Sahara takes co-op route to beat Sebi, RBI bans

After being barred by the country's central bank, the capital market regulator and the Allahabad high court from raising money from the public, the Sahara group has moved to a new regulatory territory - the co-operative society.

Sahara agents will now peddle several new investment schemes to raise money under the name Sahara Credit Co-Operative Society.

The society has its headquarters and registered office in Sahara India Bhawan, Lucknow, where most Sahara group entities are based.

In an emailed response, Sahara group spokesperson Abhijit Sarkar said, "The cooperative has been developed by around 3,800 workers of the company.

Our managing worker and three deputy managing workers are not members of the cooperative, which is running some schemes towards financial inclusion of un-bankable people in rural and semi-urban areas who do not go to the bank or are visited by the bank."

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According to two people involved in the operations of the group, the application forms for these new schemes are being circulated and the money raised, beginning last week, will be accounted under the new schemes.

These schemes surfaced after the Allahabad high court restricted Sahara from raising money on April 7.

An Uttar Pradesh-based agent said a meeting was called at Sahara's district offices today to explain the features of these schemes and the procedures to be followed.

Existing investors would continue in the old schemes, he added.

According to soft copies of the application forms reviewed by Business Standard, the new schemes are mirror images of the optionally fully convertible debentures (OFCDs) issued by the two Sahara entities banned by the capital market regulator, the Securities and Exchange Board of India (Sebi).

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Sahara.A.Select is a four-year scheme which promises a return of "more than 141 per cent of the principal amount in four years."

Premature withdrawals are allowed at the end of 24 months, according to the application forms. This is similar to the Nirman bonds banned by Sebi.

Sahara.E.Shine is an eight-year scheme which promises a return of "more than 226 per cent of the principal". This corresponds to the Abode bonds.

Sahara.U.golden is a 15-year scheme offering a return of five times the principal.

All these schemes offer a loan against deposit facility and child welfare plans.

Under the latter, the children of the deposit-holders are offered "brilliancy" certificates.

In November, Sebi banned two group entities, Sahara India Real Estate Corporation and Sahara Housing Investment Corporation, from raising money from public through optionally fully convertible debentures -- under Nirmaan, Abode and Housing bond schemes.

Following the April 7 order of the Allahabad high court, the ban, which covers all Sahara group entities, including managing worker Subrata Roy Sahara, came into effect.

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In addition, the society offers three other schemes, namely Sahara.M.Benefit, a five-year recurring deposit scheme, Sahara S Bhavishya, a 15-year recurring deposit scheme, and Sahara K Money, a 10-year plan with monthly interest payments.

These would enable Sahara to continue its recurring deposits, banned by the Reserve Bank of India (RBI).

"At the consumer end, there will be minimum changes. Even old account numbers will continue. The agents have been asked to get a membership form (for the cooperative) signed by the investors," said the agent.

On June 17, 2008, RBI directed Sahara India Financial Corp Ltd, a residual non-banking company, not to accept new deposits maturing beyond June 30, 2011.

It was also told to stop accepting instalments of existing deposit accounts with effect from that date.

It was also asked to repay the deposits as and when they matured and bring the aggregate liability towards depositors to zero on or before June 30, 2015.

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According to legal experts, co-operative societies are governed by severe end-use restrictions prescribed by various government bodies, including RBI.

"They will not get a free hand as in a limited company registered under the Companies Act," said a finance industry veteran.

According to the application forms for the schemes, Sahara Credit Co-operative Society is registered under and any disputes are to be settled under The Multi-State Cooperative Societies Act, 2002.

An amendment Bill was introduced in the winter session 2010 to update the Act. Societies registered under it are governed by the Central Registrar of Co-operative Societies.

Being a credit cooperative society, the entity will also be governed by RBI rules, say lawyers.

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Suresh Surana, director, Astute Consulting, said the entity would be subject to both the central government and RBI rules.

"As a cooperative society, the entity cannot invite subscription. The subscription to a society's capital has to be voluntary. What constitutes an invitation is clearly described in law," Surana said.

Sebi has clearly ruled schemes by co-operative societies out of its purview.

Sebi rules on collective investment schemes do not include "any scheme or arrangement made or offered by a co-operative society or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State".