27 JUNE 2013

Sahara: Beginning of the endgame?
In a rare interview, Subrata Roy opens up about his fight with Sebi, allegations levelled against him
Tamal Bandyopadhyay First Published: Sun, Mar 24 2013. 11 52 PM IST

hospitality. cricket and Formula One (F1) racing. which has two listed companies). media. Sahara‟s managing worker and chairman has stepped up his offensive against the regulator. Mar 28 2013. Sahara is engaged in real estate. Photo: Prakash Singh/AFP Updated: Thu. While the Securities and Exchange Board of India (Sebi) has sought his arrest for non-payment of money to investors in bonds floated by two group companies.100 establishments in its fold and Rs.” Roy has challenged the Sebi chairman to a live debate on television on the “extreme injustice” meted out to the Pariwar. infrastructure. 11 10 PM IST Mumbai: India‟s capital market regulator and Subrata Roy Sahara are at war with each other. the Sahara boss has issued a fullpage advertisement in most Indian papers saying. (The company handouts refer to the man as Saharasri and Subrata Roy Sahara. the latest available data for the group.Subrata Roy says Sahara‟s overseas expansion doesn‟t mean he has any plans of winding up his India operations. .1. Roy presides over a Lucknow-based business conglomerate that has at least 4.) As chief of Sahara India Pariwar. besides finance. which asked the Supreme Court on 15 March that he be detained for allegedly flouting its directions.18 trillion in assets (for fiscal year 2011. “Enough is Enough.

when the group was under tremendous pressure from another regulator—the Reserve Bank of India (RBI)—to moderate the growth of Sahara India Financial Corp. the banking regulator imposed a three-year sunset window on Sahara India Financial in July 2008.K. a socalled residuary non-banking company (RNBC).V. Sinha has not responded to Roy‟s challenge and is unlikely to do so. He wanted to protect millions of Sahara depositors before it became too big and created a systemic problem. It was directed to repay money to all its depositors at maturity and bring down the liability to zero on or before 30 June 2015. Sebi chairman U. asset-liability management guidelines. bringing in professionals as independent directors to oversee the business. in 2007. Reddy for the “benefit” of his “vision and guidance. allowing it to accept fresh deposits maturing until June 2011. Sinha. As a result. RBI reconstituted the Sahara board. “I have no personal vision and guidance that could be considered other than what has been articulated in public and also in the series of discussions between us.” (4 April 2007) Reddy politely declined. saying. RBI cracked down because of Sahara‟s alleged persistent violation of investment norms. . and also changed its auditors. it allegedly benefited from the resultant windfall of unclaimed deposits.K. and failed to intimate depositors when their deposits matured.Sebi chairman U. Ltd. The banking regulator said Sahara India Financial did not follow rules regarding payment of the prescribed minimum rate of interest to depositors.” (11 April 2007) Reddy forced Roy to wind down Sahara India Financial as he felt it was becoming a threat to the financial system. After a series of meetings and a protracted legal battle. Roy had sought a meeting with then central bank governor Y. know-yourcustomer (KYC) norms for opening deposits. Six years ago. and was forced to put every penny raised from the public in government bonds.

