Even as Sebi probed, OFCD money moved across the globe, Aamby Valley (Mauritius) at centre of global transactions; All transactions legal, no Sebi bar on doing business: Sahara Sahara India Parivar, the Lucknow-based conglomerate with interests in real estate, hospitality and retail, opened several bank accounts abroad and floated companies in Mauritius and the UK after the Securities and Exchange Board of India (Sebi) initiated investigation proceedings against two of its group firms — Sahara India Real Estate Corp (SIRECL) and Sahara Housing Invest Corp (SHICL). The details of bank accounts, the companies that operated these and amounts of money transferred between these were part of a secret intelligence report shared by a foreign financial intelligence unit (FIU) with its Indian counterpart. FIU-India is the central, national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs. (Click here for chart) The report, a copy of which was reviewed by Business Standard, says intelligence indicated two companies — Aamby Valley (Mauritius), registered in Mauritius on October 10, 2010; and Aamby Hospitality Services (UK), registered in the UK on November 22, 2010 — operated a few bank accounts abroad. According to the FIU report, these companies opened bank accounts with UBS AG on February 4, 2012, and February 11, 2011, respectively. These firms were part of a process of routing funds to Sahara’s £470-million acquisition of London’s Grosvenor Hotel in December 2010. Referring to Aamby Valley Mauritius’ UBS account (number 539469), Sahara Group Spokesperson Abhijit Sarkar said in an email response: “This account was opened in March 2011, after the acquisition of Grosvenor House Hotel, which was acquired in December, 2010.” According to him, the account was set up for payment of operational expenses incurred for Grosvenor House Hotel acquisition and investments in its subsidiaries. Explaining the holding structure, Sarkar said: “It may kindly be noted that at the time of acquisition of the iconic Grosvenor House Hotel, Aamby Valley (AVL) was beneficially held by Mr Subrata Roy Sahara to the extent of 75.79 per cent, as against the rumoured 100 per cent beneficial ownership. As AVL has 99.99 per cent stake in Aamby Valley (Mauritius), Mr Subrata Roy Sahara has a majority beneficial holding” — the latter in the light of his shareholding in AVL — “but he is not a 100 per cent beneficial owner of AV(M)L”. At present, Subrata Roy’s beneficial interest through direct and indirect holdings in the Mauritius-based entity had come down to 43.55 per cent, Sarkar added. A look back at the calendar reveals Sebi had started seeking details about the issue of optionally fully convertible debentures (OFCD) following a complaint by one Roshan Lal in January 2010. After this, the regulator made several attempts to get the details of the OFCD issues from the companies, but failed. In the meantime, the crores of rupees raised by OFCD were getting invested elsewhere. In January 2012, Business Standard had reported how the two Sahara firms under Sebi lens had pumped Rs 6,687 crore into Aamby Valley in 2009-10. According to the financials for 2009-10, SIRECL had invested Rs 5,328 crore in 234 million equity shares of Aamby Valley as on June 30, 2010. Similarly, SHICL had an investment of Rs 553 crore in 19 million Aamby Valley shares. In addition to this equity investment, SHICL also held 800 convertible debentures of Aamby Valley, worth Rs 806 crore. After the failed attempts to extract information, Sebi, vide its order dated August 16, 2010, initiated an investigation, as it “had reasonable grounds to believe issuance of OFCDs by SIRECL and SHICL might be detrimental to the investors or the securities markets and that any intermediary or persons associated with the securities market might have violated the provisions of the Sebi Act” and other legal provisions. Thereafter, summons were issued on August 30 and September 23, 2010, under Section 11C of the Sebi Act. Sahara responded on September 13 and September 30, asking Sebi to seek details from the Ministry of Corporate Affairs (MCA), which, according to the group, was the firms’ regulator. It also asked Sebi to withdraw the summons on the grounds of jurisdiction. Though Grosvenor House Hotel in London had been officially put on sale in March 2010, action in Sahara began to heat up only six months later. Ten days after the reply to Sebi, on October 10, 2010, Aamby Valley (Mauritius) was registered in Mauritius. On October 28, 2010, Aamby Valley Ltd acquired the Mauritius entity. Five days later, on November 3, 2010, the chief financial officer of the Sahara group, D J Bagchi, met Sebi Whole-time Member K M Abraham, who was spearheading the investigations against Sahara. During this meeting: “The need to fully and accurately furnish the information sought by Sebi at the earliest was impressed upon the company representative. However, no commitment was given by the company representative about furnishing the information required,” Abraham had said in an interim-order-cum-showcause-notice on November 24, 2010, barring all money-raising activity. This had triggered a protracted legal battle. Four days before the order was issued, another crucial leg of the acquisition took place. Filings by SIRECL suggested, at this point, bulk of the funds at SIRECL’s disposal had come from OFCDs.
