SUPREME COURT OF INDIA
Sahara India Real Estate Corprn. Ltd.
v/s.
Securities and Exchange Board of India
CIVIL APPEAL NOs. 9813 and 9833 OF 2011
August 31, 2012
JUDGMENT
K.S. Radhakrishnan, J.
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 allotted 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 allotted 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:
