When Subrata Roy Sahara paid Rs. 1,500 crores to buy the IPL Pune team, one had the clear sense that he was going the Vijay Mallya way. Heading into ruin. Later, when he got a garish cricket stadium on the outskirts of Pune to be named after him, one had a dark sense of foreboding that things would go totally wrong. Well, that foreboding has come true for the man because his companies Sahara India Real Estate Corp & Sahara Housing Investment Corp have been ordered by the Supreme Court to refund an amount of Rs. 17,400 crores allegedly collected from the rural areas with interest at the rate of 15% within a period of 3 months.
The Sahara companies thought of an ingenious way to bypass the SEBI rules on disclosure. They issued “Optionally Fully Convertible Debentures (“OFCDs”) on a “private placement” basis and claimed that they were not subject to any disclosure requirements. They raised a whopping sum of Rs. 40,000 crores in this manner. When SEBI hauled up the Sahara companies for non-compliance with the law, they dragged SEBI to the Supreme Court. Well, Sahara has now had to eat humble pie because the Supreme Court came down very heavily on them. One of the judges (K.S. Radhakrishnan J.) rubbished Sahara’s argument that all the people who had subscribed to the OFCDs were “known” to it by asking that if that was so, what was the necessity of an Introducer and Introduction. The funds had been used taken from 22.1 Million investors by using 2900 branches and one million agents & representatives. The Judge called Sahara’s plea “dubious” and held that the Court could “lift the veil to examine the conduct and method adopted by Saharas to defeat the various provisions of the Companies Act“.
The Judge also directed that the economic offenses committed by Sahara should be treated with an iron hand and punished with civil and criminal liability so as to prevent the Country landing into “another security market pandemonium“.
The other Judge (Jagdish Singh Khehar J.) was even more critical of Sahara, calling its response “defiant” and “brazen“. In reply to a query from SEBI, Sahara had said that it could not answer as its staff was on “summer holiday with children“. The Judge called the response “astounding” and “difficult to believe” that Sahara could have given such an “inconsiderate excuse” to avoid furnishing particulars to SEBI. He caustically asked “whether Sahara was “running a kindergarten, where its staff were expected to be unavailable during the summer“. The Judge lambasted Sahara for the “brash and audacious manner” in which it responded to SEBI and called their response “preposterous” and “outrageously ridiculous“.
The Judge also expressed surprise that though Sahara had collected Rs. 40,000 crores, it had not maintained any details about the same and had behaved like a “street hawker” or a “cigarette retail vendor“. He expressed doubt that the depositors were “totally unrealistic”, “fictitious, concocted and made up“.
Anyway, the million (nay 3 Billion!) dollar question is how will Subrata Roy Sahara be able to cough up Rs. 17,400 crores with interest @15% within 3 months. A lot of that money has been splurged in cash guzzlers like the Pune IPL team and in buying the Grosvenor House Hotel for 470 Million Pounds. Does Subrata Roy Sahara have the money?
Download Sahara Judgement of Supreme Court