities of a company, whether constituting a  charge
           on the assets of the company or not.”

           The definition of the word “securities’ under Section 2(45AA) of
      the Companies Act, reads as follows:
                “2(45AA).   “Securities” means  securities  as  defined  in
           Clause (h) of Section 2 of the Securities Contracts  (Regulation)
           Act, 1956 (42 of 1956), and includes hybrids.”


      Section 2(h) of the SCR Act, 1956 reads as follows:
        “2(h) “securities” include—


            i) shares, scrips, stocks, bonds, debentures, debenture stock or
               other marketable securities of a like nature  in  or  of  any
               incorporated company or other body corporate;


           (ia)   derivative;
           (ib) units or any other  instrument  issued  by  any  collective
                 investment scheme to the investors in such schemes;


            (ic)  security receipt as defined in clause (zg) of  section  2
                 of  the  Securitisation  and  Reconstruction  of  Financial
                 Assets and Enforcement of Security Interest Act, 2002;
           (id)  units or any other such instrument issued to the investors
                 under any mutual fund scheme;


                 Explanation.- For the  removal  of  doubts,  it  is  hereby
                 declared that  “securities”  shall  not  include  any  unit
                 linked insurance policy or scrips or any such instrument or
                 unit, by whatever name called, which  provides  a  combined
                 benefit risk on the life of the persons and  investment  by
                 such persons and issued by an insurer referred to in clause
                 (9) of section 2 of the Insurance Act, 1938 (4 of 1938);


           (ie)  any certificate or instrument (by whatever  name  called),
                 issued to an investor by any issuer being a special purpose
                 distinct entity which possesses  any  debt  or  receivable,
                 including mortgage  debt,  assigned  to  such  entity,  and
                 acknowledging beneficial interest of such investor in  such
                 debt or receivable, including mortgage debt,  as  the  case
                 may be;


             ii) Government securities;


           (iia)  such other instruments as may be declared by the  Central
                 Government to be securities; and


         iii) rights or interest in securities.”



    109.   The word “hybrid” under  Section  2(19A)  was  inserted  in  the
    Companies  Act,  vide  the  Companies  (Amendment)  Act,  2002   w.e.f.
    13.12.2000 and reads as follows:
         “2(19A).      “hybrid” means any security which has  the  character
         of more than one type of security, including their derivatives.”

    110.   Hybrid securities, therefore, generally means securities,  which
    have some  of  the  attributes  of  both  debt  securities  and  equity
    securities, means a  security  which,  in  the  term  of  a  debenture,
    encompassing the element of indebtness and element of equity  stock  as
    well.  The scope of the definition of Section 2(h) of SCR Act  came  up
    for consideration before  this  Court  in  Sudhir  Shantilal  Mehta  v.
    Central Bureau of Investigation (2009) 8 SCC 1  and  the  Court  stated
    that the definition of securities under the SCR  Act  is  an  inclusive
    definition and not exhaustive.  The Court held that it takes within its
    purview not only the matters specified  therein,  but  also  all  other
    types of securities, thus it should be given an expansive meaning.   In
    Naresh K. Aggarwala & Co. v. Canbank Financial Services Ltd.  and  Anr.
    (2010) 6 SCC 178,  while  referring  to  the  definition  of  the  term
    “securities” defined under SCR Act and the applicability of a  Circular
    issued by the Delhi Stock Exchange, the Court endorsed the view of  the
    Special Court and noted that the perusal of the above quoted definition
    showed that they did not make any distinction between listed securities
    and unlisted securities and, therefore, it was clear that the  circular
    would apply to the securities  which  were  not  listed  on  the  stock
    exchange.


    111.   Section 2(h) of the SCR Act gives emphasis to the  words  “other
    marketable securities of a like nature”, which gives a clear indication
    of the marketability of the securities and gives an  expansive  meaning
    to the word securities.  Any security which is capable of being  freely
    transferrable is marketable.  The definition clause in Section 2(h)  of
    SCR Act is a wide definition, an inclusive one, which takes  in  hybrid
    also, which I have already indicated, defined vide  Section  2(19A)  of
    the Companies Act.


    112.   OFCDs issued have the characteristics of shares  and  debentures
    and fall within the definition  of  Section  2(h)  of  SCR  Act,  which
    continue to remain debentures till they are converted.  In other words,
    OFCDs issued by Saharas are debentures in presenti and become shares in
    futuro.  Even if OFCDs are hybrid securities,  as  defined  in  Section
    2(19A) of the Companies Act, they shall remain within  the  purview  of
    the definition of “securities” in Section 2(h) of SCR  Act.    Further,
    it may be noted that Saharas have treated OFCDs only as  debentures  in
    the IM, RHP, application forms and also in their  balance  sheet.   The
    terms “Securities” defined in the Companies Act has the same meaning as
    defined in the SCR Act, which would also cover the species of  “hybrid”
    defined  under  Section  2(19A)  of  the  Companies  Act.   Since   the
    definition of “securities” under Section 2(45AA) of the  Companies  Act
    includes “hybrids”, SEBI  has  jurisdiction  over  hybrids  like  OFCDs
    issued  by  Saharas,  since  the  expression  “securities”   has   been
    specifically dealt with under Section 55A of the Companies Act.
    OFCDs whether Convertible Bonds – SCR Act


    113.   Saharas raised yet another contention that OFCDs issued by  them
    are convertible bonds issued on the basis of the price agreed  upon  at
    the time of issue and, therefore, the provisions of  SCR  Act  are  not
    applicable in view of Section 28(1)(b) thereof.   Further, it was  also
    contended that convertible bonds having been issued at a  price  agreed
    upon at the time of issue are not listable in  view  of  the  exception
    granted under Section 28(1) of the SCR Act.


    114.   Section 28 was inserted by the  SCR  Act.   The  object  of  the
    amendment as stated in the Bill was  to  exempt  convertible  bonds  by
    foreign financial institutions that had an option to obtain shares at a
    later date.  Preamble of SCR Act provided “prohibition  on  options  in
    securities” as a mode  “to  prevent  the  undesirable  transactions  in
    securities”.   Resultantly, Section 28 had to be  amended  to  make  so
    inapplicable to such options in the bonds and to delete the  words  “by
    prohibiting  options  in  securities”  to  facilitate   such   options.
    Parliament never intended to take away convertible debentures from  the
    purview of SCR Act.   For easy reference, I may refer  to  Section  28,
    which reads as follows:
           “28.  Act not to be apply in certain cases.


              1) The provisions of this Act shall not apply to-


                a) the Government, the Reserve  Bank  of  India,  any  local
                   authority or any corporation set-up by a special  law  or
                   any person who  has  effected  any  transaction  with  or
                   through the agency of any such authority as  is  referred
                   to in this clause;


                b)    any convertible bond or share warrant or any option or
                   right in relation thereto, in so far as it  entitles  the
                   person in whose favour any  of  the  foregoing  has  been
                   issued to obtain at his option from the company or  other
                   body corporate, issuing the same  or  from,  any  of  its
                   shareholders or  duly  appointed  agents  shares  of  the
                   company or other body corporate, whether by conversion of
                   the bond or warrant or otherwise, on  the  basis  of  the
                   price agreed upon when the same was issued.


           (2) Without  prejudice  to  the  provisions  contained  in  sub-
           section (1) if the Central Government is satisfied that  in  the
           interests of trade and commerce or the economic  development  of
           the country it is necessary or expedient so to do,  it  may,  by
           notification in the  Official  Gazette,  specify  any  class  of
           contracts as contracts  to  which  this  Act  or  any  provision
           contained therein shall not  apply,  and  also  the  conditions,
           limitations or restrictions, if any, subject to which  it  shall
           not so apply.”

         Section 28(1)(b) makes it clear that the Act will not apply to  the
    ‘entitlement’  of  the  buyer,  inherent  in  the   convertible   bond.
    Entitlement may be severable, but does not itself qualify as a security
    that can be administered by the SCR Act,  unless  it  is  issued  in  a
    detachable format.  Therefore,  the  inapplicability  of  SCR  Act,  as
    contemplated in Section 28(1)(b), is not to the convertible bonds,  but
    to the  entitlement  of  a  person  to  whom  such  share,  warrant  or
    convertible bond has been issued, to have shares at  his  option.   The
    Act is, therefore, inapplicable  only  to  the  options  or  rights  or
    entitlement that are attached  to  the  bond/warrant  and  not  to  the
    bond/warrant itself.   The  expression  “insofar  as  it  entitles  the
    person”  clearly  indicates  that  it  was  not  intended  to   exclude
    convertible bonds as a class.   Section 28(1)(b),  therefore,   clearly
    indicates that it is only the convertible bonds  and  share/warrant  of
    the type referred to therein that are excluded from  the  applicability
    of the SCR Act and  not  debentures  which  are  separate  category  of
    securities in the definition contained in  Section  2(h)  of  SCR  Act.
    Section  20  of  SCR  Act,  which  was  omitted,  by  Securities   Laws
    (Amendment) Act, 1995, with effect  from  25.1.1995,  stated  that  all
    options entered into  after  the  commencement  of  the  Act  would  be
    illegal.  The  introduction  of  Sections  28(1)(b)  and  28(2)  became
    necessary because  of  the  provisions  of  Sections  13,  16  and  20.
    Section 20 was deleted in the year 1995, but SEBI notification No.  184
    dated 1.3.2000 continued  to  prohibit  options.   Consequently,  OFCDs
    issued by Saharas to the public cannot be excluded from the purview  of
    listing  requirements,  any  interpretation  to  the   contrary   would
    contravene the mandatory requirements contained in  Section  73(1)  and
    proviso to Section 67(3) of the Companies Act.

    REFUND OF THE MONEY COLLECTED


    115.   I have found that Saharas having failed to make application  for
    listing on any of the recognized  stock  exchange,  as  provided  under
    Section 73(1) of the Companies Act, become legally liable to refund the
    amount collected from the subscribers in pursuance to their RHPs, along
    with interest as provided under Section 73(2) of the Act.  Rule  4D  of
    the  Companies  (Central  Government)  General  Rules  and  Forms  1956
    prescribes the rates of interest for the purposes of  sub-sections  (2)
    and (2A) of Section 73, which shall be  fifteen  per  cent  per  annum.
    Section 73(2) says that every company and every director of the company
    who is an officer in default, shall be jointly and severally liable  to
    repay that money with interest at such rate, not  less  than  four  per
    cent and not more than fifteen per cent, as  may  be  prescribed.   The
    scope of the above  mentioned  provisions  came  up  for  consideration
    before this Court in Raymond Synthetics Ltd. & Ors. V. Union  of  India
    (supra), wherein the Court held that in a case where  the  company  has
    not applied for listing on a stock exchange, the consequences will flow
    from the company’s disobedience  of  the  law,  the  liability  to  pay
    interest arises as from the date of receipt of  the  amounts,  for  the
    company ought not to have received any such amount in response  to  the
    prospectus.  I am, therefore,  of  the  view  that  since  Saharas  had
    violated the listing provisions and collected  huge  amounts  from  the
    public in disobedience of law, SEBI is justified in directing refund of
    the amount with interest.


