New Delhi, Aug. 31: The Supreme Court today ordered two unlisted Sahara group companies to pay back Rs 17,400 crore to about 29.6 million small investors within the next three months with interest at 15 per cent a year.
At $3 billion, this is India’s — and probably the world’s — biggest disgorgement after a controversial security flotation.
The verdict marked the culmination of a two-and-a-half-year battle that market regulator Sebi has waged against the Sahara group on the charge of violating rules that govern how companies can raise money from the public.
Justices K.S. Radhakrishnan and J.S. Kehar said “there was a pre-planned attempt to bypass the regulatory and administrative authority of Sebi”, adding that their ruling demonstrated that economic offences must be treated with an “iron hand”.
The crux of the battle was over Sebi’s right to regulate the affairs of the two unlisted entities. The court ruled that “companies have no option or choice but to list their securities on a recognised stock exchange once they invite subscription from over 49 investors from the public.” This means the securities will come under the purview as soon as a company’s investor base crosses 49.
The Sahara verdict sets new ground rules for companies planning to raise money from the public as it settles ambiguities in company law that have persisted for years.
The two Sahara companies’ investor base (29.6 million) dwarfs the combined shareholder base of India’s largest private company — Reliance Industries (3.4 million), the Tata group (3.8 million) and the Anil Ambani group (12 million).
If the two companies — Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara Housing Investment Corporation (SHICL) — fail to refund the amount, the court said Sebi could attach the properties and freeze the bank accounts of the two entities.
The court appointed one of its retired judges — Justice B.N. Agarwal — to oversee the action taken by Sebi.
The two entities were directed to furnish all details about the fund-raising exercise that began in April 2008, along with supporting documents, within 10 days. Sebi’s whole-time member will trawl the database to “examine the correctness of the details furnished”, the court said.
This will establish if the 30.8 million investors (the base has since shrunk because of repayments and refunds) who pumped just over Rs 24,029.73 crore in the optionally fully convertible debentures floated by the two Sahara group companies were genuine.
If the documents are not acceptable, the Sebi official has been instructed to proceed “as if the Sahara entities had not refunded any amount to the real and genuine subscribers”.
The court said if the whereabouts of any of the subscribers is not established, the amount collected from them would go to the government.
The Sahara group contended the two issues were just private placements with “friends, associates, group companies, employees and individuals associated with the Sahara group companies”.
But the court said “it is clear that their intention was to issue securities to the public under the garb of private placement”.
In an emotional reaction to the verdict, the Sahara group said that in the past seven to eight years, it had been facing the onslaught from various authorities who “concluded whimsically” that the investment received from the public are fictitious and was “ill-gotten from politicians”. It challenged the authorities to verify the authenticity of its depositors and investors.
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