TMI Blog2011 (10) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... eal Estate Corporation Limited and its directors/shareholders and Appeal no.132 of 2011 has been filed by Sahara Housing Investment Corporation Limited and its directors/shareholders and these companies shall be referred to hereinafter as the company and housing company respectively. Both the companies are group companies and these appeals involve identical questions of law and fact. Since the main arguments were addressed in Appeal no.131 of 2011, the facts are being taken from this case. The decision in this appeal shall govern the other appeal as well. 2. The company was originally incorporated as Sahara India C Junxion Corporation Limited on October 28, 2005 as a public limited company under the Companies Act and it changed its name to the present one on March 7, 2008. It is unlisted, that is, its shares are not listed on any stock exchange. Its issued, subscribed and paid-up capital as stated in its Red Herring Prospectus (for brevity RHP) is one lac equity shares of ₹ 10 each amounting to ₹ 10 lacs. Presently, it has three directors, namely, Vandana Bharrgava, Ravi Shankar Dubey and Ashok Roy Choudhary. The first two were appointed on January 28, 2008 and Ash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtible Unsecured Debentures to be privately placed aggregating to Rs. **** since it is a Red Herring prospectus the quantum and the price is to be determined at a future date Terms of the present issue were also stated in the RHP and it is not in dispute that the company has issued three different types of OFCDs labelling them as Abode Bonds, Real Estate Bonds and Nirmaan Bonds and a gist of their particulars was appended as annexure I to the RHP in a tabular form and the same is reproduced hereunder for facility of reference: Particulars Nature of OFCDs Abode Bond Real Estate Bond Nirmaan Bond Tenure months months months Face Value Rs.5,000/- Rs.12,000/- Rs.5,000/- Redemption Value Rs.15,530/- Rs.15,254/- Rs.7,728/- Early Redemption After 60 months NIL After 18 months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clauses of the RHP makes it clear that the price of each bond had been determined when the RHP was filed. This information memorandum had a recital that it was private and confidential and not for circulation and the same is reproduced hereunder: PRIVATE CONFIDENTIAL (NOT FOR CIRCULATION) INFORMATION MEMORANDUM FOR PRIVATE PLACEMENT OF OPTIONALLY FULLY CONVERTIBLE UNSECURED DEBENTURES (OFCD) This Memorandum of Information is being made by Sahara India Real Estate Corporation Limited (formerly Sahara India 'C' Junxion Corporation Limited) which is an unlisted Company and neither its equity shares nor any of the bonds/debentures are listed or proposed to be listed. This issue is purely on the private placement basis and the company does not intend to get these OFCD's listed on any of the Stock Exchanges in India or Abroad. This Memorandum for Private Placement is neither a Prospectus nor a Statement in Lieu of prospectus. It does not constitute an offer for an invitation to subscribe to OFCD's issued by Sahara India Real Estate Corporation Limited. The Memorandum for Private Placement is intended to form the basis of evaluation for the investors to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to its redemption. This bond can also be transferred to any other person subject to the approval of the company. Nirmaan Bond has a face value of ₹ 5000 for five bonds with a tenure of 48 months and an applicant can apply for a minimum of five bonds of ₹ 1000 each and in multiples of ₹ 1000 thereafter. The redemption value of this bond is ₹ 7,728. This bond can also be converted into two fully paid equity shares of ₹ 10 each at a premium of ₹ 190 provided the option is exercised after 47 months i.e. one month prior to redemption. This bond is also transferable to any other person with the approval of the company. All the three bonds enable the bond holders to avail of loan facility as per the terms and conditions in the application forms. Nirmaan Bond and Real Estate Bond have an additional feature of death risk cover. The nominees(s) of the deceased bond holders are entitled to receive the death risk cover amount as enumerated in the terms and conditions of their issue. It is pertinent to mention here that as per clause 13 of the RHP, as reproduced in para 3 above, there was no restriction imposed on the transfer of the OFCDs whereas in the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Section 55A(c) of the Companies Act, 1956. There is nothing on the record to show that the Ministry of Corporate Affairs ever gave its advice. Since the information sought by Sebi had not been furnished, it ordered investigations under section 11C of the Sebi Act and on the basis of the material collected during the course of the investigations, it prima facie found that the company and the housing company were collecting sizeable amounts of money from the public without making proper disclosures and without conforming to the investor protection norms governing public issues. With a view to protect the interests of investors and with a view to prevent the company from collecting further funds from the public, Sebi passed an ex-parte order on November 24, 2010 restraining the company from mobilizing funds under the RHP. The company was directed not to offer its OFCDs or any other securities to the public or invite subscription in any manner whatsoever till further directions. A similar direction was issued to the housing company as well. The ex-parte order was treated as a show cause notice and proceedings were initiated against both the companies. Feeling aggrieved by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bi. 7. We have heard the learned senior counsel for the parties who have taken us through the voluminous record and the impugned order. 