Case: S.E.B.I Vs. Sahara India Real Estate Corpn. Ltd. & Others

Order Dated 14.08.2014 (HONBLE MR. JUSTICE T.S. THAKUR HONBLE MR. JUSTICE ANIL R. DAVE HONBLE MR. JUSTICE ARJAN KUMAR SIKRI) 1. The Respondent-contemnors in these applications made the following prayer: "extend the operation of the said order of this Honble Court dated 1st August, 2014 by a further period of 15 working days"; 2. Mr. S. Ganesh, learned senior Counsel appearing for the contemnors submits that substantial progress has been made by the contemnors-applicants in these applications in finding a suitable buyers for the three off-shore properties and also arranging a Bank guarantee for a sum of L 5,000 crores. He submits that negotiations for sale and for finalising the guarantee etc. are now at a critical stage, made possible only because this Court had permitted the contemnors-applicants to avail of the facility of video conferencing within the Tihar Jail complex. He submits that given 15 working days extension in the arrangement already made by us in terms of our order dated 01.08.2014 the contemnors should be in a position to complete the process of negotiations not only in relation to sale of the three off-shore hotel properties but also in relation to provision for a Bank guarantee for the required amount of L 5,000 crores. It is also submitted that the negotiations are in progress in relation to Amby Valley property to raise further funds to comply with the directions of this Court. 3. Learned Counsel for the Respondents submit that although there is nothing on record apart from an assertion in the application and an affidavit in support thereof, to suggest that any negotiations have been conducted or that the negotiations have reached any meaningful stage between the sellers and the purchasers yet this Court could extend the facility already given to the contemnors subject to the condition that the contemnors do not ask for any further extension. 4. In the circumstances and in view of the submissions made at the Bar we extend the operation of our earlier order dated 01.08.2014 for a further period of 15 working days only commencing 20.08.2014. We make it clear that we will not be inclined to grant any further extension and the contemnors would do well to finalise the on-going negotiations within the extended period. These I.As. are disposed of with the above directions. Order Dated 08.09.2014 (HONBLE MR. JUSTICE T.S. THAKUR HONBLE MR. JUSTICE ANIL R. DAVE HONBLE MR. JUSTICE ARJAN KUMAR SIKRI) 1. Heard. We had by order dated 14th August, 2014 extended the operation of our earlier order dated 1st August, 2014 for a period of fifteen working days commencing 20.08.2014, making it clear that we would not be inclined to grant any further extension of time for the contemnors to finalise the on-going negotiations with prospective buyers of properties, within India and outside the country. The contemnors have now filed the present applications (I.A. Nos. 19-21 of 2014) seeking a further extension of the arrangement made by us by another fifteen more working days. The applications inter alia point out that a deal for sale of the three off-shore properties has been almost finalised by the contemnors and even a memorandum of Master Agreement executed between a foreign purchaser. While the deal had yet to be clinched and acted upon, adverse reports, appearing in United States print and electronic media, led to a panic situation in which the purchaser of the off-shore properties expressed their hesitation in finalising the deal. The contemnors assert that they have somehow persuaded the foreign purchaser to hold on and let the protests against the proposed sale of the assets to cool down and that the foreign purchaser has agreed to do so. 2. Appearing for the applicants, Mr. S. Ganesh, learned senior counsel, submitted that given fifteen working days to negotiate the sale of off-shore properties they shall finalise the deal with the party concerned or with any other party, willing to purchase the same. Mr. Ganesh also points out that the contemnors are simultaneously making efforts to sell the remaining eight properties situate within the country through property agents/brokers/real-estate developers and that notwithstanding the slumps in the real-estate market expect to finalise such deals within the extended period. 3. Since the applications filed by the contemnors did not carry any documentary material suggesting that any deal had been finalised with anyone interested in purchasing the off-shore properties, we asked Mr. Ganesh whether he could make good that statement by reference to any document. Mr. Ganesh has, in response, filed before us a copy of the in principle Master Agreement as also copies of certain press clippings which suggest that there were some demonstrations against the proposed sale of the properties in-question to a particular entity, owned by a sovereign nation. A perusal of these documents does prima facie suggest that an attempt has been indeed made to finalise the deal and also that some protests have been raised on account of the proposed sale of the assets to that particular entity. At the request of Mr. Ganesh, we direct that the copies of the in principle Master Agreement and the documents enclosed therewith including the press clippings be taken on record but kept in a sealed cover to maintain confidentiality in regard to the proposed transactions. Having said so, we are of the view that a prayer for extension of another fifteen working days further time to finalise the sale of the assets deserves to be granted. We must mention to the credit of Mr. Arvind P. Datar, learned senior counsel appearing for SEBI, say that even he did not in principle contest the prayer for an extension of time but only urged that the contemnors should finalise the deal as expeditiously as possible particularly when a large amount remains to be recovered from them, which will also have to be arranged after the conditions of bail are satisfied by the contemnors. 4. Mr. Ganesh in reply submitted that given fifteen working days further time, the contemnors would not ask for any further extension. That statement is accepted.

