The apex court while upholding SAT verdict, also asked SEBI to probe Sahara India Real Estate Corp and Sahara Housing Investment Corp and find out their actual subscriber base

In a big blow to Subrata Roy-led Sahara group, the Supreme Court on Friday asked the group to refund Rs17,400 crore collected from investors within three months with 15% interest. While upholding the verdict given by Securities Appellate Tribunal (SAT), the apex court also asked market regulator Securities and Exchange Board of India (SEBI) to conduct probe against two Sahara group companies and find out their actual subscriber base.

A bench of justices KS Radhakrishnan and JS Khehar granted three months time to Sahara India Real Estate Corp (SIRECL) and Sahara Housing Investment Corp (SHICL) to refund the amount. The Supreme Court has appointed retired apex court judge Justice BN Aggarwal to oversee the probe by SEBI against the two Sahara companies.

The bench also directed SEBI to take action against these two companies, if they fail to refund the money, while allowing regulators to attach properties and freeze bank accounts of SIRECL and SHICL, if they did not comply with its order.

Last year, SEBI had warned investors that Sahara India Real Estate and Sahara Housing Investment have been raising funds without its approval and it will not be able to redress any complaint in this regard. The two Sahara group companies have been raising funds through optionally fully convertible debentures (OFCDs), which SEBI said "were not issued in compliance with the applicable SEBI regulations..."

OFCDs are a type of bond with the option to fully convert them into equity at a rate decided by the company.

Subsequently, Sahara Group contested SEBI's authority to look into the issue in the Supreme Court, asserting that it was a privately held company and not listed and therefore, was under the jurisdiction of the Ministry of Corporate Affairs (MCA).

Earlier, on 27th June, a vacation bench of the apex court, comprising justices P Sathasivam and AK Patnaik had declined to hear the plea of Sahara India Real Estate Corp and asked to list it before the chief justice which has been hearing the case.

Following the orders of the Supreme Court, SEBI had on 23rd June passed an order and directed the two Sahara group companies to refund the money raised by them in OFCD citing violation of regulatory norms.

As per SEBI's order, the two companies and its promoter Subrata Roy Sahara, and the directors-Vandana Bhargava, Ravi Shankar Dubey and Ashok Roy Choudhary—jointly and severally, shall refund the money collected, the order said.

Besides, the regulator has also restrained the entities from accessing the securities market for raising funds, till the time payments are made to the satisfaction of the SEBI.

As per the order of the 12th May order of the apex court, the order of the SEBI order was not to take effect till its further order.

During the last hearing on 12th May, the apex court had asked SEBI to proceed with its probe into Sahara group's OFCD scheme by observing that investors may not have any knowledge about these products and might feel cheated like in the Harshad Mehta scam.

The court had also allowed Allahabad High Court to proceed with its hearing, where the Sahara group has challenged SEBI's direction to give details of its investors.

The group had earlier told the court that it has filed an affidavit explaining that it will protect the interests of 2.3 crore investors who have put in their money in SIRECL and SHICL.

According to the affidavits filed by the companies, as on August 2011, SIRECL had an outstanding of Rs17,656 crore to 22.1 million investors and SHICL had an investor base of 7.5 million and an outstanding of Rs6,373 crore.

Sahara Real Estate floated an issue of OFCDs and started collecting subscriptions from investors with effect from 25 April 2008 up to 13 April 2011. During this period, the company claimed to have collected over Rs19,400 crore, while up to 31 August 2011, the company had a total collection of over Rs17,656 crore. The amount was collected from over two crore investors. But the surprise was that Sahara claimed that it was not a ‘public’ issue as the OFCDs were offered to only its workers and persons associated with the Sahara group.