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Securities & Exchange Board of India (SEBI) Versus Sahara India Real Estate Corpn. Ltd.

2015 (6) TMI 651 - SUPREME COURT OF INDIA

Illegal collection of deposits from general public - Deposit in the form of 'Optional Fully Convertible Debentures' (OFCD) - Conditional order of bail that the contemnors deposit ₹ 10,000 crores ₹ 5000 crores in cash and balance of ₹ 5000 crores in the form of bank guarantee of a nationalised bank, to be furnished in favour of SEBI - No full compliance of the condition for grant of interim bail -

Held that:- This Court feels concerned with the fact that three pers .....

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rs are bound to discharge by depositing the same with SEBI. It is, thus, an unprecedented situation of personal liberty of the three applicants on the one hand vis a vis majesty of law and ensuring larger public good, on the other hand. It is this sense of justice, in an unprecedented kind of situation, that has compelled the Court to take such an extreme step. It is this legal realism which has compelled the Court to adopt an approach which sounds more pragmatic. It is "doing what comes natural .....

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hose properties is stated to be much higher. However, it is not done so far pursuant to the wishes of the applicants who have pleaded against the sale of these properties by the Court with repeated assurances that these companies would be taking necessary steps for generating the desired finances and the Court has accepted their request and given them opportunities and chances to do so.

In case the bank guarantee is made encashable on default, the trigger point for encashment would be .....

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installments. First eight installments ₹ 3,000 crores payable every two months from the date of their release from custody and last installment shall be of the remaining amount - default in payment of 2 installments (not necessarily consecutive) the bank guarantee furnished shall be encashed by SEBI - The bank guarantee shall also be encashable in the event of failure of the contemnors to deposit the full amount outstanding against them within a period of 18 months commencing from the dat .....

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se funds for deposit of the required amount in terms of the order of this Court - deposit passports in this Court within 15 days from the date of this order or before their release, whichever is earlier. - CONTEMPT PETITION (CIVIL) NOS. 412 & 413 OF 2012 AND 260 OF 2013, CIVIL APPEAL NOS. 9813 & 9833 OF 2011 & 8643 OF 2012, I.A. NOS. 59-61 OF 2015 AND I.A. NOS. 62-64 OF 2015 - Dated:- 19-6-2015 - T.S. THAKUR, ANIL R. DAVE AND A.K SIKRI, JJ. For The Appellant : Mr. Arvind P. Datar, Sr. Adv., Mr. .....

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, Adv. JUDGMENT A.K. Sikri, J. - Before we advert to the reliefs claimed in these applications and announce the outcome thereof, we would like to recapitulate, very briefly, the genesis for moving these applications as we feel that such a recount of the previous events would make it easy to understand the circumstances under which these applications have been filed. It would also provide us the course of action that is to be taken on the prayers made in these applications. 2. The main proceeding .....

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on Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL) (hereinafter referred to as the 'Saharas') invited and claimed to have collected deposits from general public who, allegedly, included cobblers, labourers, artisans, peasants etc. This invitation for deposit was in the form of 'Optional Fully Convertible Debentures' (OFCD). SEBI found that offering of such OFCD was not legally permissible and passed orders directing Saharas not to offer their equity sha .....

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inent to mention that on the basis of these directions of the High Court, SEBI ordered that refund of the amount shall be made only through demand drafts or pay orders. Certain other directions were also issued. Aggrieved by these orders of SEBI, Saharas approached Securities Appellate Tribunal (for short, 'SAT'). SAT also declined to interfere with the view taken by SEBI and directed Saharas to refund the amount collected from the investors within a period of six weeks. Against these or .....

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. Saharas were also directed to furnish details with supporting documents to establish whether they had refunded any amount to the investors who had subscribed through the Red Herring Prospectus (RHP) in question. SEBI was then to examine the correctness of the details so furnished. Failure to prove the refund of the amount by Saharas had to give rise to an inference that Saharas had not refunded the amount to the real and genuine subscribers as directed by SEBI. 3. Aforesaid directions were adm .....