8. Mr. Fali S. Nariman, learned senior counsel pointed out that the appellants had made true and complete disclosures in the RHP which was presented to the RoC who after considering all aspects of the matter registered the same and no information had been withheld by the appellants. He then strenuously argued that Sebi had no jurisdiction to pass the impugned order as OFCDs issued by the company are not 'securities' within the meaning of Sebi Act read with SCRA and section 2(45AA) of the Companies Act. He also argued that in view of the fetters imposed on their transferability, they were not marketable and hence not securities. He contended that OFCD is a 'hybrid' as defined in section 2(19A) of the Companies Act and not having been included in the definition of securities in SCRA, it cannot be regarded as a security so as to be regulated by Sebi. It was also argued by Mr. Nariman, that the issue of OFCDs was not a public issue and that these were offered to the investors on private placement basis and, therefore, they were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been taking a consistent stand that listed companies alone are regulated by Sebi and the unlisted ones by the Central Government, they cannot be allowed to change their stand in the present case without any justifiable reasons. He cited some case law in support of his submissions to which reference shall be made later. 9. Mr. Sudipto Sarkar, learned senior counsel appearing for the appellants in Appeal no.132 of 2011 adopted all the arguments of Mr. Nariman and contended that jurisdiction over unlisted companies rests only with the Central Government and not with Sebi. He referred to the provisions of section 2(h) of SCRA and argued that in view of the fact that transfer of OFCDs from one investor to another had been made subject to the approval of the issuer company and this fetter on their transferability, according to him, makes them non marketable as a result whereof they cease to be securities. He took us through the impugned order and pointed out that the whole time member had violated the principles of natural justice in as much as he has placed reliance on certain facts which were collected behind the back of the appellants which were never put to them. In particular, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submission made on behalf of the appellants that OFCDs were not listable on any stock exchange, Shri Datar pointed out that only convertible bonds and not OFCDs had been exempt from the provisions of SCRA and that the two were different as is evident from the definition of 'securities'. He also argued that whatever had been done by the appellants prior to the rescission of the guidelines has been saved by Regulation 111(2) of the regulations and that Sebi was justified in not only issuing a show cause notice but also in passing the impugned order issuing necessary directions to the appellants. He also refuted the argument on behalf of the appellants that in view of the earlier stand taken by Sebi while dealing with some complaints and the one taken in an affidavit filed in the Bombay High Court, it could not lightly change its stand. The learned senior counsel for Sebi contended that there can be no estoppel against law and that the circumstances in which the affidavit was filed in the Bombay High Court were altogether different. 11. Mr. Darius Khambata, the learned Additional Solicitor General appearing on behalf of Ministry of Corporate Affairs, Government of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true and complete disclosure in the RHP as was sought to be argued by their learned senior counsel. While opening his arguments, Mr. Nariman, learned senior counsel for the appellants made reference to the extraordinary resolution passed by the company on March 3, 2008 and also to the resolution passed by the board of directors on March 10, 2008 authorising the issue of unsecured OFCDs. He also drew our attention to the RHP that was filed in Form no.62 before the RoC and made a detailed reference to those portions thereof where the company had made it clear that it did not intend the proposed issue to be listed on any stock exchanges(s). He also referred to the project cost which was around ₹ 20,000 crores and the projects were to be financed partly by this issue and partly with the capital reserves and other resources of the company. Since the capital reserves and other sources of the company as disclosed in the RHP were very meagre, it is expected that the company will collect around ₹ 20,000 crores from the investors. The learned senior counsel also highlighted that the company had made it clear from the beginning that it was not approaching the public and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more shall be treated as a public issue and all provisions of law relating to public issues as discussed hereinafter shall apply. By stating that the issue was a private issue and that the company did not intend to get it listed on any stock exchange even when it was a public issue, it (the company) withheld from the investors/public all the necessary information that is required to be disclosed to them in a public issue. The RHP is bereft of any disclosures in this regard. The company from the very