SECURITIES AND EXCHANGE BOARD OF INDIA
Sahara India Real Estate Corporation Ltd., In re
PRASHANT SARAN, WHOLE TIME MEMBER
WTM/PS/32/SEC/FEB/2013
FEBRUARY 13, 2013
ORDER
1. SIRECL had issued Optional Fully Convertible Debentures [hereinafter called “the OFCDs”] to the tune of Rs. 19,400 crores approximately as on 13.04.2011 (as mentioned in SIRECL’s affidavit dated 4.01.2012 filed before the Hon’ble Supreme Court). As various illegalities were committed in the issuance of the OFCDs, the Securities and Exchange Board of India [hereinafter “SEBI [WTM”] initiated proceedings against SIRECL and upon conclusion of the same, the SEBI [WTM] found that SHICL and SIRECL contravened, inter alia, the provisions of the Companies Act, 1956 and SEBI Act, 1992 apart from the Regulations framed and Guidelines issued under the latter Act and by its order dated 23.06.2011 directed SIRECL to refund the money collected under the Red Herring Prospectus (RHP) to all such investors who had subscribed to their OFCDs, with interest.
2. Shri Ashok Roy Choudhary, Shri Ravi Shankar Dubey and Ms. Vandana Bhargava are the directors of SIRECL and Shri Subrata Roy Sahara is the promoter and holds 70% shares in SIRECL as well as SHICL. These directors and Shri Subrata Roy Sahara were also made jointly and severally liable to refund the said money collected, through the RHP, from the investors.
3. The said order was confirmed by Securities Appellate Tribunal [hereinafter referred to as “SAT”] in appeal on 18.10.2011. The appeals filed by the SIRECL and SHICL were dismissed by the Hon’ble Supreme Court, by its order dated 31.08.2012, recording a categorical finding that there was no illegality in the proceeding initiated by SEBI as well as in the aforesaid order passed by SEBI [WTM] and as upheld by SAT. However, the Hon’ble Supreme Court modified the directions given by SEBI [WTM] and endorsed by SAT and passed the following directions:
“1. Saharas (SIRECL & SHICL) would refund the amounts collected through RHPs dated 13.3.2008 and 16.10.2009 along with interest @ 15% per annum to SEBI from the date of receipt of the subscription amount till the date of repayment, within a period of three months from today, which shall be deposited in a Nationalized Bank bearing maximum rate of interest.
2. Saharas are also directed to furnish the details with supporting documents to establish whether they had refunded any amount to the persons who had subscribed through RHPs dated 13.3.2008 and 16.10.2009 within a period of 10 (ten) days from the pronouncement of this order and it is for the SEBI (WTM) to examine the correctness of the details furnished.
3. We make it clear that if the documents produced by Saharas are not found genuine or acceptable, then the SEBI (WTM) would proceed as if the Saharas had not refunded any amount to the real and genuine subscribers who had invested money through RHPs dated 13.3.2008 and 16.10.2009.
4. Saharas are directed to furnish all documents in their custody, particularly, the application forms submitted by subscribers, the approval and allotment of bonds and all other documents to SEBI so as to enable it to ascertain the genuineness of the subscribers as well as the amounts deposited, within a period of 10 (ten) days from the date of pronouncement of this order.
5. SEBI (WTM) shall have the liberty to engage Investigating Officers, experts in Finance and Accounts and other supporting staff to carry out directions and the expenses for the same will be borne by Saharas and be paid to SEBI.
6. SEBI (WTM) shall take steps with the aid and assistance of Investigating Authorities/Experts in Finance and Accounts and other supporting staff to examine the documents produced by Saharas so as to ascertain their genuineness and after having ascertained the same, they shall identify subscribers who had invested the money on the basis of RHPs dated 13.3.2008 and 16.10.2009 and refund the amount to them with interest on their production of relevant documents evidencing payments and after counter checking the records produced by Saharas.
7. SEBI (WTM), in the event of finding that the genuineness of the subscribers is doubtful, an opportunity shall be afforded to Saharas to satisfactorily establish the same as being legitimate and valid. It shall be open to the Saharas, in such an eventuality to associate the concerned subscribers to establish their claims. The decision of SEBI (WTM) in this behalf will be final and binding on Saharas as well as the subscribers.
