The capital market regulator can take legal action against the Sahara Group for not complying with its directions on refund of Rs24,000 crore to investors, the Supreme Court has ruled. The court was hearing an application filed by Sebi against the Sahara Group accusing it of not complying with the court’s previous order.
NEW DELHI: The Supreme Court has pulled up market regulator Sebi for going soft on Sahara group of companies by failing to act after the firms did not implement the court’s August 31 order directing them to furnish all documents relating to investments of more than Rs 24,000 crore.
The court said Sebi and the Sahara firms could not “mutually agree to violate the judgment” when counsel for Sahara Gopal Subramaniam told a bench of Justice K S Radhakrishnan and J S Khehar that a schedule is being worked out with the regulator to comply with the order by November 30.
The bench observed 10 days had been given to Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara Housing Investment Corporation Ltd (SHICL) to produce the documents. Thereafter, Sebi was to go ahead with its statutory duties and investigate the investments so that genuine investors got their money back.
When Sebi counsel and senior advocate Arvind Datar said the apex court’s order has not been complied with, the bench asked, “What is the consequence of that? Whatever the two companies were to show they were to do that in 10 days. The time limit is clearly prescribed. If they don’t, then take appropriate action.”
“For so many years, they did not furnish anything. We gave 10 more days. If they do not comply with it, take action as per law. It is the duty of Sebi to comply with the judgment also. We are not here to hold the hands of Sebi and tell what it should do as per its statutory mandate and duty,” the bench said.
For Sahara, Subramaniam sought to argue that all investment documents have been given in DVDs to Sebi that pointed out certain arithmetical anomalies.
“We are rectifying anomalies and are in constant consultation with Sebi to work out the mode and modalities for transportation of all documents relating to the investments. We are working out a schedule for complying with the judgment and by November 30 we will submit all original documents,” Subramaniam said.
The court made it clear that the two parties could not cut a private deal. It asked Sebi to explain how the two parties – Sahara and the market regulator – could “mutually agree to violate the judgment?” It said, “not giving documents within 10 days violates the judgment. You cannot by consent violate our order.”
The SC had on August 31 asked the two Sahara companies to refund within three months Rs 24,029 crore collected between 2008 and 2011 from over 2.96 crore investors, flouting mandatory regulatory provisions and the Companies Act. It held Sebi is right in faulting SIRHEL and SHICL for the manner in which they had raised huge funds.
SIRECL floated Optionally Fully Convertible Debentures (OFCDs) as an open-ended scheme and collected over Rs 19,400 crore from April 25, 2008 to April 13, 2011 from 2.21 crore investors. The company had a total collection of Rs 17,656 crore as on August 31, 2011, after meeting the demand for premature redemption. SHICL collected another Rs 6,380 crore by issuing similar OFCDs from other investors.
The court expressed suspicion that many of the OFCD subscribers could be fictitious and directed Sahara to produce documents about its investors to Sebi within 10 days. It allowed the regulator to engage investigators to probe genuineness of investors and the claim that certain refunds were made.
If Sebi finds the refund documents to be fake, then it would be taken that the Sahara firms had not refunded money, the court had said. “Sebi (whole-time member) shall have the liberty to engage investigating officers, experts in finance and accounts and other supporting staff to carry out directions and the expenses for the same will be borne by Sahara and be paid to Sebi,” it had added.
(Times of India/Daily News & Analysis/Indian Express)