SC asks Sahara to address FEMA concerns on loan

Amicus curiae says $650-million junior loan for repayment not permissible under law

The Supreme Court has asked the Sahara group of companies to address concerns that its proposal to obtain a $650-million foreign loan violated the Foreign Exchange Management Act (Fema). The loan is a key part of the group’s efforts to meet the bail conditions for release of its jailed chief Subrata Roy.

The incarceration of Roy might continue till June 2015, as the court refused to accept post-dated cheques, along with undertakings by the purchasers of group of properties. These were presented by the group as compliance with the cash component of the bail requirement. Sahara presented 21 post-dated cheques for a total of Rs 1,885 crore, the last instalment of which was due on June 22, 2015.

The group is required to pay Rs 5,000 crore in cash and Rs 5,000 crore in bank guarantee to secure the release of Roy and two other directors of the group, in Tihar Jail since March 4. “The undertakings were only to ensure the people who have agreed to buy do not go back on their commitment, giving rise to further litigation,” said judge T S Thakur, adding, “Let us be realistic. You can only come out with compliance.”

IN THE SOUP

• The incarceration of Subrata Roy seems set to continue till June 2015 as the court refused to accept post-dated cheques, along with undertakings by the purchasers
• The group submitted these as compliance with the cash component of Roy’s bail requirement

The court also dismissed Sahara’s plea to adjust the Rs 900-crore interest accrued on the Rs 5,120 crore deposited by the group two years ago, and to allow a two-month parole for Roy till February. It then adjourned the matter to January 9.

Earlier, amicus curiae Shekhar Naphade told the court the proposed arrangement under which Mirach, a private investment company, was to offer a loan of $650 million, mortgaging foreign hotel assets of the group, was not permissible under Fema provisions. “According to my conception, this requires the special permission of RBI (Reserve Bank of India).” He also demanded some documentary evidence of Bank of China’s consent to the arrangement.

While Sahara counsel S Ganesh argued the arrangement was Fema-compliant, Sebi counsel Arvind Datar said the loan agreement allowed Mirach to deduct the interest upfront and such a provision was expressly barred under law.

The court directed both Datar and Naphade to give their queries in this regard in writing and asked Sahara to address these within a week. The court, however, allowed the first tranche of transferring the liabilities due to Bank of China to Oasis to go through.

Sahara proposes to comply with the requirement of providing a Rs 5,000-crore bank guarantee through a three-stage process involving its foreign hotel assets. Accordingly, the assets which are mortgaged for a loan with Bank of China will first be released and mortgaged with another entity called Oasis. Oasis has agreed to take over the Bank of China liabilities, excluding the penal interest of $30 million. Another entity, Mirach, will lend $650 million as a subordinate loan, based on the same property. The loan would be routed through an escrow account operated by Bank of America. After this comes the bank guarantee.

The court also allowed Sebi to refund Rs 28.1 crore to 2,781 Sahara investors who had multiple deposits. Having dealt with most of the issues relating to the release of Roy on bail, the court is likely to pick up other pending issues such as verification of investors and source of funds.