SAHARA INDIA

PARIVAR SCAM

A case of fraud
against Investors
• INTRODUCTION
• Type : private company
• Industry : conglomerate
• Founded : 1978
• Founder : Subrata Roy (chairman)
• Headquarters : Lucknow, India
• Sahara India Pariwar is an Indian conglomerate headquartered in
Lucknow,India.
• It has business interests in finance, infrastructure and housing, media and
entertainment, consumer merchandise retail venture, manufacturing and
information technology.
• The group operates 4,799 establishments under the Sahara India umbrella.
• 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.
 BACKGROUND OF THE CASE
• The case all began when a CA in Indore sent a note to the National
Housing Bank, requesting the bank to look into the housing bonds
issued by 2 Sahara group companies, Sahara India Real Estate Corp.
(SIREC) and Sahara Housing Investment Corp. (SHIC), having there
headquarters in Lucknow. He found that the bonds that had been
issued to a large number of investors had not been issued as per the
rules.
• The National Housing Bank did not have the wherewithal to
investigate the allegation, so it forwarded the letter to the SEBI, the
capital market regulator.
• Mr. Abraham who was the then Director of SEBI was reviewing the
Draft Red Herring Prospectus (DRHP) to raise equity for real estate
company Sahara Prime City Ltd. through an initial public offering
(IPO).The DRHP disclosed details of 2 associate group companies
(SIREC and SHIC) that were raising huge amounts of money from the
public through OFCD.
WHAT IS A DEBENTURE ?
A debenture is a medium to long term debt instruments used by large
companies to borrow money, at a fixed rate of interest.
There are two types of debentures  Convertible  Non convertible
• WHAT IS CONVERTIBLE DEBENTURES ?
• Convertible debentures, which are convertible bonds or bonds that
can be converted into equity shares of issuing company after a
predetermined period of time.
• When debentures is converted into shares, it means debt holder
becomes an equity holder.
• WHAT IS OFCD ?
• The Optionally Fully Convertible Debenture is a kind of debenture
which can be converted into shares at the expiry of a certain period at
a predetermined price, if the debt holder (investor) wishes to do so.
• OFCD are hybrid in nature and as defined u/s 2(19A) of companies
act, 1956 “hybrid” means any security which has the character of
more than one type of security, including their derivatives
• DETAILS OF THE CASE
• Sahara India has 2 companies SIRECL and SHICL that issued OFCD
through subscriptions from investors
• Raised 24000 crore from investors
• The purpose of issue was to carry out infrastructural activities namely,
constructing the bridges modernizing or setting up of airports, rail
system or any other projects which may be allotted to company
• As per sahara issue of OFCDs was private placement.
• However, amount collected from about 2 to 2.5 crore investors in the
disguise of a private placement.
• Later sahara prime city ltd intended to raise funds through listing of
its shares filed prospectus
• SEBI received the complaint from CA Roshan Lal from Indore on 4th
Jan 2010 that, sahara is an unlisted company and collecting huge
money from public issue by means of OFCD and there existed a
pending dispute between the income tax department and sahara for
collecting public money by the way of OFCD.
• The whole time member of SEBI Mr. K.M.Abraham (IAS officer)
passed an order dated 23rd June, 2011 directing the 2 companies to
refund the money so collected to the investors.
• Also restrained the promoters of the 2 companies SIRECL and SHICL
including Mr. Subrata Roy from accessing the securities market till
further orders.
• Sahara then preferred an appeal before Securities Appellate
Tribunal(SAT) against the order.
• SAT confirmed and maintained the order of SEBI by an order dated
18th October, 2011.
• Subsequently sahara filed an appeal before the supreme court of
India against SAT order.
• Supreme court directed refund of Rs 24000 crore to an estimated 2
to 2.5 crore investors.
• But suddenly sahara said it had repaid about 90% of the money over
the last one year.
• Supreme court ordered the sahara to give detailed information about
the investors to SEBI for verification
• Sahara group dispatched 127 truck loads to SEBIs headquarters
• Supreme court appointed one of its retired judges Justice
B.N.Aggarwal to oversee SEBIs action in this regard.
• SAHARA’S CONTENTION
• Issue of OFCD is legal.
• Issue of OFCD’s is not a public issue.
• OFCD are shares nor debentures but hybrid class.
• OFCD’s are hybrid instruments which cannot be listed.
• Serious error is committed by SEBI.
• No statutory requirement to list OFCD
• SEBI’S CONTENTION
• OFCD was public issue.
• OFCD’s were transferable securities
• Violation of sec 67 of companies act
• Did not submit balance sheet and P&L account to the concerned ROC
• SUPREME COURT CONTENTION
• Aggrieved sahara appealed to SAT
• Passed order in favour of SEBI
• Aggrieved sahara again moved towards supreme court
• Finally , supreme court passed the judgment in favor of SEBI
• Ordered sahara to repay the Rs 24000 crore with 15% interest
• Supreme court allowed sahara to pay whole amount in 3 instalments
• 120 crore immediately, 10000 crore in January 2013 and remaining
amount by February 2013
• But by February they failed to pay second and third instalments.
• SEBI after getting permission from supreme court froze all bank and
demat accounts and attaches properties of chief Subrata Roy and
other 2 directors.
• On October 28, 2013, supreme court directed sahara to submit title
deeds of properties worth Rs 20000 crore to SEBI.
• Later, supreme court banned Subrata Roy and 2 directors (Ravi
Shankar Dhube and Ashok Roy Choudry) from leaving the country.
• February 20, 2014, supreme court directed Subrata Roy to appear
before it on February 26
• But Subrata Roy did not appear, then on 26 supreme court issued
non-bail-able arrest warrant against Subrata Roy and other 2
directors.
• Subrata Roy surrendered before the Lucknow police on February 28.
• Subrata Roy and other 2 directors Ravi Shankar Dhube and Ashok Roy
Choudry were sent to thihar jail.
• On 2 march, 2014 they got bail by paying 1000 crore
• And by 2017 almost all the money were paid to SEBI by sahara.

• Sahara Chief Subrata Roy was today asked by the Supreme Court to
pay Rs. 600 crore by February if he wants to stay out of jail.

• Mr Roy, who is out on parole since his mother's death in May this year,
has been asked to surrender if he cannot pay this money by February 6.
His parole was also extended.
• The Sahara group has been engaged in a long legal battle with capital market
regulator Sebi over the refund of Rs. 24,000 crore to investors. Sahara has paid
around Rs. 11,000 crore and submitted a plan saying it will pay the rest of the
money in two and a half years.

• "You had said earlier you have properties worth Rs. 1,87,000 properties. But
those don't come to your help for repaying Rs. 20,000 crores," the court said to
Sahara.
• Senior lawyer Kapil Sibal, representing Sahara, said the state of the market is
bad. The Supreme Court, however, shot back, "Market business is a matter of
perception. For some it is good, for some it is bad."
• PREVENTION
• Registrar of Companies sanctioned request of raising 20,000 crores
when both companies had capital less than 50 lakh rupees. Legal
check on such an understanding is required.
• Know Your Customer compliance shall help in avoiding fictitious
investors as well.
• CONCLUSION
• Adverse effect on reputation go the country
• Adverse effect on economy
• Corruption and misuse of power
• Lack of transparency creating speculation
• Effective and strict judicial decision.