    CIVIL AND CRIMINAL LIABILITY
    116.   I have found, in this case, that Saharas had not  complied  with
    the legal requirements of Section 56 and hence the  second  proviso  to
    Section 56(3) may apply and it is also stated  in  sub-section  (6)  of
    Section 56 that the liability under the General Law has been  excluded.
    Section 62 casts civil liability for mis-statement  in  prospectus  and
    Section 63(1) speaks of  criminal  liability.   Section  68  speaks  of
    penalty for fraudulently inducing persons to invite, which  also  leads
    to imprisonment  and  fine.   Section  68A  prescribes  punishment  for
    violation of what is provided under Sections 68A(1)(a)  and  (b),  with
    imprisonment for a term of five years.  Section 73(3)  also  speaks  of
    imposition of fine.  Over and above the penal provisions,  Section  628
    of the Companies Act also proposes imprisonment and  fine,  for  making
    false statements.  Further, furnishing false evidence may also  attract
    punishment with imprisonment for a term which may extend to seven years
    and also fine under Section 629 of the Companies Act.   The  provisions
    for imposing civil and criminal liability and refund of the amount with
    interest would indicate that, of late, economic offences in India  like
    the one committed by Saharas be treated with an iron hand, or  else  we
    may land in another security market pandemonium.
     I, therefore, answer the questions of law raised as follows:
       a) SEBI has the powers to administer the provisions referred  to  in
          the opening part of  Section  55A  which  relates  to  issue  and
          transfer of securities and  non-payment  of  dividend  by  public
          companies like Saharas, which have  issued  securities  to  fifty
          persons  or  more,  though  not  listed  on  a  recognized  stock
          exchange, whether they intended to list their securities or  not.



       b) Saharas were legally obliged to file the final  prospectus  under
          Section 60B(9) with SEBI, failure  to  do  so  attracts  criminal
          liability.

       c) First proviso to Section 67(3) casts a legal obligation  to  list
          the securities on a recognized stock exchange, if  the  offer  is
          made to fifty or more persons, which Saharas have violated  which
          may attract the penal provisions contained in Section 68  of  the
          Act.

       d) Section 73 of the Act casts an obligation on a public company  to
          apply for  listing  of  its  securities  on  a  recognized  stock
          exchange,  once  it  invites  subscription  from  fifty  or  more
          persons, which Saharas have violated and they have to refund  the
          money collected to the investors with interest.




       e) Saharas have violated the DIP Guidelines and ICDR 2009 and by not
          complying  with  the   disclosure   requirements   and   investor
          protection measures for public, and also violated Section  56  of
          the Companies Act which may attract penal provisions.

       f) 2003 Rules or the 2011 Rules cannot override  the  provisions  of
          Section 67(3) and Section  73,  being  subordinate  legislations,
          2003 Rules are also not applilcable to any  offer  of  shares  or
          debentures to more than forty nine persons and  are  to  be  read
          subject to the proviso to Section 67(3) and Section 73(1) of  the
          Companies Act.

       g) OFCDs issued by Saharas have the characteristics  of  shares  and
          debentures and fall within the definition of Section 2(h) of  SCR
          Act.  The definition of ‘securities’ under Section 2(45AA) of the
          Companies Act includes ‘hybrids’ and SEBI has  jurisdiction  over
          hybrids like  OFCDs  issued  by  Saharas,  since  the  expression
          ‘securities’ has been specifically dealt with under  Section  55A
          of the Companies Act.

       h) Section 28(1)(b) of  the  SCR  Act  indicates  that  it  is  only
          convertible bonds and  share/warrant  of  the  type  referred  to
          therein, which are excluded from the applicability of the SCR Act
          and not debentures, which are separate category of securities  in
          the definition contained in Section 2(h) of SCR Act.   Contention
          of Saharas that OFCDs issued by them are convertible bonds issued
          on the basis of the price agreed upon at the time of  issue  and,
          therefore, the provisions of SCR Act, would not apply, in view of
          Section 28(1)(b) cannot be sustained.

       i) SEBI can exercise its jurisdiction under Sections  11(1),  11(4),
          11A(1)(b) and 11B of SEBI Act and Regulation  107  of  ICDR  2009
          over public companies who have issued  shares  or  debentures  to
          fifty or more, but not complied with the  provisions  of  Section
          73(1) by  not  listing  its  securities  on  a  recognized  stock
          exchange.

       j) Saharas are legally bound to refund the money  collected  to  the
          investors, as provided under Section 73(2) of the  Companies  Act
          read with Rule 4D of the Companies (Central Government's) General
          Rules and Forms, 1956 and the SEBI has the power to enforce those
          provisions.

       k) Saharas’ conduct  invites  civil  and  criminal  liability  under
          various provisions like Sections 56(3), 62, 68, 68A, 73(3),  628,
          629 and so on.
     CONCLUSION


    117.   The above discussion will clearly indicate that OFCDs issued  by
    Saharas were public issue of debentures, hence securities.   Once there
    is an intention to issue shares or debentures to the public, it  is/was
    obligatory to make an application  to  one  or  more  recognized  stock
    exchanges, prior to such issue.  Registration of RHPs by the Office  of
    the Registrar does not mean that the mandatory provisions  of  Sections
    67(3), 73(1) and DIP Guidelines be not followed.    Saharas  could  not
    have filed RHP or any prospectus with RoC, without submitting the  same
    to SEBI  under  Clauses  1.4,  2.1.1.  and  2.1.4  of  DIP  Guidelines.
    Unlisted companies like  Saharas  when  made  an  offer  of  shares  or
    debentures to fifty or more persons, it was  mandatory  to  follow  the
    legal requirements of listing their securities.   Once the number forty
    nine is crossed, the proviso to Section 67(3) kicks in  and  it  is  an
    issue to the public, which attracts Section 73(1)  and  an  application
    for listing becomes mandatory which fall under  the  administration  of
    SEBI under Section 55A(1)(b) of the Companies Act.

    118.   SEBI, I have already indicated, has a duty under Section 11A  of
    the SEBI Act to protect the interests of investors in securities either
    listed or which are required to be listed under the law or intended  to
    be listed.  Under Section 11B, SEBI has the power to issue  appropriate
    directions in the interests of investors in securities  and  securities
    market to any person who is associated with securities market.


    119.   I have already referred to the power of SEBI under the SEBI  Act
    in the earlier part of this judgment.  SEBI Act, it may be noted, is  a
    special law, distinct in form, but related to the  Company  Law,  1956.
    Purpose and object behind establishing a body like SEBI under the  SEBI
    Act has also been highlighted by us. The impugned  orders,  as  already
    stated, were issued by SEBI in exercise of its powers  conferred  under
    Sections 11, 11A and 11B of SEBI Act and Regulations 107 of ICDR  2009.
     DIP Guidelines, as already indicated, did apply  to  both  listed  and
    unlisted companies.   Clause  2.1.1  of  DIP  Guidelines  had  made  it
    mandatory to file draft prospectus only before  SEBI,  not  before  the
    Central  Government.   Obligation  was  also  cast  on  initial  public
    offerings by unlisted companies and the issue of  OFCDs  was  a  public
    issue under Regulation 1.2.1 (xxiii)  which  also  indicated  that  DIP
    Guidelines would apply to Saharas  as  well.   Issuing  of  convertible
    debentures in violation of those guidelines gives ample powers on  SEBI
    to pass orders under Sections 11A and 11B of the SEBI Act  as  well  as
    Regulation 107  of  ICDR  2009  and  direct  refund  of  the  money  to
    investors.


    120.   SEBI, in the facts and circumstances of the  case,  has  rightly
    claimed jurisdiction over the OFCDs issued by Saharas.  Saharas have no
    right  to  collect  Rs.27,000  crores  from  three  million  (3   crore
    investors) without complying with any regulatory  provisions  contained
    in  the  Companies  Act,  SEBI  Act,  Rules  and  Regulations   already
    discussed.    MCA, it is well known, does not  have  the  machinery  to
    deal with such a large public  issue  of  securities,  its  powers  are
    limited to deal with unlisted companies with limited  number  of  share
    holders or debenture holders and the legislature, in  its  wisdom,  has
    conferred powers on SEBI.  I, therefore, find on facts as  well  as  on
    law, no illegality in the proceedings initiated by SEBI and  the  order
    passed by SEBI (WTM) dated  23.6.2011  and  SAT  dated  18.10.2011  are
    accordingly upheld.


                                             ……..……………………….........J.
                                             (K.S. Radhakrishnan)



JAGDISH SINGH KHEHAR, J.

1.    I have carefully read the order of my learned  brother  Radhakrishnan,
J.  I am however inclined to record my own reasons while  dealing  with  the
propositions canvassed before us.  Before examining  the  issues  canvassed,
it  is  necessary  to  record  some  further  facts,  which  constitute  the
foundational basis of my  order.   During  the  course  of  hearing  learned
counsel had mainly relied on the  pleadings  in  Civil  Appeal  no.9813   of
2011, accordingly, reference shall be made  mainly  to  the  facts  narrated
therein.  Facts referred to in Civil Appeal no.9833 of 2011 have  also  been
adverted to when necessary.
2.    Sahara India Real Estate Corporation Limited (hereinafter referred  to
as “SIRECL”) and Sahara Housing Investment Corporation Limited  (hereinafter
referred to as “SHICL”) are a part  of  Sahara  India  Group  of  Companies.
Another company, namely, Sahara Prime City Limited (hereinafter referred  to
as “SPCL”) which is also connected to the Sahara India Group  of  Companies,
filed a Draft Red Herring Prospectus (for short “DRHP”) with the  Securities
and Exchange Board of India (hereinafter referred to as “SEBI”)  in  respect
of its proposed Initial Public Offer  (for  short  “IPO”)  dated  30.9.2009.
While the aforesaid DRHP dated 30.9.2009 was under scrutiny,  SEBI  received
complaints relating to disclosures made in the DHRP.  One of  the  aforesaid
complaints was made by “Professional Group for  Investors  Protection”.   In
the  aforesaid  complaint  of  the   “Professional   Group   for   Investors
Protection” dated  25.12.2009,  it  was  alleged  that  SIRECL  was  issuing
convertible bonds to the public throughout the country for the past  several
months.  It was alleged that issuing of convertible bonds by SIRECL had  not
been disclosed in the DRHP dated 30.9.2009  (filed  by  SPCL).   On  similar
lines SEBI received a complaint from one Roshan Lal dated 4.1.2010.
3.    In order to probe the authenticity of the allegations levelled in  the
aforementioned complaints, SEBI  sought  information  from  Enam  Securities
Private Limited – the merchant banker for  SPCL.   Enam  Securities  Private
Limited responded to the communication received from the SEBI on  21.2.2010.
 Enam Securities Private Limited, in its response, asserted on the basis  of
an inquiry conducted and legal opinion sought, that  it had arrived  at  the
conclusion, that the optionally  fully  convertible  debentures  (for  short
OFCDs) issued by SIRECL and SHICL had been issued  in  conformity  with  all
applicable laws.
4.    On 26.2.2010 lead managers of the two  companies  (SIRECL  and  SHICL)
informed SEBI, that both the companies had issued debentures on “tap  basis”
i.e., by  way  of  private  placement.   It  was  confirmed,  that  the  two
companies had issued an “information memorandum” under section  60B  of  the
Companies Act, 1956 (hereinafter referred to as the  Companies  Act),  prior
to opening of the offer.  It was acknowledged, that SIRECL had  also  issued
a red herring prospectus (for short “RHP”) with the Registrar  of  Companies
(Uttar Pradesh and Uttarakhand).  Likewise, SHICL had issued a RHP with  the
Registrar of Companies, Maharashtra.
5.    In the RHPs issued by the two companies it  was  mentioned,  that  the
companies did not intend the proposed  issue  to  be  listed  in  any  stock
exchange.  The RHPs also stated, that only those persons  were  eligible  to
apply, to whom the information memorandum was being  circulated.   The  RHPs
also expressed, that the appellant  ought  to  be  associated/affiliated  or
connected with the Sahara Group of  Companies.   The  RHP  noted,  that  the
invitation to apply  was  being  extended  privately,  without  issuing  any
advertisement to the general public.  What had been indicated  in  the  RHPs
was, what had been determined by the SIRECL in its special resolution  dated
3.3.2003 i.e., that the OFCDs would be issued by way  of  private  placement
to  “friends,  associates,  group  companies,  workers/employees  and  other
individuals, who are associated/affiliated or connected, in any manner  with
Sahara India Group of Companies”.
6.    Copies of the terms and conditions of the  OFCDs  issued  by  the  two
companies reveal, that the appellant-companies  issued  “bonds”  (named  as,
Abode Bonds, Nirman Bonds and  Real  Estate  Bonds  -  by  SIRECL;  and  as,
Multiple Bonds, Income Bonds and Housing Bonds - by the SHICL) of  different
face values (varying  from  Rs.5000  to  Rs.24000)  and  different  maturity
periods (varying from 48 months to 180 months).  The  OFCDs  issued  by  the
two  companies  contemplated  different  redemption  values  and  conversion
options.
7.    Vide letter dated 22.4.2010, SEBI sought  further  details  from  Enam
Securities Private Limited.  The details were sought in  respect  of  OFCD’s
issued by SIRECL and  SHICL.   The  particulars  on  which  information  was
sought, is being extracted hereunder:
      “2.   a.   details regarding the filing of RHP of the said
                 companies with the concerned RoC.
           b.    date of opening and closing of the subscription list.
           c.     details  regarding  the  number  of   application   forms
                 circulated after the filing of the RHP with RoC.
           d.    details regarding the number of applications received.
           e.    the number of allottees
           f.    list of allottees.
           g.    the date of allotment.
           h.    date of dispatch of debenture certificates etc.
           i.    copies of application  forms,  RHP,  pamphlets  and  other
                 promotional material circulated.”


