SAHARA INDIA REAL ESTATE CORPORATION LIMITED & ORS. v. SECURITIES AND EXCHANGE BOARD OF INDIA & ANR

Citation: [2012] 12 S.C.R. 1

Court: Supreme Court of India

Bench: K.S. RADHAKRISHNAN, J.S. KHEHAR

Case summary

SAHARA INDIA REAL ESTATE CORPORATION LIMITED & ORS. v. SECURITIES AND EXCHANGE BOARD OF INDIA & ANR.pdf

Judgment text

(2012] 12 S. C. R. 1 SAHARA INDIA REAL ESTATE CORPORATION LIMITED & ORS. v. SECURITIES AND EXCHANGE BOARD OF INDIA & ANR. (Civil Appeal No. 9813 of 2011) AUGUST 31, 2012 [K. S. RADHAKRISHNAN AND JAGDISH SINGH KHEHAR, JJ. ] Companies Act, 1956 - s. 55A - Allegation of preplanned attempt to bypass the regulatory (and administrative) authority of SEBI - Invitation to subscribe to Optionally Fully Convertible Debentures (OFCDs) - Inquiries made by the Investigating Authority - Powers of the Securities and Exchange Board of India ('SEBI? u/s. 55A(b) of the Companies 0 Act 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 fisted on any recognized stock exchange in India - Discussed. Companies Act, 1956 - s. 73 r/w s.

60B - Issue as to whether Optionally Fully Convertible Debentures (OFCDs) offered by the appellants should have been listed on any recognized stock exchange in India, being Public Issue under s. 73 r/w s. 60B and allied provisions of the Companies Act - Discussed. Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 - Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 - Violation of DIP Guidelines and various regulations of the ICDR 2009 - If made out. Securities Contracts (Regulation) Act, 1956 - Issue as to whether Optionally Fully Convertible Debentures (OFCDs) issued are securities under the SCR Act - Discussed.

In the instant appeals, questions concerning the powers of the Securities and Exchange Board of India ('SEBI') under Section 55A(b) of the Companies Act, 1956 to administer various provisions relating to issue and 8 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 ('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 ['DIP Guidelines'] and various regulations of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 ['ICDR 2009'], and also whether OFCDs issued are securities under the Securities Contracts (Regulation) Act, 1956 ['SCR Act'], were raised.

Much of the arguments 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, Ministry of Corporate Affairs (MCA), Roe. Powers conferred on SEBI, Central Government, (MCA), RoC etc. under the Companies Act, SEBI Act also came up for consideration. Dismissing the appeals, the Court HELD: Per Radhakrishnan. J. [With Khehar, J. concurring] AND EXCH. BOARD OF INDIA 1. QUESTIONS OF LAW RAISED WITH ANSWERS Whether SE81 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 8 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. Answer: SE81 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 nonpayment 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. Whether the public companies referred in question no. (a) is legally obliged to file the final prospectus under Section 608(9) with SE81 and whether Section 608, as it is, falls under Section 55A of the Companies Act.

Answer: Saharas were legally obliged to file the final prospectus under Section 608(9) with SE81, failure to do so attracts criminal liability. 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. Answer: 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.

8 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 subsection (1) of Section 73 is not applied for listing of securities. Answer: Section 73 of the Act casts an obligation on 0 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.

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. Answer: 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. Whether Rules 2003 framed by the Central Government under Section 81(1A) of the Companies Act . AND EXCH.

BOARD OF INDIA 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. Answer: 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.

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. Answer: 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. 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.

Answer: 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. Whether SE81 can exercise its jurisdiction under Sections 11(1), 11(4), 11A(1)(b) and 118 of the SE81 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.

Answer: SE81 can exercise its jurisdiction under Sections 11(1), 11(4), 11A(1)(b) and 118 of SE81 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. Scope of Section 73(2) of the Companies Act regarding refund of the money collected from the Public. Answer: 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 40 of the Companies (Central Government's) General Rules and Forms, 1956 and the SEBI has the power to enforce those provisions. Civil and Criminal liability under the various provisions of the Companies Act. AND EXCH. BOARD OF INDIA Answer: Saharas' conduct invites civil and criminal liability under various provisions like Sections 56(3), 62, 68, 68A, 73(3), 628, 629 and so on.

[Paras 52 and 116] [57- A-H; 58-A-H; 59-A-B; 100-G-H; 101-A-H; 102-A-H; 103-A] CONCLUSIONS: 2. 1. The 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 Red Herring Prospectus (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 the Registrar of Companies RoC, 0 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. [Para 117] [103-A-E] 2. 2. SEBI 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 11 B, 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. [Para 118] [103-E-F] 2. 3. SEBI Act is a special law, distinct iji form, but related to the Company Law, 1956. There is' a purpose and object behind establishing a body like SEBI under the SE81 Act.

