Subrata Roy: The Rs.73,000 crore man Sahara supremo Subrata Roys firms barred from raising funds Sandeep Bamzai New Delhi, October 21, 2011 | UPDATED 20:44 IST Sahara supremo Subrata RoyRecently, the world woke up to a stunning declaration. A newspaper advertisement from Sahara India Financial Corporation (SIFCL) announced that the company had amassed deposits of Rs.73,000 crore till June 2011. It is unusually large for a non-banking institution and perhaps explains how Sahara supremo Subrata Roy has been able to finance big ticket acquisitions, most recently of a 42.5 per cent stake in the Vijay Mallya-controlled Formula One team for Rs.500 crore. Late last year, Roy bought Londons iconic hotel, Grosvenor House, for Rs.3,250 crore. Says Roy: Money is not an issue, I can repay tomorrow at 10 a.m. The Sahara family is intrinsically strong, it will overcome all the imponderables strewn in its path. There are two immediate imponderables. Sahara Group has promised to repay its liabilities of Rs.11,500 crore by December 31, 2011, four years ahead of a June 30, 2015, deadline set by the Reserve Bank of India (RBI). There is another imponderable. In a stinging order on October 10, the Securities Appellate Tribunal told two of Roys companies, Sahara Commodity Services Corporation Limited (SCSCL), formerly Sahara India Real Estate Corporation Limited) and Sahara Housing Investment Corporation (SHICL), that they would have to return Rs.24,029 crore raised in optionally fully convertible debentures (OFCDS) in the next six weeks. This takes the total amount Roy is expected to return by December 31 to more than Rs.35,000 crore. That is if Roy decides to comply. He has decided to take the battle against the SAT order to the Supreme Court but remains committed to return the amount required of him by the RBI. Attacked on Two Fronts SEBI vs Sahara Nov 24,2010 SEBI posts order on its website barring two Sahara Group companies,Sahara India Real Estate Corporation and Sahara Housing Investment Corporation, from raising funds. Nov 26 Sahara publishes advertisement in response to order saying it is astonished by irresponsible and wrongful ex parte order. Nov 29 Sahara moves Lucknow bench of Allahabad High Court. Dec 13 Bench stays SEBI order. Jan 4, 2011 In response to a petition filed by SEBI, SC asks Sahara to give details of its optionally fully convertible debenture (OFCD) investors. Jan 7 SEBI puts up public notice in OFCD matter on its website. Jan 10 SEBI publishes advertisement informing investors it will not be able to redress grievance on OFCDs. Jan 18 RBI publishes advertisement saying that it doesnt guarantee repayment of deposits accepted by any company in the Sahara Group. March 18 As per SC directions,Sahara gives details of OFCD investors to SEBI. April 7 Stay order vacated by HC. June 23 SEBI orders Sahara to refund money collected through OFCDs with 15 per cent interest. July 15 SC stays SEBI order on refunds to depositors, directs the Securities Appellate Tribunal (SAT) to decide the question of OFCDs. RBI vs SAHARA June 4, 2008 RBI prohibits Sahara India Financial Corporation Ltd (SIFCL) from accepting deposits. June 4 Sahara says order unsound. June 5 Sahara moves Allahabad High Court and gets a stay against RBI. June 6 RBI moves Supreme Court challenging stay. June 9 SC sets aside June 4 RBI order. June 12 Senior Sahara officials present case before RBI. June 17 Final order passed by RBI. Ban on SIFCL revoked. The SAT order comes after SEBIs finding in November, 2010, indicting two Sahara Group firms-for raising funds from the public through the OFCD scheme without conforming to prudent disclosure and other investor protection norms, which govern such public issues. Roy is defiant. He says: The Sahara Group has assets to the tune of Rs.109,224 crore as of June 30, 2010. These include liquid investments, cash and bank balance, fixed deposits (Rs.19,456 crore); sundry debtors, loans and advances, tax refunds, other current assets (Rs.7,629 crore), land, construction, work in progress, finished stock and fixed assets (Rs.82,139 crore). Repaying the money is not an issue. The issue is that you cannot tar and treat two different entities in two different ways. The sat move is bereft of logic. The dragnet around Roys secretive world seems to be closing in. Caught in a pincer with a series of regulators from RBI to SEBI to Enforcement Directorate to the Ministry of Corporate Affairs (MCA) gunning for him, he is fighting back, planning for the future. A liveried butler waits outside a private lift in Sahara Star, a 223-room hotel Roy acquired in Mumbai in 2002 for Rs.115 crore. Swiping a coded card, one is ushered into his white-themed sanctum sanctorum, which