A

Project Report on

“STOCK MARKET FRAUDS IN INDIA”

SECURITY ANALYSIS & PORTFOILO MANAGEMENT

(SML-511)

Submitted to: Submitted By:-

Dr. (CS) Pradyumna Sharma Yamini Kahaliya (K13341)
Akshat Kishore (13816)
Assistant Professor
Rakshit Jain (K13327)
School of Commerce & Nishtha Shaktawat (K13566)
Management BBA Honors
5th semester (3rd year)

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 ACKNOWLEDGEMENT
We would like to express our special thanks of gratitude to our teacher (Pradyumna Sharma Sir)
who gave us the golden opportunity to do this wonderful project on the topic (stock market fraud),
which also helped us in doing a lot of Research and we came to know about so many new things we
are really thankful to them.

Secondly we would also like to thank our friends who helped us a lot in finalizing this project within
the limited time frame.

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 CONTENT
CONTENT NAME PAGE NO.

Introduction of stock market

4

Meaning of Stock market fraud

5

Research Methodology
6-7

STOCK MARKET SCAMS -

Harshad Mehta Scam 9 - 13

Ketan Parekh Scam

14 - 16

Satyam Scam
17 - 19

Saradha Group Scam

20 - 21

Sahara Scam
22 - 25

Bibliography
26

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 INTRODUCTION OF STOCK MARKET

 A stock market is public entity for trading of companies stocks (shares) and
derivatives at an agreed price.
 A stock market is a place where buying & selling of securities takes place.
 These securities listed on stock exchange.
 It is also known as equity market.
 There are two types of stock market primary & secondary market.
 Stock exchanges in India – NSE & BSE.

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 MEANING OF STOCK MARKET FRAUD

 Fraud - Act or course of deception, an intentional concealment, omission, or

perversion of truth.
 It is a deceptive practice in the stock or commodities markets that induces investors to
make purchase or sale decisions on the basis of false information, frequently resulting
in losses, in violation of securities laws.
 Also known as securities fraud and investment fraud.
 Securities fraud can also include outright theft from investors (embezzlement by
stockbrokers), stock manipulation, misstatements on a public company's financial
reports, and lying to corporate auditors.
 The term encompasses a wide range of other actions, including insider trading, front
running and other illegal acts on the trading floor of a stock or commodity exchange.

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 RESEARCH METHADOLOGY

Research –

Any efforts which are directed to study of strategy needed to identify the problems
and selection of best solutions for better results are known as research.

Research Design –

Here we adopt the exploratory research design

Exploratory research is one which is largely interprets and already available
information and it lays particular emphasis on analysis and interpretation of the
existing and available information.

Data Collection –

Secondary data –

a. Collection of Indian Stock market scams

b. Detailed explanation of each & every stock market scams.

OBJECTIVE OF THE STUDY -

a. To study and analyze the stock market scams

b. To analyse the impacts of stock market frauds.
c. To understand the scams reasons.

Limitations of the Study –

There is no activity that can be completed without any limitation. The main limitations faced
during the preparation of this project report are: -

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 Time available for the completion of the project is very short; hence much
information could not be undertaken.
 The information collected through secondary data. Some of the information might be
wrong, misunderstood and typically described (can’t be understand by students).
 There are very huge details of particular scam.
 The study was limited to only five stock market scams.

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 MAJOR STOCK MARKET FRAUDS IN INDIA

There are many stock market frauds but here we discussed few of them.

1. Harshad Mehta Scam

2. Ketan Parekh Scam
3. Satyam Scam
4. Shardha Group Fraud
5. Sahara Scam

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 HARSHAD MEHTA SCAM

Introduction of Harshad Mehta –

 Harshad Mehta was an Indian Stock broker and was known as the big bull of
Dalal Street.
 He was born on 29th of July 1954 in a poor family in Rajkot District in
Gujarat. His father was peon.
 He migrated to Mumbai with just Rs40 in his pocket. In 1976 he somehow
managed to complete his graduation in commerce from Lala Lajpat Rai
College, Mumbai. After completing his graduation, he worked in some
companies for couple of years.
 While working as a sales person in New India Assurance Company Ltd. he
developed the interest in Share Market and hence after quitting his job in early
1980’s, he joined the Stock broker B.Ambalal. Later 1981 he worked as sub-
broker to stock broker J.L.Shah and Nandalal Sheth. After gaining ample of
experience, in 1984 he with his brother, started his own firm named as Grow
More Research and Asset Management. Later, he became the member of
Bombay Stock Exchange as a broker.
 In 1986, He started trading actively. By early 1990, he became a famous stock
broker and a number of eminent people began to invest in his firm, and utilize
his services including the then minister Chidambaram through Chidambaram's
own shell companies.

