SAT Order in the Sahara Case

(This post has been contributed by Amit Agrawal, a legal practitioner practicing before Rajasthan High Court, Jaipur and an alumnus of the National Law School of India University, Bangalore)

The Securities Appellate Tribunal (SAT) delivered its judgment yesterday in the case involving issue of securities by certain companies within the Sahara group.

The judgment has come after many rounds of legal proceedings before different fora. It may be recalled that Sahara had first challenged the interim order of SEBI passed in November 2010 before the Allahabad High Court. The Allahabad High Court stayed the operation of SEBI’s order in December 2010, which thereby permitted the Sahara entities to continue raising monies from investors. This stay order was challenged before the Supreme Court which however refused to interfere with the interim order of High Court on 4 January 2011 but requested the High Court to expedite the hearing. The matter however could not be disposed in the expected time frame. Subsequently, the Allahabad High Court vacated its previous stay order in April 2011 due to the evasive conduct of Sahara in the matter. Such order vacating the stay was again challenged before the Supreme Court which on 12 May 2011 directed SEBI to complete the inquiry and pass the final order to enable the Supreme Court to pass further orders. SEBI then passed its order in June 2011 confirming its interim order. The Supreme Court thereafter did not examine the merits of the contentions. Through its order dated 15 July 2011 (in Special Leave to Appeal (Civil) No. 11023/2011 with 13204/2011) it directed the parties to appear before SAT. Though the reasons were not expressly recorded for relegating the parties to SAT (where they should in fact have been in the first place) perhaps such an order was passed for the following reasons:

– Any expression of the opinion on the merits of the matter, while hearing an appeal emanating from an interim order (though confirmed in due course), would have prejudicially affected the interests of the parties.

– Adjudication by the Supreme Court on merits would have deprived the parties to appeal to any other forum.

– The Supreme Court, consistent with its view noted in Clariant International AIR 2004 SC 4236 (“….without meaning any disrespect to the judges of the High Court, we think neither the High Court nor the Supreme Court would in reality be appropriate appellate forums in dealing with this type of factual and technical matters”), felt hesitant to decide the matter without having the benefit of opinion of the expert tribunal. For the same reason, it thought that the pending writ petition before the Allahabad High Court should be withdrawn.

The matter was thereafter argued for several days before SAT. In comparison to the lengthy submissions made before SAT, its order is rather concise. The order focuses on the arguments raised rather than attempting to be an encyclopedia of judicial or academic authorities.

Permitting a loss making company with a capital base of Rs. 10 lakhs only to gather approximately Rs. 20,000 crores through use of about 2900 branch offices and ten lakh agents would have been a mockery of the securities law framework – is the thought, not an incorrect one, which underpins the SAT’s order. Important findings of SAT in the matter are:

– A private placement is made to a handful of known persons whose number is less than 50 and therefore an issue to more than such a number is a public issue.

– Optionally fully convertible debentures (OFCDs) are “securities” within the meaning of the Securities Contracts (Regulation) Act, 1956 (SCRA) and consequently SEBI Act, 1992.

– Disclosures made in red herring prospectus (RHP) were not true and fair. Contents of the RHP camouflaged the key issue and concealed more than they disclosed. The fact that millions of investors will be approached was not disclosed.

– Proclamations on paper that the companies did not intend to get listed were not material for ascertaining whether company in fact did not intend to get listed. Their conduct and scheme of operation showed otherwise.

– The companies in fact made a public issue by approaching thirty million investors but by avoiding the rigours of law.

– Untrue statements and misstatements in the RHP can be questioned by SEBI also. This view has also been taken previously by SAT that investor protection is an overlapping concern between the Companies Act and SEBI and is not in the zone of one to the exclusion of another.

– SEBI has jurisdiction over unlisted companies too as long as the same can be said to be ‘persons associated with securities market’. This position has been taken by SAT in its various judgments and also by the Bombay High Court in Price Waterhouse & Co.

– SEBI can change its stand on the questions of law in particular with regard to jurisdiction over unlisted companies.

