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TMI Blog2012 (9) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... stor 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 expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion and that the proceeds of the current issue or debentures would be utilized for power projects which would be alloted to the company and that the money, not required immediately, might be parked/invested, interalia, 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 Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll. Clause 13 of RHP imposed no restriction on the transfer of the OFCDs. 7. SIRCEL, therefore, floated the issue of the OFCDs as an open ended scheme and collected an amount of Rs.19400,86,64,200 (Nineteen thousand four hundred crores, eighty six lacs, sixty four thousand and two hundred only) from 25.4.2008 to 13.4.2011. Company had a total collection of Rs.17656,53,22,500 (Seventeen thousand six hundred and fifty six crores, fifty three lacs, twenty two thousand and five hundred only) as on 31.8.2011, after meeting the demand for premature redemption. The above mentioned amounts were collected from 2,21,07,271 investors. 8. SHICL, a member of Sahara Group companies, also convened an Annual General Meeting on 16.9.2009 to raise funds by issue of OFCDs, by way of private placement, to friends, associated group companies, workers/employees and other individuals associated/affiliated or connected in any manner with the Sahara Group companies. Consequently, a RHP was filed on 6.10.2009 under Section 60B of the Companies Act with the RoC, Mumbai, Maharashtra, which was registered on 15.10.2009. Later, SHICL issued OFCDs of the nature of Housing Bond; conversion price of Rs.5,000/- f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of allotees etc. 11. SIRECL on 31.5.2010 addressed a letter to MCA for guidance/advice as to whether it was SEBI or MCA who had locus standi in the matter of unlisted companies in view of the provisions of Section 55A(c) of the Act. MCA, it is seen, had sent a letter dated 17.6.2010 to SIRECL stating that the matter was being examined under the relevant provisions of the Companies Act, 1956. SIRECL informed SEBI of the reply they had received from the MCA and that they would address SEBI after a decision was taken by MCA. Having not received the details called for from Saharas, SEBI had prima facie felt that SIRECL was carrying out various transactions in securities in a manner detrimental to the interests of the investors or to the securities market and, therefore, issued summons dated 30.8.2010, under Section 11C of the SEBI Act, directing the company to furnish the requisite information by 15.9.2010. Detailed reply dated 13.9.2010 was sent by SIRECL to SEBI, wherein it was stated that the company had followed the procedure prescribed under Section 60B of the Companies Act pursuant to the special resolution passed under Section 81(1A) in its meeting held on 3.3.2008 and filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the issue of OFCDs. Proceeding issued for appointing the investigating agency was also forwarded to the company. SIRECL again replied by its letter dated 30.9.2010 raising the issue of jurisdiction of SEBI in investigating the affairs of SIRECL. SIRECL, however, replied to the letter of MCA dated 21.9.2010 on 4.10.2010, stating inter alia that it would be filing the prospectus on the closure of the issue in compliance with the provisions of Section 60B(9) of the Companies Act, stating therein the total capital raised by way of OFCDs and the related information by filing the prospectus. Further, it was also pointed out that allotment had been made to persons who were connected with the Sahara Group and that investors had given a declaration to the company to that effect in terms of the RHP. MCA then sent a reply dated 14.10.2010 stating that the points 1 to 3, 5 to 10, 12 to 16, 18 to 22 had been examined and appeared to be satisfactory. With regard to points 4, 11 and 17, the company was directed to effect compliance on closure of issue by filing of prospectus as required under Section 60B(9) of the Companies Act. 14. SEBI, in the meanwhile, issued a notice dated 24.11.2010 inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the enormity of the work and time taken in collating and compiling the data relating to the names and addresses and the amount invested, the company could only provide the partial information relating to names, numbers and amount invested by the investors through the covering letter dated 18.3.2011 in a CD. SIRECL then moved the High Court on 29.4.2011 to recall the order dated 7.4.2011 on the plea that the details called for by SEBI had been furnished. The High Court dismissed the application, which led SIRECL filing SLP (Civil) No. 13204 of 2011 before this Court. This Court on 12.5.2011 passed the following order in SLP (Civil) No. 11023 of 2011 and SLP (Civil) No. 13204 of 2011: "In this matter the questions as to what is OFCD and the manner in which investments are called for are very important questions. SEBI, being the custodian of the Investor's and as an expert body, should examine these questions apart from other issues. Before we pass further orders, we want SEBI to decide the application(s) pending before it so that we could obtain the requisite input for deciding these petitions. We request SEBI to expeditiously hear and decide this case so that this Court can pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were incomplete or ambiguous. Serious doubts were also raised with regard to the identity and genuineness of the investors and the intention of the companies to repay the debenture holders upon redemption. Notice, therefore, stated that the companies had prima facie violated the provisions of the Companies Act, SEBI Act, 1992, DIP Guidelines and ICDR 2009 and hence the offer/issue of OFCDs to public was illegal, and imperiled the interest of investors in such OFCDs and was detrimental to the interest of the securities market. Saharas were, therefore, called upon to show cause why directions contained in the interim order of SEBI dated 24.11.2010 be not issued under Sections 11(1), 11(4)(B), 11A(1)(b) and 11B of SEBI Act read with Regulation 107 of ICDR 2009. 20. Saharas then sent a detailed reply dated 30.5.2011 pointing out that the appellants had made private placement of OFCDs to persons who were associated with Sahara Group and those issues were not public issues. Further, it was also urged that OFCDs issued were in the nature of "hybrid" as defined under the Companies Act and SEBI did not have jurisdiction to administer those securities since Hybrid securities were not includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 56, 73, 117A, 117B and 117C of the Companies Act and also various clauses of DIP Guidelines. SEBI also held that SHICL had not complied with the provisions of Regulations 4(2), 5(1), 5(7), 6, 7, 16(1), 20(1), 25, 26, 36, 37, 46 and 57 of ICDR Regulations. Having found so, SEBI directed Saharas to refund the money collected under the Prospectus dated 13.3.2008 and 6.10.2009 to all such investors who had subscribed to their OFCDs, with interest. 23. Appellants, aggrieved by the above mentioned order of SEBI, filed Appeal Nos. 131 of 2011 and 132 of 2011 before the Tribunal and the Tribunal passed a common order on 18.10.2011. Before the Tribunal, Union of India, represented through the Ministry of Company Affairs, was impleaded. The Tribunal took the view that OFCDs issued were securities within the meaning of Clause (h) of Section 2 of SCR Act, so also under SEBI Act. Tribunal also noticed that RHP issued by SIRECL was registered by the RoC on 18.3.2008, though information memorandum (IM) was issued later in April 2008 in clear violation of Section 60B of the Companies Act. Further, it was also noticed that IM was issued through 10 lac agents and more than 2900 branch offices to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Compnies seek to secure the liabilities which the Companies have incurred and how they will protect the debenture holders; (e) If returns have been filed under Income Tax Act, 1961, the same may be annexed to the Affidavit to be filed." 25. Civil Appeals later came for admission on 9.1.2012 and the interim order granted was extended. As directed, Additional Affidavit with certain documents were filed by both the appellants on 20.6.2012, wherein specific reference was made to the affidavit dated 14.9.2011 filed by Saharas before the SAT, the details of which were given in a chart form, which is as follows: SIRECL SHICL Date of commencement of issue 25.4.2008 Date of commencement of issue 20.11.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the power of administration of Sections 56, 62, 63 and 73 with respect to OFCDs is vested only with the Central Government and not with SEBI. Reference was also placed on the explanation to Section 55A and submitted that all powers relating to "all other matters" i.e. matters other than those relating to the issue and transfer of securities and non-payment of dividends, including the matter relating to prospectus would be exercised by the Central Government or the RoC and not SEBI. 28. Learned senior counsel also highlighted the conspicuous omission of Section 60B in Section 55A which, according to the senior counsel, indicates that SEBI cannot administer in case of any violation of Section 60B. Even otherwise, learned senior counsel submitted that, as a matter of legislative drafting, Section 60B could not have been intended to be included in the parenthetical clause and, therefore, could not be said to be covered by Section 55A. Learned senior counsel also submitted that even if Section 60B falls in between under Sections 59 to 81, Saharas either through their conduct or action depicted no intention to have their securities listed on any stock exchange in India so as to fall u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso not attracted to 2003 Rules, hence it was urged that, in view of the statutory rules of 2003, preferential allotment by unlisted public companies by private placement was provided for and permitted without any restriction on numbers as per the proviso to Section 67(3) and without requiring listing of OFCDs on any recognized stock exchange. Shri Nariman also pointed out that it is only from 14.12.2011, the 2003 Rules were amended, whereby the definition of preferential allotment was substituted, without disturbing or amending Rule 2 of 2003 Rules. Learned senior counsel submitted that by the amended definition of Preferential Allotment by the Unlisted Public Companies (Preferential Allotment) Rules, 2011 (for short '2011 Rules'), hybrid instrument stands specifically included. Consequently, the first proviso to Section 67 of the Companies Act was specifically made applicable. 32. Learned senior counsel also contended that after the insertion of the definition of "securities" in Section 2(45AA) as including hybrid and the definition of "hybrid" in Section 2(19A) of the Companies Act, the provisions of Section 67 were not applicable to OFCDs which have been held to be "hybrid". V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k financial help from investment bankers. Learned senior counsel placed reliance on the judgment of this Court in Union of India v. Allied International Products Ltd. & Anr. (1970) 3 SCC 594 and submitted that Section 73(1) was enacted with the object that the subscribers would be ensured the facility of easy convertibility of their holdings when they have subscribed to the shares on the representation in the prospectus that an application for quotation of shares had been or would be made. Learned senior counsel also made reference to the Cohen Committee Report (U.K.) and submitted that the same would bring about the true purport of Section 73, that it is the obligation on the company which has promised the members of the public that their shares would be marketable or capable of being dealt with in the stock exchange. Learned senior counsel made reference to Section 51 of the Companies Act, 1948 (U.K.) and the judgment in In re. Nanwa Gold Mines Ltd. (1955) 1 WLR 1080 and submitted that the object of Section 51 was to protect those persons who had paid money on the faith or the promise that their shares would be listed. Learned senior counsel pointed out that Sub-section (1) of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel also submitted that mere filing of prospectus is not reflective of the intention to make a public offer. The purpose of issue of prospectus is to disclose true and correct statements and it cannot be characterized as an invitation to the public for subscription of shares or debentures. Learned senior counsel also pointed out that the filing of the prospectus or the administration of Section 62 on account of misstatement in a prospectus will be undertaken by the Central Government on account of explanation to Section 55A of the Companies Act. Learned senior counsel submitted that the manner in which a listed public company will offer its shares would be determined under the SEBI Act as well as the SEBI Regulations. Learned senior counsel submitted that Section 60B of the Companies Act, as such, does not presuppose or prescribes an intention to list. Section 60B enables a prospectus to be filed where a company is not a listed public company. Learned senior counsel pointed out that IM or RHPs can be filed although an offer of shares may be made by way of private placement or to a section of the public or even to the public, but yet without intending it to be listed. Learned senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of' in any jurisdiction. It was further submitted that it is impossible to conceive that a regulator or State or Parliament could actually intend that there would be a mandatory exposure of business to vicissitudes of fortune being swept by waves in the stock market. 38. Learned senior counsel elaborately referred to the various provisions of the SEBI Act in that context. Learned senior counsel also submitted that the Central Government and SEBI cannot approbate or reprobate regarding their jurisdiction over the unlisted public companies. Learned senior counsel pointed out that SEBI has categorically stated on oath before various Forums that an unlisted public company was not within its jurisdiction if that company did not intend to list their shares on the stock exchange. Later, SEBI has unfairly changed its stand before the other Forums. Learned senior counsel referred to the stand taken by SEBI before the Bombay High Court in Kalpana Bhandari v. Securities and Exchange Board of India (2005) 125 Comp. Cases 804 (Bom.) as well as Delhi High Court judgment in Society for Consumers and Investment v. Union of India and others passed in Writ Petition No. 15467 of 2006. Reference w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions contained under Section 55A, so far as they relate to the issue and transfer of securities by Saharas. Learned senior counsel pointed out that Saharas had paid up share capital of just Rs.10 lakhs and virtually no assets and the companies had collected about Rs. 27,000 crores from about 3 crore subscribers, through unsecured OFCDs. Learned senior counsel pointed out that Sections 55A, proviso to Section 67(3), Section 73 and other related provisions clearly bring out the intention of the Parliament, i.e. after 13.12.2000, even if an unlisted public company makes an offer of shares or debentures to fifty or more persons, it was mandatory to follow all the statutory provisions that would culminate in the listing of those securities. Learned senior counsel pointed out that once the number reaches fifty, proviso to Section 67(3) applies and it is an issue to the public, attracting Section 73(1) and an application for listing becomes mandatory and, thereafter the jurisdiction vests with SEBI. 42. Learned senior counsel elaborately argued on the structure of Section 55A and the purpose and object of the parenthetical clause and the brackets employed in the sub-section. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to protect the interest of investors in securities either listed or which are required by law to be listed, and under Section 11B, SEBI has the power to issue appropriate directions, in the interests of investors in securities and the securities market, to any person who is associated with securities market. Learned senior counsel pointed out that 2003 Rules are not applicable after 2003, to any offer or shares or debentures to more than forty nine persons and the rules were amended in the year 2011 to make explicit what was already implicit, but the statutory mandate in this regard was made clear w.e.f. 13.12.2000, and that the 2003 Rules will be subject to the statutory provisions of the proviso to Sections 67(3) and 73(1). 