Order in the matter of Sahara Mutual Fund

8/20/2019 Order in the matter of Sahara Mutual Fund

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WTM/PS/26/IMD/DoF-III/JULY/2015

BEFORE THE SECURITIES !D E"CH!#E BORD OF I!DI

CORM$ PRSH!T SR!% WHOLE TIME MEMBER

ORDER

U&'e( Reg)*a+,o& 2 .2 (ea' ,+ Reg)*a+,o& .2 of +e Se3)(,+,e4 a&' E3a&ge Boa('of I&',a .I&+e(e',a(,e4 Reg)*a+,o&4% 200

I! THE MTTER OF SHR MUTUL FU!D

I& (e47e3+ of$

18 Saa(a M)+)a* F)&' 9SEBI Reg,4+(a+,o& !o8 - MF/00/:6/0;<28 Saa(a 44e+ Ma&agee&+ Co7a&= P(,>a+e L,,+e'% +e 44e+ Ma&agee&+

Co7a&=<8 Boa(' of T()4+ee4 &ae*= M(8 S8R8 Heg'e% M(8 P8?8 Rao% M(8 8@8 TaA)( a&' D(8

D8P8 Sa4+(,<8 Saa(a I&',a F,&a&3,a* Co(7o(a+,o& L,,+e'% +e S7o&4o(8

Da+e of Hea(,&g$ Fe()a(= 0:% 2015

77ea(a&3e$ Mr. Sudeep Seth, Advocate,Mr. Sudhir Kaup, Compliance Officer.

Fo( SEBI$ Mr. Parag Basu, Chief General Manager,Ms. Versha Agaral, Assistant General Manager,Mr. Pradeep Kumar, Assistant General Manager,

Mr. !. Vina" #a$neesh, Assistant General Manager,Ms. Sonia Shah, Assistant Manager.

%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

18 Securities and &'change Board of (ndia )hereinafter referred to as *S&B(*+ had conducted an

e'amination of the conditions for the registration of Sahara Mutual und )hereinafter referred

to as *Sahara MF *+ in order to anal"se hether Sahara Asset Management Compan" Private

-imited )hereinafter referred to as *Sahara AMC' +, its Board of !rustees namel" Mr. S. #.

egde, Mr. P. V. #ao, Mr. A. K. !ha/ur and 0r. 0. P. Shastri )hereinafter collectivel" referred

to as the *trustees*+ and the sponsor of Sahara M namel" Sahara (ndia inancial Corporation

-imited )hereinafter referred to as *Sahara Sponsor *+ )hereinafter all collectivel" referred to as the

*noticees* and individuall" 1" the respective names+ fulfill the criteria for determining *the fit

and proper person* in the light of the S&B( order dated 2une 34, 3566. ( note that S&B( vide

its order dated 2une 34, 3566, had directed one Sahara (ndia #eal &state Corporation -imited


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)hereinafter referred to as *S(#&C-*+ and Sahara ousing (nvestment Corporation -imited

)hereinafter referred to as *S(C-*+ +o (ef)&' +e o&e= 3o**e3+e' +(o)g O7+,o&a**=

F)**= Co&>e(+,*e Dee&+)(e4 .OFCD4 f(o +e ,&>e4+o(4. Vide this order, Mr. Su1rata

#o" Sahara, Ms. Vandana Bharagava, Mr. #avi Shan/ar 0u1e" and Mr. Asho/ #o"

Choudhar", 1eing the promoters7 directors of S(#&C- and S(C- also ere restrained from

associating themselves ith an" listed pu1lic compan" and an" pu1lic compan" hich intends

to raise mone" from the pu1lic, till such time the aforesaid pa"ments ere made to the

satisfaction of S&B(. !his order of S&B( as confirmed 1" the on*1le Securities Appellate

!ri1unal )hereinafter referred to as the *on*1le SA!*+ vide its order dated Octo1er 68, 3566.

!hereafter, the appeals filed 1" S(#&C- and S(C- 1efore the on*1le Supreme Court of

(ndia vide order dated August 46, 3563 also got dismissed.

28

Pursuant to its e'amination, S&B( initiated the proceedings against the noticees in terms of theS&B( )(ntermediaries+ #egulations, 3558 )hereinafter referred to as *the (ntermediaries

#egulations*+, 1" appointing a 0esignated Authorit" )hereinafter referred to as *0A*+ under

#egulation 39 of the (ntermediaries #egulations vide order dated 2une 5:, 3569. !he 0A

en;uired into the alleged violation of the provisions of the #egulation 36 read ith #egulation 33

of the S&B( )Mutual und+ #egulations, 6::< )hereinafter referred to as *the M #egulations*+,

S&B( Circulars 1earing num1er M07C(#76674=973556 dated 0ecem1er 35, 3556,

M07C(#76476::73553 dated August 3:, 3553 and C(#7(M07076973564 dated

Septem1er 66, 3564 )hereinafter collectivel" referred to as ?the S&B( Circulars*+ 1" Saa(a MF

a&' Saa(a MC a&' ,+4 +()4+ee4. Saa(a S7o&4o( as alleged to 1e no longer a ?fit and

proper person@ and therefore, as alleged to have violated the provisions of #egulation > read

ith #egulation 65 of the M #egulations. !he 0A su1mitted a common #eport dated Octo1er

69, 3569, in terms of the #egulations 3> of the (ntermediaries #egulations hile holding that

Sahara M along ith Sahara AMC its trustees and Sahara Sponsor are no longer *fit and

proper* persons to carr" out the 1usiness of Mutual und and recommended that the certificate

of registration of Sahara M 1e cancelled.