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Harshad Mehta mainly used two instruments in scam:

1. Ready Forward Deal (RF Deal).

2. Bank Receipt (BR).

1. Ready Forward deal was the short term loan instruments for bank.
To know what RF deal is first we will see what government securities are.

Basically Government Issue’s securities to cover its expenses of various projects.

They are called as Government Securities. Bond is an example of government
securities. In bond, the government raises the fund to cover its expenses, and in return,
pay the interest to investors who have invested in these bonds. It was mandatory for
all banks to invest in this government securities in those days.

In 1990’s, if any bank was in short of funds (money) then to generate funds, it used to
sell its bond or securities to other bank and in return after some days would pay some
interest with capital to regain its bond.
For e.g.:-
If in case we are in need of urgent money then we go to our nearby jeweller. We keep
our jewellery as collateral to him and take the short-term loan from him. After some
days, we return the money to jeweller with the decided interest and then he returns our
jewellery back to us. Same was the case with banks. In Ready Forward deal, one bank
would give the short-term loan to other bank and keep government bonds of that bank
as collateral.

In ready forward deal brokers used to work as mediators between two banks. Brokers
work was to find the buyers for banks, willing to sell their securities or bonds and
vice-versa find sellers for the banks which are ready to buy the securities. Harshad
Mehta was the broker, and used to work as mediator between two banks.

There were some loopholes in this system of RF Deal using which the broker could
make ample of illegal money. Harshad was very well known with these loopholes and
using these loopholes, he made the biggest scam in history of stock market.
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For example assume that there are four banks A, B, C, and D. Harshad worked as a
broker between these banks. If bank A wants to sell its securities to generate the fund,
so it approached to Harshad and asks to find a buyer. Harshad would take the bonds
from bank A and ask the bank to give him some time to find the buyer. In the same
way if Bank B wants to buy the securities then same like above Harshad would take
the money from bank B and ask for some time to find the seller. According to
guidelines of RBI, if one bank is selling their securities to other then the other bank
should issue the cheque in the name of bank who is selling their securities and not in
the name of broker. But in this case, banks directly used to issue the cheque in the
name of Harshad Mehta (since in those days he was a famous broker with good
name). Banks used to deal directly with Harshad, which was illegal.

Harshad used the money taken from bank B to manipulate the stock market.

Now after some time if bank A would ask for the money against their bond or security
then Harshad used to go to bank C. Take money from it, ask for some time to give
them the security or bond against money and give that money to bank A. In the same
way he took money (funds) from many banks and used it to manipulate the stock
market. Hence Harshad used the RF Deal like a chain system; he took money and
bonds from many banks due to which he always had ample of money in his hands.

To understand this in more simple language, we will see a very simple example. In
our society there are some people who always borrow the money from their friends or
relatives. Assume that Suresh borrowed some money from Ramesh. Now, after
sometime when Ramesh asks Suresh to return his money, then Suresh goes to Paresh,
borrows some money from him and returns the money to Ramesh. To return the
money he has borrowed from Paresh, he takes money from another person and hence
this chain system goes on. This same kind of chain system was used by Harshad
Mehta in his scam. He borrowed money from one bank, and then second to return the
money of first’s and so on.

In Ready Forward deal when any bank used to sell its securities to another bank, then
as a collateral first bank used to give a receipt to buyer bank and not the actual bond
or securities. This receipt was called as Bank Receipt (BR). BR was the symbol of
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confirmation that selling bank has got the money while buying bank has got the
securities.

