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Senior Advocate Arvind Datar gave a gripping talk on the SEBI Sahara case at U Chicago Centre in New Delhi. Datar, who has represented SEBI right from the inception of the case, opened up about the case for the first time. Datar was speaking as part of a lecture series organised by the Vidhi Center for Legal Policy.
The SEBI Sahara dispute has unarguably been the most riveting corporate case of this decade. Datar along with law firm KJ John & Co. has been representing SEBI in the case. The case seems to be in its final lap as the Supreme Court on March 29 ordered SEBI to start selling Sahara’s properties to realise the money.
In his talk, Datar traced the history of the case beginning with its origin and how he came to be engaged in the matter.
“It all started with Roshan Lal who, on a cool winter morning, decided to write a one and half page letter in Hindi to SEBI. He informed SEBI that there are two Sahara companies which are raising large amounts of money and ‘I would like you to investigate because with two earlier schemes, repayment had not been made on time’.
Little did Roshan Lal know that his one and half page letter would set in motion a litigation that’s seems to be almost endless. And little did he know that exactly 4 years and 3 months to the date after his letter, Mr. Sahara would be sent to Tihar jail.”
Lal, who was a chartered accountant, had apparently written to SEBI about Sahara companies collecting money indiscriminately.
Following Lal’s letter, SEBI issued a show cause notice to Sahara. In response. Sahara committed the first in a series of mistakes. Datar said that the mistake Sahara made was to defy SEBI’s notice by taking the stand that SEBI does not have jurisdiction in the matter and only the Ministry of Corporate Affairs (MCA) is entitled to raise the query.
“When Roshan Lal’s letter came, SEBI routinely wrote to Sahara ‘please gives us the information’. In retrospective, if Sahara had given the information noting major would have come out of it. But Sahara said ‘we are not obliged to reply to you because these are OFCDs, hybrid securities and they don’t come within SEBI’s jurisdiction but comes within the jurisdiction of MCA. So we are not going to reply to you’.”
Supreme Court Seniors blocked by Sahara; SEBI’s vakil search leads to Datar
Datar also spoke about how he came to be engaged in the matter.
“I came into the picture by sheer co-incidence. It was Pratap Venugopal who asked me to appear. I asked him why he chose me because I am based in Chennai and I do more of tax work. So, it had happened that Sahara had blocked almost every Senior at the Supreme Court.
Pratap had a friend, Vinod Chandran, who is now a sitting judge in Kerala High Court. Pratap told him that he has no one to brief as Sahara has blocked everyone. Vinod Chandran, who had appeared against me in the Kerala High Court told him ‘Why don’t you talk to Datar. He has edited Ramaiyya. He knows company law’. That is how he (Pratap Venugopal) telephoned me and I got into the picture. So they had nobody else except poor me from Chennai.”
The amount of investors involved was itself mind blogging.
“They collected 24,773 crores from 3.1 crore investors. The number of investors – they say ‘alleged’ investors – is more than all the investors in all stock exchanges in India combined; And this money was collected in a short span of 10 to 12 months”, said Datar.
Contempt petition and improper listing: Tiff with the Bench
After the Supreme Court had ordered Sahara to refund the money and the order was not complied with, SEBI filed a contempt petition. It is at this juncture that the allegedly “improper” listing of the case by then Chief Justice Altamas Kabir happened.
It was not a pleasant experience and Datar did have a small tiff with Justice Kabir.
In Datar’s words:
“They had to refund 24,000 crore by November 30, 2012. But they did not refund.
I was in Chennai attending a memorial service to my senior. I get a call saying ‘The matter is coming up on Monday, can you come?’ I told that I cannot but they insisted. The case was very uniquely posted as item 46 in the list before Chief Justice Kabir but it was to be taken up as item 1.
What Sahara had done was instead of refunding the money, they had gone back to SAT and said ‘We have repaid everything except 2,500 crore’. I don’t know how anybody could have done that. Instead of coming to Supreme Court, they go back to SAT and told SAT that “We have to replay only 2,500 crore but as a generous gesture ‘We are giving double the money, here is a cheque of Rs. 5000 crore’. SAT rejected the same and asked them to go back to Supreme Court.”
In Supreme Court the matter this time went to a 3-judge Bench presided by the then Chief Justice himself.
“It led to some amount of unpleasantness. I came from Chennai in the morning and went straight to court. Sahara said that it has repaid everything and the Supreme Court started dictating the order. I said ‘you have not heard me, please hear me’. Then the Chief Justice asked ‘who are you?’ I said ‘I am so and so and appearing for SEBI’. As if he does not know me.