The impugned orders were issued by SE81 in exercise of its powers conferred under Sections 11, 11A and 118 of SE81 Act and Regulations 107 of ICDR 2009. DIP Guidelines 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 SE81, 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 SE81 to pass orders under Sections 11A and 118 of the SE81 Act as well as Regulation 107 of ICDR 2009 and direct refund of the money to investors. [Para 0 119) [103-G-H; 104-A-C] 2. 4. SE81, 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, SE81 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 SE81. Therefore, on facts as well as on law, no illegality is found in the proceedings initiated by SE81 and the order passed by SE81 (WTM) dated 23. 6. 2011 and SAT dated 18. 10. 2011 are accordingly upheld. [Para 120) [104-C-F] Life Insurance Corporation of India v. Escorts Ltd. &Ors. (1986) 1 SCC 264: 1985 (3) Suppl. SCR 909; Union of India v. Allied International Products Ltd. & Anr. (1970) 3 SCC 594: AND EXCH. BOARD OF INDIA 1971 (2) SCR 661; Kalpana Bhandari v.

Securities and Exchange Board of India (2005) 125 Comp. Cases 804 (Born. ); Society for Consumers and Investment v. Union of India and others - Delhi High Court in W. P. (C) No. 15467 of 2006; Kunamkulam Paper Mills Ltd. & Ors. V. Securities and Exchange Board of India & Others- Kerala High Court in Writ Petition (C) No. 19192 of 2003; Commissioner of Income Tax, Gujarat v. Girdhardas and Co. Private Ltd. AIR 19. 67 SC 795: 1967 SCR 777; Hindustan Lever Ltd. v. Ashok Vishnu Kate and Ors. (1995) 6 sec 326: 1995 (3) Suppl. SCR 702; Delhi Judicial Services Association v. State of Gujarat AIR 1991 SC 2176: 1991 (3) SCR 936; S. Sundaram Pillai &Ors. v. V. R. Pattabiraman & Ors. (1985) 1 SCC 591: 1985 (2) SCR 643; Raymonds Synthetics Ltd. & Ors. v. Union of India & Ors. (1992) 2 sec 255: 1992 (1) SCR 481; Sudhir Shanti/al Mehta v. Central Bureau of Investigation (2009) 8 SCC 1: 2009 (12) SCR 682 and Naresh K. Aggarwala & Co. v. Canbank Financial Services Ltd. and Anr.

(2010) 6 SCC 178: 2010 (6) SCR 1 - referred to. In re. Nanwa Gold Mines Ltd. (1955) 1WLR1080; Young v. Bristol Aeroplane Company Ltd. 1945 PC 163 (HL); Dilworth v. Commissioner of Stamps (1999) AC 99; Gissing v. Gissing (1971) 1 AC 886 and Crofter Hand Woven Harris Tweed Co. Ltd. v. Veitch [1942] AC 435 - referred to. Bennion on Statutory Interpretation, 5th Edn. , p. 1104 referred to. Case Law Reference: 1985 (3) Suppl. SCR 909 referred to Para 34 1971 (2) SCR 661 referred to Para 34 (1955) 1 WLR 1080 referred to Para 34 (2005) 125 Comp. referred to Para 38 Cases 804 (Born. ) 1945 PC 163 (HL) referred to Para 42 1967 SCR 777 referred to Para 53 1995 (3) Suppl.

SCR 702 referred to Para 68 (1999) AC 99 referred to Para 68 1991 (3) SCR 936 referred to Para 68 1985 (2) SCR 643 referred to Para 70 (1971) 1 AC 886 referred to Para 94 [1942] AC 435 referred to Para 94 1992 (1) SCR 481 referred to Para 97, 115 2009 (12) SCR 682 referred to Para 110 2010 (6) SCR 1 referred to Para 110 Per Khehar. J. [with Radhakrishnan, J. concurring] CONCLUSIONS: 1. Was the invitation to subscribe to OFCDs, by SIRECL and SHICL, by way of private placement (as claimed by the appellant-companies), or by way of an invitation to the public (as counter-claimed by the SEBI)? The first perspective: SEBI is statutorily empowered under sections 11 (2)(i) and (ia), as well as, 11 (2A) of the SEBI Act, to call for information. The appellant-companies were, therefore, statutorily obliged to furnish the information sought.

The information sought by SEBI from the appellant-companies, would have led to a firm and clear factual conclusion, whether the OFCDs issued by SIRECL and SHICL were by way of "private placement", or by way of an invitation "to the public". The best legal minds in this country have guided and represented the appellant-companies at all stages, right from the AND EXCH. BOARD OF INDIA beginning. There can therefore be no doubt, that the particulars sought by the SEBI, were not furnished by the appellant-companies, on the basis o(considered legal advice. But then, there are legal consequences, for such considered withholding of information. Based on section 114 of the Indian Evidence Act, and more particularly the s illustrations thereto, SEBI ought to have drawn the obvious presumption against the appellant-companies.