beginning knew that it was going to collect an amount of about ₹ 20,000 crores as its own capital and reserves as disclosed in the RHP were negligible and that it intended to issue the information memorandum to millions of investors. The fact that the invitation to subscribe to OFCDs was going to be made to more than fifty persons was carefully camouflaged in the RHP as a result whereof the RoC was misled. Had it been disclosed that the offer was being made to millions of investors, perhaps the RoC would not have registered the RHP and, in any case, he would have raised several queries in this regard and would not have treated the issue as one made on private placement basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to offer money in any form on mutually agreed terms which are then approved by the shareholders in an extraordinary general meeting. As is clear from the resolution, the particulars of the persons are conspicuously absent. They had also been informed that OFCDs would be issued on private placement basis and that the company would not be approaching the public through advertisement. The fact that information memorandum was circulated to more than thirty million persons through ten lac agents and more than 2900 branch offices is nothing but advertisement to the public. This vital fact was withheld from all concerned. It is, therefore, evident that the intention of the company and its promoters from the very beginning was not bonafide. In this view of the matter, we cannot but hold that the appellants concealed some very vital facts from the RoC and from its shareholders and also from the investors and we are satisfied that the disclosures made in the RHP were not true and fair. 15. Even the conduct of the RoC leaves much to be desired. We say so because when the RHP was presented to him, the fact that the company had a capital base of only ten lacs with no other assets or reserves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany are securities within the meaning of the Sebi Act read with SCRA and that it has jurisdiction to regulate such securities. One of the grounds on which the jurisdiction of Sebi is sought to be challenged is that OFCDs are not securities and, therefore, these could not fall within the ambit of its authority. The word 'securities' has not been defined in the Sebi Act and section 2(i) thereof mandates that it shall have the meaning assigned to it in section 2 of SCRA. Clause (h) of section 2 of SCRA gives an inclusive definition of the term 'securities', the relevant part of which reads as under: (h) securities include- (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; ................................ ................................ It is also necessary to reproduce sub-section (2) of section 2 of the Sebi Act which reads thus: 2(2) Words and expressions used and not defined in this Act but defined in the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Depositories Act, 1996 (22 of 1996) shall have the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be 'marketable'. He argued that the word 'marketable' means that the instrument(s) should be freely transferable in the securities market. He drew support from the following observations of the Division Bench of the Bombay High Court in Dahiben Umedbhai Patel and Others vs. Norman James Hamilton and Others 57 Comp. Cas 700 wherein the definition of 'securities' under section 2(h) of SCRA had come up for consideration: In order that securities may be marketable in the market, namely, the stock exchange, the shares of a company must be capable of being sold and purchased without any restrictions. After referring to the definition of securities, the learned senior counsel took us to the terms and conditions contained in the application forms that were issued to the investors and pointed out that a restriction had been imposed on their transferability. He specifically referred to condition no.9 of Nirmaan Bonds which imposes a fetter on the bond holder in the matter of transfer. The condition imposed is this Bond Holder can transfer the bond to any other person, subject to the terms and conditions and approval of the company. Similar condition is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curities' when that definition was inserted in the Companies Act in the year 2000. Why that inclusion was made is not relevant for our purpose because we can only look to the definition as contained in SCRA where there is no such inclusion. It would, thus, follow that Sebi steps in the moment 'securities' are issued or dealt with within the meaning of SCRA. Conversely, if an instrument is not a security within the meaning of the Sebi Act, it will have no jurisdiction to deal with or regulate such an instrument. It is in this context that the appellants have questioned the jurisdiction of Sebi by contending that the OFCDs issued by the company are not 'securities'. Clause (h) of section 2 in SCRA gives an inclusive meaning to the term securities which has to be bodily lifted and read into the Sebi Act. When we do this, securities include, among others, shares and debentures. The word 'debenture' has not been defined in the Sebi Act and by virtue of sub-section (2) of section 2 of that Act, we can look to the definition only if given in SCRA or in the Depositories Act. This term has not been defined in those Acts either. In this view of the matter, the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debentures which are fully convertible at the option of the investors and this is clear from the terms and conditions contained in the application form. OFCDs are not new instruments and are widely known to the securities market and, as already stated, understood as a form of debentures. 