Supreme Court Upholds SEBI's Order, Requires Sahara to Refund OFCDs

The Supreme Court upheld SEBI's order prohibiting Sahara from offering OFCDs to the public. Saharas were directed to refund collected amounts with interest. Despite multiple compliance proposals, the court required a significant deposit for conditional bail. The court allowed the sale of assets to facilitate compliance and appointed an amicus curiae for further proceedings. The contemnors were denied a modification of bail terms and instructed to comply with court directives.

---

---

Issues Involved:
1. Legality of Sahara's mobilization of funds through OFCDs.
2. Compliance with SEBI's refund directives.
3. Non-compliance and contempt proceedings.
4. Proposals for compliance and conditional bail.
5. Modification of restraint orders on asset sales.

Detailed Analysis:

1. Legality of Sahara's Mobilization of Funds through OFCDs:
Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) collected deposits from the public through 'Optional Fully Convertible Debentures' (OFCDs). SEBI found this mobilization under the Red Herring Prospectus (RHP) dated 13th March 2008 and 6th October 2009 to be legally impermissible. SEBI issued an ex parte order on 24th November 2010, prohibiting Saharas from offering OFCDs or any other securities to the public.

2. Compliance with SEBI's Refund Directives:
The High Court at Bombay directed the promoters and directors of Saharas to refund the collected amounts with 15% interest per annum. SEBI ordered the refund to be made in cash through demand drafts or pay orders and restricted Sahara Commodity Services Corporation Limited (formerly SIRECL) and SHICL from accessing the securities market until the payments were made.

3. Non-Compliance and Contempt Proceedings:
Saharas appealed to the Securities Appellate Tribunal (SAT), which upheld SEBI's order and directed a refund within six weeks. The Supreme Court extended the refund period but ultimately required Saharas to deposit the collected amount with SEBI within three months, with interest. Saharas failed to comply, leading to contempt petitions by SEBI. The Supreme Court issued non-bailable warrants against the Sahara promoters and directors, who were subsequently committed to judicial custody.

4. Proposals for Compliance and Conditional Bail:
Despite various proposals for compliance, none were satisfactory. On 26th March 2014, the Supreme Court granted conditional interim bail to the contemnors, requiring a deposit of Rs. 10,000 crores (Rs. 5,000 crores in cash and Rs. 5,000 crores via a bank guarantee). Saharas filed a writ petition challenging the validity of the Supreme Court's order, which was dismissed.

5. Modification of Restraint Orders on Asset Sales:
Saharas requested the lifting of restrictions on bank accounts and properties to comply with the court's directives. The Supreme Court allowed the encashment of FDs, bonds, and securities, with proceeds to be deposited in SEBI's designated account. The sale of immovable properties in nine cities was permitted, provided sales were not below the circle rates. The court also allowed the charging of Aamby Valley properties for furnishing a bank guarantee and directed that bank guarantees be from nationalized or scheduled banks only.

Conclusion:
The Supreme Court declined to modify the conditional bail terms and denied the request to shift the contemnors to a guest house. The court emphasized compliance with its directions and allowed asset sales to facilitate this. The matter was referred to a three-Judge Bench for further proceedings, with Mr. F.S. Nariman appointed as amicus curiae to assist the court.

---