The banking regulator swiftly moved the Supreme Court to lift the stay and was told to hear Sahara once again before arriving at a final decision.700 crore.117. Sebi is not convinced.1.5. Ltd (SIRECL) and Sahara Housing Investment Corp.39 crore—and less than Rs. but the Lucknow bench of the Allahabad high court stayed the order the very next day. Its liability towards them is now around Rs. Harder battle Sinha seems to be fighting a harder battle than the one Reddy engaged in as Sebi needs to oversee how two Sahara group firms—Sahara India Real Estate Corp. Unable to ensure that debenture holders have been paid.000 crore to depositors. on 17 June. After a meeting between the central bank and Sahara executives. Ltd (SHICL)—are paying back the money raised through optionally fully convertible debentures (OFCDs) at the direction of the Supreme Court. on its part. Media reports suggest Sebi has found only 68 genuine investors till now among the lakhs of names that it checked.In the first week of June 2008. .120 crore is left to be paid. Sahara. Sebi has moved the Supreme Court seeking Roy‟s arrest. claims it has sent 128 truckloads of data and many more trucks are parked at the company‟s warehouse in Mumbai loaded with sackfuls of printouts. which the group has already deposited with the regulator. 65.22. claims to have paid back about 86% of the money owed—some Rs. RBI banned Sahara India Financial from accepting public deposits. Roy. RBI allowed Sahara India to accept fresh deposits with just a three-year maturity and repay all deposits over the next seven years. As of February this year.71. The apex court has already heavily criticized Sebi for delaying action against the group. It has found that most names and addresses of the OFCD subscribers are not genuine. Sahara India has returned more thanRs. This means that either the money has not reached the right people or it does not belong to those mentioned on the two firms‟ records.

including KYC compliance certificates. Sebi said. except that they come with an „option to convert‟… It seems that under the guise of OFCDs.Allegations against Sahara about holding on to the money of people and giving them wrong identities are not new. and since the number of investors exceeded 50. S. Under Section 67(3) of the Companies Act. The regulator first barred the two Sahara companies from raising money from retail investors in November 2010. Sahara contended that the two firms were not obliged to seek approval as they were not listed and the issue was meant for a select group of subscribers associated with the group. later on. a former judge of the apex court.” He also said the company regularly submits all returns. but that did not deter the regulator. The two firms should have sought its approval before raising public money. A senior industry professional said its RNBC arm. a former chief justice of India. former presiding officer of the Securities Appellate Tribunal (SAT. The Lucknow bench of the Allahabad high court stayed the Sebi order.P. the two companies are extensively taking up para-banking activities and running deposit schemes”. Sahara Prime City Ltd. then additional solicitor general of India (now solicitor general). asked Sahara to refund money with 15% interest in June 2011. it said. saying this particular provision of the Companies Act was applicable only for issues with less than 50 investors. All of them were of the view that such offers were outside Sebi‟s jurisdiction.M. are compelled by the existing rules to get listed. which does not accept deposits any more. Sebi dismissed this argument. After inquiring into the issue. and the definition of debenture as given under the Companies Act includes other securities such as hybrids. and the late C. . Sebi said the OFCDs amounted to a public issue in breach of the Companies Act and Sebi regulations. That left Sebi and. Sebi said the OFCDs raised by the two firms were “in effect no different from deposits from the public. Kurdukar. Sahara spokesman Abhijit Sarkar denied this. It issued advertisements in newspapers warning investors that it would not be able to redress grievances on OFCDs and. Sebi actually stumbled on the large-scale collection of money from the public through OFCDs while processing the draft red herring prospectus of another group company. an entity is required to secure Sebi‟s consent for any capital-raising issue that involves 50 or more investors. “We are not aware of such observation ever made on RNBC by RBI. the appellate body of Sebi). among others. the judiciary unmoved. Mohan Parasaran. used to collect names of dead people from cemeteries and funeral grounds in Lucknow and other parts of Uttar Pradesh to create records of depositors. OFCDs are debentures by name and nature. Achuthan. after getting the court order vacated. Ahmadi. Sahara reached out to a battery of legal luminaries including A.

