2015 (6) TMI 651 - SC - Companies Law

SEBI orders upheld in Sahara case, contempt proceedings for non-compliance. Judicial custody, bail conditions include property sale.

Securities & Exchange Board of India (SEBI) Versus Sahara India Real Estate Corpn. Ltd.

The Court upheld SEBI's orders for Sahara Companies to refund collected deposits, leading to contempt proceedings due to non-compliance. Contemnors faced ... Illegal collection of deposits from general public - Deposit in the form of 'Optional Fully Convertible Debentures' (OFCD) - Conditional order of bail that the contemnors deposit ₹ 10,000 crores – ₹ 5000 crores in cash and balance of ₹ 5000 crores in the form of bank guarantee of a nationalised bank, to be furnished in favour of SEBI - No full compliance of the condition for grant of interim bail - Held that:- This Court feels concerned with the fact that three persons are deprived of their liberty for the last fifteen months and this situation is quite onerous to them. On the other hand, public interest as well as public good demands that the two Sahara Companies, which had collected whopping amount of more than ₹ 22,000 crores from the public in an illegal and unauthorised manner, are made accountable for the same in the manner it is directed vide orders dated 31.08.2012 and 05.12.2012. By any yardstick, this is a huge liability, which the contemnors are bound to discharge by depositing the same with SEBI. It is, thus, an unprecedented situation of personal liberty of the three applicants on the one hand vis a vis majesty of law and ensuring larger public good, on the other hand. It is this sense of justice, in an unprecedented kind of situation, that has compelled the Court to take such an extreme step. It is this legal realism which has compelled the Court to adopt an approach which sounds more pragmatic. It is 'doing what comes naturally' approach to the problem at hand, which required such a drastic step, going by the experience of this case, giving rise to 'Reflection' that provided 'Understanding'. This case is a burning example where the true dictate of justice is difficult to discern, and the law needed to come down on the side of practical convenience. This Court is not powerless as it can always direct selling the properties of the Sahara Companies to ensure recovery of the aforesaid amount as the value of those properties is stated to be much higher. However, it is not done so far pursuant to the wishes of the applicants who have pleaded against the sale of these properties by the Court with repeated assurances that these companies would be taking necessary steps for generating the desired finances and the Court has accepted their request and given them opportunities and chances to do so. In case the bank guarantee is made encashable on default, the trigger point for encashment would be the default by the contemnors in depositing the balance amount in terms of the directions that we propose to issue. It is in that spirit that we accept the bank guarantee format furnished by the contemnors and grant to them time to deposit the balance amount that remains to be deposited subject to below conditions. - ₹ 36,000 crores (approximately), deposit the balance outstanding amount within a period of 18 months commencing from the date of their release from custody in nine installments. First eight installments ₹ 3,000 crores payable every two months from the date of their release from custody and last installment shall be of the remaining amount - default in payment of 2 installments (not necessarily consecutive) the bank guarantee furnished shall be encashed by SEBI - The bank guarantee shall also be encashable in the event of failure of the contemnors to deposit the full amount outstanding against them within a period of 18 months commencing from the date of their release - In the event of failure of the contemnors to deposit three instalments (not necessarily consecutive), the contemnors shall surrender back to custody and in case they fail to do so, they shall be taken into custody and committed to jail - Since only some of the properties have been released by this Court for sale by the contemnors, the contemnors shall be free to apply for permission to sell any further property within 15 days from their release in order to enable them to raise funds for deposit of the required amount in terms of the order of this Court - deposit passports in this Court within 15 days from the date of this order or before their release, whichever is earlier. Issues Involved:1. Compliance with SEBI's orders regarding refund of collected deposits.2. Non-compliance with the Supreme Court's orders and resultant contempt proceedings.3. Judicial custody and bail conditions for the contemnors.4. Sale of Sahara Group properties to meet bail conditions.5. Verification of redemption claims by SEBI.6. Format and conditions of the bank guarantee.Detailed Analysis:Compliance with SEBI's Orders Regarding Refund of Collected Deposits:The genesis of the contempt petitions lies in the judgments passed in Civil Appeal Nos. 9813 of 2011 and 9833 of 2011, where SEBI directed Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) to refund the collected deposits along with interest at 15% per annum. SEBI found the offering of Optional Fully Convertible Debentures (OFCD) by Saharas to be legally impermissible. The High Court of Bombay dismissed the petitions of Sahara Companies and directed the refund, which was upheld by the Securities Appellate Tribunal (SAT).Non-Compliance with Supreme Court's Orders and Resultant Contempt Proceedings:Despite the Supreme Court's order dated 31.08.2012, which directed Saharas to deposit the collected amount with SEBI within three months, the directions were not complied with. Subsequent appeals and proposals by Saharas were found unsatisfactory, leading to the filing of contempt petitions. The Court observed a 'stubborn attitude' from the contemnors, resulting in the issuance of non-bailable warrants and judicial custody for the promoters and directors.Judicial Custody and Bail Conditions for the Contemnors:On 04.03.2014, the Court committed three contemnors to judicial custody. On 26.03.2014, the Court passed a conditional bail order requiring the deposit of Rs. 10,000 crores-Rs. 5,000 crores in cash and Rs. 5,000 crores in the form of a bank guarantee. The contemnors failed to fully comply with these conditions, resulting in their continued judicial custody for 15 months.Sale of Sahara Group Properties to Meet Bail Conditions:The Court had frozen Sahara Group's assets to prevent them from being frittered away. On 04.06.2014, the Court permitted the sale of certain properties to meet bail conditions. Despite various attempts, the contemnors achieved only partial success in selling the properties. The Court noted that the value of the properties was sufficient to meet the bail conditions if sold at reasonable market prices.Verification of Redemption Claims by SEBI:Saharas claimed to have refunded a significant portion of the collected deposits to the investors. However, the Court found the evidence provided by Saharas unsatisfactory. The Court reiterated that the obligation to deposit the entire balance amount with SEBI must be fulfilled before any claims of redemption could be considered. The Court emphasized that the balance amount must be deposited in a time-bound manner.Format and Conditions of the Bank Guarantee:The Court approved the format of the bank guarantee provided by the applicants, which was accepted by SEBI and the amicus curiae. The Court specified the trigger points for encashment of the bank guarantee, including default in payment of two installments or failure to deposit the full outstanding amount within 18 months. The Court also directed the contemnors to deposit their passports and inform the police station about their whereabouts.Conclusion:The Court disposed of the interlocutory applications with specific directions for the deposit of the balance amount in installments, conditions for encashment of the bank guarantee, and measures to ensure compliance with the orders. The Court balanced the personal liberty of the contemnors with the need to uphold the rule of law and ensure public good.