A new beast and some old questions

The entire focus and energy of the Bench hearing the Sahara fraud case for the past few months have been in helping the jailed Sahara chief raise the Rs 10,000 crore (Rs 100 billion) in cash and bonds to fulfil his bail condition.

The Securities and Exchange Board of India (Sebi) passed its final order in the matter of illegal fund raising by two Sahara group companies, Sahara India Real Estate Corp and Sahara Housing Invest Corp in 2011.

The entire process of Sebi detecting the irregularities, investigation proceedings, interim order, a high court stay, an appeal in the Supreme Court (SC) and the final order was completed in about 18 months, between January 2010 and June 2011.

The subsequent appeals process in the Securities Appellate Tribunal and the SC was also completed in record time, with the apex court judgement on August 31, 2012.

In May 2014, a Bench of Supreme Court judges K S Radhakrishnan and J S Khehar had strongly condemned the manner in which the proceedings had dragged on, despite repeated warnings by the court, that eventually led to the jailing of group chief Subrata Roy.

They slammed the litigants' "compulsive obsession towards senseless and ill-considered claims" to prolong cases endlessly. We are in 2015.

There is a feeling of going in circles for the 29.6 million investors who are stuck in the mess.

In the course of legal arguments, these investors are sometimes forgotten, vehemently empathised with on some occasions and on others summarily dismissed as bogus.

The entire focus and energy of the Bench hearing the matter for the past few months have been in helping the jailed Sahara chief raise the Rs 10,000 crore (Rs 100 billion) in cash and bonds to fulfil his bail condition.

The latest chapter in this long story is the junior loan by an American fund named Mirach Capital Group, purportedly floated by "a wealthy Indian family".

When the Sebi counsel and amicus curiae raised objections that Foreign Exchange Management Act (Fema) regulations do not allow Indian entities raising foreign loans for repayment of existing liabilities, Sahara had a surprise up its sleeve.

The group said this was not a fresh loan but repatriation of an earlier one by Aamby Valley Ltd to its Mauritius subsidiary for purchase of the Grosvenor Hotel in London.

Please see this Business Standard story from February 2013 to understand how the money raised by the two firms was routed through various entities for purchase of the foreign assets, even as the Sebi investigation was underway.

Now, here are some conflicting claims by Sahara that form a maze of magic circles.

Sahara has, on the one hand, contended before the court that it has already refunded the amount due to the millions of investors.

On the other hand, it says a huge investment of $650 mn is being repatriated only now.

How were such huge refunds to investors of over Rs 17,000 crore (Rs 170 billion) made without liquidating one of the key investments?

Second, if repatriation of the loan is happening only now, for what purpose were the proceeds of loan that was initially taken from Bank of China, mortgaging Grosvenor House and other hotels, utilised for? Sahara did not respond to queries on the matter.

Third, a cooperative society floated by Sahara's employees, after the tussle with Sebi broke, has raised thousands of crores from millions of investors.

When regulated entities such as mutual funds and insurance firms struggle to raise funds, when the Initial Public Offering market has been lukewarm, what magic wand did the society wield to do a mini-Jan Dhan of its own?

In a response to Business Standard, the Sahara Co-op credit society said it had 9.2 million members.

Though it did not give the deposit figures, it suggested this could be close to the Rs 36,000 crore reported by The Economic Times on December 5, 2014.

The report added this society owned a 42 per cent stake in the Aamby Valley firm (which is getting money from Mirach).

The agriculture ministry, whose turf this new beast sits on, seems to have very little clue and wherewithal to comprehend or confront it. Did this beast deploy the funds it 'raised' to help Sahara refunds?

Is that legal? Can such domain hopping and regulator shopping be permitted in the squeaky-clean Modi government?

It is for the Reserve Bank of India, which has to clear the Mirach-Sahara deal, to examine these issues in a wholesome manner, rather than take a deal-specific call.

Meanwhile, Sudipta Sen is wondering why no one is offering him Skype facilities in Kolkata's Alipore jail to draw these transcontinental magic circles.

After all, his dues are only a fraction of the Sahara amount.

Photograph: Pawan Kumar/Reuters