Sahara Real Estate Corporation Limited and Others v. Securities Exchange Board of India and Anr

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This landmark judgment[1] was passed on 31st August 2012 by the Supreme Court of India wherein Sahara India had lost an appeal at the Securities Appellate Tribunal (hereinafter, SAT) against the order of Securities and Exchange Board of India (hereinafter, SEBI). The appellant approached the Supreme Court of India challenging the decision of the Tribunal. The decision cleared major loopholes in the Companies Act, 1956 and the SEBI Act of 1992, by providing proper interpretation and larger scope to provisions at dispute. The main issues cleared were regarding ‘hybrid’ securities, public offers of securities, the jurisdiction of SEBI, etc.


Sahara Group had two companies, namely, Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL). SIRECL and SHICL on March, 2008 and September, 2009, respectively, resolved under Section 81 (A) of the Companies Act,[2] to raise funds as Optionally Fully Convertible Fund (hereinafter OFCD).They together had raised over Rs. 17,656 crores (Rounded Off) by issuance of OFCD in the span of two years, from about three crores investors.

Both the companies were registered after filing Red Herring Prospectus (RHP) under Section-60(B), after which funding was sought. The prospectus provided that there was no intent to get their securities listed on recognized stock exchange. Information Memorandum (IM) was also filed with the Registrar of Companies as under Section-60(B) of the Companies Act, 1956.[3] The memorandum was circulated so as to invite investors. It provided that such issuance was not a public issue but a private placement issue.

After an investigation on the companies by Security Exchange Board of India (SEBI), it was decided by an order dated 23/06/2011 that the money was to be returned to the investors. The order also restricted the promoters from accessing further securities. This decision was maintained by the SAT as well on their order of 18/10/2011, after the Sahara Group appealed before the tribunal against the order.


The issues before the court were:

  1. Did SEBI have jurisdiction upon the matter at hand?
  2. Was the issuance of OFCD a public issue?
  3. Section-67 (3) provides that if offer is made to more than 49 people, the offer becomes public offer. So, does Section-67 (3) of the Companies Act make an offer of shares and debenture ipso facto, a public issue?
  4. Section-73 provides that section companies intending to make offer to the public must make apply for a public stock market. So does Section-73 supersede Section-63?
  5. Do the acts not cover the issue related to “hybird” securities?

Aside from these issues, the court also dealt with other criminal liabilities provided in the Companies Act and refund of money collected as under Section-72(2).[4] It also dealt with statues such as Unlisted Public Companies (Preferential Allotment) Rules, 2003, Unlisted Public Companies (Preferential Allotment) Amendment Rules, 2011 and Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.


Contention by Sahara Real Estate Corporation

The Appellants contended that their funds were hybrid instruments. Their argument was that, Section-67 of the Companies Act, 1956,[5]which dealt with offer of shares and debentures to the public, didn’t include hybrid instruments. The said section only dealt with shares and debentures and their hybrid funds were out of the purview of the said section.

They further contended that the Securities Contracts (Regulation) Act (hereinafter, the SCR Act) didn’t apply to them as the term “hybrid” was included in the definition of the “securities” only in the Companies Act but not in the definition of “securities” in the SCR Act. Consequently, SEBI didn’t have any jurisdiction. They further contented that the funds were raised without violation of any laws. The funds were raised in private placement through friends and associates without any advertisements and were therefore, not public issue.

Contentions by the SEBI

It was argued that the fund raised was a public issue. Further, the issuance of the bond was made to more than 49 investors and therefore, it was to be registered to public stock exchange under Section-73 of the Companies Act, 1956.[6]Additionally, public issue was made by the company. Further, SEBI contented that they had the power as under Section-55A as the Appellant had violated Section-73.  SEBI contended that the funds were transferable and thus, marketable. This means they came under the definition of debentures. In addition, they also contented for their jurisdiction on the matter.[7]

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The appellant was made to refund the funds collected to the respective investors within three months at an interest rate of 15% per annum. The Supreme Court agreed with the findings of the SAT and added more reasoning to the decision of the Tribunal. Supreme court decided in favour of the respondents when it came to jurisdiction and investigation over the matters. The court further decided that the expressions in the disputed provisions were broad to incorporate the “hybrid” security.


Jurisdiction of SEBI

The court decided that the Act of SEBI was a special act which provided SEBI with special powers to investigate and adjudicate. Such powers are provided to protect the investors. To justify the decisions, the court analyzed the legislative intent behind the act and objectives stated in the act. Under Section-55A of the Companies Act, 1956[8] SEBI had power to regulate issuance and transfer of funds (of publicly listed companies) listed in recognized stock exchange.

i.  Legislative Intent

Courts, when ambiguity arises in any act or statute, resort to intent of the legislature to resolve the ambiguity. It was seen that the Companies (Amendment) Act, 2000, aimed to provide SEBI with powers regarding all matters of public issue and transfers. Such powers also came with power to prosecute the default.

ii. Harmonious Construction Rule

This rule also helps to clarify any the ambiguous provision by making court interpret the provision in accordance with the object. The expression of “all other matters” in the said section, shows that SEBI has jurisdiction upon the matter under the SEBI Act and the Companies Act, which is also the object of the provision.

Hybrid Securities and OFCD

The court decided that OFCD by its very name suggests that the funds were unsecured debentures. They remain as debentures until and unless they are converted. After they are converted, they become shares. Therefore, funds exist in one form or another i.e. either as shares or debentures. The name hybrid is given just because they can change their nature from debentures to shares. The court also noted that the IM, RHP, etc also treated the OFCD as debentures.

