Sahara India Pariwar investor fraud case

• Sahara - SEBI case is the case of the issuance of Optionally Fully Convertible
Debentures (OFCD) issued by the two companies of Sahara India Pariwar to
which Securities and Exchange Board of India had claimed its jurisdiction and
objected on why Sahara has not taken permission from it.
• SEBI went on to order Sahara to issue a full refund to its investors, which was
challenged by Sahara before the Securities Appellate Tribunal.
• When the SAT upheld SEBI’s order, Sahara moved to the Supreme Court in
August 2012, which ordered Sahara to refund investors’ money by depositing
it with SEBI.
• When Sahara failed to deposit the remaining money with SEBI and Subrata
Roy skipped his hearing, the Supreme Court of India issued an arrest warrant
for the Sahara chief in February 2014.
• The Supreme Court referred this to as the “ridiculous game of cat and mouse”
and finally managed to pin down Sahara chief Subrata Roy in 2014.
 The Past
• Sahara India Real Estate Corporation Limited (SIRECl) and
Sahara Housing Investment Corporation Limited (SHICL) sold
bonds at 15%
• According to Sahara, these bonds were sold to near and dear
ones and hence cannot be called as public issue.
• But SEBI stated that it is a public issue as number of people
who bought this was more than 50.
• Due to non-compliance, SEBI issued an order of repayment in
full to the investors.
• In August 2012, the Supreme Court asked both the companies to hand
over 24,029 crores to SEBI with 15% interest within a period of 3 months.
SEBI was ordered to return the money to the investors.

• Sahara group only paid the first tranche of Rs 5,120 crore and defaulted in
giving back the remaining amount but later claimed they’ve already paid
off investors Rs. 22,885 crores.

• SEBI filed a contempt petition against Sahara in Supreme Court saying that
the company was flouting SC direction to make refunds as soon as
possible.

• Based on investors details submitted by Sahara, SEBI sent out 21000

letters out of which only 280 responded and others were with the fake
information.

• After Being failed to deposit remaining money with SEBI, Subrata Roy
was arrested by police for failure to appear before the Supreme Court.
 Corporate Governance issues that collapsed
• Unethical Conduct
Sahara Group, or specifically its two companies SIRECL & SHICL have
manipulated its investors, issued bonds without following the rules,
created multiples of fake investors with fake addresses, made ‘public’
issues by way of private placement; collected approximately 17.65 crores
rupees.

• Fraud
Sahara group defrauded numerous middle-income investors. They played
with the consciousness of these people by promising unusually high
returns. There are no know-your-customer (KYC) norms followed and nor
is there a bank trail.
• Violation of Law
Sahara states the issue of OFCDs as private placement but its action/facts
were contrary to that stand as such securities were offered to more than 50
persons and it is deemed to be a public offer.
In addition, Sahara’s had not executed any Debenture Trust Deed for their
OFCDs, not appointed any Debenture Trustee and not created any Debenture
Redemption Reserve, which would amount to violation of Sections 117A,
117B and 117C of the Companies Act.

• Lack of ‘independence’ in directors

Roy’s wife Swapna and his brother, Joy Broto Roy, were there in the Board of
directors while Roy’s sons Sushanto and Seemanto, run the property and
media businesses respectively.

• Lack of Transparency
The lack of transparency over business affairs has been one factor leading to
Roy’s reputation. It is notable that he is involved in sectors which have
traditionally poor governance reputations. His business affairs were opaque;
he never disclosed his balance sheets and annual reports to anyone, keeping
it ‘confidential’.