The Supreme Court of India has publicly condemned the Securities and Exchange Board of India (SEBI) for its lenient approach towards the Sahara Group concerning compliance. As the principal regulator tasked with safeguarding the interests of investors within the securities market, SEBI is expected to ensure that the directives are strictly enforced to promote the growth of this market.
Recently, the Apex Court expressed disapproval over SEBI’s failure to fulfill its mandate following a Court order that was issued on August 31, which required the Sahara Group to provide all documentation related to investments exceeding 24,000 crore. The Sahara Group’s lack of compliance with this directive has sparked judicial scrutiny.
The court emphasized that both SEBI and Sahara Group cannot orchestrate any agreement that contravenes the judgment issued on August 31. Gopal Subramaniam, the legal representative for the Sahara Group, communicated to the bench presided over by Justices K.S. Radhakrishnan and J.S. Khehar, indicating that the group is currently coordinating with the regulator to ensure compliance by November 30.
The bench outlined that a ten-day period was allocated for both Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara Housing Investment Corporation Ltd (SHICL) to produce the requested documents. Following this period, it was asserted that SEBI should undertake its regulatory duties to guarantee genuine investors recuperate their funds promptly.
In light of the situation, the court urged SEBI to proceed with legal actions if compliance is not met. SEBI’s counsel, Arvind Datar, reiterated that the group has not adhered to the order, and the bench stressed the importance of the stipulated ten-day limit before triggering statutory consequences.
The court highlighted that the Sahara Group had neglected to submit the required documentation for several years, and even after the extension offered, they failed to comply. The court reiterated SEBI’s foundational duty to uphold the judgment issued.
Moreover, Mr. Subramaniam reported to the court that his firm had sent a DVD of some documents to SEBI, noting that several items contained mathematical discrepancies. He further explained that the group is actively correcting these anomalies and is in ongoing dialogue with SEBI to finalize the logistics for the document submission related to their investments.
He assured the court that the firm is making earnest efforts to adhere to the Court’s judgment and aims to present the original documents by the specified date of November 30.
In a decisive tone, the court clarified that there could be no private agreements between the two parties, insisting on SEBI providing clarity on how the regulator and Sahara Group could jointly contravene the order. The Supreme Court underscored that failing to produce the documents within the ten-day timeframe constitutes a breach of the ruling.
On the day prior, the Supreme Court mandated the two Sahara firms to refund a staggering amount of 24,029 crore, a sum that had been aggregated from 2.96 crore investors between 2008 and 2011.
The court acknowledged SEBI’s concerns regarding the fundraising tactics employed by SIRECL and SHICL, both of which amassed vast sums through the issuance of Optionally Fully Convertible Debentures (OFCDs) from April 2008 to April 2011. SIRECL raised an impressive over 19,400 crore from 2.21 crore investors, and the total collection was reported at 17,656 crore as of August 31, 2011.
Additionally, SHICL secured 6,380 crore from investors through similar means. The court expressed skepticism regarding the legitimacy of a number of these OFCD subscribers, with some appearing fictitious. Consequently, the court instructed the Sahara Group to submit comprehensive documents detailing its investors to SEBI within the ten-day window.
Furthermore, it granted SEBI the authority to conduct investigations aimed at determining the authenticity of these investors, enabling scrutiny of the Sahara Group's claims concerning refunds made. The court affirmed that, should SEBI establish any claims of refunds as fraudulent, it would interpret this as a failure to make any reimbursements.