Decision reasoning: 1[ds]At the request of Mr. Ganesh, we direct that the copies of the in principle Master Agreement and the documents enclosed therewith including the press clippings be taken on record but kept in a sealed cover to maintain confidentiality in regard to the proposed transactions. Having said so, we are of the view that a prayer for extension of another fifteen working days further time to finalise the sale of the assets deserves to bein that view, permit the applicants to proceed with the finalisation of the sale of the Pune property also on the above condition.M/s. Dhawan and Ganesh have no objection to the requisite information being furnished to counsel opposite. In that view, we leave it open to M/s. Datar and Naphade to indicate in writing the information they would require from the applicants whereupon the applicants are expected to furnish the same within a period of one week.In the circumstances, therefore, we do not consider it necessary at present to issue any direction on the above subject. We may consider all these aspects only after the queries raised by M/s. Datar and Naphade are satisfactorily answered by Mr. Ganesh in writing. We may only mention in passing that according to Mr. Ganesh ECB regulation to which a brief reference was made by Mr. Datar, does not have any application to the transaction. We do not however propose to make any observation regarding the merits of the rival contentions at this stage. M/s. Datar and Naphade are permitted to seek any further clarification on any issues or aspect considered relevant by them to which Mr.Ganesh may present a suitable reply within a week from the date he receives such queries.In the circumstances, we allow Reserve Bank of India to initiate such action as may be otherwise legally permissible under the provisions of the Reserve Bank of India Act and the Regulations framed thereunder and to pass appropriate orders on the subject after hearing the parties. A copy of the order so passed shall be placed on record.7. Mr. Ganesh may also in the meantime file an affidavit explaining the circumstances in which the securitieswhich were allowed to be encashed/sold were sold and the maturity value/sale consideration thereof transferred to Sahara India instead of being deposited in the "SEBI Sahara Refund Account" as directed by this Court. The affidavit, to be filed by Mr. Ganesh, shall also indicate whether the disbursements have been made to the depositors/investors in cash or by cheques and whether the identity of the recipients has been established before making all such disbursements. The information relating to disbursement made by Sahara India Financial Corporation Limited to the investors/depositors shall also be placed on record in the form of a DVC/CD with copies to M/s. Parag P. Tripathy, Arvind P. Datar and Shekhar Naphade.We had also by the same order directed the Saharas to file an affidavit explaining the circumstances in which the securities and fixed deposits etc. were encashed/sold and the maturity value/sale consideration thereof transferred to Sahara India instead of being deposited in the SEBI Sahara Refund Account. Saharas have filed an affidavit in compliance with the said direction.We are inclined to accept the prayer made by Mr. Sibal. We, therefore, grant to the respondents yet another opportunity to negotiate the proposed deal the outline whereof shall be shared by the respondents with counsel for the SEBI and the A.C. Mr. Sibal submits that in order to save time we could restore the facility earlier extended to the respondent within the jail precincts. He urged that this would help the respondents in finalising the deal early. We are not for the present inclined to extend the facility earlier directed by us for the outline of the proposed deal remains to be critically examined by the A.C. and counsel for SEBI. We however see no difficulty in extending to "five hours a day" the concession of communication with the outside world in favour of the respondents besides two lap top computers. The jail authorities would make sure that the facility limited to communication for a period of five hours a day and twoonly are extended to the respondents.It was in the above context urged that this Court could permit the Saharas to process the deal to its logical conclusion and to present to this Court a final proposal where under the Saharas would deposit the balance of the amount required for the release of the respondents from custody on bail and for the Bank guarantee which is one of the conditions for that release.In the circumstance therefore and keeping in view the steps that Saharas appear to have taken in the matter of finalising their proposed deal with the Nouam Limited we see no reason why a last and final opportunity be not granted to Saharas to do the needful. We have made it clear to learned counsel for the respondents and to others appearing for Saharas that should there be any difficulty in finalising the deal with Nouam Limited, we shall