The material sought by the SEBI from the appellantcompanies, thought available with them, must be deemed to have been consciously withheld, as the same if disclosed, would have been unfavourable to the appellant-companies. Details sought by the SEBI from the appellant-companies included particulars of the application forms circulated, the number of application forms received, the amount of subscription deposited, the number and list of allottees, the number of OFCDs issued, the value of their allotment, the date of dispatch of debenture certificates, copies of board/committee meetings, minutes of the meetings during which allotment was approved. The information sought was merely basic, and the denial of the same amounted to a calculated and deliberated denial of the same.

The aforesaid information had been sought, to determine whether the OFCDs issued by SIRECL and SHICL were by way of "private placement" (as claimed by the appellant-companies), or by way of an invitation "to the public" (as counter claimed by the SEBI). Since the appellant-companies willfully avoided to furnish the aforesaid information (which ought to have been readily available with them) to the SEBI, one is constrained to conclude, that if the appellant-companies had furnished the said information, SEBI would have been able to conclude the issue against the appellant-companies, i. e. , that the OFCDs issued by the SIRECL and SHICL, were by way of an invitation "to the public".

[Paras 59, 72] [169-E-F; 180-A-D; 181-E-H; 182-A-D] The second perspective: The appellant-companies have stated, that the invitation/offer of the OFCDs were made to friends, associates, group companies, workers/ employees and other individuals associated/affiliated or connected in any manner with the Sahara India Group of Companies. This description cannot lead to the inference, that the invitation/offer made by SIRECL or SHICL had been made as a matter of domestic arrangement between the persons making/receiving the invitation/offer. As such, the OFCDs in question do not satisfy the requirement under clause (b} of section 67(3). The appellant-companies had invited subscription for their OFCDs through their respective RHPs. The RHPs issued by the two companies clearly expressed, that the subscribers could transfer the same to any other person, subject to the terms and conditions and the approval of 0 the concerned company.

In sum and substance, therefore, the OFCDs/bonds under reference were transferable, whereas, to satisfy the requirement under clause (a) of section 67(3) the shares/debentures should be non-transferable. Clearly, the OFCDs/bonds issued by the appellant-companies did not fall within the scope of clauses (a) or (b) of section 67(3) of the Companies Act. Therefore, per-se the contention of the appellantcompanies, that invitation to subscribers to the OFCDs was by way of "private placement" is unacceptable.

Even if for arguments sake, it is assumed that the OFCDs in question fall in one or the other exempted categories, defined through clauses (a) or (b) of section 67'"1), still in so far as the present controversy is concerned, the same would not constitute an exception to sub-sections (1) and (2) of section 67 of the Companies Act, because the invitation/offer of OFCDs, in the present controversy, was admittedly made to approximately 3 crore persons (expressed as 30 million persons by the SAT in the impugned order dated 18. 10. 2011) and was subscribed to by 66 lakh persons (mentioned as 6. 6 million persons AND EXCH. BOARD OF INDIA in the SEBI (FTM) order dated 23. 6. 2011), in the case of OFCDs issued by the SIRECL. And it may be presumed, that a similar number had subscribed to the OFCDs issued by SHICL.

In case of both the appellantcompanies therefore, the number of subscribers exceeded manifolds, the upper limit of 49, expressed in the first proviso under section 67(3) of the Companies Act. Consequently, even as a matter of law, it is not possible to find favour with the contention advanced at the behest of the appellant-companies, that the OFCDs issued by the SIRECL and SHICL were by of "private placement". It is inevitable therefore, to accept the contention of the SEBI, that the OFCDs issued by the SIRECL and SHICL were by way of an invitation "to the public". [Para 75] [186-C-H; 187-A-F] The third perspective: SAT expressed the opinion, that the appellant-companies did not disclose in their information memorandum, that the invitation/offer to subscribe to the OFCDs was being issued to 3 crore persons (expressed as 30 million persons by the SAT), through 10 lakh agents, stationed in more than 2900 branch offices.

And therefore, the real intent of the appellant-companies remained unnoticed. The aforesaid figures, according to the SAT, were by themselves sufficient to conclude, that the appellant-companies had approached the public through an advertisement, i. e. , by way of an invitation "to the public", and not on "tap" basis (i. e. , by way of "private placement") as was being suggested by the appellant-companies. On the basis of the factual position, there can be no doubt, that SAT was fully justified in drawing its conclusions, by taking into consideration the number of persons to whom the invitation/offer to subscribe to the OFCDs was extended, the number of agents associated by the appellantcompanies to solicit subscriptions and the number of branch offices established for the purpose.

If one were to add to the aforesaid consideration, the number cf subscribers and the amount of subscription collected (all of these numbers have been delineated during the deliberations on the instant issue), the submissions advanced on behalf of the appellant-companies can be visualized as not only unrealistic, but also preposterous. [Paras 76, 78] [187-F-H; 188-A-B; 190-F-H; 191-A] 2. Whether the SAT was justified in ignoring the factual conclusions drawn by the SEBI (FTM) on the basis of the inquiries made by the Investigating Authority, on the ground of violation of the rules of natural justice? Certain factual conclusions drawn by the SEBI (FTM) were omitted from consideration by the SAT, on the basis of the determination by the SAT, that the same had been drawn in violation of the rules of natural justice.

