# & ORS v. SECURITIES AND EXCHANGE BOARD OF INDIA & ANR

- **Citation:** [2012] 12 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 2012-08-31
- **Case number:** Civil Appeal No. 9813 of 2011
- **Bench:** K.S. Radhakrishnan, Jagdish Singh Khehar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ors-v-securities-and-exchange-board-of-india-anr-28221
- **Pages:** 255

## Headnote

B
Companies Act, 1956 - s. 55A - Allegation of pre- c
planned attempt to bypass the regulatory (and administrative)
authority of SEBI - Invitation to subscribe to Optionally Fully
Convertible Debentures (OFCDs) - Inquiries made by the
Investigating Authority - Powers of the Securities and
Exchange Board of India ('SEBI? u/s.55A(b) of the Companies 0
Act to administer various provisions relating to issue and
transfer of securities to the public by listed companies or
companies which intend to get their securities fisted on any
recognized stock exchange in India - Discussed.
Companies Act, 1956 - s. 73 r/w s. 60B - Issue as to E
whether Optionally Fully Convertible Debentures (OFCDs)
offered by the appellants should have been listed on any
recognized stock exchange in India, being Public Issue under
s. 73 r/w s. 60B and allied provisions of the Companies Act -
Discussed.
F
Securities and Exchange Board of India (Disclosure and
Investor Protection) Guidelines, 2000 - Securities and
Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009 -
Violation of DIP
Guidelines and various regulations of the ICDR 2009 - If G
made out.
Securities Contracts (Regulation) Act, 1956 - Issue as
to whether Optionally Fully Convertible Debentures (OFCDs)
1
H
2
SUPREME COURT REPORTS
[2012] 12 S.C.R.
A issued are securities under the SCR Act - Discussed.
In the instant appeals, questions concerning the
powers of the Securities and Exchange Board of India
('SEBI') under Section 55A(b) of the Companies Act, 1956
to administer various provisions relating to issue and
8 transfer of securities to the public by listed companies or
companies which intend to get their securities listed on
any recognized stock exchange in India and also the
question whether Optionally Fully Convertible
Debentures ('OFCDs') offered by the appellants should
C have been listed on any recognized stock exchange in
India, being Public Issue under Section 73 read with
Section 60B and allied provisions of the Companies Act
and whether they had violated the Securities and
Exchange Board of India (Disclosure and Investor
D Protection) Guidelines, 2000 ['DIP Guidelines'] and
various regulations of the Securities and Exchange
Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009 ['ICDR 2009'], and also
whether OFCDs issued are securities under the
E Securities Contracts (Regulation) Act, 1956 ['SCR Act'],
were raised.
Much of the arguments centered round the scope
and interpretation of various provisions of the Companies
Act, SEBI Act and the rules and regulations framed
F thereunder, relating to matters concerning the issue of
securities, powers of SEBI, Central Government, Ministry
of Corporate Affairs (MCA), Roe. Powers conferred on
SEBI, Central Government, (MCA), RoC etc. under the
Companies Act, SEBI Act also came up for consideration.
G
H
Dismissing the appeals, the Court
HELD:
Per Radhakrishnan. J. [With Khehar, J. concurring]
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
3
AND EXCH. BOARD OF INDIA
1. QUESTIONS OF LAW RAISED WITH ANSWERS
A
Whether SE81 has jurisdiction or power to administer
the provisions of Sections 56, 62, 63, 67, 73 and the
related provisions of the Companies Act, after the
insertion of Section 55A(b) w.e.f. 13.12.2000, by the 8
Companies (Amendment) Act, 2000, so far as it relates to
issue and transfer of securities by listed public
companies, which intend to get their securities listed on
a recognized stock exchange and. public companies
which have issued securities to fifty persons or more
without listing their securities on a recognized stock C
exchange.
Answer: SE81 has the powers to administer the
provisions referred to in the opening part of Section 55A
which relates to issue and transfer of securities and nonD
payment of dividend by public companies like Saharas,
which have issued securities to fifty persons or more,
though not listed on a recognized stock exchange,
whether they intended t

## Text

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(2012] 12 S.C.R. 1
SAHARA INDIA REAL ESTATE CORPORATION LIMITED
A
& ORS.
v.
SECURITIES AND EXCHANGE BOARD OF INDIA & ANR.
(Civil Appeal No. 9813 of 2011)
AUGUST 31, 2012
[K.S. RADHAKRISHNAN AND JAGDISH SINGH
KHEHAR, JJ.]
B
Companies Act, 1956 - s. 55A - Allegation of pre- c
planned attempt to bypass the regulatory (and administrative)
authority of SEBI - Invitation to subscribe to Optionally Fully
Convertible Debentures (OFCDs) - Inquiries made by the
Investigating Authority - Powers of the Securities and
Exchange Board of India ('SEBI? u/s.55A(b) of the Companies 0
Act to administer various provisions relating to issue and
transfer of securities to the public by listed companies or
companies which intend to get their securities fisted on any
recognized stock exchange in India - Discussed.
