THE SAHARA – SEBI DISPUTE : BEYOND UNDERSTANDING

Sahara has two companies named Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL). These two companies work with that segment of society which is outside the economic system of the country — such people for whom the Government could not,  in the last 67 years, get even a  bank account opened, such people who had never ever been inside any bank.  Sahara’s companies worked among such poor sections of the people and they were encouraged to deposit money. Banking facilities are not available in the country for 40 per cent of the population and in such a situation if two companies of the Sahara group have three crore investors, Sahara should be complimented for it. In Bangladesh, an individual got the Nobel Prize for such work, but in India, the Sahara boss got jail.


leadSahara’s two companies  Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHICL)  got people like rickshawpullers, roadside vendors, people selling vegetables on the roadside, people selling tea on roadside pavements to deposit a small amount of money everyday and if, as and when they needed a large sum of money, provided it to them. If a daughter had to be married, a house had to be constructed, a son had to be educated, some new work or venture had to be started or there was an emergency, whenever they needed money, these companies of Sahara provided the money. No Government or non-Governmental bank or financial organisation or institution in the country had even been able to reach this segment of people in society. The best and most essential thing for them was that they did not have to leave their work to go to any bank or to Sahara’s office. People from Sahara itself would come to them and collect the money. The people depositing the money were local people and there was a relationship of trust between the two.
It would be understandable if anyone amongst these poor people were to say that Sahara’s companies do not return the money, take the money and disappear or that they cheat them – then whatever punishment is meted out to Sahara would still not be enough. But if the investors in the two companies of Sahara have no problems, they get money on time as agreed and promised, the book keeping and maintenance of accounts is correct and overall they get a lot of benefits from these schemes, then what is Sahara being punished for? People putting in money in its schemes have no problem, those receiving the money do not indulge in any hanky panky, then what problem does the Government or SEBI (The Securities and Exchange Board of India) have? Is the Government having problems with the fact that Sahara’s two companies have been successful in doing that work which no bank in the country was able to do? Is SEBI having a problem with the fact that so many people have been depositing money and without any help from the Government they have been getting money on time?
That brings up the question once again : why is the Sahara Chief in jail? Did he indulge in fraudulent activities? Did he run away with the investors money? Or has there been a complaint from an investor? Sahara claims that in accordance with the Ministry of Corporate Affairs rules, in 2006 it filed returns of 1.98 crore investors on the orders of the Registrar of Companies. In 2008-09 also Sahara raised money from investors under optionally fully convertible debentures ( OFCDs ). For this Sahara had taken permission from the Registrar of Companies (ROC), Kanpur for SIRECL and from ROC, Maharashtra, for SHICL. Sahara claims that the balance sheets and returns of these two companies have always been filed before the Registrar of Companies, which examines their accounts from time to time. In other words, the ROC (Registrar of Companies) was doing the work of regulator for these companies. At that time no Governmental agency or SEBI raised any questions.
It is worth noting that on 21 April, 2010, SEBI had written to the Registrar of Companies Regional Director that two OFCD companies, SIRECL and SHICL, are not listed with them, therefore it has no jurisdiction over the activities of these companies. Therefore, whatever action has to be taken will have to be done by the Registrar of Companies. The question is whether SEBI can demand action against a

