The Securities and Exchange Board of India (Sebi) today barred two Sahara Group entities – Sahara India Real Estate Corporation and Sahara Housing Investment Corporation – from accessing the securities market till further directions, for allegedly withholding information from investors and the regulator.
The promoters and directors of the two companies, namely, Subrata Roy Sahara, Vandana Bharrgava, Ravi Shankar Dubey and Ashok Roy Choudhary, have been prohibited from issuing prospectus, or any offer document, or issue of advertisement for soliciting money from the public for the issue of securities, in any manner whatsoever, either directly or indirectly, till further directions.
The enquiry goes back to December 2009, when the capital market regulator received various complaints regarding disclosures made in the Draft Red Herring Prospectus of Sahara Prime City. It was alleged that one of the housing companies in Sahara Group, Sahara India Real Estate Corporation, was issuing convertible bonds to the public throughout the country for many months and this was not disclosed in the prospectus.
“Sahara India Real Estate Corporation and Sahara Housing Investment Corporation are restrained from mobilizing funds under the Red Herring Prospectus dated March 13, 2008 and October 6, 2008, respectively... till further directions,” said the 34-page order by Sebi whole-time member K M Abraham.
“The said companies are further directed not to offer their equity shares/OFCDs (optionally fully convertible debentures) or any other securities, to the public and invite subscription, in any manner whatsoever, either directly or indirectly till further directions.”
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The two companies have also been directed to show cause as to why action should not be initiated against them, including issuance of directions to refund the money solicited and mobilised through the prospectus issued with respect to the impugned OFCDs.
The regulator also talked about the possibility of a detailed scrutiny of the accounts of Sahara Group, as the source of large funds is not clear. “It may require detailed scrutiny of the balance sheet of Sahara Group, to examine the flow of funds in and out of the companies. Prima facie, it appears that in the guise of private placements, these companies are rampantly tapping huge amount of money by not disclosing the source of funds by circumventing the applicable framework of law,” said the order.
In response to the company’s argument that these OFCDs were privately placed with friends, relatives and associated persons and hence, not required by law to disclose with the market regulator, Sebi said: “The issuance of OFCDs by the companies is a public issue and therefore, these securities are liable to be listed on a recognised stock exchange under the provisions.”
“It is rather perplexing that these companies having mobilised money through the OFCDs could not provide even the basic details pertaining to its issue or investors... If the OFCDs are offered to such restricted group (as contended by them) connected to them, it is not clear as to what, in fact, prevented them from parting with such information.”
Sebi is of the view that these companies have conveniently omitted the necessary statutory declaration of compliance. “If companies are allowed to go ahead in such a manner and raise vast sums of capital in the guise of private placement, it would be a mockery of the entire capital market framework and all established mechanisms to protect investor’s interest,” noted the order.