Companies Act, 1956 - s. 73 r/w s. 60B - Issue as to E
whether Optionally Fully Convertible Debentures (OFCDs)
offered by the appellants should have been listed on any
recognized stock exchange in India, being Public Issue under
s. 73 r/w s. 60B and allied provisions of the Companies Act -
Discussed.
F
Securities and Exchange Board of India (Disclosure and
Investor Protection) Guidelines, 2000 - Securities and
Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009 -
Violation of DIP
Guidelines and various regulations of the ICDR 2009 - If G
made out.
Securities Contracts (Regulation) Act, 1956 - Issue as
to whether Optionally Fully Convertible Debentures (OFCDs)
1
H
2
SUPREME COURT REPORTS
[2012] 12 S.C.R.
A issued are securities under the SCR Act - Discussed.
In the instant appeals, questions concerning the
powers of the Securities and Exchange Board of India
('SEBI') under Section 55A(b) of the Companies Act, 1956
to administer various provisions relating to issue and
8 transfer of securities to the public by listed companies or
companies which intend to get their securities listed on
any recognized stock exchange in India and also the
question whether Optionally Fully Convertible
Debentures ('OFCDs') offered by the appellants should
C have been listed on any recognized stock exchange in
India, being Public Issue under Section 73 read with
Section 60B and allied provisions of the Companies Act
and whether they had violated the Securities and
Exchange Board of India (Disclosure and Investor
D Protection) Guidelines, 2000 ['DIP Guidelines'] and
various regulations of the Securities and Exchange
Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009 ['ICDR 2009'], and also
whether OFCDs issued are securities under the
E Securities Contracts (Regulation) Act, 1956 ['SCR Act'],
were raised.
Much of the arguments centered round the scope
and interpretation of various provisions of the Companies
Act, SEBI Act and the rules and regulations framed
F thereunder, relating to matters concerning the issue of
securities, powers of SEBI, Central Government, Ministry
of Corporate Affairs (MCA), Roe. Powers conferred on
SEBI, Central Government, (MCA), RoC etc. under the
Companies Act, SEBI Act also came up for consideration.
G
H
Dismissing the appeals, the Court
HELD:
Per Radhakrishnan. J. [With Khehar, J. concurring]
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
3
AND EXCH. BOARD OF INDIA
1. QUESTIONS OF LAW RAISED WITH ANSWERS
A
Whether SE81 has jurisdiction or power to administer
the provisions of Sections 56, 62, 63, 67, 73 and the
related provisions of the Companies Act, after the
insertion of Section 55A(b) w.e.f. 13.12.2000, by the 8
Companies (Amendment) Act, 2000, so far as it relates to
issue and transfer of securities by listed public
companies, which intend to get their securities listed on
a recognized stock exchange and. public companies
which have issued securities to fifty persons or more
without listing their securities on a recognized stock C
exchange.
Answer: SE81 has the powers to administer the
provisions referred to in the opening part of Section 55A
which relates to issue and transfer of securities and nonD
payment of dividend by public companies like Saharas,
which have issued securities to fifty persons or more,
though not listed on a recognized stock exchange,
whether they intended to list their securities or not.
Whether the public companies referred in question
no. (a) is legally obliged to file the final prospectus under
Section 608(9) with SE81 and whether Section 608, as it
is, falls under Section 55A of the Companies Act.
E
Answer: Saharas were legally obliged to file the final
F
prospectus under Section 608(9) with SE81, failure to do
so attracts criminal liability.
Whether Section 67 of the Companies Act implies
that the company's offer of shares or debentures to fifty G
or more persons would ipso facto become a public issue,
subject to certain exceptions provided therein and the
scope and ambit of the first proviso to Section 67(3) of
the Act, which was inserted w.e.f. 13.12.2000 by the
Companies (Amendment) Act, 2000.
H
4
SUPREME COURT REPORTS
[2012] 12 S.C.R.
A
Answer: First proviso to Section 67(3) casts a legal
8
obligation to list the securities on a recognized stock
exchange, if the offer is made to fifty or more persons,
which Saharas have violated which may attract the penal
provisions contained in Section 68 of the Act.
What is the scope and ambit of Section 73 of the
Companies Act and whether it casts an obligation on a
public company intending to offer its shares or
debentures to the public, to apply for listing of Its
securities on a recognized stock exchange once it invites
C subscription from fifty or more persons and what legal
consequences would follow, if permission under subsection (1) of Section 73 is not applied for listing of
securities.
0
Answer: Section 73 of the Act casts an obligation on
a public company to apply for listing of its securities on
a recognized stock exchange, once it invites subscription
from fifty or more persons, which Saharas have violated
and they have to refund the money collected to the
E investors with interest.
What is the scope and ambit of DIP (Guidelines) and
ICDR 2009 and whether Sahara had violated the various
provisions of the DIP (Guidelines) and ICDR 2009, by not
complying with the disclosure requirements or investor
F protection measures prescribed for public issue under
DIP (Guidelines) and ICDR 2009, thereby violating Section
56 of the Companies Act.
Answer: Saharas have violated the DIP Guidelines
and ICDR 2009 and by not complying with the disclosure
G requirements and investor protection measures for
public, and also violated Section 56 of the Companies Act
which may attract penal provisions.
