Issues Settled by Supreme Court in Sahara Matter

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Issues decided by Supreme Court in Sahara Matter.:

Issues decided by Supreme Court in Sahara Matter.

Definition of Securities:

Definition of Securities “Hybrid" instruments, is a "Security" within the meaning of Companies Act, SEBI Act and SCRA. The definition of "Securities" under section 2(h) of SCRA does not contain the term "hybrid instruments", however the definition as provided in the Act is an inclusive one and covers all "Marketable securities". In case of Sahara, OFCDs were offered to 3 crores of persons which amounts to marketability of such instrument. The name of instrument itself contains the term "Debenture", therefore it is deemed to be a security as per the provisions of Companies Act, SEBI Act and SCRA.

Whether SEBI has jurisdiction to investigate and to adjudicate:

Whether SEBI has jurisdiction to investigate and to adjudicate Supreme Court observed that SEBI has powers to adjudicate upon the matter. Supreme Court observed that under Section 55A of the Companies Act there is delegation of special powers to SEBI in matters of issue, allotment and transfer of securities .

Whether issue of OFCDs to 3 million investor private placement.:

Whether issue of OFCDs to 3 million investor private placement . The securities were offered to more than 50 persons. Section 67(3) specifically mentions that when any security is offered to and subscribed by more than 50 persons it will be deemed to be a Public Offer and therefore SEBI will have jurisdiction in the matter and the issuer will have to comply with the various provisions of the legal framework for a public issue. Sahara argued that they are exempted under the provisos to Sec 67 (3) since the Information memorandum specifically mentioned that the OFCDs were issued only to those related to the Sahara Group and there was no public offer, the Supreme Court however did not find any merit in the argument. The Supreme Court observed as the companies elicited public demand for the OFCDs through issue of Information Memorandum under Section 60B of the Companies Act, which is only meant for Public Issues and that since introducers were needed for someone to subscribe to the OFCDs, it is clear that the issue was not meant for persons related or associated with the Sahara Group. Supreme Court concluded that the actions and intentions on the part of the two companies clearly show that they wanted to issue securities to the public in the disguise of a private placement to bypass the various laws and regulations.

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By: Geeta Gulati Partner Universal - Legal

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