Amity Law School, Noida

Synopsis
Reference Topic: Sahara Case
Legal Mentor: Vikas Gupta
Submitted By: Naman Gupta
A3221510061
BBA LL.B (Hons.)
9th Semester
2011-2016

Objective
Aim is to find out whether the issue of OFCDs to millions of persons
who subscribed to the issue is a private placement so as not to fall within
the purview of SEBI regulations and various provisions of Companies
Act

Introduction

Debenture is a type of debt instrument that is not secured by physical assets or collateral.
Debentures are backed only by the general creditworthiness and reputation of the issuer. Both
corporations and governments frequently issue this type of bond in order to secure capital. Like
other types of bonds, debentures are documented in an indenture.
Officially Fully Convertible Debenture (OFCD) is a type of debt security where the option is
given to the holder if he wants to convert his debenture into equity share after stipulated time .
This instrument does not yield interest in the initial period of say, 6 months. After this period
option is given to the holder of OFCDs to apply for equity at a "premium" for which no
additional amount needs to be paid. The option has to be indicated in the application form itself.
However, interest on FCDs is payable at a determined rate from the date of first conversion to
the second / final conversion and in lieu of it, equity shares are issued.
Public Placement is the selling of a stock in a publicly held corporation to a large number of
designated buyers.
Private Placement is the sale of securities to a relatively small number of select investors as a
way of raising capital. Investors involved in private placements are usually large banks, mutual
funds, insurance companies and pension funds. Private placement is the opposite of a public
issue, in which securities are made available for sale on the open market.
While in case of private placement the number of investors can go up to 50 only, in a public issue
there is no limit. The public issue can be of two types - initial public offer and follow-on public
offer. When an unlisted company issues financial securities for the first time to public it is called
as initial public offer, whereas, if a listed company comes out with new offer or offer for sale to
be subscribed by public it is called a follow-on public offer.
Section 67(3) of the Companies Act 1956 says that no offer or invitation shall be treated as made
to the public, if the offer or invitation can properly be regarded, in all the circumstances:

(a.) As not being calculated to result, directly or indirectly, in the shares or debentures becoming
available for subscription or purchase by persons other than those receiving the offer or
invitation ; or
(b.) Otherwise as being a domestic concern of the persons making and receiving the offer or
invitation;
Provided that nothing contained in this sub-section shall apply in a case where the offer or
invitation to subscribe for shares or debentures is made to fifty persons or more.
Therefore, the issue of OFCDs is a public issue in this case and will fall within the purview of
SEBI regulations and various provisions of Companies Act.

List Of Chapters

 Various Provisions of Companies Act, 1956, Companies Act, 2013

and SEBI Regulations Related To Sahara Case
Distinction between Public Placement and Private Placement
Procedure of Converting Public Placement into Private Placement
and Vice-Versa
Advantages and Disadvantages of Public Placement and Private

Placement
Related Cases To The Said Issue
Brief Facts of the Sahara Case
Issue Of The Case
Contention Of The Parties
Conclusion
Suggestions And Recommendations