Sahara Group has Violated the Rules Clearly, but Will Anything Happen?

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Sahara Group has Violated the Rules Clearly, but Will Anything Happen?

Supreme Court stays SAT’s orders

Supreme Court has stayed the SAT (Securities Appellate Tribunal) order to refund Rs.17400 crore to the investors. This has come as a great relief for the Sahara group. The stay order was given on an appeal filed by the Sahara group against the SAT order. Chief Justice S H Kapadia has posted the matter for further hearing on 20th January. 2.3 crore investors have deposited their money in the Sahara group company Sahara India Real Estate Corporation, now known as Sahara Housing Investment Corporation. SAT had directed the company that the money collected through optionally fully convertible debentures should be refunded to the investors in six weeks. The reason given by SAT for this extreme order was the violation of regulatory norms by the company. SEBI also asked the company not to collect any further money from the market till the refund of the collected money was made to its satisfaction.

SAT rules in favour of SEBI

The promoter of the company was Subrata Roy Sahara and the directors were Vandana Bhargava, Ravi Shankar Dubey and Ashok Roy Chowdhary. They were also told by SEBI to refund the collected amount jointly and severally. Initially when the Sahara group approached the Supreme Court, they were told to approach the tribunal SAT again. But SAT dismissed their appeal. SAT held that the market regulator SEBI had jurisdiction over such fund raising matters.

Clash between two titans among the Lawyers

SEBI’s contention is that the Sahara group had diverted the collected funds to the cooperative society styled as Sahara Credit Cooperative Society. SAT is a quasi judicial authority that entertains appeals against SEBI orders. SEBI requested the Supreme Court to direct the Sahara group to divulge the information about the amount that was diverted to entities controlled directly or indirectly by Subrata Roy. Supreme Court has directed the Sahara group to file its financial statements upto date before it. Senior Counsel Fali Nariman is appearing on behalf of the Sahara group in the Supreme Court hearing. He is a reputed lawyer who can turn the case in favour of his clients and has rich experience in handling Supreme Court cases. Venugopal, another experienced lawyer is appearing on behalf of SEBI.

Parallel with Rajaratnam case

Very few cases involving purely financial matters have generated the same interest as the present case has. The insider trading case involving Raj Rajaratnam and Rajat Gupta conducted before the US Supreme Court also generated the same sort of interest with battery of lawyers arguing in favour of Rajaratnam. I have given a link below this article which explains about the case in detail. What has added interest in both the cases is the huge amount involved. Sahara has sought government protection in its dispute with SEBI. As the matter is before the Supreme Court, Sahara has requested the government not to take any action against it till the case is disposed off by the Supreme Court.

Reason for breeding of Maoists in India

If this plea is accepted by the government, then it raises another question. If a Departmental Enquiry has been ordered against an employee, the department can punish the employee even if the court absolves him from the charges. Why is the rule beneficial to big companies who have the money power, but against employees who struggle to make both ends meet? Is it that only rich can get justice in India and a poor should curse his fate and get punished? Companies can prolong a court case for years and dodge government action against them citing the delay in the court cases. But in case of poor employees, even if the court case prolongs for fifteen years, the employee can be dismissed by the management without waiting for the judgement by the court. Now think about this injustice and you will know the reason for breeding of Maoists in different parts of India.

Maximum publicity from F1 racing

Sahara got the maximum publicity from the F1 racing event held in Noida track recently. The host nation’s team was Sahara Force India. Sahara group bought a 42.5% stake in Vijay Mallya’s Force India F1 team in October for around $100 million (Rs.493 crore). Within a week of this purchase, SEBI asked Sahara to refund the amount it had collected to the investors. Sahara is seen as a sports friendly brand. Indian cricket players wear and display the Sahara brand prominently in all the Test matches, one day matches and T-20 matches.

Sahara contests SEBI’s jurisdiction

The issue of Optionally Fully Convertible Debentures was a public issue that entailed a listing in the stock exchanges. But Sahara has not complied with this provision. Sahara contested this issue on two counts. On the first count, it questioned SEBI’s right to control it when it was not a listed company. None of the Sahara group companies is a listed company. Therefore Sahara contended that only the Central Government had control over it and not SEBI, according to Section 55A of the Companies Act. On second count, Sahara argued that as none of its group companies was a listed company, there is no need to list the convertible debentures merely because of collecting money from the public.

Justice delayed is justice denied

SAT’s contention is that a private company can collect money through fully convertible debentures only from a maximum of 49 persons. Once the number reaches 50 or cross it, it constitutes a public issue and therefore comes under the control of SEBI. I fully support SAT’s order which has upheld SEBI’s contention. Can a small company without any assets and reserves raise Rs.20000 crore from two crore investors and claim that it is purely a private placement? The very definition of private placement will be defeated and the law will be made a mockery of if Sahara’s contention is upheld by the Supreme Court. The definition that any issue to over fifty people becomes a public issue should be the guiding principle for the Supreme Court in this case. The judgement should come fast without any waste of time. Justice delayed is justice denied.

Maybe Karunanidhi will interpret in a different way!

There is no scope for any other interpretation of the law in this case. Law is an eye-opener and is before everybody. Maybe a politician like Karunanidhi, the former Tamil Nadu Chief Minister and DMK President who sees everything from the caste angle can argue that this case is between a Brahmin (Venugopal) and a non-Brahmin (Nariman) and therefore the court should support the non-Brahmin in the interest of social justice! Rational thinking does not support these kinds of perverted arguments and the Supreme Court is rational.

Financial scams cannot be prevented in India

But whether Sahara group wins this case in the Supreme Court or not, it has already won its appeal against the Income Tax Department and secured a refund of Rs.1800 crore. Sahara group is Lucknow-based. It has interests spanning from financial services to real estate. In India, financial scams are dime a dozen and nobody takes them seriously. Even the people who had lost money do not take them seriously. To the best of my knowledge, no big fish involved in financial scams had ever been punished. Executive, Judiciary and Legislators are hand in gloves in protecting big sharks that have usurped public money and are planning for their next scam. These scams will continue to happen and one cannot have a solace simply because Supreme Court is hearing the case.


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