provides an expansive view of the airport. The setting is perfect but Roys troubles remain. In June 2008, RBI asked SIFCL not to accept fresh deposits and wind up the Rs.20,000 crore public deposits it had in seven years. In a blanket ban, RBI stopped the company from accepting fresh deposits maturing beyond 2011. As per the order, by June 30, 2011, the firm should not have had a deposit liability of more than Rs.9,000 crore. The fact sheet published by Sahara India on July 11, 2008, showed SIFCL had mobilised Rs.59,076.26 crore in deposits (including interest) since its inception in 1987 and paid back its depositors Rs.41,563.06 crore (including interest) as on June 30, 2008. The liability to depositors, including interest, was Rs.17,640 crore at the end of March 2009, according to data compiled by Centre for Monitoring Indian Economy. Its total liabilities stood at Rs.13,235 crore at the end of March 2010. Data after March 2010 is not available, but sources close to RBI said liabilities had come down to between Rs.9,000 crore and Rs.11,500 crore. Payment, says Roy, needs to be done systematically, so we will do so as per a planned schedule which has been conveyed to the Sahara headquarters in Lucknow. We run a very tight ship, headquarters has to advise 3,800 branches and that is how payments converge (see interview). Cash may be the least of his concerns but the Governments attempts to stifle his plans to raise capital in the wake of the November 2010 SEBI interim order are. In SHICL, one of two group firms affected by the order, he has current assets, cash and bank balance amounting to Rs.725 crore while in SCSCL, he has current assets, cash and bank balance totalling Rs.4,266 crore. The Sahara Group has paid income and service taxes amounting to Rs.2,757 crore over the last 10 years, making it a committed tax-paying entity. What prompted the RBI crackdown? Its a tangled skein. SIFCL, as an RNBC, accepted public money in the form of daily deposits, recurring deposits and fixed deposits. RBI and SEBI cracked down on SIFCL (see timeline) because they sensed that it was allegedly laundering black money. A top banker who did not wish to be identified says, How is it that Subrata Roy was allowed to run a parabanking organisation for so many years without so much as a by your leave and then suddenly in one fell swoop everything changed for him? There is a sense of victimisation here, but Im not at liberty to speculate on the whys and wherefores of the action. Advertisement issued by a Sahara Group company that appeared on August 30, 2011.After the May 2004 elections when UPA came to power, a top Government functionary and now governor of a prominent state was asked to put together a dossier on Roy and Saharas activities. The dossier was comprehensive and it attacked the heart of Roys empire-his vast parabanking operation, the source of his unlimited cash flow. In its note, RBI directed that Sahara could only invest in Government securities and completely secured PSU bank deposits. The idea was to stop Sahara from conducting business. So, what galvanised the Government into taking such action? When contacted by india today, RBI refused to comment, but it did say it was examining SIFCLs advertisement. If Saharas targeting by RBI was the first blow, then SEBIs punitive action against Roy (see timeline) became the second. Sahara Prime City Limited, a Sahara Group company intending to go for an IPO, had filed information about its group companies to SEBI in its draft red herring prospectus on September 30, 2009. The regulator, upon noticing inadequacies in disclosures, sought information about some Sahara companies as per norms. In the war of words that ensued, Additional Solicitor General Mohan Parasaran, in his opinion on the matter, stated, In my considered view, SEBI has no jurisdiction over unlisted companies such as the Sahara Group which are not intending to get themselves listed. Parasarans opinion was sought by Sahara to drive home the point that SEBI did not have any jurisdiction in the matter as the company was under the regulatory ambit of the MCA and the Registrar of Companies. When SEBI insisted on immediate compliance, Sahara, through its letter dated May 31, 2010, sent a representation to MCA asking it to clarify whether the company was governed by MCA or SEBI. On June 17, 2010, MCA apprised Sahara that the matter was being examined by the ministry. It then referred the matter to the Ministry of Law and Justice where Parasaran in his capacity as the Governments legal officer observed that SEBI had no locus standi over unlisted companies. The law ministry accorded its concurrence to this view, approved by the then law secretary as