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Whiff of benami: 1% Sahara investors responded to Sebi

Corporate Mar 16, 2013

How will Subrata Roy dig himself out of this hole?

By R Jagannathan

If the Supreme Court agrees to Sebi's request for the arrest of Subrata Roy and two of the senior-most Sahara executives, it will send shivers down the spines of several powerful politicians and businessmen, not to speak of Bollywood celebrities and iconic cricketers.

In a petition filed before the apex court, Sebi has sought their detention "in view of the open, continued and consistent defiance of the orders of this Hon'ble Courtand the orders of Sebi" which makes it "necessary that drastic measures are taken to protect the interest of three crore investors."

In orders dated 31 August 2012 and 2 December 2012, two Sahara companies, Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC) were told by the Supreme Court to refund the money. While the first order asked Sahara to complete the refund of Rs 24,000-and-odd crore, with 15 percent interest, by 30 November 2012, the 12 December order gave the Saharas more time to pay the amounts in three instalments by February 2013.

Neither of the two orders has been fully complied with. Sebi has received only Rs 5,120 crore from the Saharas.

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What the beneficiaries of Subrata Roy's past largesse should know is that their partner and patron is now in the thick of one of the worst cases of alleged contempt of court orders.

Roy's shadowy empire has long been suspected of channelling the illicit funds of powerful political interests, and this money has, in turn, funded many things - from the Indian cricket team, including Roy's own Pune IPL team, to several Bollywood superstars and their events.

What the beneficiaries of Subrata Roy's past largesse should know is that their partner and patron is now in the thick of one of the worst cases of alleged contempt of court orders. This is why Sebi is seeking his arrest, and also that of two of his directors, Ashok Roy Choudhary and Ravi Shankar Dubey, apart from impounding their passports. The passport of a woman director, Vandana Bhargava, is also sought to be impounded.

According to Sebi's petition, which is likely to be heard in the first week of April, the Sahara group has not complied with several key orders of the Supreme Court - both in the main judgment of 31 August 2012, and the subsequent one delivered on 5 December 2012 by a bench headed by Chief Justice Altamas Kabir himself.

Sebi says due to the "recalcitrant attitude" of Subrata Roy and his directors, the directions of the court could not be complied with. The regulator's accusations of failure to comply with court orders include the following:

#1: Failure to submit documents to verify the legitimacy of SIREC's and SHIC's nearly three crore investors within the 10 days stipulated in the 31 August order of 2012.

#2: Failure to pay the dues of Rs 24,000-and-odd crore to Sebi, even by instalments, as ordered by the CJI's bench on 5 December.

#3: Failure to follow Sebi's orders of 13 February 2013 freezing the accounts of some Sahara companies, which included providing data on properties owned, and the kind of entities in which money had been invested.

#4: Even the documents that were submitted were furnished in a haphazard manner, where investor applications and redemption vouchers were hopelessly mixed up, making it "virtually impossible to correlate" the two. Sebi thus found the documents unacceptable.

#5: Deliberate repayment of bonds that were not due to be repaid, in violation of the 31 August order, which says all payments must be routed through Sebi. The petition says: "Shockingly, although the two companies (SIREC and SHIC) assured this Hon'ble Court that only Rs 351 crore are payable in the year ending 31.03.2013 and all the bonds, except one category, are not redeemable, it is now claimed that except Rs 2,620 crore all other amounts have been refunded."

It is difficult to see how the Supreme Court will not consider Sebi's request seriously, for it is based on the latest status report and advice of retired Justice BN Agarwal, who was appointed by the apex court to oversee the Sahara refunds to investors in the two group companies.

Apart from the arrest of Roy and his two directors, Sebi's petition seeks the following remedies from the Supreme Court: a) allowing Sebi to put out a public notice asking Sahara investors to submit claims on their dues within a specific timeframe; b)appointing experts to investigate and verify the Sahara documents, after which genuine investors can be repaid the money; if the amount is less than the amount deposited by Sahara with Sebi, investors may be given the money pro rata; and c) permitting Sebi (whole time member) to appoint officers on special duty to deal with objections to refunds and also to sell off the attached properties of Sahara.

Sebi has clearly covered all its bases, and has also taken the additional precaution of obtaining the concurrence of Justice (Retd) BN Agarwal on its moves. The petition itself makes it clear Justice Agarwal "has observed and noted that for effecting expeditious refund of money, as directed by this Hon'ble Court, it would be just and expedient to take the measures for arrest and detention in civil prison of promoter of Saharas, Shri Subrata Roy Sahara, and two male directors, viz., Shri Ashok Roy Choudhary andShri Ravi Shankar Dubey, which steps should be taken after giving reasonable opportunity of hearing to them."

One wonders how Subrata Roy is going to wriggle out of this hole he has dug for himself by flouting the Supreme Court's orders repeatedly.

Sebi Petition Against Sahara

by R Jagannathan

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