Sahara’s hide and seek with the Supreme Court and Sebi continues

 subroto-roy (1)Vivek Kaul  

The Supreme Court has barred Sahara, the finance to reality conglomerate, from selling any immovable property. It has also ordered Sahara boss Subrata Roy and its directors not to leave the country until they submit original title deeds on properties worth Rs 20,000 crore.
On October 28, 2013, the court had directed Sahara to hand over title deeds of properties worth Rs 20,000 crore to the Securities and Exchange Board of India(Sebi). It had also added that a failure to do so would mean that Sahara bossman Subrata Roy would not be allowed to leave India.
On that date, the judges had said “You indulge too much in hide and seek. We cannot trust you any more…There is no escape for you and the money has to come.”
Yesterday, Sahara submitted documents for two parcels of land. This included 106 acres of land in Versova, a western suburb in Mumbai and another 200 acres of land in Vasai, another Western suburb of Mumbai. Sahara provided a detailed valuation of the land carried out by Knight and Frank and another valuer. This put the value of the land in Versova anywhere between Rs 18,800-19,300 crore. The land in Vasai is expected to be worth around Rs 1,000 crore.
This claim of Sahara was immediately contested by the Sebi counsel Arvind Datar. He pointed out that the land in Versova was a part of a green zone where real estate development would not be possible, and that is why there was a plan to develop a golf course there. Sahara contested this claim by saying that the rules had been changed in 2012 and development was possible. To this Datar replied saying that environment ministry would have to agree to this.
Also, the 106 acres of land was a part of a larger disputed area of 614 acres. Sahara is currently in litigation with original owners B Jeejeebhoy Wakaria and associates since 2001.
Over and above this, Datar pointed out that Sahara had supplied only 52 out of the 82 title deeds relating to the collaterals. The rest were certified copies. Datar also challenged Sahara to sell the land and deposit the money. “Let them sell this, find a buyer and deposit the money. Let them sell it and show. Why should Sebi undertake this responsibility? … The October 28, 2013, order was clear – to submit original title deeds of land worth Rs 20,000 crore…The rights and interests of investors must be protected,” he said.
The Supreme Court then asked Sahara to deposit original title deeds of properties worth Rs 20,000 crore anywhere in the country, within two days. This would ensure that the order barring Sahara from selling any property and not allowing its directors to leave the country, would not operate.
So what is the fuss all about? In July 2008, the Reserve Bank of India, ordered Sahara to wind down its parabanking operation run through the Sahara India Financial Corporation, which operated as a Residual Non-Banking Company (RNBC).
This happened after the central bank found several discrepancies in the books of Sahara. It banned Sahara from raising fresh deposits beyond June 30, 2011 and at the same time asked Sahara to repay all its depositors by June 30, 2015.
Sahara India Financial Corporation is big in parts of Uttar Pradesh and Bihar, where it has managed to raise thousands of rupees as deposits over the years. These deposits funded the various businesses of the group from media, films, real estate to even buying international hotels. The group even ran an airline briefly which it sold off to Jet Airways. Most of these businesses are capital intensive businesses which needed a lot of money. The money as mentioned earlier came from the parabanking operation of the group.
Once RBI asked Sahara to wind down its parabanking operation it stuck at the heart of the group’s business model. But soon Sahara started issuing what it called housing bonds. Two group companies, Sahara India Real Estate Corporation Ltd and Sahara Housing Investment Corporation Ltd, issued these bonds technically referred to as optionally fully convertible debentures (OFCDs).
Sahara noted that these OFCDs were being issued to “friends, associates, group companies, workers/ employees and other individuals associated/affiliated or connected in any manner with Sahara India Group of Companies.”
Hence, it did not amount to a public issue and thus, did not require compliance either with the Companies Act, 1956, or the Sebi Act as well as regulation dealing with public issues. This was the way Sahara interpreted the OFCD issue.
As per the Section of the Companies Act, 1956, any offer made to 50 or more people, becomes a public offer. Estimates suggest that the OFCDs were sold to nearly 2.96 crore investors.
This started a series of events which finally led to the Supreme Court judgement as on August 31, 2012. In this judgement, the Court directed the Sahara group to refund investors Rs 24,029 crore to the investors by the end of November.
One of the judges, Justice Khehar said: “It seems the two companies collected money from investors without any sense of responsibility to maintain records pertaining to funds received. It is not easy to overlook that the financial transactions under reference are not akin to transactions of a street hawker or a cigarette retail made from a wooden cabin. The present controversy involves contributions which approximate Rs. 40,000 crore, allegedly collected from the poor rural inhabitants of India. Despite restraint, one is compelled to record that the whole affair seems to be doubtful, dubious and questionable. Money transactions are not expected to be casual, certainly not in the manner expressed by the two companies.”
The November deadline was further extended and Sahara was directed to deposit Rs 5,120 crore immediately, Rs 10,000 crore in January 2013 and the remaining amount in February 2013. Of this amount the group handed over draft of Rs 5,120 crore on December 5, last year, and hasn’t paid anything since then.
At the same time it continued to play ‘hide and seek’ with the Indian judicial system by claiming that it had already repaid most of the amount to the investors and hence, did not have to pay Sebi anymore money. If that was the case why was this not brought to notice of the Supreme Court in August 2012? And why was it brought to notice after the Supreme Court asked it to repay the investors?
As a report in the Business Standard puts it “Its(i.e. Sahara’s) top lawyers have argued that it was not the intention of the court to pay investors twice and that the regulator has to first check several truckloads of documents pertaining to the millions of investors before coming to ask for the balance.”
report appearing in the Business Standard newspaper in late November 2012 seemed to suggest that agents of the Sahara Group were being pushed to collect sehmat patras (consent letters) from investors to show that their money had already been returned to them. “Agents, estimated to be a million strong, who sold OFCDs, often termed housing bonds, have been ordered to collect these letters, failing which their commissions are being stopped. With these consent letters, many of which are pre-dated, with dates ranging from as early as April to show that refunds were spread over a long period, documents such as account statements and passbooks in the hands of the customers are being collected,” the newspaper reported. Of course, this happened after the Supreme Court judgement in August 2012.
Also money was being transferred to the new Q shop venture launched by the group. As the 
Business Standard reported“While this documentation process has been on, a significant portion of the money deposited in the accounts have already been transferred to the Q-Shop plan, another money raising plan being marketed as a retail venture.”
It remains to be seen whether Sahara deposits title deeds of properties worth Rs 20,000 crore with Sebi in two days time or not. Or will it manage to come up with a new delaying tactic and continue with its casual approach? In short, all that can be said is that we haven’t heard the last of this issue.
Watch this space.

The article originally appeared on www.firstpost.com on November 22, 2013 

(Vivek Kaul is a writer. He tweets @kaul_vivek)  

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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