The poor little rich man

SAHARA, THE UNTOLD STORY
Tamal Bandyopadhyay
Jaico; Rs 450; 388 pages

What does it take to build a substantial business empire today? The right answer would perhaps be the combination of a good idea, effective execution and sharp management. And, umm, maybe borrowed funds.

There is nothing wrong in building an enterprise with borrowed money, of course. But there is something unusual and unique about the manner in which Lucknow-headquartered Sahara has borrowed money from India's poorest - by its own admission - and built a real estate-to-entertainment empire to adorn the richest.

Throw in generous smatterings of Bollywood glamour, cricket and high society glitz, and they help reinforce - again, by Sahara's own admission - the impression of a large and influential institution. This mix apparently encourages rickshaw pullers in small towns, such as Gorakhpur in Uttar Pradesh, to keep pouring their life savings into the the Sahara empire, at the rate of a few rupees a day. Literally.

That's also, I think, how Sahara Group founder, Subrata Roy, would like to present his business model, though the choice of words might differ.

And that's also the only known answer to the "800-pound gorilla in the room" question: from where does Sahara get its limitless supply of money? Is Sahara a giant laundering machine for politicians' slush funds?

That's the question Tamal Bandyopadhyay poses in different ways in his book Sahara, The Untold Story. That includes asking Mr Roy himself. "Does Sahara keep politicians' money?" he asks; or "does Sahara make money by forfeiting people's deposits?"

Mr Roy denies both charges: "I can say one thing and you can record it 10 times - I have never done anything wrong in my life ... in fact, years ago, two big politicians - both good friends - came to me and offered to keep Rs 10,000 crore to Rs 15,000 crore with me and I said no. I challenge you to prove that we keep politicians' money."

Even though Mr Bandyopadhyay placed on record Mr Roy's answers on what might seem like the most substantive question on Sahara's businesses, the group still saw fit to drag the author to court and bring an injunction against the book.

As it turned out, the case against the book was withdrawn a month after Mr Roy was sent to jail in March this year, for failing to obey a Supreme Court (SC) order asking him to be present during the hearing of a case involving the refund of Rs 20,000 crore to investors. But not before ensuring the author dropped a few paragraphs and added a three-page disclaimer. This is surely a first - at least that I've come across.

The SC in August 2012 said an "optional fully convertible debenture scheme" (OFCDs) from Sahara had violated Securities and Exchange Board of India (Sebi) rules and directed it to refund investors' money in three months. Sahara argued that the capital market regulator had no business regulating it and was, hence, stretching its jurisdiction.

This is where Mr Bandyopadhyay's book is useful in understanding the Sahara finance model, beyond the immediate context as well. He dwells in considerable detail on the birth of firms such as Peerless, the precursor to Sahara. Both mobilised funds from depositors as "para-banking" entities or residuary non-bank finance companies (RNBFCs), which were later banned. Actually, almost all of Sahara's arms or their methods of raising funds from depositors have been banned over the years, starting with Mr Roy's "prize chit schemes" in 1978. In Mr Roy's own words, he has faced six bans for raising money. The new model, incidentally, is "co-operatives".

So Mr Roy, the son of a sugarcane technologist with humble beginnings, has shopped around. In his words, he loves regulations but "it should not be the regulations of Hitler to the Jews ... I was always under regulators, but when regulators ban me, I need to go somewhere else. I have to take care of my lakhs of families …. "

His nemesis, at least for now, has been the Rs 20,000-crore raised through OFCDs, his last pre-ban instrument of choice. Most investors in these schemes, it has been charged, do not exist. Sebi's own pilot study found that 98.9 per cent of the bondholders were untraceable. It sent redemption notices inviting claims to 21,253 bondholders, but got responses only from 233.

The allegations - mostly whispered - about Sahara fly fast and loose, but there are some facts to consider. Sahara claims a 36,631-acre land bank, possibly the largest for an Indian corporate entity. The group employs 1.2 million people. And the claimed asset value of the group is Rs 1.52 lakh crore.

Interestingly, Mr Roy claims his personal wealth is only about Rs 12 crore after 34 years. That is about the cost of a good three- or four-bedroom apartment in the plusher section of south Mumbai. Mr Roy stays in Sahara Shaher, a vast palace-like estate in Lucknow, described by the author as "surreal".

The key question on Sahara's fund base is yet unanswered, if you don't accept the starting premise that the source is actually poor depositors putting away their only savings. On the flip side, no investigating body has found anything that suggests slush funds are floating around. The circumstantial evidence against Sahara - the inability to ferret out thousands of depositors - is damning, though. Equally, there has not yet been a run on Sahara, which has been the fate of many other such para-banking schemes.

The discomfort stems from Sahara's peculiar approach of blending glamour with business and running operations from a palace located far away from the power centres of Mumbai and Delhi. Mr Roy's ability to marshall the Page 3 set for private gatherings adds to the intrigue. And then there are the idiosyncrasies -such as the interminable meetings at which Mr Roy speaks for hours, and the greeting of all fellow workers with a salute across the shoulder.

Still, his ability to cock a snook at the government and its many arms is scary. Sahara, The Untold Story provides interesting and rare insights into how the regulators - mostly Reserve Bank of India (RBI) in this case - went after Roy like hounds. It was not a battle easily won, and it lasted years. Mr Roy portrays himself as a man who is doing the right things for his people and country, but is being victimised. Yet for all his battles and visits to the RBI and Sebi in Mumbai over the years, he seems most upset when he is not served a customary cup of tea.