18. We may now deal with the question whether OFCDs are 'hybrids' as argued by the learned senior counsel for the appellants and, if so, what is the effect. The word 'hybrid' has neither been used nor defined in the Sebi Act and not even in SCRA. It has to be understood as it is commonly understood in the capital market. A hybrid security is a security that combines two or more different financial instruments. They generally combine both debt and equity characteristics and are heavily influenced by the price movement of the underlying stocks into which they are convertible. New types of hybrids are being introduced all the time in the developed markets to attract investors as these are modern means adopted by companies to raise capital. The definition of 'hybrid' as introduced in the Companies Act in the year 2000 is no different from what the term is understood in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the matter, we hold that OFCDs are hybrid securities covered by the definition of 'securities' in Sebi Act read with SCRA. 19. The other argument of the learned senior counsel for the appellants that because of the restriction imposed on the transfer of OFCDs these had ceased to be marketable and hence not securities also deserves to be rejected. There is no basis for the argument. In the RHP that has been registered by the RoC, the company itself had stated in clause 13 as noticed in paragraph 3 of our order that there was no restriction on the transferability of the shares/debentures. How can the company be now heard to say that there was a fetter on their transfer. The condition that transfer of OFCDs was subject to the approval of the company was subsequently put in the application forms that were sent to the investors. We are also of the view that any restriction on the transfer of shares or debentures issued by a company is not permissible in view of the provisions of section 111A(2) read with sections 9 and 82 of the Companies Act. Even if one were to assume that a condition that transfer of OFCDs was subject to the approval of the company could be impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rohibiting fraudulent and unfair trade practices relating to securities markets; (f) promoting investors' education and training of intermediaries of securities markets; (g) prohibiting insider trading in securities; (h) regulating substantial acquisition of shares and take-over of companies; (i) calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges and intermediaries and self- regulatory organisations in the securities market; (j) performing such functions and exercising such powers under the provisions of the Capital Issues (Control) Act, 1947 (29 of 1947) and the Securities Contracts (Regulation) Act, 1956 (42 of 1956), as may be delegated to it by the Central Government; (k) levying fees or other charges for carrying out the purposes of this section; (l) conducting research for the above purposes; (m) performing such other functions as may be prescribed. Parliament noticed some shortcomings in the Sebi Act and felt that the provisions of section 11 as they originally stood were not enough to enable Sebi to effectively carry out its duties. There was no provision to enable Sebi to deal with cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market. In other words, Sebi could now issue directions for the purpose of carrying out its duties enjoined by section 11(1). The passage of time and the growing importance of the securities market in the economy placed new demands upon Sebi and a need was felt to further strengthen its mechanisms for investigations and enforcement so that it is better equipped to carry out its duties enjoined by section 11. By Amending Act 59 of 2002, Sebi Act was further amended comprehensively and section 11, among others, was amended and section 11A was substituted to give more powers to Sebi to discharge its functions more effectively. Sub-sections (2A) and (4) which were inserted in section 11 and the substituted section 11A read as under: (2A) Without prejudice to the provisions contained in sub-section (2), the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. ......................................... A. (1) Without prejudice to the provisions of the Companies Act, 1956 (1 of 1956), the Board may, for the protection of investors, - (a) specify, by regulations - (i) the matters relating to issue of capital, transfer of securities and other matters incidental thereto; and (ii) the manner in which such matters shall be disclosed by the companies; (b) by general or special orders - (i) prohibit any company from issuing prospectus, any offer document, or advertisement soliciting money from the public for the issue of securities; (ii) specify the conditions subject to which the prospectus, such offer document or advertisement, if not prohibited, may be issued. (2) Without prejudice to the provisions of section 21 of the Securities Contracts (Regulation) Act, 1956(42 of 1956), the Board may specify the requirements for listing and transfer of securities and other matters incidental thereto. From the aforesaid legislative amendments it can be seen that Sebi was being conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks necessary to safeguard the interests of investors in securities and to regulate the securities market and with these objectives in view it can issue appropriate directions under sections 11A and 