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er with interest @ 15% per annum with SEBI in two installments. First installment of ₹ 10,000 crores was to be deposited with SEBI by first week of January, 2013 and balance amount, along with interest, was to be deposited by first week of February, 2013. However, the balance amount or the interest payable, as per the installments, was not deposited though it was to be deposited by January/February, 2013. It resulted in filing of the contempt petitions, which are the main proceedings at ha .....

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hout complying with the orders. This attitude of the contemnors forced this Court to issue non-bailable warrants against Mr. Subrata Roy Sahara for his production and directing personal presence of the other three Directors in the Court on the date fixed. On 04.03.2014, when the matter was listed, and during the hearing as it transpired that no acceptable proposal was forthcoming to comply with the directions, the Court was left with no option except to commit the three out of four contemnors to .....

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es in the form of bank guarantee of a nationalised bank, to be furnished in favour of SEBI. It was specifically directed that upon compliance with these conditions the contemnors would be released from the custody. 5. Till date there is no full compliance of the aforesaid condition for grant of interim bail, with the result the three contemnors are still in judicial custody and 15 months have passed thereby. 6. We would like to point out at this stage that by orders dated 21.11.2013 passed by th .....

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ir assets, but only for the purpose of complying with the order dated 26.03.2014 with further condition that whatever amount is realized by the sale of the said assets, same shall be deposited into the SEBI - Sahara Refund Account and for providing the requisite bank guarantee in favour of SEBI in the sum of ₹ 5000 crores, as per the directions. Though this liberty was granted to Saharas one year ago and some other directions were given from time to time providing various facilities to the .....

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e thereof as per the books of accounts is in several thousand crores and had the Sahara group succeeded in selling even few of these properties, bail conditions would have been met long ago. Thus, insofar as this Court is concerned it gave all necessary stimulus to enable the applicants to sell the assets, that too at reasonable market price. If, the contemnors have still not been able to achieve the required target, it is either because of the reason that the efforts made by the contemnors as w .....

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efrom stands deposited in the SEBI - Sahara Refund Account. Things have come to a stage where, according to the applicants, they are at the verge of fulfiling the conditions imposed by the orders dated 26.03.2014. It is mentioned that they have certain buyers for some of the properties and the sale proceeds therefrom would meet the deficit. It is also stated that the contemnors have been able to negotiate with a nationalised bank, through two of its Sahara group companies and the said bank has a .....

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f statutory liabilities, unpaid salary and wages, outstanding and overdue amounts payable to banks, etc. Because of this reason, IA Nos. 59-61 of 2015 are filed praying for the following reliefs: "(i) allow the Sahara Group Companies to meet their respective statutory and other liabilities as enumerated in this application under such terms and condition as this Court may deem proper along with the compliance of the order dated 26.03.2014 passed by this Hon'ble Court; (ii) permit the Sah .....

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f the case." 9. Insofar as permission to sell certain properties of Sahara group is concerned, it was subject to certain conditions as indicated above and one of the conditions was that sale must not be for a price lower than 5% of the estimated value for such a property. The applicants state that in respect of one such property at Gorakhpur, Uttar Pradesh, they have been able to find a purchaser who is ready to step into the shoes of the applicants for development/maintenance of the said p .....

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On that basis, IA Nos. 62-64 of 2015 are filed with the following prayers: "(i) Allow the applicants to enter into the Definitive Agreement for the property situated at Gorakhpur; and (ii) pass such further or other orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the present case." 10. Insofar as the aforesaid prayer (i) in IA Nos. 62-64 of 2015 is concerned, having regard to the reasons mentioned in paras 4 and 5 of the application, which ar .....

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2015 are concerned, we are of the opinion that the stage for making such prayers has not ripened as yet. The Sahara group companies want to meet their statutory and other liabilities from the surplus that would be available after complying with order dated 26.03.2014. As soon as there is a compliance with the said order, this Court shall consider at that stage the availability of the surplus funds along with other factors and then pass appropriate orders on these applications. It is necessary t .....