Whilst the conclusions drawn by SAT on each of the points contended are correct yet the reasoning at times is unclear. The analysis of definition of ‘security’ in particular is arguably open to questioning, in my view. The approach to determining the meaning of an expression for the purposes of SEBI Act, 1992 (which is not defined therein) by looking at the SCRA or Depositories Act only and by refusing to consider the Companies Act, 1956 is highly debatable for corporate laws which are otherwise quite inter-woven. The approach of SEBI as compared to SAT on this point is rather more instructive.

As regards jurisdiction, an issue which the Supreme Court also considered quite central to the controversy, SAT records: “Whether Sebi has the power to deal with such companies or whether they are to be regulated by the Central Government are complicated and important questions of law pertaining to jurisdiction which are to be decided on the interpretation of the provisions of the SEBI Act and the Companies Act”. But its treatment to this particular aspect is quite cursory in nature.

Also, the issue pertaining to the lack of estoppel against the law has not been fleshed out in as much detail. It observed: “There is no principle of administrative law that statutory bodies like SEBI cannot be permitted to alter their interpretation of a provision of a statute particularly when the matter pertains to jurisdiction.” Could a mistake committed once bind one for eternity, was the question it should have answered with greater clarity in the context.

The order of SAT will perhaps be agitated soon before the Supreme Court. Given that all the contentions pertain to questions of law (with no disputed facts) the entire matter is likely to be re-argued before the Supreme Court.

However, two points which follow from the order of SAT are:

– Is any further action likely to ensue in the wake of finding that disclosures made in the RHP were not true and fair?

– Will an attempt, citing SAT’s observations on jurisdiction (and taking cue from Swedish Match AIR 2004 SC 4219), be made to dodge the penalty proceedings (if any) by requesting the Supreme Court to exercise its extra-ordinary powers under Article 142?

– Amit Agrawal

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.


  • hi! Excellently written article indeed but i was wondering if you could give me the link to the full judgment in the Sahara OFCD case decided 18th Oct, 2011. Thanks.

  • These bonds could be transferred to any third party too if I havnt got the facts wouldnt that itself be against section 67(3)(a) and thus, not a private placement??

  • precisely my question, isn't there any restriction on transferring these bonds to third parties? because if not then its like bypassing 67(3) as even though private placement will be to 50 people but these 50 people can transfer d bonds making it public issue?

  • Quoting the last line of the jurisdiction below :-

    " In the result, both the appeals are dismissed and the impugned order upheld. The
    appellants in both the appeals shall now repay within six weeks from today the amount
    collected from the investors on the terms as set out by the whole time member in the
    impugned order. Parties shall bear their own costs. "

    As I understand by "whole time member" SAT pointed to the SEBI authority.Please correct if I'm wrong.

    Secondly now that SAHARA declared to appeal to Hon. Supreme court… Can it deny paying the amount to investors citing that the case is yet to be decided upon or the SAT jurisdiction is enuf to make them pay.

    Also can somebody suggest about how a depositor has to approach the companies for refund based on this order and what to do if the company refuses.

  • COMMENT (confined to the highlighted obervations>)
    “Also, the issue pertaining to the lack of estoppel against the law has not been fleshed out in as much detail. It observed: “There is no principle of administrative law that statutory bodies like SEBI cannot be permitted to alter their interpretation of a provision of a statute particularly when the matter pertains to jurisdiction. Could a mistake committed once bind one for eternity, was the question it should have answered with greater clarity in the context.”

