Case Summary : Subrata Roy Sahara Vs. Union of India

Case name : Subrata Roy Sahara Vs. Union of India

Author : Khushboo Chopra


 AIR 2014 SC 3241




The case is regarded as one of the landmark judgements in the matter of the power and jurisdiction of the securities exchange board of India in case of corporate fund raising, where the investor trust is entrusted. SEBI claimed that over 23 million people have invested in this scheme including peasants, labourers, cobblers, artisans and many other.


Sahara floated two companies in 2005 by registering under companies act 1956. which were Sahara Indian Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation (SHIC). The funds were raised through private placement of optionally fully convertible debentures (OFCD). Both the companies together raised the fund amounting to rupees 24,029.73 crores from 30 million investors over a period of 3 years.

In 2009 when a red herring prospectus for Sahara prime city was submitted to SEBI for approval, SEBI noticed unusual fund-raising activity in the 2 firms – SHICL and SIRCL. SEBI also received a complaint from a man named Roshan lal, who alleged that – illegal means were used by SHICL and SIRCL in the issuance of OFCDs. Following this SEBI launched an investigation against Sahara India, inquiring into the fund-raising activities of SHICL and SIRCL along with investor information. On receiving rigid non-compliance from Sahara, SEBI passed an interim order concluding that there was an illegal activity with regard to issuance of OFCD’S and instructed SHICL and SIRCL to return back the money to the investors with interest. Following this Sahara filed a petition in court for the stay of the order. As Sahara was non cooperative with the authorities, eventually the stay order was vacated and final order was passed by SEBI. Even the securities appellate tribunal (SAT) approved the order. After that Sahara filed a plea against the SEBI order in Supreme court questioning their jurisdiction in the matter and alleging a defamatory agenda on part of SEBI to destroy the market reputation of Sahara. 

Issues and Fact of Law

  1. Whether SEBI has the jurisdiction over the matter under section 55A of the Companies act 1956?
  2. Whether the hybrids OFCDs fall under the definition of ‘Securities’ within the meaning of Companies act, SEBI act and SCRA so as to vest SEBI with the jurisdiction to investigate and adjudicate.
  3. Whether the issue of OFCDs to 30 million people qualifies as a private placement?


Supreme Court directed that-

1.SEBI has the power to investigate and adjudicate in this matter. the section 55A of the Companies act 1956, delegate special powers to SEBI in the matter of the issue, allotment and transfer of the securities.

2.Although the OFCDs issued by the two companies are in the nature of hybrid instrument, it does not cease to be a security within the meaning of companies act, SEBI and SCRA. As in this case such OFCDs were offered to millions of people so there is no question about the marketability of such instrument. And the name itself contain ‘debenture’, it is deemed to be a security as per the provisions of companies act, SEBI and SCRA.

3.Court held that private placement is limited to 50 people receiving invitations to purchase the securities. Thus, the issue of OFCDs to 30 million investors did not qualify as a private placement despite the fact that all of them received an information to buy.

The hon’ble court ordered Sahara to refund the entire deposits collected by it with an interest of 15% till the date of refund. It also authorized SEBI to take legal recourse in case the appellant that is Sahara fails to comply with the said order. On 24th February court sanctioned a non- bailable warrant for the arrest of Sahara India Pariwar Chairman and other members for not complying with the order.