The aforesaid information  sought  by  SEBI  from  Enam  Securities  Private
Limited was never furnished.
8.    Thereupon, the same information  was  sought  by  SEBI  directly  from
SIRECL and  SHICL,  through  separate  letters  dated  12.5.2010.   The  two
companies responded to the letters dated 12.5.2010 through separate  replies
dated 19.5.2010.  Instead of furnishing details of  the  information  sought
by  SEBI,  the  two  companies  required  SEBI  to  furnish  them  with  the
complaints which had prompted it,  to  seek  the  information.   SEBI  again
addressed separate communications to the two companies dated  21.5.2010  yet
again  seeking  the  same  information,  by  making  it  clear  to  the  two
companies, that non compliance would result in appropriate action under  the
Companies Act,  the  Securities  and  Exchange  Board  of  India  Act,  1992
(hereinafter referred to as  the  “SEBI  Act”),  as  also,  the  regulations
framed thereunder.  Both the companies, without  furnishing  details  sought
by SEBI, responded through separate letters, dated 24.5.2010 and  26.5.2010.
In their response it was asserted, that since a large number of their  staff
members  were  on  summer  vacation,  the  information  could  not  be  made
available immediately. In the aforesaid communications, the  companies  also
informed SEBI, that the OFCDs had been issued by  them  in  compliance  with
the provisions of the enactments referred  to  by  the  SEBI.   Besides  the
foresaid, the two companies informed SEBI, that neither of them were  listed
public companies, and that, their securities were not being  traded  through
any exchange in  India  or  abroad.   The  aforesaid  factual  position  was
pointed out by the two companies to SEBI, with the clear  intent  to  inform
SEBI, that it had no jurisdiction to inquire into the OFCDs issued by  them.
 Despite the aforesaid  response,  SEBI  addressed  separate  communications
dated 28.5.2010  to the two companies requiring them  to  furnish  the  same
information.   Yet  again,  the  companies  replied  on  the  lines  adopted
earlier.  SEBI again repeated its request for  information  through  further
separate communications dated 11.6.2010.
9.    In the meantime SIRECL addressed  a  letter  dated  31.5.2010  to  the
Union Minister of Corporate Affairs, to inform  him  of  the  correspondence
exchanged with the SEBI.  Being an unlisted entity, and also there being  no
intention to list the companies securities on any  stock  exchange,  it  was
pleaded before the Union Minister, that under section 55A of  the  Companies
Act the company could only be regulated and administered by the Ministry  of
Corporate Affairs and not by the SEBI.  In the aforesaid view of the  matter
SIRECL requested the Union Minister of Corporate Affairs  to  advise  it  on
its locus standi, “vis-à-vis our regulatory authority  whether  the  company
is governed by Ministry of Corporate  Affairs,  or  SEBI,  in  view  of  the
provisions of section 55A(c) of the Companies Act, 1956”.
10.   Through separate letters dated 16.6.2010 the  two  companies  informed
SEBI that they had already sought a clarification on the  subject  from  the
Government.   Yet  again,  vide  separate  letters  dated   28.6.2010   both
companies informed SEBI, that they had received  a  communication  from  the
office of the Union Minister of State for Corporate Affairs  to  the  effect
that the matter  was  being  examined  by  the  Ministry.  Accordingly,  the
companies adopted the stance, that they would  file  their  replies  to  the
letters addressed to them by SEBI only on receipt of  a  response  from  the
Government.
11.   It is apparent from the factual position  depicted  hereinabove,  that
SEBI was seeking information from the two companies since May, 2010.   Since
the information was not being  supplied,  SEBI  initiated  an  investigation
into the OFCDs issued by  SIRECL  and  SHICL.   Accordingly,  summons  dated
30.8.2010 and 23.9.2010 were issued to the two companies under  section  11C
of the SEBI Act, to provide the following information:
      “3.    1.    Details  regarding   filing   of   prospectus/Red-herring
           Prospectus with ROC for issuance of OFCDs.
           2.    Copies of the application forms,  Red-Herring  Prospectus,
           Pamphlets,  advertisements  and  other   promotional   materials
           circulated for issuance of OFCDs.
           3.    Details regarding number of application forms  circulated,
           inviting subscription for OFCDs.
           4.    Details regarding number of applications and  subscription
           amount received for OFCDs.
           5.    Date of opening and closing of the subscription  list  for
           the said OFCDs.
           6.    Number and list of allottees for the said  OFCDs  and  the
           number of OFCDs allotted and value  of  such  allotment  against
           each allottee’s name;
           7.    Date of allotment of OFCDs;
           8.    Copies of the minutes of Board/committee meeting in  which
           the resolution has been passed for allotment;
           9     Copy of Form 2 (along with annexures) filed with  ROC,  if
           any, regarding issuance of OFCDs or equity shares arising out of
           conversion of such OFCDs.
           10.   Copies of the  Annual  Reports  filed  with  Registrar  of
           Companies for the immediately preceding two financial years.
           11.   Date of dispatch of debenture certificate etc.”


12.   On receipt of the aforesaid summons, SIRECL and SHICL raised a  number
of legal objections to stall the proposed investigation.  In respect of  the
information sought, their response dated 13.9.2010, interalia  expressed  as
under:
      “17.  SIRECL is an unlisted company.  The OFCDs  of  March  2008  were
      neither intended to be  issued  to  the  public  nor  were  the  OFCDs
      actually issued to the public, hence, do not come within  the  purview
      of  section  55A(a)/(b)  of  the  Companies   Act,   1956   conferring
      administrative jurisdiction of SEBI.  SIRECL had  represented  to  the
      Central Government in the Ministry of Corporate  Affairs  on  May  31,
      2010 and on June 17, 2010, on which the Ministry, while  acknowledging
      SIRECL’s representation of May 31,  2010,  informed  SIRECL  that  the
      matter  was  being  examined  in  the  Ministry  under  the   relevant
      provisions of the Companies Act, 1956.
      18.   In the light of above submission, the company  requests  you  to
      kind withdraw the summons dated 30th August, 2010.”


Based on the  aforesaid  response,  the  two  companies  requested  SEBI  to
withdraw the orders dated 30.8.2010 and 23.9.2010.   On  30.9.2010,  through
separate letters issued by SIRECL and SHICL, they adopted the  stance,  that
they did not have complete information sought by the SEBI.
13.   It would be relevant to notice, that  at  the  request  of  the  Chief
Financial Officer of the Sahara India Group of Companies, an opportunity  of
hearing was granted to him on 3.11.2010,  by  the  SEBI  (FTM).  During  the
course of the aforesaid hearing  it  was  again  impressed  upon  the  Chief
Financial Officer, that he should furnish information  sought  by  the  SEBI
fully and accurately without any delay.  Despite the  aforesaid,  the  Chief
Financial Officer during the course of the said hearing, did  not  make  any
firm commitment to furnish the  information  sought.   It  is  essential  to
note, that the Chief Financial Officer,  did  not  furnish  the  information
sought.
14.   Despite  the  fact  that  the  companies  chose  not  to  provide  the
information, SEBI was able to  collect  some  shreds  of  information,  from
details which had been   furnished  by  the  companies  themselves,  to  the
concerned Registrar of Companies.  This information was  obtained  by  SEBI,
from MCA-21 portal maintained by the  Ministry  of  Corporate  Affairs.   In
other words, the information which  eventually  became  available  with  the
SEBI, was not the information furnished by the companies to  the  SEBI,  but
the information furnished by SIRECL to the  Registrar  of  Companies,  Uttar
Pradesh and Uttarakhand,  and the information  furnished  by  SHICL  to  the
Registrar  of  Companies,  Maharashtra.   The   information   which   became
available to SEBI in respect of  SIRECL  through  the  aforesaid  source  is
being extracted hereinunder:
      “9.   i.   Shareholders Resolution:
           Vide resolution passed at the Extraordinary General meeting held
           on March 3, 2008 (and filed with RoC), consent of the members of
           SIRECL was obtained for issuance  of  OFCD  by  way  of  private
           placement  basis  to  friends,  associates,   group   companies,
           workers/employees    and    other     individual     who     are
           associated/affiliated or connected in  any  manner  with  Sahara
           India Group of Companies and RHP of SIRECL was filed  with  RoC,
           Uttar Pradesh and Uttrakhand on March 13, 2008.
           ii.   Promoters as per the RHP:
           SIRECL is a company belonging to the Sahara India Group  and  is
           promoted by Mr.Subrata Roy Sahara, the founder of  Sahara  India
           Group.
           iii.  Directors as per the RHP:
           Mrs.Vandana Bharrgava, Mr.Ravi Shankar Dubey  and  Mr.Ashok  Roy
           Choudhary have given consent to include their names as directors
           and have signed the RHP as the directors of SIRECL.
           iv.   Date of opening and closing of the issue:
           RHP merely states that date of opening and closing would  be  as
           decided by the Board of Directors.
           v.    Details of the issue as per the RHP:
           The issue consists of  OFCDs  with  option  to  the  holders  to
           convert the same into Equity Share of Rs.10 each at a premium to
           be decided at the time of issue equal to the face value  of  the
           Optionally Fully Convertible Rs.***.  Since it  is  a  RHP,  the
           quantum and the price is to be determined at a future date.  (It
           is pertinent to note that in the RHP,  the  total  cost  of  the
           project, in which the  proceeds  of  the  said  issue  would  be
           utilized is mentioned as Rs.20,000 crores).
           vi.   Objects of the issue as per RHP:
           The funds raised shall be utilized for the purpose of  financing
           the acquisition of lands  for  the  purpose  of  development  of
           townships, residential apartments, shopping complexes, etc.  The
           proceeds shall also  be  utilized  for  construction  activities
           which shall be undertaken by the company in major cities of  the
           country and also to finance other commercial activities/projects
           taken up by the company within or apart from the above projects.
             The  company  also  proposes  to  carry   out   infrastructure
           activities and the amount collected from the current issue shall
           be utilized  in  financing  the  completion  of  projects  viz.,
           establishment/  constructing  the  bridges,   modernization   or
           setting up of airports, rail system or any other projects  which
           may be allotted to the company, from time to time  future.   The
           company also proposes to engage into the  business  of  electric
           power generation  and  transmission  and  the  proceeds  of  the
           current issue shall also be used for the  power  projects  which
           shall be allotted  to  the  company.   The  money  not  required
           immediately by the company may be parked/invested inter-alia  by
           way of circulating  capital  with  partnership  firms  or  joint
           ventures or in any other manner as per the decision of the Board
           of Directors, from time to time.
           vii.  Annual results:
           As per the recently filed balance sheet of SIRECL  (as  at  June
           30, 2009), proceeds from the  issuance  of  OFCDs  is  shown  as
           Rs.4843.37 crores.
           viii. Eligibility to apply:
           It is mentioned in the RHP that only those persons are  eligible
           to apply to  whom  the  information  Memorandum  was  circulated
           and/or approached privately, who  are  associated/affiliated  or
           connected in any manner with Sahara Group of Companies,  without
           giving any advertisement in general public.”


