MCA'S CLARIFICATION ON DISPUTE BETWEEN SEBI AND SAHARA GROUP OF COMPANIES

PRESS RELEASE DATED 18-6-2011

The Ministry of Corporate Affairs has clarified that Sahara Prime City Limited, a Sahara Group company intending to go for an IPO, had filed information about its group companies to SEBI in its Draft Red Herring Prospectus. SEBI as market regulator vested with the mandate of investor protection, upon noticing inadequacy in material disclosures has asked information about some Sahara Group companies as per SEBI’s disclosure requirements.

As the information was not furnished to SEBI, on 24-11-2010 an interim order was passed by SEBI issuing show cause to two Sahara Group companies SIRECL and SHICL , and restraining them from mobilizing funds from the public . This order has been challenged by the said companies and the case is now sub-judice before the Hon’ble High Court of Allahabad, Lucknow Bench. As this is a matter between the Sahara Group companies and SEBI, the MCA cannot intervene in the matter.

In fact, the Ministry of Corporate Affairs , in order to check misuse of private placement provisions under the Companies Act, 1956 issued a circular in 22nd November, 2010 mandating its field offices to carefully scrutinise offer documents filed by Unlisted Public Companies proposing to raise money through the private placement route.

Further Ministry is considering to substitute Unlisted Public Companies (Preferential Allotment) Rules, 2003 by replacing it with Unlisted Public Companies (Preferential Allotment) Rules, 2011. Which requires more disclosures and keeping the securities in demat form . A copy of draft Rules has been placed on the website of the Ministry on 24-5-2011 inviting public comments. Further checks and balances, coupled with stringent penalty provisions have been built into the Companies Bill to prevent misuse .

Disclosure compliance: SEBI's demand triggered interim restraint on fundraising, prompting MCA scrutiny and proposed rule changes SEBI requested additional information from Sahara Prime City Limited about group companies disclosed in its draft prospectus; on non-compliance SEBI issued an interim show-cause order restraining SIRECL and SHICL from mobilising public funds, a decision now challenged and pending before the High Court. The Ministry of Corporate Affairs stated it cannot intervene, issued a circular to scrutinise private placement documents, and proposed draft Preferential Allotment Rules 2011 requiring greater disclosures and dematerialisation alongside stronger penalties in the Companies Bill.