While Sahara senior counsel S. Ganesh contended that Roy.24.030 crore to investors. who was not a director of SIRECL and SHCIL. Sahara was directed to refund Rs.030 crore—collected by the two schemes in 2008 and 2009— along with annual 15% interest to Sebi within three months. consultants and even investigators to check the veracity of all documents at Sahara India Pariwar‟s cost. could not be made personally liable for repaying money to investors. In December. The two group companies were told to furnish the details with supporting documents to establish that the money they had refunded reached the right people. Agrawal. the Supreme Court gave more time to Sahara—till February this year—to make full payment in three instalments. among others. redemption documents and application forms on the approval and allotment of bonds to around 30 million investors. was assigned to oversee the entire process. It also directed banks to freeze the accounts of two Sahara firms. Sebi followed the court order in right earnest. Sebi was given the freedom to take recourse to all legal remedies. A back-of-the-envelope calculation suggested that the amount Sahara group companies had to refund could be close to Rs. When the company failed to do so. the regulator moved a contempt petition against the two firms for defying the court order and not refunding Rs. B. which should have ended the threeyear battle between the regulator and Sahara. Sebi counsel Arvind . The 270-page court order directed the group to furnish Sebi with payment vouchers. including attachment and sale of properties. if Sahara refused to cooperate and refund the money. It followed this up with a plea in the Supreme Court cited above for the detention of Roy and two other directors—Ashok Roy Choudhary and Ravi Shankar Dubey—“after giving reasonable opportunity of hearing”.N. the money would go to the government‟s investor education fund. freezing of bank accounts. The court also decided that in those cases where investors‟ identities were not established. Sebi was allowed to hire experts.000 crore. The appellate body upheld the Sebi order and the Supreme Court concurred when Sahara moved the apex court against SAT. a retired Supreme Court judge. which directed the company to appeal to SAT. The money was to be deposited in a nationalized bank that offered the maximum rate of interest.Sahara got another stay on the Sebi order by moving the Supreme Court. The Supreme Court on 31 August last year directed the two Sahara companies to refund all the money they had collected through the OFCDs in three months.24. SAT on Saturday adjourned the hearing of Subrata Roy‟s appeal against the freezing of his personal accounts by Sebi to 26 March. The case will be heard at Shastri Bhavan in New Delhi.40. their promoters and directors.

His key argument in the fight with Sebi is that Sahara. .” Datar said. Roy teamed up with liquor baron Vijay Mallya of the UB Group. but cash flow is a problem. he reiterates. Sahara owns 106 acres of land. although he quit the habit for about three years (he used to smoke Benson & Hedges before).2. an investigation by the regulator has found that the price of the land has been inflated and. Sahara is a conglomerate that is solid but not liquid—it‟s asset-rich. “Subrata Roy cannot be absolved because he is the chief executive officer of Sahara India.100 crore but he‟s got offers of up to Rs. He paid $370 million for the Pune Warriors India franchise in cricket‟s Indian Premier League. The profit from this piece of land could be as much as Rs. Relaxed Roy At the interview with Mint in the third week of January in Lucknow.5. But Roy is not willing to sell his land bank. In 2011. Apparently. Roy seems to be unfazed by Sebi‟s determination because he says he‟s sitting on a massive 36. We don‟t need to tak e care of EPS (earnings per share). In 2010. the ownership is not clear. He said he lost weight by drastically cutting down on carbs and evening snacks.Datar made the point that Roy was chief executive officer of Sahara India in all legal documents. but none of these deals actually took place. Roy rejects this view. whose Kingfisher Airlines Ltd has been grounded for months. To outsiders. being unlisted. in Versova in Mumbai. Veerappa Moily said Sahara is right. It has given Rs.39 crore. he said. possibly the biggest of any corporate entity in India. does not come under its purview. in many cases. Why should we sell?” But Sebi questions this claim.5% of his Force India F1 auto racing team. paying $100 million for 42.120 crore to Sebi towards paying back the investors and claims to have already repaid Rs. Sahara considered buying English Premier League soccer club Liverpool and held talks to buy the debt of film studio Metro-Goldwyn-Mayer. He smokes Davidoffcigarettes. the Sahara boss appeared to be relaxed. which had collected money through OFCDs on behalf of the two firms. “We are an unlisted company.000 crore after it is developed. Two additional solicitor generals have given affidavits in favour of Sahara‟s argument.117. but resumed because he “felt like” it. is an inch shy of 6ft and weighs a trim 79kg.22. during which he promised to answer all questions.100 crore.30. Roy. Roy said the group has around 220 acres of land near Gurgaon in Haryana. The plot was purchased at less than Rs. Similarly. down from 115kg a year ago. and even then law minister M. who rarely gives interviews.631-acre land bank.