8 After considering the #eport, S&B( issued a common Sho Cause otice dated ovem1er

66, 3569 )hereinafter referred to as ?SC@+ under #egulation 38)6+ of the (ntermediaries

#egulations, to the noticees, as/ing them to sho cause as to h" the action of proposed

cancellation should not 1e ta/en against them and h" the" should not 1e directed to transfer the


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activities to another person holding a valid *certificate of registration* to carr" on such activit" and

allo the clients7 investors to ithdra7 transfer their securities or funds held in the custod" or

to ithdra an" assignment given to these, ithout an" additional cost to such client7 investor,

as specified in #egulation 43)3+ of (ntermediaries #egulations or as deemed fit. !he noticees

ere advised to repl" to the SC ithin tent" one )36+ da"s from the receipt thereof. S&B(

informed the noticees that in case of failure to repl", it ould 1e presumed that the" had no repl"

to offer and that the matter ould 1e proceeded on the 1asis of the evidence availa1le on record.

A cop" of the &n;uir" #eport as also forarded to the noticees along ith the said SC.

8 Sahara M, Sahara AMC and the trustees namel" Mr. S.#. egde, Mr. P.V. #ao vide respective

letters all dated ovem1er 3:, 3569 the other trustees namel" Mr. A.K. !ha/ur and Mr. P.P.

Shastri vide respective letters 1oth dated 0ecem1er 56, 3569 and Sahara Sponsor vide its letter

dated 0ecem1er 53, 3569, sought e'tension of time for su1mitting the repl" to the SC. S&B( vide letters dated 0ecem1er 5:, 3569, granted time up to 0ecem1er 45, 3569, to the noticees for

repl"ing to the SC.

58 Sahara M, Sahara AMC and Sahara Sponsor vide respective letters all dated 0ecem1er 3>, 3569,

su1mitted their replies to the SC. !he !rustees namel" Mr. S.#. egde, Mr. P.V. #ao and Mr.

A.K. !ha/ur vide their respective letters all dated 0ecem1er 3>, 3569 and Mr. P.P. Shastri vide

his letter dated 0ecem1er 45, 3569, filed their replies adopting the repl" su1mitted 1" Sahara M

and Sahara AMC. Before proceeding further, an opportunit" for personal hearing as re;uested as granted to the noticees on e1ruar" 5:, 356=.

68 Before the designated date of hearing, Sahara Sponsor and Sahara AMC vide their respective

letters 1oth dated e1ruar" 59, 356= and Mr. S.#. egde, !rustee vide his letter dated e1ruar"

5=, 356=, raised a preliminar" o1$ection on the maintaina1ilit" of the proceedings in the light of

the order of on*1le Supreme Court of (ndia in the Contempt Petition )C+ 963 of 3563 in Civil

Appeal o. :864 of 3566 ) SEBI Vs. Sahara India Real Estate Corporation Limited). (t has 1een said

that on*1le Supreme Court vide order dated 2ul" 6>, 3564, had called for appeals and rit

petition pending 1efore the on*1le Securities Appellate !ri1unal and the on*1le igh Court

ith a note of caution to on*1le igh Courts, on*1le Securities Appellate !ri1unal and an"

other orum +o 'e4,4+ f(o 7a44,&g a&= o('e(4 aga,&4+ +e o('e(4 7a44e' = SEBI in

implementation of the order of on@1le Supreme Court dated August 46, 3563. (t as argued

that in the present proceeding S&B( ill e'ercise ;uasi $udicial poer and it ill not 1e


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appropriate to hear the matter as it ill impinge upon the pending $udicial proceedings of

S(#&C- 1efore the on*1le Supreme Court. An" order passed 1" S&B( in the present

proceedings, ill have 1earing upon the status of parties and stage of proceedings pending 1efore

the on*1le Supreme Court, hich are "et to attain finalit". Sahara AMC re;uested that the

present proceedings ma" 1e postponed till the culmination of all the proceedings in the matter of

S(#&C- visDaDvis S&B( 1efore the on*1le Supreme Court.

8 On the scheduled date of personal hearing, Mr. Sudeep Seth, Advocate and Mr. Sudhir Kaup,

Compliance Officer of Sahara M appeared on 1ehalf of all the noticees and reiterated the

preliminar" o1$ection made vide its earlier letter dated e1ruar" 59, 356=. Epon consideration,

the preliminar" o1$ection of the noticees as re$ected as the present proceedings are separate and

independent from the issue under the consideration of on@1le Supreme Court and the present

proceeding ill not defeat the spirit7 content of the order of the on*1le Supreme Court dated August 46, 3563. urther to the re$ection of the preliminar" su1mission, the authorised

representatives of the noticees made oral su1missions on the merits of the case, hile rel"ing on

the replies su1mitted 1efore S&B(. !he su1missions of the noticees are summarised in 1rief, as

underF

,8 S&B( had granted certificate of registration dated Octo1er 56, 6::< to one irst (ndia Mutual

und, under the provisions of the S&B( Act, 6::3 )hereinafter referred to as ?S&B( Act@+ read

ith the M #egulations. -ater on, Sahara Sponsor had applied for registration of Sahara M,under the M #egulations and a *certificate of registration* as granted to it. !here1" the

e'isting mutual fund as ta/en over 1" Sahara Sponsor and conse;uentl", the name of the

same as changed to *Sahara M* on April 56, 3559. !he !rustees of Sahara M are Mr. S.#.

egde, Mr. P.V. #ao, Mr. A.K. !ha/ur and 0r. P.P. Shastri, ho had earlier held responsi1le

positions in ational7 State level organisations7 (ndian Administrative Services. (t has 1een

said that these persons had discharged their duties to their utmost a1ilit" and have no

pecuniar"7 other interests, either in Sahara AMC or in Sahara sponsor, other than overseeing

the conduct of the 1usiness of Sahara M in an efficient manner, providing full protection to

the interest of its investors.

,,8 On 0ecem1er 63, 3569, Sahara Sponsor*s Board of 0irectors comprised of Mr. Su1rata #o"

Sahara, Mr. O. P. Srivastava, Mr. Madhu/ar and Ms. Samreen aidi. Mr. Su1rata #o" Sahara is

a non &'ecutive 0irector and is not in charge of the da" to da" affairs7 functions of Sahara


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Sponsor. Mr. Su1rata #o" Sahara had tendered his resignation from the post of Managing

Hor/er and Chairman of Sahara Sponsor on Septem1er 53, 3569. On ovem1er 54, 3569, he

has again 1een appointed as an Additional 0irector on the Board of 0irectors of Sahara

Sponsor.