45. Learned senior counsel also submitted that Saharas' basic assumption that they are covered by 2003 Rules is erroneous. Learned counsel pointed out that a public issue would not become a preferential allotment by merely labeling it as such and the facts on record show that the issue could not be termed as a preferential allotment. Preferential allotment, learned counsel submits, is made by passing a special resolution under Section 81(1A) and is an excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 48. Shri Harin P. Rawal, Additional Solicitor General appearing on behalf of Union of India placed detailed written submissions, supporting the stand taken by SEBI. Powers conferred on SEBI under the SEBI Act as well as the Companies Act have been elaborately dealt with in the written submissions filed by him, pointing out that there is no conflict of jurisdiction of SEBI or RoC/MCA while enforcing the provisions of SEBI Act and the Companies Act. It was pointed out that there is no overlap, much less any repugnancy or conflict between provisions of SEBI Act and those of Section 55A of the Companies Act and the Sections enumerated thereunder. It was pointed out that Sections 11A and 11B of SEBI Act should be read as provisions additional to Section 55A. Reference was also made to Section 32 of the SEBI Act and it was submitted that the provisions of SEBI Act are "in addition to" and "not in derogation of" the provisions of any other law, unless the provisions of SEBI Act are wholly inconsistent with the Companies Act, the provisions of both the SEBI Act and the Companies Act should be harmonized and both sets of provisions given operation. Further, it was pointed out that Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and discovery of documents, compel attendance of witnesses and to pass a reasoned order which gives finality to the dispute, subject to the appeal to Supreme Court under Section 15Z of the Act. Findings of fact generally fall in the domain of the Tribunal provided it stays within its jurisdiction. Situations may also be there, where the evidence taken as a whole is not reasonably capable of supporting the findings recorded by the Tribunal or the Tribunal could have reasonably recorded that conclusion. Questions repeatedly posed in this case before SEBI as well as before SAT, were with regard to the nature of OFCDs issued by Saharas. RHPs produced had disclosed that Saharas did not intend the proposed securities to be listed on any stock exchange and that the issues consisted of unsecured OFCDs with an option to convert the same to equity shares. Saharas had also disclosed that the issue was made on a private placement basis and that OFCDs would be offered also to such persons to whom IM would be circulated. But the fact remains that it was circulated to more than three crore people inviting them to subscribe. The same was circulated through ten lac agents and more than 2900 branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment with those factual details. I find no perversity or illegality in those findings which call for interference by this Court sitting under Section 15Z of the SEBI Act. I, therefore, fully concur with the Tribunal that the money collected by Saharas through their RHPs dated 13.3.2008 and 6.10.2009, through the OFCDs, were from the public at large and the same would amount to collection of money by way of issue of securities to the public, a finding which calls for no interference by this Court sitting under Section 15Z of the SEBI Act. 52. I will now examine various questions of laws raised before us. Following are some of the cardinal issues that have come up for consideration, apart from other incidental issues and ancillary issues, which also I may deal with: QUESTIONS OF LAW FRAMED (a) Whether SEBI has jurisdiction or power to administer the provisions of Sections 56, 62, 63, 67, 73 and the related provisions of the Companies Act, after the insertion of Section 55A(b) w.e.f. 13.12.2000, by the Companies (Amendment) Act, 2000, so far as it relates to issue and transfer of securities by listed public companies, which intend to get their securities listed on a recognized s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Saharas are convertible bonds falling within the scope of Section 28(1)(b) of the SCR Act, therefore, not 'securities' or, at any rate, not listable under the provisions of SCR Act; (i)Whether SEBI can exercise its jurisdiction under Sections 11(1), 11(4), 11A(1)(b) and 11B of the SEBI Act and Regulation 107 of ICDR 2009 over public companies who have issued shares or debentures to fifty or more, but have not complied with the provision of Section 73(1) by not listing its securities on a recognized stock exchange. (j)Scope of Section 73(2) of the Companies Act regarding refund of the money collected from the Public; (k) Civil and Criminal liability under the various provisions of the Companies Act. 53. Much of the arguments on either side centered round the scope and interpretation of various provisions of the Companies Act, SEBI Act and the rules and regulations framed thereunder, relating to matters concerning the issue of securities, powers of SEBI, Central Government (MCA), RoC, which are being discussed hereunder. Powers conferred on SEBI, Central Government, (MCA), RoC etc. under the Companies Act, SEBI Act also call for consideration. Powers of SEBI, Centra l G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraudulent accounting and non-disclosure of information was root cause for collapse of Enron, Barings, World Com, BCCI etc. which put the reforms of corporate governance on the agenda in the United States. 55. India is also not an exception. Harshad Mehta, a Broker, was charged for diverting funds from the Bank to the tune of Rs.4000 crores to stock brokers between 1991-92; Ketan Parekh Securities Scam in the year 2001 in which investors, it was reported, had lost heavily; so also the Banks in the UTI scam 2001, where it was reported that heavy funds were collected from small investors and money was used to fund large business houses and huge amounts were invested in junk bonds; Satyam Computers Scam of 2008, where it was reported that, over a number of years, Satyam Computer account was manipulated and money was raised through shares. 56. Both in England and India, it is well established, that the range of functions that may be performed by a company incorporated under the Companies Act is extremely wide. Public companies and private companies, functioning under the Companies Act 2006 in England, the Companies Act 1956 in India, have considerable social and economic importance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that, subject to the provisions of the Act, it shall be the duty of SEBI to protect the interests of investors in securities and to promote the development of and to regulate the securities market. SEBI is also duty bound to prohibit fraudulent and unfair trade practices relating to securities markets, prohibiting insider trading in securities etc. Section 11A authorizes SEBI to regulate or prohibit issue of prospectus, offer document or advertisement soliciting money for issue of securities which read as follows: "11A (1) Without prejudice to the provisions of the Companies Act, 1956(1 of 1956), the Board may, for the protection of investors, - (a)specify, by regulations - (i) the matters relating to issue of capital, transfer of securities and other matters incidental thereto; and (ii) the manner in which such matters shall be disclosed by the companies; (b) by general or special orders - (i) prohibit any company from issuing prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities; (ii) specify the conditions subject to which the prospectus, such offer document or advertisement, if not prohibited, may be issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al with the first question posed on the jurisdiction of SEBI over various provisions of the companies Act in the case of public companies, whether listed or unlisted, when they issue and transfer securities. 63. Section 55A, the scope of which has been extensively argued, is given below for easy reference: "55A. Powers of Securities and Exchange Board of India.- The provisions contained in sections 55 to 58, 59 to 81, (including Sections 68A, 77A and 80A)108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207, so far as they relate to issue and transfer of securities and non-payment of dividend shall,- (a) in case of listed public companies; (b) in case of those public companies which intend to get their securities listed on any recognized stock exchange in India, be administered by the Securities and Exchange Board of India; and (c) in any other case, be administered by the Central Government. Explanation.-For the removal of doubts, it is hereby declared that all powers relating to all other matters including the matters relating to prospectus, statement in lieu of prospectus, return of allotment, issue of shares and redemption of ir-redeemable p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the object and purpose of that section, the intention of the Legislature and the role and function to be performed by the specialized forum, SEBI, created by the SEBI Act. Powers conferred on SEBI under Section 11A to protect the interest of investors that too without prejudice to the provisions of the Companies Act, may also be borne in mind when we interpret Section 55A, as already indicated. Provisions which relate to issue and transfer of securities and nonpayment of dividend have to be administered by SEBI, a legal obligation cast on SEBI. Section 55A specifically refers to Sections 55 to 58 and Sections 59 to 81 with an emphasis to Sections 68A, 77A and 80A within brackets. Specific reference has been made to Sections 108, 109, 110 and Sections 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207. The Original Companies (Second Amendment) Bill of 1999 [Bill No. 139 of 1999] did not have the parenthetical clause in Section 55A (i.e. including Sections 68A, 77A and 80A) which was introduced as corrigendum before the leave was sought and granted to introduce the Bill in the Lok Sabha and with this corrigendum the bill was passed in the Lok Sabha on 27.11.2000 and then on 30.11.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word 'including' used in the parenthetical clause is only to give emphasis to those sections. Lord Watson in Dilworth v. Commissioner of Stamps (1999) AC 99 said that the word 'include' is very generally used in interpretation clause in order to enlarge the meaning of words or phrases occurring in the body of the Statute and, when it is so used, these words and phrases must be construed as comprehending, not only things they signify according to their natural import, but also those things which the interpretation clause declares that they shall include." In Delhi Judicial Services Association v. State of Gujarat AIR 1991 SC 2176, the expression used in Article 129 of the Constitution i.e. including the power to punish for contempt of itself which was interpreted by the Court stating that the expression 'including' has been interpreted by Courts to extend and widen the scope of power. Giving emphasis to Sections 68A, 77A and 80A does not mean the exclusion of all such similar sections. 69. Legislature, in its wisdom, thought some emphasis has to be given to Sections 68A, 77A and 80A because all those sections provide certain offences to be punishable with imprisonment. Further clue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to mean that SEBI has no power in relation to the prospectus and the issue of securities by an unlisted public company, if the securities are offered to more than forty nine persons. 71. I am, therefore, of the view that the mere fact that emphasis has been given to Sections 68A, 77A and 80A, does not mean the exclusion of Section 60B from Section 59 to 81. We, therefore, hold that, so far as the provisions enumerated in the opening portion of Section 55A of the Companies Act, so far as they relate to issue and transfer of securities and non-payment of dividend is concerned, SEBI has the power to administer in the case of listed public companies and in the case of those public companies which intend to get their securities listed on a recognized stock exchange in India. In any other case, i.e. rest of the matters, that is excluding matters relating to issue and transfer of securities and non-payment of dividend be administered by the Central Government in the case of listed public companies and those companies which intend to get their securities listed on any recognized stock exchange in India. Explanation to that section further clarifies the position so as to remove doubts, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 67(3) may attract civil and criminal liability. Saharas, in this case, published RHPs with the approval of RoC, but did not get them approved by SEBI or their securities listed on a recognized stock exchange. 73. Section 60B which was included in the Act by the Companies Amendment Act, 2000 (Act 53 of 2000) w.e.f. 13.12.2000. 60B(1) reads as follows: "60B. Information memorandum. (1) A public company making an issue of securities may circulate information memorandum to the public prior to filing of a prospectus." 74. Section 60B(1) is an enabling provision which enables a public company making an issue of securities to circulate information memorandum (IM) to the public before filing the prospectus. Purpose of that sub-section is for assessing the demand and the price which the public would be willing to offer, which is not a mandatory requirement. Note on Clause 52 of the 1997 Bill explains the object and purpose of that Section as follows: "This Section provides for the concepts of 'book building' and 'information memorandum'. This is an international practice and refers to collecting orders from investment bankers and large investors based on an indicative price range ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty is cast on it to get its securities listed on a recognized stock exchange. Section 60B, as already indicated, refers to IM. Section 2(19B) was inserted by the Companies (Second Amendment) Act, 2002, w.e.f. 1.4.2003, which reads as follows: "2(19B) "information memorandum" means a process undertaken prior to the filing of a prospectus by which a demand for the securities proposed to be issued by a company is elicited, and the price and the terms of issue for such securities is assessed, by means of a notice, circular, advertisement or document." 77. The initiation of the process of offering securities to the public by a company, therefore, starts with IM, but it is bound to file a prospectus prior to the opening of subscription lists and the offer as RHPs and then reaches its final intimation, that is after closing of the offer of securities with a final prospectus, with the requisite details and any other details as were not completed in the RHP by filing the same with SEBI and Registrar of Companies. Therefore, a company which has made on offer of securities to the public and, therefore, has applied for listing on a stock exchange, will fall under the category of list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a prospectus for assessing the demand and price which public would be willing to offer. If Saharas were going for a private placement, then I fail to see why they had elicited all those details through an IM, since Section 60B(1) deals with issue of IM to the public alone. But from Saharas' conduct and action, it is clear, that their intention was to issue securities to the public under the garb of private placement. RHPs issued by Saharas indicated that they did not intend the proposed issue of securities to be listed on a stock exchange, even though in reality the securities were issued to the public. Every company which intends to offer shares or debentures to the public for subscription by way of a prospectus is legally obliged to make an application on a recognized stock exchange. Let us examine whether Saharas practiced what they have preached. First, they have breached the very statutory declaration prescribed in Part 1 of Schedule II. Statutory declaration reads as follows: "Declaration: That all the relevant provisions of the Companies Act, 1956, and the guidelines issued by the Government or the guidelines issued by the Securities and Exchange Board of India establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investors, out of which 22.1 million have invested in the OFCDs and it had raised nearly 20,000 crores, for which it had utilized the services of its staff in 2900 branches/service centers and utilized the services of more than one million agents/representatives. Court can, in such circumstances, lift the veil to examine the conduct and method adopted by Saharas to defeat the various provisions of the Companies Act, already discussed, read with the provisions of the SEBI Act. 82. I, in the above facts and circumstances, fully endorse the findings recorded by SEBI (WTM) and SAT that the placement of OFCDs by Saharas was nothing but issue of debentures to the public, resultantly, those securities should have been listed on a recognized stock exchange. AID FOR THE CONSTRUCTION 83. Section 67 provides an aid for the construction of the phrase "offering shares or debentures to the Public". Section 67 of the Act gives an indication of the differences between private placement and public issue. The expression "offer of shares or debentures to public", i.e. issue of securities finds a place in several sections of the Act, like Sections 60B, 73 and those expressions are to be construed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934). (4) Without prejudice to the generality of subsection (3), a provision in a company's articles prohibiting invitations to the public to subscribe for shares or debentures shall not be taken as prohibiting the making to members or debenture holders of an invitation which can properly be regarded in the manner set forth in that subsection. (5) The provisions of this Act relating to private companies shall be construed in accordance with the provisions contained in sub- sections (1) to (4)." 