Sahara Scam or Sahara Group Chit Fund Scam is one of biggest corporate scams in India. It is also well-known due to the aggressive regulatory conflict between the SEBI and the Sahara Group for almost five years. After doing the detail study and deep analysis, I have come up with the Case Study about Sahara Scam in very simple Language.
Sahara India Pariwar is/was the privately held company founded in 1978. It has its Headquarter in Lucknow. Sahara Group was a huge company covering various sectors like Finance, Real Estate, Infrastructure and Housing, Sports, Manufacturing, IT, Retail Venture etc. It had the huge market capitalization of almost US$ 25.94 billion as on March 2011. In 2004 Time Magazine termed Sahara India Pariwar as “second largest Employer in India” after Indian Railway.
Sahara was founded by Subrata Roy. He was the Managing Worker and Chairman of Sahara India Pariwar. He was born on 10th June 1948 in Araria, Bihar. After completing his engineering, he started his first business in Gorakhpur. Later he migrated to Lucknow, which became the base of Sahara Group. In 2012, Subrata Roy was named among “The 10 most Powerful People in India” by India Today.
Sahara Scam is mainly associated with the two companies of Sahara Group that is Sahara India Real Estate Corporation Ltd. (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL).
To know how Sahara Scam first came on Radar of SEBI, we will first understand about the IPO and DRHP.
IPO or Initial Public Offering is the process through which any company offers its shares (Part of ownership) to public (people) for very first time, so as to generate the funds. It is the process through which a private company becomes a public company. IPO is the process through which any company gets listed on Stock Market.
DRHP or Draft Red Herring Prospectus is the Biodata of the company and it contains all information of the company. It is not a confidential document and SEBI uploads it on its official website. If any company wants to get listed on Stock Exchange so as to generate more funds then it is compulsory for the company to take the permission from SEBI (Security Exchange Board of India) which is Capital market regulator in India. To issue the permission, company submits the DRHP to the SEBI. DRHP contains all the information of the company like Financial Information, Objectives, Promoters and Management details, past performance, Capital Structure, Issue Information etc. After deeply analysing the DRHP, the SEBI decides, whether to grant the permission to the company or not.
On 30th Sep 2009, company name Sahara Prime City (SPC) which was the part of Sahara group of companies, submitted its DRHP to SEBI for issuing IPO, so as to raise the fund from public. DRHP of SPC contained almost 779 pages. But the actual jumble was on Para 49 of page no. 640. While analysing the DRHP of SPC, SEBI realised that other two companies of Sahara Group that is SIRECL (Sahara India Real Estate Corporation Ltd.) and SHICL (Sahara Housing Investment Corporation Ltd.) has raised the funds in inappropriate/illegal manner. While SEBI was investing about it, after some days that is on 25th Dec 2009 and 4th Jan 2010, SEBI received a complaint against these two companies saying that these companies are issuing OFCD in wrong way.
OFCD means Optionally Fully Convertible Debentures. Debenture is a Debt (loan) instrument, using which company borrows money from people and in return gives them interest. OFCD is a type of Debenture in which investors has the option to convert their OFCD to Equity and become the share-holders of company.
If any company is issuing the OFCD to less than 50 people/investors then it is compulsory for the company to take the permission from ROC or Registrar of Companies. And if the company is issuing OFCD to 50 or more than 50 people than it should take permission from SEBI.
When SEBI started the investigation, it realised that the two companies of Sahara Group that is SHICL and SIRECL have raised the OFCD of Rs 24000 crore from 2 to 2.5 crore investors, without taking permission from SEBI. Legally this process of issuing OFCD should be completed in 6 weeks, but SHICL and SIRECL kept on issuing OFCD for more than 2 years.
As soon as it was exposed, SEBI banned Sahara group from issuing new OFCD and ordered to return the money of investors with 15% interest. But Sahara group instead of following the orders of SEBI, filed the case against SEBI in Allahabad High Court. First, In Dec 2010 Allahabad High Court ceased the orders of SEBI, but later in April 2011 found that SEBI was right. Sahara lost the case in High court, but Sahara didn’t stopped there and appealed in Supreme Court. Supreme Court suggested Sahara to approach SAT that is Securities Appellate Tribunal. Again SAT found that Sahara was guilty and ordered Sahara to follow the orders of SEBI and return the money of investors with 15% interest. Crossing all the limits, Sahara challenged the decision of SAT in Supreme Court.
Sahara Group said that the “OFCD issued by SIRECL and SHICL are private placements, since this OFCD’s were issued only for people who are connected with Sahara Group and also SIRECL and SHICL are unlisted companies, so SEBI does not have any rights to handle this case.”
On this SEBI said that “SIRECL and SHICL had issued OFCD to more than 50 people, and hence it is public placement and not private placement. Also they have not taken the permission from SEBI, which is Mandatory”.
At that time, Dr. K. M. Abraham was the Board Member of SEBI and was the investigator of Sahara Case. When he was verifying about the details of investors of OFCD, he found that many of investors in Sahara are fictitious, and others do not have any relation with Sahara Group (so said by Sahara Group).
In Aug 2012, Supreme Court found SIRECL and SHICL guilty and ordered them to submit the money to SEBI that they have collected from investors with 15% interest under 3 months and also submit all details of investors to the SEBI so that SEBI could return the money to the investors.
Following the orders of Supreme Court, Sahara sent 127 trucks to SEBI, which were filled with documents containing the details of investors. But SEBI rejected some trucks since they reached after the deadline. After analysing the documents, SEBI said that the details of investors are incomplete and unrealistic, and hence this matter can be of Money Laundering.
Sahara Group failed to return the money of investors within 3 months as orders by Court, so Court ordered them to return the money in 3 instalments. Sahara Group deposited the first instalment of Rs 5120 Crore and then said that they have already returned the remaining money to investors directly.
Out of 2.5 crore investor’s only 4600 investor’s came forward to claim their money. On this Sahara Group said that remaining investors are claiming their money because we have already returned their money. But Sahara Group failed to give the proof of same and also failed to give the clarification about the source of that money to the Court.
Supreme Court found this matter more fictitious and freeze the bank accounts of Sahara and sealed their properties. Finally on 28th Feb 2014, Subroto Roy and two other directors of Sahara were arrested. In Nov 2017, ED that is Enforcement Directorate filed the case of Money Laundering on Sahara Group.
This was not for first time that Sahara Group was caught in conducting illegal activities. In 2007-08 subsidiary of Sahara Group SIFC or Sahara India Financial Corporation was banned on issuing fresh deposits by RBI, since it was caught doing unethical activities. But Sahara didn’t learnt from it and finally ended up doing a huge scam.
Once Sahara Group was one of the biggest corporate group of India. The number of employees working in Sahara India was around 14 Lakhs. It was the main sponsor India Cricket team and was the owner of IPL team Pune Worriers India. The meaning of word Sahara in Hindi is Support. But due to Sahara Scam, the investors of Sahara lost all the financial support and suffered financial crises.
(Pic Source- Google)
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