The SAT held, that the facts ascertained on an inquiry made by the Investigating Authority appointed by the SEBI, were liable to be ignored, because the appellant-companies had neither been put to notice, nor their response thereon had been sought. However, in so far as the present controversy is concerned, opportunities were repeatedly provided by SEBI, to the appellant-companies, but they remained adamant and obstinate. Based on one excuse or the other, they declined to furnish the information sought. The appellant-companies did not dispute the factual position (recorded by the SEBI (FTM) from the details furnished by the Investigating Authority) before the SAT. The two companies could have easily done so by providing the details available with them. Even before the SAT, they did not come out with the correct factual position. The material sought by SEBI from the two companies, would have constituted a valid basis to decipher and unravel the true factual position.

To get over the crisis, emerging from the facts discovered by the Investigating Authority, the appellant-companies relied on AND EXCH. BOARD OF INDIA technicalities of law, by canvassing their claim under the rules of natural justice. Numerous opportunities were afforded to them to disclose information available with them, but they choose to shun the liberty. The data available with the appellant-companies was preserved as a closely guarded secret. That position has remained unaltered throughout. A person who has repulsed earlier opportunities (as the appellant-companies have), has no right to demand any further opportunity under the rules of natural justice. The appellant-companies cannot be heard to say, that though they had consciously kept all the facts secret, they should have all the same been given an opportunity under the rules of natural justice to disclose the secrets? A party which has not been fair, cannot demand a right based on a rule founded on fairness.

lnspite of the aforesaid conclusion, it would be 0 wrong to assume that the appellant-companies were remediless. That remedy was, to place the correct factual data, supported by documents in their custody before the adjudicating authorities. That would have certainly enabled SAT, in its appellate jurisdiction, to determine whether the SEBI (FTM) was justified in drawing the factual inferences. The SAT was therefore, wholly unjustified in ignoring the conclusions drawn by the SEBI (FTM), on the basis of inquiries which were got conducted by it, through its Investigating Authority. That is so, specially because there are no allegations of bias, prejudice or malice against either the SEBI or the Investigating Authority. To that extent, the order passed by the SAT cannot be legally sustained. [Paras 79, 81] [191-A-F; 196-A-H; 197-A] 3. Whether OFCDs issued by SIRECL and SHICL which are admittedly "hybrids", are securities?

If not so, whether they would be amenable to the jurisdiction of the. SEBI? The first perspective: Since the definition of term "securities" contained in section 2(45AA) of the Companies Act, expressly includes "hybrids", it is inevitable to conclude, that while interpreting the provisions of Companies Act (including the administrative role assigned to SEBI under section 55A), "hybrids" would be treated as a component of the term "securities". This is so, because the term "securities" defined in section 2(45AA) expressly includes "hybrids". In the aforesaid view of the matter, irrespective of whether "hybrids" are included in the term "securities" under the SEBI Act, while interpreting the provisions of the Companies Act, even with reference to SEBI, "securities" will include "hybrids". Therefore, the term "securities" in section 55A of the Companies Act, even while being examined with reference to the administrative powers assigned to SEBI thereunder, would include "hybrids".

[Para 86] [200-G-H; 201-A-C] The second perspective: The term "hybrid" is not defined under the SEBI Act, and consequently it may be appropriate to accept the same, as it has been defined in the Companies Act, specially with reference to an issue arising in respect of a public company. The term "hybrid" as defined in the Companies Act means "any security" having "the character of more than one type of security" and "includes their derivatives". For the purposes of the SEBI Act, the term "securities" is accepted as it is defined in section 2(h) of the SC(R) Act. Section 2(h) of the SC(R) Act does not define the term "securities" exhaustively, because clauses (i) to (iia) thereof, only demonstrate what may be treated as included in the definition of the term "securities". And, clause (i) of section 2(h) of the SC(R) Act, includes within the definition of the term "securities" inter alia, "bonds", "debentures" and "other marketable securities of a like nature".

Since the term "hybrid" has been expressed as " ... means any AND EXCH. BOARD OF INDIA security... " there can be no doubt that a "hybrid" is perse a security. Moreover, the term "security" in its definition includes " ... other marketable securities of a like nature... ". Therefore, even if for one or the other reason, the OFCDs issued by the appellant-companies may not strictly fall within the terms "debentures" or "bonds" (referred to in the definition of the term "securities") they would nonetheless fall within the ambit of the expression "securities of a like nature". The definition of the term "hybrid" also explains that a "hybrid" has the character of more than one kind of "security" or their "derivatives". The term "securities" also includes "derivatives". Therefore, even if the definition of the term "hybrid" is construed strictly, it would fall in the realm of "securities of a like nature".