Whether Rules 2003 framed by the Central
H Government under Section 81(1A) of the Companies Act
.
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
5
AND EXCH. BOARD OF INDIA
read with Section 642 of the Act are applicable to any A
offer of shares or debentures to fifty or more as per the
first proviso to sub-section (3) of Section 67 of the
Companies Act and what is the effect of UPC (PA)
Amendment Rules 2011 and whether it would operate
only prospectively making it permissible for Saharas to B
issue OFCDs to fifty or more persons prior to 14.12.2011.
Answer: 2003 Rules or the 2011 Rules cannot
override the provisions of Section 67(3) and Section 73,
being subordinate legislations, 2003 Rules are also not
applilcable to any offer of shares or debentures to more C
than forty nine persons and are to be read subject to the
proviso to Section 67(3) and Section 73(1) of the
Companies Act.
Whether after the insertion of the definition of D
'securities' in Section 2(45AA) as "including hybrids" and
after insertion of the separate definition of the term
"hybrid" in Section 2(19A) of the Act, the provision of
Section 67 would apply to OFCDs issued by Saharas and
what is the effect of the definition clause 2(h) of SCR Act E
on it.
Answer: OFCDs issued by Saharas have the
characteristics of shares and debentures and fall within
the definition of Section 2(h) of SCR Act. The definition
of 'securities' under Section 2(45AA) of the Companies
F
Act includes 'hybrids' and SEBI has jurisdiction over
hybrids like OFCDs issued by Saharas, since the
expression 'securities' has been specifically dealt with
under Section 55A of the Companies Act.
Whether OFCDs issued by Saharas are convertible
bonds falling within the scope of Section 28(1)(b) of the
SCR Act, therefore, not 'securities' or, at any rate, not
listable under the provisions of SCR Act.
G
H
6
SUPREME COURT REPORTS
[2012] 12 S.C.R.
A
Answer: Section 28(1)(b) of the SCR Act indicates
that it is only convertible bonds and share/warrant of the
type referred to therein, which are excluded from the
applicability of the SCR Act and not debentures, which
are separate category of securities in the definition
B contained in Section 2(h) of SCR Act. Contention of
Saharas that OFCDs issued by them are convertible
bonds issued on the basis of the price agreed upon at
the time of issue and, therefore, the provisions of SCR
Act, would not apply, in view of Section 28(1)(b) cannot
C be sustained.
Whether SE81 can exercise its jurisdiction under
Sections 11(1), 11(4), 11A(1)(b) and 118 of the SE81 Act
and Regulation 107 of ICDR 2009 over public companies
who have issued shares or debentures to fifty or more,
D but have not complied with the provision of Section 73(1)
by not listing its securities on a recognized stock
exchange.
Answer: SE81 can exercise its jurisdiction under
E Sections 11(1), 11(4), 11A(1)(b) and 118 of SE81 Act and
Regulation 107 of ICDR 2009 over public companies who
have issued shares or debentures to fifty or more, but
not complied with the provisions of Section 73(1) by not
listing its securities on a recognized stock exchange.
F
Scope of Section 73(2) of the Companies Act
regarding refund of the money collected from the Public.
Answer: Saharas are legally bound to refund the
money collected to the investors, as provided under
Section 73(2) of the Companies Act read with Rule 40 of
G the Companies (Central Government's) General Rules
and Forms, 1956 and the SEBI has the power to enforce
those provisions.
Civil and Criminal liability under the various
H provisions of the Companies Act.
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
7
AND EXCH. BOARD OF INDIA
Answer: Saharas' conduct invites civil and criminal
A
liability under various provisions like Sections 56(3), 62,
68, 68A, 73(3), 628, 629 and so on. [Paras 52 and 116] [57A-H; 58-A-H; 59-A-B; 100-G-H; 101-A-H; 102-A-H; 103-A]
CONCLUSIONS:
2.1. The OFCDs issued by Saharas were public issue
B
of debentures, hence securities. Once there is an
intention to issue shares or debentures to the public, it
is/was obligatory to make an application to one or more
recognized stock exchanges, prior to such issue. c
Registration of Red Herring Prospectus (RHPs) by the
Office of the Registrar does not mean that the mandatory
provisions of Sections 67(3), 73(1) and DIP Guidelines be
not followed. Saharas could not have filed RHP or any
prospectus with the Registrar of Companies RoC,
0
without submitting the same to SEBI under Clauses 1.4,
2.1.1. and 2.1.4 of DIP Guidelines. Unlisted companies like
Saharas when made an offer of shares or debentures to
fifty or more persons, it was mandatory to follow the legal
requirements of listing their securities. Once the number
E
forty nine is crossed, the proviso to Section 67(3) 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. [Para 117] [103-A-E]
F
2.2. SEBI has a duty under Section 11A of the SEBI
Act to protect the interests of investors in securities either
listed or which are required to be listed under the law or
intended to be listed. Under Section 11 B, SEBI has the
power to issue appropriate directions in the interests of G
investors in securities and securities market to any
person who is associated with securities market. [Para
118] [103-E-F]
2.3. SEBI Act is a special law, distinct iji form, but
related to the Company Law, 1956. There is' a purpose
H
8
SUPREME COURT REPORTS
[2012) 12 S.C.R.
