Appeal No. 131 of 2011. Case: 1. Sahara India Real Estate Corporation Limited (formerly also known as Sahara India âCâ Junxion Corporation Limited)., 2. Mr. Ashok Roy Choudhary, Sahara India House, 3. Mr. Ravi Shankar Dubey, 4. Ms. Vandana Bhargava, 5. Mr. Subrata Roy Sahara Vs 1. Securities and Exchange Board of India, 2. Union of India, through Ministry of Corporate Affairs the Ministry of Corporate Affairs. Securities and Exchange Board of India
| Case Number | Appeal No. 131 of 2011 |
| Counsel | For the Appellants: Mr. Fali S. Nariman, Senior Advocate with Mr. Subash Sharma, Mr. Satish Kishanchandani, Mr. Jatin Pore and Ms. Tanu Banerjee, Advocates and For the Respondent: Mr. Arvind Datar, Senior Advocate with Mr. Prateek Seksaria, Mr. Jayesh K. Ashar, Mr. Mobin Shaikh and Mr. Mihir Mody, Advocates, Mr. Darius Khambata, Additional ... |
| Judges | N. K. Sodhi, Presiding Officer, P.K. Malhotra, Member and S.S.N. Moorthy, Member |
| Issue | Companies Act, 1956 - Sections 55-A, 81(1A), 55A(c), 56, 73, 117A, 117B, 117C, 2(45AA), 2(19A), 73(1); SEBI Act - Sections 11C, 11, 11A, 11B |
| Judgement Date | October 18, 2011 |
| Court | Securities and Exchange Board of India |
Judgment:
N. K. Sodhi, Presiding Officer
1. Whether the Optionally Fully Convertible Debentures (OFCDs) issued by the appellants are public issues required to be compulsorily listed on a stock exchange and whether these are "securities" as defined in the Securities Contracts (Regulation) Act, 1956 (for short SCRA) and whether the Securities and Exchange Board of India (hereinafter referred to as SEBI) has jurisdiction to regulate them and what effect section 55-A of the Companies Act, 1956 has had on the powers of Sebi in regulating unlisted companies are primarily the important questions of law that arise for our consideration in these two appeals. Appeal no.131 of 2011 has been filed by Sahara India Real Estate Corporation Limited and its directors/shareholders and Appeal no.132 of 2011 has been filed by Sahara Housing Investment Corporation Limited and its directors/shareholders and these companies shall be referred to hereinafter as the company and housing company respectively. Both the companies are group companies and these appeals involve identical questions of law and fact. Since the main arguments were addressed in Appeal no.131 of 2011, the facts are being taken from this case. The decision in this appeal shall govern the other appeal as well.
2. The company was originally incorporated as Sahara India "C" Junxion Corporation Limited on October 28, 2005 as a public limited company under the Companies Act and it changed its name to the present one on March 7, 2008. It is unlisted, that is, its shares are not listed on any stock exchange. Its issued, subscribed and paid-up capital as stated in its Red Herring Prospectus (for brevity RHP) is one lac equity shares of '' 10 each amounting to '' 10 lacs. Presently, it has three directors, namely, Vandana Bharrgava, Ravi Shankar Dubey and Ashok Roy Choudhary. The first two were appointed on January 28, 2008 and Ashok Roy Choudhary was appointed on February 29, 2008. These directors do not draw any remuneration from the company nor do they hold any share capital therein. The three directors who were on the board of directors at the time of incorporation resigned from directorship almost around the same time when the present directors were appointed. As per the Balance Sheet of the company as on December 31, 2007, its cash and bank balances were '' 6,71,882 and its net current assets were worth '' 6,54,660 only. It had no fixed assets nor any investments as on that date. Its operational and other expenses for the three quarters ending December 31, 2007 were '' 9,292 and the loss carried forward to Balance Sheet as on that date was '' 3,28,345.
