Group says ‘shocked’, to move Supreme Court.

The Securities Appellate Tribunal (SAT) on Tuesday directed two Sahara group firms to refund a sum of Rs 24,029 crore to 29.6 million investors who had subscribed to its optionally fully convertible debentures (OFCDs).

The tribunal gave six weeks  to the companies to complete the unprecedented, massive refund operation.“Both the appeals are dismissed and the impugned order upheld. The appellants in both the appeals shall now repay within six weeks from on Tuesday the amount collected from the investors on the terms as set out by the whole-time member in the impugned order,” the tribunal said in a 55-page order.

The tribunal also rapped the registrar of companies (RoC), who allowed these issues without proper scrutiny. “We are of the view the RoC while registering the RHP (red herring prospectus) with undue haste had acted in dereliction of his duty,” SAT said.

In June, the Securities and Exchange Board of India (Sebi) had found the OFCD issues by Sahara India Real Estate Corp (SIRECL) and Sahara Housing Invest Corp (SHICL) short of compliance of public issue norms. In a detailed order, Sebi whole-time member K M Abraham directed the two firms to refund the OFCD money, with an interest of 15 per cent to investors through demand drafts or pay orders. The order also required Sahara to submit a certificate from independent chartered accountants for having complied with the directions. The companies had moved SAT against the Sebi order. 

According to the affidavits filed by the companies during the course of the SAT hearing, Sahara India Real Estate Corp had an outstanding of Rs 17,656 crore to 22.1 million investors and Sahara Housing Invest Corp had an investor base of 7.5 million and an outstanding of Rs 6,373 crore as on August 31, 2011. The affidavits also said the firms had enough assets to cover these outstanding liabilities.

SIRECL said it had invested Rs 6,430 crore in real estate projects and companies. It held current assets such as development rights on land and cash and bank balances worth Rs 15,937 crore. The estimated market value of these  investments was Rs 56,318 crore, SIRECL had told SAT. Similarly, SHICL had investments and current assets whosebook value was Rs 7,892 crore and market value was Rs 13,180 crore.

But, the Sahara group may not be in a great hurry to liquidate these assets and will explore legal options first. A Sahara spokesperson indicated the group would move the apex court. “We have decided to go in appeal against the impugned SAT order in the Supreme Court,” Abhijit Sarkar, head, corporate communications, Sahara India Pariwar, said in an emailed statement. 

Sebi's contention was the OFCDs were not a 'private placement', but a 'public issue' since they involved over 50 subscribers. SAT upheld this view. (Business Standard)

Public issue classification: Sahara OFCDs treated as public offerings, triggering investor refunds and compliance obligations. The tribunal sustained the securities regulator's classification of Sahara OFCD offerings as a public issue, requiring restitution to investors, payment of interest on refunds, and submission of independent chartered accountant certification of compliance; it also criticised the registrar of companies for insufficient scrutiny in registering the prospectus.