,,,8 !he 1oard of 0irectors of Sahara AMC consists of persons namel" Mr. Om Pra/ash

Srivastava, Mr. #amesh M. 2oshi and Mr. S.C. Gupta. Mr. Su1rata #o" Sahara as earlier a

nominee director7 non &'ecutive 0irector on the Board of Sahara AMC and had in no a"

influenced the or/ing or affairs of Sahara AMC or Sahara M hich are independent legal

entities. Mr. Su1rata #o" Sahara had resigned from the Board of 0irectors of Sahara AMC on

Septem1er 54, 3569.

,>8 !he 1usiness of mutual fund as 1eing carried on 1" the noticees since last 65 "ears, the

noticees had never 1een charged 1" S&B( of flouting an" of the conditions of registration as

stipulated in #egulation 65, nor have the" 1reached the Code of Conduct, general o1ligations

and responsi1ilities. !here is no charge that the integrit", reputation, character, competence

and netorth of Sahara Sponsor had 1een adversel" affected or that there have 1een

complaints or grievance of investors7 clients.

>8 !here had 1een no violation of S&B( #egulations and none of the directors of the sponsor or

AMC had 1een found guilt" of an" fraud an" economic offence or of adversel" affecting the

interest of Sahara M or its investors. Sahara Sponsor, Sahara AMC and Sahara M are

separate, distinct legal entities, 1eing regulated 1" different set of statutor" provisions i.e.

Companies Act, M #egulations, etc. and these have rongl" 1een dragged into the realm 1"

lin/ing the S&B( initiated case against S(#&C- and S(C- )against hich $udicial proceedings

are pending+, hich is still pending final disposal 1efore the on@1le Supreme Court. S(#&C-

and S(C- neither held an" share nor had an" material interest or an" investment in the

Sahara AMC. Mere pendenc" of prosecution proceedings did not attract the penal

conse;uences and as such there ere no violation 1" the compan". urther, no investments

had 1een made 1" the AMC7 schemes of Sahara M in S(#&C- and S(C-.

>,8 !he re;uirement of intimating S&B( a1out the adverse personal dis;ualification of the directors,

as contemplated under the regulations is intended to ma/e S&B( /no a1out such personal

dis;ualifications on the presumption, that unless such intimation is made 1" the concerned

compan", S&B( ould 1e *in dar/* as such adverse order might 1e passed 1" courts of la or

e'ternal authorities, here S&B( is not a part". (n the present case, S&B( had the factual


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information even 1efore the noticees. !he separate intimation of the said facts 1" the noticees

ould 1e a mere and idle formalit".

>,,8 !he S&B( order dated 2une 34, 3566, passed against S(#&C- and S(C- as modified 1"

on*1le Supreme Court vide order dated August 46, 3563, to the e'tent that the directions of

restraint imposed 1" S&B( upon S(#&C-, S(C- and Mr. Su1rata #o" Sahara from

associating ith an" listed pu1lic compan" and an" pu1lic compan" intending to raise mone"

from the pu1lic, has not 1een maintained and the said direction has 1een impliedl" set aside.

>,,,8 !he o1servation that Mr. Su1rata #o" Sahara is holding 85I of the shares in Sahara Sponsor

and Sahara Sponsor hold more than 95I e;uit" share capital in Sahara AMC, is an

afterthought, as this position stood since the time, registration as granted 1" S&B( during

3554D3559. (n the case of 1od" corporate7 a firm, the reputation of its hole time director)s+7

managing partner)s+ ould come into focus. !he reputation of the person ho manages the

1od" corporate is to 1e seen. !he management of a compan" does not fall in the hands of a

shareholder.

,8 Mere holding of directorship in Sahara Sponsor 1" Mr. Su1rata #o" Sahara and lin/ing that to

his status, as a promoter of the to companies against hich, $udicial proceedings are still

undera", cannot 1e valid $ustification for cancellation of registration of Sahara M. o

specific and valid ground7s have 1een stated on hich the noticees have failed to e'ercise due

diligence or compl" ith an" specific o1ligation under the M #egulations.

8 Sahara M and the !rustees had made all the re;uisite disclosures and the terms and conditions

of the registration under #egulation 65 of the M #egulations ere not flouted 1" Sahara

Sponsor. As far as the aspect of pending litigation 1eteen S(#&C-7 S(C-7 Mr. Su1rata #o"

Sahara ith S&B( is concerned, the said information had ala"s 1een in the /noledge of S&B(.

,8 S&B( had ta/en note of Sahara AMC su1mitting an application for reneal of certificate of

registration as a Portfolio Manager in terms of the Portfolio Managers #egulations. (n that

capacit" it had 1een providing all the re;uisite information 1" ma/ing disclosure to S&B(

regarding the status of the litigation 1eteen S(C-7 S(#&C- and S&B( in the PMS

disclosure document filed 1" S&B( during the period of March 3563 to March 3569, the same

ere also uploaded on its e1site.

,,8 Hhen S&B( had realised that its freeJing of all the 1an/ account of Sahara Group rongl"

included the 1an/ and custod" accounts of the schemes of the Mutual und also, the S&B( as

gracious enough to defreeJe the accounts of the Mutual und.


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,,,8 #egulation > )aa+ and >A of the M #egulations read ith Schedule (( of the (ntermediaries

#egulations providing the criteria for fit and proper person, are ultra vires to the Constitution

of (ndia as also the S&B( Act and the M #egulations. !he criteria for determining the *fit and

proper person* is too vague and uncertain. o parameters have 1een laid don for

determining the integrit", reputation, character, competence including financial solvenc" and

net orth. As the M #egulations are dis;ualif"ing and also penal in nature, the criteria must

1e defined and certain. urther, the criteria of *fit and proper person* has no ne'us ith terms

and conditions of registration as ell as 1usiness7 activities of Sahara M. !he same cannot,

under the esta1lished principles of $urisprudence, 1e a ground for imposition of penalt"

involving personal rights and integrit" of the concerned persons involved in it, as if the" have

committed an offence, involving mens rea.

