The stains are here to stay

Tainted mogul To rub salt into his wounds, a lawyer attacked Roy by spraying ink on him
Tainted mogul To rub salt into his wounds,
a lawyer attacked Roy by spraying ink on him. Photo: Arun Sehrawat

A few months ago, three senior executives from one of India’s largest conglomerates sat nervously hunched over a table in the consulting room of the Supreme Court during the lunch recess. The taxmen had sent a notice for a few hundred crores and were planning arrests. The company had decided to shell out a fortune on lawyers’ fees to knock on the apex court’s door, but they were still nervous because the court hadn’t given them any relief. To the officials’ dismay, the senior advocate joked while relishing his sambar, “Don’t worry. Even if you end up at Tihar, I guarantee you delicious home-cooked food.”

In the case of Subrata Roy, the boss of Sahara, one of the country’s largest business houses, the jailor at Tihar refused him not only home-cooked food but also a bed.

Roy was sent to jail after missing a personal appearance before the SC on 26 February. Roy’s excuse? His 92-year-old mother was unwell. The SC had been monitoring the case based on a contempt petition moved by the Securities and Exchange Board of India (SEBI).

The apex court rarely exercises such power over litigants, but it took exception to the contempt shown by Roy, especially with crores of rupees at stake. But, it is not a simple matter of Roy and Sahara’s other top executives being in contempt of court or failing to pay up the roughly 24,000 crore that they owe investors.

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Experts say that this is an attempt to possibly clean up a huge money-laundering operation. This is a warning bell for several corporate groups that indulge in securities fraud and other corrupt acts and are being pulled up by the courts in the absence of proper government administration, such as in the ‘coalgate’ and 2G spectrum scams.

On 4 March, when Roy asked the SC for leniency, the bench said it was in mood to listen to any stories and wanted him to pay. Along with Roy, Sahara directors Ashok Roychaudhury and Ravishankar Dubey were also sent to custody, while a third, Vandana Bhargav, escaped a similar fate. The bench has ordered Bhargav to work out a repayment proposal.

A senior finance ministry official said that several agencies, including the RBI’s investigation wing, the Enforcement Directorate, which has the jurisdiction to investigate money laundering, and the Directorate General of Income Tax, had been probing into Sahara and watching its transactions with interest.

The gist of the inquiries led SEBI to serve an order upon Sahara, directing it to pay back investments made in the form of optional fully convertible debentures. SEBI smelt a rat and the opinion is that these investments were made by fictitious investors, often in large sums of cash.

In 2012, while SEBI was tightening the noose around Roy, the media heralded him as one of the most important and influential businessmen in the country. After all, he owned an IPL team (Pune Warriors India), sponsored the Indian cricket team (and later the Bangladesh cricket team), the Indian hockey team, a Formula 1 racing team, owned a media house, several prime real estate ventures and other businesses across the globe.

At Roy’s home turf in Lucknow, the Bahujan Samaj Party claims that he has close links with the Samajwadi Party, which helped him keep the government off his back for a long time. Rumour has it that when Mayawati cracked down on Sahara during her tenure as Uttar Pradesh chief minister, it was Samajwadi Party supremo Mulayam Singh Yadav who lobbied with her on Roy’s behalf.

Some Bollywood stars came forward in Roy’s support, which could indicate that the black money circulating in the Mumbai film industry is also part of the fictitious investments made into Sahara for laundering purposes.

At different times, Sahara has tried to question whether SEBI had the statutory power and jurisdiction to regulate it. The group claimed that its services were a boon for the poor people who could not approach banks directly. But, that is exactly what has turned out to be a problem for the company, which supposedly has crores of investors. While some say the number is 3 crore, company officials have told the media that Sahara has 10 crore investors.

Now, SEBI is supposed to pay back these “crores of investors” but none seem to be coming forward, lending credence to the belief that many of them may not exist and the names are fronts for laundering black money.

A year ago, Sahara officials came up with a calculation, according to which, the group owed only a fraction of the money as claimed by SEBI. This was one of the many tactics employed by Sahara to create a smokescreen, but it did not stop SEBI in its quest. The securities market regulator even studied all the fund documents. It turned out that whenever a particular story of the Sahara group was under question or the when the RBI warned investors, the company would apply a cosmetic change to the investment proposals and documents.

When Sahara refused to comply despite SEBI orders and court interventions, the regulator approached the apex court, which gave a judgment in December 2012 directing the company to pay up. A failure to pay despite the judgment resulted in SEBI moving a contempt petition before the court. More than 18 months passed during which Sahara used a battery of high-profile lawyers, including Ram Jethmalani, Aryama Sundaram (who appears for Roy), Soli Sorabjee, Rajeev Dhavan and Ravi Shankar Prasad, to fight against the ruling.

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One slip of taking the apex court for granted and Roy landed in jail. During the 4 March hearing, Jethmalani could be heard asking for “justice with compassion” instead of letting loose a steady stream of arguments.

The word within the corporate world is that it doubts if Sahara can cough up the money it owes. Roy himself pointed out to the court that banks may not have the kind of liquidation required for the payment and even offered to pay after liquidating assets and providing an irrevocable bank guarantee for the rest of the amount. But the SC did not bend. It passed an order putting pressure on the group to pay up.

“Documents and affidavits produced by the contemnors themselves would apparently falsify their refund theory and cast serious doubts about the existence of the so-called investors,” the SC bench wrote in its 4 March order. “All the fact-finding authorities have opined that a majority of investors do not exist. Preservation of market integrity is extremely important for economic growth of this country and for national interest. Maintaining investors’ confidence requires market integrity and control of market abuse. Market abuse is a serious financial crime which undermines the very financial structure of this country and will make imbalance in wealth between haves and have nots.”

The court went on to record Sahara’s lack of cooperation with SEBI in repaying investors and using diversionary tactics to discharge its debt as per the SC judgment.

Roy’s freedom depends on how soon he comes up with a credible repayment plan. But the SC has sent a strong message to India Inc: obey the law or end up in jail.

The clock is ticking and the Sahara empire, which employs around 12 lakh people, is beginning to crumble. It is a clarion call to all the businessmen dabbling in white-collar crime and high debt while shielding themselves using flamboyant lifestyles and by buying media houses. Is a certain Mr Vijay Mallya listening?


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