84. Section 67(1) deals with the offer of shares and debentures to the public and Section 67(2) deals with invitation to the public to subscribe for shares and debentures and how those expressions are to be understood, when reference is made to the Act or in the articles of a company. The emphasis in Section 67(1) and (2) is on the "section of the public". Section 67(3) states that no offer or invitation shall be treated as made to the public, by virtue of Subsections (1) and (2), that is to any section of the public, if the offer or invitation is not being calculated to result, directly or indirectly, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be specified in prospectus rules, to be offered to the public, unless approved prospectus has been made available to the public before the offer is made. For the purpose of the Companies Act, 2006 (Sections 755-760), 'offer to the public' includes an offer to any section of the public, however, selected. An offer is not regarded as an offer to the public if (1) it can properly be regarded in all circumstances as not being calculated to result, directly or individually, in securities of the company becoming available to persons other than those receiving the offer; or (2) otherwise being a private concern of the person receiving it and the person making it: s 756(3). An offer is to be regarded (unless the contrary is proved) as being a private concern of the person receiving it and the person making it if (a) it is made to a person already connected with the company and, where it is made on terms allowing that person to renounce his rights, the rights may only be renounced in favour of another person already connected with the company; or (b) it is an offer to subscribe for securities to be held under an employees' share scheme and, where it is made on terms allowing that person t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, indicate, subject to what has been stated above, in India that any share or debenture issue beyond forty nine persons, would be a public issue attracting all the relevant provisions of the SEBI Act, regulations framed thereunder, the Companies Act, pertaining to the public issue. Facts clearly reveal that Saharas have issued securities to the public more than the threshold limit statutorily fixed under the first proviso to Section 67(3) and hence violated the listing provisions which may attract civil and criminal liabilities. LISTING OF SECURITIES - LEGAL OBLIGATIONS 91. Principles of listing, which I may later on discuss, is intended to assist public companies in identifying their obligations and responsibilities, which are continuing in nature, transparent in content and call for high degree of integrity. Obligations are imposed on the issuer on an ongoing basis. Public companies who are legally obliged to list their securities are deemed to accept the continuing obligations, by virtue of their application, prospectus and the subsequent maintenance of listing on a recognized stock exchange. Disclosure is the rule, there is no exception. Misleading public is a serious crime, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the length of the period of delay in making the repayment of such money. (emphasis supplied)" 93. Section 73(1) of the Act casts an obligation on every company intending to offer shares or debentures to the public to apply on a stock exchange for listing of its securities. Such companies have no option or choice but to list their securities on a recognized stock exchange, once they invite subscription from over forty nine investors from the public. If an unlisted company expresses its intention, by conduct or otherwise, to offer its securities to the public by the issue of a prospectus, the legal obligation to make an application on a recognized stock exchange for listing starts. Sub-section (1A) of Section 73 gives indication of what are the particulars to be stated in such a prospectus. The consequences of not applying for the permission under sub-section (1) of Section 73 or not granting of permission is clearly stipulated in sub-section (3) of Section 73. Obligation to refund the amount collected from the public with interest is also mandatory as per Section 73(2) of the Act. 94. Listing is, therefore, a legal responsibility of the company which offers securities to the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns framed thereunder to Saharas' conduct and their inner intentions are to be understood from their acts and omissions, by applying the above maxim. Saharas' acts and omissions have clearly violated the provisions of Section 73, their failure to list the securities offer to the public was, therefore, intentional and the plea that they did not want their securities listed, is not an answer, since they were legally bound to do so. The duty of listing flows from the act of issuing securities to the pubic, provided such offer is made to fifty or more than fifty persons. Any offering of securities to fifty or more is a public offering by virtue of Section 67(3) of the Companies Act, which the Saharas very well knew, their subsequent actions and conducts unquestionably reveal so. 97. The scope of Section 73 came up for consideration before this Court in Raymonds Synthetics Ltd. & Ors. v. Union of India & Ors. (1992) 2 SCC 255 and this Court held through Dr. Justice T. K. Thommen as follows: "9. A public limited company has no obligation to have its shares listed on a recognised stock exchange. But if the company intends to offer its shares or debentures to the public for subscription b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act and without requiring listing of such OFCDs on a recognized stock exchange. Further, it was pointed out that only on and from 14.12.2011, 2003 Rules were amended, whereby the definition of "preferential allotment" was substituted without in any way disturbing or amending Rule 2 of 2003 Rules. After 14.12.2011, it was pointed out, the definition of 'preferential allotment" was amended prospectively. Further, it was pointed out that the first proviso to Section 67(3) of the Companies Act, added by the Companies Amendment Act 53 of 2000 w.e.f. 13.12.2000 (which was earlier not applicable to the 2003 Rules) has now been expressly made applicable w.e.f. 14.12.2011, so as to limit/restrict the number of persons to whom the offer on private placement is made, to only 49 persons, and hence the restriction imposed by the amendment made in December 2011 to issue of OFCDs by unlisted companies pursuant to the special resolution under Section 81(1A) is also prospective. Law, therefore, it was urged, permitted the unlisted companies like Saharas to issue OFCDs to more than 49 persons prior to December 2011, on a private placement basis, without requiring the same to be first listed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares or debentures to be offered to the existing members/holders on a pro rata basis. But when offer is made to more than 49 persons, then apart from compliance with Section 81(1A), other requirements regarding public issue have to be complied with. 2003 Rules, in my view, cannot override the provisions of Section 67(3) and Section 73. The definition of "preferential allotment" in 2011 Rules only made what was implicit in 2003, more explicit. In my view, both 2003 Rules and 2011 Rules are subordinate regulations and are to be read subject to the proviso to Section 67(3) and 73(1) and other related provisions. DIP GUIDELINES & ICDR 2009 102. Senior counsels appearing for Saharas also raised a contention that DIP Guidelines were only departmental instructions, not having the sanction of law and, therefore, would not apply to the OFCDs issued. This argument, in my view, has no basis. DIP Guidelines had statutory force since they were framed by SEBI in exercise of its powers conferred on it under Sections 11 and 11A of the SEBI Act. Powers have been conferred on SEBI to protect the interests of the investors in securities and regulate the issue of prospectus, offer documents or adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009 Regulations would not apply as also the saving clause. 2009 Regulations, in my view, will apply to all companies whether listed or unlisted. Further, in the instant case, SEBI was not informed of the issuance of securities by the Saharas while the DIP Guidelines were in force and Saharas continued to mobilize funds from the public which was nothing but continued violation which started when the DIP Guidelines were in force and also when they were replaced by 2009 Regulations. Further, it may also be recalled that any solicitation for subscription from public can be regulated only after complying with the requirements stipulated by SEBI, in fact, an amendment was made to Schedule II of the Companies Act vide notification No. GSR 650(3) dated 17.9.2002 by inserting a declaration which has to be signed by the directors of the company filing the prospectus, which reads as under: "That all the relevant provisions of the Companies Act, 1956, and the guidelines issued by the Government or the guidelines issued by the Securities and Exchange Board of India established under Section 3 of the Securities and Exchange Board of India Act, 1992, as the case may be, have been complied with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words 'shares' and 'debentures', is significant. 108. OFCDs issued by Saharas undoubtedly were unsecured debentures by name and nature. Section 2(12) of the Companies Act deals with the definition of the word "debentures" and includes any "other securities". The same reads as follows: "2(12). "Debenture' includes debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not." The definition of the word "securities' under Section 2(45AA) of the Companies Act, reads as follows: "2(45AA). "Securities" means securities as defined in Clause (h) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and includes hybrids." Section 2(h) of the SCR Act, 1956 reads as follows: "2(h) "securities" include- (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Special Court and noted that the perusal of the above quoted definition showed that they did not make any distinction between listed securities and unlisted securities and, therefore, it was clear that the circular would apply to the securities which were not listed on the stock exchange. 111. Section 2(h) of the SCR Act gives emphasis to the words "other marketable securities of a like nature", which gives a clear indication of the marketability of the securities and gives an expansive meaning to the word securities. Any security which is capable of being freely transferrable is marketable. The definition clause in Section 2(h) of SCR Act is a wide definition, an inclusive one, which takes in hybrid also, which I have already indicated, defined vide Section 2(19A) of the Companies Act. 112. OFCDs issued have the characteristics of shares and debentures and fall within the definition of Section 2(h) of SCR Act, which continue to remain debentures till they are converted. In other words, OFCDs issued by Saharas are debentures in presenti and become shares in futuro. Even if OFCDs are hybrid securities, as defined in Section 2(19A) of the Companies Act, they shall rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en issued to obtain at his option from the company or other body corporate, issuing the same or from, any of its shareholders or duly appointed agents shares of the company or other body corporate, whether by conversion of the bond or warrant or otherwise, on the basis of the price agreed upon when the same was issued. (2) Without prejudice to the provisions contained in sub- section (1) if the Central Government is satisfied that in the interests of trade and commerce or the economic development of the country it is necessary or expedient so to do, it may, by notification in the Official Gazette, specify any class of contracts as contracts to which this Act or any provision contained therein shall not apply, and also the conditions, limitations or restrictions, if any, subject to which it shall not so apply." Section 28(1)(b) makes it clear that the Act will not apply to the 'entitlement' of the buyer, inherent in the convertible bond. Entitlement may be severable, but does not itself qualify as a security that can be administered by the SCR Act, unless it is issued in a detachable format. Therefore, the inapplicability of SCR Act, as contemplated in Section 28(1)(b), is not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Raymond Synthetics Ltd. & Ors. V. Union of India (supra), wherein the Court held that in a case where the company has not applied for listing on a stock exchange, the consequences will flow from the company's disobedience of the law, the liability to pay interest arises as from the date of receipt of the amounts, for the company ought not to have received any such amount in response to the prospectus. I am, therefore, of the view that since Saharas had violated the listing provisions and collected huge amounts from the public in disobedience of law, SEBI is justified in directing refund of the amount with interest. CIVIL AND CRIMINAL LIABILITY 116. I have found, in this case, that Saharas had not complied with the legal requirements of Section 56 and hence the second proviso to Section 56(3) may apply and it is also stated in subsection (6) of Section 56 that the liability under the General Law has been excluded. Section 62 casts civil liability for misstatement in prospectus and Section 63(1) speaks of criminal liability. Section 68 speaks of penalty for fraudulently inducing persons to invite, which also leads to imprisonment and fine. Section 68A prescribes punishment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the proviso to Section 67(3) and Section 73(1) of the Companies Act. (g) OFCDs issued by Saharas have the characteristics of shares and debentures and fall within the definition of Section 2(h) of SCR Act. The definition of 'securities' under Section 2(45AA) of the Companies Act includes 'hybrids' and SEBI has jurisdiction over hybrids like OFCDs issued by Saharas, since the expression 'securities' has been specifically dealt with under Section 55A of the Companies Act. (h) Section 28(1)(b) of the SCR Act indicates that it is only convertible bonds and share/warrant of the type referred to therein, which are excluded from the applicability of the SCR Act and not debentures, which are separate category of securities in the definition contained in Section 2(h) of SCR Act. Contention of Saharas that OFCDs issued by them are convertible bonds issued on the basis of the price agreed upon at the time of issue and, therefore, the provisions of SCR Act, would not apply, in view of Section 28(1)(b) cannot be sustained. (i) SEBI can exercise its jurisdiction under Sections 11(1), 11(4), 11A(1)(b) and 11B of SEBI Act and Regulation 107 of ICDR 2009 over public companies who hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by us. The impugned orders, as already stated, were issued by SEBI in exercise of its powers conferred under Sections 11, 11A and 11B of SEBI Act and Regulations 107 of ICDR 2009. DIP Guidelines, as already indicated, did apply to both listed and unlisted companies. Clause 2.1.1 of DIP Guidelines had made it mandatory to file draft prospectus only before SEBI, not before the Central Government. Obligation was also cast on initial public offerings by unlisted companies and the issue of OFCDs was a public issue under Regulation 1.2.1 (xxiii) which also indicated that DIP Guidelines would apply to Saharas as well. Issuing of convertible debentures in violation of those guidelines gives ample powers on SEBI to pass orders under Sections 11A and 11B of the SEBI Act as well as Regulation 107 of ICDR 2009 and direct refund of the money to investors. 120. SEBI, in the facts and circumstances of the case, has rightly claimed jurisdiction over the OFCDs issued by Saharas. Saharas have no right to collect Rs.27,000 crores from three million (3 crore investors) without complying with any regulatory provisions contained in the Companies Act, SEBI Act, Rules and Regulations already discussed. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the allegations levelled in the aforementioned complaints, SEBI sought information from Enam Securities Private Limited - the merchant banker for SPCL. Enam Securities Private Limited responded to the communication received from the SEBI on 21.2.2010. Enam Securities Private Limited, in its response, asserted on the basis of an inquiry conducted and legal opinion sought, that it had arrived at the conclusion, that the optionally fully convertible debentures (for short OFCDs) issued by SIRECL and SHICL had been issued in conformity with all applicable laws. 4. On 26.2.2010 lead managers of the two companies (SIRECL and SHICL) informed SEBI, that both the companies had issued debentures on "tap basis" i.e., by way of private placement. It was confirmed, that the two companies had issued an "information memorandum" under section 60B of the Companies Act, 1956 (hereinafter referred to as the Companies Act), prior to opening of the offer. It was acknowledged, that SIRECL had also issued a red herring prospectus (for short "RHP") with the Registrar of Companies (Uttar Pradesh and Uttarakhand). Likewise, SHICL had issued a RHP with the Registrar of Companies, Maharashtra. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters dated 12.5.2010. The two companies responded to the letters dated 12.5.2010 through separate replies dated 19.5.2010. Instead of furnishing details of the information sought by SEBI, the two companies required SEBI to furnish them with the complaints which had prompted it, to seek the information. SEBI again addressed separate communications to the two companies dated 21.5.2010 yet again seeking the same information, by making it clear to the two companies, that non compliance would result in appropriate action under the Companies Act, the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the "SEBI Act"), as also, the regulations framed thereunder. Both the companies, without furnishing details sought by SEBI, responded through separate letters, dated 24.5.2010 and 26.5.2010. In their response it was asserted, that since a large number of their staff members were on summer vacation, the information could not be made available immediately. In the aforesaid communications, the companies also informed SEBI, that the OFCDs had been issued by them in compliance with the provisions of the enactments referred to by the SEBI. Besides the foresaid, the two co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies under section 11C of the SEBI Act, to provide the following information: "3. 1. Details regarding filing of prospectus/Red-herring Prospectus with ROC for issuance of OFCDs. 2. Copies of the application forms, Red-Herring Prospectus, Pamphlets, advertisements and other promotional materials circulated for issuance of OFCDs. 3. Details regarding number of application forms circulated, inviting subscription for OFCDs. 4. Details regarding number of applications and subscription amount received for OFCDs. 5. Date of opening and closing of the subscription list for the said OFCDs. 6. Number and list of allottees for the said OFCDs and the number of OFCDs allotted and value of such allotment against each allottee's name; 7. Date of allotment of OFCDs; 8. Copies of the minutes of Board/committee meeting in which the resolution has been passed for allotment; 9 Copy of Form 2 (along with annexures) filed with ROC, if any, regarding issuance of OFCDs or equity shares arising out of conversion of such OFCDs. 10. Copies of the Annual Reports filed with Registrar of Companies for the immediately preceding two financial years. 11. Date of dispatch of debenture certificate etc." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but the information furnished by SIRECL to the Registrar of Companies, Uttar Pradesh and Uttarakhand, and the information furnished by SHICL to the Registrar of Companies, Maharashtra. The information which became available to SEBI in respect of SIRECL through the aforesaid source is being extracted hereinunder: "9. i. Shareholders Resolution: Vide resolution passed at the Extraordinary General meeting held on March 3, 2008 (and filed with RoC), consent of the members of SIRECL was obtained for issuance of OFCD by way of private placement basis to friends, associates, group companies, workers/employees and other individual who are associated/affiliated or connected in any manner with Sahara India Group of Companies and RHP of SIRECL was filed with RoC, Uttar Pradesh and Uttrakhand on March 13, 2008. ii. Promoters as per the RHP: SIRECL is a company belonging to the Sahara India Group and is promoted by Mr.Subrata Roy Sahara, the founder of Sahara India Group. iii. Directors as per the RHP: Mrs.Vandana Bharrgava, Mr.Ravi Shankar Dubey and Mr.Ashok Roy Choudhary have given consent to include their names as directors and have signed the RHP as the directors of SIRECL. iv. Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any advertisement in general public." Likewise the information which became available to SEBI in respect of SHICL is also being extracted hereunder: "9. i. Shareholders Resolution: As per the RHP, it is observed that the OFCD issuance by SHICL was approved by shareholders, vide the resolution (which is more or less similar to the resolution passed by SIRECL), passed in the AGM held on September 16, 2009. The RHP was filed with RoC, Maharashtra on October 6, 2009. ii. Promoters as per the RHP: SHICL is a company promoted by Mr.Subrata Roy Sahara, the founder of Sahara India Group. iii. Directors as per the RHP: Mrs.Vandana Bhargava, Mr.Ravi Shankar Dubey and Mr.Ashok Roy Choudhary have given consent to include their name as directors and have signed the RHP as directors of SHICL. iv. Date of opening and closing of the issue: RHP merely states that date of opening and closing would be as decided by the Board of Directors. v. Details of the issue: The issue consists of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the SEBI, was preposterous. Fifthly, SEBI had sought details of the number of application forms circulated, the number of application forms received, the amount of subscription deposited, the number and list of allottees, the number of OFCDs allotted, the value of allotment, the date of allotment, the date of dispatch of debenture certificates, copies of board/committee meetings, minutes of meetings during which the said allotment was approved. According to SEBI, since the information sought was merely basic, the denial of the same by the companies amounted to a calculated and deliberate denial of information. Sixthly, information sought by the SEBI depicted at serial number fifthly hereinabove, was solicited to determine the authenticity of the assertion made by the companies, that the OFCDs had been issued by way of private placement. Whereas, it was believed by the SEBI that the companies had issued the OFCDs to the public. Seventhly, since the companies had adopted the position, that the OFCDs were issued by way of private placement to friends, associate group companies, workers/employees and other individuals who were associated/affiliated/connected to the Sahara Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid submission on the premise, that section 81(1A) of the Companies Act, did not have an overriding effect over the provisions relating to public issue under the Companies Act. It was sought to be explained, that further issue of securities, extended only to existing shareholders of a company. According to the SEBI (FTM) section 81(1A) was only an exception to the said rule, subject to the procedural requirements enumerated therein. It was pointed out, that under the Companies Act further issue of capital, even pursuant to a resolution made under section 81(1A) of the Companies Act was subject to the provisions of Part III of the Companies Act, when an offer was to be made to 50 or more persons. The legal submissions, advanced on behalf of the companies based on section 81(1A) was, accordingly rejected. 18. The SEBI (FTM) also examined the issue with reference to section 2(36) of the Companies Act, which defines the term "prospectus" to mean any document described or issued as a prospectus and includes any notice, circular, advertisement or other document "inviting, deposits from the public or inviting offers from the public" for the subscription or purchase of any shares in, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act. For dealing with the second issue, reference was made to section 60 of the Companies Act which postulates the requirement of a company issuing a prospectus to deliver the same to the Registrar of Companies for registration. Reference was also made to section 60B(1) of the Companies Act which permits a company to issue an information memorandum to the public before filing a prospectus. It was observed, that the object of issuing an information memorandum, is to elicit the public demand for the securities proposed to be issued. The information collected, it was observed, is to enable the concerned company to assess the price and the terms of the proposed securities. Also taken into consideration was section 60B(2) of the Companies Act, which it was observed, imposes a mandatory condition on a public company to file a prospectus "prior to the opening of the subscription list" after it had issued an information prospectus. The requirement of filing prospectus, as indicated hereinabove, it was observed, is preceded with the words "bound" depicting the mandatory character thereof. The SEBI (FTM) also made a reference to section 60B(3) of the Companies Act which, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, credit-rating, etc." 23. Based on the DIP Guidelines and the ICDR Regulations, the SEBI (FTM) found that the companies had committed the following violations: "29 a) failure to file the draft offer document with SEBI; b) failure to mention the risk factors and provide the adequate disclosures that is stipulated, to enable the investors to take a wellinformed decision. c) denied the exit opportunity to the investors. d) failure to lock-in the minimum promoters contribution. e) failure to grade their issue. f) failure to open and close the issue within the stipulated time limit. g) failure to obtain the credit rating from the recognized credit rating agency for their instruments. h) failure to appoint a debenture trustee i) failure to create a charge on the assets of the company. j) failure to create debenture redemption reserve, etc." 24. Having recorded the aforesaid deliberations and conclusions, the SEBI (FTM) issued the following directions in its order dated 24.11.2010: "Therefore, in view of the foregoing reasons, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Securities and Exchange Board of India, Head Office, SEBI Bhavan, C-4A, G, Block, Bandra Kurla Complex, Bandra (East) Mumbai-400051. They may also inspect the relevant documents, if they so desire, on any working day prior to the hearing, during office hours at the above mentioned address. 42. Copy of this order is also forwarded to the Ministry of Corporate Affairs to enable them to take appropriate action as deemed fit by them, for any violation of the applicable provisions of the Companies Act, 1956 administered by them. 43. This order is without prejudice to any other action that may be initiated against the said violations. 44. This order shall come into force with immediate effect." Through the aforesaid order of the SEBI (FTM) dated 24.11.2010 SIRECL and SHICL were also directed to show cause as to why action should not be initiated against them, including issuance of directions to refund the money solicited and mobilized through the prospectus issued with respect to the impugned OFCDs. The instant show cause notice issued by the SEBI (FTM) dated 24.11.2010 shall hereinafter be referred to as "the first show cause notice issued by the SEBI." 25.. SEBI's order dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .....In this matter the questions as to what is OFCD and the manner in which investments are called for are very important questions. SEBI, being the custodian of the investor's interest and as an expert body, should examine these questions apart from other issues. Before we pass further orders, we want SEBI to decide the application(s) pending before it so that we could obtain the requisite input for deciding these petitions. We request SEBI to expeditiously hear and decide this case so that this Court can pass suitable orders on re-opening. However, effect to the order of SEBI will not be given. We are taking this route as we want to protect the interest of the investor. In the meantime, the High Court may proceed, if it so chooses, to dispose of the case at the earliest. The Special Leave Petitions shall stand over to July, 2011." 28. In compliance with the order extracted hereinabove, SEBI issued separate show cause notices to the companies on 20.5.2011. For facility of segregation, the instant show cause notices dated 20.5.2011 shall hereinafter be referred to as "the second show cause notice issued by the SEBI". Through the second show cause notice, the two companies were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under reference it was imperative for SEBI (FTM) to first ascertain, whether OFCDs issued by SIRECL and SHICL were "hybrid securities". If so, whether "hybrid securities" were covered by the definition of the term "securities" under the SEBI Act and/or the Securities Contract (Regulations) Act, 1956 (hereinafter referred to as "the SC(R) Act). The contention advanced at the behest of the companies on the instant issue was based on an amendment to the Companies Act in 2000. By the aforesaid amendment, the term "hybrid" was included in the definition of the term "securities" in section 45AA of the Companies Act (with effect from 13.12.2000). Since the term "hybrid" was not similarly included within the definition of term "securities" under the SEBI Act and/or SC(R) Act, the contention advanced on behalf of the appellant-companies was that SEBI had no jurisdiction in respect of "hybrid securities". 32. The SEBI (FTM), on analyzing section 2(k) of the SC(R) Act arrived at a conclusion that the term "securities" in the SEBI Act as also SC(R) Act included "other marketable securities of a like nature", SEBI, according to the SEBI (FTM), would therefore, have jurisdiction to deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(h) of the SCR Act." In conjunction with the aforesaid, the issue in hand was further evaluated by the SEBI (FTM) on the following lines: "14.6.8 In Narendra Kumar Maheshwari vs. Union of India [1990 (Suppl.) SCC 440], the Hon'ble Supreme Court, observed that in the various guidelines applicable to such instruments, compulsorily convertible debentures are regarded as 'equity' and not as a loan or debt." One of the critical considerations adopted by the Hon'ble Supreme Court of India in concluding so, is that "A compulsorily convertible debenture does not postulate any repayment of the principal." The thinking of the Hon'ble Supreme Court revealed in this Judgment, not only clarifies the issue, but also provides me with a touchstone to determine whether the OFCDs issued by the two companies are more in the nature of shares or debentures. SIRECL has issued three bonds viz., Abode Bond, Real Estate Bond and Nirmaan Bond. SHICL has also issued three bonds, viz., Multiple Bond, Income Bond and Housing Bond. From a plain reading of the summary of their descriptions at paragraph 9.2 and 9.3 above, it is evident that all these six bonds postulate a repayment of the principal. The repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detract from the fact that an OFCD is by definition, design and its characteristics, intrinsically and essentially a 'debenture'." 35. Thereupon SEBI (FTM) ventured to make a comparison of the definition of the term "securities" as under the Companies Act and with reference to its definition under the SC(R) Act. This comparison was made so as to determine the veracity of the submissions advanced on behalf of the appellant-companies that the term "securities", as defined under SC(R) Act which had been adopted by the SEBI Act could not be given the same meaning and effect as the definition of the term "securities" under the Companies Act for the simple reason that the Companies Act expressly included "hybrids" within the definition of the term "securities" (in section 2(45AA) of the Companies Act in 2000) whereas no such or similar inclusion was made in the SC(R) Act. The aforesaid submissions had been advanced in order to press the plea of the appellant-companies, that OFCDs issued by SIRECL and SHICL were "hybrids", and as such were not within the purview of SEBI Act. The relevant observations recorded by SEBI (FTM) on the instant subject are being placed below: "15.1 To reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able security. 2. The import of the expression "and includes" as used in Section 2(45AA) of the Companies Act has to be appreciated against the maxim of noscitur a sociis. The term 'securities' itself has a very extensive scope. There are no exceptional circumstances that suggest the need for any deviation from a normal and common interpretation of such expression. Therefore, the definition of the term 'securities' in section 2(h) of SCR Act encompasses 'hybrid' also and is therefore equivalent to the definition in section 2(45AA) in the Companies Act. 3. The powers conferred on SEBI under section 55A of the Companies Act, relate to 'securities' defined under that Act, and not under the SCR Act. So even if one were to assume that there are differences between the two definitions (even though there are none) SEBI can regulate all securities (whether hybrid or not) under Section 55A of the Companies Act. 4. Any assumption, even for argument's sake, that hybrids are not covered under the SCR Act, would lead to an untenable position, with a regulatory vacuum in so far as regulation of transactions in such hybrids are concerned, once they are issued. 5. Finally, were "hybrid", as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very absence of a 'database', readily available with the two companies itself is the best indicator that these not by any means 'private placements'. The SEBI (FTM), based on the analysis briefly noticed above, summarized its findings and conclusions on the issue in hand as under: "17.20The above findings are summarized below: 1. The OFCDs in question here constitute an offer to the public as they have been made to over fifty persons. 2. The manner and the features of fund raising under the bond issues by the two companies discussed above, suggest these issues are by no means 'private'. What seems evident is that the two companies have been running a mass subscription solicitation from the public. 3. The two companies do not fall under the entities specified in the second proviso to section 67(3) which is the only exemption granted to the 'Rule of 50', that defines offer to the public, under the Companies Act. I would therefore conclude that the OFCDs issued by the two companies are public issues, without any ambiguity." 