Likewise the information which became available to SEBI in respect of  SHICL
is also being extracted hereunder:
      “9.   i.   Shareholders Resolution:
           As per the RHP, it is observed that the OFCD issuance  by  SHICL
           was approved by shareholders, vide the resolution (which is more
           or less similar to the resolution passed by SIRECL),  passed  in
           the AGM held on September 16, 2009.  The RHP was filed with RoC,
           Maharashtra on October 6, 2009.
           ii.   Promoters as per the RHP:
           SHICL is a  company  promoted  by  Mr.Subrata  Roy  Sahara,  the
           founder of Sahara India Group.
           iii.  Directors as per the RHP:
           Mrs.Vandana Bhargava, Mr.Ravi Shankar  Dubey  and  Mr.Ashok  Roy
           Choudhary have given consent to include their name as  directors
           and have signed the RHP as directors of SHICL.
           iv.   Date of opening and closing of the issue:
           RHP merely states that date of opening and closing would  be  as
           decided by the Board of Directors.
           v.    Details of the issue:
           The issue consists of  Optionally  Fully  Convertible  Unsecured
           Debentures with option to the holders to convert the  same  into
           Equity Share of Rs.10 each at a premium of to be decided at  the
           time of issue equal to the face value of  the  Optionally  Fully
           Convertible  Unsecured  Debentures  to   be   privately   placed
           aggregating to Rs.*** (since it is a Red Herring Prospectus  the
           quantum and the price is to be determined  at  a  future  date).
           (It is pertinent to note that in the RHP, the total cost of  the
           project, in which the  proceeds  of  the  said  issue  would  be
           utilized is mentioned as Rs.20,000 crores).
           vi.   Objects of the issue as per RHP:
           The object stated in short is “…. Financing the  acquisition  of
           lands for the purpose of development of  townships,  residential
           apartments, shopping complexes, etc….”   The  objects  mentioned
           therein is more or less similar to the “objects  of  the  issue”
           mentioned in the RHP of SIRECL.
           vii.  Annual Report:
           Since the Annual Report of SHICL for the  concerned  period  has
           not yet been filed with RoC, the amount of the issue proceeds is
           not known.
           viii. Eligibility to apply:
           RHP mentions that only those persons are eligible  to  apply  to
           whom the information Memorandum was circulated and/or approached
           privately, who are associated/affiliated  or  connected  in  any
           manner with  Sahara  Group  of  Companies,  without  giving  any
           advertisement in general public.
           ix.   Explanatory note to the shareholders resolution:
           The explanatory note to the  shareholders  resolution  filed  by
           SHICL with RoC (Extraordinary General Meeting  resolution  dated
           November 11, 2009  by  SHICL)  mentions:  “The  company  further
           keeping in view that the number of persons to whom the offer  of
           OFCDs shall be issued might exceed the limits as specified under
           Section 67 of the Companies Act, 1956 made  an  application  for
           approval of Red herring Prospectus.”


15.   On the failure of the two companies to furnish  information  to  SEBI,
its  Full  Time  Member  –  for  short,  SEBI  (FTM),  drew  the   following
conclusions in his order dated 24.11.2010.
Firstly, neither SIRECL nor SHICL had denied their having issued OFCDs.
Secondly, SIRECL as also SHICL acknowledged having filed RHPs in respect  of
the OFCDs issued by them with the concerned Registrar of Companies.
Thirdly, besides the dates of filing the RHPs with the respective  Registrar
of  Companies,  neither  of  the   companies   had   furnished   any   other
information/document sought from the companies by SEBI.
Fourthly, the companies had  adopted  a  stance,  that  they  did  not  have
complete details relating to the securities issued  by  them.   This  stance
adopted by the two companies, according to the SEBI, was preposterous.
Fifthly, SEBI  had  sought  details  of  the  number  of  application  forms
circulated,  the  number  of  application  forms  received,  the  amount  of
subscription deposited, the number and list  of  allottees,  the  number  of
OFCDs allotted, the value of allotment, the date of allotment, the  date  of
dispatch of debenture  certificates,  copies  of  board/committee  meetings,
minutes  of  meetings  during  which  the  said  allotment   was   approved.
According to SEBI, since  the  information  sought  was  merely  basic,  the
denial of the same by the companies amounted to a calculated and  deliberate
denial of information.
Sixthly, information sought by the SEBI depicted at  serial  number  fifthly
hereinabove, was solicited to determine the authenticity  of  the  assertion
made by the companies, that the OFCDs had been  issued  by  way  of  private
placement. Whereas, it was believed by  the  SEBI  that  the  companies  had
issued the OFCDs to the public.
Seventhly, since the companies had adopted  the  position,  that  the  OFCDs
were issued  by  way  of  private  placement  to  friends,  associate  group
companies,   workers/employees    and    other    individuals    who    were
associated/affiliated/connected to the Sahara Group of Companies,  according
to SEBI it was highly improbable, that the details and particulars  of  such
friends, associate group companies, workers/employees and other  individuals
which were associated/affiliated/connected to  the  Sahara  India  Group  of
companies, was not available with them (for being passed over to SEBI).
16.   Based  on  the  aforesaid,  the  SEBI  (FTM)  passed  an  order  dated
24.11.2010.   In  the  aforesaid  order  various  issues   were   separately
examined.  Issue no.1 was framed to determine whether the OFCDs  invited  by
SIRECL and SHICL had been issued “to the public”.  On  the  instant  subject
the SEBI (FTM) expressed the view, that the proviso under section  67(3)  of
the Companies Act made the position clear, that  any  offer/invitation  made
by a public company to 50 or more persons was  bound  to  be  considered  as
having been made “to the public”.  Since the OFCDs were  issued  to  persons
far in excess of 50, it was sought to be concluded that the  stance  adopted
by SIRECL and SHICL to the effect, that the offer of OFCDs  was  by  way  of
private placement was not acceptable.  The SEBI (FTM) also  adopted  another
reasoning to  determine  the  issue.   According  to  the  information  made
available, the subscribed amount as on 30.6.2009 was Rs.4843.37 crores.   To
remain out of the purview of the proviso under sub-section  (3)  of  section
67 of the Companies Act, the subscribed amount should have been  drawn  from
less than 50 persons (i.e., at the most 49 persons).  If (according  to  the
SEBI),  the  subscribers  are  assumed  to  be  49  (which  is  the  maximum
permissible for private placement),  then  the  average  subscription  would
have been in the range  of  Rs.98.84  crores  (Rs.4843.37  ÷  49  =  98.8442
crores).  According to the SEBI (FTM) since  the  unit  face  value  of  the
OFCDs issued by SIRECL and SHICL varied from  Rs.5000/-  to  Rs.24000/-,  it
was unlikely that such an offer was made by  less  than  50  persons.   This
inference was drawn  on  account  of  the  fact  that  even  high  net-worth
investors are not seen to make such huge investments in a single company.
17.   The SEBI (FTM) then examined the plea advanced by the companies,  that
in view of the resolution passed by the companies under section 81  (1A)  of
the Companies Act, they could offer shares to any  person,  in  any  manner.
And therefore, their offer  to  a  select  set  of  persons  should  not  be
construed as  a  public  offer.   The  SEBI  (FTM)  rejected  the  aforesaid
submission on the premise, that section 81(1A) of  the  Companies  Act,  did
not have an overriding effect over the provisions relating to  public  issue
under the Companies Act.  It was sought to be explained, that further  issue
of  securities,  extended  only  to  existing  shareholders  of  a  company.
According to the SEBI (FTM) section 81(1A) was  only  an  exception  to  the
said rule, subject to the procedural requirements  enumerated  therein.   It
was pointed out, that under the Companies  Act  further  issue  of  capital,
even pursuant to a resolution made under section  81(1A)  of  the  Companies
Act was subject to the provisions of Part III of the  Companies  Act,   when
an offer was to be made to 50  or  more  persons.   The  legal  submissions,
advanced  on  behalf  of  the  companies   based  on  section  81(1A)   was,
accordingly rejected.
18.   The SEBI (FTM) also examined  the  issue  with  reference  to  section
2(36) of the Companies Act, which defines the term “prospectus” to mean  any
document described or issued  as  a  prospectus  and  includes  any  notice,
circular, advertisement or  other  document  “inviting,  deposits  from  the
public or inviting offers from the public” for the subscription or  purchase
of any shares  in,  or  debentures  of  a  body  corporate.   Based  on  the
definition of term “prospectus” and the conduct of the companies  in  filing
their respective prospectus for their OFCDs, with  the  concerned  Registrar
of Companies, according to SEBI (FTM), would lead to the inference that  the
companies  intended  to  mobilize  funds  through  a  subscription  “to  the
public”.
19.   Based on the factual and legal aspects of  the  matter  considered  by
SEBI (FTM) noticed above, the following summary of inferences were  recorded
in the order dated 24.11.2010:
      “18.  i.   The issue of OFCDs by the companies have  been  made  to  a
           base of investors that are fifty or more in number.
           ii.   The companies themselves tacitly admit the  same  as  they
           have no case that funds have been mobilized from a group smaller
           than fifty.
           iii.  A resolution under section 81(1A) of the Act does not take
           away the ‘public’ nature of the issue.
           iv.   The filing of a prospectus under  the  Act  signifies  the
           intention of the issuer to raise funds from the public.


           Therefore, for the aforesaid  reasons,  the  submission  of  the
           companies that their OFCD issues are made on  private  placement
           and do not fall under the definition of a public issue,  is  not
           tenable.   The  instances  discussed  above  would  prima  facie
           suggest that the  offer  of  OFCDs  made  by  the  companies  is
           “public” in nature .”


