The Supreme Court's ruling on Sahara India was path-breaking but can Sebi drive home the advantage?
When the financial conglomerate of Chain Roop Bhansali (CRB) collapsed like a pack of cards in the mid-1990s, many of us, journalists, were fully aware of how dodgy the group was, but it was difficult to pinpoint exactly why it would collapse. The one time I had something concrete was a SEBI (Securities & Exchange Board of India) inspection report punching holes in its mutual fund operations. When I asked for his comment, Mr Bhansali went straight to the chairman of the media group I worked for and almost succeeded in having the report killed. Fortunately, I managed to convince him to let me publish that report, but without my name on it.
A few months later, CRB collapsed and rumour has it that the paper I worked for also lost a good deal of money. CRB’s agents around the country flocked to Mumbai to get their money back. Many were feeling wretched about having persuaded needy pensioners and widows to invest in CRB. When a group of them met me for help, I was initially unsympathetic. How could they not know that the group was dubious, I asked. A distributor from Kolhapur had an eye-opening response. He said, “Maybe you journalists knew about CRB, but nothing negative was ever published. I can only rely on public information and all that was positive. CRB had an AAA credit rating, a provisional banking licence (which RBI claims to approve after plenty of due diligence), was allowed to float a mutual fund (again after a tough approval process), had won a ‘best merchant banker’ award. The promoter routinely had his photographs published with regulators, politicians, policy-makers and others. Why would I even doubt its credentials?” He was perfectly right. CRB investors were victims not of a rogue company but of failed regulators and silent media.
It is in this context that the Supreme Court’s 263-page landmark judgement on the Sahara group’s privately placed debentures case is significant. By documenting every dodgy aspect of the group’s fund-raising exercise, Justices KS Radhakrishnan and Jagdish Singh Khehar have opened the doors to a frank discussion on the lack of credibility about its claims, absence of identification details of investors, constant obfuscation, reluctance to provide data and exercising influence in extracting false affidavits from government officials such as the Registrar of Companies (ROC), Kanpur. The judgement has reaffirmed the faith in the judiciary; and the legal team, led by senior counsel Arvind Datar, which fought doggedly against a battery of top lawyers, deserves a salute.
Let me explain what I mean. In a cricket-crazy nation, our cricketing heroes have had the Sahara Pariwar logo emblazoned on their shirts for nearly two decades. The contract seems to require our cricketers to endorse several Sahara projects giving it stupendous credibility among the masses. Its foray into retailing even has a bizarre depiction of Sachin Tendulkar and other cricketers performing funeral rites for products. Add to this, the frequent photographs of promoter Subrata Roy and his family with film-stars and politicians and the ‘unbanked’ public (which Sahara admits is its target audience) is sold. The final touch is the swishy lifestyle of Subrata Roy and media reports about his acquisition of iconic global hotels or bailing out Vijay Mallya’s sinking Force1. Who can suspect anything is wrong anywhere? But is this all a cover for a massive Ponzi operation? The strictness of the SC judgement seems aimed at clearing doubts, one way or another.
Until SEBI acted on Roshan Lal’s complaint to go after Sahara’s humongous, non-transparent fund-raising, every regulator had fallen silent after a cursory investigation. Court documents show that the massive Rs17,400 crore raised by Sahara India Real Estate Corporation and Sahara Housing Investment Corporation (Saharas) was coolly being funnelled into M/s Sahara India—a registered partnership firm of the promoters. Did our tax sleuths investigate how this large sum was deployed? Isn’t it curious that the Sahara Pariwar does not figure among India’s highest taxpayers, but its advertisement titled “Emotionally Speaking” claims that the Income Tax department is holding back a massive Rs2,000 crore in refunds? Is this even true?
A few years ago, the Reserve Bank of India (RBI) had halted Sahara’s fund-raising exercise but its half-hearted action didn’t go beyond ordering a refund of money raised through its residuary non-banking finance company. In fact, when we repeatedly asked RBI about Sahara’s brazen advertisements offering to repay a massive Rs73,000 crore (see picture) four months ahead of schedule, RBI did not respond.
Why don’t government watchdogs bark about Sahara? This too came out in the litigation, in a very positive way. A strong affidavit by Sanjay Shorey, joint director in the ministry of corporate affairs (MCA), exposed how Sahara had been manipulating the ROC, Kanpur, to back its dubious claims through sworn affidavits before the Allahabad high court. MCA’s affidavit, which Arvind Datar considers a turning point in the case, backed SEBI’s action to the hilt and strongly refuted its own ROC’s claims.
Silencing the Media
With the media spewing information about bigger scams (coal, iron ore, telecom) everyday, it seems contradictory to say that they are reticent about Sahara. So how does one explain the fact that no television channel debated the path-breaking SC judgement? Sahara’s belligerent full-page advertisements in the press and lavish commercials are a large enough source of revenue to silence many media houses. The galaxy of top lawyers hired to defend its bizarre claims and audacious obfuscation even before the apex court and limitless funds for litigation are other deterrents. That is probably why mainstream media have never questioned Sahara’s endless money supply. Popular rumour has it that Sahara invests politicians’ slush money. It is a myth that the group is probably happy to perpetuate (despite protestations in its advertisement), just as the late Harshad Mehta was happy to let people believe that he has access to political funds and Dawood Ibrahim’s investments before the securities scam of 1992 burst the stock bubble he had created. It covered up the fact that he had a fat fund-pipe directly into State Bank of India.
The SC verdict, which includes supervision by a retired judge, is watertight enough for SEBI to demystify the entire Sahara group. But it all depends on whether SEBI is able to use the leeway granted by the Supreme Court to remain two jumps ahead of Sahara’s many games and tricks that are already evident. First, it claimed that tens of thousands of people flocking to its headquarters in Kanpur to inquire about redemptions would lead to a law and order problem. It probably realised that this lie was easily verifiable. Next, SEBI’s investor helpline was inundated with calls and, finally, truckloads of ostensible data were sent to SEBI Bhavan in Mumbai without warning. How is it that Sahara was sending a password-protected compact disc until it lost the case and is now flooding the regulator with paper documents? Has Sahara found time to copy all the documents? Or could it be working towards a situation where it claims a loss-in-transit or finds a way to blame SEBI?
Despite the landmark Supreme Court judgement, the battle of wits between SEBI and Sahara is far from over. On the contrary, Sahara can continue to raise funds through the Sahara Credit Cooperative Society without a problem—after all, not a single political party has expressed the slightest concern about Sahara’s fund-raising, despite the shadowy operations and dubious record-keeping confirmed by the apex court.
Sucheta Dalal is the managing editor of Moneylife. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at email@example.com
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