Supreme Court Ko Gussa Kyon Nahin Aata?

Published on Sat, Mar 01,2014 | 17:45, Updated at Sat, Mar 01 at 17:45Source : Moneycontrol.com

By: Menaka Doshi, Executive Editor, CNBC TV18

Justice Robert H Jackson once famously said about the United States Supreme Court "We are not final because we are infallible, but we are infallible only because we are final."

For the longest time I thought the same applied to India's Supreme Court as well. But according to the Sahara Group and its chief Subrata Roy – India's Supreme Court is neither infallible nor final. Which is probably why for 18 months after it lost a landmark Rs 24000 crore case in the Supreme Court, the Sahara Group has refused to comply with the Court's order - to pay the money to market regulator SEBI so that it may be refunded to 3 crore investors.

That Sahara refuses to do as the Supreme Court ordered it to – is shocking. But not as shocking as the fact that the Supreme Court has sat by patiently, watching Sahara come up with random excuses for not obeying its orders. And in doing so the Supreme Court has sent out a horrible message to all Indians. Yes, we may not be infallible and no – we are not final!

Let's go back to the beginning… this is a Sahara Case timeline (borrowed from the Financial Express, with a minor modification)

* Nov 2010: Sebi restrains Sahara India Real Estate Corp and Sahara Housing Investment Corp from raising funds through optionally fully convertible debentures (OFCDs)

* Dec 2010: Sahara moves Allahabad HC; obtains stay on Sebi order

* Jan 2011: Sebi files petition in SC, which directs Sahara to give details of OFCD investors

* April 2011: Allahabad HC vacates stay; Sahara moves Supreme Court

* June 2011: Sebi directs the two Sahara companies to refund around Rs 24,000 cr to investors

* Oct 2011: SAT upholds Sebi order against Sahara entities

* Nov 2011: Sahara challenges SAT order at SC

* Jan 2012: SC admits Sahara appeal against SAT order

* Aug 2012: SC upholds SAT order; Sahara ordered to refund Rs 24,000 cr to nearly 30 mn investors through Sebi

Given the large amounts and number of investors involved, the Supreme Court was keen the case be heard and decided in a time bound manner. So it gave SAT 8 weeks to decide the matter. And the Supreme Court itself took just 8 months to admit the appeal, allocate the case to a bench, hear SEBI's, Sahara's and the Government's arguments and decide the matter.

In 8 months the Supreme Court decided the case. But for 18 months thereafter the Supreme Court has watched its decision being ignored!

Infact in a curious twist in the case – in December 2012, 3 months after the Sahara order was delivered, Chief Justice Kabir's bench decided to extend the deadline set out in the earlier order – in effect reviewing a decision made by another bench. The impropriety of this was criticised by many senior lawyers but the Supreme Court maintained silence. The second deadline gave Sahara up to February 2013 to pay SEBI the remaining Rs 17400 cr (Rs 5120 cr had been paid in December).

February came and went. SEBI filed a couple of contempt notices…the hearings dragged on. Sahara contended that most of the money had already been refunded to investors in 2011 itself. This even though most of the bonds had no early redemption clause. Nor were the Sahara companies able to explain how they raised close to Rs 19000 crore to make the refunds. The same refund argument did not pass muster even with the CJI's bench in December 2012 - yet Sahara kept beating the same drum. And somehow the Court was convinced to allow Sahara to submit property papers as guarantee for the money. Sahara first submitted papers for a single property in suburban Mumbai, that it claimed, when fully developed would be worth over Rs 20000 cr. SEBI discovered the land suffered development restrictions. Sahara tried every trick in the legal book to drag out what was in fact a concluded case. And the Supreme Court allowed it to do so.

This generosity is baffling and unprecedented – have you ever heard of a Supreme Court that allows its orders to be negotiated down? Sahara must have been emboldened by this patient leniency. No wonder the Sahara Chief thought it well within his right to ignore a Court summons. Unfortunately for him, the wind turned, and his nth act of disobedience turned out to be the proverbial last straw. His non-appearance in the Supreme Court on 26^thFebruary, 2014 lead to the Court issuing a non-bailable arrest warrant against him. The Supreme Court refused to withdraw it when petitioned to do so.

Mr Roy is now in police custody – not in a jail – but in a state government guesthouse. This after evading arrest for over 24 hours. The same man who claimed he could not attend Court as he had to be at the bedside of his ailing mother, was nowhere to be found the next day. Not even at his mother's bedside.

He will now be produced in the Supreme Court on March 4^th. On that day it will have been exactly 550 days since the Supreme Court first decided that Sahara had acted outside the law in raising Rs 24000 crores from 3 crore investors and hence must refund the money with interest. 550 days of disobedience by Sahara. How many more days of Sahara's non-compliance will it take the Supreme Court to be reminded of its own finality?

Here below are excerpts from the Supreme Court decision ( the individual orders and the combined order) on Sahara – August 31^st, 2012

But from Saharas' conduct and action, it is clear, that their intention was to issue securities to the public under the garb of private placement.

Facts indicate that, through this dubious method, that SIRECL had approached more than thirty million investors, out of which 22.1 million have invested in the OFCDs and it had raised nearly 20,000 crores, for which it had utilized the services of its staff in 2900 branches/service centers and utilized the services of more than one million agents/representatives. Court can, in such circumstances, lift the veil to examine the conduct and method adopted by Saharas to defeat the various provisions of the Companies Act, already discussed, read with the provisions of the SEBI Act.

I find that Saharas conveniently omitted the reference to SEBI in the declaration given in the prospectus. OFCDs were, therefore, issued by Saharas in contravention of the DIP Guidelines, ICDR 2009, notification dated 17.9.2002 and also overlooking the statutory requirements stipulated in Section 73(1) of the Companies Act.

I am, therefore, of the view that since Saharas had violated the listing provisions and collected huge amounts from the public in disobedience of law, SEBI is justified in directing refund of the amount with interest.

The procedure adopted by the appellant-companies is obviously topsy turvy and contrary to the recognized norms in company affairs. All this makes the entire approach of the appellant-companies calculated and crafty. It is clearly apparent, that the appellant-companies had clearly taken upon themselves to tread a path different from the mandate of law delineated under the Companies Act.

For the first time before this Court, in their challenge to the SAT order dated 26.8.2011 (whereby the SEBI (FTM) order dated 23.6.2011 was upheld), some details were disclosed by SIRECL. On an analysis the material placed before this Court, I have recorded hereinabove, that the same seemed to be unrealistic, and may well be, fictitious, concocted and made up.

it is essential to express, that there may be no real subscribers for the OFCDs issued by the SIRECL or SHICL. Or alternatively, there may be an intermix of real and fictitious subscribers.

Even though I hope that all the subscribers are genuine, and so also, the subscription amount, it would be necessary to modify the operative part of the order issued by the SEBI which came to be endorsed by the SAT, so that the purpose of law is not only satisfied but is also enforced.