2. Harshad crossed all the limits when he started printing the fake Bank Receipts
(BR), and took the money from banks in return to these fake receipts.
Harshad used this money to invest in stock market due to which the price of many
stock increased drastically. The share price of ACC went to ₹ 9000 from ₹ 200 in just
few months. Due to this increasing price, people started investing in share market and
hence prices of stocks went to peak. Harshad used to sell his shares when market went
at peak and earned good profits. From this earned profits he used to return the money
of banks and recollect his fake receipt. This all went on continuation until the market
was bullish and prices of shares were increasing. After some time when the market
went bearish the prices of stocks started decreasing. Harshad suffered huge losses due
to this bearish market and lost all his money due to which he was unable to return the
money of banks.

On 23rd April 1992, journalist Sucheta Dalal exposed the Harshad Mehta scam in the
journal of TOI. After this the bank’s realised that the receipts (BR) which they have
received from Harshad are fake and has absolutely no value. Due to Harshad Mehta
Scam, banking system suffered the huge loss of almost ₹ 4000 crores. As soon as this
scam was exposed, stock market crashed drastically. Due to this many investors lost
huge money and went bankrupt. The chairman of Vijaya Bank, who had issued the
cheque in name of Harshad Mehta, realised that the BR receipts given by Harshad
Mehta are fake and hence committed suicide immediately after scam was exposed due
to depression. CBI arrested Harshad Mehta on 9th Nov 1992 and filed him with 600
Civil Action Suits and 70 Criminal Cases. SEBI restricted Harshad Mehta for dealing
in securities forever.

Harshad was kept in Thane Jail. One night, he observed a severe pain in his chest. He
was shifted to Thane civil hospital. On 31st Dec 2001, the whole world was enjoying
the New Year party while Harshad was struggling for his life. Finally at 12:30 AM he
took the last breath. He was just 47 when he died. When he died, 27 cases was still
pending on him.

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In those day’s Harshad’s lifestyle was same like Bollywood stars. Many magazines
referred him as Amitabh Bacchan of Stock Market. Harshad’s property includes a
huge luxurious sea facing bungalow in Mumbai which include a mini golf course and
a swimming pool in it. He has collection of many cars including the costly cars like
Lexus and Starlet, which were not affordable for many rich people in those days.
Harshad paid the advance income tax of Rs26 crores and was India’s one of the
biggest tax payer in those days.

Harshad was Hero for many investors, but turned to be a villain as soon as the scam
was exposed. Many people lost their life saving. Life of many common people was
destroyed. It is the biggest scam in history of India Stock Market.

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 KETAN PAREKH SCAM

Ketan Parekh was a Chartered Accountant and he was an intern of Harshad Mehta.
His only dream was to rule the stock market of India, so he decided to join Harshad
Mehta's firm to learn some tricks to deceive the investors.

Raising Money: — Before executing his master plan, he first used the pump and
dump scheme to raise some money which was going to help him execute his master
plan.
PUMP AND DUMP SCHEME: — He purchased major shares (20–30%) of new
companies for increasing their price to a certain level just to attract other investors.
When the price was quite high, he was would sell his stake in those companies, and
churn huge profit out of those.
So first he pumped the share price by purchasing them and then dumped those shares
by selling them.

After this scam, the laws of stock market amended in every aspect. And now pump
and dump scheme is illegal in stock market.

Master Plan: — Unlike Harshad Mehta, who concentrated on retail investors like
you and me (individuals), Ketan Parekh concentrated on institutional investors
(mutual funds, insurance companies—who invest our money on behalf of us).
Pump and Dump scheme wasn’t enough to attract huge institutional investors, so he
tricked them through circular trading.

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CIRCULAR TRADING: —We usually buy shares by calculating its volume (total
number of shares of a particular company purchased or sold during a day) on a
particular day. If the volume is high, the share is pretty active in the market and has
probability of making profit. So to manipulate the volume, some tricksters
continuously purchase and sell shares between themselves to make that share active
throughout the day.
Ketan Parekh was one of the tricksters and through help of others, he started circular
trading to tempt institutional investors to purchase those shares and raise its price.

When the price would reach its peak, he would sell his stake and made a huge profit
out of it.

To popularize his name and plan, he targeted media, telecommunication (due to

DOTCOM boom), and manufacturing companies for circular trading.

He named them K10 shares.

Now a days circulate trading is also banned in stock market and its totally illegal for
investors to involve in this scheme.

GREED: — He wanted to control the entire Indian stock market. For that he needed
to find a way to bring humongous amount of money for purchasing shares. That’s
when he used pay orders to raise money.