8. SEBI (WTM) if, after the verification of the details furnished, is unable to find out the whereabouts of all or any of the subscribers, then the amount collected from such subscribers will be appropriated to the Government of India.
9. We also appoint Mr. Justice B.N. Agrawal, a retired Judge of this Court to oversee whether directions issued by this Court are properly and effectively complied with by the SEBI (WTM) from the date of this order. Mr. Justice B.N. Agrawal would also oversee the entire steps adopted by SEBI (WTM) and other officials for the effective and proper implementation of the directions issued by this Court. We fix an amount of Rs.5 lakhs towards the monthly remuneration payable to Mr. Justice B.N. Agrawal, this will be in addition to travelling, accommodation and other expenses, commensurate with the status of the office held by Justice B.N. Agrawal, which shall be borne SEBI and recoverable from Saharas. Mr. Justice B.N. Agrawal is requested to take up this assignment without affecting his other engagements. We also order that all administrative expenses including the payment to the additional staff and experts, etc. would be borne by Saharas.
10. We also make it clear that if Saharas fail to comply with these directions and do not effect refund of money as directed, SEBI can take recourse to all legal remedies, including attachment and sale of properties, freezing of bank accounts etc. for realizations of the amounts.
11. We also direct SEBI (WTM) to submit a status report, duly approved by Mr. Justice B.N. Agrawal, as expeditiously as possible, and also permit SEBI (WTM) to seek further directions from this Court, as and when, found necessary.”
4. SIRECL failed to comply with direction no. 4 aforementioned as it did not submit any of the documents enumerated thereunder to SEBI within the period of 10 days as required under the said direction to enable SEBI [WTM] to ascertain the genuineness of the subscribers as well as the amounts deposited. Under direction No. 6, SEBI [WTM] was required to verify the genuineness of the subscribers and the amount deposited by them with the aid and assistance of the persons enumerated thereunder in case the documents would have been submitted in accordance with direction no. 4. According to direction no. 7, if upon verification of the documents aforementioned, SEBI [WTM] found that the genuineness of the subscribers was doubtful, he was required to give an opportunity to SIRECL to establish their genuineness. Under direction no. 8, in case the SEBI [WTM], after verification of the details furnished, was unable to find out the whereabouts of all or any of the subscribers, then the amounts collected from such subscribers were liable to be appropriated to the Government of India. As mentioned above, no documents were furnished by SIRECL within the stipulated 10 days period.
5. In the common order dated 31.08.2012, direction no. 2 required SIRECL to furnish details with supporting documents to establish as to whether SIRECL (and SHICL) had refunded any amount, within 10 days i.e. by 10.09.2012. This direction was not complied with. By an order dated 5.12.2012, the Hon’ble Supreme Court granted 15 days to SIRECL (and SHICL) to furnish documents pertaining to refunds made. SIRECL (and SHICL) submitted documents in 127 trucks which even according to them contained only 75% of the entire documents required to be submitted. Despite SEBI setting out the manner in which the documents should be furnished, the documents that were delivered to SEBI were found to have been hopelessly mixed up whereby the application forms and the redemption vouchers appear to have been deliberately separated. This was also noted in the third status report filed by SEBI [WTM] and duly approved by Hon’ble Justice B.N. Aggarwal Direction 3 states that if the documents are not found to be genuine or acceptable then SEBI [WTM] would proceed as if Saharas had not refunded any amount to the real and genuine subscribers who had invested money through RHPs dated 13.3.2008 and 16.10.2009. Since, the documents are not furnished in the manner prescribed by SEBI and further they have been hopelessly mixed up making it virtually impossible to correlate the debenture holders and the redemption vouchers. The documents are, therefore, not acceptable and direction no. 3 shall apply accordingly.
6. SIRECL and SHICL also did not comply with the directions issued by the Supreme Court in its order dated 31.08.2012 for making the deposit on or before 30.11.2012. Just before this date they filed Appeal No. 221 of 2012 before SAT and that Appeal was dismissed on 29.11.2012. Against this order, SIRECL and SHICL filed an Appeal being CA No. 8643 of 2012 before the Hon’ble Supreme Court of India.