A and object behind establishing a body like SEBI under
the SE81 Act. The impugned orders were issued by SE81
in exercise of its powers conferred under Sections 11,
11A and 118 of SE81 Act and Regulations 107 of ICDR
2009. DIP Guidelines did apply to both listed and unlisted
B companies. Clause 2.1.1 of DIP Guidelines had made it
mandatory to file draft prospectus only before SE81, not
before the Central Government. Obligation was also cast
on initial public offerings by unlisted companies and the
issue of OFCDs was a public issue under Regulation 1.2.1
C (xxiii) which also indicated that DIP Guidelines would
apply to Saharas as well. Issuing of convertible
debentures in violation of those guidelines gives ample
powers on SE81 to pass orders under Sections 11A and
118 of the SE81 Act as well as Regulation 107 of ICDR
0 2009 and direct refund of the money to investors. [Para
119) [103-G-H; 104-A-C]
2.4. SE81, in the facts and circumstances of the case,
has rightly claimed jurisdiction over the OFCDs issued by
Saharas. Saharas have no right to collect Rs.27,000
E crores from three million (3 crore investors) without
complying with any regulatory provisions contained in
the Companies Act, SE81 Act, Rules and Regulations
already discussed. MCA, it is well known, does not have
the machinery to deal with such a large public issue of
F securities, its powers are limited to deal with unlisted
companies with limited number of share holders or
debenture holders and the legislature, in its wisdom, has
conferred powers on SE81. Therefore, on facts as well as
on law, no illegality is found in the proceedings initiated
G by SE81 and the order passed by SE81 (WTM) dated
23.6.2011 and SAT dated 18.10.2011 are accordingly
upheld. [Para 120) [104-C-F]
Life Insurance Corporation of India v. Escorts Ltd. & Ors.
(1986) 1 SCC 264: 1985 (3) Suppl. SCR 909; Union of India
H v. Allied International Products Ltd. & Anr. (1970) 3 SCC 594:
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
9
AND EXCH. BOARD OF INDIA
1971 (2) SCR 661; Kalpana Bhandari v. Securities and
A
Exchange Board of India (2005) 125 Comp. Cases 804
(Born.); Society for Consumers and Investment v. Union of
India and others - Delhi High Court in W.P.(C) No.15467 of
2006; Kunamkulam Paper Mills Ltd. & Ors. V. Securities and
Exchange Board of India & Others- Kerala High Court in Writ
B
Petition (C) No. 19192 of 2003; Commissioner of Income
Tax, Gujarat v. Girdhardas and Co. Private Ltd. AIR 19.67 SC
795: 1967 SCR 777; Hindustan Lever Ltd. v. Ashok Vishnu
Kate and Ors. (1995) 6 sec 326: 1995 (3) Suppl. SCR 702;
Delhi Judicial Services Association v. State of Gujarat AIR c
1991 SC 2176: 1991 (3) SCR 936; S. Sundaram Pillai & Ors.
v. V.R. Pattabiraman & Ors. (1985) 1 SCC 591: 1985 (2)
SCR 643; Raymonds Synthetics Ltd. & Ors. v. Union of India
& Ors. (1992) 2 sec 255: 1992 (1) SCR 481; Sudhir
Shanti/al Mehta v. Central Bureau of Investigation (2009) 8
D
SCC 1: 2009 (12) SCR 682 and Naresh K. Aggarwala & Co.
v. Canbank Financial Services Ltd. and Anr. (2010) 6 SCC
178: 2010 (6) SCR 1 - referred to.
In re. Nanwa Gold Mines Ltd. (1955) 1WLR1080; Young
v. Bristol Aeroplane Company Ltd. 1945 PC 163 (HL);
E
Dilworth v. Commissioner of Stamps (1999) AC 99; Gissing
v. Gissing (1971) 1 AC 886 and Crofter Hand Woven Harris
Tweed Co. Ltd. v. Veitch [1942] AC 435 - referred to.
Bennion on Statutory Interpretation, 5th Edn., p. 1104 -
F
referred to.
Case Law Reference:
1985 (3) Suppl. SCR 909 referred to
Para 34
1971 (2) SCR 661
referred to
Para 34
G
(1955) 1 WLR 1080
referred to
Para 34
(2005) 125 Comp.
referred to
Para 38
Cases 804 (Born.)
H
10
SUPREME COURT REPORTS
[2012] 12 S.C.R.
A
1945 PC 163 (HL)
referred to
Para 42
1967 SCR 777
referred to
Para 53
1995 (3) Suppl. SCR 702 referred to
Para 68
B
(1999) AC 99
referred to
Para 68
1991 (3) SCR 936
referred to
Para 68
1985 (2) SCR 643
referred to
Para 70
(1971) 1 AC 886
referred to
Para 94
c
[1942] AC 435
referred to
Para 94
1992 (1) SCR 481
referred to
Para 97,
115
D
2009 (12) SCR 682
referred to
Para 110
2010 (6) SCR 1
referred to
Para 110
Per Khehar. J. [with Radhakrishnan, J. concurring]
CONCLUSIONS:
E
1. Was the invitation to subscribe to OFCDs, by
SIRECL and SHICL, by way of private placement (as
claimed by the appellant-companies), or by way of an
invitation to the public (as counter-claimed by the SEBI)?