According to the balance sheet of SIRECL for financial year ended June 30, 2010, filed on November 30, the sources of funds had only three major items. It had a share capital of Rs 90.12 crore, reserves and surplus of Rs 1,710 crore and unsecured loans to the tune of Rs 13,245 crore. The schedule 3 of the balance sheet showed “unsecured loans” had these components: OFCDs (Rs 11,921 crore), OFCD application money, pending allotment (Rs 36.4 crore), and interest accrued on the above (Rs 1,286 crore). SIRECL, on November 20, 2010, inked a deal to provide “certain funds to Sahara India Commercial Corporation Limited (SICCL) for joint venture transaction to enable SICCL to acquire land and to construct and develop projects.” Ten days later, a part of this money was loaned to Aamby Valley, which, in turn, routed it through its Mauritian subsidiary to purchase Grosvenor House. According to Sarkar, “as SICCL was not in immediate requirement of funds (for its own use), SICCL gave a part of the funds it had obtained from SIRECL to AVL by way of business development transaction, vide an agreement dated November 30, 2010, for expansion of its hospitality business”. According to this agreement, SICCL had provided Rs 3,859.52 crore to AVL as an advance. This was later converted into preference shares. According to Sahara, “it would be wrong to presume the entire funds transferred by SICCL to AVL for business development were solely sourced out of the funds transferred from SIRECL. SICCL also had its own liquid funds that it transferred to AVL”. AVL entered into a loan agreement with its Mauritian arm on December 13, 2010. Following this, £470 million was remitted to AV(M)L on December 24, 2010. By December 31, 2010, Grosvenor was in Sahara’s kitty. The Sahara group pointed out Sebi’s interim order, dated November 24, was stayed by the Allahabad High Court on December 13 and this stay was in force when the money was remitted abroad. “It may be noted that the said remittance was in compliance with all the conditions prescribed under Fema (Foreign Exchange Management Act) guidelines for overseas direct investment under the automatic route, as at that point of time there was no investigation (by any investigative/enforcement agency or regulatory body) on AVL or its promoters and directors from a Fema perspective. AV(M)L is engaged in the business of operations and making investments overseas in the hospitality sector. AV(M)L used the loan proceeds to complete the Grosvenor House Hotel transaction and to acquire other hospitality properties,” the spokesperson said. Sahara group also pointed out there had not been a single incident of violation of any regulatory or legal requirement at any stage. The flow of funds was in accordance with the objects of the respective companies and there was no illegality of whatsoever nature involved in the transfer and use of the funds, it said. AV(M)L had set up and infused funds in the subsidiaries as equity shares, preference shares and in the form of loans. “Setting up of step-down subsidiaries is in compliance with the RBI Notification No 120/RB-2004, dated July 7, 2004, as amended from time to time and all intimations with respect to such step-down subsidiaries have been made to RBI through AVL’s designated authorised dealers,” the spokesperson said. In June 2011, Sebi passed a final order directing the refund of all OFCD money collected by SIRECL and SHICL. Sahara appealed at the Securities Appellate Tribunal (SAT) against this order. On October 18, 2011, SAT dismissed the Sahara appeals. The FIU report showed there were fresh transactions immediately after this SAT order. “Intelligence indicates that Aamby Valley (Mauritius) received substantial funds from Sahara Grosvenor House Hospitality Ltd held at Bank of China on the October 21, 2011, and November 28, 2011,” the foreign agency said. It added Aamby Valley (Mauritius) also transferred £5 million to Force India Formula One team as sponsorship advance. The FIU report, dated March 30, 2012, further indicated that Aamby Valley (Mauritius) had intentions to transfer further substantial sums between its several bank accounts. “Intelligence indicates Subrata Roy Sahara... has control over a financial account with a UK financial institution in the name of Aamby Valley (Mauritius) Ltd… and the account holder intends to transfer £8 million from this account to SG Hambros Bank (Channel Islands) Ltd.” The company also intended to transfer a further £190 million to an account in Bank of China, the foreign FIU said. Another entity, Fidelity National Title Company, held funds in connection with the acquisition of a hotel in New York. On August 31, 2012, the Supreme Court upheld orders by SAT and Sebi and ordered the refund of Rs 24,029 crore raised by SIRECL and SHICL to 29.6 million investors they collected the sum from, with a 15 per cent interest. Sebi was entrusted with the job of executing this refund after verifying investor details. In November 2012, Sahara acquired two hotels in New York at a reported valuation of over Rs 4,000 crore. In December 2012, the group announced through newspaper advertisements that it owed only Rs 2,620 crore to OFCD investors. It has so far submitted Rs 5,120 crore (along with a buffer of Rs 2,500 crore to cover discrepancies) for the refunds.