When it comes to jurisdiction, the court decided that the term “securities” in SCR Act includes “any other marketable securities of like nature”. Further, the court decided the fund is freely transferable and comes under the definition of “securities”, as a freely transferable security is marketable. The court also included such funds under the definition of “securities” in Section-55 of the Companies Act. The said section also provided SEBI with power of investigation and jurisdiction over the matter.[9]

The court referred to the case of Sudhir Shantilal Mehta v. Central Bureau of Investigation[10] in which it was decided that the definition of “securities” in Section 2(h) is an inclusive one and not exhaustive. This means that the section covers securities as commonly understood.
In the case of Dahiben Umedbhai Patel v. Norman James Hamilton and Others,[11]relation between marketability and transferability was put a light upon. Bombay High Court in this case observed that no restrictive interpretation can be placed in the act. The act also deals with securities that are not listed in the stock exchange, the only requirement is that the securities must be marketable. To fulfill the requirement of marketability, the securities should be easily sellable in the market and there is no requirement that it be registered in the stock exchange. OFCD fulfilled such criteria, as proved by the documents of the company itself. Therefore, these analyses by the court provided that the “hybrid” securities come under the Act which provided SEBI with jurisdiction. [12]

Public Issuance of Securities

The court held that the intention of the company was to make the issuance of OFCD as a private placement. But once such an offer is made to more than 49 people, such an offer is said to be a public offer. The memorandum of the company itself proved that the offer was a public offer even if the appellant contended that the memorandum was for private placement. Therefore, there was the conflict in their action and interest. Court took into observation the maxim acta exterior indicant interior asecreta which means external action reveals inner secrets. Sahara’s external action shows pubic order which revealed their inner secret despite presenting themselves as not having an interest in public issuance of funds.

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Sahara contended that a company can’t be forced to be listed on stock exchange as Section-73 uses the phrase “intended to get listed”. The Court mentioned that by making offer to more than 49 people, the company showed its intent. This made Section 73 (1)[13] mandatory to the company. The court nevertheless agreed that intention is required to be listed on the stock exchange when the offer is made to less than 50 people. Once the number exceeds the limitation provided, being listed in public stock exchange is mandatory.

In the case of Turbo Infotech and Industries Limited and Another v. SEBI,[14] SAT had observed that if offer is made to more than 49 people, such offer ceases to be private placement. The tribunal also maintained that the exceptions provided in the sections are to be seen. But, in the present case, such exceptions were not applicable.

The case was decided so as to prevent misuse of the statues. Providing larger scope to the provisions at dispute, was necessary. A literal interpretation would have limited the scope and the object of SEBI itself. The golden rule of interpretation of statues was necessary so as to include such  ‘hybrid’  securities. Further, it was very important to establish that Section-63 is superior to Section-73, once offers are made to more than 49 people. The intent of a person to join the public stock market is hard to judge by a court but the decisions also provided that external acts are to be seen to clarify internal intent. Therefore, the court has provided their arguments so that clarity can be maintained to the acts and jurisdiction can be maintained of the SEBI.


The present Companies Act of 2013 doesn’t expressly mention hybrid securities. Therefore, this judgment is still relevant when a dispute arises based on such kinds of securities. When it comes to number limitation for a company to have its shares as a private issue, the limitation has been increased to 200 people.[15]The Supreme Court has clarified very important provisions of the Companies Act and the SEBI Act. While solving the lists of issues they have also managed to shorten the jurisdictional gap between the Ministry of Corporate Affairs and SEBI. The decisions have done away with the grey areas which a company could exploit and benefit from. So as to regulate public companies, their activities of deeds, etc. under the statues, the court has provided with expansions to the scope of the provisions which essentially increased the jurisdictional scope.[16] The interpretation provided by the courts is even in use today as the new acts have not necessarily done away with all the “ambiguous” provisions. The interpretations have provided a larger scope to the provisions at dispute, including various kinds of funds within the scope and essentially establishing larger jurisdiction of SEBI in company matters. Therefore, the Supreme Court has added arguments and reasoning to the decision by the SAT an established a landmark decision in the field of company law.

Also read Rights of Shareholders in Private Limited Company

[1] Sahara Real Estate Corporation Limited and Others v. Securities Exchange Board of India, (2012) 174 Comp Cas 154 (India). 

[2] Companies Act §81 A (1956).

[3] Companies Act Section 60 B (1956).

[4] Companies Act Section 72 (2) (1956).

[5]Companies Act Section 67(1956).

[6]Companies Act Section73 (1956).

[7]VinodkumarGautam, Sahara India Real Estate Corporation Limited, v. SEBI, R& A Associates (June 20, 2020),

[8]Companies Act Section 55-A (1956).

[9] Deepak V. Shawney&Souvik Mukherjee, Sahara v. SEBI, An Analysis of Landmark Supreme Court Ruling, Mondaq (June 20, 2020),

[10] Shantilal Mehta v. Central Bureau of Investigation, (2009) 8 SCC 1 ⁋ 41 (India).

[11] DahibenUmedbhai Patel v. Norman James Hamilton and Other, (1983) 57 Comp Cas 700 (Bom)⁋ 39 (India).

[12] Mukual Aggarwal, Deepak Jodhani& Simone Reis, Supreme Court to Sahara: It’s not Private, Nishith Desai Associates, (June 20,2020),

[13]Companies Act §73 (1) (1956).

[14] Turbo Infotech and Industries Limited and Another v. SEBI, (2005) 3 CompLJ 305 SAT ⁋ 13 (India).

[15] Companies Act §2 (68) (1956).

[16]GarimaSoni Singh, An Analysis of Hon’ble Supreme Court Judgement dated 31.08.2012 in the matter of Sahara India Real Estate Corporation Limited & Others v. SEBI, India Law Journal, 2007.