Dismissing an appeal in Sahara India Real Estate Corporation Limited & Ors v Securities and Exchange Board of India & Anr, the Supreme Court held that listing on a stock exchange is a “legal responsibility of the company which offers securities to the public, provided offers are made to more than 50 persons”.
In making this ruling the court upheld the power of the Securities and Exchange Board of India (SEBI) to enquire into the issue of hybrid securities by unlisted public limited companies as private placements when offered to more than 50 persons.
SEBI had found that Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) violated existing rules by issuing optionally fully convertible debentures (OFCDs) after filing a red herring prospectus with the registrar of companies and not informing SEBI.
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SIRECL and SHICL argued that OFCDs were hybrids as defined under the Companies Act, 1956, and as hybrid securities were not included in the definition of securities under the Securities Contracts (Regulation) Act, 1956, SEBI did not have the jurisdiction to regulate them. They also argued that as this was a private issue of hybrid securities, section 67 of the Companies Act, which treats an offer to 50 or more persons as a public issue, and section 73, which requires a company to list any public issue, did not apply.
However, the court held that “once the number forty nine is crossed, the proviso to section 67(3) kicks in and it is an issue to the public, which attracts section 73(1) and an application for listing becomes mandatory which fall under the administration of SEBI under section 55A(1)(b) of the Companies Act”.
The court ordered SIRECL and SHICL to refund the amount collected with 15% interest to around 30 million investors, for a total payout of about ₹244 billion (US$4.7 billion). Early this month, Sahara moved the Supreme Court seeking a review of the order.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
