On 18th August, the usually somnolent central registrar of cooperative societies (CRCS), which regulates cooperative societies and cooperative banks, did something that ought to have made banner headlines across the media. Vivek Aggarwal, joint secretary, cooperatives and central registrar wrote to the ministry of corporate affairs (MCA) that four multi-state cooperative societies of the controversial Sahara group had raised an astounding Rs86,673 crore over 10 years (from 2010) from several crore depositors and was unable to make repayments. Asking for an investigation by the Serious Frauds Investigation Office (SFIO), Mr Aggarwal says he has received at least 15,000 complaints in eight months and, after conducting hearings, has issued multiple orders against the four cooperative societies. (A copy of the letter is appended below).
The 4 Credit Cooperative Societies
1.Sahara Credit Cooperative Society Ltd (Sahara Credit), registered in Lucknow, raised Rs47,245 crore from nearly 4 crore depositors and invested Rs28,170 crore in Aamby Valley Ltd. It operates in 22 Indian states. As far back as 9 December 2019, there were 208 complaints (of which only 12 were settled and 80 declared invalid) against it, seeking winding up and liquidation of the society. This was deferred on the basis of various commitments made by it, including submission of a quarterly statement to the regulator and settlement of all pending complaints. Sahara claimed it has an online redress mechanism (http://sccsl.sahara.in/contact.html) and contact address ([email protected] ) but an email sent to it bounced.
2.Saharayn Universal Multipurpose Coop Society Ltd, (Saharayn Universal), registered in Bhopal in 2014 collected about Rs18,000 crore from its 3.71 crore members and invested Rs17,945 crore in Aamby Valley Ltd. It has operations in 17 states.
3.Humara India Credit Coop Society Ltd, (Humara India) has deposits of Rs12,958 crore from 1.8 crore members. It is registered in Kolkata and operates out of 15 states and Union Territories. Of this, Rs10,255 crore was invested in Aamby Valley. On 17thAugust, the CRCS said that its investments in Aamby Valley Limited were “against the basic principle of thrift and credit cooperative society” and need detailed investigation.
4.Stars Multipurpose Cooperative Society (Stars), registered in Hyderabad, raised Rs8,470 crore from 37 lakh investors through 2018 branches in 14 states. Of this, it invested Rs6,273 crore in Aamby Valley Ltd as ‘equity’ in addition to advances of Rs1,800 crore. In August, a CRCS order noted that it was not able to provide details of advances of Rs1,800 crore given by the society and ordered it to stop collecting deposits. There were 6,720 complaints pending.
The facts would suggest that the Sahara group is a giant money-raising machine that picked up Rs1,10,000 crore (including Rs24,000 crore explained below) without any help from investment bankers, no publicity and completely unaffected by a high-profile trial in the Supreme Court (SC) which led to group chairman Subrata Roy being sent to Tihar jail on 4 March 2014. He remained in jail until 6 May 2016, when he was released on parole for the last rites of his mother. The SC order was part of a long and bruising battle with the Securities and Exchange Board of India (SEBI) in connection with Rs24,000 crore raised by two Sahara realty entities by issuing optionally fully convertible debentures (OFCDs) without the SEBI’s permission.
SC ordered Sahara to deposit the money it had raised with SEBI. Replying to a Lok Sabha question, minister of state for finance, Anurag Thakur, said that as on 1 February 2020, the Sahara group has deposited Rs15,448.67 crore to 'Sebi-Sahara Refund’ account and a cheque of Rs41.59 crore was paid in late-January 2020. SEBI had received 19,560 applications for refund representing an investment of just Rs81.3 crore. Of this, Rs109.86 crore was refunded to 14,146 applicants, including principal and interest, following several advertisements issued by the regulator.
Why was there a huge gap between the money raised and money claimed by depositors? Sahara has argued that 95% of the money it had raised was already paid back; but it has never been able to provide satisfactory evidence of any payment. Sahara has demanded the money back from the regulator, but this entire process is monitored by a court-appointed former Supreme Court judge.