which. the Qatar government is willing to pay $800 million for the London hotel. as defined by The Wall Street Journal. Round-tripping.9 crore as of March 2010 (after the loan conversion to equity). Roy has never stayed in his London hotel.” Roy said. which was subsequently converted to equity. We haven‟t done anything against the law. but Roy won‟t sell till he‟s offered $1.Roy also bought Grosvenor House hotel in London for $470 million. round-tripping is used for tax evasion and money laundering. The money was then sent to Sahara‟s Aamby Valley Ltd(again through a Lucknow branch of Punjab National Bank) as an unsecured loan. but I said we would buy openly—can‟t we spend $25 million for a guest house? We are very strict on law matters.058. bought a company overseas.6. . A Sahara official denied this. “If they find anything wrong. Hotel is not a profitable business. A 5 January report in The Economic Times said the money raised by the Sahara group from investors through OFCDs may have been partly used to buy the London hotel. in turn. a Bangalore-based private bank. He also vehemently denies the allegation of so-called round-tripping. Incidentally. they can hang Sahara. and the Khar (Mumbai) branch of State Bank of India. For instance. somebody suggested some ways to buy the property. Sahara allegedly used the money raised by two of its firms to boost the equity of a third firm. is a form of barter that involves a company selling an unused asset to another company while at the same time agreeing to buy similar assets at the same price. saying there was no norm specifying where the money raised through OFCDs can be deployed. Under current regulations.2 billion. When we first bought the guest house. With a higher networth of Rs. This followed the purchase of a controlling stake in New York‟s Plaza Hotel. the nation‟s largest lender.” he said. The newspaper‟s investigation has revealed that a “slice” of the funds raised by SIRECL was deposited at the Lucknow branch of ING Vysya Bank Ltd. Globally. He prefers to stay at a guest house in Chelsea. but we acquire hotels because there is capital appreciation. Aamby Valley was able to transmit the money to London via Mauritius without RBI vetting. Indian companies are allowed an investment of up to four times their networth in a foreign company through the automatic route. Expanding overseas Will Roy expand overseas to de-risk Sahara‟s business profile? Will he buy more hotels overseas? “No. In this case.

In 1978-79. my chartered accountant in Gorakhpur told me if I could just make an entry of Rs. but did not reveal anything beyond this. a few years back two big politicians—both good friends—came to me and offered me big money.2. a city in eastern Uttar Pradesh. If I didn‟t do it then. Most depositors are unable to approach the group to recover the cash and the forfeited money runs into hundreds of crores of rupees. We read (things) about ourselves which we don‟t know.. my wife says. In fact. an auditorium. People can make all sorts of stories—I call them chandu khana ki kahaani (tales from the opium house). “Never. “It is a wonderful democratic country… We are going to make a huge Las Vegas kind of thing there. That‟s how I can fight.” he said.000 acres of land on the banks of Lake Ohrid straddling the mountainous border between southwestern Macedonia and eastern Albania at a nominal price. reportedly the second biggest employer in the nation after Indian Railways. when there was a question of existence for us.000 in Gorakhpur. The popular perception is that agents often don‟t go back to depositors after a few years when their commission drops. serves at least 71 million customers and employs a million workers. A black-and-white photograph of Mother Teresa with Roy adorns his secretariat at Sahara Shaher—a walled city in Lucknow complete with a mini-golf course. I can earn a few thousand rupees.4-5 lakh. Does Sahara make money through the forfeiture of subscribers‟ deposits? “I can only say one thing—you can record it 10 times—we have never done one wrong thing in my life. why should I do it now?” Humble beginnings Roy set up shop in 1978 with three workers serving 42 customers and assets of Rs. The project is aimed at attracting the international tourist trade.Sahara also has big business plans for Macedonia. a helipad.” Roy said. a petrol pump and even a fire brigade station—where the group is headquartered. Does Sahara act as a repository for the unaccounted wealth of politicians? No. Now the group has a presence across India. according to this narrative. Roy is emphatic. A plan is also being drawn up for a big dairy project.. The local government has given Sahara around 2. close to the India-Nepal border and around 266km from Lucknow. We are going to develop all facilities for Bollywood and Hollywood shooting. without giving a direct answer. The overseas expansion doesn‟t mean he has any plans of winding up his India operations as he “loves his country and can die for his country”. but I had said no to it. . the birth place of Mother Teresa to whom Roy says he was very close.

