Sahara India Real Estate Corp.Ltd.& Ors vs Securities & Exch.Board Of India & Anr

ITEM No. 1A Court No. 3 SECTION XIIA (For Judgment)

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

I.A. No. 8-9 and 10-12 in Contempt Petition © No. 412 of 2012 in Civil Appeal No(s). 9813/2011

SECURITIES & EXCH.BOARD OF INDIA & ANR Appellant(s)

VERSUS

SAHARA INDIA REAL ESTATE CORP.LTD.& ORS Respondent(s)

with

I.A. Nos. 8-9 and 10-12 in Contempt Petition © No. 413 of 2012 in Civil Appeal No. 9833 of 2011

I.A. Nos. 10-12 in Contempt Petition © No. 260 of 2013 in Civil Appeal No. 8643 of 2012.

Date : 22/07/2014 These Applications were called on for judgment today.

For Appellant(s) Mr. Arvind P.Datar, Sr. Adv. Mr. Pratap Venugopal, Adv. Ms. Surekha Raman, Adv. Ms. Meenakshi Chauhan, Adv. Mr. P.K.Jha, Adv. Mr. Anuj Sarma, Adv. Mr. Gaurav Nair, Adv. M/s. K.J.John and Co.

For Respondent(s) Mr. Vishwa Pal Singh, Adv.

Ms. Shally Bhasin Maheshwari, Adv.

Signature Not Verified Dr. Rajeev Dhavan, Sr. Adv. Digitally signed by Shashi Sareen Mr. Gaurav Kejriwal, Adv. Date: 2014.07.22 11:11:33 ALMT Reason: Mr. Keshav Mohan, Adv. Mr. Gaurav Chaudhary, Adv.

Mr.Gautam Awasthi, Adv. 2

Hon'ble Mr. Justice T.S.Thakur pronounced Judgment of the Bench comprising His Lordship, Hon'ble Mr. Justice Anil R.Dave and and Hon'ble Mr. Justice A.K.Sikri. 1. I.As. No.8-9 of 2014 in Contempt Petitions (C)

No.412 and 413 of 2012 are dismissed.

2. I.As. No.10-12 of 2014 in Contempt Petitions (C)

No.412 of 2012, 413 of 2012 and 260 of 2013 are allowed to

the extent that three offshore hotel properties owned by

Saharas are allowed to be transferred, sold or encumbered

subject to the condition that the entire sale consideration

received by the Saharas after repayment of the loan

outstanding towards the Bank of China is deposited with

SEBI towards compliance with the directions contained in

the conditional bail order dated 26.3.2014 passed by this

Court. The excess amount, if any, shall be deposited by the

Saharas in a separate account to await orders from this

Court regarding their utilisation. The sale of the offshore

properties shall not be at a price lesser than the value

estimated by CBRE and JLL for the said properties reduced

at the most by 5% of such value.

3. We clarify that sale of remainder of the properties

which Saharas have been allowed to transfer, sell or

encumber in terms of our order dated 4th June, 2014 shall

not be at a price less than the estimated value of the said

properties reduced at the most by 5% of such estimate

4. ….... we request Shri Shekhar Naphade, Senior Advocate,

to assist the Court in the case as an Amicus Curiae. The 3

terms and conditions of Shri Naphade's appointment shall,

however, remain the same as were stipulated for Shri

Nariman.

(Shashi Sareen) (Veena Khera) Court Master Court Master

( Signed reportable judgment is placed on the file) 4

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

I.A. NOS. 8-9 & 10-12 OF 2014

IN

CONTEMPT PETITION (C) NO.412 OF 2012

IN

CIVIL APPEAL NO. 9813 OF 2011

S.E.B.I. …Appellant

Versus

Sahara India Real Estate Corporation Ltd. & Ors. …Respondents

WITH

I.A. NOS. 8-9 & 10-12 OF 2014

IN CONTEMPT PETITION (C) NO.413 OF 2012 IN CIVIL APPEAL NO. 9833 OF 2011

AND

I.A. NOS. 10-12 OF 2014

IN 5

CONTEMPT PETITION (C) NO.260 OF 2013 IN CIVIL APPEAL NO. 8643 OF 2012

JUDGMENT

T.S. Thakur, J.