37. The SEBI (FTM), thereupon, examined the applicability of section 73 of the Companies Act to the controversy in hand. Taking into consideration the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al prospectus with the Registrar of Companies under section 60B(9) of the Companies Act. This issue was dealt with by the SEBI (FTM) by expressing the following logic and analysis: "20.6 ...in the spirit of the Companies Act, an issuer that has made an offer of securities to the public, and therefore has applied for listing as legally required, undoubtedly has to sit in the category of 'listed public companies' and not 'others' in section 60B(9) of the Companies Act - and would indeed therefore be under the regulatory umbrella of SEBI, as provided in this sub-section itself. In other words, had the two companies abided by the requirements set by law, under section 67(3) and section 73, and applied for listing, they legitimately should have been dealt with, for the purposes of Section 60B(9), on par with any listed company. So, even the argument of the two companies, that they belong to the category of 'others' under section 60B(9) is ultra vires of the law, because it is premised on a violation of two important provisions of the Companies Act - viz., section 67(3) and 73. The analysis of the SEBI (FTM) of the process contemplated under section 60B of the Companies Act, was dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusions emerge: *If the offer of OFCDs are 'private' in nature, as claimed by the two companies, then section 60B is not the correct route to traverse for issuing OFCDs, given that section 60B deals with issue of information memorandum to the public alone. The two companies cannot, in one breath, claim that their issues are private placements and at the same time proceed to use a route, exclusively designed for public issues. *At the stage of taking recourse to section 60B under the Companies Act, a public company that proposes to issue securities to the public should already have applied, as is required under law, for listing on a stock exchange, and as such can only be treated on par with a "listed public company" and not in the category of the other group "and in any other case with the Registrar only" under section 60B(9) of the Companies Act. *The argument that they are in the latter category is built on the presumption that the two companies need not have complied with section 67(3) and section 73. The two companies are required under law to conform to these applicable legal provisions. Therefore, the framework for issue of capital under the Companies Act, the SEBI Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mobilize funds from the public under the information memorandum and the RHP, till they were restrained from doing so by the SEBI (vide its order dated 24.11.2010). Having considered the aforesaid contention raised on behalf of the appellant-companies the SEBI (FTM) also expressed the view, that the ICDR Regulations would be applicable because the violations committed by the two companies was of a continuing nature, more so, because the violations had continued even after the enforcement of the ICDR Regulations (with effect from 26.8.2009). Accordingly, the SEBI (FTM) expressed the view, that action could be taken against SIRECL, as well as, SHICL if their activities after 26.8.2009 were found to be in violation of the ICDR Regulations. 40. Having dealt with the issues raised by the appellant-companies as have been noticed hereinabove, as well as, certain other trivial matters not requiring an express mention in the instant order, the SEBI (FTM) ventured to examine the action of the two Companies on the touchstone of investor protection in securities, and the responsibilities assigned to SEBI to regulate the securities marked. Some of the aspects highlighted by the SEBI (FTM) which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngness of SIRECL to comply with its directions and cooperate with the investigations. There seems to be an unstated resolve on the part of the two Companies not to part with data in any meaningful manner. The thrust seems to be on concealment and obfuscation rather than openness and transparency. 24.3 The Learned Counsel, at one point in the submissions before me, mentioned the fact that there are no investor complaints at all, from any investor in the OFCDs raised by the two Companies. Going by the history of scams in financial markets across the globe, the number of investor complaints has never been a good measure or indicator of the risk to which the investors are exposed. Most major `Ponzi' schemes in the financial markets, which have finally blown up in the face of millions of unsuspecting investors, have historically never been accompanied by a gradual build up of investor complaints. But when financial catastrophes have indeed finally erupted, they do so with little warning and lead to major collapses in the financial markets with disastrous consequences to investors. 24.4 I have examined the copies of the RHPs filed by the two Companies. Against all the major investor pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vividly exposes the huge information gaps in them. As the issues have been kept open for several years now, even the scanty and sketchy information in these documents might have lost all its currency and utility to investors. 1. Filing of draft offer document with SEBI: Every issuer making public issue of securities has to file a draft offer document with SEBI through SEBI registered Merchant Banker. The draft offer document will be put-up for public comments for at least 21 days. SEBI examines the draft offer document with an objective for ensuring compliance with the investor protection measures prescribed by SEBI and for enhancing disclosures based on understanding of the matter contained in the prospectus or based on comments/complaints, if any, received from public, on the document. The Merchant Banker then incorporates necessary changes in the offer document. 2. Eligibility requirements for making a public issue: An unlisted issuer to become eligible for making a public issue should have : net tangible assets of at least Rs. 3 crore in each of the preceding three full years, distributable profits in at least three of the immediately preceding five years, net worth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... code of conduct and inspection of rating agencies by SEBI. 5. IPO Grading: Under the SEBI Guidelines/Regulations, no issuer shall make an initial public offer, unless as on the date of registering prospectus (or RHP) with the Registrar of Companies, the issuer has obtained grading for the initial public offer from at least one CRA registered with SEBI. IPO grading was made mandatory by SEBI as an endeavour to make additional information available to the investors to facilitate their assessment of the security on offer. It is intended to provide the investor with an informed and objective opinion expressed by a professional rating agency, after analyzing factors like business and financial prospects, management quality and corporate governance practices etc. 6. Creation of debenture trust and appointment of Debenture Trustee: Under Section 117B of the Companies Act, 1956 and SEBI Guidelines/Regulations, no company can issue a prospectus to the public for subscription of its debentures, unless the company has, before such issue, has appointed one or more debenture trustees and the company has, on the face of the prospectus, stated that the debenture trustee or trustees have given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , issuing company should appoint one or more merchant bankers to carry out the obligations relating to the issue. Merchant bankers should independently exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents and to ensure the interest of the investors are protected. The merchant banker should call upon the issuer, its promoters or directors to fulfill their obligations as required in terms of these Regulations and continue to be responsible for post issue activities till the subscribers have received the securities certificates, credit to their demat account or refund of application moneys and listing/trading permission is obtained. Merchant banker should submit a due diligence certificate to SEBI at the various stages of the issue inter alia stating that they have exercised due diligence including examination of various documents of the company and have satisfied themselves about the compliance with all the legal requirements relating to the issue, that disclosures which are fair and adequate to enable the investor to make a well informed decision and all applicable disclosures mandated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulation 46(1) of the ICDR Regulations (Clause 8.8.1 of the erstwhile DIP Guidelines) mentions that a public issue should be kept open for at least three working days but not more than ten working days. In the case of the two Companies and another of its Group Companies, the issue has been kept open for years on end. 12. Firm arrangements for finance: An issuer cannot make a public issue, unless firm arrangements of finance through verifiable means towards 75% of the stated means of finance (excluding the amount to be raised through the proposed public issue or rights issue or through existing identifiable internal accruals) have been made. 13. In-principle approval for listing from recognized stock exchanges: Issuers are required to obtain in-principle listing permission from the stock exchange, before making a public issue, as per SEBI Guidelines/Regulations. The requirement of listing in respect of a public issue is to ensure that the subscribers to the shares or debentures have a facility to approach a stock exchange for having their holdings converted into cash, whenever they desire and to provide liquidity and exit opportunity to the investors, especially in case, when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be responsible for monitoring the compliance of the securities laws and for redressal of investors' grievances. (Regulation 63 of the ICDR Regulations/Clause 5.12 of the DIP Guidelines) -The issuer and lead merchant bankers should ensure that the contents of offer documents hosted on the websites as required in these regulations are the same as that of their printed versions as filed with the Registrar of Companies, Board and the stock exchanges. (Regulation 61(1) of the ICDR Regulations/Clause 5.6 of the DIP Guidelines) -Issuer should enter into an agreement with a depository for dematerialization of specified securities already issued or proposed to be issued. (Regulation 4(2)(e) of the ICDR Regulations/Clause 2.1.5 of the DIP Guidelines)" 42. Besides all that has been noticed above, the SEBI (FTM) felt, that investors who had been issued a variety of bonds by the two companies were absolutely insecure. For the aforesaid inference the SEBI (FTM) mentioned the following reasons : "24.8 I also note that in the RHPs filed by the two Companies, it is stated that "The money not required immediately by the company may be parked/invested inter alia by way of circulating capital with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral public across the country, without adequately informing them of the risk factors involved in such a complex financial product." 44. Based on the aforesaid extensive factual and legal examination of the matter, the SEBI (FTM) summarized its salient conclusions as under : "1. OFCDs are hybrid instruments, and are `debentures'. 2. The definition of `securities' under Section 2(h) of the SCR Act is an inclusive one, and can accommodate a wide class of financial instruments. The OFCDs issued by the two Companies fall well within this definition. 3. The issue of OFCDs by the two Companies is public in nature, as they have been offered and issued to more than fifty persons, being covered under the first proviso to Section 67(3) of the Companies Act. The manner and the features of fund raising under the OFCDs issued by the two Companies further show that they cannot be regarded to be of a domestic concern or that only invitees have accepted the offer. 4. Section 60B deals with the issue of information memorandum to the public alone. Therefore the same cannot be used for raising capital through private placements as the said provision is exclusively designed for public book buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices Corporation Limited (earlier known as Sahara India Real Estate Corporation Limited) and Sahara Housing Investment Corporation Limited and its promoter, Mr. Subrata Roy Sahara, and the directors of the said companies, namely, Ms. Vandana Bhargava, Mr. Ravi Shankar Dubey and Mr. Ashok Roy Choudhary, jointly and severally, shall forthwith refund the money collected by the aforesaid companies through the Red Herring Prospectus dated March 13, 2008 and October 6, 2009, issued respectively, to the subscribers of such Optionally Fully Convertible Debentures with interest of 15% per annum from the date of receipt of money till the date of such repayment. 2. Such repayment shall be effected only in cash through Demand Draft or Pay Order. 3. Sahara Commodity Services Corporation Limited (earlier known as Sahara India Real Estate Corporation Limited) and Sahara Housing Investment Corporation Limited shall issue public notice, in all editions of two National Dailies (one English and one Hindi) with wide circulation, detailing the modalities for refund, including details on contact persons including names, addresses and contact details, within fifteen days of this Order coming in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered their RHPs, only after being satisfied with the correct disclosure of facts. The RHPs under reference were then registered by the respective Registrars of Companies. The aforestated submissions advanced by the learned counsel for the appellant-companies did not find favour with the SAT. The SAT was of the view that the appellant-companies had not disclosed in the information memorandum, that the same was being issued to 3 crore persons (expressed as 30 million persons, by the SAT), through 10 lakh agents, stationed in more than 2900 branch offices; inviting them to subscribe to the OFCDs. The aforesaid figures, according to the SAT, amounted to approaching the public through an advertisement. The SAT was of the view, that if SIRECL had indicated, that the invitation to subscribe OFCDs was being extended to 50 or more persons, the provisions of law relating to a public issue would have been found to be applicable. Non-disclosure of the aforesaid information, according to the SAT, could not be considered as innocent. The SAT felt, that the assertion at the hands of the appellant-companies, that the invitation to subscribe to OFCDs was by way of private placement, and furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Registrar of Companies guilty of having registered the RHP with undue haste, and for having acted in dereliction of duty. 49. The first legal issue examined by the SAT was, whether the OFCDs under reference were securities, and whether, SEBI had the jurisdiction to regulate them. Having analyzed the issue, SAT placed reliance on sections 2(1) and 2(2) of the SEBI Act. It expressed the view, that a reference could not be made, for interpreting the provisions of the SEBI Act, to terms defined by the Companies Act. Accordingly, the SAT rejected the contention of the learned counsel representing the appellant-companies to assign a meaning to the term "securities" with reference to the definition thereof, under the Companies Act. According to the SAT, OFCDs were not new instruments, as they were widely known to the securities market. In the securities market, securities were understood as a form of debentures. The SAT was of the view, that OFCDs in the present controversy, were "hybrids", covered by the definition of the term "securities" under the SEBI Act read with the SC(R) Act. The SAT also turned down the argument, that OFCDs issued by the two companies would not fall within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d having placed reliance on the first proviso under section 67(3) of the Companies Act, the SAT held, that the two companies had admittedly offered its OFCDs to more than 50 persons. In the aforesaid view of the matter, according to the SAT, there could not be any other conclusion, but that, the OFCDs floated by the two companies were by way of an invitation to the public. Besides the reasoning summarized above, the SAT also examined the same issue on the basis of the definition of the term "information memorandum" as has been expressed in section 2(19B) of the Companies Act, with reference to the procedure contemplated in section 60(B) of the Companies Act, and concluded, that the invitation of OFCDs by the two companies was not by way of private placement, but was by way of an issue to the public. 