Mumbai: The Securities Appellate Tribunal (SAT) Wednesday criticised the manner through which the Sahara Group mobilised Rs 19,000 crore from the public when none of its three promoter-directors neither held any stake in the companies in question nor were on the board.
"How are investors protected if three directors have already quit. This is really bothering us. Also, those who actually presented DHRP (draft red herring prospectus) before the RoC have quit (when the funds were raise)," SAT Presiding Officer N K Sodhi told the Sahara counsel Fali S Nariman here.
This observation came when Nariman told the SAT through an affidavit that the three Sahara promoters held no stake in the companies that approached the public for Rs 19,000 crore through an optional fully convertible debenture (OFCD) issue,
and that these promoter directors had quit after authorising fund mop-up.
"When the DHRP for OFCD issue was filed, its share capital was nil. What were the respective stakes of the company's promoters? The DHRP says the three directors who promoted the company had already left.
"What is really mind boggling is that how three directors who promoted the company did not have even a single share in it. Despite this, how did they even pass a resolution to collect Rs 20,000 crore from investors?" Sodhi asked.
The case relates to a June 2011 Sebi order which asked two firms - Sahara India Real Estate and Sahara Housing Investment Corp - to refund the money raised from an OFCD issue and restrained them from accessing the capital markets.
The market watchdog also restrained Sahara promoter Subrata Roy and three directors from associating with any listed company or any firm looking to raise money from the public. The regulator had also asked the Sahara companies to pay 15 per cent interest to the public (over 66 lakh investors) for alleged violation of Sebi regulations.
The Sahara Group had appealed against the order in the Supreme Court, which redirected the appeal to SAT. Last week, SAT had asked the Sahara Group to explain the method by which entities had raised thousands even without any advertisement.
During the argument, Nariman claimed that that neither the RoC (Registrar of Companies), Kanpur nor the Sebi raised any objection when the DRHP was filed. He also claimed the Lucknow-based Group has not caused any loss to the investors.
To this Sodhi quipped, "that’s because they were lucky. Please let us know how the money raised was used. We would also like to know if the OFCDs are capable of being listed on the exchange or not."
Another Sebi counsel D J Khambatta, who is also the Additional Solicitor General, replied that it would furnish a list of OFCDs listed on the exchange tomorrow.
Nariman argued that Sahara's OFCDs are of fixed price and there was no need to list them on the exchange.
The RoC also came in for flak from the SAT. "The official at the RoC who actually registered the companies has changed. The official who came in his place shut his eyes to everything. The RoC should have asked the companies to apply to the stock exchange," Sodhi observed.
Nariman contented that a public authority cannot change its stand on an issue as that would throw the law into a state of confusion. "Sahara had written to the Ministry of Corporate Affairs for advice on Sebi's locus standi on the issue. The Sebi itself had asked Sahara to go to the Company Law Board."
The hearing will continue tomorrow.