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Sahara Group disguised OFCD issue prospectus as a DRHP: SEBI
September, 13th 2011

Market watchdog Sebi today charged the Sahara Group with disguising its prospectus for the optional fully convertible debenture (OFCD) issue as a draft red herring prospectus ( DRHP), as it had contained the details of price and quantum of the issue among other things.

"My submission is that the Sahara Group had actually issued their public issue prospectus disguised as a DHRP. A DHRP does not have the price or the quantum of securities. But the Sahara Group's DHRP contained the price and quantum, as well as the period of maturity and conversion value. So, it was a full-fledged prospectus which was issued.

"This cannot be called a DHRP and hence cannot escape Sebi's jurisdiction," Sebi Counsel Arvind P Datar told the Securities Appellate Tribunal (SAT) on the fifth day of the hearing to the OFCD issue.

Sebi had asked two Sahara Group companies to refund the money they collected through this issue, which was challenged by the company at the SAT.

The Sebi counsel said under Section 236 of the Companies Act, any document inviting deposits or offer of any shares or debentures, is termed as a "prospectus". He further argued that the two Sahara Group companies also violated the provisions of Sebi's disclosure & investor protection guidelines.

Refuting Sahara's earlier argument that there were legal fetters, which ensured that its OFCDs were not "marketable" securities, he said any security which has a market value is tradable and "marketable".

"Such arguments are merely to escape provisions of the Securities Contract (Regulation) Act (SCRA). The marketability argument cannot take it out of the SCRA's purview. They cannot escape SCRA and Sebi Act," he said.

Datar also refuted Sahara's earlier argument that OFCDs were "hybrid" instruments over which Sebi has no jurisdiction.

"They never intended to issue any 'hybrid'. Even in 2009, they kept on calling it a debenture issue.

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