PAY ORDER: — It’s like Bank demand draft, or you can say as prepaid instrument.
You need to pay certain amount to the bank to get payment order. (You can pledge
this pay order with any other banks for loan)
He first purchased major stocks of GTB bank and MMCB bank to control bank’s loan
decisions.

He then collected the pay orders of let say 1000 rupees by paying them 200 rupees, or
collecting pay orders by pledging his stake in those banks.

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Then he would pledge those pay orders with other banks in lieu of money.

In this way, he collected 1000 crores of rupees from banks by pledging those pay
orders.

WHAT WENT WRONG: — He applied for loan from BOI by pledging POs. BOI
sanctioned loan by considering the goodwill of Ketan Parekh, and sent those POs to
RBI for clearance.
Unfortunately, RBI smelled something wrong in those POs (for the first time in 5
years) and declined the clearance of those POs. In fact, RBI started a scrutiny on those
banks for approving such huge amount as pay orders.

ONCE A GENIUS ALWAYS A GENIUS:— Ketan Parekh was damn sure that,
now his scam is going to be revealed by RBI (200:1000 rupees in pay order ratios), so
he started selling his stake in all those K10 companies, including his shares in GTB
bank and MMCB bank.

Between 5 pm to 12 am, after Ketan Parekh’s drastic step of selling shares at boom
price, entire stock market crashed.

Lots of institutional investors were pushed towards insolvency. Shares of Zee TV,
HFCL and many more dropped down to 10% and even less.

Parliament was immediately called upon to declare a statement that the government is
aware of the scam and steps have been taken.

That scam was a reality check for the loopholes in security market laws and the
inefficiency of government to control these break down scenario.

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 SATYAM SCAM

IT Company name Satyam Computers was started by Ramalinga Raju and his brother
in law in 1987. Raju was Harvard Graduate and an impressive personality. Satyam
was Hyderabad based company. In 1991-92 Satyam computers was listed on BSE
(Bombay Stock Exchange) and in 2001 it was listed on NYSE (New York Stock
Exchange). Satyam Computers was one of the fastest growing companies of India and
hence Satyam Computers as well as Ramalinga Raju received many awards during its
growth years.

During the same period the Real Estate was on Boom and hence Raju was attracted
towards real estate market. The property rates in Hyderabad was growing rapidly so
Raju aggressively started buying the land properties in Hyderabad and nearby areas.
Due to aggressive buying of properties Raju was in short of funds (money) hence to
generate more funds he started to manipulate the financial statements of Satyam
Computers. For example, If Satyam had the actual profit of Rs60 crores then in
financial statements Raju used to show the profit of Rs600 crores so as to show that
Satyam is growing very rapidly.

Due to this fake rapid growth and fake strong financials the price of share of Satyam
was growing rapidly. Raju and his brother were selling the shares of Satyam on this
high price so as to raise the money to buy properties. Raju opened 365 new companies
to buy the properties. He used to buy the properties under the name of his family
members, relatives, friends etc. Raju used to make his farm workers (whose monthly
income was not more than Rs5000) the Directors of his newly opened companies and
used to buy the properties under their name.

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Raju plan was that the rates of the properties will grow in multiples after some time,
after that he will sell those properties and from the money earned, he will balanced the
gap that he has created in financial statements of Satyam.

Because of manipulating the financial statements of Satyam as well as showing the

fake rapid growth for years, the price of share of Satyam was growing very rapidly.
Taking advantage of this, the promoters of Satyam used to sell those shares on high
price to earn profit. In 1999 the promoters of Satyam hold 24% of shares, while in
2008 it was reduced to 2%. As the days were passing the gap between the actual
figures and fake figures was increasing resulting into a huge amount.

Due to recession in 2008, the rates of properties decreased drastically and Raju’s plan
of selling properties at high rates failed. Raju was in great trouble and to escape from
this he made a new plan. According to this new plan, Satyam will buy the two
companies that are Maytas properties and Maytas Infra (both companies of Raju’s
family members). They will buy the companies on paper but in real there will be no
cash transactions so as to balance the fake figures and actual figures in accounts of
Satyam. Satyam’s board of directors approved the plan 16th Dec 2008 and without
taking the permission of Share Holders, Raju sanctioned the deal. But investors of
Satyam were not happy and due to this price of stock of Satyam decreased. One
investor from U.S filed Lawsuit on Satyam due to which the price of Satyam was
decreased by almost 55% on NYSE.

