SEBI: Unwilling Or Unable To Take Action Against Sahara?

You'd think after 2 Supreme Court orders the SEBI-Sahara case would have reached final conclusion. But it hasn't. This week SEBI filed a second contempt petition against Sahara. And Sahara’s continued to push it's request for more time and no payment. Here's a quick recap

August 31st Justices Radhakrisnan and Khehar tell Sahara to hand over all OFCD investor documents in 10 days and to pay to SEBI over Rs 24,000 crores within 3 months. Sahara fails the document submission deadline and in November SEBI files a contempt petition December 5th Sahara manages to get an extension from the Chief Justice's bench. It has 15 days to submit the documents and a payment schedule that concludes in February. The document submission is still incomplete and Sahara missed both the January and February payment deadlines. SEBI has filed a second contempt petition alleging Sahara’s non-compliance with the December 5th Supreme Court order. Sahara has moved an interim application asking for 5 days it claims it is owed, to submit documents. Sahara also argues that it has redeemed most of the OFCDs; it no longer has to pay anything to SEBI. Instead of ‘double paying’ it should be allowed to offer a security instead. Two questions emerge from this week's developments Once a Supreme Court order is passed, in this case two, can the losing party keep finding ways and means to have that order changed? How many times can a supreme court order be amended? And is SEBI unwilling or unable to seize Sahara's assets? To answer those questions, I have with me Supreme Court lawyer Gopal Jain and financial law expert Sandeep Parekh, also Former Executive Director – Legal, SEBI. Below is the edited transcript Doshi: Once a Supreme Court order is passed, how many times can the losing party keep finding ways and means to have that order changed? Jain: Under the Indian Constitution, a judgment of the Supreme Court is final and binding. What was given by them in August was a judgment which is binding. It is unusual and rare to have repeated attempts or applications made to try and circumvent the effect or the directions given in that order. Normally the Constitution provides for the Review Petition. Doshi: The Review in this case was applied for and rejected; so that was done with and yet they got some relief in December 05 order. Jain: That is exactly my point that the Constitutional remedies of Article 136 - the SLP and with Review under 137 both stand dismissed. The judgment therefore becomes final and has to be implemented in letter and spirit by the person against whom it is directed. However, obviously Sahara is looking for support from these applications which is an indirect way of somehow wriggling out of those directions, buying more time. In that process you send a wrong signal that you are abusing the process of court to try and circumvent a judgment or a direction given by the court. And when it comes to investors, I think a strong signal must go that if the court takes the view it has to be implemented and they will not allow a side door entry to try and get out of it. Doshi: On what grounds can an interim application be admitted given that we already have two Supreme Court decisions and in both cases when arguments were made prior to those decisions, this issue of redemptions was argued? It got no relief in terms of the amount to be reduced. Now it is trying to do so through an interim application on what grounds? Jain: You are right- on merits you cannot reopen an issue. Sometimes courts do entertain an application but that is more procedural,to  take a little more time. Some flexibility in of implementation of the order, not to thwart the order or its implementation and  these two applications are an attempt to thwart and impede rather than enable and facilitate. You rightly said 15 days – 5 days that is procedural and you can certainly go and say I need a little more time- that is understandable. But any dilution or change of what I call the substantive direction or the heart and soul of the order would certainly be a way of trying to dilute the order. Parekh: I agree with Gopal- it  seems to be a ploy to amend the judgment which is final and binding and I don’t really see this as procedural or an extension of time really. It is kind of overturning the entire ruling of August of last year. So it is very clear that money has to be paid to SEBI and SEBI is supposed to find the investors. Doshi: So if it is very clear that they are trying to get out of what August 31 order tells them to do, why isn’t SEBI doing anything about it? I mean except for filing contempt petitions and that seems to take forever. The November contempt petition came up for hearing for the first time this week in February. The second contempt petition they filed- god knows when that will come up. Why isn’t SEBI doing anything? Parekh: Let me turn the table on that question. A contempt ruling can come in 30 seconds. If