well as then law minister M. Veerappa Moily on February 8, 2011. But there was no stopping SEBI. In November 2010, in an interim order, it issued show-cause notices to Sahara Group companies SCSCL and SHICL, which restrained them from mobilising funds from the public under the Red Herring Prospectus dated March 12, 2008, and October 6, 2009, respectively, filed with the Registrar of Companies. They did so under Section 60B of the Companies Act, 1956, which was duly registered by the registrar concerned. They were also directed not to offer their equity shares/OFCDS or any other securities to the public. Further, SEBI directed that persons who were named as promoters-Roy, Vandana Bhargava, Ravi Shankar Dubey and Ashok Roy Choudhary-be prohibited from issuing a prospectus or any other offer document or issue an advertisement for soliciting money from the public. While referring the matter for adjudication by SAT on July 15, 2011, the Supreme Court directed that MCA be made a party. sat directed the respondents to file their counter-affidavits. Accordingly, MCA filed its counter-affidavits on August 26, 2011, and August 30, 2011, to the Memo of Appeal by Sahara. However, in its counter-affidavit, MCA did an about-turn, contending that SEBI had jurisdiction in the matter, while ignoring the opinion of the law ministry. It also deviated from its own previous stand in the Lucknow High Court in the matter. It is then that Sahara made a fresh representation to MCA on August 30, 2011. Moily, now corporate affairs minister, in a note on September 2, 2011, says, It is for the secretary, company affairs, to consider at this stage whether to refer this matter again to law ministry. What was probably the worst blow came from the Supreme Court which ruled, We are of the view that on the question of OFCD, it requires a decision of SEBI. Let SEBI hear and pass the order. Sahara had to file a special leave petition in the apex court against an order of the Lucknow High Court, refusing to restore the interim order of stay in spite of the Sahara Group having furnished informationto the market regulator. The bench headed by Chief Justice S.H. Kapadia then directed Sahara Group to approach sat against SEBI. With sat having spoken, the joust returns to the apex court. Earlier, on August 26, 2011, sat in its order in the sihcl versus SEBI case stated, The OFCD issued by Sahara was offered to the public... and therefore within the jurisdiction of SEBI. An offer made to less than 50 persons is a private placement. Interestingly, on April 28, 2010, in a parliamentary response, the Government had said, Privately placed debentures are issued as per the Companies Act, 1956, and come under the purview of the MCA . Clearly, two sets of rules for two companies. Roy and Mallya(right) are joint owners ofthe Sahara Force India Formula One team.FORCE SAHARA Subrata Roy and Vijay Mallya decide to team up just in time for Indias maiden F1. Vijay Mallya and Subrata Roy are quick to acknowledge that Bengali played a crucial part in the rebadging of the Force India Formula 1 team. The $100 million investment by Sahara in the rechristened Sahara Force India will be crucial to the teams fortunes. With an annual cash burn of anywhere between $140 million and $293 million (in the case of Ferrari), fresh money flows are always welcome. Says Mallya, This is a seriously cash-intensive business. Luckily, Federation Internationale de lAutomobile (FIA) has something called resource restriction which prevents crazy spending. Roy and Mallya complement each other. While both are flamboyant in their business style, one is reclusive and the other outgoing. Both have a phalanx of sporting interests and wear their jingoism on their sleeve. In many ways, this goes beyond the Grosvenor House acquisition; it enables us to fly the Indian flag in one of the most televised and watched sporting events in the world, says Roy. When SEBI was contacted, silence greeted india today. All that the regulator was willing to provide was a copy of its order against Sahara. A market intermediary averred, Subrata Roy is paying the price for his flamboyance and his friendships, but perhaps there is something beyond the apparent here because the Central Government agencies are clearly going after his ability to raise capital. It was only in March this year that Roy gave a lecture at Harvard on self-motivation. Self-motivation remains his credo as he fights the toughest battle of his life-the one to stay afloat. Read more at: indiatoday.intoday.in/story/sahara-chief-subrata-roy-companies-vijay-mallya-formula-one-team/1/157061.html
Posted on: Wed, 09 Apr 2014 15:12:31 +0000
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