Who is Subrata Roy?
Subrata Roy is the Managing Worker and Chairman of Sahara India Pariwar and founded the company in 1978. He was arrested in 2014 and was in custody in Tihar Jail, Delhi.
What was the SAHARA Scam?
On 30th September 2009, Sahara Group’s Company- Sahara Prime City in order to issue its Initial Public Offering, filed a Draft Red Herring Prospectus in SEBI, which has all the important details of the Company. SEBI while examining found certain discrepancies in two companies of Sahara- Sahara India Real Estate Corporation Ltd. (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL). After a few months, SEBI received complaints against these two companies saying that they have issued Optional Fully Convertible Debenture (OFCDs) fraudulently.
On investigation it was found out by SEBI that these two companies had received Rs. 24,000 crores using OFCDs, and there was no transparency as to where these funds were used. When the company wants to issue OFCD to more than 50 people, SEBI’s permission is required, however the company did not take any permission whatsoever.[1] Further, these two companies issued companies to about 250-300 Crore people and the fundraising process was continued for over two years which in actuality should be completed in 6 weeks itself.
SEBI banned SIRECL and SHICL to issue any more OFCDs and asked them to return the money of investors with 15% interest. Sahara Group challenged this order in Allahabad High Court after which SEBI’s order was stayed in 2010, however later in April 2011 SEBI’s order was presumed. Appeal was made in Supreme Court and asked Sahara to approach Securities Appellate Tribunal. SAT agreed with SEBI’s order, this was again challenged in Supreme Court by Sahara.
Sahara contended that OFCD issued was private placement for people associated only and not public, further the companies are unlisted companies, hence SEBI has no jurisdiction. To this SEBI contended that when OFCD is issued to more than 50, it becomes a public issue.
SEBI’s board member Dr. K.M. Abraham investigated the case and on investigation found that 4 investors, who were selected randomly, did not even exist and had no relation with the company. Hence money laundering was done by bringing in fictitious people.
Supreme Court Orders-
- In August 2012, Supreme Court ordered Sahara to return the money with 15% interest and deposit it with SEBI as ordered within three months and confirmed the charges put against SIRECL and SHICL.
- Details of all OFCDs holders to be given to SEBI so that they can return the money.
Sahara’s continued Money Laundering-
About 170 trucks filled with information of investors were sent to SEBI, however, few were rejected as they exceeded the time. After investigation, it was found that the details of investors were incorrect. Further, the money was not deposited to Sahara within three months as ordered. The Apex Ordered Sahara to pay the money in three deposits. Sahara only paid the first deposit of Rs. 5120 crores but did not pay the other two deposits. Sahara contended they had already paid the money to investors.
About 4600 investors only came forward and claimed that they did not get their money, Sahara contented that they had already done the payments. Court therefore asked for proof and also the source of money through which returns were made. Sahara however could not give any evidence or proof.
Subsequent Actions-
- SEBI froze the bank accounts of Sahara.
- Properties of the Company were also attached by SEBI
- Supreme Court ordered arrest of Subrata Roy in 2014.[2]
- In November 2017 the Enforcement Directorate was involved in the case to investigate the charge of Money Laundering.
CONCLUSION
Like the Sahara Scam, the 2G Scam that happened in 2008 showed how the ones in power continued to misuse the same for their personal gains, that ultimately was harmful not just to the investors but also to various banks and other financial bodies. SEBI has with time evolved and inserted provisions that would protect the investors, members and other bodies in the financial market, however it is no surprise that that various scams are yet to be unfolded either due to loopholes in the system or due to connections with other powerful individuals.
Also read- Changes in the Financial Regulation System in India Post- The Ketan Parekh Scam 2001
[1] Economic and Political Weekly, MAY 5, 2012, Vol. 47, No. 18 (MAY 5, 2012), pp. 10-13.
[2] Narender Nagarwal & Anit Kumar, Prevention of Corporate Corruption in India: Judicial Response and the Rule of Law- A Critical Analysis, 7 INDIAN J.L. & Just. 77 (2016).
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