F
The first perspective: SEBI is statutorily empowered
under sections 11 (2)(i) and (ia), as well as, 11 (2A) of the
SEBI Act, to call for information. The appellant-companies
were, therefore, statutorily obliged to furnish the
information sought. The information sought by SEBI from
G the appellant-companies, would have led to a firm and
clear factual conclusion, whether the OFCDs issued by
SIRECL and SHICL were by way of "private placement",
or by way of an invitation "to the public". The best legal
minds in this country have guided and represented the
H appellant-companies at all stages, right from the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
11
AND EXCH. BOARD OF INDIA
beginning. There can therefore be no doubt, that the
A
particulars sought by the SEBI, were not furnished by the
appellant-companies, on the basis o( considered legal
advice. But then, there are legal consequences, for such
considered withholding of information. Based on section
114 of the Indian Evidence Act, and more particularly the s
illustrations thereto, SEBI ought to have drawn the
obvious presumption against the appellant-companies.
The material sought by the SEBI from the appellantcompanies, thought available with them, must be deemed
to have been consciously withheld, as the same if c
disclosed, would have been unfavourable to the
appellant-companies. Details sought by the SEBI from
the appellant-companies included particulars of the
application forms circulated, the number of application
forms received, the amount of subscription deposited,
D
the number and list of allottees, the number of OFCDs
issued, the value of their allotment, the date of dispatch
of debenture certificates, copies of board/committee
meetings, minutes of the meetings during which
allotment was approved. The information sought was
merely basic, and the denial of the same amounted to a E
calculated and deliberated denial of the same. The
aforesaid information had been sought, to determine
whether the OFCDs issued by SIRECL and SHICL were
by way of "private placement" (as claimed by the
appellant-companies), or by way of an invitation "to the
F
public" (as counter claimed by the SEBI). Since the
appellant-companies willfully avoided to furnish the
aforesaid information (which ought to have been readily
available with them) to the SEBI, one is constrained to
conclude, that if the appellant-companies had furnished
G
the said information, SEBI would have been able to
conclude the issue against the appellant-companies, i.e.,
that the OFCDs issued by the SIRECL and SHICL, were
by way of an invitation "to the public". [Paras 59, 72]
[169-E-F; 180-A-D; 181-E-H; 182-A-D]
H
12
SUPREME COURT REPORTS
(2012) 12 S.C.R.
A
The second perspective: The appellant-companies
have stated, that the invitation/offer of the OFCDs were
made to friends, associates, group companies, workers/
employees and other individuals associated/affiliated or
connected in any manner with the Sahara India Group of
B Companies. This description cannot lead to the
inference, that the invitation/offer made by SIRECL or
SHICL had been made as a matter of domestic
arrangement between the persons making/receiving the
invitation/offer. As such, the OFCDs in question do not
c satisfy the requirement under clause (b} of section 67(3).
The appellant-companies had invited subscription for
their OFCDs through their respective RHPs. The RHPs
issued by the two companies clearly expressed, that the
subscribers could transfer the same to any other person,
0 subject to the terms and conditions and the approval of
the concerned company. In sum and substance,
therefore, the OFCDs/bonds under reference were
transferable, whereas, to satisfy the requirement under
clause (a) of section 67(3) the shares/debentures should
be non-transferable. Clearly, the OFCDs/bonds issued by
E the appellant-companies did not fall within the scope of
clauses (a) or (b) of section 67(3) of the Companies Act.
Therefore, per-se the contention of the appellantcompanies, that invitation to subscribers to the OFCDs
was by way of "private placement" is unacceptable. Even
F if for arguments sake, it is assumed that the OFCDs in
question fall in one or the other exempted categories,
defined through clauses (a) or (b) of section 67'"1), still in
so far as the present controversy is concerned, the same
would not constitute an exception to sub-sections (1) and
G (2) of section 67 of the Companies Act, because the
invitation/offer of OFCDs, in the present controversy, was
admittedly made to approximately 3 crore persons
(expressed as 30 million persons by the SAT in the
impugned order dated 18.10.2011) and was subscribed
H to by 66 lakh persons (mentioned as 6.6 million persons
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
13
AND EXCH. BOARD OF INDIA
in the SEBI (FTM) order dated 23.6.2011), in the case of A
OFCDs issued by the SIRECL. And it may be presumed,
that a similar number had subscribed to the OFCDs
issued by SHICL. In case of both the appellantcompanies therefore, the number of subscribers
exceeded manifolds, the upper limit of 49, expressed in
B
the first proviso under section 67(3) of the Companies
Act. Consequently, even as a matter of law, it is not
possible to find favour with the contention advanced at
the behest of the appellant-companies, that the OFCDs
issued by the SIRECL and SHICL were by of "private c
placement". It is inevitable therefore, to accept the
contention of the SEBI, that the OFCDs issued by the
SIRECL and SHICL were by way of an invitation "to the
public". [Para 75] [186-C-H; 187-A-F]
The third perspective: SAT expressed the opinion, D
that the appellant-companies did not disclose in their
information memorandum, that the invitation/offer to
subscribe to the OFCDs was being issued to 3 crore
persons (expressed as 30 million persons by the SAT),
through 10 lakh agents, stationed in more than 2900
E
branch offices. And therefore, the real intent of the
appellant-companies remained unnoticed. The aforesaid
figures, according to the SAT, were by themselves
sufficient to conclude, that the appellant-companies had
approached the public through an advertisement, i.e., by
F
way of an invitation "to the public", and not on "tap" basis
(i.e., by way of "private placement") as was being
suggested by the appellant-companies. On the basis of
the factual position, there can be no doubt, that SAT was
fully justified in drawing its conclusions, by taking into G
consideration the number of persons to whom the
invitation/offer to subscribe to the OFCDs was extended,
the number of agents associated by the appellantcompanies to solicit subscriptions and the number of
branch offices established for the purpose. If one were
H
14
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[2012] 12 S.C.R.