Due to increasing pressure of investors on Raju, he cancelled the plan of buying

Maytas Infra and Maytas properties. This was last chance for Raju to fill the gap
between actual and fake figures of Satyam and stop this scam for revealing, but seeing
it failed, on 7th Jan 2009 he confessed to SEBI that he was manipulating the financial
statements of Satyam and on 9th Jan 2009 Raju and his brother were arrested.

After this scam, government appointed new Board of Directors on Satyam. In April
2009 Tech Mahindra purchased the 51% shares of Satyam Computers and named it
Mahindra Satyam. Finally in June 2013, Mahindra Satyam merged in Tech Mahindra.

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According to CBI, Raju was doing money laundering. He used to send the money in
European Countries and then re-route them back in India. ED (Enforcement
Directorate) filed the case of money laundering on Raju, his 166 companies and 47
other people and sealed the properties of Raju and his Family. SEBI filed the case of
Insider Trading on Raju and ordered him to return the profit of Rs1850 crores that he
earned from Insider Trading with 12% interest and banned him for 14 years to deal in
securities market. Finally on 10th April 2015 CBI Court sentenced 7 years of
imprisonment to Raju, his brother and many other people associated in scam.
Before this scam was revealed, Satyam was recognized as 4th largest IT Company of
INDIA and usually tagged as “IT Crown Jewel of INDIA”. Satyam’s stocks were
included in Sensex and Nifty but were removed on 9th Jan 2009.

After scam was revealed, Satyam’s stock decreased from Rs170 to Rs6.50 due to
which its investors suffered the loss of almost Rs14162 crores. LIC was institutional
investor in Satyam and suffered the huge loss of Rs950 crores.

The meaning of word Satyam in Sanskrit is ‘Truth’. But there was no truth in
operations of Satyam. To earn the money Raju did many illegal activities like Money
Laundering, Insider Trading and Accounting fraud due to which many common
investors of Satyam suffered a lot.

There is one thing for us to learn from this scam, that if promoters of any company are
selling their shares then always check why they are doing so and mostly do not invest
in such companies.

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 SARADHA GROUP SCAM

Saradha Group of financial services was incorporated in the year 2006. The service
this group offered was called as PONZI SCHEME which is very much like a chit
fund. However, those who invest in this company would avail high rate of return; this
is what the group had published for investors to be attracted in order to invest in this
group. The workings of the Ponzi scheme is investment of capital which leads to
return on the investment and further additional investment by new investors increases
the rate of return as to increase the funds raised. The initial appraisal of capital
required by the SG was by issuing Secured Debentures to investors and so this was
their first method of raising funds. The company grew in strength and the numbers
increased to 50 and any such group or company falls under the jurisdiction of SEBI
(Securities Exchange Board of India) and the rules and regulations would apply to this
SG company i.e. to prepare a prospectus defining the objective, shares, assets, to
submit reports, profit and loss as well as balance sheet statements and so on, which
the SG was not ready to do and so this group ignored SEBI litigations and widened its
location to all corners of Indian territory and the number of SG was about 300 SME‟s
(Small & Medium Scale Ent.) In the year 2010, they were categorized as Tourism
Agency, Real Estate Agency, Motorcycle Manufacturing Company, Water Supply
Agency, and Recruitment Agency.

SEBI warned Saradha group in 2009 and persisted its investigation through 2010 after
which Saradha group started running various collective investment schemes, the very
nature of the investment were kept away from the investors and instead were
fraudulently sold as chit funds. SEBI, no longer needing to remain a spectator,

20
intervened and through the State Government of West Bengal initiated a warning to
close down or do the needful.

For the second time SG ignored the given warning and transformed their group into a
small agency dealing in buying and selling of SME‟s shares to other likely SME‟s or
public. Apart from adapting to this method of raising funds, the SG wanted to be
liberated from all bindings of the government and SEBI and after only 3 months in
this undertaking, realized that SEBI has a clear authorization in shares being traded.
The acquired capitals were highly invested in Bengali Film Industry and members of
the parliament and a member of the legislative assembly was appointed as the brand
ambassador of SG. Further SG in order to socialize their network and to increase their
goodwill, they opted for the best option there is a deed of kindness, the group
undertook campaigning and other financial necessaries for the Kolkata Football
Association and contributed motorcycles to Kolkata Police Force so as to sustain their
bonds in the eye of the public.

