A big rap on the knuckles for Sebi

The SC on Friday came down heavily on Sebi in the matter against the Sahara group companies

The Supreme Court on Friday came down heavily on the Securities and Exchange Board of India (Sebi) in the matter against the Sahara group companies. The court has shown frustration at the manner in which the regulator has been dragging its feet after getting one of the most path-breaking and crystal-clear orders for action. It even accused the parties of “mutually agreeing to violate the order”. This is serious.

On August 31, the court had given a full 10 days for Sahara India Real Estate and Sahara Housing Invest Corp to file details of all the investors and the outstanding sum. Till August 2011, these firms had collected Rs 24,029 crore from some 30 million investors.

Could the regulator not have taken the initiative and clearly worked out what it wanted the group to do in those 10 days and what are the legal consequences it would face if the compliance was not satisfactory?

Somehow, the regulator which had shown its warface in the legal battle for the past two years is looking lost. So lost, that the court had to tell Sebi that it cannot expect some kind of handholding.

“If they do not comply with it, take action as per law. It is the duty of Sebi to comply with the judgment also. We are not here to hold the hands of Sebi and tell what it should do,” the bench said on Friday.

Fifty days have passed and there has been no concrete action, as the court observed. In fact, the regulator has ceded the initiative to the violator and allowed it to spin stories involving non-living objects such as trucks, Xerox machines and piles of paper, which the media has duly published, without analysing whether such cock-and-bull stories hold water in this iPhone age.

Sahara’s media hyperbole seems to have cramped the regulator, already on the backfoot lacking a clear strategy on how to go about this massive operation of impounding assets and freezing bank accounts. It also seems to be sitting on proof of the Optionally Fully Convertible Debentures’ money being transferred to new plans such as Sahara Q Shop. Reports by Mint, Reuters and MoneyLife talk about agents asking people, and in cases threatening, to transfer existing deposits to such newer plans.

Precious little has been done to stop this. Further, freezing of bank accounts may be of little use as over a year ago, Business Standard had reported that the companies were using bank accounts of Sahara India Parivar, the partnership firm. Attaching properties could be another headache. For example, in Amby Valley, one of the marquee properties of the group, several other entities also have ownership - only a part of the equity was held by the above two entities. Probably, the regulator doesn’t want to get into further messy legal battles. It doesn’t want to lose the significant ground it has gained already. But, the best way to defend that ground is to attack. At least, that is what the highest court of the land has just told the mandarins of Bandra Kurla, with a big rap on the knuckles.