2012 Supreme(SC) 578

SUPREME COURT OF INDIA
K.S. RADHAKRISHNAN & JAGDISH SINGH KHEHAR, JJ.
SAHARA INDIA REAL ESTATE CORPORATION LIMITED & ORS. - Appellants
VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA & ANR. - Respondents
Civil Appeal No. 9813 of 2011 with Civil Appeal No. 9833 of 2011
Decided on : 31-08-2012.

IMPORTANT POINTS
Section 60B which falls in between 59 to 81, stands included and covered by section 55A.
SEBI has power to administer provisions of sections 59 to 81 of the Act.
I M, Prospectus and listing.
Hybrids are securities.
Private placement and public issue.

Headnote:(a) Securities Contracts (Regulation) Act, 1956 - Section 15Z - Saharas claiming investment by friends/associates - No material to show any relation/association with investors - Number of investors very large - Finding of SAT - Investment invited from public at large - No infirmity. (Para 51)

        (b) Interpretation of statutes - Word to and including occurring in section 55A, Companies Act, 1956 - Covers all sections from 59 to 81 - Word including used in the parenthetical clause is only to give emphasis to the sections like 68A, 80A - Hence section 60B which falls in between 59 to 81, stands included and covered by section 55A. (Para 68)

        (1995) 6 SCC 326; (1999) AC 99 - Relied upon

        (1986) 1 SCC 264; (1955) 1 WLR 1080; (2005) 125 Comp. Cases 804 (Bom.); 1945 PC 163 (HL) - Referred

        (c) Companies Act, 1956 - Section 55A - SEBI has power to administer provisions of sections 59 to 81 of the Act. (Para 71)

        (1985) 1 SCC 591 - Relied upon

        (d) Companies Act, 1956 - Section 60B (1) - Is an enabling provision - Circulating Information Memorandum prior to filing prospectus is not mandatory - A company inviting subscription from public by an IM is bound to file a prospectus prior to the opening of the subscription lists. (Paras 74 and 76)

        (e) Companies Act, 1956 - Section 60B - Private placement - IM is not required - RHP not disclosing statutory declaration but modifying it arbitrarily - Associates - No need for introduction and introducer - More than thirty million investors roped in - Placement of OFCDs - In fact issue of debentures to the public. (Paras 79 to 81)

        (f) Companies Act, 1956 - Section 67(3), Proviso - Any share or debenture issue beyond forty nine persons, would be a public issue. (Para 90)

        Maxim - Acta exterior indicant interiora secreta - External action reveals inner secrets - Conduct of Saharas - Intention to offer debentures to public at large - Illegality clearly contemplated. (Para 95)

        (1971) 1 AC 886; [1942] AC 435 - Relied upon

        (g) Companies Act, 1956 - Section 73 - Securities offer to more than 50 members of the public - Duty bound to be listed on recognized Stock Exchanges - Failure to list - Intentional illegality - Remedy - Refund of the amount collected from the public with interest - Mandatory. (Paras 93 and 96)

        (1992) 2 SCC 255 - Relied upon

        (h) Companies Act, 1956 - Sections 67(3) and 81(1A) - Section 81(1A) cannot have an overriding effect on the provisions relating to public issue - A public issue of securities will not become a preferential allotment on description of label - Proviso to Section 67(3) does not make any distinction between listed and unlisted public companies or between preferential or ordinary allotment - 2003 Rules do not apply to public issue. (Para 101)

        (i) Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 - Regulation 111 - Violation under DIP guideline - Continuing offence - Saharas not discharging their statutory obligation under DIP guidelines ACDR 2009 applies. (Paras 104 and 105)

        (j) Securities Contracts (Regulation) Act, 1956 - Section 2(h) - Hybrid securities - have some of the attributes of both debt securities and equity securities - Definition in section 2(h) is inclusive and not exhaustive - Includes hybrid securities also - OFCDs issued by Saharas - Debentures in presenti and become shares in futuro - SEBI has jurisdiction. (Paras 110 to 112)

        (2009) 8 SCC 1; (2010) 6 SCC 178 - Relied upon

        (k) Securities Contracts (Regulation) Act, 1956 - Section 28(1)(b) - Applicability of the Act is not to the convertible bonds, but to the entitlement of a person to whom such share, warrant or convertible bond has been issued, to have shares at his option - The Act is, therefore, inapplicable only to the options or rights or entitlement that are attached to the bond/warrant and not to the bond/warrant itself - It is only the convertible bonds and share/warrant of the type referred to therein that are excluded from the applicability of the SCR Act and not debentures which are separate category of securities in the definition contained in Section 2(h) - OFCDs are not excluded from purview of listing requirements. (Para 114)

        Per Jagdish Singh Khehar, J.