11B of the Sebi Act. The words employed in these provisions are of wide amplitude and having regard to the fact that we are dealing with a growing capital market where new economic trends including financial instruments are emerging on a regular basis, widest possible interpretation needs to be given to the provisions of the Sebi Act subject, of course, to the two parameters enumerated in section 11(1) namely, protection of the interests of the investors in securities and promotion and regulation of the securities market. Such an interpretation alone would advance the object of the Sebi Act. The scope of these provisions had recently come up for our consideration in Parsoli Corporation Ltd. and others vs. Securities and Exchange Board of India, Appeal no.146 of 2010 decided on August 12, 2011 and we observed as under: The Board is a statutory body established under section 3 of the Act and section 11 thereof enjoins a duty on it to protect the interests of investors in securities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are also of the view that when it comes to regulating the securities market and protecting the interests of investors in securities, Sebi Act is a stand alone enactment and Sebi's powers thereunder are not fettered by any other law including the Companies Act. Sebi Act, SCRA and the Depositories Act, 1996 are cognate statutes as they deal with different aspects of 'securities' and the securities market and they alone govern the capital market. Whether the issue of OFCDs is a public issue requiring mandatory listing 22. As noticed earlier, the company issued OFCDs to raise funds approximating to ₹ 20,000 crores purporting to be by way of private placement to friends, associates, group companies, workers/employees and other individuals associated/affiliated or connected in any manner with Sahara India Group of Companies without giving any advertisement to the general public. RHP issued by the company in this regard and the resolutions passed by it and its board of directors have already been referred to in the earlier part of the order. The respondents including Sebi seriously dispute that the issue of OFCDs was by way of private placement and it is their case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said to be offered to the public if they are offered to a section of the public whether they are members or debenture holders of the company or its clients. Similarly, sub-section (2) states that public will be said to have been invited to subscribe to the shares or debentures of a company if the invitation is extended to any section thereof whether they are members or debenture holders or clients of the issuer company. Sub-section (3) then is in the form of an exception to the aforesaid two sub-sections and it lays down that no invitation or offer shall be an offer to the public if it cannot be made to persons other than those receiving the invitation/offer. To put it differently, an offer or an invitation shall be to the public if the same can be passed on to persons other than those to whom it is made. In other words, an offer/invitation without the right of renunciation in favour of others cannot be termed as an offer or invitation to the public. This then being the position of law, it came to the notice of the Government of India as is clear from its press note dated July 6, 1992 a copy of which was produced by the learned senior counsel for Sebi that some companies were mis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Amending Act 53 of 2000. The relevant part of this section reads thus: B. Information memorandum B. (1) A public company making an issue of securities may circulate information memorandum to the public prior to filing of a prospectus. (2) A company inviting subscription by an information memorandum shall be bound to file a prospectus prior to the opening of the subscription lists and the offer as a red-herring prospectus, at least three days before the opening of the offer. (3) The information memorandum and red-herring prospectus shall carry same obligations as are applicable in the case of a prospectus. (4) Any variation between the information memorandum and the redherring prospectus shall be highlighted as variations by the issuing company. Explanation.- For the purposes of sub-sections (2), (3) and (4), redherring prospectus means a prospectus which does not have complete particulars on the price of the securities offered and the quantum of securities offered. (5) to (9) ............................... Clause (19B) was also inserted in section 2 of the Companies Act by the same amending Act defining information memorandum and it reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue be described as one by way of private placement. For these reasons as well, we hold that the issue of OFCDs by the company was a public issue as it had approached the public. 25. Before we proceed further, we may refer to the implications that flow from a public issue. It is the requirement of law that every issuer making a public issue of securities, as has been done by the company, has to file a draft offer document with Sebi through a registered merchant banker. Not only is a merchant banker to be appointed but also a registrar to the issue and they are independent market intermediaries having separate roles to play. The draft offer document is then put up for public comments and Sebi examines the same making sure that all investor protection measures have been complied with. The directions, if any, issued by Sebi have to be incorporated by the merchant banker in the offer document. Again, an unlisted issuer like the company becomes eligible for making a public issue only if it has net tangible assets of atleast ₹ 3 crores in each of the preceding three full years. It must also have distributable profits in atleast three of the immediately preceding five years. Its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue, make an application to one or more recognised stock exchange for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange. (1A) ........................... (2) Where the permission has not been applied under sub-section (1) or such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money. (2A) to (7)........................ A plain reading of section 73(1) makes it clear that a company intending to offer shares or debentures to the public has to do so by issue of a prospectus and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to be listed on a recognized stock exchange and that the company wilfully defaulted to comply with the provisions of section 73(1) of the Companies Act. We have no hesitation in upholding the findings of the whole time member in this regard. The effect of section 55A of the Companies Act on the powers of Sebi to regulate unlisted companies. 27. Referring to the provisions of section 55A of the Companies Act, Mr. Nariman, learned senior counsel for the appellants forcefully argued that the company being an unlisted company which did not intend to get its securities listed falls in clause (c) of section 55A and, therefore, it could be regulated only by the Central Government and that Sebi had no jurisdiction in this regard. He further argued that before the introduction of section 55A, Sebi had no power to administer any provision of the Companies Act nor could it deal with any of its violations. The learned senior counsel also contended that this section has for the first time introduced the concept of listed public companies and unlisted public companies and demarcated the powers of Sebi and the Central Government in regard to their regulation. His argument i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that a statutory body like Sebi which had been taking a consistent stand in the past that it had jurisdiction only over listed companies could not now, without any justifiable reasons, change its stand and exercise jurisdiction over the company which is unlisted. He referred to several judgments of the Supreme Court where the learned Judges had observed that statutory authorities having taken a particular stand in the past cannot suddenly take a different and inconsistent stand as that would result in the law being in a state of confusion. Reliance was placed on Collector of Central Excise vs. Tata Engineering and Locomotive - 2003 (11) SCC 193; Birla Corporation Ltd. vs. Commissioner of Central Excise, Baroda - 2005 (6) SCC 95; Jayaswals NECO Ltd. vs. Commissioner of Central Excise, Nagpur - 2007 (13) SCC 807 and Indian Oil Corporation Ltd. vs. Collector of Central Excise, Baroda - 2007 (13) SCC 803. 28. Since the answer to the aforesaid contentions raised on behalf of the appellants depends upon the interpretation and scope of section 55A of the Companies Act, it is necessary to refer to the provisions of this section. Section 55A was inserted in the Companies Act by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h these matters in regard to listed companies and those intending to get their securities listed should be administered by the capital market regulator. The entrustment of this power to Sebi is in addition to the powers it already has under sections 11, 11A and 11B of the Sebi Act and does not whittle down its powers under these provisions. The statement of objects and reasons of the Amending Act makes it clear that Parliament brought about changes in the Companies Act to provide for good corporate governance and for protection of investors. The provisions in so far as they relate to investor protection were entrusted to Sebi for regulation including their enforcement. We are unable to agree with the learned senior counsel for the appellants that prior to the insertion of section 55A in the Companies Act, Sebi had no power to deal with companies in respect of matters enumerated in section 55A. Even prior to the insertion of section 55A in the year 2000, Sebi had powers under section 11A of the Sebi Act which was introduced in January 1995 to regulate companies in regard to matters relating to issue of capital, transfer of securities and other matters incidental thereto. It is perti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated therein shall be administered by Sebi in regard to listed public companies and those public companies which intend to get their securities listed on any recognized stock exchange in so far as they relate to matters regarding issue and transfer of securities and non-payment of dividend and in all other cases those provisions would be administered by the Central Government. The insertion of section 55A in the Companies Act does not in any way affect the powers of Sebi under the Sebi Act whereunder it can deal with both listed and unlisted companies. 