The Securities Appellate Tribunal (SAT) has done well to uphold Sebi?s order asking two Sahara group companies, which raised around R24,000 crore from the public without intending to list the security, to return the money to the investors with interest. The ruling vindicates the stand of the capital markets watchdog and the message in SAT?s 53-page order is unambiguous: Sebi does have jurisdiction over unlisted companies, which may not want to list their securities, and it?s not as if the central government alone can regulate these firms. The tribunal didn?t buy Sahara?s contention that Sebi has been regulating listed companies and, therefore, had no locus standi to deal with the Sahara companies.
Moreover, SAT reiterates that if more than 50 investors are going to participate in an issue, then that security has to be listed and, consequently, all other rules relating to public issues need to be complied with. The SAT decision should prevent other companies from trying to sidestep the public issue rules by claiming that optionally fully convertible debentures (OFCDs) are ?hybrids? as defined in section 2(19A) of the Companies Act and not securities, within the meaning of the Sebi Act read with the Securities Contracts Regulation Act, as Sahara?s counsel had argued and, therefore, not within Sebi?s jurisdiction. The tribunal?s point is well taken, which is that the definition of ?securities? should not be a narrow one but that such instruments should be looked at in a broader context; it goes so far as to say that the reference to the definition of ?securities? in the Companies Act is wholly misplaced and impermissible. Also, while the Sahara companies had contended that it was the central government that could administer them and OFCDs, SAT has rightly ruled that Sebi was well within its rights to take action against them. Indeed, the sense that the order conveys is that Sebi?s job is to protect the interests of investors and regulate the market and that it has the powers to do so.
It?s surprising that the Sahara companies have been able to mop up such a large sum of money and somewhat disconcerting that no regulator took the trouble to investigate until Sebi stepped in. SAT hasn?t spared the Registrar of Companies, saying it should have been more alert. Kudos to Sebi for having the courage of its conviction; more of such action will go a long way in making investors feel safer.