What is going on with the SEBI and Subrata Roy-Sahara
Pariwar case?
It all
started with Sahara Prime City, a real estate venture of the Sahara group,
filing a Draft Red Herring Prospectus (DRHP) with Sebi on
September 30, 2009.
Draft
Red Herring Prospectus (DRHP)
This
is an initial document that a company needs to file with Sebi to bring out an
IPO or initial public offer of shares to public investors
While going through
this DRHP, Sebi sensed certain large-scale fund raising exercises by two Sahara
firms — Sahara India Real Estate Corp Ltd (SIRECL) and Sahara Housing
Investment Corp Ltd (SHICL).
Soon, Sebi received
two complaints — one on December 25, 2009 and the second on January 4, 2010 —
alleging illegal means used by these two firms in issuance of certain bonds,
called OFCDs (Optionally Fully Convertible Debentures), to the public throughout
the country for many months.
Debentures
Suppose
a Telefilm company is producing a new bogus saas-bahu series.The company needs
additional finance of 100 Crore rupees just for the make-up, jewelry and
expensive sarees of those actresses.
Company
can approach the bank for a loan, but problems:
1)
terms and conditions are heavy
2)
the SARFAESI act (with its new amendments)
So,
it’s better just to borrow from public.Whoever gives you Rs.100, you give him a
piece of paper titled “blah blah blah..these are the terms and conditions,
repayment dates, interest rates etc.” This piece of paper is called Debenture.
In this case, you need 100 crores, meaning print 1 crore papers (debentures)
each worth Rs.100.Whoever holds such paper units is called Debenture holder.
Optionally fully-convertible
debentures (OFCD)
-
These debentures can be converted into shares, when debt holder (investor)
wishes (after expiry of xyz pre-decided date).
- But
the “rate”, will be decided by the company e.g. 20 debentures =>1 share.
From
investor’s view, this “option” to convert Debenture into Shares is good ONLY IF
- Company is likely to make huge
profit (so you, the shareholder can earn more dividend.) OR
- Company’s
share-price is likely to rise in the share market (then you can sell
shares to third-party and make profit).
BUT
if the Company is going bankrupt, then it is better to avoid converting the
Debenture into shares. Because when a company is liquidated (i.e. its
assets sold off), the Debenture holders get the money before the
shareholders.
It
means OFCD is a bit tricky game. Investors should have some knowledge and
understanding of share prices, company performance etc. else they could lose
money. (or end up not getting maximum profit out of their investment).
The second complaint
was from Roshan Lal, which was received by Sebi through National Housing Bank.
Based on these complaints, Sebi began seeking clarifications from the group,
initially through their investment bankers Enam Securities and later directly.
Further
investigations found that the funds were raised through OFCDs after filing RHPs
(Red Herring Prospectus) with the Registrar of Companies, although the rules
required permission from Sebi for any issuance of securities to 50 or more
investors. In these cases, the number of investors ran into crores.
Eventually, Sebi
passed an interim order against the two companies on November 24, 2010, asking
them to refund the money collected from investors.
A final order was
passed by the regulator on June 23, 2011, while the group challenged these
directions before the Securities Appellate Tribunal. However, the Tribunal
upheld the Sebi orders on October 18, 2011, and asked the companies to refund
Rs 25,781 crore to over three crore investors.
SEBI
- You (SAHARA) have violated rules. If OFCDs are issued then whole process
should be completed within 10 working days, but here you continue collecting
money from people for more than two years!
SAHARA
- This fund-raising was in the form of a private placement. I.e. we offered the
schemes only to our select clients, this wasn’t meant a “Public Offer”! So
what’s your problem?
SEBI
- Dude if this is private placement, then maximum only 50 people can invest
money in it.Here ~23 million people have parked their hard earned cash! Hell
the number of investors in this case, is even more than the total number of
people investing in the conventional stock-exchanges of India! India’s biggest
IPO till date was of Coal India worth Rs.15000+ crores, and you’ve made 24,000
crores out of these OFCDs! It is my responsibility to protect the investors’ in
Capital market.
Hence,
By the powers given to me under SEBI Act, I hereby order you to stop collecting
money and refund all the money to those investors with 15% interest rate.
SAHARA
- This is not right!
SEBI
- Well, if you’re unhappy with my order you can go to the Securities Appellate
Tribunal (SAT)
SAHARA
- Pleads before SAT.
SAT -
SEBI is right. You refund money to those people.
SAHARA
- Now, I’ll go to Supreme Court.
The group then moved
the Supreme Court, which also passed a historic order on August 31, 2012,
asking the two companies to deposit outstanding amount of over Rs 24,000 crore
with Sebi for refund to the investors.
Saharas were also
asked to deposit details of all investors to Sebi, which was mandated to refund
the money after verifying their genuineness.
Sebi again moved the
Supreme Court alleging non- compliance by the group to the earlier orders,
pursuant to which the apex court passed another order on December 5, 2012, and
asked the two firms to deposit the money in three instalments beginning with an
immediate payment of Rs 5,120 crore.
SC -
What are your arguments?
SAHARA
- Those two companies are unlisted. Meaning, their shares are not listed on any
Stock Exchange of India.Therefore, their conduct is outside the jurisdiction of
SEBI. Because SEBI is regulator for listed firms only.Our matter falls under
Union Corporate Affairs Ministry and not under SEBI.
SEBI
- Nope, this matter comes under my jurisdiction, because OFCD is a “security”
under the Securities Act. It comes under the Sebi Act. I’ve the jurisdiction.
Hence I can pass a special order to regulate unlisted companies!
While the group paid
the first instalment, it failed to meet the deadline for other two payments and
rather claimed to have already paid more than Rs 20,000 crore directly to the
investors.
Unconvinced with
Saharas' claims, Sebi passed orders on February 13, 2013, to attach bank
accounts and other properties of the group and later issued summons for
personal appearance of Subrata Roy and other three directors before it.Roy and
others appeared before Sebi on April 10, 2013, after which he famously told
reporters that he was not even offered tea by Sebi officials.
During the same
month, April 2013, Sebi finally closed its file on Sahara Prime City, whose
planned IPO had kick-started this long-running battle.
In the meantime,
Sahara group continued to issue full-page and multi-page advertisements in
newspapers wherein it claimed to have cleared bulk of its outstanding
liabilities to bondholders.In these advertisements, the group also claimed to
have raised total funds to the tune of Rs 2,25,000 crore since inception in
1978 across various businesses and pegged its total networth at an astonishing
figure of Rs 68,174 crore and the size of its assets at Rs 152,518 crore.
Sahara also charged
that Sebi was making "baseless allegations" against it and accused it
of not accepting "60 truckloads of documents", while the regulator
countered these charges by saying that the documents given by them were "hopelessly
mixed up".
Sebi also issued
public notices in newspapers, cautioning investors and general public against
dealing with Saharas.The regulator also asked various financial institutions
including banks to freeze all accounts of the group, besides writing to
district collectors and other authorities for attachment of land, real estate
and other properties.
Sources:
- The Times of India
Thanking you,
Nagarjuna reddy .