the Supreme Court judges want to hear it tomorrow morning.. (interrupted) Doshi: But you have to issue notice to all parties etc, that is a process, when hearings come up, Counsels have to be available. Parekh: Now let me contrast it with the alternative which is attachment of property. Number one- they only have the statutory power to attach bank accounts only for a period of three months. To the best of my knowledge, they have never attached either bank accounts or real estate. Doshi: But it does have the powers, even for three months, to freeze accounts. It does have the powers, very clearly laid out by the August 31 order, to go ahead and freeze properties of Sahara and its group entities. So why isn’t it doing that? Parekh: It has to go through a particular process which is that the real estate has to be identified which in this case seems to be identified which means that SEBI has to go to say 30 district courts and come out with the details of those properties in all the various affiliates of the Sahara companies and file for attachment. Then something known as Order 21 of Civil Procedure Court (CPC) which can take years and years. So instead of a 30 seconds contempt ruling (interrupted) Jain: I wanted to point out that in 1996, the Supreme Court judgment said the power of contempt is not just to punish but it is also to deprive a wrong doer of the fruits of his wrong doings. So in case, SEBI being a statutory authority, could actually go to the court and say look your orders are not being complied with. You have issued two contempt notices, please pass directions by which I can, in one stroke, attach properties and take coercive steps and that would be another facet of the power of contempt. Doshi: That is what I understand SEBI is attempting to do- go back to the court and ask the Supreme Court to do that. Instead when this matter came up this week in the first contempt petition hearing, the Supreme Court judges that is Justice Radhakrishnan and Khehar were very categorical in what they told SEBI. They said “what steps are you taking? You are not taking any action. The judgement tells you what to do but you are not doing it.” And they are not wrong because the August 31 judgement says very clearly that if Sahara does not comply with this judgement, you have the powers to take all action including seize their property and assets. Jain: That is precisely the point that some concrete steps have to be taken and then you can go to a court and say look this is the problem that I am facing. However at the moment I don’t know but I guess no steps have been taken at all. Doshi: Apparently they did write to Sahara asking for a list of all their bank accounts, all group bank accounts. They have written to banks as well to verify that information and this week in court the SEBI cousell said that they filed an execution order in the Bombay High Court. Parekh: Execution means that you actually freeze the properties and then you auction them off. Doshi: So you are saying SEBI has kicked off the process of seizing, freezing assets, properties etc and once they have those in their control, then they will have to go through the process of establishing value, of auctioning them off and recovering money. Parekh: And figuring out whether they own them. If they have development rights, somebody else owns the real estate then you are auctioning developmental rights of a property which is already developed. So I am not sure how you unscramble this. Doshi: So what you both are telling me is that even if you have two Supreme Court orders in this country, it is not necessary that the person who is ordered to pay up will pay up. And hence it now falls upon the regulatory to go through time consuming three-five year process of trying to freeze these assets, take them in their control, auction them off and recover the money, is that what you are saying? Jain: I want to point out one thing- the Supreme Court has this extraordinary power under Article 142 of the Constitution to do substantial justice and they can pass any direction. So it may be a good case for a statutory regulator to go to the court and say look this is a classic case in the interest of investors for you to exercise that power. It is like Ashis Nandy- he went to the Supreme Court against FIRs enforced- by one order of no arrest, he protected himself in four states. So sometimes the extraordinary situation requires an extraordinary solution and SEBI should take a lead in this by going to the court seeking directions under Article 142. Doshi: What is the message this sends out? You have two orders and yet they don’t seem to be fully enforceable? Parekh: I think it is a pretty serious rule of law issue. I would go to that extent which is I mean beyond Supreme Court one would assume that there is only God; right, you can pray. Beyond that hopefully there is nothing else. Doshi: I have discovered in this case after three years of covering it that every week brings up a new twist.