Sahara Group: Beyond the Law of the Land.

Sahara Group’s run up with the law had ended in the Supreme Court, which had asked it to deposit some rupees 24,000 crores [240 billion] with Securities and Exchange Board of India [SEBI]. This money Sahara had claimed to have collected from over 3 crore [30 million] investors. Since such a large number of investors were doubtful, the apex court had also ordered that SEBI should verify each one of these investors as to their genuineness from the “application forms submitted” while making investment with Sahara Group before making the refunds. These moneys were “collected” through a dubious devise called Optionally Fully Convertible Debenture (OFCD). The OFCD were dubious because they flouted the laws and safeguards that had been put in place over the years to protect small and retail investors, who had been duped through various “attractive” money mobilization schemes operated by different scamsters over the years. Sahara’s run up with the Supreme Court was covered in an earlier post: *किसका सहारा, सहारा परिवार?*.

SEBI has the full backing and authority, nay responsibility, to give full effect to the various orders issued by the apex court in the Sahara matter. Yet, it seems to have gone into inexplicable hibernation, even at the risk of flouting those very Supreme court orders that gave it the necessary “teeth to bite” Sahara. Those who are interested in more background material would do well to know how U K Sinha, current chairman of SEBI, came to occupy that post: “Download eBook: SEBI, UK Sinha and Omita Paul“.

Money Life Foundation run by Sucheta Dalal has come up with an excellent summary of complete “inaction” in 2013 by SEBI in the Sahara matter. I reproduce the report in full below.

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SEBI Sahara case: SEBI’s eerie silence on Sahara; a lead up to compromise?

There is a sudden and eerie silence to the issue of the Sahara group coughing up a whopping Rs10,000 crore second instalment to be paid to SEBI under a Supreme Court order. As per the extended deadline provided by the apex court, Sahara companies were to pay up this instalment on the 10th January. It has not happened. Strangely, there seems no attempt at recovering the money or moving the court for contempt of its order. In fact, SEBI has also halted the process of appointing an agency for authentication of Sahara’s three crore investors too. Is there some sinister compromise going on?

Even after losing the battle in the Supreme Court, the Subrata Roy led Sahara group seems to be winning its battle to deny its liability of paying up nearly Rs25,000 crore under a Supreme Court order of 31st August 2012. This order was later amended to give the group another three months to pay up.
 
If the Securities and Exchange Board of India (SEBI) does not pursue the case to its logical conclusion (identify Saharas claimed three crore investors and refund their money) or initiate action for contempt of the apex court order, this will be the first known case of its kind. It would mean that India’s strangest corporate group would get away with defying a Supreme Court order only because of strange inaction by the regulator. It will also set a precedent for other companies and state governments, who have, until now, held Supreme Court orders as the law.
 
The Supreme Court, in its order on 31st August, had asked SEBI to ascertain the genuineness of an estimated three crore bondholders of optionally fully convertible debentures (OFCDs) of two Sahara group companies, Sahara Housing Investment Corp Ltd and Sahara Real Estate Corp Ltd (together referred to as the Saharas), and thereafter, facilitate refund of the money with interest. It has asked that money collected through OFCDs, a hybrid and unregulated instrument, to be refunded with 15% interest – a sum of nearly Rs24,000 crore. The Saharas had been given three months to comply, but this period was extended in December by another order, allowing the groups to pay Rs5,136 crore then and the balance in two instalments by February. The second instalment was due on 10th January, but neither has a payment been done nor any effort initiated to recover it.
 
What gives the case a curious twist is Sahara’s claim in full page newspaper advertisements splashed across the country that it does not even owe any further money to investors. The group, which has had a galaxy of top lawyers (such as Fali Nariman and Soli Sorabjee) to defend it in the past, has now roped in Mr Ram Jethmalani to argue its case. On 9th January, Mr Jethmalani had sought an urgent hearing of an application seeking to have the deadline extended for submitting to SEBI papers relating to over three crore investors. Justice Altamas Kabir said, “You have to pay. What is the urgency? If you don’t deposit, you don’t deposit. We have heard the case and decided.” It must be remembered that a review petition filed by Sahara before the bench of Justices KS Radhakrishnan and JS Khehar, (who delivered the path-breaking 31st August judgement) has also been dismissed by them.
 

Read analysis of Supreme Court’s verdict by Sucheta Dalal in Supreme Court Order: Sahara unmasked
 
So what is the reason for the regulators’ sudden silence on Sahara? This is the subject of much speculation among legal circles. It may be remembered that there were allegations by a former whole time member of SEBI that Chairman UK Sinha was under pressure to scuttle the Sahara investigation. This public embarrassment probably goaded SEBI to pursue the case with full vigour until the end of 2012. However, something seems to have changed since then; and legal circles again attribute the changed attitude to political pressure and compulsions.
 
It may be recalled, that Sahara made media headlines for sending truck loads of documents to SEBI and claiming that the regulator was unwilling to accept the documents. SEBI had also initiated contempt proceedings against the company for failure to comply with the apex court order. That case had been posted for hearing in the Supreme Court on 14th of December. However, according to sources in Delhi’s government circles, it has “mysteriously disappeared” and is not being pursued.
 
Media reports say that SEBI has put on hold the process for roping in an ‘in-person’ verification agency that was to help it ascertain genuineness of bondholders in the Sahara case. At the same time, other reports suggest that SEBI will start repaying investors. It is not clear how that can be done if the verification of investors is not complete.
 
Meanwhile, SEBI Chairman UK Sinha said it is fully competent to verify the documents related to the case, with regard to checking the genuineness of the bondholders of two Sahara Group companies. “SEBI is fully competent to verify. It has got its agencies in place and it will do its task on time, provided all the information papers are given to us. (But) all papers have not been given to us,” Sinha told PTI in Chennai last week.
 
Sahara Group had claimed in newspaper ads that from 1978 to 30 September 2012, it received/raised Rs2.25 lakh crore from the public. The company claimed that so far it repaid Rs1.7 lakh crore to its 14.7 crore investors and as on September end has a net outstanding liability of Rs54,364 crore.

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