Sahara India Pariwar investor fraud case

Sahara - SEBI case is the case of the issuance of Optionally Fully Convertible Debentures issued by the two companies of Sahara India Pariwar to which Securities and Exchange Board of India had claimed its jurisdiction and objected on why Sahara has not taken permission from it. Sahara has claimed that the said bonds are hybrid product, thus does not come under the jurisdiction of SEBI, instead is governed by Registrar of Companies (ROC) under Ministry of Corporate Affairs, from which the two companies of Sahara has already taken permission and submitted the red herring prospectus with ROC before issuing the bonds.

SEBI in return ordered Sahara's two companies to stop issuing the said bonds and return money to investors. Sahara contested the case in various courts which eventually came to Supreme Court of India. On June 14, 2012, (during the final hearing of the case), the group had provided details of its financials up to April 30, 2012. While the court reserved its order, Sahara claims that it has already paid to 93% of the investors and discharged its OFCD liability to the tune of Rs. 23500 crores and only around Rs. 2260.69 crores are left against which Sahara has already deposited more than Rs. 12,000 crore which has with interest swelled to Rs. 16000 Crore. By August 31, 2012 the date of Supreme Court order, the group repaid majority of its OFCD investors between May the last date of hearing and by August 30, 2012 the final order. Since these repayments have not been taken into consideration, Sahara maintains that any money paid now will obviously mean a double payment towards one liability.

Furthermore, the market regulator SEBI advertised four times in more than 144 newspapers to ask the investors of Sahara to refund the money. And since August 2012 Sebi has only refunded Rs. 64 crore to the investors while it has Rs. 16000 crore from Sahara. On October 2014, a shocking revelation was made when only around 4,600 investors in two Sahara group companies had come forward to claim refunds from the Securities and Exchange Board of India (Sebi), which had asked those who had purchased bonds issued by the entities to claim their money. This gave a valid point to Sahara's argument before courts that it had repaid most of the investors who had come forward to claim the investment which they had made in bonds issued by two group companies.^[1]

Reports also suggested that between the time that SEBI first initiated the inquiry four years ago and Roy’s eventual detention and it is to note that till today there is not a single charge against him, there has not been a single instance of an investor in either of the two Sahara firms under watch actually filing a police complaint or going to court.^[2]. However this also points out the possibility of large scale money laundering by the Sahara Pariwar to hide black money. The Group has failed to satisfy the Supreme Court’s order to provide evidence of the source of funds used to make the claimed return payments. The investigation into alleged money laundering has been slow, indicating the possibility of involvement of politically strong personalities in the money laundering activities.^[3]

The case itself comprises big numbers such as collection of over Rs 24,000 crore from three crore individuals, while once in 2013 Sahara sent 127 trucks containing 31,669 cartons full of over three crore application forms and two crore redemption vouchers to Sebi office. Apparently, this had resulted into a huge traffic jam on outskirts of Mumbai, where the regulator is headquartered. SEBI on the other hand because the trucks reached after office hours SEBI rejected the second batch of files, which as per Sahara contained 25% of the investor information.^[4]

On 26 February 2014, the Supreme Court of India ordered the arrest of Subrata Roy, chairman and founder of Sahara India Pariwar, for failing to appear in court in connection with the Rs. 24,000 crore deposits his company failed to refund to its investors as per a Supreme Court order, after a legal dispute with the Indian market regulator SEBI (Securities and Exchange Board of India).^[5] He was eventually arrested on 28 February 2014 by Uttar Pradesh police on a Supreme Court warrant.^[6] In a statement after the arrest, his lawyer said Subrata's 92-year-old mother was in poor health and needed her eldest son by her side, and hence he failed to appear at the court.^[7] He was granted interim bail by the Supreme Court on 26 March 2014 on the condition that he would deposit Rs 10,000 crore with SEBI.^[8] Subrata was eventually taken into judicial custody and sent to Tihar jail, along with two other Sahara directors, on 4 March 2014 for failing to deposit Rs 10,000 crore with SEBI.^[9] In Tihar jail, Subrata unsuccessfully tried to sell some of his hotel properties to raise Rs 10,000 crore for his bail bond.^[10] He remained in Tihar jail for more than two years, and was released on parole in May 2016 to attend the last rites of his deceased mother.^[11] The Supreme Court bench of Justice Radhakrishnan and Justice Khehar ruled in favor of Sebi and ordered the two Sahara companies to return to its OFCD investors the full outstanding amount, along with 15 percent interest.^[12] Sahara claims that so far it has deposited more than 19,000 crores (including interest) with SEBI which will come back to Sahara India as it has already repaid 95% of its investors.^[13] The Securities And Exchange Board of India has repaid only Rs 64 crore to the investors since 2012 to the investors.^[14]

Sahara said this money, along with lifting of the embargo, will end the woes of the group, its 14-lakh workers and crores of its customers.

