The Supreme Court, on Friday, pulled up Saharas for refusing to furnish the required information to the Securities and Exchange Board of India (SEBI) regarding the deposits collected from the public.
In his separate judgment, Justice Khehar referred to the Saharas’ stand and said, “One wonders whether the appellant-companies were running a kindergarten, where their staff was expected to be unavailable during the summer. The impression, which the communication projects, is that the two companies had no respect whatsoever for SEBI. In spite of the fact that SEBI was responsible for the development and regulation of the securities market, the appellant-companies could brush aside the SEBI’s demand for information in such a brash and audacious manner, is, quite frankly, difficult to comprehend.”
He said ‘since the subscription to the OFCDs under reference commenced in March, 2008, the same raised suspicious about the genuineness and the bonafides of the appellant-companies. Surely, the suspicion was well placed. This itself is sufficient to conclude that the whole affair was doubtful, dubious and questionable. The consequence thereof, if correct, would be shocking.”
The Judge said “In response to one of the SEBI’s communications, the two companies adopted the stance that they did not have complete details of the securities issued by them. The companies responded by stating that the information would be disclosed after the same is collected. This position adopted by the companies was described as preposterous by the SEBI. It can certainly be concluded that the same was outrageously ridiculous, keeping in mind that both companies proclaim to be a part of the Sahara India Group of Companies. It is difficult to swallow that the two companies had not even maintained records, pertaining to investments in the range of close to Rs.40,000 crore.”
Mr. Justice Khehar said “it seems the two companies collected money from investors without any sense of responsibility to maintain records pertaining to funds received. It is not easy to overlook that the financial transactions under reference are not akin to transactions of a street hawker or a cigarette retail made from a wooden cabin. The present controversy involves contributions which approximate Rs.40,000 crores, allegedly collected from the poor rural inhabitants of India. Despite restraint, one is compelled to record that the whole affair seems to be doubtful, dubious and questionable. Money transactions are not expected to be casual, certainly not in the manner expressed by the two companies.”
Mr. Justice Khehar said “It is, therefore, futile for a company dealing with the securities to contend that SEBI does not have the jurisdiction or the authority in respect to the subject of issue of prospectus, offer document or advertisement soliciting money for securities’’. He said “a bare perusal of the provisions of the (SEBI Act) brings to the fore the extensive powers vested with the SEBI to issue directions and to make investigations. The power vested with SEBI is not limited in any manner, and shall, therefore, be deemed to extend to both “listed” and “unlisted” public companies. Under Section 11B, SEBI has the power to issue appropriate directions in the interests of investors in securities and securities market to any person who is associated with securities market.”
The judge said the subscription collected by the appellant-companies, which were admittedly to the tune of Rs.40,000 crore, “is in complete violation of law.” He said “unlisted companies like the Saharas when made an offer of shares or debentures to 50 or more persons, it was mandatory to follow the legal requirements of listing their securities. Once the number 49 is crossed, the proviso to Section 67(3) (of the Companies Act) 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 Bench dismissed the appeal filed by the Saharas against the order of the appellate tribunal.