20.   According to SEBI (FTM) since the offer was made  to  the  public,  as
per the mandate of section 73(1) of the Companies  Act,  it  was  obligatory
for  the  companies  issuing  shares/debentures  through  a  prospectus,  to
compulsorily seek approval for listing in a recognized stock  exchange.   It
was,  therefore,  sought  to  be  concluded,  that  non-compliance  of   the
mandatory provisions contained in section 73 of  the  Companies  Act,  could
not result in drawing a favourable inference.  In other  wods,  because  the
companies had wrongfully not sought approval for  listing  in  a  recognized
stock exchange, it could not be presumed that the offer made by them was  by
way of private placement.  With the aforesaid observations, the  SEBI  (FTM)
concluded its determination on issue no.1, i.e., both SIRECL and  SHICL  had
sought subscription to the OFCDs, by way of an invitation “to the public”.
21.   Issue no.2  was  framed  to  determine  whether  section  60B  of  the
Companies Act provided an alternative route,  for  raising  capital  without
complying with the procedure contemplated under section 73 of the  Companies
Act.  For dealing with the second issue, reference was made  to  section  60
of the Companies Act which postulates the requirement of a  company  issuing
a prospectus  to  deliver  the  same  to  the  Registrar  of  Companies  for
registration.  Reference was also made to section 60B(1)  of  the  Companies
Act which permits a company  to  issue  an  information  memorandum  to  the
public before filing a prospectus.  It was  observed,  that  the  object  of
issuing an information memorandum, is to elicit the public  demand  for  the
securities proposed  to  be  issued.   The  information  collected,  it  was
observed, is to enable the concerned company to assess  the  price  and  the
terms of  the  proposed  securities.   Also  taken  into  consideration  was
section 60B(2) of the Companies  Act,  which  it  was  observed,  imposes  a
mandatory condition on a public company to file a prospectus “prior  to  the
opening of the subscription  list”   after  it  had  issued  an  information
prospectus.   The   requirement   of   filing   prospectus,   as   indicated
hereinabove, it was observed, is preceded with the words  “bound”  depicting
the mandatory character thereof.  The SEBI (FTM) also made  a  reference  to
section 60B(3) of the Companies Act which,  it  was  observed,  contemplates
that the “information  memorandum”  and  the  “RHP”  would  carry  the  same
obligation as are applicable in case of a prospectus.
22.   Learned counsel for the appellant-companies had canvassed  before  the
SEBI (FTM), that necessary particulars had  only  to  be  furnished  to  the
Registrar of Companies and not to SEBI.  In so far as the instant aspect  of
the matter is concerned, the contention advanced on behalf of the appellant-
companies was sought to be rejected by concluding that the term  “any  other
case” used in section 60B(9) was bound to be  given  the  same  meaning  and
effect as was assignable to the  said  term  under  section  53A(c)  of  the
Companies Act.   Based  on  the  aforesaid  consideration,  the  SEBI  (FTM)
concluded as under:
      “24.  From the above reasons, section 60B of the Act cannot be read in
      isolation, but  has  to  be  harmoniously  construed  with  the  other
      provisions of the Act governing public issues.  Therefore, section 60B
      of the Act does not prescribe an alternative procedure  to  provisions
      of Sections 67(3) and 73(1) of the Act, as contended by the companies.
       Further, vide their letter dated September 30,  2010,  the  companies
      have mentioned that the issue is not yet closed.  A prospectus  cannot
      be kept open perpetually.   It  is  prima  facie  inferred  from  such
      conduct of the companies that they have taken recourse to the argument
      that their issues are covered under  section  60B  to  circumvent  the
      applicable legal framework laid out  elaborately  for  public  issues.
      Once an offer is made  to  fifty  or  more  persons,  compliance  with
      section 60B(filing with RoC) alone cannot be  treated  as  compliance.
      The moment the company offers to fifty or  more  persons,  it  has  to
      comply with all the provisions applicable for public issues (Part  III
      of the Act).  Hence, the legal opinion submitted by the companies that
      they can issue to fifty or more persons without making an  application
      to a stock exchange under section 73 of  the  Act,  by  following  the
      procedure under section 60B thereof, seems to  be  a  narrower  and  a
      convenient interpretation.  If such an interpretation is  accepted  it
      will pave the way for  companies  to  raise  money  from  the  general
      public, without following various procedures intended to  protect  the
      interest of investors, in respect of  the  public  issues,  prescribed
      under the Act and the ICDR Regulations including the requirements  for
      due diligence, disclosures, credit-rating, etc.”


23.   Based on the DIP Guidelines and the ICDR Regulations, the  SEBI  (FTM)
found that the companies had committed the following violations:
      “29   a)   failure to file the draft offer document with SEBI;
           b)    failure to  mention  the  risk  factors  and  provide  the
           adequate disclosures that is stipulated, to enable the investors
           to take a well-informed decision.
           c)    denied the exit opportunity to the investors.
           d)    failure to lock-in the minimum promoters contribution.
           e)    failure to grade their issue.
           f)    failure to open and close the issue within the  stipulated
           time limit.
           g)    failure to obtain the credit rating  from  the  recognized
           credit rating agency for their instruments.
           h)    failure to appoint a debenture trustee
           i)    failure to create a charge on the assets of the company.
           j)    failure to create debenture redemption reserve, etc.”


24.   Having recorded the aforesaid deliberations and conclusions, the  SEBI
(FTM) issued the following directions in its order dated 24.11.2010:
      “Therefore, in view of the foregoing reasons, in order to protect  the
      interest of investors and the integrity of the securities  market,  I,
      in exercise of the powers conferred  upon  me  under  section  19  the
      Securities and Exchange Board of India Act, 1992 and  Sections  11(1),
      11(4)(b), 11A and  11B  thereof,  read  with  Regulation  107  of  the
      Securities  and  Exchange  Board  of  India  (issue  of  Capital   and
      Disclosure Requirements)  Regulations,  2009,  pending  investigation,
      hereby issue the following directions, by way of this ad  interim  ex-
      parte order:
           a.    Sahara India Real Estate Corporation  Limited  and  Sahara
           Housing  Investment  Corporation  Limited  are  restrained  from
           mobilizing funds under the Red Herring  Prospectus  dated  March
           13, 2008 and October  6,  2009,  respectively,  filed  with  the
           concerned Registrar of Companies, till further directions.   The
           said companies are further directed not to  offer  their  equity
           shares/OFCDs or any other securities, to the public  and  invite
           subscription, in  any  manner  whatsoever,  either  directly  or
           indirectly till further directions.
           b.    Sahara India Real Estate Corporation  Limited  and  Sahara
           Housing Investment Corporation Limited and are persons  who  are
           named as promoters and directors of the said  companies  in  the
           Red-Herring Prospectus filed with  the  concerned  Registrar  of
           Companies, namely, Mr.Subrata Roy Sahara, Ms.Vandana  Bharrgava,
           Mr.Ravi Shankar Dubey and Mr.Ashok Roy Choudhary, are prohibited
           from  issuing  prospectus,  or  any  offer  document,  or  issue
           advertisement for soliciting money from the public for the issue
           of securities, in any  manner  whatsoever,  either  directly  or
           indirectly, till further directions.
      40.   Sahara India Real Estate Corporation Limited and Sahara  Housing
      Investment Corporation Limited are directed to show cause  as  to  why
      action should not be initiated  against  them  including  issuance  of
      directions to refund the money solicited  and  mobilized  through  the
      prospectus issued with respect to the impugned OFCDs, done prima facie
      in violation of  the  provisions  of  the  Companies  Act,  1956,  the
      Securities and Exchange  Board  of  India  Act,  1992,  the  erstwhile
      Securities and  Exchange  Board  of  India  (Disclosure  and  Investor
      Protection) Guidelines, 2000 and the Securities and Exchange Board  of
      India (issue of Capital and Disclosure Requirement) Regulations, 2009,
      as observed in this order.
      41.   The entities/persons against whom this order is issued may  file
      their objections, if any, to this order within thirty  days  from  the
      date of this order and, if they so desire, avail of an opportunity  of
      personal hearing at the Securities and Exchange Board of  India,  Head
      Office, SEBI Bhavan, C-4A, G,  Block,  Bandra  Kurla  Complex,  Bandra
      (East) Mumbai-400051.  They may also inspect the  relevant  documents,
      if they so desire, on any working day prior  to  the  hearing,  during
      office hours at the above mentioned address.
      42.   Copy of  this  order  is  also  forwarded  to  the  Ministry  of
      Corporate Affairs to enable them to take appropriate action as  deemed
      fit by them, for any violation of the  applicable  provisions  of  the
      Companies Act, 1956 administered by them.
      43.   This order is without prejudice to any other action that may  be
      initiated against the said violations.
      44.   This order shall come into force with immediate effect.”


Through the aforesaid order of the SEBI (FTM) dated  24.11.2010  SIRECL  and
SHICL were also directed to show cause  as  to  why  action  should  not  be
initiated against them, including  issuance  of  directions  to  refund  the
money solicited and mobilized through the prospectus issued with respect  to
the impugned OFCDs.  The instant show cause notice issued by the SEBI  (FTM)
dated 24.11.2010 shall  hereinafter be referred to as “the first show  cause
notice issued by the SEBI.”
25..  SEBI’s order dated 24.11.2010 (the first show cause notice  issued  by
the SEBI) was challenged before the Lucknow  Bench  of  the  High  Court  of
Judicature at Allahabad (hereafter referred to  as  the  “the  High  Court”)
through Writ Petition No.11702 (M/B) of 2010 on 29.11.2010.  On  13.12.2010,
the High Court stayed the operation  of  the  order  dated  24.11.2010  (the
first show  cause  notice  issued  by  the  SEBI).   Despite  the  aforesaid
injunction granted by the High Court, it permitted SEBI to proceed with  its
inquiry against both the companies, but restrained  SEBI  from  passing  any
final order.  SEBI assailed the order dated  13.12.2010  by  filing  Special
Leave Petition (C) No.36445 of 2010.   SEBI’s  challenged  was  declined  by
this Court on 4.1.2011.
26.   Even though the High Court, in the  first  instance,  was  pleased  to
stay the operation of the  order  dated  24.11.2011  (vide  an  order  dated
13.12.2010), yet the High Court vacated the aforesaid  interim  order  dated
13.12.2010 by an order dated 7.4.2011,  in  furtherance  of  an  application
filed by the  SEBI.   While  vacating  the  interim  order  the  High  Court
observed, that the appellant-companies were expected to cooperate  with  the
inquiry being conducted by the SEBI.   Since  the  appellant-companies  were
found remiss in the matter, the High Court was  constrained  to  vacate  the
interim order  passed  earlier  (on  13.12.2010).   The  appellant-companies
(petitioners before the High Court) then filed  an  application  before  the
High Court seeking a restoration of the  order  passed  on  13.12.2010.  The
said  application  was  dismissed  on  29.11.2011.   While  dismissing   the
aforesaid application, the High Court  observed,  that  those  who  come  to
court were supposed to come with clean hands and bona fide  intentions,  and
have to abide by orders passed by the court,  if  assurances  given  to  the
court are not honoured, the court cannot come to the  rescue  of  the  party
concerned.  It is apparent, that the High Court had  denied  relief  to  the
appellant-companies because they had not  approached  the  High  Court  with
clean hands and because their intentions were not found bona fide.
27.   The order passed by the High Court vacating the interim order  (passed
on 13.12.2010) dated 7.4.2011 came to be  assailed  by  SIRECL  before  this
Court  through  Special  Leave  Petition  (C)  No.11023  of  2011.    Having
entertained the aforesaid petition filed by SIRECL, this Court on  12.5.2011
passed the following order:
      “1.   …..In this matter the questions as  to  what  is  OFCD  and  the
      manner  in  which  investments  are  called  for  are  very  important
      questions.  SEBI, being the custodian of the investor’s  interest  and
      as an expert body, should examine these  questions  apart  from  other
      issues.  Before we pass further orders, we want  SEBI  to  decide  the
      application(s) pending before it so that we could obtain the requisite
      input for deciding these petitions.  We request SEBI to  expeditiously
      hear and decide this case so that this Court can pass suitable  orders
      on re-opening.  However, effect to the  order  of  SEBI  will  not  be
      given.  We are taking this route as we want to protect the interest of
      the investor.  In the meantime, the High Court may proceed, if  it  so
      chooses, to dispose of the case at the earliest.   The  Special  Leave
      Petitions shall stand over to July, 2011.”