A to add to the aforesaid consideration, the number cf
subscribers and the amount of subscription collected (all
of these numbers have been delineated during the
deliberations on the instant issue), the submissions
advanced on behalf of the appellant-companies can be
B visualized as not only unrealistic, but also preposterous.
[Paras 76, 78] [187-F-H; 188-A-B; 190-F-H; 191-A]
2. Whether the SAT was justified in ignoring the
factual conclusions drawn by the SEBI (FTM) on the
C basis of the inquiries made by the Investigating Authority,
on the ground of violation of the rules of natural justice?
Certain factual conclusions drawn by the SEBI (FTM)
were omitted from consideration by the SAT, on the basis
of the determination by the SAT, that the same had been
D drawn in violation of the rules of natural justice. The SAT
held, that the facts ascertained on an inquiry made by the
Investigating Authority appointed by the SEBI, were liable
to be ignored, because the appellant-companies had
neither been put to notice, nor their response thereon
E had been sought. However, in so far as the present
controversy is concerned, opportunities were repeatedly
provided by SEBI, to the appellant-companies, but they
remained adamant and obstinate. Based on one excuse
or the other, they declined to furnish the information
F sought. The appellant-companies did not dispute the
factual position (recorded by the SEBI (FTM) from the
details furnished by the Investigating Authority) before
the SAT. The two companies could have easily done so
by providing the details available with them. Even before
G the SAT, they did not come out with the correct factual
position. The material sought by SEBI from the two
companies, would have constituted a valid basis to
decipher and unravel the true factual position. To get
over the crisis, emerging from the facts discovered by the
H Investigating Authority, the appellant-companies relied on
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
15
AND EXCH. BOARD OF INDIA
technicalities of law, by canvassing their claim under the
A
rules of natural justice. Numerous opportunities were
afforded to them to disclose information available with
them, but they choose to shun the liberty. The data
available with the appellant-companies was preserved as
a closely guarded secret. That position has remained
B
unaltered throughout. A person who has repulsed earlier
opportunities (as the appellant-companies have), has no
right to demand any further opportunity under the rules
of natural justice. The appellant-companies cannot be
heard to say, that though they had consciously kept all
C
the facts secret, they should have all the same been
given an opportunity under the rules of natural justice to
disclose the secrets? A party which has not been fair,
cannot demand a right based on a rule founded on
fairness. lnspite of the aforesaid conclusion, it would be
0
wrong to assume that the appellant-companies were
remediless. That remedy was, to place the correct factual
data, supported by documents in their custody before the
adjudicating authorities. That would have certainly
enabled SAT, in its appellate jurisdiction, to determine
whether the SEBI (FTM) was justified in drawing the
E
factual inferences. The SAT was therefore, wholly
unjustified in ignoring the conclusions drawn by the SEBI
(FTM), on the basis of inquiries which were got
conducted by it, through its Investigating Authority. That
is so, specially because there are no allegations of bias,
F
prejudice or malice against either the SEBI or the
Investigating Authority. To that extent, the order passed
by the SAT cannot be legally sustained. [Paras 79, 81]
[191-A-F; 196-A-H; 197-A]
3. Whether OFCDs issued by SIRECL and SHICL
which are admittedly "hybrids", are securities? If not so,
whether they would be amenable to the jurisdiction of the.
SEBI?
G
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16
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[2012] 12 S.C.R.
A
The first perspective: Since the definition of term
"securities" contained in section 2(45AA) of the
Companies Act, expressly includes "hybrids", it is
inevitable to conclude, that while interpreting the
provisions of Companies Act (including the administrative
B role assigned to SEBI under section 55A), "hybrids"
would be treated as a component of the term "securities".
This is so, because the term "securities" defined in
section 2(45AA) expressly includes "hybrids". In the
aforesaid view of the matter, irrespective of whether
c "hybrids" are included in the term "securities" under the
SEBI Act, while interpreting the provisions of the
Companies Act, even with reference to SEBI, "securities"
will include "hybrids". Therefore, the term "securities" in
section 55A of the Companies Act, even while being
examined with reference to the administrative powers
D assigned to SEBI thereunder, would include "hybrids".