L. we have not given any unsecured loan to anybody. there was no question of providing them provident fund (PF) benefits.10-12 crore in 34 years.70 only if you keep Rs. The politicians included Farooq Abdullah. Mulayam Singh Yadav. I should have hundreds or thousands of crores. He also says his personal wealth isn‟t all that it‟s cracked up to be. Rajnath Singh. gratuity and pension. Salman Khurshid…the list is long and he is not willing to say who he is closest to. he said.” But he has many friends among politicians—Amar Singh. Lalu Prasad. In January this year. you‟re my friend—I cannot be a nopungsak (coward) and disown you—I am not a fair weather friend…” That he‟s well-connected is publicly evident. who lives with her son and his descendants.The Lucknow bench of the Allahabad high court recently permitted officials of Employees‟ Provident Fund Organisation (EPFO) to enter and search the premises of the Sahara group of companies to check whether the company was paying the statutory dues of its employees under EPF rules and the terms of the Miscellaneous Provision Act. are better paid than Union government employees with benefits such as PF. We give a loan of Rs. Arun Jaitley and Rajiv Pratap Rudy.Digvijay Singh. On the day before the 23 March SAT hearing.000-50.K. Mulayam and Akhilesh Singh Yadav. according to India .” he said. My personal wealth—including that of my wife. at Sahara Shehar to wish him and his wife Sapna Roy on their 39th wedding anniversary. Chhabi Roy‟s Swapna Kuti. former aviation minister Praful Patel launched non-scheduled flights between Aamby Valley City and Mumbai. 1952. In February 2010. four sons. Not even to our directors.” Is Sahara a vehicle for laundering black money into white? “In 34 years. of his granddaughter hosted by him at The Ashok in New Delhi on 22 March saw the attendance of several celebrities. The annaprashan. Sahara has not seen any labour trouble in its history.100 worth of securities. Uttar Pradesh chief minister Akhilesh Yadav dropped in at his residence. but clarified that since most of them are “piecemeal” employees. daughters—will not be more than Rs. Roy held a show of strength. “We have taken oath and nobody can share profit or asset of the company which is nothing but an organised cooperative. Roy said.15 crore personal wealth. There are about 48. Rajiv Shukla. “Everybody offered me Rajya Sabha. Advani. Nonagenarian Chhabi is Roy‟s mother. He also hates politics. “If you are my friend. I will never join politics. Narendra Modi. but I said no. As a promoter chairman. or rice-eating ceremony.000 employees on the group‟s payroll and they. But I don‟t have even Rs. Roy is aware that EPFO is demanding data on a million employees.

