Home Case Index All Cases Companies Law Companies Law + SC Companies Law - 2012 (9) TMI SC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2012 (9) TMI 559 - SC - Companies LawListing of Optionally Fully Convertible Debentures ('OFCDs') on any recognized stock exchange in India being Public Issue under Section 73 r.w.s. 60B - Whether SEBI has the power to investigate and adjudicate relating to issue and transfer of securities by listed public companies matter as per Sec 11, 11A, 11B of SEBI Act and under Sec 55A of the Companies Act Or is it the MCA which has the jurisdiction under Sec 55A (c) of the Companies Act ? - Held that:- SEBI Act is a special law, a complete code in itself containing elaborate provisions to protect interests of the investors - SEBI Act is a special legislation providing SEBI with special powers to investigate and adjudicate to protect the interests of the investors. It has special powers and its powers are not derogatory to any other provisions existing in any other law and is analogous to such other law and should be read harmoniously with such other provisions and there is no conflict of jurisdiction between the MCA and the SEBI in the matters where interests of the investors are at stake. The legislative intent and the statement of objectives for the enactment of SEBI Act and the insertion of Section 55A in the Companies Act to delegate special powers to SEBI in matters of issue, allotment and transfer of securities. The Court observed that as per provisions enumerated under Section 55A of the Companies Act, so far matters relate to issue and transfer of securities and non-payment of dividend, SEBI has the power to administer in the case of listed public companies and in the case of those public companies which intend to get their securities listed on a recognized stock exchange in India. The Supreme Court held that SEBI does have power to investigate and adjudicate in this matter. Hybrid OFCDs - Whether it falls within the definition of "Securities" within the meaning of Companies Act, SEBI Act and SCRA to grant SEBI jurisdiction to investigate and adjudicate ? - Held that:- Although the OFCDs issued by the two companies are in the nature of "hybrid" instruments, it does not cease to be a "Security" within the meaning of Companies Act, SEBI Act and SCRA. It mentions that although the definition of "Securities" under section 2(h) of SCRA does not contain the term "hybrid instruments" the definition of "securities" under Section 2(h) of the SCR Act is an inclusive one, and can accommodate a wide class of financial instruments. The OFCDs issued by the two Companies fall well within this definition. As in this case such OFCDs were offered to millions of persons there is no question about the marketability of such instrument. And since the name itself contains the term "Debenture", it is deemed to be a security as per the provisions of Companies Act, SEBI Act and SCRA. OFCDs to persons who subscribed to the issue is a Private Placement - Whether the issue not to fall within the purview of SEBI Regulations and various provisions of Companies Act ? - Held that:- Though the intention of the companies was to make the issue of OFCDs as private placement but it fails to be so when such securities are offered to more than 50 persons. Section 67(3) specifically mentions that when any security is offered to and subscribed by more than 50 persons it will be deemed to be a Public Offer and therefore SEBI will have jurisdiction in the matter and the issuer will have to comply with the various provisions of the guidelines issued for a public issue. Although the Sahara companies contended that they are exempted under the provisos to Sec 67 (3) since the Information memorandum specifically mentioned that the OFCDs were issued only to those related to the Sahara Group and there was no public offer, the Supreme Court however did not find enough strength in this submission. The invitation/offer of OFCDs, in the present controversy, was admittedly made to approximately 3 crore persons and was subscribed to by 66 lakh persons therefore, to accept the contention of the SEBI, that the OFCDs issued were by way of an invitation “to the public”. The Supreme Court also observed that issue of OFCDs through circulation of Information memorandum to public attracted provisions of Section 60B of the Companies Act, which required filing of prospectus under Section 60B(9) and since the companies did not come out with a final prospectus on the closing of the offer and failed to register it with SEBI, the Supreme Court held that there was violation of sec 60B of the Companies Act also. Listing provisions under Sec 73 - Whether it applies to all public issues or depends upon the intention of the company to get listed ? - Held that:- Any issue of securities is made to more than 49 persons as per Sec 67(3) of the Companies Act, the intention of the companies to get listed does not matter at all and Sec 73 (1) is a mandatory provision of law which companies are required to comply with. Section 73(1) of the Act levies an obligation on every company intending to offer shares or debentures to the public to apply on a stock exchange for listing of its securities. The Court observed that the contention that they did not want their securities listed does not stand. The duty of listing flows from the act of issuing securities to the pubic, provided such offer is made to fifty or more than fifty persons. Thus after the amendment to the Companies Act, 1956 on 13.12.2000, every private placement made to fifty or more persons becomes an offer intended for the public and attracts the listing requirements under Section 73(1). Public Unlisted Companies (Preferential Allotment Rules) 2003 - Whether it will apply in this case? - Held that:- And in the existence of Sec 67(3) it is implied that even the 2003 preferential allotment rules were required to comply with the requirement of Sec 67(3). The Supreme Court observed that even if armed with a special resolution for any further issue of capital to person other than shareholders, it can only be subjected to the provisions of Section 67 of the Company Act, that is if the offer is made to fifty persons or more, then it will have to be treated as public issue and not a private placement. The Court observed that 2003 Rules apply only in the context of preferential allotment of unlisted companies, however, if the preferential allotment is a public issue, then 2003 Rules would not apply. OFCDs as Convertible Bonds - Whether they are exempted from application of SCRA as per the provisions of sec 28(1)(b) - Held that:- As contemplated in Section 28(1)(b), is not to the convertible bonds, but to the person to whom such share, warrant or convertible bond has been issued, to have shares at his option. The Act is, therefore, inapplicable only to the options or rights that are attached to the bond/warrant and not to the bond/warrant itself. Thus as per section 28(1)(b) it is only the convertible bonds and share/warrant that are excluded from the applicability of the SCRA and not debentures which are separate category of securities in the definition contained in Section 2(h) of SCRA. No illegality in the proceedings initiated by SEBI as well as in the order passed by SEBI (WTM) and the entire amount will have to be refunded collected through RHPs by Saharas with 15% interest per annum to SEBI from the date of receipt of the subscription amount till the date of repayment, within a period of three months from date of this order which shall be deposited in a Nationalized Bank bearing maximum rate of interest - appoint Mr. Justice B.N. Agrawal, a retired Judge of this Court to oversee whether directions issued by this Court are properly and effectively complied with by the SEBI (WTM) from the date of this order.
|