30. We are also unable to accept the contention of Mr. Nariman that section 60B has not been included in section 55A of the Companies Act and, therefore, Sebi has no jurisdiction to administer this provision. It may be recalled that the whole time member has, in the impugned order, recorded a finding that the company could not take the section 60B route to mobilise funds because on the one hand it claims that OFCDs have been issued by private placement and on the other it has issued an information memorandum which is only meant for the public. The argument is that it was the Central Government which could object to this route bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its RHP and the information memorandum on the recitals that the issue was by way of private placement and that it did not intend to get the issue listed was only to bypass the mandatory provisions of the Companies Act and an effort to get out of the clutches of the market regulator. It must be remembered that listing is an admission of a security to dealings on a recognized stock exchange and gives a valuable right to the investor to trade which alone can provide liquidity. If an issue is a public issue, investors cannot be deprived of this right to trade. How can a company go to the public issuing securities and not get the security listed. This is unheard of in the securities market and impermissible in law. In view of our findings that the company intended to get its OFCDs listed, it has to be held that it falls in clause (b) of section 55A and is amenable only to the regulatory jurisdiction of Sebi. Now coming to the two cases cited on behalf of the appellants. As already noticed, strong reliance was placed on Kalpana Bhandari's case (supra). We are of the view that this judgment is of no help to the appellants. That case pertains to preferential allotment that was made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not have and even the misstatements could be objected to only by the Central Government. We have carefully considered this argument and are unable to accept the same. We have already discussed the provisions of section 55A of the Companies Act in the earlier part of our order observing that Sebi has been given the power to administer the enumerated provisions therein in regard to listed public companies and those public companies which intend to get their securities listed on any recognized stock exchange in so far as they relate to three matters namely, issue of securities, transfer of securities and non-payment of dividend. The Explanation to section 55A is a declaration made by Parliament for the removal of doubts. It has to be read harmoniously with the main provisions of the section and it cannot be read in a manner which takes away the powers given by the main provisions. The declaration has been made in regard to powers of the Central Government relating to all other matters . These words when read with the main provision would mean matters other than issue and transfer of securities and non-payment of dividend. When we read the Explanation harmoniously with the main prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to a letter dated April 21, 2010 whereby Sebi forwarded the complaints with regard to OFCDs floated by the company and the housing company to the Ministry of Company Affairs for examination and necessary action as both these companies are unlisted. Reference was also made to the letter dated June 23, 2010 by which complaints relating to unlisted companies of the Reliance group of Industries were also forwarded to the Ministry of Corporate Affairs. It was argued by the learned senior counsel that since Sebi has not been dealing with the complaints relating to unlisted companies, it cannot acquire jurisdiction over the company. Reference was also made to the affidavit filed by Sebi in the Bombay High Court in Kalpana Bhandari's case (supra) where it had been stated that Sebi had the power to regulate listed public companies and public companies intending to get its shares listed on any recognized stock exchange in so far as they relate to issue and transfer of securities. It was argued by Mr. Nariman that there is no justifiable reason available on record which may necessitate Sebi to change its consistent stand with regard to jurisdiction over unlisted companies being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw cannot bind Sebi or the Central Government. 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. We are in agreement with the learned senior counsel for the respondents that the case law cited on behalf of the appellants is of no help to them. In Tata Engineering and Locomotive's case (supra), the Central Excise Department had accepted an earlier decision of the Tribunal in the case of Bajaj Auto in regard to the interpretation of a notification. No appeal was filed in the case of Bajaj Auto whereas an appeal was filed in the case of Tata Engineering and Locomotive Company where the Tribunal followed its earlier view. It was on these facts that the learned judges of the Supreme Court held that the Department having accepted the Tribunal's interpretation of the notification in one case was precluded from taking an inconsistent stand in the other. This decision does not advance the case of the appellants. In Birla Corporation's case, Indian Oil Corporation's case and Jayaswals NECO's case cited by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en specifically included in the definition of 'securities', it is reasonable to assume that each one of them is different from the other. Had they been the same, there would have been no need for the Parliament to include all. Bonds and debentures have been separately included and, therefore, they are different from each other. We have already held in the earlier part of our order that OFCDs issued by the company are debentures. As they are debentures, they are different from bonds though they both fall in the category of debt securities. In a loose sense, the terms 'bonds' and 'debentures' are