One wedding in the Roy family was well-known for having Amitabh Bachchan and members of his family as celebrity ushers. Sridevi and Boney Kapoor. Loyalty is something that Roy makes much of. and Roy shifted first to a housing finance company and later to a mutual benefit company or “nidhi” company. Rajasthan. riding on a mixed model—doorstep delivery plus 40. Suresh Raina. The next option to tap public money was the OFCD route. Amid the fight with Sebi. By the end of 2013. besides Telugu superstar and minister of state with independent charge of the tourism ministry. Roy hopes to touch Rs. The group is planning to open 3. Dhoni. It took nearly one year to gather information about them and all 80 people are working with him now. The stores operate on a franchisee or exclusive retailer model. he took the RNBC route and prospered till RBI‟s Reddy put an end to that. looks for another.780 Q Shops in Maharashtra alone.Today online.000 crore in Q Shop sales. Regulator shopping The entrepreneur in him does not seem to have faith in regulations—he always looks for loopholes. . he set up an un-incorporated body—Sahara India—to raise money from the public. and offer a range of products. legally they are not regarded as banks.S.Michael Clarke and Steven Smith. M.30. Jharkhand. Chiranjeevi. Virat Kohli. though in their economic functions they are no different from them. Currently. ft each. but the amendment in the Banking Regulation Act of 1949 closed that door too. the Sahara group started running cooperatives (Roy said employees run them and not the company). The cricketers included Sachin Tendulkar.000 outlets measuring 300-500 sq. They are regulated by the department of company affairs. it has set up so-called housing clubs. He started his career as an entrepreneur with prize chits and money circulation schemes in 1978. In housing. until Sebi stopped that. When Roy found it difficult to continue with those activities. Bollywood was represented by Jaya and Abhishek Bachchan. he said. they are present in Uttar Pradesh. Bihar. When they were banned in 1980. As nidhis deal with their members and not with the general public. he made a list of 80 people—his school and college friends in Bihar and Uttar Pradesh—and asked them to leave their respective jobs and join the group. while in retail it has set up Q Shops.Anil Kapoor and Hema Malini. and when one such door closes. Ten years ago. Ravindra Jadeja. Someone who wants to deposit savings in a nidhi has to first become a member by paying the share subscription. Uttarakhand and the Delhi national capital region.

Sahara Q Shop also has a direct-selling plan. but 99% astrologers are not so knowledgeable.” After the Prime City experience. This includes money raised from all sources. We have to expand as I need to see my 10 lakh employees live happily. through various instruments and dozens of companies in the past 35 years. But he trusts his two astrologers in Lucknow and Gorakhpur. Even though he continues to get favourable decisions from the Lucknow bench of the Allahabad high court. and second. with interest.100 firms—units being continuously floated to exploit regulatory loopholes— and Roy does not plan to consolidate them. Many say the main source is forfeiture of deposits because of defaults on regular payments and money deposited by people who do not want to be identified for obvious reasons. but there are not too many takers for this theory.12.” he said. Roy claims to have repaid Rs. is a science. There is another theory also—Roy continues to invest in land and the appreciation in this asset class always gives him a cushion. . he does not rule out an overseas listing for any group firm even though he does not specify any timeframe for this.70. the company will refund the residual money. They banned one activity after other.5% of the amount spent by a customer will be adjusted against this. and we had to jump from one to other. barring a small amount for buying hotels overseas. the group has no bank loans. whom he finds accurate. if any. “This government has never given us the opportunity. At the end of the five years.636 crore to 147 million people so far since the inception of the group. However. he‟s vowed not to seek a listing for any of his group companies.250 in advance to purchase merchandise from the retail venture. The group runs some 4. He blames the government for this. like astronomy. Sebi has found much to be dissatisfied about. the Supreme Court does not see any merit in Sahara‟s arguments and no politician supports him openly. Where does this come from? Roy said it raises resources from millions of small depositors in North India and pays back every last penny to them. The advance payment will be locked in with the company for five years. This reflects two aspects: first. as part of which the company is recruiting customers who pay Rs. But when it comes to repaying OFCD subscribers. it has money on tap.1. Surprisingly. “Astrology. Roy is a staunch believer in astrology and has been wearing emerald and sapphire for the last 20 years. the banking community does not think very highly of Sahara. and every month 3.

. They save you from getting drenched but can‟t prevent a flood. they are just a superficial support. Khushboo Narayan contributed to this story.. He draws mental strength from them.“The stones help—they are like a raincoat and an umbrella in heavy rain..” he said. but is not dependent on them. It remains to be seen how he faces the biggest challenge in Sahara‟s history even as India‟s capital market regulator braces for a fight to the finish.

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