Who regulates Sahara?

Spot of bother Subroto Roy
Spot of bother Subroto Roy
Photo: Fotocorp

THE SAHARA Group has made headlines for allegedly taking investors for a ride and collecting deposits by “dubious means”. Market regulator Securities and Exchange Board of India (SEBI) moved the Supreme Court (SC) recently, seeking owner Subroto Roy’s arrest. The SEBI-Sahara battle is playing out in the media through advertisements and rebuttals, but at the core of the issue lie two important and basic questions: what happens to those who invested their money? And who regulates the Sahara Group?

PR campaigns, luxury hotels in London and New York, celebrity brand ambassadors and an ever-growing real estate empire make the Sahara Group a multifarious corporation. It’s been a high-profile sponsor of sport, almost as though top cricketers and F1 racers guarded its façade. For years, Sahara has been untouchable, dense and politically connected. It still remains acutely linked to the high and mighty, but of late its image has been bruised. The source of Sahara’s wealth, which has been an oft-discussed subject only in drawing rooms, has suddenly come under public scrutiny thanks to the gumption shown by some members of regulators and courts.

Even as Sahara fights to keep Roy from going to jail, the company has openly challenged SEBI to a debate on its financials, and has questioned SEBI’s jurisdiction to rule over its matters. This begs the question: who is supposed to regulate Sahara? “You have hit the nail on its head,” says a New Delhi-based lawyer on the condition of anonymity. “The beauty of this case is that after years of debate, deliberation and probes, we are still asking that question.”

The Sahara Group was started in the 1970s by taking small deposits from people with limited access to banks. Sahara used fees on the deposits to invest in its businesses. Of late, SEBI and Sahara, which is unlisted, have been locked in a dispute relating to a SC order asking Sahara to refund 24,000 crore raised by two group firms by issuing bonds. SEBI had been asked to facilitate the refund. The SC suggested the money was raised by “dubious means” from nearly 3 crore small investors, and must be returned with 15 percent interest. Sahara says “it is safeguarding the livelihood of 10 lakh families of Sahara’s workers together with more than 9 crore depositors, investors and customers”.

What happens to those investors? And who are they? According to Sahara, “more than 50 percent of the investors are downtrodden people who never go to banks and banks never reach them… There are a large number of small investors who don’t even have their own houses or dwellings. The average amount invested is Rs 8,000”.

Last year, Sahara sent truckloads of documents of such people with pictures of ‘investors’ to SEBI for probing their veracity. All this because the SC ordered that SEBI should verify each one of these investors as to their genuineness from the “application forms submitted” before making the refunds. Sahara has asked for the appointment of a credible agency to verify the authenticity of claims of repayment made by Sahara India Real Estate Corporation and Sahara Housing Investment Corporation.

Do some of these investors exist? And if so, can they be called investors if there is no way to ascertain who they are or where they live? According to sources, Soli Sorabjee, while arguing the case for Sahara, said, “What can Sahara do if investors have not given the details?” A majority of this investor base is unbankable. According to a person familiar with the case, “Sahara has played with the psyche of these people by promising unusually high returns. There are no know-your-customer (KYC) norms followed and nor is there a bank trail.” But could at least some of these be genuine people who have lost their savings?

In a bid to retrieve some of these investors, SEBI sent out mailers to addresses provided by Sahara. But from among the lakhs of these investors, a good chunk of them were returned with “address not found” and only 1 percent responded. This raises an ironic question: are the investors no longer interested in getting their money back? To this, Sahara responded, “SEBI should be wise enough to understand that all small investors who have already received payment will definitely not correspond with SEBI or anybody for that matter. The allegation is absolutely baseless, concocted, unverified and malicious.”

Says a lawyer, “This has become a joke. By the time the paperwork can actually be tested, years would have passed.”

But an important question is, does Sahara have the money to pay these investors? Sahara spokesperson Abhijit Sarkar says the company has repaid about Rs 22,117 crore out of the total collection of Rs 25,781 crore. “Hence the outstanding liability of these two companies amounts to Rs 3,663 crore. Sahara has already paid to SEBI a sum of Rs 5,120 crore. So, as on today, Sahara has nothing to pay rather Sahara shall soon be eligible to take big refund from SEBI.” But regulators are clearly not buying Sahara’s math on this issue.