An estimate 1500 journalists and 8 newspapers of different languages were

undertaken by the group in the year 2013, in other words SG managed to entice the
media, the most unstable catalyst in the economy. However, justice cannot stay still or
play blind for too long. All workings against the law must be revealed and the
committers penalized. TMC forcefully purchased the journalists and newspapers for
price much lower than the market value through blackmail which brought disclosure
to all the unlawful conversions made by the group and this information was leaked
where in SEBI litigated the SG to liquidate all their assets and dissolve their
undertakings to remit the due to the investors. This is to prove that SEBI holds all
grounds and there is a moral we all tend to forget these days in the name of greed and
success “truth exposes itself sooner or later”.

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 SAHARA SCAM

Sahara Scam or Sahara Group Chit Fund Scam is one of biggest corporate scams in India. It
is also well-known due to the aggressive regulatory conflict between the SEBI and the Sahara
Group for almost five years. After doing the detail study and deep analysis, I have come up
with the Case Study about Sahara Scam in very simple Language.

Sahara India Pariwar was the privately held company founded in 1978. It has its Headquarter
in Lucknow. Sahara Group was a huge company covering various sectors like Finance, Real
Estate, Infrastructure and Housing, Sports, Manufacturing, IT, Retail Venture etc. It had the
huge market capitalization of almost US$ 25.94 billion as on March 2011. In 2004 Time
Magazine termed Sahara India Pariwar as “second largest Employer in India” after Indian
Railway.

Sahara was founded by Subrata Roy. He was the Managing Worker and Chairman of Sahara
India Pariwar. He was born on 10th June 1948 in Araria, Bihar. After completing his
engineering, he started his first business in Gorakhpur. Later he migrated to Lucknow, which
became the base of Sahara Group. In 2012, Subrata Roy was named among “The 10 most
Powerful People in India” by India Today.

Sahara Scam is mainly associated with the two companies of Sahara Group that is Sahara
India Real Estate Corporation Ltd. (SIRECL) and Sahara Housing Investment
Corporation Ltd. (SHICL).

To know how Sahara Scam first came on Radar of SEBI, we will first understand about the
IPO and DRHP.

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IPO or Initial Public Offering is the process through which any company offers its shares
(Part of ownership) to public (people) for very first time, so as to generate the funds. It is the
process through which a private company becomes a public company. IPO is the process
through which any company gets listed on Stock Market.

DRHP or Draft Red Herring Prospectus is the Bio data of the company and it contains all
information of the company. It is not a confidential document and SEBI uploads it on its
official website. If any company wants to get listed on Stock Exchange so as to generate
more funds then it is compulsory for the company to take the permission from SEBI (Security
Exchange Board of India) which is Capital market regulator in India. To issue the permission,
company submits the DRHP to the SEBI. DRHP contains all the information of the company
like Financial Information, Objectives, Promoters and Management details, past performance,
Capital Structure, Issue Information etc. After deeply analysing the DRHP, the SEBI decides,
whether to grant the permission to the company or not.

On 30th Sep 2009, company name Sahara Prime City (SPC) which was the part of Sahara
group of companies, submitted its DRHP to SEBI for issuing IPO, so as to raise the fund
from public. DRHP of SPC contained almost 779 pages. But the actual jumble was on Para
49 of page no. 640. While analysing the DRHP of SPC, SEBI realised that other two
companies of Sahara Group that is SIRECL (Sahara India Real Estate Corporation Ltd.) and
SHICL (Sahara Housing Investment Corporation Ltd.) has raised the funds in
inappropriate/illegal manner. While SEBI was investing about it, after some days that is on
25th Dec 2009 and 4th Jan 2010, SEBI received a complaint against these two companies
saying that these companies are issuing OFCD in wrong way.

OFCD means Optionally Fully Convertible Debentures. Debenture is a Debt (loan)

instrument, using which company borrows money from people and in return gives them
interest. OFCD is a type of Debenture in which investors has the option to convert their
OFCD to Equity and become the share-holders of company.