1. By our order dated 4th June, 2014 we had, while declining

the prayer made by the contemnors for modification of the terms

on which they were granted interim bail, partially modified order

dated 21st November, 2013 passed by this Court and that passed

by SEBI on 13th February, 2013 so as to enable Sahara India

Real Estate Corporation Limited (SIRECL) and Sahara Housing

Investment Corporation Limited (SHICL) (hereinafter referred to

as ‘Saharas’ for short) to deposit with SEBI the maturity

value/sale consideration of FDs, bonds and securities held by the

Saharas. We had also, by the same order, permitted Saharas to

sell nine different properties situate in nine different cities in the

country and to deposit the sale proceeds thereof with SEBI, to

the extent the same was necessary to make a total deposit of

Rs.5,000/- crores required in terms of the bail order. We had

also permitted Saharas to charge its immovable property situate

in Aamby Valley (Pune) for obtaining and furnishing to this Court

a bank guarantee for an amount of Rs.5,000/- crores in terms of 6

the bail order dated 4th June, 2014. As regards Sahara’s prayer

for permission to sell three hotel properties situate outside the

country, we had left the question open to be determined after

Saharas furnished the requisite documents/information in terms

of our order dated 29th May, 2014 evidencing the approval of

Bank of China to the proposed transfer of the stakes held by the

Saharas in the said three properties. We were informed that

Bank of China had a charge over the three properties and that it

had agreed in principle to the sale of the stakes held by Saharas

subject to the repayment of the outstanding loan amount for

which the said properties were charged. We had also noticed the

valuation reports in regard to the three properties mentioned

above and a contention urged by Saharas that the same had

been prepared by reputed valuers at the instance of the Bank of

China in connection with the loan transactions as a part of the

ongoing exercise undertaken by the bankers. We had asked

Saharas to obtain a confirmation from the Bank of China to the

effect that the valuation reports prepared in respect of the three

offshore hotel properties by CBRE and JLL have been prepared at

the instance of the Bank of China and that the same had been

accepted by the bank to be correct. We were of the view that 7

such a confirmation would lend re-assurance to the Court that

the valuation reports represented the true value of the stakes

held by the Saharas in the said three properties. This is evident

from the following portion of the order passed by us on 29 th May,

2014:

“Dr. Dhawan submitted, on instructions, that an appro- priate communication could subject to the order of this Court be addressed to the Bank of China by the Saharas seeking its approval to the proposed transfer of the stakes held by Saharas in the three properties men- tioned above, subject to the repayment of the loan out- standing against those properties. Dr. Dhawan submitted that a copy of the communication addressed to the Bank of China and its response shall be placed on record be- fore this Court along with an affidavit within one week from today. He further submitted that apart from the correspondence that may be exchanged on the subject between Saharas and the Bank of China, the Bank of China will also be requested to confirm the amount that is outstanding towards the loan advanced by it in regard to each one of the three properties men- tioned above to give a clear picture to this Courts to the outstanding liability that remains to be liquidated by the Saharas qua the said properties.

Our attention was also drawn to the valuation re- ports in regard to the three properties mentioned earlier. It was urged that the said valuation reports have been prepared by reputed valuers at the instance of the Bank of China in connection with the loan transactions as a part of on-going annual exercise undertaken by the lend- ing Bank. If that be so, Saharas would do well to obtain a confirmation from the Bank of China to the effect that the valuation reports prepared in respect of the three properties mentioned above by CBRE and JLL, have been prepared at the instance of the Bank of China and that the said valuation reports have been accepted by the Bank to be correct. This could lend re-assurance to the Court that the value/stakes held by Saharas in these properties are sought to be transferred on the basis of the true market value of the said assets. Needful shall be done expeditiously, but not later than one week from to- day.” 8

2. Saharas have now made the present applications seeking

certain directions. In I.As No. 8-9 of 2014, Shri Subrata Roy

Sahara has prayed for temporary/conditional release from

judicial custody for a period of 15 days or so to meet his

nonagenarian and ailing mother as also for taking steps for

compliance with the order of this Court dated 26 th March, 2014.

