Sebi-Sahara battle could trigger change in corporate law

The fight between Sebi and Sahara could lead to a change in the law, making the rules of issuing shares and debentures clearer

Dinesh Narayanan
Published: 19, Mar 2013

One fallout of the Sebi-Sahara battle could be a change in the Companies Law. The corporate affairs ministry is discussing how to modify laws to plug loopholes in the current legal regime that governs share and debenture sales.

A top official in the ministry says that it is thinking of removing ambiguity in laws governing private placement of securities. Sale of securities to more than 50 people is currently considered as a public issue and, therefore, open to close regulatory scrutiny. If only 49 entities subscribe to a share or debt issue, it is deemed private.

The relevant clause in Section 67 of the Companies Act says, "...provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more...''

"The clause is open to interpretation,'' the official told me on condition of anonymity because he is not authorized to speak to the media. "Does it specify the time period in which the securities are issued? Is it possible to have multiple, simultaneous offers to 49 entities each? These questions are unanswered and there is some room for different interpretations,'' the official said.

Internally the ministry is debating how to close this loophole. The official said one way could be to close it when framing rules under the new Companies Act. He, however, did not specify how the amended wording could be. The Act was passed by the Lok Sabha in December but has to be cleared by the Rajya Sabha.

Meanwhile, Sahara is fighting a public battle to keep its chief out of jail. At one point of time (in 2010) in the clash Sahara had claimed that the Corporate Affairs Ministry had sided with it saying that it had exclusive jurisdiction to investigate the company on this issue. The winds changed in Sebi's favour when the minister changed. Now the courts are also behind the regulator.

In full page advertisements taken out in leading dailies on Sunday and Monday, controversial chief managing worker of Sahara India Pariwar, Subrata Roy Sahara has openly challenged the Sebi chairman or any of the regulator's senior officials to face-off with him on live national television. The latest campaign began after Sebi asked the Supreme Court to order the arrest of Roy and a few directors in his company.

Roy wants to debate with Sebi how, with malafide intentions, it is trying to destroy Sahara's reputation, clean image and goodwill. Though he has questioned Sebi's intention in going after Sahara, Roy has given a clean chit to the courts and has thoughtfully not demanded that anyone from the judiciary join issue with him on live television.

When Sahara was first questioned by Sebi in 2010, it had argued that it does not have jurisdiction over the debenture sale because it was a private placement. The regulator had then cited Section 67 of the Act to establish jurisdiction.

Sahara takes out advertisements whenever it feels that it has been wronged. In its long fight with Sebi, which started in 2010 when the markets regulator asked for some information regarding two of its companies that filed for selling shares to the public, it has gone to the public many times. Funnily, Sebi found that when it raises money, it does quietly from millions of investors without needing to issue advertisements.

Ever since it began investigating Sahara, it has circled around just one issue -- the ownership of the money that Sahara collected and the identity of the investors. While Sahara says that its army of workers knows where exactly each of them lives, it is not surprised the postman cannot find them because they are too poor and often live by the edge of national highways in temporary hovels. Nice try, but Sebi is not believing and it is now back in Supreme Court.

  • rag

    i think govt. also check past activities and also take investigation in to their whole business from begining, this company looted india,many of this types of mafia crooks companies running around india which looted poor indians arrest them and sent them to jail. manipulation of shares,fraud investment,survey,ek ka double,ipo scam,job scam,multilevel marketing etc. all looted poor peoples money directly. please stop this and punish fraud directors,and give back poor's money. this is new way for crooks to become rich by looting poor peoples,they cant file case or fir ,if they do,they do not hire lawyers. govt. should banned all this type of company,jailed them for lifeterm with their family and give back poor's money,make new laws and make juidiciary reforms and give justice within 3 to 6 months to victims of such cases and back their money by attach an liquidate property of crooks.