        (l) Securities and Exchange Board of India Act, 1992 - Sections 11C(6) and 15A - Failure to provide information and documents - Liability for punishment. (Para 62)

        (m) Administration of Justice - Judicial propriety - Those who seek relief from a court must come with clean hands and with bona fide intentions - They must also abide by the orders passed by the concerned court - If assurances given to the court are not honoured, the court cannot come to the rescue of the party - From very beginning appellants trying to protract the adjudication by taking recourse to legal opinion before every response and using MCA awaited response as an excuse. (Para 65)

        (n) Securities and Exchange Board of India Act, 1992 - Section 11r/w section 114, Evidence Act, 1872 - Appellants collecting monies to the tune of Rs.40000 - Information about such huge investment - Expected to be kept on record with highest order of precision - Information sought by SEBI not furnished ostensibly being not available - Adverse inference has to be drawn. (Paras 71 and 72)

        (o) Words and Phrases - Private placement - No such term in the Companies Act - At best the term would essentially fall in the two categories expressed in clauses (a) and (b) of sub-section (3) of section 67 of the Companies Act - Accordingly, if the number of investors becoming larger than 50, the issue becomes public issue. (Para 74)

        (p) Companies Act, 1956 - Section 67(3)(a) and (b) - OFCDs/bonds under reference were transferable - Could not be by way of private placement - Moreover, Information Memorandum not disclosing issuance of invitation/ offer to 3 crore people - Issue was a public issue. (Paras 75 and 76)

        (q) Natural Justice - Rules of natural justice can be available only to a party which has itself been fair - Appellant companies having the information with them not furnishing the same to SEBI - Cannot cry foul if SEBI based its findings on the materials available on MCA portal. (Para 81)

        (r) Companies Act, 1956 - Section 2(45AA) and 55A - Hybrids - To be treated as a component of securities - SEBI has jurisdiction. (Paras 86 and 88)

        (s) Interpretation of statutes - Term hybrid not defined in SEBI Act, 1992, SC(R) Act or Depositories Act - Apt to rely on section 2(19A) of the Companies Act - A "hybrid" is per-se a security. (Para 87)

        (t) Companies Act, 1956 - Section 60B(2) r/w section 73 - Appellant companies having issuing Information Memorandum and being bound, have issued a prospectus/RHP - Thus they invited subscription to OFCDs from public - Mandatory to list the securities on some recognized Stock Exchange - SEBI gets jurisdiction. (Paras 95 and 96)

        (u) Companies Act, 1956 - Section 55A - The word Intend - RHP informing that the OFCDs were not intended to be listed - Not enough - In view of the issue being public issue, it cannot be presumed that the appellant-companies could have "intended", what was contrary to the mandatory requirement of law - Must be deemed to have "intended" to get their securities listed on a recognized stock exchange. (Para 98)

        (v) Securities and Exchange Board of India Act, 1992 - Section 11 - Limitation expressed in sub-sections (2A) and (4) of section 11, would extend to the power of Civil Court to be exercised by SEBI - Otherwise, SEBIs power would extend to all kinds of companies dealing with securities - Listed and unlisted - For protecting the interest of the investors in securities market, as also, for promotion, development and regulation of the securities market. (Paras 104 and 107)

       Facts of the case:

        The questions arising in this case are :

       1. The scope and ambit of powers of the Securities and Exchange Board of India under Section 55A(b) of the Companies Act, 1956 to administer various provisions relating to issue and transfer of securities to the public by listed companies or companies which intend to get their securities listed on any recognized stock exchange in India;

       2. The question whether Optionally Fully Convertible Debentures (for short OFCDs) offered by the appellants should have been listed on any recognized stock exchange in India, being Public Issue under Section 73 read with Section 60B and allied provisions of the Companies Act;

       3. Whether they had violated the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 and various regulations of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; and,

       4. Whether OFCDs issued are securities under the Securities Contracts (Regulation) Act, 1956.

       Finding of the Court:

        SEBI has the jurisdiction to regulate and administer SIRECL and SHICL.

       Result:

        Appeals dismissed with directions inter alia that Saharas (SIRECL & SHICL) would refund the amounts collected through RHPs dated 13.3.2008 and 16.10.2009 along with interest @ 15% per annum to SEBI