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hich the applicants want seal of approval from this Court in order to enable them to submit the requisite bank guarantee, we would like to reproduce the same, which reads as follows: "GUARANTEE We ________________ Bank, a scheduled Bank within the meaning of the Banking Regulation Act, and having our office at _________ do hereby grant and issue this unconditional and irrevocable guarantee of ₹ 5000 crores (rupees five thousand corres) in favour of Securities and Exchange Board of Ind .....

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s and shall be extended for further periods of six months at the time, until SEBI otherwise directs pursuant to the order of Hon'ble Supreme Court." 13. SEBI has given its nod to the aforesaid format. Likewise, Mr. Shekhar Naphade, learned amicus appointed by this Court, has made a statement that the guarantee to be furnished in the aforesaid format may be accepted. At the same time, Mr. Arvind Datar, learned senior counsel appearing for SEBI, as well as Mr. Naphade were very emphatic i .....

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apil Sibal, Rajeev Dhawan and S. Ganesh, learned senior counsel appearing for the applicants, on the other hand, submitted that it is not necessary to go into this aspect at this stage. They pointed out that last para of the bank guarantee categorically mentions that the guarantee is to remain in force 'until SEBI otherwise directs, pursuant to the orders of the Hon'ble Court' and, thus, this Court can direct at any stage as at what point of time the bank guarantee is to be encashed. .....

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ing into the verification of those documents, for which applicants cannot be blamed or prejudiced. 15. Since this aspect was hotly debated at the Bar, we have gone into the same in some depth and detail. We find that the issue of refund of ₹ 17,000 crores approximately to the depositors has been raked up by the contemnors/applicants time and again, but to their dismay, this Court has not accepted their plea to this effect, so far. In the writ petition (Writ Petition (Criminal) No. 57 of 20 .....

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05.12.2012, in the following manner: "During the pendency of the contempt proceedings, we also decided to determine the veracity of the redemption theory, projected by the two companies. As a matter of law, it was not open to the two companies to raise the aforesaid defence. This is because, exactly the same defence was raised by the two companies, when they had approached this Court by filing Civil Appeal No. 8643 of 2012 (and Writ Petition (Civil) No. 527 of 2012). In the aforesaid Civil .....

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nd even the contemnors). Yet, so as to ensure that no injustice was done, we permitted the two companies to place material on the record of this case to substantite the factum of redemption. (Emphasis supplied)" 16. The Court, thus, went into this issue again permitting the two companies to place requisite material on record to substantiate the factum of redemption and took into consideration whatever material was placed on record. However, it refused to accept the plea of the two companies .....

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een recorded by us under heading IX: "A few words about the defence of redemption of OFCDs offered by the two Companies". The above explanation may seem to be acceptable to the contemnors, but our view is quite the converse. It is not possible for us to accept that the funds amounting to thousands of crores were transacted by way of cash, we would therefore, on the face of it, reject the above explanation tendered on behalf of the two Companies." 17. The Court further found that i .....

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estors had been refunded to them. Accordingly, there is no merit in the prayer, that while making payments in compliance with this Court's orders dated 31.08.2012 and 05.12.2012, the two companies were entitled to make deductions of ₹ 17,443 crores (insofar as SIRECL is concerned) and ₹ 5,442 crores (insofar as SHICL is concerned)." 18. The aforesaid discussion clinchingly shows, without any cavil of doubt, that the contemnors/applicants have failed to give satisfactory proo .....

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ay, we have still retained a safety valve, inasmuch as, SEBI has been directed to examine the authenticity of the documents produced by the two Companies, and in case SEBI finds that redemptions have actually been made, the two Companies will be refunded the amounts, equal to the redemptions found to have been genuinely made." 20. No doubt, this much scope is still left for Sahara group. Fact remains that a definite course of action that is to be chartered is also laid down, namely, in the .....

