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THE SAHARA SCANDAL
Read more on - Polity | Economy | Schemes | S&T | Environment
- The start: Sahara India was the privately held company found in 1978. It grew by leaps and bounds due to the enterprising nature of its founder - Subrata Ray (Sahara Shri) - who mobilised savings from the hinterland of Hindi heartland for his investment firms.
- Scam: The "Sahara Scam" was associated with two companies of Sahara Group - (i) Sahara India Real Estate Corporation Ltd. (SIRECL) and (ii) Sahara Housing Investment Corporation Ltd. (SHICL). Their being on the SEBI's radar did the group in, finally.
- Cardinal sin: Sahara was doing well, till it ran into the regulators RBI and SEBI. The who's who of corporate world, politics and Bollywood were seen with Sahara Shri, in events and promotions. But then came the undoing.
- Sahara versus RBI: In 2008, RBI debarred Sahara India Financial Corporation from raising fresh deposits. The growth of Sahara’s empire was always a mystery; many believed it ran a Ponzi scheme by collecting funds from investors. The group needed continuous flow of fresh funds to keep it afloat. With RBI closing a door on the group from collecting deposits from the people, the group needed a financial instrument that would be out of the purview of RBI but still get access to public funds.
- A new route: Sahara decided to issue OFCDs by floating two companies – Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC). It was the Registrar of Companies (ROC) that needed to clear these investment vehicles. Both the companies had negligible net worth. SIREC had an equity capital of only Rs 10 lakh and a negative net worth at the time of issuance while the net worth of SHIC was around Rs 10 lakh. But both the companies planned to raise Rs 20,000 crore each. Imagine applying for a bank loan of Rs 20,000 crore with only Rs 10 lakh as your contribution.
- Kept running despite troubles: The sheer size of the issue makes it a public issue. Any company seeking money from more than 50 persons has to take the approval of SEBI in doing so, in which case the company would have to make all the disclosures as per norms. The Sahara group had sought money from nearly 30 million investors. Apart from the size and number of investors, another deliberate error was keeping the issue open ended; ideally such issues should be closed within six weeks. In fact a Sahara group company kept an issue of Rs 17,250 crore open for 10 years.
- Desire for IPO: When a company raises money for the first time via the stock market, it is called an "Initial Public Offering (IPO)". That needs an approval from the SEBI. The company submits a Draft Red Herring Prospectus (DRHP) to SEBI.
- What is Draft Red Herring Prospectus? It is a bio-data of the firm containing all details. The SEBI analyses the DRHP of the company and decides whether to grant approval to that company or not, based on its bona fide credentials.
- Sahara India vs SEBI: On 30th September 2009, Sahara Prime City (a company of Sahara Group) filed a DRHP with SEBI for its IPO. While analysing the DRHP, SEBI found errors in the fund-raising process of the two companies of Sahara Group (Sahara India Real Estate Corporation and Sahara Housing Investment Corporation). SEBI's K.M. Abraham spotted SIREC and SHIC and found that the money raised through OFCDs was camouflaged as private placements. Though the OFCD instruments were issued in the name of the two companies, cheques were sought in the name of Sahara India.
- Complaints: During that period, SEBI received complaints on 25th December 2009 and 4th January 2010 that SIRECL and SHICL are issuing Optionally Fully Convertible Debentures (OFCDs) and raising funds wrongly. Due to these complaints, SEBI’s doubts were proven right.
- Investigations: So SEBI started investigating these firms and asked Sahara India Group for clarification regarding their method of fundraising. That’s when SEBI learnt that SIRECL and SHICL have raised around Rs.24000 crores from 2 to 2.5 crore investors via OFCD. Since retail investors were involved, SEBI claimed its jurisdiction and objected on why Sahara has not taken permission from it.
- Sahara's defence: It claimed that the bonds issued are hybrid products, not under the jurisdiction of SEBI, but governed by the Registrar of Companies (ROC) under Ministry of Corporate Affairs (MCA), from which the two companies of Sahara has already taken permission and submitted the DRHP with ROC before issuing the bonds.
- Stop it now: SEBI ordered Sahara’s two companies to stop raising money via OFCD and return the money to investors with 15% interest. Sahara approached the Allahabad High Court challenging the SEBI’s order. In December 2010, Allahabad High Court restricted SEBI’s order. In April 2011, Allahabad High Court cancelled the mentioned restriction and the case eventually came to the Supreme Court of India.
