The Securities Appellate Tribunal (SAT) on Tuesday upheld an order passed by the market regulator against two Sahara group companies and directed them to return money raised from the public in violation of securities regulations with an interest of 15%.

The appellants in both the appeals shall now repay within six weeks from today, said the order.

Sahara India Real Estate Corporation and Sahara Housing Investment Corporation had raised money from the public by issuing a hybrid instrument known as optionally fully convertible debenture, or OFCD. The money was to be used for funding projects worth an estimated Rs40,000 crore, according to the Securities and Exchange Board of India (Sebi) order.

Sebi found the method of raising capital to be violative of various regulations and passed an order against the companies in June this year.

On Tuesday, SAT dismissed the appeal against the order.
The tribunal struck down the argument that OFCDs were not securities and therefore did not fall under Sebis jurisdiction. It also ruled against an argument that the money was not raised by a public issue though it was collected through an information memorandum circulated to over three crore people through ten lakh agents and over 2900 branch offices.

SAT also noted that the company withheld material facts from the Registrar of Companies. Not only did the company withhold material facts from the RoC, it also failed to furnish to its shareholders all material particulars of persons from whom capital was sought to be raised on private placement basis, SAT noted.

The tribunal also drew attention to the conduct of the RoC. Even the conduct of the RoC leaves much to be desired. We say so because the RHP (Red Herring Prospectus) was presented to him. The fact that the company had a capital base of only Rs10 lakh with no other assets or reserves and was a loss-making company and was going to collect Rs20,000 crore by private placement should have alerted him and he should have made necessary queries in this regard, said the order.

There were 2.21 crore investors for the OFCDs, which raised more than Rs19,400 crore, according to one affadavit mentioned in the SAT order. Of this, Rs17,656 crore was outstanding as of August 31, 2011.

A second affidavit not mentioned in the order but reported in the media held a further Rs6,373 crore to be outstanding, taking the total capital to be repaid to Rs24,029 crore.

Sahara said Sebi had previously taken a contradictory stand on the jurisdiction of private placements. Such a contradictory act by a responsible regulator can only happen in our system... on the one hand Sebi clearly replies to Parliament that the private placement of debenture is not under its jurisdiction but on the other hand, Sebi submits to the court of law an entirely opposite statement in the case of Saharas issue, i.e. private placements comes under Sebis jurisdiction, it said in a statement.

A Sahara spokesperson said the group will appeal again in the Supreme Court.