The Securities and Exchange Board of India (SEBI) can examine financial instruments used by two companies of the Sahara Group to raise money from the public after India’s top court dismissed its petitions on Thursday.
Sahara India Real Estate Corp. Ltd and Sahara Housing Investment Corp. Ltd are fighting the capital markets regulator on the issue of optionally fully convertible debentures (OFCDs) being used to collect funds from investors.
Thursday’s court order means that SEBI can determine the nature of OFCDs and whether Sahara was using them in a legitimate manner to bring in investor money.
Although the court restricted itself to directing SEBI to investigate the issue, it criticized Sahara’s method of operating, likening it to that of the late Harshad Mehta, the broker at the centre of the securities scam of 1992.
“Investors are not aware of OFCD. At the end of the day, they would come and say that they were cheated,” said the three-judge bench led by Chief Justice S.H. Kapadia. “In Harshad Mehta’s case, the same modus operandi was there. Investors were not aware of the scheme.”
Upon perusing Sahara’s forms and documentation used to raise the money, the court barraged Sahara’s three senior counsels with questions.
Abhishek Manu Singhvi, one of Sahara’s lawyers, requested the court to allow the proceedings before the Allahabad high court to conclude before passing any orders.
The court did not agree and said SEBI should proceed. “Till today I don’t know what is OFCDs. Let SEBI decide. It is an expert body. Let them lay down the law…. We want to know on what basis you (Sahara) are collecting these investments,” Kapadia said. The court then clarified that SEBI’s findings would not affect Sahara’s ongoing case in the high court.
According to a June 2009 filing, Sahara India Real Estate and Sahara Housing Investment had raised Rs.4,843 crore by issuing OFCDs to investors under three schemes—Abode Bonds (Rs.1,385 crore), Nirman Bonds (Rs.1,980 crore) and Real Estate Bonds (Rs.936 crore). SEBI says these are in violation of public issue norms laid down under the Companies Law and the SEBI Act.
