Depositors wait for dues with Sahara Group companies under lens

Vilas Kumar (name changed), a former employee of Sahara, was asked to deposit Rs 2 lakh in a group scheme called QShop, while he was in employment. When his deposit certificate came, his name was printed correctly but it had a different address. Despite several reminders to change the address in the certificate, the error was never rectified. 

After he was laid off from the Sahara group, Kumar has been running from pillar to post to get his money back from his former employer. There has been no communication from the company.

“There are many such investors who are not getting their money back from QShop. We wrote several letters to almost all Indian regulators but to date no action has been taken,” says Kumar.

Kumar is not alone. There are millions of Sahara group investors who are waiting for years to get their money back. The investments are usually of smaller denominations and the group typically targets tier-2 cities and smaller towns to raise deposits.  According to a recent report prepared by the Central Registrar of Co-operative Societies (CRCS), four multi-state co-operative societies of the group had raised Rs 86,673 crore since 2010. 

Joint secretary, cooperatives and central registrar of the Union government, Vivek Aggarwal, wrote to the ministry of corporate affairs, seeking an investigation by the Serious Fraud Investigation Office (SFIO) on the fundraising and use of proceeds, web magazine Moneylife reported on October 1.

An email sent to the group on Tuesday seeking comments did not elicit any response.

In June this year, rating firm CARE said it was suspending the ratings on Sahara Hospitality as it has stopped sharing its financial information with the rating firm. CARE has given default ratings to the company’s Rs 527 crore facilities after the company, which operates the Sahara Star hotel near Mumbai airport, reported huge losses. 

Its last reported net loss was Rs 170 crore on revenues of Rs 214 crore. “Several banks have exposure to the project and are unable to get their money back. It would be a miracle if they get their money back without moving bankruptcy court,” said a banker close to the development.

Chit funds

The Lucknow-based Sahara group started as a chit fund and later registered itself as an RNBC (residuary non-banking finance company). It was regulated by the Reserve Bank of India (RBI). Within a few years, group companies raised crores from depositors. The ticket size of deposits was meagre and its depositors were mainly small shopkeepers and people whose earnings were less. In the initial years, the group did not have a track record of defaults to depositors and was the sponsor of several events. It even owned an Indian Premier League (IPL) team from Pune. 

The RBI had mandated the RNBC to invest 80 per cent of its deposits in government securities. 

In 2007, the RBI asked Sahara to fold its RNBC business after inspections found violations of the RBI norms, and in 2008, it restrained the RNBC from raising fresh deposits. Sahara moved courts and the Supreme Court gave it time till 2015 to shut down its business.

The group’s fortunes changed after market regulator Securities and Exchange Board of India (Sebi) asked it to refund deposits raised from investors in a quasi-equity instrument. According to Sebi, Sahara India Real Estate Corp and Sahara Housing Investment Corporation had raised Rs 25,780 crore from around 30 million investors by issuing optionally fully convertible debentures (OFCD). 

Sebi said the funds were raised without filing offer documents with it, which was a violation of its regulations. After the Sebi order, the Sahara group appealed in Supreme Court but lost the case. The court agreed with Sebi and asked the company to deposit the entire proceeds in an account to be created by the regulator. Sebi was asked to refund the money to depositors. When Sebi asked for a depositors’ list, Sahara sent truckloads of paper to its Mumbai office. From this depositors’ list, Sebi was unable to trace majority of the investors.

In February, the ministry of finance informed Parliament that the Sahara group has so far submitted only Rs 15,448 crore to the Sebi-Sahara Refund account.