MC Explains: Why did SC permit the govt to use Rs 5,000 cr from the Sahara-SEBI refund account?

In 2011, SEBI had ordered Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara Housing Investment Corporation Ltd (SHICL) to refund the money it had raised from investors through certain bonds, known as Optionally Fully Convertible Bonds (OFCD).

According to SEBI, these amounts were raised in violation of SEBI (Disclosure and Investor Protection) Guidelines, 2000, (DIP Guidelines), and various regulations of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, (ICDR, 2009). Sahara challenged this at the Supreme Court.

In August 2012, the Supreme Court upheld SEBI's directions asking the two firms to refund the money collected from investors,  along with 15 per cent interest. Subsequently, Sahara was asked to deposit Rs 24,000 crore with SEBI for further refund to investors.

Why did the Ministry of Cooperation move a plea to release Rs 5,000 crore?

According to the ministry, a total amount of Rs. 24,979.67 crore is lying unutilised in the Sahara-SEBI Refund Account. ” The money was deposited by Sahara pursuant to SC’s 2012 directions.

The SG told the court that out of the the above-mentioned amount was  Rs 2,253 crore had been deposited by Sahara Credit Cooperative Society Ltd on account of SIRECL.  According to the SG, the corpus lying in the Sahara-SEBI Refund Account includes the amount belonging to depositors of the Sahara Group of Cooperative Societies.

The ministry submitted that the account is lying unutilised because of a large number of pending complaints against the Sahara Group of Cooperative Societies. The ministry told the court that if Rs 5,000 crore is transferred to the Central Registrar of Cooperative Societies and disbursed against the legitimate dues of the depositors of the Sahara Group of Cooperative Societies, it will be just, proper, and equitable.

SG told the court that the decision had been arrived at after a series of meetings with different authorities / departments. In the meetings, it was decided that the release of this amount will be in the larger interest of the depositors.

What was the court’s order?

The court accepted the ministry’s argument and directed that:

1)     An amount of Rs 5,000 crore be transferred to the Central Registrar of Cooperative Societies, who, will in turn, disburse the amount against legitimate dues of the depositors. The payment will be made to genuine depositors in a transparent manner.

2)     The disbursement will be supervised and monitored by Justice (retd) R Subhash Reddy, former Judge of the Supreme Court, with the assistance of advocate Gaurav Agarwal, who has been appointed as the amicus curiae (friend of the court) in the case.

3)     Justice (retd) Subash Reddy to be paid Rs 15 lakh a month as honorarium, while Agarwal is to be paid Rs five lakh a month.

4)     The amount is to be paid to genuine depositors within nine months, and the rest of the amount is to be deposited back into the Sahara-SEBI refund account.