The Supreme Court on 31st August, 2012 in Sahara India Real Estate Corporation Limited ('SIRECL') and Sahara Housing Investment Corporation Limited ('SHICL”), & Ors., the Appellants) v.s Securities and Exchange Board of India & Anr. ('SEBI'), the respondents had passed a landmark judgment wherein, the Hon’ble Court ordered business conglomerate and leading sports sponsor Sahara to refund all the money together with interest which it collected from millions of small investors.

The matter came into the picture when SEBI, in November 2010, had restrained the two companies from raising funds in the form of Optionally Fully Convertible Debentures (OFCD), against which, Sahara got SEBI order in December 2010, stayed in Allahabad High Court. The Allahabad High Court in April 2011, ordered Sahara to approach the apex Court. In May 2011, the Supreme Court directed SEBI to continue its OFCD probe.

In June 2011, SEBI ordered the two companies to refund back the money to the investors, in response to which Sahara in July 2011, appealed in the Supreme Court stating that SEBI has no jurisdiction in the case. The Supreme Court, however, ordered Sahara to approach the Securities Appellate Tribunal (SAT). In October 2011, SAT upholds the SEBI order. In November 2011, Sahara challenges the order passed by SAT and obtains stay. But, finally on 31st August, 2012 the Hon’ble Supreme Court delivers the verdict against Sahara and ordered the companies to pay the collected amount i.e. Rs 24, 400 Crore + 15% interest to its 2.21 crore investors.

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  •  The Optionally Fully Convertible Debentures ('OFCDs') issued by the SAHARA Group were hybrid in nature and as defined u/s 2(19A) of Companies Act, 1956 "hybrid" means any security which has the character of more than one type of security, including their derivatives. The Optionally Fully Convertible Debenture is a kind of debenture which can be converted into shares at the expiry of a certain period at a predetermined price, if the debt holder (investor) wishes to do so. The “securities” as defined u/s 2(45AA) of Companies Act means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, and includes hybrids.

The “securities” as defined u/s 2 (h) of Securities Contract (Regulation) Act, 1956 include -

  1. shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;]

(ic)security receipt as defined in clause (zg) of section 2 of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;]

(id) units or any other such instrument issued to the investors under any mutual fund scheme;]

  1. (Government securities;

(iia) such other instruments as may be declared by the Central Government to be securities; and

  1. rights or interest in securities;

Hence after analyzing the above definitions of “OFCD”, "hybrid" and “securities” it could be rightly concluded that an OFCD being a hybrid security falls under the definition of “securities” as defined u/s 2 (h) of Securities Contract (Regulation) Act, 1956 and u/s 2(45AA) of Companies Act, 1956 as it inherits the characteristics of debentures initially and also that of the shares at a later stage if the option to convert the securities into shares being exercised by the security holder. Therefore the Securities Exchange Board of India has the powers to administer the same. 

  • Passing of Special Resolution u/s 81(1A) of Companies Act, 1956 for preferential allotment by Private Placement of OFCDs does not confers the right to the company to issue such securities to large number of people. The company is bound to comply with the other applicable laws as once the number 49 is crossed, the proviso to Section 67(3) of Companies Act becomes effective and it is considered to be an issue to the public, which attracts Section 73(1) of Companies Act and an application for listing of such securities on any recognized stock exchange in India becomes mandatory which fall under the administration of SEBI u/s 55A(1)(b) of the Companies Act. Moreover the company is also bound to comply with the relevant provisions of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 ['DIP Guidelines'] and various regulations of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ['ICDR 2009'] related to an issue to the public.
  • The submission of Information Memorandum (‘IM’) and that Red Herring Prospectus ('RHP') u/s 60B of the Companies Act with Registrar of Companies (“ROC”) doesn’t implies that the company has complied with all the provisions of the said act. The company also needs to file the same to the SEBI for its scrutiny on the ground of being an issue to the public and the involvement of the stake of large number of people.


In the light of the above, it can be concluded that the Optionally Fully Convertible Debentures or any other security issued by any company no matter whether it is listed or unlisted, private or public if issued to the public whether by way of public issue or private placement or any other manner would come under the jurisdiction of Securities Exchange Board of India if the number of the persons to whom allotment is made exceeds 49 (forty nine) as the proviso to Section 67(3) becomes effective which attracts Section 73(1) and an application for listing becomes mandatory which fall under the administration of SEBI u/s 55A(1)(b) of the Companies Act.