sometimes used interchangeably in the securities market but legally these cannot be understood as same financial instruments because the Parliament has included them separately in the definition of securities. What has been excluded from the provisions of SCRA under Section 28(1)(b) are convertible bonds and not debentures. It is pertinent to mention here that the company itself in the RHP and in the information memorandum has described the instruments as Optionally Fully Convertible Debentures . It follows that the exclusion under section 28(1)(b) of SCRA is not ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, the Investigating team tried to identify, even after strenuous efforts with the Post Office, two of them were simply not traceable. As to the two investors who were identified, both of them invested in the OFCDs, just because they were approached by the Agents in their locality. They had no prior association with the issuer or the Sahara Group. Evidently, on the face of it, the OFCDs are subscribed to, not by persons belonging to the Sahara India Parivar as claimed, but by the public, and such subscriptions are solicited through the usual marketing efforts that are typically needed to canvass deposit business from the general public. Both of them had hardly any awareness of the convertibility in these instruments. There is merit in the contention of the appellants. As already observed, one of the primary questions that arose before the whole time member was whether the issue of OFCDs was a public issue or one by way of private placement. The appellants have been contending throughout that it was a private issue and that they had not approached the public and that the OFCDs were being offered only to their friends, associates, group companies, workers/employees and other in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue without complying with any of the requirements prescribed for such an issue. We have already held that not only was the issue of OFCDs a public issue but the company flouted every requirement of section 73(1) of the Companies Act and did not comply with any of the investor protection norms as prescribed by law. In this view of the matter, the argument of the appellants has only to be rejected. 39. The learned senior counsel for the appellants then challenged the show cause notice dated May 20, 2011 to the company and other appellants on the ground that the same was without jurisdiction. It was pointed out that OFCDs were issued by the company in the year 2008 and it is alleged in the show cause notice that the company had violated different clauses of the guidelines pertaining to investor protection and disclosures and since no action was taken by Sebi till the time the guidelines came to be rescinded on the promulgation of the regulations with effect from August 26, 2009, Sebi could not issue the show cause notice under the regulations alleging violation of the guidelines. According to the learned senior counsel, the regulations do not have any retrospective operation and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idelines were in force are to be treated as having been done under the regulations. In this view of the matter, all wrongful acts committed by the company prior to the promulgation of the regulations could be the subject matter of a show cause notice issued after the promulgation of the regulations. We cannot agree with the learned senior counsel for the appellants that by issuing the impugned show cause notice, retrospective effect is given to the provisions of the regulations. We do not find any infirmity in the show cause notice on this score and the whole time member was right in holding the company guilty of violating the guidelines read with the regulations. 40. The regulations, therefore, apply to all public issues by all companies whether they are listed or unlisted. Challenging the direction issued by the whole time member, the learned senior counsel for the appellants contended that the direction pertaining to the refund of monies collected through the OFCDs could, if at all, be given by the Central Government and that Sebi could not direct the appellants to make the refund. We have no hesitation in rejecting this contention as well. Section 73 is one of the enumerated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regulations. 3. Unless otherwise provided, these regulations shall apply to the following: (a) a public issue, (b) a right issue, where the aggregate value of specified securities offered is fifty lakh rupees or more; (c) a preferential issue; (d) an issue of bonus shares by a listed issuer; (e) a qualified institutions placement by a listed issuer; (f) an issue of Indian Depository Receipts. A plain reading of Regulation 3 leaves no room for doubt that the regulations apply to all public issues as mentioned in clause (a) thereof. We have already held in the earlier part of our order that the issue of OFCD was a public issue and, therefore, it is squarely governed by the regulations. Again, Regulation 3(a) makes no distinction between listed or unlisted public issues nor does it differentiate between listed and unlisted companies. 42. Before concluding, we may mention that in view of our findings that OFCDs issued by the company are securities and that the issue was a public issue requiring mandatory listing and that Sebi has the jurisdiction under the Sebi Act to deal with all kinds of securities and companies, whether listed or not, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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