- At the SAT: When SEBI issued its order on the wrongdoings of the Sahara group on June 23, 2011, Sahara group took the matter with Securities Appellate Tribunal (SAT). But SAT held the Sebi findings to be correct.
- Why no retail complaints: Reports suggested that between the time that SEBI first initiated the inquiry and Roy’s eventual detention, there had not been a single instance of an investor in either of the two Sahara firms actually filing a police complaint or going to court. So were all very happy? Or was this is a clear case of large scale money laundering by the Sahara Group to hide black money?
- At the SC: In August 2012, the Supreme Court asked both the companies to deposit the money of OFCD holders with 15% interest within 3 months, with SEBI. They were asked to submit all the details of OFCD holders to SEBI so that it can assure that the money reaches the investors. The Group ultimately failed to satisfy the Supreme Court by providing evidence of the source of funds used to make the claimed return payments.
- Truckloads of evidence: During 2013, Sahara sent 127 trucks containing cartons full of details about OFCD holders to SEBI office. SEBI rejected the second batch of files because the trucks reached after office hours, which as per Sahara contained 25% of the investor information. SEBI realised that the files do not contain proper and complete details about the investors (but huge no. of mixed up details and forms). It was doubted to be a case of money laundering.
- Later: Sahara failed to submit money with SEBI with 15% interest within 3 months. Supreme Court ordered Sahara Group to make payment in 3 instalments. Sahara paid the 1st instalment of Rs.5120 crores, but not the other two instalments and claimed that they’ve already made payment to the investors.
- Where are the legions of investors: Among 2 - 2.5 crore investors, only 4600 came forward to claim their money. Sahara India said that the other investors did not come forward to claim as they’ve already been repaid. Upon being asked for evidence to prove so, Sahara India could not provide any such proof. By this time, both the Supreme Court and SEBI started considering it a case of money laundering. Consequently, they started freezing the bank accounts of Sahara India along with their assets.
- Final order: On 26th February 2014, the Chairman of Sahara Group, Subrata Roy was arrested upon the orders of the Supreme Court. He went to jail for a long period. In November 2017, Enforcement Directorate charged Sahara Group with money laundering.
- Final order: On 26th February 2014, the Chairman of Sahara Group, Subrata Roy was arrested upon the orders of the Supreme Court. He went to jail for a long period. In November 2017, Enforcement Directorate charged Sahara Group with money laundering.
- Bigger game: In 2020, it was revealed that between 2012 and 2014, when two of its group firms were indicted by the Supreme Court and its chief Subrata Roy arrested, the Sahara Group floated three cooperative societies and collected deposits worth Rs 86,673 crore from as many as four crore depositors. Of the money collected, at least Rs 62,643 crore, regulators said, was invested in the Aamby Valley project in Lonavala in Maharashtra. This is the same project that was attached by the Supreme Court in 2017 and then released in 2019 after several failed attempts to auction it off.
- Four names: These four societies, floated under the Multi State Cooperative Societies Act, and which come under the purview of the Ministry of Agriculture are: Sahara Credit Cooperative Society Ltd (set up in 2010); Humara India Credit Cooperative Society Ltd; Saharayn Universal Multipurpose Society Ltd; and Stars Multipurpose Cooperative Society Ltd.
- Action in 2019: In January 2019, the Registrar ruled that contributions from members of a society which is retained for a fixed term, as is the case of the Sahara societies, amounts to a deposit. And such deposits received by cooperative societies will come under the purview of The Banning of Unregulated Deposit Schemes Act, 2019, introduced to curb ponzi schemes in the country.
- Action in 2020: On August 18, Vivek Aggarwal, Joint Secretary, Ministry of Agriculture, who is also Central Registrar of Cooperative Societies, wrote to Ministry of Corporate Affairs (MCA) to initiate a probe by the Serious Fraud Investigation Office (SFIO) into the Sahara Group.
- November 2020: SEBI petitioned the Supreme Court to direct Subrata Roy to immediately pay Rs.62,600 cr ($8.4 billion) meant for poor investors, or cancel his parole. As per SEBI, Roy has so far deposited only over Rs.15000 crores, while the Sahara group said it has deposited Rs.22000 crores.
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