Sahara India Real Estate Corporation Limited and Others v. Security and Exchange Board of India (Sahara vs SEBI)

COURT NAME: SUPREME COURT OF INDIA

JUDGE NAME: K.S.P. RADHAKRISHNAN AND J.S. KHEHAR, J.J

BENCH TYPE: DIVISION BENCH

DATE OF JUDGEMENT: AUGUST 31, 2012

PARTIES INVOLVED:

Appellant- Sahara India Real Estate Corporation Limited: The Sahara Group is a multinational conglomerate in India with its headquarters located in Lucknow, founded by Subrata Roy during 1978. The main business focus of the company is manufacturing of goods, financing, housing plus infrastructure, entertainment industry, etc. The real estate branch and the housing investment branch of it are managed by the Sahara Group which are primarily in charge of acquiring and developing land for housing projects to residents all over India. By issuing optionally fully convertible debentures, on March of 2008, the Sahara group decided to raise their funds by way of a private assignment targeting employees, friends and associates likewise. ^[1]

Respondent– Security and Exchange Board of India (SEBI): The Securities and Exchange Board of India also known as SEBI was instituted in 1988, with its main purpose to regulate stock markets, protect investors in such stock markets and to also ensure fair trading in the domain. It is a statutory body established by the Government of India, with the purpose of protecting everyday investors and their interests in the market, which also served the resolve of regulating the securities market. It focuses not just on stock markets exchanges but also on mutual funds, portfolio managing, advising on investment to investors and various other intermediaries. It ensures compliances to all the regulations and serves as an enforcement body in case of any abuses.^[2]

FACTS OF THE CASE:

On March 2008 and Sept 2009 respectively, the Sahara India Real Estate Corporation Limited and the Sahara Housing Investment Corporation, two companies under the control of the Sahara Group passed a resolution under Sec.81 (1A) of the Companies Act, 1956 where they issued unsecured optionally fully convertible debentures (OFCDs) to raise funds, to anyone affiliated with the Saharas. After the resolution was passed, both the companies filed a red herring prospectus (RHP) under Sec.60 B of the Companies Act, 1956 under the Registrar of companies located in Kanpur and Mumbai where they were henceforth registered. The prospectus stated that the company had no intention to list their securities on any stock exchange rather, it was available to only those people who were handed the information memorandum (IM) and those related to the Saharas. The reason for the funds to be raised was to be inadvertently utilised for acquiring townships, financing for shopping malls, residential apartments and various other subsidiaries of the Sahara. After registration of the RHP with the ROC of Kanpur and Mumbai, the Saharas then circulated the information memorandum with applications which were allegedly associated with the Sahara group, due to their widespread network across the country, who under an open-ended scheme raised money. The Ims specifically stated that the OFCDs were issued on a private placement basis rather than to be listed on any specific stock exchange. These rapidly reached over 30 million people, who were invited to subscribe to their debentures. The Securities Exchange Board of India (SEBI) received multiple complaints regarding a huge sum a money was collected from the public by way of OFCDs which allegedly violated statutory provisions. This is when SEBI was involved in the matter and became the investigating body. The Supreme Court of India passed the judgement for this case, and their analysis of the issues will be studied further in depth. ^[3]

ISSUES:

1. Whether the Securities and Exchange Board of India (SEBI) possessed the statutory authority and jurisdiction under the SEBI Act, 1992 to investigate the impugned financial transactions undertaken by the Sahara companies.
2. Whether Section 73 of the Companies Act, 1956 mandates compulsory listing of securities offered to the public on a recognized stock exchange, and what is the extent and applicability of this provision of law.
3. Whether the Optionally Fully Convertible Debentures (OFCDs) issued by the Sahara companies qualify as “securities” within the meaning of the term as defined under the Companies Act, 1956 and the SEBI Act, 1992. 

ARGUMENTS OF THE PARTIES:

1.1. The first question that arose when arguing the case was whether SEBI had jurisdiction to investigate this case. And the Learned Counsel appearing for the Sahara Group stated that under Sec. 55 A of the Companies Act, powers are conferred onto SEBI to administer provisions of the Companies Act, whenever there is a violation of provisions of the statute. He further stated that Sec. 11, 11A and 11B of the SEBI Act, confers powers on SEBI to protect interest of investors but SEBI holds no powers to administer provisions related to securities transfer and issue under the Companies Act. ^[4]The same was contented by SHICL and SIRECL, that the power to decide on OFCDs lies with the Central Government and that SEBI had exceeded its jurisdiction and hence has no powers to investigate the current case.

1.2. The Learned Counsel appearing for the respondents, SEBI, clearly stated that SEBI does have jurisdiction to administer the provisions of the Companies Act as mentioned under Sec. 55A, which stated matters pertaining to transfer and issue of securities. It was further argued that due to the public subscribing to Sahara’s shares, they managed to college around 27,000 crore rupees, through unsecured OFCDs. Since the number reaches more than fifty, it was stated that it became necessary that they must be listed under a recognized stock exchange, vesting the jurisdiction in SEBI.