28.   In compliance  with  the  order  extracted  hereinabove,  SEBI  issued
separate show cause notices to the companies on 20.5.2011.  For facility  of
segregation,  the  instant  show  cause  notices   dated   20.5.2011   shall
hereinafter be referred to as “the second show cause notice  issued  by  the
SEBI”.  Through the  second  show  cause  notice,  the  two  companies  were
required to satisfy the SEBI why  the  directions  contained  in  the  order
dated 24.11.2010 should not be reaffirmed.  In response to the  second  show
cause notice, detailed replies dated 30.5.2011 were filed by  the  companies
so as to enable  the  companies  to  effectively  project  their  respective
claims.  An opportunity of hearing was also afforded  to  the  companies  on
6.6.2011.  During the course of hearing on  6.6.2011  (as  well  as  on  the
adjourned dated i.e., 6.8.2011) detailed submissions were  advanced  through
counsel.
29.   In the interregnum SIRECL  changed  its  name  to  Sahara  Commodities
Services Corporation Limited.  Be that as it may,  while  adjudicating  upon
the present controversy, to the said company will be referred to as SIRECL.
30.   Having issued the second show cause notice dated 20.5.2011 and  having
received detailed replies from SIRECL as also  from  SHICL,  and  thereupon,
having heard detailed submissions advanced by counsel representing  the  two
companies,  SEBI  (FTM)  summarized  the  pleas  raised  on  behalf  of  the
companies in response to the second show cause notice as under:
      “6.   …..A. The  two  companies  have  made  ‘private  placements’  of
      Optionally Fully Convertible Debentures (OFCDs) to persons related  or
      associated with the Sahara India Group, and therefore these  issuances
      are not ‘public’ issues.
      B.    OFCDs are neither shares nor debentures in its strict sense  and
      are in the nature of ‘hybrid’ as defined in the  Companies  Act,  1956
      (hereinafter referred to as the Companies Act).
      C.    SEBI does not have any jurisdiction on such hybrid issues as the
      term ‘hybrid’ is not included in the definition of ‘securities’, under
      the SEBI Act, or in the Securities  Contract  (Regulation)  Act,  1956
      (hereinafter referred to as the SCR Act).
      D.    Such hybrid securities were issued by the  two  companies  (both
      unlisted), in terms of section 60B of the Companies Act and therefore,
      the jurisdiction in respect of  such  issues  lies  with  the  Central
      Government in terms of Section 55A(c) thereof and not with SEBI.
      E.    Sections 67 and 73 of the Companies Act are  not  applicable  to
      such hybrid securities issued by the two companies.
      F.    The DIP  Guidelines  and  the  ICDR  Regulations  would  not  be
      applicable to the hybrid securities as neither the SEBI Act  nor  SCRA
      confer jurisdiction on SEBI in respect of such securities.”


31.   On the issue whether the  SEBI  had  jurisdiction  to  deal  with  the
matter under reference it was imperative for SEBI (FTM) to first  ascertain,
whether OFCDs issued by SIRECL and SHICL were “hybrid securities”.   If  so,
whether “hybrid securities” were covered  by  the  definition  of  the  term
“securities”  under  the   SEBI   Act   and/or   the   Securities   Contract
(Regulations) Act, 1956 (hereinafter referred to as “the  SC(R)  Act).   The
contention advanced at the behest of the companies on the instant issue  was
based on an amendment to the  Companies  Act  in  2000.   By  the  aforesaid
amendment, the term “hybrid” was included in  the  definition  of  the  term
“securities” in  section  45AA  of  the  Companies  Act  (with  effect  from
13.12.2000).  Since the term “hybrid” was not similarly included within  the
definition of term “securities” under the SEBI Act  and/or  SC(R)  Act,  the
contention advanced on behalf of the appellant-companies was that  SEBI  had
no jurisdiction in respect of “hybrid securities”.
32.   The SEBI (FTM), on analyzing section 2(k) of the SC(R) Act arrived  at
a conclusion that the term “securities” in the SEBI Act as  also  SC(R)  Act
included “other marketable securities of a like nature”, SEBI, according  to
the SEBI (FTM), would therefore, have jurisdiction to deal with  the  matter
under reference.
33.   While evaluating the terms and  conditions  of  the  bonds  issued  in
response to the OFCDs (floated by the two  companies),  it  was  found  that
holders of all the six different kinds of bonds issued by SIRECL and  SHICL,
had the liberty to transfer the same to any  other  person  subject  to  the
terms  and  conditions  incorporated  therein  and  the  approval   of   the
respective company.   It was therefore held:
      “14.5.6    …I find that firstly, marketability of a  security  denotes
      the  ease  with  which  it  can  be  sold,  secondly  what  is  freely
      transferable is marketable  and  thirdly  what  is  saleable  is  also
      marketable.  Clearly, OFCDs issued by the two companies to such a wide
      base of investors who can sell these securities among  themselves,  if
      not to others are evidently ‘marketable’.  I have to therefore  regard
      the OFCDs issued by the two companies as marketable securities.”


34.   On the issue whether  the  OFCDs  which  are  the  subject  matter  of
contention in the present controversy, fell within the  definition  of  term
“debentures”, the decision of the SEBI (FTM) was as under:
      “14.6.1    From the nomenclature itself, ‘Optionally Fully Convertible
      Debentures’ are  ‘Debentures’,  as  they  indeed  are  named  so…..  A
      succinct  eludication  of  what  the  test  for  a  “security”   under
      securities laws may be found in A Ramaiya (XVII Ed. 2010  –  Guide  to
      the Companies Act – page 100).  The acid test is  whether  the  scheme
      involves an investment of money in a common enterprise with profits to
      come solely from the efforts of others so that  whenever  an  investor
      relinquishes control over her  funds  and  submits  their  control  to
      another for the purpose and hopeful expectation  of  deriving  profits
      thereof, she is in fact investing her funds in a security….. Such test
      contains three elements: the investment of money; a common enterprise;
      and profits or returns solely derived from the efforts of others.
      14.6.2     …..In this case, the investor purchasing the OFCD makes  an
      investment.  Both the two  companies  issuing  the  OFCDs  are  common
      enterprises, being public limited companies.  The investor herself has
      absolutely no part in generating  profits  on  her  investment  –  and
      therefore, as such, the profits or returns are solely derived from the
      efforts of others.  Therefore, on the basis of this test, it is  amply
      evident that OFCDs come well within the scope of securities as defined
      in Section 2(h) of the SCR Act.”

In conjunction with the aforesaid, the issue in hand was  further  evaluated
by the SEBI (FTM) on the following lines:
      “14.6.8    In Narendra Kumar  Maheshwari  vs.  Union  of  India  [1990
      (Suppl.) SCC 440], the Hon’ble Supreme Court,  observed  that  in  the
      various  guidelines  applicable  to  such  instruments,   compulsorily
      convertible debentures are regarded as ‘equity’ and not as a  loan  or
      debt.”  One of the critical  considerations  adopted  by  the  Hon’ble
      Supreme Court of India in  concluding  so,  is  that  “A  compulsorily
      convertible  debenture  does  not  postulate  any  repayment  of   the
      principal.”  The thinking of the Hon’ble  Supreme  Court  revealed  in
      this Judgment, not only clarifies the issue, but also provides me with
      a touchstone  to  determine  whether  the  OFCDs  issued  by  the  two
      companies are more in the nature of shares or debentures.  SIRECL  has
      issued three bonds viz., Abode Bond,  Real  Estate  Bond  and  Nirmaan
      Bond.  SHICL has also issued three bonds, viz., Multiple Bond,  Income
      Bond and Housing Bond.  From a plain reading of the summary  of  their
      descriptions at paragraph 9.2 and 9.3 above, it is  evident  that  all
      these six bonds postulate a repayment of the principal.  The repayment
      of the principal will be at the option of the investor.  The  investor
      holds the option, which gives her a right  to  determine  whether  she
      would like to get her principal back in  cash  or  as  equity  shares.
      Hence,  Optionally   Fully   Convertible   Debentures   unlike   their
      counterpart category of Compulsorily  Convertible  Debentures  do  not
      share the characteristic pointed out by the Hon’ble Supreme  Court  in
      arriving at the conclusion that  Compulsorily  Convertible  Debentures
      are more of equity than of debentures.  Thus, all  the  six  financial
      instruments issued by the two companies share the defining feature  of
      debentures in that a  payment  of  interest  to  the  investor  and  a
      repayment of the principal, albeit at the option of the  investor,  is
      postulated.”


      Based on the aforesaid analysis SEBI (FTM) summarized its  conclusions
as under:
      “14.10     The following summarises the discussions above:
      1.    As laid down in the judgment in the matter of  Sudhir  Shantilal
      Mehta vs. CBI  (quoted  supra),  the  definition  of  ‘securities’  in
      Section 2(h) of the SCR Act is an inclusive one  and  not  exhaustive,
      with adequate latitude to accommodate OFCDs.
      2.    OFCDs issued by the two companies are marketable scurities.
      3.    These instruments satisfy all the characteristic  features  that
      identify a security based on clear  tests  used  to  identify  what  a
      security under section 2(h) of the SCR Act is.
      4.    Debenture is a genus and not a species of financial instruments.
       This genus includes OFCDs.
      5.    OFCDs contemplate the repayment of principal,  and  hence  using
      the yardstick adopted  by  the  Hon’ble  Supreme  Court  of  India  in
      Narendra Kumar Maheshwari vs. Union of  India  (quoted  supra),  these
      instruments indeed are debentures.
      6.    The Companies Act recognizes  OFCDs  as  a  composite  financial
      instrument where an option is attached to a debenture.
      7.    Design and valuation characteristics of OFCDs, show that  it  is
      the sum of the valuation of the two parts, viz., debenture and option,
      where the option is valued as a ‘sweetener’ to improve the pricing and
      risk characteristics of the debenture.
      8.    OFCDs are issued as debentures (Palmer’s Company Law – XXIV  Ed.
      Page 676).


      14.11       From  the  foregoing  discussions,  it  therefore  becomes
      abundantly clear that OFCDs belong to the family of debentures covered
      by the definition of the term ‘securities’ in section 2(h) of the  SCR
      Act.  That an OFCD is a hybrid therefore does  not  detract  from  the
      fact that an OFCD is by definition, design  and  its  characteristics,
      intrinsically and essentially a ‘debenture’.”