And if, "securities of a like nature" are "marketable", they would clearly fall within the expanse 0 of the term "securities" defined in section 2(h) of the SC(R) Act (and therefore also, section 2(1)(i) of the SEBI Act). The OFCDs/bonds issued by appellant-companies were also clearly marketable, because the RHPs issued by the two companies provided, that the subscribers would be at liberty to transfer the OFCDs/bonds, to any other person. Although, the transfer of OFCDs/bonds was to be subject to the terms and conditions prescribed, and the approval of the appellant-companies. In the absence of any prescribed terms and conditions barring transfer, the OFCDs/bonds were clearly transferable, and therefore, "marketable". The term "marketable" simply means, that which is capable of being sold. Allowing the liberty to subscribers to transfer the OFCDs/bonds made them "marketable".

There is therefore, no room for any doubt, that the term "hybrid", as defined in the Companies Act, would squarely fall within the term "securities" as defined under section 2(1) (i) of the SEBI Act (i. e. , Section 2(h) of the SC(R) Act). In view of the above it is clear, that "hybrids" are included within the term "securities" not only for the purposes of Companies Act, but also, under the SEBI Act. SEBI therefore, would have jurisdiction even over "hybrids", even under the provisions of the SEBI Act. [Paras 87, 88) [201-F; 202-A- C-D-H; 203-A-E] 4. Whether it is optional for a public company, intending to offer shares or debentures to the public, to have the same listed on a recognized stock exchange (as is claimed by the appellant-companies) or is it mandatory (as is being asserted by, the SEBI)? The appellant-companies invited subscriptions, by making an offer "to the public".

Since the invitation/offer was made "to the public", the same could only have been through one or more recognized stock exchange(s). Once a public company adopts that course, which is actually a mandate of law emerging from section 73 of the Companies Act, the concerned companies portfolio changes that to a "listed" public company. So listing in the present controversy was an inevitable consequence of inviting subscriptions from the public. There can therefore be no hesitation to conclude, that the procedure contemplated in section 73 of the Companies Act, whenever a public company wishes to issue debentures "to the public", is not optional but mandatory. The result of the present deliberations based on a collective reading of section 608 and section 73 of the Companies Act is, that a public company making an invitation/offer "to the public" can do so only by a process of listing in one or more recognized stock exchange(s).

The aforesaid mandate of law is imperative and cannot be relaxed at the discretion of the concerned public company. The requirement of "listing" automatically brings in the jurisdiction of the SEBI, as it transforms a "public company" into a "listed public company". [Paras 95, 96) [214-D-H; 215-A-B] 5. Whether SEBI had the jurisdiction to regulate the AND EXCH. BOARD OF INDIA. OFCDs issued by SIRECL and SHICL (as is the case of the SEBI), or is it that SEBI has no jurisdiction over the OFCDs issued by the two companies (as is the case of appellant-companies)? The first perspective: Clause (b) of section 55A of the Companies Act uses the term "intend". And what is "intended" is a matter of the mind. Therefore, unless actions speak for themselves, no presumption can be drawn on the "intent" of a party.

"Intent" as one commonly understands is something aimed at or wished as a goal; it is something that one resolves to do; it is a will to achieve as an end; it is a direction as one's course; it is planning towards something to be brought about; it is something that an individual fixes the mind upon; it is a design for a particular purpose. When a party expresses its design repeatedly in writing, as it is the case of the appellant-companies, no contrary assumption should normally be drawn. The appellant-companies must be deemed to have "intended" to get their securities listed on a recognized stock exchange, because they could only then be considered to have proceeded legally. That being the mandate of law, it cannot be presumed that the appellant-companies could have "intended", what was contrary to the mandatory requirement of law.

There can therefore, be no hesitation in concluding, that inspite of the observations recorded by the appellant-companies in writing, including in the RHPs issued by them, as also the registration of the said RHPs by the respective Registrars of Companies, the said companies must be deemed to satisfy the requirements of clause (b) of section 55A of the Companies Act. The obvious consequence thereof would be, that the power of administration in the present set of circumstances lies in the hands of the SEBI. [Para 98] [217-A-C; 218-A-E] The second perspective: Extensive powers have been vested with the SEBI to issue directions and to make investigations. The power vested with SEBI, is not limited in any manner, and shall therefore, be deemed to extend to both "listed" and "unlisted" public companies.

From a collective perusal of sections 11, 11A, 11 B and 11C of the SEBI Act, the conclusions drawn by the SAT, that on the subject of regulating the securities market and protecting interest of investors in securities, the SEBI Act is a stand alone enactment, and the SEBl's powers thereunder are not fettered by any other law including the Companies Act, is fully justified. In fact the aforesaid justification was rendered absolute, by the addition of section SSA in the Companies Act, whereby, administrative authority on the subjects relating to "issue and transfer of securities and non payment of dividend" which was earlier vested in the Central Government 0 (Tribunal or Registrar of Companies), came to be exclusively transferred to the SEBI. There seems no ambiguity that the SEBI has the jurisdiction to regulate and administer SIRECL and SHICL. [Paras 106, 107 and 108] [242-F-H; 243-A-C] 6.

