Sebi-Sahara case: A saga of big numbers and innocuous names

It was an innocuous-looking complaint by one 'Roshan Lal' four years and four months ago that sent watchdog Securities and Exchange Board of India on trail of ‘various illegalities’ committed by Sahara group in raising over Rs 24,000 crore (Rs 240 billion) from more than 3 crore (30 million) investors.

The high-profile saga -- which on Friday saw the arrest of flamboyant Sahara group chief Subrata Roy, who calls himself ‘Managing Worker’ of his business empire -- has seen many dramatic events along the way.

There has been many emotional pitches by Sahara group, which claims to have a networth of over Rs 68,000 crore (Rs 680 billion) and assets worth over Rs 1.5 lakh crore (Rs 1.5 trillion).

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The Sebi-Sahara case itself comprises staggering numbers like collection of over Rs 24,000 crore (Rs 240 billion) from 3 crore individuals, while once Sahara sent 127 trucks containing 31,669 cartons full of over three crore application forms and 2 crore (Rs 20 million) redemption vouchers to Sebi office.

This apparently resulted into a huge traffic jam on outskirts of Mumbai, where the regulator is headquartered.

The case also has brought to headlines numerous financial jargons like OFCDs, DRHP and RHP, as also numerous innocuous sounding names like Kalawati, Hardwar and the famous 'Roshan Lal'.

It all started with Sahara Prime City, a real estate venture of the group, filing a Draft Red Herring Prospectus with Sebi on September 30, 2009.

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This is an initial document that a company needs to file with Sebi to bring out an initial public offer or initial public offer of shares to public investors.

While going through this DRHP, Sebi sensed certain large-scale fund raising exercises by two Sahara firms -- Sahara India Real Estate Corp Ltd and Sahara Housing Investment Corporation Ltd.

Soon, Sebi received two complaints -- one on December 25, 2009 and the second on January 4, 2010 -- alleging illegal means used by these two firms in issuance of certain bonds, called Optionally Fully Convertible Debentures, to the public throughout the country for many months.

The second complaint was from Roshan Lal, which was received by Sebi through National Housing Bank.

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Based on these complaints, Sebi began seeking clarifications from the group, initially through their investment bankers Enam Securities and later directly.

Further investigations found that the funds were raised through OFCDs after filing Red Herring Prospectus with the Registrar of Companies, although the rules required permission from Sebi for any issuance of securities to 50 or more investors.

In these cases, the number of investors ran into crores.

Eventually, Sebi passed an interim order against the two companies on November 24, 2010, asking them to refund the money collected from investors.

A final order was passed by the regulator on June 23, 2011, while the group challenged these directions before the Securities Appellate Tribunal.

However, the Tribunal upheld the Sebi orders on October 18, 2011, and asked the companies to refund Rs 25,781 crore (Rs 257.81 billion) to over 3 crore (30 million) investors.

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The group then moved the Supreme Court, which also passed a historic order on August 31, 2012, asking the two companies to deposit outstanding amount of over Rs 24,000 crore (Rs 240 billion) with Sebi for refund to the investors.

Saharas were also asked to deposit details of all investors to Sebi, which was mandated to refund the money after verifying their genuineness.

Sebi again moved the Supreme Court alleging non-compliance by the group to the earlier orders, pursuant to which the apex court passed another order on December 5, 2012, and asked the two firms to deposit the money in three instalments beginning with an immediate payment of Rs 5,120 crore (Rs 51.2 billion).

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While the group paid the first instalment, it failed to meet the deadline for other two payments and rather claimed to have already paid more than Rs 20,000 crore (Rs 200 billion) directly to the investors.

Unconvinced with Saharas' claims, Sebi passed orders on February 13, 2013, to attach bank accounts and other properties of the group and later issued summons for personal appearance of Subrata Roy and other three directors before it.

Roy and others appeared before Sebi on April 10, 2013, after which he famously told reporters that he was not even offered tea by Sebi officials.

During the same month, April 2013, Sebi finally closed its file on Sahara Prime City, whose planned IPO had kick-started this long-running battle.

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In the meantime, Sahara group continued to issue full-page and multi-page advertisements in newspapers wherein it claimed to have cleared bulk of its outstanding liabilities to bondholders.

In these advertisements, the group also claimed to have raised total funds to the tune of Rs 2,25,000 crore (Rs 2,250 billion) since inception in 1978 across various businesses and pegged its total networth at an astonishing figure of Rs 68,174 crore (Rs 681.74 billion) and the size of its assets at Rs 152,518 crore (Rs 1,525.18 billion).

Sahara also charged that Sebi was making ‘baseless allegations’ against it and accused it of not accepting ‘60 truckloads of documents’, while the regulator countered these charges by saying that the documents given by them were ‘hopelessly mixed up’.

Sebi also issued public notices in newspapers, cautioning investors and general public against dealing with Saharas.

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The regulator also asked various financial institutions, including banks to freeze all accounts of the group, besides writing to district collectors and other authorities for attachment of land, real estate and other properties.

Similar letters were sent also to the tax department and other agencies like Enforcement Directorate too.

Later, Sebi began an exercise for refund to genuine investors from Rs 5,120 crore (Rs 51.2 billion) deposited by Saharas.

However, not much headway appears to have been made in the process as Sebi has detected instances of multiple accounts, on which it has sought a clarity from the Supreme Court.

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Following are the key developments:-

• September 2009: Sahara Prime City files Draft Red Herring Prospectus
• October 2009: Sahara India Real Estate Corporation Ltd and Sahara Housing Investment Corporation Ltd  file Red Herring Prospectus with Registrar of Companies.
• December 2009: Complaint received from Professional Group for Investor Protection against Sahara group for illegalities in fund raising SIRECL and SHICL
• January 2010: Similar complaint received against Sahara group from one Roshan Lal through National Housing Bank
• November 2010: Sebi passes interim order against the two firms
• June 2011: Sebi passes final order
• October 2011: Securities Appellate Tribunal upholds Sebi order
• August 2012: Supreme Court passes order asking the two companies to deposit over Rs 24,000 crore (Rs 240 billion) to Sebi for refund
• December 2012: Supreme Court allows Sahara to deposit money in 3 installments. It deposits first installment of Rs 5,120 crore (Rs 51.2 billion)
• February 2013: Sebi issues attachment orders against the group after companies failed to pay remaining two installments
• March 2013: Sebi seeks arrest of Subrata Roy
• April 2013: Roy appears before Sebi after summons
• July 2013: Sebi moves Supreme Court against Sahara group for non-compliance with the court's direction
• November 2013: Subrata Roy barred from leaving the country
• February 20, 2014: Supreme Court asks Roy to appear personally
• February 26, 2014: Supreme Court issues non-bailable warrant after Roy's fails to make personal appearance; Sahara chief cites mother's illness for non-appearance
• February 28, 2014: Roy arrested by Lucknow police.