If Subrata Roy today finds himself in police custody for failing to turn up in the Supreme Court on 26 February as ordered, many people who haven’t been following the case closely may be wondering what the fuss is all about. They are right to wonder. After all, Sahara has been one of the most ubiquitous brands on the Indian firmament, sponsoring the cricket team, hobnobbing with top Bollywood stars and top politicians, et al. The man also wraps himself in the flag of nationalism and claims to be a well-wisher of Bharat Mata. And even in the matter of the fight it has been having with Sebi, which ordered Roy to return Rs 24,000-and-odd crore to depositors in optionally fully convertible debentures (OFCDs) issued by two of his companies,
Roy has been telling anyone who
will listen that he has indeed repaid most of the money, and the balance is
with Sebi – paid through a cheque for Rs 5,120 crore. Even today, the
Saharashree is quoted by The Economic Times as saying: "The fact is the
company has repaid all liabilities of OFCDs except around Rs 2,000 crore,”
adding, if he still owed people money “then in last 16-17 months there would
have been at least one complaint against Sahara. Had there been non-payment
there would have been bloodbaths and suicides.” This is true.
If investors had really been
cheated of their money or left unpaid amidst all this brouhaha, surely we would
have heard a rising crescendo of accusations from the aam aadmi? So what’s the
real issue here? The answer, to put is simply, is really about the colour of
the money. Was Sahara’s money laundered stuff, or the hard-earned savings of
small retail investors? In the Supreme Court, Sahara claimed that as in August
2011, it owed investors Rs 24,029 crore to around 2.96 crore investors. Roy has
claimed innocence. PTI Is this believable?
This question can only be
answered by asking two further questions: Did Sahara really have that many
investors? And if this number is not credible, who were the real investors? And
even assuming Sahara paid off all the claimed investors, would this have been
physically possible?
Let’s start with numbers. India
has around 25 crore households. Sahara had 2.96 crore investors. This means 8.5
percent of Indian households were Sahara investors. We know that Sahara has the
bulk of its presence in Uttar Pradesh – which has a population of around 20
crore – or four crore households. Did Sahara really have the equivalent of
three-quarters of Uttar Pradesh’s households as its investors? The possibility
that Sahara really had 2.96 crore investors as in August 2011 (it had claimed
3.08 crore in April 2011) is very low.
Now, let’s take the opposite
case: that Sahara really did have 2.96 crore investors in August 2011. When the
Supreme Court judgment came the following year in 31 August 2012, Sahara did
not claim that investors were being paid off regularly – in fact, no repayments
were due under the terms of the OFCDs issued by the two companies, Sahara India
Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC).
If we assume that the payments
began only after the judgement, which asked that Rs 24,029 crore should be paid
in 90 days, it means the bulk of the repayments happened over three months,
since in December 2012 the group claimed it had only Rs 2,620 crore left
unpaid. (It is interesting that Roy now claims only around Rs 2,000 is unpaid,
when he claimed Rs 2,620 crore was left to be paid in full-age ads in December
2012. He is not supposed to pay anything except through Sebi, but that is
another story).
However, the fact is even under
the terms of the OFCDs, no money was repayable to investors till after 2013-14.
Sahara offered investors three types of bonds through SIREC - the Abode 10-year
bond, where early redemptions were possible only after five years; the Real
Estate bonds of five years, where no early redemptions were possible; and the
Nirmaan four-year bond, where redemptions were possible after 18 months.
The bulk of the investors opted
for the first two bonds - Abode and Real Estate, where no redemptions were
possible for five years. Since the SIREC bonds were issued only from 2008 (SHIC
began only towards end-2009), how is it possible that such a large bulk of
OFCDs were refunded to investors when they were not even due?
As Firstbiz noted earlier, a
majority of SIREC's investors (13.036 million) preferred to invest in Real
Estate bonds worth Rs 7,120 crore. And Abode bonds came in for second
preference, as 7.06 million invested in them, but the amount invested was
larger at Rs 8,411 crore. Nirmaan bonds had a small following of 13.06 lakh
investors with an investment of Rs 1,959 crore.
The big question is this: how
can Sahara claim that it repaid nine-tenths of the money collected (only Rs
2,620 crore left out of Rs 24,029 crore or more) when the two biggest OFCDs
issued by SIREC did not have any clause for premature encashment before five
years - which meant only in 2013 or later? There was, of course, a provision
for premature refunds in case of deaths, but Sahara is not claiming that most
of its investors had passed away during the term of the OFCDs. The claim that
the bulk of the 2.96 crore investors on its records in August 2011 were repaid
is simply not credible.
So, there is a strong
possibility that most of Sahara’s investors were of the phantom kind, though
only a Supreme Court-directed probe can establish this beyond doubt. Suspicion
that Sahara may have had many phantom investors was raised both by KM Abraham,
the Sebi wholetime director who nailed Sahara in an order dated 23 June 2001, and
the final Supreme Court judgment of 2012.
According to Abraham, SIREC did
not even have access to its own OFCD investors and needed professional
accounting firms for help. He said: "If the identity of the investors and
addresses themselves are not readily available with the firm - and the
compilation and authentication of the data across the thousands of service
centres will have to, as admitted by SIREC, require the support of professional
accounting firms at this stage, then I wonder what real safeguards can possibly
be there in place for investor protection?"
Abraham's order made references
to his own random check on four names on Sahara's OFCD subscriber list. He
found two of them non-existent. But the Supreme Court, after doing its own
cursory fact-checking, raised doubts over Sahara's record-keeping.
Justice JS Khehar, one of the
members of the two-judge bench that delivered the 31 August 2012 Sahara
verdict, raised doubts after checking just one detail of one about Sahara's
alleged OFCD investors, Justice Khehar picked so many holes - about the name
(Kalawati), address and other details - that he was forced to conclude
negatively. "There is no other option but to record that the impression
emerging from the analysis of the single entry extracted above is that the same
seems totally unrealistic, and may well be, fictitious, concocted and made
up".
Sebi, after it received the
records from Sahara after the judgement, put out ads and sent letters to the
addresses mentioned. In March 2013, after an initial effort, it found that only
1 percent of the investors responded. When it’s your money involved, even
assuming some investors had changed their addresses, would you not expect a
better response?
So, either the documentation is
wrong or substantial numbers of Sahara’s investors don’t exist. This leaves us
with the last question: if Sahara didn’t have that many investors, whose money
was it anyway? The fact that almost no politician has raised a fuss all this
while, and the fact that the bulk of the Rs 24,000 crore was quickly
"returned," tells its own story.
Whom can you return Rs 22,000
crore in three months? 2.96 crore small investors or a few politicians? Your
guess is as good as mine.
(This article was originally published on Firstbiz)
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