I said that ‘you cannot alter the order. That court has ordered to repay the entire amount. Where is the question of saying I paid so much and did not pay so much’. They said ‘We are a 3-judge Bench’. So I, in the heat of the moment, said that ‘I appreciate that, but once an order is passed by a Bench, even a 5-judge Bench cannot alter a semi colon of the earlier judgment’. Unless it is reviewed by that Bench, there is no intra-court appeal in the Supreme Court.
So I was told by the Bench to sit down and the order was passed. Despite all that, to the credit of the Supreme Court, it said that it does not believe in Sahara’s refund theory but will only extend the time.”
Datar also spoke at length about various tactics adopted by Sahara during the course of the hearing and the different contradicting submissions made by them.
Sahara first took the stance that they had refunded the money from the cash obtained by sale of Amby valley properties but they could not show the buyer. Subsequently, Sahara submitted that it was a book adjustment between Sahara companies. Then Sahara came up with the Versova property which seemed to be a very attractive offer on the face of it. Datar narrated about how he chanced upon the order of the Bombay High Court which had barred any construction on the Versova property.
“The Versova property was of 115 acres and they claimed that it was near Lokhandvala complex where Bollywood stars and celebrities stay. They planned to develop the property – build towers duplex apartments, and it was valued at 19,000 crore by reputed British valuers – Knight Frank. They claimed that by 2020 it will generate Rs. 42,000 crore on sale. Supreme Court was also impressed.
But I was suspicious. In Bombay, you cannot have 115 acres. Nobody would have left it alone. It all sounded too good to be true. After the hearing on that day, I was at the lounge of the hotel where I was staying when I met a lawyer friend from Bombay. As we spoke, I told about the offer made by Sahara.”
That friend of Datar, by chance, was involved in the litigation pertaining to that property at some stage and alerted Datar asking him to check up an order of the Bombay High Court on that property. As it turned out, the Bombay High Court had banned any construction on that property as it fell under the Coastal Regulation Zone.
“I told the court that ‘even a toilet cannot be constructed on that property’”, said Datar.
Roy’s incarceration: Can meet Bill Clinton but not Supreme Court of India
Subsequently, Subrata Roy was summoned to court.
“Before that summoning order, he had sought permission to go abroad to meet Bill Clinton and Tony Blair. However, when the summoning order was passed, he filed an affidavit saying his mother is very ill, and cannot leave Lucknow; and he did not appear in the Supreme Court.
I told the court that if he can go to meet Bill Clinton, he can come and see the Supreme Court.
The most foolish thing you can do is violate an order of the Supreme Court. The Supreme Court can do anything and you cannot do anything about it, it is the final court.”
The order sending him to jail also came across as a big surprise.
“When I was arguing, he kept interrupting. Finally, when the court asked his lawyers when he will pay, he again started humming and hawing and the court then called the court master and said ‘send him to jail’. It happened abruptly. Nobody expected it. I thought they might adjourn the case or something.”
Can a person be jailed indefinitely for a civil wrong?
Roy has been in jail for more than 2 years now. And the order incarcerating him has come under fire from legal pundits. Datar, however, thinks otherwise.
“One question that people ask me regularly is ‘How can the Supreme Court put a man in jail indefinitely when the maximum imprisonment under Section 12 is 6 months?’ Can the Supreme Court incarcerate a person indefinitely?
The power of contempt is inherent in any court of record. It is not conferred upon the court. There are judgments to that effect. The case of Naresh Mirajkar has a passage which says that the ‘limits of our power are what we say they are’.
So I ask whether they can do this? If they send him to jail, how long can they keep him there? Can they do it till the contempt is pending? In contempt law, there is this principle called compliance contempt. If you don’t comply with the court’s order, you can be kept indefinitely in jail.
Interestingly, Vidhi also helped Datar in his research on this subject.
“Alok (Prasanna Kumar) and Arghya (Sengupta) did extensive research on this. We got judgments from Canada, from the United States, the 116th report of the Australian Law Commission and the most useful case was a case from England, Wilkinson v. Anjum.
It is 2012 judgment in which a Pakistani man was ordered to be kept in jail for failing to produce his daughter as required by the court. The maximum sentence for contempt is 2 years. After one year and 11 months, the court again ordered the man back in jail for another 2 years holding that it can keep the man indefinitely in jail till he complies with the court’s order.
So I hear a lot of loose talk, ‘How can the Supreme Court pass such an order, how can it keep him in jail indefinitely etc.?’ It is perfectly legal, perfectly legitimate.”
“Picture abhi baaki hain”
Last week, the Supreme Court has asked SEBI to sell the assets. The ball is now back in SEBI’s court.
“As I speak, Subrata Roy completes 766 days in jail. He has to be there till he pays Rs. 10, 000 crore. After he pays Rs. 10,000 crore, he can come out of jail and we have the further arduous task of recovering the balance amount. So the main problem is still left. As the line goes ‘picture abhi baaki hain.”