52. Having concluded that the two companies had made a public issue, the SAT summarized the obligations of a public company before bringing out a public issue. It was pointed out, that a public company was required to file a draft offer document with the SEBI through a registered merchant banker, which neither of the companies had done. Such a public company was also obliged to appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act, and thereupon concluded, that a public company which proposes to offer shares or debentures to the public, has to mandatorily issue a prospectus. Even before issuing the prospectus, the concerned company must make an application to one or more recognized stock exchange(s), for their permission to deal with the shares or debentures proposed to be issued. The SAT therefore concluded, that both SIRECL and SHICL were required to be listed on one or more recognized stock exchange(s), and that, both companies willfully defaulted, by not complying with the aforesaid mandatory provisions of section 73 of the Companies Act. 54. The SAT then examined the issue of jurisdiction, raised by the appellantcompanies, on the basis of section 55A of the Companies Act. The submission of the appellant-companies before the SAT was, that neither SIRECL nor SHICL had any intention to list their respective OFCDs on any stock exchange. In fact, it was contended, that both companies had clearly expressed their intention, that they would not list their OFCDs on any stock exchange(s). In the aforesaid view of the matter, since the SIRECL and SHICL would not be governed by clauses (a) and (b) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidelines. It was pointed out, that for the first time, action was initiated against the appellant-companies through the first show cause notice issued by the SEBI on 24.11.2010. The argument raised was, that the DIP Guidelines were repealed by the ICDR Regulations (with effect from 26.8.2009), and as such, it was not open to the SEBI to take action against the appellant-companies under the repealed DIP Guidelines. Insofar as the ICDR Regulations are concerned, the argument raised was, that the same would only have prospective effect. Therefore, the submission was, that the ICDR Regulations would not be applicable to actions and activities which had taken place prior to the coming into force of the ICDR Regulations (with effect from 26.8.2009). The SAT rejected the instant contention of the appellant-companies by placing reliance on Regulation 111 of the ICDR Regulations. The SAT concluded by holding, that the SEBI (FTM) was justified in holding both companies guilty of violating the DIP Guidelines read with the ICDR Regulations. 57. Having concluded its determination on the issue canvassed before it, the SAT, by its order dated 18.10.2011, upheld the order passed by the SEBI (FTM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid narration it was essential to demonstrate the position adopted by the appellant-companies prior to the issuance of the first show cause notice by the SEBI (FTM) dated 24.11.2010. It was also essential to trace the proceedings initiated in the High Court of Judicature at Allahabad, before its Lucknow Bench, for setting out the reasons recorded by the High Court; first, in vacating the interim order originally granted; and thereafter, for not reviving the original interim order. It was also essential to record the appellant-companies legal responses and submissions before the SEBI (FTM) and the SAT. It was essential, also to notice exactly what was canvassed on behalf of the appellant-companies, so as to visualize, that even though the main plank of the appellant-companies submission rested on a factual foundation, namely, whether the OFCDs issued by the appellant-companies was by way of "private placement", or by way of "a public issue"; the appellantcompanies did not base any of their submissions on any concrete factual data, to establish the aforesaid issue. I shall now venture to examine the submissions advanced before us, by dealing with the controversy issue-wise. Was the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly addressed a large number of communications to both the companies. The letters issued by SEBI and the responses furnished by the two companies have been narrated in paras 2 to 12 of the instant order. SEBI under the provisions of the SEBI Act, has a mandate to shoulder extremely serious and onerous responsibilities. These responsibilities include the task of protecting the interest of investors in securities, and the development and regulation of the securities market. When the first communication was addressed by SEBI to Enam Securities Private Limited - the merchant banker for SPCL, the reply furnished by Enam Securities Private Limited referred to the fact, that the same was based on legal opinion. It is therefore apparent, that right from the beginning, legal opinion came to be sought before replies were furnished, on behalf of the two companies to SEBI. Even the tenor of the letters addressed by the two appellant-companies available on record depict, that they had furnished their replies after seeking legal guidance. It is in the aforesaid background, that one needs to evaluate the responses of the two companies, to the queries raised by SEBI. 61. Now, about the replies of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certainly be concluded, that the same was outrageously ridiculous, keeping in mind that both companies proclaim to be a part of the Sahara India Group of Companies. It is difficult to swallow, that the two companies had not even maintained records, pertaining to investments in the range of close to Rs.40,000 crores. 62. On 11.6.2010 SEBI informed the two companies, that their responses indicated, that they intended to protract the correspondence, to delay the matter. Relevant extract, of the letter dated 11.6.2010, is being reproduced hereunder: "Considering that, we are surprised your received letter. It seems that the intention behind the letter is only to protract the correspondence. In this regard you are advised to provide the information sought vide our letter dated May 12, 2010 by June 15, 2010, as agreed vide your aforesaid letter. We, once again, reiterate that failure to provide the information or applying any other delaying tactics may result in initiating appropriate action in terms of the SEBI Act and Regulations made thereunder and also under relevant sections of the Companies Act which are delegated to SEBI." The wielded threat contained in the communication extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Financial Officer. 64. Consequent upon the receipt of the responses from the appellantPage companies, and their failure to furnish information to SEBI, a show cause notice dated 24.11.2010 came to be issued to both the companies. Pending a response to the show cause notices, the SEBI (FTM) vide an order dated 24.11.2010 issued a number of directions to the appellant-companies, including an order restraining the two companies from mobilizing funds under the respective RHPs issued by them, till further directions. The companies were also, inter alia, directed not to offer their equity shares/OFCDs or any other securities to the public or to invite subscription in any manner whatsoever, either directly or indirectly, till further orders. 65. The SEBI (FTM's) order dated 24.11.2010 was assailed before the Lucknow Bench of the High Court of Judicature at Allahabad. On 13.12.2010, the High Court stayed the operation of the order (dated 24.11.2010). On an application filed by the SEBI, the High Court vacated the aforesaid interim order on 7.4.2011. While vacating the interim directions, the High Court observed interalia: "4. .....The petitioners were supposed to cooperate in the inqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually, the entire controversy came to be shifted back to SEBI (consequent upon this Court's order dated 12.5.2011). The writ petition filed by the appellant-companies before the High Court, therefore, came to be withdrawn. At that juncture, the SEBI issued its second show cause notice dated 20.5.2011, principally on the same facts and grounds, as its first show cause notice (dated 24.11.2010). Both SIRECL and SHICL filed detailed responses to the same, again asserting that the OFCDs had been issued to friends, associates, group companies, workers/ employees and other individuals associated/affiliated or connected in any manner with Sahara India Group of Companies, without depicting the details of each of the subscribers to show which of them were friends or associates of group companies or workers/employees and/or other individuals associated/affiliated or connected in any manner with Sahara India Group of Companies. The battle lines were, accordingly, again drawn on legal issues rather than on factual details. 67. Having received replies to the show cause notices dated 20.5.2011, and having heard learned counsel representing the appellant-companies, it was held that the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies or worker/employee and/or other individual associated/affiliated or connected in any manner with Sahara India Group of Companies. Besides the aforesaid, "Kalawati" is a very common name, and there could certainly be more than a couple of Kalwatis, at the investor's address indicated in the compilation. Neither her parentage nor her husband's name has been disclosed, so that the identity of "Kalawati" could be exclusively determined to the individual who had subscribed to the OFCDs. The address of "Kalawati", indicated is of a general description, as it does not incorporate a particular door number, or street, or locality. The name of the introducer/agent, leads to a different impression altogether. "Haridwar", as a name of a person of Indian origin, is quite uncomprehendable. In India names of cities do not ever constitute the basis of individual names. One will never find Allahabad, Agra, Bangalore, Chennai or Tirupati, as individual names. The address of the introducer/agent, depicted in the compilation is as intriguing as the address of the investor (for exactly the same reason recorded above, for the subscribers name). One would not like to make any unrealistic remark, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere proceeding on legal guidance right from the beginning. What the two companies chose to collect through their OFCDs was a contribution to the tune of of Rs.40,000 crores. Surely, while dealing with such an enormous amount of money, the information available in the records of the appellant-companies is expected to be of the highest order of precision. 72. SEBI is statutorily empowered under sections 11(2)(i) and (ia), as well as, 11 (2A) of the SEBI Act, to call for information. The appellant-companies were, therefore, statutorily obliged to furnish the information sought. The information sought by SEBI from the appellant-companies, would have led to a firm and clear factual conclusion, whether the OFCDs issued by SIRECL and SHICL were by way of "private placement", or by way of an invitation "to the public". The best legal minds in this country have guided and represented the appellant-companies at all stages, right from the beginning. There can therefore be no doubt, that the particulars sought by the SEBI, were not furnished by the appellant-companies, on the basis of considered legal advice. But then, there are legal consequences, for such considered withholding of informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the denial of the same amounted to a calculated and deliberated denial of the same. There can be no quarrel with the aforesaid conclusion. Why would anyone not furnish such basic information? The aforesaid information had been sought, to determine whether the OFCDs issued by SIRECL and SHICL were by way of "private placement" (as claimed by the appellant-companies), or by way of an invitation "to the public" (as counter claimed by the SEBI). Since the appellant-companies willfully avoided to furnish the aforesaid information (which ought to have been readily available with them) to the SEBI, one is constrained to conclude, that if the appellant companies had furnished the said information, SEBI would have been able to conclude the issue against the appellant-companies, i.e., that the OFCDs issued by the SIRECL and SHICL, were by way of an invitation "to the public". I am therefore, persuaded to conclude accordingly. The second perspective : 73. The same conclusion as has been drawn hereinabove, can be legally drawn from another angle as well. For the instant aspect of the matter it is essential to refer to section 67 of the Companies Act. The same is accordingly being extracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erality of sub-section (3), a provision in a company's articles prohibiting invitations to the public to subscribe for shares or debentures shall not be taken as prohibiting the making to members or debenture holders of an invitation which can properly be regarded in the manner set forth in that sub-section. (5) The provisions of this Act relating to private companies shall be construed in accordance with the provisions contained in sub-sections (1) to (4)." The aforesaid provision, pointedly brings out the construction of references to an invitation/offer of shares or debentures "to the public". Sub-section (1) of section 67 reproduced above, pertains to an act of "offering" of shares and debentures, whereas, sub-section (2) thereof deals with a similar act by way of "invitation". The construction of section 67 of the Companies Act, determines, when the "invitation or offer" is to be accepted as having a reference "to the public". As a matter of clarification, the aforestated two sub-sections, while accepting the generic meaning of the term "to the public", proposition a special construction for the same whereby a limited/restricted meaning has been extended to the same. Sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . At best, what the appellant-companies have referred to as "private placement", can be only that which would be an exception to invitations/offers contemplated under subsections (1) and (2) of section 67, namely, only such invitations/offers as would be covered by sub-section (3) of section 67 of the Companies Act. The category of persons falling within the scope of sub-section (3) of section 67 only, can be treated as falling in sphere of "private placement". Therefore, at best "private placement" within the meaning of the assertions made on behalf of the appellantcompanies, would essentially fall in the two categories expressed in clauses (a) and (b) of sub-section (3) of section 67 of the Companies Act. Clearly, since the first proviso under section 67(3) limits the upper limit thereunder to less than 50, an invitation/offer by way of "private placement" under the Companies Act, can under no circumstances exceed 49. Applying the legal parameters emerging from section 67 of the Companies Act, an endeavour shall now be made, to determine whether the invitation/offer made by SIRECL and SHICL was by way of "private placement" or by way of an invitation "to the public". 75. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SHICL. In case of both the appellant-companies therefore, the number of subscribers exceeded manifolds, the upper limit of 49, expressed in the first proviso under section 67(3) of the Companies Act. Consequently, even as a matter of law, it is not possible to find favour with the contention advanced at the behest of the appellant-companies, that the OFCDs issued by the SIRECL and SHICL were by of "private placement". It is inevitable therefore, to accept the contention of the SEBI, that the OFCDs issued by the SIRECL and SHICL were by way of an invitation "to the public". The third perspective : 76. The instant issue was examined by the SAT from yet another viewpoint. SAT expressed the opinion, that the appellant-companies did not disclose in their information memorandum, that the invitation/offer to subscribe to the OFCDs was being issued to 3 crore persons (expressed as 30 million persons by the SAT), through 10 lakh agents, stationed in more than 2900 branch offices. And therefore, the real intent of the appellant-companies remained unnoticed. The aforesaid figures, according to the SAT, were by themselves sufficient to conclude, that the appellant-companies had approached th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent issue II - Capital structure of the company (a)........... (b) Size of present issue giving separately reservation for preferential allotment to promoters and others. 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 b e 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.** Finding no legal infirmity in the aforesaid RHP, it was submitted, that the same was duly registered by the Registrar of Companies on 18.3.2008. It was also pointed out, that SIRECL had also circulated an information memorandum on 25.4.2008, indicating the same position. Based on the aforesaid factual position, it was contended that the appellant-companies having expressed, that they "do not intend the proposed issue to be listed in any stock exchange(s)", it is wholly arbitrary to presume just the opposite. Based on the aforesaid sequence of facts (and logic), it was contended, that it was not appropriate to presume against the appellant-companies, something contrary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigating Authority , on the ground o f violation o f the rules of natura l justice ? 