And so, we are back to square one: who regulates Sahara Group? All these years, no detailed inquiry has been launched into understanding the money trail in Sahara’s case, reflecting poorly on the regulators. At times, it would appear that because Sahara was dealing with depositors, the RBI would be in charge. But the complex web of unlisted companies and cross-holdings have made it harder to pin point. In 2010, Sahara had claimed that the Union corporate affairs ministry had exclusive jurisdiction to probe it. To which an expert questions, “which company blatantly states upfront who should regulate it?”

Sahara has been waging a long-drawn battle with the RBI ever since the latter warned investors about Sahara’s fund-raising methods. SEBI too had a tough fight to get the SC to allow the regulator to intervene because Sahara was trying to raise money through an IPO when anomalies were allegedly witnessed.

In its order of 23 June 2011, SEBI accused Sahara of changing its business model as per convenience. When the OFCDS (optionally fully convertible debentures) issue turned sub judice, the regulator’s order as written by SEBI Director KM Abraham said, “…an attempt by companies within the fold of the Sahara to adopt a new mode of fund mobilisation through cooperatives formed under the Cooperative Societies Act… Nevertheless, from a complaint, I understand that the schemes for fund raising under the newly adopted cooperative route have exactly the same features as the OFCDS.”

At this point, the RBI admitted this had now gone outside its jurisdiction because its business became cooperative in nature.

“At every stage, Sahara has used the lacunae in the system to find ways to survive, evolve and move on,” says an expert who didn’t want to be named.

Sahara didn’t want to comment on the matter of regulation saying, “Since the matter is sub judice, it would not be appropriate for us to answer this question.” But Sahara did admit that from 1978 it had faced six bans by regulators. And that it has been changing businesses. “Sahara has to work and progress, so it is essential to go for new activities. But now it is concentrating on more non-financial activities.”

The entire case got murkier with a political twist when Abraham alleged in a letter to the PM last June that then finance minister Pranab Mukherjee and his adviser Omita Paul had pressured SEBI chief UK Sinha to ‘manage’ high-profile corporate cases against Sahara, Reliance and others.

On 31 August 2012, a Bench of Justice JS Khehar and Justice KS Radhakrishnan had given Sahara time until 30 November to refund its investors. One would have thought the rule of law would finally get approto the bottom of the case. But in December, a Bench headed by none other than the CJI Altamas Kabir gave Sahara time until February. The judgment may have only bought Sahara three more months but forced experts to ask, “Can one SC Bench modify an order passed by another SC Bench?”

There is little clarity about what the next steps could be. From a regulatory standpoint, the perseverance of some SEBI members may have paid off for now, but until the source and the nature of money invested by Sahara yields some leads, this case is here to stay for a long time. The regulatory system must also be partially blamed for the mess. If our rules were watertight and regulators didn’t battle with each other, such cases would have seen a conclusion. Because of political interference, evidence of loopholes, ambiguity in execution and the business-politics nexus, it’s hard to prove any complicated trail.

In Sahara’s case, the group has been able to sustain and manage any hostile environment around it along with having many important and influential people by its side. Most people interviewed for this article were cautious about going on the record and preferred to stay anonymous.

“I don’t see any kind of further relief available to Sahara,” said Sandeep Parekh of Fin Sec Law Advisers after Sahara’s bank accounts were frozen. “It’s a dead end. Sahara has already filed for reviews and they are done. All they can do now is pray.”

But a reputed lawyer still has some prudent questions. “It’s been a mystery why people give money to Sahara. How is it that Sahara is able to hoodwink and not comply with an SC judgment?” Right now, the search for these answers remains open-ended.

[email protected]


  1. Somehow one gets the feeling that cheating investors by running a large Ponzi scheme is not really what Sahara is doing. They have funny money, pots of it, lots of businesses, few of which make a profit, glamour, powerful friends, good they are using most of the funds within the country. They would thrive even more in the messy coalition that is likely to come to power in 2014. No one should, however, plan their retirement based on a monthly interest or dividend payment from the group.

  2. Interesting perspective highlighted by the author. Most of us are aware that Sahara group and ethics are not in sync. Naive investors can be misled and manipulated. SEBI initiative was applauded but those newspaper ads by the group was indeed shocking. The regulation/action should not end abruptly whatsoever.


Please enter your comment!
Please enter your name here

Comment moderation is enabled. Your comment may take some time to appear.