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Corporate Jan 12, 2013

This time it's PF: How long will the courts humour Sahara?

By Blog

By R Jagannathan

One would have thought that if you have over one million employees, as India's largest private sector employer you would have your books in A1 condition.

But then, when it comes to the controversial Sahara Group, record-keeping is not a known strength.

The group told Sebi and the Supreme Court that it had over three crore (three million) investors in two companies that issued optionally fully convertible debentures (OFCDs), but its records were far from kosher.

The group owed over Rs 24,000 crore to these investors as in August 2011. AFP

The group owed over Rs 24,000 crore to these investors as in August 2011, and a Supreme Court order dated a year later went with these figures. But three months later, when the money was to be repaid, the group claimed only Rs 2,620 crore was left to be repaid. And it again went to court.

And now comes an Economic Times report that suggests even its employee provident fund (PF) records will be under scrutiny. Apparently, when the provident fund authorities asked the Sahara Group to show it records of deductions and payments to one million people and issued a show cause notice, the group moved the Allahabad High Court. The court has asked the group to cooperate with the PF authorities.

According to the newspaper, on 21 December the PF authorities issued a show-cause notice to Sahara asking it why its "premises must not be entered, searched and seized by its inspectors since it has refused to share employee records and details related to their PF payments."

The Sahara argument to the court is that it got the show-cause "within four days of demand of documents against specific items, without providing reasonable time for furnishing of documents asked for." The newspaper quoted a Sahara spokesperson as saying: "Sahara India is and has always been ready to co-operate with inspections if carried out under the authority of search warrants."

The question that begs to be asked is simple: if you have one million employees ("salaried and field workers"), the least one expects is that the data on payments made to them would be available at the click of a button. Why does it require search warrants to get this information out when it is all about its own employees' welfare?

Sahara's history suggests that it is always rushing to courts for something or the other when regulators are unhappy with it. It is not unreasonable to suspect that using the courts is often used as a ruse to buy time.

The group has been constantly at war with regulators since 2008-and has repeatedly used courts to delay decisions on winding up its money-raising schemes. A Sebi order of June 2011 to wind up the OFCDs is still being battled in courts.

In 2008, Sahara India Financial Corporation was debarred by the Reserve Bank of India from raising fresh deposits. It was ordered to stop accepting deposits maturing after 30 June 2011, and return whatever it already had by 30 June 2015.

The group, however, kept raising money elsewhere. Finding the RBI's scrutiny difficult to evade, the group moved the Registrar of Companies (RoC) to privately raise money from bonds. This is where Sahara dreamed up two optionally fully convertible bond (OFCD) issues to raise upto Rs 20,000 crore each in SIREC and Sahara Housing Investment Corporation (SHIC).

The RoC okayed these huge issues without much application of the mind. Everything would have been all right till it made a mistake: it decided to raise money from the market in Sahara Prime City and filed a draft Red Herring Prospectus. This is where Sebi discovered that two other companies, SIREC and Sahara Housing Investment Corporation, were raising huge amounts of money through OFCDs camouflaged as private placements.

Luckily for investors, Sebi, through the efforts of Wholetime Director KM Abraham, investigated the matter and ordered the two Sahara companies to return the money in an order dated 23 June 2011. Abraham, after some of his own checking, found that many of the alleged investors in SIREC and SHIC may be non-existent.

The Saharas fought Sebi in the Allahabad High Court and the Supreme Court, which ruled in favour of Sebi on OFCDs.

The Sahara Group then fought yet another battle at the Securities Appellate Tribunal, and once again in the Supreme Court, but on 31 August 2012 the apex court upheld the Sebi order and asked SIREC and SHIC to return Rs 24,000-and-odd crore raised from OFCDs to investors. A retired judge was asked to oversee Sahara's payments to Sebi and finally to investors after verification of documents.

But late last year, Sahara pulled off a surprise when it claimed that it had paid off all investors and only Rs 2,620 crore was left. It, however, offered to pay up Rs 5,120-and-odd crore to Sebi in case there were still some doubts.

Sebi filed a contempt plea, but on 5 December, a Supreme Court bench headed by Chief Justice Altamas Kabir ordered Sahara to pay Rs 5,120 crore immediately to Sebi, Rs 10,000 crore by 5 January (today), and the rest by February. This suggests that the court still thinks nearly Rs 24,000 crore may be owed to investors.

Early this week, the original bench that ordered Sahara to pay up refused to grant it any relief.

And now, even as it keeps shoving files in the top court, it has moved the Allahabad High Court to slow down the provident fund authorities.

Isn't it time the courts saw through this constant effort to stymie this regulator or that?

by Blog

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