79. The issue incorporated in the query posed above, was not canvassed before us during the course of hearing. Since the issue aforesaid had been adjudicated upon in favour of the appellant-companies by the SAT, the appellantcompanies were not expected to assail the same. Since no appeal was preferred at the hands of SEBI (as it had succeeded on other issues before the SAT), it could not even be agitated on behalf of SEBI. During the course of preparing the instant judgment one had the occasion to ponder over the determination rendered by the SAT, whereby certain factual conclusions drawn by the SEBI (FTM) were omitted from consideration by the SAT, on the basis of the determination by the SAT, that the same had been drawn in violation of the rules of natural justice. The SAT held, that the facts ascertained on an inquiry made by the Investigating Authority appointed by the SEBI, were liable to be ignored, because the appellant-companies had neither been put to notice, nor their response thereon had been sought. In order to bring out the determination of the SEBI (FTM), as also the decision t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts that are typically needed to canvass deposit business from the general public. Both of them had hardly any awareness of the convertibility in these instruments." There is merit in the contention of the appellants. As already observed, one of the primary questions that arose before the whole time member was whether the issue of OFCDs was a public issue, or one by way of private placement. The appellants have been contending throughout that it was a private issue and that they had not approached the public and that the OFCDs were being offered only to their friends, associates, group companies, workers/employees and other individuals associated/affiliated or connected with Sahara Group of companies. In order to find out whether this fact was true, the whole time member directed the investigating authority to find out on a random check whether the company had approached members to the public or their own associates as claimed. The investigating authority appears to have recorded the statements of some persons to whom OFCDs have been offered and concluded that they were not the associates of the company. The whole time member relied upon these conclusions to hold that the issue was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of an issue "to the public"), reveals that inspite of best efforts made by SEBI, neither of the two companies furnished the information solicited from them. Information was obtained by SEBI directly from MCA-21 portal maintained by the Ministry of Corporate Affairs. Added to this, SEBI inter alia relied on facts collected through its Investigating Authority. Based on the aforesaid material SEBI (FTM) ventured to determine the controversy before it. Whether or not the two companies herein, could be permitted to agitate against the factual determination rendered by the SEBI (FTM), based on inquiries made at the behest of the SEBI (through its Investigating Authority), would depend upon their fairness in furnishing the materials sought by SEBI. It is apparent, that both SIRECL and SHICL, based on one excuse or another, did not provide the factual details sought by the SEBI, though the same were available with them. On some occasions, the excuses for not furnishing the information, were outrageously absurd (as discussed in an earlier part of the order). Having declined to furnish facts sought by SEBI, the SEBI was left with no other alternative but to garner shreds of information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant-companies was preserved as a closely guarded secret. That position has remained unaltered throughout. A person who has repulsed earlier opportunities (as the appellant-companies have), has no right to demand any further opportunity under the rules of natural justice. The appellant companies cannot be heard to say, that though they had consciously kept all the facts secret, they should have all the same been given an opportunity under the rules of natural justice to disclose the secrets? One would therefore, have no hesitation in concluding, that a party which has not been fair, cannot demand a right based on a rule founded on fairness. Inspite of the aforesaid conclusion, it would be wrong to assume that the appellant-companies were remediless. That remedy was, to place the correct factual data, supported by documents in their custody before the adjudicating authorities. That would have certainly enabled SAT, in its appellate jurisdiction, to determine whether the SEBI (FTM) was justified in drawing the factual inferences. The SAT was therefore, wholly unjustified in ignoring the conclusions drawn by the SEBI (FTM), on the basis of inquiries which were got conducted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd scheme; 'Explanation. - For the removal of doubts, it is hereby declared that "securities" shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938." ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable including mortgage debt, as the case may be;" ii) Government securities; iia) such other instruments as may be declared by the Central Government to be securities; and iii) rights or interests in securities;" A collective perusal of section 2(1)(i) of the SEBI Act and section 2(h) of the SC(R) Act completely and effectively defines the term "securities" for the purpose of the SEBI. 84. As against the aforesaid, the term "securities" has been defined in section 2(45AA) of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute between the rival parties, that consequent upon an amendment made in 2000 (with effect from 13.12.2000) section 55A was added to the Companies Act. The aforesaid addition demarcated between SEBI on the one hand, and the Central Government (as also, the Tribunal and the Registrars of Companies) on the other, spheres of administrative control over "different provisions" and "subjects" of the Companies Act. Even out of the expressly demarcated provisions assigned to SEBI, the administrative authority vested in the SEBI was limited "...to issue and transfer of securities and non payment of dividend...". Thus viewed, the subject of "securities" and matters connected thereto were, generally to be administered by the SEBI (after the addition of section 55A to the Companies Act), whereas, all the remaining provisions on subjects other than "securities" and matters connected thereto, were generally to be administered by the Central Government (as also, the Tribunal and the Registrar of Companies). There can be no doubt, that the administrative authority of SEBI pertaining to the provisions of Companies Act, could only be determined on the basis of the definitions, as are contained in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y" and "includes their derivatives". For the purposes of the SEBI Act, the term "securities" is accepted as it is defined in section 2(h) of the SC(R) Act. Section 2(h) of the SC(R) Act does not define the term "securities" exhaustively, because clauses (i) to (iia) thereof, only demonstrate what may be treated as included in the definition of the term "securities". And, clause (i) of section 2(h) of the SC(R) Act, includes within the definition of the term "securities" inter alia, "bonds", "debentures" and "other marketable securities of a like nature". For the present controversy it is sufficient to notice, that the appellant-companies through their respective RHPs had invited subscription to, Optionally Fully Convertible "Debentures" (OFCDs). On receipt of subscription amounts from investors, the appellant-companies had issued different kinds of "bonds" (described as Abode Bonds, Nirman Bonds and Real Estate Bonds, by SIRECL; and Multiple Bonds, Income Bonds and Housing Bonds, by SHICL). Since the term "hybrid" has been expressed as "...means any security..." there can be no doubt that a "hybrid" is per-se a security. Moreover, the term "security" in its definition includes "... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the learned counsel for the appellant-companies, it was not imperative for either the SIRECL or SHICL to make an offer of the OFCDs through one or more recognized stock exchange(s). This has been the firm position adopted by the appellant-companies, before the SEBI, the SAT and even before us. According to learned counsel, even before the opening of the offer, in furtherance of the RHPs issued by the two companies, they had made their position clear by expressing, that they did not intend to be listed on any recognized stock exchange(s). The aforesaid position expressed by the two companies in their respective RHPs, was accepted and approved by the respective Registrars of Companies. According to learned counsel, registration of the aforesaid RHPs itself implies the fulfillment of all legal norms and formalities. 90. In so far as the instant aspect of the matter is concerned, learned counsel for the appellant-companies also placed reliance on section 60B of the Companies Act, which is reproduced hereunder: "60B. Information Memorandum (1) A public company making an issue of securities may circulate information memorandum to the public prior to filing of a prospectus. (2) A c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceive back their original application and interest at the rate of fifteen per cent from the date of encashment till payment of realization. (9) Upon the closing of the offer of securities, a final prospectus stating therein the total capital raised, whether by way of debt or share capital and the closing price of the securities and any other details as were not complete in the red-herring prospectus shall be filed in a case of a listed public company with the Securities and Exchange Board and Registrar, and in any other case with the Registrar only." It was submitted that section 60B is applicable to listed public companies, as well as, to unlisted public companies. It was pointed out, that the only obligation contemplated under section 60B, which distinguishes listed public companies from unlisted public companies, is provided for under sub-section (9), thereof. According to the learned counsel for the appellant-companies, the process of issue of securities by a public company, can be initiated by circulation of an "information memorandum" to the public. The procedure contemplated under section 60B aforementioned, contemplates the issuance of a RHP, and thereafter a final prosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore such issue, make an application to one or more recognized stock exchange for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange. 1A Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognized stock exchanges, such prospectus shall state the names of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void if the permission has not been granted by the stock exchange or each such stock exchange as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists: Provided that where an appeal against the decision of any recognized stock exchange refusing permission for the shares or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the dismissal of the appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section (2); and if default is made in complying with this subsection, the company and every officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees. 3A. Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilized for any purpose other than the following purposes namely:- (a) adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus; or (b) repayment of moneys received from applicants in pursuance of the prospectus, where shares have not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allotment of share. 4. Any condition purporting to require or bind any applicant for shares or debentures to waive compliance with any of the requirements of this section shall be void. 5. For the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant-companies having circulated an "information memorandum" and having expressly issued their respective RHPs, must be deemed to have accepted the obligation imposed by sub-section (3) of section 60B of the Companies Act, namely, the "information memorandum" and the RHP would carry the same obligations as are applicable in the case of a "prospectus". Sub-sections (4) to (8) of section 60B of the Companies Act, according to the learned counsel for the SEBI, allows an investor to withdraw any deposits made, if the position disclosed in the "information memorandum" or the RHP is varied in any manner. In case an investor exercises the said option because of any such variation, it was submitted, the deposits received from such investor, must mandatorily be returned with interest at the rate of 15%. Not only that, according to the SEBI, even if an application made by a public company to one or more recognized stock exchanges, for permission to be dealt with through one or more recognized stock exchange(s) is eventually not accepted by any recognized stock exchange, the concerned public company must forthwith repay the deposits received. If the concerned company fails to refund the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the words "shall be bound" that sub-section (2) aforesaid, requires every public company which has issued an "information memorandum" to follow it up with a "prospectus"/RHP. In other words, after issuing an "information memorandum" the concerned public company is commanded to issue a prospectus/RHP. A "prospectus" or the RHP, depicts the terms and conditions of the offer. The binding effect thereof has been noticed in the submissions advanced on behalf of the SEBI which I hereby accept, as the true import of section 60B of the Companies Act. Any alteration in the terms and conditions depicted in the "prospectus" or RHP entitles the applicant/investor to withdraw the entire amount deposited. The depositor is also is entitled to a refund of the entire amount along with interest. 95. The situation emerges thus. The appellant-companies are admittedly public companies. Having issued an "information memorandum" it was binding on them to issue a prospectus/RHP. Both companies have actually issued RHPs. The purpose whereof was to invite subscriptions to their OFCDs. It has already been concluded above, that the appellant-companies invited subscriptions, by making an offer "to the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities and Exchange Board of India - The provisions contained in Sections 55 to 58, 59 to 81 (including sections 206, 206A and 207, so far as they relate to issue and transfer of securities and non-payment of dividend shall, -- (a) in case of listed companies; (b) in case of those public companies which intend to get their securities listed on any recognized stock exchange in India, be administered by the Securities and Exchange Board of India; and (c) in any other case, be administered by the Central Government. Explanation - For the removal of doubts, it is hereby declared that all powers relating to all other matters including the matters relating to prospectus, statement in lieu of prospectus, return of allotment, issue of shares and redemption of irredeemable preference shares shall be exercised by the Central Government, Tribunal or the Registrar of Companies, as the case may be." According to the learned counsel for the appellant-companies, it is not a matter of dispute that SIRECL and SHICL are not "listed" companies. Therefore, according to the learned counsel, clause (a) of section 55A of the Companies Act cannot be invoked to determine the jurisdiction of the SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SIRECL and SHICL had not invited subscriptions to their respective OFCDs by "private placement". It has been held, not only inferentially, but also as a matter of law (on an interpretation of section 67 of the Companies Act), as also, as a matter of fact, that the SIRECL and SHICL had called for subscription to their respective OFCDs by way of an invitation "to the public". It has also been deduced (by relying on sections 67 and 73 of the Companies Act) above, that an invitation for subscription from the public, could have been made only by way of listing, through one or more recognized stock exchange(s). It has also been concluded, that the purpose sought to be achieved by the two companies (relying on section 60B of the Companies Act) by merely complying with the requirements of the procedure contemplated in section 60B of the Companies Act, is not acceptable in law, as section 60B is not a stand alone provision. Section 60B of the Companies Act has to be harmoniously read along with other provisions of the Companies Act (as for instance section 67). The appellant-companies must be deemed to have "intended" to get their securities listed on a recognized stock exchange, because t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid submission, advanced at the hands of the learned counsel for the appellant-companies, since independently of section 55A of the Companies Act, it has already been concluded hereinabove, that the SEBI would have jurisdiction over matters emerging out of section 60B in view of the express and clear depiction in sub-section (9) of section 60B itself, specially in a situation as the one presented in the present case, wherein subscription towards the OFCDs under reference could only have been legal, if it was sought through a process of listing, in one or more recognized stock exchange(s). It is therefore, that one feels, that the other submissions advanced at the hands of the learned counsel for the appellant-companies by placing reliance on section 55A of the Companies Act, do not arise for adjudication, in the present controversy. The second perspective 100. It is not possible for one to lose sight of the fact, that the SAT in the impugned order dated 18.10.2011 had recorded its conclusions on jurisdiction without even placing reliance on the provisions of the Companies Act. According to the SAT, under sections 11, 11A, 11B etc., of the SEBI Act, SEBI has the power of regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities and some other categories of persons associated with the securities market like foreign institutional investors, credit rating agencies and venture capital funds which play a major role in the development of the capital market which were outside the purview of the Board; (c) impose monetary penalties also in addition to or other than penalties of suspension or cancellation of certificate of registration which may not be appropriate in all case of default; (d) provide for appointment of adjudicating officer for imposition of penalties and for establishment of Securities Appellate Tribunal to hear appeals from the orders or decisions of adjudicating officer; (e) issue regulations without the approval of the Central Government; (f) allow directors of companies to be appointed as members of the Board so that the Board benefits from the expertise of people familiar with the capital market; (g) facilitate the issuance and trading of options in securities; (h) allow the existing stock exchanges to establish additional trading floors outside their area of operation; (i) make violation of the listing agreement as an offence. xxx xxxx xxxx". The SEBI Act was again amended in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2002) was promulgated on the 29th October, 2002 to amend the Securities and Exchange Board of India Act, 1992. 