Sahara case helps SEBI crackdown on dubious investment schemes

The Securities & Exchange Board of India may still be struggling to make the Sahara group to repay over Rs20,000 crore to allegedly duped investors, but the Supreme Court intervention in this high-profile case has helped the market regulator to bring to book the operators of at least five 'illicit' money-pooling schemes.

According to a PTI report, SEBI has cited the SC ruling in the Sahara case to pass orders against at least five companies and 21 individuals charged with collecting thousands of crores of rupees fraudulently through issuing bond instruments like Optionally Fully Convertible Debentures (OFCDs), Redeemable Preference Shares (RPS), Convertible Preference Shares (CPS), and other 'art funds'.

Through an order passed on 31 August 2012, the Supreme Court had asked two Sahara group firms to refund more than Rs24,000 crore collected through issuance of certain bonds to about three crore investors. The companies were asked to deposit the money with SEBI, which was mandated to make further refunds to eligible investors (See: Sahara loses appeal in Rs24,000-crore refund issue).

Sahara, claiming to have already refunded more than Rs20,000 crore directly to investors, later deposited Rs5,120 crore with SEBI, and has been accusing the regulator of not doing anything to make the refunds.

SEBI has filed a contempt petition against Sahara and its top officials. The Supreme Court has asked top executives of two Sahara firms to be present in the court during next hearing on 26 February (See: SEBI moves SC against Sahara chief Subrata Roy for contempt of court).

While this case continues to be fought in courts, the Sahara order by the Supreme Court continues to be cited by Sebi in its orders against entities raising funds through instruments like and many more.

One of the latest orders is in the case of money raised by Vibgyor Allied Infrastructure Ltd (VAIL), where SEBI has cracked down on the company and three individuals for raising money through issuance of OFCDs in violation of norms. Another company, Prayag Infotech Hi-Rise and four individuals connected with it, has also been booked for raising funds through RPSs. The SC order on Sahara was mentioned in both notices.

In its notice to another entity, Alchemist Holding Ltd, raising funds through certain RPSs Sebi said that the Sahara order established that the burden of proof is on the company to show that the offer of securities was a private placement.

In another order passed against Osian's for raising money as certain art fund investments, SEBI cited the Supreme Court's Sahara order to say that the company raised an amount of Rs102.40 crore from 656 investors and therefore "it is not a private placement".

SEBI said that the apex court judgement of 31 August 2012 held "that an offer to 50 or more persons becomes public issue by virtue of (the relevant section) of the Companies Act.

The regulator further said that the Supreme Court also held that the situations that would not be generally regarded as an offer made to public would include: "Offer of securities made to less than 50 persons, offer made only to the existing shareholders of the company (right issue), offer made to a particular addressee and be accepted only persons to whom it is addressed, offer or invitation being made and it is the domestic concern of those making and receiving the offer.''

The Sahara case was also referred to by SEBI as a benchmark for cases of unauthorised raising of money from public when it clamped down on seven persons and one company for their involvement in the famous 'StockGuru' fraud. (Also see: SC asks Sahara to reveal source of Rs22,885-cr refund or face probe)