Whether it was a pre-planned attempt of SIRECL and SHICL, to bypass the regulatory (and administrative) authority of SEBI in respect of OFCDs/ bonds issued by. them? The first perspective: It is apparent, that in the declaration made by the two companies, they had clearly avoided references to the SEBI and accordingly circumvented adherence to the provisions of the SEBI Act, rules and guidelines. The appellant-companies have likewise avoided, the provisions of the Companies Act (which are under the administrative control of the SEBI), as is apparent from the deliberations recorded. Even though it is not possible for one to record a clear finding, whether or not the declaration under reference was altered with a pre-planned intention to bypass the AND EXCH. BOARD OF INDIA regulatory and administrative authority of SEBI, there can be no hesitation to recording, that it certainly seems so.

[Para 111] [248-E-G] The second perspective: There was no justification whatsoever for circulating an "information 8 memorandum" after SIRECL had already issued a RHP. The procedure adopted by the appellant-companies is obviously topsy turvy and contrary to the recognized norms in company affairs. All tltis makes the entire approach of the appellant-companies calculated and crafty. It is clearly apparent, that the appellant-companies had clearly taken upon themselves to tread a path different from the mandate of law delineated under the Companies Act. [Para 113) [249-G-H; 250-A-B] The third perspective: Independently of the interaction of the appellant-companies with SEBI, from letters written by SIRECL in January, 2011, it was concluded by the SEBI (FTM), that the company was seeking professional services to collect and compile data pertaining to the OFCDs issued by it.

Since the subscription to the OFCDs under reference commenced in March, 2008, the same raised suspicious about the genuineness and the bonafides of the appellantcompanies. Surely the suspicion was well placed. This itself is sufficient to conclude, that the whole affair was doubtful, dubious and questionable. The consequence thereof, if correct, would be shocking. [Para 114) [251-E- H] There can therefore be no hesitation in accepting, that on all three perspectives raised at the behest of the SEBI, to demonstrate that there was a pre-planned attempt at the hands of the SIRECL and SHICL, to bypass the regulatory and administrative authority of the SEBI, does seem to be real. One can only hope, it is not so. But there may be no real subscribers for the OFCDs issued by the SIRECL or SHICL. Or alternatively, there may be an intermix of real and fictitious subscribers.

The issue that would emerge in the aforesaid situation would be, how the subscription amount collected, should be dealt with, specially when the impugned orders passed by the SEBI, SAT are to be affirmed. Even though it is hoped that all the subscribers are genuine, and so also, the subscription amount, it would be necessary to modify the operative part of the order issued by the SEBI which came to be endorsed by the SAT, so that the purpose of law is not only satisfied but is also enforced. [Para 115) [252-A-D] Per Order of the Court On facts as well as on law, no illegality is found in the proceedings initiated by SEBI as well as in the order passed by SEBI (WTM) dated 23. 6. 2011 and SAT dated 18. 10. 2011 and they are accordingly upheld. The order passed by this Court in C. A. No. 9813 of 2011 filed by SIREC and in C. A. No. 9833 of 2011 filed by SHICL, praying for extending the time for refund of the amount of Rs.

17,400 crores, as ordered by SAT, stands vacated and consequently the entire amount, including the amount mentioned above will have to be refunded by Saharas with 15% interest. Directions are being issued in modification of the directions issued by SEBI (WTM) which was endorsed by SAT. [Para 111) [252-E-G] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9813 of 2011. From the Judgment and Order dated 18. 10. 2011 of the Securities Appellate Tribunal in Appeal No. 131 of 2011. WITH Civil Appeal No. 9833 of 2011. AND EXCH. BOARD OF INDIA F. S. Nariman, Gopal Subramanium, Subhash Chand Sharma, Gaurav Kejriwal, Keshav Mohan, Amit Pathak, Vandana Jalan, Nishit Agarwal, Ajit Sharma, Satish Kishanchandani, Jatin Pore, Tanu Banerjee, D. Mohta, Mit Chowdhury for the Appellants. Arvind P. Datar, Pratap Venugopal, Surekha Raman, Varun Singh, Purushottam Jha, K. J. John & Co. , Gagan Gupta, Maneesha Dhir, Apoorve Karol, Megha Nagpal, Chirag Kher, Mitho Jain, B. V.

Bairam Das, Supriya Jain, Pranav Sachdeva (For Prashant Bhushan) for the Respondents. The Judgments and Order of the Court was delivered by 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 cif 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/ AND EXCH. BOARD or INDIA [KS. RADHAKRISHNAN, J. ] affiliated or connected in any manner with Sahara Group, would be eligible to apply. Further, it was also slated 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 activlfieslprojects taken up by the company within or apart from the j!. bove 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 p"Ojecls, namely, eslablishingi'constructing the bridges, modernizing or selling 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 o generation and transmission and that the proceeds of lhe 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 lime. SIRECL, under Section 608 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 JM along with the application forms to its so called friends, associated group companies, workers/ employees and other ! ndividua! s 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 (OFCO) 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 lts equity shares nor any of the bonds/debentures are listed or proposed to be listed. Ihi§. issue is ourely on the private placemen!