    Any such disputed point(s) of ‘law’, by its very nature, requires vagaries of anyone or more applicable and related statutes to be gone into in depth. Even then, as experience is found to show, there could conceivably be no definitive conclusion reached so as to assert that the view eventually taken even that be by the apex court is the only possible view or the correct view. This general proposition is, experts are supposed ton know, of every relevance and hence needs to be borne in mind particularly in any matter such as where sebi wields or claims or is believed to have, – ‘jurisdiction’. Be that as it should, I have no clue as to what the ‘administrative law’ in the above cited observation really refers to.
    My points are these: Is it not now more or less ‘well settled’, also universally accepted (rightly so), that,-
    a) interpretation of any provision in a statute has to be necessarily and wholly founded on what the ‘letter’ of the law simply says;
    b) only in case of any genuine (as opposed to imagined or feigned) ambiguity, it is open to go into other factors such as, – its spirit, objective, so on and so forth;
    c) the 'power' to ‘interpret’ (in its true sense) vests, as guaranteed /envisaged in the Constitution, only with courts; and as such, no ‘authority’, including even an authority vested with a mere power to ‘administer’ or ‘implement’ any provision of a statute, in the course of his doing so, can, on his own, 'assume' any power to ‘interpret’ , SEEK TO APPLY THE LAW ON THE BASIS OF HIS OWN INTERPRETATION THAT IS FOUND SUITED TO SELF- just to exercise (as is seen to be the case herein)‘jurisdiction’; especially, in a case where he has otherwise no ‘jurisdiction’; AND
    d) these and other rules of interpretation as propounded by courts in decided cases, running into a long list, PROVIDE USEFUL GUIDANCE , WHICH, being more than adequate, NONE, court being no exception, CAN RIGHTLY BYPASS OR IGNORE.
    For an elaboration of my viewpoints, attention is invited to the comment offered on a recently decided tax case, as covered in the blog @

  • @ Trishito – I know that 😛
    I was referring to the following paragraph in the post:
    "SEBI has jurisdiction over unlisted companies too as long as the same can be said to be ‘persons associated with securities market’. This position has been taken by SAT in its various judgments and also by the Bombay High Court in Price Waterhouse & Co."
    I couldnt locate the Bom HC judgment in the aforesaid case.

  • Many thanks for your comments.

    @corporate newbie: if you kindly click on the hyperlinked word ‘judgement’ in the first paragraph of the post, you will be taken to the judgement.

    @ Anonymous and Lopamudra Mandal: there is distinction between (i) offer or invitation by the company and (ii) transfer by security holders. Point (ii) may in some cases be indicative, along with other facts, of the intent regarding (i). But the definition of ‘public issue’ focuses only on (i) and not on (ii). A public company may have thousand of shareholders without a public issue if its existing shareholders decide to transfer their shares to multiple persons. Acts of shareholders or security holders, by themselves, after the completion of allotment cannot possibly convert a private offering into a public offering.

    @ Trishito: ‘Whole time member’ (“WTM”) is a member of the Board. Under Section 4(1)(d) of the SEBI Act, SEBI is required to have at least three whole time members. Further, under Section 19 of the SEBI Act, Board can delegate its powers to a member. SEBI (Delegation of Powers) Order 2010 permits a WTM to pass orders as provided therein. So yes, orders of WTM mean orders of SEBI.

    The orders of SEBI and SAT do not provide any specific procedure to be followed by the investors to receive the monies. They cast obligations on the companies to refund.

    Refusal to comply with the orders, in case no appeal is preferred before Supreme Court, will pose certain difficulties in ascertaining the next course of action. Unfortunately, orders of SAT unlike certain other tribunals (e.g. under TRAI Act or Competition Act) are not statutorily made enforceable like a decree of court. However a judicial authority exists which suggests that notwithstanding any specific power under the statute a tribunal should have the power to execute its own orders. SAT somehow seems to believe that it is powerless when it comes to enforcing its orders. (See Alkan Projects, SEBI Appeal No. 88/2004, SAT Order dated 09.08.2004). Unlike Section 23(2) of SCRA, Section 24 of SEBI Act does not make non-compliance of the orders of SAT a criminal offence. A course of action that can surely be resorted is initiation of contempt proceedings before the Bombay HC or the Supreme Court provided the disobedience with the orders of SAT is willful.

    In case the appeal is preferred before the Supreme Court, operation of SEBI order is most likely to be stayed (and investors will have to wait until the conclusion of the appeal) else the appeal before the Supreme Court will become infructuous. Much will depend upon the orders of the
    Supreme Court.

    @ Mathews P George: The Bombay high court judgement was discussed previously on this blog on August 27, 2010 (the link is – The judgement is available at


    Amit Agrawal

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