It is also been reported that Sahara has paid Rs 725.97 crore as TDS (tax deducted at source) to the Income Tax Departments on the interest which along with investment was repaid to 95 percent of the investors, between 2009-10 and 2012-13. The income tax authorities had found that the beneficiary investors were existent and accordingly confirmed the repayments made in those particular years. One of Sahara’s arguments in the apex court revolves around the fact that if one government body has found investors, why can't the other.^[15]

On 1st July 2018, the group revealed that majority of Rs 20,000 crore of Sahara's money (including the interest) which is with SEBI will be refunded back to Sahara India as the group had already made majority of the payments to its investors. The group also stated that SEBI will be directed to start the verification of the documents of Sahara’s investors, which are already provided to them by Sahara India Pariwar. Despite the double payment for single liability, Sahara India has been continuously depositing money of around Rs 20,000 crore (including interest earned) in Sahara-Sebi account.^[16][17]

Timeline of events

The unravelling of this case started in 2010 and it is still in process in the Supreme Court of India as of 2016.^[18][19][20]

• November 2010 - Securities and Exchange Board of India barred Sahara India Pariwar chief Subrata Roy and two of its companies – Sahara India Real Estate Corp (SIREC) and Sahara Housing Investment Corp (SHIC) - from raising money from the public as they had raised several thousand crores through optionally fully convertible debentures (OFCDs) that SEBI deemed illegal.^[21]
• December 2010 - Sahara appealed in the Allahabad High Court, which ordered SEBI not to take any action until a court order is passed.^[22]
• January 2011 - Delhi High Court issued a warrant against Sahara India Pariwar chairman Subrata Roy and four other officials of the group on a complaint that it deceived investors in a proposed housing project of Rs. 25,000 crore.^[23]
• February 2011 - Delhi High Court stays proceedings against Sahara India Pariwar chairman Subrata Roy and four other officials of the group on a complaint that it deceived investors in a proposed housing project.^[24]
• May 2011 - Supreme Court of India asked Sahara India Real Estate (SIREC) to furnish the format of the application for its optionally fully convertible debenture (OFCD) scheme and a list of accredited agents that raised money on the company's behalf.^[25]
• June 2011 - SEBI ordered Sahara firms to immediately refund the money collected through its sale of OFCDs.
• October 2011 - Securities Appellate Tribunal (SAT), set up by the Supreme Court, ordered two unlisted Sahara group companies to refund within six weeks about Rs. 17,656.53 crore with 15% interest, which it had raised through OFCDs.^[26]
• November 2011 - Sahara India Pariwar moved the Supreme Court against SAT's order and the Supreme Court stayed the SAT order, and asked the two companies to refund Rs. 17,400 crores to their investors and asked the details and liabilities of the companies.^[27][28]
• January 2012 - Supreme Court gives three weeks time to Sahara India Pariwar to choose between options to return investments made by public in its OFCD scheme. Sahara to either to give sufficient bank guarantee or attach properties worth the amount raised through OFCDs.^[29]
• May 2012 - Supreme Court is informed by senior counsel Fali Nariman of Sahara India Real Estate Corp that SEBI could not have taken up this issue of Sahara Group of companies raising funds through OFCD as there was no complaint from any investor.^[30]
• June 2012 - SEBI informed the Supreme Court that the real estate division of Sahara India Pariwar had no right to mobilize Rs. 27,000 crore from investors through OFCD without complying to the norms of the market regulator - SEBI.^[31]
• August 2012 - Supreme Court directed Sahara India Real Estate Corporation Ltd. (SIRECL) and the Sahara Housing Investment Corporation Ltd. (SHICL) to refund over Rs. 24,400 crore to its investors.^[32]
• February 2014 - Subrata Roy arrested by Uttar Pradesh police for failure to appear before the Supreme Court.
• March 2014 - Subrata Roy, along with two other directors of Sahara, sent to Tihar jail.
• March 2015 - Supreme Court stated that the total dues from Sahara have gone up to Rs 40,000 crore with the accretion of interest.^[33]
• July 2015 - SEBI cancelled the licence of Sahara’s mutual fund business.^[34]
• May 2016 - Subrata Roy released on parole from Tihar jail.

References