7. The said Appeal was disposed by the Hon’ble Court on 05.12.2012 with the following directions:-
“(I) The appellants shall immediately hand over the Demand Drafts, which they have produced in Court, to SEBI, for a total sum of Rs. 5120/- Crores and deposit the balance in terms of the order of 31st August, 2012, namely, Rs. 17,400/- Crores and the entire amount, including the amount mentioned above, together with interest at the rate of 15 per cent, per annum, with SEBI, in two installments. The first installment of Rs. 10,000/-Crores, shall be deposited with SEBI within the first week of January, 2013. The remaining balance, along with the interest, as calculated, shall be deposited within the first week of February, 2013. The time for filing documents in support of the refunds made to any person, as claimed by the appellants, is extended by a period of 15 days. On receipt of the said documents, SEBI shall implement the directions contained in the order passed on 31st August, 2012. In default of deposit of the said documents within the stipulated period, or in the event of default of deposit of either of the two installments, the directions contained in paragraph 10 of the aforesaid order dated 31st August, 2012, shall immediately come into effect and SEBI will be entitled to take all legal remedies, including attachment and sale of properties, freezing of bank accounts etc. for relisation of the balance dues.”
8. Thus, on a combined reading of the two orders of the Hon’ble Supreme Court, it is clear that the amounts that were to be refunded to the investors should have been deposited as per the following directions in the order dated 05.12.2012 passed by this Court:-
i. A sum of Rs. 5120 crores by way of a demand drafts [which were produced in court] were to be handed over immediately to SEBI
ii. The first instalment of Rs. 10,000 crores to be deposited within 1st week of January, 2013; and
iii. Remaining balance, along with interest to be deposited within 1st week of February, 2013.
9. SIRECL has neither paid the amounts on or before 30.11.2012, as required in terms of order dated 31.08.2012, nor did they pay the first and second installments mentioned above and, therefore, has failed to comply with the orders of the Hon’ble Supreme Court in CA Nos. 9813 and 9833 of 2011 and 8643 of 2012. SIRECL has also failed to comply with direction nos. 2 and 4 contained in the order dated 31.08.2012, as stated above. Consequently, SEBI is constrained to take necessary action by passing this order in terms of direction No. 10 contained in the order dated 31.08.2012 passed by the Hon’ble Supreme Court and reiterated in the order dated 05.12.2012 for attachment and sale of properties and freezing of bank accounts, etc.
10. It may be noted that against the order of SAT passed on 18.10.2011, C. A. Nos. 9813 of 2011 and 9833 of 2011 were filed by SIRECL and SHICL before the Hon’ble Supreme Court wherein by an order dated 28.11.2011, the Hon’ble Supreme Court noted that SIRECL had been directed to refund Rs. 17,400 crores approximately on or before 28.11.2011. The amount to be refunded by Sahara Housing Investment Corporation Ltd. was Rs. 6843 crores against whom a separate order is being passed. In the same order dated 28.11.2011, the Hon’ble Supreme Court extended the period for refund upto 09.01.2012″. At the same time, SIRECL and SHICL were directed to put on affidavit the following information:-
“(a) Application of the funds, which they have collected from the Depositors;
(b) Networth of the Companies which have received these deposits;
(c) Particulars of assets of the said Companies against which the liability has been created. For that purpose, the appellants will produce the requisite financial statements consisting of the Balance Sheet and Profit and Loss Account of the year ending 31st March, 2011 and the Statement of Account upto 30th November, 2011;
(d) The Affidavit will indicate how the said Companies seeks to secure the liabilities which the Companies have incurred and how they will protect the debentureholders;
(e) If Returns have been filed under Income Tax Act, 1961, the same may be annexed to the Affidavit to be filed.”
11. In pursuance of these directions, SIRECL filed an affidavit before the Hon’ble Supreme Court on 04.01.2012 which stated that the total amounts collected upto 13.04.2011 was Rs. 19,400 crores through three types of bonds. After taking into account, the premature redemptions on account of death and unsecured loans, a sum of Rs. 17,051 crores was stated to have been invested in the following manner: –
TABLE – A
