Sebi relies on Sahara order to nail fraudsters

Citing the SC order in Sahara case, Sebi has passed orders against at least five companies and 21 individuals charged with collecting thousands of crores fraudulently

Sebi may still be fighting a legal battle to make Sahara pay over Rs 20,000 crore (Rs 200 billion) for refund to investors, but the regulator has cited Supreme Court order in this high-profile case to bring to book operators of at least five illicit money-pooling schemes.

Citing the apex court order in Sahara case, Sebi has passed orders against at least five companies and 21 individuals charged with collecting thousands of crores fraudulently through issuance of bond instruments like OFCDs, RPSs, CPSs and art funds.

Through an order passed on August 31, 2012, the Supreme Court had asked two Sahara group firms to refund more than Rs 24,000 crore collected through issuance of certain bonds to about three crore investors.

The companies were asked to deposit the money with Sebi, which was mandated to make further refunds to eligible investors. Claiming to have already refunded more than Rs 20,000 crore directly to investors in cash, Sahara later deposited Rs 5,120 crore with Sebi and has been accusing the regulator of not doing anything to make the refunds.

Sebi has filed a contempt petition against Sahara and its top officials. The Supreme Court has asked top executives of two Sahara firms to be present in the court during next hearing on February 26.

While this case continues to be fought in courts, the Sahara order by the Supreme Court continues to be cited by Sebi in its orders against entities raising funds through instruments like OFCDs (Optionally Fully Convertible Debentures), Redeemable Preference Shares (RPSs), Convertible Preference Shares (CPSs) and many more.

One of the latest order is in case of money raised by Vibgyor Allied Infrastructure Ltd (VAIL), wherein Sebi has clamped down on the company and three individuals for raising money through issuance of OFCDs in violation of norms.

Sebi began looking in this case way back in 2010 and, interestingly, the company had one once "agreed and undertook that it shall abide by the decision of the Supreme Court in the matter of issuance of OFCDs by Sahara India Real Estate Corporation Limited and Sahara Housing Investment Corporation Limited wherein the above issues of law were pending for determination by Hon'ble Supreme Court at that time".

However, at a later stage of investigation the company said that the "case is different from that of OFCD issuances by Sahara group companies as Sahara issued OFCDs to very large number of persons without any clear relationship with the issuer whereas VAIL issued its OFCDs to an identified group of persons who were members of the Vibgyor Institute of Studies, a society under the Vibgyor Group."

Finally, Sebi in its order observed that Supreme Court judgement in Sahara case settled all controversies with regard to questions such as whether an offer is public or private, whether Sebi had jurisdiction on issuance of securities including OFCDs to 50 persons or more, etc.

Sebi also said that Vibgyor had initially "agreed and undertaken that they shall abide by the decision of the Supreme Court in the above mentioned Sahara case", but they changed their stand after controversies were set at rest by the apex court through its order dated August 31, 2012.