,>8 !he noticees has su1mitted that the doctrine of *piercing the corporate veil* is an e'ception to

the principle that a compan" is a legal entit" separate and distinct from the shareholders ith

its on legal rights and o1ligations. !his doctrine can onl" 1e invo/ed 1" the courts of la,

especiall" the Constitutional Court and not 1" a statutor" authorit" li/e S&B(. (t has 1een

argued that 0A has erroneousl" lifted the corporate veil of Sahara Sponsor to categorise it as

prima facie not 1eing *a fit and proper person*.

>8 #egulation >= of the M #egulations, provides for action against intermediaries 1" suspension

or cancellation of registration in accordance ith the procedure specified in #egulation

applica1le to such intermediar", hoever, neither such procedure has 1een prescri1ed under

the Mutual unds #egulations nor the said #egulations provide for 1eing governed 1"

Chapter V of the (ntermediaries #egulation. urther, Sahara Sponsor cannot 1e included in

the definition of the intermediar". !he definition of intermediar" under #egulation 3)g+ of the

(ntermediaries #egulations e'cludes mutual funds, hence (ntermediaries #egulations are not

applica1le to mutual funds and no action under (ntermediaries #egulations can 1e resorted

against Sahara Sponsor.

8 Before proceeding further, let me refer to the relevant provisions of the M #egulationsF

MUTUL FU!D RE#ULTIO!SE*,g,,*,+= 3(,+e(,a8 For the purpose of rant of a certificate of reistration! the applicant has to fulfil the follo"in! namel# $%.a/ &.aa/ the applicant is a fit and proper person./ &


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&C(,+e(,a fo( f,+ a&' 7(o7e( 7e(4o&8 For the purpose of determinin "hether an applicant or the mutual funds is fit and proper person the Boardma# ta(e into account the criteria specified in schedule II of the Securities and Echane Board of India*Intermediaries) Reulations! +,,-.Te(64 a&' 3o&',+,o&4 of (eg,4+(a+,o&108 he reistration ranted to a mutual fund under reulation /! shall 0e su01ect to the follo"in terms and

conditions% .a/ the trustees! the sponsor! the asset manaement compan# and the custodian shall compl# "ith the provisions ofthese reulations ./ the mutual fund shall forth"ith inform the Board! if an# information or particulars previousl# su0mitted tothe Board "as misleadin or false in an# material respect .3/ the mutual fund shall forth"ith inform the Board! of an# material chane in the information or particulars previousl# furnished! "hich have a 0earin on the reistration ranted 0# it .'/ pa#ment of fees as specified in the reulations and the Second Schedule.E*,g,,*,+= 3(,+e(,a fo( a77o,&+6e&+ of a44e+ 6a&age6e&+ 3o67a&=218 *2) &*a) &*aa) the asset manaement compan# is a fit and proper person *0) &&Te(64 a&' 3o&',+,o&4 +o e 3o67*,e' ,+ 228 he approval ranted under su03reulation *+) of reulation +2 shall 0e su01ect to the follo"in conditions!namel#$%*a) &*0) the asset manaement compan# shall forth"ith inform the Board of an# material chane in the information or particulars previousl# furnished! "hich have a 0earin on the approval ranted 0# it*c) no appointment of a director of an asset manaement compan# shall 0e made "ithout prior approval of the trustees*d) the asset manaement compan# underta(es to compl# "ith these reulations*e) no chane in the controllin interest of the asset manaement compan# shall 0e made unless!%

*i) prior approval of the trustees and the Board is o0tained*ii) a "ritten communication a0out the proposed chane is sent to each unitholder and an advertisement is

iven in one Enlish dail# ne"spaper havin nation"ide circulation and in a ne"spaper pu0lished in the lanuae ofthe reion "here the 4ead 5ffice of the mutual fund is situated and

*iii) the unitholders are iven an option to eit on the prevailin 6et Asset 7alue "ithout an# eitload

*f) the asset manaement compan# shall furnish such information and documents to the trustees as and "hen re8uired0# the trustees.

I!TERMEDIRIES RE#ULTIO!S

SCHEDULE IIC(,+e(,a fo( 'e+e(6,&,&g a Ff,+ a&' 7(o7e( 7e(4o&GFor the purpose of determinin as to "hether an applicant or the intermediar# is a 9fit and proper person: the Board

ma# ta(e account of an# consideration as it deems fit! includin 0ut not limited to the follo"in criteria in relation tothe applicant or the intermediar#! the principal officer and the (e# manaement persons 0# "hatever name called ;*a) interit#! reputation and character*0) a0sence of convictions and restraint orders*c) competence includin financial solvenc# and net"orth.

:8 ( have considered the SC, report su1mitted 1" 0A, repl" to the SC and the oral

su1missions made during the course of personal hearing and all other relevant material


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availa1le on record. !he issue for determination in the instant matter is hether Sahara M

along ith Sahara AMC its !rustees and Sahara Sponsor satisf" the ?fit and proper person@

criteria to carr" out the 1usiness of a Mutual undL

108 We+e( Saa(a MF a*o&g ,+ Saa(a MC ,+4 T()4+ee4 a&' Saa(a S7o&4o( 4a+,4f=

+e f,+ a&' 7(o7e( 7e(4o&G 3(,+e(,a +o 3a((= o)+ +e )4,&e44 of a M)+)a* F)&'

a8 ( note that S&B( vide its letter dated ovem1er 64, 3554, had granted approval to Sahara (ndia

inancial Corporation -imited to sponsor irst (ndia Mutual und. !here1", an e'isting mutual

fund as ta/en over 1" Sahara Sponsor and Sahara M came into e'istence on April 56, 3559. (

note that Sahara AMC and Sahara Sponsor are part of ?Sahara group@. ( have seen the structure of

Sahara Mutual und. !he shareholders of Sahara AMC, as per the statement of additional

information filed 1" Sahara AMC dated April 56, 356=, are as under F

Ta*e

!ae of +e Sa(eo*'e( T=7e of Ho*',&g Ho*',&g .