If any company is issuing the OFCD to less than 50 people/investors then it is compulsory for
the company to take the permission from ROC or Registrar of Companies. And if the
company is issuing OFCD to 50 or more than 50 people than it should take permission from
SEBI.

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When SEBI started the investigation, it realised that the two companies of Sahara Group that
is SHICL and SIRECL have raised the OFCD of Rs 24000 crore from 2 to 2.5 crore
investors, without taking permission from SEBI. Legally this process of issuing OFCD
should be completed in 6 weeks, but SHICL and SIRECL kept on issuing OFCD for more
than 2 years.

As soon as it was exposed, SEBI banned Sahara group from issuing new OFCD and ordered
to return the money of investors with 15% interest. But Sahara group instead of following the
orders of SEBI, filed the case against SEBI in Allahabad High Court. First, In Dec 2010
Allahabad High Court ceased the orders of SEBI, but later in April 2011 found that SEBI was
right. Sahara lost the case in High court, but Sahara didn’t stop there and appealed in
Supreme Court. Supreme Court suggested Sahara to approach SAT that is Securities
Appellate Tribunal. Again SAT found that Sahara was guilty and ordered Sahara to follow
the orders of SEBI and return the money of investors with 15% interest. Crossing all the
limits, Sahara challenged the decision of SAT in Supreme Court.

Sahara Group said that the “OFCD issued by SIRECL and SHICL are private placements,
since this OFCD’s were issued only for people who are connected with Sahara Group and
also SIRECL and SHICL are unlisted companies, so SEBI does not have any rights to handle
this case.”

On this SEBI said that “SIRECL and SHICL had issued OFCD to more than 50 people, and
hence it is public placement and not private placement. Also they have not taken the
permission from SEBI, which is Mandatory”.

At that time, Dr. K. M. Abraham was the Board Member of SEBI and was the investigator of
Sahara Case. When he was verifying about the details of investors of OFCD, he found that
many of investors in Sahara are fictitious, and others do not have any relation with Sahara
Group (so said by Sahara Group).

In Aug 2012, Supreme Court found SIRECL and SHICL guilty and ordered them to submit
the money to SEBI that they have collected from investors with 15% interest under 3 months
and also submit all details of investors to the SEBI so that SEBI could return the money to the
investors.

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Following the orders of Supreme Court, Sahara sent 127 trucks to SEBI, which were filled
with documents containing the details of investors. But SEBI rejected some trucks since they
reached after the deadline. After analysing the documents, SEBI said that the details of
investors are incomplete and unrealistic, and hence this matter can be of Money Laundering.

Sahara Group failed to return the money of investors within 3 months as orders by Court, so
Court ordered them to return the money in 3 installments. Sahara Group deposited the first
installment of Rs 5120 Crore and then said that they have already returned the remaining
money to investors directly.

Out of 2.5 crore investor’s only 4600 investor’s came forward to claim their money. On this
Sahara Group said that remaining investors are claiming their money because we have
already returned their money. But Sahara Group failed to give the proof of same and also
failed to give the clarification about the source of that money to the Court.

Supreme Court found this matter more fictitious and freezes the bank accounts of Sahara and
sealed their properties. Finally on 28th Feb 2014, Subroto Roy and two other directors of
Sahara were arrested. In Nov 2017, ED that is Enforcement Directorate filed the case of
Money Laundering on Sahara Group.

This was not for first time that Sahara Group was caught in conducting illegal activities. In
2007-08 subsidiary of Sahara Group SIFC or Sahara India Financial Corporation was banned
on issuing fresh deposits by RBI, since it was caught doing unethical activities. But Sahara
didn’t learn from it and finally ended up doing a huge scam.

Once Sahara Group was one of the biggest corporate groups of India. The number of
employees working in Sahara India was around 14 Lakhs. It was the main sponsor India
Cricket team and was the owner of IPL team Pune Worriers India. The meaning of word
Sahara in Hindi is Support. But due to Sahara Scam, the investors of Sahara lost all the
financial support and suffered financial crises.

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 BIBILOGRAPHY

 www.slideshare.com
 www.quora.com
 www.stockmarketscam.com
 www.wikipedia.com

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