3. The company in its extraordinary general meeting held on March 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 India Group of companies without giving any advertisement to the general public. The 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. In pursuance to the authority given by the company, its board of directors in their meeting held on March 10, 2008 resolved to issue unsecured OFCDs by way of private placement the details of which are mentioned in the RHP that was filed in the prescribed format with the Registrar of Companies, Kanpur (for short RoC). In part I of the RHP under general information, the company, as against the column regarding the names of the stock exchanges where it had made an application for the listing of the present issue, stated that "We do not intend the proposed issue to be listed in any stock exchanges(s)." In the column relating to the size of the present issue, this is what the company stated:
"The present issue consists of Unsecured Optionally Fully Convertible Unsecured Debentures with option to the holders to convert the same into Equity Share of Rs.10 each at a premium of to be decided at the time of issue equal to the face value of the Optionally Fully Convertible Unsecured Debentures to be privately placed aggregating to Rs. **** since it is a Red Herring prospectus the quantum and the price is to be determined at a future date"
Terms of the present issue were also stated in the RHP and it is not in dispute that the company has issued three different types of OFCDs labelling them as Abode Bonds, Real Estate Bonds and Nirmaan Bonds and a gist of their particulars was appended as annexure I to the RHP in a tabular form and the same is reproduced hereunder for facility of reference:
| Particulars | Nature of OFCDs |
||
| Abode Bond | Real Estate Bond | Nirmaan Bond |
|
| Tenure | 120 months | 60 months | 48 months |
| Face Value | Rs.5,000/- | Rs.12,000/- | Rs.5,000/- |
| Redemption Value | Rs.15,530/- | Rs.15,254/- | Rs.7,728/- |
| Early Redemption | After 60 months | NIL | After 18 months |
| Conversion | On completion of 120 months. | On completion of 60 months | On completion of 48 months |
| Minimum Application Size | Rs.5,000/- | Rs.12,000/- | Rs.5,000/- |
| Nominee System | Double Nominee | Double Nominee | Double Nominee |
| Transfer | Yes | Yes | Yes |
The total project costs were stated to be around '' 20,000 crores (Rupees twenty thousand crores) and the RHP specifically states that "The projects are being financed partly by this issue as well as with the Capital, Reserves and other sources of the Company." The company declared that the funds shall be utilised for the purpose of financing the acquisition of lands, development of townships, residential apartments, shopping complexes etc. The proceeds, according to the company, shall also be utilised for construction activities which would be undertaken in major cities of the country. The company has also stated in the RHP that it is "in advance stage of finalizing the deals for acquiring the lands at various places across the country however, no agreement has been made till the date of this red herring prospectus." It has also been mentioned that allotment would be made within two months from the date of receipt of the application and OFCD certificates would be issued on surrender of the allotment letter. As regards restriction, if any, on transfer and transmission of shares/debentures, the RHP in clause 13 of the prescribed format states as under:
| 13. Restriction if any on transfer and transmission of shares/debentures and on their consolidation/splitting | Nil |
The RHP was presented before the RoC on March 13, 2008 and the same was registered by him on March 18, 2008.
4. Having got the RHP registered, the company then circulated in April 2008 the information memorandum along with the application forms to the so called friends, associates, group companies, workers/employees and other individuals connected/associated in any manner with Sahara group of companies for subscribing to OFCDs purporting to be by private placement. A gist of the particulars of the bonds as referred to in paragraph 3 above read with the other clauses of the RHP makes it clear that the price of each bond had been determined when the RHP was filed. This information memorandum had a recital that it was private and confidential and not for circulation and the same is reproduced hereunder:
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."
The terms and conditions on which the OFCDs were issued were contained in the application forms and their salient features may now be noticed. As would be seen from the table in para 3 above, there were three kinds of OFCDs issued by the company and these had been named as Abode Bonds, Real Estate Bonds and Nirmaan Bonds. The Abode Bond has a face value of '' 5000 for five bonds with a tenure of 120 months and its redemption value is '' 15,530/- and the minimum application size is '' 5000. This bond can be redeemed prematurely after 60 months and the holder can also exercise an option for its conversion into one fully paid equity share of '' 10 each at a premium of '' 990 each provided the option is exercised on the completion of 119 months i.e. one month prior to the date of its maturity. The bond holder can transfer the bonds to any person including persons other than those to whom the bonds were offered and the transfer is made subject to the...
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