basis and the companv 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 0 OFCO's Issued by Sahara India Real Estate Corporation limited. The Memorandum for Private Placement is in~nded to form the basis of evaluation for the investors to whom it is addressed and who are willing and eligible to subscribe to these QFCD'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 OFCO'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-1, 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: SAHARAINDIAREAL ESTAlE CORP. LTD. v. SECURITTES 27 AND EXCH. BOARD OF INOIA [KS. RADl-Ll\KRISHNAN, J. J 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 Rs. 15,530/- Rs. 15,254/- Rs. 7,728/- Value. .. Early After 60 NIL After 18 Redemption months months Conversion On completion On completion On of 120 months completion of completion 60 months of48 months • Minimum Rs. 5,000/-, Rs. 12,000/- Rs. 5,000/- Application . .

Size Nominee Double Double Double System Nominee Nominee Nominee · Transfer Yo• Yo• Yo• 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 B _from 2,21,07,271 investors.. 8.

'SHICL, a membei- of Sahara Group c0mpanies. 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 lo 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. SEBJ then addressed a letter dated 12. 1. 2010 to Enam Secorilies 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 RulesJRegulationsJGuidelines Issued by RBl/MCA/NHB. Merchant Banker [Jn! a reply dated 29. 1. 2010 stating that S! RECL and SHICL were not registered with any stock exchange and were not subjected lo any rule I regulation I guidelines I notification I directions framed thereunder and the issuance of OFCDs were in compliance with the applicable SAHARA lNDIA REAL ESTATE CORP. LID. v. SECURITlES 29 AND EXCH. BOARD OF ! NOIA [K. S. RADHAKRISHNAN, J. } laws.

Following the above, another letter dated 26. 2. 2010 was also sent by the Merchant Banker to SEBI staling that SIRECL and SHJCL 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, ll 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 wfth RoC, Maharashtra. 10. SEBI on 21. 4. 2010 addressed a letter to the R. egional Director, Northern and Western Regions of Ministry OT 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 0 statutory requirements and that they were not listed companies and had not filed the RHP with SEBI. SEBI sent 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 wi1h RoC, deta~s regardng 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 Acl 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 addres! ' SEBt after a decision was taken by MCA.

Having not received the 1 details cal ed for from Saharas, SEBI had prima facie fell that SlRECL 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 fumish the requisite information by 15. 92010. 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 608 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 608 with the ~ncemed RoC.

Further, II was pointed out that SIRECL was not a listed company, nor did ii intend to get its securities listed on any recognized stock exchange in 1ndia 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 0 to the unlisted company would fall under the administration of the Central Government or RoC. Further, it was urged that Regulati6ns 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 JCDR 2009. Company had stated that Issuance of OFCDs of 2008 was also not covered by the SEBl ~ (Issue and Listing Securities) Regulations, 2008, since ii would apply to non-convertible debt securities, whereas the OFCDs issued by SIRECL were convertible securities. SJRECL, 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 ' -- - . ' , -. - SAHi\RA INDIA REAL ESTATE CORP. LTD. v. SECURITIES 31 AND EXCH. BOARD OF INDIA [K. S. RADl-W<RISHNAN, J.

J 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 lhe information within 15 days from the date of receipt of notice, failing which it was infonned that penal action would be initialed 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. 92010 to SIRECL reminding that it had not provided information{ documents on the issue of OFCOs. Proceeding issued for appointing the investigating agency was also fOIWSrded 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 608(9) of the Companies Act, staling 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 satisfactol)'. 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 608(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 Guidel.. 1es 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 of2010, which the Court had stayed on 13. 12. 2010. SEBI took up the matter before this Court in S. L. P. (Civil) No. 364450f 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 lo 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, ii was stated, had sent a password protected CO along with two separate sheets containing the procedure and the password to SEBI; the C[1 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 ' -~-~------ AND EXCH. BOARD OF INDIA [KS. RADHAKRJSHNAN, J. ] 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. SlRECL, in the meanwhile, claimed that it had furnished a separate CD along with the password vide letter dated 19. 4. 2011 to SEBl stating that due to the enormity of the work and lime taken in collati'lg and COfllliling 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 manr. er in which Investments are called for are very important questions. SEBI, being the custodian of the lnvestofs and as an expert body, should examine these questions apart from other issues. Before we pass further orders, we want SEBl 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 SEBl 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 ii so chooses, to dispose of the case at the earliest. " 18. SEBI then issued a fresh notice dated 20. 5. 2011 staling that Saharas had not provided any lnfcrmation to SEBI regarding details of its investors to show that the offer of OFCDs was made to less than fifty persons. Further, ii was pointed out that Saharas though claimed, that the offer/issue was made on private placement basis, any offer/issue lo fifty or more persons would be treated as public lssuefoffer 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 Gukle-lines and ICDR 2009 would consequenUy apply. Further, ii 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 pubf1c through the RHP was Illegal. Further, it was stated that norie 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 0 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 thefr debentures ln a recognized stock exchange. Further, II 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, 1179 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 da! ed 20. 5. 2011 also highl! ghted 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 wfth 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 SAHARA lNDIA REAL ESTATE CORP. LTD. v. SECURITTES _ 35 ANO EXCH. BOARD OF INDIA [KS. RADHAKRlSHNAN, J.