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apparent is that after the conditions for interim bail stipulated in order dated 26.03.2014 are fulfilled and pursuant thereto the three contemnors who are in judicial custody are released, the obligation or liability to deposit the balance would still remain. We may remind the contemnors that as per directions dated 05.12.2012, this amount was to be deposited in two installments, first installment by the first week of January 2013 and the second by the first week of February 2013. Therefore, it .....

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so, going by the stubborn attitude of the contemnors in taking the orders dated 31.08.2012 and 05.12.2012 for granted, as if those orders were only on papers and were not meant to be complied with. So many opportunities were given, showing all that leniency which could be extended, to enable the contemnors to comply with those directions. It is only when the Court felt that unless some drastic action is taken there will be no desired effect, that this extreme step was taken. However, this step w .....

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ondition that out of almost ₹ 3,000 crores that had become due by that time, the contemnors deposit at least ₹ 10,000 crores, that too with relaxed provision of deposit of 50% thereof by means of bank guarantee only. There was a genuine hope that for the sake of attaining their own freedom, the contemnors shall at least comply with this direction immediately. Since then, though there have been attempts on the part of the contemnors to do the needful, but all in vain. This is notwiths .....

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ight at the end of the tunnel as it is projected that the Sahara companies has finally found the buyers for certain assets and/or financers who are ready to provide the requisite finance against some of the Sahara Companies properties and that would bridge the gap insofar as conditions of interim bail are concerned. However, as mentioned above, the matter does not rest with the deposit of ₹ 5,000 crores and ₹ 5,000 crores by way of bank guarantee. Total liability has swelled to more .....

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whopping amount of more than ₹ 22,000 crores from the public in an illegal and unauthorised manner, are made accountable for the same in the manner it is directed vide orders dated 31.08.2012 and 05.12.2012. By any yardstick, this is a huge liability, which the contemnors are bound to discharge by depositing the same with SEBI. It is, thus, an unprecedented situation of personal liberty of the three applicants on the one hand vis a vis majesty of law and ensuring larger public good, on the .....

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le where the true dictate of justice is difficult to discern, and the law needed to come down on the side of practical convenience. We may borrow the jurisprudential theory propounded by Ronald Dworkin, albeit in somewhat different context, viz. the "conventional jurisprudential wisdom" which holds that in certain cases of a particularly complex or novel character the law does not provide a definite answer. In denying that judges in hard cases have a discretion to determine what the la .....

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making the law work". Therefore, the orders passed may not be strictly construed as arising out of contempt jurisdiction, but in exercise of inherent jurisdiction vested in this Court to do complete justice in the matter and to ensure that the applicants render full compliance of its orders. It's the unprecedented situation which has led to passing of unprecedented, but justifiable, orders. 23. This Court is not powerless as it can always direct selling the properties of the Sahara Comp .....

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Shri Naphade, Amicus Curiae contended and in our view rightly so, that if the format of the bank guarantee is accepted, this Court ought to indicate the circumstances in which the SEBI can seek encashment of the said guarantee. It was argued that the Bank Guarantee as furnished by the contemnors did not indicate a trigger point for encashment which ought to be suitably mentioned and entered either in the guarantee or in the order of this Court. It was further argued that release of the contemnor .....

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de for the consequences in default of such deposits. The bank guarantee format does not provide for a trigger point for its encashment. Furnishing the bank guarantee without stipulating the situations in which the guarantee shall become encashable, will be meaningless. The Bank guarantee is actually meant to ensure that the entire amount is deposited by the contemnors once they are released from custody. That is because the liability to deposit the amount does not get obliterated by furnishing t .....

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the trigger point for encashment would be the default by the contemnors in depositing the balance amount in terms of the directions that we propose to issue. It is in that spirit that we accept the bank guarantee format furnished by the contemnors and grant to them time to deposit the balance amount that remains to be deposited subject to the following conditions: (1) Keeping in view the total liability which according to SEBI, has risen to ₹ 36,000 crores (approximately), the contemnors s .....

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