35.   Thereupon SEBI (FTM) ventured to make a comparison of  the  definition
of the term “securities” as under the Companies Act and  with  reference  to
its definition under the SC(R) Act.  This  comparison  was  made  so  as  to
determine the  veracity  of  the  submissions  advanced  on  behalf  of  the
appellant-companies that the term “securities”, as defined under  SC(R)  Act
which had been adopted by the SEBI Act could not be given the  same  meaning
and effect as the definition of the term “securities”  under  the  Companies
Act for  the  simple  reason  that  the  Companies  Act  expressly  included
“hybrids” within  the  definition  of  the  term  “securities”  (in  section
2(45AA) of the Companies Act in 2000) whereas no such or  similar  inclusion
was made in the SC(R) Act.  The aforesaid submissions had been  advanced  in
order to press the plea of the appellant-companies,  that  OFCDs  issued  by
SIRECL and SHICL were “hybrids”, and as such were not within the purview  of
SEBI Act.  The relevant observations recorded by SEBI (FTM) on  the  instant
subject are being placed below:
      “15.1      To reiterate, Section 2(19A) of the Companies  Act  defines
      ‘hybrid’ to mean “any security which has the character  of  more  than
      one type of  security,  including  their  derivatives”.   Black’s  Law
      Dictionary (VIII Ed.) defines hybrid security  as:  “A  security  with
      features of a debt instrument (such as a bond) and an equity  interest
      (such as share or stock).”  While the Companies Act contemplates  that
      a hybrid can be any combination  of  securities  –  and  makes  it  an
      omnibus  definition,  the  more  precise  definition  in  Black’s  Law
      Dictionary is that it is a combination of a  debt  instrument  and  an
      equity interest….. Section 2(h)(i) of the  SCR  Act,  which  specifies
      that “securities” includes “shares, scrips, stocks, bonds, debentures,
      debenture stock or other marketable securities of a like nature in  or
      any incorporated company or other body corporate”.  In  this  list  of
      instruments, the last three  viz.,  bonds,  debentures  and  debenture
      stock are debt instruments, and the first three viz.,  shares,  scrips
      and  stocks  are  equity  instruments.   Under  the  definition,   any
      marketable security of  ‘a  like  nature’  automatically  falls  under
      section 2(h)(i)  of  the  SCR  Act.   A  hybrid,  as  long  as  it  is
      marketable, regardless of the strength or proportion in which the debt
      and equity components are assembled together,  bears  an  unmistakable
      likeness to one more  of  these  six  instruments.   So  clearly,  any
      marketable hybrid, in the way we understand hybrids in India today, is
      a marketable security of a ‘like’ nature….
      15.2       This is not to say that  all  hybrids  invariably  have  to
      combine debt and equity.  Many  issuers  have  sold  debt  instruments
      where the amount of principal payable  at  maturity  is  tied  to  the
      performance of a stock or  bond  index,  or  a  commodity  or  foreign
      currency or even the  rate  of  inflation.   Whether  in  the  future,
      financial engineering will create newer  hybrids  as  combinations  of
      other securities that become popular in India is hard to predict – but
      today, it is unequivocally true that all marketable hybrids  available
      in the market neatly fall into the categories  “marketable  securities
      of a like nature”.


On the second issue while dealing with the factual  and  legal  connotations
involved, SEBI (FTM) recorded the following conclusions:
      “15.12           Five  definite  conclusions  emerge  from  the  above
      discussions.
           1.    OFCD as a hybrid is a ‘debenture’ under Section 2(h)(i) of
           the SCR and is also a marketable security.
           2.    The import of the expression “and  includes”  as  used  in
           Section 2(45AA) of the  Companies  Act  has  to  be  appreciated
           against the maxim of noscitur a sociis.  The  term  ‘securities’
           itself has a very extensive scope.   There  are  no  exceptional
           circumstances that suggest the need for  any  deviation  from  a
           normal and common interpretation of such expression.  Therefore,
           the definition of the term ‘securities’ in section 2(h)  of  SCR
           Act encompasses ‘hybrid’ also and is therefore equivalent to the
           definition in section 2(45AA) in the Companies Act.
           3.    The powers conferred on SEBI  under  section  55A  of  the
           Companies Act, relate to ‘securities’ defined  under  that  Act,
           and not under the SCR Act.  So even if one were to  assume  that
           there are differences between the two definitions  (even  though
           there are none) SEBI can regulate all securities (whether hybrid
           or not) under Section 55A of the Companies Act.
           4.    Any assumption, even for argument’s sake, that hybrids are
           not covered under the  SCR  Act,  would  lead  to  an  untenable
           position, with a regulatory vacuum in so far  as  regulation  of
           transactions in  such  hybrids  are  concerned,  once  they  are
           issued.
           5.    Finally, were “hybrid”, as defined in the  Companies  Act,
           to be treated as distinct from, and falling outside “securities”
           under the SCR Act, then this would give  rise  to  an  incurable
           defect in the very definition of the term “hybrid” itself.”


36.   In order to return a finding on the issue  whether  OFCDs  offered  by
the two companies were by way of private placement or by way of an offer  to
the public”, reliance was placed by the SEBI (FTM) on a  series  of  factual
circumstances, including assertions made in the information memorandum,  the
terms and conditions incorporated in the bonds issued by the two  companies,
the assertions made in the extraordinary general body meeting of the equity-
holders (accepting the legal position in the eventuality of the  subscribers
number exceeded 50), the declaration required to be made by the  applicants,
the letters written by the companies seeking  assistance  from  professional
accounting  firms  for  collection  and  compilation  of   data,   the   non
availability  of  the  data  with  the  companies,  and  such  like  factual
pointers, to conclude as under:
      “17.16           These facts drive  home  one  rather  straightforward
      inference viz., the issue  was  marketed  to  and  subscribed  by  the
      general public and it was not a private placement by  any  stretch  of
      imagination.  Therefore, the OFCD issues by the two  companies  cannot
      be held, even for a moment, to be of a “domestic concern” or “that  it
      was not subscribed to by others to whom such offer was not  made”  (as
      referred to in Section 67(3) of the Companies Act).   Further,  it  is
      the case of SIRECL that they have 6.6 million subscribers.  Given  the
      above circumstances, I do not hesitate in being a  tad  dismissive  of
      the argument advanced by the learned counsel,  when  I  say  that  6.6
      million subscribers is too colossal a pool of  persons  associated  to
      the companies, to be labeled ‘private’, particularly in the absence of
      any definition of what such an association or relationship  is.   What
      seems to be very obvious is  that  the  two  companies  are  obtaining
      subscriptions  into  its  OFCD  schemes  through   mass   subscription
      solicitation through service centres sprawled across the  country.   I
      have no hesitation in concluding that placements of OFCDs made by  the
      two companies were indeed made to the public.  In fact,  unless  there
      is a database of investors already available with an issuer, the offer
      letters under a ‘private placement’ simply cannot be mailed out.   The
      very absence of a ‘database’, readily available with the two companies
      itself is the best indicator that these  not  by  any  means  ‘private
      placements’.


The SEBI (FTM), based on the analysis briefly noticed above, summarized  its
findings and conclusions on the issue in hand as under:
      “17.20     The above findings are summarized below:
           1.    The OFCDs in question here  constitute  an  offer  to  the
           public as they have been made to over fifty persons.
           2.    The manner and the features of fund raising under the bond
           issues by the  two  companies  discussed  above,  suggest  these
           issues are by no means ‘private’.  What seems  evident  is  that
           the  two  companies  have  been  running  a  mass   subscription
           solicitation from the public.
           3.    The two companies do not fall under the entities specified
           in the second  proviso  to  section  67(3)  which  is  the  only
           exemption granted to the ‘Rule of 50’, that defines offer to the
           public, under the Companies Act.
      I would therefore conclude that the OFCDs issued by the two  companies
      are public issues, without any ambiguity.”


37.   The SEBI (FTM), thereupon, examined the applicability  of  section  73
of the Companies Act to the controversy in hand.  Taking into  consideration
the fact that the two companies  had  issued  OFCDs  which  were  debentures
offered to the public through a prospectus, it  was  held,  that  compliance
with the requirements expressed in Section  73  of  the  Companies  Act  was
imperative.  The aforesaid conclusion was sought to be  drawn  by  recording
the following observations:
      “18.7      To sum up, for a public issue, whose parameters are set  by
      the first proviso to Section 67(3) of the Companies Act, the issuer is
      bound to proceed to Section  73,  and  comply  with  the  requirements
      stipulated there.  In fact, there does  not  seem  to  have  been  any
      doubts in the minds of the two  companies  that  they  were  bound  to
      comply with Sections 67 and 73 of the  Companies  Act,  as  seen  from
      their statement to the Registrar itself.  I also  suspect  that  there
      has been a reprehensible attempt to conceal this applicability of  the
      provisions of laws and the jurisdiction of SEBI on the  issue  itself,
      by  making  changes  in  the  form  and  structure  of  the  statutory
      declaration filed by the Directors of the two companies.”


      xxx              xxx                   xxx


      “19.7 Therefore, the intention to list, contemplated in the  Companies
      Act does not originate from the benevolence and  large-heartedness  of
      the issuer or from a voluntary desire to  subject  itself  to  greater
      regulatory discipline.  It arises because Parliament, in  its  wisdom,
      as explained in the aforesaid observations of the Hon’ble Apex  Court,
      had decided that listing the shares or debentures of a public  company
      that issues shares or debentures to the public, on  a  stock  exchange
      should be an integral part of the measures for investor protection  in
      our country.  In other words, where the expression “intend to” is used
      in the Companies Act, in the matter of listing, the law does not offer
      a choice to the issuer, but mandates the same.”


38.   The SEBI (FTM), then examined the submission put forward  by  the  two
companies, that section  60B  of  the  Companies  Act  was  the  only  route
available to the companies to raise capital by  way  of  hybrid  securities.
In this behalf, the assertion on behalf of the companies was, that  sections
67 and 73 of the Companies Act could not be relied  upon  to  determine  the
present controversy because the said  provisions  were  applicable  only  to
“shares and debentures” and not to “hybrid securities”.   Thus  viewed,  the
contention on behalf of the companies was that SIRECL,  as  well  as,  SHICL
were only obliged to file their  final  prospectus  with  the  Registrar  of
Companies under section 60B(9) of the Companies Act.  This issue  was  dealt
with by the SEBI (FTM) by expressing the following logic and analysis:
      “20.6      …in the spirit of the Companies Act,  an  issuer  that  has
      made an offer of securities to the public, and therefore  has  applied
      for listing as  legally  required,  undoubtedly  has  to  sit  in  the
      category of ‘listed public companies’  and  not  ‘others’  in  section
      60B(9) of the Companies Act – and would indeed therefore be under  the
      regulatory umbrella of SEBI, as provided in this  sub-section  itself.
      In other words, had the two companies abided by the  requirements  set
      by law, under section 67(3) and section 73, and applied  for  listing,
      they legitimately should have been dealt with,  for  the  purposes  of
      Section 60B(9), on par with any listed company.  So, even the argument
      of the two companies, that they belong to  the  category  of  ‘others’
      under section 60B(9) is ultra vires of the law, because it is premised
      on a violation of two important provisions  of  the  Companies  Act  –
      viz., section 67(3) and 73.


