MCA Clarification on Dispute Between SEBI and Sahara Group of Companies

The Ministry of Corporate Affairs has clarified, that Sahara Prime City limited, a Sahara Group company intending to go for an IPO, had filed information about its group companies to SEBI in its Draft Red Herring Prospectus. SEBI as market regulator vested with the mandate of investor protection, upon noticing inadequacy in material disclosures has asked information about some Sahara Group companies as per SEBI’s disclosure requirements.

As the information was not furnished to SEBI, on 24.11.2010 an interim order was passed by SEBI issuing show cause to two Sahara Group companies SIRECL and SHICL , and restraining them from mobilizing funds from the public . This order has been challenged by the said companies and the case is now sub judice before the Hon’ble High Court of Allahabad, Lucknow Bench. As this is a matter between the Sahara Group companies and SEBI, the MCA cannot intervene in the matter.

In Fact, the Ministry of Corporate Affairs , in order to check misuse of private placement provisions under the Companies Act, 1956 issued a circular in 22nd November, 2010 mandating its field offices to carefully scrutinize offer documents filed by Unlisted Public Companies proposing to raise money through the private placement route.

Further Ministry is considering substituting Unlisted Public Companies (Preferential Allotment) Rules, 2003 by replacing it with Unlisted Public Companies (Preferential Allotment) Rules, 2011, which requires more disclosures and keeping the securities in demat form.A copy of draft Rules has been placed on the website of the Ministry on 24.5.2011 inviting public comments. Further checks and balances, coupled with stringent penalty provisions have been built into the Companies Bill to prevent misuse.