[Para 86] [200-G-H; 201-A-C]
The second perspective: The term "hybrid" is not
defined under the SEBI Act, and consequently it may be
E appropriate to accept the same, as it has been defined
in the Companies Act, specially with reference to an issue
arising in respect of a public company. The term "hybrid"
as defined in the Companies Act means "any security"
having "the character of more than one type of security"
F and "includes their derivatives". For the purposes of the
SEBI Act, the term "securities" is accepted as it is defined
in section 2(h) of the SC(R) Act. Section 2(h) of the SC(R)
Act does not define the term "securities" exhaustively,
because clauses (i) to (iia) thereof, only demonstrate
G what may be treated as included in the definition of the
term "securities". And, clause (i) of section 2(h) of the
SC(R) Act, includes within the definition of the term
"securities" inter alia, "bonds", "debentures" and "other
marketable securities of a like nature". Since the term
H "hybrid" has been expressed as " ... means any
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
17
AND EXCH. BOARD OF INDIA
security ... " there can be no doubt that a "hybrid" is perA
se a security. Moreover, the term "security" in its
definition includes " ... other marketable securities of a like
nature ... ". Therefore, even if for one or the other reason,
the OFCDs issued by the appellant-companies may not
strictly fall within the terms "debentures" or "bonds"
B
(referred to in the definition of the term "securities") they
would nonetheless fall within the ambit of the expression
"securities of a like nature". The definition of the term
"hybrid" also explains that a "hybrid" has the character
of more than one kind of "security" or their "derivatives". c
The term "securities" also includes "derivatives".
Therefore, even if the definition of the term "hybrid" is
construed strictly, it would fall in the realm of "securities
of a like nature". And if, "securities of a like nature" are
"marketable", they would clearly fall within the expanse 0
of the term "securities" defined in section 2(h) of the
SC(R) Act (and therefore also, section 2(1)(i) of the SEBI
Act). The OFCDs/bonds issued by appellant-companies
were also clearly marketable, because the RHPs issued
by the two companies provided, that the subscribers
E
would be at liberty to transfer the OFCDs/bonds, to any
other person. Although, the transfer of OFCDs/bonds was
to be subject to the terms and conditions prescribed, and
the approval of the appellant-companies. In the absence
F
of any prescribed terms and conditions barring transfer,
the OFCDs/bonds were clearly transferable, and
therefore, "marketable". The term "marketable" simply
means, that which is capable of being sold. Allowing the
liberty to subscribers to transfer the OFCDs/bonds made
them "marketable". There is therefore, no room for any
doubt, that the term "hybrid", as defined in the G
Companies Act, would squarely fall within the term
"securities" as defined under section 2(1) (i) of the SEBI
Act (i.e., Section 2(h) of the SC(R) Act). In view of the
above it is clear, that "hybrids" are included within the
term "securities" not only for the purposes of Companies
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18
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[2012) 12 S.C.R.
A Act, but also, under the SEBI Act. SEBI therefore, would
have jurisdiction even over "hybrids", even under the
provisions of the SEBI Act. [Paras 87, 88) [201-F; 202-AC-D-H; 203-A-E]
B
4. Whether it is optional for a public company,
c
intending to offer shares or debentures to the public, to
have the same listed on a recognized stock exchange (as
is claimed by the appellant-companies) or is it mandatory
(as is being asserted by, the SEBI)?
The appellant-companies invited subscriptions, by
making an offer "to the public". Since the invitation/offer
was made "to the public", the same could only have been
through one or more recognized stock exchange(s).
Once a public company adopts that course, which is
D actually a mandate of law emerging from section 73 of the
Companies Act, the concerned companies portfolio
changes that to a "listed" public company. So listing in
the present controversy was an inevitable consequence
of inviting subscriptions from the public. There can
E therefore be no hesitation to conclude, that the procedure
contemplated in section 73 of the Companies Act,
whenever a public company wishes to issue debentures
"to the public", is not optional but mandatory. The result
of the present deliberations based on a collective reading
F of section 608 and section 73 of the Companies Act is,
that a public company making an invitation/offer "to the
public" can do so only by a process of listing in one or
more recognized stock exchange(s). The aforesaid
mandate of law is imperative and cannot be relaxed at the
G discretion of the concerned public company. The
requirement of "listing" automatically brings in the
jurisdiction of the SEBI, as it transforms a "public
company" into a "listed public company". [Paras 95, 96)
[214-D-H; 215-A-B]
H
5. Whether SEBI had the jurisdiction to regulate the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
19
AND EXCH. BOARD OF INDIA.
OFCDs issued by SIRECL and SHICL (as is the case of A
the SEBI), or is it that SEBI has no jurisdiction over the
OFCDs issued by the two companies (as is the case of
appellant-companies)?