be left with no option but to explore the alternative option of appointing a Receiver for sale of the property to recover the outstanding amount. That being made clear we permit Saharas to negotiate the proposed deal with Nouam Limited. We make it clear that since this is going to be the last and final opportunity to the Saharas to sell or encumber the properties themselves to raise funds, Saharas shall also have the liberty to negotiate any other deal qua the said threeproperties should the deal with Nouam Limited for any reason fail to fructify. Needful shall be done within the outer limit of three months from today. In order to facilitate the finalisation of the proposed deal we permit use of facility to the respondents in terms of our order dated August 1, 2014 for a period from three monthsare in that view inclined to allow the alternative prayer made by Mr. Sibal and permit the Saharas to sell one or more properties mentioned at page 7 of the compilation on the same terms and conditions as were stipulated by us in our Order dated 04.06.2014.Since this aspect was hotly debated at the Bar, we have gone into the same in some depth and detail. We find that the issue of refund of Rs. 17,000 crores approximately to the depositors has been raked up by the contemnors/applicants time and again, but to their dismay, this Court has not accepted their plea to this effect, so far. In the writ petition (Writ Petition (Criminal) No. 57 of 2014, titled Subrata Roy Sahara v. Union of India & Ors., (2014) 8 SCC 470 ), this very plea of exempting the applicants from depositing the amount already redeemed by them was considered at length andbank guarantee format does not provide for a trigger point for its encashment. Furnishing the bank guarantee without stipulating the situations in which the guarantee shall become encashable, will be meaningless. The Bank guarantee is actually meant to ensure that the entire amount is deposited by the contemnors once they are released from custody. That is because the liability to deposit the amount does not get obliterated by furnishing the bank guarantee which is intended to grant release of the contemnors from custody to enable them to comply with the orders passed by this Court. We have in that view examined several options that may provide for a trigger point for encashment. We are of the view that since most of the properties owned by Sahara group remain frozen by the order of this Court, the contemnors require time to enable them to deposit the balance outstanding. In case the bank guarantee is made encashable on default, the trigger point for encashment would be the default by the contemnors in depositing the balance amount in terms of the directions that we propose to issue. It is in that spirit that we accept the bank guarantee format furnished by the contemnors and grant to them time to deposit the balance amount that remains to be deposited subject to the followingKeeping in view the total liability which according to SEBI, has risen to Rs. 36,000 crores (approximately), the contemnors shall deposit the balance outstanding amount within a period of 18 months commencing from the date of their release from custody in nine installments. First eight installments shall be of Rs. 3,000 crores payable every two months from the date of their release from custody and last installment shall be of the remaining amount.(2) In the event of the default in payment of two instalments (not necessarily consecutive) the bank guarantee furnished by the contemnors pursuant to the order of this Court shall be encashed by SEBI and the amount so received counted towards part compliance with the earlier directions given by this Court.(3) The bank guarantee shall also be encashable in the event of failure of the contemnors to deposit the full amount outstanding against them within a period of 18 months commencing from the date of their release.(4) In the event of failure of the contemnors to deposit three instalments (not necessarily consecutive), the contemnors shall surrender back to custody and in case they fail to do so, they shall be taken into custody and committed to jail.(5) Since only some of the properties have been released by this Court for sale by the contemnors, the contemnors shall be free to apply for permission to sell any further property within 15 days from their release in order to enable them to raise funds for deposit of the required amount in terms of the order of this Court.