Sahara (ndia inancial Corporation -imited )Sahara Sponsor+ &;uit" 95.63

Sahara (ndia Corp (nvestment -imited &;uit" :.::

Sahara Prime Cit" -td. )formerl" Sahara (ndia (nvestment Corp. -td.+ &;uit" :.::

Sahara Care -imited &;uit" 3>.8:

Sahara (ndia Commercial Corporation -td. Preference 65.89

Sahara Care -td Preference 6.6<

To+a* 100

As the a1ove ta1le shos 1oth e;uit" and preference shareholding, the folloing ta1le presents

onl" the e;uit" shareholding pattern of Sahara AMC F

Ta*e 1

S8 !o8 !ae of Sa(eo*'e( T=7e of Sa(e4 of +o+a* eK),+= 4a(e 3a7,+a*

6 Sahara Sponsor &;uit" 9<

3 Sahara (ndia Corp (nvestment -imited &;uit" 66

4 Sahara Prime Cit" -imited &;uit" 66

9 Sahara Care limited &;uit" 43

To+a* 100

urther, the folloing ere the 0irectors of Sahara AMCF

,8 Mr. Om Pra/ash Srivastava, Associate 0irector,

,,8 Mr. Su1rata #o" Sahara, Associate 0irector,

,,,8 Mr. #amesh M. 2oshi, (ndependent 0irector,

,>8 Mr. Su1hah Chander Gupta, (ndependent 0irector


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>8 Mr. Chandra/ant Kamdar, (ndependent 0irector.

!he noticees have su1mitted that Mr. Su1rata #o" Sahara had resigned from the Board of

0irectors of Sahara AMC on Septem1er 54, 3569.

8

(t is also relevant to note the shareholding pattern of Sahara Sponsor ho as noted a1ove isone of the ma$or shareholders of Sahara AMC and holds 95.63I shareholding. !he

shareholding details of Sahara Sponsor as on e1ruar" 38, 3569 asF

Ta*e B

S8!o8 !ae of Sa(eo*'e( EK),+= Ho*',&g

6. Mr. Su1rata #o" Sahara >:.85

3. Ms. Sapna #o" 8.>3

4. Mr. O.P. Srivastava =.


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the directing mind and ill of Sahara Sponsor. !herefore, ( agree ith the findings of 0A that

Sahara Sponsor is nothing 1ut an *alter ego* of Mr. Su1rata #o" Sahara. Additionall", all other

shareholders of Sahara AMC are group companies of ?Sahara@ onl".

38 S&B( vide its order dated 2une 34, 3566, had issued certain directions against S(#&C- and

S(C- in independent proceeding and it inter alia directed Mr. Su1rata #o" Sahara )ho as

also the director of Sahara AMC and Sahara Sponsor, at the relevant point of time+ to refund

the mone" collected to the su1scri1ers of *Optionall" ull" Converti1le 0e1entures*. Mr.

Su1rata #o" Sahara as also restrained from associating ith an" listed pu1lic compan" and

an" pu1lic compan" hich intends to raise mone" from the pu1lic, till said pa"ments are made

to the satisfaction of S&B(. ( note that S(#&C- and S(C- had preferred an appeal 1efore the

on*1le SA! against the order of S&B(. on*1le SA! upon consideration vide order dated

Octo1er 68, 3566, upheld the order of S&B(. Aggrieved 1" this, appeals ere filed 1efore theon*1le Supreme Court of (ndia. on*1le Supreme Court of (ndia vide its order dated August

46, 3563, upheld the order of S&B( and on*1le SA!.

(n addition to the a1ove, ( also note that the folloing actions7 proceedings are also there

against Mr. Su1rata #o" Sahara and the companies ith hom he is associated )hereinafter

referred to as *Companies of the Sahara group*+, i.e.F

,8 !he on*1le Supreme Court of (ndia vide Order dated August 46, 3563 and 0ecem1er 5=,

3564, had inter alia directed S(#&C- and S(C- to refund to S&B( the amount collected

through #ed erring Prospectus dated March 64, 3558 and Octo1er 6


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,>8 !he on*1le Supreme Court of (ndia vide order dated ovem1er 36, 3564, held that Sahara

Group of Companies shall not part ith an" mova1le or immova1le properties until

further orders.

>8 !he on*1le Supreme Court of (ndia vide order dated March 59, 3569, inter alia ordered

detention of Mr. Su1rata #o" Sahara and sent him to $udicial custod", hich is still

continuing.

>,8 (n addition, to criminal complaints under Section 39)6+ read ith Section 3> of the S&B(

Act, ere filed 1" S&B( against S(C- and its 9 0irectors7 Promoters )including Mr.

Su1rata #o" Sahara+ and against S(#&C- and its 9 0irectors7Promoters )including Mr.

Su1rata #o" Sahara+, for the violation of the various provisions of S&B( )0(P+ Guidelines,

3555 and S&B( )(C0#+ #egulations, 355: and for the violation of various provisions of the

Companies Act, 6:=,,8 S&B( has also initiated ad$udication proceedings under the S&B( Act, against S(#&C-,

S(C-, its Promoter namel" Mr. Su1rata #o" Sahara and its 0irectors namel" Mr. Asho/

#o" Choudhar", Mr. #avi Shan/er 0u1e" and Ms. Vandana Bhargava.