    on Mar 26, 2013
  • raj

    collection of money from more than 50 peoples in any mutual investment and/or bond etc. required sebi's permission and than if sebi approves than and than corporate do this. sahara should return all money immediately which collected from crores of investers and sebi & sc should jailed the owners,directors of such companies for lifetime,otherwise anyone can start company and raise money from public. so, sebi handle this case with iron hand with not only sahara but all this types of companies PACL,sahara etc. and jailed them and recover money from their companies,own,family assets,liquidate all and return back to poor investors,otherwise no one can trust system and no one invest anytime which affects indian economy. many multilevel marketing,survey,investment,ek ka double/teen companies etc. collected billions of rupees between 2010 to 2012 time and send it to foreign,tax havens etc. and peoples not receive any money,govt. and local crime branch also concentrate on this issues and areest crooks and give back peoples money. if such types of cases happens more,many are becomes fearless and become MAFIA type companies. all done in 2G,commonwealth and coal scam,which is also wrong and all are punshied even tatas or ambanies if they are guilty.

    on Mar 26, 2013
    • Rajib

      Mr Rag . I accept ur all word , But tell me one thing our Minister cheating Crores money from India. . Why sebi not monitoring those thing. Almost 2000 people working in Sahara and PACL and maintain there family. If we want save people from cheating sebi need to aware them such type of investment.

      on Apr 18, 2013
  • Devendra Mhatre

    Today the problem is that Regulator or some high ranking govt official take up issues where there is no major issue. The amount cited by SEBI is Rs 24000 crs is too big? Has Sahara denied the liability or refused to honour its commitment to any of its investors, If not then why is SEBI after Sahara. Just imagine if this malicious campaign was to happen to any Bank there would be run on the Bank by the depositors. Is this happening with Sahara's depositors. If the depositors have faith in Sahara's Management, who is SEBI or any other Govt entity to question just because few address of investors are not according to the so called rules framed by ivory tower legal Pundits?

    on Mar 20, 2013
  • Arif

    As a customer I have been experiiencing good services from this company for the last 12 to 13 years. In fact I have further introduced my few relatives and friends for investment in Sahara schemes. Along with me all others are satisfied till date regarding the services, returns and the security given by Sahara against our investments. As offered by Sahara there should be a live debate for the closure of this long fight. I strongly feel that an honest endeavour by a mamoth enterpise is being crushed as this is not an era of dedication, honesty, sincerity and discipline.

    on Mar 20, 2013
    • Rakesh

      Who is Subroto Roy to ask Sebi for a live Debate? What he thinks of him self? He has to obey Sebi orders & present him self before the Sebi.

      on Apr 2, 2013
  • Dhiraj

    Sahara's chairman has come out in complete transparency to nullify SEBI's malafide acts directed to destroy Sahara's creditability. The investors and depositors have not come forward with any personal grievances against Sahara. The regulator has been using the situation to its favor to destroy Sahara's position in the nation.

    on Mar 19, 2013
  • ajaya kumar mishra

    in sebi-sahara imbroglio many a question arise(1)let sahara be heard with an impartial perspective.(2)crores of small depositors interest shouldnot be minimised.(3)lakhs of persons livilihood engaged in sahara shouldnot be undermined(4)contribution of sahara towards the motherland shouldnot be a subservient matter.

    on Mar 19, 2013
  • Raoku

    I find that the matter is about refunding the amount back to the investors. Why not SEBI make public announcement(like Sahara did denying any wrong done) and make people claim their dues and settle the same. Even if Sahara deposits the entire Rs.24000 crores as directed by SC, what is the modus operandi SEBI going to adopt in returning the amount and to whom? If Sahara has clandestinely collected monies from innocent investors and have not paid them back to an extent of Rs.24000 crores, by now there would have been scores of people on the roads demanding their dues(after so much of media coverage). Why is this not happening? I think Sahara be given a fair opportunity to prove their innocence before calling them guilty. This will only throw thousands of families(employees of Sahara) on to streets before the facts are found. SEBI should take a cautious view before dumping Sahara.

    on Mar 19, 2013
    • Ram

      The question is whose money it is. Sahara cannot run the business in its own terms. They are supposed to follow the law.

      on Mar 25, 2013
      • Rajib

        Tell one thing Mr RAM When our Minister loot crores money from different sector, what it doing the SEBI people that time. It is not our money ? Where is the rules that time?

        on Apr 18, 2013
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