The Securities Appellate Tribunal (SAT) on Thursday, September 8, said if a company decides to raise money from 50 or more people, it must list the securities on a stock exchange to protect investors’ interests.
SAT was hearing an appeal filed by Sahara India Real Estate Corp. Ltd and Sahara Housing Investment Corp. Ltd against a Securities and Exchange Board of India (SEBI) order that banned the two firms and their directors from raising money from the public through optionally fully convertible debentures (OFCDs).
“It is the basic right of an investor to be able to trade the shares if a company decides to raise money from more than 49 investors. Therefore, it is mandatory for it to be listed,” said SAT Presiding Officer N.K Sodhi.
He was responding to the arguments of Arvind Datar, senior SEBI counsel, who said OFCDs issued by the two Sahara group firms to nearly 6.6 million investors were not a private placement as claimed by the companies.
Datar said that the nature of the forms issued by the two firms for subscription of OFCDs and the information memorandum filed by them before the Registrar of Companies (RoC) suggested that it was a public issue.
“Since it is a public issue, the two firms are bound to come under the jurisdiction of SEBI,” he argued.
Sahara has maintained that unlisted public companies do not come under SEBI regulation.
Sahara’s counsel Fali S. Nariman said both the firms had declared to the RoC that they wanted to raise money from more than 50 investors and had no intention of listing.
Datar countered this argument citing Section 73 of the Companies Act, which stipulates that every company wishing to offer shares or debentures to the public for subscription by the issue of a prospectus shall make an application to a stock exchange seeking permission.
This rule, according to Datar, should be read in conjunction with Section 55A of the Act, which says that in case of those public companies which intend to get their securities listed on any recognized stock exchange in India should be administered by SEBI.
Therefore, it would be mandatory for a company to take SEBI’s clearance before raising capital from a group of 50 or more investors, said Datar.
SAT asked the Sahara group firms to submit an affidavit, disclosing the number of investors in each scheme, the date on which the firms started collecting money from investors, total money mobilized by the two firms and the mode adopted by them to approach investors for the placement of OFCDs.
Sahara Group is expected to file the affidavit by 12 September. The hearing will continue on Monday.