The applicant has, inter alia, stated that his mother Smt. Chhabi

Roy who is aged over 93 years suffers from several ailments

which complicate matters in view of her being in a fragile

emotional state. The applicant Shri Subrata Roy Sahara is also,

according to the averments, not keeping good health requiring

medical attention. The application, however, stops short of

elaborating the medical condition of the applicant Shri Sahara.

More importantly, the application seeks release of Shri Sahara on

parole with a view to negotiating deals directly with the

purchasers who have shown interest in the purchase of the

property being offered for sale by the Saharas.

3. In the accompanying I.As Nos.10, 11 & 12 of 2014 Saharas

have prayed for permission to obtain a bank guarantee of

Rs.5,000/- crores by leveraging the three overseas hotel 9

properties by way of sale, mortgage in the light of the Bank of

China’s consent to such sale or transfer, and certification that the

valuation reports were prepared at the instance of the Bank and

accepted by it. The Saharas also seek permission for sale,

hypothecation, mortgage/leverage the land owned by them and

situate in Versova.

4. Appearing for the applicants, Dr. Rajiv Dhavan, learned

senior counsel, argued that the applicants had, pursuant to our

order dated 29th May, 2014, addressed a joint letter to the Bank

of China on 2nd June, 2014 requesting the Bank of China to

confirm the information sought for by this Court. The Bank of

China had, on receipt of the said communication, consented to

the proposed sale of the stakes held by Saharas in the hotel

properties subject to the repayment of the amount outstanding

against Saharas. It had also confirmed the loan amounts and the

valuation reports as required by the Order passed by this Court.

Our attention was, in support of that submission, drawn by the

learned counsel to letter dated 3rd June, 2014 sent by the Bank

of China to the Saharas conveying the Bank’s consent to the sale

and direct or indirect disposal by the Saharas Group of its

interests in the three hotels subject to the condition that the sale 10

proceeds are sufficient to and the same are applied towards

repayment in full of the outstanding principal, interest and other

amounts including any applicable prepayment premia, fees, out

of pocket costs and expenses of Facility Agents and lenders

owned by Sahara Group in connection with the loans obtained

from the Bank. The letter sets out the outstanding amount under

the Sahara Group loans as on 2 nd June, 2014 in the following

words:

“2) Amounts outstanding under the Sahara Group Loans as at 02 June 2014 A. Amounts outstanding under the Sahara Group Loans as at 02 June 2014 are:

As at 02 June GHH Loan Plaza/Dream 2014 Loan Loan £289,750,000.0 US$427,241,303.00 outstanding balance Accrued £985,469.20 US$244,036.67 Interest Prepayment £2,897,500.00 $8,544,826.07 Fee Libor Breakage Approximately Approximately Costs £11,873,16, £9,740.96, final final amount to amount to be be confirmed at confirmed at the the prepayment prepayment date date Legal Fees Approximately Approximately £15,000 final £15,000, final amount to be amount to be confirmed at confirmed at the the prepayment prepayment date date

Please note that the exact amounts required to prepay the 11

Sahara Group Loans will depend on when the prepayment is made. Whilst the above numbers are accurate as at 2 June 2014 (Except that the Libor Breakage Costs and Legal fees are estimates), they are subject to change.”