2.1. the obligation of a public company calling for subscription of shares is to apply to be listen in a recognized stock exchange. The counsel for the appellants stated that sub section of Sec.73 is qualified with the term “intending” which refers to companies which issue debentures or shared and they hence must declare to the investors that they intend to have it dealt with in the stock exchange. It was argued that since the appellants never had the intention to offer the OFCDs to the public, they were never obligated to apply for a listing in a stock exchange.

2.2. The Respondents rebutted that what they intended to do is not be judged but rather what they did. They stated that the appellants plea that they never intended to publicize their securities can not be sustained. But when a company offers its securities to the public for subscription by issuing a RHP, then it must before issuance of such a prospectus apply to be listed on a recognized stock exchange, so that the permissions to hold such shares and debentures which are being offered to the public will have to be dealt in such a stock exchange as under Sec. 73 of the Companies Act. ^[5]

3.3. The OFCDs given by Sahara Group were known to be hybrid, where hybrid in this sense means those securities have both debt and equity securities combined. “Debentures” and “other securities” are defined under Sec. 2(12) of the Companies Act, 1956. The word “hybrid” is defined under Sec.2 (19A) of the Act as any security whose characteristics consists more than one type of securities. The Appellants contented that Sec. 67 of the Companies Act does not include the word “hybrid” in it and it specifies only shares and debentures. Hence, they state that since their OFCDs are hybrid in nature, they do not fall under the ambit of Sec. 67.

3.4. The Respondents however stated the obvious that OFCDs are debentures by nature and the definition of a debenture is given under the companies act and comes under securities. Since, securities includes hybrid in its definition, hence the provisions Sec. 67 and 73 of the Companies Act will be enforceable here. ^[6]

JUDGEMENT:

1. The SEBI act is a special law which has elaborate provisions for the protections of the interest of investors. Whenever there is a conflict between two statutes, the special law will always prevail the general law since special laws are enacted to address particular issues in a greater detail. But it is imperative to understand that special law provisions are to be read with general law provisions and in the same way in this case, the SEBI act being a special act which deals with specific subjects such as securities, hence it must be read with the general law i.e., the Companies Act. The legislature intended to protect the interest of investors which can be achieved when both the statutes are read in a harmony. The Supreme Court when analysing the case, looked at the rules for statutory interpretation. By applying the rule of harmonious construction, we understand that both the SEBI and the Companies Act must be read in a harmony with each other. ^[7]
2. The Supreme Court held that a company can not take a stand that it does not intent to apply for a stock exchange. It stated that in the case of Crofter Hand Woven Harris Tweed Co. Ltd. v. Veitch, it was held that in certain branches of law the word “intention” can be understand as the person deliberately intending their actions. And in such a case, the conduct and the action taken by such a person is what will be considered. Just as in the present case, the OFCDs were offered by the Sahara Group in a quantity more than prescribed under law and hence violating various provisions of the Companies Act, 1956. The failure of the Sahara group to apply for a stock exchange after sending out a prospectus to subscribe to their shares and debentures, and their plea on not wanting their securities to be listed, will not be viable since it is mandatory under law. ^[8]
3. The Supreme Court in considering the OFCDs of the appellants, rejected all their contentions on their OFCD being a hybrid and stated that it can well be considered a unsecured debenture by nature and name. Since OFCDs hold both the features of a share and a debenture, and they remain as a debenture until they are converted. The Supreme Court was keen in mentioning that both in their RHP and their IM, the appellants have referred to their OFCDs as debentures only. ^[9]

LEGAL ANALYSIS:

The Sahara Group’s two companies’ efforts at not adhering to the provisions of regulatory statutes such as the Companies Act and the SEBI Act ended when the Supreme Court directed them to refund all the money collected from various investors and to also pay 15% per annum interest to SEBI, accounted from the date the subscription amounts were given out to the date of the repayment of such amounts, and this was to be done within a period of 3 months, which ultimately concluded the long 3-year battle between the Sahara Group and SEBI. Through this case, the law makers came to realise how they fall short in the legislations currently at play in India, because the Sahara companies utilised these shortcomings to mobilise money, and they also overtly designed their actions to eventually circumvent the regulations, take advantage of loopholes, especially in the wordings of multiple laws, and exploit the gaps in the various state jurisdictions of the SEBI. This henceforth, made the legislatures re think the formulations of provisions in statutes in the country. SEBI, once again upheld its name as having a strong foothold when it comes to their functions and they proved it by giving a commendable fight in this case. These are scenarios which will increase the trust of people in regulatory authorities and encourage them to confidently invest, without fear of fraud and increases their trust in the law of the country. The contentions by the Sahara group were devoid of any merit, but rather given only to argue against the allegations laid down by SEBI and to defeat the very purpose of laws that govern issues in the country. If ever in the future, any other company attempts to collect such a sum of money from the public in the guise of a private collection, then that would amount to be a mockery of the regulatory statutes governing the capital market. India needs to better their laws and make it more stringent and severe in case of any violation of these laws, to avoid any such offenders to walk away scot-free in the country.

