Sahara case

Sahara case

1. Sahara India Parivar Investor Fraud Case EscrowTech India Private Limited Creative Enclave, III Floor, #148-150, Luz Church Road, Mylapore , Chennai, India – 600 004. Phone: [phone]  Tele Fax: [phone] Email: [email protected] Website: www.escrowtech.in Meghna Bhaskar Legal Counsel

2. What is a Debenture ? A debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest As per Sec.2(30) of the Companies Act,2013 , “Debenture” includes debenture stock, bonds or any other instrument of the company evidencing a debt, whether constituting a charge on the assets of the company or not . An issue of debentures shall be secured by the creation of a charge, on the properties or assets of the company, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon. There are two types of debentures: Convertible Non-convertible

3. What is a convertible Debenture ? Convertible debentures , which are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. "Convertibility" is a feature that corporations may add to the bonds they issue to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert, convertible bonds typically have lower interest rates than non-convertible corporate bonds . A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption, which shall be approved by a special resolution passed at a general meeting. These instruments are used by companies to obtain the capital they need to grow or maintain the business . When debenture is converted into shares, it means debt holder becomes an equity holder.

4. What is OFCD ? The Optionally Fully Convertible Debenture is a kind of debenture which can be converted into shares at the expiry of a certain period at a predetermined price, if the debt holder (investor) wishes to do so. The Optionally Fully Convertible Debentures (OFCDs) are hybrid in nature and as defined u/s 2(19A) of Companies Act, 1956 "hybrid" means any security which has the character of more than one type of security, including their derivatives. The “securities” as defined u/s 2(45AA) of Companies Act means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, and includes hybrids .

5. Background of the Sahara Case The case all began when a Chartered Accountant in Indore sent a note to the National Housing Bank, requesting the Bank to look into the housing bonds issued by two Sahara Group Companies, Sahara India Real Estate Corp (SIREC) and Sahara Housing Investment Corp (SHIC ), having there head quarters in Lucknow. He found that the bonds that had been issued to a large number of investors had not been issued as per the rules. The National H ousing B ank did not have the wherewithal to investigate the allegation, So it forwarded the letter to the Securities and Exchange Board of India (SEBI) , the capital markets regulator . Mr. Abraham who was the then Director of SEBI was reviewing the Draft Red Herring Prospectus (DRHP) to raise equity for real estate company Sahara Prime City Ltd through an initial public offering (IPO). The DRHP disclosed details of two associate group companies (SIREC and SHIC) that were raising huge amounts of money from the public through optionally fully convertible debentures.

6. Timeline Events of this fraud case started in 2010 and it is still in proceeding in Supreme court of India November 2010 -   Securities and Exchange Board of India (SEBI) bars  Sahara India Pariwar   Chief,  Subrata Roy and two of its companies – Sahara India Real Estate Corp (SIREC) and Sahara Housing Investment Corp (SHIC) from raising money from the public as they raised several thousand crores through OFCD which SEBI deemed illegal. December 2010 - Sahara appeals to Allahabad High Court which ordered SEBI not to take any action until a court order is passed January 2011 - Delhi High court issued a warrant against  Subrata Roy and four other officials of the Sahara India on a complaint that it deceived investors in a proposed housing project of Rs.24,000 crore. February 2011 - Delhi High court stays proceedings against  Subrata Roy and four other officials of the group on a complaint that it deceived investors in a proposed housing project. May 2011 - Supreme Court of India asked Sahara India Real Estate (SIREC) to furnish the format of the application for an optionally fully convertible debentures (OFCD) scheme and a list of accredited agents which raised money on company's behalf. June 2011 - SEBI ordered Sahara firms to immediately refund the money collected through sales of OFCDs.

7. October 2011 - Securities Appellate Tribunal (SAT) ordered two unlisted Sahara Group companies to refund within six weeks about 18,000 crore with 15% interest which it had raised through a flotation of OFCDs. November 2011 - Sahara India Pariwar  moved to Supreme Court against SAT's order and in favour of Sahara Group it stayed the SAT order, and asked the two companies to refund 17,400 crores to their investors and asked the details & liabilities of the companies. January 2012 - Supreme Court gives three weeks time to Sahara India Pariwar  to choose between options to secure investments made by public in OFCD scheme. Either to give sufficient bank guarantee or attach properties worth the amount raised through OFCD's. May 2012 - Supreme court is informed by Senior counsel Fali Nariman  (appearing for Sahara India Real Estate Corp) that SEBI could not have taken up this issue of Sahara Group of companies raising funds through OFCD since there was no complaint from any investor. June 2012 - SEBI informed Supreme Court that real estate division of Sahara India Pariwar  had no right to mobilise Rs.27,000 crore from investors through optionally fully convertible debentures (OFCD) without complying norms of Market regulator - SEBI . EscrowTech India Private Limited

8. August 2012 - Supreme court directs Sahara India Real Estate Corporation Ltd. (SIRECL) and the Sahara Housing Investment Corporation Ltd. (SHICL) to refund over Rs . 24,400 crore. March 2015 – Supreme Court had directed two Sahara group companies — SIRECL and SHICL— to return around Rs 24,000 crore with interest to nearly 3 crore investors through market regulator SEBI in Aug 2012. The firms were later allowed to pay up by February 2013. So, the total dues have now gone up to Rs 40,000 crore with the accretion of interest. July 2015 - SEBI directed cancellation of Sahara Mutual Fund's certificate of registration on expiry of a six-month period.  EscrowTech India Private Limited

9. Conclusion Chapter III, Part II of the Companies Act , 2013 deals exclusively with private placements . It is also to be noted that the provisions for private placement applies to the issue of "securities" and not "shares". Thus the new provisions have widened the scope and cover a whole host of instruments such as shares, bonds, debentures and other marketable securities etc. Any security issued by any company no matter whether it is listed or unlisted, private or public if issued to the public whether by way of public issue or private placement or any other manner would come under the jurisdiction of Securities Exchange Board of India if the number of the persons to whom allotment is made exceeds 49 (forty nine) as the proviso to Section 67(3) becomes effective which attracts Section 73(1) and an application for listing becomes mandatory which fall under the administration of SEBI u/s 55A(1)(b) of the Companies Act.

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