5. The Bank of China has also, in the same communication,

confirmed that valuation reports were instructed and accepted

by the Facility Agents for loan security purposes in regard to the

three properties in question. The bank says :

“Latest Valuation reports prepared pursuant to the Sahara Group loans The following Valuation reports were instructed and accepted by Facility Agent for loan security purposes:

• Plaza Hotel Valuation Report prepared by CBRE dated 27 Oct 2013 with the Market Value of US$592,000,000;

• Dream Downtown Hotel Valuation Report prepared by CBRE dated 29 Oct 2013 with the Market Value of US$252,000,000 • Grosvenor House Hotel Valuation Report prepared by Jones Lang LaSalle (JLL) dated 26 February 2014 with the Market Value of £516,000, 000 We understand that you will share a copy of this letter with the Supreme Court of India.”

6. It was in the above context, Dr. Dhavan submitted that (a)

Bank of China had no objection to the proposed sales/transfer of

the stakes held by the Saharas in the three hotel properties and

(b) the valuation reports indicating the value of the assets in

question were prepared on the instructions of the Bank of China

and had been accepted by it for loan security purposes. Dr.

Dhavan argued that the valuation reports had been prepared in

the ordinary course of business long before the present 12

controversy arose and were truly indicative of the market value

of the properties. It was also submitted that the reports were

prepared by reputed international valuers after a thorough and

analytical application of recognised methods of valuation of a

going establishment like a hotel. There was, therefore, no basis

for any apprehension that the properties proposed to be sold

may be sold at a price lesser than the true market value with a

view to defrauding the creditors or siphoning away the sale

consideration. Dr. Dhavan argued that while the encashment of

FDs and sale of bonds and securities had already resulted in the

deposit of a substantial amount of over Rs.3,000/- crores in

SEBI-Sahara Refund account, sale of the three hotel properties

would enable the Saharas to make up the deficit amount of

Rs.2000/- crores besides helping Saharas arrange a bank

guarantee for another Rs.5,000/- crores, as directed by this

Court.

7. Mr. Arvind P. Datar, learned Senior Counsel appearing for

SEBI, on the other hand, contended that the prayer made by the

contemnors/applicants in I.As. No.8 and 9 for release on parole

was not justified on the ground stated. The material on record

did not, according to the learned counsel, suggest that Shri 13

Subrata Roy Sahara had any serious medical problem to justify

his release on parole nor can his release on parole be justified on

the ground for facilitating negotiations with the prospective

purchasers. It was submitted that Saharas had not come forward

to disclose the names of the prospective buyers with whom they

proposed to hold such negotiations nor was there any concrete

proposal at present under their consideration.

8. As regards sale of the three hotel properties, Mr. Arvind P.

Datar, did not deny that though the Bank of China has a

substantial charge over the said properties but according to the

valuation reports the market value of the property is

considerably higher than the outstanding loan amount, thereby

accepting the plea of the applicants that if the properties are

sold, sufficient surplus would be available even after discharge of

the Bank loan that could be utilised for deposit with SEBI and for

furnishing a bank guarantee as demanded by this Court.

Moreover, the valuation reports prepared by leading and reputed

international valuers were not questioned by Mr. Arvind P. Datar

nor was it suggested that the reports had been procured only for

use in these proceedings.

9. We have considered the matter in the light of the 14

submissions made at the bar. The contemnors stand committed

to jail by the Order of this Court dated 4 th March, 2014 on

account of their failure to comply with the directions of this

Court’s Orders dated 31st August, 2012 and 5th December, 2012

and those issued on 25th February, 2013 in I.A. No.67 of 2013 in

Civil Appeal No.9813 of 2011 and I.A No.5 in Civil Appeal

No.9833 of 2011. Interim bail order passed by this Court on 26 th

March, 2014 requires them to deposit Rs.10,000/- crores, out of

which Rs.5,000/- crores has to be in cash while the balance has

to be secured by bank guarantee of a nationalised bank

furnished in favour of SEBI. It was with a view to enabling the

contemnors to comply with the said direction that this Court had

by Order dated 4th June, 2014 lifted the embargo placed upon

operation of the bank accounts and sale/transfer of immovable

assets held by the Saharas qua nine properties referred to in the

said order. Saharas have since then deposited an amount of

more than Rs.3,000/- crores with SEBI by encashment of FDs,

Bonds and securities.

