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The Supreme Court directed the Sahara group of companies on Friday to get a clarification from the Reserve Bank of India (RBI) on the permissibility of a $650 million (Rs 4,000 crore) loan raised from US-based Mirach Capital Group LLC being brought into the country through a Mauritius-based group firm.
This transaction is part of the group’s effort to gather the Rs 10,000 crore required to release on bail its jailed chief, Subrata Roy.
The SC asked the central bank to see if the transaction would comply with the Foreign Exchange Management Act (Fema) and related regulations “as expeditiously as possible” and give a view in two weeks on the application by Sahara.
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Sahara, meanwhile, can go ahead with the offshore leg of the transaction, wherein Mirach will transfer the loan amount to Aamby Valley (Mauritius) Ltd, the holding company that owns stakes in the entities that control hotels in New York and London. Mirach will also separately transfer $400 mn to Aamby Valley Mauritius for equity investments into Sahara Hospitality, another group entity.
Since these transactions happen outside the country, they would not attract any local laws, the court opined, after considering the arguments from Sahara and the Securities and Exchange Board of India (Sebi).
Earlier, counsel S Ganesh, appearing for Sahara, produced a letter from Bank of America, operator of the escrow account, saying Mirach had deposited $1.05 billion (Rs 6,300 crore) with the instruction that this be blocked in favour of the proposed transactions with the Sahara group. The letter said it had instructions from Mirach to unblock the sum if these transactions did not go through before February 20.
He told the court the second leg of the transaction in which Aamby Valley Mauritius transfers $650 mn to its India-based parent, Aamby Valley Ltd, was not a fresh loan but repayment of an earlier one. Ganesh said the Mauritius holding company had taken a loan of £490 million in 2010 and this liability had increased to £540 million with interest. The pound has appreciated significantly from the Rs 71 it was trading at in 2010. At the current Rs 95 a pound, the Mauritius entity owes its Indian parent around Rs 5,130 crore. The $650 million (Rs 4,000 crore) transaction would amount to a part repayment of this loan.
“It is a maze,” judge T S Thakur observed, as the Sahara counsels tried to convince the court that the transaction did not breach Fema.
Amicus curiae Shekar Naphade said, “Our apprehension was that the Indian entity taking a loan from abroad to repay liabilities here is prohibited. What cannot be done directly, can it be done through this mechanism?. That is a grey area. RBI has to deal with it.”
The judges said Sahara could not claim any equity or suggest any express or implied permissions for these transactions before RBI or any other authority.
The court also allowed Roy to use the video conferencing and secretarial facilities it had allowed him last year within a separate enclosure in the jail complex.
