‘Mother’ sentiment, cold-eyed judges, long arm of law… all these mega-serial ingredients were on display last week in the long-running Sahara—SEBI—Supreme Court saga.
What is it?
The battle of the S’s broke out in 2009-10 when SEBI smelt something fishy in the offer document of Sahara Prime City. Two group companies — Sahara India Real Estate Corporation and Sahara Housing Investment Corporation — had, in earlier years, quietly raised about Rs. 19,000 crore from 2.2 crore ‘retail’ investors.
Sahara claimed these funds were from ‘private placements’ of optionally fully convertible debentures (OFCDs). But SEBI, whose approval is required for all public offers, saw red. It said since funds were raised from over 50 persons, the OFCD issues were in fact ‘public issues’.
The punitive action was severe. SEBI ordered Sahara to refund investors in full with 15 per cent interest. Sahara appealed against SEBI’s decision in the Securities Appellate Tribunal and later at the Supreme Court, but in vain.
In August 2012, the Supreme Court gave the group ninety days to repay Rs. 24,000 crore (including interest) to SEBI, which would then disburse the amount to genuine investors. Sahara sent SEBI truckloads of documents. SEBI found that many addresses were incomplete and asked investors to come forth to claim their dues. Very few did.
In December that year, the Supreme Court gave Sahara two more months to settle dues. Sahara muddied the waters further by claiming to have already repaid most dues directly to investors.
Murmurs that Sahara ‘investors’ were fictional gained ground. SEBI sought attachment of Sahara’s properties and pushed for the arrest of its boss Subrato Roy. Sahara through emotional newspaper ads said it was being victimised.
Meanwhile, a much piqued Supreme Court asked SEBI to sell the assets of the group, barred Subrato Roy from leaving the country and directed him to appear before it. Roy’s failure to turn up last week, citing his ninety two-year old mother’s ill-health was the last straw, with the Court issuing a non-bailable warrant. Finally, Roy “voluntarily surrendered”.
Why is it important?
Though the Sahara case may be hogging headlines for the gargantuan amounts involved, its actual investor ‘victims’ have been hard to trace.
The Supreme Court ruling in this case, which set out what constitutes a public offer, has helped SEBI go after other entities raising money from the public without proper approvals — Vibgyor Allied Infra, Prayag Infotech Hi-Rise, Alchemist Holding, Osian, and the perpetrators of the StockGuru fraud.
Hopefully, the denouement in the Sahara case will strike fear into the hearts of wannabe ‘innovative’ promoters.
Why should I care?
When you invest, even in seemingly safe instruments labelled as ‘deposits’ or ‘bonds’, do your homework. Raising money requires regulatory approvals, even if it by a highly visible business group that sponsors the Indian cricket team. Check whether SEBI or the RBI has given a go-ahead. The promise of high returns doesn’t matter much if your principal is at stake.
Bottomline
You can run but you can’t hide.