Sahara India Parivar Fraud Case
Sahara India Parivar Fraud Case The 21st Century of Corporate India has seen numerous investor fraud cases amongst which the most significant are Sahara, Rose Valley and Sharadha scam. To understand what constitutes this unethical practice and its implications, let’s trace through the curiously twisted Sahara Case.
This case was ignited in 2010 when Roshan Lal, an Indore based chartered accountant, sent a letter to the National Housing Bank (NHB) requesting them to investigate housing bonds issued by Sahara India Real Estate Corporation Ltd (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL). The NHB forwarded it to the Securities and Exchange Board of India (SEBI), India’s market regulator. And thus began the never-ending battle between Sahara and SEBI.
In November 2010, SEBI barred Sahara from raising money from the public for illegally raising several thousand crores through Optionally Fully Convertible Debentures (OFCDs). Since 2008, they collected $2.9 billion from 30 million investors. Thereafter, Sahara retorted by giving full-page advertisements in newspapers and later, appealed to the Allahabad HC on 1st December, the Lucknow Bench ordered SEBI not to take any coercive action until a court order is passed.
January 2011 witnessed the Delhi HC issuing a bailable warrant against the Chairman Mr Subrata Roy and four other officials on a complaint regarding their act of deception of investors in a proposed housing project of Rs. 25,000 crores. It held the prima facie evidence enough for proceeding. In May, the Supreme Court followed the HC into the chase when it asked SIRECL to furnish the format of the application for an OFCD scheme along with a list of the accredited agents which raised money on their behalf. Sahara urged for being ‘not liable’ if investors provided false details. However, SC empowered SEBI to investigate further.
The SEBI investigation was headed by Dr K. M. Abraham. According to his 99-page Order of June 2011, SIRECL and SHICL laundered money in the name of ‘fictitious investors’ and they were supposed to immediately refund the money raised through OFCD sales with an annual interest of 15 per cent. Sahara appealed against the SEBI order in the Allahabad HC which stayed it. On an appeal against the HC’s order, the SC directed Sahara to approach Securities Appellate Tribunal (SAT). SAT upheld SEBI’s order in October asking the companies to refund the amount of Rs. 17,656.53 crores with a 15 per cent interest within a six-week period. Dissatisfied with the SEBI’s order, Sahara appealed to the SC against SAT’s order in November. SC stayed the SAT order but relieved Sahara when it reduced the refunding amount to Rs. 17,400 crores. It also asked for their details and liabilities. CSR IN INDIA
In January 2012, SC gave Sahara a three-week deadline and a choice between two options to secure investments made through OFCDs, i.e. either to give sufficient bank guarantee or attach properties worth the amount. When in May 2012, the Hon’ble SC was informed by senior counsel Fali Nariman that SEBI cannot take up this issue as no investor had made any complaints, SEBI contended that SIRECL had no right to mobilise Rs. 27,000 crores from investors through OFCDs without complying with the SEBI norms. Things took a rough turn for Sahara when the SC in August 2012 directed a refund (with 15 per cent interest) of over Rs. 24,000 crores in three months. Sahara filed for a review petition in October 2012 (dismissed in February 2013). SC asked SEBI to freely take action against the two companies. November-December passed in a blur with SEBI and Sahara fencing over document submission. The SC extended the repayment deadline up to nine weeks but they defaulted on the repayment in January 2013. SC in February 2013 directed SEBI to freeze accounts and seize assets of the two companies. While SEBI and Sahara tussled over the repayable amount and demeaned each other (resulting in PIL against Sahara), SEBI filed a contempt petition against Sahara in SC and urged it to award maximum punishment to Subrata Roy. SC directed Sahara to give its original title deeds of assets worth Rs. 20,000 crores as a guarantee to SEBI. Sahara India Parivar Fraud Case
Sahara case again became newsworthy in 2014 when the SC turned down Roy’s plea to travel abroad and take care of his overseas business and on February 26th, issued a non-bailable warrant against him for failing to appear in the Court. He was given a timeline till March 4th to comply with the court’s order, but after two days of hide-and-seek and Advocate Ram Jethmalani producing a medical certificate of Roy’s sick mother in the court, he surrendered before the police in Lucknow on February 28.
The case captured the headlines once again in March 2015 when the SC redirected SIRECL and SHICL to refund the amount of Rs. 24,000 crores along with the interest from the month of August 2012 till 2015 and which collectively amount to Rs. 40,000 crores. Thus, in July 2015, SEBI had also cancelled Sahara’s mutual fund license.
‘Investor fraud’ leads to a loss of trust as the concept of investment is entirely based on ‘trust’. When conglomerates like Sahara indulge in investor fraud, they are not just toying with international economic trust and playing on their investors, but deceive their own employees and consumers as well. Sahara case had caused the public outrage that leads to a demonstration of anger through protests such as smearing ink on Roy’s face, etc. The implication of investor fraud falls on the entire society and is detrimental to development. Sahara may have learnt its lesson but its actions jolted the entire nation.