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.
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