'8 Mr. Su1rata #o" Sahara as the 0irector of Sahara AMC till Septem1er 54, 3569. Although

Mr. Su1rata #o" Sahara had admittedl" resigned from the post of Managing Hor/er and

Chairman of Sahara Sponsor on Septem1er 53, 3569, ( note that he as later appointed as an

Additional 0irector on the Board of 0irectors of Sahara Sponsor on ovem1er 54, 3569. (t is

seen that the resignations of Mr. Su1rata #o" Sahara from the 1oards of Sahara AMC and

Sahara Sponsor ere mainl" after the order dated March 59, 3569 of the on*1le Supreme

Court of (ndia and the sho cause notice dated August 63, 3569 from the 0A. Considering

the a1ove, ( agree ith the findings of 0A that till the initiation of the present proceedings, Mr.

Su1rata #o" Sahara as on the 1oard of Sahara AMC and Sahara Sponsor. (t is noted that Mr.

Su1rata #o" Sahara as appointed as an additional director in Sahara Sponsor. urther, even

after the resignation of Mr. Su1rata #o" Sahara from the 1oard of Sahara AMC and Sahara

Sponsor, Mr. Su1rata #o" Sahara holds a1out 85I of the shareholding of Sahara Sponsor

)!a1le B+ and is in a position to influence the or/ing and affairs of it. (t is also noted that

Mr. Su1rata #o" Sahara as again appointed as an Additional 0irector on the Board of

0irectors of Sahara Sponsor. urther, Sahara Sponsor holds around 9


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e8 As discussed in the previous paragraphs, the on*1le Supreme Court of (ndia had vide its order

dated March 59, 3569, inter alia ordered detention of Mr. Su1rata #o" Sahara and he as sent to

$udicial custod" for the nonDcompliance of the earlier order of on*1le Court dated August 46,

3563 and other orders regarding the refund of the amount along ith the interest. !he

on*1le Supreme Court of (ndia in its order had also stated as underF

... ...


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relation to the intermediar", the principal officer and the /e" management persons. !hus, the

same covers the persons ho are in a position to influence the decision ma/ing process. or

the purposes of performing the test of *fit and proper person* on a 1od" corporate, it is

necessar" to appl" the criteria on such 1od" corporate and e'tend the same to the persons

ho hold responsi1le positions and are in a position to influence the decision ma/ing process

in the Compan". (n this regard, ( place reliance upon the order of on@1le SA! dated

Septem1er 5)aa+ read ith #egulation 65 of the M #egulations re;uires that the applicant for

mutual fund should 1e a *fit and proper person*. (n terms of #egulation 36)aa+ read ith

#egulation 33 of the M #egulations, the AMC is re;uired to 1e a *fit and proper person* to

carr" out the functions for the Mutual und. ( note this a continuous re;uirement. !hus,

considering the S&B( order dated 2une 34, 3566, the pending contempt proceedings against

Mr. Su1rata #o" Sahara, S(C-7 S(#&C- )group companies of ?Sahara@+ and other litigations


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initiated and pending against Mr. Su1rata #o" Sahara, Sahara M along ith the Sahara AMC

and Sahara Sponsor are no longer fit and proper persons to carr" out the 1usiness of a Mutual

und.

8 -et me no refer to the other regulations alleged to have 1een violated 1" the noticees. As per

#egulation 3=)63+)a+ of the M #egulations, the Asset Management Compan" )AMC+ has to file

detailed 1ioDdata of all its directors along ith their interest in other companies ithin fifteen da"s

of their appointment. S&B( has vide Circular dated 0ecem1er 35, 3556 and August 3:, 3553, laid

don the format for the 1ioDdata that is to 1e filed ith S&B( ithin 6= da"s of the appointment

of a director on the AMC Board as per #egulation 3=)63+ )a+Q. As per the format, a declaration is

ta/en from the appointed director that regarding the information contained ithin para V(

)#elationship ith Sponsor+ and para V(( )#ecord of #egulator" Violations7 Criminal offence+,

S&B( ould 1e informed immediatel" on changes. urther, as per *point 9* of para V(( #ecord

of #egulator" Violations7 Criminal Offence )if an"+Q, the applicant is re;uired to confirm if he

has ever 1een associated ith an" organiJation as a director or an emplo"ee against hich S&B(

had initiated action of suspension or cancellation of certificate of registration or initiated action

under Section 66)B+ of the S&B( Act or an" prosecution launched for acts committed during

their association

!he S&B( Circular dated 0ecem1er 35, 3556, provides the format of such 1ioDdata in hich at

*para


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A8 !he noticees in the respective replies have argued that the" have 1een rongl" dragged in the

proceedings against S(#&C- and S(C-, hich is still pending final disposal 1efore the

on@1le Supreme Court. (t has also 1een said that mere pendenc" of prosecution proceedings

did not attract the penal conse;uences and as such there ere no violation 1" Sahara AMC.

urther, the noticees are independent legal entities, different from S(#&C- and S(C-

)against hich $udicial proceedings are pending+ and no order has 1een passed 1" an"

competent Court of -a, indicating an" of the directors of Sahara Sponsor, guilt" of fraud or

an" economic offence or of an" offence involving moral turpitude or of an" offence adversel"

affecting the interest of the Mutual und or its investors. (t has 1een argued that unless such

adverse order is finall" passed 1" a competent Court of -a, the ;uestion of reporting such

grave facts does not arise. (t has also 1een said that even if, an" prosecution is initiated, mere

pendenc" of such proceedings does not attract the said provision, until final order is passed 1"a competent court of la.

( have considered the a1ove argument of the noticees. oever, the su1missions are

unaccepta1le in vie of the mandator" re;uirements of the M #egulations and the S&B(

Circulars referred a1ove. rom a reading of the relevant provision of the *1ioDdata*, it is clear

that Sahara AMC on receipt of the information regarding the directions dated 2une 34, 3566,

as immediatel" re;uired to inform the same to S&B(, in the prescri1ed format under the

heading *#ecord of #egulator" Violations7 Criminal Offence* )as detailed a1ove+. And, there asno e'ception to the re;uirement as discussed. !herefore, ( find that Sahara AMC has clearl"

failed to compl" ith this re;uirement. S&B( has the dut" to /eep the mar/ets fair and free from

undesira1le elements. !he re;uirement of the 1ioDdata is nothing 1ut a disclosure 1" the AMC.

urther, the clause 9 of Para V(( of the 1ioDdata clearl" states a1out the actions initiated 1" S&B(.

