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of <h1>SEBI Can Investigate OFCD Offers as Public Issues Under Section 73; Private Placement Exemption Denied</h1> <h3>Sahara India Real Estate Corporation Limited & Ors. Versus Securities and Exchange Board of India & Anr.</h3> Sahara India Real Estate Corporation Limited & Ors. Versus Securities and Exchange Board of India & Anr. - 2012 (12) SCR 1, 2013 (1) SCC 1, 2012 (8) JT ... Issues Involved:1. Jurisdiction of SEBI over public companies issuing securities.2. Compliance with statutory requirements under the Companies Act.3. Nature of OFCDs as public or private placements.4. Adherence to SEBI (DIP) Guidelines and ICDR Regulations.5. Mandatory listing of securities and refund obligations.6. Civil and criminal liabilities for non-compliance.Issue-wise Detailed Analysis:1. Jurisdiction of SEBI over Public Companies Issuing Securities:SEBI's jurisdiction over public companies issuing securities is established under Section 55A(b) of the Companies Act, which confers SEBI with the authority to administer provisions related to the issue and transfer of securities and non-payment of dividends. This includes listed public companies and those intending to get their securities listed on a recognized stock exchange. The Supreme Court clarified that SEBI has the power to regulate unlisted public companies that issue securities to fifty or more persons, as such issues are deemed public under Section 67(3) of the Companies Act.2. Compliance with Statutory Requirements under the Companies Act:The companies (SIRECL and SHICL) were found to have violated several statutory requirements, including the failure to file a draft offer document with SEBI, non-compliance with disclosure requirements, and not obtaining credit ratings. The companies also did not appoint debenture trustees or create debenture redemption reserves, which are mandatory under Sections 117B and 117C of the Companies Act. The Supreme Court emphasized that compliance with these statutory requirements is mandatory and non-negotiable.3. Nature of OFCDs as Public or Private Placements:The OFCDs issued by SIRECL and SHICL were determined to be public issues rather than private placements. This conclusion was based on the fact that the companies solicited subscriptions from more than fifty persons, which under Section 67(3) of the Companies Act, constitutes a public issue. The companies' claim of private placement was rejected as they approached a large number of investors through a widespread network of agents and branches, indicating a public solicitation.4. Adherence to SEBI (DIP) Guidelines and ICDR Regulations:The companies failed to adhere to the SEBI (DIP) Guidelines and ICDR Regulations, which mandate various investor protection measures, including filing of draft offer documents, obtaining credit ratings, and ensuring proper disclosures. The Supreme Court held that these guidelines and regulations have statutory force and must be complied with by all companies making public issues of securities.5. Mandatory Listing of Securities and Refund Obligations:Section 73 of the Companies Act mandates that any public company intending to offer shares or debentures to the public must apply for listing on a recognized stock exchange. The companies' failure to do so resulted in a violation of this provision. Consequently, the companies were directed to refund the money collected from investors with interest, as required under Section 73(2) of the Companies Act. The Supreme Court upheld SEBI's order directing the companies to refund the collected amounts with interest.6. Civil and Criminal Liabilities for Non-Compliance:The companies and their directors were held liable for civil and criminal penalties under various sections of the Companies Act, including Sections 56(3), 62, 68, 68A, 73(3), 628, and 629. These provisions impose penalties for misstatements in prospectuses, fraudulent inducement to invest, and non-compliance with statutory requirements. The Supreme Court emphasized the need for strict enforcement of these provisions to protect investors and maintain market integrity.Conclusion:The Supreme Court upheld SEBI's jurisdiction and regulatory actions against SIRECL and SHICL, affirming the mandatory nature of compliance with statutory requirements and investor protection measures. The companies were directed to refund the collected amounts with interest, and the decision underscored the importance of adhering to legal obligations in securities issuance.
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