SAT observed that SEBI has Powers under the Sebi Act to issue Directions to Unlisted Firms

The Securities Appellate Tribunal (SAT) observed on 5 September 2011 that the Securities and Exchange Board of India (SEBI) has wider powers under the Sebi Act to issue directions to even unlisted firms to protect interest of investors in the securities market.

The SAT observation followed a Sahara Group argument that the jurisdiction to regulate an unlisted public company lies with the Central government and not with the SEBI.

SAT also directed the ministry of corporate affairs (MCA) to produce a copy of its response to a query raised by Sahara Group in 2010 on whether the OFCD issued by the company fell within the purview of the Central government or the Sebi. The matter was brought before SAT after SEBI directed two Sahara Group firms to refund money to investors in the companies optionally fully convertible debentures (OFCD) scheme.

The Supreme Court had in July 2011 directed SAT to expedite the case with in a period of eight weeks and also decide the jurisdiction to regulate such instruments.

The Sahara counsel pointed out Section 55 A of the Companies Act, which makes a distinction between listed and unlisted public companies with relation to the issue and transfer of securities. The provision states that SEBI can regulate the issue and transfer of securities in case of listed public companies and those public companies, which intend to get their securities listed on any recognised stock exchange. However the unlisted public companies will be administered by the Central government. The Sahara Group argued that they were an unlisted public company and therefore prima facie, Sebi Act did not apply to them.

However, SAT observed that Section 55 A of the Companies Act should not override the wider powers enjoyed by Sebi under the Sebi Act.

SEBI had in November 2010 indicted two Sahara Group firms — Sahara India Real Estate Corporation now known as Sahara Commodity Services Corporation Ltd and Sahara Housing Investment Corporation for raising funds from the public through OFCD scheme without conforming to prudent disclosure and other investor protection norms, which govern such public issues.