The first perspective: Clause (b) of section 55A of the
Companies Act uses the term "intend". And what is
B
"intended" is a matter of the mind. Therefore, unless
actions speak for themselves, no presumption can be
drawn on the "intent" of a party. "Intent" as one
commonly understands is something aimed at or wished
as a goal; it is something that one resolves to do; it is a C
will to achieve as an end; it is a direction as one's course;
it is planning towards something to be brought about; it
is something that an individual fixes the mind upon; it is
a design for a particular purpose. When a party
expresses its design repeatedly in writing, as it is the case
D
of the appellant-companies, no contrary assumption
should normally be drawn. The appellant-companies
must be deemed to have "intended" to get their
securities listed on a recognized stock exchange,
because they could only then be considered to have
E
proceeded legally. That being the mandate of law, it
cannot be presumed that the appellant-companies could
have "intended", what was contrary to the mandatory
requirement of law. There can therefore, be no hesitation
in concluding, that inspite of the observations recorded
F
by the appellant-companies in writing, including in the
RHPs issued by them, as also the registration of the said
RHPs by the respective Registrars of Companies, the
said companies must be deemed to satisfy the
requirements of clause (b) of section 55A of the G
Companies Act. The obvious consequence thereof would
be, that the power of administration in the present set of
circumstances lies in the hands of the SEBI. [Para 98]
[217-A-C; 218-A-E]
The second perspective: Extensive powers have
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20
SUPREME COURT REPORTS
[2012] 12 S.C.R.
A been 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.
From a collective perusal of sections 11, 11A, 11 B and
B 11C of the SEBI Act, the conclusions drawn by the SAT,
that on the subject of regulating the securities market and
protecting interest of investors in securities, the SEBI Act
is a stand alone enactment, and the SEBl's powers
thereunder are not fettered by any other law including the
c Companies Act, is fully justified. In fact the aforesaid
justification was rendered absolute, by the addition of
section SSA in the Companies Act, whereby,
administrative authority on the subjects relating to "issue
and transfer of securities and non payment of dividend"
0 which was earlier vested in the Central Government
(Tribunal or Registrar of Companies), came to be
exclusively transferred to the SEBI. There seems no
ambiguity that the SEBI has the jurisdiction to regulate
and administer SIRECL and SHICL. [Paras 106, 107 and
E 108] [242-F-H; 243-A-C]
F
6. Whether it was a pre-planned attempt of SIRECL
and SHICL, to bypass the regulatory (and administrative)
authority of SEBI in respect of OFCDs/ bonds issued by.
them?
The first perspective: It is apparent, that in the
declaration made by the two companies, they had clearly
avoided references to the SEBI and accordingly
circumvented adherence to the provisions of the SEBI
Act, rules and guidelines. The appellant-companies have
G likewise avoided, the provisions of the Companies Act
(which are under the administrative control of the SEBI),
as is apparent from the deliberations recorded. Even
though it is not possible for one to record a clear finding,
whether or not the declaration under reference was
H altered with a pre-planned intention to bypass the
SAHARA INDIA REAL ESTATE CORP. LTD. v. SECURITIES
21
AND EXCH. BOARD OF INDIA
regulatory and administrative authority of SEBI, there can
A
be no hesitation to recording, that it certainly seems so.
[Para 111] [248-E-G]
The second perspective: There was no justification
whatsoever
for
circulating
an
"information
8
memorandum" after SIRECL had already issued a RHP.
The procedure adopted by the appellant-companies is
obviously topsy turvy and contrary to the recognized
norms in company affairs. All tltis makes the entire
approach of the appellant-companies calculated and
crafty. It is clearly apparent, that the appellant-companies
C
had clearly taken upon themselves to tread a path
different from the mandate of law delineated under the
Companies Act. [Para 113) [249-G-H; 250-A-B]
The third perspective: Independently of the D
interaction of the appellant-companies with SEBI, from
letters written by SIRECL in January, 2011, it was
concluded by the SEBI (FTM), that the company was
seeking professional services to collect and compile data
pertaining to the OFCDs issued by it. Since the
E
subscription to the OFCDs under reference commenced
in March, 2008, the same raised suspicious about the
genuineness and the bonafides of the appellantcompanies. Surely the suspicion was well placed. This
itself is sufficient to conclude, that the whole affair was
F
doubtful, dubious and questionable. The consequence
thereof, if correct, would be shocking. [Para 114) [251-EH]
There can therefore be no hesitation in accepting,
that on all three perspectives raised at the behest of the
G
SEBI, to demonstrate that there was a pre-planned
attempt at the hands of the SIRECL and SHICL, to bypass
the regulatory and administrative authority of the SEBI,
does seem to be real. One can only hope, it is not so. But
there may be no real subscribers for the OFCDs issued
H
22
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[2012] 12 S.C.R.
A by the SIRECL or SHICL. Or alternatively, there may be
an intermix of real and fictitious subscribers. The issue
that would emerge in the aforesaid situation would be,
how the subscription amount collected, should be dealt
with, specially when the impugned orders passed by the
B SEBI, SAT are to be affirmed. Even though it is hoped that
all the subscribers are genuine, and so also, the
subscription amount, it would be necessary to modify
the operative part of the order issued by the SEBI which
came to be endorsed by the SAT, so that the purpose of
c law is not only satisfied but is also enforced. [Para 115)
[252-A-D]
Per Order of the Court
On facts as well as on law, no illegality is found in
D the proceedings initiated by SEBI as well as in the order
passed by SEBI (WTM) dated 23.6.2011 and SAT dated
18.10.2011 and they are accordingly upheld.