10. Saharas have also out of the nine properties referred to

above sold the property situate in Ahmedabad for a sum of

Rs.4,11,82,55,138/- (Rupees Four Hundred and Eleven Crores 15

Eighty Two Lacs Fifty Five Thousand One Hundred and Thirty

Eight only). The remaining eight properties, however, remain to

be sold or encumbered. We had in the light of the above asked

Dr. Dhavan whether the proposed sale/transfer of the offshore

hotel properties was essential when no less than eight other

properties apart from Aamby Valley (Pune) remained to be sold

or encumbered for raising funds necessary for compliance with

the order of this Court. Dr. Dhavan argued that it may be easier

for the contemnors-Saharas to leverage the overseas hotel

properties for deposit of the deficit of around Rs.2000/- crores

and arranging a bank guarantee of Rs.5,000/- crores in

comparison to sale or transfer of property situate within the

country which may take a relatively longer period leading to

continued incarceration of the contemnors in jail. It was

submitted that so long as it was ensured that the offshore

properties are sold for the market value they command, the

Saharas should have the liberty to do so.

11. There is, in our opinion, merit in the contention urged by

Dr. Dhavan. What is important is that the properties held by the

Saharas are sold at their market value and the sale proceeds,

subject to any other directions issued by this Court, utilised for 16

compliance with the terms of the conditional bail order issued by

this Court. It is evident that if sale of properties situate within

the country is likely to take time, the contemnors may be

exposed to a longer period of incarceration on account of their

failure to comply with the directions of this Court. On the other

hand, quicker the compliance with the directions of the Court’s

Order for deposit of cash and bank guarantee, the easier would

be the way out of jail for them. The anxiety on the part of the

Saharas generally and the contemnors in particular to sell the

offshore properties is, therefore, understandable especially when

such sale and transfer is not only going to help Saharas in

liquidating the outstanding loan amount payable to the Bank of

China but leave sufficient surplus with the Saharas to not only

deposit the balance of Rs.2,000/- crores approximately that

needs to be immediately paid by them but also furnish a bank

guarantee for a sum of Rs.5,000/- crores, as directed. We,

therefore, see no legal impediment in permitting the sale of the

offshore properties owned by Saharas. This is particularly so

when not only do we have the valuation reports of the said

properties on record prepared as they are by internationally

reputed valuers but also the concurrence of SEBI for the sale of 17

such properties at that value subject to the condition that the

sale consideration shall as far as possible be at the estimated

value of such properties, less, at the most by 5% of such value.

We are, mindful of the fact that Saharas have sold the property

at Ahmedabad at more than three times the circle rates of such

property. No such rates are, however, available or prescribed for

offshore properties. We shall, therefore, have to go only by the

valuation reports of the valuers as the basis for such proposed

sale/transfer subject to a margin of 5% which we have indicated

above. In case the offer received is lesser by more than 5%,

they will seek prior approval of the Court.

12. We may incidentally mention at this stage that Dr. Dhavan

had sought a clarification of our Order dated 4 th June, 2014

inasmuch as in the para 23 (iii) (b) of the said order, we had

stated that the sale of the properties referred to in the order

shall not be for an amount lesser than the circle rate for such

properties or the estimated value indicated by the Saharas

whereas in the operative portion of the said order we had

permitted sale at a price that is not lower than the circle rate

prescribed for such properties. Having regard, however, to the

experience that Saharas have had with the sale of properties in 18

Ahmedabad which fetched more than three times the circle rates

prescribed for the same, we are of the view that the actual

market value of the property held by Saharas is many times

more than the circle rates for such property. This is evident not

only from the sale transaction relating to Ahmadabad property

but also the fact that Saharas have themselves estimated the

value of the properties much higher than the circle rates for the

same. In the circumstances, we see no difficulty in clarifying

that the sale of the remainder of the properties which we have

permitted to be sold by our order dated 4th June, 2014 shall not

be lesser than the estimated value of the properties given by

Saharas less by no more than 5% of such estimated value. In

case the offer(s) received is/are less by more than 5%, prior

approval of the Court will have to be sought.