B" not providing such details in the prescri1ed format, Sahara AMC, in m" vie has violated the

provisions of #egulation 33 of the M #egulations, hich re;uires the AMC to inform S&B( of

an" material change in the information or particulars, hich have a 1earing on the approval

granted 1" it.

*8 urther, the noticees have also violated the provisions of #egulation 65 of the M #egulations

hich provides the *terms and conditions of registration* granted to mutual fund. #egulation 65

of the M #egulations states that the trustees, the sponsor, the AMC and the custodian shall

compl" ith the provisions of the M #egulations. Clause *c* of the #egulation 65 of the M


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Page 1 of 22

#egulations re;uires7 1inds the mutual fund to inform S&B(, of an" material change in the

information or particulars previousl" furnished, hich have a 1earing on the registration granted

to it.

8 Epon consideration of the a1ove actions su1sisting against Mr. Su1rata #o" Sahara and the

group companies of Sahara, it can 1e concluded that Sahara AMC is not *a fit and proper person * in

accordance ith the M #egulations. on reporting of the material change in the information7

particulars furnished also has resulted in violation of the #egulation 33 of the M #egulations. (n

vie of the same, ( am una1le to accept the su1missions of the noticees that the ensuing litigation

did not have a 1earing on the approval granted 1" S&B(7 no adverse impact upon the 1usiness of

Mutual und and there as no material change for 1eing informed to S&B( to have a 1earing on

the registration granted.

&8 !he noticees have argued that on*1le Supreme Court vide its order dated August 46, 3563,

had modified the order of S&B(, to the e'tent that the directions of restraint imposed 1"

S&B( upon S(#&C-, S(C- and Mr. Su1rata #o" Sahara from associating ith an" listed

pu1lic compan" and an" pu1lic compan" intending to raise mone" from the pu1lic, has not

1een maintained and the said direction has 1een impliedl" set aside. !his su1mission appears

to 1e incorrect as on*1le Supreme Court vide its order dated August 46, 3563, had upheld

the order of S&B( dated 2une 34, 3566 and the order of on*1le SA!. !he modification as

indicated 1" the noticees is onl" ith respect to the process of refund of amounts. (n vie ofthe same, ( find no merits in the argument of the noticees.

118 !he noticees have also argued that the criteria for determining the *fit and proper person* is

too vague and uncertain. urther, it has also 1een said that the M #egulations are

dis;ualif"ing and penal in nature, the criteria is re;uired to 1e defined and not certain. (n this

regard, ( once again refer to the order of on@1le SA! dated Septem1er 5


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Page 1 of 22

128 (n vie of the a1ove, it is clear that the criteria for determining the *fit and proper person* is

not vague and uncertain 1ut of ide amplitude. !herefore, ( find no merit in the su1mission

of the noticees that no parameters have 1een laid don for determining the integrit",

reputation, character, competence including financial solvenc" and net orth.

Mutual und is a platform of trust and the persons ho have 1een held guilt" of violation of

the provisions of the S&B( Act or the rules and regulations made thereunder, are re;uired to

1e /ept aa", in order to avoid an" possi1le loss to la" investors. (n vie of the same, the

argument of the noticees that #egulation >)aa+ and >A of the M #egulations read ith

Schedule (( of the (ntermediaries #egulations providing the criteria for *fit and proper person*,

are ultra vires to the Constitution of (ndia as also the S&B( Act and the M #egulations is of

no merit.

18 Another argument of the noticees is that the doctrine of *piercing the corporate veil* is an

e'ception to the principle that a compan" is a legal entit" separate and distinct from the

shareholders ith its on legal rights and o1ligations. !he" also su1mitted that this doctrine

can onl" 1e invo/ed 1" the courts of la, especiall" the Constitutional Court and not 1" a

statutor" authorit" li/e S&B(. (n support of this argument, the noticees have relied upon the

order of on*1le Supreme Court in the matter of Bal"ant Ra1 Salu1a Vs. Air India Limited 2.

oever, the facts of the present case are different and the conte't of the Order is not

relevant to the issue at hand. (n this regard, ( place m" reliance on the order of on*1le Supreme

Court )-arger Bench+ in the matter of LIC Vs. Escorts Limited + , herein hile discussing the

doctrine of corporate veil, had o1served thatF

/,. & the corporate veil ma# 0e lifted "here a statute itself contemplates liftin the veil! or fraud orimproper conduct is intended to 0e prevented! or a tain statute or a 0eneficent statute is souht to0e evaded or "here associated companies are inetrica0l# connected as to 0e! in realit#! part of oneconcern. It is neither necessar# nor desira0le to enumerate the classes of cases "here liftin the veil is permissi0le! since that must necessaril# depend on the relevant statutor# or other provisions! the o01ectsouht to 0e achieved! the impuned conduct! the involvement of the element of the pu0lic interest! the

effect on parties "ho ma# 0e affected! etc.D

( also note that the o1$ect of S&B( Act is to protect the interest of the investors in securities

and to promote the development of, and to regulate, the securities mar/et and for matters

6 3569 ):+ SCC 95>3 6:8< A(# 64>5


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Page 1: of 22

connected thereith or incidental thereto. or achieving the same, S&B( in the normal course

of its or/ing re;uires the intermediaries7 companies associated ith the securities mar/et to

provide the details of the promoters7 directors. (n vie of the same, it ill not 1e correct to

accept the argument of the noticees that 0A has erroneousl" *lifted the corporate veil* of Sahara

Sponsor to categories it as prima facie not 1eing *a fit and proper person*.