company by writing a letter to the Registrar of Companies? It can certainly demand that because such and such a company is not under our area of jurisdiction, you may take action against it. In addition, documents and court orders show that the jurisdiction over unlisted entities, including those mobilising public money, lies with the Ministry of Corporate Affairs, not SEBI. In a reply to a question in Parliament on 30 April, 2010, the Minister of State for Finance, Namo Narayan Meena, said while the Government was aware of some instances of misuse of privately placed debentures by some companies, these debentures were regulated only by the Companies Act, 1956 and administered by the Ministry of Corporate Affairs. Moreover, in two separate orders by High Courts, one in Mumbai and another in Kerala, the court has held that SEBI does not have regulatory powers over shares and debentures issued by unlisted companies. The first case relates to Kalpana Bhandari & others vs SEBI & others, which was decided in the Bombay High Court in 2003 (TOI, 14 September, 2011). But in 2010 itself SEBI performed an about turn. In an affidavit in the Allahabad High Court SEBI said that SIRECL and SHICL come under its area of jurisdiction. Now how can SEBI have it both ways? SEBI should first clarify which of the two is correct. If the fist statement is correct, why did SEBI change its stand? And, if the later statement is correct, then what is the meaning of the first two statements? Why did SEBI mislead the ROC and Parliament? The question is whether any public institution or regulator can tender one reply in Parliament and a month later give a different, opposite reply in the Supreme Court?
The first question stops at this : under whose jurisdiction do the two companies of Sahara fall? Sahara says that the matter falls under the jurisdiction of the Registrar of Companies, but SEBI says it is the regulator of the two companies, SIRECL and SHICL. However, many of the country’s well known law experts believe that in this controversy SEBI is wrong and Sahara is right. It may also be mentioned that the deputy editor of ‘The Hindu’ Shalini Singh had said in this context : “Since SEBI and RBI filed complaints, ‘The Hindu’ did a story about his dubious transactions. The court has not really acted. If you have bogus financial transactions why do we have no FIR by SEBI?” she questioned.
“The Supreme Court even now should institute an SIT…” Former Additional Soliciter general Vikas Singh said the non-baliable warrant against Roy was an unprecedented event. “Sahara has a scheme where it goes to the people to get money. It is about more of trust and less record keeping,” he said. “Today no investor is complaining, the only controversy before the SEBI was if it has jurisdiction over the money taken by Sahara,” he added.
While Sahara has claimed that SEBI had not verified even 1 per cent of its documents, former Shell Chairman Vikram Mehta said, “There is a practical difficulty in getting investigators to submit their papers for a probe. However, we should not fall back on excuses to protect the integrity of the institutions in our country. No one can say Sahara is above process of investigation. But there is no point in making committee after committee for another probe. Let the law take its own course,” he said. ‘The Hindu’s’ Shalini Singh also questioned the Finance Ministry’s silence on the issue. “I want to know why the Finance Ministry is so silent, after all the SEBI, RBI, ROC falls under its service. Why does it look the other way when legitimate funds can come to its coffers?” she said.
In spite of all this, on SEBI’s complaint, Sahara has been punished. The SEBI plea is that if the investors are more than 50 in number, it cannot be called a private investment or enterprise. The question is whether such a limit has been fixed by law? If with more than 50 investors it no longer remains ‘private’, then in 2006 when Sahara had filed the returns of 1.98 crore investors, why did SEBI not complain or why did no other Government agency ‘catch’ Sahara? In any case, the UPA Government made the ‘more than 50 investors’ a law through an Ordinance in 2010. When a law is made in 2010, how can it apply with retrospective effect to Sahara? The second question is whether Sahara is alone or is the sole instance of companies having more than 50 private investors? If there are other companies, SEBI should disclose what action has been taken against them. The question is that can the law be changed for a business which is being carried on with the permission of the Government for the last 11 years, and then can it be held ‘guilty’ under the new law which has come into effect?
In 2008, Sahara had refunded rupees 18,000 crore to investors under the monitoring of the Reserve Bank and at that time no questions had been raised about how genuine it was. It is worth noting that neither SEBI nor any other agency received even a single complaint against Sahara from investors and neither did the company ever violate the KYC (Know Your Customer) provisions. If any complaint had been received, it could have provided a concrete reason for action against Sahara. In any case the RBI had in July 2008 reconstituted the Board of Sahara India Financial Corporation Limited and had appointed 3 independent Directors – H N Sinor, former managing director of ICICI Bank; chartered accountant T N Manoharan; and 1970 batch Indian Administrative Service officer Arvind Jadhav. Photographs of all depositors were taken, audits were conducted at all the branches and surprise checks were carried out and technical verification of individuals was also carried out, but not a single case of violation of rules was identified.
Sahara claims that 93 per cent of the money to the investors, i.e. rupees 23,500 crore has already been paid and all documents relating to this have been submitted to SEBI. At that time no one raised any questions about the validity of both companies of Sahara. At that time the matter was not under the jurisdiction of SEBI. Then why did SEBI suddenly become ‘activated’ by a complaint from a a fictitious person – Roshan Lal? In addition, rupees 5,620 have already been given to SEBI for repayment, but till now it has been able to distribute only rupees 1 crore, which is evidence that their money has already been returned to most investors.
Along with Subrata Roy, the Directors of the two companies of Sahara have also been sent to jail. After sending them to jail the court put the condition that unless and until Sahara India deposits five thousand crore rupees in cash and gives a bond of five thousand crore rupees of immovable property, till then they will remain in jail. Not only this, from November 2013, all of Sahara’s bank accounts were frozen and a freeze also imposed on sale of properties. This means that you cannot sell your properties, cannot withdraw money from the bank. Then where was the money supposed to come from? Rupees 10,000 crore is not a small amount. Those working for Sahara had to suffer difficulties in getting their salaries. It was only in early June, after keeping them in jail for almost a hundred days, that the Supreme Court lifted the freeze on the group’s moveable and immovable assets so it could raise rupees 10,000 crore for part repayment to investors. But Sahara group Chief Subrata Roy still continues to remain in jail. The question is, how justified is it to impose the kind of restrictions that were imposed and on top of that placing the condition of producing such a huge amount as bail? Subrata Roy’s passport was also confiscated. There is great difficulty in understanding why Subrata Roy and two Sahara directors are being punished in this way. One obviously needs excellent knowledge of the law to understand what their crime is. Even if you have excellent knowledge of the law, you will still become confused for what crime Subrata Roy is undergoing punishment.