J 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 secur1lies 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)(9), 11A(1)(b) and 118 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 j'. lersons who were associated with Sahara Group and those issues were not public issues.

Further, ii was also urged that OFCDs issued were ln 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 A¢. SCR Act etc. Further, it was also urged that such hybrids were issued In terms of Section 608 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 lCDR 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 Roe.

Kanpur and Maharashtra had registered those RHPs without any demur and, therefore, It was unnecessary to send ii to SEBl. . 21. SEBI passed its final order through its whole-time member (WTM) on 23. 6. 2011. SEBl 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 OFCOs 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 OFCOs 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. 0 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, 1178 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 of2011 before the Tribunal and the Tribunal passed a common order on 18. 10. 2011. Before'the Tribunal, Unloo of India, represented through the Ministry of Company Affairs, was impleaded. The SAHARA INOIA REAL ESTATE CORP. l TD. v. SECURITIES 37 ANO EXCH. BOARD OF ! NOIA {KS. RA[)l-l. GJ{RISHNAN, J. ] Tribunal took the view that OFCOs 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 SlRECL was registered by the RoC on 18. 3.

2008, though information memorandum (IM) was issued later in April 2008 ln clear vio! aUon of Secllon 608 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 s.. bscribe to the OFCDs which amounted to invitation to public. Tribunal also found fault with the RQC as ii had failed to forward the draft RHP lt'I 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 SSA 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 SSA has to be read harmoniously, and if so read, clearty 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 SEBl has jurisdiction· under Section SSA{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 SEBl had ample powers under Sections 11, 11A and 118 of the SEBI Act to issue directions lo.

refund the amounts to the investors with interest. Aggrieved by the said order, SIRECL filed CA. No. 9813 of 2011 and SHICL filed CA 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 lo 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: 0 (a) Application ofthefurxls, 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 lo secure the 1'1ab'iities which the Companies have incurred and how they will protect the debenture holders; G. (e) If returns have been filed under Income Tax Act, 1961, the same may be annexed lo the Affidavit lo be filed. " 25. Civil Appeals later came for admission on 9. 1. 2012 and the interim order granted was extended. As directed, AND EXCH. BOARD OF INDIA [K. S. RADHAKRISHNAN, J. ) 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 commencement of issue of issue Total amount Rs. 19,400. 87 Total amount Rs. 6,380. 5( collected till Crs collected till Crs April 13, 2011 April 13, 2011 Total Rs. 25,781. 37 Crs. Less: Premature Rs. 1,744. 34 Less: Prematun Rs. 7. 30 Crs redemption Crs (11. 78 redemption (5,306 lakh investors) investors) Total Rs. 1,751. 64 (11. 78 Lakh investors) Balance on Rs. 17,656. 53 Balance on Rs. 6,373. 20 August 31, 2011 Crs August 31, 2011 Crs Total Rs. 24,029. 73 Crs. Total no. of investors Total till Balance Total till Balance April 13, as on April 13, on August 2011 (in August 2011 (in 31,2011 lakhs) 31,2011 Lakhs) (in Lakhs) (in lakhs) Abode Bond 70. 94 70. 65 Income 1. 45 1. 44 Bond - Nirman Bond 25. 44 14. 12 Multiple 30. 46 30. 45 Bond Bond Real Estate 136. 47 136. 3 Housing 43. 23 43. 19 Bond Bond Total 232. 85 221. 0i ToF. 11 75. 14 75. 08 Total till Balance as April 13, on 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, o 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 th€ Companies Act.

Learned senior counsel also pointed out that Sections 11, 11A and 11 B 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 AND EXCH. BOARD OF INDIA [K. S. RADHAKRISHNAN, J. ] S6, 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 SSA 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 nonpayment 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 608 in Section SSA which, according to the senior counsel, indicates that SEBI cannot administer in case of any violation of Section 608. Even otherwise, learned senior counsel submitted that, as a matter of legislative drafting, Section 608 could not have been intended to be included in the parenthetical clause and, therefore, could not be said to be covered by Section SSA.

Learned senior counsel also submitted that even if Section 608 falls in between under Sections S9 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 SSA(b) of the Act. Learned senior counsel also referred to Section 608(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 (Preferentiai Allotment) Rules, 2003 (for short '2003 Rules') and submitted that unlisted publ.. ; companies, for the first time, could make preferential allotment through private placement pursuant to a special resolution passed under Subsection (1A) of Section 81 of the Companies Act, if authorized by its Article of Association. Section 608, 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 SSA(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 holdi~g 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 . AND EXCH. BOARD OF INDIA [K. S. RADHAKRISHNAN, J. ] 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,