The Supreme Court on Tuesday asked the market regulator, Securities and Exchange Board of India (Sebi), to furnish details of unlisted firms which have raised capital from 50 or more people. The court asked for the data while hearing an appeal by the Sahara group against an order by Sebi, in the matter of issue of optionally fully-convertible debentures (OFCD) it issued to over 22 million investors.
Sebi has directed Sahara to refund the money collected through the OFCD issue, as it allegedly violated public issue norms. However, Sahara contends it was a private placement by an unlisted firm and, therefore, does not fall under the purview of Sebi. The matter is being heard by a vacation bench comprising judges K S Radhakrishnan and Jagdish Singh Khehar.
“How many (unlisted) companies have issued shares or bonds to more than 50 investors? Have you done any study or investigation on this? Have you issued any show cause to any other company?” Justice Radhakrishnan asked. “We want to know because this (decision) could have far reaching consequences,” he added. Sebi counsel said whoever had crossed 50 investors would have been listed on the bourses already, but assured to get back with details from Sebi. The court also asked the Ministry of Corporate Affairs, also a party to the case, to provide these details, if available at its end.
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The bench’s directions came after the Sahara counsel, Gopal Subramaniam, said there were several unlisted companies which had raised money by issuing shares and debentures without going through Sebi. Private placement was an important mode of raising capital for these companies, he contended.
“Let us keep Sahara aside for a moment. There are over 100,000 public limited companies. Of these, only about 12,000 are listed on the stock exchanges. The remaining (ones) are unlisted. Several of these companies raise money through private placements. It is an important source of capital for them. If this route is blocked, it will have serious consequences,” Subramaniam said.
According to him, “The theory of the number 50 should not be treated as overarching in deciding the case.” It is not a golden numeral, he added.
Earlier, in response to the tribunal decision that “intention to list” was an obligation under the law, the Sahara counsel argued the decision to list was a prerogative of the company and could not be forced upon by law. “The stock exchange is a place where predators also lounge around. It is a Darwinian jungle, where only the fittest survive. ” Therefore, he argued, it was in the interest of the company and promoters in “seeing that you are not thrown to the wolves”. So, it is purely a business decision, based on autonomy, he argued.