Mr Aggarwal’s letter asking for an SFIO probe of the four societies was reported by the Indian Express and Press Trust of India (PTI) on 3rd September and published by newspapers across the country. These mind-boggling numbers ought to have made banner headlines at least in the business press and all our investigation agencies should have been taking up the issue. No such thing happened nor has an SFIO probe been ordered as requested.
Even stranger is the fact that Sahara has not been able to repay depositors since early-2020; but, despite the deleterious impact of COVID-19 on livelihoods, several crore investors, who apparently invested in its cooperative societies, have remained quiet, docile and largely invisible. There are no public protests, no court cases, except 15,000 investments into the CRCS and a sprinkling of complaints on public consumer redress forums.
Mr Aggarwal’s letter says that the four credit cooperative societies, together, invested a massive Rs62,643 crore in Aamby Valley project. Sources dealing with the SEBI litigation say that Aamby Valley is, indeed, such a mess of multiple companies holding different parts of the picturesque hill station (with an international class golf course and air strip) that is hard to split it in parts and find a buyer, especially without the group’s cooperation. At one time, Sahara had submitted title deeds of properties to SEBI in lieu of cash, but they were returned due to serious complications with the title.
At a hearing for Saharayn Universal in March, Mr Aggrawal refers to a letter by CRCS to the Reserve Bank of India (RBI) and the department of financial services (Union ministry of finance) asking about the legality of the cooperative society, collecting contributions from its members, as deposits. He notes that neither had responded until the hearing. RBI and the finance ministry don't seem to have responded.
A startling observation from Mr Aggarwal is that Sahara Credit Cooperative made an advance of Rs2,253 crore to Subrata Roy which was transferred to SEBI as payment collected by one of the two Sahara realty companies. This raises several questions about Sahara’s claims about refunds and collections.
Thirdly, he says, ‘fictitious profits’ were shown in the accounts of the societies for sale and purchase of shares of Aamby Valley Limited among group companies. This is not even like a ponzi scheme which pays fancy returns to initial investors. In this case, investors, investments as well as returns that were generated, seem hazy.
These cooperative societies also made investments in other Sahara group entities such as Sahara India Commercial Corporation Ltd, Sahara Prime City Ltd, Lucknow, Sahara Housing Projects, Sahara Hospitality, Sahara India Ltd, Sahara Financial Corporation Ltd, etc, writes Mr Aggarwal.
In July, the CRCS prohibited all four cooperative societies from taking any fresh deposits from their members.
The central registrar says that the deposits collected by the cooperative societies represents the hard-earned money of several crore Indians and these investments must be investigated and a proper valuation done of the assets. But think about it. While 15,000 complaints is significant, the total number of investors is allegedly 4 crore in just one cooperative society and, if there is no overlap, then the total depositors may be as high as 6 crore to 7 crore. Given that there are complaints about refunds since January this year, the silence and invisibility of Sahara’s investors is stunning. Even in the SEBI dispute, the total sum paid to nearly over 19,000 applicants was just Rs100 crore—a drop compared to the money raised.
Although an email sent to the Sahara Multipurpose Cooperative Society bounced, we note through media reports that Sahara’s spokespersons had strongly denied any wrongdoing. The PTI report quotes the group making several claims. First, that they accept deposits/contributions only from their members who have voting rights in the society. We know from the CRCS orders that records establishing this for 4 crore members have not been provided. The Sahara group is understood to have submitted a legal opinion saying that credit cooperative societies do not come under the purview of The Banning of Unregulated Deposit Schemes Act, 2019 as claimed by the regulator.
Former SEBI chairman UK Sinha, in his book, has written how several finance ministers and prime ministers (Pranab Mukherjee, Dr Manmohan Singh, P Chidambaram and Arun Jaitley) were fully supportive of SEBI’s battle with Sahara. If that is, indeed, the case, how was Sahara Parivar quietly able to raise Rs86,000 crore without a whisper in the public domain (in addition to Rs24,000 crore contested very publicly). During this time, the group was under the spotlight of the highest executive offices in the country, a key regulator and the Supreme Court and, Mr Roy was in jail for two of those eight years. We are truly a banana republic.