5. It is now proposed to replace the Ordinance by a Bill, with, inter alia, the following features- (a) increasing the number of members of the SEBI from six (including Chairman) to nine (including Chairman); (b) conferring power upon the Board, for,- (i) calling for information and record from any bank or other authority or Board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which are under investigation or inquiry by the Board; (ii) passing an order for reasons to be recorded in writing, in the interest of investors or securities market, either pending investigation or enquiry or on completion of such investigation or inquiry for taking any of the following measures, namely, to- (A) suspend the trading of any security in a recognized stock exchange; (B) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (C) suspend any office-bearer of any stock exchange or self-regulato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 11AA, 11AB, 11C and 11B came to be added into Chapter IV of the SEBI Act. Provisions contained in Chapter IV deal with the powers and functions of the Board. It is essential to refer to some of the relevant amended provisions, for the determination of the issue in hand. The said reference shall be limited to the extent of powers vested in the SEBI, to carry out its primary functions i.e., investors' protection and promotion of development and regulation of the securities market. 102. Section 11 which is the heart and soul of the SEBI Act is being extracted hereunder: "11. Functions of Board:- (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for - (a) regulating the business in stock exchanges and any other securities markets; (b) registering and regulating the working of stock brokers, subbrokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market." (3) Notwithstanding anything contained in any other law for the time being in force while exercising the powers under clause (i) or clause (ia) of sub-section (2) or subsection (2A), the Board shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908),while trying a suit, in respect of the following matters, namely : (i) the discovery and production of books of account and other documents, at such place and such time as may be specified by the Board; (ii) summoning and enforcing the attendance of persons and examining them on oath; (iii) inspection of any books, registers and other documents of any person referred to in section 12, at any place; (iv) inspection of any book, or register, or other document or record of the company referred to in sub-section (2A); (v) issuing commissions for the examination of witnesses or documents. (4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch thereof. Sub-section (1) of section 11 of the SEBI Act casts an obligation on the SEBI, to protect the interest of investors in securities, to promote the development of the securities market, and to regulate the securities market, "by such measures as it thinks fit". It is, therefore, apparent that the measures to be adopted by the SEBI in carrying out its obligations are couched in open-ended terms, having no pre-arranged limits. In other words the extent of the nature and the manner of measures which can be adopted by the SEBI for giving effect to the functions assigned to the SEBI, have been left to the discretion and wisdom of the SEBI. It is necessary to record here, that the aforesaid power to adopt "such measures as it thinks fit" to promote investors' interest, to promote the development of the securities market and to regulate the securities market, has not been curtailed or whittled down in any manner by any other provisions under the SEBI Act, as no provision has been given overriding effect over sub-section (1) of section 11 of the SEBI Act. Coupled with the clear vesting of the power with SEBI referred to above, subsection (2) of section 11 of the SEBI Act illustra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly extends the aforesaid power "to impound and retain the proceeds of securities...", "to attach ...one or more bank account or accounts of any intermediary or any person associated with the securities market...". SEBI, can also "direct any intermediary or any person associated with the securities market ...not to dispose of or alienate any asset..." in respect of "any listed public company or a public company...which intends to get its securities listed on any recognized stock exchange", if there are reasonable grounds to believe, that such company has been indulging in insider trading or fraudulent and unfair trade practices, relating to the securities market. 104. It is imperative to notice the expression "of any listed public company or a public company...which intends to get its securities listed on any recognized stock exchange" incorporated in sub-section (2A) and (4) of section 11 of the SEBI Act, and to determine the purport thereof. The aforesaid inclusion, cannot be deemed to limit the power of the SEBI, so as to confine its jurisdiction only to companies which are listed or which intend to be listed. The reason for the instant inference is, that sub-section (2) does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I Act to all kinds of companies, it was unnecessary to limit the scope of inspection contemplated under section 11(2A) of the SEBI Act, only to listed public companies or such public companies which intend to get their securities listed on any recognized stock exchange. Most definitely, the query would seem justified on a superficial reading of sub-sections (2A) and (4) of section 11. The aforesaid query would however not arise, if all the sub-sections of section 11 of the SEBI Act are harmoniously construed. The legislative intent emerging from sub-section (3) of section 11 of the SEBI Act, was to extend powers as are vested in a civil court under the Code of Civil Procedure, to only two of the clauses (i.e., clauses (i) and (ia)) of sub-section (2) of section 11 of the SEBI Act, even though, sub-section (2) aforesaid has 16 clauses. Likewise, the legislative intent emerging from sub-section (3) of section 11 of the SEBI Act was, to extend powers as are vested in a civil court under the Code of Civil Procedure, only to listed public companies or public companies which intend to get their securities listed on a recognized stock exchange. It is therefore, that an express mention had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Section 11A of the SEBI Act is being reproduced hereunder: 11A. Board to regulate or prohibit issue of prospectus, offer document or advertisement soliciting money for issue of securities. (1) Without prejudice to the provisions of the Companies Act, 1956 (1 of 1956), the Board may, for the protection of investors- (a) specify, by regulations - (i) the matters relating to issue of capital, transfer of securities and other matters incidental thereto; and (ii) the manner in which such matters shall be disclosed by the companies; (b) by general or special orders - (i) prohibit any company from issuing prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities; (ii) specify the conditions subject to which the prospectus, such offer document or advertisement, if not prohibited, may be issued. (2) Without prejudice to the provisions of section 21 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Board may specify the requirements for listing and transfer of securities and other matters incidental thereto." A perusal of section 11A extracted above, leaves no room for any doubt, that the authority of SEBI e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board. (2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing director, officer and other employee of the company and every intermediary referred to in section 12 or every person associated with the securities market to preserve and to produce to the Investigating Authority or any person authorized by it in this behalf, all the books, registers, other documents and record of, or relating to, the company or, as the case may be, of or relating to, the intermediary or such person, which are in their custody or power. (3) The Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before it or any person authorized by it in this behalf as it may consider necessary if the furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e failure or refusal continues. (7) Notes of any examination under sub-section (5) shall be taken down in writing and shall be read over to, or by, and signed by, the person examined, and may thereafter be used in evidence against him. (8) Where in the course of investigation, the Investigating Authority has reasonable ground to believe that the books, registers, other documents and record of, or relating to, any intermediary or any person associated with securities market in any manner, may be destroyed, mutilated, altered, falsified or secreted, the Investigating Authority may make an application to the Judicial Magistrate of the first class having jurisdiction for an order for the seizure of such books, registers, other documents and record. (9) After considering the application and hearing the Investigating Authority, if necessary, the Magistrate may, by order, authorize the Investigating Authority - (a) to enter, with such assistance, as may be required, the place or places where such books, registers, other documents and record are kept; (b) to search that place or those places in the manner specified in the order; and (c) to seize books, registers, other documents and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al or Registrar of Companies), came to be exclusively transferred to the SEBI. 108. In answering the question posed above, there seems no ambiguity that the SEBI has the jurisdiction to regulate and administer SIRECL and SHICL. Whether i t was a pre-planned attempt o f SIRECL and SHICL , to bypass the regulatory (and administrative) authority o f SEB I in respec t o f OFCDs / bonds issued by them? 109. The issues dealt with hitherto-before were canvassed at the behest of the appellant-companies. The instant issue, is being dealt with at the behest of SEBI. During the course of hearing it was the vehement contention on behalf of the learned counsel representing SEBI, that SIRECL and SHICL had pre-planned to avoid the involvement of SEBI in the activities of the two companies. This, according to the learned counsel representing SEBI, was with the sole purpose of having a free hand in their endeavours. The instances pointed out by the learned counsel for the SEBI can safely be discussed under three heads which are being dealt with hereinafter. The firs t perspective : 110. The first contention advanced by the learned counsel representing SEBI, was based on section 56 of the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to be excused: Provided that no director or other person shall incur any liability in respect of the failure to include in a prospectus a statement with respect to the matters specified in clause 18 of Schedule II, unless it is proved that he had knowledge of the matters not disclosed. (5) This section shall not apply- (a) to the issue to existing members or debenture-holders of a company of a prospectus or form of application relating to shares in or debentures of the company whether an applicant for shares or debentures will or will not have the right to renounce in favour of other persons; or (b) to the issue of a prospectus or form of application relating to shares or debentures which are, or are to be, in all respects uniform with shares or debentures previously issued and for the time being dealt in or quoted on a recognised stock exchange, but, subject as aforesaid, this section shall apply to a prospectus or a form of application, whether issued on or with reference to the formation of a company or subsequently. (6) Nothing in this section shall limit or diminish any liability which any person may incur under the general law or under this Act apart from this section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iggle out of the statutory requirements of the SEBI Act, the rules made thereunder, as also, the guidelines issued by SEBI from time to time. It was submitted, that the most significant violation/omission of the provisions of the SEBI Act, was committed by asserting, that invitation to the OFCDs was made by way of "private placement", even though the aforesaid invitation was addressed to approximately 3 crore persons, and was actually subscribed by about 66 lakh people. It was pointed out, that in case of an invitation to 50 or more persons, the invitation is deemed to have been issued "to the public" (under the mandate of section 67 of the Companies Act). In case of an offer/invitation "to the public" an allotment of debentures can only be made through one or more recognized stock exchange(s) (under the mandate of section 73 of the Companies Act). Similar other violations, as have been mentioned in the body of the instant judgment, were also highlighted. More importantly, it was submitted by learned counsel, that any allotment made in violation of the statutory provisions, as for instance, inviting subscription in case of an issue "to the public", without reference to a recognized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public will be willing to offer for the same. It is therefore apparent, that the response solicited from the public (by way of an "information memorandum") presupposes that an offer would be made thereafter, through a formal prospectus (or RHP). Thus viewed, according to learned counsel, the "information memorandum" would inevitably precede the issuance of a prospectus (or RHP). Herein, however, the information memorandum was circulated well after the issuance of the RHP, which clearly indicates that the "information memorandum" had been circulated by the SIRECL, not for the purposes for which it is meant, but for some extraneous consideration. It is submitted, that the appellant-companies had apparently taken upon themselves to tread a path different from the one stipulated under the Companies Act. 113. On considering the submission advanced at the hands of the learned counsel representing SEBI, as has been noticed in the foregoing paragraph, it is clear that an "information memorandum" must inevitably precede the issuance of a prospectus (including a RHP). One must agree with the contention of the learned counsel, that there was no justification whatsoever for circulating an "in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion filed before the High Court was rejected (on 29.11.2011), because the High Court was of the considered view, that the appellant-companies had not approached the High Court with clean hands, and the intention of the appellant-companies was not bona fide. Consequent upon directions issued by this Court, SEBI issued a second show cause notice (on 20.5.2011). The appellant-companies adopted the same stubborn position. They contested the show cause notice on legal pleas, and calculatingly did not disclose the information sought. The SEBI (FTM) by an order dated 23.6.2011 held, that the appellant-companies were in violation of law. The said order dated 23.6.2011 was assailed by the appellant-companies before the SAT. In the appeals preferred before the SAT, the appellant-companies remained steadfast in their approach by adopting the same course, as they had chosen before the SEBI (FTM). For the first time before this Court, in their challenge to the SAT order dated 26.8.2011 (whereby the SEBI (FTM) order dated 23.6.2011 was upheld), some details were disclosed by SIRECL. On an analysis the material placed before this Court, I have recorded hereinabove, that the same seemed to be unre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach other's judgment and fully concur with the reasoning and the views expressed therein and issue the following directions in modification of the directions issued by SEBI (WTM) which was endorsed by SAT: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r expenses, commensurate with the status of the office held by Justice B.N. Agrawal, which shall be borne by 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. Appeals are accordingly dismissed subject to the above directions. However, there will be no order as to costs. We record our deep appreciation for the valuable assistance rendered by learned senior counsel appearing on either side for resolving the very intricate and interesting questions of law ..... 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