Sebi directs Sahara group, its chief Subrata Roy to refund Rs 141 bn

Regulator bars Sahara firms, Roy and its directors from dealing in securities markets for a period of 4 years

In fresh trouble for the Sahara group, the Securities and Exchange Board of India (Sebi) has directed its group firms and directors, including Subrata Roy, to pay back Rs 141 billion with 15 per cent annual interest to investors, saying the fundraising was in contravention of norms laid down under the Sebi Act and the Companies Act on public issue of securities.

The markets regulator said Sahara India Commercial Corporation (SICCL) raised the amount from 19.84 million investors by way of optionally fully convertible debentures (OFCDs) between 1998 and 2009.  

In a 54-page order, Sebi said Roy and 14 other entities were debarred from the securities market for four years. Further, these entities have been restrained from associating themselves with any listed company that intends to raise money from public, or with any Sebi-registered intermediary. The interest has to be paid from the eighth day when the company becomes liable to repay to investors.

In 2011, Sebi had passed a similar order against Sahara India Real Estate Corporation (SIRECL) and Sahara Housing Investment Corporation (SHICL) for returning Rs 244 billion collected from 22.1 million investors. The order was upheld by the Supreme Court in 2012. 

The fund mobilisation by SICCL came to light during the course of investigation into the SIRECL-SHICL matter, said the Sebi order.

Sebi noticed that SICCL had filed a red-herring prospectus with the Registrar of Companies (RoC), West Bengal, to raise Rs 172 billion through an issue of OFCDs. The regulator then carried out an investigation to ascertain whether SICCL had made any public issue of securities.

The order said Sahara India acted as an arranger to the OFCD issue and facilitated it as merchant banker without being registered an intermediary, which was in violation of Section 12 of the Sebi Act. Sahara India was a partnership firm belonging to the Sahara Group with Roy as managing partner, according to a partnership deed obtained from UP Co-operative Bank.

In February 2015, Sebi issued show-cause notices to the entities involved, alleging violations of various provisions of the Companies and the Sebi Act. All the involved parties were given an opportunity to file their replies and appear for personal hearing. These entities submitted around six replies between May 2015 and August 2018.

In their submissions to Sebi, Sahara group entities said “invocation of regulatory power by Sebi in 2015, after 17 years from the issue made by SICCL in 1998 is bad in law”. The replies further stated that the OFCDs were offered on a private placement basis to workers, employees and individuals having deposits association with the group.

Sebi whole-time member Madhabi Puri Buch stated why the submissions made by the Sahara entities didn’t hold.

“I find that the submissions of the noticees that the issue of OFCDs was a private placement and issued only to workers, employees, individuals…is not tenable, as the domestic concern argument becomes irrelevant as far as the post amendment issues are concerned once the offer/issue has been made to more than 50 persons by the Company,” Puri Buch said in the order.

Sebi has directed SICCL to provide a full inventory of its assets and properties, besides details of all bank accounts, demat accounts and holdings of mutual fund, shares and securities. The market regulator said if the entities failed to repay, Sebi, on the expiry of three months, might recover such amounts.

Further, the Sahara group entities have been directed to issue a public notice in two national dailies and local daily with wide circulation within 15 days, detailing the modalities of the refund, including the details of investors.

Trouble mounts for Sahara

• Sebi bans Sahara India Commercial Corporation, Subrata Roy and other directors from securities markets for 4 years
• These entities also debarred from associating themselves with any listed company or intermediary during this period
• Company told to refund Rs 141 bn raised through OFCDs from nearly 20 million investors
• SICCL had made public issue without complying with the Companies Act and the Sebi Act
• In 2011, Sebi passed an order against Sahara’s SIRECL and SHICL for raising money through OFCDs