13. That brings us to the question whether the contemnors can

be granted parole as prayed for in the applications? We regret

to say that we do not, for the present, see any justification for

us to take a view different from the one taken in our order dated

4th June, 2014. There is nothing before us to show that Shri

Subrata Roy Sahara suffers from any serious medical condition.

At any rate, we expect the jail doctors to keep a check on his 19

medical condition and provide necessary medical aid as and

when required. The alternative ground urged for the grant of

parole also does not stand closer scrutiny. There is, at present,

no concrete proposal with Saharas for sale of the properties

situate in India or abroad that may call for any negotiation by

Shri Subrata Roy Sahara. While it may be true that such

negotiations cannot be said to be advisable when properties of

such magnitude as in the instant case are sought to be sold, yet

it is pre-mature for us to make any arrangement to facilitate any

such negotiations either by directing release of Shri Subrata Roy

Sahara on parole or otherwise. We may make it clear that if a

situation arises in which negotiations become essential, this

Court may consider passing orders to facilitate such

negotiations. Beyond that we do not consider it necessary or

proper to say anything at this stage.

14. In the result :

1. I.As. No.8-9 of 2014 in Contempt Petitions (C) No.412

and 413 of 2012 are dismissed.

2. I.As. No.10-12 of 2014 in Contempt Petitions (C)

No.412 of 2012, 413 of 2012 and 260 of 2013 are 20

allowed to the extent that three offshore hotel

properties owned by Saharas are allowed to be

transferred, sold or encumbered subject to the

condition that the entire sale consideration received by

the Saharas after repayment of the loan outstanding

towards the Bank of China is deposited with SEBI

towards compliance with the directions contained in

the conditional bail order dated 26.3.2014 passed by

this Court. The excess amount, if any, shall be

deposited by the Saharas in a separate account to

await orders from this Court regarding their utilisation.

The sale of the offshore properties shall not be at a

price lesser than the value estimated by CBRE and JLL

for the said properties reduced at the most by 5% of

such value.

3. We clarify that sale of remainder of the properties

which Saharas have been allowed to transfer, sell or

encumber in terms of our order dated 4 th June, 2014

shall not be at a price less than the estimated value of 21

the said properties reduced at the most by 5% of such

estimate.

4. We had by our order dated 4th June, 2014 requested

Shri F.S. Nariman, Senior Advocate, to assist the Court

as an Amicus Curiae. We had also permitted Shri

Nariman to associate two juniors of his choice to brief

him in the matter. Shri Nariman as in terms of a

communication dated 5th June, 2014 regretted his

inability to assist the Court as he had also appeared

for Saharas upto 31st August, 2012 when the main

judgment was delivered in the case. That Shri

Nariman had appeared on behalf of Saharas had been

brought to our notice also but only after we had

pronounced the order in the Court on 4 th June, 2014

by which he was appointed as Amicus Curiae. It is

obvious that having appeared as a counsel on behalf

of Saharas Mr. Nariman cannot possibly take up the

assignment offered to him. We, therefore, have no

option but to modify our order dated 4th June, 2014 to

the extent that in place of Shri F.S. Nariman, Senior

Advocate, we request Shri Shekhar Naphade, Senior 22

Advocate, to assist the Court in the case as an Amicus

Curiae. The terms and conditions of Shri Naphade’s

appointment shall, however, remain the same as were

stipulated for Shri Nariman.

………………….……….…..…J. (T.S. THAKUR)

………………….……….…..…J. (ANIL R. DAVE)

………………….……….…..…J. (A.K. SIKRI) New Delhi July 22, 2014