The analysis of the SEBI (FTM) of the  process  contemplated  under  section
60B of the Companies Act, was dealt with in the following manner:
      “20.9      Thus there are three  distinct  ‘gates’  that  have  to  be
      crossed in the process of raising  capital  through  the  ‘information
      memorandum’ route – firstly, the issue of the  information  memorandum
      itself [section  60B(1)],  secondly  the  filing  of  the  red-herring
      prospectus [Section  60B(2)]  and  lastly  the  filing  of  the  final
      prospectus [Section 60B(9)].  Evidently, the ‘final prospectus’ is the
      last post to be reached.  A careful reading of Section 60B(1), (2) and
      (3) clearly shows that at the stage, when the  information  memorandum
      and prospectus (red-herring) are filed, the Companies Act directs  the
      process in the regulatory sense  to  Section  55  (on  the  dating  of
      prospectus) and Section 56 where the matter to be stated and  set  out
      in the prospectus are defined.
      20.10      Section 60B of the Companies Act, from a plain  reading  of
      the Act itself, and as also argued by learned counsel, applies to  all
      securities, and therefore it would apply to ‘shares’ and  ‘debentures’
      as well.  It offers a route to ‘listed public companies’  and  ‘public
      companies which intend to get their securities listed’ as  well.   Any
      issuer company has to cross the first  two  gates  in  the  process  –
      circulation of an information  memorandum  and  a  RHP  under  section
      60B(1) and 60B(2).  Section 60B(3) places all these documents  on  par
      with a  prospectus.   Evidently  therefore  these  provisions  in  the
      Companies Act imply that Section 55 and 56 of the same apply in  toto.
      Parliament, in its wisdom, under section 55A, has  decided  that  SEBI
      should administer sections 55 and 56, insofar as it relates to ‘listed
      public companies’ and ‘public companies  which  intend  to  get  their
      securities listed’.  Therefore, it goes without saying, that as far as
      ‘listed public companies’ and ‘public companies which  intend  to  get
      their  securities  listed’  are  concerned,  SEBI  is  the  regulatory
      gatekeeper, posted at Sections 60B(1) and 60B(2) of the Companies Act.
       In fact this indeed is  precisely  what  happens  now,  when  ‘listed
      public companies’ and ‘public companies  which  intend  to  get  their
      securities listed’ file their DRHP and RHP before SEBI.”


Having evaluated the controversy in the aforesaid  manner,  the  SEBI  (FTM)
recorded a decision on the issue canvassed, by relying upon  section  60B(9)
of the Companies Act, in the manner set out below:
      “20.19           To  sum  up  the  discussion  in  this  section,  the
      following conclusions emerge:
      *If the offer of OFCDs are ‘private’ in nature, as claimed by the  two
      companies, then section 60B is not the correct route to  traverse  for
      issuing OFCDs, given that section 60B deals with issue of  information
      memorandum to the public alone.  The  two  companies  cannot,  in  one
      breath, claim that their issues are private placements and at the same
      time proceed to use a route, exclusively designed for public issues.
      *At the stage of taking recourse to section 60B  under  the  Companies
      Act, a public company that proposes to issue securities to the  public
      should already have applied, as is required under law, for listing  on
      a stock exchange, and as such can  only  be  treated  on  par  with  a
      “listed public company” and not in the category  of  the  other  group
      “and in any other case with the Registrar only” under  section  60B(9)
      of the Companies Act.
      *The argument that they are in the latter category  is  built  on  the
      presumption that the two companies need not have complied with section
      67(3) and section 73.  The two companies are  required  under  law  to
      conform  to  these  applicable  legal  provisions.    Therefore,   the
      framework for issue of capital under the Companies Act, the  SEBI  Act
      and its Regulations would apply in toto to the OFCD issues of the  two
      companies.
      *Section 60B should not be aligned solely with the expression “and  in
      any  other  case  with  the  Registrar  only”,  but  has  to  be  read
      progressively, in its context, going from section 60B(1) all  the  way
      to Section 60B(9).
      *Section 60B – whether for listed public companies or other  companies
      – was introduced in the Companies Act, for a  specific  purpose  under
      the Companies (Second Amendment) Act, 2002.  It was never designed  to
      create an island of regulatory standards that are  distinct  from  and
      contrary to the spirit of various other provisions  in  the  Companies
      Act itself, in so far as mobilization of capital from  the  public  or
      their investor protection is concerned.
      *There are no valid grounds to infer that the expression “and  in  any
      other case with the Registrar only” that appears  section  60B(9)  was
      intended in law to curtail the powers of SEBI conferred  on  it  under
      section 55A of the Companies Act.   Hence,  I  am  of  the  considered
      opinion that the two companies  have  violated  the  legal  provisions
      under Section 67(3) and 73 of the Companies Act, and have acted  ultra
      vires of the law, in using section 60B(9) for their  OFCDs  to  bypass
      the regulatory framework applicable to them,  relying  solely  on  the
      expression “and in any other case with the Registrar only” that occurs
      in this sub-section.”


39.   It was also contended on behalf of the two Companies before  the  SEBI
(FTM), that the Companies had wrongly been proceeded  against  by  the  SEBI
under  the  SEBI  (Disclosure  and  Investor  Protection)  Guidelines,  2000
(hereinafter referred to as the “DIP  Guidelines”)  during  the  period  the
same were not in force.  It was further contended, that presently  the  SEBI
(Issue  of  Capital   and   Disclosure   Requirements)   Regulations,   2009
(hereinafter referred to as  “the  ICDR  Regulations”)  govern  the  subject
under consideration, as the DIP Guidelines had been  repealed  by  the  ICDR
Regulations.  Insofar as the ICDR Regulations are concerned, it was  pointed
out, that the same being prospective in  nature  could  not  be  taken  into
consideration to determine the validity of the Companies  activities,  which
had taken place well before the  ICDR  Regulations  came  into  force  (with
effect from  26.8.2009).   The  instant  contention  of  the  companies  was
rejected by the SEBI (FTM) by ruling, that the two companies  had  continued
to mobilize funds from the public under the information memorandum  and  the
RHP, till they were restrained from doing so by the  SEBI  (vide  its  order
dated 24.11.2010).  Having considered the  aforesaid  contention  raised  on
behalf of the appellant-companies the SEBI (FTM) also  expressed  the  view,
that the  ICDR  Regulations  would  be  applicable  because  the  violations
committed by the two companies was of a continuing nature, more so,  because
the violations  had  continued  even  after  the  enforcement  of  the  ICDR
Regulations (with effect  from  26.8.2009).   Accordingly,  the  SEBI  (FTM)
expressed the view, that action could be taken against SIRECL, as  well  as,
SHICL if their activities after 26.8.2009 were found to be in  violation  of
the ICDR Regulations.
40.   Having dealt with the issues  raised  by  the  appellant-companies  as
have been noticed hereinabove, as well as,  certain  other  trivial  matters
not requiring an express mention  in  the  instant  order,  the  SEBI  (FTM)
ventured to examine the action of the two Companies  on  the  touchstone  of
investor protection in securities,  and  the  responsibilities  assigned  to
SEBI to regulate the securities marked. Some of the aspects  highlighted  by
the SEBI (FTM) which demonstrate absolute lack of investor’s  safeguards  at
the hands of the two companies are being extracted hereunder :
      “24.1 The two Companies, as stated in the interim order as well as  in
      the additional Show Cause Notice, are without doubt, clearly in  gross
      violation of the provisions of the laws applicable to public companies
      making offers of securities to the public.  I have referred earlier to
      how the two Companies, seem to be unable to furnish even basic data on
      the identity of its own investors.  The  letters  sent  by  SIRECL  to
      various  accounting  firms  in  January  2011,  seeking   professional
      services seem to suggest a woeful lack of compiled  and  authenticated
      data on their investors  and  the  funds.   If  the  identity  of  the
      investors and addresses themselves are not readily available with  the
      firm – and the compilation and authentication of the data  across  the
      thousands of service centres will have  to,  as  admitted  by  SIRECL,
      require the support of professional accounting firms  at  this  stage,
      then I wonder what real safeguards can possibly be there in place  for
      investor protection.


      24.2  I observe here that only one company viz. SIRECL  has  furnished
      information about its investors.  SHICL  has  not,  despite  reminders
      from  SEBI,  cared  to  furnish  the  requisite  information.  Despite
      instructions from the Hon’ble Supreme Court of India and  the  Hon’ble
      High Court of Lucknow directing SIRECL to be forthcoming on  the  data
      on its investors, there still is  little  clarity  in  the  statements
      furnished by it.  This is seen particularly in the absence of  details
      on the actual quantum of funds that has been mobilized.  All that  has
      been declared clearly in the RHP is that both the  companies  together
      need `40000 cr. for their projects.  Additionally, I also observe that
      the data furnished by SIRECL in the Compact Disk, are in the  form  of
      scanned images, which are not amenable to easy analysis on a Computer.
       SIRECL has not supplied the data in standard spreadsheet form  or  as
      regular documents for word processing.  Thus, based on what  has  been
      furnished by  the  Companies,  SEBI  has  little  means  to  find  out
      cumulative totals of funds mobilized or do further useful analysis  on
      the data itself, as part of its investigation, should any such  future
      requirements arise.  The Hon’ble High Court of  Allahabad,  as  quoted
      supra above, had expressed  its  displeasure  at  the  rather  blatant
      unwillingness of SIRECL to comply with its  directions  and  cooperate
      with the investigations.  There seems to be an unstated resolve on the
      part of the two Companies not to part  with  data  in  any  meaningful
      manner.  The thrust seems to be on concealment and obfuscation  rather
      than openness and transparency.


      24.3  The Learned Counsel, at one point in the submissions before  me,
      mentioned the fact that there are no investor complaints at all,  from
      any investor in the OFCDs raised by the two Companies.  Going  by  the
      history of scams in financial markets across the globe, the number  of
      investor complaints has never been a good measure or indicator of  the
      risk to which the investors are exposed.  Most major  `Ponzi’  schemes
      in the financial markets, which have finally blown up in the  face  of
      millions of  unsuspecting  investors,  have  historically  never  been
      accompanied by a gradual build up of investor  complaints.   But  when
      financial catastrophes have indeed finally erupted, they  do  so  with
      little warning and lead to major collapses in  the  financial  markets
      with disastrous consequences to investors.


      24.4  I have examined  the  copies  of  the  RHPs  filed  by  the  two
      Companies.   Against  all  the  major  investor  protection   measures
      contemplated  (for  e.g.  appointment  of  debenture  trustee,  credit
      rating, underwriting, utilization of funds collected), I see the entry
      “Not applicable”.  Some of  them,  as  stated  therein,  are  declared
      inapplicable because  the  issue  will  not  be  listed.   Others  are
      declared inapplicable, because the issue is  not  of  debentures.   If
      such vital regulatory requirements themselves have all  been  declared
      superfluous or unnecessary, and have not been  complied  with  on  one
      pretext or the other, what then exactly are  the  protective  measures
      that the two Companies can possibly have in place for  its  investors?
      The records furnished to SEBI shed little light on this.  Neither have
      the two Companies come forward to allay the legitimate concern of SEBI
      as a regulator in this  regard,  duly  reflected  in  the  show  cause
      notices issued to the two Companies and their promoters and directors.


      24.5  SIRECL did not have any distributable profit for  the  financial
      year ending 31st March, 2008.  SIRECL had a negative net worth at  the
      time of the offer and the net worth of SHICL was around `11 lakh.  The
      subscribed capital of t