The Securities & Exchange Board of India , or SEBI, has directed two Sahara Group companies promoted by Subrata Roy to refund money raised from investors in 2008 through hybrid securities for allegedly violating securities laws.
The regulatory rap comes after SEBI discovered the two companies - Sahara Commodity Services Corporation and Sahara Housing Investment Corporation - were raising significant amounts of money from investors through Optionally Fully Convertible Debentures, or OFCDs. These instruments are a combination of debt and equity and do not conform to prudent disclosure and other investor protection norms which govern public offerings.
SEBI said Sahara India Real Estate Corporation , which is now known as Sahara Commodity Services Corporation, has 6.6 million investors who subscribed to securities issued by the company when the firm with the largest investor base in India has less than 4 million investors. These companies raised a few thousand crores through such offerings and the market regulator said the schemes could blow up in the face of millions of unsuspecting investors.
The order also asks Sahara to refund the money with 15% interest. If implemented and upheld by the Supreme Court (which had asked SEBI to pass an order on the issue earlier this year), it could mean liabilities of a few thousand crores will have to be refunded, an unprecedented exercise in many ways.
SEBI has also barred Subrata Roy, the managing worker and founder of Sahara Group, and a few directors from holding positions in any listed public company, or those that intend to raise funds through IPOs till they refund money to investors who bought securities in these two companies.
The order will take effect subject to a final ruling by the Supreme Court since the court directed SEBI to pass an order after the Sahara Group contested an earlier ruling by the market regulator. According to SEBI, the two companies raised a few thousand crores through six bonds. This came to light when the regulator received complaints alleging that these firms had been issuing OFCDs to investors across the country for several months.
The Sahara Group, however, argues that these were private placements and not public offerings, and did not fall under the jurisdiction of SEBI.
Source: www.economictimes.com
Ravi Jhawar
Summer Intern-Technical Analyst
DENIP Consultants Pvt. Ltd.
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