(6) Keeping in view the fact that a large amount remains to be deposited by the contemnors, we direct the contemnors to deposit their passports in this Court within 15 days from the date of this order or before their release, whichever is earlier. They shall not leave the country without prior permission of this Court. Insofar as their movements within the country are concerned, they shall keep police station Tilak Marg, New Delhi informed and updated about their whereabouts every fortnight.No doubt, this much scope is still left for Sahara group. Fact remains that a definite course of action that is to be chartered is also laid down, namely, in the first instance it is obligatory on the part of the contemnors/applicants to deposit the entire balance amount along with interest accrued thereon in theRefund Account. This obligation has to be performed in all circumstances. It is only thereafter, if and when the applicants are able to substantiate the factum of redemption, they would be entitled to refund of the said amount to the extent they are able to prove in this behalf. Therefore, at this stage, one thing which is more than apparent is that after the conditions for interim bail stipulated in order dated 26.03.2014 are fulfilled and pursuant thereto the three contemnors who are in judicial custody are released, the obligation or liability to deposit the balance would still remain. We may remind the contemnors that as per directions dated 05.12.2012, this amount was to be deposited in two installments, first installment by the first week of January 2013 and the second by the first week of February 2013. Therefore, it would be essential for the applicants/contemnors to not only to deposit the balance amount in a time bound schedule but also the manner on which they propose to muster the said amount. This cannot go on endlessly.This Court feels concerned with the fact that three persons are deprived of their liberty for the last fifteen months and this situation is quite onerous to them. On the other hand, public interest as well as public good demands that the two Sahara Companies, which had collected whopping amount of more than Rs. 22,000 crores from the public in an illegal and unauthorised manner, are made accountable for the same in the manner it is directed vide orders dated 31.08.2012 and 05.12.2012. By any yardstick, this is a huge liability, which the contemnors are bound to discharge by depositing the same with SEBI. It is, thus, an unprecedented situation of personal liberty of the three applicants on the one hand vis a vis majesty of law and ensuring larger public good, on the other hand. It is this sense of justice, in an unprecedented kind of situation, that has compelled the Court to take such an extreme step. It is this legal realism which has compelled the Court to adopt an approach which sounds more pragmatic. It is "doing what comes naturally" approach to the problem at hand, which required such a drastic step, going by the experience of this case, giving rise to Reflection that provided Understanding. This case is a burning example where the true dictate of justice is difficult to discern, and the law needed to come down on the side of practical convenience. We may borrow the jurisprudential theory propounded by Ronald Dworkin, albeit in somewhat different context, viz. the "conventional jurisprudential wisdom" which holds that in certain cases of a particularly complex or novel character the law does not provide a definite answer. In denying that judges in hard cases have a discretion to determine what the law is, Dworkin has instead argued for the judicial use of public standards or principles in a way that is capable of providing the right legal answer. The process of reaching a right answer in hard cases obviously differs from the process of reaching the legal answer in easy cases. After all, the avowed objective of rule of law is also to ensure that the orders of this Court are respected and obeyed. Therefore, its a classic case where the approach adopted is influenced by the necessity of "making the law work". Therefore, the orders passed may not be strictly construed as arising out of contempt jurisdiction, but in exercise of inherent jurisdiction vested in this Court to do complete justice in the matter and to ensure that the applicants render full compliance of its orders. Its the unprecedented situation which has led to passing of unprecedented, but justifiable,bank guarantee format does not provide for a trigger point for its encashment. Furnishing the bank guarantee without stipulating the situations in which the guarantee shall become encashable, will be meaningless. The Bank guarantee is actually meant to ensure that the entire amount is deposited by the contemnors once they are released from custody. That is because the liability to deposit the amount does not get obliterated by furnishing the bank guarantee which is intended to grant release of the contemnors from custody to enable them to comply with the orders passed by this Court. We have in that view examined several options that may provide for a trigger point for encashment. We are of the view that since most of the properties owned by Sahara group remain frozen by the order of this Court, the contemnors require time to enable them to deposit the balance outstanding. In case the bank guarantee is made encashable on default, the trigger point for encashment would be the default by the contemnors in depositing the balance amount in terms of the directions that we propose to issue.