18 !he noticees have also su1mitted that #egulation >= of the M #egulations provides for

action against intermediaries in accordance ith the procedure specified in regulation

applica1le to such intermediar". oever, neither an" such procedure has 1een prescri1ed

under the M #egulations nor the #egulations have provided for 1eing governed 1" Chapter

V of the (ntermediaries #egulations. !he noticees have also contended that Sahara Sponsor

cannot 1e included in the definition of intermediar" and the definition of *intermediar"* under

#egulation 3)g+ of the (ntermediaries #egulations e'cluded Mutual unds and hence(ntermediaries #egulations are not applica1le to the Mutual unds and no action under

(ntermediaries #egulations can 1e resorted against Sahara Sponsor.

( have considered the su1missions of the noticees. !he SC and the #eport of 0A does not

state that Sahara Sponsor is an intermediar" and is regulated 1" the (ntermediaries

#egulations. !he main allegation in the SC is that Sahara AMC 1eing controlled 1" a person

ho is not *fit and proper*, is also not a *fit and proper person*. urther, ( also note that the

provisions of Chapter ( of the (ntermediaries #egulations of hich #egulation 3)g+ is a part, is"et to come into force.

( no refer to #egulation >= of the M #egulations, the same has 1een reproduced herein

1eloF

3+,o& aga,&4+ ,&+e(6e',a(,e4 . he Board ma# initiate action for suspension or cancellation of reistration of an intermediar#holdin a certificate of reistration under section 2+ of the Act "ho fails to eercise due dilience or tocompl# "ith the o0liations under these reulations$


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1reaches the conditions of registration or the securities las, action in the manner provided

under the (ntermediaries #egulations shall 1e ta/enF

= Ca&3e**a+,o& o( 4)47e&4,o& of (eg,4+(a+,o& a&' o+e( a3+,o&48 +G. Hhere an# person "ho has 0een ranted a certificate of reistration under the Act or reulationsmade thereunder! ;*a) fails to compl# "ith an# conditions su01ect to "hich a certificate of reistration has 0een ranted tohim*0) contravenes an# of the provisions of the securities la"s or directions! instructions or circulars issuedthereunderthe Board ma#! "ithout pre1udice to an# action under the securities la"s or directions! instructions orcirculars issued thereunder! 0# order ta(e such action in the manner provided under these reulations=.

158 #eference ma" also 1e given to #egulation


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recognise that Sahara AMC did not fulfill the criteria of *fit and proper* person and shift the

responsi1ilit" of managing the assets of the Mutual und to another entit". (n m" vie, having

failed to perform their dut", the !rustees of Sahara M also cannot 1e alloed to remain in

their trustee position on an onDgoing 1asis.

Accordingl", ( am inclined to agree ith the recommendation of the 0A that the certificate of

registration of Sahara M 1e cancelled. Cancellation of registration of a mutual fund ould

therefore restrain the mutual fund from the activit" of raising funds through sale of units to

the pu1lic. oever, ( note that immediate cancellation of registration ill not 1e in the

interest of investors ho have su1scri1ed to the units of Sahara M and such action ma" have

a 1earing on the e'isting investments of the investors in the schemes. (n vie of the same, it is

necessar" that the interest of the investors ho have folios ith Sahara M are ta/en care of

hile issuing directions in the present matter.

18 aving regard to the a1ove, ( in e'ercise of the poers conferred upon me in terms of

Section 6: of the Securities and &'change Board of (ndia Act, 6::3 read ith #egulation

38)3+ of Securities and &'change Board of (ndia )(ntermediaries+ #egulations, 3558, here1"

order cancellation of the Certificate of #egistration of the Sahara Mutual und. oever,

/eeping the interests of unit holders, ( here1" direct that the Order of cancellation of the

Certificate of #egistration of the Sahara Mutual und shall 1e effective on e'pir" of 4, .6

o&+4 from the date of this order. (n the meantime, 7e&',&g 3a&3e**a+,o& of +e3e(+,f,3a+e of (eg,4+(a+,o& of the Sahara Mutual und, ( order thatF

,8 Sahara Mutual und7 Sahara Asset Management Compan" Private -imited *Sahara AMC + shall

not ta/e an" ne su1scription from the investors )including e'isting investors in S"stematic

(nvestment Plans )S(P+7 S"stematic !ransfer Plans )S!P++. urther, the Sahara Mutual und

shall not lev" an" penalties7 loads on the S(P7 S!P investors for not depositing the

installments.

,,8 Sahara Mutual und shall ma/e efforts to transfer the activities of Sahara (ndia inancial

Corporation -imited ) Sahara Sponsor + and Sahara Asset Management Compan" Private -imited

) Sahara AMC + to a ne Sponsor and a S&B( approved Asset Management Compan" at the

earliest.


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,,,8 !he Board of !rustees of the Sahara Mutual und shall oversee and ensure protection of the

unitholders* interests during the a1ove period. On transfer of the activities as mentioned at

para 6>)ii+ a1ove, the Board of !rustees shall 1e reDconstituted in accordance ith the S&B(

)Mutual und+ #egulations, 6::8 (n the event of failure of Sahara Mutual und to complete the process of transition as

mentioned at para 6>)ii+ a1ove, ithin a period of f,>e .5 o&+4 f(o +e 'a+e of +,4

o('e(% then Sahara Mutual und should compulsoril" redeem the units allotted to its investors

and credit the respective funds to its investors, ithout an" additional cost, ithin a period of

+,(+= .0 'a=4 thereafter and ind up the operations of the Mutual und.

>8 On e'pir" of the 4, .6 o&+4 from the date of this order, Sahara Mutual und shall return

the certificate of registration to S&B(.

DTE$ J)*= 2+% 2015 PRSH!T SR!

PLCE$ M)a, HOLE TIME MEMBER

SECURITIES !D E"CH!#E BORD OF I!DI

Documents

Order in the matter of Sahara Mutual Fund