The Sahara – SEBI Dispute 

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TIME LINE
24 November, 2010: SEBI restricts the promoters and directors of two Sahara group companies, Sahara India Real Estate Corporation and Sahara Housing Investment Corporation, from raising any capital through the issue of securities: either equity shares, convertible debentures or any other securities.
13 December, 2010: Lucknow bench of Allahabad High Court stays SEBI order.
January 2011: *SC turns down SEBI’s plea to stop two firms from raising money from investors, but empowers it to seek information and issue advertisements to inform investors that the matter is pending investigation.
*SEBI issues a public notice on its website cautioning investors against the buying debentures of Sahara India Real Estate Corp and Sahara Housing Investment Corp.
*Sahara India Real Estate sends a legal notice to SEBI.
April 2011: *The Lucknow bench of Allahabad High Court vacates stay.
*SEBI issues a public notice alerting investors about a ban on money mobilisation by two Sahara group firms.
*Sahara Group files a petition in the Supreme Court challenging the Allahabad High Court order, which asked it to share full details of investors participating in its fund-raising exercise with SEBI.
*Sahara accuses SEBI of defaming the company.
May 2011: SC directs SEBI to proceed with its investigation into financial instruments used by two Sahara group companies to raise money from the public.

June 2011: SEBI directs Sahara firms to immediately refund the money collected through sales of optionally fully convertible debentures (OFCDs) with annual interest of 15 per cent.

July 2011: *Sahara appeals in SC that SEBI has no jurisdiction. Seeks notice to Centre.
*SC directs Sahara to approach SAT against SEBI order on OFCDs.
October 2011: SAT upholds SEBI order against Sahara to refund money.
November 2011: SC stays SAT order.
January 2012: SC gives Sahara group companies three weeks’ time to choose between two courses to secure the investments made by the public in the OFCD scheme — either to give sufficient bank guarantee or attach properties worth the amount.
31 August, 2012: A Supreme Court bench of Justice Radhakrishnan and Justice Khehar rules in favour of SEBI and orders the two Sahara companies to return to its OFCD investors the full outstanding amount of over Rs 20,000 crore, along with 15 per cent interest, within three months.
October 2012: Sahara companies file a review petition in the Supreme Court. Sahara claims it sent a truckload of documentation to SEBI within the 10-day limit. But SEBI did not accept it as the documents arrived on the 10th day, after office hours.
19 October, 2012: SEBI approaches Supreme Court alleging Sahara’s non-compliance with the main order.
November 2012: SEBI files a contempt petition against Sahara claiming it had not furnished the investor documents within the court stipulated time.
December 2012: The Sahara Group gets a temporary reprieve from the SC. The apex court grants it more time to repay the money.
January 2013: Sahara misses the repayment deadline set up by SC. The company fails to deposit the second installment amount with market regulator. It was required to submit Rs 10,000 crore by January first week.
February 2013: SC refuses to hear a plea asking for extension of deadline to refund investors’ money. SEBI moves in to attach properties of the group and group chief.
March 2013: Sahara approaches special appellate tribunal against SEBI move to attach properties. SEBI seeks arrest of Roy. SEBI also says most of records provided by Sahara untraceable, implying several accounts were fictional.
July 2013: SEBI files a contempt petition against Sahara in SC. Says company flouting SC direction to make refund. November 2013: SC bars Subrata Roy from leaving country. Sahara attacks SEBI, calls it a “sarkari gunda” which is working with political patronage.
February 2014: SC issues non bailable warrant against Roy for failing to appear at a court
hearing.
—moneycontrol.com

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