CONCLUSION:

This is three-year long fight between the Sahara Group and SEBI is a landmark judgement in the corporate world. It reaffirmed the position, role and objective of SEBI as a regulatory authority in the securities market and clearly laid down how far the jurisdiction of SEBI extends to in matters concerning public investors especially. It also laid down the rule and reaffirmed it that when it is a public issue, then it must be listed under the stock exchange. We looked at how the appellants tried to use the loopholes and gaps in the legislation to their favour, but ultimately failed because this helped the courts understand that the laws fall short in that sense and they must be interpreted widely rather than at their true sense. The Sahara group tried to swindle money from the public and claimed it to be one for private placement but this was seen through by SEBI where they were well within their jurisdiction when they decided to investigate this case. The appellants tried to raise multiple claims, but all to no merit since this was their attempt at concealing their true nature and actions. By SEBI gaining the positive verdict in this case, the public was once again affirmed of their trust in SEBI as a securities market regulatory authority and will ensure that people do not fear investing in debentures or shares and will do so with trust that in case of a fraud, then it will be rightfully dealt with by the SEBI and also the frameworks circulating it.

REFERENCES:

1. Sahara India Real Estate Corporation Ltd. v. Securities & Exchange Board of India, MANU/SC/0702/2012 (Sup. Ct. Aug. 31, 2012)
2. What is Securities and Exchange Board of India (SEBI), Bajaj FinServ, May 2025
3. Securities & Exchange Board of India, Adjudication Order in the matter of Sahara India Real Estate Corporation Limited & Others, doc. no. 1351500106870 (Oct. 18, 2012)
4. Deepika Sawhney, Sahara vs. SEBI – An In-Depth Analysis of the Landmark Supreme Court Ruling, MONDAQ (India), Oct. 31, 2012,
5. Sahara India Real Estate Corp. Ltd. & Ors. v. Securities & Exchange Board of India & Ors., MANU/SC/0735/2012 (S.C. Sept. 11, 2012)
6. Sahara India Real Estate Corp. Ltd. & Ors. v. Securities & Exchange Board of India & Anr., (2012) 10 SCC 603: MANU/SC/0702/2012 (Supreme Court of India, Aug. 31, 2012),
7. Sahara India Real Estate Corporation Ltd. & Ors. v. Securities and Exchange Board of India & Anr., 2012 SCC OnLine SC 663
8. Divyansh Bhargava, A Critical Analysis of Sahara India Real Estate Corporation Limited (SIRECL) & Ors. Vs. Securities & Exchange Board of India (Sebi) & Anr, Indian Journal of Legal Review (IJLR)

[1] Sahara India Real Estate Corporation Ltd. v. Securities & Exchange Board of India, MANU/SC/0702/2012 (Sup. Ct. Aug. 31, 2012)

[2] What is Securities and Exchange Board of India (SEBI), Bajaj FinServ, May 2025, https://www.bajajfinserv.in/what-is-sebi

[3] Sahara India Real Estate Corporation Ltd. v. Securities & Exchange Board of India, MANU/SC/0702/2012 (Sup. Ct. Aug. 31, 2012)

[4] Securities & Exchange Board of India, Adjudication Order in the matter of Sahara India Real Estate Corporation Limited & Others, doc. no. 1351500106870 (Oct. 18, 2012), https://www.sebi.gov.in/sebi_data/attachdocs/1351500106870.pdf

[5] Deepika Sawhney, Sahara vs. SEBI – An In-Depth Analysis of the Landmark Supreme Court Ruling, MONDAQ (India), Oct. 31, 2012, https://www.mondaq.com/india/shareholders/203796/sahara-vs-sebi-an-in-depth-analysis-of-the-landmark-supreme‐court‐ruling

[6] Sahara India Real Estate Corp. Ltd. & Ors. v. Securities & Exchange Board of India & Ors., MANU/SC/0735/2012 (S.C. Sept. 11, 2012), https://www.manupatracademy.com/LegalPost/MANU_SC_0735_2012

[7] Sahara India Real Estate Corp. Ltd. & Ors. v. Securities & Exchange Board of India & Anr., (2012) 10 SCC 603: MANU/SC/0702/2012 (Supreme Court of India, Aug. 31, 2012),

[8] Sahara India Real Estate Corporation Ltd. & Ors. v. Securities and Exchange Board of India & Anr., 2012 SCC OnLine SC 663

[9]  Divyansh Bhargava, A Critical Analysis of Sahara India Real Estate Corporation Limited (SIRECL) & Ors. Vs. Securities & Exchange Board of India (Sebi) & Anr, Indian Journal of Legal Review (IJLR), 5 (1) of 2025, pg. 817-821, APIS – 3920 – 0001 & ISSN– 2583-2344.