Sebi reaffirms earlier ruling in Sahara India Commercial Corporation case

The order relates to SICCL collecting funds to the tune of Rs 14,106 crore between 1998 and 2009 from nearly 20 million investors through bonds

The Securities and Exchange Board of India (Sebi) on Tuesday reaffirmed its ruling in the Sahara India Commercial Corporation (SICCL) case, which had directed legal representatives of late Y N Saxena to refund investors.

Saxena was SICCL’s director from December 1998 to November 2012. The order relates to SICCL collecting funds to the tune of Rs 14,106 crore between 1998 and 2009 from nearly 20 million investors through bonds — optionally fully convertible debentures (OFCDs).

Sebi had, in October 2018, ordered the firm and its directors including Subrata Roy, O P Shrivastava, J B Roy, A S Rao, Ranoj Das Gupta, as well as legal representatives of late D S Thapa, late P S Mishra, and late Y N Saxena, to jointly and severally refund the money collected through the issuance of OFCD.

Following this, legal representatives of Saxena in January 2019 submitted a preliminary application and requested for all the relevant documents and information in the matter. Further, they had asked Sebi to grant them an opportunity of hearing after the inspection and detailed reply in the matter.

According to Sebi, its October 2018 order did not finally adjudicate the issues or finally determine the liability qua Saxena, but was effectively in the nature of a show cause notice to legal representative of Saxena.

“Thus, the present proceedings are not against a deceased person but against the legal heirs of late Y N Saxena in their capacity as his legal representatives,” it added. The regulator noted that Saxena was director when the entity raised funds.

Besides, he was a signatory or authorising person to the prospectus. Since he gave his consent, he is liable for violation under the Companies Act for the misstatement and untrue statements in the prospectus.

Saxena, along with other directors of the company, was also an officer in default and is liable to make refund, jointly and severally, along with interest at the rate for money collected during his tenure as Director of SICCL.

Sebi said the creation of liability on the officers in default to repay the money with interest is nothing but the recognition of their fiduciary liability to the securities holders and the consequence of their failure to comply with their fiduciary duty.

“The fiduciary duty of disclosures also requires the directors not to make false or untrue statements to its security holders/prospective security holders. Whenever there is a relationship based on contract, quasi-contract, some fiduciary relation or a failure to perform a duty, there is no abatement of the liability on the death of the wrong-doer. Therefore, the cause of action survives on this ground as well to the extent of inheritance,” Sebi said in an order.

It further said legal representatives of Saxena are liable in their capacity as legal representatives of the deceased, to refund the money collected through the issuance of OFCDs during his tenure to the extent of the assets inherited by them.

Accordingly, Sebi said legal representatives of Saxena, jointly and severally with SICCL and other directors, refund the money collected by the company through the issuance of OFCDs, along with an interest of 15 pr cent per annum, up to the extent of the assets inherited by them , to the investors.

In case, they fail to comply with the directive, Sebi on the expiry of three months may recover such amounts to the extent of assets inherited by them.